OPEC may roll out new price-control technique in December

Category : News

By Grant Smith on 10/18/2019

LONDON (Bloomberg) – As the clamor grows for OPEC to slash even more oil production, and the group vows to consider any necessary action, its next meeting could result in an unusual step: a preemptive supply cut.

The Organization of Petroleum Exporting Countries and its partners — known as OPEC+ — have reduced output this year to contain a glut created by faltering oil demand and surging U.S. shale supply. Amid forecasts of a new surplus next year, there’s a chorus of calls from Morgan Stanley to Commerzbank AG for the alliance to deepen the curbs when it meets in Vienna in December.

But in recent months global markets have grown tighter, removing any immediate need to act. If extra cutbacks are announced, it would mark a break with tradition for the cartel, which typically waits for a glut to emerge before responding.

“It would break the mold,” said Derek Brower, a director at consultant RS Energy Group. “OPEC makes policy reactively, not proactively.”

Depressed oil prices may compel the group to change its habits. Crude has slumped about 20% in six months to around $60/bbl in London — below the levels most OPEC nations need to cover government spending — and on Friday was heading for a weekly loss of 0.7%. A renewed sell-off in 2020 would squeeze revenues even further.

OPEC+, a collective of 24 producers that pumps half the world’s oil, confronts a “daunting” surplus in the first six months of 2020 of about 1.2 MMbpd, according to the International Energy Agency. Demand is being eroded by the weakest global growth in a decade and the U.S.-China trade war, while supplies are swelling in the U.S. and elsewhere. As a result, the group is facing a “serious challenge” to defend prices, said Neil Atkinson, the agency’s head of oil markets.

The coalition agreed to cut output by 1.2 MMbpd, a reduction that has been compounded by a range of crises, from sanctions on Iran to a missile attack on Saudi Arabia’s oil-processing facilities. Nonetheless, traders and consultants from Gunvor Group Ltd. to Rystad Energy AS recommend a further cutback when OPEC+ meets on Dec. 5-6.

“If by December there are clear signs of economic weakness, then a further deepening by a minimum of 500,000 barrels a day would be highly likely,” said Ed Morse, head of commodity research at Citigroup Inc. in New York.

OPEC’s top officials have signaled they’re prepared to consider this. Secretary-General Mohammad Barkindo said the group will do “whatever it takes” to prevent a market slump and that members are willing to “put all options on the table.” Saudi Energy Minister Prince Abdulaziz bin Salman, who represents OPEC’s biggest member, said his job is to check a surplus.

Even Russia’s President Vladimir Putin, who leads OPEC’s most important, yet often reluctant ally, has said he recognizes the need for further cooperation.

Yet announcing a supply cut while the market is in deficit would be a departure for the organization.

When OPEC+ was established in late 2016, surplus inventories had ballooned to a record of more than 300 million barrels and were still accumulating at a rate of 1.4 MMbpd, according to the Paris-based IEA. Its current round of cuts was agreed in late 2018, when supply was exceeding demand by 2.7 MMbpd.

In the past, OPEC has more typically been criticized for acting too slowly. When a surplus brews, members are reluctant to gamble that sacrificing sales volumes will be compensated by higher prices. There’s also the inevitable haggling over how much each nation should cut.

“It’s far easier for OPEC to sit on its hands, hope for the best, ignore gloomy forecasts for as long as possible and try to deal with any problems after they’ve emerged, rather than start the painful and tedious negotiations that are always needed before a new deal,” RS Energy’s Brower said.

The group can also be tardy in increasing production. OPEC’s inaction during the rally of early 2008 allowed oil prices to hit an all-time high above $147/bbl, feeding into the global recession that sent crude tumbling later that year.

When OPEC assembles at its Austrian headquarters in December, global markets probably won’t be telegraphing any immediate surplus to be dealt with.

World oil inventories contracted in the third quarter by the most in a decade, falling by 228 million barrels, according to OPEC, as summer demand proved surprisingly robust and the group’s deliberate cutbacks were amplified by disruptions in Iran, Venezuela and Saudi Arabia.

Stockpiles are poised to shrink further in the fourth quarter, even if the kingdom has fully restored output from the Sept. 14 missile and drone strikes, the IEA estimates. Inventories may decline by about 55 MMbbl.

Yet the outlook for the first six months of 2020 may nonetheless spur the producers into acting. The alliance needs to cut supply by 1 million barrels a day, and the only question now is the timing, said Bob McNally, president of Rapidan Energy Group and a former oil official at the White House under President George W. Bush.

“Normally it’s OPEC’s habit to wait until they can see the oversupply in the whites of the eyes,” McNally said. “But the heavily swollen balances for the first half of next year may push them to cut production earlier than planned.”

