Global Crude Supply Leads to Sharp Price Declines

on January 12, 2015 at 2:00 PM

U.S. Government Releases Over $5 Billion In Aid For Home Heating Bills

Benchmark crude oil price declines may threaten domestic producers’ continued production growth.

On January 5, 2015, the Energy Information Administration (EIA) released a report — drawing from the S&P Goldman Sachs Commodity Index (GSCI) — showing that energy commodity prices recorded the largest declines in 2014 compared to non-energy commodities.  Notably, the GSCI’s energy component showed a 43 percent decline since the start of 2014.  The GSCI energy component breakdown is:


S&P GSCI Index 2014 (EIA)

  •  – ~67 percent: The two benchmark crude oils (West Texas Intermediate and Brent)
  •  – ~29 percent: Petroleum-based products (gasoline, heating oil, and gasoil)
  •  – ~4 percent: Natural gas


By comparison, S&P GSCI indices over the same period for precious metals, industrial metals, and grains declined by 6 percent, 8 percent, and 8 percent, respectively.

Crude oil prices were relatively stable during the first eight months of 2014, then showed a steep decline during the last four months of 2014.  Crude prices recording the largest drops in November and December, ending the year on 5-year lows (below $60 per barrel).

Global supply outpacing demand in 2014 — which grew by about 0.5 million barrels per day (bbl/d) —  was a key driver for the crude price decline, which was exacerbated in November with the Organization of the Petroleum Exporting Countries (OPEC) announcing its intention to maintain production targets.  EIA projects this trend to grow in the first half of 2015, with global production exceeding demand by about 0.8 million bbl/d, then scaling back to achieve an annual level of 0.4 to 0.5 million bbl/d inventory build.

Domestic crude production growth nearing record monthly highs also contributes to the growing global supply.  However, the steep price decline in recent months leading to tightening margins may impact domestic exploration and production investments in 2015.  If sustained, the price declines will force many producers to focus on their highest-producing wells, even in the oil-rich regions of Texas’ Permian Basin and North Dakota’s Bakken. UScrudeproduction

The low domestic crude prices have bolstered a continued push for crude oil exports, which is currently banned by law. This will be a key energy issue with the Republican majority, as Chairwoman Murkowski (R-AK) of Energy and Natural Resources has said repeatedly that it will be a top priority for her committee.  Also, legislation similar to H.R. 5814 — introduced late in the 113th congress and sponsored by Rep. Barton (R-TX) — to lift the crude export ban will likely resurface this year.  Many consumer groups continue to oppose the prospect of U.S. oil exports, saying a lift of the ban could drive domestic prices higher.

Originally published by EnerKnol.

EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.