$45 THE PERSISTENT NEW REFERENCE
Iran's export in October were closed to 3 million barrels per day, the highest level since the sanctions were lifted earlier in the year, or basically more than double of October 2015 at 1.26 million barrels per day.
It is not just Iran, Saudi export loadings for October are at their highest level for the year, while Iraq has consistently exported over 3mn barrels per day in 2016 - above any level seen in the year prior. None of the heavy weight producers are lowering their output production ahead of this month's OPEC meeting.
The market remains weighed down by record output from the world's largest exporters, and mounting uncertainty that the Organization of the Petroleum Exporting Countries (OPEC) and its rivals can do much to tackle a two-year global surplus.
The outage on the Colonial pipeline, a 5,500-mile system that supplies gasoline, diesel and jet fuel to 13 states from Houston to New York, following a Monday explosion is the second shutdown in two months. This interruption made the Gasoline futures soared at one point Tuesday to their highest level in eight years. But this is just an incident.
The reality is different and the trend is showing that we are back around $45.
Oil prices hit their highest in a year in October reaching $50 with a lot of excitement and speculation that finally OPEC had reached a “consensus” to limit production.
But a growing number of countries are unwilling, or unable to cut and despite a few declarations there is a serious doubt on the group's ability to reach an effective deal in Vienna on November 30.
OPEC has called upon major producers outside of the group to agree to limit output, but with limited success so far. Top oil producer Russia has said it will consider freezing output.
Kazakztan Energy Minister declared his country would not cut output, and is ramping up to reach 200,000 barrels per day by year end.
In the meantime, the Majors are adapting and adjusting to low price. Royal Dutch Shell and BP posted better-than-expected third-quarter profits, joining other big oil companies in showing progress in efforts to curtail their costs and reducing CAPEX. Chinese companies PetroChina, Sinopec and Cnooc - are spending even less than expected spending half of their capex targets through the first nine months of the year.
Exxon output has dropped to a seven-year low. In addition, it is being reported that Exxon could be making its biggest revision to reserves in its history. If low energy prices persist, it may have to write down some 19 percent of its reserves - 3.6 billion barrels of reserves in the Canadian Oil Sands, and another 1 billion barrels of oil in other North American fields.
The SEC is questioning the valuation of oil reserves for a few public companies as they were lodged in the balance sheets at value that were twice the price 24 months ago!
Shell & BP results are showing a sense of cautious optimism creeping into the oil industry after more than two years of falling profits or losses in a sector once known as a reliable cash machine. However, that optimism needs to be tempered by the risks of a continued lingering period of low oil price if OPEC does not reach a solution with a moratorium to increase the price over the next 12 months.
As our blog of early July stated, we still believe that $45 remains the new reference, Vienna may change the direction but we are not there yet and it may take times.
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For more on price fluctuation See: http://www.l6chemicalslogistics.com/single-post/2016/08/10/45-A-BARREL-A-NEW-REALITY
