Iran has selected 45 oil and gas projects to show international companies at a conference in London in December when new oil contract models will be discussed ahead of exploration auctions to double the country’s crude output.
The projects, including oil and gas exploration, will be discussed along with details of a new oil contract model at the Dec. 14-16 conference, Mehdi Hosseini, chairman of Iran’s oil contracts restructuring committee, said in an interview in Tehran. Iran hopes to boost crude production to 5.7 million barrels a day, he said.
The Persian Gulf nation’s output was 2.85 million barrels a day in July, according to estimates compiled by Bloomberg. Oil producers such as BP Plc and Royal Dutch Shell Plc have expressed interest in developing Iran’s reserves, the world’s fourth-biggest, when sanctions are removed following last month’s nuclear agreement with world powers.
“We will define projects in the oil and gas sector as much as feasible and necessary since we believe this sector will bring wealth and economic development,” Hosseini said. “As far as this conference is concerned, we have defined around 45 projects which include exploratory blocs at varying development costs.”
Iran may give companies two to three months to decide whether to bid on the projects, he said. “The exact length will be decided by the time of the conference.” Shortly after that, Iran will call for bids, he said.
“We consulted with almost all medium and major oil companies over our contractual contents and projects. And the feedbacks have been positive,” he said.
Iran will adopt “risk service contract” models which will offer investors payback in the form of cash or oil allocation, he said. They won’t be allowed to claim ownership of the country’s energy reserves, he said.
“They would resemble production sharing but with different characteristics,” he said. “The international oil company, or the investing company, would be accepting certain risks in view of which it would be entitled to a portion of the oil thus produced. Or the reward of that risk is a share/portion of the oil.”
Iran’s production costs are $8 to $10 a barrel so, “our projects will be attractive to investors,” Hosseini said. Falling oil prices are in Iran’s interest at this point because high prices encouraged uneconomical fields, he said.
“The drop in prices from $100 a barrel to around $50 a barrel now is only in the short run,” Hosseini said. “Looking at the international oil industry over the long-run, the demand will rise and so will the prices.”
Pending the end of sanctions, Iran wants to boost oil production to about 15 percent of the Organization of Petroleum Exporting Countries’ output, or more than 4 million barrels a day, he said. “As OPEC’s share increases so does our share and we will need to build capacity. As a preliminary goal in the short run we plan to produce 5 million barrels a day and then go from that to 5.7 million barrels a day.”
Iran’s oil reserves are estimated at 157.8 billion barrels by BP Plc. That’s enough to supply China for more than 40 years. Iran can boost oil production by 500,000 barrels a day within one week after international sanctions are lifted, Oil Minister Bijan Namdar Zanganeh said in an interview with state TV earlier this month. Sanctions against Iran’s oil industry should be lifted by late November, he said.
Oil dropped to the lowest in more than four months in New York on expectation a global glut that drove prices into a bear market will be prolonged.
Goldman Sachs Group Inc. estimates the global crude oversupply is running at 2 million barrels a day and storage may be filled by the fall, forcing the market to adjust, analysts including Jeffrey Currie said in a report dated Thursday. U.S. crude supplies remain about 100 million barrels above the five-year seasonal average, Energy Information Administration data on Wednesday showed.
Oil moved into a bear market in July on signs the global surplus will persist as the U.S. pumps near the fastest rate in three decades and the largest OPEC members produced record volumes. The Bloomberg Commodity Index, which fell almost 11 percent in July, has resumed its decline.
“Prices are under pressure because we’ve got more and more crude coming out of the ground,” Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami, said by phone. “Questions about storage capacity have already been brought up.”
WTI for September delivery fell 49 cents, or 1.1 percent, to settle at $44.66 a barrel on the New York Mercantile Exchange. It’s the lowest close since March 19. Prices are down 16 percent this year.
Brent for September settlement dropped 7 cents to end the session at $49.52 a barrel on the London-based ICE Futures Europe exchange. It touched $48.88, the lowest since Jan. 30. The European benchmark crude closed at a $4.86 premium to WTI.
“It’s the familiar theme of oversupply and shaky demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The negative reaction to yesterday’s inventory report set up for another drop today. We clearly have more than ample supply.”
