Showing posts with label oil price decline. Show all posts
Showing posts with label oil price decline. Show all posts

Saturday, April 27, 2019

Webcasting for ReachX & Trump's OPEC call

It's been quite a week in the oil market with Brent touching $75 per barrel for the first time in 2019, amid exaggerated long calls reminiscent of Q4 2018, and we all know how that ended. In this backdrop, the Oilholic did his first oil market webcast for independent financial platform ReachX.

The company is working to shake-up traditional financial market research and investment banking services via its technology platform. The idea was born out of creating an unbiased research, information and services hub fit for a post-MiFID II investment and operating environment, and the Oilholic has been involved in its progress since the summer of last year with co-founders Rafael S. Lajeunesse and Olivier Beau de Loménie.

The topic of the webcast was what's in store for the oil market in H2 2019, especially as the Oilholic believes the current set of market fundamentals suggest there's not much further for Brent to go than beyond $75 per barrel, and in fact it is likely to average towards the lower range of $70-75 per barrel this year.

Here's a recording of the webcast on YouTube, which has been converted into a podcast by the good folks at ReachX:



And should you wish to listen to it on SoundCloud; here's a link to that as well.

Away from the webcast, just as Brent hit $75, US President Donald Trump hit it. Ahead of a political rally, the President said he'd "called OPEC" and that oil prices were coming down. Cue a slide on that pretext in this Goldilocks Economy, where crude has little room to go further up. Here are the Oilholic's thoughts in more detail via a Forbes post. That's all for the moment folks, keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Forbes click here.


© Gaurav Sharma 2019.

Sunday, August 06, 2017

Platts July survey notes 32.82m bpd OPEC output

It seems S&P Global Platt's latest survey of OPEC production is suggesting the cartel's headline output came in at 32.82 million barrels per day (bpd) last month; the highest level so far into 2017.

As expected, its the two members exempt from its cuts of 1.8 million bpd - instituted on paper with 10 other non-OPEC crude producers - who have contributed to rise in production, Libya and Nigeria.

Libya's continued recovery saw the civil unrest ridden OPEC member produce 990,000 bpd in July, up 180,000 bpd from June. Nigeria averaged 1.81 million bpd, up 30,000 bpd on June.

The two exempt countries, along with increased output from Saudi Arabia, with its peak summer air conditioning season in full swing, have sent OPEC's collective output 920,000 bpd above its nominal ceiling of around 31.9 million bpd, when new member Equatorial Guinea is added in and suspended member Indonesia is subtracted. 

Saudi Arabia itself produced 10.05 million bpd in July, according to the survey. Overall, S&P Global Platt's notes that while collective compliance with the cut agreement is strong, "results among individual countries are still uneven."

For instance, OPEC's second largest member Iraq grew production slightly to 4.48 million bpd in July, remaining the "least compliant country" in terms of output above its quota, which is 4.35 million bpd.

Iran, OPEC's third largest producer, also had a slight increase in output to 3.82 million bpd, just above its quota of 3.80 million bpd under the deal, as its barrels in floating storage rose, according to the survey.

UAE oil production likewise rose in July to 2.89 million bpd, above its quota of 2.87 million bpd. Of course, the so-called OPEC/non-OPEC monitoring committee, composed of ministers from Kuwait, Russia, Algeria, Venezuela and Oman, which met in St Petersburg on July 25, has said it plans to enforce compliance much more tightly going forward.

Seeing is believing of course in these 'crude' times.That's all for the moment folks! Keep reading, keep it crude!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2017. Photo: OPEC logo on building's exterior © Gaurav Sharma 2015.

Sunday, July 16, 2017

A bearish view from Istanbul

The 22nd World Petroleum Congress circus has left Istanbul, Turkey in a distinctly bearish mood, at least that’s the Oilholic’s verdict! 

'Big Oil' boss after boss pointed out to the congress that IOCs were gearing up for a short-term breakeven of $50 per barrel, and working towards a $30 per barrel breakeven by the turn of the decade. Few, if any expect an uptick to a three figure oil price anytime soon. 

The International Energy Agency expects a flood of US shale barrels, so much so that its Executive Director Dr Fatih Birol noted that describing his outfit as being representative of energy consumers was sounding clichéd these days.

Afterall, IEA members US, Canada and United Kingdom, were also energy exporters. At the same time, global oil inventories remain stubbornly above 3 billion barrels, and not anywhere near the 2.7 billion five-year average OPEC is hoping to achieve via its cut. 

