Nigeria’s quest to ship more oil add pressure on oil prices
Nigeria will ship the most crude in more than three years in October, adding to downward pressure on oil prices just as demand wanes from refiners shutting down for seasonal maintenance. This coincides with the end of a shutdown in Nigeria caused by a pipeline leak, allowing supplies to flow back to the market.
There is an existing overhang of Nigeria’s crude. Together with refiners going offline for seasonal maintenance and that tells part of the story of the pressure on Brent and Nigerian crude. Thus, demand for crude will weaken as refiners shut down for seasonal maintenance, although this year’s schedule will be lighter than usual as companies take advantage of high profit margins.
Refineries in Europe are expected to halt an average of 162,000 barrels a day of processing capacity from this month through to the end of the year compared with 768,000 a day in the same period of 2014, energy consultancy Wood Mackenzie said. US crude settled down $1.29, or 2.8 percent, at $44.63 a barrel. Brent closed down 75 cents, or 1.5 percent, at $48.59.
Oil at $20 per barrel a possibility
The global surplus of oil is even bigger than Goldman Sachs Group thought and that could drive prices as low as $20 per barrel. The bank cut its forecast for Brent and WTI crude through 2016 on the expectation that the glut will persist on OPEC production growth, resilient supply from outside the group and slowing demand expansion.
Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 per barrel from a May projection of $57. The bank also reduced its 2016 Brent crude prediction to $49.50 per barrel from $62.
The US pumped 9.14 MMbpd of oil last week, almost 3 MMbpd above the five-year seasonal average, according to data from the Energy Information Administration.
US output will need to decline by 585,000 bopd next year and other non-OPEC production will need to fall by 220,000 bopd for the global surplus to end by the fourth quarter of 2016, Goldman said.
Global shale output decline will stabilize oil market
Russia’s energy minister expects that cuts in global shale oil production, which has been hard hit by lower oil prices, will help stabilize the fragile oil market.
Alexander Novak also reaffirmed that Russia, one of the world’s top oil producers, would not cut its own production as it would lead only to a short-term recovery with risks of subsequent slumps in prices.
The Organization of the Petroleum Exporting Countries, which accounts for around a third of global oil output, changed its policy in 2014 to defend market share and discourage competing supply sources, rather than cut its own output in the face of lower prices.
“Shale oil has been leaving the market bit by bit. This is a good and positive signal, which allows one to say that the market will stabilize in mid-term,” Novak said.
After three years, in which US production grew on average by more than 1 million barrels per day (bpd) annually, US output is expected to expand by just 650,000 bpd on average in 2015 and then shrink by 400,000 bpd in 2016, according to the US Energy Information Administration.
Novak said the cost of shale oil production – between $45 and $60 per barrel – is seen as a benchmark for oil prices. He expects prices to be between $50 and $60 per barrel on average this year – in line with Russia’s budget forecasts.
Indonesia may further complicate OPEC dilemma
Indonesia will rejoin the OPEC at the producer group’s next meeting. Indonesia had been an OPEC member for 47 years until it suspended its membership in January 1, 2009, after it turned into a net oil importer in the early 2000s. Its readmission into the world’s biggest club of oil exporters could complicate OPEC’s decision making as the group grapples with surging production from the US and elsewhere.
Indonesia’s Mr. Said said in May that the country would seek to rejoin OPEC to bolster cooperation with its producing countries. Indonesia also is looking for investment in an oil refinery, including from OPEC members which could be crude suppliers for the plant.
The country will not be formally admitted back into OPEC until the group’s meeting in Vienna, but OPEC delegates said the organization had written to Indonesia saying its members had no objection to its return.
Indonesia is struggling to boost its crude oil production from about 830,000 barrels a day currently, while domestic consumption continues to increase driven by robust vehicle sales in recent years. The country exports about 200,000 barrels of crude a day and imports about 300,000 barrels a day.
Analysts have said the arrival of a net importer into the exporters’ group could further complicate its output decisions. As exporters, many OPEC members benefit from high oil prices to fill their coffers, while importers favor lower ones.
FRANK UZUEGBUNAM