Oil Investors Keep Betting Wrong on When Market Will Hit Bottom
Investors betting on a rebound in oil prices are nothing if not tenacious.
They have poured the most money in more than four years into exchange-traded products that track oil as prices fell 18 percent this month. It’s the third consecutive month that the four biggest U.S. funds have received money, during which time futures have plunged 41 percent.
“It’s a testament that after such a wild selloff people are more and more eager to step in and wait for this eventual rebound,” said Stoyan Bojinov, a Chicago-based analyst at ETF Database. “Oil looked cheap a month ago and it’s even cheaper today, that’s why we continue to see these inflows.”
Oil prices have tumbled by half since June amid surging production and slower than expected demand growth. Output in the U.S. is the highest in three decades, and OPEC, responsible for about 40 percent of global supply, maintained its output target at a Nov. 27 meeting. The U.S. Energy Information Administration said last week that consumption around the world next year will be 390,000 barrels a day less in 2015 than it forecast in October.
WTI for December delivery fell $2.36 to settle at $54.11 a barrel on the New York Mercantile Exchange today. The EIA expects WTI to average $62.75 a barrel next year, down from the October estimate of $101.67.
Commodities Slump
Oil funds keep receiving money even as investors flee commodities amid the price slump in oil, corn and gold. ETFs tracking metals, energy and agriculture have seen a net withdrawal of $169.4 million this year.
ETFs that track oil prices give people the opportunity to bet on price moves without requiring the large amount of capital necessary to invest directly in commodity exchanges. They also gives hedge funds that normally trade equities a chance to wager on a commodity without setting up new back office systems.
The four biggest U.S. exchange-traded products tied to oil, including the U.S. Oil Fund and ProShares Ultra Bloomberg Crude Oil, received a combined $702.2 million this month as of yesterday, following a $559.85 million inflow in November, according to ETF data compiled by Bloomberg. It’s the most in any month since May 2010, when the funds received $1.54 billion.
The four funds had 121.2 million shares outstanding yesterday, the most since August 2010, according to data compiled by Bloomberg.
“You want prices lower if you’re buying,” John Hyland, chief investment officer of United States Commodity Futures Funds, the Alameda, California-based manager of the United States Oil Fund, said by telephone. “Your chances of getting a big bounce are better if you’re buying at $50 or $75 than at $100 or $125.”
Saudi Arabia Says Hard for OPEC to Give Up Market Share
Saudi Arabia and OPEC would find it “difficult, if not impossible” to give up market share by cutting crude production, the country’s oil minister said.
Global oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, Oil Minister Ali Al-Naimi said, according to comments published yesterday by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.
“In a situation like this, it is difficult, if not impossible, that the kingdom or OPEC would carry out any action that may result in a reduction of its share in market and an increase of others’ shares,” Naimi said, according to the state-run news agency. Saudi Arabia, the largest producer in OPEC, will stick to its oil policies, he said.
The Organization of Petroleum Exporting Countries decided Nov. 27 to keep its production target unchanged at 30 million barrels a day, ignoring calls from members including Venezuela to curb output to address a supply glut. Prices, which had fallen 30 percent for the year by the November meeting, plunged after the decision, now extending the drop to 46 percent.
Steady global economic expansion will resume, spurring oil demand, Naimi said, leading him to be “optimistic about the future.”
Brent crude, the international benchmark, settled down 3.1 percent to $59.27 barrel yesterday on the ICE Futures Europe exchange in London.
Other Regions
Increased supply from regions outside OPEC, where oil-production costs are higher, is affecting the market, Naimi said. Saudi Arabia’s crude output has remained stable as production in other regions rose, he said.
OPEC’s decision to maintain output fanned speculation that Saudi Arabia and other members want North American shale drillers and other producers outside the group to be the first to cut production. Saudi Arabia and Iran this month cut the official price levels of their main light crude grades for sale to Asia to the lowest in at least 14 years.
Comments by Naimi and other OPEC ministers this week that the group won’t hold an emergency meeting may indicate that they’re seeking to drive prices down to force other producers out of the market, said Miswin Mahesh, an analyst at Barclays Plc in London.
Gradual Drop
“It’s all about signaling,” he said by e-mail yesterday. “It almost seems like they are aiming to pull the rug from under non-OPEC suppliers, swiftly rather than slowly. A slow gradual price fall would give room for maneuver and slow the supply adjustment.”
Ministers from the United Arab Emirates and Kuwait this week also said the group wasn’t planning an emergency meeting. Saudi Arabia led a group of Arab Persian Gulf countries in opposing calls by Venezuela and Iran to cut output at the November OPEC gathering.
“How hard will Saudi work to bring prices down really fast?” Jamie Webster, a Washington-based senior director for global oil markets at IHS Inc., said on Twitter. “Answer appears to be ‘very.’”
In November, the 12-member group pumped 30.56 million barrels a day of crude, exceeding its output target for a sixth straight month, according to data compiled by Bloomberg. The group’s own forecasts show that world demand for its crude next year will fall to 28.9 million barrels a day, the lowest since 2003.
Saudi Arabia has large enough financial resources to resist the economic impact of the current oil price fluctuations, Naimi said.
The decline in prices won’t last long, U.A.E. Energy Minister Suhail Al-Mazrouei, said yesterday, according to that country’s state-run news agency. OPEC won’t change its output level and isn’t planning an emergency meeting before the next scheduled gathering on June 5, he said.
Putin Says Russian Economy Must Brace for $40-a-Barrel Oil
The Russian economy must adapt to the reality of oil prices that could fall as low as $40 a barrel, President Vladimir Putin said as he faces the worst financial crisis since coming to power in 2000.
“I don’t know how quickly it will happen if prices stay at today’s level, or if they will drop lower than $60, $40,” Putin said today at his annual press conference in Moscow. “The economy will structure itself accordingly, however much is necessary.”
The U.S. and Saudi Arabia, which with Russia are the world’s three biggest crude producers, may be colluding to push down the price of oil, Putin said. The collapse of prices, which are down more than 40 percent this year, may also be due to a battle for market share between traditional producers and shale-oil companies, he said.
Oil is heading for its biggest annual loss since the global financial crisis of 2008, with the highest U.S. production in three decades exacerbating a glut as global demand growth slows. Russia, which depends on oil and gas for half of its budget, is facing its biggest financial crisis since it defaulted on domestic loans in 1998.
