Oil Prices

[HitandRun]

Iran reportedly has 20 million barrels in storage ready to go. The current oil fields should be able to ramp up to half million barrels per day, within weeks and another half million per day from those closed fields which could take a couple months to reopen. So we are looking at about an extra million per day hitting the market soon once that 20 million barrels is sold.

Good. Let's mark this down to check back 6 months later.

I am not good at forecasting the price of oil but I can definitely share some history for reference.

The Iraqi war started and ended in 2003. At that point in time, Commerce Secretary Don Evans projected that Iraqi oil production to hit 5-6 million barrels a day within 3-4 years. Iraqi own projection was to hit 6 million barrels a days within 10 years, i.e. 2014. So what is the actual Iraqi oil production now? Approx 3.5 million barrels....

News from 2003

[greengiraffe]

Investment bank Citi warns global oil giants to beware of Iran
THE AUSTRALIAN JULY 18, 2015 12:00AM

Michael Roddan

Reporter
Beware Iran, Citi warns big oil
American and Iranian flags. Citi forecasts 300,000 barrels of Iranian oil entering the market in early next year. Source: Getty Images

Investment bank Citi says “big oil” — the global energy giants — must get their house in order to fight persistent lower energy prices, after Iran and six world powers this week struck a deal that will end tough economic sanctions on the oil producing nation.

Citi analyst Alastair Syme said the return on investment for global producers, which was already at a 17-year low, was expected to fall further, after the investment bank lowered its forecasts for oil prices by 8 per cent in 2015 and by 10 per cent in 2016 earlier in the week, as the stronger US dollar, Saudi exports, stockpiling inventories and the impending Iranian production “could set up a bearish end to the year”.

Citi analysis forecast incremental Iranian production of 300,000 barrels of oil entering the market in early next year, ramping up to 500,000 by the end of 2016.

Meanwhile, Morgan Stanley expected lower crude oil prices in the longer term, despite the uncertain timing of the extra Persian supply entering the market.

The lifting of the sanctions were unlikely before late 2015 or early 2016, Morgan analyst Vinay Jaising said, but the deal could lead to up to 700,000 barrels ­entering the market.

Citi’s Mr Syme said major oil firms with high quality management teams would be the ones placing a priority in putting their house in order. “Step one is to accept that we live in a $US65 to $US75 a barrel world or lower,” Mr Syme said. “Step two is to use that view to drive self-help.”

Global players include BP and Royal Dutch Shell and US-based Chevron and ExxonMobil.

The lower energy prices have hit Australian oil and gas producers, With Santos and Woodside both posting soft revenues in the June quarter.

Australia’s Woodside Petroleum yesterday revealed a 47 per cent slump in quarterly revenue, as oil and gas prices weigh on the company’s balance sheet.

Mr Syme said major oil companies would be seeing lower earnings per share growth, cutting the sector’s earnings per share by an average of 4 per cent in 2015 and by 9 per cent in 2016.

Even so return on investment — already at a 17-year low of 7 per cent in second quarter of 2015, to below 6 per cent in the fourth quarter of the year — is likely to fall for the big global players.

“With the oil market remaining in oversupply we think prices, for a period, will trade closer to cash than marginal incentive costs,” he said, expecting US shale activity to gather pace in the second half, while Saudi Arabia will defend its market share.

[CityFarmer]

I am sharing Shell view on oil price, not short-term, but in long term perspective.

A $70 per barrel, as the base, and bet at $90 a barrel by 2020, which is 5 years from now.

Shell expected to reduce capex for the year: FT

Royal Dutch Shell , which is all set to acquire rival BG Group Plc , may cut its capital expenditure for the year by several billion dollars from the previously announced $33 billion figure, the Financial Times reported on Sunday, citing sources.

A substantial cut to this year's capital investment might be outlined during the company's interim results on July 30, the newspaper said.(http://on.ft.com/1fVVwqU).

