By: Azhar Azam
Back in November 2014, Saudi-led Organization of Petroleum Exporting Countries (OPEC), refused United States to cut the oil production in a bid to lock its 43% global market share. Instead, Saudi Arabia continued to increase the oil production, purging market share from US shale oil producers.
For 2015 and 2016, Saudi Arabia crude oil output averaged highest at 10.14million barrels per day (mb/d) and 10.41 mb/d respectively. Saudi managers rationalized the larger output as the production cut will buzz the oil prices in international market and only the competitors will benefit from this.
US media and analysts characterized it an attempt to bankrupt US shale oil producers and stem the flow of US shale oil in the world market. In due course, Saudi Arabia’s ratcheting up the oil production drove crude oil price down to lowest ever below $28/b in early 2016.
OPEC thus made sure to keep the oil prices low enough so that the US oil reserves never enter the world supply to jeopardize OPEC’s influence. However in doing so, OPEC’s oil export revenues including Iran meticulously fell from $934bn in 2014 to $509bn in 2015 and $433bn in 2016.
OPEC’s oil export revenues were at the apex $1,131bn in 2012.
However in subsequent years, all the petro states loomed into a tug of oil war over weak demand, vulnerable global economic activity expressly declining commodity prices in China, market shift toward other fuels and US shale oil boom.
According to Trade Map/ITC, crude oil export revenues worldwide which reached at peak $1,680bn in 2012 – glided down to $662bn in 2016. Saudi Arabia and Russia were the vilest victims, both of whose export revenues fell from $305bn to $136bn and from $181bn to $74bn respectively.
In November 2016, OPEC and some non-OPEC members including Russia agreed to cut the crude oil production which aided global oil prices to increase as the OPEC Reference Basket (ORB) averaged $62.06/barrel in December 2017 – highest since June 2015.
The prices of ICE Brent and West Texas Intermediate (WTI) crude oil also increased to $64.09/barrel and $57.95/barrel respectively after long time at the close of last year, according to recent OPEC monthly oil market report.
According to latest short-term energy outlook (STEO) by the US Energy Information Administration (EIA), Brent and WTI crude oil prices averaged $54.15/barrel and $50.79/barrel respectively for 2017 and are expected to increase up to average $62.39/barrel and $58.28/barrel respectively for 2018.
World oil demand estimate is roughly unchanged at 97.8mb/d in 2017 whereas global oil supply eased at 97.7 mb/d in December 2017 due to North Sea and Venezuelan lower output, says International Energy Agency (IEA).
China transcended the United States as the world’s largest oil importer in 2017 – importing 8.4 million barrels per day (b/d) as compared to America’s 7.9 million b/d for the concluded year, EIA said.
The US energy controller found that the new refinery capacity, strategic inventory stockpiling and declining domestic oil production were some of the influential factors for the recent increase in China’s oil imports.
Russia and Brazil were the major gainers which increased their oil exports to China from 9% to 14% and 2% to 5% for 2016 and 2017 respectively – at the cost of OPEC countries whom oil exports to China declined from peak 62% in 2012 to 56% in 2017.
Russia also pushed Saudi Arabia behind in crude oil exports to China – exporting 1.2 million b/d against Saudi Arabia’s 1.0 million b/d. OPEC and some non-OPEC nations including Russia agreed to cut down the crude oil production in an attempt to rebalance the international oil prices.
While some of the OPEC and non-OPEC countries are in the process of implementing the plans of easing down the oil production, the United States is going the other way – pump up the production.
The topical EIA STEO (STEO) estimated that the US crude oil logged a production average of 9.2 million b/d in 2017 and will average 10.6 million b/d in 2018 – highest since 1970 when the country averaged 9.6 million b/d.
EIA further projects US crude oil production in 2019 to average 11.2 million b/d. In its previous STEO, EIA reported that the US crude oil noted a record production of 10.038 million b/d for November 2017 which was also the highest since 1970 and the second highest US monthly production ever.
In 2017, the United States managed to lower the petroleum deficit to lowest $95.9bn and petroleum export to highest $12.0bn on the record besides overall rising energy production for the year.
Albeit all these domino-effects, the US Census Bureau states that the US annual crude oil import quantity increased by 72 million barrels or 2.6% as well as import value by $31bn or 31% in twelve-month period of 2017 as compared to previous year.
The crux of the rising US crude oil imports despite increasing production is the OPEC’s including Iran terribly low cost of production per barrel and also these countries have sweet crude which is easy to access, recover, and refine.
As stated by WSJ-Rystad Energy UCube graphics, total cost of oil production per barrel for Saudi Arabia is just $8.98 whilst it in only $9.08 and 10.97 for Iran and Iraq respectively. Russia has a much higher production cost of $19.21/barrel mainly due to gross taxes of $8.44/barrel.
Behind falling oil prices
Back in November 2014, Saudi-led Organization of Petroleum Exporting Countries (OPEC), refused United States to cut the oil production in a bid to lock its 43% global market share. Instead, Saudi Arabia continued to increase the oil production, purging market share from US shale oil producers.
