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.

 

 

Oil Prices Continue To Remain Low

It’s interesting that the oil price continues to remain low, and has even fallen again in recent months.

Many people predicted that there would be a rise towards $80 per barrel by the summer but instead we are back down around the $55 mark for Brent crude.

This little chart will give you some idea of who this prolonged low price is hurting (and helping).

http://im.ft-static.com/content/images/f9c2521e-8058-11e4-872b-00144feabdc0.img

Can it be sustained for the rest of 2015 – if the recent fall is anything to go by then I’d say yes.

More news from Saudi Arabia

Refinery 3 s

Two new stories emerge today that underline a new dominance that Saudi Arabia is creating in the Oil Industry.

It is well known that as the most influential oil producer in the World, the actions of Saudi Arabia have significant influence over the global crude oil price (crude oil is a stabilised product that is sold to refineries around the world to be turned into ‘refined’ products such as gasoline, kerosene, diesel etc.).

In recent months Saudi has been increasing its output (as previously reported here) and will probably exceed Russia in the first two quarters of this year to regain top spot as the World’s largest oil-producing nation.

As I have postulated before, the aim of flooding the market with cheaper oil is to retain (and increase) market share and this is spelled out in an article from Downstream Today that states

“Saudi Arabia expanded its share of China’s oil market last month, outpacing rival producers as they compete to meet record demand from the world’s biggest energy consumer.”

It goes on to say;

“China’s imports from the Middle East producer jumped 37 percent from a year earlier to the highest level since July 2013, according to customs data. The world’s biggest crude exporter was the No. 1 supplier to the Asian nation, accounting for 17.4 percent of its overseas purchases, up from 15.1 percent in March. The next three largest sellers — Russia, Iran and Angola — lost market share.”

So the plan is clearly working. But low oil prices whilst good for refiners (and to a lesser extent petrol consumers) are bad for oil producers.  Saudi Arabia has already thought of this, and for some time has been building up refining capability in-Kingdom and out-of-Kingdom to take advantage as another article from Downstream Today outlines. I worked on the FEED phase of the Jizan refinery mentioned in the article – an amazing project and vision [VIDEO HERE];

“The kingdom now has stakes in more than 5 million barrels per day (bpd) of refining capacity, at home and abroad, landing it a place among the global leaders in making oil products. Its own target of 8-10 million bpd of refining firepower would eclipse even ExxonMobil.”

Why does this matter?

Well firstly, the statement that China is demanding more oil suggests an upturn in the global economy which is a good thing for all of us.

Secondly, additional refining capacity at state of the art (e.g. high efficiency) refineries located right next door to the oil sources will enable Saudi Arabia to make good margin on refined products during periods of low oil prices, which will enable them to sustain low crude oil prices for longer if they wish – this will hurt oil producers with a higher break-even price.

Finally, as well as flooding the market with cheap crude oil, they will also be able to supply cheap refined fuels across the Arab region and the wider world, putting further pressure on European refineries which are already struggling with high energy costs, aging plants and lack of investment. This in turn could lead to the closure of UK refineries, lost jobs and a greater reliance on imported fuels.

Governments across Europe (including our own) have failed to see this coming and continue to bicker over CO2, emissions, green renewables, taxation etc. Within the next 5 years it will become apparent to all that we are firmly in the grip of the Middle-East when it comes to our crude oil and refined fuels.

On the up?

Oil Price 1Q May 2015

The oil price has bounced back a bit in recent weeks, with prices up to around $65 per barrel for Brent Crude compared to lows in January of less than $50.

This is despite Saudi Arabia shipping more crude in March than in any month since November 2005 as reported in this article from Downstream Today.

What is interesting is the deliberate intention of Saudi Arabia to squeeze other oil producers around the World, notably the US, Russia and Iran.

This article quotes a Saudi official talking to the FT and saying;

“There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale, deep offshore and heavy oils.”

It also reports that while Saudi Arabia increased oil production to 10.31 million barrels of oil per day in April,

“the number of rigs running in the US has dropped by 60 per cent as companies have either sought to cut costs in response to lower oil prices or have simply gone out of business.”

Good news for consumers; although the period of cheap petrol didn’t seem to last long in the UK it does seem to be translating into cheaper food prices – as highlighted by the UK inflation figure dropping to -0.1% yesterday. But bad news for those in the industry that are seeing a marked slow-down in new projects coming through.

What Now For Saudi Arabia

Jubail Power

Following the death of the King of Saudi Arabia the World, and especially those of us working in the Oil Industry, await news of what the new King plans to do with the price of oil.

The Daily Telegraph has this story.

King Abdullah will be succeeded by the Crown Prince Salman bin Abdulaziz al-Saud. But the transition could bring the kingdom’s current policy of forcing down oil prices into focus.

King Abdullah was a key supporter of the kingdom’s oil minister Ali al-Naimi. His death may therefore weaken the position of this long-serving official. Mr Naimi has already faced criticised within the kingdom for allowing crude to tumble from over $100 per barrel since last summer.

Lower oil prices help consumers, have caused UK inflation to fall to its lowest level for years and made the Labour Party’s pledge to freeze energy prices look even sillier than it previously did.

However it also makes companies reluctant to invest in new projects  – projects that will be needed when the global economy is back firing on all cylinders again (pardon the pun) in 2 or 3 years time.

We could find that in around four years time we’re staring down the barrel (oops another pun) of $200 per barrel oil due to lack of investment now.