OPEC unlikely to bolster oil prices in January

It looks as if OPEC can keep oil prices from crashing only by keeping the world on the brink of a shortage. The talk of production cuts at the group's Jan. 17 meeting in Vienna is beginning to look less like jawboning every day (see related story, p. 21).

London think tank Centre for Global Energy Studies thinks that OPEC will find it difficult to keep oil prices at the $25/bbl level favored my most members.

The strongest sign of this scenario emerged at the end of November, when Iraq halted oil exports after yet another tussle with UN officials over a price formula for December, removing more than 2 million b/d from global oil supply, CGES noted.

"President Saddam Hussein fully expected that a halt in his oil exports would send prices soaring and bring the world to his door, ready to accept his terms for a restoration of shipments," the analyst said. "He mistimed his action, though. If he had stopped exports a month earlier, at the height of concerns over use of the oil weapon in reaction to the events in the Palestinian-occupied territories, it may have had the desired effect."

The pledges by US and European governments to bring strategic stocks to the fore and by Saudi Arabia to jump its own production, should Iraqi exports stop, rendered the cutoff largely irrelevant to the market. Instead, prices fell by $2/bbl after the announcement by Baghdad (underscoring the points that there is ample crude on the market and that the high price of oil-reaching as high as $36/bbl by October-had already incorporated a premium for a possible Iraqi cutoff). The plunge didn't end there, as near-month Brent and WTI futures each fell by more than $6/bbl in the week that followed (see chart).

This was a decline just waiting to happen, CGES asserts: "The downward pressures had been building up in Asia for several weeks. With most of OPEC's additional output in late summer heading eastwards, the region was becoming oversupplied."

The think tank wonders why prices didn't fall faster, instead pausing at $27/bbl (Brent) in mid-December, as crudes indexed to Brent were driven from the Asian market into the Atlantic basin-where they exacerbated a market weakening begun by the release of 600,000 b/d of oil from the US Strategic Petroleum Reserve.

CGES noted that the price for Dubai crude had already started to slup as early as mid-November, with that crude's differential to Brent widening to $4/bbl from almost zero.

Help from Iraq, arctic blast

If anything, CGES contends, the Iraqi supply cutoff may have helped avert a deeper price collapse.

"By the end of the first week of December, the loss of Iraqi oil was starting to be felt in reduced arrivals at Mediterranean refineries, restoring a better balance of supply and demand in the region."

The renewed tightness would have been more deeply felt had not 200,000 b/d of Iraqi oil made its way into Syria via a newly repaired pipeline during the purported cutoff, the analyst said.

CGES also noted that crude oil markets got some support from the arctic blast that raked the US in December, which in the first week of December pulled down heating oil stocks by 4.5 million bbl, or to a level 17 million bbl lower than the same time a year ago.

The resumption of Iraqi exports a couple of weeks later again put downward pressure on oil prices, but the next couple of waves of frigid weather across most of the US during that time acted as something of a counterbalance.

In any event, for all the talk of production cuts at OPEC's Jan. 17 meeting, CGES thinks that oil prices are unlikely to fall far enough to trigger an output cut at that time.

A different scenario could be shaping up for the March OPEC meeting, however, when the group "must take stock of what it wants for oil prices in the coming year."

"Once commercial stocks of crude and products return to more-normal levels, prices can be expected to gravitate towards their 1990s' average of $17-20/bbl," CGES said. "If OPEC wishes to keep prices at $25/bbl, it will have to prevent stocks from being rebuilt, keeping the world on the edge of an oil shortage."

OGJ Hotline Market Pulse
Latest Prices as of December 29, 2000

Click here to enlarge image

null

Click here to enlarge image

null

Nymex Unleaded

Click here to enlarge image

null

Nymex heating oil

Click here to enlarge image

null

IPE gas oil

Click here to enlarge image

null

Nymex natural gas

Click here to enlarge image

null

Related Articles

TGP advances Northeast Energy Direct gas line to New England

07/17/2015 Tennessee Gas Pipeline Co. (TGP), a subsidiary of Kinder Morgan Inc. (KMI), Houston, has been cleared by KMI’s board to proceed with plans to build...

Nexen pipeline leaks 5,000 cu m of emulsion in Alberta

07/17/2015 Alberta Energy Regulator (AER) reported that a Nexen Energy ULC pipeline has leaked 5,000 cu m of emulsion—a mixture of bitumen, produced water, an...

MARKET WATCH: NYMEX crude oil prices drops below $51/bbl

07/17/2015 Light, sweet crude oil prices for August delivery dropped modestly to settle at just under $51/bbl on the New York July 16, but Brent crude oil Aug...

API: US petroleum demand rose in June, second quarter

07/16/2015 Total US petroleum deliveries, a measure of demand, increased 4.2% from June 2014 to average 19.6 million b/d last month. In the second quarter, de...

ConocoPhillips plans further capex reduction for deepwater exploration

07/16/2015 ConocoPhillips reported plans to further reduce its capital expenditures for deepwater exploration, with the “most significant reductions” coming f...

DOE official: LNG exports could be limited by silt-clogged waterways, ports

07/16/2015 Silt, which is increasingly filling US waterways and ports, potentially could limit US LNG exports if it is not dredged soon, a top US Department o...

Fitch notes increase in energy-default rate

07/16/2015 Recent actions of two exploration and production companies have pushed the trailing 12-month energy default rate among issuers of high-yield bonds ...

KMI to buy Shell’s stake in Elba LNG project for $630 million

07/16/2015 Kinder Morgan Inc., Houston, has reached a deal with Royal Dutch Shell PLC to purchase 100% of Shell’s equity interest in Elba Liquefaction Co. LLC...

Genesis to buy Enterprise offshore pipelines

07/16/2015 Genesis Energy LP has agreed to buy the Gulf of Mexico pipelines and services business of Enterprise Products Partners LP for $1.5 billion cash.
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


Operating a Sustainable Oil & Gas Supply Chain in North America

When Wed, Oct 7, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.

register:WEBCAST


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected