WEEKLY ENERGY RECAP: Keeping things in balance

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day. (AFP/File)
Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.


BP said to be considering sale of Mideast ‘stranded assets’

Updated 08 August 2020

BP said to be considering sale of Mideast ‘stranded assets’

  • Major oil companies typically hold assets for the long term

LONDON: BP is preparing to sell a large chunk of its oil and gas assets even if crude prices bounce back from the COVID-19 crash because it wants to invest more in renewable energy, three sources familiar with BP’s thinking said.

The strategy was discussed at a BP executives meeting in July, the sources said, soon after the oil major lowered its long-term oil price forecast to $55 a barrel, meaning that $17.5 billion worth of its assets are no longer economically viable.

But even if crude prices bounce back to $65-$70 a barrel, BP is unlikely to put those assets back into its exploration plans and would instead use the better market conditions as an opportunity to sell them, the three sources said.

Major oil companies typically hold assets for the long term, even when crude prices plunge, with a view to start bringing more marginal production online when market conditions improve.

However, BP’s new divestment strategy, which has not previously been reported, means there will be no way back for the British energy company once it has offloaded its so-called stranded oil and gas assets.

BP did not respond to requests for comment.

The new strategy also sheds more light on chief executive Bernard Looney’s plan to reduce BP’s oil and gas production by 40 percent, or at least 1 million barrels per day, by 2030 while expanding into renewable energy.

“It is a simple calculation of natural production decline and planned divestment,” said a BP source, explaining how BP became the first big oil company to pledge a large cut in its oil output.

For decades, BP and rivals such as Royal Dutch Shell and Exxon Mobil have promised investors that production would continue to rise. But as climate activists, investors, banks and some governments raise pressure on the industry to reduce emissions to help cool the planet, European oil firms are changing tack and pledging to invest more in renewable energy sources.

US rivals are under less government pressure and have not made similar commitments on renewables.

“As we look at the outlook for BP over the next few years and as we see production declining by 40 percent it is clear we no longer need exploration to fund new growth,” Looney said this week. “We will not enter new countries to explore.”

He said that BP would continue to explore for oil near its existing production infrastructure as those barrels would be low cost — and help boost BP’s cash flow to fund its transition to cleaner energy.

BP also raised its target this week for returns from asset sales to $25 billion between 2020 and 2025, of which about $12 billion has already been lined up.

Parul Chopra, analyst at Rystad Energy, said in addition to Angola, he expected BP to move out of Azerbaijan, Oman, the UAE and Iraq.

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