(Bloomberg) OPEC’s meetings in Vienna have for decades offered a heady mix of wealth, power and intrigue. The latest one may feel more like a wake.
The closest OPEC came to operating like a true oil cartel was in the early 1970s. Back then, it controlled more than half the world’s oil supply and was more or less aligned in trying to manage pricing and, for many members, throwing off the remnants of colonialism.
(seekingalpha.com) If you have been following what we have been writing you will know that we have become bullish on oil (NYSEARCA: USO ) prices for the next few years.
As with most of our opinions we have arrived at this one by listening to what some of the world’s best investors are saying about oil and why they are saying it.
We believe that Jeremy Grantham is another voice worth paying attention to, and it turns out that he too believes oil is going higher, perhaps significantly so. Source: GMO.
“The fall in discovered volumes for conventional oil outside North America [to just 2.8 billion barrels, the lowest level since 1952] has been steady and dramatic during the last few years. We’ve seen four consecutive years of declining oil volumes, which has never happened before. The bottom has completely fallen out for conventional exploration, and the result portends a supply gap in the future that is going to be challenging to overcome. In the current cost-cutting environment, the outlook for 2016 discovery volumes is not likely to be better, either.”
Leta Smith, director, IHS Energy, upstream industry future service
Oil briefly traded above $50 a barrel last week but quickly fell back to close at $49.33 in NY and $49.32 in London on profit taking and uncertainties about the status of the global oil glut. For the past two months, oil prices have been driven higher by a series of unplanned production outages in Kuwait, Libya, Canada, Nigeria, and concerns about the political stability of Venezuela. Currently, about 3.5 million b/d of normal production is offline. While some of these outages, such as the 1 million b/d fire-caused drop in tar sands production, will be short-lived, other situations such as in Nigeria, Libya, and Nigeria could last indefinitely.
(Reuters) Brent oil futures climbed above $50 a barrel on Thursday for the first time in nearly seven months as a global supply glut that plagued the market for nearly two years showed signs of easing.
Oil prices have rallied in recent weeks as a string of outages, due in part to wildfires in Canada and unrest in Nigeria and Libya, knocked out nearly 4 million barrels per day of production.
(oilprice.com) A report by Rystad Energy has revealed that new oil discoveries in 2015 totaled 12.1 billion barrels, which is the least amount of new oil discovered in a single year since 1952.
Last year was also the fifth year in a row in which the amount of new reserves discovered was smaller than in the previous year.
E&Ps have slashed their exploration budgets repeatedly in a bid to weather the effects of the oil price drop. They’ve laid off hundreds of thousands of staff and have focused on staying afloat, lacking not just the money, but also the motivation to look for new oil when profitability is questionable.
(Bloomberg) Global crude supplies will start to dwindle in as little as two years, boosting prices, as the industry cuts investment to weather the worst market collapse in a generation, according to Statoil ASA.
Oil companies reduced capital expenditure last year and are likely to cut it further this year and next, Statoil’s Chief Financial Officer Hans Jakob Hegge said in an interview in London. Lower spending means there could be a “significant effect” on crude supply after 2020, he said.
“I’ve been coming to Singapore once a year for the last 15 years, and flying in I have never seen the waters so full of idle tankers,’ said a senior European oil trader a day after arriving in the city-state.”
Keith Wallis and Roslan Khasawneh, for Reuters
Last week began on a bullish tone with oil prices climbing to a seven-month high, Goldman Sachs talking about the end of the oil glut, and columnists predicting a new spike in prices. All this optimism was based on solid Chinese oil imports, strong US gasoline demand, and production outages in Alberta, Nigeria, Libya and Venezuela. As the week moved on, however, the market became less optimistic as US, European, and Asian crude stocks continued to rise, and prices failed to break through the $50 a barrel barrier.
(artberman.com) The global oil market is returning to balance based on the latest data from the EIA. That should mean higher oil prices but how high must prices be to save the industry?
Data suggests that oil producers need prices in the $70-80 range to survive. That is unlikely in the next year or so. Without more timely price relief, the future looks grim for an industry on life support.
“At the moment, a number of objective factors exclude the possibility for any cartels to dictate their will to the market. … As for OPEC, it has practically stopped existing as a united organization.”
Igor Sechin, head of Russia’s biggest oil firm Rosneft
Oil prices continued to climb last week with New York futures closing up 3.5 percent, the tenth weekly increase in the past 13 and closing Friday at $46.21. Similarly, London prices were up 5.4 percent to close at $47.83. Forces that move the oil markets keep coming in and out of existence. Hopes that the major exporters would agree to freeze production have now faded, to be replaced by unexpected production outages in several countries as the principal force driving prices higher.
“It’s clear that electric vehicles are the future. A move from petrol and diesel to low-emission transport is a natural evolution, and it is our aim to encourage that switch sooner, rather than later.”
Simon Bridges, New Zealand’s Energy and Transport Minister
Last week saw volatile oil prices and unexpected developments that could have major consequences for the oil industry. The week started on a bearish tone with prices pulling back from weeks of steady increases. As the week wore on several unanticipated oil production outages occurred sending prices higher. At week’s end, however, both US and Brent crude were lower, the first weekly loss after four straight weeks of gains with New York futures at $44.66 a barrel and London at $43.37.
“Oil prices simply aren’t going to rise fast enough to keep oil and energy companies from defaulting. Then there is a real contagion risk to financial companies and from there to the rest of the economy.”
Jason Schenker, president and chief economist at Prestige Economics
“Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June 2014, after that of July 2008, the ‘peak oil’ issue remains with us.”
Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, former Deputy Secretary-General of the World Energy Council
Analysts are starting to wonder as whether 2016 could turn out to be similar to 2015 when oil prices rose sharply in the first five months of the year on hopes that the oil surplus would soon be over, and then collapsed in May when it became apparent that there was going to be more oil around than necessary. Last week the price surge which began in February continued throughThursday and then slowed on Friday leaving London futures at $48.13 at the close and New York at $45.92. The impetus for the surge is that that hedge funds and other speculators are convinced that the two-year price slump is over and that higher prices are ahead. This forecast is supported by the steady decline in the US rig count, which continued last week; a continuing drop in US crude production which the EIA projects will continue into next year; a weaker dollar due to the Federal Reserve’s failure to increase interest rates; increased consumption of gasoline in the US due to low prices; market technical analysis showing prices breaking various “ceilings;” and news of a string of production outages across the globe due to insurgencies and unsettled economic conditions.
