Home' Trinidad and Tobago Guardian : March 17th 2016 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt MARCH 17 • 2016
Finance Minister Colm Imbert
is being advised that he
should maintain a US$40 a
barrel oil price when he does
his mid-year review.
The advice comes from energy economist
Gregory McGuire who, in an interview with
the Business Guardian, said he believed that
crude prices are set to rise and that US$40
a barrel---as the average price for the 2016
budget---is a fair bet.
McGuire said: "There is a growing con-
sensus that crude prices are set to rise. The
fall in prices was due to an oversupply of
the global market by increasing output from
both traditional sources and shale. But, it
is now accepted that the present pricing
regime cannot be sustained at that low level
and we will see a rise in prices. So I would
say that US$40 a barrel is an acceptable
Finance Minister Colm Imbert has prom-
ised to return to the Parliament by early
April to review his 2015/2016 budget, owing
to the limited time that he had to prepare
the 2016 budget, which he delivered mere
weeks after the PNM was swept to power
on September 7, 2015.
Since the budget was read, crude prices
fell to below US$30 a barrel. However, in
the last two weeks, prices for the globally
traded commodity have begun to rise on
reduced fears of a global recession and also
on the decision by two of the world's largest
producers---Russia and Saudi Arabia---to
freeze production at January levels.
Investment bank Morgan Stanley this
week predicted a US$25-US$45 trading range
for US crude in an oversupplied but volatile
"We feel that the bulk of this stronger-
than-expected five to six week price advance
has been seen and that prices will be shifting
into a near term consolidation phase," said
Jim Ritterbusch of Chicago energy consul-
tancy, Ritterbusch & Associates.
Jan Steward, global energy economist at
Credit Suisse, is more optimistic, predicting
that crude prices will reach US$50 a barrel
He argues that the market fundamentals
are improving and, while there remains the
risk of a global recession and continued
over supply, the decision by the Saudis and
the Russians to get together along with
growing global demand will lead to stronger
Steward added that companies cannot
continue to operate in such a low-priced
environment because they are all losing
He added that in five years crude prices
are likely to be closer to US$80 a barrel and
not the recent US$30.
McGuire said he shared the view of Credit
Suisse and he expects crude prices to also
rise but does not know if it will get to US$80
barrel by the time the next general elections
"I think that the prices will rise and that
will give a breather to the country's economy
and to the people of T&T. What worries
me, however, is that the low prices would
not have been around for long enough to
change attitudes in the economy, such as
demand for foreign exchange. People feel
they have a right to foreign exchange when
they are not producing anything, the coun-
try simply does not have any," said McGuire.
He said the sharp reduction in global
investment in exploration and production
could mean that when demand catches up
to supply, there may be another price spike
because the investments needed to bring
crude onstream were not made in a timely
The volatility in crude prices remains in
the market as was witnessed this week
when US oil prices fell over three per cent
on Monday on concerns that a six-week
market recovery had gone beyond funda-
mentals. US crude stockpiles continue to
mount and Iran maintains little interest in
a global production freeze.
The Organisation of the Petroleum
Exporting Countries said global demand
for crude from its members---including
Saudi Arabia, Iraq and Iran---will be less
than previously thought in 2016 due to
competing non-OPEC supply. OPEC supply
will likely exceed demand by about 760,000
barrels per day, up from 720,000 bpd
implied earlier, it said.
Russia said OPEC's meeting on a pro-
duction freeze, with other key oil producers
like itself, will probably be held in Doha in
next month. It said Iran supports the plan,
although Tehran was keen to restore its
crude exports first to pre-sanction levels.
Monday's price tumble came after last
week's rally of seven per cent in US crude,
which was up for a fourth straight week.
Russia's energy minister says Iran would consider
joining a global deal to cap oil production only
after it restores its output back to levels it enjoyed
before international sanctions.
Alexander Novak made the statement Monday
after talks in Tehran with his Iranian counterpart.
