OPEC Cuts May Go Deeper as Angola Sees Output Plunge
April 28 2018 01:29 AM
An oil platform is seen in the Atlantic Ocean off the Angolan coast (file). Angola, once Africa’s biggest crude producer, is suffering sharp declines at under-invested offshore fields, with output dropping almost three times as much as the nation pledged in an accord with fellow Opec members.
Bloomberg/London
While plunging output in Venezuela captures the oil world’s attention, problems are quietly festering in another Opec nation.
Angola, once Africa’s biggest crude producer, is suffering sharp declines at under-invested offshore fields, with output dropping almost three times as much as the nation pledged in an accord with fellow Opec members. With the losses set to accelerate — a shipping programme seen by Bloomberg News shows crude exports will fall in June to the lowest since at least 2008 — the organisation risks tightening supply too much.
“Angola has a serious problem, with its decline rates becoming increasingly visible,” said Richard Mallinson, an analyst at consultants Energy Aspects Ltd in London. “The low figure in June doesn’t look like a pattern of maintenance but points to steeper, structural declines.”
The Organisation of Petroleum Exporting Countries and its allies have succeeded in wiping out an oil glut through production cuts launched in early 2017, boosting prices to a three-year high above $75 a barrel. Their efforts have been aided by accidental losses in member nation Venezuela, which is cutting six times the amount it promised as a spiralling economic crisis batters its oil industry.
The risk Opec faces now is tightening world markets too sharply, and sending prices to levels that either crimp oil demand or provoke a new tide of rival supply from the US as Angola’s creeping decline adds to the ongoing slump in Venezuela, that danger only grows.
Output interruptions among the organisation’s members could send Brent crude prices above $80 a barrel, Bank of America Merrill Lynch analysts including Francisco Blanch, head of commodities research, said in a note to clients.
Unintended supply disruptions are rife in the group. Nigeria and Libya were exempt from the deal to cut output because their production had already been diminished by local instability, while Iraq’s implementation of the accord only improved after a political dispute halted exports. Some traders are already shunning Iranian crude in fear that President Donald Trump will re-impose sanctions.
Angola’s slide could be alleviated by the end of the year, with the start up of an oil field operated by Total. The Kaombo field, delayed from 2017, will have a capacity of 230,000 barrels a day.
That might not come soon enough.
Although output from all oil fields diminishes over time as the pressure in their reservoirs falls, Angola’s deep-water operations are especially costly to maintain. Because of insufficient capital expenditure, the rate of decline from Angola’s deposits is more than double the global average, at 13 to 18%, Mallinson estimates. “Most Angolan fields have struggled or entered into a steep decline phase after three years — it’s the nature of the geological characteristics of Angola’s offshore production,” he said. The country’s struggles will only intensify in coming years, the International Energy Agency predicts. Since peaking at 1.9mn barrels a day in 2008, Angola’s production has slumped to about 1.5mn, and will dwindle to just under 1.3mn barrels a day in 2023, according to the agency.
Oil prices steady but supported by Iran concerns
Reuters
New York
Oil prices were little changed yesterday, with Brent on track for its third week of gains amid supply concerns should the United States reimpose sanctions on Iran.
Brent crude futures rose 6 cents to $74.80 a barrel, a 0.1% gain, by 1:11pm EDT (1711 GMT). This month, the global benchmark hit highs above $75, a level last seen in late 2014.
US West Texas Intermediate (WTI) crude futures fell 3 cents to $68.16 a barrel.
Brent was on track for a weekly gain of about 1%, while WTI was set for a weekly loss of about 0.3%. US President Donald Trump will decide by May 12 whether to reimpose sanctions on Iran that were lifted as part of an agreement with six other world powers over Tehran’s alleged nuclear programme.
The renewed sanctions would likely dampen Iranian oil exports, disrupting global oil supply.
“That’s an issue that is more political in nature that could have a shock in the market,” said Mark Watkins, a regional investment manager at US Bank Wealth Management in Park City, Utah.” “It’s one of those wildcards that’s out there because if the sanctions do happen, there’s going to be oil that comes off the market.”
Brent has risen by around 6.5% this month.
The gains came despite a higher dollar, which hit its strongest since January 11 against a basket of currencies.
A stronger dollar makes greenback-denominated commodities more expensive for holders of other currencies.
Concerns about market tightness have also been fuelled by the deteriorating political and economic situation in Venezuela that has led to a 40% decline in crude output in the past two years.
Price increases have been capped by rising US production as shale drillers ramp up activity, underpinning a widening discount between Brent and WTI. US crude’s discount to Brent hit its widest since December 28 at $6.74 a barrel.
Surging US production, which rose to 10.59mn barrels per day last week, has encouraged record-high US exports.
US drillers added five oil rigs this week, bringing the total count to 825, the highest level since March 2015, General Electric Co’s Baker Hughes energy services firm said. But while US producers are accelerating shale drilling in areas in the United States, higher production has not necessarily translated into stronger refining results for some oil companies.
Weak refining margins hurt two of the world’s largest integrated energy companies for the second consecutive quarter, although Chevron Corp’s oil production gains in the first quarter outshone its larger rival Exxon Mobil Corp.
