Wed, 23rd August 2017

Anirudh Sethi Report


Archives of “oil prices” Tag

BREAKING-EIA sees US oil production falling more than expected in 2016

Latest forecasts from the EIA

  • Sees 2016 US oil production falling 700kbpd vs -570kbpd prior
  • Sees 2017 production -270kbpd
  • Says 2015 production +720kbpd vs +630kbpd prior
  • Leaves 2016 US oil demand growth unchanged at 160kbpd
  • 2017 US oil demand +270kbpd

No surprise in that headline as oil prices tighten the vice on producers

Gas Industries to Cut Spending in 2016 as Commodity Prices Continue to Fall-Moody’s

The global oil and gas industry will have to reduce spending this year in face of decreasing oil prices, Moody’s Investors Service stated in a press release on Monday.

“Moody’s expects upstream capital spending to drop by at least 20 percent —25 percent, leaving the oilfield services and drilling industry the most stressed sector in 2016,” the release said.

Moody’s Managing Director Steven Wood argued that excess supply will continue to influence the global oil industry and US natural gas market this year.

The global oil and gas industry will have to reduce spending this year in face of decreasing oil prices, Moody’s Investors Service stated in a press release on Monday.

“Moody’s expects upstream capital spending to drop by at least 20 percent —25 percent, leaving the oilfield services and drilling industry the most stressed sector in 2016,” the release said.

Moody’s Managing Director Steven Wood argued that excess supply will continue to influence the global oil industry and US natural gas market this year.


Russia Oil Output Rises to New Record High in 2015

Staff worker of Lukoil company at a pumping cluster in the Pokachi city area of Russia's Khanty-Mansiysk Autonomous OkrugIn 2015, Russia’s oil output amounted to a record 534.081 million metric tons, 40 percent higher than in 2014, according to media reports.

Russia’s oil exports to non-CIS countries increased by 10.6 percent and reached 220.267 million tons, sources said.

Rosneft remains the country’s largest oil company; it produced more than 189 million metric tons of oil last year. Coming on Rosneft’s heels are Lukoil and Surgutneftegas, with oil output standing at over 85 million metric tons and 61 million metric tons, respectively.

In late December, Russian Energy Minister Alexander Novak laid the drop in oil prices at Saudi Arabia’s feet. According to Novak, Saudi Arabia increased oil production by 1.5 million barrels per day in 2015.

At the end of 2015, world oil prices dropped to their 2008 level, and at the December 31 trading session crude was worth 37.61 dollars per barrel.

Russia Deputy Prime Minister Arkady Dvorkovich, for his part, said that he does not believe oil prices will plummet to 25 dollars per barrel. At the same time, he added that the period of such low prices “cannot last too long.”

When hammered out, Russia’s budget for 2016 stipulated global oil prices would be about 50 dollars per barrel.

Overnight US Market :Dow ..Down 24 points

Stocks fell and oil prices took a tumble Monday as the broad Standard & Poor’s 500 stock index kicked off the final week of the year by slipping back into the red in a volatile year that has made it tough for U.S. stocks to make much headway.

The S&P 500 ended down 4.5 points, or 0.2%, to 2056.50 as it dropped back below its 2014 close of 2058.90. The benchmark large-company stock index is down more than 3% from its May 21 all-time closing high of 2130.82. The S&P 500 has posted positive returns six straight years as it struggles to extend the streak to seven calendar years in a row.

The Dow Jones industrial average fell about 24 points, or 0.1% to 17,528.47 as it slipped further into negative territory for 2015. The Dow headed into Monday’s session down 1.5% for 2015 and is at risk for its first negative year since 2008.  The Nasdaq composite index closed down 0.2% to 5040.99 but is still up about 6% for the year.

Energy stocks led the declines as the recent uptick in oil prices also faltered. U.S. benchmark crude fell 3.3% to $36.85 a barrel.

It has been a challenging year for U.S. stocks. Domestic equities have been hurt by questions regarding the timing of the Federal Reserve’s first interest rate hike in nearly a decade (the Fed raised rates a quarter-point in mid-December), plunging oil prices, the negative impact of a strong dollar on sales and earnings of U.S. multinationals and fears related to the slowdown in China’s economy, which is the world’s second-biggest.

German Media Predicts Dire Consequences for Europe Amid Falling Oil Prices

European drivers are happy about the fact that prices for fuel are becoming lower but their joy won’t, however, last long, because on a global perspective the fall in oil prices will affect the region’s economy poorly, German newspaper Die Welt wrote.

For the first time, the cost of fuel fell below one euro per liter and the price is likely to decline further at an accelerated pace. Such a situation can be dangerous not only for countries producing oil, but also for economically sustainable European countries, such as Germany, the newspaper reported.

First, the most fragile states, such as Nigeria, Malaysia and Colombia, will be forced to drastically reduce public spending due to low oil prices, which may result in civil protests and riots. This, for its turn, may lead to the collapse of these states, which means that new refugees will head to Europe, the article noted.

Second, European countries are now largely focused on extracting shale oil, which in the present circumstances is extremely unprofitable. If the exploration of new wells stops, the whole shale industry may collapse, leading to a shock of the market and to a subsequent sharp jump in prices, the newspaper wrote.

