Where will the Oil price be in a couple of weeks?
Well here we are with the oil price now hovering around $40.00/bbl for Brent with WTI at a discount of just over a dollar.
There has been some discussion about meetings between the Saudis and Russia about capping production at current or January levels, which seemed to encourage both parties to increase production meantime. However there are now clear signs that the ‘World’s Largest Producers’ including Gulf OPEC members are to meet next month in Doha to look at capping production at some level.
Where will the price be in a couple of weeks? Who knows, but the trend is at least in the right direction.
The discount for WTI against Brent appears to have been re-established after the brief reversal earlier in the year, probably as people now realise that US exports of oil will not be all that significant in the great scheme of things.
That said some US oil has been exported, with one load headed to Italy where there are a number of refineries who could take the oil, which is quite different to Brent blend or middle eastern crude.
The lower oil price has had some quite interesting spin offs, one reported last week in the marine press is that Suezmax and Panamax ships are finding it cheaper now to take longer sea routes than to pay the (high) canal transit fees. This combined with ‘slow steaming’ will take up some of the surplus capacity in some sectors. It is also reported that piracy off the Horn of Africa has reduced.
In the UK last week there has been some good news in that the Government announced an overhaul of the tax regime for the oil and gas business. The Chancellor of the Exchequer announced a reduction in the ‘supplementary charge’ and the ‘effective abolition’ of Petroleum Revenue Tax.
The supplementary charge reduction to 10% means that there is an effective tax rate of 40%, which with the ‘abolition’ of PRT means that the rate is the same for both older fields and new.
It is good news for these older fields, which for the most part support the platform and pipeline infrastructure, the legacy of early fields, which is so important for bringing on smaller fields which could not support the building of these facilities today.
No direct help for exploration, which in the UK is at woeful levels, but as they say — every little helps!
Perversely UK production increased last year after several years of decline, the result of new fields coming on stream, and this trend could be maintained through 2017.
In Norway too, production has been enhanced most recently by Lundin’s Edvard Grieg field coming on stream, as previously reported here.
The Norwegian Petroleum Directorate has disclosed that the field produced 60,000 bbl/day during January — even at January prices a nice bit of cash!
Also in Norway ENI’s Goliat field finally started production via its FPSO — a couple of years late, but an important milestone for the Barents area.
So what will the better pricing mean? Will the US shale producers get back into the saddle?
A difficult question, there are a lot of rigs idle and I’m sure that some could go back to work quite quickly, if the people are still around. The US economy has been doing quite well and it must be assumed that a lot of the oil field hands to have been released over the past year or so, may not now be available.
It may take some time to start drilling again, but as I reported previously, there are a large number of drilled but uncompleted wells in the shale areas, which in theory at least, could be brought into production quite quickly and cheaply!
With US LNG now being exported (one consignment went to Brazil) and with Ethane tankers heading from the US to sunny Scotland, the business is changing quite extensively.
In Australia they are still optimistic in spite of the reduction in LNG prices.
It has been reported the Australian LNG exports exceeded 9 million tonnes in the final quarter of 2015, a 48% increase on the previous year. This has ‘more than offset the reduction in price’, and further increases in production are on the cards for 2016.
West Africa has seen a significant find in Senegal, and in Canada there is little breaking news at the moment, other than Mr Trudeau’s visit to the White House.
In the meantime, I have had a delivery of heating oil at very interesting price, and I hope that marine red diesel stays cheap for the summer….
All the best,