Tied in to all of this are two important considerations in light of what's on the horizon. Firstly, OPEC’s production cut in concert with 10 non-OPEC producers only lasts until March 2018 on paper. What happens after that? Surely more oil is coming our way. Secondly, most at the WPC, including the IEA, predicted US production to climb to 10 million barrels per day (bpd) and for some even as high as 10.3 million bpd. 

So what is there to be bullish about? Agreed - as many readers of this blog have pointed out - inventory rebalancing will gather steam towards the fourth quarter of this year, but not to the extent some are predicting. 

For arguments sake, if that is seen as being supportive of the oil price and that sustains oil futures above $55 for a period, more US and non-OPEC oil is bound to come on to the market. Draw your own conclusions where the ‘crude’ world would be heading to thereafter. In short, this blogger finds little evidence that the oil price would escape its current $45-55 per barrel range using Brent as a benchmark. 

Just a couple of things to flag up before yours truly takes your leave. Here is one’s IBT report from the WPC on how spooked the industry is about not being able to attract enough young recruits and qualified female professionals. Additionally, here is the Oilholic’s foray into the emergence of ‘crude’ robots, that could be coming to an oil and gas field near you. That’s all for the moment folks. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2017. Photo: An oil tanker in the Bosphorus, Istanbul, Turkey © Gaurav Sharma, July 2017.

Wednesday, February 22, 2017

IPWeek & a crude 'will they, won't they'

The Oilholic joined the great and good of the oil and gas business at the 2017 International Petroleum Week being held in London, with the question on everyone's mind - will OPEC and its new found 11 non-OPEC pals extend their agreed production cuts - in place until the summer - beyond June?

Opec Secretary General Mohammed Sanusi Barkindo promised a "high" level of compliance with the cuts, and dismissed the sceptics. 

Later in the week, Qatari Energy Minister Mohammed Bin Saleh Al Sada, in town to collect his gong as the 'International Energy Diplomat of the Year', hinted that OPEC could indeed extend the cuts beyond the summer by suggesting the oil market might not rebalance before the third quarter of the year. 

Although, the minister did attach a caveat, claiming it was "premature" to indulge in chatter about what may or may not happen in the summer. Who knows for now, but as the oil price is stuck in the $50s and is going nowhere fast, many of the long bets are indeed predicated on OPEC extending its cuts for another three months beyond June

Away from the 'will they, won't they' of producers, yours truly was also delighted debate the level of transformation Arab National Oil Companies are likely to undergo over the coming years at an IPWeek debate, organised by our old friends at Gulf Intelligence. With the industry on the cusp of profound change, it is worth watching this space. However, it will take time. 

That's all for the moment folks. Next major event on the horizon - IHS CERAWeek in Houston, Texas. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2017. Photo: Gaurav Sharma (left) with Paul Young of the Dubai Mercantile Exchange at the International Petroleum Week 2017, GI debate on transformation of Arab NOCs, February 22, 2017 © Gulf Intelligence.

Tuesday, January 31, 2017

This week, that crude year!

With the oil price barely moving from its current $50 per barrel circa, it’s worth looking back at how the market panned out in 2016.

In fact this week, that year we grappling with sub $30 prices and threatening to go lower. That's when OPEC initiated chatter of a production cut around February, before eventually executing it much later in the year on November 30, and bringing 11 other non-OPEC producers, especially the Russians, along for the ride. (Click to enlarge chart)

The uptick in the wake of the ‘historic’ agreement saw crude prices bounce to where they currently are and no further. So taking the 12 months of 2016 as whole, Brent began the year at around $37.28, flirted briefly with sub-$30 prices and ended the year at $56.82; a gain of 52.4% between the first and last full trading Fridays of 2016.

Concurrently, the West Texas Intermediate rose from $37.04 to $53.72; a gain of 45% between the first and last full trading Fridays of 2016. The Oilholic acknowledges that percentages are relative, but would be astonished if 2017 ends in similar gains. That’s all for the moment folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2017. Graph: Oil benchmarks - Friday closes for 2016 © Gaurav Sharma.

Wednesday, November 30, 2016

OPEC agrees output cut of 1.2m bpd to 32.5m bpd

OPEC has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd at the conclusion of its 171st meeting of ministers. If carried out from January, this would be its first cut in eight years.

The oil futures market, which registered a slump of 4% overnight, rallied in response registering a rise of over 8%. 

However, the crude reality is that much of the above cut - i.e. 486,000 bpd - will come from the Saudis. As the Oilholic's report for IBTimes UK outlines, others will pitch in too. OPEC also said it would be counting on 600,000 bpd of non-OPEC cuts, bulk of which would come from Russia. That's where the real riddle is. What sort of compliance will we see from Russia? 

