• 2 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 2 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 2 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 3 days British Utility Companies Brace For Major Reforms
  • 3 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 4 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 4 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 6 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

The New Challenger To Lithium Batteries

The lithium-ion battery is head…

Alt Text

With A World Awash In Oil, Kazakhstan Faces Fuel Crisis

Kazakhstan is struggling with a…

Midweek Sector Update: Expert Predictions For Oil All Over The Map

Midweek Sector Update: Expert Predictions For Oil All Over The Map

OPEC’s strategy of choking off North American shale appears to be going according to plan. Baker Hughes reported another significant decline in the rig count for the week ending on February 6. The oil services firm reported that 87 rigs were pulled out of operations last week, which followed a record-breaking 94 rig decline the week before. The number of active rigs is now at its lowest level since 2011, and is down 29 percent since October.

This suggests that Saudi Arabia’s plan of making North American shale producers “sweat” is bearing some fruit. Oil prices have started to rise, and on February 9, OPEC published a report projecting an increase in demand for its oil by an estimated 430,000 additional barrels per day, which will come largely at the expense of rival producers. OPEC revised its projection for non-OPEC supply down by 420,000 barrels per day as a result of shale producers pulling back. Under this scenario, OPEC goes a long way to achieving its goal of reestablishing order in the oil markets, putting the pain of adjustment on the backs of shale drillers. With a contraction in North American shale, OPEC restores its primacy as a major market mover.

The International Energy Agency (IEA) largely agrees, at least on the short-term. The Paris-based organization released a parallel report forecasting a price rise in 2015 as North American shale producers begin to cut back on production, mostly beginning in the second half of the year. As a result, a “price rebound…seems inevitable,” the report concluded. On the other hand, the IEA is much more sanguine than OPEC about the longevity of the shale revolution. As soon as prices begin to rise, U.S. shale producers will bounce back, jumping from 3.6 million barrels per day in production from shale to 5.2 million barrels per day in 2020. The current bust is merely temporary. Complicating the price outlook, the IEA says, prices rise, causing shale to bounce back, which will in turn keep a lid on the extent of the price rise.

Both the IEA and OPEC could be way off the mark, however. According to Citigroup’s Ed Morse, who came a lot closer to predicting the oil bust than almost anyone else, oil prices may crash once again. The recent uptick in prices is more of a “head fake” than a real rally. In fact, the oil price recovery may chart a “W”-shaped course: crash, recover, crash, recover. That is because oil traders are putting too much weight on the rapid decline in oil rigs, expecting a swifter turnaround than Morse thinks is justified. Meanwhile, U.S. oil production is many months away from actually contracting. Citigroup thinks that oil prices could fall to $20 per barrel before it is all said and done.

That stands in sharp contrast to the $200 per barrel that OPEC’s Secretary-General thinks might be a possibility due to a lack of investment in new sources of production. Although it is unclear what happens next, one thing is for certain: oil price projections are all over the map. As of this week, oil prices have hit the pause button on the rally, pairing back some of the gains. WTI traded just below $51 per barrel on February 10, with Brent right around $57.

Of course, there is no shortage of geopolitical flashpoints that could influence the trajectory of oil price fluctuations in 2015. Libya, one of Africa’s most prolific oil producers, is disintegrating into a sea of flames. Rival factions are fighting over territory and political power, including control over Libya’s major oil fields and oil export terminals. Libya’s oil output has fallen precipitously to just 325,000 barrels per day.

But the oil markets could hit a major inflection point by mid-year. The negotiations between the west and Iran over its nuclear program will reach its denouement, culminating in either an historic deal or the breakdown of talks. The two sides have narrowed their differences considerably, but the final push may be the most difficult. Even if the U.S. and Iranian Presidents can come to terms, both sides would need to sell a deal to more hawkish and hardline elites back home. If Iran is brought back into the fold with a major deal sealed, oil markets could see a flood of oil come online just as the supply and demand picture begin to balance out, potentially causing prices to crater once again. On the other hand, if the discussions falter or derail, relations could deteriorate between Iran and the west, putting upward pressure on the price of crude. Time will tell, but both the American and Iranian sides have suggested that they are unwilling to extend the negotiations any further. It will be deal or no deal in the coming months.

The prospects for a peaceful solution to the crisis in Ukraine look even more daunting, if that is possible. German Chancellor Angela Merkel and French President Francois Hollande are conducting urgent diplomacy with Ukraine and Russia to try to calm the violence. Merkel and Hollande hope to meet with Russian President Vladimir Putin and Ukrainian President Petro Poroshenko in Minsk on Wednesday with the intention of reaching a ceasefire. Meanwhile, fighting continues as the Ukrainian military pushes back against rebel advancements in disputed territory in Ukraine’s east. The negotiations are set against a looming backdrop – the U.S. is moving towards providing Ukraine with military assistance, but appears to be awaiting the outcome of Merkel’s and Hollande’s diplomatic efforts.

Looking further east, China announced that it has made a major natural gas discovery in disputed waters in the South China Sea. The Lingshui 17-2 gas field could hold 100 billion cubic meters, equivalent to about 7 months of Chinese gas supply. Located about 150 kilometers south of the island of Hainan, the gas field could feed into existing tensions in the region.

Back in the U.S., the steelworkers strike at oil refineries entered its second week and even expanded to include several more locations. Workers in northwest Ohio and Indiana walked off the job, affecting two BP refineries. Negotiations with Shell, which is in talks with steelworkers on behalf of the oil industry, are ongoing. Refinery owners insist that the work stoppages will not affect output.

By Evan Kelly of Oilprice.com




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News