Oil Glut Will Continue 'Till 2017: OPEC

Posted on May 28, 2015 by Grace Montealegre

According to an OPEC long-term strategy draft report seen by Reuters, rather than contracting, crude oil production will continue to expand for at least another two years, as non-OPEC producers – especially in the US – expand their operations. The report stated, “Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (for the global markets)”.

This is the first time, in around 25 years, that oil supply coming in from non-OPEC countries has received such positive forecasts. Reuters reported on Thursday May 28th that, "since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth".

The world’s biggest oil producers are certain that even a low price environment won’t result in production cuts from this group of oil producers, since high-cost producers will seek to cover a part of their operating costs.

The report also showed that new and cheaper technologies used for the extraction of unconventional hydrocarbons (such as tight crude, shale gas and oil sands) would keep energy production growing at 6% per year to 2035.

The OPEC’s oil output currently stands at 31 billion barrels per day (bpd). However, the global oil surplus and a weakening demand could diminish OPEC’s crude production to 28.7 million bpd in 2019. Demand for the group’s oil won’t start rising before 2018-2019, reaching almost 40 million bpd by 2040, as shown by the report.

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Saudi Arabia Takes Advantage of the Oil Price Crisis

Posted on May 20, 2015 by Grace Montealegre

After the International Energy Agency (IEA) announced that a 60% reduction in the amount of operating oil platforms in the United States took place during the recent oil price collapse, Saudi Arabia seems to be taking advantage of the struggle, deciding not to cut back its production.

According to a speaker’s declarations to the Financial Times, “the drop of the oil prices has dispelled the investors of the unconventional projects as shale oil, off-shore and heavy oil”, categories that originated most of the production surplus that lead to the market crisis.

In April, Saudi Arabia produced 10.3 million barrels of crude oil per day, a historical maximum that makes clear that the Riyadh authorities’ intentions are to maintain their country as the main oil exporter in the world. At the same time, the barrel prices have rebounded and in the last days, both the Brent and the WTI, have surrounded the US$60.

Meanwhile, in the next weeks the industry will be alert to the statements the OPEC’s officials will make after their meeting on June 5th, which will be held in order to come up with a line of action to follow. Nevertheless, given Saudi Arabia’s dominant position within the group, there is little doubt that the policy will change, they will most certainly decide to maintain the current oil output in order to not lose market share.

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Offshore drilling operations in Alaska approved by the Obama administration

Posted on May 13, 2015 by Grace Montealegre

This week, the United States’ Interior Department announced that the Dutch oil giant, Shell, will be able to start drilling activities in pursuit of oil wells in the Chukchi Sea, located offshore in Alaska.

According to the official statement, the permission was given after a large revision process and under “rigorous safety standards”. The company will be able to operate under several special conditions; however the assessment of the project’s impact on the environment and on native species, which will be carried out by some federal agencies, is still pending. In the meantime, environmental groups have protested against the measure and organizations such as Greenpeace, affirmed that “instead of mobilizing the country towards a sustainable future, regulators are serving the will of an unprepared company in a zone that will not tolerate operations”.

Abigail Ross Hopper, director of the Interior Department’s Bureau of Ocean Energy Management, said that “any offshore exploration activity will still be object of rigorous safety standards”. Meanwhile, Shell has stated that the decision “is a signal of confidence” and that they will continue to prepare to accomplish the expectations.

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Oil barrel reached a new peak but OPEC denies a cutback in output

Posted on May 7, 2015 by Grace Montealegre

This Wednesday, the Brent oil barrel price reached its highest level during the year, US$69.63. The main reason, according to an OPEC’s (Organization of Petroleum Exporting Countries) delegate, is that the demand is now stronger than the expected whereas the supply has failed.

In this context, stakeholders started to talk about the upcoming ordinary meeting the institution will hold on June 5th. At the summit, officials could take measures like curbing oil production, if it is absolutely necessary.

Nevertheless, OPEC’s speakers, and mostly the Persian Gulf countries headed by Saudi Arabia, have been emphatic in the fact that “the organization will not cutback its output alone”. That is why the Gulf governments have already made efforts to align other non-member oil exporting countries with their idea.

