Navarik Market Update
August 3, 2017
Both Brent and WTI hit or flirted with $50/bbl US this week, but the price rise was undercut by lingering concerns about OPEC production (particularly from countries exempt from cuts) and the Pernis refinery outage affecting Europe’s offtake capacity. This continued earlier mildly bullish sentiment, as capital expenditure cuts by US producers such as Anadarko suggested that they may have hit the floor of their break-even price, and therefore the shale boom may have peaked. OPEC’s strategy appears somewhat validated.
However, built into the price moderation should also be a realization that break-evens for major and minor producers in non-OPEC countries are now within the $50 range. The recent capex cuts are misleading; they should best be thought of as deferred investments. US oil patch executive surveys from as recent as March 2017 have suggested most companies plan to re-increase their exploration budgets next year. Hence, any spot market price increases are likely to fund these delayed capex investments, thereby increasing production in the medium- to longer-term again, especially given oilfield services companies have themselves said they are also competitive with the oil price around $50.
At this point, the major factor conclusively underpinning price upside is the geopolitical risk and uncertainty out of Venezuela. Any import bans on Venezuelan crude would increase the global oil price, benefitting other OPEC producers (although don’t expect any of them to admit to hoping for such a ban to take place). This would also hurt the US consumer at the pumps, but based on the above, help producers. Personal sanctions against Venezuelan President Maduro and his associates have to date been the sole policy responses from the Trump Administration, who appear to be waiting for confirmation of which effect would dominate the other, and this appears to have held off these worries translating into prices in any conclusive way.
Effectively, the market revealed this week that the roof of the global oil price band is lower than OPEC had hoped, and the floor doesn’t seem to be moving up nearly as fast as they expected either.
Figure 1 – Dallas Fed Energy Survey
Figure 2 – Dallas Fed Energy Survey
Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.
A list of current available trade flow reports can be found here.