Mike Blog Mid-August 2015
Well, with it being summer in the Northern hemisphere, (everywhere except Scotland that is), it has been a slow couple of weeks for events and news.
The oil price slid down during the last week, with Brent down around the $48/bbl mark before recovering at the end of the week to just below the $50 mark. WTI continued to trade at a discount to Brent.
At least the conspiracy theories have gone away, the equation being a straight forward case of supply and demand. With the IEA reporting increasing demand, but being more than matched by increasing output from not just OPEC ( 31.5million bbl/day, up 100,000 on June)but non OPEC sources too. Iraq showed the biggest increase, but with Saudi Arabia claiming to reduce output.
The latest dip was driven as well by the devaluation of the Chinese Yuan, which coincidentally strengthens the US dollar.
As I reported the last time it is thought that increasing volumes of Iranian oil is making its way to that market. Oil from Kurdistan is beginning to flow again, following a dispute over payments, and more latterly repairs to the pipeline after it was blown up.
US production is meantime being maintained, the question is for how long?
Even the UK is slated to increase production this year after many years of decline flowing the bringing on stream a number of projects which have been quite literally in the pipeline for the past few years.
The IEA is therefore predicting that this demand/ supply balance could be in existence at least until well into 2016, which again confirms the predictions of Bob Dudley and others that this price level could be around for a while.
This may cause some stress within OPEC, some of the smaller producers will be able to live with this level, but countries like Nigeria will feel the pain.
In Australia, Santos recently announced that it had cut expenditure by 65% compared with the same quarter last year, with capex 53% below last year and operating costs cut back to reflect the low oil price. They also missed their stretch target of producing LNG from the Curtiss Island facility, but report that the facilities are commissioned and ready for production in the third quarter which is actually on their original Target.
In the Far East Japan announced that it has reactivated one of its Nuclear Power Stations following a full review of operations after Fukishima. The unit will be by now producing power and is the first of a number of reactivations. This may have an effect on the LNG market in the Far East which has been enjoying some buoyancy whilst Japan used LNG as an alternative to its nuclear capacity.
On the plus side oil companies are now learning to live with this scenario, with BP announcing a major further investment in its ETAPs production area in the UK North Sea.
Elsewhere there has been some good news in East Africa in that the Kenyan and the Ugandan Governments have agreed the route of a pipeline from their hinterland to the coast of Kenya.
This is good news for Tullow Oil and other who have been exploring with some success in the area as it gives them an export route.
I assume that this will also benefit those who have been drilling in Lake Victoria.
This is actually quite encouraging as the general signs in East Africa had become less optimistic, recently- it just shows how things can go round.
There are signs of increased drilling in the Norwegian Sea and off the Falklands.
The price of marine red diesel has remained low in the UK, which is the only silver lining in what has been a rather cold and wet summer,
…..’til the next time