Furthermore, what about internal compliance within OPEC?  Mohammed Bin Saleh Al Sada, Qatar's Minister of Energy and Opec President, said a ministerial monitoring committee chaired by Kuwait, along with Venezuela and Algeria would be established to monitor the cuts.

Al Sada also described the decision as "historic" adding that: "We have no regrets about not having cut production in the summer of 2014. Opec has reacted to current oil market realities in taking this decision and delivered on what we agreed in September [at the International Energy Forum in Algiers]. 

More from Vienna shortly folks, once yours truly has digested this crude bit of news! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.

© Gaurav Sharma 2016. Photo: Mohammed Bin Saleh Al Sada (left), Qatar's Minister of Energy and Opec President unveils an oil production cut of 1.2m barrels per day at the conclusion of its 171st meeting of ministers' in Vienna, Austria on 30 November, 2016. © Gaurav Sharma, November 30, 2016.

Wednesday, June 01, 2016

‘Mum’s the word’ for new Saudi oil minister

After a fact finding trip to Houston, Texas, the Oilholic finds himself back in Vienna, Austria for the 169th OPEC Ministers’ meeting. Based on initial soundbites, the 13 member oil producers’ collective is in a rather content mood. Well if you exclude the Venezuelans that is, who are decidedly grumpy by virtue of their own circumstances.

Recent production outages in Canada, Colombia, and OPEC members Venezuela and Nigeria have served to support the oil price which has lurked around the $50 per barrel level for a while now. It is also now manifestly apparent that non-OPEC oil producers are suffering in an era of lower for longer oil prices. 

The Oilholic recently penned his thought on troubles of US shale players – flag bearers of non-OPEC production – in a Forbes piece, and that’s not where the trouble ends. Non-OPEC production as a whole remains in a precarious spot. Nonetheless, interpretation of the market situation differs from OPEC member to member, with the Venezuelans correctly querying where the oil price would go once outages end. 

There’s plenty of chatter here ahead of the meeting, but one man has largely kept mum – that’s none other than Saudi Oil Minister Khalid Al-Falih, who replaced Ali Al-Naimi, one of OPEC’s most colourful characters last month.

It is doubtful that a new minister would alter an old Saudi policy. But the new man in charge has stayed away from the media since his arrival on Tuesday. Much to the disappointment of the world’s scribes, there was no Al-Naimi style power walk on Vienna’s Ring Road by new man either.

As for the analyst community, none of us expect any movement on the production quota front, although the rumour mill suggests OPEC might well be on the verge of finally appointing a new Secretary General. For an OPEC preview, check out the Oilholic’s submission to the International Business Times.

Finally, just before one takes your leave, here are two Forbes posts – on Mexico’s upcoming offshore round and US exports respectively – to keep you busy. That’s all for the moment from Vienna folks, plenty more to follow over the coming days! Keep reading, keep it crude! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2016. Photo: OPEC flag © Gaurav Sharma.

Monday, April 18, 2016

‘Doh-a Farce’? Brace for $35/bbl Brent?

The Oilholic is rather surprised that some people are actually surprised the Doha talks between major oil producers turned out to be a bit of a farce.

Well, in case you haven’t heard – the overhyped meeting between OPEC and non-OPEC crude producers aimed at introducing a production freeze has ended without an agreement.

Here is one’s take on the development in a Forbes column. The Iranians never turned up in the first place, and the 18 or so oil ministers who did, saw Saudi Oil Minister Ali Al-Naimi insist that there would be no coordinated oil production freeze unless the Iranians came on board. And there you have it – a predictable outcome, without the Saudis giving an inch.

So what’s next? The Oilholic deems a shot term return for Brent futures down to $35 per barrel as highly likely. If it is not achieved intraday today, we should probably get there early this week thereby wiping out some of the froth that built up ahead of the Doha non-event - unless of course breaking news of a Kuwaiti oil strike has the opposite effect. 

At the time of writing this post, both Brent and WTI front month futures contracts are trading down by over 6% and slipping towards the mid-thirties.

And here’s another prediction – one doesn’t expect OPEC to achieve anything at its next meeting in June either. Both Iran and Saudi Arabia are holding firm, and in no mood to compromise – something that is unlikely to change overnight.

Finally, cutting through all the pre and post Doha Talks hullabaloo, the Oilholic has also not altered his market forecasts – of Brent at or just below $50 per barrel by the end of 2016, supply-demand rebalancing by Q1 2017 and a medium term phase of low prices well shy of the mid-2014 highs before the price curve took a turn for the worse. That’s all for the moment folks! Keep reading, keep it crude! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Oil extraction site in Oman © Shell

Sunday, April 10, 2016

Volatile yet flat-ish Q1 points to $40-50/bbl price

The first quarter of 2016 has been pretty volatile for oil benchmarks. Yet if you iron out the relative daily ups and downs in percentage terms, both global benchmarks and the OPEC basket are marginally higher than early January (see chart left, click to enlarge). 

