Goldman Sachs Slashes Oil Price Forecast By $10
Goldman Sachs has cut its oil price forecast by $10 to $100 per barrel, citing lockdowns in China that would dampen demand for the commodity. The investment bank’s analysts also noted the increased exports of Russian oil before the European Union embargo goes into effect next month as another reason for the forecast revision, according to ForexLive. Just how much the oil price forecast context has changed this year shows in Goldman’s forecasts from January, when the bank warned that Brent could top $100 per barrel at some point in 2022. That happened perhaps earlier than many have expected. Still, after that over-$100 peak, crude oil prices have fallen and stayed below the three-digit threshold, even though many argue that it’s a matter of time before they rebound above $100 again. Goldman is one of the bullish forecasters, with its analysts saying earlier this month that Brent crude could return to above $100 sooner than previously thought. In fact, they said that Brent could breach $125 per barrel next year Again, the main reasons for the forecast were Chinese Covid policies and Russian oil supply, only in that forecast, the analysts cited the prospect of China relaxing its zero-Covid approach and the prospect of a steep drop in Russian oil exports following the EU embargo. Some analysts, such as Danish Saxo Bank’s Ole Hansen, also note the OPEC+ production cut, which will reduce the globally available supply of crude oil in the coming months, while demand for non-Russian oil is expected to increase amid the embargo. According to the International Energy Forum, a Saudi-based energy think-tank, Russian oil supply could drop by between one and three million barrels daily because of the embargo, which will undoubtedly have an impact on prices. Chinese Covid policies could mitigate this impact, capping a potential rally.
Oil drops to nearly two-month lows as supply worries subside
On Monday, as supply worries subsided and worries about China’s gasoline demand and rising interest rates weighed on prices, oil prices remained close to two-month lows. After finishing at their lowest price since September 27, January Brent crude futures had fallen 28 cents, or 0.3%, to $87.34 a barrel by 01:03 GMT. Before the contract’s expiration later on Monday, December West Texas Intermediate (WTI) crude futures were trading at $80 a barrel, down 8 cents from the previous day. To reach $79.90 per barrel, the more active January contract decreased by 21 cents. As losses continued throughout the next week, both benchmarks, Brent down 9% and WTI down 10%, closed on Friday at their lowest levels since September 27.
China Bought $60 Billion Russian Energy Since Start Of Ukraine War
China’s energy imports from Russia, including coal, oil, and natural gas, have reached $60 billion since the Russian invasion of Ukraine, Bloomberg hasreported, up from $35 billion in the same period of 2021. China has become Russia’s biggest energy client alongside India, with both countries refusing to join the Western sanction push against Moscow and instead opting to continue doing business and forging closer political ties with Russia. Crude oil imports from Russia into China rose even in October when overall oil imports were down by almost 5 percent. That’s because Chinese refiners, like those in India, are preparing for the European Union embargo on Russian crude, which enters into effect on December 5. Once the embargo kicks in, the EU will no longer provide shopping, insurance, and financing services to third parties that want to buy Russian crude unless they buy it at or below a price that has yet to be set by the G7 under its plans for a price cap on Russian oil. The cap aims to curb Russia’s oil revenues while keeping Russian oil flowing into international markets. In addition to more oil, China also imported more Russian liquefied natural gas in October, the Bloomberg report noted. At 756,000 tons, the volume was markedly higher than LNG imports same time last year, and the increase came despite a 34-percent decline in overall LNG imports. Coal imports in October were 26 percent higher than last year, with coking coal imports specifically up threefold from a year ago. Coking coal is used in steelmaking. The total value of these energy imports hit $7.7 billion in October, which was $100 million higher than the value of September energy imports from Russia and $2.3 billion higher than the value of Chinese energy imports from Russia for October 2021.
Can Iraq Challenge Saudi Arabia’s Regional Oil Dominance?
