LOW OIL PRICES
Local industry and investment experts said Monday they expect continued struggles for the oil and gas industry following sub-$40-a-barrel prices and big drops in Wall Street stocks across the board.
Prices of sweet crude fell to their lowest in 6 1/2 years, dropping to around $38 a barrel on some exchanges.
The industry has struggled with a worldwide supply glut since October, but news of a slowing Chinese economy is worrying some investors about a drop in consumer commodity demand.
That could mean continued cutbacks for drillers and producers, experts say.
"It's going to be the strong survivors, the large recognizable names, that are going to be doing an awful lot of consolidating," said Gary Buchanan, founder of Billings-based Buchanan Capital Inc.
Buchanan called the slide a market correction that probably hasn't hit bottom. The Dow Jones Industrial Average fell 588 points Monday, about 3.5 percent.
The market decline was more bad news for oil and gas producers, who have been struggling for months.
In June, Montana state officials reported operating oil wells had dropped to zero in Montana for the first time in years. Rig counts in North Dakota, the center of the Bakken shale boom, were down 60 percent in June compared to the previous year.
Dave Galt, director of the Montana Petroleum Association, said domestic demand is not faltering, despite reports of a Chinese slowdown, but oversupply is forcing producers to hunker down.
"A depressed price under $40 is significant, and companies are having to cut costs and look at what they're doing," said Galt, who represents oil and gas companies throughout Montana.
At a Billings forum last week, Galt pushed for an end to the 40-year-old federal ban on oil exports, saying a lifting of the ban would open new markets and allow domestic producers to better compete with foreign oil companies.
For local investment firms, the drop in oil is a concern but not a cause to panic, said Larry Van Atta, Billings branch director for RBC Wealth Management, a Minneapolis brokerage.
"People are shying away to a certain degree, but they also know that oil isn't going to stay down forever," Van Atta said.
He added that most investors contacted him Monday about buying stocks of all kinds at cheap prices. The fall in the Dow was due, he said.
"We need to have a little correction in the market. I call it cleaning the debris out of the market. We need that, because things can't go straight up forever," Van Atta said.
Buchanan said he's advising clients not to panic because fundamentals of the economy remain strong. Home sales nationwide remain strong, and the labor market is steady, he said.
Nevertheless, the news from China is disturbing for U.S. markets, and oil won't recover overnight, Buchanan said.
"You can't be a Pollyanna about this. And I think we're going to have more volatility, with China and oil prices," he said.
Gas prices have not followed the drop in oil, rising 3 cents per gallon in the last week to an average of $2.87 Sunday in the Billings area, according to GasBuddy.com, a pricing website.
Analysts say the gasoline market has had little chance to react, and prices should drop considerably in the fall.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.