Getting a glimpse of the Tifosi at Monza

After a gap of nearly seven years, the Oilholic belatedly headed to a Formula 1 race-track in Monza, Italy, on September 2-3, to witness firsthand the changes that are afoot in the world of motor racing’s premier rung. 

But first, a word on Monza itself – that place of pilgrimage for F1 racing enthusiasts, the home grand of Ferrari and of course their exuberant ‘tifosi’ or the fans.

Inaugurated in 1922, the race track is the oldest in F1 and ranks alongside Monaco and Silverstone, UK as the three must-see races on the annual calendar for purists. 

Of course, it has undergone several modifications in its nearly 100-year history. The current circuit’s length is around 3.6 miles, with the race being 53 laps.

So in this historic setting, the Oilholic saw a rain-soaked qualifying on Saturday, and gloriously sunny race on Sunday. 

Regrettably for the neutral and indeed this blogger, a Ferrari did not win as four-time World Champion Sebastian Vettel could only manage a third-placed finish. Rather, the Mercedes driven by Lewis Hamilton carried the day. 

Of course, that didn’t stop the tifosi from partying like there’s no tomorrow and rushing on to the track post-finish as they usually do year in, year out. As for the cars themselves, this blogger won’t be the first to catalogue this but they no longer sound like the old ones. 

Back in 2010 – last time yours truly was in the stands – the circuit ran the 2.4-litre V8 cars – the sort of engine you could hear miles away from the race tracks. But in the 2014 season, under in a bid to appear environmentally friends, F1 went with the smaller less polluting 1.6-litre turbo hybrid V6 engine. 

It’s noise level just isn’t that great, if that’s your thing – rather decidedly underwhelming. So it’s best to forget the V10s and V12s; the Oilholic doubts they are come back. That’s all from Monza folks! Forza Ferrari! Keep reading, keep it crude!

Addendum 17.09.2017: For a more detailed report on the ever changing world of F1, here is the Oilholic’s take in a column for Forbes. 

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.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2017. Photo 1: Lewis Hamilton of Mercedes wins the Italian Grand Prix, Monza, Italy. Photo 2: Ferrari's Sebastian Vettel finishes third. Photo 3: The tifosi unfurl huge Ferrari banner at the conclusion of the Grand Prix.

To boldly go where no US oil patch has gone before!

The NASA inspired car showroom photographed by the Oilholic some months ago in Houston, Texas could sum up the US oil patch's inspirational streak. Its going where, quite possibly, no US oil patch has gone before. 

Sentiment is rapidly rising in favour of US production capping an all time high in 2018 of (well in excess of) 10 million barrels per day (bpd). 

If achieved, that would be the highest US production on record, well above 1980s Texan boom and more recently, when both Dakotas put the word ‘revolution’ and in the shale revolution we’ve now become so accustomed to. 

The other leveller of course, is innovation. With extraction costs having declined dramatically and oilfield services firms' offerings to exploration and production companies getting ever more competitive, some with viable shale plays can keep going even at a $30 per barrel oil price. 

Here’s the Oilholic’s assessment in a recent Forbes post. Inventories may not have quite rebalanced, while more oil is on the way. 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.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2017. Photo: Exterior of NASA-themed car dealership in Houston, Texas, USA © Gaurav Sharma 2017. 

No surprises! OPEC & non-OPEC cuts rolled over for 9 months

If you were secretly hoping for a surprise at the 172nd OPEC ministers' meeting, consider your hopes dashed, as things went perfectly according to script.

Except of course Equatorial Guinea became the 14th member of OPEC out of the blue, and with little prior intimation to half of the world's press. 

That meant 24 oil producers - including 10 non-OPEC nations led by Russia, and 14 OPEC participants headed by kingpin Saudi Arabia - rolled over their 1.8 million barrels per day (bpd) output cut to March 2018. 

Libya and Nigeria were exempt, Iran will be given some leeway, and Russia reaffirmed it was sticking to its 300,000 bpd pledge; the largest non-OPEC output cut of its kind on paper. (Here's the full IBTimes UK report). 

Big question is where from here? If Saudi Oil Minister Khalid Al-Falih is to be believed, this is all about rebalancing the market back to its five-year average. Problem here is that a buffer producer in the shape of the US keeps plugging away with some predicting its output to touch 10 million bpd in 2018. 

