Where is oil going

Oil prices continue to ratchet upwards – good news for the industry, not such good news for consumers.

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The key for companies to start investing again will be when they see this price rally continuing for a few years and an oil price high enough to generate good profits.

This report  suggests that  people are now looking at oil prices above $60 per barrel next year which would certainly provide sufficient margin for investment.

Pretty much every single fundamental that we have points to those commodity prices going up, not down,” Ryan Sitton, one of three elected members of the Texas Railroad Commission

To give you some idea of the impact that low prices have had, the article points out

In Texas alone, Sitton said, state regulators are processing less than a third of the oil and gas well permits they did just two years ago, highlighting the wariness companies have to drill and pump more.

However, not everyone is so optimistic, another commentator stated;

Investors don’t expect prices to climb above $53 at all for the rest of the decade, and most shale oil producers in the United States have begun planning for what they are calling a “lower for longer” price scheme

These differences of opinion often come about as a result of different agendas, which has always been a problem in the Oil industry.

Fingers crossed things are starting to look up.

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

bullseye s

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?”

Is this a turning point?

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After a year of low oil prices which have brought cheaper fuel for most but lack of investment leading to wage and job cuts in the oil and gas industry have we finally turned the corner?

This article in World Oil cites the 27% rise in crude prices in three days amid news that maybe Saudi Arabia and Opec are ready to discuss a cut in output as long as it is a global cut and not just Opec countries.

Some people are trying to downplay the news, maybe they are right, the price of oil seems to be being driven purely by speculators and market makers rather than supply and demand fundamentals.

Remember how many times in the past, when the oil price went up, we were told it was due to instability in the middle east?

Can the Middle East have ever been less stable than right now?  And yet oil is at lows not seen for 6 years.

It’s a strange World out there!

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.

More on the Oil Price

petrol fillup

Following my previous post about the potential impact of Oil Prices, it was good to see Opec agreeing with me!

In a recent report they too are concerned at lack of investment;

Crude oil rebounded after OPEC Secretary General Abdalla El-Badri said insufficient investment could push prices to $200/bbl.

While low oil prices are something of a silver lining, remember that every silver lining has a cloud.

Oil Price Tumbles . . . but why?

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The oil price continues to fall – good news for motorists and power hungry industry, but is it good for the global outlook?

I’ve blogged about this before, but in this article there is a more detailed look at the drivers behind the lower price – who might be OK and who might start to struggle.

Interesting, but in my mind dangerous and uncertain times, which is no good for anyone.