GLOBAL OIL MAJORS
The world oil market is complex. Governments and private companies play various roles in moving oil from producers to consumers. Government-owned national oil companies (NOCs) control most of the world's proved oil reserves (75% in 2014) and oil production (58% in 2014). International oil companies (IOCs), which are often stockholder-owned corporations, make up the balance of global oil reserves and production. Proved oil reserves consist of the amount of oil in a given area, known with reasonable certainty, that current technology can recover cost effectively. Worldwide proved oil reserves in 2014 were almost 1.7 trillion barrels, and global oil production averaged roughly 93.2 million barrels a day.
There are three types of companies that supply crude oil to the global market. Each type of company has different operational strategies and production-related goals:
- International oil companies (IOCs): These companies, which include ExxonMobil, BP, and Royal Dutch Shell, are entirely investor owned and primarily seek to increase their shareholder value. As a result, IOCs tend to make investment decisions based on economic factors. These companies typically move quickly to develop and produce the oil resources available to them and sell their output in the global market. Although these producers are affected by the laws of the countries in which they produce oil, all decisions are ultimately made in the interest of the company and its shareholders, not in the interest of a government.
- National oil companies (NOCs): These companies operate as an extension of a government or a government agency, and they include Saudi Aramco (Saudi Arabia), Pemex (Mexico), the China National Petroleum Corporation (CNPC), and Petróleos de Venezuela S.A. (PdVSA). These companies support government programs financially and sometimes strategically. These companies often provide fuels to domestic consumers at a lower price than the fuels they provide to the international market. These companies do not always have the incentive, means, or intention to develop their reserves at the same pace as investor owned international oil companies. Because of the diverse objectives of their supporting governments, these NOCs pursue goals that are not necessarily market oriented. The goals of these companies often include employing citizens, furthering a government's domestic or foreign policies, generating long-term revenue to pay for government programs, and supplying inexpensive domestic energy. All NOCs belonging to members of the Organization of the Petroleum Exporting Countries (OPEC) fall into this category.
- NOCs with strategic and operational autonomy: The NOCs in this category function as corporate entities and do not operate as an extension of the government of their country. This category includes Petrobras (Brazil) and Statoil (Norway). These companies often balance profit-oriented concerns and the objectives of their country with the development of their corporate strategy. Although these companies are driven by commercial concerns, they may also take into account their nation's goals when making investment or other strategic decisions.
In 2014, 100 companies produced 82% of the world's oil. NOCs accounted for 58% of global oil production.
OPEC is a group that includes some of the world's most oil-rich countries. Together, these countries controlled approximately 73% of the world's total proved oil reserves in 2014, and they produced 39% of the world's total oil supply that year. Each OPEC country has at least one NOC, but most also allow international oil companies to operate within their borders.
OPEC seeks to manage the oil production of its member countries by setting crude oil output targets for each member except for Iraq, for which there is no current target. The track record of compliance with OPEC quotas is mixed because production decisions are ultimately in the hands of the individual member countries.
In general, there are three main factors that determine OPEC's market power, or how effectively the organization can influence oil prices:
- How unwilling or unable consumers are to move away from using oil
- How competitive non-OPEC producers become as the price of oil increases
- How efficiently OPEC producers can supply oil compared with non-OPEC producers
OPEC's oil exports represented about 56% of the total seaborne crude oil traded internationally in 2014, according to data from Lloyd's List Intelligence tanker tracking service. The difference between market demand and oil supplied by non-OPEC sources is often referred to as the call on OPEC. Saudi Arabia, the largest oil producer within OPEC and the world's largest oil exporter, historically has had the largest share of the world's spare production capacity. As a whole, OPEC maintains the world's entire spare capacity for oil production. It is generally not cost-effective for international oil companies to develop and maintain idle spare production capacity, because the IOC business model maximizes revenue by continuing to produce oil as long as the price of selling that commodity is higher than the cost of getting an additional barrel of oil to market.
EIA defines spare capacity as the volume of oil production that can be brought online within 30 days and sustained for at least 90 days. Spare capacity can also be thought of as the difference between a country's current oil production and its maximum oil production capacity. Should a supply disruption occur, oil producers can use spare capacity to moderate increases in world oil prices by boosting production to offset lost oil supplies.
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Saudi Arabia is considering delaying the international portion of the giant initial public offering of its state oil company until at least 2019, according to people familiar with the situation, who said a domestic share sale in Riyadh could still happen next year.
But we expect a rise in the sector's NPL ratio and muted credit demand in the second half of 2017 and 2018, reflecting the slowing economy. GDP growth slowed to 1.4% in 2016 from 3.4% in 2015 and we expect it to be below 1% in 2017 and 2018.
The Organization of Petroleum Exporting Countries and allies including Russia have been cutting oil production this year to bring fuel inventories in industrialized nations back in line with the five-year average.
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