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Brent price analysis and other news

October 04/ 07:44

Brent price grew to the level of $57 as expected for three weeks in September, then surged by 4% last week (pic.1) only to bounce right back. Trading closed at $56.53.

The reason for the surge was the referendum, which took place in Kurdistan. Not so much oil is produced there at the moment, about 0.5-0.6 mln bpd, which is just 13% of the total Iraq’s production. However, the Kurds claim they have 6 bln tons of proved reserves, and this would be 30% of the total Iraq’s reserves. Though everybody understands that if Kurdistan tries to fight for its independence, the neighbours will block its oil export, and there isn’t much fighting one can do without money. Besides, oil companies have been complaining that Kurdistan government owns them a lot for the produced oil. Nevertheless, the tensions increased after the referendum threatened with supply decrease and that was what the stock exchange immediately reacted to.

ic.1

However, Iraq, Turkey and Iran contented themselves with menacing claims, the leaders of the Kurds, realizing their weakness, decided to take a break and even made a curtsey to Moscow. By Monday evening, when New York exchange started trading, the situation calmed down, so the WTI price didn't reach the strong barrier of  $54 and then decreased further  (pic. 2).

Pic.2

Note that the difference between Brent and WTI has grown to $4.9 or 8.65%. One could get an impression that the US are up to their ears in oil, they don't know what to do with it. Besides, their export has increased by 0.7 mln bpd. Import has also increased, though not so much, by 0.35 mln bpd. What is the reason for such moves?

The reason is the hurricanes that passed. American refineries haven’t still reached the level of early August, the current output is 7.6% less. A temporary surplus of oil appeared, a part of which went abroad. The stock exchange reacted to that by decreasing prices.

The hurricanes have also affected the commercial oil stocks: the crude oil stocks increased by 8.5 mln bpd in September, gasoline and diesel stocks combined reduced by 19 mln barrels. According to field production data oil production reached 9.547 bpd, which is the local maximum since 2015.

The situation at the long futures market is quite curious. They trade at $0.5-1 less than the current price up to 2023. The stock exchange doesn’t believe that the prices will grow, wrongly in my opinion. Though it is typical of exchange to change its mind quickly.

Let’s briefly cover the other news.

Petrobras and ExxonMobil won the auction for the lease at subsalt fields in the Campos basin deep water off the coast of Brazil.  The companies will pay the total of $1.08 bln for the right to develop two blocks. This is five times more that the bids from the other participants. 

Brazil has been producing offshore for quite a time, it has 133 offshore platforms, 86 of them are floating ones. However, the subsalt deposits are probably the most complicated production target in the world. They are buried at around 7 thousand meters, with the sea being 2 thousand meters deep. Under the current prices their production is guaranteed to be non-economic. Blowout hazard is incredibly high there.

Gazprom Neft decided to refrain from the development of Halabja, one of three active projects in Iraqi Kurdistan. Seismic data indicate a possible gas field there. However, Halaja is located 2 thousand meters up in the mountains, it almost totally lacks infrastructure and there are still minefields remaining from the last military operations. The other two projects are being implemented, though not too fast.

In August oil exporting countries fulfilled their obligations to decrease the production by 116%, according to Alexander Novak, RF Energy Minister. He says that Russia even goes beyond its obligations considering the maintenance done at different facilities, including Sakhalin-1.

I can add here that “going beyond the plan” doesn’t really cost them much effort; in almost every country except for Libya and Nigeria, production is declining on it own…

Active rig count in the US grew by 6 last week. It decreased by 3 at the main shale formations, while growing by 9 in other fields.

I expect Brent price to drop to $55 in the first half of October, followed by an attempt to break though to over $60. Will it be successful? Let’s wait and see…

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