Andreas Economou

Senior Research Fellow

Andreas Economou joined the Institute in July 2015. His research interests lie on the natural resource and energy economics with particular focus on the empirical analysis of crude oil markets, the dynamics of oil prices and OPEC behaviour. The central topic of his research focuses largely on the causes and consequences of oil price shocks using advanced econometric techniques in modelling the world oil market. Other aspects of his research focus on OPEC’s behaviour and pricing power in the oil market, the relationship between oil prices and the global economy, as well as the real-time analysis of oil price risks using forecast scenarios. Previously he was an OIES-Saudi Aramco Fellow. Andreas is currently completing his PhD in Energy Economics at UCL Energy Institute. He holds an MSc (Hons) in Oil and Gas Enterprise Management from the University of Aberdeen with specialisation in petroleum economics and the international fiscal systems analysis and a BSc in Business Administration from the University of Macedonia, Greece.

Areas of Expertise  

Crude oil markets; causes and consequences of oil price shocks; oil price risks using forecast scenarios; OPEC behaviour and pricing power; oil supply and oil demand issues; applied econometrics.

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                    [post_content] => This new OIES presentation looks at the extension of the OPEC+ deal to the end of 2022 and implications on oil markets:
  • Global oil demand has lost some momentum recently, but the fundamentals remain solid where demand is still expected to grow by 5.6 mb/d in 2021 and further 3.3 mb/d in 2022.
  • OPEC+ to unwind the 5.76 mb/d cut by September 2022. OPEC+ producers agreed to ease their output cuts by 2 mb/d between August and December 2021, adding 400 kb/d each month over this period. If the monthly 400 kb/d reductions per month carry on until April 2022, OPEC+ will add 3.6 mb/d to the market. OPEC+ aims to release the remaining 2.16 mb/d in monthly increments of 432 kb/d between May 2022 and September 2022.
  • Extension of the agreement until end of 2022 implies there is a buffer of up to 3 months in which OPEC+ may decide not to release the 400,000 b/d increment or increase cut by up to 400 kb/d.
  • The baseline adjustment does not affect the monthly increments and OPEC+ total production; it impacts how the monthly increment is distributed among member countries.
  • Assuming all the remaining barrels are released back to the market by September 2022, OPEC+ production can exceed 42 mb/d but the projected additional barrels released from OPEC+ back to the market in 2022 are likely to be less than the headline 5.76 mb/d figure.
  • Considering implied production capacity and maximum historical production levels sustained over a period of 3-6 months we estimate that OPEC+ producers can return only 4.4 mb/d of restrained supplies 1.2 mb/d below target.
  • With the supply path for OPEC+ clear the balance of risks to our price outlook is now limited to demand and geopolitical risks.
  • Despite the increase in production between August 2021 and December 2021 the market is projected to remain in deficit in Q3 and Q4 2021 and for the year as a whole.
  • Depending on global oil demand outcomes and the return of Iranian barrels, the market could switch into surplus in 2022 if OPEC+ stick to their deal showing the importance of OPEC+ balancing role in a uncertain environment.
[post_title] => OPEC+ and Short-Term Oil Market Dynamics [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-and-short-term-oil-market-dynamics [to_ping] => [pinged] => [post_modified] => 2021-07-28 10:44:13 [post_modified_gmt] => 2021-07-28 09:44:13 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=43902 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 43740 [post_author] => 111 [post_date] => 2021-05-25 10:49:13 [post_date_gmt] => 2021-05-25 09:49:13 [post_content] => This paper provides a historical perspective from 1990 to 2018 of the functioning of the world oil market with and without OPEC. Analysis builds on a new methodology simulating counterfactual (i.e. what-if) outcomes in the rich context of state-of-the-art structural VAR models of the world oil market to empirically assess OPEC's contribution to oil markets and the global economy by quantifying the impact of OPEC's balancing role via its spare capacity cushion on the historical evolution of oil production, oil prices and price volatility, the joint evolution of the supply and demand elasticities and global welfare. A counterfactual scenario is constructed of how global oil production would have evolved if OPEC had been producing at maximum capacity, held no spare capacity and did not play any balancing role since 1990. The analysis also employs a general equilibrium approach to determine the