Very usefull links


News links




Dow Jones

Oil price



Views and News





OPEC cuts lay open oil once more towards the unexpected

Supply disruptions may climb materially this year: Citigroup. Modest 1H surplus seen turning into modest 2H deficit: IEA - Watch video: OPEC's Control of the Oil Market Is Running on Fumes

By Ben Sharples

Petroleumworld 01 25 2018

The unintended consequence of OPEC's quest to drain a global oil glut may be a sharp rise in price volatility as the buffer against worldwide turmoil and disruptions is stripped back.

Due to the glut, suicide bombers in the Iranian capital, independence efforts by Iraq's Kurdistan region, and war in Syria and Yemen are among a number of flareups in, or near, key producing regions in the past few years that barely registered on oil markets. In some cases, prices fell when they would previously have jumped.

Now, Citigroup Inc. is predicting a rise in supply  disruptions that may drive oil to near $80 a barrel. And as the worldwide overhang eases, a frenzy of speculative buying and price spikes are likely to follow any unrest.

“When you have enormous stockpiles, these stockpiles serve to dampen and insulate the commodity from idiosyncratic shocks like supply disruptions, like geopolitical risk,” said Mark Keenan, global commodities strategist and head of Asia-Pacific research at Societe Generale SA in Singapore. “Moving to an environment where stocks are starting to draw, which is very much the trend at the moment, geopolitical risks start to play a more important role.”

Hot spots facing turmoil this year include Nigeria, Libya, Iran and Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, according to Citigroup and Energy Aspects Ltd. Supply losses from unplanned disruptions fell to 1.2 million barrels a day in July, the lowest level in more than four years, according to Australia & New Zealand Banking Group Ltd.

Calm Before the Storm?

Supply disruptions in key OPEC members have eased

Note: Data is for Saudi Arabia, Iraq, Iran, Kuwait, Nigeria and Libya
Source: Energy Information Administration

Warring factions continue to threaten attacks on oil facilities in Libya, crude infrastructure in Nigeria remains vulnerable to sabotage, Iraq is at risk amid simmering tension in Kirkuk and the Iran nuclear deal remains fragile, Daniel Hynes, an analyst with ANZ Bank said in a note. Any rise in disruptions will have a significant impact on prices as the global glut drains, he said.


Turmoil in these OPEC nations along with continuing disruption in Venezuela could result in supply losses of more than 3 million barrels a day, Citigroup analysts including Ed Morse, the bank's head of commodity research, said in a note titled ‘Wildcards for 2018.' Prices may trade between $70 and $80 a barrel if this occurs during the first half of the year, Citigroup said.

To be sure, while OPEC's cuts may shrink one safeguard against volatility, they may help create another. As the organization reduces oil production, member nations increase the amount of spare output capacity that can be tapped in the event of a disruption.

The group's spare capacity has ballooned to about 3.4 million barrels a day, as of November, compared with about 2 million a day at the outset of the production curbs, data from the International Energy Agency show.

OPEC and its allies including Russia expect the market to rebalance this year after almost 24 months of supply curbs . The International Energy Agency sees a modest surplus during the first half of 2018 turning into a modest deficit during the second half. The improving fundamental picture has helped drive oil price gains, with Brent climbing as high as $71.05 a barrel on Thursday, the highest intraday level in more than three years.

“We're at the point where most of that inventory buffer is gone,” said Richard Mallinson, a geopolitical analyst at Energy Aspects in London. “There also isn't a lot of readily available spare capacity to meet a sudden major supply loss and that's a reason for the market to pay close attention to disruptions.”

Story by Ben Sharples; With assistance by Hannah Dormido, and Grant Smith from Bloomberg.

bloomberg.com/ 01 24 2018

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



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.