ncern increases about possible effects on budding investment in the country’s shale fields
Energy companies in the country are starting to feel a direct hit from oil prices that have hit a downward spiral that shows no sign of ending in the near future amid increasing fears that the trend could hurt the country’s efforts to develop its emerging shale resources.
Stocks in Buenos Aires and New York took a tumble yesterday as international oil prices nosedived an additional 10 percent a day after the Organization of Petroleum Exporting Countries (OPEC) decided to not cut output despite the persistent downward price pressure.
Prices for light sweet crude oil (WTI) broke through the US$70 floor in New York, reaching its lowest price since 2010 at US$66.15 per barrel. In London, barrels of Brent broke through the US$70 floor before ending the day at US$72.32.
The drop in prices was an ongoing response by the OPEC to maintain its 30 million barrel daily output despite the downward pressure on prices. The sell-off since OPEC’s decision amounts to about US$67 billion in lost market value, according to Reuters estimates.The slide could deepen when traders and investors return after Thursday’s US holiday and Friday’s shortened session.
“There’s a notion that yesterday’s selling was overdone, but not everyone is fully back to work yet after Thanksgiving,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “WTI could certainly be down a couple of dollars more next week, and test newer lows from there.”
The Merval index of major stocks in Buenos Aires fell 3.1 percent in trading yesterday as stocks linked to the oil and gas industry closed the day as much as 7 percent lower. Petrobras Brasil led the downward charge with a plunge of 7.4 percent. Edenor and YPF joined the seloffs with declines of 4.1 percent and 4.2 percent, respectively.
The volume of trading yesteday was lower than usual in Buenos Aires as traders expected prices to rebound slightly next week once markets in the United States return to normal business hours following the Thanksgiving holiday.
Nonetheless, Argentine stocks traded in New York suffered losses as Edenor lost 8.5 percent of its value, Tenaris — which produces seamless piping used in the oil industry and part of the Techint industrial group — plunged 8.3 percent, Banco Macro declined 5.2 percent, Petrobras lost 3.9 percent and YPF declined 5.3 percent.
The energy sector as a whole fell 6.4 percent as a result of the poor results for petroleum companies such as Chevron and Exxon Mobil, which fell 5.4 and 4.2 percent respectively.
Analysts said yesterday that it is possuble that crude prices could continue to drop next week.
Chevron and YPF
The downward pressure on Chevron and YPF is significant in that they are partners in the first significant joint venture in the Vaca Muerta shale oil and gas formation in Patagonia.
YPF CEO Miguel Galuccio told a Congressional committee last month that oil prices of about US$84 or US$85 per barrel were “just about enough to be at break-even, or perhaps a bit better.” The comments were made as he promoted a reformed Hydrocarbon Law that is intend to generate to conditions for increased international investment in the country’s capital-intensive shale gas and shale oil fields.
YPF has significantly higher costs than its US counterparts to develop unconventional resources for reasons of scale, geographical differences and technical expertise, averaging at about US$7 million per well in comparison to the approximately US$2 million that it costs in the massive shale areas of the United States.
The YPF CEO did not give a definitive price point for the exploration in shale to turn a profit, highlighting once again the need for ramped up production — which will only be possible after an inflow of capital to meet the up to US$200 billion in investments that is estimated to be required.
Chevron, which is partnering with YPF in Vaca Muerta in a project that will likely “not have positive cashflow for the next six years.”
Interest from international energy companies such as Petronas of Malaysia and Pemex of Mexico are sensitive to international oil prices and there are worries that the international scenario coud end up hurting the nascent industry’s development.
On the back of the news the peso weakened by 0.06 percent, roughly half a cent, against the US dollar in the official currency exchange market and the informal “blue” dollar continued its downard trend, weakening by another 0.76 percent to 13 pesos per US dollar.
The US dollar strengthened against international currencies following the decision by the Organization of Petroleum Exporting Countries on Thursday, but it commodity currencies like the Norwegian crown — which are closely tied to fluctuating oil prices — fell to five-year lows against the greenback and the euro.
Euro zone government bond yields held near record lows as declining energy prices cut into consumer price growth across the bloc and raised the chances of more stimulus from the European Central Bank on increased deflation fears.
Herald staff with Reuters