According to Rystad Energy, “Economic recession risk and further escalation of the U.S.-China trade war are key concerns in the near term. How long OPEC+ is willing to continue to manage production adds uncertainty,” said the head of oil market analysis at the company…
Russia’s mainstream oil producers Rosneft, Gazprom and Lukoil increased pressure on Russia’s president Vladimir Putin to slow down preparations for the expected marriage with OPEC…
The risk of declining Chinese demand for oil is worrying Middle East officials more than Iran’s supply curbs resulting from U.S. sanctions.
Oil explorers took advantage of a market rally to lock in prices for almost 1 million barrels a day’s worth of future output.
Oil climbed above $61 a barrel for the first time in two and a half years, surpassing a crucial threshold for spurring new shale drilling.
Oil sands will be second to shale as the biggest contributor to global supply growth over the next two years with half a million barrels a day of production scheduled to enter the market. The drive for efficiency, along with lower gas prices, has driven the average break-even operating cost on thermal oil sands to less than $10 a barrel from about $15 in 2014, and expanding or building a site requires a price of $50 to $60. Western Canada’s oil sands production will rise by 720,000 barrels a day to 3.12 million in 2020.
On simple accounting terms Saudi Arabia, Iraq and Iran can generate profits with oil prices at $20 to $40 per barrel. U.S. shale by contrast requires about $50 to $55 per barrel. If one looks at the fiscal break-even price, OPEC producers require an estimated $70 per barrel this year, higher than the $40 to $60 required by listed energy companies to fund capital expenditure and dividends. With respect to external break-evens, i.e. the oil prices needed to foot import bills, the spectrum is wide: Libya needs $140 a barrel and Norway needing just $20.
Goldman Sachs says that OPEC must increase output cuts aimed at shrinking a global glut with little public announcement in order to jolt investors. Without such action and no evidence of sustained declines in inventories as well as U.S. drilling activity, prices could slump below $40. “We continue to believe that there is another opportunity for OPEC to increase the cuts, but that this should be done in a “shock and awe” manner, with little public announcement.” Deeper cuts are currently not on the agenda, according to OPEC Secretary-General Mohammad Barkindo.
Oil traders are storing more oil at sea amid swelling output in the Atlantic region, a sign the market is far from the kind of re-balancing that OPEC would have hoped for. The amount of oil stored in tankers reached a 2017 high of 111.9 million barrels early June, and higher volumes of storage in the North Sea, Singapore and Iran account for most of the increase. Oil in floating storage has been building at a rate of about 800,000 barrels a day since early May and continues to increase, said a Morgan Stanley report.
The price of oil could fall to $30 next year and stay at that level for about two years, according to Fereidun Fesharaki, chairman of consultants FGE. He said that the current level of cuts implemented by OPEC should keep the oil price around $50 a barrel for the remainder of 2017, but a failure to deepen these cuts would lower prices. Fesharaki stated that the key question was whether there was a limit to US Light Tight Oil production, or whether a boom in shale oil production in Argentina would occur.
This article considers three principal drivers for the oil trade: technology, weather and OPEC policy: • Fracking technology is highly influential: The graphs “Crude oil historical patterns”, showing changes over the last 5 years compared to the last 15 and 30 years, and the graph “US Crude oil production” from1983 to 2017, show the relevant impact.• Extreme weather: A growing number of weather events costing $1 billion have been experienced, as well as significant losses in production. • OPEC strategy is less effective now… The graphic “Does OPEC policy influence prices anymore?” asks a very pertinent question.
OPEC boosted its estimates for growth in oil supplies from rival Non-OPEC producers by 64% as the U.S. oil industry’s recovery accelerates, threatening attempts by the organization and its partners to clear a surplus. Production from outside OPEC will increase by 950,000 barrels a day this year, OPEC said, revising its forecast up by about 370,000 b/d. U.S. oil and gas companies have already stepped up activities as they start to increase their spending amid a recovery in oil prices, and higher oil production is also expected in Canada and Brazil.
Some 1.5 million of an agreed upon 1.8 million barrels per day of oil has been taken out of the market in January, Saudi Energy Minister Khalid al-Falih said. He noted, however, that at the same time shale oil is estimated to grow this year at 200,000 to 300,000 barrels per day – not at the 500,000 bpd estimated by the International Energy Agency. Al-Falih indicated that OPEC countries could cut oil production again this year if higher prices were not maintained due to reasons beyond the control of producers, including falling demand.
China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016. This is about the same size as the recent output cut agreed by OPEC member Iraq. China’s output slumped in 2016 as state-owned firms shut wells at mature fields that had become too costly to operate after the crash. Crude production fell 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day, the first decline since 2009 and the biggest in data going back to 1990.
After the biggest oil-market deal in a decade, OPEC faces a new balancing act in 2017: boosting prices without igniting shale. But the biggest threat to OPEC’s plan could come from within: if Nigeria and Libya were to reach their potential next year, then their additional barrels would almost wipe out OPEC’s supply cuts; and Iran could be making up for several years of sanctions. Another challenge could come from the now leaner and more efficient U.S. drillers – a bigger boost in prices could mean a million-barrel shale surge.
OPEC is not the name it was compared to the early 1970s when it controlled more than 50% of global market share. Its recent deal to cut production has kept the oil price above $50 a barrel, but gains will be effectively capped once low-cost shale producers ramp up production again. And this is happening when oil is waning in importance in the global energy mix; when U.S. domestic production has almost doubled because of the shale revolution; and when Canada has become the major supplier of oil to the U.S.
According to the International Energy Agency oil stockpiles will decline by about 600,000 barrels a day in the next six months as curbs by OPEC and its partners take effect. Oil has gained about 17 percent since OPEC agreed on November 30th to trim output. The accord was expanded on December 10th with the participation of 11 non-members including Russia and Kazakhstan. The stockpile declines will only occur if OPEC reduces supply enough to maintain a target of about 32.7 million barrels a day, said the Agency.
The oil market has experienced structural changes since prices peaked in June 2014. Prices have been driven down by supply-side factors that are principally increased production from U.S. shale and Saudi Arabia’s market share defence. At the same time operational efficiency has been increased, as for example with the companies in the U.S. shale areas, thus begging the question of whether OPEC still matters. Within this context of change it looks to be that the conventional wisdom with regard to the global oil market no longer applies.
OEF REVIEW:Saudi Arabia and Russia have taken the first step to stem the slide in oil prices. There’s just one problem: If they are successful — and that’s a big if — the wildcatters of Texas, Oklahoma and North Dakota are waiting to pounce. With 4,000 wells drilled and just waiting for better prices to be brought on stream, the so-called fracklog could act as a cap to any oil rally, industry executives, traders and OPEC officials said. Worse, a price recovery could effectively bail out dozens of shale companies now struggling with $30-a-barrel oil, allowing them to return to the capital market.
OEF REVIEW:The current crash in oil prices is sowing the seeds of a powerful rebound and a potential supply crunch by the end of the decade, but the prize may go to the US shale industry rather Opec, the world’s energy watchdog has predicted. America’s shale oil producers and Canada’s oil sands will come roaring back from late 2017 onward once the current brutal purge is over, a cycle it described as the “rise, fall and rise again” of the fracking industry. “Anybody who believes the US revolution has stalled should think again. We have been very surprised at how resilient it is,” said Neil Atkinson, head of oil markets at the International Energy Agency.