Were that to be the case, is OPEC not in effect subsidising shale players? Thrice yours truly asked Al-Falih whether that was the case, and thrice the question was ignored. The Oilholic is not convinced the extension of this cut would provide short-term support to the oil price that some are hoping for. 

In fact the initial response of the market has been something of a mini selloff, as many were hoping the cuts would either be deepened or be extended by 12 months. Nether happened, but the market got plenty of food for thought. That's all from Vienna in this instance folks. More when the Oilholic can make a more considered assessment and has gathered his thoughts. Till then, 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.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2017. Exterior of OPEC Secretariat, Vienna, Austria © Gaurav Sharma 2017. 

Onto blockchains and barrels in Houston Town

Greetings dear readers, the Oilholic is back in Houston, the oil and gas capital of the world, with OPEC soundbites from far afield having ensured Brent is back above $50 and on track to end the week higher than where it began. 

Meanwhile here, upstream innovations helping the US oil patch in this era of ‘lower for longer’ oil prices are the talk of the town, but among the digitisation platforms the crude world has started taking to with increased ferocity – the subject of blockchains – keeps propping up.

Don’t worry, yours truly was bit foxed too at the start, wondering what on earth is a blockchain, let alone its platform deployment in an industry thatm let’s face it, lags others in digitisation. 

So in simple terms, a blockchain is akin to a digitally distributed ledger that can be replicated and spread across many nodes in a peer-to-peer network, thereby minimising the need for oversight and governance of a single ledger. 

Each transaction on the ledger is recorded and added to the previous one. These additions result in a growing 'chain' of information. 

At the 2017 Baker & McKenzie Oil & Gas Institute, it was a much discussed subject, albeit included in the wider discussion on digitisation in the sector.

Here’s the Oilholic’s full report on the deliberations for IBTimes UK, which is well worth reading. While nothing is foolproof, there is growing consensus within the industry that blockchain ledgers can help fight fraud and corruption. 

As if that wasn’t enough for you on the subject of ‘crude’ digitisation, Shell’s top lawyer David Brinley also told institute delegates the oil major’s technology hub in Bangalore, India has never been more integral to its business than it is now.

"From automation to 3D printing of project prototypes, to an app on how to locate your car in a car park – Shell would like to be at the forefront of inexorable technological changes we are seeing in the 21st century." 

Away from crude chatter, the Oilholic leaves you with a glimpse of a refreshing pint at The Richmond Arms pub, which tasted even better after yours truly cheered on Manchester United to the UEFA Europa League final. 

If you happen to be in Houston, and need to watch English Premier League clubs in play, or European football (er...called socccer here) there’s no better place to watch in The Galleria area for starters, and in the whole city in some ways too.  

That’s all for the moment from Houston 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.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2017. Photo 1: Chevron Towers, Downtown Houston. Photo 2: Pint at the Richmond Arms Pub, Houston. Texas, USA. © Gaurav Sharma 2017.

Of soundbites and buffer crude producers

If sounbites were the sole influencers of the oil market direction, Brent ought to be near $60 per barrel. (see chart on the left, click to enlarge) 

The fact that it isn’t, and couldn’t be any further from that promised level despite OPEC cuts tells you that verbal quips from oil producers matter little when the market is trying to readjust to a new normal; i.e. the impact of a buffer producer in the shape of the US of A.  

When OPEC and 11 non-OPEC producers came together last December to announce a headline production cut of 1.8 million barrels per day (bpd), it was done in the knowledge that inevitably US shale producers would benefit from higher prices too. 

However, the economic paradox of that was additional US barrels replacing barrels taken out by the OPEC and non-OPEC agreement. In March, Saudi Energy Minister Khalid Al-Falih ensured that the OPEC put unravelled by quipping that his country would not subsidise non-OPEC margin plays by supporting an extension of the OPEC and non-OPEC agreement, due to expire in June. 

The result was a near instantaneous drop in both benchmarks as the market factored in the possibility of more OPEC barrels. Soon thereafter, on witnessing the ensuing oil price slide, ministers of several OPEC member nations, including Al-Falih himself, issued soundbites claiming an extension to the cut was in fact possible. However, in the Oilholic’s humble opinion, the damage had already been done by that time. 

This blogger's interaction with the wider market – whether we are talking spot or futures traders – leads one to believe that sentiment is in favour of higher US production, with each OPEC and non-OPEC barrel taken out of the market subsidising an American barrel. Of course, it’s not as linear or simple but the market’s reasoning isn’t flawed.  

