‘Unfit’ Brent, OPEC’s health & market volatility

As the August Brent futures contract traded firmly below US$65 a barrel days after publication of the latest Saudi production data, London played host to the ninth round of the World National Oil Companies Congress.

In case you haven’t heard, the Saudis pumped 10.31 million barrels per day in May – the subject of many a chat at the event, atop of course why Algerian and Iranian officials, who usually turn up in numbers at such places (going by past experience), were conspicuous by their absence.

The congress threw up some interesting talking points. To enliven crude conversations, you can always count on Chris Cook (pictured above), former director of the International Petroleum Exchange (now ICE) and a research fellow at UCL, who told the Oilholic that Brent – deemed the global proxy benchmark by the wider market – has had its day and was unfit for purpose.

“I have been saying so since 2002. The number of crude oil cargoes from the North Sea has been diminishing steadily. On that basis alone, how can such a benchmark be representative of a global market?”

Cook would not speculate on what might or might not happen at the Iranian nuclear talks, but said the entry of additional Iranian crude into the global supply pool was inevitable. “With India and China at the ready to import Iranian crude, Europeans and Americans would have to come to some sort of accommodation with rest of the world’s take on the country's oil.”

In line with market conjecture among supply-side analysts, the industry veteran agreed it would be foolhardy to assume Iran might try to flood the oil market with its crude, a move that is likely to drive the oil price even lower in an already oversupplied market. Cook also declared that OPEC was on life support as it struggles to grapple with current market conditions.

With oil benchmarks stuck in the $50-75 range, Keisuke Sadamori, Director of Energy Markets & Security at the International Energy Agency, said a “firmer dollar” and current oversupply would make a short to medium term escape from the said price bracket pretty unlikely. (Here is one’s Sharecast report for reference). 

Earlier in the day, Andy Brogan, global oil and gas transactions leader at EY, noted that the industry would have to contend with volatility for a while. “There appears to be little confidence in a medium term bounce in the price of oil. With the industry in the midst of a profound change, IOCs have recently gone through a very rigorous review of their portfolio.”

Brogan opined that this would have implications for their partnerships with NOCs and fellow IOCs going forward. With the old tectonic plates shifting, IOCs wanting to conserve cash, NOCs craving a bout of further independence and the oil price stuck in a rut, that’s something worth pondering over. But that's all for the moment folks. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Chris Cook, former director of the International Petroleum Exchange and research fellow at UCL, speaking at World National Oil Companies Congress, London, UK, June 16, 2015 © Gaurav Sharma.

Final ‘crude’ thoughts from 21 WPC Moscow

The 21st World Petroleum Congress came to a close last evening at the mammoth Crocus Expo Center in Moscow, and its almost sundown here at the Red Square. A hectic five days gave plenty of food for thought and 'crude' tangents for discussion.

As noted on Tuesday, the Ukraine standoff failed to overshadow the event, as a veritable who's who of the oil & gas industry turned up regardless. Most movers and shakers, whether correctly, conveniently or cleverly, cited the premise that the Congress was a global event being hosted by Russia, and not a Russian event. So, in the eyes of most, there was no place for international politics. But it was certainly the place for industry intelligence gathering on an international scale.

If anything, it was the events in Iraq that cast a shadow over discussions rather than Ukraine. And with a rather eerie coincidence, just as the Congress came to a close on Thursday, the Brent front month futures price spiked to an intraday high of US$115.71 per barrel. That's the highest on record since September last year.

Most analysts here for the Congress noted that the speed with which the events are unfolding is most troubling and has serious implications for the oil price. For the present moment, the Oilholic is maintaining his price range prediction for Brent in the range of $90-105 circa. Instead of rushing to judgement, given that the US need for Middle Eastern crude oil is narrowing, this blogger would like to monitor the situation for another few weeks before commenting on his price prediction.

Meanwhile, Iran is out in force in Moscow pitching $100 billion worth of oil & gas projects. Additionally, among the many views on where to turn for new hydrocarbon resources, Arctic oil & gas exploration seems to be all the rage here. Here is the Oilholic's take in a Forbes article.

Elsewhere, executives from Saudi Aramco to Shell stressed the need to reduce output costs. Or to cite one senior executive, "We're seeking to either equal or better costs incurred by US unconventional plays." Drilling for oil has various permutations, but if natural gas is the objective, the target should be around $2 per thousand cubic feet, according to various US commentators here.

The oil & gas industry as whole is likely to need financing of $1 trillion per annum over the next 20 years as unconventional plays become commonplace, at least that's the macro verdict. Speaking in Moscow, Peter Gaw, managing director of oil, gas and chemicals at Standard Chartered, said the banking sector could meet the demands despite a tough recovery run from the global financial crisis.

Anecdotal evidence here and wider empirical evidence from recent deals suggest private equity firms will continue to be players in the services business. But Gaw also saw hybrid finance deals involving hedge funds and pension funds on the cards.

Andy Brogan, global leader of EY's oil & gas transactions, said the diversity of projects both in region and scope is evident. Asia Pacific and Latin America should be the two regions on the radar as some financiers attempt to move beyond North America. Sounding cautiously optimistic, Brogan added that the post-crisis "appetite" is gradually returning.

A senior US industry source also told the Oilholic that Bakken capex could top all industry estimates this year and might well be in the $20-25 billion range. Away from financing, a few other snippets, the Indian delegation left pledging more information on a new rationalised tax regime, licensing policy, and a move on its highly political subsidies regime.The world's fourth largest energy consumer is looking to stimulate foreign investment in its oil & gas sector. However, to facilitate that, India's new Prime Minister Narendra Modi knows he has to shake things up.

Meanwhile, BP, already an investor in India, has inked a $20 billion LNG sale and purchase agreement with CNOOC, China's leading LNG projects developer.

While the rest of us were in Moscow, Chinese Premier Li Keqiang and British Prime Minister David Cameron were among onlookers as the deal for up to 1.5 million tonnes per annum of LNG starting from 2019 was being inked.

Lastly, it has to be said that over the first two days of the Congress, the Oilholic nipped in and out of 8 forums, talks and presentations and one keynote. Not a single one passed without 'shale' being mentioned for better or for worse!

That brings yours truly to the final thoughts from Moscow and there's more than one. Firstly, the Congress has widely acknowledged the US shale bonanza is now firmly beyond doubt. Secondly, the thought that Arctic oil & gas exploration is the next 'final frontier' is getting firmly entrenched in the thinking of most here in Moscow.

Finally, Istanbul should be congratulated on being named the host city of the 22nd World Petroleum Congress. By the time delegates arrive in town in 2017, the 'Kanal İstanbul' project should be well underway and the fate of the world's second-busiest oil & gas shipping artery – the Bosphorus – could make a good starting point.

On that note, its time to say Dos Vedanya to Russia and take the big flying bus home to London Heathrow! Here is a selection the Oilholic's photos from the Congress, which has been a memorable outing. It was an absolute pleasure visiting the Russian capital after a gap of 10 years, but sadly that's all from Moscow folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo 1: Red Square, Moscow, Russia. Photo 2: Logo of the 22nd World Petroleum Congress scheduled to be held in Istanbul. © Gaurav Sharma, June 2014.