(ಠ_ಠ)
2014-10-18 00:47:23 UTC
CALGARY — The Globe and Mail - Thursday, Oct. 16 2014
As prices plunge, the global oil showdown begins
A plunge in world oil prices is forcing the producing countries to rethink
forecasts for output and what that might mean for their economies
A plunge in world oil prices is forcing the producing countries of the Middle
East, former Soviet Union and North America to rethink forecasts for output and
what that might mean for their economies. The drop has suddenly brought into
sharp focus an increasingly intense high-stakes battle for market share in an
energy world that has gone from scarcity to abundance in less than a decade.
OPEC
Saudi Arabia, along with Kuwait and United Arab Emirates, will oppose any moves
within the Organization of the Petroleum Exporting Countries to hold back
production, even if they would help prop up prices, the Wall Street Journal
reported on Thursday, quoting a Gulf OPEC official. The 12-country cartel is
due to meet next on Nov. 27.
Saudi Arabia, OPEC's most influential player, and its fellow producers have
watched market share erode as a revolution in oil from shale formations has
allowed the United States to sharply reduce imports. In September, their
combined production hit a 13-month high amid weaker-than-expected demand in
Europe and Asia, causing a glut that has put pressure on prices, according to
the International Energy Agency.
Saudi Arabia's production rose slightly to 9.73 million barrels a day. Its
officials have long told nervous markets that the country is comfortable with
Brent crude between $90 and $110 (U.S.) a barrel, though it has never promised
to defend the range, according to FirstEnergy Capital Corp. analyst Martin King.
It has been resolute in defending its franchise, especially in Asia, where it
reduced its official selling prices to customers. Market share is crucial to
Saudi Arabia as it in the midst of a spending spree at home to improve living
standards and diversify its economy, according to The Economist.
Iran, tied for third in OPEC production capacity, has struggled with weaker
Asian demand. That and skidding prices put it in a precarious economic
position, as it requires oil at nearly $140 a barrel to erase its budget
deficit. Crude has not come close to that price since months before the
financial crisis took hold in 2008.
Mr. King has projected that Brent crude could bottom out in the high-$70s a
barrel if the OPEC members move toward co-ordinating to reduce supplies and the
high-$60s by year-end if they do not.
Russia
It is the world's third-largest oil producer behind Saudi Arabia and the United
States, and revenue from its crude exports has fuelled President Vladimir
Putin's increasingly militaristic ambitions along its borders. So far, the fall
in crude prices has not blunted them, despite worsening damage to the economy.
Russia derived half its federal budget revenue from mineral extraction taxes
and export customs duties on oil and gas in 2013, according to the U.S. Energy
Information Administration. That makes its economy highly sensitive to
movements in crude markets. Global benchmark Brent oil, which sold on Thursday
for $85.02 a barrel, has lost about a quarter of its value since the start of
the year.
The country requires oil prices of $100 a barrel to balance its budget,
according to The Economist.
Russia has flirted in years past with acting in concert with OPEC to take
production off the market to rescue prices, but has shown no signs of doing so
intentionally this time, even as global demand slows.
However, third-quarter production slipped from a year earlier, the first time
that had occurred since the financial crisis nearly six years earlier,
according to the IEA's October Oil Market Report.
In mid-September, the United States and European Union announced their latest
round of sanctions against Russia, prohibiting U.S. and European companies from
providing goods and services to Russian deep-water, Arctic or shale projects.
The IEA predicted that the sanctions would have minimal impact on short-term
production, but will hamper the country's ability to offset declining output
from older oil fields. As a result production is expected to average 10.9
million barrels a day in 2015, which would be down from this year's estimated
volume.
North America
A renaissance in oil production in the United States has brought dramatic
change to the global oil movements. Output has surged to 8.5 million barrels a
day from five million in 2006, and the U.S. Energy Information Administration
has predicted output of 9.5 million next year. At the same time, imports have
dwindled to 7.6 million (b/d) from 10.1 million. Canada is the only foreign
supplier to have boosted U.S. market share.
As much as 70 per cent of the annual U.S. output gains come from three major
shale deposits – the Bakken in North Dakota and the Eagle Ford and Permian in
Texas, according to Manuj Nikhanj, managing director at ITG Investment Research.
The plays require active horizontal drilling and hydraulic fracturing, or
fracking, operations to keep the oil flowing, with well costs running between
$6-million (U.S) and $12-million each. Break-even oil prices for most of the
major shale fields are between $60 and $70 a barrel, Mr. Nikhanj said.
It is doubtful crude prices in the current range will force producers to
curtail operations, though reduced cash flow may prompt them to trim capital
spending, especially as shaky capital markets make it tougher for companies to
raise extra money by issuing shares or debt. The eventual result could be a
slightly flatter profile for overall production gains.
In Canada, the Alberta oil sands have generated the bulk of new production. In
recent years, developers expanded multibillion-dollar projects as congested
pipelines backed supplies up within the province, at times leading to deeply
discounted prices. Currently, that discount is unusually narrow. That, and
the weaker Canadian dollar, have combined to keep realized prices for domestic
heavy oil relatively steady in comparison with world prices.
According to BMO Nesbitt Burns, it takes oil at $90 a barrel, on average, to
develop and operate oil sands mines profitably, though well-established
projects can run at much lower prices. All-in costs for steam-driven projects,
which comprise most new developments, average $65 a barrel.
