Peak Oil Review: A Midweek Update – 14th October 2016

October 13, 2016

Oil prices hit recent highs on Monday, just short of the highs reached in May and November due to prospects of OPEC production freezes.  On Wednesday, however, skepticism as to whether OPEC would make a significant production cut mounted, sending prices down to $50.18 in New York and $51.81 in London. The weekly stocks report was delayed this week until Thursday due to the holiday on Monday. The API, whose forecasting has been mixed, says the crude stocks were up by 2.7 million barrels last week. If an increase in stocks is verified by the EIAon Thursday morning, it will be the first increase in six weeks. In addition, the US dollar hit a seven-month peak on Wednesday adding to the pressure on oil prices.
 
Most of the news this week has come from the Istanbul oil meeting where various leaders of the world’s oil industry talked about a possible OPEC production cut which could be joined by Russia. It is the prospect for this freeze that has run up oil prices by 13 percent since the Algiers meeting. In September, OPEC agreed to cut production by between 200,000 and 700,000 a day provided Russia joined in. Since then Moscow has said it would be willing to cooperate, but apparently only with a freeze on further increases for the next six months, not an actual production cut.
 
Most analysts are skeptical that a detailed agreement will be reached that will drive prices higher.  They note that most of the speculative buying has already taken place and that the markets are now waiting for data to confirm the rhetoric. With Libya, Iran, Iraq, and Nigeria on track to increase production in the next six months, a freeze of the size discussed in Algiers is unlikely to have much of an effect.
 
Reports from the IEA and OPEC showing OPEC’s production in September to be the highest in eight years at circa 33.6 million b/d is not helping those hoping for higher prices.  A survey of the world’s leading oil trading companies told Reuters that crude is unlikely to achieve supply-demand balance into well into 2017. OPEC production in September was up by about 220,000 b/d from August and as much as 890,000 b/d above the Algiers’ target.  Some are expecting oil prices to fall into the low $40s if OPEC cannot agree to a cut at the November meeting.
 
Wednesday’s OPEC report showed a 565,000 b/d  difference of opinion over how much oil Venezuela and Iraq are pumping and what the countries claim.  Both nations are disputing the OPEC estimates as they could determine the level of any freeze.
 
A rift between the Saudis and Egypt has broken out resulting in the Saudis halting their monthly delivery of 700,000 barrels of crude to Egypt. Riyadh had been shipping the oil to Cairo in a $23 billion deal under which the Egyptians received a good price as part of the Saudi 15-year financial support to Egypt agreement. The Saudi decision to cut the oil supply was not announced but came after Egypt voted in the UN to support a Russian resolution on Syria that the Saudis opposed.  On Tuesday, the Egyptians announced that they were able to procure oil shipments elsewhere and expressed the hope that the long-term agreement would continue.
 
The most bizarre news of the week came when Nigeria filed a lawsuit against Eni, Chevron, Shell, Total and Petrobras claiming that the oil majors had stolen at least 57 million barrels of oil worth  $12.7 billion from Nigeria.  This feat is supposed to have been accomplished by the oil companies simply loading the oil on tankers and sailing away without notifying the Nigerian government of the shipments. The oil companies deny there are any irregularities. 

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.  

Tags: geopolitics, oil price