The Russian central bank published a worst-case economic scenario Dec. 15 that envisioned oil prices averaging $60 a barrel until the end of 2017. Under such conditions, it forecast the Russian economy may contract as much as 4.7 percent next year and another 0.9 to 1.1 percent in 2016.
Two Years
“Under the most negative external economic scenario, this situation can last two years,” Putin said. “If the situation is very bad, we will have to change our plans, cut some things.”
Brent crude is down 44 percent this year and was trading at $61.58 a barrel today at 3:19 p.m. in London. It plunged about 20 percent since the Organization of Petroleum Exporting Countries decided Nov. 27 to keep its production target unchanged at 30 million barrels a day, ignoring calls from members including Venezuela to curb output to tackle the surplus.
OPEC’s decision to maintain output fanned speculation that Saudi Arabia and other members want North American shale drillers and other producers outside the group to be the first to cut production because of falling prices.
Blink First
“Producer countries are all hoping that the guy next door goes down first,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by phone. “Russia is dealing with many problems right now, and Putin is saying he won’t be the first to blink.”
Saudi Arabia and OPEC would find it “difficult, if not impossible” to give up market share, the country’s oil minister Ali Al-Naimi said today, according to comments published by the Saudi Press Agency. He reiterated the country’s intention to maintain output amid plunging prices.
The U.S. pumped 9.14 million barrels a day in the period ended Dec. 12, the most in weekly Energy Information Administration data that started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
“If the price level remains low, companies will stop investing in hard-to-recover reserves and new fields,” Putin said. “Given a backdrop of growth in the world economy, it will eventually jump, and this will be bad even for developed countries.”
Exxon Mobil Shows Why U.S. Oil Output Rises as Prices Plunge
Crude oil production from U.S. wells is poised to approach a 42-year record next year as drillers ignore the recent decline in price pointing them in the opposite direction.
U.S. energy producers plan to pump more crude in 2015 as declining equipment costs and enhanced drilling techniques more than offset the collapse in oil markets, said Troy Eckard, whose Eckard Global LLC owns stakes in more than 260 North Dakota shale wells.
Oil companies, while trimming 2015 budgets to cope with the lowest crude prices in five years, are also shifting their focus to their most-prolific, lowest-cost fields, which means extracting more oil with fewer drilling rigs, said Goldman Sachs Group Inc. Global giant Exxon Mobil Corp. (XOM), the largest U.S. energy company, will increase oil production next year by the biggest margin since 2010. So far, the Organization of Petroleum Exporting Countries’ month-old bet that American drillers would be crushed by cratering prices has been a bust.
Oil Prices
“Companies that are already producing oil will continue to operate those wells because the cost of drilling them is already sunk into the ground,” said Timothy Rudderow, who manages $1.5 billion as chief investment officer at Mount Lucas Management Corp. in Newtown, Pennsylvania. “But I wouldn’t want to have to be making long-term production decisions with this kind of volatility.”
A U.S. crude bonanza that has handed consumers the cheapest gasoline since 2009 has left oil exporters like Russia and Venezuela flirting with economic chaos. The ruble sank as much as 19 percent on Dec. 16 to a record low of 80 per dollar before recovering to close at 68; Russian bond and equity markets also crumbled. In Venezuela, the oil rout is spurring concern the country is running out of dollars needed to pay debt and swaps traders are almost certain default is imminent.
Profitable Wells
U.S. oil production is set to reach 9.42 million barrels a day in May, which would be the highest monthly average since November 1972, according to the Energy Department’s statistical arm.
Output from shale formations, deep-water fields, the Alaskan wilderness and land-based wells in pockets of Oklahoma and Pennsylvania that have been trickling out crude for decades already have pushed demand for imported oil to the lowest since at least 1995, according to data compiled by Bloomberg.
Existing wells remain profitable even as benchmark crude futures hover near the $55-a-barrel mark because operating costs going forward are usually $25 or less, Tom Petrie, chairman of Petrie Partners Inc., said in a Dec. 15 interview on the Bloomberg Surveillance television program.
Shut Ins
That’s why prices that have tumbled 47 percent from this year’s peak on June 20 haven’t prompted any American oil producers to shut down wells, said Petrie, a U.S. Military Academy at West Point graduate who has advised Saudi Arabia, Alaska and the U.S. government on energy issues.
The average cost to operate an existing well in most parts of the U.S. “is about $20 a barrel,” Petrie said. “It might be $5 higher or it might be $5 lower, that’s the out-of-pocket costs that we’re talking about. Until you dip into that and start losing money on a cash basis day in, day out, you don’t think about shutting in” wells.
Benchmark U.S. crude futures dropped 4.2 percent to $54.11 today in New York Mercantile Exchange trading, the lowest closing price since May 2009. The futures are on track for their fourth straight weekly decline.
Once oil companies sink cash into drilling wells, lining them with steel pipes and concrete, blasting the surrounding rocks into rubble with hydraulic fracturing, and linking them to pipeline systems, they have no incentive to scale back production, said Andrew Cosgrove, an analyst at Bloomberg Intelligence in Princeton, New Jersey.
Sunk Costs
Those investments, which represent “sunk costs,” are no longer a drain on cash flow, Cosgrove said. Instead, they generate capital companies use to repay debt, fund additional drilling, pay out dividends and buy back shares, he said.
Exxon, the world’s biggest oil producer by market value, is expected to boost crude and natural gas output by 2.8 percent next year to the equivalent of 4.1 million barrels a day, based on the average of eight analyst estimates compiled by Bloomberg.
That would arrest a two-year production slide for the Irving, Texas-based company, which is spending about $110 million a day this year on everything from rig leases to offshore platforms to refinery repairs. Chairman and CEO Rex Tillerson pledged in March to raise output by an annual average of 2 percent to 3 percent during the 2015-2017 period.
Cheapest Oil
At the same time, Tillerson said capital spending would drop below $37 billion in each of those years, partly because mammoth investments like the Kearl oil-sands development in western Canada and the Gorgon liquefied natural gas project on Australia’s Indian Ocean coast will no longer be absorbing cash.
In the U.S., Exxon spent an average of $12.72 to extract a barrel of oil last year, its cheapest operating region aside from Asia and Europe, company figures showed. Some operators have even lower costs: Continental Resources Inc. (CLR) spends about 99 cents to pump each barrel from its 1.8 billion-barrel discovery known as the South Central Oklahoma Oil Province, or SCOOP. Continental, controlled by Oklahoma billionaire wildcatter Harold Hamm, discovered the SCOOP in 2012.
