BALANCE IS UNSTABLE
PLATTS wrote, oil supply and demand are rebalancing and the market may even have started drawing on the large overhang of crude and product stocks, top industry executives said during opening addresses at S&P Global Platts Asia Pacific Petroleum Conference 2016 in Singapore Tuesday.
US shale oil production remained the biggest wild card, they also said.
"Supply and demand are near balance, but the balance is precarious," Andy Milnes, CEO, Integrated Supply & Trading (Eastern Hemisphere), BP, told delegates.
The market has been carrying an enormous inventory overhang, but BP believes that starting June/July "we might have started to draw [on stocks]," he said, adding that meant consumption was above supply and has to stay above for a long time for the market to start seeing the affect.
"There is a light at the end of the tunnel. The world is demanding more hydrocarbons than it is producing," Milnes said.
Statoil echoed a similar sentiment.
Speaking to reporters on the sidelines of the event, Statoil senior vice president and chief economist Eirik Waerness said rebalancing was already taking place but it was impossible to predict how that will affect prices because of the oil in storage.
"Fundamentals indicate that prices should gradually come up now," Waerness said, adding there were a lot of drivers that support higher prices but the inventory overhang was keeping prices capped.
"We have probably the lowest spare production capacity in OPEC," he said, adding there were also supply disruptions and these are factors that would normally cause prices to go up.
"On the other hand, we have maybe 500 million extra barrels of oil in storage compared to what we have had on average in the past," Waerness said.
US SHALE OIL
According to Milnes, the fact the supply shock occurred in the US -- a disaggregated market with lots of small producers that have a small cost base and tremendous ability to innovate quickly -- has had a dramatic impact on the way things have shaped up.
According to data from the International Energy Agency and independent consultancy Rystad, at $60/b, US shale production will stay stable.
But a price above that will lead to a rise in US production and a price below it will result in a drop, Milnes said.
"Any price recovery will be banded by the ability of [US] shale producers to bounce back," he said.
Milnes said companies like BP and other big explorers have stopped exploring in many areas and, while this was not affecting the supply situation today, it could in future.
"In 5-15 years, if the demand carries on rising, and the energy sector is not continuing to invest through the cycle, then OPEC will become more important again," Milnes said.
According to projections by Waerness, oil demand could grow up to 14.9 million b/d and gas demand by up to 625 billion cu m by 2040 from 2013 levels. "There is a real risk that if the current sentiment [of under-investment] prevails we could have a spike in prices because there could be a shortage in oil and gas supply," he said.
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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.