Statoil: Technology question cuts off Arctic drilling campaign

Statoil is Norwegian state oil company. It stopped drilling in the Barents Sea in the Arctic region. Right after the court gave away the temporary warrant in a technology dispute with a small Norwegian firm.

What did exactly happen?

Norwegian company Neo Drill said the technology which Stat Oil was using is based on its patent. It is the patented Conductor Anchor Node technology which it has been developing since 2000.

Later the Stavanger court has put a ban on Statoil’s use of this Cap-X drilling technology.

Statoil started drilling in the Barents Sea this year. During the last week it had to stop the operations. Meanwhile it was trying to make sure that it can transfer the business to an alternative plan, if this work failed.

Statoil started to deeply explore Norwegian cost this year. Putting focus on the Barents Sea.

”According to the Norwegian Petroleum Directorate the area could hold two-thirds of all undiscovered resources off the Norwegian coast.” (Reuters)

“We are taking steps to comply with the decision. We are currently securing the (Blaamann) well and that will take a few days to complete.” Eskil Eriksen said.

He said it was not clear when is the possible period Statoil could restart drilling at Blaamann. But he also explained that the company was expecting to finish its work in the Barrents Sea by the end of this year.

“We will mobilize the alternative technology in time to continue the drilling, and we will complete the Barents Sea campaign as planned.”

The Technology

Speaking about its further plans, Statoil sources said it aims to use Cap-X technology for all the five wells in the Barents Sea. Observing the Korpfjell border area, in border with Russia, it also plans to use the same technology.

When in 2013 Statoil presented its technology for the first time, it said that technology development started to help develop explorations in the Barents Sea.

However, Neo Drill noted that the presented Cap-X technology has the main parts which remind of their CAN technology. And the important fact is that Statoil really had the access to CAN, as Neo Drill’s partner. It is so since 2001, and later it had the 30% stake in this business.

“Statoil has thereby had full access to sensitive technical information related to the CAN-technology in Neo Drill.”

Back in 2016, Statoil denied using Neo Drill’s technology. But, earlier during the years, it had asked Neo Drill for a CAN license. It did not succeed to take a license because the two companies were not able to agree on the terms.

When asked to comment, Statoil did not want to explain themselves. Referring to the ongoing court process. But their source said that the current court’s decision is based on the “wrong information”.

 

Statoil is going to speak on Wednesday, at the Stavanger court.

 

Western Australia state asks Iron ore Miners to pay cash in advance

 

Important to know on May 29th:

  • Global stocks drift in thin trade; U.S., U.K., China closed
  • Dollar steady in quiet trade; British pound jumps
  • Oil dips as traders weigh U.S. drilling, OPEC cuts
  • Mario Draghi takes center stage
  • North Korea fires another ballistic missile

 

Iron Ore Market

Western Australian state officials are going to ask BHP and Rio Tinto to pay in advance multi-billion dollar fee. In order to exchange the cancelling ongoing intrude on their Iron ore outputs.

Australian state is firmly convinced it will succeed with the current intentions, but miners are not likely to agree. In fact, if they win significant benefits they can possibly consider the option. The mineral-rich state has had more than $23 billion in debt following the end of a mining boom.

Considering all the options, the BHP and Rio Tinto are ready to pay about $3 billion in exchange for cancelling a A$0.25 a tonne ongoing levy. This iron ore levy in their mines could last for further 50 years.

Ben Wyatt won a state election in March this year. The state treasurer supports left Labor party, and he said the proposal is still in very early stages.

“It’s an option that could only be close to crystallizing if you had a range of things in play, one, obviously the engagement and agreement of the miners.” (Wyatt)

 

Miner comments

Rio Tinto spokesman said that the company rejected the payout proposal, and that it does not want to reconsider it. While the BHP spokesman refused to comment on this subject.

The miners will meet with government officials this week. But there are some rumors, that the proposal could possibly inspire some unwelcome precedent.

