Paralysed Opec pleads for allies as oil price crumbles Helima Croft, from RBC Capital Markets, said four of the frontline states in the fight against ISIS are now being destabilized by the crash in oil prices, including Algeria and Libya.
Opec leaders will now have to grit their teeth and prepare for a long siege, testing their social welfare models to the point of destruction. Even Saudi Arabia is pushing through drastic austerity measures.
Deutsche Bank said the fiscal break-even cost needed to balance the budget is roughly $120 for Bahrain, $100 for Saudi Arabia, $90 for Nigeria and Venezuela, and $80 for Russia, based on current exchange rate effects.
“It is going to be 12 to 18 months before they see any relief,” David Fyfe, from the oil trading group Gunvor, said.
“We think oil stocks will continue to build in the first half of next year and we don’t think they will draw down to normal levels until well into 2017.”
Mr Fyfe said Iran has 40m to 50m barrels floating on tankers offshore that will flood onto the market as soon as sanctions are lifted. It will then crank up extra output to 500,000 b/d by the end of next year.
Per Magnus Nysveen, from Rystad Energy, said it will take a very long time to force the capitulation of America’s shale industry. While the rig count in the US has collapsed by 60pc over the past year, the number of wells being “fracked” has risen in recent weeks.
“There is still an inventory of 3,500 wells. Theoretically they could continue fracking at this pace for another six months without any new drilling. We don’t think there is going to be a significant fall in US output next year. It could be flat,” he said.
Mr Nysveen said the damage will be in other parts of the world, chiefly the mature offshore fields in the Gulf of Mexico, North Sea, Brazil and Africa. The decline rate of old fields will double to 10pc a year, subtracting 750,000 b/d from world supply within 12 months.
It is going to be a long war of attrition. The world is awash with oil. US crude inventories rose further last week by 1.6m barrels to the vertiginous level of 489.4m.
China has been soaking up some 250,000 b/d for its strategic reserves, preventing a collapse of the market. But the old sites are filling up and it is unclear whether new facilities are ready.
More than 100m barrels are being stored on tankers offshore. Tanker day-rates have soared to more than $111,000 – the highest since July 2008 – as the last remaining vessels are booked to absorb the glut.
Goldman Sachs warns that the market is approaching an “inflexion point” that could send prices crashing to a new a floor of $20, the "cash cost" that forces drillers to stop production altogether.
A dangerous situation is developing. Opec policy has caused spare capacity to fall to a wafer-thin margin of 2m b/d, leaving no one to act as the regulator of the market.
This sets the stage for a violent spike in prices down the road. The International Energy Agency says the world needs $650bn of fresh investment each year in upstream oil and gas just to stand still, yet $240bn has already been slashed from projects earmarked for next year.
https://www.telegraph.co.uk/finance/economics/12033696/Paralysed-Opec-pleads-for-allies-as-oil-price-crumbles.html