Brent rises to $53 as low prices force cuts in oil production

Low price of oil makes it too costly for large oil projects • Chevron chief says capital spending cuts and inevitable decline of output will push prices higher again with rising global demand

Oil producing giants like Saudi Arabia have kept oil output high, pushing prices so low that American companies are cutting capital spending budgets for 2015
Oil producing giants like Saudi Arabia have kept oil output high, pushing prices so low that American companies are cutting capital spending budgets for 2015

Oil prices suddenly spiked more than 8% on Friday yesterday to $53 for Brent crude, the biggest one-day price movement for crude in nearly three years, according to the New York Times.

The sudden move upwards, after oil fell by over 50% down to almost $44 this week, apparently came after American rig counts dropped by 7% or 94 – leaving 1,223 rigs in operation, and fears that another 300 rigs will be decommissioned in the next months.

The sharp rise came in the final 45 minutes of the trading day, with WTI crude rising to almost $49, and Brent to over $50 – but way away from the psychological $100 level.

Originally, prices fell when a glut of oil was prompted by Saudi Arabia challenging American shale oil production, with the Gulf nation keeping oil output high.

Chevron, the US’s second-largest oil and gas producer after Exxon Mobil, said yesterday that it was dropping its 2015 exploration and production budget by 13%. As much as $100 billion in petroleum investments now could be cut worldwide this year.

In the Financial Times, Chevron CEO John Watson said that the lower the price of crude, the fewer oil projects would be sustainable.

Watson said that given fiscal terms and production costs around the world, “I don’t see many investments that are going to go [ahead]” at current prices.

Watson told analysts with these capital spending cuts and the inevitable decline of output that would follow, the rising global demand would work to push oil prices higher again. “My basic view is the world needs energy, and the prices have to support the activity,” he said.