México

Guyana

Trinidad
& Tobago




Very usefull links



PW
Bookstore





News links

AP

AFP

Aljazeera

Dow Jones

Oil price

Reuters

Bloomberg

Views and News
from
Norway

 

 

 

Russia and Saudi Arabia's oil-market management challenge -Kemp

 


 


By John Kemp / Reuters

LONDON
Petroleumworld 11 08 2018

Russia and Saudi Arabia have started to discuss cutting production next year following steep falls in oil prices in the last month, according to a report by Russia's TASS news agency.

The report has not been confirmed but has arrested the rapid decline in prices, at least temporarily, and should not come as a surprise given the altered dynamics in the oil market.

The oil market is best thought of as a complex adaptive system, characterised by long lags and positive feedback mechanisms, which exaggerate the impact of even small changes in production and consumption.

OPEC, led by Saudi Arabia, and its non-OPEC allies, led by Russia, have stated that their objective is to keep the market as close as possible to balance and minimise damaging price swings.

But in the history of the oil market, production and consumption have rarely been balanced except accidentally and not usually for very long.

The market's natural state is one of imbalance, with deep and prolonged cycles in spot prices and inventories as it alternatives between periods of under- and over-supply.

In this context, the best market management strategy for OPEC+ involves timely, frequent and small adjustments in production in response to changing estimates of production and consumption.

Prompt action in response to incoming information about potential future market imbalances may be able to forestall the need for much larger adjustments later.

Decision-making has been considerably simplified because Russia and Saudi Arabia are the only two members of OPEC+ that need to reach agreement (with United Arab Emirates and Kuwait playing a supporting role).

Other members of OPEC+ have no spare production capacity and are not needed to show much production flexibility to keep the market close to balance.

TIMELY MOVES

Russia and Saudi Arabia have already made several adjustments to their production plans this year in response to a changing production and consumption outlook.

OPEC+ members started the year insisting they would not increase production because of a lingering overhang of stocks above the five-year average.

By June, Russia and Saudi Arabia had begun raising output as rapid consumption growth and the loss of production from Venezuela drew down stocks faster than expected and pushed prices higher.

In August and September, Russia and Saudi Arabia came under renewed pressure to raise output further as oil traders became concerned about the loss of exports from Iran due to U.S. sanctions and prices surged.

Since then, signs of a renewed surge in U.S. shale production, concerns about consumption growth and sanctions waivers for Iran's exports have sent prices sharply lower and prompted yet another rethink.

SHIFTING OUTLOOK

The biggest sources of uncertainty for Russia and Saudi Arabia stem from (a) the state of the global economy and oil consumption, and (b) the output from U.S. shale fields.

In recent weeks, economists and investors have become increasingly pessimistic about the outlook for global growth, and by extension oil consumption in 2019, resulting in sharp falls in equity and oil prices.

While oil consumption threatens to disappoint on the downside, production from U.S. shale fields is surprising on the upside, reinforcing the market-management challenge for OPEC+.

U.S. shale production has risen much faster this year than expected, with output in August up 2 million barrels per day (bpd) compared with the same month a year earlier ( tmsnrt.rs/2Qoswu5 ).

The U.S. Energy Information Administration now expects crude and condensates production to average 10.90 million bpd in 2018, compared with a forecast of just 9.95 million barrels per day 12 months ago.

The agency has raised its forecast for average crude and condensates production to 12.06 million bpd in 2019, up from 10.85 million bpd in January (“Short-Term Energy Outlook”, EIA, Nov. 2018).

These huge upward revisions in forecast U.S. shale production coupled with a downgraded global growth outlook have left OPEC+ members with little choice but to review their output plans.

Brent's six-month calendar spread has collapsed into contango as oil traders anticipate improved crude availability and a production surplus at the end of 2018 and into 2019.

If Russia and Saudi Arabia want to avoid the market becoming oversupplied next year they will need to reduce their production early to prevent the accumulation of a larger imbalance.

________________________



Story by John Kemp from Reuters.

reuters.com
11 07 2018



Copyright© 1999-2018 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.

Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.

Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!

We invite all our readers to share with us
their views and comments about this article.
Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels

Twitter: @petroleumworld1


November 13 - 15, 2018.

Gubkin University, Moscow
SPE Student Chapter

 

 

 

 

 

TOP

Contact: editor@petroleumworld.com,

Editor & Publisher:Elio Ohep/
Contact Email: editor@petroleumworld.com

CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2017, Petroleumworld ™  / Elio Ohep - All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.