Laredo Petroleum Inc., an explorer of Texas’s Permian Basin that has more than tripled production since 2010, said this month it will slash capital spending by about 50 percent next year. The company still sees 2015 output expanding by 12 percent. Shares in the Tulsa, Oklahoma-based company jumped as much as 15 percent after the Dec. 16 announcement.
As oil explorers retrench in response to the market’s decline, they will drill more selectively, Eckard said. Seismic surveys will be more closely scrutinized to ensure the best chances of striking crude and only the most-promising opportunities will be greenlighted, he said.
“We’re only going to see the very best wells drilled over the next 12 to 18 months,” Eckard said. “It’s going to be exciting.”
Saudi Arabia’s Oil Exports Drop Was Sign of Weaker Demand
Saudi Arabia shipped 10 percent less oil overseas in October than it did a year earlier, signaling demand was falling even before OPEC decided a month later to hold production unchanged with prices plunging.
Oil exports fell to 6.9 million barrels a day in October from 7.7 million barrels a day a year earlier, according to data from the Joint Organisations Data Initiative yesterday. It was the sixth month in a row that Saudi Arabia exported less than 7 million barrels a day, the level it needs to balance its budget.
Crude slumped 44 percent this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that’s exacerbating a global glut. Saudi Arabia will stick to its policy to maintain output, the country’s oil minister Ali Al-Naimi said, according to state-run Saudi Press Agency. Saudi Arabia and OPEC can’t lose its market share to other producers at a time when oil prices can’t be controlled, he said.
“Now we can understand the reasons that compelled Saudi Arabia and OPEC to hold onto their market share,” said John Sfakianakis, head of Middle East at Ashmore Group (ASHM) Plc, the London-based money manager specializing in emerging markets. “The problem is that they want to keep their market share while exporting less oil.”
Reducing Supply
Saudi Arabia led OPEC in opposing calls by members including Venezuela to reduce supply. The 12 member countries account for about 40 percent of global production.
“We know that demand is weak and we know that supply is more than what the market needs,” Sfakianakis said by phone from Riyadh, Saudi Arabia’s capital. “The question now is if the fall in exports is the cause of the Saudi policy to keep its market share or the result of it?”
Saudi crude exports this year are down 420,000 barrels a day, according to researcher Petromatrix GmbH. It expected October exports to be down 500,000 barrels a day from a year earlier, not the 800,000 barrels reported in today’s JODI figures, it said in a note yesterday.
The drop in crude exports explains to some extent why Saudi Arabia is offering discounts on crude, according to Sfakianakis. Saudi Aramco, the state-run oil company, offered Asian customers the biggest discount on its benchmark crude in at least 14 years for January sales, it said on December 4. It also cut prices for all grades it sells to U.S. refineries.
The cuts have started to boost U.S. imports of Saudi oil, Sfakianakis said. “The Saudis want to do the same thing in Asia by giving more discounts,” he said.
Two Evils
Saudi Arabia needs to keep exports at a minimum of 7 million barrels a day for the budget’s base-case scenario, according to Sfakianakis, a former adviser to the Saudi government. “For six months they are not being able to meet the base-case for exports,” he said.
The “two evils” of lower exports and prices won’t stop the government from raising spending as it enjoys reserves of up to $750 billion, Sfakianakis said. Saudi Arabia has a solid economy with large enough financial resources to resist the impact of any “temporary” oil price fluctuation, Naimi said, according to SPA.
Gasoline Under $2.50 in U.S. for First Time Since 2009
U.S. drivers are paying less than $2.50 a gallon at the pump for the first time in more than five years.
Retail gasoline averaged $2.477 a gallon yesterday, data from the Heathrow, Florida-based motoring group AAA showed. That’s down from this year’s peak of $3.696 in April and the first time it has dipped below $2.50 since October 2009. By New Year’s Day, the fuel may be selling for $2.25 to $2.40, the lowest seasonally since 2008, AAA said by e-mail.
Tumbling crude prices and rising fuel output have sent gasoline lower, leaving more money in the pockets of consumers. The Organization of Petroleum Exporting Countries declined to reduce its output target at a meeting last month, letting prices drop to a level that may slow U.S. output that’s surged to the most in more than three decades. U.S. refineries operated at the highest level in more than nine years earlier this month.
“Every day seems to bring a bigger gift for drivers at the gas pump,” Michael Green, an AAA spokesman in Washington, said by e-mail today. “Gas prices have fallen 84 days in a row for a total of 87 cents per gallon, which is the second-longest consecutive streak on record.”
U.S. benchmark West Texas Intermediate crude futures touched $53.60 a barrel on Dec. 16, the lowest level since May 2009. The contract dropped $1.08, or 1.9 percent, to $55.39 at 12:01 p.m. on the New York Mercantile Exchange. Brent, the international benchmark, dropped to $58.50 on Dec. 16, also the least since May 2009.
A record 98.6 million Americans will cash in on cheap fuel by traveling 50 miles or more for the holiday season, according to AAA forecasts. About 89.5 million of them, or 91 percent, will drive and 5.7 million will fly.
The average U.S. household will save about $550 on gasoline expenses next year, with average fuel spending on track to fall to the lowest level in 11 years, the Energy Information Administration said Dec. 16.
Saudis Hand Market-Balancing Act to Shale Producers
Shale crude producers are becoming balancing agents in the global oil market, joining OPEC in a role the group has been performing for four decades, according to Citigroup Inc.
For decades, low-cost OPEC producers have moved prices to the desired level by adjusting output. The rise of the U.S. shale industry has added a group of producers that make frequent decisions about production based on price, according to the report by Citigroup analysts, including Ed Morse, the bank’s head of global commodities research in New York.
Prices tumbled after the Organization of Petroleum Exporting Countries decided at a Nov. 27 meeting to maintain its output target. Saudi Arabia is putting the burden of adjusting output on higher-cost producers, including shale, according to the Citigroup.
Lower oil prices will drive U.S. shale producers to cut capital expenditures even as productivity gains accelerate, the analysts said. They also expect the drop to drive industry consolidation in the U.S. shale sector.
Benchmark West Texas Intermediate futures touched $53.60 a barrel on Dec. 16, the lowest level since May 2009. The contract slipped 45 cents to $56.02 at 10:40 a.m. on the New York Mercantile Exchange. Brent dropped to $58.50 on Dec. 16, also the least since May 2009.
