oil price – praag.org

Former BP chief warns against Russia sanctions

US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned.

Tony Hayward said that cutting off capital markets from Russia’s energy groups, which would eventually lead to less investment in Russian oil production, was likely to damage long-term supply. He said the US shale boom had obscured the growing risks to the world’s supply picture, but its effect would wear off, leaving the global economy dangerously exposed to potential disruptions in the flow of oil.

His comments came as the US and Europe expanded sanctions against Russia on Friday with the US adding Gazprom, Europe’s leading energy provider, and Lukoil, the privately owned oil group, to the list of companies deprived of US goods, technology and services for deepwater, Arctic offshore and shale projects. EU and US sanctions have also imposed restrictions on financing for some state-owned Russian energy companies.

“The world has been lulled into a false sense of security because of what’s going on in the US,” Mr Hayward said in an interview with the Financial Times, referring to the shale boom that has driven a 60 per cent increase in US crude output since 2008. But he asked: “When US supply peaks, where will the new supply come from?”

As output from mature basins such as the North Sea and Alaska’s North Slope declines, the world had been banking on new barrels from places such as Canada, Iraq and Russia. But the latter’s future production from untapped resources in the Arctic and the vast shale reserves of Siberia are under threat because of sanctions, Mr Hayward said.

“Because of financial sanctions, the big gorillas are going to start cutting their activities,” he said.

Mr Hayward, who runs oil explorer Genel Energy and is chairman of commodities group Glencore, also expressed doubt about projections for a big increase in oil production from Iraq. He said current circumstances meant the country would struggle to reach targets to double production by 2020.

The advance of Isis militants in northern Iraq has coincided with political instability in other big oil-producing countries such as Libya. But the barrels lost through post-Arab Spring unrest have been matched by new supply from North America. Without that additional supply, the world would be facing an oil price of $150 a barrel, according to Mr Hayward.

Brent crude has fallen from about $108 per barrel at the start of the year to about $97 today.

Source: FT

Iraq violence sends oil soaring

Sectarian violence in Iraq sent the price of oil skyrocketing on Thursday, propelling both Brent and West Texas Intermediate up more than two percent amid growing concerns about a threat to global supply.

After a delayed reaction to turmoil raging in the country, oil prices soared as open warfare between rebel forces—threatening a reconquest of Iraq barely a few years after U.S. forces departed—and the government spilled on to the world stage. Iraq is a member of OPEC, second only to Saudi Arabia as one of the world’s largest producers of crude.

With violence threatening Iraq’s civilian population and overwhelming the country’s security forces, a shadowy group known as the Islamic State in Iraq and Sham (ISIS) has managed to seize control of key cities including Mosul, the country’s second-largest, Ramadi, Falluja and Tikrit. Fears about global supply mounted, as reports surfaced that Russian tanks had moved into beleaguered Ukraine, sending crude on a tear and overwhelming the impact of lackluster U.S. economic data.

Source: CNBC

Iraq, Iran to challenge Saudi oil dominance

Iraq is poised to flood the oil market by tripling its capacity to pump crude by 2020 and is collaborating with Iran on strategy in a move that will challenge Saudi Arabia’s grip on the Organisation of Petroleum Exporting Countries.

Iraq’s intention to challenge Saudi Arabia’s status as the “swing producer” in the OPEC cartel could see a dramatic fall in oil prices if Baghdad decides to break the group’s quotas and sell more of its crude on the open market.

“We feel the world needs to be assured of fuel for economic growth,” Hussain al-Shahristani, Deputy Prime Minister for Energy in Iraq told oil industry delegates attending a Chatham House Middle East energy conference.

Al Shahristani said on Tuesday that Iraq plans to boost its capacity to produce oil to 9m barrels a day (bpd) by the end of the decade as Baghdad rushes to bolster its economy, which is still shattered by war and internal conflict. Iraq was producing 3m bpd in December, according to the International Energy Agency.

“It’s very difficult to predict actual world (oil) demand by 2020 because the world economy is unpredictable,” said Mr al-Shahristani.

British oil giants BP and Royal Dutch Shell are also poised to benefit from Iraq’s ambitious production plans.

Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

However, even if Iraq is able to achieve its target of boost production capacity it is unlikely to be able to put in place sufficient pipeline and port infrastructure to export the additional crude.

