Crude Oil: Saudi Arabia boosts production, undermining OPEC deal. The IEA said in its latest Oil Market Report that the higher production from OPEC is likely going to delay the rebalancing of the oil market. Saudi Arabia increased production by 120,000 bpd in June, and the sharp increase in output from Libya and Nigeria led to a decline in the group’s compliance rate to just 78 percent, down from 95 percent a month earlier. Meanwhile, Saudi Arabia is hoping to cut oil exports to the U.S. in a bid to drain American oil inventories, a strategy that could see the U.S. imports of Saudi crude dropping to just 800,000 bpd in August.
Oil prices not rebounding to $50. In a research note earlier this week, Barclays slashed its three-month oil price forecast from $57 to $49, the latest in a series of price downgrades at major investment banks. “The recent weakness reflects the market’s need to price in a lower [U.S.] shale break-even and absorb the unexpected return of around 300-400 [kbpd] of Libyan and Nigerian oil,” Barclays said in the report. “With inventories still quite high, government stockpiles available, DUCs standing ready, and cuts providing OPEC with additional spare capacity, there are plenty of plugs to fill any hole,” they added.
Sub-$50 oil puts oil majors’ credit ratings at risk. If oil prices stay below $50 per barrel through 2018, it would threaten the credit ratings of even the largest oil companies, S&P Global said this week. "If oil prices persistently trend below our price assumptions ($50/bbl on average until the end of 2018), downgrade pressure for many ratings would increase without material and sufficient further cost and capex efficiencies, disposals, or other countermeasures against weak credit metrics for a sustained period," S&P said in a report. |