Oil price fall is temporary, says Saudi minister
Recent falls in the price of oil are likely to be temporary, says the oil minister for Saudi Arabia, Opec's biggest producing nation
Ali al-Naimi said commodity price fluctuations were to be expected and said he was hopeful for the future.
He added it was "difficult, or even impossible, for Saudi Arabia or Opec to undertake any measure that would lead to a reduction in [their] share of the market and an increase in of others".
On Thursday, the price of Brent crude was just below $63 a barrel, while US crude was near $58.
Oil prices, which were well above $100 a barrel in the summer, have slipped because of slowing economic growth in developing nations, particularly China, and an increase in fuel supplies, partly thanks to advances in shale gas extraction.
Mixed fortunes
Oil consuming nations are enjoying lower fuel and food prices, while exporting nations, including Russia and members of the Opec oil producers' cartel, are suffering big drops in income.
The lower oil price has contributed to Russia's recent currency collapse as its economy is heavily dependent on oil for revenue.
Opec member Nigeria is also reliant on oil for income. On Wednesday, it restated its budget to take into account the new, lower oil price.
Meanwhile, the oil and gas industry is beginning to cut back on investment and jobs.
Smaller members of Opec had hoped to see a reduction in output, since a production cut generally lifts the oil price.
However, the last Opec meeting in November concluded without a vote for lower production.
Opec produces about a third of the world's crude oil, about 30 million dollars a day, of which Saudi Arabia pumps 9.6 million.
When Will Oil Prices Bottom?; New Forecasts - Danske
We expect the current slide in oil prices to continue until we see producers starting to adjust to the lower prices by lowering output around mid next year.
Based on the difference in crude oil prices and production costs, producers of unconventional oil in, for example, the US, Canada and Brazil look more vulnerable.
We see some probability of a cut in OPEC’s output target in June.
Pricing in the forward market and the experience of the 1986 oil glut indicates that the price of Brent crude oil will recover to USD85/bl in the medium term.
We have revised down our oil-price forecasts. We now expect the price of Brent crude oil to bottom in Q1 next year at around USD58/bl (revised down from USD87/bl) and average USD67/bl in 2015 and USD85/bl in 2016 respectively (revised down from USD93/bl and USD99/bl).
http://www.efxnews.com/sites/default/files/dec14/z56.PNG
Oil Price Pain: Who’s Next After Emerging Markets And Fracking?
By Stuart Burns | Thu, 18 December 2014 23:01 | 0
The price of oil has sunk almost 50% since June with West Texas Intermediate crude slipping below $60 a barrel last week and Brent falling below the same level on Tuesday. “Yippee!” I hear you say, “cheap gas and a drop in inflation!” Well, yes in terms of a boost to consumers, and indeed a boost to global GDP, lower oil prices are a good thing and make most of us feel better off.
While I wouldn’t want to put a downer on the party, a sudden collapse in oil prices as we are seeing is not all good news. There are consequences, and the faster and further it falls, the greater those consequences could be.
Take a look at Russia: the ruble has collapsed, interest rates have foolishly been hiked from an already crucifying 10.5% to 17% this week consigning the economy to a deep recession next year and the central bank is burning through its reserves in failed attempts to support the currency and shore up the banks. Corporate Russia is deeply in debt to the outside world, mostly priced in dollars and will struggle to repay the interest on loans this coming year.
Nor is Russia alone, Venezuela is in an even worse position without Russia’s reserves, likewise Argentina, Iran and even previously booming Nigeria are now facing major problems. Turmoil in emerging markets is nothing new but has the potential to seriously upset markets at home and to destabilize banks and investors that have spent the last few years since the financial crisis chasing dwindling yields in ever more risky environments overseas.
According to the FT, investors in securitized packages of loans closer to home are scrambling to determine how much the complex products are exposed to plunging oil prices as turmoil in the US credit markets spreads. US fracking firms are said to be heavily leveraged as a result of aggressive drilling programs. As oil prices fall, investment in new wells will quite literally dry up and the ability of firms to service existing borrowings will, if they are not already, come under strain. (Speaking of strain, New York State’s Governor Andrew Cuomo just yesterday announced that he will ban fracking outright in that state).
In the longer term, falling oil prices will lead to lower inflation and reduced pressure to raise Fed interest rates as early or as fast as they would otherwise do due to inflationary pressures. As a result, inflationary pressures from other quarters such as wages will build up unchecked and when oil prices do eventually rise, the combined impact on inflation will be that much more severe. The resulting ramp-up in rates will be steeper and, hence, more damaging than the gradual rise that is currently envisaged. So, while we fill up the tank and stride up to the kiosk with a lighter step, spare a thought for some of the consequences we may all face down the line, because there will be consequences.
By Stuart Burns
Oil Sands Not A Dirty Fuel Says EU
By MINING.com | Thu, 18 December 2014 22:58 | 0
The European Union voted by an extremely narrow majority Wednesday against a proposed fuel quality directive that would have stigmatized as "dirty" all imports coming from Canadian oil producers, something which Ottawa has been fighting for over two years.
The rule, passed by a difference of just 12 votes, will now go to a ratification vote early in 2015.
"Our government will continue advocating for Canadian interests and Canadian jobs," Natural Resources Minister Greg Rickford told CP after the vote.
"We are encouraged the European Parliament relied on science and the facts in making this decision."
Geoff Regan, MP for Halifax West and Liberal Critic for Natural Resources, was not nearly as positive about the news. "The fact today’s vote even happened is the direct result of this Prime Minister’s failure to champion strong environmental policies that will ensure we get our resources to European and international markets," he told MINING.com.
The vote of the full plenary was prompted earlier this month when the European Parliament's environment committee utterly rejected a deal allowing oil producers to report an average carbon rating of their oil stock, instead of singling out oil sands content.
Canada and representatives of the oil industry have said unconventional oil has a valuable role in diversifying EU supplies and that Canada’s huge deposits of oil sands, being developed by oil majors such as Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC, were being unfairly singled out by the original EU plan.
Today’s decision opens up the European market to Canadian oil sands producers.
By Cecilia Jamasmie
Source - http://www.mining.com/
Iran oil min says crude price drop a political plot Govt to make efforts to overcome sanctions by resistance or force: Zangeneh
DUBAI, Dec 18, (RTRS): Iranian Oil Minister Bijan Zangeneh said the continuing slide in the price of oil is a political plot, the ministry’s news agency Shana reported late on Wednesday. “The prolongation of the downward trend of the oil price in world markets is a political conspiracy going to extremes,” Shana cited Zangeneh as saying. He said that the fall in the price, which dipped this week to its lowest since May 2009 at $58.50 a barrel, down almost 50 percent since June, initially stemmed from oversupply in markets.
