How will post-Doha oil at $60, $40 or $25/barrel impact you? GLOBALVIEW | HEDGESPA
A LUNCH SEMINAR
to showcase actionable techniques to protect and grow your bottom line in at $60, $40 or $25/barrel oil – with live positions and portfolios for those who are in upstream or downstream production, energy trading, or electricity generation.
WHEN: Thursday, 5 May 2016 from 12:00 to 14:00 (SGT)
WHERE: GlobalView, 24 Raffles Place #26-05 Clifford Centre, Singapore 048621
Synopsis
Doha's failure to reach a production freeze agreement came as no surprise: First, Iran did not participate and has made clear that it is going to increase production by at least 1M barrels/day (b/d). The US Energy Information Agency has estimated that the world is facing an oversupply of 1.72M b/d in Q1/2016, and is projecting an increased imbalance of 1.95M b/d in Q2/2016. Altogether, the market is facing a glut of 3M b/d (along with black market sales made by ISIS) even under a production freeze agreement, or roughly the size of Brazil's (the 9th largest global producer) total daily production.
To restore the balance in global demand and supply, either a major producer as large as Brazil has to shut down or all top-8 global producers must agree to trim over 5% of their total production – both scenarios equally unlikely. Moreover, the on-going oversupply has lasted for 9 quarters. It has been estimated that the accumulated surplus might have reached a level comparable in size to the US Strategic Petroleum Reserve.
Analysts are divided into two camps:
1) Oil price collapsed partly due to a price war to drive US shale producers out of business. With Kuwaiti oil workers starting an open-ended strike, there will be no lack of trigger event to push oil prices back to the 60s. After all, 3M b/d is a little more than 3% of the global consumption at 91M b/d; in a strong growth year (similar to 2004 and 2010), global consumption can easily absorb the current 3% in excess supply.
2) While the current production glut may seem destructive to producers, no one wants to lose market share. Iran is insistent on restoring its production to pre-sanction level. Prices may drop to the recent lows in the 20s as the world runs out of storage capacities to take additional deliveries.