About 170 million barrels of crude and fuel have been added to storage tanks and 50 million to floating storage globally since January, according to the Goldman report. Global oil oversupply has risen from 1.8 million barrels a day in the first half of 2015, Goldman said. The balance between supply and demand may only be restored by 2016, Goldman said.
“While we maintain our near-term WTI target of $45 a barrel, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn,” the Goldman analysts said.
Crude supplies in the U.S. fell 4.4 million barrels to 455.3 million last week, the EIA said. Output expanded by 52,000 barrels a day to 9.47 million a day, the first gain in four weeks. Refinery utilization rose by 1 percentage point to 96.1 percent, the highest level since 2005.
Inventories of distillate fuel, a category that includes diesel and heating oil, rose 709,000 barrels to 144.8 million, the most since February 2012, the EIA report showed.
Ultra low sulfur diesel for September delivery rose 1.14 cents, or 0.7 percent, to settle at $1.5499 a gallon in New York. On Monday it closed at its lowest level since July 2009.
“Diesel isn’t up because of the fundamentals,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “It’s getting support from the upcoming refinery-maintenance season, the harvest season and anticipation of thermal needs later this year.”
The Bloomberg Commodity Index of 22 raw materials dropped 0.3 percent. Eighteen of the components, which include gold, have declined at least 20 percent from recent closing highs, meeting the common definition of a bear market.
Morgan Stanley has been pretty pessimistic about oil prices in 2015,
drawing comparisons to the some of the worst oil slumps of the past three decades. The current downturn could even rival the iconic price crash of 1986, analysts had warned—but definitely no worse.
This week, a revision: It could be much worse.
Until recently, confidence in a strong recovery for oil prices—and oil companies—had been pretty high, wrote analysts including Martijn Rats and Haythem Rashed, in a report to investors yesterday. That confidence was based on four premises, they said, and only three have proven true.
1. Demand will rise: Check
In theory: The crash in prices that started a year ago should stimulate demand. Cheap oil means cheaper manufacturing, cheaper shipping, more summer road trips.
In practice: Despite a softening Chinese economy, global demand has indeed surged by about 1.6 million barrels a day over last year’s average, according to the report.
2. Spending on new oil will fall: Check
In theory: Lower oil prices should force energy companies to cut spending on new oil supplies, and the cost of drilling and pumping should decline.
In practice: Sure enough, since October the number of rigs actively drilling for new oil around the world has declined by about 42 percent. More than 70,000 oil workers have lost their jobs globally, and in 2015 alone listed oil companies have cut about $129 billion in capital expenditures.
3. Stock prices remain low: Check
In theory: While oil markets rebalance themselves, stock prices of oil companies should remain cheap, setting the stage for a strong rebound.
In practice: Yep. The oil majors are trading near 35-year lows, using two different methods of valuation.
4. Oil supply will drop: Uh-oh
In theory: With strong demand for oil and less money for drilling and exploration, the global oil glut should diminish. Let the recovery commence.
In practice: The opposite has happened. While U.S. production has leveled off since June, OPEC has taken up the role of market spoiler.
OPEC Production Surges in 2015
For now, Morgan Stanley is sticking with its original thesis that prices will improve, largely because OPEC doesn’t have much more spare capacity to fill and because oil stocks have already been hammered.
But another possibility is that the supply of new oil coming from outside the U.S. may continue to increase as sanctions against Iran dissolve and if the situation in Libya improves, the Morgan Stanley analysts said. U.S. production could also rise again. A recovery is less certain than it once was, and the slump could last for three years or more—”far worse than in 1986.”
“In that case,” they wrote, “there would be little in history that could be a guide” for what’s to come.
Iran has been under official sanction by the UN Security Council since 2006 after failing to acquiesce to Western demands that the Iranians stop all enrichment activity.
After nearly a decade of strict sanctions against Iran’s oil and finance industries, both sides came to the negotiation table over a year ago.
On one side, the U.S., France, Britain, Germany, China, and Russia worked to curb the proliferatory elements of Iran’s program, while the Iranians fought for their own autonomy in energy production.