“The last thing Rio and BHP want is to become the state’s go-to ATM every time there’s a financial crisis.”  (Reuters source)

The A$0.25 a tonne levy raised around A$150 million for Western Australia last year, based on the two company’s combined output of about 600 million tonnes of iron ore. The state earns far more from a 7.5 percent royalty based on the value of their sales, which contributes well over $2 billion a year to state coffers. (Reuters)

 

The conditions

Miners will accept the proposal only if they benefit substantially.

“There would have to be a motivation from the miners’ point of view unless they were feeling philanthropic.” Said Pietro Guj, the university professor.

The current plan follows a proprosal by a rival party in the lead up to the March election.  It said  the levy should be raised to as much $5 a tonne, but this proposal was condemned by the miners.

Only Rio Tinto and BHP pay the rental fee which applies to mature projects. The other projects, including those owned by Fortescue Metals Group and Gina Rinehart’s Hancock Prospecting would be liable to pay it from 2023.

 

 

Gazprom’s concessions – possibly improved after today’s meeting

,

Asian markets trade today

Major markets are closed today, due to holiday. Asian markets were moving flat, after the North Korea’s latest ballistic missile.

North Korea tested the ninth missile this year. It has fired the missile near the country’s cost. It landed in the Sea of Japan. Before landing, the missile was in the air for 6 minutes. The North Korea is constantly facing pressure from U.S. and its historical ally China.

Japan’s benchmark Nikkei 225 index edged higher by 0.13 percent. Observing the South Korea’s Kospi, it added 0.33 percent. This is the seventh straight session of gains for the Kospi.

Later, the S&P/ASX 200 declined after trading flat during early trade. It was edging lower by 0.44 percent. The financials sub-index inspired this fall. It has tumbled 1.16 percent.

Hong Kong’s Hang Seng Index added 0.19 percent. Markets in mainland China are closed for a public holiday today.

Stateside, Wall Street will be closed for Memorial Day. After closing mixed last Friday following the release of the second reading of Q1 GDP numbers. Markets in the U.K. will also be closed for the spring bank holiday.

 

Gazprom

EU antitrust chief Margrethe Vestager will today meet Gazprom’s deputy chief executive. They might possibly discuss the Russian giant Gazprom to improve its concessions. Those contracts aim to end a six year investigation.

Gazprom supplies one third of the Europe’s gas. The state-controled company offered in March to scrap business practices as well as the pricing policy. Because the European Commission sees it as anti-competitive.

These ideas also include exporting its gas to other countries. Investing money in new pipelines, reconsidering monopoly pricing in the Baltic states, Bulgaria and Poland.

Current Gazprom’s concessions are letting clients to renegotiate their decades-long contracts. With prices in it, which are linked to benchmarks. For example, to the European gas market hubs and border prices. Including in Germany as well.

The competition companies seek feedback from Gazprom’s clients and rivals.They are many among those who do not agree that Gazprom should reconsider its policies and invest in new capacities. Also it shouldn’t be refreshing the concessions. Most noteworthy, the Polish state-run company said Gazprom should be punished with a tough finish.

 

The meeting

 

Vestager could possibly demand the slight changes to Gazprom’s concessions at the meeting with Alexander Medvedev.

The Commission confirmed the meeting, but they did not give the specific details. The EU executive is not likely to bow to pressure from Gazprom’s foes and scrap the deal, underlying the thaw in business ties between the bloc and Russia despite tensions over Ukraine and Syria.

For now, Vestager’s line with Gazprom is pretty flexible. Which questions her tough approach towards other giants. For example Alphabet Google, and many others… It puts her attitude in a sharp contrast.

The results of this meeting will be familiar soon. Gazprom may change its concessions, and the new ‘pipeline canals’ may soon be on the way.

 

The Week Ahead: Crude Oil futures

,

Short recollection:

This Friday, oil futures leveled higher. Recovering from the previous 5% drop which was the consequence of higher market expectations related to OPEC. Currently, traders are trying to refresh their attitude about Oil market and OPEC’s further steps.

The U.S. West Texas Intermediate crude July contract came on 90 cents. In percentage, that would be around 1.9%. Later it ended at $49.80 a barrel by close of trade Friday. It touched a two-week low of $48.18 earlier in the session.

