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Mass media / Periodicals

The world is waiting for the glut of oil in 2020?

"Oil of Russia" 31.07.2019 at 13:09

Lately, they are saying that 2020 may be an oversupply in the oil market. Insists the IEA in its latest monthly report on the state of the oil market. But these projections are based on erroneous assumptions, accurate estimates of global oil demand. In addition, it is not considered that the increase in the supply of kancevica the United States will continue, despite the prevailing price of oil.

According to the analysis of the balance of supply and demand, the IEA for 2020 potential surplus of 900 thousand barrels per day. If this is true, it will inevitably affect the prices. The IEA expects global oil demand next year will reach 101.7 million barrels, the global supply will reach 102,6 million barrels, if we continue the current level of OPEC production at 30 million barrels. Given these numbers, immediately the question arises, as the IEA is notorious for the fact that it underestimates the actual level of world oil demand.

In 2018 the volume of world oil supply averaged 100.3 million barrels per day, and the demand, according the IEA, has reached a total of 99.1 million barrels a day. That is, the actual oil reserves should grow by 1.2 million barrels per day, or 438 million barrels per year. However, these surplus barrels were not detected neither in commercial nor in the public stocks of the OECD. The IEA in their report put the missing 1.2 million barrels in the section "Miscellaneous". Maybe on of these missing barrels will be known later. Perhaps some of these volumes are placed in the inventory not belonging to the OECD. And still it's hard to imagine that somewhere this surplus of 400 million barrels.

In 2018 the actual reserves of oil in the OECD increased by only 18 million barrels, while the expected increase was to reach 438 million barrels of oil. Only in the IV quarter of 2018, according to the IEA balances, daily imbalance between supply and demand was 2.3 million barrels (in excess of 210 million barrels per quarter). However, the actual was an increase in OECD stocks in the fourth quarter of 2018, was only 5 million barrels. This discrepancy between actual and predicted stocks are not new. In 2017, according to the WSJ, the average revision in oil demand from the IEA amounted to 880 thousand barrels per year over the past 7 years.

OPEC OIL PRODUCTION

Given the gap of 400 million barrels between registered and actual inventory in 2018, the benchmark world oil demand in the past and this year should be extended. And if global demand will rise by 600 thousand barrels, the expected imbalance of oil demand in 2020 will fall by two-thirds, from 900 thousand barrels per day to 300 thousand barrels per day.

In the latest report on income and expenditure, the IEA has revised the growth of the supply of oil in countries outside OPEC, in 2019, It slightly increased it to 2 million barrels (a month ago it was 1.9 million barrels). Mainly this became possible after the offer of US and UK has been revised upwards. The volume of deliveries to countries not members of OPEC in 2020 should amount to 2.1 million, not 2.3 million, mainly due to the revision downward for Russia and Oman after the July transactions with OPEC+. In 2019 and 2020 supply growth in the U.S. outpaces supply growth in countries outside OPEC supplies in the U.S. will reach 90% of the supply growth in countries outside of OPEC, and 65% of total supply in 2020

However, despite the rosy picture of rising demand in the United States, the main suppliers of oil and gas services issued a number of alerts of what became known after publication of the results for the second quarter.John Lindsey, CEO of Helmerich & Payne: "this quarter H & P 214 active rigs, a little below the lower limit of our range. And we are preparing for another decline in the fourth fiscal quarter".

Andy Hendricks, CEO of Patterson-UTI: "this year, companies involved in exploration and production, show special vigilance in relation to their costs due to the volatility of raw material prices. Companies engaged in exploration and production, slow down the action on drilling to reduce costs and reduce the risk of depletion of the budget this year. In the second quarter we had 158 rigs in the third quarter should be 142 rigs".

Jeff Miller, CEO of Halliburton: "the Activity of our clients during the rest of the year will be due to their desire to stay within stated budgets and CapEx to free cash flow. Some will cut programs before the end of the year to remain within the CapEx. Others will reduce the amount of drilling. Large companies will likely continue to carry the growth in shale oil production to realize long-term goals. As a result, the activity in North America in the third quarter will drop slightly".

Halliburton has reduced the workforce by 8% and suspended the work of a large number of drilling rigs and equipment for drilling after slowing down drilling activity in North America.

the following prevention service providers in the oil and gas industry alarm bells about the future trajectory of the supply of kancevica in the United States. Even in 2015, after a similar wave of warnings from U.S. suppliers of oil and gas services began a significant slowdown of growth in shale oil production in the United States.

in Addition to the warnings about a slowdown in the performance of service providers on the production, reduced activity of kancevica in the United States is that the number of drilling from December 2018 at today it was reduced by 13% from 1083 drilling to 946. If you don't consider drilling rigs, production of natural gas rigs from the peak in November 2018 was reduced by 112 pieces (from 776 888 to drilling rigs).

If you believe the forecast Altacorp, "the number of land rigs in the U.S. in the second quarter of 2019 amounted to 960 pieces, and in the third quarter of 2019, it will reach 880 pieces, IV ─ 860". Then a decrease in the annual number of drilling rigs in the U.S. by the fourth quarter of 2019 will be 20%, a decline of 220 rigs in the year.

Historically, the decline was offset by improved performance of drilling rigs. But even by this measure, the production in the United States is disappointing: the performance of oil rigs grew by only 5.5% from November 2018 to July 2019 with the decline in rig count by 13% over the same period. In fact, the productivity of drilling in the three key fields of the United States (in the Permian, the Bakken and Eagle Ford) remained unchanged from mid-2018 Without an increase in productivity a decrease in the number of rigs by 20% by the fourth quarter may lead to a decrease in shale oil production in 2020

Warning of service providers in the oil and gas industry, the steady decline in the number of drilling rigs in the U.S. and productivity of drilling in the US will not lead to a substantial increase of oil production in the United States. In the period between 2019 and 2020, the IEA expects an increase in the supply of liquids in the United States by 3.1 million barrels, if this growth will slow by only 20% to 2.5 million barrels, as a result of lower drilling and production, the global balance of supply in the oil market in 2020 could result in a deficit of 300 million And this without taking into account the recent reduction in the production of other producers outside OPEC such as Brazil, which are a key component of the IEA for 2020

Chronic underestimation IEA world oil demand, the mistaken belief of the market in the unshakable stability of supply growth, the United States creates too bearish a picture of the balance of world oil demand in 2020, the IEA was trying to capture the exact level of world oil demand, which is understandable given the sheer scale of the oil market. On the other hand, the supply situation easier to understand, given the concentrated nature of oil production in several OPEC countries and several megaprojects countries outside OPEC. But with the advent of kancevica global oil supplies became a difficult task.

Consequently, when agencies such as the IEA, are unable to properly monitor the global demand and can account for rapid changes in the supply of kancevica in the United States, their predictions of a glut in the oil market in 2020 should be taken with a grain of salt.

Source: News.Economy