By September 27, 2017 Read More →

Citigroup says market should expect oil shortage, not OPEC flood

Oil shortage

Citigroup says it sees a possible oil shortage scenario in 2018 developing because five OPEC nations, Libya, Nigeria, Venezuela, Iran and Iraq have cut back on crude exploration and development investments. Shana photo by Moslem Abbasi.

Oil shortage due to weak investment in exploration, development

Citigroup Inc. is calling for players in the crude market to prepare for an oil shortage in 2018, rather than fear a flood of OPEC crude after the cartel’s supply cut pact expires next year.

In a Bloomberg report released Tuesday, Ed Morse, the bank’s global head of commodities research said five OPEC countries, Libya, Nigeria, Venezuela, Iran and Iraq may already be pumping at their maximum capacity.  Morse adds these five countries have also cut back on investment in exploration and development.

 

“Fear in the market has been that OPEC production will rise dramatically,” Morse told Bloomberg. However, “there could be a supply gap emerging, which could point to a tighter market,” he said on the sidelines of the S&P Global Platts APPEC Conference in Singapore.

energy eastAs OPEC dabbles with the notion of extending the supply cut agreement, Morse says such a decision would increase the likelihood of a tighter oil market.  He says the source of the supply squeeze would probably be OPEC and not producers outside the cartel.  “There’s no room for them to do more,” Morse said, referring to the five nations.

“We’re seeing more and more evidence that it’s not the international oil companies, it’s not the independent oil companies that are lagging new investments, but it’s OPEC countries lagging, particularly those five,” Morse said.

Investors in the Iranian oil industry may find themselves suffering under US sanctions relating to companies owned by the Revolutionary Guards, Iran’s security force that dominates the domestic services sector.  According to the National Iranian Oil Co., Iran is exporting a combined 2.6 MMb/d of crude and condensate and the country expects to ship more by the end of 2017.

A number of major energy companies, including Lukoil and Shell have either pulled out of projects or complained about the drop of investments in Iraq.  Morse said contract terms with Iraq are not competitive.

As for Libya and Nigeria, two African nations struggling to get their oil industries back online after years of strife, Morse says these OPEC members have brought as much production back as they can.

Venezuela is now in economic and social turmoil as PDVSA, the country’s national oil company, struggles to find money to pump oil, the mainstay of the South American nation’s economy.  Venezuela’s crude output is at a 27 year low and is below the amount pledged in the OPEC pact.

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