Upon news of the deal, the market saw oil drop significantly.
Brent crude fell almost $3 per barrel, while West Texas Intermediate dropped 3.5% to $48 per barrel.
The reason for this reaction is simple…
Per the deal, sanctions against Iran’s oil industry would be lifted, which means Iran would be able to increase the export numbers you see above.
In an already flooded global market, news of the possibility of more oil sent prices down again.
While this is a completely plausible reason for oil prices to fall, the market fails to recognize that oil could actually go up because of this deal.
With Iran holding some more clout in the oil market in the Middle East, the nation will have incentive to grow production and exports.
Iran’s natural enemy by proxy — Saudi Arabia — may lose its gumption in an oil price war with the United States, Russia, and other OPEC producers.
Sure, the Saudis can withstand low oil prices until shale wells dwindle further, but with Iran, Russia, and the U.S. continuing production growth, Saudi Arabia may want to cut production, as a longer period of low prices will hurt revenues and cause budgetary problems for the Kingdom.
I realize this may sound counterintuitive, but while prices stand to fall in the short term, the long-term health of the oil market improves with a diversified set of major producers and exporters.
Ways to Benefit from an Iran Deal
By pushing short-term oil prices lower, the Iran deal gives us a great buying opportunity for oil stocks.
By no means am I suggesting you buy Iranian oil companies or speculative plays out of the Middle East. Instead, it would behoove you to find a constructive way to play a coming rise in oil exports and, eventually, prices.
Tanker companies authorized for American imports will be valuable, as will American midstream companies that are involved in the movement of refined oil products like gasoline and plain old crude oil.
The United States, still the biggest oil importer in the world, should now look to lift the export ban to remain competitive with global prices, as Saudi Arabia and Iran will both have a presence in the export market.
And midstream companies in the U.S. can expect to see a vast increase in business as more pipelines, refineries, and storage facilities are permitted and built to boost exports.
In a recent report, I vetted a midstream services company that has improved its business enough to garner an investment from my readers and me.
Its services will be instrumental in the development of midstream and oil logistics throughout the U.S., especially in places like the Permian, where shale oil production is rising despite the bear market.
(Bloomberg) — The slump in oil prices may not be over, according to Goldman Sachs Group Inc.
The decline in the number of U.S. drilling rigs that’s helped crude futures in New York rebound 14 percent from this year’s low isn’t enough to reduce an oversupply, the U.S. bank said in a note dated Feb. 10. Lower prices are needed for American output to slow sufficiently to rebalance global markets, it said.
Goldman joins Citigroup Inc. and Vitol Group, the world’s biggest independent oil trader, in signaling prices may resume a decline amid unrelenting production growth. West Texas Intermediate crude is still down by half from last year’s peak as the U.S. pumps the most in three decades. While companies have idled rigs and cut spending, it will be some time before production is affected, according to the International Energy Agency.
“The decline in the U.S. rig count likely remains well short of the level required to slow U.S. shale oil production to levels consistent with a balanced global market,” analysts including Damien Courvalin wrote in the report. “Lower oil prices will be required over the coming quarters to see the required U.S. production growth slowdown materialize.”
U.S. drillers cut rigs targeting oil by a record 435 to 1,140 in the nine weeks to Feb. 6, according to Baker Hughes Inc. That’s the lowest total since December 2011 as explorers slow efforts in the Permian Basin in Texas and North Dakota’s Bakken formation.
U.S. production will increase by 7.8 percent to 9.3 million barrels a day this year, the fastest pace since 1972, the Energy Information Administration said in its monthly report on Tuesday. That’s down 10,000 barrels a day from its January projection.
Goldman still forecasts “strong production growth” by the fourth quarter of 2015 amid increasing productivity at wells and rigs. The closing of the least-efficient output first also means more drilling has to stop to temper the increase in supplies, it said.
The bank cited producers as saying most of the decline has been for non-contracted rigs and they plan to renegotiate rates lower, meaning there’s potential for a rebound in activity. What’s more, the recent rally in prices has given them an opportunity to hedge against further losses, potentially reducing the need to slow output.