The OPEC also said that “the hope of a Libya’s comeback, have faded, meanwhile Iran’s comeback to the industry and Iraq’s production are not going to be solid enough”. According to the statement, low prices have stimulated the demand and at the same time, have made production unsustainable for many companies, which have derived in a rally that could hold until the end of the year.

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Moscow denies 5 billion euro agreement to support Greece

Posted on April 22, 2015 by Grace Montealegre

Last Tuesday, the German press reported that Russia was ready to give 5 billion euros to the Greek government in exchange for its support to the gas pipeline project known as 'Turkish Stream'. In its original version, the 'South Stream', it included extensions through Greece that ran up to Italy and part of Central Europe and the Balkans.

The agreement would certainly mean a provisional easing for the Greek finances. Its government is under pressure to honor a series of payments to its international creditors during the rest of the semester if they want to keep their access to new loans that allow them enough liquidity for the future.

Nevertheless, Russian speakers have denied the press version, even when a few week ago, the president Vladimir Putin said that they were prepared to give aid to Athens through energy and transportation investments.

Whereas, Wolfgang Schauble, Finance minister of Germany, the main lender of the European Union, stated that they don’t have any objections for a settlement between Greece and Moscow, but has also said that this “would not solve the problem of the structural reform that the Greek economy needs”.

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Why the Iranian oil industry’s reactivation won’t necessarily sink the prices

Posted on April 9, 2015 by Grace Montealegre

The announcement made by the Secretary of State of the United States, John Kerry, in which he revealed new breakthroughs in dialogues about the Iranian nuclear program, triggered the idea that with the return of this player to the oil market after the end of the economic sanctions, barrel prices would collapse even further. Nevertheless, there are few reasons to think this is not going to happen yet.

According to different versions, Iran produces 2.8 million oil barrels per day. Without the embargo, they could increase the activity up to 3.6 million barrels in the short term and even reach the 4.5 million they used to generate a decade ago.

However, as the economist and former editor of Forbes Eamonn Fingleton states, Teheran keeps in stock no more than 30 million barrels, barely a third of what the world consumes in a day. Under these circumstances, it would take Iran a lot more time to be able to boost its oil production, which means that the effect over international oil prices would be delayed.

Fingleton also says, against most western expert’s declarations that the fuel consumption in China will keep increasing despite its economic deceleration because of the householder’s growing consumption in industries such as vehicles, a main destination of oil derivatives. Likewise, the journalist claims that Saudi Arabia is aware about the importance of price stability and knows that it is not necessary to incur in too many profit loses by maintaining oil prices low.

Although this landscape brings relief to the worries caused by the eventual return of Iran to the global oil business, it does not guarantee that prices won’t fall again.

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The U.S. National Petroleum Council says the industry should start operating in the Arctic

Posted on March 30, 2015 by Grace Montealegre

Despite the collapse of oil prices caused mainly by the surplus of crude production over the world, the National Petroleum Council of the United States issued a study in which they stress the need of develop new energy sources, pointing towards the Arctic as the ideal source.

According to scientific estimations, the Arctic holds at least 25% of the yet undiscovered conventional oil and gas world supplies, figure that represents a treasure for the countries that hold authority over the zone, like Russia and the United States.

Rex Tillerson, CEO of Exxon Mobil and spokesman of the Council, argued that if explorations and drilling activities started today, it would take between 20 and 40 years before the region could start producing oil and so the industry should start activities now. On the other hand, Niel Lawrence, director for the Natural Resources Defense Council of Alaska, says that there is no worse place to look for oil than the Arctic given the environmental risks it could carry, such as an oil spill.

The research requested by the Energy Secretary of the United States, Ernest Moniz, suggest the will of the Obama government to keep developing the energy industry beyond its current shale boom, which the majority of international experts point as the origin of the oil price crisis.

