Summary of the latest Oil & Gas sector research from Exane BNP Paribas
Oil prices remained volatile this last week, hitting a 13-year low of $27.10 as gains driven by Chinese oil demand were supressed by a 4Mbbls increase in US crude inventories, expectation for a surge in Iranian exports and a firm warning on oversupply from the IEA.
Light at the end of the tunnel?
With crude making a late “rally” back towards $30/bbl yesterday and the market squarely focused on “oil going to $20/bbl”, it’s worth asking if the recent collapse has gone too far. Most forecasts indicate a tightening of the market by the end of the year. We’re currently more cautious than that but would still argue that at <$35/bbl, larger declines in US shale output would reduce our forecast surplus of 1.5mb/d. On the flipside though, the macro is worsening and with refineries sufficiently restocked, you have to worry about demand projections. But as we discussed in Bouncebackability – $75/bbl in 2016?, when crude does bounce, it tends to bounce big. Watch this space!
Drilling Deeper… This week we consider how latest IEA OMR compares to our own supply-demand expectations. Then we review how the traditional discounts placed on different crudes relative to Brent are changing and the implications for the oil price. Next, we review the relative resilience of the Bakken in terms of output and consider how long it can continue. Finally, we try to evaluate whether assets can continue to cover cash cost and whether there is any incentive to shut down operating assets.
In the news this week… Crude achieved a 13-year low this week of $27.1/bbl on concerns over a surge in Iranian exports and a stark warning on a supply glut from the IEA. Shell and BG released their trading updates in advance of Q4’15 results. Eni finally received PSA approval for its Goliat FPSO and Suncor had a $6.6bn offer for Canadian Oil Sands accepted. In E&Ps, Rockhopper completed its acquisition of Falkland Oil & Gas and in Oil Services, Aker announced further job cuts in its Norwegian business.
And what to look out for In the week ahead, Shell & BG shareholders will vote on the proposed acquisition in AGMs (27th & 28th) and Galp, Maurel et Prom and OMV release trading updates ahead of Q4’15 & FY15 results.