“A slower slowdown in U.S. shale oil production would leave risk to our price forecast skewed to the downside, as it increases the risk of running out of crude oil storage capacity, requiring a decline to shutdown economics,” the analysts wrote.
Goldman last month cut its six- and 12-month forecasts for Brent to $43 and $70 a barrel respectively, from $85 and $90, amid increasing inventories. It also reduced its projections for U.S. benchmark West Texas Intermediate to $39 a barrel and $65, according to a Jan. 11 report.
Vitol Group’s Chief Executive Officer Ian Taylor said in London on Tuesday that “another move down” is possible before the market rebalances in the second half. Unrelenting U.S. crude production will lead to “dramatic” increases in inventories for several months, he said.
Prices may slump as low as $20 a barrel and remain there “for a while,” as U.S. supplies are joined by record output from Russia and Brazil, Ed Morse, Citigroup’s head of commodities research, said in a report e-mailed on Feb. 9.
WTI crude was at $49.86 a barrel on the New York Mercantile Exchange at 12:14 p.m. London time. The price dropped as low as $43.58 on Jan. 29, down from last year’s peak of $107.73. Brent futures, an international benchmark, fell 1.1 percent to $55.80 on the London-based ICE Futures Europe exchange.
My rant – the curse of Cassandra :
Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :
when she prophesied true things, she was not believed.
I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.
On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge..
Join in on the portfolio profits of Jack A. Bass Managed Accounts:
Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.
You can withdraw your funds monthly if you require an income stream.
To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)
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Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.
(Bloomberg) — Iraq and Iran joined Saudi Arabia in cutting their March crude prices for Asia to the lowest level in more than a decade, signaling the battle for a share of OPEC’s largest market is intensifying.
Iraq’s Basrah Light crude will sell at $4.10 a barrel below Middle East benchmarks, the lowest since at least August 2003, the Oil Marketing Co. said Tuesday. National Iranian Oil Co. lowered its official selling price for March Light crude sales to a discount of $2.10 a barrel, the lowest since at least March 2000, according to a company official who asked not to be identified because of corporate policy.
The cuts come after Saudi Arabia, the largest crude exporter, reduced pricing to Asia last week to the lowest in at least 14 years. The Organization of Petroleum Exporting Countries left its members’ output targets unchanged at a November meeting, choosing to compete for market share against U.S. shale producers rather than support prices. Iraq is the second-biggest producer in OPEC and Iran is fourth.
“This is an effort by some producers to protect market share,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone Tuesday. “It’s really straightforward; cutting prices is how you keep your foot in the door.”
Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. Oil prices have dropped about 45 percent in the past six months as production from the U.S. and OPEC surged.
The International Energy Agency said Tuesday that the U.S. will contribute most to global growth in oil supplies through 2020 as OPEC’s attempts to defend its market share will hurt other suppliers including Russia more.
“If they go out and sell at a higher price, they won’t sell much,” John Sfakianakis, Middle East director at Ashmore Group Plc, a London-based investment manager, said in an interview in Dubai Tuesday. “For the Saudis, it’s market share at any cost. Saudi is the leader in this and the others have to follow the leader.”
Iran’s output rose to 2.78 million barrels a day in January from 2.77 million a month earlier as Iraq boosted supply to 3.9 million from 3.7 million, according to a Bloomberg survey of oil companies, producers and analysts. Production in Saudi Arabia climbed 220,000 barrels a day to 9.72 million last month.
Saudi Arabia won’t balance global crude markets by itself even as prices fall “too low for everybody,” Khalid Al-Falih, the chief executive officer of Saudi Arabian Oil Co., said at a conference in Riyadh on Jan. 27. The kingdom’s Oil Minister Ali Al-Naimi has said producers outside of the group should trim their output first.
Brent crude, the benchmark for more than half of the world’s oil, rose 20 cents a barrel, or 0.4 percent, to $56.63 on the London-based ICE Futures Europe exchange Wednesday. The European crude touched $45.19 on Jan. 13, the lowest since March 2009. West Texas Intermediate, the U.S. benchmark, gained 49 cents, or 1 percent, to $50.51 a barrel on the New York Mercantile Exchange after falling 5.4 percent on Tuesday.