Russia has been in talks with OPEC countries
on putting a cap on oil output in order to boost
global oil prices.
Novak said in remarks carried by Russian news
agencies that a meeting between Russia and OPEC
countries on an oil production cap could take place
in April, but the date hasn't been set yet.
Novak said that while Iran generally supports
the idea, it believes that it first needs to restore
its oil production to four million barrels a day, the
level it had before it was targeted with international
sanctions over its nuclear programme.
He said that Iran's demands were "reasonable,"
adding that "doors remain open for Tehran" to
join the output cap.
Novak said Iran is also ready to offer new con-
tracts to Russian oil companies.
Sanctions against Iran were lifted in January
and Western and Russian gas and oil companies
have been keen to close deals with Iran and gain
access to the country's natural resources. AP
Range Resources Ltd announced Monday that
the MD 51-1 development well (renamed MD 250
well) in Trinidad was successfully spud on March
The well is currently drilling ahead to a total
depth of 4,150 feet and is expected to take four
to five weeks to reach its target depth. MD 250
will test deeper horizons of the Upper and Middle
Cruse sand trends and explore the potential of
The well is a directional well from the previously
drilled MD 248 well location.
The Upper Cruse sands, though penetrated by
numerous surrounding wells, have not been "fully
exploited in this area of the Morne Diablo field",
according to a Range statement. The Middle Cruse
sands have been identified as well-developed in
nearby wells with some of those having produced
in excess of 100,000 barrels from this horizon
during the well life.
As previously announced, the construction of
a three-cellar drilling pad was completed in
Trinidad during 2015.
Initially, the MD 250 well will be drilled from
the pad with the drilling of further wells from
the dependent on the results. Rigzone
Oil prices set to improve
When you're owed $7 billion and the borrower asks for
more time to pay, it tends to make you nervous.
That's why oil service companies are pinning hopes on
Pemex's new chief executive officer Jose Antonio Gonzalez
Anaya told Congress last week that the state-owned oil
company will pay what it owes to 90 percent of the service
providers "in literally days" after securing a credit line from
national development banks. Pemex's urgency under Gonzalez
Anaya to pay the companies is a far cry from the strategy
employed by the previous administration, which last year cut
contractors' daily rates and extended the payment period to
180 days from 20 days as outstanding debts reached record
"This sends a sign of stability and confidence to the sector,
which has been very nervous" payments would not be made,
said Erik Legorreta, President of the Mexican Oil Industry
Association, which represents around 3,000 service providers,
in a phone interview. "Members of the industry now have the
confidence and certainty that the payments will be honoured."
Pemex will turn to local development banks Banobras,
Nafinsa and Bancomext for a 15 billion-peso credit line. That
will allow the producer to begin to chip away at the debts,
which ballooned to 147 billion pesos (US$8.28 billion) last year,
according to a Pemex statement.
Mexico's Finance Ministry is also preparing a support plan
to help Pemex to make the outstanding payments, which could
include financing options such as a capital transfer or reduction
of the company's tax burden, chief economist Luis Madrazo
said in a March 8 interview.
"It's incredible, but we are going to be able pay 90 per cent
of the providers that Pemex had a debt with last year in the
upcoming days," Gonzalez Anaya told the congressional energy
committee on March 7. "We have been working with different
organisations that represent the providers and have developed
a very interesting scheme, in which we will pay the providers
in a very short time period."
Pemex will pay the debts of all small to mid-size providers
owed less than 85 million pesos. The outstanding debt remaining
to Pemex's larger service providers will still be around 100
billion pesos, according to a company press official.
Mexico's central bank will soon send the Finance Ministry
as much as 300 billion pesos that it made from exchange rate
gains on international reserves last year, a person familiar with
the situation said last week. The surplus from the central bank
could be used to help Pemex reduce its debt, Finance Minister
Luis Videgaray said last month.
New Pemex CEO raises hopes of contractors for US$7 billion payment
spuds T&T well
Russia: Iran wants to restore
oil output before capping it
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