Last week, Iranian President Hassan Rouhani accused unnamed countries of plotting to bring down crude prices and said the recent price slump was not based solely on economic factors. Oil prices were trading then below $66 a barrel.
On Thursday, Brent crude edged above $61 a barrel, after sharply lower prices forced companies to cut upstream investments around the world. While some countries such as Iran and Venezuela have urged an output cut to support prices, the Organization of the Petroleum Exporting Countries (OPEC) decided against reducing production at a meeting last month. The decision sent prices plunging further.
“In that meeting, I noted that Iran, whose oil exports have declined in recent years due to sanctions, will by no means agree to scale back on its share in the oil market,” Zangeneh said.
“We have to make efforts to overcome the sanctions by resistance and force,” the minister said.
Iran exports around 1.3 million barrels per day (bpd) of oil. It has said it would will double its oil exports within two months if sanctions against it were lifted.
‘Impossible’ for Saudi to reduce oil output: minister ‘OPEC cannot cut alone without support of other big producers’
RIYADH, Dec 18, (Agencies): Saudi Arabia, the largest producer in the OPEC oil cartel, cannot reduce its output because of competitive pressure despite plunging prices, the kingdom’s oil minister said on Thursday.
Ali al-Nuaimi denied that “political objectives” play a role in decisions about production, and expressed optimism for the future despite crude’s price drop of about 50 percent since June.
“It is difficult, or even impossible, for Saudi Arabia or OPEC to undertake any measure that would lead to a reduction in (their) share of the market and an increase in that of others” who do not belong to the cartel, he said in comments to the official Saudi Press Agency.
Nuaimi said that while OPEC’s output has not changed in years, production by non-cartel nations “has been increasing constantly”.
He added that price fluctuations “are normal” for commodities including oil.
“The situation that we and the world currently face is temporary,” Nuaimi said, citing a combination of factors including slower global growth, increased supply, and reduced demand growth for oil.
“The global economy, particularly the economies of emerging countries, will resume growth steadily, and then demand for oil will also grow.”
Crude prices traded above $100 a barrel earlier this year but have fallen to multi-year lows since June.
Prices plunged even further after the Organisation of the Petroleum Exporting Countries decided last month against cutting production.
The cartel pumps about 30 percent of global crude.
Oil markets gained on Thursday after recent volatility.
US benchmark West Texas Intermediate crude for January delivery jumped $1.76 to $58.23 a barrel, while Brent North Sea crude for February rose $1.97 to $63.15.
Competitive
The oil market has become increasingly competitive with the surge in production from American shale oil fields. Analysts have said that Saudi Arabia is content to see shale oil producers — and even some OPEC members — suffer from low prices rather than reduce output to boost prices.
OPEC last month reaffirmed its production ceiling of 30 million barrels per day, of which Saudi Arabia is pumping around 9.6 million bpd.
Analysts say Saudi Arabia is strong enough to survive lower prices, a point also made by Nuaimi.
He said factors including the kingdom’s “huge financial reserves” help it to withstand short-term variations in oil income.
On Wednesday Finance Minister Ibrahim bin Abdulaziz al-Assaf said his country will continue massive public spending in its 2015 budget which financial analysts say could be approved as early as Monday.
The drop in oil prices sparked turmoil this week on global stock markets where investors were concerned about the effect on oil firms as well as the crude-dependent economy of Russia.
Saudi Arabia’s powerful oil minister said that OPEC could not cut output without the support of other big producers and attempts to get them on board had not worked.
Al-Nuaimi said it was impossible for OPEC to cut alone to reverse the oil price slump — which he called temporary — when others were pumping more, saying that could lead to losing market share and with no guarantee of supporting prices.
Officials and executives from non-OPEC Russia and Mexico travelled to Vienna last month ahead of OPEC’s meeting, with some in the group hoping they would cooperate in output cuts.
Nuaimi has stayed tightlipped, saying only he had no expectations after meeting them in a Vienna hotel, and that he had not initiated it. OPEC decided not to cut at its meeting.
On Thursday, Nuaimi told Saudi state news agency SPA that OPEC sought last month, as on past occasions, cooperation from other non-OPEC oil producers but “those efforts were not successful.”
Russia has said it would not cut production even if oil prices fell below $60 per barrel — far below some $100 a barrel it needs to balance its budget.
Oil spill closes Enbridge line in Saskatchewan
CALGARY, Alberta, Dec. 18 (UPI) -- Canadian pipeline company Enbridge said it shut down a pipeline in Saskatchewan after more than 1,000 barrels of oil were spilled.
Enbridge closed its Line 4 pipeline after the release was discovered late Tuesday. The company said there were no environmental or public health concerns as the spill was limited to an on-site pumping station.
"Nearby residents and businesses may detect a faint odor," the company said in a statement Wednesday. "Air monitoring is being conducted and levels are well within safety limits."
Enbridge Line 4 carries an average 796,000 barrels of oil sourced from Alberta to a terminal point in Wisconsin. The company said it notified its clients of the pipeline's closure, but had no estimate for a return-to-service date.
Michigan Attorney General Bill Schuette said Tuesday a "pinhole" leak was discovered on the company's pipeline network in the state's Upper Peninsula. There was no resultant contamination, though the discovery sparked regional concerns about pipeline integrity.
Schuette is a member of a pipeline monitoring task force in the state, which he said continues its "exhaustive review of the safety of petroleum pipelines in Michigan, and to implement every possible safety precaution to protect the ecology and the economy of the Great Lakes."
An Enbridge spill from its Line 6b in southern Michigan in 2010 was the largest inland spill of its kind. A new Enbridge pipeline through Minnesota, Sandpiper, is slated to carry oil from the Bakken reserve area in North Dakota in 2017, a year later than expected.
Sandpiper would ship up to 225,000 bpd through Minnesota. It would then transfer oil to other pipelines for delivery to the U.S. and Canadian refinery markets.
Minnesota regulators in September called on Enbridge to study the environmental issues surrounding six alternative routes through the state proposed by outside groups.
Enbridge said it was undergoing a thorough investigation into the release from Line 4.
"We are committed to the goal of reaching zero spills and will thoroughly investigate the incident for lessons learned," the company said.