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Saudi Arabia’s bombing over Yemen resulted in a surge in oil prices

Posted on March 27, 2015 by Grace Montealegre

This Thursday, in an effort to weaken the positions of the Houthies (a rebel organization that operates in Yemen and has taken control of a big part of the country) Saudi Arabia started a military attack that moved the conflict to the international ground. The Houthi militia belongs to the Shiite faction of the Islamic religion and is supported by Iran, so the Saudi government, belonging to the Sunni political party, is really uncomfortable with their presence.

The confrontation occurred right in the middle of the region with the most important oil activity in the world, which is why it was not a surprise that this event caused an increase in the crude barrel prices, rallying 4% in average; the WTI reached US$51 and the Brent US$59.

Yemen exports only 200.000 barrels per day, but its geostrategic position could result in an international crisis. Through the Gulf of Aden, at the southern zone of the country where, Aden, the provisional capital is located, every day pass about 3.8 million barrels of crude, according to the Energy Information Administration of the Unites States.

Some analysts state that this conflict reflects the existence of a kind of cold war between Iran and Saudi Arabia that match with the deep differences in the oil production policy that both countries maintain inside the OPEC. As Teheran is arguing for cutbacks in the activity to stabilize the prices, Saudis keep determined to don´t give up their marker share.

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Nuclear talks between Iran and the U.S. could increase the global oil surplus

Posted on March 18, 2015 by Grace Montealegre

The United States’ Secretary of State, John Kerry, and the Iranian Minister of Foreign Affairs, Mohamad Yavad Zarif, are getting close to reaching a breakthrough in the talks about ending the nuclear program held by Tehran, which motivated a series of economic sanctions in 2012 by the U.S. Once they reach an agreement, Iranian oil industry could reactivate its production and double its volume of exportations.

There are no guarantees about the success of the negotiations, but if the agreement happens, it would represent a new threat for the performance of oil prices. Currently Iran is exporting 1.3 million barrels of oil per day against the 2.5 it used to sell before the sanctions took place, which included a ban on purchasing Iranian crude. This would therefore mean a bigger surplus of petroleum in the global market pushing oil prices even lower.

According to Iran’s Oil Minister, Bijan Zanganeh, their oil industry could be back in business in just two months, however, experts disagree. A source from Barclays noted that “the removal of those sanctions before the end of the month is a too optimistic expectation”. Currently, 12 sanctions over the energy sector and other 20 measures against financial institutions are still in force.

Barack Obama's will to cancel the penalties is not enough to guarantee progress in this matter since he will also need to consult the Congress about the sanctions’ removal, where the Republicans will very likely oppose to his initiative. Meanwhile, Iranian oil producers should start preparing for the eventuality, given that their industry can’t just be turned on from one day to another.

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Obama vetoes oil pipeline construction between Canada and the United States

Posted on February 25, 2015 by Grace Montealegre

Appealing to his “responsibility with the people of the United States” and making use of his presidential power of veto, Barack Obama blocked a draft law approved by the Congress last January, which allowed the construction of a 1,900 miles oil pipeline between Canada and the US: the Keystone XL.

According to the head of State, “the initiative collides with the procedures of the executive power” and underestimate the consequences of the project about the “people’s interests and the environmental security”. The pipeline is supposed to run from the Alberta state in Canada to the refineries in Texas.

The discussions about the project started five years ago and by 2012 Obama had already put it in hold. After the president’s recent statement, republican congressmen reacted and one of their chiefs in the House of Representatives, John Boehner, said that it was a “national disgrace” while also warning that Russia and China are already working together in two giant energy infrastructure plans.

This is the third veto applied by Obama since he took office in 2009 and analysts see it as a demonstration that he is going to do everything possible to accomplish his official agenda during his two remaining years at the White House.

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Compensations received by CEOs have not yet felt the setback in oil prices

Posted on February 12, 2015 by Grace Montealegre

Despite the cuts being carried out by energy companies around the world in their process and supply chains, the compensations received by American CEOs have not declined at the same pace. The main reason is that the biggest bonuses were distributed when the oil’s price was still strong and the production in the United States was boosted.

According to the experts, the retributions for 2014 for high profile officials, that should start to be delivered in the first quarter of 2015, will not reflect the price drop. Apparently, the market’s current situation did not hit the American companies’ revenues as much at the end of 2014 and some stocks even remained at constant levels.

