The Battle For Market Share

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It’s been a while since I blogged about the Oil Price, and since my last note it does appear that things have stabilised and prices are slowly creeping up.

This is good news for for the Oil and Gas Industry and is starting to provide the comfort that producers need to start spending money on new plant again. In particular, it seems that refiners who profited most from the low oil prices early on and have a cash reserve available are starting to look at developing and upgrading their facilities for new and emerging markets.

They are also taking the opportunity to adapt refineries to be able to process heavier (cheaper but poorer quality) crudes and to meet more stringent EU and US fuel specifications.

This article from World Oil paints an interesting picture – a stand-off between those who were prepared to sell on even when oil prices plummeted and those that preferred to keep their oil in reserve and wait for higher prices to return.

 

 

Does anyone in charge really know what’s going on?

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It’s been a while since I posted anything, but this article from Downstream Today really caught my eye;

Guess what? According to OPEC;

“A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC’s 2014 strategy shift to defend market share and not prices helped deepen the decline.”

Really? I’d never have guessed. They go on;

“It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term,” OPEC said.

You don’t say . . . who would have thought that slashing oil company profits would halt trillions of pounds of investment by . . . oil companies. And that massive cuts in profits would drive down the share prices and value of stock held by . . . investors in oil companies . . . such that they won’t back new investment.

“There seems to be a ‘contagious’ effect taking place across many aspects of the global economy.”

OK, now you get it, so what’s the plan (my emphasis) . . .

“The monthly report from OPEC indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report.”

“Top OPEC exporter Saudi Arabia told OPEC it increased production to 10.23 million bpd from 10.14 million bpd in December. The secondary sources also reported higher output from major producers Iran and Iraq. Supply from OPEC could rise further due to the lifting of sanctions on Iran. Tehran is aiming to increase output by 500,000 bpd, which would fill most of the hole left by non-OPEC members.”

To paraphrase Cat from Red Dwarf;

“That’s your plan? Nice plan. Shall I paint a bullseye on my face?”

The SA – US Stand-off

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Two articles caught my eye, offering more insight into the current low oil price and reasons for it.

I’ve blogged about this a few times recently (probably too many, if you’re not interested in this sort of thing) the reasons for Saudi Arabia to keep pumping oil into the system despite reduced demand and thereby lowering the oil price. This seems at first sight odd for a country that makes a living from selling oil.  However, the reasons for SA to continue this policy (for it is they, rather than Opec driving this) are several – maintain market share, hurt Russia, hurt Iran, curtail the US shale gas revolution.

Three out of four are certainly being achieved but not the last.  As this article reports, US Shale Gas continues to boom and the lower oil price is driving innovation rather than closing facilities down.

In fact in a third story I read this week, the US are stepping up plans to export natural gas in liquid form to Europe. This will be welcomed by Europe as it will ease the reliance on Russian gas.

Latest casualty of lower oil prices

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Worrying news from Shell that they have ditched a planned $6.5bn gas plant in Qatar, reported HERE in the DT.

With oil prices firmly below $50 per barrel billions of dollars of projects both upstream, or in refining and petrochemicals are under threat. Global energy consultancy Wood Mackenzie has said that 32 potential European oil field developments requiring more than $87bn (£55bn) of funding are at risk with oil prices below $60 per barrel.

As I’ve reported before, while low oil prices are good for some it’s a worrying time for those who work in the industry.