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The Global Oil Surplus will Persist at Least Until Late 2016

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NORTH DAKOTA OIL

The global oil surplus will persist at least until late 2016 as demand growth slows and OPEC shows “renewed determination” to maximize output, according to the International Energy Agency.

The Organization of Petroleum Exporting Countries, by effectively dropping production limits at its Dec. 4 meeting, is displaying hardened resolve to maintain sales volumes even as prices fall in an oversupplied market, the agency said Friday in its monthly report. While its policy is hitting rivals, triggering the steepest drop in non-OPEC supply since 1992, world oil inventories will likely swell further once Iran restores exports on the completion of a deal to lift sanctions, it said.

Oil slumped to a six-year low below $40 a barrel in London after OPEC, which controls about 40 percent of world supply, said it would keep pumping in excess of its old production limit. Saudi Arabia, the group’s most powerful member, has steered its strategy to pressure rivals in the U.S. with lower prices.

“As inventories continue to swell into 2016, there will still be a lot of oil weighing on the market,” said the Paris-based agency, which advises 29 nations on energy policy. OPEC’s decision last week “appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production — regardless of price.”

Swelling Inventories

Abandoning output targets doesn’t mean OPEC is about to further open the taps, as its biggest members — Saudi Arabia and Iraq — are already pumping near record levels, the agency said. The group probably won’t bolster output until Iran completes an agreement on its nuclear program that would lift sanctions on crude exports, the IEA predicted. Iran’s return will probably help to swell oil inventories by an “impressive” 300 million barrels, the agency said.

The accumulation of the surplus will actually slow next year to about half the pace observed in 2015 as non-OPEC supply wilts and demand remains strong enough to absorb some of the excess. The combination of rising consumption and an expansion in storage facilities means the world won’t run out of space to store the surplus crude, the agency said.

Strategy Working

“There is evidence the Saudi-led strategy is starting to work,” the agency said. “Oil below $50 is clearly driving out non-OPEC supply.” Production from outside OPEC will contract by 600,000 barrels a day next year, compared with a surge of 2.4 million a day in 2014, the IEA predicted.

Global oil demand growth will slow to 1.2 million barrels a day in 2016, down from a five-year peak of 1.8 million reached this year, as the boost from cheap fuel prices wears off, the agency said. The agency’s 2016 estimates of demand and supply are unchanged from last month’s report.

Production from OPEC’s 12 members rose by 50,000 barrels a day to 31.73 million a day in November, the highest in two months, the agency said. That’s about 400,000 a day more than the average required from the group next year.

Bloomberg

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Brent Crude Oil Extends Gain to $86.66 a Barrel Amid Tight Supply

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Brent crude oil - Investors King

Tight global oil supply pushed Brent crude oil, against which Nigeria oil is priced, to a multi-year high of $86.66 per barrel on Monday at 3:30 pm Nigerian time.

Oil price was lifted by rising fuel demand in the United States and tight global supply as economies recover from pandemic-induced slumps.

The global energy supply crunch continues to show its teeth, as oil prices extend their upward march this week, a result of traders pricing in the ongoing rise in fuel demand – which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy.

Goldman Sachs on the other hand is predicting a further increase in Brent crude oil to $90 a barrel, citing a strong rebound in global oil demand due to switching from gas to oil. This the bank estimated may contribute about 1 million barrels per day to global oil demand.

The investment bank said it expects oil demand to reach around 100 million barrels per day as consumption in Asia increases after the devastating effect of COVID-19.

While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast,” Goldman said in a research note dated Oct. 24.

Earlier this month, the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+ agreed to continue increasing oil supply by 400,000 bpd a month until April 2022 despite calls for an increase in global oil supplies.

The decision bolstered the price of Brent crude oil above $84 per barrel and expected to push the price even further to $90 a barrel. Low global oil supply amid rising demand for crude oil will continue to support oil prices in the near term.

Despite the recent power cuts and impacts to industrial activity in China, oil demand is likely instead supported by switching to diesel powered generators and diesel engines in LNG trucks, as well as by a ramp up in coal production,” Goldman Sachs stated.

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Energy

U.S. and Ghana Inaugurate New $64.7 Million Energy Infrastructure Investment at Pokuase

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electricity

U.S. Ambassador to Ghana Stephanie Sullivan joined the President of Ghana H.E. Nana Akufo-Addo and other Ghana government officials to formally inaugurate the Pokuase Bulk Supply Point (BSP) in Accra today.  The U.S. Millennium Challenge Corporation (MCC) funded the $64.7 million (GH₵ 391.9 million) electrical infrastructure project under the Ghana Power Compact.

“The Pokuase Bulk Supply Point represents sustainable infrastructure investment by the United States with Ghana that will benefit hundreds of thousands of Ghanaians now and into the future,” remarked Ambassador Sullivan at the inaugural event. “It will help deliver more reliable power to the people, places, and businesses of Accra that drive increased economic activity benefitting families, businesses, and communities.”

This represents a flagship investment under the Millennium Challenge Corporation’s Ghana Power Compact.  The Pokuase BSP will reduce outages in the power system, help stabilize voltages, and improve the quality and reliability of power supplied to the northern parts of the capital city of Accra.  It will also reduce technical losses in the power transmission and distribution system, contributing to the financial viability of the Electricity Company of Ghana (ECG) and the Ghana Grid Company (GRIDCo) in the long term.  The Pokuase BSP is now the largest-capacity BSP in Ghana at 580 megavolt amperes (MVA) and will directly benefit 350,000 utility customers.

The Government of Ghana implemented the project through the Millennium Development Authority (MiDA).  MiDA formally handed over the new power substation to ECG and GRIDCo in today’s ceremony.

The Pokuase BSP is the first major construction project to be completed under the Ghana Power Compact. The $316 million compact is helping the Government of Ghana improve the power sector through investments that will provide more reliable and affordable electricity to Ghana’s businesses and households. The compact is also funding a BSP at Kasoa and two primary substations at Kanda and Legon, in addition to other power sector investments, energy efficiency programs, and women’s empowerment programs within the power sector. The compact program will officially close on June 6, 2022.

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Crude Oil

Oil Falls Slightly as China Steps in to Curb Rising Coal Prices

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Crude oil - Investors King

Global oil prices moderated slightly on Wednesday following the Chinese government’s decision to curb high coal prices and ensure coal mines function at maximum capacity.

Brent crude, against which Nigerian oil is priced, dropped to $83.98 per barrel at 11:00 am Nigerian time. While the U.S. West Texas Intermediate (WTI) crude fell by 80 cents or 1 percent to $81.20 a barrel.

“China is planning to take steps to combat the steep rises in the domestic coal market … which could put considerable pressure on the coal price there and reverse the fuel switch to oil,” Commerzbank said.

Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day.

China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. read more

Oil markets in general remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.

But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources.

That was well above nine analysts’ forecasts for a rise of 1.9 million barrels in crude stocks, in a Reuters poll.

However, U.S. gasoline and distillate inventories, which include diesel, heating oil and jet fuel, fell much more than analysts had expected, pointing to strong demand.

Data from the U.S. Energy Information Administration is due later on Wednesday.

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