As prices plunge, the global oil showdown begins
A plunge in world oil prices is forcing the producing countries to rethink
forecasts for output and what that might mean for their economies
A plunge in world oil prices is forcing the producing countries of the Middle
East, former Soviet Union and North America to rethink forecasts for output and
what that might mean for their economies. The drop has suddenly brought into
sharp focus an increasingly intense high-stakes battle for market share in an
energy world that has gone from scarcity to abundance in less than a decade.
OPEC
Saudi Arabia, along with Kuwait and United Arab Emirates, will oppose any moves
within the Organization of the Petroleum Exporting Countries to hold back
production, even if they would help prop up prices, the Wall Street Journal
reported on Thursday, quoting a Gulf OPEC official. The 12-country cartel is
due to meet next on Nov. 27.
Saudi Arabia, OPEC's most influential player, and its fellow producers have
watched market share erode as a revolution in oil from shale formations has
allowed the United States to sharply reduce imports. In September, their
combined production hit a 13-month high amid weaker-than-expected demand in
Europe and Asia, causing a glut that has put pressure on prices, according to
the International Energy Agency.
Saudi Arabia's production rose slightly to 9.73 million barrels a day. Its
officials have long told nervous markets that the country is comfortable with
Brent crude between $90 and $110 (U.S.) a barrel, though it has never promised
to defend the range, according to FirstEnergy Capital Corp. analyst Martin King.
It has been resolute in defending its franchise, especially in Asia, where it
reduced its official selling prices to customers. Market share is crucial to
Saudi Arabia as it in the midst of a spending spree at home to improve living
standards and diversify its economy, according to The Economist.
Iran, tied for third in OPEC production capacity, has struggled with weaker
Asian demand. That and skidding prices put it in a precarious economic
position, as it requires oil at nearly $140 a barrel to erase its budget
deficit. Crude has not come close to that price since months before the
financial crisis took hold in 2008.
Mr. King has projected that Brent crude could bottom out in the high-$70s a
barrel if the OPEC members move toward co-ordinating to reduce supplies and the
high-$60s by year-end if they do not.
Russia
It is the world's third-largest oil producer behind Saudi Arabia and the United
States, and revenue from its crude exports has fuelled President Vladimir
Putin's increasingly militaristic ambitions along its borders. So far, the fall
in crude prices has not blunted them, despite worsening damage to the economy.
Russia derived half its federal budget revenue from mineral extraction taxes
and export customs duties on oil and gas in 2013, according to the U.S. Energy
Information Administration. That makes its economy highly sensitive to
movements in crude markets. Global benchmark Brent oil, which sold on Thursday
for $85.02 a barrel, has lost about a quarter of its value since the start of
the year.
The country requires oil prices of $100 a barrel to balance its budget,
according to The Economist.
Russia has flirted in years past with acting in concert with OPEC to take
production off the market to rescue prices, but has shown no signs of doing so
intentionally this time, even as global demand slows.
However, third-quarter production slipped from a year earlier, the first time
that had occurred since the financial crisis nearly six years earlier,
according to the IEA's October Oil Market Report.
In mid-September, the United States and European Union announced their latest
round of sanctions against Russia, prohibiting U.S. and European companies from
providing goods and services to Russian deep-water, Arctic or shale projects.
The IEA predicted that the sanctions would have minimal impact on short-term
production, but will hamper the country's ability to offset declining output
from older oil fields. As a result production is expected to average 10.9
million barrels a day in 2015, which would be down from this year's estimated
volume.
North America
A renaissance in oil production in the United States has brought dramatic
change to the global oil movements. Output has surged to 8.5 million barrels a
day from five million in 2006, and the U.S. Energy Information Administration
has predicted output of 9.5 million next year. At the same time, imports have
dwindled to 7.6 million (b/d) from 10.1 million. Canada is the only foreign
supplier to have boosted U.S. market share.
As much as 70 per cent of the annual U.S. output gains come from three major
shale deposits – the Bakken in North Dakota and the Eagle Ford and Permian in
Texas, according to Manuj Nikhanj, managing director at ITG Investment Research.
The plays require active horizontal drilling and hydraulic fracturing, or
fracking, operations to keep the oil flowing, with well costs running between
$6-million (U.S) and $12-million each. Break-even oil prices for most of the
major shale fields are between $60 and $70 a barrel, Mr. Nikhanj said.
It is doubtful crude prices in the current range will force producers to
curtail operations, though reduced cash flow may prompt them to trim capital
spending, especially as shaky capital markets make it tougher for companies to
raise extra money by issuing shares or debt. The eventual result could be a
slightly flatter profile for overall production gains.
In Canada, the Alberta oil sands have generated the bulk of new production. In
recent years, developers expanded multibillion-dollar projects as congested
pipelines backed supplies up within the province, at times leading to deeply
discounted prices. Currently, that discount is unusually narrow. That, and
the weaker Canadian dollar, have combined to keep realized prices for domestic
heavy oil relatively steady in comparison with world prices.
According to BMO Nesbitt Burns, it takes oil at $90 a barrel, on average, to
develop and operate oil sands mines profitably, though well-established
projects can run at much lower prices. All-in costs for steam-driven projects,
which comprise most new developments, average $65 a barrel.
