As oil plunges, energy companies cut jobs, postpone projects

However, falling oil prices reduce the profitability of oil extraction which, in turn, impacts drilling activity. It has to stop somewhere, right? A rapid appreciation of the USA dollar may send Brent, the globaloil benchmark, to as low as $20 a barrel, Morgan Stanley said.

“All you can do is forecast direction, and the direction of price is still down”, says Larry Goldstein of the Energy Policy Research Foundation, who predicted a decline in oil in 2014.

Prices pulled back slightly at the end of trade to end 97 cents lower at $30.44 a barrel.

The price has fallen so rapidly over the last two days, however, that it has actually breached the lower border of the channel in what could be a sign that it will accelerate even lower.

Oil saw renewed pressure as the dollar rose against rival currencies (http://www.marketwatch.com/story/dollar-rises-as-china-intervenes-to-support-the-yuan-2016-01-12).

Nigeria, Africa’s largest economy and foremost oil producer, has been ravaged by collapsing oil prices because crude accounts for 90 percent of the nation’s export earnings and 70 percent of overall government revenue.

“China is an instigator of the recent selloff, as markets worry about China’s oil demand for the year”, Daniel Hynes, senior commodity strategist at ANZ, said in a telephone interview.

The national average gasoline price Tuesday was $1.956 a gallon but the average price in California was $2.847 a gallon, the Auto Club said.

US crude stockpiles probably rose 2 million barrels last week, a Bloomberg survey showed before a report from the Energy Information Administration Wednesday.

Companies like BP, which said Tuesday it is cutting 4,000 jobs, are slimming down to cope with the slump in oil, whose price has plummeted to its lowest level in 12 years and is not expected to recover significantly for months, possibly years.

Vice President of Crude Oil Marketing at TexLa Energy Products, Gary Moore said, “I think we’re going to see more bankruptcies and more consolidation of assets”. Other major oil producers and exporters in the Middle East and elsewhere have declined to reduce their own output in an attempt to push prices back up.

In Toronto, the S&P/TSX Capped Energy Index fell more than a half a percentage point, taking its year-to-date loss to more than 11 per cent, as oil and gas company shares continued their free fall.

Wittner said he expects global demand growth this year to slow to 1.2 million barrels per day after growth of 1.8 million bpd in 2015. Economists at the Federal Reserve Bank of Dallas believe excess inventories won’t begin falling until 2017. The latest plunge has also deepened the gap between USA states such as Alaska, Oklahoma, North Dakota, Louisiana and New Mexico, which depend on production taxes to fund education and health care and the rest of the country, which has benefited from low gasoline prices.

Oil has been dragged lower by a glut, China’s weakening economy and stock market turmoil, as well as the strong dollar, which makes it more expensive for those using other currencies to buy oil. Accordingly, the AUD, oil, and copper retraced levels prior to yesterday’s risk rout.