global welfare implications of a world without OPEC spare capacity across oil-exporting and oil-importing regions. The welfare effects are calculated based on regional GDP gains and losses following changes in oil production patterns globally. The methodology to determine the impact on GDP is based on a computable general equilibrium (CGE) framework which offers a high level of detail regarding the world economy in terms of economic sectors and regional interdependencies. Andreas EconomouBassam Fattouh, OPEC at 60: the world with and without OPEC’, OPEC Energy Review [post_title] => OPEC at 60: the world with and without OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-60-the-world-with-and-without-opec-2 [to_ping] => [pinged] => [post_modified] => 2021-05-25 10:49:13 [post_modified_gmt] => 2021-05-25 09:49:13 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=43740 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 43226 [post_author] => 111 [post_date] => 2020-12-07 12:24:35 [post_date_gmt] => 2020-12-07 12:24:35 [post_content] => In almost every oil cycle, the market is confronted with the problem of ‘missing barrels’, the gap between the change in inventory implied by global supply-demand balances on the one hand and the observed change in inventory levels by commercial and government entities (adjusted for floating storage and oil in transit) on the other hand. Based on IEA global oil balances, the surplus in the first half of 2020 reaching a record level of 7.6 mb/d. Out of the total stockbuild in the first half of the year, total OECD stocks accounted for 344.3 mbbls or 25% of the total increase, floating storage and oil in transit accounted for 105.3 mbbls or 8% of the total increase and the remaining 940.4 mbbls or 68% of the total increase to balance is essentially unaccounted for including changes in non-reported stocks in OECD and non-OECD areas. The volume of missing barrels in H1 2020, is the largest ever recorded gap between observed and implied stocks since at least 1990, being three times larger than previous historical downcycles such as in H1 1998 and more recently the H2 2018 downturn and nearly 10 times larger than the imbalance of H2 2008 in the aftermath of the global financial crisis. The issue of missing barrels is not incidental. Given the severity of the oil shock in 2020, the focus has been on supply-demand balances. But once the dust settles, the focus will shift to the size of available stocks and OPEC+ efforts in drawing down these stocks to ‘reasonable’ levels. If the missing barrels are ‘artificial’, the result of imprecise measuring of supply and demand, then the buffers in the system are thinner than currently estimated and OPEC+ task in reducing stocks is less of a challenge. If the missing barrels are ‘real’, then most of these barrels are to be found in non-OECD particularly in China given its large storage capacity. This may reveal the fact that while Chinese demand has been strong, the country’s high level of imports reflects mainly stockpiling and stocks are already at an elevated level and thus crude import flows may ease representing a bearish factor. We argue that large accumulation of barrels has occurred in China which suggests that ‘artificial’ or ‘imaginary’ barrels, as a result of imprecise measurement of global oil supply-demand balances, are not the only explanation to the missing barrels question. Indeed, even though China’s crude balances are riddled with inconsistencies, the country has amassed large volumes of crude this year which have contributed both to the country’s strategic reserves and commercial forward cover. At the same time, Chinese demand may well be underestimated given refiners’ tax avoidance practices. The complexities of global crude balances highlight the ongoing challenges facing OPEC+ in estimating how long it will take to rebalance the market. Going forward, can OPEC+ afford ignoring non-OECD stocks? But if these stocks are being stored for strategic purposes and the bulk of these stocks will not be released back into the market, does targeting non-OECD stocks really matter for oil policy purposes? Should we exclude years of elevated stocks from the averages or have these become main features of the new cycles and the adjustment process? As we go into 2021, these questions will become more pressing. [post_title] => The COVID-19 Shock and the Curious Case of Missing Barrels [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-covid-19-shock-and-the-curious-case-of-missing-barrels [to_ping] => [pinged] => [post_modified] => 2020-12-07 12:24:35 [post_modified_gmt] => 2020-12-07 12:24:35 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=43226 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 42716 [post_author] => 111 [post_date] => 2020-11-16 11:30:53 [post_date_gmt] => 2020-11-16 11:30:53 [post_content] =>

