• 3 hours LNG Glut To Continue Into 2020s, IEA Says
  • 5 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 9 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 11 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 12 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 4 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 5 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 7 days U.S. Oil Production To Increase in November As Rig Count Falls

Breaking News:

LNG Glut To Continue Into 2020s, IEA Says

Alt Text

UK Oil And Gas Costs To Rise 100% If Brexit Fails

Brexit negotiators’ failure to secure…

Alt Text

Mass EV Adoption Could Lead To $10 Oil

As the adoption of electric…

Alt Text

Goldman Sachs: Inventory Drawdowns Will Not Continue

Goldman Sachs has reported that…

Stuart Parnell

Stuart Parnell

Stuart Parnell is a managing director in Stormont Energy Advisors In addition to deal origination and M&A transaction management, Stuart focuses on the financial side…

More Info

Does This Oil Price Rally Have Legs?

Oil Guy

Yup, you heard it here first (or second, maybe even third), last week was the week that it all happened, the week that we can finally call the oil price crisis officially over.

Okay, maybe not completely over, or even close to almost over, but is sure was nice for a while to taste the sweet nectar of oil prices over $50, no matter how fleeting that might be.

So what happened? Well, a few things.

Storage

Global storage and inventory finally seems to have turned the corner. Although as mentioned before the data is hopelessly lagged, completely untransparent and unreliable at the best of times, the anecdotal evidence is piling up. From completely unsubstantiated stories of critical supply hubs in Africa being drained of oil to another article exposing China as an oil hoarder, the trend is unmistakable – inventories are coming down. Now, if only we could have some proof…

OPEC/NOPEC

Aside from Libya and Nigeria, the OPEC/NOPEC production restraint alliance has held up surprisingly well. With compliance high and the market seemingly turning the corner, it was interesting to hear the speculation that extending the cuts further into 2018 from the current March end date was on the table. While not explicitly discussed at this Friday’s meeting to assess the effect of the production-cap agreement and progress toward a balance between supply and demand, it will surely be on the agenda for the November semi-annual fooferah and bait and switch session.

Related: The EV Boom Is Dead Without Proper Support

Rhetoric and Global Instability

The world is a funny place. Just when you think we have reached some measure of peace and stability, someone throws a wrench into things. Now, aside from the usual nonsense in the Middle East, we have specific hot spots which should see the risk premium in the price of oil rise over the next few months. These include:

• The ongoing conflict in Yemen, which is increasingly expensive and distracting for Saudi Arabia and threatens to drag in the United States

• The Monday referendum on Kurdish independence in Iraq and what it means for oil production in the important Kirkuk region. Right now, it’s up in the air.

• The on-again, off-again sabre rattling by the Americans towards Iran and threats to cancel the nuclear agreement and reinstate sanctions

• The very frightening escalation of tensions on the Korean Peninsula between North Korea and pretty much the rest of the world but particularly South Korea, Japan and the United States. While presumably cooler heads on either side should and will prevail, the war of words between “Rocket Man” and “the Dotard” risks allowing events to spiral out of control.

• And who can forget the ongoing covfefe crisis in Nambia.

U.S. field activity, draw-downs of fuel supplies with the refinery shutdowns in the United States.

As noted previously, the rig count seems to have plateaued in the U.S., held back by range-bound oil prices, rising field costs and skittish capital markets. This makes the predicted tsunami of tight oil less likely to overwhelm the market (at least until oil hits $55 to $60, then watch out!). That said, the oil and gas sector has a tendency to over-invest at absolutely the worst time so keep an eye out.

Another significant influential factor is the knock-on effects of the shutdown of refineries due to Hurricane Harvey and the after effects of both Harvey and Irma. In a nutshell, huge draw-downs in fuel and distillates (think cars, diesel for heavy machinery) are not being supported fully by refinery runs which will serve to draw down the excess inventory and are quite bullish for prices.

The impact of lower investment

The IEA published a chart showing the upstream oi and gas investment was down 44 percent in 2016 from 2014. While a modest uptick is expected in 2017 (mostly U.S. tight oil and Canada), the spillover effect of this drawback in investment is in most analyst’s views likely to be tight supply starting perhaps as early as late 2018, especially if the OPEC cuts hold and the US has really plateaued.

But the big catalyst?

Let’s face it, most of the above are supply side and are all at the margin. The biggest factor in any strength of prices or longer-term reduction in inventory has to be demand driven. Well I guess it’s fair to say that the consumer has finally delivered on cue. According to the IEA, demand growth is a robust 1.6 million barrels a day so far this year, far ahead of earlier forecasts and supporting some of the highest levels of global GDP growth in recent memory, proving yet again that the world craves nothing more than sweet, cheap oil. Can we go to $60 and not knock the recovery on its ass? I believe so.

The Jeff Rubin Effect

OK, not a big factor, but I read an article this week that reminded me of it. Canada’s very own wavy haired and silver-tongued prognosticator of all things extreme has emerged from hiding and pronounced that new pipelines are unnecessary because oil is dead and oilsands are uneconomic, too expensive and that we should all move on with our lives. This is the same Mr. Rubin who predicted $200 oil back in 2006 right before oil plunged from $147 to $40 a barrel and subsequently predicted the demise of the industry right before the last run-up in prices. Always the contrarian, always provocative and entertaining but often negatively correlated with the market – the Jeff Rubin effect is a real thing. If he’s telling me to sell, I’m thinking it may be time to buy. Related: OPEC’s Premature Victory Lap

So are the good times here to stay?

Good times is such a relative term right? In 2014 $50 oil was the nightmare scenario. Here at the end of the third quarter of 2017, a full three years after prices started to crater, it’s time to break out the bubbly. Realistically, I don’t think we are out of the woods by any stretch and we are certainly not in good times quite yet. Where we are is better times. Better than last week. Better than a few weeks ago. Absolutely better than February 2016 that’s for sure. I don’t think there is any sense in getting too carried away on the back of a one-week rally that puts us barely over $50 a barrel, but it sure feels better this week than last.

Am I changing my forecast yet again? Nope. $56 is where I revised myself to. Seems a pretty good call at this point.

By Stuart Parnell via Stormont Energy

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Tim Turley on September 26 2017 said:
    I see $60 by year end if OPEC extends and rebalancing continues... world demand just keeps rising despite green tech efforts... geopolitical risk is rising as well... shale investors are cooling on their herd mentality.... and finally Kilduff recently called for a correction, so now, finally, long is the right side of the trade....

Leave a comment




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