Alexander Khurshudov: oil price is equally likely to rise or fall in September
Moscow. The beginning of August made oil companies nervous. The Brent lost another 4.8% adding to July’s losses and reached a dangerous level of $70.4. It could have gone as low as $68. Luckily it didn’t. The quotes surged in the second half of August adding 10.9%. The month’s trading closed at $77.71 (pic.1).
The increase was promoted by two major factors. In the middle of August OPEC’s Monthly Oil Market Report came out, which showed that the cartel increased oil production in July by 40.6 thousand barrels per day. This is only a trifle, 0.12%. The increase was due to Iraq, Kuwait and the UAE, while the Saudi Arabia, Iran and Venezuela had decreased their production. So, they recovered only a fifth out of the million barrels they had promised to the American president. Sorry, dear sir, we tried, but that’s all that was in Allah’s will.
The American oil producers didn’t demonstrate much progress either. The oil rig count has been fluctuating within 858-869 for the last three months, and the production within 10.8-11 mln bpd, according to the field production data. The US commercial oil stocks are gradually declining, with the most recent data (405.8 mln barrels) being three years’ minimum. This is quite a typical situation for the summer, which normally changes with the autumn’s increase. Though, let’s get back to the chart.
The price now is at the top margin of the mid-term downtrend. We are witnessing a rare situation, when an increase and a decrease are equally possible. It will totally depend on the news. Intuitively I am expecting a decrease. Vacation period ends in September, so petroleum consumption decreases. Tropical storms die out, so offshore production will run uninterrupted. Finally, I have a feeling that the shale fields have not been depleted yet. They will be soon, but not tomorrow. However, all this is true in the absence of bigger news.
Now let’s briefly cover the news for August.
The ENI discovered a new gas field in Egypt’s Western desert. A few deposits are buried at about 5,100 meters. The news is interesting if we think of the oil deposits that had been discovered in the Paleozoic formations at 4,500-5,000 m. A new oil and gas province seems to be forming here (pic.2). Though, reserves density at such depths is not high and they get depleted quickly. It won’t be anything like Ghavar or Samotlor there.
Saudi Aramko and Moscow State University signed a memorandum on strategic partnership in developing new materials, gathering data and reservoir simulation. Two months earlier the Arabian company had had negotiations with Rosneft, where they had discussed cooperation in petroleum chemistry and swap supplies.
Rosneft’s subsidiary Rospan International performed a record-setting hydraulic fracturing with pulse injection. 550 tons of granulated proppant were injected into a well in the East-Urengoy field, which is equivalent to a normal 1,000 ton frac. Obviously, this isn’t a world record, the maximum volume of sand injected during such operations in the US reached 13 thousand tons. However, it’s not record-setting that matters, but the production increment. The Achimov formations in Urengoy are many time more productive than the American shales.
ExxonMobil announced the ninth discovery at the Latin-American Guyana. While drilling the Hammerhead-1 well they discovered a 60-meter thick oil bearing formation at the depth of 4,225 m. Nine producing wells is a lot, they may produce 10-15 mln t/year in the beginning. However, keep in mind that the deposit is buried under the sea over 2 thousand meters deep and the first three wells will be put in operation only in 2020.
The Reuters reported postponing Saudi Aramco IPO for an indefinite period. However, the company’s management claims that the public offering will take place sometime next year. Though this work is being done for over 1.5 years, and there is still no result. I am sure that the reason for it is that the company doesn’t have the huge reserves (36.5 bln t) they declare. According to my rough estimates the reserves do not exceed 20 bln t. It is impossible to do the offering without the reserves’ audit in New York or London; even if IPO takes place at the Saudi exchange Tadaful, the company may face liabilities from new shareholders for their losses due to the false information presented.
As far as Russia is concerned, the biggest news is the Oilman’s Day. I sincerely congratulate all my colleagues and wish them lots of new flowing wells!