Despite What the News Tells You, Crude Oil Prices Set to Fall

by Sheena Martin, Contributing Editor Monday, November 23, 2009

Is the price of oil headed for $100 per barrel again?

Many say it is. But to be frank, the “fair price” is much lower than the current range of $75-$83 per barrel.

If you focus solely on the current fundamentals – supply, demand, refining margins, seasonality – crude prices should be at $65-$70 per barrel. And that’s why I believe the oil market is set for a sharp downturn within the next year.

But in today’s reality, no one particularly cares about the fundamentals of overwhelming supplies and feeble demand. Fact is, there is more oil than there is storage.

The latest report from the Department of Energy showed that U.S. crude oil inventories were nearly 6.5% higher

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Oil refiner and marketer Sunoco Inc. (SUN) reported weaker-than-expected third quarter results as its refining and chemicals operations slipped in the red, pulled down by reduced margins and production. Loss per share, excluding special items, came in at 29 cents, significantly wider than the Zacks Consensus Estimate of 9 cents. In the year-ago period, the Pennsylvania-based company earned $4.78 per share. Revenues were down 42.6% year over year to $8.7 billion.   Refining & Supply   The Refining & Supply segment lost $118 million during the quarter, as against a profit of $398 million in the year-earlier period, mainly on account of lower realized margins and lower production volumes, partly canceled by lower expenses. Realized margin averaged $2.72 per barrel, down 81.7% from the third quarter of 2008, reflecting a very weak East Coast refining margin environment. Total production was down approximately 17.2% year over year to 669.2 ...

Yesterday, oil refiner and marketer Sunoco Inc. (SUN) announced certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner, as it struggles to cope with the bearish refining margin environment. Sunoco said that it would indefinitely idle a New Jersey refinery, furlough 400 workers and cut its dividend in half. The company hopes that these measures will save $320 million annually, though this would also lead to $475–$550 million in largely non-cash financial charges over the next few quarters. Sunoco has decided to shut down its 145,000 barrels-per-day Eagle Point refinery in Westville, NJ, until market conditions improve. In the meantime, the company will shift production from Eagle Point to its refineries in Philadelphia and Marcus Hook, PA, and may use the idled refinery to produce alternative fuels. The Philadelphia and Marcus Hook facilities will up their utilization rates to make up ...