Brent, at $37.28 per barrel back then, ended Friday trading at $41.78, while WTI ended at $39.53, up from $37.04 in early January. That’s a fairly flat outcome following the end of a three-month period, but in line with the Oilholic’s conjecture of an initial slow creep above $40 per barrel by June, followed by yet another crawl up to  $50 per barrel (or thereabout) by Christmas (as the Oilholic opined on Forbes).

Moving on from pricing matters, a new report from GlobalData suggests crude refining capacity is set to increase worldwide from 96.2 million bpd in 2015 to 118.1 million bpd by 2020, registering a total growth of 18.5%.

In line with market expectations, the research and consulting firm agrees that global growth will be led by China and Southeast Asia. A total of $170 billion is expected to be spent in Asia alone to increase capacity by around 9 million bpd over the next four years, GlobalData added.

Matthew Jurecky, Head of Oil & Gas Research at the firm said: “The global refining landscape continues its shift eastwards; 40% of global refining capacity is projected to be in Asia by 2020, up from around 30% in 2010.

“China has led this growth, and is projected to have a 15% share of global crude refining capacity by 2020. This activity is putting pressure on other regional refiners, especially now that China has become a net exporter, and will become a larger one.”

In Europe, growth is expected to occur at a substantially slower rate. Although demand is decreasing and is less competitive, older refineries in Western Europe are being closed, these factors are being countered by investment in geographically advantaged and resource-rich Russia, which sees Europe’s capacity increasing marginally from 21.7 million bpd in 2015 to 22.5 million bpd by 2020.

Away the refining world to the integrated majors, with a few noteworthy ratings actions to report – Moody’s has downgraded Royal Dutch Shell to Aa2 with a negative outlook, Chevron to Aa2 with a stable outlook, Total to Aa3 with a stable outlook and reaffirmed BP at A2 with a positive outlook. 

Separately, Fitch Ratings has affirmed Halliburton at A-, with the oilfield services firm’s outlook revised to negative. That’s all for the moment folks, keep reading, keep it crude! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

Tuesday, March 15, 2016

Taiwan’s crude demands & IEA’s latest quip

The Oilholic has ventured further eastwards, some 6080 miles from London, to Taipei – the vibrant capital of Taiwan. On a rain soaked evening, yours truly absorbed splendid views of the city's 101 Tower (once Asia’s tallest building before) and pondered over the island nation’s oil supply-demand dynamic.

Perhaps unsurprisingly, according to government data, the country imports 98% of its domestic fuel requirements mostly from OPEC producers in the Gulf and Angola to the tune of 1 million barrels per day (bpd). It does have tiny proven oil reserves of around 2.3 million but nothing to write home about.

Despite wider historical and geopolitical tension with Beijing, Taiwan’s CPC and China’s state-owned China National Offshore Oil Corporation (or CNOOC) are jointly exploring the Strait of Taiwan for oil and gas. Initial prospection bids in shallow waters turned out to be duds, but deepwater exploration is “encouraging” say insiders.

Given such a setting in an era of low oil prices, the International Energy Agency’s latest quip – that the oil price may well have “bottomed out” – pricked ears both within and well beyond Taiwan. In a recent market update, the agency said, “There are clear signs that market forces... are working their magic and higher-cost producers are cutting output.”

It noted falling oil production stateside, in tandem with a decline in OPEC’s output by 90,000 bpd in February, albeit due to outages in Nigeria, Iraq and the United Arab Emirates, that knocked out a combined 350,000 bpd from the oil cartel's total output.

“Iran's return to the market has been less dramatic than the Iranians said it would be; in February we believe that production increased by 220,000 bpd and provisionally, it appears that Iran's return will be gradual,” the IEA added.

See now all that is well and good, but the Oilholic reckons that at some point crude in storage will need to come into play. That, coupled with lacklustre demand, is the market’s “known known” and how and to what extent it serves as a drag on the price remains to be seen.

The market has indeed been a lot calmer in recent days, but there are likely to be a few more twists and turns. As the IEA itself notes, “For oil prices, there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance. It is clear that the current direction of travel is the correct one, although with a long way to go.”