U.S. benchmark cut the losses to fewer than 2%. Observing the first 4 days of the week it was slightly oscillating, then it plummeted for 4.8% on Thursday.

Following, on the ICE Futures Exchange in London, Brent oil for July delivery added 69 cents to settle at $52.15 a barrel by close of trade. Before that it was hitting a daily trough of $50.71. This level was not seen since May 12.

OPEC and non-OPEC countries decided on Thursday, in Vienna, to prolong the output cuts. Numbers are the same, million barrels per day until the end of the first quarter of 2018.

The agreement was globally accepted. But some of the market participants were still expecting the deeper cuts. In order for global market re-balance to be achieved sooner.

 

Next OPEC meeting

The next OPEC meeting is scheduled for November this year.

By now, the further production cuts did not have important impact on global inventory levels. Because the countries who are not participating in these output cuts are drilling bigger amounts of their oil. Such as Nigeria, Libya. And of course, the huge U.S. shale outputs.

Baker Hughes on Friday came out with data about U.S. shale drillers. They added rigs for 19th week in a row.

The U.S. rig count rose to the highest levels since April 2015. Declaring that further production gains in their production are ahead.

In order to bring financial markets closer to stability, the deal between OPEC countries and U.S. would be necessary. The constant amounts of Crude oil which are coming from the U.S. shale can only disturb every OPEC’s idea connected with market re-balance.

That definitely won’t be achieved easily, but if achieved would be of a huge value for the global markets.

In the following week, oil traders are going to face weekly information on U.S. stockpiles of crude and refined products on Wednesday and Thursday. In order  to track the real strength of demand in the United States.

Having in mind that Monday is a Memorial Day, the reports on these data will come out one day later than the usual.

Important Events to take place in the upcoming week:

Monday, May 29

Markets in the U.S. are closed for Memorial Day.

Wednesday, May 31

The American Petroleum Institute will publish the weekly report on U.S. oil supplies.

Thursday, June 1

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

The U.S. government is also set to produce a weekly report on natural gas supplies in storage.

Friday, June 2

Baker Hughes will release weekly data on the U.S. oil rig count.

 

Will OPEC make it to co-exist with U.S. shale oil ?

, ,

At the beginning , they ignored each other. After a while, they went into a bruising fight. Now, finally, they are talking, although with opposing agendas.

The evolution of the relationship between OPEC and the United States oil industry now lasts for about 5 years. 5 years ago, OPEC discovered it has a rival emerging in a core Oil market.

Officials of the U.S. shale bankers were present this week in Vienna, when OPEC held a meeting. After what happened, OPEC is preparing a trip for its officials. Aiming to visit Texas in order to check if it is possible for two industries to co-exist. Because if some new co-existing spirit is suffocated, the major future fights are near.

“We have to coexist,” said Khalid al-Falih,

 

Output Cuts

OPEC now realizes that agreed supply cuts and higher prices only make it easier for the U.S. shale industry to deliver higher profit. While it is aware that shale industry has  found ways of slashing costs. It happened three years ago, when Saudi Arabia ”turned up the taps”.

Permian Basin – the largest U.S. oilfield. Parsley Energy Inc, Diamondback Energy Inc, and others are pumping at the highest rate in years. Now taking advantage of new technology, low costs and steady oil prices to harvest profits at OPEC’s cost.

OPEC’s latest idea is to make certain co-agreements, and hold the prices below $60 per barrel. Meanwhile it is aware of the U.S. shale power, but aims to hinder its growth.

“All shale companies in the U.S. are small companies.” (Noureddine Boutarfa)

“The reality is that at $50 to $60 a barrel, (the U.S. oil industry) can’t break beyond 10 million barrels per day.”

“For all OPEC members, $55 (per barrel) and a maximum of $60 is the goal at this stage.” said Iran’s oil minister.

“So is that price level not high enough to encourage too much shale? It seems it is good for both.”

“We had a discussion on (shale) and how much that has an impact,” said Ecuador Oil Minister Carlos Pérez.

“But we have no control over what the U.S. does and it’s up to them to decide to continue or not.”