Iraq’s main export terminal for loading oil tankers at Al Faw near Basra will require billions of pounds worth of improvements in addition to the refurbishment of its pipeline network.

Iraq’s ambitious plan could see it clash increasingly with the regime in Saudi Arabia, which has used its influence in OPEC over the last decade to keep oil prices above $100 a barrel. Saudi itself is now under pressure to boost output to maintain market share. The kingdom pumped 9.8m bpd in December up by about 100,000 barrels from the previous month.

Experts say that attention within OPEC, which pumps 30pc of the world’s crude, could increasingly focus on compliance with more of the group’s members tempted to pump more barrels to protect their share of the market as the cartel grapples with the rise of US shale oil production.

Combined, Iran and Iraq hold greater reserves of oil than Saudi Arabia and the potential with the help of international investment to match its capacity to produce oil, which currently stands at around 12.5m b/d of crude.

Source: The Telegraph

Coming ‘oil glut’ may push global economy into deflation

One piece of the jigsaw puzzle is missing to complete the deflation landscape across the West: a slide in oil prices. This is becoming more likely each month.

Turmoil across the Middle East and parts of Africa has choked supply over the past two years, keeping Brent crude near $110 a barrel despite a broader commodity slump. Cotton and corn prices have halved, as has the UBS index of industrial metals. Such anomalies rarely last.

“We estimate that crude oil is now the mostly richly priced commodity in the world,” says Deutsche Bank in a fresh report.

Michael Lewis, the bank’s commodity strategist, said markets face an “new oil supply glut” as three forces combine. US shale will add 1m barrels a day (b/d) to global supply for the third year running; Libya will crank up shipments after a near collapse in 2013; and Iran will come out of hibernation. “This will push OPEC spare capacity to levels last seen in the depths of the financial crisis in 2009,” he said.

Source: The Telegraph

Egypt: Suez bottleneck could boost oil price

Egypt is a key bottleneck in the global oil industry. Should the current turmoil in the North African country get any worse, a potential oil spike could damage any nascent economic recovery.

After last week’s bloody crackdown by the Egyptian army, fears of a disruption of oil supplies to the West have boosted the oil price. Brent crude prices were propelled to a four-month high of $111.23 on Thursday. If the turmoil gets worse – or unrest spreads to other countries – the risk premium currently factored into the price of crude is likely to increase further.

Egypt is not a major energy exporter, producing a nominal amount of the world’s oil and gas. The North African country appears at number 54 on the list of the world’s largest oil exporters, producing about 0.9pc of the world’s oil and 1.8pc of global natural gas supply.

However, Egypt plays a vital role in international energy markets through the operation of the Suez Canal and the Suez-Mediterranean (Sumed) pipeline. These are vital pieces of infrastructure in the global oil market.

Last year, about 7pc of all seaborne traded oil and 13pc of liquefied natural gas (LNG) travelled through the Suez Canal, according to data collected by the US Energy Information Administration (EIA).

The Suez Canal, a 101-mile link between the Red Sea and the Mediterranean, and the 200-mile Sumed pipeline are strategic routes for Persian Gulf oil and gas shipments to Europe and North America.

Closure of these two routes would add an estimated 2,700 miles of transit from Saudi Arabia to the United States around the Cape of Good Hope, increasing costs and shipping time.

Hopes are high, however, that both the canal and pipeline will continue to operate as normal. Maritime insurers appear to be relaxed about the situation at the moment, but one, Skuld, has warned ships’ crews not to go ashore.

“Members are advised to ensure that ships and crew calling at Egyptian ports or transiting the Suez Canal remain on alert and take suitable precautions to ensure their safety,” Christian Ott, Skuld’s vice-president, head of claims, said. “Given the announcement of the state of emergency, and the continued situation on the ground, vessels and crew need to exercise particular caution if any crew step ashore – even for short periods of time.”

The rest of the country’s oil industry remains relatively unaffected. Despite the worrying headlines, most oil and gas production takes place offshore and is operating relatively undisturbed.

The largest player is BP, which produces about 15pc of the country’s oil and 30pc of its gas. “Operations and production are unaffected,” a BP spokesman told Reuters after more than 500 people were killed last week in a security crackdown. “We are monitoring the security situation in the areas where we have offices. All our people are safe and accounted for.”

