Tuesday, December 27, 2016

Oil Prices Recover

It seems that oil prices are on the road to recovery.
 
The signs are already there for all to see.
 
On November 30, 2016, the Organization of the Petroleum Exporting Countries and non-OPEC producers confounded doubters by agreeing to have their first production cut in eight years.
 
This move is expected to drain oil inventories by a cumulative 1.8 million barrels of oil per day, for a total global production cut of 2%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
That is tellingly significant because oil prices immediately rebounded.
 
WTI crude and Brent crude rallied by some 10% that day itself.

Now, WTI Crude is trading at $53.02 while Brent Crude stands at $55.16 (as at today, 09:14:42, December 27, 2016. Refer webpage http://www.oil-price.net/).
 
Even American shale oil companies used this as an opportunity to hedge their oil price risk between 2017 and 2019 at above $50 a barrel.  
 
Another way of putting it is that producers are looking to lock in future cash flows and sales prices at above $50.
 
This also implies that the $50 level will be a buffer for oil prices moving forward.
 
According to Bloomberg, a record 580,000 crude option contracts traded on the New York Mercantile Exchange that day, while the number of puts, used by producers to guarantee a minimum price, hit the highest since 2012.
 
Even before that – at the 23rd World Energy Congress (October 09-13) in Istanbul, Turkey, Amin Nasser, the chief executive of Saudi Arabia’s state oil producer had predicted that by 2018, oil prices will have recovered and the market conditions will be right for Saudi Aramco to consider an IPO – said to be up to 5% of Aramco.
 
I understand that there are huge aspirations for this IPO, as it is an important component of diversifying the kingdom away from oil revenue.
 
That’s not all. The oil majors have started reinvesting.
 
Royal Dutch Shell went on to spend $53 billion on purchasing BG Group.
 
Then French oil major Total SA acquired oil and gas installations in east Africa for an undisclosed amount, covering assets belonging to Gulf Africa Petroleum (GAPCO) in Kenya, Uganda and Tanzania.
 
And BP Plc’s string of deals. Over the past month, BP had bought a stake in the supergiant Zohr gas field offshore Egypt and expanded their interest in Indonesia’s Tangguh natural-gas project. It has bought in to two exploration blocks in the North Sea and approved a $9 billion oil project in the Gulf of Mexico
 
This month itself, a near $1 billion investment in a vast natural gas field off the coast of Africa announced December 19 – the deal was with US-based Kosmos Energy Ltd. This followed a $2.2 billion all-share deal  two days earlier to take a 10% stake in a parcel of UAE oil fields.
 
All of the above promote confidence for the petroleum industry and this will surely boost prices. Motorists, of course, will suffer the pain of higher pump prices. Sigh.
 
This evening, I attended the TMIKL Toastmasters meeting at Bankers Club in the Amoda Building, Jalan Imbi, KL. I was given a speaking slot – and I presented a CC#6 Vocal Variety speech titled “Horror Movies”.

A good speech, in my opinion.

My Evaluator thought so too but it would have been even better if I had incorporated horror sound effects, e.g. creepy noises or even bloodcurdling screams.

And I also took up evaluation duty. 

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