OPEC delegates asked Mark Papa, chief executive of Permian oil, to say more about the shale’s potential. He diplomatically did not open the cards.

“In terms of the threat, we still don’t know how much (U.S. shale) will be producing in the near future.” Nelson Martinez, Venezuela’s oil minister said after the talk. (Reuters)

 

Opinions On Shale

UAE Energy Minister Suhail bin Mohammed al-Mazroui, admittedhe didn’t believe U.S. oil production would rise by 1 million bpd next year.

Some of OPEC’s customers are indeed content to see an alternative for their Oil sources. For example India, the world’s third-largest oil consumer, currently said it is looking to the United States for greater supply.

“The new normal has to be accepted.” Dharmendra Pradhan, India’s energy minister said this week at the OPEC meeting.

OPEC will meet again in November. Aiming to reconsider output policy and check if everything was going as planned. While most in the group now seem to believe that shale has to be accommodated, there are still those in OPEC who think another fight is close.

 

 

Short Overview of main Weekly deals & economic events

, ,

United States

Nasdaq and S&P 500 overcame the last week’s losses. They were at the record levels on Friday’s closing, observing the period of two weeks. Strongly supported by the surge in tech stocks, as well as the political unrest which is taking place in U.S. these days.

 

OPEC & Oil

OPEC and non-OPEC countries have made a deal to extend production cuts for a period of nine months, until March. The deal was made on Thursday. The idea of extending the glut came after the output cuts agreed in November last year failed to rein in the glut in supply. Which has pressured oil prices for nearly three years.

Most of the market participants were expecting deeper cuts. So when the meeting started, prices sharply fell right away, which did not leave the traders impressed. The expectations on Cartel were a bit firmer & OPEC was expected to announce deeper cuts.

However, in order to rebalance the market, OPEC must take wise further steps. Also, observing it relations with with non-member countries, they should become closer.

 

Base Metals

 

Firstly, copper prices on LME closed the day on Friday May 26 below their previous closing prices. They have fallen back from three-week highs earlier.

Three-month copper closed the day at $5,657 per tonne. Coming from its previous closing price of $5,724.

Secondly, copper prices rose earlier on news of the escalating 2 month long strike at the Grasberg mine – the world’s second largest for copper. Where strikes are set to roll into a second month over June. But prices fell back again by the close.

Thirdly, aluminium prices traded loosely flat throughout the day. They dipped at the close to $1,951 per tonne after closing the day on Thursday at $1,960. Aluminium stocks saw a 31,975-tonne injection in South Korea on Friday. Such a move could see prices trade lower, despite the spectre of Chinese cuts hanging over the market.

“While questions remain around the efficacy of proposed Chinese capacity cuts, with the bears pointing to high semi exports as signs that production has actually increased, there is no questioning the buy momentum,” (Alastair Munro)

At friday’s close, the three-month prices of base metals were:
Nickel closed the day at $9,080 per tonne, from its previous closing price of $9,040. Zinc closed at $2,640 per tonne, up from $2,633. Lead closed the day higher at $2,122 per tonne, from $2,084. Tin prices closed at $20,425 per tonne, from $20,400 in Thursday.

 

Brazil’s Vale plans to diversify

 

Fabio Schvartsman, CEO of Vale SA, said that world’s largest iron ore miner plans to resume growth with diversification. And some acquisitions also.

Reporters and market analysts explained that Friday said Schvartsman means to avoid keeping “all eggs in one basket.” Speaking about the firm’s strong reliance on iron ore.

The company is doing a detailed analysis to decide on which operations to expand. For example, its nickel business is not gaining enough profit returns.

Schvartsman has set up working groups in Company, to find out the risks and returns which every of these units gain. The first assessment is to happen in 60 days.

For advises on cost-cutting efforts, Vale has also found a solution. It hired Brazilian consultancy firm Falconi to advise them and help them deal with cost-reduction.

 

Base Metals forecasts, China’s demand; Weekly overview

U.S. GDP Statistics & Data

By the official info which came out today, the U.S. economy grew faster than initially reported. Observing the period of the first three months of 2017, statistics data show that U.S. economy actually reached the levels among expected. It eased concerns about a potential slowdown in the U.S. trading & economic movements.

