AS THE JANUARY 2016 ISSUE of OGFJ goes to press, I thought it might be worthwhile to bring up some of the things on the minds of people involved in the oil and gas business and what industry experts are saying about those topics.
ENDING THE US'S 40-YEAR CRUDE OIL EXPORT BAN
"Lifting the outdated ban on oil exports is a significant step in our national energy strategy that will grow our economy, strengthen American's national security, and provide real benefits to consumers. Allowing US crude oil to be sold on the world market levels the playing field with oil exporting countries...Study after study has shown that lifting the ban will boost economic growth, lower gas prices, and create new American jobs." - Randall Luthi, president, National Ocean Industries Association
"Allowing American producers to export their surplus US crude oil will keep our nation's energy revolution moving forward, strengthening our energy security, and generating significant savings for American families and consumers. The year-long push to get this critical priority across the finish line has not been easy...This is a big win for our industry and for the American people." - Barry Russell, president and CEO, Independent Petroleum Association of America
"The US is now the world's largest producer of oil and natural gas, and Americans are enjoying an energy renaissance that has produced abundant supplies of domestic energy resources. With the administration's push to allow Iran to export its oil to the global market, it's time for US producers to have the same opportunity. Our allies around the world are eager to reduce their reliance on energy from less-friendly nations." - Jack Gerard, president and CEO, American Petroleum Institute
"Brent has traded at a premium to WTI for so long that we've begun to accept it as the norm. It isn't. And now that the US looks nigh on certain to lift the export ban on US oil for the first time since the 1970s, we could be about to usher in a new era in the battle for domination between the two global oil benchmarks. As a result, we have a seen a sharp deterioration in the premium that Brent crude has been commanding over WTI for several years. WTI crude is better quality than Brent, so historically it has traded at a $1/barrel premium." - Ole Hansen, head of commodities strategy, Saxo Bank
SAUDI ARABIA AND OPEC
"I trust Saudi Arabia will act responsibly in line with its reputation. It's up to them to decide, but Saudi Arabia's reputation is that it provides comfort to the market and balances it. - Fatih Birol, executive director, Paris-based International Energy Agency. In a comment to the Reuters news agency, Birol added, "There is a lot of oil on the markets. Inventories are very high, but we expect prices to rise and reach about $80 by 2020."
"The latest OPEC meeting yielded no change and no words about how the cartel is going to deal with the additional supply from Iran next year. With no signs of non-OPEC producers such as the US and Russia cutting back, at least not voluntarily, the near-term outlook for oil remains very challenging. The first quarter is likely to be the most challenging of them all with rising supplies from Iran combined with a seasonal increase in US inventories leaving global inventory levels at high and to some extent unsustainable levels." - Ole Hansen, Saxo Bank
COMMODITY SECTOR STRESS AND CREDIT QUALITY
Moody's Investors Service says the global commodity downturn is "exceptionally severe" in its depth and breadth and is expected to be a substantial factor driving the number of defaults higher in 2016. "Commodity sectors are facing staggering adverse conditions driven by a potent mix of slower-than-expected global demand and excess supply," says Mariarosa Verde, a Moody's Group credit officer. "The sheer volume of commodity-related debt poses challenges because it means that credit losses from commodity investments will be substantial to many investors." Daniel Gates, a Moody's managing director, adds, "Many companies were temporarily cushioned by hedging programs and fixed-price contracts in the early stages of the downturn. Others have been sustained by cash balances that are eroding. Diminishing liquidity and restricted access to capital markets are now pushing more firms closer to default."
TEXAS AND OIL AND GAS INVESTMENTS
"Amid all the chatter about when crude oil production may have peaked and rolled over in Texas and the US, the sentiment about prospects for recovery has become increasingly pessimistic - which is to say, realistic - as the year has progressed," says Karr Ingham, the economist who created the Texas Petro Index. He adds, "It seems the most optimistic outlooks expect the beginning of meaningful recovery to appear no sooner than the latter half of 2016. But we simply do not know how that will look at this point."
Texas remains the most attractive jurisdiction for oil and gas investment in the world, according to a global survey of petroleum executives recently released by the Fraser Institute, an independent, non-partisan, Canadian public policy think tank. "Texas remains a beacon of stability in the oil and gas sector with its wealth of proven reserves and clear and consistent regulatory environment," says Kenneth Green, Fraser Institute senior director and head of the Global Petroleum Survey. In terms of regions, Canada finished second to the United States followed by Australia and Europe. Meanwhile, countries in Latin America and the Middle East continue to linger at the bottom of the survey. "While countries like Mexico and Brazil have shown some improvement in this year's rankings, unstable and uncompetitive policies continue to deter oil and gas investment across much of the world," said Taylor Jackson, Fraser Institute policy analyst and survey co-author.