The Institutional Shareholder Services, an advisory firm of corporate decisions relating shareholders, said that in 2013 the total compensation for energy executives rose 11%, including base pay, bonuses and incentives. At the same time, the Russell 3.000 Index, an index that measures the financial performance of 3.000 public companies in the United States, registered an increase of 7% in the CEOs’ salaries in the same year.

Nevertheless, given the circumstances, as Business Insider stated in a report this week, the compensation of oil industry CEOs could plunge 30% for 2015. This drop could be explained by the sales goals, which, given the lower prices, will not be achieved at all.

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Oil’s surge to bull market comes to a sudden stop

Posted on February 4, 2015 by Grace Montealegre

For four consecutive trading days the oil price experienced a rally, accumulating a 20% surge. However, during Wednesday’s trading session, US crude inventories jumped to a record high which resulted in a reverse in the oil’s value, posting its largest one-day percentage drop since November 28, 2014.

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For the first time, the oil industry will start drilling at the Western Sahara’s coast

Posted on January 29, 2015 by Grace Montealegre

After the Spain-based company, Repsol, gave up on exploring the Canary Archipelagos’ waters for new offshore petroleum wells, two other companies are ready to start producing oil 100 kilometers from the Western Sahara's coasts, where the industry has never operated before: Kosmos Energy (United States) and Cairn Energy (Scotland).

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Oman supports Venezuela and stands for oil production cuts

Posted on January 22, 2015 by Grace Montealegre

Following the position of Venezuela and Iran; which have confronted the OPEC decision of maintaining oil production pace at current levels, Oman, the largest petroleum producer in the region between the countries, which was not part of the organization, joined them.

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OPEC expects a slowdown in U.S. oil production

Posted on January 16, 2015 by Grace Montealegre

The Organization of Petroleum Exporting Countries (OPEC) released its monthly report this week in which it states that U.S. oil production is starting to be affected by the slump in prices. The announcement produced a small rally on West Texas Intermediate (WTI) futures, which was not enough to see a recovery.

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Despite oil prices, U.S. is near to reach energy independence

Posted on December 12, 2014 by Grace Montealegre

Meanwhile oil global industry is passing hard times due to the prices of the crude barrel that has reached levels under US$65, United States looks like if the problem is not with them. Now, the biggest economy over the planet is on the way to match its energy production with its own demand.

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Ukraine is obstinate to construct a LNG terminal on the Black Sea. Turkey may disagree

Posted on December 5, 2014 by Grace Montealegre

In 2013, 2.9 million barrels of crude and oil related products transited trough the Dardanelles and Bosporus straits, where Turkey controls commerce. This area is of great value to the neighboring countries since it represents a bridge between Aegean Sea and the Black Sea, a strategic point for the supply of energy commodities towards Europe and the Middle East. Now, Ukraine wants to build a Liquefied Natural Gas (LNG) terminal on its Black Sea shore, but Turkey is not so sure about it.

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OPEC decides against production cut, markets respond with concern

Posted on November 28, 2014 by Grace Montealegre

As most experts had anticipated, during the OPEC’s (Organization of the Petroleum Exporting Countries) summit in Vienna, Austria, it was decided not to cut the crude output and thus keep the ceiling of production at 30 million barrels per day.

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Nigeria announced fiscal actions to deal with the decrease of oil prices

Posted on November 20, 2014 by Grace Montealegre

Oil producer countries around the world are looking for the best strategy to face the drop of the commodity's market price. Nigeria, the largest economy in Africa and the first crude producer in the continent, has opted for cutting down its spending budget and raising its taxes over luxury goods in response to this scenario. 

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OPEC evaluates alternatives to avoid cutting oil production

Posted on November 12, 2014 by Grace Montealegre

Next November 27th, members of the Organization of the Petroleum Exporting Countries (OPEC), which controls 80% of the global crude reserves and produces a third, will meet at Vienna, Austria. Attendants will discuss the best strategy to face the commodity’s price downfall.

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