Marathon trims capital programs for 2015
HOUSTON, Dec. 18 (UPI) -- Marathon Oil Corp. said trimming its 2015 capital program by 20 percent was a reflection of the need to manage cash flow in the bear market for crude oil.
Marathon, in a late Wednesday release, said it was planning to spend around $4.4 billion next year on investments and exploration, about 20 percent less than it had designated for the current year.
"We remain confident in our investment opportunities in the three U.S. resource plays," Marathon Oil President and Chief Executive Officer Lee Tillman said in a statement. "Our 2015 capital program is not opportunity constrained but will reflect sound discipline in managing cash flows in the current price environment."
In a quarterly report from November, the company said double-digit production growth from North American shale basins wasn't enough of a buffer against low oil prices.
From the emerging South Central Oklahoma Oil Province, or SCOOP, shale play to the Bakken reserve area in North Dakota, Marathon said it was experiencing near-exponential growth.
Total North American exploration and production during the third quarter realized $292 million in income, up from the $242 million during third quarter 2013.
For 2015, the company said the capital program maintains its strong position in U.S. shale basins, though annual production growth should be in the high single digits in terms of percent.
"The company remains committed to operational excellence, driving operating and capital cost efficiency and disciplined capital allocation," the company said.
Wintershall producing 'reduced' volumes of Libyan oil on port closures
London (Platts)--18Dec2014/907 am EST/1407 GMT
Germany's Wintershall, one of the biggest foreign oil producers operating in Libya, is producing "reduced" volumes of oil from its two blocks onshore Libya following the suspension of exports from the major eastern ports of Es Sider and Ras Lanuf, a company spokesman said Thursday.
Wintershall only restarted production from its operated blocks C96 and C97 in southeastern Libya in late September after Es Sider and Ras Lanuf -- the terminals used to export crude from the blocks -- were reopened following more than a year of anti-government protests.
"Our onshore oil production in Libya is still subject to temporary fluctuations caused by external influences on the export infrastructure," the spokesman said.
"Currently it is not possible to load at the export terminals of Ras Lanuf and Zueitina. For the time being, Wintershall produces only a reduced amount of oil into its own export tanks," he said, without saying what current output levels are.
When production resumed in late September, Wintershall said it had planned to slowly ramp it up to a rate of around 35,000 b/d.
The blocks have a combined production capacity of 100,000 b/d.
OPEC should not base decisions on pricing out US shale oil production: Kuwaiti analyst
Dubai (Platts)--18Dec2014/652 am EST/1152 GMT
OPEC should not base its strategic decisions on the prospect of pricing out US shale oil production, a Kuwaiti analyst said Thursday.
The member states must not "bet" on shale oil production ceasing due to low oil prices, and should rather adopt other methods for marketing, said Abdulsamee Behbehani, a Kuwaiti oil economics expert in an interview with state news agency Kuna.
Behbehani described forecasts that shale production would stop due to the supposedly high cost and falling oil prices as incorrect, adding that while previously costs had been around $70/barrel, it could now be produced for as little as $20-30/b.
This could be further reduced if major US producers began acquiring the smaller companies.
Proven reserves of US shale oil are estimated at 33 billion barrels, along with 430 trillion cubic feet of gas, according to Behbehani.
OPEC members, excluding Iran, will earn some $700 billion in revenue from net oil exports in 2014, the lowest earnings for the group since 2010 due to lower exports and lower oil prices. It could fall even further in 2015 to $446 billion, the US Energy Information Administration said Wednesday.
The EIA forecasts Brent crude oil to average $68/b in 2015, down from $100/b in 2014 and $109/b in 2013.
Behbehani's comments echo the analysis of Ed Morse, Citibank's global head of commodities research who last week said US crude production is be the biggest geopolitical risk to OPEC.
Citibank's medium term outlook sees US crude production rising to around 14 million b/d by 2020, with gross imports falling to just over 6 million b/d and exports of more than 4 million b/d.
"Robust US crude production growth --even in the face of lower prices -- can drive growing crude exports and lower crude imports, with around over half of crude imports coming from Canada over time", Morse said at Platt's crude oil summit in Dubai on December 9.
Sustained low oil prices of around $70/b might reduce US rig activity by 20-25%, slowing production growth by the same amount in the first year. To flatten growth, prices would need to fall to $50/b. "But productivity gains and inertial factors could claw this back", said Morse.
In a lower price environment, shale producers will intensify drilling in the core areas which have driven production, he argued. Productivity gain could even accelerate with lower prices.
Opec can't cut alone but others would not, says Naimi
DUBAI, 9 hours, 25 minutes ago
Saudi Arabia's powerful oil minister said on Thursday that Opec could not cut output without the support of other big producers and attempts to get them on board had not worked.
Al Naimi said it was impossible for Opec to cut alone to reverse the oil price slump - which he called temporary - when others were pumping more, saying that could lead to losing market share and with no guarantee of supporting prices.
Officials and executives from non-Opec Russia and Mexico travelled to Vienna last month ahead of Opec's meeting, with some in the group hoping they would co-operate in output cuts.
Naimi has stayed tightlipped, saying only he had no expectations after meeting them in a Vienna hotel, and that he had not initiated it. Opec decided not to cut at its meeting.
On Thursday, Naimi told Saudi state news agency SPA that Opec sought last month, as on past occasions, co-operation from other non-Opec oil producers but "those efforts were not successful."
Russia has said it would not cut production even if oil prices fell below $60 per barrel - far below some $100 a barrel it needs to balance its budget.
Brent edged up slightly to near $63 a barrel on Thursday - but was still over 40 per cent down from this year's peaks in June.
"Opec's quota as well as Saudi Arabia's in the global oil market has not changed for several years, which is at the level of 30 million barrels per day for Opec, out of that around 9.6 million bpd is the kingdom's, while the production of others from outside Opec is continuously rising," Naimi told SPA.
"In a situation like this, it is difficult, if not impossible, for the kingdom or for Opec to take any action that would reduce its market share and increase the shares of others, at a time when it is difficult to control prices," he said.
"We would lose on both market share and price."
Before the Vienna meeting last month, there were hints that Russia could cut output or exports if Opec did the same.
But the message from Moscow after the meeting was that the world's second largest oil exporter, after Saudi Arabia, will maintain its output levels even if there was no guarantee prices would not go much lower.
Moscow's relations with Opec were soured by its pledge to cut output in tandem with the group in the early 2000s. Russia failed to follow through, and raised exports instead.
