• 1 hour Turkey Targets $5B Investment In Wind Energy By End-2017
  • 3 hours Weatherford Looks To Sell Assets To Ease Some Of $8B Debt
  • 4 hours OPEC Set To Move Fast On Cut Extension Decision
  • 6 hours Nigeria Makes First Step Away From Oil
  • 18 hours Russia Approves Profit-Based Oil Tax For 2019
  • 22 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 1 day Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 1 day Oil Production Cuts Taking A Toll On Russia’s Economy
  • 1 day Aramco In Talks With Chinese Petrochemical Producers
  • 1 day Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 1 day Maduro Names Chavez’ Cousin As Citgo Boss
  • 2 days Bidding Action Heats Up In UK’s Continental Shelf
  • 2 days Keystone Pipeline Restart Still Unknown
  • 2 days UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 2 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 2 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 2 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 2 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 2 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 3 days Oil Prices Rise After API Reports Major Crude Draw
  • 3 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 3 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 3 days Statoil Looks To Lighter Oil To Boost Profitability
  • 3 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 3 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 3 days Whitefish Energy Suspends Work In Puerto Rico
  • 3 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 4 days Thanksgiving Gas Prices At 3-Year High
  • 4 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 4 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 4 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 4 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 days ConocoPhillips Sets Price Ceiling For New Projects
  • 7 days Shell Oil Trading Head Steps Down After 29 Years
  • 7 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 7 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 7 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 7 days Venezuela Officially In Default
  • 7 days Iran Prepares To Export LNG To Boost Trade Relations
Alt Text

Oil Prices Nosedive On Bearish IEA Report

Oil prices are cratering after…

Alt Text

Shale Hedges Threaten The Oil Rally

The recent increase in oil…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Where Will Oil Prices Go After Algiers?

Offshore rig

Saudi Arabia and Iran may yet come to terms on some sort of production arrangement, but the outcome of the negotiations in Algeria this week may not do much to rescue oil prices. Following the media spectacle, the oil markets may have to shift their attention back to the supply and demand fundamentals, which are not reassuring.

Goldman Sachs revised down its estimate for oil prices for the end of this year, lowering its 4th quarter estimate from $50 to $43 per barrel. "Given upside surprises to (third-quarter) production and greater clarity on new project delivery into year-end. This leaves us expecting a global surplus of 400,000 (barrels per day) in (the fourth quarter) versus a 300,000 (barrels per day) draw previously,” the investment bank wrote, according to CNBC. The downside risk could be even worse because Goldman did not factor in large volumes of oil coming online from Libya and Nigeria, a development that is certainly not inevitable, but possible. “[W]e reiterate our view that oil prices need to reflect near-term fundamentals – which are weaker – with a lower emphasis on the more uncertain longer-term fundamentals," Goldman said.

Nigeria and Libya could bring hundreds of thousands of barrels of daily oil production back onto the market in the next few months, but there is yet one more downside risk to the market that few people are talking about. S&P Global warned this week about the very large “wildcard” that is China’s oil demand, which could slow dramatically if China decides to throttle back the pace at which it is filling its strategic petroleum reserve. China does not release a lot of data regarding the specifics of its SPR, but oil imports have spiked over the past year – China has been taking advantage of cheap crude to build up its strategic stockpile. That elevated demand could prove to be temporary, however. Related: Inside OPEC: What Does Each Member Want?

"Regardless of what happens on the supply side, there's this wildcard factor of the strategic petroleum reserves," Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, said at an S&P Global conference this week, according to CNBC. "Now that China has bought so much cheap oil to fill their SPR…if OPEC does freeze and tries to bring the price back up, China may push it back down because they might choose not to buy it at a higher price and just choose to use their SPR or start exporting it themselves - like they did with other commodities."

The potential reduction in Chinese imports could lead to lower oil prices for much longer, Gunzberg says. China is undergoing multiple phases of stockpiling for the SPR, with the second phase’s 245 million barrels expected to be completed before the end of 2016. China has been the largest source of demand growth for much of the past decade – only to be recently surpassed by India – but we could be at a turning point with a large portion of the SPR filled. Imports are up 13.5 percent in the first eight months of this year compared to 2015, but could now stagnate. Related: Lack Of Pipeline Capacity Could Force Down Canadian Crude Prices

Demand growth “has stalled and that represents a significant change in the environment for producers both in OPEC and outside it,” said Dave Ernsberger, global head of oil content at S&P Global Platts. "The successors to China who will pick up the slack in demand growth aren't quite of a size yet to have the impact that Chinese growth has had. So the demand picture is fairly frightening from a producers' point of view.”

A few months ago JP Morgan estimated that China’s efforts at filling its SPR were nearing an end, which could lead to a 15 percent drop off in oil imports as soon as September. It may take some time to see if this prediction plays out.

That would come as bad news to a global oil market that is already seeing suddenly weak demand. The IEA’s Executive Director said on Tuesday that there is little reason to be bullish. “Demand is weak, weaker than many of us thought…less than 1 million barrels per day,” Birol said in Algeria. “Supply is coming strongly, especially from Middle East countries. And the stocks are huge. As a result of that, we have lower oil prices with huge implications for the next few years.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




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