Fairly obvious and no biggie, methinks. That’s all from Taiwan folks. This blogger’s next stop is Tokyo. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: 101 Tower, Taipei, Taiwan © Gaurav Sharma, March 2016

Monday, February 29, 2016

Fitch joins Moody’s in cutting oil price estimates

Barely a month after Moody’s drastically revised its oil price assumptions, rival Fitch Ratings followed suit last week. Writing to clients, Fitch said its new base case is for Brent and WTI oil prices to average $35 per barrel in 2016. 

It had previously expected oil to average $45 per barrel. However, Fitch’s long-term base case price assumptions remain unchanged at $65 per barrel. The ratings agency said its drastic revision was down to a combination of stock build-up over the mild winter, higher-than-expected OPEC production in January and increasing evidence that global economic growth for the year will be weaker than previously forecast.

“This suggests there will still be a supply surplus in the second half of 2016, albeit reduced from current levels, and that markets will probably only reach a balance in 2017. Even then, very high inventories will limit price increases,” Fitch added.

In light of recent volatility, Fitch’s reworking of price assumptions is hardly a surprise, and on Jan 21st rival Moody’s had done likewise. The latter lowered its 2016 price estimate for both Brent WTI to $33 per barrel.

In Moody’s case, for Brent, it marked a $10 per barrel reduction from the rating agency's previous estimate, and for WTI, a $7 reduction. It currently expects both benchmark prices to rise by $5 per barrel on average in 2017 and 2018. The move also represented Moody’s second revision is as many months, having already slashed estimates back in December.

Terry Marshall, Senior Vice President at the ratings agency, said, "OPEC countries continue high levels of production in the battle for market share, contributing to the current oil glut despite moderate consumption growth by key consumers such as China, India and the US.

“In addition, we expect the rise in Iranian oil output this year to offset or exceed production cuts in the US."

So more cheer for the bears it seems, but little else. Volatility is likely to persist until June, but for the record, the Oilholic expects a very gradual climb in the oil price towards $50 per barrel from then onwards, as one wrote in a recent Forbes column. That’s all for the moment folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Oil production facility © Cairn Energy

Wednesday, February 17, 2016

Ho hum moves for fewer oil drums

In case you have been on another planet and haven’t heard, after weeks of chatter about coordinated oil output cuts by OPEC and non-OPEC producers, we finally had some movement. The Oilholic deploys the word 'movement' here rather cagily.

Three OPEC members led by heavyweight Saudi Arabia, with Qatar and Venezuela in tow, joined hands with the Russians, to announce a production ‘freeze’ at January’s output levels  on Tuesday, provided ‘others’ agree to do likewise. 

The most important others happen to be Iraq and Iran who haven’t exactly come out in support of the said freeze just yet. Even if they do agree, or in fact all OPEC members agree, the freeze would come at production levels deemed to be historical highs for both the Russians and OPEC. In case of the latter, industry surveys and data from aggregators as diverse as Platts and Bloomberg points to all 12 exporting OPEC nations collectively pumping above 32 million barrels per day.

Predictably, the oil futures market treated the news of the 'freeze' with the sort of disdain it deserved. The price remains stuck in the range where it has been and short-term volatility is likely to last; so much of what transpired was, well, exceedingly boring from a market standpoint, excepting that it was the first instance of OPEC and non-OPEC coordinated action in 15 years. 

If OPEC really wants to support prices, an uptick in the region of $7-10 per barrel would require the cartel to introduce a real terms cut of 1.5 million bpd. Even then, the gains would short-term, and the only people benefitting would be North American players. Some of them are the very wildcatters, whose tenacity for surviving when oil is staying ‘lower for longer’, OPEC has so far failed to work out with any strategic coherence. Expect more of the same in a market that's still awash with crude oil. 

Finally, just before one takes your leave, it seems Moody's has placed on review for downgrade the Aa3 ratings of China National Petroleum Corporation (CNPC), Sinopec Group, Sinopec Corp, China National Offshore Oil Corporation (CNOOC Group) and CNOOC Limited.

The ratings agency has also placed on review for downgrade the ratings of the Chinese national oil companies' rated subsidiaries, including Kunlun Energy Company Limited, CNPC Finance (HK) Limited, CNPC Captive Insurance Company Limited, CNOOC Finance Corporation Ltd, and Sinopec Century Bright Capital Investment Limited.

In a statement, Moody’s said global rating actions on many energy companies, reflect its efforts to "recalibrate the ratings in the energy portfolio to align with the fundamental shift in the credit conditions of the global energy sector." Can’t argue with that! That’s all for the moment folks! Keep reading, keep it ‘crude’! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Oil exploration site in Russia © LukOil

Friday, February 12, 2016

Are you serious Mr President?

