“I don’t think President Trump will have a big impact on oil demand or output. He’s made statements, but we haven’t seen any thought-out policies. We will have to wait for him to get a team in place and come up with policies.”
Mike Wittner, head of oil-market research at Societe Generale SA in New York
Last week oil prices suffered their fourth losing week in a row as OPEC continued to argue over a possible production freeze/cut and oil production continued to grow adding to the surplus. At week’s end, futures prices were down to $43.41 in New York and $44.75 in London. The surprising US election results roiled for a few hours on after the results became known, but prices settled on Wednesday with a small gain and were down on Thursday and Friday on new reports of oil production increases and stockpile builds.
“We’ve long been of the opinion that demand will peak before supply. And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”
Simon Henry, Chief Financial Officer for Royal Dutch Shell
“The oil demand growth is not coming from cars; it’s from trucks, aviation and the petrochemical industry and we don’t have major alternatives to oil products there. I don’t buy the argument that electric cars alone will cause a peak in oil demand at least in short and medium term.”
Fatih Birol, Executive Director of the International Energy Agency
Oil prices continued to slide last week with New York futures down by nearly $8 a barrel from the recent highs set in mid-October. The week closed out with NY at $44.07 and London at $45.58. The hype over an OPEC production freeze which has been driving prices up since last spring is no longer moving prices higher. OPEC and Russia have to come up with a significant production cut in the next three weeks or be faced with lower prices until supply and demand come back into balance from economic forces. The final OPEC meeting to approve a cut is only three weeks away (November 30th) and so far no progress has been made at preliminary meetings that were intended to work out details.
“The world’s five major oil companies are “faced with the choice of managing a gentle decline by downsizing or risking a rapid collapse by trying to carry on business as usual.”
By Chatham House, a London-based think-tank, in a report from May titled “The Death of the Old Business Model.”
Oil prices trended down last week to register the biggest loss in six weeks. At the close New York futures were at $49.27, down from $50.50 on Monday, and London was trading at $50.03. There was a brief rally during the week when US crude stocks came in lower than expected, but the week’s decline came mainly because traders lost faith that OPEC will be able to reach agreement on a production freeze.
“On the supply side, non-OPEC supply growth has reversed into declines due to major cuts in upstream investments and the steepening of decline rates. Without investment, that trend is likely to accelerate with the passage of time to the point that many analysts are now sending warning bells over future supply shortfalls and I am in that camp.”
Saudi Arabia’s Energy Minister Khalid al-Falih, at the Oil & Money Conference in London
“I don’t quite share the same view that others have that we are somehow on the edge of a precipice. I think because we have confirmed the viability of very large resource base in North America … that serves as enormous spare capacity in the system. It doesn’t take mega-project dollars, and it can be brought online much more quickly than a 3-4 year project. Never bet against the creativity and tenacity of our industry.”
Rex Tillerson, CEO ExxonMobil, at the Oil & Money conference
Except for a brief spike on Wednesday following the release of the EIA’s stocks report, oil prices were relatively stable last week trading around $51-52 a barrel in New York and London. Little price movement can be expected until the OPEC/Russia combine agrees on the nature of a production freeze, if any. Last week, there were mixed signals from Moscow as to just what their intentions regarding a freeze would be. With several countries expecting an exemption from any production cap, the bulk of the cut would likely fall on the Saudis and the other Gulf Arab states. The IEA is still saying that it does not expect the price of oil to go much above $60 in the near future as US shale oil producers would quickly flood the markets, offsetting any OPEC freeze of the size under discussion.
“We believe that the Barnett shale offers compelling evidence that technology improvements ultimately cannot overcome geology. We believe the implication is that shale is a scarcer resource than generally considered and thus are more constructive longer-term as the world must seek a more marginal barrel to match future demand growth. That is bullish for longer-term oil price.”
“Increasing lateral length hurts all horizontal well performance as frictional losses increase and in the Barnett, optimal well length was determined by balancing reduction of fixed costs with reduced incremental production. Even correcting for lateral length, Barnett wells got worse with time. The E&P narrative is that a revolution in technology of improved completions (more sand, water, clusters, geo-steering, landing, etc.) is pushing down the cost curve. Yet we fail to see it in the most complete data record we have.”
Bernstein Research
Last week started with a flurry of speculator optimism deriving from the World Energy Congress in Istanbul during which the Russians backed Saudi efforts to raise prices using a production freeze, the details of which have yet to be determined. For the rest of the week, oil prices moved little as various reports affecting the oil markets showed that it is unlikely that a significant OPEC/Russian production agreement can be negotiated. The week ended with New York futures settling at $50.35 and London at $51.95. Most analysts do not expect any significant change in prices until the fate of the freeze becomes known around the end of November. In the meantime, technical exchange meetings will take place to see if an agreement can be worked out. Recent and projected increases in OPEC production make it likely that considerably larger production cuts than were agreed to at Algiers will be necessary to move prices higher. Goldman Sachs warned last week that the planned Russian/OPEC production freeze is unlikely to be enough to rebalance the markets in 2017.