“This is a global market that’s oversupplied,” Emerson said. “Late March and early April are in normal times a period of weak demand, so you have to be rather aggressive now if you want to sell your oil.”
The oil industry was listening as OPEC talked down crude prices to a more than five-year low.
Drillers, refiners and other merchantsincreased bets on lower prices to the most in three years in the week ended Jan. 6, government data show. Producers idled the most rigs since 1991, with some paying to break leases on drilling equipment.
Companies are hedging more and drilling less amid concern that the biggest slump in prices since 2008 will continue. Oil dropped for a seventh week after officials from Saudi Arabia, the United Arab Emirates andKuwait reiterated they won’t curb output to halt the decline.
“Producers are desperately hedging their production in a drastically falling market,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 9. “They’re trying to lock in prices because they are convinced that the market will stay down for a while.”
WTI slid $6.19, or 11 percent, to $47.93 a barrel on the New York Mercantile Exchange on Jan. 6, settling below $50 for the first time since April 2009. Futures for February delivery declined $1.53 to $46.83 in electronic trading at 8:09 a.m. local time.
The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The U.A.E. won’t cut production no matter how low prices fall, Yousef Al Otaiba, its ambassador to the U.S., said at a Bloomberg Government lunch in Washington on Jan. 8.
The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.
U.S. crude production was 9.13 million barrels a day in the seven days ended Jan. 2 after reaching 9.14 million three weeks earlier, the highest in weekly Energy Information Administration data since 1983. Stockpiles were 382.4 million barrels as of Jan. 2, a seasonal high.
The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texasand the Bakken in North Dakota. Global oil prices below $40 begin to make wells in such places unprofitable to operate, Wood Mackenzie, an Edinburgh-based consultant, said in a report Jan. 9.
Rigs seeking oil decreased by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.
Helmerich & Payne Inc., the biggest rig operator in the U.S., and Pioneer Energy Services Corp. said last week that they had received early termination notices for rig contracts.
Producers and merchants boosted their net short position by 21 percent, or 17,577 futures and options, to 100,997 in the week ended Jan. 6, according to the Commodity Futures Trading Commission, the most since Jan. 10, 2012.
Hedge funds and other large speculators raised bullish bets by 7 to 199,395 contracts.
“You have this tension and lack of consensus among money managers of what to do with a price under $50,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Jan. 9. “People tend to think of money managers as a black box where they all use same strategy and march in lockstep, but this highlights that it’s not really the case.”
Bullish bets on Brent crude rose to the highest level in more than five months, according to ICE Futures Europe exchange.
Net-long positions gained by 24,598 contracts, or 21 percent, to 140,169 lots in the week to Jan. 6, the data show. That’s the highest since July 15.
In other markets, bearish wagers on U.S. ultra-low sulfur diesel decreased 12 percent to 23,789 contracts as the fuel sank 7.6 percent to $1.7262 a gallon.
Net short wagers on U.S. natural gas fell 15 percent to 10,323 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 5 percent to $2.938 per million British thermal units.
Bullish bets on gasoline declined 0.4 percent to 44,050. Futures slumped 6.8 percent to $1.3543 a gallon on Nymex in the reporting period.
Regular gasoline slid 1.3 cents to an average of $2.139 on Jan. 10, the lowest since May 5, 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.
The global crude oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates. Only 1.6 percent of supply would be unprofitable with prices at $40 a barrel, according to Wood Mackenzie.
“If you’re a producer and your cost is below the price in the market, if you hedge it even at depressed prices you can still make money,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Jan. 9. “Somebody’s locking in profits even at these low prices.”
Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned
Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.
The bank reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York.
The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as the Organization of Petroleum Exporting Countries resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.
“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.”
West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.
Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.
“We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $55 a barrel for the next year to sideline capital and keep investment low enough to create a physical re-balancing of the market,” the bank said.
Goldman estimates there’s sufficient capacity to store a surplus of 1 million barrels a day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted U.S. crude prices and “strong margins lead U.S. refineries to export the glut to the other side of the Atlantic.”
The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.