Moody’s: Plummeting oil prices will squeeze global oil and gas companies’ earnings, keeping outlook negative into 2016

Plummeting oil prices will cause cash flow for the global integrated oil & gas industry to contract by 20% or more for 2015, with only a modest recovery expected in 2016, say Moody’s Investors Service. This reflects the rating agency’s expectation of continued revenue declines and a negative free cash flow profile for the industry in 2015. Moody’s outlook for the global integrated oil and gas industry will remain negative into 2016.

Global crude oil prices have fallen by more than 50% since mid-2014, putting a major squeeze on the industry’s earnings. While companies like Shell, Total and BP have responded by cutting capital spending cuts and reducing costs, Moody’s still expects the industry to face a negative free cash flow position of nearly $80 billion in 2015, compared with $26 billion in 2014.

Moody’s report, entitled “Integrated Oil & Gas Industry — Global Negative Free Cash Flow Pressures Integrated Oil Credit Profiles” is available on www.moodys.com.

“We have revised our oil price outlook down several times since late 2014 and expect oil and gas prices to stay near recent low levels well into 2016, which will aggravate the industry’s negative free cash flow profile”, says Thomas Coleman, a Moody’s Senior Vice President and author of the report.

Moody’s expects the industry to further reduce capital spending despite cuts already taken, with sharper reductions likely to take place in 2016. Companies continue to re-phase, defer and cancel high cost projects as prospects dim for price recovery in 2016.

Saudi faces 20% budget deficit from oil swoon- IMF

The tumbling oil price will saddle Saudi Arabia with a budget deficit of close to 20 per cent of GDP this year, the IMF has forecast in a new review of the economy.

The forecast came alongside a more tepid projection for the growth in Saudi – the de facto leader of the Opec production cartel that’s resisted pressure to cut supply since crude began its swoon.

GDP growth will ease to 2.8 per cent this year and weaken again to 2.4 per cent in 2016,the IMF forecasts.

Given the uncertainty over the outlook for the oil price, the IMF urges the government in Riyadh to develop new sources of revenue, including a VAT tax and a land tax.

The report says:

Putin: No More Gas Discounts for Ukraine Under Current Oil Prices

“Moscow can no longer give Ukraine gas discounts due to the current drop in oil prices,” Russian President Vladimir Putin said Wednesday. The price must be comparable to that for other European countries, like Poland, he added.

 Kiev currently purchases gas from Russia with a $100-discount per 1,000 cubic meters, and also receives reverse gas flows from Slovakia, Hungary and Poland.

In the second quarter of 2015, the final price for Russia’s gas deliveries to Ukraine has been set at $247.18 per 1,000 cubic meters.

Fitch Revises BP’s Outlook to Negative, Affirms at ‘A’ (Full Text )

bp_logoFitch Ratings has revised the Outlook on BP plc’s Long-term Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘A’. A full list of rating actions is at the end of this commentary.

The Outlook revision reflects our expectation that BP’s funds from operations (FFO) adjusted net leverage is likely to exceed the guidance level of 2.5x in 2016-2019, reflecting expected cash outflows associated with the 2010 Macondo oil spill and lower oil prices. The largest payment the company is currently facing is the Clean Water Act (CWA) fine, which in the worst case could reach USD13.7bn. BP’s falling proved reserves as evidenced by the organic reserve replacement ratio consistently below 100% have also contributed to the Negative Outlook. The ‘A’ IDR reflects the company’s strong business profile and sufficient liquidity accumulated to handle Macondo-related cash outflows. 

BP is a leading global integrated oil and gas (O&G) company with 2014 production of 1.93 million barrels of oil equivalent per day (MMbpd) (excluding equity affiliates) and well-diversified reserve base. Its credit profile is negatively affected by relatively high leverage and continued uncertainty around possible future payments related to the 2010 Macondo disaster. 

Higher Leverage Drives Outlook Revision
Fitch considers that ratings of O&G companies are dependent on how they react to lower oil prices and whether they will choose to keep credit metrics under control through capex, opex and dividend reduction, or resort to more borrowing. BP’s flexibility in responding to low oil prices is constrained by already high leverage and a need to preserve cash in front of still uncertain Macondo-related liabilities.

Oil market buzzes in the wake of big options trades

The oil market is buzzing with intrigue over two derivatives deals last week that bore the signature of a large producer guarding against a price collapse.

A public database showed purchases of put options that pay out if crude falls below $53 a barrel in 2016. “Everybody was talking about it,” said Sean Ryan, co-head of oil options at ICAP, the broker.

Put options, common in commodity markets, give their owners the right to sell something at a given price by a future date. These two deals raised eyebrows because they were consistent with past transactions associated with Mexico’s programme for hedging its oil exports, the largest of its kind in commodity markets.

“It really looks a lot like the Mexico programme,” said a banker who has previously helped execute it, even as he emphasised he did not know if it was.

Oil traders scan for hints of Mexico’s secretive annual hedging programme because it can move markets. Mexico’s finance ministry, which oversees the operation, had no immediate comment on the recent trades.

Last year the government paid seven Wall Street banks $773m to lock in the sale of 228m barrels of oil in 2015 at $76.40 per barrel — well above the $49 a barrel its heavy, sour grade has averaged so far this year. The government in April said it again planned to hedge oil exports for 2016.