Ah, the joys of the oil market! Yet another day of volatility is all but guaranteed. Nearly a fortnight into February, it’s increasingly looking like how it was in January, and how it’s likely to be in March - an uptick of 2-6% followed by a slump of 2-6% in headline oil futures prices on repeat mode.

In the meantime, we have descended into the realm of the ridiculous. If you believe market chatter – it goes something like the Russians will cut oil production, only if the Saudis agree. They’ll cut only if the Iranians agree, who say it’s the Saudis and their allies who should make room for additional Iranian production. 

It is manifestly apparent, that should there be a coordinated OPEC and non-OPEC oil production cut excluding Canada and the US, the only producers to benefit would be the ones in North America. Such a cut would at most provide a short-term bounce of $7-10 per barrel, enabling shale producers, who were coping and managing just fine at $35 per barrel, to come back into the game and hedge better for another 12-18 months, as one wrote on Forbes. 

The Oilholic suspects both Russian and Saudi policymakers know that already. Which is why, it is a borderline ridiculous idea for parties who know very well that the market will take its own course, and any attempts to manipulate it artificially could have the very opposite effect some in OPEC such as Nigeria and Venezuela are hoping for. 

Meanwhile, each US oil inventory update makes Brent and WTI dance. With the latter currently below $30 barrel, US President Barack Obama has come up with his own sublime contribution to a ridiculous market. 

News emerged earlier this week that Obama has proposed a $10.25 per barrel levy on oil extracted in the US! According to Treasury projections, the levy, which would be applied to both imported and domestically-produced oil but won’t be collected on US oil shipped overseas, would raise  $319 billion over 10 years.

The plan would temporarily exempt home-heating oil from the tax. According to Obama, it "creates a clear incentive for private sector innovation to reduce America's reliance on oil and invest in clean energy technologies that will power our future."

The levy would be collected from oil companies to boost spending on transportation infrastructure, including mass transit and high-speed rail, and autonomous vehicles. However, noble the intention might be, its timing, execution and rate cap are completely barmy. In fact so barmy, the President knows there is no chance a Republican-controlled Congress would pass it. 

Without going into a costing analysis, oil companies would (a) be hit hard, and (b) almost certainly attempt to pass it over to consumers. Domino effect in terms of jobs and consumer spending adds another layer, making it extremely unpopular. So only a President who has no more elections to fight can come up with such a policy at such a time for the industry! That’s all for the moment folks! Keep reading, keep it ‘crude’! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: White House, Washington DC, USA © Gaurav Sharma, April 2008.

Monday, January 25, 2016

Predicting a $50/bbl end-2016 oil price

It’s been one heck of a volatile start to the New Year with the oil market going berserk for what is coming up to nearly four weeks now. We’ve seen 10%-plus week-on-week declines to 5%-plus intraday gains for Brent and WTI. Plenty of predictions are around the market from extremely bearish to wildly optimistic.

For instance, ratings agency Moody’s is assuming a drop to $33 per barrel for both Brent and WTI, while Citigroup calls oil the ‘trade of the year’ should you choose to stick with it. Doubtless, Moody’s errs on the side of caution, and Citigroup’s take is premised on the buying low, selling high slant. 

The Oilholic's prediction is somewhere in the mundane middle. On balance of probability, squaring oil supply and demand, yours truly sees Brent and WTI facing severe turbulence for the next six months, but very gradually limping up to $50 by the end of this year. That’s a $10 reduction on a prior end-2016 forecast. A detailed explanation is in the Oilholic’s latest Forbes column available here.  

In the event that surplus Iranian oil starts cancelling out production declines in North America and other non-OPEC production zones, there are several known unknowns. These include the strength of the dollar prolonging the commodities cycle and the copious amount of oil held in storage, the release (or otherwise) of which would have a heavy impact on the direction of the market. Nonetheless, $20 oil doesn’t sound all that implausible anymore even if it won’t stay there.  

Another key revision is the narrowing of the Brent-WTI spread to zero (twice over the course of last year), and a subsequent turn in WTI’s favour. From predicting a $5 premium in favour of Brent, the Oilholic is coming around to the conclusion that WTI would now have an equal, if not upper hand to Brent. 

The so-called premium in the global proxy benchmark’s favour was only established after a domestic US glut rendered the WTI unreflective of global market conditions back in 2008-09. Now that the global market is facing a glut of its own; oversupply sentiment is weighing on Brent too.

Even if the WTI does not regain market prominence as many commentators are predicting, the US benchmark wont play second fiddle either. The usual caveats apply, and the Oilholic would be revisiting the subject over the second quarter. But that’s all for the moment folks! Keep reading, keep it ‘crude’! 

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Oil rig in the North Sea © Cairn Energy.

