The end of December is just around the corner, and it’s typical at this time of year for publications to take a grand look backward to sum up the year. What kind of proclamations can we make about the global oil industry in 2014? What sort of lessons are there to be learned, and how will we look back on 2014 years from now?
As tempting as it may be to take that look in the rearview mirror, today we’re going to look ahead with our December version of The Oil Big Five. By now you know the drill: We ask our Platts editors and analysts in offices around the globe what they think are the biggest issues or topics in the oil world for the upcoming month, and then we ask you for your thoughts. Are we right, are we wrong, and what do you want to see covered? Leave us your comments here or with #oilbig5 on Twitter.
Some topics have made our monthly lists several times (I don’t want to point my finger at Saudi Arabia and OPEC, for example, but I’m going to point my finger at them anyhow), and this list is similar. Some of the topics are related to past issues, and some of them will no doubt show their faces again in 2015. It’s just weeks away, after all.
Here’s our Oil Big Five, mostly for December, but possibly giving us a hint of what’s ahead in 2015:
1. OW Bunker fallout in Asia
The early-November declaration of bankruptcy by Danish fuel supplier OW Bunker had widespread effects worldwide — no surprise, as the company claimed roughly 7% of global bunker market share. The filing came just days after the company announced a loss of at least $275 million due to a combination of fraud by senior employees at a Singaporean subsidiary and mark-to-market losses hastened by falling global crude prices. In the wake of the company’s downfall, though, claims made against OW Bunker in Singapore for unpaid fuel totaled roughly $38.8 million, and South Korean refiners are also set to go to court. OW Bunker Far East’s creditors found their scheduled December 4 meeting with the court-appointed provisional liquidators postponed, which means many market participants hoping for a resolution are going to have to keep waiting. The shuttering of OW also prices throughout the region and price relationships worldwide. Which companies will snap up those parts of the market formerly served by OW Bunker, and will the coming January 1 emissions regulations changes have an impact on how this all settles out?
2. Saudi crude sales to Asia
OPEC on December 10 cut its forecasts for global oil demand growth and demand for its own crude for the rest of 2014 and 2015, and noted that slower economic activity, a sales tax hike in Japan and increased fuel switching are contributing to lower-than-anticipated oil demand growth in Asia Pacific and OECD Europe. Middle East crudes are facing more competition in Asia, which has been a primary market for Persian Gulf producers in recent years. More heavy sour crude from Latin America is putting pressure on Saudi crude, and much of the heavier crude that’s expected to come out of the country in the near future is already earmarked for new domestic refining capacity. Saudi Aramco at the beginning of December lowered its official selling prices for Asia (and the US) in January, which analysts said indicates it’s willing to fight for its Asian marketshare, but do you think it’s enough to keep the flow of Saudi crude into Asia at current levels? And what else might be affecting things from the Saudi side of the equation?
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3. Malaysia’s new fuel pricing policy
In late November, while OPEC was off making decisions, Malaysia made the call to completely do away with subsidies on 95 RON gasoline and diesel, becoming the third Southeast Asian country (after Indonesia and Thailand) to join the retail oil pricing reform movement. The move is expected to have only limited impact on demand, since the market price and subsidized price of the two fuels were in the process of converging. Now, the fuels are priced on a “managed float” and set every month, and a slowing Asian economy has put a lull over gasoil demand anyhow, traders said. One outcome may be that the country could make a transition to higher spec fuels more easily now that the subsidies have been erased, and the government set a June 2015 deadline for a nationwide switch to what it calls Euro 4-M specifications for gasoline and diesel, with sulfur limited to 50 ppm, down from 500 ppm. Will more countries join suit and forsake subsidies, and what sort of impact will there be in the market, both in the short and long term
4. OPEC’s effects on prices
OPEC’s announcement to stick by its production rates was made almost two weeks ago, and prices are still moving at sometimes-alarming rates. Global commodity trader Glencore’s Alex Beard, head of oil, said December 10 at the company’s Investor Day that there’s a good chance oil prices will still go lower in December, and then “lower still” in the first half of next year. While prices had been drifting lower before the OPEC meeting, the decision seemed to kick the chaos into high gear. Where do you think the bottom is, and can it be reached before the end of 2014? ICE January Brent fell $4 to $63.84/barrel on December 10, and NYMEX January crude was down $3 at $60.82/b after the US Energy Information Administration released bearish data showing American refined product stocks were up for the week ended December 5. It’s hard to tell how much of this is really the result of the OPEC decision, and how much is the effect of other factors in the marketplace that OPEC’s decision perhaps just exacerbated. In what will be good news for some and bad news for others, Beard added that the longer the crude oil prices remain in a slump, the sharper the rebound will be.
5. The future of US oil production
For those in North America, one of the biggest questions coming out of the recent OPEC meeting is what will happen to the booming US oil production landscape. Just as a stone thrown in a lake sends ripples outward (or as butterfly on one side of the world starts a hurricane in another hemisphere), the OPEC decision could put a damper on international oil companies that have been pumping out the abundant light sweet oil from US shales. Capital expenditure announcements may give a bit of insight as to whether production is slowing down, and legislative decisions could also either give the impetus to continue apace or pull on the reins. What sort of things could happen between now and the end of the year to sway production, and any ideas which direction the totals will go?
USA still only produces around 9.3 million barrels per day. USA will still consume over 16 million barrels per day. Don’t see USA production dropping below 9 million barrels per day.
Despite the wide spectrum and influence of different opinions on why the sudden and dramatic drop in oil prices, there is a noticeable repeated thought of this having to do with a US led strategy to cripple Russia’s economy.
What analysis supports or opposes this growing opinion?
And how would the US government be involved in this? The conspiracy theory of the 80’s was that Ronald Reagan and the Saudis conspired with Riyadh to drive down the price to a) give market share back to the Saudis and b) hurt the Soviet Union too. But that’s a government-to-government “plot.” What would be a government strategy have to do with technological advances that have led to enormous increases in US output from three major basins, the Bakken, the Eagle Ford and the Permian? So if there’s an opinion growing out there that the US government had something to do with this decline in price, just precisely what steps did it do to realize those goals? I can’t think of any. This went on despite the US government, not because of it.