Naimi also reiterated his rejection of any linking of the kingdom's oil policy with political motives.
"There are wrong information and analyses that are circulated from time to time, like linking oil decisions with political motives. These wrong analyses will be exposed for sure, which would help to bring back balance to the market," he said.
The shift in Saudi policy to leaving the market to stabilise itself has unleashed a flurry of conspiracy theories, ranging from the Saudis seeking to curtail the U.S. oil boom, to Riyadh looking to undermine Iran and Russia due to their support of Saudi's arch-enemy, Syrian President Bashar al-Assad.
Naimi said the fall in oil prices was temporary.
"I am optimistic about the future. What we are facing now and what the world is facing is a temporary situation and will pass," he told SPA
"The global economy, especially the emerging economies will return to sustainable growth, and therefore the demand for oil will also grow," he said
He also warned against the "negative role of speculators" in the oil market, causing the sharp price volatility. He said the kingdom had a strong economy and huge financial reserves that make it able to weather the oil price volatility.-Reuters
Kurdistan says oil exports could total 800,000 bpd next year
LONDON, 12 hours, 20 minutes ago
Iraq's semi-autonomous Kurdistan Regional Government will ramp up oil exports in the coming months, moving it closer to economic self-sufficiency while it works to clinch a final deal with Baghdad on crude sales and revenue sharing.
KRG natural resources minister Ashti Hawrami told a conference in London the Kurd's pipeline to Turkey could carry 800,000 barrels per day next year, including 550,000 bpd to be marketed by Baghdad under a first-stage deal reached this month.
The increase in exports from the north of the country, which are currently about half that amount, could exacerbate an oil glut that has helped to push benchmark Brent crude down 45 per cent since June to a five-year low below $60 a barrel.
Hawrami said he was "hopeful for the first time" the long-running dispute over independent Kurdish oil sales could be resolved due to a "big change in attitude" under the new Iraqi prime minister, Haider Al Abadi, who took office in September.
"The KRG will play its full role in helping Iraq to meet its energy export targets," in 2015, Hawrami said.
The two governments are yet to reach a final agreement on Iraqi Kurdistan's right to export oil independently, but Hawrami said the KRG would continue to sell a portion of its crude while negotiating the terms with Baghdad.
"We have set ourselves clear targets for self-sufficiency, so we will never again face the violence of economic threats and embargoes on our region."
Baghdad this year cut off Kurdistan's budget allocation in response to the autonomous region's decision to export oil unilaterally, a move it derided as smuggling. The KRG says its right to export oil is enshrined in the 2005 constitution.
The interim deal agreed this month restored the KRG's budget allocation in return for handing some Kurdish oil over to Baghdad.
Hawrami said he saw Kurdish-produced oil shipments on its pipeline to the Turkish Mediterranean port of Ceyhan rising to 500,000 barrels per day (bpd) by the end of the first quarter of 2015 from current levels of around 400,000 bpd.
The KRG will give 250,000 bpd of Kurdish crude to the federal State Oil Marketing Organisation (Somo) under the terms of a draft 2015 federal budget. Hawrami said Arbil would be a net contributor to Iraq's finances by the end of next year.
The KRG will market the remainder of its oil independently, Hawrami said. He added the KRG will also allow an estimated 300,000 bpd of crude from fields in the disputed province of Kirkuk to be exported through the KRG's pipeline under Somo.
The pipeline, which has rapidly increased exports this year, is being expanded by new pumping stations, Hawrami said.
Baghdad's own pipeline from Kirkuk to Ceyhan is no longer operational because it runs through territory controlled by Islamic State fighters.-- Reuters
Despite pain, Opec hawks come round to merits of riding out oil slump
Opec members which backed an output cut at the group's meeting last month are coming around to the view of Saudi Arabia that they need to focus on market share, further reducing the chance of any action to defend prices.
While Venezuela - which campaigned for output cuts in the run-up to the November 27 meeting - has continued to call for measures to prop up prices, other nations which usually back such action such as Iran and African members have been silent.
"The producers have not blinked. We are just watching and selling oil at whatever the price is," said a delegate from an Opec country which in November had wanted an output cut.
This means there is greater unity behind the view of Opec's core Gulf producers, which signalled this week they are prepared to wait as long as a year to see the market stabilise, despite a plunge in prices to below $60 a barrel, the lowest since 2009.
Oil's fall from this year's peak of $115 a barrel in June is particularly painful for countries such as Venezuela, Algeria and Iran, which need prices above $100 to balance their budgets, according to estimates by the IMF and other analysts.
Opec was expected to address the problem in November by trimming production, but Gulf producers led by Saudi Arabia blocked calls from poorer members to reduce supplies, arguing the group needed to fight for market share.
A delegate from a second Opec country which had backed a supply cut said any action to support prices would need to include non-Opec Russia, which so far has shown no sign of backing down on its refusal to cut output.
"Despite the pain, we agree Opec can't cut alone," the delegate said.
The first delegate said there was no need for Opec to meet before its next scheduled gathering in June, as its most recent decision needed time to lead to a slowdown in competing supplies such as shale oil.
"The producers are trying to put the brakes on shale oil and that is going to happen sooner or later, and they are also stimulating the economy, and higher oil demand. That is going to continue." -- Reuters
China ends near decade of rising Iraq crude oil orders
SINGAPORE, 12 hours, 31 minutes ago
Chinese oil firms will keep the amount of crude they buy from Iraq unchanged in 2015 for the first time in almost a decade, as the need for imports falls and concerns over the quality of the oil persist, five sources with knowledge of the situation said.
The varying quality of Basra Light, Iraq's key export grade, has been a concern for buyers, while demand growth in China has also been slowing allowing oil firms to cherry pick purchases from global suppliers.
Oil prices have fallen more than 40 per cent since June as a supply glut clashes with cooling demand, putting producers under pressure as consumers have more choice at lower costs.
"There is a lot of competition to supply," IHS consultant Victor Shum said. "China has a lot to choose from."
A drive by China, the world's top energy consumer, to secure oil for its fast-growing economy has seen its imports from Iraq soar. The Opec producer has become China's fifth-largest oil supplier behind Saudi Arabia, Angola, Russia and Oman.
China's crude imports from Iraq rose in the first ten months of the year by nearly a quarter to 23.49 million tonnes (566,387 barrels per day), compared with the same period of 2014, Reuters data showed.
In contrast, China imported just 1 million tonnes of oil from Iraq in 2006.
