Oil producers ‘hunkering down for prolonged pain’

Having dipped below US$28 (Bt997) a barrel, there were calls for a $10 bottom to be introduced.
Statements from Russia towards the end of January that flagged the possibility of a coordinated OPEC and non-OPEC production cut pushed up prices a few times in a seesaw battle. That resulted in gains being erased equally quickly on the realisation that the move wasn’t being echoed by the Saudis.
The current heightened political tension between Saudi Arabia and Iran, combined with the fact that a sanctions-free Tehran is all geared up to raise supply by up to one million barrels per day, makes an agreement within OPEC seem extremely remote, let alone a broader global collaboration.
OPEC’s second largest producer Iraq, which hit a record high production in 2015, hopes to boost output by another 200,000 to 300,000 b/d to reach four million barrels a day.
Iran’s oil ministry, meanwhile, activated its planned 500,000 b/d oil output increase on January 17, a day after the lifting of almost all nuclear-related international economic sanctions against the Islamic Republic.
If achieved, this volume would take Iranian output to around 3.39 million b/d and exports to 1.5 million b/d.
More immediately, Iran could start exporting from its floating storage of 47-49 million barrels of crude and condensate, according to Platts cFlow data.
“Unless something changes, the oil market could drown in oversupply,” the International Energy Agency warned in its January report, estimating an oversupply of 1.5 million b/d in the first half of 2016 |if Iran adds 600,000 b/d by mid-year.
OPEC struck a more optimistic note in its January report, saying 2016 will see the start of the rebalancing process as deep capex cuts start to feed through to the non-OPEC supply.
The collapse in oil prices to below $30 is “irrational”, the chairman of state-owned oil giant Saudi Aramco told the World Economic Forum |in Davos January 21, asserting that the market will inevitably start turning up given that many small |producers are facing financial difficulties.
Days earlier, Saudi Arabia had flagged what many regarded as the unthinkable – the potential sale of a part of Aramco, the Kingdom’s crown jewel.
With the oil price bottom still not horizon, producers around the globe are hunkering down for prolonged pain.

Vandana Hari is Asia editorial director for Platts and Research Scholar, the McGraw-Hill Financial Global Institute.