Alexander Khurshudov: Brent has firmly settled over $60
At the end of October the Brent price attacked the level of $60 for the second time and finally succeeded in overcoming it (pic.1). Surprised commentators dropped their teeth and some even claimed that there were no fundamental reasons for the price increase. Which is totally untrue. On the contrary, the fundamental indicators of the oil market improved this year, and it was only the persistent forecasts about the shale oil production (pulled out of thin air) that stopped it from growing earlier.
I have to admit that I expected the price to bounce back to the level of $58 last week, because there is a strong support there. However, Baker Hughes data was published on Friday indicating reduction in the US rig count by 11, so the bulls roared happily and pushed the Brent price as high as $62.07 with the trade closing there. The rig count chart (pic.2) shows a distinct declining trend, the total rig count is 898 at the moment.
In the main oil province the Permian basin the rig count reduction is not so big, just 1.6% (pic. 3), but they are drilling “at stock” there, the wells are suspended after drilling. Since the beginning of the year the number of wells drilled but not completed grew by 58.08%, from 1,521 to 2,416. Commentators have been saying that the producers are waiting for the oil prices to increase. Well, now the WTI costs $55, but the stock of uncompleted wells keeps growing. They must be waiting for it to grow to $100. In the Eagle Ford and Bakken oilfields drilling reduced even more, by 23% and 11% respectively.
Besides, the US oil production data for August indicates a decrease by 31 thousand bpd compared to July to 9.203 mln bpd. Though, according to operational data it reached 9.5 mln bpd. There is something wrong with the American statistics, it seems it’s time to fix the computer model so that it didn’t confuse people.
While the stock exchange was listening to the serenades about the perspectives of the shales, the OPEC+ countries have been thoroughly implementing their agreement and have reduced their oil production by about 300 mln barrels since the beginning of the year. The global oil consumption grew by 270 mln barrels under the low prices. These are feasible fundamental changes, but they seem to be hardly noticeable. Meanwhile, the deficit caused a steady decrease in the stocks of oil and petroleum products: in the US they decreased by 87 mln barrels within the year, with the oil and gasoline stock decreasing by 5-6%, and diesel fuel by 14 %. That was when the stock exchange came to its senses and started buying oil contracts.
News for today is quite curious:
Rosnedra suspended for five years Rosneft’s license for the exploration and production of oil and gas in the South Black Sea license area… according to RBK’s source in the company… It named the sanctions, which prevent from employing offshore drilling equipment among the main reasons for this decision.
I was happy at first, because I think drilling offshore the Kuban highly risky. Even happier was the liberal mass media: they imagined that the American sanctions have finally done Russia some harm. Everyone was mistaken.
Rosneft has licenses for three offshore areas (pic.4). The only drilling rig for deep water drilling Scarabeo 9 was hired by Rosneft from the Italian company Saipem and has already been delivered to Russia.
To pass the bridges in the Bosphorus Strait with their 60 m bays, they had to dismantle a part of the rig from the semi-submersible drilling rig Scarabeo 9 (pic.5). The rig was assembled back in the Rumanian port Costantsa.
The first exploratory well is planned to be drilled in the Maria structure in the West Black Sea area. Apart from it 9 more perspective formations have been identified in the area. It makes no sense to bring other drilling rigs to the Black Sea, so the decision to postpone the exploration there is not only logical, but is really necessary.
On 3 November the well №37260 at the pad №957 in Samotlor field experienced an uncontrolled gas inflow (a blowout) without fire. There are no injured parties, mine rescue brigade is working.
From the history of Samotlor I remember several such gas blowouts. All were abandoned with no injured. The source of gas are gas caps from the productive formations and the overlying Apt-Senomanian strata. The gas from the gas caps is not produced yet (this is the matter of the future), so there is still quite high pressure there. I hope this accident will be eliminated as successfully as the previous ones.
The American agency EIA published a brief report on the state of Russian energy sector. It is nice of them to be interested in us. However, more than half of the information is taken from the Western sources and so contains gross errors. In particular, the scope of refining in Russia is for some reason reduced from the real 277 to 190 mln t/year. Besides, Russian reserves of oil and gas are reduced by 30-40%.
Brent has firmly settled over $60. Still I expect the price to bounce back to $59 ($58 at most) in the beginning of November, followed by the increase targeting at $65. I’d like to remind you that my forecast by the end of December for the Brent oil is within the wide interval of $63-81. It has a good chance of coming true.