The culprits were the now familiar mix of rising supply and shrinking demand. Outgoing OPEC Chairman, Suhail Al Mazrouei, pointed the finger at two key factors when he was recently interviewed: “One is the potential of heated [trade] war between China and the United States […] I think this is one fundamental, not only affecting us but affecting the whole economics of the world. [The other is] how much is coming from the shale oil production. I think that’s another factor we need to watch and we need to advise that it has to be reasonable.”1
Whilst neither of these challenges has gone away, things have begun to turn a corner as we enter the new year. At least for now. The last few days have seen both Brent and WTI undergo a rally in the wake of output cuts, sanctions on Iranian production, and protests in Libya.
Saudi Arabia alone has taken 420 000 bpd off the market so far and overall OPEC+ cuts are due to see group output fall by 1.2 million bpd.2 Iranian production has fallen by 23% since US sanctions were reinstated in November of last year. Naturally, Tehran isn’t too happy about the sanctions - Iranian Oil Minister, Bijan Zanganeh, has referred to them as “fully illegal” and believes Tehran “should not comply” with them.3 And Libyan production has fallen by 110 000 bpd since the country’s largest oilfield, Sharara, was stormed by protestors last month. This combination of events cut through the economic malaise and has seen Brent crude bounce back by 5%.
Naturally, the ongoing geopolitical drama and machinations surrounding oil prices aren’t the only things going on in the upstream sector. Other big stories include the news that a third-party audit of Saudi Arabia’s oil reserves has been completed. Perhaps unsurprisingly, the findings show that the Kingdom’s reserves are vast – some 268.2 billion bbls of oil in total. According to Saudi Oil Minister, Khalid al Falih, the audit conducted by DeGolyer and MacNaughton also confirmed that at US$4/bbl the Kingdom has the lowest production costs of any oil company.4 Particularly staggering is that despite an annual production of roughly 4 billion bbls of oil, the audit is purported to show the Kingdom’s reserves have actually grown by some 2.2 billion in the last year. It is likely that the Kingdom, which still has plans for an IPO of Saudi Aramco, is hoping the audit will quash persistent rumours that it was on the verge of running out of oil.
In contrast, Norway has announced that its output for 2019 will fall to a 30 year low. The Norwegian Petroleum Directorate (NPD) has cut its oil production forecast for the year to 82.8 million m3 – some 5 million m3 lower than previously expected. According to Reuters, the decline was due to “start-up delays and production difficulties in several fields.”5 This is only expected to be temporary, however: by 2023 the country’s combined oil and gas production is expected to match record levels last seen in 2004 as the Johan Sverdrup field reaches peak production.6
We’re only a few days into 2019 and it’s already shaping up to be another interesting year for the industry. As always, Oilfield Technology will be there to provide coverage of the trends and exciting new technologies that are impacting the upstream sector. Stay tuned.
References
1. ‘Trade war and US shale are the biggest concerns for outgoing OPEC chief’ – https://www.cnbc.com/2019/01/09/uae-oil-minister-on-president-donald-trump-and-opec.html
2. ‘OPEC Output Falls Most in Almost Two Years as Saudi Cuts Begin’ – https://www.bloomberg.com/news/articles/2019-01-02/opec-output-falls-most-in-almost-two-years-as-saudis-begin-cuts
3. ‘UPDATE 1-Iran will not comply with “illegal” U.S. sanctions - oil minister’ – https://www.cnbc.com/2019/01/10/reuters-america-update-1-iran-will-not-comply-with-illegal-u-s-sanctions--oil-minister.html
4. ‘Why It Matters How Much Oil Saudi Arabia Has’ – https://www.forbes.com/sites/ellenrwald/2019/01/09/why-it-matters-how-much-oil-saudi-arabia-has/
5. ‘Norway cuts 2019 oil output forecast to reach 30-year low’ – https://in.reuters.com/article/norway-oil/norway-cuts-2019-oil-output-forecast-to-reach-30-year-low-idINKCN1P41B8
6. Ibid.