According to the Bureau of Economic Analysis’s, GDP went up at an annualized rate of 1.2% in the first three months of 2017. Which makes it well above the previous reading of 0.7%. The 0.7%  was the slowest period of economic growth since 2014.

 

Currencies & commodities

The dollar peaked to a four-day high. Meanwhile it pressured commodity prices across the broad. Mostly as expectations for a June rate hike rose to its highest level this week .

Commodity prices went up, lead by strong dollar’s growth. Which gives the support to the opening markets in Tuesday. Having in mind that Monday is the Memorial Day, and the trading is closed. Tuesday will hopefully be the green light for most of the base metals. Supporting their prices and giving the traders green light for doing businesses.

The GDP growth, which was stronger than expected, can easily lead to the higher commodity prices on Tuesday. The construction power in U.S. as one of the world’s most important economies, could definitely lead to higher demand for base metals.

More than 80% of market participants expect the Federal Reserve to boost its benchmark rate in June, compared to below 70% of traders in the previous week.

The U.S. dollar index rose by 0.20% to 97.34. Which is a very positive movement compared to the previous couple days. When dollar index was facing a downward trends, and that way causing the negative market ambience.

Most noteworthy, copper price saw a downwards trend today, falling for 1.14% to $2.568. Observing the natural gas volatility, it actually rose by 0.76%. Gaining levels of  $3.30.

 

China’s Base Metals Demand

Based on the numbers which show China’s statistics & base metal imports, as well as its use of the base metals in industry, it is likely possible that Q2 & Q3 global base metals market is going to be impacted by China’s strong demand.

Industrial metals markets slightly improved in China, which could possibly lead to the price trends to become higher.

The prices of base metals today were in an upwards trend. Both base metals prices and ferrous metals prices have been positively affected.

China’s role in the industrial metal markets is clear. China has a huge stake in the global output, which depends on its production. But it also has a huge impact in markets if it shows that China’s capacities need more of commodities to cover its needs in terms of demand. Therefore, monitoring trends in the Chinese economy is very relevant.

Beijing is providing its policy of recovering the environment & gaining lower levels in production of base metals if possible. That is causing China to import more of the metals from overseas, in order to fulfill its capacities. Which will probably lead to the higher base metal prices at the start of Tuesday’s ”journey”.

As mentioned before, Monday the 29th is Memorial Day. It is the United States Holiday. It is holiday also for China, due to Dragon Boat Festival. While the U.K. celebrates the Bank Holiday.

China’s Crude Oil Imports (Current & Forecasts)

,

Top 5 things in Today’s Market:

  1. Upward revision in U.S. growth expected, eyes on durable goods
  2. Pound under pressure on election jitters
  3. Oil recovers slightly after brutal OPEC induced sell off
  4. Japanese CPI increases for 4th straight month; China eyes yuan fixing
  5. Global stocks mixed ahead of U.S. holiday weekend

For further info on these subjects: http://www.investing.com

 

After OPEC has brought the decision on extending the output cuts, China’s refiners now have to slow their purchases of oil, for the next 2 months.

China is the world’s top Oil buyer. Interesting fact is that country’s appetite for crude oil fell. Leveling the 8.4 million bpd in April. While in March it reached the top of 9.2 bpd. This will also impact the country’s demand.

Shandong’s individual and independent refiners are facing pressure to cut their production because profit margins are now lower. This is happening due to Beijing’s custody. Beijing aims to refresh taxes and shifting policies, and balance the country’s economy this way.

Some of the refiners have even begun the seasonal work.

 

State Oil majors

China’s state Oil majors plan to put up new refining capacities till the end of this year. This way they aim to replace some import losses.

However, the lower country’s appetite and the demand which is slightly losing its upward momentum lead to a certain conclusion: China’s oil market is possibly slowing the movement.  

“There will be more shutdowns in June, July and possibly August. It’s seasonal but also because the market is not doing well and stocks are plentiful.” (Said manager of one Independent refining company.)

