India takes the stage as Petrologica Ltd. forecast the country’s demand growth matching China’s this year. However, China’s economic growth is expected to hold steady. Saudi Arabia’s market share strategy is proving successful at undercutting other producers. As non-OPEC production continues to decline, deepwater drilling activity has been curtailed, thus increasing the size of any future supply shortfall. The continuing financial woes of US LTO add to this possibility. Many of North Dakota’s largest producers had little option but to continue with high capex levels last year as prices continued their downward slide. Now prices are slowly recovering, these companies have no money to spend and little hope of raising extra funds. US LTO operators cannot take advantage of rising prices without large fresh injections of capital – perhaps bankruptcy or restructuring will allow this, but these processes take several months. Those arguing that LTO can make a quick return will likely be disappointed, writes Petrologica Ltd in their recent report, called Oil Market Snapshot..
Record oil levels
The changing of the guard in Saudi Arabia suggests OPEC will continue holding production at record levels, even as Iran approaches pre-sanctions production. What initially began as a strategy to shake out higher cost producers now seems to have morphed into a more strategic economic shift away from its dependence on oil. In our view, moderate oil prices will help maintain political support at the Royal Court as the Deputy Crown Prince pushes ahead with his ambitious reform programme. However, Saudi Arabia’s ability to further increase production seems constrained, implying limited scope to choke off a continued price recovery.
Strong Indian Demande
On the demand side, India’s strong economic performance suggests demand will be able to remain robust at least for 2016-17. Current non-OPEC supply cuts support the notion that market rebalancing is well underway. Unplanned supply disruptions have added short-term upward price pressure, but this cannot take the place of more structural supply cuts. Barring economic accidents, record inventories mean it will likely take until next year for the surplus to be fully absorbed. Brent rose above $50/bbl on 26th May on continued supply disruptions and inventories falling faster than expected, before falling back The EIA see Brent recovering to almost $60/bbl by end of 2017 India takes the stage as we forecast the country’s demand growth matching China’s this year However, China’s economic growth is expected to hold steady, limiting further crude demand growth Industry restructuring continues with three more large bankruptcies in the US LTO patch and a merger in the service sector We project non-OPEC net production declines of 690,000 b/d and 400,000 b/d in 2016 and 2017 respectively, with US LTO falling c. 500,000 b/d each year Deepwater drilling has been curtailed by 30% so far this year, with little new work in 2016 as Big Oil slashes capex OPEC production holds at record of 32.440 million b/d as outages in Nigeria, Venezuela and Libya are outpaced by additions from Iran, Iraq and UAE Saudi Arabia underscores its commitment to wide-ranging reforms (Vision 2030) by replacing veteran oil minister Ali Al-Naimi, writes Petrologica.
Optimistic Oil Forecast
Director Fay Chen pioneered forecasting and oilfield online trading systems in the 1990s. She joined the oil and gas industry in 1994 with Petrodata, heading Petrodata research and IT groups. She developed multi-clients offshore drilling rig and deep-water rig market analysis and forecast models, North Sea supply vessels and support vessels forecast models. She was responsible for the development of Petrodata’s online information service and oilfield and rig time trading systems. She was also involved in due diligence work for merger and acquisitions and involved in the negotiation of the alliance between Petrodata and Schlumberger’s digital IndigoPool for information sharing in the later 1990s. Fay now manages forecasting, market and price simulations tool development, oilfield database and oil supply modelling, and the production of market analysis, reports and bespoke studies for clients.
