Home' Trinidad and Tobago Guardian : February 25th 2016 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt FEBRUARY 25 • 2016
The oil price crash has
squeezed investment in the
industry to the weakest levels
in 30 years. Capital expen-
diture on global oil explo-
ration and production is
expected to fall 17 per cent in 2016, following
a 24 per cent drop in 2015, according to the
International Energy Agency s medium-term
That will be the first time since 1986 that
upstream investment has fallen for two con-
secutive years, the agency said, warning that
the collapse could be storing up problems
for consumers further down the track.
"It is easy for consumers to be lulled into
complacency by ample stocks and low prices
today, but they should heed the writing on
the wall: the historic investment cuts we are
seeing raise the odds of unpleasant oil-secu-
rity surprises in the not too distant future,"
said IEA executive director Fatih Birol on
Oil prices plunged more than 70 per cent
over the past 18 months but have steadied
in recent days. US oil futures climbed 5.7
per cent on Monday to trade above US$33
The world is drowning in oil, and demand
has so far failed to match relentless pumping
by the world s biggest oil producers. The oil
glut is likely to persist throughout this year,
with demand and supply only beginning to
achieve a better balance in 2017, the IEA
The Paris-based agency said American
oil producers have so far been hit the hardest
by the plunging oil prices. The IEA sees US
oil production "falling steeply" this year and
next, before recovering later to reach a new
record high of 14.2 million barrels a day in
Freed from nuclear sanctions, Iran is
expected to keep boosting production in the
next five years, according to the agency s
forecasts. The IEA sees Iran s output hitting
3.94 million barrels a day by 2021. The coun-
try pumped just under three million barrels
a day in January.
By 2021, the US and Iran will be leading
the growth in global oil supply, according
to the IEA.
It sees 4.1 million barrels a day added to
global output between 2015 and 2021. That
may seem like a lot of new oil coming to
market but it is much less than the 11 million
barrels a day added between 2010 and 2015.
As for demand, markets will continue to
pivot towards Asia, the report said. Indian
consumption is expected to grow in the next
five years, as more motorists take to the
roads. Meanwhile, Chinese demand growth
will cool in tandem with the economy, the
Five big oil producing
Plunging crude prices are crushing the
world s major oil producing countries.
Their government revenues have collapsed,
and budget surpluses quickly turned into
deficits. What s worse, investors are now
starting to worry about their ability to pay
back their debts. As a result, five oil producing
countries were hit with downgrades from
Standard and Poor s earlier this week.
The agency slashed debt ratings of Saudi
Arabia, Oman, Bahrain, Brazil and Kaza-
khstan, citing the collapse in crude prices
from well over US$100 per barrel to US$30
as the main reason.
Colombia, another major oil producer,
had its credit outlook cut to negative, mean-
ing the agency expects a downgrade soon.
Saudi Arabia had its rating slashed two
notches by S&P. Oil accounts for 75 per cent
of the kingdom s revenue, and tumbling
prices have created a huge hole in its budg-
"In our view, the decline in oil prices will
have a marked and lasting impact on Saudi
Arabia s fiscal and economic indicators given
its high dependence on oil," the rating agency
said in a statement.
Saudi Arabia ran a deficit of nearly US100
billion in 2015, and ordered a 14 per cent
cut in spending this year. Its government
expects the deficit to be around 13 per cent
of GDP this year, although even that might
be too optimistic. S&P said it believes the
kingdom s budget is based on oil prices
around US$45 per barrel. But that s way
more than the current prices of around US31.
Kazakhstan has been suffering for a while.
Half of its government revenue comes from
oil exports, and its currency has lost half of
its value against the dollar in the last 12
Bahrain has been hit particularly hard by
the collapse in crude. Roughly 75 per cent
of Bahrain s revenues come from oil, which
makes up 60 per cent of its exports. Its debt
is climbing rapidly, and the S&P expects it
will reach 77 per cent of the country s GDP
by 2017. The country has relied on help from
Saudi Arabia, which is now itself in trou-
ble.Brazil is another casualty of low com-
modity prices. The IMF now believes its
economy---the largest in Latin America---
will shrink 3.5 per cent this year, down sig-
nificantly from its previous estimate of a 1
per cent contraction.
Mexico will hold a much-anticipated auction for
deep-water oil projects in early December, the pres-
ident said Monday, vowing to press ahead with the
sector s opening despite falling crude prices.
The government held three other auctions for shal-
low-water and onshore contracts last year as part of
a historic energy reform that opened the sector to
foreign investors for the first time since 1938.
The auction for exploration contracts for 10 deep-
water fields in the Gulf of Mexico will take place in
the "first days of December," President Enrique Pena
Nieto said at an energy industry conference in Hous-
"Regardless of the crude prices in the short term,
Mexico is determined to having the technological,
financial and risk-management capacity that the oil
industry has had for this type of large-scale project,"
The first three oil auctions drew mixed interest
last year due to the drop in global crude prices. Only
five of 19 shallow-water contracts drew winning bids,
but 25 onshore projects sold out.
The government estimates that the deep-water
contracts can attract US$44 billion in investments,
with industry giants expected to present bids for this
Pena Nieto also announced that the government
will allow private companies to import gasoline and
diesel from April instead of waiting until next year
as previously planned.
"This should translate into better prices (at service
stations) in our country," he said. AP
Banks in the six-nation Gulf Cooperation Council
(GCC) are being increasingly challenged by a liquidity
squeeze resulting from low oil prices, Moody s Investor
Services said on Monday.
A sustained loss in oil revenue is likely to reduce
government and government-related deposits in banks
and could eventually reduce state support for the
banking system, the ratings agency said.
Government willingness and capacity to support
GCC banks has played a key role in sustaining their
credit growth, asset quality and loss-absorbing buffers,
"The widening gap between low oil prices and high
government spending policies could have increasingly
negative credit implications for the banks," Moody s
The national budgets of GCC states in 2016 indicate
a slowdown in economic growth accompanied by large
fiscal deficits, it said.
World oil prices have dropped by more than 70 per
cent since June 2014. Oil income normally contributed
80 to 90 per cent to GCC public revenues.
"We anticipate banks will be pressured by a further
softening of their operating environment and the poten-
tial for reduced willingness or capacity of governments
to provide support," Moody s said.
In the past few decades, GCC governments have
shown a consistent record of intervention to avoid
losses to creditors and depositors through direct capital
injections and official guarantees, it said.
"Lower government financial reserves, however,
could lead to a shift in policy towards more selective
support," the agency said.
So far, the most visible impact of lower oil prices
on GCC banks has been a tightening in liquidity due
to significantly reduced deposit inflows from government
and government-related entities.
The squeeze in liquidity is already pushing banks to
compete more aggressively for deposits and tap public
markets, thereby increasing funding costs and impacting
Oil investment is
weakest in 30 years Gulf banks under pressure
from low oil prices: Moody's
Mexico to hold
deep water oil
auction in Dec
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