The paper said the Anglo-Dutch energy company had also told investors that the BG deal works with crude oil at $70 per barrel, citing much greater synergies which will likely exceed several billions, the business daily said.

The company told investors that "value synergies" are likely to be "a multiple" of $1 billion in annual projected savings from merging head offices and other cost-cutting, the FT said.

Shell, which is betting on crude rising to $90 a barrel by 2020, a key assumption in its move to buy rival BG Group, said it expects oil prices to recover gradually over the next five years.

Shell and BG Group could not be reached immediately for comments outside regular business hours. REUTERS
http://www.todayonline.com/business/shel...ex-year-ft

[Boon]

Return of Iranian oil may cause more OPEC tensions

AFP
Sunday, Jul 19, 2015

LONDON - The return of oil from Iran following the landmark nuclear energy deal with world powers could create fresh tensions within OPEC but may reinforce the cartel's output strategy, analysts say.

Tehran and major powers - Britain, China, France, Germany, Russia and the United States - clinched a historic agreement in Vienna on Tuesday aimed at ensuring Iran does not obtain a nuclear bomb, and which paves the way for the removal of sanctions and the gradual return of Iranian oil to the global market next year.

The accord puts strict limits on Iran's nuclear activities for at least a decade. In return, sanctions that have slashed the oil exports of OPEC's fifth-largest producer will be lifted and billions of dollars in frozen assets unblocked.

The Islamic republic's exports could reach a potential 2.4 million barrels per day (bpd) in 2016, from 1.6 million bpd in 2014, according to data from economist Charles Robertson at investment bank Renaissance Capital.

The Organisation of the Petroleum Exporting Countries - whose 12 members including Iran pump one third of global oil - is mindful that Iranian oil could worsen a global supply glut and depress oil prices further.

OPEC decided at its last meeting in Vienna in June to maintain output levels, extending its Saudi-backed strategy to preserve market share and fend off competition from booming US shale.

Oil prices sank last week, hit by the Iran nuclear deal and the strong dollar, raising jitters among some OPEC members who next meet on December 4.

London Brent oil slid to about US$56 per barrel and New York's West Texas Intermediate dropped to around US$52 a barrel.

Divisions in cartel

Poorer OPEC members Angola, Algeria and Venezuela - whose budgets are heavily reliant on oil revenues - may again argue for less output to support prices, analysts say.

Richer Gulf producers, led by OPEC kingpin Saudi Arabia, remain eager for the cartel to preserve valuable market share and force out high-cost US shale producers with lower oil price levels.

"Clearly there is a divide between the countries on this new policy of seeking new market share," Ann-Louise Hittle at consultancy Wood Mackenzie told AFP.

"So it could be a contentious (OPEC) meeting and there could be pressure for an emergency meeting before December." Faced with stubbornly low prices, Algeria's energy minister Salah Khabri indicated to state news agency APS last week that an emergency OPEC meet could be needed.

"The real problem starts when OPEC members begin to fight for quotas amid oversupply and market share disputes," said Jassem al-Saadun, head of Kuwait's Al-Shall Economic Consultants.

"If Iran, Venezuela, Algeria and Libya - all of which need to pump more - enter into a dispute with the Gulf producers, then it could be the end for OPEC," he warned.

Danske Bank analyst Jens Naervig Pedersen said such countries had been "really hit" by low oil prices.

But he added: "Their collective power is probably not great enough to turn the mind of Saudi Arabia and the core members of OPEC in the Middle East."

Global demand key

In June, OPEC's collective output ceiling was left at 30 million bpd - where it has stood for three and a half years - despite an oil price collapse between June 2014 and January that slashed precious revenues.

The organisation appeared to shrug off calls from some members, including Iran, for a "reasonable" oil price of between US$75 and US$80 per barrel.

Oil is forecast to languish at an average of just above US$62 per barrel next year, according to French bank Natixis.

Hittle cautioned that low price levels could slow down US shale energy production and make room for returning supplies from Iran - provided that global energy demand does not falter.