All OPEC soundbites in favour of extending the cartel’s cut further are fuelling such sentiment further. Should OPEC extend its cut, the artificial support to the oil price would again be short-lived, as US barrels will continue to flood into the market. 

Finally, the Oilholic believes the market is showing signs of rebalancing unless it is artificially tampered with, and there could be some semblance of normalcy by September-end. So as such neither is an OPEC cut needed nor are the soundbites in its favour. Perhaps the cartel might consider keeping mum for a change! 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.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2017. Graph: Oil benchmark prices year to date © Gaurav Sharma 2017.

‘Crude’ recollections of a former OPEC bigwig

For over two decades, every word Ali Al-Naimi uttered was lapped up by the oil market. It wouldn’t be otherwise, if you were the oil minister, as he once was, of OPEC heavyweight Saudi Arabia between August 1995 and May 2016.

So when Al-Naimi’s memoir – Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil – appeared on the horizon barely a few months into his retirement, global headlines were all but guaranteed, especially at a time of extreme volatility and a once in a generation market dynamic shift in the global crude world.

Yet, before the world got to know Al-Naimi as the oil market heavyweight, there was the nomadic shepherd boy born of humble beginnings in Eastern Arabia who dreamt of making it big.

In a memoir of over 300 pages, split by 19 chapters, Al-Naimi recounts his extraordinary journey, from an office boy in 1947 at oil company Aramco, to the CEO’s chair in 1988 of the then state-owned Saudi Aramco.

Al-Naimi’s recollections send the reader alternating from human interest sentiment to hard core global geopolitics, inner workings of the oil industry to the deals in the corridors of power, corporate decisions to political manipulation. There’s a bit of everything, and more of what you would come to expect of a global political figure. Afterall, power, politics and that precious natural resource called oil go hand in glove.

Having interacted in a journalistic capacity with Al-Naimi at several OPEC meets prior to his retirement, I often heard the industry veteran quip that in his career he had seen the oil price drop to as low as $2 and climb as high as $140 a per barrel. This book will help you get some perspective.

Even before it hit the shelves, media outlets as diverse Forbes, Bloomberg and the International Business Times, were writing news stories based on excerpts from it in a bid to take Al-Naimi’s thoughts and help them decode, how for instance talks between OPEC and non-OPEC oil producers would pan out.

From OPEC’s traditional mistrust of Russia, to everyone in the oil business looking at the Saudis to cut, Arab oil embargo to the collapse of Lehman Brothers, Al-Naimi has catalogued implications of such events for the oil market. For instance, Al-Naimi claims that in a situation akin to the crisis of demand seen in 2008-09, when the 2014 supply glut crisis hit, everyone expected the Saudis to act but offered no help with sharing the burden.

An already brilliant narrative is enhanced by a peppering of market anecdotes previous unheard of which the Oilholic enjoyed reading. The book’s appeal is universal. That said students of history, oil industry observers, industry analysts and geopolitics enthusiasts ought to regard it as a must read.

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.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2017. Photo: Front Cover – Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil By Ali Al-Naimi © Penguin Publishers, 2016.

Oil bust of 2015 worse than you thought

While much of Wall Street appears to be at peace with the ‘lower for longer’ oil price slant, new research suggests the industry slump of 2015 was not as bad as we thought stateside; it was actually much worse! 

According to ratings agency Moody's, the oil bust that began in 2015 may turn out to be on par with the telecoms industry collapse of the early 2000s, and worse still it continues to fester. 

Both in terms of the number of recorded bankruptcies, as well as the recovery rates for creditors – 2015 was annus horribilis, with 2016 showing signs of making it look tame.

David Keisman, Senior Vice President at Moody's, says the agency recorded 17 oil & gas bankruptcies in 2015, with 15 coming from the Exploration & Production (E&P) sector, one from oilfield services, and one from drilling. Furthermore, Moody's E&P bankruptcies have accelerated in 2016, with the year-till-date figure about double that for all of 2015.

"The jump in oil and gas defaults that was driven by slumping commodity prices, was primarily responsible for the increase in the overall US default rate in 2015 and continues to fuel it in 2016. When all the data is in, including 2016 bankruptcies, it may very well turn out that this oil & gas industry crisis has created a segment-wide bust of historic proportions," Keisman adds.

That’s because during the telecoms collapse, Moody's recorded 43 company bankruptcies in the three-year period between 2001 and 2003.

