Showing posts with label 2017 oil price forecast. Show all posts
Showing posts with label 2017 oil price forecast. Show all posts

Monday, October 30, 2017

Oil bulls being cautious in Zurich

The Oilholic finds himself in the financial hub of Zurich, Switzerland for a splash and dash trip and afterhours ‘crude’ banter here suggests oil bulls are being cautious ahead of the 30 November OPEC and non-OPEC oil ministers’ meeting.

Market anticipation that the ongoing 1.8 million barrels per day (bpd) production cuts would be rolled over beyond March 2018 has sent the Brent front month contract well north of the $60 per barrel mark. As yours truly was boarding his flight out of London, Brent was trading at $60.73 per barrel and heading higher, notching its highest level since July 2015 and marking a rise of more than 36% from the lows seen in June. Some are quite excited.

Take Paul Mumford, fund manager at Cavendish Asset Management, for instance. He notes: “With each dollar trickling straight through to the bottom line, if prices remain at these levels we’d see a rapid increase in oil firms’ cash flows – something that could mean a significant shake up. Asset values would increase sharply in line with projected earnings, banks would be more relaxed about borrowings and farm-out agreements would become easier and more lucrative.

“The lives of mature fields may be extended deferring steep decommissioning costs, exploration would become increasingly viable, and project financing should be easier to obtain. Higher prices could also be an incentive for consolidation in the industry. The downside however might be that we see an increase in drilling costs, but this would benefit the oil service companies. There is every reason to have confidence in the oil market – $50 a barrel and below is a struggle, $55 is good and $60 and above means cigars for everyone!"

Be that as it may, oil market observers in Zurich, and the few who kindly made their way from Geneva to speak to the Oilholic, say the situation warrants caution.

Spot Brent lags a good $3-plus per barrel. And while it’s all good to go long based on the daily newsflow in the run-up to the OPEC meeting, the absence of an exit strategy by those partaking in the production remains a big question-mark.

If the cuts are rolled over – as is appearing increasingly likely – folks here in Zurich opine, and the Oilholic concurs, that the bears would only be going into hibernation for a limited time. The cuts have to end at some point.

Away, from the oil price, MarketLine’s latest industry assessment released last week, suggests the global oil & gas market shrank by 13.6% in 2016 as low crude oil prices pushed down revenues. Overall, the global oil & gas market saw its value fall from $1,395.7 billion in 2015 to $1,205.6 billion in 2016.

The research outfit’s latest forecasts predict a market value of $1,624.7 billion over the period 2016 – 2021; coming to a Compound Annual Growth Rate (CAGR) of 6.1%. Volume growth during the same period is forecast at 1.6% reaching a total consumption of 52,619.8 million barrels of oil equivalent.

The MarketLine report also highlights that the US oil & gas market is the largest domestic oil & gas market in the world, with a total value of $286 billion in 2016. This means that the US market alone accounts for almost 24% of the global oil & gas market.

Those shale players haven’t gone away. If higher prices benefit OPEC, US independents prosper too. Question here in Zurich and beyond is what happens when more barrels – both OPEC and non-OPEC – start hitting the market? Fondue for thought indeed, but that’s all from Switzerland folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2017. Photo: Zurich, Switzerland © Gaurav Sharma 2017.

Sunday, October 22, 2017

Rig count falls and crude oil bulls rise!

Another Baker Hughes weekly rig count gives the oil bulls crumbs of comfort. Perish the thought, if you are thinking the Oilholic is understating the recent price rises. 

The current climate does offer the bulls a position of relative strength compared to how the quarter before was panning out. 

The latest count shows the biggest one-week rig drop in US Permian Basin in 19 months, with the headline count down by 15 to 913 operational oil and gas rigs stateside. 

Last week, Brent was up 1.22% week-over-week to $57.87 per barrel and nudging up to $60, while the West Texas Intermediate front-month contract was up 1.97% to $52.03. OPEC’s basket of crude oils also appears to have perked up, notching a gain of 1.98% to $55.52. (See chart above, click to enlarge)

More so, because the Russian and Saudi heads of state do seem to be contemplating an extension of the OPEC and non-OPEC production cut agreement ahead of the 30 November meeting of oil ministers in Vienna. Add all of it up and you’ll find the mildly bullish sentiment is not misplaced. 

In fact, the probability of the ‘on-paper’ cut of 1.8 million barrels per day (bpd), of which OPEC’s share is 1.3 million bpd, being rolled over beyond March is pretty high. The Oilholic would say 80%. Of course, these are bizarre times in the crude market, as the recent appeal by OPEC Secretary General Mohammed Barkindo to US shale players to also cut production suggests. 

Right now, signatories to the OPEC / non-OPEC agreement appear to have little choice but to roll over the cuts as there is a clear absence of an exit strategy. However, the cap has to end someday, and that’ll be a field day for the bears (at some point in 2018) with Saudi Arabia, US and Russia all tipped to have production levels above 10 million bpd next year. 

That presents little prospect of the so-called ‘elevated’ oil price to escape its current range, as yours truly noted in a recent Forbes post. Have a read, alternative viewpoints are most welcome – just ping an email across. 

For the moment, it’s about playing the longs week-on-week in the run up to the OPEC meeting based on the newsflow. However, 12 months out, the oil price would struggle to stay above $65 per barrel using the West Texas as a benchmark, as more non-OPEC oil is bound to come on to the market the moment it caps the $60-mark. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Graph: Oil benchmarks closing prices on Friday from January 2017 to date  © Gaurav Sharma 2017.