These independent refiners participate in China’s crude demand with 12 %. Since 2015, when they won the rights to import oil – they have been enjoying high profits. Doing so by selling diesel and gasoline throughout Asia. And at the same time expanding domestic sales in unique competition with state firms.

In January this year, Beijing put a ban on all the independents possibilities to export the fuel. This way it was openly  favoring the big state-owned refiners. And it squeezed margins for independents. Beijing  tensed custody on tax practices.

“Some refineries had rushed to buy crude in the first quarter, worried that they could be penalized for slow use of import permits.”

“There were some over-purchases of crude earlier as (plants) were unsure of the quota policy. Now inventories are high everywhere.” (Wang)

 

Further Imports

“Policy headwinds, domestic competition from SOEs (state-owned enterprises) and insufficient storage infrastructure at major port cities will cap imports.”

Observing the inventories in Shandong, diesel’s were pretty high compared to gasoline. Wang (official of one independent refinery) has said that his plant has plans to shut the 90,000 bpd crude units. All of that through July, aiming to improve the current situation.

 

CNPC and CNOOC

China’s state oil companies plan to strengthen the crude oil imports from August onward. Doing so by activating new refineries in Yunnan and Huizhou with combined capacity of 460,000 bpd.

There are some other Country’s projects which will stimulate the crude oil imports in middle-term.

Towards April and May, Beijing has gave permissions for 6 independent refiners to import crude oil. Total permits were around about 280,000 bpd. Some of these approvals are still preliminary, but worth mentioning is that they had the influence over market.

Harry Liu, an analyst at consultancy IHS Markit, estimated China’s total imports have fallen to around 8 million bpd at present, but could climb back to around 8.5 million bpd from around August. (Reuters)

“CNPC and CNOOC will contribute the bulk of the increases in refinery runs later this year. Teapots’ contribution will be smaller as the environment for them to grow has got much tougher this year.” Liu said.

 

Oil price drops; Base Metals down

, ,

Main economic events in Market Today:

  • U.S. Core Durable Goods Orders (MoM)(Apr) fell to actual -0.2% while forecast was 0.4%
  • U.S. Gross Domestic Product (GDP) QoQ fell to actual 0.7% while forecast was 1.2%
  • U.S. GDP Price Index QoQ rose to actual 2.2% while forecast was 2.0%
  • U.S. Michigan Consumer Expectations came to actual 88.1 while the forecast was 87.0
  • European Central Bank Coeure Speaks

 

Base metals were mostly lower during Asian morning trade today. The Oil price impacted even the base metals movement, and it put a cap on copper price.

“On Thursday, base metals prices had rallied then dropped after the OPEC [Organization of the Petroleum Exporting Countries] announcement and after the dollar strengthened. LME copper prices were supported by issues at Grasberg but gains were checked by concerns over Chinese demand.” (Mailyard Futures, China)
SHFE copper prices will probably continue fluctuating around 46,000 yuan per tonne.

OPEC countries agreed on May 25th about extending the output cuts. However, this had a huge fast impact on Oil prices in negative way. The hedge funds reacted right away, and the global oil price went lower than predicted.
“Since May 15, when the Saudis and Russians announced their intention to extend the cuts for nine months rather than six, prices gained more than $2 in anticipation of an agreement today. Now, prices have roughly returned to May 15 levels,” SG added.

The Brent crude oil price dipped as low as $51 per barrel on Thursday, the lowest since May 15.

Grasberg copper mine strike

Freeport McMoRan Inc said Thursday that mining and milling rates at its Grasberg mine are affected by the extended strike. Also by a “large number” of approximately 4,000 absentee workers. Who were deemed to have resigned.

Increasing labor tension is a further disruption for Freeport. Involved in a long dispute with Indonesia over rights to the giant mine, which has cost both sides hundreds of millions of dollars.

Copper prices leveled three-week highs yesterday.  Concerns about extended disruptions at Grasberg triggered these movements.

