A right royal crude market hammering

Coronavirus jitters have delivered a right royal hammering to the crude oil market, with the pace of bearish blows picking up considerably over the last 48 hours. Both major benchmarks are now over 25% below their 2020 peak achieved in the wake of the US-Iran skirmish at the turn of the new trading year. 

Key issue in finding a price floor stems from the fact that many, in fact most, crude demand forecasters are shooting blind, as the Oilholic wrote on Forbes.com. The local viral outbreak in China soon became a regional epidemic, and is now – in the view of some – a global pandemic in a matter of weeks. Complete dataset of the virus' economic impact will be trickling in soon, and there is market conjecture around that the global economy could be heading for a recession. 

Were that to be the case, and the fact that the virus has reached 50 countries, could result in crude demand destruction on an unprecedented scale, as yours truly via on Rigzone. So where from here? No one really knows, and unless OPEC+ provides temporary reprieve via a production at its next meeting scheduled for March 5-6, price floor would be hard to pin down. We could see benchmarks tumbling to as low as $30 per barrel; something that has indeed happened in the not too distant past. 

For now retail, travel, airline and energy stocks continue to take a hammering. In fact, the energy sector is now down 34% from 52-week closing high, while both Brent and WTI futures look likely to post their worst weeks in recent memory (last seen between December 2008 and January 2009 at the height of the global financial crisis). 

That was also the verdict of many yours truly interacted at the recently concluded International Petroleum Week in London. The event itself looked like it fell victim to the coronavirus as understandably Chinese and indeed many overseas delegates stayed away. 

Only major energy CEOs in attendance were those of BP and Vitol, and most attendees were pretty pessimistic about the oil price direction. Nonetheless, dialogues on energy transition over the course of three days proved to be very interesting as the sector continues its attempt at a low-carbon future. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2020. Graphs 1 & 2: Brent & WTI futures price movement 3M to Feb 27, 2020.

A ‘Qatarstrophe’, Saudi-Russian bromance & Tariff Man

The Oilholic arrived for visit number 25 to Vienna, Austria, for the 175th Meeting of OPEC Ministers on Wednesday (December 5) with a 'Qatarstrophe' in the background, rumblings over the Saudi-Russian oil market bromance, and of course US President Donald Trump declaring himself to be a ‘Tariff man’ after declaring a temporary truce with China.

The view in (see above left, click to enlarge) – of wind farms in the foreground and mountains in the background – on a clear Austrian day was quite a sight, and on the ground, yours truly's early morning flight from Heathrow (BA696) pulled up right next to Russian Oil Minister Alexander Novak's plane. Surely that's a 'crude' sign of things to come over the next few days.

Right, first to the Qatarstrophe, in case you haven’t heard – Qatar, which has been a member of OPEC since 1961, has decided to quit the cartel to "renew and redouble" its national focus on natural gas. Away from the official version, Doha feels cornered in a cartel that no longer serves its interests and is dominated by Saudi Arabia, a country that has slapped economic and diplomatic sanctions on it.

While Qatar's announcement created an intraday kerfuffle and a mini shock, it should hardly come as a surprise. Here is the Oilholic's detailed take on the development for Forbes. Unlike others, this blogger believes the development is not a fatal blow for OPEC, since members come and go, quit and rejoin. However, it is worth noting that Qatar is the first Middle Eastern member to quit, and Saudi Arabia and United Arab Emirates must shoulder much of the blame.

And there are other rumblings – many other OPEC member delegations are briefing in Vienna that they are not particularly impressed by the bonhomie (or more appropriately a crude bromance) between Saudi Arabia's oil minister Khalid Al-Falih and his Russian counterpart Alexander Novak; the two architects of the OPEC/non-OPEC production cut agreement, first inked in 2016. While others are voicing their concerns guardedly, Iran is doing so quite vocally. 

Finally, there's Tariff Man – a.k.a. US President Donald Trump, who has, well, made some peace with the Chinese, leading to a temporary suspension of trade hostilities. Parking trade wars to the side, he's been firing tweets at OPEC. Bring in the noise! More from Vienna soon, but that's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Photo: View of Austrian landscape from BA696 to Vienna on December 5, 2018 © Gaurav Sharma 2018.

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.