"When we look at fundamentals (of supply and demand) in the next year, with prices at this level we do expect to see a much slower growth in US oil supply," she said.

"So there might actually be some room for Iranian production to start up, as long as oil demand growth holds up and continues."

http://business.asiaone.com/news/return-...c-tensions

[greengiraffe]

Oil price outlook dim: RBC Capital Markets’ Helima Croft
DAVID ROGERS THE AUSTRALIAN JULY 21, 2015 12:00AM

Oil glut to keep lid on prices
RBC Capital Markets global head of commodity strategy Helima Croft. Picture: Britta Campion Source: News Corp Australia

Crude oil is likely to remain depressed in the year ahead as the major producers show no sign of altering their strategy of maintaining supply ahead of an expected pick up in global demand.

The glut could get worse next year with the resumption of international sales by Iran following last week’s nuclear deal with the West, but the sustainability of any Iranian sales isn’t guaranteed.

Helima Croft, RBC Capital Markets’ global head of commodity strategy, expects West Texas crude to stay in the vicinity of $US50-$US60 a barrel in the absence of significant production cutbacks.

“Until you have Saudi Arabia, Nigeria or Iraq deciding to reduce production, we think WTI is kind of range bound,” says Ms Croft, who has worked at the US Council on Foreign Affairs and the CIA.

“Increasing global demand can provide a floor, but to move comfortably above $US60 a barrel in WTI, we will need to see production come down materially.”

The Organisation for Petroleum Exporting Countries is currently overshooting its 30 million barrels-a-day production target by some 1.45 million barrels, amid stronger output from Nigeria, Iraq and Saudi Arabia.

Crude oil began to dive from about $US105 a barrel last July as US shale oil production came on line. It hit a six-year low of $US42.03 in March after Saudi Arabia led OPEC to maintain output, and the world’s number one producer, Russia, continued to produce near record amounts of oil.

“In the past few months, everyone was so focused on the US oil rig count, but OPEC and other key players like Russia were just going full throttle,” Ms Croft says.

“So part of the reason why we are not constructive on oil prices in the near term is that, although demand can be stronger, if all these countries essentially race to the bottom by producing as much oil as they can, we don’t see how the market can be pulled into the $US75 a barrel region that OPEC members are talking about.”

Crude oil hit a three-month low of $US50.14 last week after Iran signed the Joint Comprehensive Plan of Action nuclear agreement with the UN Security Council, promising to reduce nuclear capabilities in return for a lifting of broad-ranging sanctions on Iran.

OPEC’s fourth-largest oil producer could add up to 500,000 barrels a day to the international market by the second quarter of 2016, but that scenario could be spoiled if Republicans get enough cross-party support to derail the deal, Iranian hardliners hold sway over the Supreme Leader, or the International Atomic Energy Agency doesn’t give Iran a clean sheet over possible military dimensions to its nuclear program.

“The requirement for IAEA sign-off on the PMD issue represents one of the clearest risks to the agreement, in our view,” Ms Croft says.

It his May 29 report, IAEA chief Yukiya Amano stated that the agency “remains concerned about the possible existence in Iran of undisclosed nuclear-related activities involving military organisations, including activities related to the development of a nuclear payload for a missile”.

Iran is suspected of experimenting with nuclear triggers and implosion devices at its Parchin military site, in direct contravention of the Non-Proliferation Treaty obligations, and of taking active steps to eliminate evidence of these illicit activities.

While President Obama has vowed to veto any congressional legislation rejecting the deal, and it will be hard for Republicans to get Democrat support to break ranks with the White House, the lack of snap IAEA inspections of military sites could emerge as a source of congressional criticism, according to Ms Croft.

[HitandRun]

For those of us who are curious about the light tight oil guys:

US Shale Industry About to Run Out of Lifelines

E&P Write Downs

Funky Accounting by EIA

When will debt holders realise that they won't get paid?

