Posts tagged “oil markets”
The latest news in the declining oil price saga comes from Saudi Arabia. Last week softening prices of Brent crude oil, the global benchmark, appeared to be resulting from weaker growth prospects in Europe and Asia. This week, according to a Reuters exclusive, the Saudis suggested that market share is preferable to them over the higher prices that other OPEC members such as Venezuela prefer. However, senior Saudi officials would not comment on this market share agenda that was reported as a result of last weeks investor and analyst meetings in New York, where Reuters obtained their information. It is also hypothesized that the Saudi trial balloons could be a vehicle to help other OPEC members see the wisdom in all members sharing in production cuts to shore up prices, not just the Saudis, which is par for the course.
By the November 27th meeting, more clarity from OPEC is expected. Concerns about U.S. oil supply growth with the potential for glut have been on the radar of numerous analysts for over a year. The prices of Brent crude and West Texas Intermediate (WTI) have fallen in tandem in the last few months. WTI dropped to $85 Friday October 10; January WTI futures fell $5.03 since Sept. 30 to $84.73 a barrel today on the New York Mercantile Exchange. The Energy Information Administration (EIA) noted October 8:
The price of North Sea Brent crude oil,[the global benchmark], has fallen to around $91 per barrel, the lowest level in more than two years and about 21% lower than its year-to-date peak of $115 per barrel on June 19. Average monthly Brent spot prices had traded within a narrow $5 per barrel range, from $107 to $112 per barrel, for 13 consecutive months through July 2014.
Saudi Arabia, the OPEC producer with the most influence, has made adjustments to production and pricing. Saudi Arabia cut its crude production by about 400,000 barrels a day in August. This reduction was tied to lower exports to Asian markets. OPEC said it had reduced estimated demand for its crude by 200,000 barrels a day for 2015. The EIA curbed its forecasts for OPEC oil and other liquid fuels production to 35.51 million barrels a day in 2015, down 350,000 bpd from last month’s forecast. For crude oil output alone the EIA cut its forecast by 300,000 bpd to 29.24 million bpd. In September, OPEC pumped nearly 31 million bpd. The EIA projects that Brent crude oil prices will average $98 a barrel in the fourth-quarter of 2014. Brent traded around $88 as of early afternoon October 13th.
This week BP (NYSE: BP) released their Statistical Review of World Energy 2014. This is always a big event for energy wonks, and as always I will break it down in a series of articles. My goal is always to flesh out important tidbits that were perhaps overlooked by the media. Here are some of the major findings from this year’s release that have been reported. In 2013:
- US oil production had the largest increase in the country’s history
- US oil demand grew at a faster pace last year than China’s, although China’s overall energy demand grew faster
- Asia increased solar output last year more than Europe for the first time ever
- Emerging economies accounted for 80% of energy consumption growth
- Global oil production rose to a new all-time high
In one of those overlooked tidbits I like to point out, while global oil production did indeed set a new record — rising in 2013 by 557,000 barrels per day (bpd) over 2012 — without the US increase of 1.1 million bpd, global production would have declined by 554,000 bpd. But I will take a deeper dive into that starting next week. Today I want to talk about Iraq.
Or, more precisely the impact the unfolding events in Iraq have had on the global oil markets, and more specifically how those oil markets actually work. I had an interesting discussion with someone last week, after a remark was made about oil companies using any excuse — like potential supply disruptions in Iraq — to immediately jack up oil prices. CONTINUE»
Risks, Rewards, and Soft Power
In oil markets, the year 2014 already looks to repeat 2013 with some important differences. Unpredictability in the commodities’ extraction and delivery, political risk, and policy risk may play a bigger role in 2014. The potential lifting of the crude oil export ban, which the industry and some lawmakers desire, may also stir up the market.
On the policy front, safety and methods of transporting oil and water disposal issues arose in 2013, and will likely again in 2014. The second rail disaster from transporting oil from North Dakota’s Bakken Shale, the Lac-Mégantic, Quebec incident with loss of life and the December 30th Casselton derailment, renewed the debate between pipelines versus rail transportation. The director of the North Dakota Department of Mineral Resources “predicted that as much as 90 percent of crude produced in the Bakken this year will move by rail” a recent article noted. In Parker County, Texas, the Texas Railroad Commission listened to residents’ complaints about earthquakes, which they attribute to disposal wells. The US Geological Survey sees a link between the earthquakes and wastewater disposal; a similar renewal in earthquake activity is reported in Oklahoma as well. CONTINUE»
More Supply, Competition and Friction Possible
News of Iran’s potential slow ramp up of oil supply resounded with a downward small ping in prices in late November, later to bounce back based on supply realities and economic growth. Iraqi oil supply keeps increasing, averaging about 3 million barrels per day, a new high in the last 20 years. Iraq plans to keep pumping — growing production 500,000 – 750,000 barrels more per day in 2014. Iraq’s output relative to OPEC production hovers near 10%, from around 7.5% in 2008. Iran’s contribution to OPEC production was around 12% in 2008, dropping in 2013 to 8.6%, according to a recent Wall Street Journal article.
