By Eithne Treanor
There’s a sense of stability on the oil market in recent weeks, but geopolitics and a declining rig count still worry investors and analysts. In early trading on Friday, Brent crude was priced above US$60 with WTI now above US$50 a barrel.
The oil price has remained in this fixed band for a few weeks now, prompting industry players to question and analyse the possibility of “a new normal.” The CEO of ExxonMobil, Rex Tillerson said the oil industry would continue to see “more volatility in this market” and the industry would have “to settle in” and learn to deal with lower oil prices in the near term.
The company said its output would rise slowly through 2017 and it may delay some investments if crude prices remain low. Tillerson told CNBC “there is the potential for further pressure on the market for a period of time.”
American crude inventories rose more than 10 million barrels to reach over 444 million last week, hitting a record high. Analysts had expected a rise of less than 5 million barrels, so this surprised the market.
With so much oil on the market, there’s a danger the country could soon run out of storage space. American production is currently around 9.3 million barrels a day and Tillerson also spoke of the resilience in the US market despite the recent fall in oil price.
He said that the market “has been surprised at how robust and resilient this has been, and year after year, there’s another million-plus barrels coming out of North America.”
The CEO of Conoco Phillips, Ryan Lance joined other industry players calling for a lift on the ban of export of American oil. “We shouldn’t put domestic producers at a competitive disadvantage by limiting the available markets,” Lance told the U.S. Chamber of Commerce.
The Saudi Arabian oil minister, Ali al Naimi defended OPEC’s position this week at a conference in Berlin saying that OPEC was neither dead nor waging war on shale oil. In his speech he said, “with the recent price drop, OPEC and Saudi Arabia have yet again been maliciously and unfairly criticized for what is, in reality, a market reaction.” He reiterated his position once again.
“Some speak of OPEC’s “war on shale”, others claim “OPEC is dead.” Theories abound. They are all wrong.” He also added that he believed “calm” was returning to the market, and demand was gradually rising. Further cooperation from non-OPEC players will be needed in the future as he once again reminded the market that OPEC should not bear the burden of balanced supply and demand on their own.
The American economy seems to have stalled in the last couple of weeks, with jobless numbers on the increase for the second week. The department of commerce said that new orders for manufactured goods declined by 0.2 percent in January after a 3.5 percent fall in December 2014.
The controversial Keystone XL oil pipeline is still dividing industry players, environmentalists, politicians and communities around America. This week the US Senate failed to override a presidential veto, leaving the project in limbo again waiting with no deadline for an administration decision.
The future of relations with Iran and the West continues to look optimistic. A report from Capital Economics in London says, “a deal between Iran and the West which allows for the removal of sanctions on Iranian oil exports is looking more likely.” But the analysts are not looking for a swift resolution and say the most likely scenario will be a gradual return of Iranian exports over the next few years.
While this would be good news for geopolitics in the region and globally, the move would not help the oil price. The other and not so optimistic option could be a deal that results “in the immediate removal of most, if not all, of the export restrictions.” Such a surprise action would send oil prices sharply lower as the Iranians intend to beef up production.
Geopolitical issues in Iraq and Libya still worry the market, but there’s little hope of a swift resolution. Islamic State fighters in Iraq continue to disrupt business and have set fire to an oil field in Iraq, while the ongoing conflict in Libya with militant groups has forced the closure of eleven oil fields in the country. Few analysts are committed on their predictions in this volatile market as the game of wait and see continues.