26 September 2017

Nigeria: Hope Rises for Oil Market Stability in Q4 '17

With prolonged lull, characterised by over-supply, speculation and politics, the international oil market has been very unstable this year, thus causing tension in major oil-exporting nations, including Nigeria, Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Islamic Republic of Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, United Arab Emirate and Venezuela.

Available reports showed that the oil price stood at over $50 in the first quarter of 2017, dropped to $49 in the second quarter, before rising to $56 per barrel towards the end of third quarter through the strategic interventions of both members of the Organisation of Petroleum Exporting Countries, OPEC, and non-OPEC members.

Investigations showed that the price of oil may stabilise in excess of $55 per barrel in the fourth quarter, especially as many stakeholders, particularly Russia, Azerbaijan, Brunei and Sudan, have decided to support the efforts of OPEC in achieving stability.

Already, the Joint OPEC-Non-OPEC Ministerial Monitoring Committee, JMMC, stated in its report obtained by Vanguard that based on the confirmation of the Joint OPEC-Non-OPEC Technical Committee, JTC, for the month of August 2017, OPEC and participating Non-OPEC producing countries recorded the highest conformity ever with their voluntary adjustments in production, achieving a level of 116 per cent.

It indicated that the JMMC was established following OPEC's 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the joint OPEC-Non-OPEC Producing Countries' Ministerial Meeting held on 10 December 2016 at which 11 (now 10) non-OPEC oil producing countries cooperated with the 13 (now 14) OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.

Depleting stocks

Also, Issam Almarzooq, Kuwait's Minister of Oil and Minister of Electricity and Water, and Chairman of JMMC, disclosed at the 5th meeting of the JMMC, September 22, 2017, in Vienna, Austria that since its last meeting in July, the oil market situation has markedly improved.

Almarzooq noted that the de-stocking process had accelerated in recent months, adding that the most recent data for August 2017 now shows OECD commercial oil inventories around 170 million barrels above the five-year average. He indicated that this compares to the beginning of 2017, when the level was 340 million barrels above the five-year average and that floating storage has declined significantly in recent months.

"I should add here that the catastrophic hurricanes that have hit the US Gulf Coast in recent weeks and the subsequent refinery outages have evidently had some short-term repercussions with risings US stock levels. However, the US energy industry already appears to be rebounding quickly. We offer them, and everyone impacted by the devastating events, our full support as the region recovers."

Demand growth

Dr. Mohammad Barkindo, Secretary General of OPEC added that: "It seems almost unbelievable that we are about to move into the fourth quarter of 2017, so quickly has this year passed. We have every reason to be pleased with the steady progress we have made in our collective efforts to overcome the challenges of the current oil market cycle - which is worse than all previous cycles.

"We have seen oil storage tanks being massively drained, both onshore and offshore, across all regions of the world. For the first time in the course of this cycle, storage levels above the five year industry average have plunged below 200mb/d from a record 380mb/d last year, which now stands at 170mb above the five year average. In terms of days of forward cover we are at just about two days above the five year average. Of this 170mb, 137mb constitute crude and a mere 33mb are products. Furthermore, 112mb of the 170mb originate from the US. These figures confirm beyond all reasonable doubt that the market is rebalancing.

"Our conformity levels have continued to significantly improve and reached an unprecedented level of 116% in August! In terms of our core principles of equity, fairness and transparency, could we have achieved all these remarkable feats without the over-performance of some participating countries? No!

"We, therefore, acknowledge with deep appreciation the exemplary conduct and leadership of over-conforming OPEC countries, Saudi Arabia, Angola and Equatorial Guinea, as well as over-conforming non-OPEC participating countries, Azerbaijan, Brunei and Sudan, in continuously restraining themselves and sacrificing in the interest of all. "In this regard, we urge participating countries to achieve 100 per cent conformity without further delay. Had every participating country conformed fully since the beginning of the Declaration of Cooperation, the market would have already rebalanced.

"Demand growth remains robust, with the projected 2mb/d in 2H17 on course to materialize. The surge in US tight oil growth in the 1H17 has started to decelerate including the deployment of oil rigs in the shale basins as well as the productivity of the wells. All factors point to headwinds ahead.

"The oil market structure has finally switched from Contango to backwardation, a condition that has eluded the market since its collapse in the fall of 2014. This further confirms that the fundamentals of supply and demand that have been out of balance are gradually but steadily rebalancing."

Russia's optimism

The stability seems to be assured as OPEC has the cooperation of major stakeholders, including Russia.

Alexander Novak, Russia's Minister of Energy, disclosed that: "in less than a week, the 9th month of the joint efforts of OPEC and non-OPEC would come to an end. "We expect a strong pick up in crude demand in the second half of the year, by 2mb/d, year on year. We are seeing strong growth in global demand and global macroeconomic indicators are being revised upwards. So, I would say that the fundamentals are coming back to normal."

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