Climbing U.S. inventories hold oil prices down

Category : News

By Elizabeth Low on 10/17/2019

LONDON (Bloomberg) – Oil traded near $53/bbl after an industry report showed a sharp jump in U.S. inventories, adding to concern that supply keeps growing while demand ebbs.

Futures were down 0.2% in New York, paring earlier losses of as much as 1.1% after the European Union and the UK reached an agreement on Brexit. The American Petroleum Institute reported crude inventories rose by 10.5 MMbbl last week, according to people familiar with the data. That would be the biggest increase since February 2017 if confirmed by official Energy Information Administration figures due Thursday.

The Organization of Petroleum Exporting Countries faces a “serious challenge” to defend oil prices next year as fuel-demand growth could slow further amid a wave of new supply from the U.S., Brazil and the North Sea, the International Energy Agency warned on Wednesday. Progress toward a limited U.S.-China trade deal, while positive, isn’t likely to have a major impact on global economic growth unless existing tariffs are rolled back.

“Oil prices are facing headwinds from the unexpectedly marked 10.5 MMbbl increase in U.S. crude oil stocks last week, as reported by the API after close of trading yesterday evening,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

West Texas Intermediate for November delivery dropped $0.10, or 0.2%, to $53.26/bbl on the New York Mercantile Exchange as of 10:43 a.m. in London. The contract added $0.55 on Wednesday, its first gain in three days.

Brent crude for December settlement was little changed at $59.42 on the London-based ICE Futures Europe Exchange. The global benchmark crude traded at a premium of $5.97 to WTI for the same month.

If the EIA data also shows an increase in U.S. stockpiles, that would be the fifth straight weekly gain, the longest run since February. American inventories probably rose by 3 MMbbl, according to the median estimate in a Bloomberg survey.

Safe Influx successfully field trials automated well control technology

Category : News


ABERDEEN – Safe Influx has successfully completed the field trial of the world’s first automated well control system on the Weatherford land rig at Bridge of Don, Aberdeen.

Safe Influx, an independent supply company based in Aberdeen, has developed technology that will improve the safety, environmental and cost performance of drilling.

With funding support from Oil and Gas Technology Centre (OGTC), at 15:10 on Tuesday 8th October 2019, the “Drilling Module” was successfully implemented and proven in the field. The system was interfaced with a traditional land rig and performed automated well control, i.e. influx detection, spacing out, stopping of the mud pumps, stopping of the top drive and then shutting-in of the blowout preventer. This has never been achieved before.

Safe Influx performed a week’s worth of activities. These included:

  • Interfacing the Safe Influx Automated Well Control system with the 40 year old land rig.
  • Commissioning the system to ensure correct interfacing.
  • Running the system to demonstrate functionality and training the Driller.
  • Performing a series of system tests to demonstrate and prove up the functionality under different operational requirements.
  • Performing system demonstrations for the benefit of Lloyd’s Register inspectors. This will enable the existing Lloyds Register Technology Qualification Certificate to be extended to traditional land rigs.
  • Demonstrating the technology to the industry press.
  • Demonstrating the technology to a cross section of over 30 industry VIPs, including operators, drilling contractors and well engineering companies.

Having proven this technology using real world equipment, Safe Influx is now planning to engage with operators and drilling contractors to perform Extended Field Trials on modern cyber rigs and traditional rigs in operations in the North Sea.

Bryan Atchison, co-founder and managing director at Safe Influx, said “Safe Influx is delighted to bring Automated Well Control to the industry. Our successful field trial demonstrated that automation can provide support to the driller, dramatically reducing our exposure to Human Factors.”

“The technology also provides a significant safety, time and cost advantage on day to day drilling operations, as influxes or kicks can be shut-in more quickly thus resulting in much smaller shut-in volumes and therefore much more manageable well control incidents”, he added.

“This technology is a tool for the driller, providing peace of mind for the drilling contractor, operator and regulator” he stated.

Malcolm Banks, well construction solution centre manager at the OGTC, commented “A key strategic focus of the Wells Solution Centre technology roadmap is centred on how automation can bring increased efficiency and reduce HSE exposure during the well delivery processes. The Safe Influx Automated Well Control system has the potential for significant improvement on how high potential risk well control events are detected and responded to”.

“Support from the Oil & Gas Technology Centre has accelerated development of the technology (in partnership with Safe Influx and Transocean) with the demonstration at the Weatherford test facility giving us the first opportunity to access the capability of the system. This has provided industry with clear evidence of the potential of the system and will hopefully inspire drilling contractors and operators to engage in further deployment on operational rigs, further demonstrating the capabilities and impact of the system,” he added.