While the market is shifting its attention to OPEC+ dynamics and the return of Libyan and Iranian barrels, the reality remains that this is first and foremost a demand shock and ultimately the evolution of demand will be the key factor shaping oil market outcomes. This demand shock is special in many ways compared to previous shocks: in addition to its size and the speed at which global oil demand contracted, its impact has been highly uneven across geographies (Asia versus the rest of the world) and across fuels (jet fuel and distillate demand versus other parts of the barrel). This has created a challenge for refineries and their margins have been under severe pressure. The combination of OPEC+ cuts and the return of Libyan barrels have created unevenness in terms of crude quality, with light sweet crudes in abundant supply compared to heavy-medium and sour crudes. The size of the shock and the unevenness of its impacts imply a recovery process which is far from smooth.

As the OPEC+ meeting approaches, all eyes are on the Group’s next move. The main choices facing OPEC+ are taper the cut as planned, extend the current cut (and its duration) by deferring the taper, or deepen the cut. Ultimately, the effectiveness of the OPEC+ response will be shaped by demand conditions. Our results show that by extending the current cut for 3 months under reference growth, OPEC+ will be able to keep oil prices well supported in the $40/b-$45/b price range in H1 2021, lifting the Brent price by nearly $4/b on average compared to our base case of no extension and by $2/b for 2021 overall. What is interesting is that in both scenarios (tapering the cut or extending the cut for 3 months), market deficits persist throughout our outlook (barring a rapid deterioration in global oil demand including Asian oil demand). A shift in expectations of improved fundamentals in the second half of 2021 following the positive news on the vaccine may render the option of withholding barrels today and releasing them when the better times arrive attractive. If demand recovers quicker than expected due to the wide availability of an effective vaccine, the oil price is projected to increase moderately up to $4/b annually under the extension scenario as any rally will still be capped by existing buffers of inventory. In the less likely scenario that OPEC+ decides to deepen the cut by 1.9 mb/d, essentially returning to the first phase of the agreement, the price would break the $50/b mark and average $52.9/b in Q1 2021, again assuming that demand does not suffer from a new virus-induced shock. However, there is a fundamental trade-off with this option, as deeper cuts increase the risk of non-compliance. Our results show that if compliance deteriorates the oil prices in 2021 could lose as much as $7/b on annual terms, compared to our scenario of full compliance. Thus, whatever decision OPEC+ takes, maintaining high compliance is key.

