BP’s profits more than doubled in 2017 to $6.2 billion powered by higher prices and output of oil and gas, allowing the company to resume share buybacks as it recovers from a three-year downturn. Sonia Legg reports
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Oil just posted its worst week in more than two years — WTI lost 9.5% and Brent lost 8.5%. The last time the two oil benchmarks fell by that much in a single week was early 2016 when the oil market was in serious turmoil and prices dipped below $30 per barrel.
Of course, the latest sell-off is the result of both oil-specific problems as well as broader equity market volatility. The rebound in the dollar and the stock market meltdown have dragged down crude. But the surge in U.S. shale production to over 10.25 million barrels per day (MB/D) in the first week of February, plus expectations of output growth to 11 MB/D later this year, have sparked fears of a return to surplus. Those fears were seemingly confirmed with a massive increase in the rig count last week — Baker Hughes said the oil industry added 26 rigs, more evidence that the shale industry is ramping up.
“Oil is paying the price for rising too quickly to levels that attracted increased U.S. production,” Ric Spooner, an analyst at CMC Markets, said in an interview with Bloomberg. “Traders are also nervous about recent financial market volatility and the stronger dollar.” Spooner told Bloomberg that WTI could fall to “the low $50s range if volatility persists.”
But perhaps the sudden drop in prices is more of a correction than the beginning of a sustained downturn. Hedge funds and other money managers have likely sold off some of their bullish bets, pushing prices down but relieving some built-up pressure from short-term financial flows.