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Oil drops below $46

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By Ed Crooks: September 16, 2016

The more positive mood in crude prices last week always looked fragile, based as it was on nebulous talk about a possible Opec production freeze and volatile US data that were heavily influenced by storm Hermine at the beginning of the month.

That vulnerability was exposed this week. Brent crude, which briefly hit $50 per barrel on September 8, dropped below $46 on Friday.

As prices fell, analysts took differing views on the outlook. Bloomberg focused on the chance of a rebound, as markets started to focus on the growing risk of shortages. On the other hand, the FT’s Neil Hume pointed out that there was still more crude production capacity set to come on stream as a result of the investment binge of 2011-14 – not least the much delayed Kashagan field in Kazakhstan – meaning that prices could remain depressed in the short term.

The two viewpoints are complementary rather than contradictory: the big question is how soon the supply tightening highlighted by Bloomberg will start to outweigh the short-term production growth still coming into the market. The IEA argued this week that the global oil glut would last into 2017, endorsing a similar assessment from Opec.

In a sign of rising confidence in the American oil and gas industry, Vantage Energy, a Colorado-based gas producer, has filed plans to be the first IPO of a US exploration and production company since crude prices started to slide in 2014. Investor interest is rising in spite of big losses for some lenders to the industry, although the enthusiasm is still generally focused on a small number of areas, in particular the Permian Basin of west Texas.

Donald Trump, the Republican presidential candidate, has often suggested that the US should “take the oil” in Iraq. In the Washington Post, Emily Meierding, an assistant professor at the Naval Postgraduate School in California, examined whether that idea made sense.

Quote of the week

“A Trump administration will lift restrictions on all sources of American energy production… We will streamline the permitting process for all energy infrastructure projects, which are desperately needed, including the billions of dollars of projects being held up by President Obama” – Donald Trump in his economic policy speech in New York on Thursday.

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