U.S. OIL HELL
A few weeks ago, energy executives were lamenting a purgatory of "lower for longer" oil prices. As an epic bust persists, the rhetoric now involves eternal torment.
"People keep calling it a cycle. I call it pure hell," Jim Teague, chief of Enterprise Products Partners, told fellow executives at Houston's IHS CERAWeek conference this week.
Lake of fire or not, the oil market has certainly become increasingly alarmed by vast pools of excess crude stored in tanks around the world, with more added every day. At the conference, senior executives and officials outlined a path for prices that remains low in the short term, somewhat higher by year-end and subject to furious swings along the way.
The direction of oil prices matters greatly outside energy hubs such as Houston. Oil influences inflation and lately seems to have guided equity markets. Stanley Fischer, vice-chair of the Federal Reserve, told the conference the price of oil had become a macroeconomic issue. The rout has hurt not only producers, but pipeline partnerships such as Enterprise, once a popular bet for yield-seeking investors.
Veteran oilmen tend to shy away from forecasting prices, a humility born of surviving multiple busts. In the past 30 years the industry has endured four: in 1986, 1998, 2009 and now. Stephen Chazen, chief executive of Occidental Petroleum, warned of a "false bottom — or two or three or four".
The current bust has been severe, yanking crude prices down 70 per cent since mid-2014 to $30 a barrel. No one expects a rebound of similar speed.
"You've heard everybody talk about a V, a W, an L, a bathtub, all kinds of words" with regard to future oil prices, said Lamar McKay, deputy group chief executive of BP. "I don't think we've found a word to describe it yet. But it doesn't feel like a V or a W."
Three factors are critical to any recovery. One would be a reversal in the accumulation of stocks that total more than 3bn barrels in western countries alone, according to the International Energy Agency.
IEA expects stocks to keep building at a rate of 1.1m barrels a day this year, finally levelling off in 2017. But industry executives and officials at CERAWeek expressed considerable uncertainty over the schedule.
Mark Papa, partner at Riverstone, a private equity firm, and former chief executive at shale oil and gas producer EOG Resources, eyed a span of six to 24 months for the market to come into balance. When it does, he expected prices to settle at about $65-$75 a barrel.
Another factor is the pace of demand growth. IEA forecasts world consumption will expand about 1 per cent a year, reaching 100m b/d for the first time in 2019 or 2020.
Steve Williams, chief executive of Suncor Energy, Canada's largest integrated oil company, acknowledged the days of oil above $120 were an "anomaly," but "$30 or $40 won't last long" because strapped oil companies would soon fail to meet demand.
Ali al-Naimi, Saudi Arabia's influential oil minister, told the conference: "I have no concerns about demand".
Still, some executives hesitate over future growth in oil use.
Gina McCarthy, administrator of the US Environmental Protection Agency, may have stoked anxieties when she applauded greenhouse-gas standards that would "send our cars twice as far on a gallon of gas by the middle of the next decade". US petrol demand constitutes about a tenth of global oil consumption.
The third factor, supply, is one over which oil producers have the most control. Mr Naimi made clear Saudi Arabia, the world's biggest exporter, would not cut production and could grudgingly "coexist" with $20 crude.
That would necessitate supply cuts from higher-cost producers as they conserve cash to survive. Hess, a leading producer in the Bakken shale of North Dakota, has slashed its number of rigs drilling for oil there from 17 to two.
"It's better really to leave the oil in the ground," says John Hess, chief executive, adding: "The seeds for a slow recovery are in place. They seem to be taking forever."
With oil refineries in a seasonal slowdown, crude stocks could swell further and push prices even lower in the near future, the US Energy Information Administration warned this week.
"The next 120 days are probably going to be as difficult as what we've seen in the last 30 years," says Greg Armstrong, chief executive of Plains All American, one of the biggest crude oil pipeline partnerships, at the CERAWeek conference.
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GAZPROM - The parties discussed relevant issues related to bilateral cooperation, including the Baltic LNG project. Emphasis was placed on the priority measures aimed at developing a joint design concept (pre-FEED).
BHGE - U.S. Rig Count is up 11 rigs from last week to 1,063, with oil rigs up 8 to 869, gas rigs up 4 to 193, and miscellaneous rigs down 1 to 1. Canada Rig Count is up 13 rigs from last week to 195, with oil rigs up 8 to 127 and gas rigs up 5 to 68.
REUTERS - Brent crude futures had risen $1.02 cents, or 1.3 percent, to $81.28 a barrel by 0637 GMT. The contract dropped 3.4 percent on Thursday following sharp falls in equity markets and indications that supply concerns have been overblown. U.S. West Texas Intermediate (WTI) crude futures were up 80 cents, or 1.1 percent, at $71.77 a barrel, after a 3 percent fall in the previous session. WTI is on track for a 3.5 percent drop this week.
EIA - Brent crude oil spot prices averaged $79 per barrel (b) in September, up $6/b from August. EIA expects Brent spot prices will average $74/b in 2018 and $75/b in 2019. EIA expects West Texas Intermediate (WTI) crude oil prices will average about $6/b lower than Brent prices in 2018 and in 2019.