Oil prices have taken a tumble as of late. For most of the year Brent crude had been sitting between US$70 and US$80/bbl, but ever since peaking in the mid US$80s back in October things have gone downhill – for the first time in a year, Brent recently fell below US$60/bbl. Once again, the culprit is a combination of soaring production and weakening demand.
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Saudi Arabia has raised its oil output to record levels, pumping 11.3 million bpd; Russia continues to produce at levels just shy of 11 million bpd; and shale output in the US continues to grow, making the country the world’s largest oil producer at 11.7 million bpd. In addition to concerns around oversupply, there are fears over a looming economic slowdown and inevitable reduced oil demand, partially brought about by the ongoing US-China trade war. Clay Seigel, Managing Director of oil at Genscape was quoted as saying, “Oil traders are overwhelmed by bearish news […] The broad selloff in equities has traders concerned about the possibility of an economic slowdown, which could reduce demand for oil products.”1
In another example of how oil and politics are inextricably linked, traders are reportedly even taking the incidents surrounding journalist Jamal Khashoggi, into account. President Trump’s recent comments showed no signs of any likely repercussions for Saudi Arabia: “It could very well be that the Crown Prince had knowledge of this tragic event – maybe he did and maybe he didn’t!”2 When taken into consideration with the President’s statements that he didn’t want oil prices to rise and that he “wasn’t going to destroy the economy” over the incident, there seems to be little incentive for the Kingdom to make significant production cuts.
Although major cuts might not be on the horizon, Saudi Arabia’s Energy Minister, Khalid al-Falih, has stated that the Kingdom will work to stabilise the market, but it won’t do it without the support of OPEC members and other allies. Al-Falih was quoted by Reuters as saying: “We are going to […] do whatever is necessary, but only if we act together as a group of 25. As Saudi Arabia we cannot do it alone, we will not do it alone. […] Everybody is longing [to] reach a decision that brings stability back to the market […] I think people know that leaving the market to its own devices with no clarity and no collective decision to balance the market is not helping.”3
The good news is that there does appear to be a willingness to co-operate from other key players, such as Russia. Sources familiar with discussions between Russian oil companies and the Russian Ministry of Energy confirmed that: “The idea at the meeting was that Russia needs to reduce. The key question is how quickly and by how much”4 There are even rumours of potential cuts circulating in Alberta. With prices falling as low as US$14/bbl in the region, Alberta Premier Rachel Notley has referred to the current prices as “ridiculous” and plans to outline a response soon.5
As the year draws to a close, the upstream industry once again finds itself in something of an uncertain position. There are challenges looming on the horizon, but the upstream sector has learned a great deal since the downturn of 2014; it is an altogether leaner, more efficient, and more productive industry than it was four years ago. We at Oilfield Technology look forward to seeing the innovative new technologies and applications that will power the industry through the next four years and beyond.
- ‘Oil plummets to 13-month low as crude crash deepens’ – https://edition.cnn.com/2018/11/20/business/oil-prices-plunge/index.html
- ‘Saudi Arabia wants united front on oil output; Russia and Nigeria hold out’ – https://uk.reuters.com/article/us-oil-opec-falih/saudi-arabia-wants-united-front-on-oil-output-russia-and-nigeria-hold-out-idUKKCN1NX1K8
- ‘US crude rises 2.3%, settling at $51.45, as Russia leans toward output cut’ – https://www.cnbc.com/2018/11/29/oil-markets-g-20-meeting-supply-concerns-in-focus.html
- ‘Alberta considers cutting oil production, announcement coming in days: Notley’ – https://www.ctvnews.ca/politics/alberta-considers-cutting-oil-production-announcement-coming-in-days-notley-1.4196127