Crude oil prices went up again this week as Saudi Arabia found itself at the forefront of sabotage attacks, carried out against oil infrastructure – the Fujairah port in the UAE and the East-West pipeline bringing oil from the oil-rich regions to the safer Red Sea coast. Concurrently, the US-China trade war began to spiral out of control, with both sides slapping tariffs on each other worth hundreds of billions of dollars. Add to this that backwardation is even steeper than previously foreseen (front-month to second-month Brent contracts edging beyond $1 per barrel for the first time since 2013), unexpected shutdowns and maintenances in the Norwegian part of the North Sea and you will get a cocktail fraught with problems.
With Iran now struggling to find a market niche from which it could sell at least part of its erstwhile exports, physical security of oil-carrying vessels or other infrastructure in the Persian Gulf is far from guaranteed. We will see whether the sides can be reasonable enough in this era of unreasonableness. As of today, the global benchmark Brent has been trading in the $70.5-70.8 per barrel interval, whilst WTI was hovering around $61 per barrel.
1. Guyanese Politics Start to Mess Things Up Badly
- As the Caribbean Court of Justice (CCJ) is reviewing the case whether the December 2018 vote of no-confidence against the ruling Guyanese parties (APNU-AFC) was legal, the nation’s cherished hopes of an oil bonanza might be at risk.
- The no-confidence vote was overturned by Guyana’s Court of Appeal and from there the opposition parties took the case to the CCJ, which has been taking its time with adjudicating on the matter.
- If the opposition People’s Progressive Party (PPP) will come out a winner from this, the ambitious plans of ExxonMobil and its partners to reach 0.5-0.6mbpd output by 2025 will be imperiled.
- The PPP considers the production-sharing agreements under which ExxonMobil operates the Stabroek block „too generous” and is openly stating its aim of renegotiating them.
- The Stabroek block has heretofore had 13 discoveries which raised Guyana’s recoverable resource tally from zero to 5.5 Bbbls.
- Under the Stabroek PSA, 75 percent of oil production would go to the shareholders, with the remaining 25 percent to be split evenly on a 50-50 percent basis with the Guyanese government.
- With an additional 2-percent royalty…