[old friend]

http://www.livecharts.co.uk/MarketCharts/crude.php

Nymex September Oil price hit USD50.30 today

[CityFarmer]

Shell prediction is $90, and the "Oil Guru" prediction isn't too far away, $100 by 2020...

Oil Guru Who Called 2014 Slump Sees a Return to $100 Crude

The oil guru who predicted last year’s rout said $100-a-barrel crude is likely to return within five years as faltering supply fails to meet demand.
Gary Ross, the founder of consultants PIRA Energy Group, said oil markets aren’t nearly as oversupplied as many believe and spare capacity is tight since Saudi Arabia is pumping all the crude it can without new drilling.
“Current prices are unsustainable,” he said Monday in an interview in London. “It’s hard not to see oil hitting $100 a barrel at some point in the next five years.”
...
http://www.bloomberg.com/news/articles/2...de-by-2020

[lilvestor]

For those of us who are curious about the light tight oil guys:

US Shale Industry About to Run Out of Lifelines

E&P Write Downs

Funky Accounting by EIA

When will debt holders realise that they won't get paid?

When its too late...

If it wasn't for the fed's ZIRP these distressed companies would have gone bust by now.

[greengiraffe]

http://www.smh.com.au/business/markets/o...ijfc8.html

Oil crash could be 'far worse than 1986', says Morgan Stanley
Date
July 24, 2015 - 9:01AM
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The outlook for oil prices has soured.
The outlook for oil prices has soured. Photo: Bloomberg
Morgan Stanley has been pretty pessimistic about oil prices in 2015, drawing comparisons to the some of the worst oil slumps of the past three decades. The current downturn could even rival the iconic price crash of 1986, analysts had warned - but definitely no worse.

While for now, it is sticking with its original thesis that prices will improve, Morgan Stanley has revised its worst-case scenario, saying the crash has the potential to be 'far worse than 1986'.

Until recently, confidence in a strong recovery for oil prices - and oil companies - had been pretty high, wrote analysts including Martijn Rats and Haythem Rashed, in a report to investors. That confidence was based on four premises, they said, and only three have proven true.

OPEC production surges in 2015.
OPEC production surges in 2015. Photo: Source: Morgan Stanley Research, Bloomberg
1. Demand will rise: Check
In theory: The crash in prices that started a year ago should stimulate demand. Cheap oil means cheaper manufacturing, cheaper shipping, more summer road trips.

In practice: Despite a softening Chinese economy, global demand has indeed surged by about 1.6 million barrels a day over last year's average, according to the report.

2. Spending on new oil will fall: Check
In theory: Lower oil prices should force energy companies to cut spending on new oil supplies, and the cost of drilling and pumping should decline.

In practice: Sure enough, since October the number of rigs actively drilling for new oil around the world has declined by about 42 per cent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone listed oil companies have cut about $US129 billion in capital expenditures.

3. Stock prices remain low: Check
In theory: While oil markets rebalance themselves, stock prices of oil companies should remain cheap, setting the stage for a strong rebound.

In practice: Yep. The oil majors are trading near 35-year lows, using two different methods of valuation.

4. Oil supply will Drop: Uh-oh
In theory: With strong demand for oil and less money for drilling and exploration, the global oil glut should diminish. Let the recovery commence.

In practice: The opposite has happened. While US production has levelled off since June, OPEC has taken up the role of market spoiler.

For now, Morgan Stanley still believes prices will improve, largely because OPEC doesn't have much more spare capacity to fill and because oil stocks have already been hammered.

But another possibility is that the supply of new oil coming from outside the US might continue to increase as sanctions against Iran dissolve and if the situation in Libya improves, the Morgan Stanley analysts said.

US production could also rise again.

A recovery is less certain than it once was, and the slump could last for three years or more - "far worse than in 1986."

"In that case," they wrote, "there would be little in analysable history that could be a guide" for what's to come.

Bloomberg