“As a result, a large number of these workers were deemed to have resigned, consistent with agreed industrial relations guidelines and prevailing law…”

”When asked to comment, the Union officials were not available.” (Reuters)

The most of Freeport’s 30,000-strong Indonesian workforce is “productively and safely” working.

On May 15, Freeport said the strike is not legal and “voluntary resignation is the consequence” for workers ignoring demands to return to work. The workers who were absent for five consecutive days. (Reuters)

Workers now considered “resigned” are in addition to an estimated 2,000-3,000 workers Freeport placed on absence as of mid-April. At that time, approximately 10 percent of its 32,000 member workforce was “demobilized” under aims to cut the costs

The SHFE September nickel contract fell down for 700 yuan or 0.9% to 75,220 yuan per tonne. It happened  due to concerns over escalating nickel ore exports from the Philippines and Indonesia. And slower demand from the Chinese stainless steel sector.

 

Other base metals lower

Firstly,  July aluminium contract fell 10 yuan or 0.1% to 14,080 yuan per tonne. Secondly, The SHFE July zinc price slipped 40 yuan or 0.2% to 22,205 yuan per tonne.  Following, the SHFE July lead price increased 50 yuan or 0.3% to 15,980 yuan per tonne.

Finishing, the SHFE September tin price decreased 510 yuan or 0.3% to 145,490 yuan per tonne.

Output Cuts prolonged; Oil price falls

OPEC made a decision today. It agreed to extend oil output cuts untill March 2018.

OPEC’s cuts have led the oil prices back over $50 a barrel. Giving a fiscal stimulus to producers. To those countries who rely on energy revenues. And who have had to burn through foreign-currency reserves to cap holes in their budgets.

The market was expecting the prolonged Oil output cuts. They started from output levels in October 2016, and will now last till March of 2018.

By 10:30 a.m. ET, Brent crude was 0.7 percent down. It was trading at around $53.50 per barrel. With it having chopped earlier losses for OPEC having said it would not deepen the cuts. Nor extend them by 12 months.

The first output cuts were officially brought up in December 2016. They were led by member Saudi Arabia and non-member Russia. It was the first cut in 15 years, aiming to rebalance Oil market. They decided to cut 1.8 million bpd from the market in the first half of 2017.

Essam al-Marzouq said  that today, OPEC decided to keep its own cuts of around 1.2 million bpd. Cuts will last nine months.

”Despite the output cut, OPEC kept exports fairly stable in the first half of 2017 as its members sold oil from stocks.” (Reuters)

“There have been some suggestions for the deeper cuts. And many member countries have indicated flexibility but … that won’t be necessary.”

By the words of Khalid Al-Falih, the deeper and longer cuts are not necessary for now.

 

Nigeria and Libya position

 

The third of world’s oil production comes from OPEC countries. The new reduction of 1.2 bpd was made based on October 2016 output of around 31 million bpd. This cuts exclude Libya and Nigeria.

Nigeria and Libya would be excluded from current output cuts, said Falih.

Also, he explained that Saudi oil exports will decline considerably from June. This way helping to speed up market rebalancing.

Today’s meeting has shown that medium-term cooperation with non-OPEC producers is very important in order to achieve the market rebalance.

“Russia has an upcoming election and Saudis have the Aramco share listing next year so they will indeed do whatever it takes to support oil prices.” (Gary Ross)

 

OPEC aims

OPEC has a self-imposed aim. It is to bring the stocks down, from a record high of 3 billion barrels. OPEC aims to lead them to their five-year average of 2.7 billion.

“We have seen a substantial drawdown in inventories that will be accelerated. Then, the fourth quarter will get us to where we want.” (Khalid Al-Falih)

The main reason why OPEC also faces the dilemma of not pushing oil prices too high.. Is because that could lead to U.S. further drilling way higher. And it would seriously rival Saudi Arabia and Russia as the world’s biggest producers.

“Less OPEC oil on the market enhances the opportunity for American energy to fill needs around the world, and will help us achieve energy dominance.” (Ryan Sitton said)

In order to achieve the fast & healthy market rebalance, OPEC countries must build the good relation with non-member countries. And by that build a global Oil zone in which the participants carefully pull their further steps.