• Unease In The American Shale Patch

    The current slump in global crude oil prices has exacted quite a significant toll on the oil and gas industry. Job losses worldwide are currently in excess of 200,000 and rising, billions of dollars worth of projects have been deferred or cancelled and there have been assets divestment as well as consolidation among companies in the industry.

    That price slump derives in the main, from weakening demand and rapid increase in supply, with the United States shale oil output accounting for most of that increase. Without a doubt, the decision by Organization of the Petroleum Exporting Countries, OPEC, not to rein in supply, only widened the imbalance ― excess of supply over demand ― and steepened the slump.

    Shale oil production in the U.S. rose from about 500,000 barrels per day (bpd) in 2005 to about 4.5 million bpd by the end of last year, or about 52% of that year’s 8.6 million bpd output. The massive ramp-up in shale gas output through hydraulic fracturing (or fracking) also led to the glut in U.S. natural gas supply and ultimately the commodity’s price collapse.

    Change In Oil Production - OPEC, U.S. & Canada Continue reading  Post ID 396

  • Why Crude Oil Prices Will Remain Low And Volatile In The Near Term

    Global commodity prices have plummeted over the past few months. Iron ore prices for example, are near ten-year lows; having reached close to US$200 per tonne in 2011, the value was a mere US$39.25 per tonne on Wednesday.

    Crude oil prices have also continued a downward trend, driven by a lingering imbalance ― excess of supply over demand ― estimated to be more than 2 million barrels per day (bpd). In the aftermath of the 168th meeting on December 04, of the Conference of the Organization of the Petroleum Exporting Countries, OPEC, crude oil prices closed at near seven-year lows. At that meeting, OPEC resolved not to reduce crude oil output. On Monday (07 December 2015), the international benchmark Brent closed at US$39.69 per barrel and West Texas Intermediate, at US$37.65 per barrel.

    Spot Crude Oil Prices (FOB)

    The current supply overhang grew largely from the massive production ramp-up in unconventionals, mainly in the United States (shale) and to some extent, Canada (oil sands).

    In what was termed a sheikh-versus-shale duel, OPEC, particularly the Gulf States led by Saudi Arabia, sought to rein in those higher-cost producers by increasing output to drive down prices and retain, if not gain market share. Continue reading  Post ID 380

  • More On The Investment Prospects In The Current Low Oil Price Regime

    Sustained, low oil price regimes have in the past led to mergers and acquisitions in the oil and gas sector. During the 1990s for example, when oil prices fell to as low as US$10 per barrel, mergers and acquisitions such as Chevron and Texaco, BP and Amoco, Total and Elf, Exxon and Mobil, among others were realized.

    Crude oil prices fell by an average of more than 50% between June and December of 2014. Although they have since recovered, they are still more than 40% lower than last year’s highs. The impact of that price slump on the oil and gas industry has however been quite severe: among others, more than 120,000 jobs have been lost and spending cuts have been in excess of US$114 billion.

    Crude Oil Prices

    With substantial financial and other resources, the major Integrated Oil Companies, IOCs, have outperformed other groups in the current oil price regime. For example, their downstream (Refining and Marketing, R&M) performances have countervailed upstream (Exploration and Production, E&P) losses.

    Among the tight oil (and mostly E&P) operators, the impact of the oil price slump has been more severe. In this group are the shale and oil sands producers in the United States and Canada respectively. In addition to the higher production breakeven prices, many in the group are saddled with high degrees of financial exposure. They had borrowed heavily against their assets to finance operations; but with the oil price slump, the values of those assets as well as production revenues have tumbled.

    If low oil prices endure, some of these companies may invoke second-tier adjustments; this could enable companies with great financial muscle and complex, higher-cost operations to acquire quality assets at low prices. Viewed in the light of current market fundamentals, global oil price rebound would most probably be slow and protracted. Continue reading  Post ID 364