Home' Trinidad and Tobago Guardian : January 5th 2017 Contents BG8 | ENERGY
BUSINESS GUARDIAN guardian.co.tt JANUARY 5 • 2017
Oil market a surprise haven
from political risk in 2017
to enter the White
House in January
and populists on
the march across
risk will loom large in 2017. Cautious in-
vestors may find stability in an unfamiliar
place: the oil market.
A deal between the Organization of Pe-
troleum Exporting Countries and other
producers to limit output next year won't
simply siphon off some of the global glut
of crude: if participating nations make the
cuts they've promised, the effort will also
add to a buffer of unused capacity that can
be tapped to plug supply disruptions.
"If you've got OPEC full adherence for
the first six months, the market should be
relatively insulated from political risk be-
cause that cushion is available," Alan Gelder,
a vice president at industry consultant Wood
Mackenzie Ltd., said by phone from London.
With the exception of a major disruption in
top exporter Saudi Arabia, "anything else
should be able to be accommodated."
OPEC members agreed on Nov 30 to cut
output next year by a collective 1.2 million
barrels a day, or about 4 percent of what they
pumped last month, in an effort to support
prices. The producer group will probably aim
to keep its total supply steady, using its spare
capacity to offset any potential disruption
from individual members, Gelder said.
Eleven non-OPEC producers, including
Russia, also pledged to reduce production.
Brent crude prices have jumped 22 percent
since Nov 29.
Global stockpiles of crude oil and fuels,
which are near record levels after two years of
low prices, will provide an additional cushion
against small or short-lived halts in sup-
ply. US crude inventories, at nearly half a
billion barrels, are at their highest seasonal
level since the government began compiling
weekly data in 1982.
Those inventories could be drawn down
in the first half of 2017 if OPEC and non-
OPEC producers comply with their promised
cuts, and that means political risk could be
a bigger factor in the second half of the year,
After three years of volatile oil pric-
es, analysts expect a much quieter year in
2017. Brent crude will trade at an average
of US$58 in the fourth quarter, according to
the median estimate of more than 40 ana-
lyst estimates compiled by Bloomberg. The
benchmark has climbed 53 per cent this year
to trade at US$57.11 at 7:56 a.m. London time
Friday, after falling 35 per cent last year and
48 per cent in 2014.
Oil supplies are vulnerable to political
risk because production is concentrated in
a small number of countries, many of them
unstable. Domestic turmoil and conflict
have disrupted supply from Nigeria, Libya
and Venezuela in 2016. Major incidents can
have a dramatic impact on prices: bench-
mark Brent crude shot from US$16 to US$40
a barrel---an increase of 150 per cent---during
the three months leading up to and coin-
ciding with Iraq's 1990 invasion of fellow
"Even if you have a healthy amount of
spare capacity, a sudden supply disruption---
or the risk of a sudden supply disruption---is
going to move prices," Richard Mallinson,
an analyst at Energy Aspects Ltd, said by
phone from London.
"Anything that would disrupt half a mil-
lion barrels a day or more of production, and
isn't clearly very short-lived, is going to get
the market's attention."
With Venezuela's economy on its knees
and relations between Gulf Arab states and
Iran tense, instability will remain a risk for
oil supplies in 2017. But the amount of spare
capacity at a global level suggests it would
take a major incident to ruffle the crude
market, and the main scenarios for such
an event are not likely to occur in the com-
ing year, Jonathan Wood, a London-based
political risk analyst at Control Risks Ltd.,
said in an e-mail.
Venezuela's oil production will probably
continue to slip for lack of investment, but
the market will adjust as long as the the na-
tion's output declines gradually, Wood said.
"An abrupt and messy change in power that
takes a substantial amount of production
offline for a prolonged period is unlikely,"
The US under a Trump presidency could
tighten sanctions on Iran but is unlike-
ly to completely trash last year's nuclear
agreement, so any potential reduction in
Iranian supply would probably be gradual,
said Mallinson of Energy Aspects. As for a
military confrontation in the Persian Gulf,
"that would certainly get a lot of attention
in the market, despite inventory overhangs,
but that's not our base case," he said.