“Al Arab Yantafiq lam yantafique,” said Mr. Charles Kestenbaum, a top Middle East expert and former U.S. Trade Specialist, in a November 25th interview, immediately following the news of Iran’s nuclear deal. This Arabic expression is translated as: ”Arabs can only agree to disagree.” In late November, the Dallas Committee on Foreign Relations hosted Charles Kestenbaum, a veteran of Middle East affairs since the mid-1970s. In his quote, a common expression, lies the challenges ahead in the Middle East.
Impacting Economics, Geopolitics and Markets
The U.S. is expected to spend about 8.5% of its GDP on energy in 2013. In 2008, when oil prices peaked, it was closing in on 10%. U.S. oil production provides a buffer to supply shocks — which happens frequently in the Middle East and North Africa, two key crude supply regions. In July 2013, disruptions to crude oil and liquids production were nearly 2.7 million barrels per day. Of the supply disruptions, 800,000 barrels were from non-OPEC nations and the other 1.9 million from OPEC, according to the U.S. Energy Information Administration (EIA). August is estimated at a 2.8 million shortfall.
The OPEC-related outages, which include Iran, Iraq, Libya and Nigeria, are considered to be the highest since early 2009. This has contributed to rising prices, from the year’s low of $97 in April to a high nearing $117 August 27th, after Syrian chemical weapons attacks followed on the heels of Egypt’s political turmoil. The causes of the outages in Libya were from labor disputes, while Iraq’s shortfalls originated from pipeline disruptions from violence; Iran’s woes stem partly from sanctions, and Nigerian oil challenges related generally to oil theft and infrastructure sabotage and degradation.
Geopolitical Risk Continues, Part Two
Turmoil in Egypt continues to roil oil markets and confound Middle East regional stability. Goldman Sachs said Monday, August 19th, five days after the violence escalated, it expected tighter oil markets to propel Brent to $115 “in the very near term.” More interesting though are the shifts occurring in the geopolitical landscape of the broader Middle East.
Saudi King Abdullah publicly gave his approval and support for the military-backed government of Egypt. He pledged a $12 billion aid package along with the UAE and Kuwait, four times as much as the military and economic grants from the U.S. and the European Union combined ($1.5bn and $1.3bn respectively). The threat of political Islam vis-a-vis the Muslim Brotherhood is seen as potentially up-ending stability in the Kingdom. This high-stakes game of regional poker has just gotten more complicated. The outcome, which may occur in waves of violence and instability, could take many years to be realized.
Geopolitical Risk Rises Again
The unrest in Egypt reverberated across oil markets to a degree, and a cloud of an unknown magnitude hangs over the Middle East North Africa (MENA) region once again. Some analysts expect oil prices, which have already risen to account for the high-octane volatility of Egypt’s political situation, to rise further. The Egyptian military’s crackdown on pro-Morsi supporters in mid-August has led to a significant death toll, with government condemnations ringing across the globe.
Brent crude oil prices have already risen by $10 per barrel since the military took over Egypt’s government in early July. However, conflict in Syria and unrest in Libya have also played a role in rising oil prices. WTI crude was trading at $107.33 per barrel, up 0.45 percent, and Brent up 0.34 percent, at $110.58 per barrel, on the morning of August 15th (GMT), after pro-Morsi supporters were just overrun. By the end of the day, Brent crude futures for September delivery traded at $111.11, the highest since March. A spokesperson for the Suez Canal, which transports oil from the Middle East to global markets, says oil transportation infrastructure security has been re-fortified. The Suez Canal and SUMED (Suez-Mediterranean) Pipeline are strategic routes for Persian Gulf oil and gas shipments to Europe and North America.
Jaunt Through West Texas Reveals Oil’s Revival
It was a 102 degree-hot, mid-July, typical summer day travelling on the road to West Texas; a nine-hour, high-speed journey made with numerous gasoline pit stops. Passing by Midland-Odessa, the commercial hub of the Permian Basin, was a stretch of energy mecca some 20 miles or more, filled to the brim on either side with oilfield services firms — transmission gear, pump equipment, fracking services, and other oil and gas-related businesses. Pumpjacks, also known as nodding donkeys, scattered across swathes of the expansive oilfields. Signs with “Home for Your Workforce” in Pecos and Odessa cropped up a couple of times. Workers, and their firms, are settling in for a boom which could last for many years to come, like the second boomlet in the 1970s and early ’80s that followed the Middle East oil crisis. Bust followed boom in Texas to the mid-1990s.
The scale of energy production in the Permian Basin looks mammoth. The Permian Basin produced more than 270 million barrels of oil in 2010, over 280 million barrels in 2011, and 312 million in 2012. In percentages, production increased 10% in 2011 and 35% in 2012. Texas’ oil production represents about 25% of the U.S. oil production, with the Permian housing 57% of Texas’ oil production, according to the Texas Railroad Commission.
Where there are higher prices or margins possible to justify accessible resources, production will follow. The ability to recover more oil, thanks to technological advances, which include multi-stage hydraulic fracturing, horizontal drilling and carbon dioxide injection, has reversed the declining U.S. production trend of 20-years prior.