It’s a summer of chaos in the Middle East and North Africa, which translates into great news for oil prices; Egypt chaos will continue and fears mount over the Suez Canal; Libyan exports are being cut off by militias, while production slumps; Iraq is on the verge of civil war and total collapse amid optimism over new oil fields coming on line.
Before we get started – I wanted to mention that those of you with investments in Ghana or who have positions with companies in the country – this week’s Executive Report is a must read for you as it looks at political developments and the outcome our well placed sources are expecting. To do this you will need to start a 30 day Free Trial to Oilprice premium – which you can do so here.
Oil prices in the US have risen to $107.33 per barrel over the chaos on Egypt, with over 680 people killed in the military’s campaign to disperse Muslim Brotherhood protesters—an ill-fated move that ruins the interim government’s credibility and ensures a continuation of violence and instability that could spread to the Suez Canal and affect the entire region.
This is what oil prices are responding to right now, but other trends could also keep oil prices on the upward swing for the near-term, not the least of them chaos in Libya, which is threatening exports and production, and Iraq’s attachment to the conflict in Syria.
Yesterday, while US oil rose 48 cents to $107.33 per barrel, September Brent rose 90 cents to $111 to reach its highest price in over four months.
For Egypt, it’s not about crude production, but about crude transit through the Suez Canal and the Sumed pipeline.
Then we have Libya, which enjoyed a post-Gaddafi revival of production to almost 100% capacity, up from 3% capacity in the summer of 2011. Last summer, it was producing 1.6 million barrels a day. But this has already been shattered. The authorities have less control over the country than do various bands of roving militias and tribal chieftains and the chaos is spreading daily. The country is on the verge of collapsing, oil workers are striking and security is a free-for-all. Militias can shut down an export terminal anytime they like. And they are doing it now. As of the beginning of this month, Libya has only one operating terminal—the others having been hijacked by militias. Production is also taking a hit this summer, and looks set to spiral downwards. As of this week, Libya is producing only 650,000 barrels per day.
Then we have Iraq, where production is slumping and targets are not being met as the country faces civil war and total collapse. We are always hesitant to write Iraq off, though. The resilience of oil to violent chaos is amazing, and somehow the oil keeps pumping when everything else has stopped working—up to a point. But Libya should be a harbinger of what could happen in Iraq if the current pace of disintegration continues. While Baghdad and Big Oil remain highly optimistic that not only will targets be met, but exceeded, by year’s end when production starts at the supergiant Majnoon oilfield, operated by Royal Dutch Shell. The optimism is probably realistic, for this year, but further down the road, the conflict in Syria threatens to turn the Iraqi oil giant into another Libya.
Another trend we’re watching closely is energy liberalization in Mexico. Be sure to check out this week’s premium newsletter for more insight into the Mexican president’s reform proposal for state-run oil company Pemex. This could be a major game-changer for the market that could end up significantly boosting US independence from OPEC producers.
This week’s special report (below) is by Dan Dicker – the legendary energy trader. Dan looks at why he believes a downturn has been brewing for the last few months and how investors should play it. See the full report below.
Also in this week’s premium newsletter, we have a superb lineup for subscribers with a must read report on the developing situation in Ghana. We also have a detailed report on the opportunities in recycling frack water and four intelligence reports you won’t want to miss.
The best thing is it’s completely free to join and you have 30 days to make up your mind as to whether the research is what you’re looking for. Click here for info.
That’s it from us this week.
I hope you enjoy the below report from Dan and have a great weekend.