Like the first cuckoo of spring, the annual autumn refrain from senior Iraqi oil officials of new production targets has that pleasant ring of the familiar about it to seasoned oil industry watchers. Sometimes it is 6 million barrels per day (bpd), sometimes 7, and sometimes 8, but it always prompts an analysis of the facts and figures that invariably lead to the same conclusion: it could be done but not without some basic changes to Iraq’s oil industry. Last week was heard a similar call as Europe faces an uncertain energy future heading into winter, this time from Alaa Alyasri, director general of Iraq’s State Oil Marketing Organization (SOMO). Iraq is targeting 7 million bpd of crude oil in 2027 – wonderful. And yet, as in many a musical show-stopping melody, seasoned oil watchers may well wonder if maybe it will be different this time around. What may make it different is that the Iraqis are focussing on increasing production from two key oil fields – Rumaila and West Qurna 2 – where the countries operating them have every reason to make the planned increases work and no qualms about what is required to make them happen. It is apposite to note at this point that by far, the main reason why Iraq is not producing even 13 million bpd right now is that its oil industry appears to be regarded by many at the top levels of its various bureaucracies as part of their personal pension funds. Starting most notably with ExxonMobil’s hasty retreat from Iraq’s omni-corrupt Common Seawater Supply Project (CSSP) where the desire for huge oil profits was trumped by fear over massive reputational damage, Western international oil companies (IOCs) have rushed for the exit from Iraq’s oil sector. The independent risk agency, Transparency International (TI), has highlighted for many years in its ‘Corruption Perceptions Index’ publications, Iraq usually features in the worst 10 out of 180 countries for its scale and scope of corruption. “Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state-building and service delivery,” TI states. “Political interference in anti-corruption bodies and politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government’s capacity to curb soaring corruption efficiently,” it adds. The sheer enormity of the scale of the reputational risk to Western IOCs can be judged from the massive potential rewards that they are willing to leave behind in Iraq. As analyzed in depth in my last book on the global oil markets, in 2013, Iraq launched its ‘Integrated National Energy Strategy’ (INES), which formulated the three forward oil production profiles for the country. The INES’ best-case scenario was for crude oil production capacity to increase to 13 million bpd (at that point by 2017), holding around that level for five years and thereafter gradually declining to around 10 million bpd for several more years. The mid-range production scenario was for Iraq to reach 9 million bpd (at that point by 2020), and the worst-case INES scenario was for production to reach 6 million bpd (at that point by 2020). These figures were based on solid facts and figures from several renowned and trusted external sources, as also analysed in my last book. According to a limited-circulation report produced at around the same time by the International Energy Agency (IEA), a 1997 detailed study by respected oil and gas firm, Petrolog, had already provided figures that were in line with the Iraq Oil Ministry’s later statements that the country’s undiscovered resources amounted to around 215 billion barrels. However, the concerns of such soft-skinned accountancy types in the West are of little interest to China or Russia and they are now taking the lead on developing Rumaila and West Qurna 2, respectively. The middle of last month saw the China Petroleum Engineering & Construction Corp (CPECC) sign a US$386 million engineering, procurement, and construction contract to build a two-train oil processing facility at Quraynat to develop production in the southern part of the Rumaila field, Iraq’s largest oilfield. The intention is that each train will handle around 120,000 barrels per day (bpd) of oil from the field’s Mishrif formation. There is much potential left in the area as the Rumaila field, despite it having already produced around 80 percent of all of Iraq’s cumulative oil production to date, together with the Kirkuk field, has an estimated 17 billion barrels in proven reserves. Jointly run by a venture in which China’s PetroChina – the listed arm of the state-owned China National Petroleum Corporation – has a 46.37 percent share, Rumaila was always intended to produce at least 2.1 million bpd, compared to the current 1.4 million bpd, an increase of 0.7 million bpd. According to a source close to the Iraq Oil Ministry spoken to exclusively last week by OilPrice.com, China intends within the next six months to dramatically increase the water-injection capabilities at Rumaila. These will build on the already successful renovation of the Qarmat Ali Water Treatment Plant by another senior partner in the field, BP (with a 47.63 percent share). The Qarmat facility is now capable of treating up to 1.3-1.4 million bpd of river water, allowing for greater extraction of oil from the field’s Mishrif reservoir (triple the amount, in fact, that was extracted in 2010). According to industry figures, Rumaila requires around 1.4 barrels of water for each barrel of oil produced from the north of the field, whilst the Mishrif formation in the south will require much higher water injection rates to support production. For Russia, significantly increasing oil production from West Qurna 2 was already achieved back in May 2019, but it only told the Iraqis that once the Iraqis discovered it themselves, as exclusively revealed by OilPrice.com. The key events that shaped all the subsequent shenanigans on both sides occurred in and around August 2017. At
GSPL, GAIL Stand To Gain From New Gas Pipeline Tariff Rules, Say Analysts
The Petroleum and Natural Gas Regulatory Board or PNGRB’s notification about natural gas pipeline tariff regulations, with effect from Nov. 18, will introduce numerous positive amendments for the natural gas transmission sector, according to analysts. These regulations pertain to both gas pipeline tariffs and pipeline authorisations, which were originally proposed in August 2022. PNGRB Update On Natural Gas Pipeline Tariff Regulations – Key Takeaways By Citi. Introduction of more relaxed capacity utilisation/normative volume requirements – 30% to 100% (of 75%) over 10 years versus 60% to 100% (of 75%) over five years earlier. The aforementioned ramp-up would also be applicable for subsequent capacity expansion phases. Capacity increase of pipelines due to the addition of new gas supply sources will attract tariffs only after five years. The rules restricting a change in tariffs for capacity expansions of less t than 10% and requiring sharing of half the incremental tariff revenues for capacity expansions of more than 10% have both been done away with If actual volumes are less than normative volumes, the company will be allowed set-off credits that can be adjusted against future year volumes. The lower corporate tax rate will be applicable prospectively (i.e., from FY23) for tariff determination. These changes will have positive implications for pipeline tariffs and should incentivise capex, analysts said. In terms of capacity determination, the requirement to share 50% of incremental tariff revenue with customers after more than 10% capacity expansion seems to be done away with — this augurs well for Gujarat State Petronet Ltd’s and GAIL (India) Ltd.’s existing network-based expansion, they said. The source-based capacity holiday for five years post pipeline connectivity with the source would potentially benefit GSPL as a couple of new LNG terminals are coming up in Gujarat. Channel checks of broking house Emkay indicate that the pipeline entities are largely satisfied with the amendments, as it paves the way for future expansion. The note further says that overall, regulatory overtones seem positive for the industry.