• A Window On The Global Oil Market

    Global crude oil prices have rebounded somewhat from the twelve-year lows recorded earlier in the year; however, they are still quite removed from two-year-ago levels. Burdened by the lingering low-price regime, many of the higher-cost producers have either scaled-down their operations or gone completely offline, with quite a few filing for bankruptcy. According to the law firm Haynes and Boone LLP, about 85 North American oil and gas companies have gone bankrupt since the beginning of 2015. There has been a spike in defaults for U.S high-yield bonds. Speculative-grade U.S. defaults rose from 4.4% to 5.1% of total outstanding between Q1 and Q2, according to a recent Moody’s Investor Service bulletin.Spot Crude Oil Prices

    That price rebound stirred some ― even if limited ― production activity, particularly among the more nimble shale operators. Oil-focused rotary rig count for example, rose six of the past seven weeks in the United States, according to Baker Hughes data. While many analysts and stakeholders in the industry have projected a market rebalancing in the near term, certain near-term and longer-term issues are noteworthy.

    Oil Imbalance

    The protracted low-price regime was driven in the main, by oversupply of oil, which inevitably conduced to high inventory levels. In the United States, the Department of Energy reports that stock levels were well above the five-year range at the end of May; and though stocks dropped 2.3 million barrels the week ending July 15, they stood at a historical high for the period. At the end of May also, there were almost 94 million barrels of oil in floating storage globally, according to the International Energy Agency, IEA; and December saw a five-year record for floating storage tankers, as data for ocean tankers show. In addition, forward days of demand rose in Organization for Economic Cooperation and Development (OECD) countries from just under 58 in 1Q 2014 to more than 67 in 1Q 2016.

    Global crude oil imbalance ― excess of supply over demand ― which rose steadily from less than half a million barrels per day (bpd) in 1Q 2014 to more than two million bpd in 2Q 2015 has since been on a downward trend. Continue reading  Post ID 504



  • Global Crude Oil Prices And A Delicate Re-balancing Act

    Global crude oil prices have risen by more than 75% from near twelve-year lows reached in January. The recent spike was driven largely by unscheduled supply outages in major oil-producing centers including Canada, Ghana and Nigeria. Given the sustained, significant oil imbalance (the excess of supply over demand), the outages were seen by not a few traders as a major step towards a long-awaited, supply re-balancing.

    Estimates of the total oil supply reduction due to the outages including other withdrawals year-to-date, stood at about 2.5 million barrels per day, bpd, just a few days ago. Not discounting the recent price spike, such rapid supply withdrawal ordinarily would have generated a global price shock. The rather tepid market response was perhaps informative.

    Fundamentals

    Quite a few analysts believe an oil supply re-balancing is imminent, if not in progress already. Such sentiment however is not altogether consistent with extant market fundamentals.

    While the global oil imbalance has declined somewhat ― having fallen to 1.34 MMbpd in 1Q 2016 from 1.75 MMbpd in 4Q 2015 ― that decline was not driven by a growth in demand. According to recent data from International Energy Agency, IEA, global oil demand fell consecutively from 3Q 2015 through 1Q 2016, for a total decline of 660,000 bpd.

    Global Crude Oil Imbalance Continue reading  Post ID 483



  • A Brief On The Recent Oil Price Spike

    A projection by some energy analysts, of a re-balancing in global oil supply by 2H 2016 ― with oil prices in the US$45 to US$55 per barrel range ― left investors searching for that price “trigger”. The recent oil spike from the multi-year lows reached early this year to just under US$50 per barrel, only added fillip to investment sentiments. However, those prices have since fallen back somewhat and average first quarter prices remain well below those for the two previous corresponding quarters.

    Average Spot Crude Oil Prices

    Fundamentals

    Current market fundamentals do not support any sustained oil price spike. The excess of global oil supply over demand has been on an upward trend since 1Q 2014; and that imbalance increased by 500,000 barrels per day between 4Q 2015 and 1Q 2016. April crude oil production by Organization of the Petroleum Exporting Countries, OPEC, was 32.64 million barrels per day, the highest in recent years, Reuters reports. Iran, fresh from a restrictive sanctions regime is expected to add about 500,000 barrels per day to the global pot before the end of the year; and Russia, the highest volume producer outside of OPEC upped her seaborne exports for April. Most of the Middle East producers ― and they boast the world’s lowest production costs ― are producing at near-peak capacities while actively expanding capacities. Continue reading  Post ID 476