Why oil isn't escaping $45-55/bbl range

For much of August, the oil market has shown signs of breaking the $45-55 per barrel range – in which it has been stuck of late – toward the upside. Yet, the moment it hits the upper end of the range, a sell-off ensues.

It can be explained away by merely focussing on the supply side of the argument, i.e. global inventory rebalancing not proceeding at pace, and OPEC’s own compliance faltering. However, that is only part of the explanation. 

Two other variables – China’s demand growth and market perception on what would happen when the current OPEC arrangement ends [in March 2018] – are also influencing trading patterns. 

Admittedly, the Brent forward curve has moved from contango into backwardation, i.e. where prices for immediate delivery are higher than those for later delivery. Conventionally, that is considered a bullish sign for prices since it is indicative of demand outpacing supply in the world of "here and now."

However, the Oilholic is not convinced, as what we are witnessing is a not a conventional market. This blogger remains net short and here are one’s reasons for it via a Forbes post (click here). Have a read, alternative viewpoints are most welcome – just ping an email across. But that's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Rig workers © Cairn Energy.

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!

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

Of long calls and more Colombian barrels

Despite an awful lot of bearishness in the market, and global inventories showing no tangible signs of rebalancing, the Oilholic finds the number of long plays in the market to be astounding.

In fact, US shale producers are in their element, and producing comfortably at the current oil price range. 

As the International Energy Agency noted at the recently concluded 22nd World Petroleum Congress - "the only oil producing region that has actually seen a rise in investment has been American shale, where compared to 2016, investments are up 53%."

Here are yours truly's thoughts in greater detail via a Forbes op-ed. Away from the oil price, given  a sequence of the OPEC meeting, a trip to New York and the World Petroleum Congress, a report on Colombian oil production - published by GlobalData earlier in the month - escaped this blogger's attention. 

It is well worth a crude read, for the research and analysis outfit suggests Colombia is well on track to reinvigorate its upstream sector after the oil price shock. 

"Improvements already made to the country's royalty framework will benefit licenses currently held in the exploration phase, which may provide some stimulus in the short to medium term, and more flexible licensing procedures are likely to lead to greater uptake of available exploration acreage. However, based on recent life-cycles from exploration to production any newly awarded areas over the next two years will be unlikely to add significant production before 2025," GlobalData notes. 

This could change; and as for offshore development, Colombia represents one of the most competitive regimes in Latin America and interest in its Caribbean exploration has been steadily growing over recent years. 

The fiscal regime, according to GlobalData, is currently geared to foster investment with a regionally and internationally low fiscal take. The government is reportedly planning to include areas in the Caribbean Sea as part of the open areas to be made available in 2018, and a recent large gas discovery in the area by Anadarko highlights the potential of this underexplored region.

Colombia's Agencia Nacional de Hidrocarburos (ANH) is set to open onshore areas in the North and Northwest of the country in the Sinú-San Jacinto, Llanos Orientales and Medio Valle del Magdalena basins on an open basis and adding areas in the Caguan-Putamayo basin in 2018, with the number of areas available for exploration potentially rising from 20 to 40. 

The country's current production level is in the region of 706,000 barrels per day (bpd). While that is considerably below its 2015 peak of 1.005 million bpd, more barrels are imminent over the medium term. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Oil tankers in the Persian Gulf off Musandam Peninsula, Oman © Gaurav Sharma 2013.

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’!

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

Chatting to Bob Dudley & host broadcaster TRT

As the 22nd WPC approaches its end, more interesting soundbites have emerged, especially from International Energy Agency (IEA) Executive Director Dr Fatih Birol who has been on several panels and forums, energised no doubt in his hometown of Istanbul.

According to Birol, despite all the noise about electric cars, automobiles aren’t the primary drivers for oil demand. “That comes from trucks, aviation and petrochemicals. So even if one in every two cars is an electric vehicle, oil demand will still grow.”

On average, most analysts, including many at the IEA, expect that global demand growth to be in the region of 1.2 to 1.3 million barrels per day (bpd). That’s hardly the stuff of dreams for those placing long bets on the crude stuff. 

Getting away from Birol, the Oilholic also had the pleasure of spending a few minutes in the company of BP boss Bob Dudley, who said the oil giant was preparing for a $30 per barrel oil price breakeven. Here’s one’s exclusive interview for IBTimes UK. 

In another major development, the geopolitical significance of which cannot be understated, India has imported its first ever consignment of US crude oil. For a country largely reliant on Middle Eastern oil, the US is now an avenue.

The Oilholic is reliably informed the consignment has been drawn from conventional sources, but to quote Indian Oil Minister Dharmendra Pradhan - New Delhi would not be averse to importing “shale oil in the future.”

Finally, before one takes your leave and calls time on the 22nd WPC, it was a pleasure appearing on host broadcaster TRT World, and discussing the crude state of affairs on the channel’s Money Talks programme. Here’s a clip dear readers, but that’s all from Istanbul! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2017. Photo: The Oilholic (right) on TRT World’s Money Talks with Azhar Sukri © Gaurav Sharma 2017.