EIA: Oil inventory up
to 486.1 million bbl
US commercial crude oil inventories, excluding the
Strategic Petroleum Reserve, increased 600,000 bbl
for the week ended Dec. 23 compared with the previ-
ous week, the US Energy Information Administration
The latest total estimate was 486.1 million bbl,
which EIA called near the upper limit of the average
range for this time of year. The Petroleum Status
Report was issued a day later than normal because
federal office workers had Dec. 26 off for the Christ-
Total motor gasoline inventories decreased 1.6 mil-
lion bbl. EIA said that level was the upper half of the
average range. Finished gasoline inventories increased
while blending components inventories decreased.
Distillate fuel inventories decreased 1.9 million bbl
for the week ended Dec. 23, putting distillate fuel
levels at near the upper limit of the average range
for this time of year. Propane-propylene inventories
fell 5.7 million bbl but remain in the upper half of the
average range, EIA said.
US refinery inputs averaged 16.6 million b/d during
the week ended Dec 23, which was 101,000 b/d less
than the previous week's average. Refineries operated
at 91 per cent of capacity.
Gasoline production increased last week, averaging
more than 10.5 million b/d. Distillate fuel production
decreased, averaging 5 million b/d.
US crude oil imports averaged 8.2 million b/d, down
304,000 b/d from the previous week. During the last
4 weeks, crude oil imports averaged 8.1 million b/d,
2.4% above the same 4-week period last year.
Distillate fuel imports averaged 157,000 b/d.
Iran certifies 29
companies to bid
for oil, gas projects
Iran has named 29 companies from more than a
dozen countries as being allowed to bid for oil and gas
projects using the new, less restrictive Iran Petroleum
Contract (IPC) model, the oil ministry news website
SHANA reported on Monday.
The list of pre-qualified firms included Shell,
France's Total, Italy's Eni, Malaysia's Petronas and
Russia's Gazprom and Lukoil, as well as companies
from China, Austria, Japan and other countries.
Iran hopes its new IPC, part of an effort to sweet-
en the terms it offers on oil development deals, will
attract foreign investors and boost production after
years of sanctions.
The list did not include oil major BP. The Financial
Times said BP had opted out of the bidding because
of concerns over possible renewed U.S.-Iran tensions
after President-elect Donald Trump takes office on
Trump has said he will scrap the deal between Iran
and world powers that imposed curbs on Tehran's
nuclear projects and lifted sanctions on the Iranian
economy last January.
State-run National Iranian Oil Company (NIOC)
signed the first oil output contract under the IPC
model in October with an Iranian firm identified by
the United States as part of a conglomerate controlled
by Iran's Supreme Leader Ali Khamenei.
The IPC model has been delayed several times due
to opposition from hardline rivals of President Has-
san Rouhani. It ends a buy-back system dating back
more than 20 years under which Iran did not allow
foreign firms to book reserves or take equity stakes
in Iranian companies.
The new IPC has more flexible terms that take into
account oil price fluctuations and investment risks,
a senior Iranian oil official told Reuters in November.
US oil rig count recovers to end 2016 on positive note
The US oil rig count ended 2016 just below year-ago levels as
drillers added rigs this week as part of the biggest recovery since
a global oil glut crushed the market over two years.
Drillers added two oil rigs in the week to Dec 30, bringing the
total count up to 525, the most since December 2015 and 11 shy of
the 536 rigs seen at the end of 2015, energy services firm Baker
Hughes Inc said on Friday.
Since crude prices recovered from 13-year lows in February to
around US$50 a barrel in May, drillers have added a total of 209
oil rigs in 28 of the past 31 weeks, fueled by prices climbing to near
The Baker Hughes oil rig count plunged from a record 1,609
in October 2014 to a six-year low of 316 in May as US crude col-
lapsed from over US$107 a barrel in June 2014 to near US$26 in
US crude futures were trading at $53.60 a barrel on Friday, on
its way to over 40 percent growth for the year, the largest annual
percentage growth since 2009. Futures for both calendar 2017 and
2018 were trading around US$56 a barrel.
Analysts said they expect US energy firms to boost spending
on drilling and pump more oil and natural gas from shale fields in
coming years now that energy prices are projected to keep climbing.
The total oil and natural gas rig count ended 2016 at 658, down
six per cent from the 698 at the finish of 2015. Reuters
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