END OF LONG RISE
Four Chinese firms with annual oil contracts with Iraq's State Oil Marketing Organization (Somo) will keep 2015 purchases steady for the first time since 2006, the sources with knowledge of the firms trading strategies said.
Unipec, the trading arm of Asia's largest refiner Sinopec, will lift about 10 million barrels a month, and Sinochem up to 6 million barrels, according to sources.
CNOOC, Zhenhua Oil and Chinaoil, the trading arm of PetroChina, will each have about 2 million barrels per month, the sources said. These volumes do not include equity shares from production sharing contracts held by Chinese firms in Iraq.
Somo, PetroChina, CNOOC and Sinochem did not respond to emails requesting comment, while Sinopec declined to comment.
Iraq will give a higher discount for heavy crudes it exports from its port of Basra over quality issues, sources have previously said.
CHINA'S IMPORTS SLOW
Another factor behind slowing demand for Iraqi oil is that China's own import needs are not rising as fast.
China's crude imports are expected to post a rise of 400,000 barrels per day in 2015, compared with 500,000 bpd this year, said Amrita Sen of Energy Aspects.
"Regarding crude imports, it will be a function of SPR (strategic petroleum reserves) and commercial inventory fills," Sen said, rather than one of meeting direct consumer demand.
The actual amount of crude Iraq delivers to China next year may also be determined by factors outside the order book.
This year, Iraq was unable to deliver full contractual supply due to technical and security problems: Chinese buyers signed deals to double Iraqi crude imports in 2014 but Iraq only managed to supply a quarter more.
Despite this, China is expected to increase crude imports from the world's fastest-growing oil exporter in the long run.
"Beyond next year, Iraq has the potential to provide sustained incremental supply far into the future," IHS' Shum said.-- Reuters
Saudi crude oil exports rise to almost 6.9 mbpd in October
RIYADH, 12 hours, 35 minutes ago
Top oil exporter Saudi Arabia shipped more crude oil in October than a month earlier while volumes used by domestic refineries remained high allowing more oil products exports, official data showed.
The Opec member exported 6.897 million barrels per day of crude in October, up from 6.722 million in September, data published by the Joint Organisations Data Initiative (Jodi) showed.
Production was slightly lower in October at 9.69 mbpd from 9.704 million, the data showed.
An industry source told Reuters last week that crude supplies from the kingdom for both exports and the domestic market inched higher to 9.420 mbpd in November, up 40,000 bpd from October.
Jodi has not yet made export data available for November.
Oil products exports rose to 909,000 bpd in October from 787,000 bpd in September, the data showed.
Domestic refiners processed 2.061 mbpd of crude in October, almost flat from 2.035 mbpd in September, the Jodi data showed.
Saudi oil use for power generation fell to 512,000 bpd in October from 648,000 bpd in September as weather cooled.
Oil markets monitor changes in output from Saudi Arabia, which has enough spare capacity to significantly alter production according to demand.
Its exports in September edged up by around 59,000 bpd while volumes used by domestic refineries remained high. -- Reuters
Bahrain may start importing Russian gas from 2017
MANAMA, 12 hours, 39 minutes ago
Bahrain could start importing gas from Russia in 2017, Russia's ambassador to the Gulf Arab kingdom told a local newspaper according to Bahraini state news agency BNA.
Viktor Smirnov was quoted as saying in an interview with Al Bilad newspaper that "the provision of Russia gas is likely to begin in 2017 upon completion of the necessary infrastructure for gas importation and storage", in Bahrain, BNA reported.
The ambassador said gas will be transported by sea from Russia to Bahrain.
The report also referenced recent talks between Viktor Zubkov, chairman of Gazprom's board of directors, and Bahraini Energy Minister Abdul-Hussain bin Ali Mirza.
No details were given in the report on how much gas Bahrain could potentially import.-- Reuters
Big role seen for unconventional oil and gas
LONDON, 14 hours, 40 minutes ago
Unconventional oil and gas resources will play an important role in the global fuel mix with technological advancement across the entire value chain shaping the profitability of the industry in the long term, a report said.
While crude oil prices are sliding, many companies and governments are cautiously investing in new as well as existing technologies to obtain oil and gas (O&G) from unconventional sources, added new analysis Global Oil and Gas Outlook 2014 from Frost & Sullivan, a growth partnership company.
Despite the increasing affinity towards alternative energy sources, O&G will remain the primary energy source across the globe for years to come.
The liquefied natural gas (LNG) market remains highly attractive, the study found.
Gas will be one of the major fuels for power generation in 2030 despite economic uncertainty in the wake of recent African and Middle Eastern unrest. Furthermore, the recent Western sanctions to Russia following the conflict in Ukraine, will negatively impact Russian oil and gas trade volumes.
In the long term, it is quite likely that the production of unconventional gas across North America, Latin America and China would offset any shortfalls in gas supply and demand.
“Investments in new technologies and resilience of the O&G sector have given rise to innovative exploration and production systems such as deepwater and ultra-deepwater drilling, and arctic explorations at depths of more than 12,000 feet,” said Frost & Sullivan Energy and Environmental Industry Analyst.
“Technological advancements and investor optimism have also spurred the output of unconventional ‘tight oil’ and shale gas.”
Although shale gas has caused a great deal of excitement, there is uncertainty about actual reserves and what percentage of those reserves is recoverable. Moreover, European and Chinese shale plays are much deeper than those in the US, making drilling and extraction much more challenging. The need for refined drilling techniques and rigs will add to development time and cost.
Several additional challenges affect the O&G industry:
• Geographical and climate hazards in difficult-to-access locations
• O&G security risk in high consuming regions, especially China, India and Southeast Asia
• Low operational safety, high risk of spills, and environmental disasters
• Future projects classified as highly challenging in terms of technology and operational efficiency
• Uncertainty related to growth of alternative O&G markets
• Switch from oil-based technologies to substitutions such as biofuels and electric power
• Strict policies related to carbon emissions
The proper assessment of reserves and recovery rates will be crucial over the next two years. Focus on increasing production and reducing costs will also be priority in the short term. To that end, investments in advanced technologies such as horizontal drilling, hydraulic fracking, downspacing and deepwater drilling will rise.
“While there still remain uncertainties with respect to reserves, technologically superior extraction and production methods can exponentially improve recovery rates,” noted the Analyst. “Widening pipelines and terminals to connect production areas with refineries will hence be a key opportunity area for firms in the global O&G space.” – TradeArabia News Service