An oil platform is seen in the Atlantic Ocean off the Angolan coast (file). Angola, once Africa’s biggest crude producer, is suffering sharp declines at under-invested offshore fields, with output dropping almost three times as much as the nation pledged in an accord with fellow Opec members.
Bloomberg/London
While plunging output in Venezuela captures the oil world’s attention, problems are quietly festering in another Opec nation.
Angola, once Africa’s biggest crude producer, is suffering sharp declines at under-invested offshore fields, with output dropping almost three times as much as the nation pledged in an accord with fellow Opec members. With the losses set to accelerate — a shipping programme seen by Bloomberg News shows crude exports will fall in June to the lowest since at least 2008 — the organisation risks tightening supply too much.
“Angola has a serious problem, with its decline rates becoming increasingly visible,” said Richard Mallinson, an analyst at consultants Energy Aspects Ltd in London. “The low figure in June doesn’t look like a pattern of maintenance but points to steeper, structural declines.”
The Organisation of Petroleum Exporting Countries and its allies have succeeded in wiping out an oil glut through production cuts launched in early 2017, boosting prices to a three-year high above $75 a barrel. Their efforts have been aided by accidental losses in member nation Venezuela, which is cutting six times the amount it promised as a spiralling economic crisis batters its oil industry.
The risk Opec faces now is tightening world markets too sharply, and sending prices to levels that either crimp oil demand or provoke a new tide of rival supply from the US as Angola’s creeping decline adds to the ongoing slump in Venezuela, that danger only grows.
Output interruptions among the organisation’s members could send Brent crude prices above $80 a barrel, Bank of America Merrill Lynch analysts including Francisco Blanch, head of commodities research, said in a note to clients.
Unintended supply disruptions are rife in the group. Nigeria and Libya were exempt from the deal to cut output because their production had already been diminished by local instability, while Iraq’s implementation of the accord only improved after a political dispute halted exports. Some traders are already shunning Iranian crude in fear that President Donald Trump will re-impose sanctions.
Angola’s slide could be alleviated by the end of the year, with the start up of an oil field operated by Total. The Kaombo field, delayed from 2017, will have a capacity of 230,000 barrels a day.
That might not come soon enough.
Although output from all oil fields diminishes over time as the pressure in their reservoirs falls, Angola’s deep-water operations are especially costly to maintain. Because of insufficient capital expenditure, the rate of decline from Angola’s deposits is more than double the global average, at 13 to 18%, Mallinson estimates. “Most Angolan fields have struggled or entered into a steep decline phase after three years — it’s the nature of the geological characteristics of Angola’s offshore production,” he said. The country’s struggles will only intensify in coming years, the International Energy Agency predicts. Since peaking at 1.9mn barrels a day in 2008, Angola’s production has slumped to about 1.5mn, and will dwindle to just under 1.3mn barrels a day in 2023, according to the agency.
Oil prices steady but supported by Iran concerns
Reuters
New York
Oil prices were little changed yesterday, with Brent on track for its third week of gains amid supply concerns should the United States reimpose sanctions on Iran.
Brent crude futures rose 6 cents to $74.80 a barrel, a 0.1% gain, by 1:11pm EDT (1711 GMT). This month, the global benchmark hit highs above $75, a level last seen in late 2014.
US West Texas Intermediate (WTI) crude futures fell 3 cents to $68.16 a barrel.
Brent was on track for a weekly gain of about 1%, while WTI was set for a weekly loss of about 0.3%. US President Donald Trump will decide by May 12 whether to reimpose sanctions on Iran that were lifted as part of an agreement with six other world powers over Tehran’s alleged nuclear programme.
The renewed sanctions would likely dampen Iranian oil exports, disrupting global oil supply.
“That’s an issue that is more political in nature that could have a shock in the market,” said Mark Watkins, a regional investment manager at US Bank Wealth Management in Park City, Utah.” “It’s one of those wildcards that’s out there because if the sanctions do happen, there’s going to be oil that comes off the market.”
Brent has risen by around 6.5% this month.
The gains came despite a higher dollar, which hit its strongest since January 11 against a basket of currencies.
A stronger dollar makes greenback-denominated commodities more expensive for holders of other currencies.
Concerns about market tightness have also been fuelled by the deteriorating political and economic situation in Venezuela that has led to a 40% decline in crude output in the past two years.
Price increases have been capped by rising US production as shale drillers ramp up activity, underpinning a widening discount between Brent and WTI. US crude’s discount to Brent hit its widest since December 28 at $6.74 a barrel.
Surging US production, which rose to 10.59mn barrels per day last week, has encouraged record-high US exports.
US drillers added five oil rigs this week, bringing the total count to 825, the highest level since March 2015, General Electric Co’s Baker Hughes energy services firm said. But while US producers are accelerating shale drilling in areas in the United States, higher production has not necessarily translated into stronger refining results for some oil companies.
Weak refining margins hurt two of the world’s largest integrated energy companies for the second consecutive quarter, although Chevron Corp’s oil production gains in the first quarter outshone its larger rival Exxon Mobil Corp.
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