Monday, January 18, 2016

Suddenly $20/bbl oil isn't all that implausible

Successive bouts of over 10% week-on-week/five-day price declines have hit the oil market for six and made for a wretched start to 2016. 

Last Friday, Brent ended 12.33% lower to the Friday [Jan 8] before, WTI fell 10.37% and OPEC’s Basket of crude oils was 10.23% lower. (see graph, click to enlarge)

Closing Brent price of that Friday itself was some 10.54% lower, WTI was down 10.48% lower and OPEC Basket Price down 10.94% versus the closing price of December 31. Suddenly, $20 per barrel oil doesn’t sound all that implausible!

However, the Oilholic still maintains that while $20 oil is possible, it won’t stay there as an inevitable supply correction would kick-in. Excluding Gulf production, much of the world’s current oil production is barely being produced at cost, let alone at a marginal profit. As non-OPEC producers’ hedges roll-off, the pain will hit home for we are a long way from the $60 comfort threshold for many. 

As for OPEC, even if the decline continues, the Oilholic feels there is little it can do other than to let the market take its own course. An OPEC cut would only keep rivals in the current game of survival called 'lower for longer'. That’s all for the moment folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2016. Graph: Oil benchmark prices (Friday closes) © Gaurav Sharma / Oilholics Synonymous Report, 2016.

Thursday, December 31, 2015

A crude rout & all those downgrades

Both Brent and WTI futures are trading at their lowest levels since 2008 and previous weeks have offered some spectacular declines, if there is such a thing as that!

Biggest of the declines were noted when Brent fell by 12.65% and WTI by 11.90% between Friday, December 4th and Friday, December 11th using 2130 GMT as the cut-off point for 5-day week-on-week assessment. Following that, like January, we had another spread inversion in favour of the WTI, with the US benchmark trading at a premium to global proxy Brent for a good few sessions before slipping lower, as both again got dragged lower in lacklustre post-Christmas trading.

It all points to the year ending just as it began - with a market rout, as yours truly explained in some detail via a recent Forbes post. With nearly 3 million barrels per day of surplus oil hitting the market, the scenario is unavoidable. While the situation cannot and will not last, oversupply will not disappear overnight either. 

The Oilholic reckons it will be at least until the third quarter of 2016 before the glut shows noticeable signs of easing, mostly at the expense of non-OPEC supplies. That said, unless excess flow dips below 1 million bpd, it is doubtful ancillary influences such as geopolitical risk would come into play. 

For the moment, one still maintains an end-2016 Brent forecast near $60 per barrel and would revisit it in the New Year. Much will depend on the relative strength of the dollar in wake of US Federal Reserve’s interest rate hike, but Kit Juckes, Head of Forex at Societe Generale, says quite possibly commodity markets fear even a dovish Fed!

Meanwhile, with the oil market rout in full swing, rating agencies are queuing up predictable downgrades and negative outlooks. Moody’s described the global commodity downturn as “exceptionally severe in its depth and breadth” and expects it to be a substantial factor driving the number of defaults higher on a global basis in 2016.

Collapsing commodity prices have placed a significant strain on credit quality in the oil and gas, metals and mining sectors. These sectors have accounted for a disproportionately large 36% of Moody’s downgrades and 48% of defaults among all corporates globally so far this year. The agency anticipates continued credit deterioration and a spike in defaults in these sectors in 2016.

Over the past four weeks, we’ve had Moody's downgrade several household energy companies, including all ratings for Petrobras and ratings based on the Brazilian oil giant's guarantee, covering the company's senior unsecured debt rating, to Ba3 from Ba2. Concurrently, the company's baseline credit assessment (BCA) was lowered to b3 from b2. 

“These rating actions reflect Petrobras' elevated refinancing risks in the face of deteriorating industry conditions that make it more difficult to raise cash through asset sales; tighter financing conditions for companies in Brazil and in the oil industry, coupled with the magnitude of eventual needs to finance debt maturities; as well as the company's negative free cash flow,” Moody’s explained.

It also downgraded Schlumberger Holdings to A2; with its outlook changed to negative for Holdings and Schlumberger. "The downgrade of Schlumberger Holdings to A2 reflects the expected large increase in debt outstanding related to the adjustment of its capital structure following the Cameron acquisition," commented Pete Speer, Moody's Senior Vice President.

Corporate family rating of EnQuest saw a Moody’s downgrade to B3 from B1 and probability of default ratings to B3-PD from B1-PD. Of course, it’s not just oilfield and oil companies feeling the heat; Moody’s also downgraded the senior unsecured ratings of Anglo American and its subsidiaries to Baa3 from Baa2, its short term ratings to P-3 from P-2, and so it goes in the wider commodities sphere.