Revealing further data, the agency said firm-wide recovery rates for E&P bankruptcies from 2015 averaged only 21%, significantly lower than the historical average of 58.6% for all E&P bankruptcies filed prior to 2015, and the overall historical average of 50.8% for all types of corporates that filed for bankruptcy protection between 1987-2015.

At the instrument level, reserve based loans on average recovered 81%, significantly lower than the 98% recovered in prior energy E&P bankruptcies from 1987-2014. Similarly, other bank debt instruments also on average recovered much less than in previous bankruptcies. For their part, high yield bonds recovered a dismal 6%, compared to a recorded rate in the low 30% in previous E&P bankruptcies.

Finally, Moody’s also notes that “distressed exchanges did little to stave off bankruptcies. More than half of the E&P companies that completed distressed exchanges ended up filing for Chapter 11 bankruptcy protection within a year.”

The agency's sobering take follows those of its ratings industry rivals, with Fitch noting that all European oil majors are likely to generate large negative free cash flows for the full-year 2016, and S&P observing that energy and natural resources segment has the highest concentration of global corporate defaults by sector accounting for 65 issuers, or 56%, of the 117 defaults worldwide in the year to August-end. 

Away from industry doom and gloom, and just before yours truly bids goodbye to the Big Apple, one had the invitation to attend the ICIS Kavaler Award Gala reception sponsored by the Chemists Club at the City’s Metropolitan Club. 

This year’s winner was British serial Industrialist Jim Ratcliffe, the founder of chemicals firm Ineos. According to ICIS, Ratcliffe is the first foreign winner of the award, decided by his peers in the chemicals business. 

Pre-gala, the Oilholic had a drink to that; albeit one which was shaken not stirred, quite like much of the oil & gas industry is at the moment. That’s all from New York folks, with Pittsburgh, Pennsylvania calling next! 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.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo 1: Wall Street Signage, New York, USA. Photo 2: The Oilholic in The Big Apple © Gaurav Sharma, September 2016

On crude producers’ talks, analysts & academics

As the second month of the third oil trading quarter of 2016, comes to a close both Brent and WTI futures remain in technical bull territory despite a recent cooling down of oil prices. 

The Oilholic is struggling to find any market analysts – including those at UBS, Commerzbank, Morgan Stanley or Barclays to name a few – keeping their faith in (a) the oil producers’ talks pencilled in for end-September producing anything tangible, and (b) whether an output freeze would actually work with oil production in Russia and Saudi Arabia at record highs. 

A real terms cut in production could provide a short-term boost to prices but it does not appear to be even a remote possibility at this point. Yet, the long callers continue to bet on an uptick if the latest US CFTC data is anything to go by. As the Oilholic pointed out in July, demand projections continue to head lower, so yours truly did ask the question in a recent Forbes piece – are the talks as much about stabilising oil supply, or a likely post-Sept dip in China’s demand.

As for viewing the oil price via the prism of demand permutations, Fitch Ratings’ latest assumption for ratings purposes just about sums it up. The rating agency assumes Brent and WTI will average $42 per barrel in 2016, up from its $35 base case in February.

“However, we do not believe that the rapid price recovery seen in the first half of 2016 will continue. The sub-$30 prices at the start of the year approached cash costs for many producers and were unsustainable in all but the very short term. Prices in the $40-$50 range allow most producers to break even on a cash basis, if not to cover sunk costs,” it added. 

Furthermore, market expectations that US shale production will begin to rebound at prices above $50, will keep prices below that level until a supply deficit has eroded some of the inventory overhang.

Away from market shenanigans, another one of those research papers predicting there are no viable alternatives to oil and gas for meeting global energy needs arrived in the Oilholic’s mailbox. This one is from the Head of Petroleum Geoscience and Basin Studies research and Chair of Petroleum Geoscience at University of Manchester Dr Jonathan Redfern and energy recruiters Petroplan; overall an interesting read. 

Sticking with ‘crude’ academic papers, another interesting one was published this month by Luisa Palacios of Columbia University’s Center on Global Energy Policy charting Venezuela’s growing risk to the global oil market.

The country’s problems are well documented, but Palacios claims glaring losses in oil production have "yet to translate into a commensurate fall in oil exports", due to the heavy toll taken by the economic collapse on domestic demand. (PDF download link)

Furthermore, the stability of exports reflected in the data in first half of the year "masks a deteriorating trend with June exports already more than 300,000 barrels per day lower than last year’s average."