For 2015 and 2016, Saudi Arabia crude oil output averaged highest at 10.14million barrels per day (mb/d) and 10.41 mb/d respectively. Saudi managers rationalized the larger output as the production cut will buzz the oil prices in international market and only the competitors will benefit from this.
US media and analysts characterized it an attempt to bankrupt US shale oil producers and stem the flow of US shale oil in the world market. In due course, Saudi Arabia’s ratcheting up the oil production drove crude oil price down to lowest ever below $28/b in early 2016.
OPEC thus made sure to keep the oil prices low enough so that the US oil reserves never enter the world supply to jeopardize OPEC’s influence. However in doing so, OPEC’s oil export revenues including Iran meticulously fell from $934bn in 2014 to $509bn in 2015 and $433bn in 2016.
OPEC’s oil export revenues were at the apex $1,131bn in 2012.
However in subsequent years, all the petro states loomed into a tug of oil war over weak demand, vulnerable global economic activity expressly declining commodity prices in China, market shift toward other fuels and US shale oil boom.
According to Trade Map/ITC, crude oil export revenues worldwide which reached at peak $1,680bn in 2012 – glided down to $662bn in 2016. Saudi Arabia and Russia were the vilest victims, both of whose export revenues fell from $305bn to $136bn and from $181bn to $74bn respectively.
Oil prices on the rise again
In November 2016, OPEC and some non-OPEC members including Russia agreed to cut the crude oil production which aided global oil prices to increase as the OPEC Reference Basket (ORB) averaged $62.06/barrel in December 2017 – highest since June 2015.
The prices of ICE Brent and West Texas Intermediate (WTI) crude oil also increased to $64.09/barrel and $57.95/barrel respectively after long time at the close of last year, according to recent OPEC monthly oil market report.
According to latest short-term energy outlook (STEO) by the US Energy Information Administration (EIA), Brent and WTI crude oil prices averaged $54.15/barrel and $50.79/barrel respectively for 2017 and are expected to increase up to average $62.39/barrel and $58.28/barrel respectively for 2018.
World oil demand estimate is roughly unchanged at 97.8mb/d in 2017 whereas global oil supply eased at 97.7 mb/d in December 2017 due to North Sea and Venezuelan lower output, says International Energy Agency (IEA).
China takes over United States as world’s largest crude oil importer
China transcended the United States as the world’s largest oil importer in 2017 – importing 8.4 million barrels per day (b/d) as compared to America’s 7.9 million b/d for the concluded year, EIA said.
The US energy controller found that the new refinery capacity, strategic inventory stockpiling and declining domestic oil production were some of the influential factors for the recent increase in China’s oil imports.
Russia and Brazil were the major gainers which increased their oil exports to China from 9% to 14% and 2% to 5% for 2016 and 2017 respectively – at the cost of OPEC countries whom oil exports to China declined from peak 62% in 2012 to 56% in 2017.
Russia also pushed Saudi Arabia behind in crude oil exports to China – exporting 1.2 million b/d against Saudi Arabia’s 1.0 million b/d. OPEC and some non-OPEC nations including Russia agreed to cut down the crude oil production in an attempt to rebalance the international oil prices.
United States crude oil production fast-tracks
While some of the OPEC and non-OPEC countries are in the process of implementing the plans of easing down the oil production, the United States is going the other way – pump up the production.
The topical EIA STEO (STEO) estimated that the US crude oil logged a production average of 9.2 million b/d in 2017 and will average 10.6 million b/d in 2018 – highest since 1970 when the country averaged 9.6 million b/d.
EIA further projects US crude oil production in 2019 to average 11.2 million b/d. In its previous STEO, EIA reported that the US crude oil noted a record production of 10.038 million b/d for November 2017 which was also the highest since 1970 and the second highest US monthly production ever.
Despite rising production, US crude oil imports grow
In 2017, the United States managed to lower the petroleum deficit to lowest $95.9bn and petroleum export to highest $12.0bn on the record besides overall rising energy production for the year.
Albeit all these domino-effects, the US Census Bureau states that the US annual crude oil import quantity increased by 72 million barrels or 2.6% as well as import value by $31bn or 31% in twelve-month period of 2017 as compared to previous year.
The crux of the rising US crude oil imports despite increasing production is the OPEC’s including Iran terribly low cost of production per barrel and also these countries have sweet crude which is easy to access, recover, and refine.
As stated by WSJ-Rystad Energy UCube graphics, total cost of oil production per barrel for Saudi Arabia is just $8.98 whilst it in only $9.08 and 10.97 for Iran and Iraq respectively. Russia has a much higher production cost of $19.21/barrel mainly due to gross taxes of $8.44/barrel.
At the same time, per barrel cost of production for US shale and non-shale is $23.35/barrel and 20.99/barrel respectively including gross taxes, capital spending, and production, administrative, and transportation costs.
This smallest cost of production provides Middle Eastern countries to survive at the lowest international crude oil prices but in an age of fourth-industrial revolution, they too cannot just outlast on oil alone though the United States definitely can!
This smallest cost of production provides Middle Eastern countries to survive at the lowest international crude oil prices but in an age of fourth-industrial revolution, they too cannot just outlast on oil alone though the United States definitely can!