Oil Market In 8 Charts

18 Oct 2015 | Author: | No comments yet »

Iran is more tempting for big oil firms.

LONDON: The world is awash in crude, but big oil companies are lining up to develop new fields in Iran even as they slash spending and abandon exploration elsewhere.Oil prices rose nearly 2 percent on Friday as traders covered short positions after four days of sharp losses, and the U.S. oil rig count fell for a seventh week in a row.

U.S. crude and Brent racked up their steepest weekly declines in eight weeks after an International Energy Agency report on Tuesday predicted that the global market would remain oversupplied through 2016. “The reality of the global oversupply came in the forefront for most of the week giving back a major portion of last week’s gains,” said Energy Management Institute analyst Dominick Chirichella. Earlier Friday, West Texas Intermediate futures gained over a dollar in technical trade after briefly rising over the 14-day moving average, traders said.

Cheaper barrels are a significant lure to companies as they eliminate jobs and defer expensive projects following a 40 per cent plunge in oil prices in the past year. Royal Dutch Shell Plc abandoned its exploration campaign in the Arctic last month, citing high costs, while Total SA reduced production targets after a fresh round of investment cutbacks. The rig counts have seen the longest streak of weekly declines since June, data showed last Friday. “Rig counts out soon will influence trade into the weekend. While the cost of developing a field in Canada or the US can range from $59 to $114 a barrel, the expense in Iran doesn’t exceed $31, the IEA said in an Oct 13 report.

Energy Information Administration (EIA) said the country’s crude inventories rose by 7.6 million barrels last week, more than double the build of 2.9 million barrels expected by analysts in a Reuters poll. [EIA/S] A meeting of OPEC technical experts in Vienna on Oct. 21 may indicate whether sentiment is shifting within the producer group about maintaining output levels as prices remain muted. “I would anticipate a choppy and potentially volatile week ahead with November WTI expiry on Tuesday and the OPEC and non-OPEC producer meeting on Wednesday,” said Tony Headrick, energy analyst at CHS Hedging. Strong equity markets also supported earlier gains as European shares reached a two-month high, buoyed by bullish Asian and US trading on positive US economic data. “Even if crude prices go up now, we could be seeing Iranian crude coming back to the market, pushing it down again. Iran will offer about 50 energy projects to investors and plans to boost output by about 2 million barrels a day, NIOC Managing Director Roknoddin Javadi said in Berlin Oct 1.

The Persian Gulf nation has worked up a “vastly improved version” of its oil contracts to attract international oil companies, according to the IEA. Genel Energy Plc, which operates in Iraq’s semi-autonomous Kurdish region, says it can pump oil for as little as $1.50 a barrel. “Our operations are therefore profitable even during a time of a sustained fall in the oil price,” Andrew Benbow, a spokesman for London-based Genel, said by e-mail.

Yet its shares fell about a third over the period as a dispute between the Kurdistan Regional Government in Erbil and the federal government in Baghdad meant international companies didn’t receive any payment for crude exports from December to August. Even after sanctions are lifted, investors will still face the danger restrictions will “snap-back” if Iran is perceived as breaking its side of the deal. This provision could be a “major problem” for lenders financing projects there, according to Francisco Blanch, global head of commodities research at Bank of America Corp. Nevertheless, the vast opportunities in Iran will tempt oil companies, said Aneek Haq, an analyst at Exane BNP Paribas. “In a world where oil majors have restricted areas where they can find large reserve bases to replace production in the future, Iran obviously cannot be overlooked,” he said.

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