How low can oil prices go is the question asked by Capital Economics.
With oil prices languishing below US$30 a barrel, the forecasting unit is suggesting that additional declined, perhaps to a level as low as US$20 per barrel, is plausible.
“However, the crucial point is that oil would be unlikely to remain this cheap for very long,” Capital Economics said, so fill up your tanks everybody.
Capital Economics notes that the discrepancy between the main US and European benchmarks, which has been as wide as US$25 a barrel, has now been largely eliminated, while the OPEC basket price is also now close to both.
However, prices of long-term supply contracts are nowhere near as low as the spot prices, and according to Capital Economics, what the price of long-term contracts tells us is that the oil price is projected to recover to around US$50 a barrel by the end of the decade.
As is typical of economists, however, the agency also notes that the current price of around US$30 is still some way above the short-run costs of production of key Middle East suppliers and the US, which underpins the case of the oil price bears.
“However, we would not go as far as some commentators who have concluded that prices could drop below $10, which would still be above the lowest costs in Saudi Arabia. This is misleading, because it would be impossible for Saudi Arabia to supply the whole world (even if it were willing to do so at such low prices given the country’s fiscal constraints). Instead, it makes more sense to focus on the US, which is probably now the marginal producer and where supply cuts are likely to accelerate if prices drop below $25.”
Watch the production and stock data from the US is the advice. The further that prices fall in the near term, the bigger the supply cuts are likely to be, and hence the stronger the rebound in prices when it does eventually come, Capital Economics concluded.
In the time it took me to write the above, the spot price fell below US$29 …
Walmart (NYSE:WMT) is still the world’s largest retailer by sales but it is slimming down some, closing 269 stores, almost all more than half of which are in the US, with a smattering of Brazilian outlets also getting the chop.
The vast majority of the stores being shut in the US are within 10 miles of another Walmart outlet, so presumably the company is worried about cannibalizing its own stores.
RISERS
Code Rebel (NASDAQ:CDRB), up 110.1%. Shares more than doubled on Friday after the enterprise software company entered into a non-binding Letter of Intent to engage in a merger with Aegis Identity Software.
SFX Entertainment (NASDAQ:SFXE), up 79.2%. SFX Entertainment (NASDAQ:SFXE), the concert promoter which considered bankruptcy filing last week, said it secured $20mln in new financing for itself and certain of its operating subsidiaries.
Synutra International (NASDAQ:SYUT), up 25.1%. The independent directors are mulling a management buy-out proposal worth US$5.91 in cash per share.
LOSERS
Sarepta Therapeutics (NASDAQ:SRPT), down 55.4%. The shares have taken a tumble because of a failed clinical trial by BioMarin Pharmaceutical (NASDAQ:BMRN), announced yesterday. Both companies are developing treatments for Duchenne muscular dystrophy (DMD), a fatal indication that almost exclusively afflicts young boys, though there is no suggestion that Sarepta’s drug candidate will fail because BioMarin’s did.
Great Basin Scientific (NASDAQ:GBSN), down 24.1%. The shares plummeted to 18.375 cents after it announced a US$27mln debt financing.
Bioamber (NYSE:BIOA), down 24.0%. Shares are on offer at US$4.445 after the company announced it plans to raise US$13mln by issuing shares at five bucks a pop.