Crude Oil Demand and Supply Hard to Call

Oil & Gas
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp

Wednesday, April 18, 2018/ 08.54 AM / FBNQuest Research

Tensions in the Middle East have pushed the spot price for UK Brent crude above US$70/b, and given a boost to the feelgood factor in Nigeria. They have also masked the debate over the global demand and supply balance, or what we could term the competing claims of the US shale oil industry, and of OPEC with Russia and its other allies. The industry media tends to favour the claims of shale, and can cite data showing that the US has overtaken Saudi in production and is not far behind Russia.

US exports of crude and petroleum products increased by 1.7 mbpd in the 12 months to December 2017, to 7.3 mbpd. Pipelines proposed or under construction between West Texas and the Gulf of Mexico would raise export capacity by a further 2.1 mbpd.

The Permian Basin is the star performer in the shale industry for its rising productivity based upon technological advances. This has allowed successful operators to live with the reluctance of banks and equity investors to fund their expansion (due to generally mediocre returns). An increase in remote operations (from Houston) and a near-doubling of sand used per well are two of the advances.

At the same time, we recognize OPEC’s production restraint in conjunction with its allies (amounting to 1.8 mbpd through to December) and the resilience of the Saudi-Russian pact. Such agreements cover about 15 countries, and are a challenge to implement. It would be a serious test of discipline if market conditions warranted a deepening or extension of the accord. Tensions in the Middle East have a habit of coming to the rescue.

The financial recovery of the conventional oil majors is an obvious positive for underexplored oil provinces (such as Nigeria). Total, BP and Shell all announced a solid improvement in earnings in Q4 2017. Share buybacks, dividend increases and healthy cash generation were common themes.

We will get a measure of investor appetite for African energy assets from the proposed IPO next month in London by Vivo Energy. The company is 55% owned by the oil trading house Vitol, and owns fuel stations and retail outlets in 15 African countries. It should be valued at about US$3bn.

The appetite for specifically Nigerian assets will be tested by the sale of Petrobras Africa. The company is 50% owned by the Brazilian oil player and 40% by a Brazilian bank. Alongside interests in Angola and other African countries, it has stakes in two offshore blocks with producing fields, Agbami (operated by Chevron) and Akpo (Total). Industry sources conservatively value the Nigerian assets at US$2bn. Bidding could be intense.

Proshare Nigeria Pvt. Ltd.

Related News

  1. Geopolitical Risk Sends Oil Soaring
  2. OPEC and the US Dollar
  3. Kachikwu Clarifies N1.4 Trillion Under-Recovery Statement
  4. Average Prices of PMS, AGO, HHK and Cooking Gas – March 2018
  5. Why Are Oil Prices Soaring?
  6. Oil Prices Collapse Despite Strong Fundamentals
  7. Dimensions Of NNPC’s Contribution To The Nigerian Economy
  8. US$20.5m Escrow Account – SEPLAT’s Subsidiary Reaches Settlement With Crestar Natural Resources Ltd
  9. Financial Turmoil Hits Oil Markets Hard
  10. An Oil Price Rally Is Likely
  11. Oil Prices Bounce Back On Geopolitical Concerns - OilPrice Intelligence Report
  12. Shrugging Off Trade War, Oil Holds Gains - OilPrice Intelligence Report
  13. What Trump's New Appointment Means For Oil Prices
Related News