Despite all the headline noise about Venezuela, the most severe risks to oil markets thus still lie ahead. Certainly food for thought, 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 IBTimes UK click here.

To follow The Oilholic on Forbes click here.

To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2016. Photo: Oil platform © Cairn Energy Plc. 

Crude markets post Brexit: Keep calm & carry on

Right after the OPEC summit, we went into the home strait of the UK’s June 23rd referendum on its membership of the European Union, which has resulted in a Brexit or to put it more blandly – Britain’s exit from the EU.

 

It drained the life out of talking about anything else, or writing about anything else or blogging about anything else. So please accept the Oilholic’s apologies for not responding on wider ‘crude’ affairs via this blog for much of the month.

 

The deed is done; the British public voted 52% to 48% in favour of exiting the European Union, and to quote one departing EU official – "what has been done cannot be undone." The development followed a predictable market kerfuffle, with some comparing or at least attempting to compare its aftermath to the Lehman Brothers collapse. As the Oilholic said on a recent broadcast, serious though it might be, it is not quite on that scale for the oil markets.

 

Oil will continue to lurk around the $50 per barrel level and struggle to cap that over the next six months, and much of it would have little direct connection to the Brexit vote. On the eve of the vote, yours truly looked at FX, oil and gold plays via a Forbes column, and did an oil market impact assessment or a crude Brexit post mortem exactly a week on from the outcome of the result.

 

Brexit’s only contribution has been to add to the prevailing market sentiment that oil demand growth will not quite fire up. Most demand growth projections, for instance those of the IEA and OPEC, are in the 1.2 – 1.4 million barrels per day (bpd) range. The Oilholic suspects come the end of the year, even the lower end of that range might not be matched.

 

Brexit and the uncertainty in Europe would have some impact, but much of the oil market is reliant on emerging market demand and its direction should be the primary cause for concern. Europe accounts for only 15% of global trade. The direction of global trade and manufacturing is eastwards, by default so is the direction of the oil market.

 

Furthermore, there is still plenty of oil around according to physical traders. What was one of the biggest oil gluts of all time last year, will not be resolved in a matter of months. The Oilholic has always maintained that the oil market will not rebalance until much later into 2017 and the oil price will stick around $50 level until December.

 

Given that context, Brexit is just another crude problem, but not the only problem. Keep calm and carry on!

 

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 South Asia © Cairn Energy.

It’s about the ‘crude’ bid/ask differential stupid!

That there are distressed oil and gas assets stateside is pretty obvious. The damage was done, or rather the distress was caused, long before the crude oil price started lurking in its current $40-50 per barrel range, with no guarantees and only calculated guesses on where it is going next.

Actually, nowhere but the current range, as some, including the Oilholic, say. We’d agree that the high yield debt market is in the doldrums, and pretty much since the oil price slump began in 2014 we are told private equity players are sizing up the level of distress and waiting for a timely swoop for assets armed with billions of dollars. 

There is only one problem – the bid/ask differential. Some, not all, sellers of distressed assets are still in denial and holding out for a better price. Buyers themselves, to be read as private equity buyers, are no mugs either and won’t buy any old asset at any old price. It then bottles down to the buying the right asset at the right price in a high stakes game, to quote not one but several of this blogger’s friends who addressed the Baker & McKenzie Oil & Gas Institute.

Then again other industry contacts, whom yours truly interacted with at the Mergermarket Energy Forum, say there is evidence of the bid/ask differential narrowing considerably relative to last May because some sellers literally have no choice and are desperate.

But now the PE guys want ‘quality’ distressed assets and some, as has become apparent in the Oilholic’s discussions with no less than 20 industry contacts and having participated in three oil and gas events (and counting) since Monday.

Anecdotes go something like this – some PE firms no longer want to buy an asset from a distressed oil and gas firm in Chapter 11 bankruptcy proceedings, but rather wait for it to actually go bust and then go for the target asset on much better terms, despite the obvious risk of losing out on the deal should another suitor emerge during the game of brinkmanship.

The debate will rumble on for much of 2016 with close to 70 US oil and gas firms having filed for bankruptcy this year alone! You get a sense in Houston that PE firms have the upper hand, but aren’t having it quite their own way, just as plenty of zombie small to mid-sized oil and gas companies that do not deserve to survive continue to muddle along. That’s all for the moment from Houston 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 pump jacks in Texas, USA © National Geographic Society.

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

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.