In the past week, outlook for Australia’s Woodside Petroleum outlook was changed to negative, while the ratings of seven Canadian and 29 US E&P companies were placed on review for downgrade. And so went the final month of the year. 

Not just that, the ratings agency also cut its oil price assumption for 2016, lowering Brent estimates to average $43 from $53 per barrel in 2016, and WTI to $40 from $48 per barrel. Moody’s said “continued high levels of oil production” by global producers were significantly exceeding demand growth, predicting the supply-demand equilibrium will only be reached by the end of the decade at around $63 per barrel for Brent. 

While, the Oilholic doesn’t quite agree that it would take until the end of the decade for supply-demand balance to be achieved, mass revisions tell you a thing or two about the mood in the market. Meanwhile, at a sovereign level, Fitch Ratings says low oil prices will continue to weigh on the sovereign credit profiles of major exporters in 2016. Of course, the level of vulnerability varies.

“In the last 12 months, we have downgraded five sovereigns where oil revenues accounted for a large proportion of general government and/or current external receipts. Another three - Saudi Arabia, Nigeria, and Republic of Congo - were not downgraded but saw Outlook revisions to Negative from Stable,” the agency said in a pre-Christmas note to clients.

It is now all down to who can manage to stay afloat and maintain production as the oil price stays ‘lower for longer’. Non-OPEC producers will in all likelihood run into financing difficulties, as one said in an OPEC webcast on December 4, with Brent ending 2015 over 35% lower on an annualised basis.

Finally, the Oilholic believes it is highly unlikely a divided OPEC will vote for a unanimous production cut even at its next meeting in June. For what’s it worth, $35 per barrel could be the norm for quite a bit of 2016. So in 12 months’ time, the oil and gas landscape could be very, very different. That’s all for 2015 folks! Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2015. Graph: Oil benchmark Friday closes, Q4 2015 © Gaurav Sharma / Oilholics Synonymous Report, December 2015. Photo: Gaurav Sharma speaking at the 168th OPEC Ministers' Meeting in Vienna, Austria © OPEC Secretariat.

Tuesday, December 08, 2015

Crude oil tumbles as OPEC stumbles

Having been to every single OPEC ministers’ summit since 2008, the Oilholic thought he’d seen it all. Not quite it seems; when the 168th meeting of ministers ended – for the very time since yours truly had been here, the oil producers collective failed to mention its production quota. Here’s a link to the communiqué on December 4, that's historic for all the wrong reasons!

In farcical fashion the market was left guessing what OPEC’s actual production is based on previously published data and anecdotal evidence. OPEC itself puts the quota at 30 million barrels per day (bpd). Until recently, while Saudi Arabian production was in overdrive, 31.88 million bpd was the industry consensus, and barely days before the OPEC meeting convened a Bloomberg survey put the figure at 32.1 million bpd.

Bulk of the incremental OPEC barrels are coming from Saudi Arabia and Iraq, with discounting by all 12 members in full swing, as the Oilholic wrote on Forbes. Now Iran, eyeing a meaningful return to the international fold, is also not in favour of production cuts, unlike on previous occasions. It is not just the analyst community that is in uncharted waters, the producers’ group itself appears to be pretty dazed.

OPEC has not published a target oil price since 2004. Then in December 2008, it ceased publication of individual members’ quotas leaving the market to second guess the figure. All we know is that Iraq and Libya are currently not included in the headline quota. Now it seems OPEC will not even reveal what its daily production target is. It is all pretty strange and quite unlike any cartel in the world, if you feel OPEC should be described as such.

No slide rule or calculator was required in working out the stalemate in Vienna would be short-term bearish! There’s just too much oil in the market. In fact, latest surveys suggest we are seeing nearly 2.6 – 2.9 million bpd of surplus oil, double of 1.3 million bpd estimates earlier in the year.

At this rate it would be well into 2016 before supply adjustment occurs, which means that oil price will remain in lacklustre mode. Only saving grace is that a steep decline for Brent below $40 per barrel was not a high probability unless there is a global financial tsunami; even though the global proxy benchmark did briefly fall below the 40-level in intraday trading today.

Expect an uptick next year, but the undeserved oil price heights of Q1 2014 won’t be touched anytime soon. That’s all from Vienna folks. Keep reading, keep it ‘crude’!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2015. Photo: OPEC Secretary General Abdalla Salem El-Badri (right) at the conclusion of the 168th OPEC Ministers Summit in Vienna, Austria on December 4, 2015 © Gaurav Sharma / Oilholics Synonymous Report, December 4, 2015.