The biggest oil news of the week was certainly the OPEC announcement of an extension of the crude oil production cuts until March 2018. This additional 9-month lifeline is - according to the Saudi Energy Minister - "the safe bet that should do the trick" of rebalancing the market. It also gives another 9-month 'reprieve' to U.S. shale as well.
The initial November agreement has failed to restore global market balance. There were doubts over the past month as to whether the extension would happen, but more and more OPEC members jumped on board, as did Russia. Whether it will benefit U.S. shale producers or not, back in March, the Saudis said they would back a move that would give shale a boost.
But there isn't much of a choice at this point: it's either cut production or lower prices for longer. The first round of cuts proved not to be the instant elixir everyone was hoping for, even though prices are rising a bit at the moment, with WTI back above $50 at the time of writing and Brent moving closer to the $55 threshold. Still, there seems to be a consensus that shale producers will only accelerate their production ramp-up as prices climb, continuing to undermine the goal of OPEC and its partners. It's an unwinnable game of cat and mouse.
So, what will OPEC and friends do after March 2018? By then, U.S. shale should have started to yield fresh output increases-even if not phenomenal ones. But Wood Mackenzie has estimated that we'll be looking at an addition of…
The biggest oil news of the week was certainly the OPEC announcement of an extension of the crude oil production cuts until March 2018. This additional 9-month lifeline is - according to the Saudi Energy Minister - "the safe bet that should do the trick" of rebalancing the market. It also gives another 9-month 'reprieve' to U.S. shale as well.
The initial November agreement has failed to restore global market balance. There were doubts over the past month as to whether the extension would happen, but more and more OPEC members jumped on board, as did Russia. Whether it will benefit U.S. shale producers or not, back in March, the Saudis said they would back a move that would give shale a boost.
But there isn't much of a choice at this point: it's either cut production or lower prices for longer. The first round of cuts proved not to be the instant elixir everyone was hoping for, even though prices are rising a bit at the moment, with WTI back above $50 at the time of writing and Brent moving closer to the $55 threshold. Still, there seems to be a consensus that shale producers will only accelerate their production ramp-up as prices climb, continuing to undermine the goal of OPEC and its partners. It's an unwinnable game of cat and mouse.
So, what will OPEC and friends do after March 2018? By then, U.S. shale should have started to yield fresh output increases-even if not phenomenal ones. But Wood Mackenzie has estimated that we'll be looking at an addition of 950,000 bpd in new U.S. output by that time.
Speculators are perhaps tiring of the game. Oil prices actually fell immediately when OPEC made its official announcement. The market had already factored the extension in, so it hit headlines with only a dull thud. Traders wanted much deeper cuts, not just an extension of the status quo. Then didn't get it, so they didn't respond positively.
Deals, Mergers & Acquisitions
• EOG Resources will receive funding of $400 million in cash from Carlyle over the next four years, for the development of oil and gas projects in Oklahoma. The money will be put into a joint venture between the energy independent and one of the private equity group's energy investment units.
• Emirati firms are leading an investment drive in Central Asia, focusing on Kazakhstan, Azerbaijan, and Turkmenistan - three countries that hold most of the region's natural gas and also quite a lot of oil. The bulk of investments have so far gone into Kazakhstan, with a total value of $69 billion, another $60 billion has gone to Azerbaijan, and some $37 billion has gone to Turkmenistan.
• Wood Group's proposed acquisition of Amec Foster Wheeler has run into a hurdle: the international corruption investigation into Malta-based Unaoil has dragged the buyer into it. Wood Group has done business with Unaoil through a joint venture, which made payments to the Malta company through agency agreements. Agency agreements are third-party payments that bribes are sometimes masked as. However, there is no evidence that Wood Group resorted to bribes.
Tenders, Auctions & Contracts
• Aramco signed deals worth $50 billion with 13 U.S. companies during Trump's visit to the Kingdom. One of the deals, worth $15 billion, was signed with GE, concerning the provision of services as well as goods worth $7 billion. The deal will aim to improve the productivity of Saudi Arabia's oil giant by some $4 billion annually.
• Tanzania and Uganda have signed a contract for the construction of a 1,400-km oil pipeline to ship Ugandan crude from Hoima to the Tanzanian coast. Uganda is landlocked and the most economical way to get its oil to foreign markets is through Tanzania or Kenya. The choice fell on Tanzania, with Uganda's president praising the country as a peaceful and stable nation. Besides, Uganda and Kenya are emerging competitors on the oil scene, which could also explain the choice. Uganda has an estimated 6.5 billion barrels of oil.
Discovery & Development
• Tullow Oil has announced a new oil discovery in the South Lokichar Basin in Kenya, strengthening the local government's hopes that Kenya has a future as an oil exporter. For now, there is only test output, which is being transported to the coast and stored there, to be eventually exported. According to the company, total oil reserves in the country could exceed 10 billion barrels. (Watch out, though, for bottlenecks in the form of protests by locals that could pose some challenges.)
• Ecopetrol and Anadarko have announced a substantial natural gas discovery in Colombia's deepwater section of the Caribbean Sea. Colombia's President said that the find, at the Gorgon-1 well, is the biggest for the last 28 years, with reserves estimated at between 800 million and 1.2 billion barrels of oil equivalent.
• Shell announced its floating production, storage, and offloading unit in the Lula South field in Brazil's Santos Basin has started operating. The FPSO P-66 has a daily processing capacity of 150,000 barrels of crude and 6 million cubic meters of natural gas. Shell has a 25% interest in Lula South, while Petrobras is the operator with 65%.
• BP has started producing oil at the Quad 204 project west of Shetland, which combines two fields that the oil major recently revamped. The revamp, BP says, will let it tap another 450 million barrels at the Schiehallion and Loyal fields, which have since the mid-90s yielded 400 million barrels.
• Crude oil production in Sudan has fallen to 129,000 bpd as the companies operating oil fields in the country went on a cost-cutting spree in response to the oil price crash. In addition, Sudan's crude oil deposits have high water content. The figure represents 75% of the target daily output for 2016, the country's Petroleum Ministry said.
Politics, Geopolitics & Conflict
• A U.S. navy warship has approached one of China's artificial islands in the South China Sea in what can be seen as a direct challenge to Beijing regarding its territorial claims on almost 90% of the sea. In response, two Chinese guided-missile warships warned the Dewey to leave the waters.
• A suicide bomb attack at a pop concert in Manchester, England, killed 22 and injured 64. The Islamic State has claimed responsibility for the attack, and British authorities have also used this time to remind Trump that they would prefer he not share classified intelligence with any third parties regarding ISIS.
• Another suicide attack killed five people at a bus station in Jakarta, Indonesia.
• Anti-government protests in Venezuela intensified this week as President Nicolas Maduro announced he would set up a constituent assembly to rewrite the country's constitution.
• Civil unrest is also mounting in Brazil, following corruption allegations about Michel Temer and members of his government. The protesters are demanding Temer's resignation.
• North Korea has accused its southern neighbor of reckless provocation, after South Korean forces at the border fired warning shots in response to an unidentified object that did a border fly-by. Seoul later said the object was probably a propaganda leaflet-carrying balloon.
• The head of the U.S. Defense Intelligence Agency, Vincent Stewart, has said that the question of Kurdistan's independence from Iraq is only a matter of time. Kurdistan is planning an independence referendum but no date has been set.
• A federal appeals court in Virginia on Thursday left in place the freeze on Trump's revised entry ban from Muslim-majority countries, handing the administration another legal setback. Trump's administration vowed to take the fight to the U.S. Supreme Court.