Chal­lenges to per­sist for O&G com­pa­nies

New Straits Times - - Business -

KUALA LUMPUR: The worst is not over yet for oil and gas (O&G) com­pa­nies as shale oil pro­duc­ers ramp up pro­duc­tion and oil prices make a slow re­cov­ery.

An­a­lysts and in­dus­try ob­servers ex­pect un­cer­tainty to loom for the rest of the year as in­dus­try as­sump­tion re­mained at US$50 (RM221.50) a bar­rel.

Petro­liam Na­sional Bhd (Petronas) was more con­ser­va­tive, ex­pect­ing an av­er­age of price of US$45 a bar­rel.

“We are main­tain­ing our this year’s av­er­age Brent crude price at US$50 a bar­rel as we see more un­cer­tainty with crude oil prices to­wards the down­side bias,” said an an­a­lyst at MIDF Re­search.

Oil prices fell more than one per cent yes­ter­day as in­vestors made record cuts to bet on ris­ing prices af­ter strong drilling data from the United States fed con­cerns about the ef­fec­tive­ness of pro­duc­tion cuts led by Or­gan­i­sa­tion of the Petroleum Ex­port­ing Coun­tries (Opec) to curb a sup­ply glut, Reuters re­ported.

Bench­mark Brent crude fu­tures were down 60 cents at US$51.16 a bar­rel. The West Texas In­ter­me­di­ate crude fu­tures were trad­ing at US$0.71 lower to US$48.07 a bar­rel.

Shale oil seems to be pick­ing up pro­duc­tion, tak­ing its cue from the more bear­ish crude oil prices de­spite short-term bounces, sup­ply cuts and im­proved de­mand es­ti­mates.

With the evo­lu­tion of shale oil tech­nolo­gies, shale oil pro­duc­tion break-even price seems to be go­ing even lower, paving the way for pro­duc­tion to be in­creased as crude oil prices rally.

Re­cent re­ports showed that oil pro­duc­tion from the US shale pro­duc­ers would in­crease next month, ac­cord­ing to the United States En­ergy In­for­ma­tion Ad­min­is­tra­tion (EIA).

“High mar­ket prices are sup­ported by Opec cut­backs, and the higher prof­its are fund­ing the growth of Amer­i­can firms’ drilling.

“The EIA re­port pre­dicts that net oil pro­duc­tion will in­crease by 109,000 bar­rels a day next month. The seven ma­jor oil and gas basins in the coun­try would have an out­put of more than nearly five mil­lion bar­rels a day col­lec­tively,” it said.

Last week, Petronas de­cided on US$45 a bar­rel as its con­ser­va­tive es­ti­mate for this year as it pre­pares for an­other chal­leng­ing year ahead.

A source close to the com­pany said it had been re­quested to in­crease pro­duc­tion in Iraq to 120,000 bar­rels a day com­pared to 100,000 bar­rels a day sub­ject to both par­ties’ agree­ment. Iraq cur­rently out­puts about 4.3 mil­lion bar­rels a day.

As Opec’s sec­ond largest producer, Iraq is cru­cial to the suc­cess of the deal signed last Novem­ber to prop up oil prices.

But Iraq has lagged be­hind other Opec mem­bers in its ef­forts to re­duce out­put.

It agreed to cut pro­duc­tion by 210,000 bar­rels a day from the Oc­to­ber lev­els, re­quir­ing it to av­er­age an out­put level of 4.35 mil­lion bar­rels a day over the course of the six-month com­pli­ance pe­riod be­tween Jan­uary and June.

Mean­while, the sup­ply cut deal struck be­tween Opec and other pro­duc­ers is now in doubt due to the car­tel’s inability to en­sure that ev­ery­one on board abide by the agreed pro­duc­tion cuts.

Saudi Ara­bia is the only mem­ber that re­duced out­put by more than the agreed num­bers, ac­cord­ing to Opec fig­ures (130,000 bar­rels a day cut above its agreed pro­duc­tion), while Rus­sia is at al­most at a third (118,000 bar­rels a day com­pared with the agreed 300,000 bar­rels a day). Za­rina Zakariah

BLOOMBERG PIC

Re­cent re­ports show that oil pro­duc­tion from shale pro­duc­ers in the United States would in­crease next month.

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