Crude Glut Could Take Years to Disappear
IEA, OPEC ARE CAUTIOUS ON HELP FOR PRODUCERS
The International Energy Agency, or IEA, projects that oil prices are unlikely to significantly rebound for at least a few years, Benoit Faucon, Summer Said and Bradley Olson report. “Supply and demand will gradually rebalance by 2017, with a corresponding recovery in oil prices,” an IEA report said.
Fatih Birol, IEA executive director, and Abdalla el-Badri, secretary-general of the Organization of the Petroleum Exporting Countries or OPEC, made clear at the annual IHS CERAWeek conference in Houston that no one is immediately coming to the rescue for struggling oil producers.
“This is historical,” said Mr. Birol. “In the last 30 years, we have never seen oil investment decline two consecutive years.” A preliminary agreement between Saudi Arabia and Russia to freeze output at January levels was a “first step” toward creating market stability, he said.
Meanwhile, allowing new U.S. export capacity for liquefied natural gas would undercut the ability of Russia to monopolize markets and use energy as a political weapon, write Stephen Cheney and Andrew Holland of the American Security Project in Washington, D.C.
MEXICAN GOVERNMENT PRESSES AHEAD WITH ENERGY OVERHAUL
Also at the Houston meeting, Mexican President Enrique Peña Nieto said his administration is determined to press ahead with the implementation of the country’s energy overhaul, setting a date for deep-water oil block auctions and speeding up the process of opening the gasoline market, Dan Molinski and Anthony Harrup report. Mexico made sweeping changes in its energy laws in 2013 that opened up oil exploration and production to private and foreign companies for the first time in almost eight decades.
NORTH SEA OIL INDUSTRY SEEN IN PERIL
The North Sea oil industry is struggling so much that trade association Oil & Gas UK said the U.K.’s offshore oil-and-gas industry is perched “at the edge of a chasm” amid the oil-price rout, Selina Williams reports. Less than £1 billion ($1.41 billion) of fresh capital in new projects in the U.K. North Sea is expected to be approved this year, down from an average of £8 billion annually over the past five years.
“It’s a precarious position,” said Mike Tholen, economics director at Oil & Gas UK. “With oil prices where they are, our big concern is that exploration activity and new investment is drying up in the North Sea in a way which bodes ill for the future of the basin.”
U.K. oil and mining companies, including Royal Dutch Shell PLC and Rio Tinto PLC, were among more than one-third of Britain’s 100 largest companies to come out in support of the U.K.’s continued membership of the European Union, Jenny Gross reports. Also on the list is energy company Centrica PLC. Its chief executive, Iain Conn, said the U.K. has more influence over European energy policy as part of the club and, as a major gas importer, would benefit from the increased competitiveness of a common energy market.
SUFFERING MINERS NARROW DOWN
Big mining companies continue to narrow their focus amid the plunge in commodity prices, Rhiannon Hoyle reports. BHP Billiton Ltd cut its dividend by 74%, after reporting a record $5.67 billion first-half loss, and Chief Executive Andrew Mackenzie thinks the miner can regain its strength by cutting assets.
Commodities trader Noble Group Ltd. expects to report a net loss for the fourth quarter and 2015 after lowering its long-term forecasts for coal prices, Jake Maxwell Watts and Gaurav Raghuvanshi report. Abheek Bhattacharya writes that Noble has capitulated on the price of coal by issuing a surprise $1.2 billion write-down.
Despite the overall bleak outlook for oil prices, hedge funds have become more bearish toward U.S. crude, but bullish toward Brent, Reuters writes.
MARKETS
Oil prices were flat on Tuesday as investors sold off following a recent rally that failed to dispel the negative sentiment that has dominated this market for many months.
The losses follow gains of around 6% on Monday that followed a bullish report by the IEA predicting an accelerated decline in U.S. crude production.
The fall in prices underscores the fragility of current oil markets, which are struggling to maintain a meaningful rally.
