Opec might not reach a deal, but here are seven bright spots

Opec oil ministers head into Monday’s meeting amid fading hopes of any grand bargain to try to lift oil prices, but there is plenty Saudi Arabia can point to in support of its steady-as-she goes policy.

As ever, when the market story turns bearish, the trading world tends to focus on the bearish news, such as rising production in Kazakhstan, and possibly Nigeria, Libya etc.

But the oil world is a large and complicated one, and there are bullish stories too. Here are seven from the past week or so:


1 Norwegian oil workers went on strike last week and the state-appointed mediator, Mats Wilhelm Ruland, said the two sides remained far apart on a wage deal. Industri Energi, which represents about 6,500 engineers and other skilled operators working for dozens of companies, said it may escalate the strike if there is no movement. The Norwegian Oil and Gas Association, representing the companies, said such action could hit the country’s 2 million barrels per day of output. Oil and liquids output was already down last month, at about 1.9 million bpd from the five-year high of 2.1 million bpd the month before, as major oilfields went into maintenance; more maintenance is scheduled for this month.

2 Petroleo Brasileiro, Brazil’s state oil company known as Petrobras, said last week that it would cut capital spending by 25 per cent over the next five years, to 2021, to US$74 billion. It also raised its asset sales target by more than $4bn to $19.5bn as it tries to cope with massive debt of $125bn, or more than five times its current after-tax earnings. Analysts said the company would probably struggle to maintain output levels from its offshore fields.

3 US crude oil inventories hit a seven-month low last week. The US Energy Information Administration (EIA) said domestic crude inventories fell by 6.2 million barrels for the week to September 16, to about 505 million barrels. That was still 11 per cent higher than the same week last year but down from a record 543 million barrels in April. Domestic production has levelled off but it is down by 1.2 million bpd since April last year, at about 8.5 million bpd.

4 The EIA says oil output declines will slow next year, assuming “productivity improvements, lower break-even costs and forecast oil price increases”. This depends on banks continuing to finance the onshore – mainly fracking – sector, which usually comes with oil hedging. But last week, the US Fed proposed rules to restrict banks’ involvement in physical commodities, a move that could hurt that the market’s ability to hedge. A recent report by turnaround specialist Alvarez & Marsal also estimated that US oil company defaults this year could more than double to $40bn, as the onshore fracking companies, which make up 51 per cent of US domestic output need oil prices of between $47 and $79 per barrel to break even.

5 China last week reported that crude imports surged to 7.76 million bpd in August – a four-month high and up by 1.48 million bpd from last year. China’s domestic crude output was down by a bigger percentage than the US’s, at 3.88 million bpd this month, down by 430,000 bpd.

6 Highlighting the dire situation in Venezuela, investors last week snubbed an offer by state oil company PDVSA to mortgage its US refinery assets to refinance $7bn of bonds coming due in spring and autumn next year. Venezuela’s oil minister, Eulogio Del Pino, one of most vocal proponents for an output freeze, last month confirmed his country’s output was down by 9 per cent in the year to June, at 2.36 million bpd.

7 India’s oil minister, Dharmendra Pradhan, set out a five-year energy plan that includes a big increase in the country’s strategic petroleum reserve. In the first phase, three sites in the south of the country – Visakhapatnam, Mangalore and Padur – will have a combined capacity of nearly 40 million barrels. India accounted for nearly all the additional oil produced by Iran last month and it has been cutting deals all over the region.

amcauley@thenational.ae

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