Royal Dutch Shell is also a major producer in the country. “To ensure the safety and security of our staff, Shell offices in Egypt are closed for business today and into the weekend, and business travel into the country has been restricted. We will continue to monitor the situation in Egypt,” a Shell spokesman said on Friday.

However, perhaps the most exposed company to the country is BG Group. Egypt was the energy company’s largest producing country in 2012, delivering 20pc of the company’s total production.

BG’s production is also unaffected so far, but the group withdrew 100 expatriate staff and dependants last month. About half of the gas that Egypt produces is exported, with the rest servicing Egypt’s domestic market. This is one reason why sector watchers are hopeful that disruption will be minimal. Whoever holds political power will not want the lights to go off.

The Egyptian uncertainty will continue to boost the oil price, but the situation in neighbouring Libya is also a concern. Workers at ports in Libya have been on strike for a number of weeks, with the protests resulting in a drop in Libya’s oil exports.
“If the blockade of these oil terminals continues, the state will be obliged to use its power, and all the forces at its disposal, including the army,” the Libyan prime minister, Ali Zeidan, said on Friday.

“The situation in Libya is also threatening to escalate: the government appears to be running out of patience in view of the revenue losses due to strikes,” Commerzbank said last week. “After striking workers at the export terminals had announced that they planned to sell the oil themselves, the government threatened to deploy the army to prevent this from happening.”

Brent crude prices eased on Friday, following five straight days of gains. However, prices are likely to stay at or above $110 (£70) a barrel until there are signs of tensions easing. But if the situation in Egypt and Libya worsens, all bets could be off. – The Telegraph

Saudi prince warns against fracking

A Saudi prince has warned that his oil-reliant nation is under threat because of fracking technology being developed elsewhere around the world.

Billionaire Prince Alwaleed bin Talal said the Gulf Arab kingdom needed to reduce its reliance on crude oil and diversify its revenues.

His warning comes as rising shale energy supplies in the United States cut global demand for Saudi oil.

In an open letter to his country’s oil minister Ali al Naimi and other government heads, published on Sunday via his Twitter account, Prince Alwaleed said demand for oil from Organisation of the Petroleum Exporting Countries (Opec) member states was “in continuous decline”.

He said Saudi Arabia’s heavy dependence on oil was “a truth that has really become a source of worry for many”.

He added that the world’s biggest crude oil exporter should implement “swift measures” to diversify its economy.

Prince Alwaleed, owner of international investment firm Kingdom Holding, is unusually outspoken for a top Saudi businessman.

But his warning reflects growing concern in private among many Saudis about the long-term impact of shale technology.

It is allowing the US and Canada to tap unconventional oil deposits which they could not reach just a few years ago.

Chancellor George Osborne has also announced support for fracking in Britain and in offshore waters, to ease a reliance on foreign oil and gas.

Some analysts think this may push demand for Saudi oil, as well as global oil prices, down sharply over the next decade.

Over the past couple of years the Saudi government has taken some initial steps to develop the economy beyond oil.

It has sought to liberalise the aviation sector and provided finance to small, entrepreneurial firms in the services and technology sectors.

Mr Naimi said publicly in May that he was not concerned about rising US shale oil supplies.

Prince Alwaleed told Mr Naimi in his open letter, which was dated May 13 this year, that he disagreed with him.

The prince said: “Our country is facing a threat with the continuation of its near-complete reliance on oil, especially as 92% of the budget for this year depends on oil.

“It is necessary to diversify sources of revenue, establish a clear vision for that and start implementing it immediately.”

The prince said Saudi Arabia should move ahead with plans for nuclear and solar energy production to cut local consumption of oil.

The shale oil threat means Saudi Arabia will not be able to raise its production capacity to 15 million barrels of oil per day (mbpd), Prince Alwaleed argued.

Current capacity is about 12.5mbpd; a few years ago the country planned to increase capacity to 15mbpd, but then put the plan on hold after the global financial crisis.

While most Saudi officials have in public insisted they are not worried by the shale threat, Opec has recognised that it needs to address the issue.

In a report earlier this month, Opec forecast demand for its oil in 2014 would average 29.61mbpd, down 250,000bpd from 2013. It cited rising non-Opec supply, especially from the US.

The fracking warning comes as Saudi Arabia announced three foreign consortiums – led by US, Spanish and Italian firms – have won a $22.5bn contract to build Riyadh’s 110-mile, six-line metro train network. – Sky News