[post_title] => Oil Market Recovery and the Balance of Risks [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-recovery-and-the-balance-of-risks [to_ping] => [pinged] => [post_modified] => 2020-11-16 11:44:15 [post_modified_gmt] => 2020-11-16 11:44:15 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=42716 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 42527 [post_author] => 111 [post_date] => 2020-11-09 12:18:57 [post_date_gmt] => 2020-11-09 12:18:57 [post_content] => After achieving month-on-month gains in every month between May and August, the Brent price shed some of these gains in September and October. While the main risks facing the oil market are still being dominated by demand factors, the risks on the supply side have also been on the rise. On the demand side, the recovery of oil demand has been slower than expected back in May and June, while global oil demand is now expected to take longer to reach its pre-crisis level. The pace of oil demand recovery has also been highly uneven both in terms of geography and fuels. In terms of geography, Asian demand remains robust led by China and India but in Europe where the reimposition of restrictions is already having its toll particularly on gasoline and jet fuel demand, demand seems to have stalled. In terms of fuels, jet fuel remains the weakest link by far, with diesel consumption impacted by the economic contractions, although rising trucking and freight is offering some respite. This unevenness in demand is causing refineries, particularly in Europe, massive headaches and alongside the ability to ramp up refinery runs and large product stocks it will continue to keep refining margins under pressure. The downside risks from the supply side have also been on the rise. To start with, there has been the return of Libyan barrels to the market. Libya’s crude production is now expected to rise above 1 mb/d by year end. The Alberta government has announced that it will stop setting monthly oil production limits for producers by December 2020 allowing producers to use available pipeline capacity. Also, there is a belief that with Biden now winning the election, the US will return to the Joint Comprehensive Plan of Action (JCPOA) fairly quickly and this implies around 1.2-1.5 million b/d could hit the market as soon as 2021. This scenario is being increasingly incorporated into the 2021 and 2022 balances. As the OPEC+ meeting approaches, the Group finds itself in an uncertain and harsh environment with the balance of risks tilted to the downside. In addition to the size of the cut and the high compliance, another key feature of the OPEC+ deal is that the agreement extends all the way to end of April 2022. This gives OPEC+ the potential to ‘tweak’ the deal to changing demand conditions and the potential 3 return of disrupted supplies. This requires a proactive and flexible approach and keeping compliance high under the different scenarios. Executive Summary [post_title] => Oil Market Recovery under Pressure [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-market-recovery-under-pressure [to_ping] => [pinged] => [post_modified] => 2020-11-09 14:54:25 [post_modified_gmt] => 2020-11-09 14:54:25 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=42527 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [5] => WP_Post Object ( [ID] => 41866 [post_author] => 111 [post_date] => 2020-10-16 13:55:03 [post_date_gmt] => 2020-10-16 12:55:03 [post_content] =>

Following the sharp price recovery in May/June which saw daily Brent rebounding above $40/b in June 5 from $19/b in April 21, before holding remarkably steady in the $40/b and $45/b in the course of July/August, September saw prices breaking on the downside of this range and trading below $40/b for the first time since June for few days. This was due to a combination of bearish factors both on the demand and the supply side. Concerns about the second wave of the coronavirus pandemic have led many to revise their demand forecasts downwards. Furthermore, China’s crude imports which have been a key equilibrium mechanism began to ease. On top of all this, there is much talk about peak oil demand with some suggesting that oil demand has already peaked. On the supply side, OPEC+ started easing their cuts and shut-in non-OPEC production in North America started making its way back to the market in response to higher prices. UAE undercompliance in August/September raised concerns over OPEC+ producers maintaining their high compliance levels. But despite the bearish headwinds, the $40/b oil price floor held firm in September and so far in October, and Brent remains well supported at the mid $40/b-$45/b range.

This presentation explores the key factors shaping the outlook for market fundamentals and oil prices ahead. The oil demand recovery has shifted into a lower gear and is highly uneven in terms of geography and different parts of the barrel and this unevenness will continue to shape prices and refining margins. Most importantly, there is wide recognition that the recovery of oil demand to its pre-crisis levels will take longer than many originally expected. But the wide uncertainty surrounding demand implies that the role of the supply side in supporting the oil price becomes even more important. High OPEC+ compliance has been a key feature in the current cycle and compliance will remain key throughout the entire duration of the agreement. Another unique feature has been the compensation mechanism and regardless if laggard producers compensate for their overproduction, the compensation scheme has an important signaling role. The effectiveness of the OPEC+ response however will be shaped by demand factors and the extent and pace of the global economic and oil demand recovery. Outside OPEC+, US shale is a key factor shaping non-OPEC supply but as in the case of oil demand, US shale recovery is also entering a slow and lengthy phase, due to the unprecedented fall in drilling activity, barriers to external finance and cash flow pressures. Putting these different moving parts into our model, the short-term price outlook sees the oil recovery persisting though the demand/supply risks to the outlook remain tilted to the downside.

[post_title] => Short-term Oil Market Outlook [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => short-term-oil-market-outlook [to_ping] => [pinged] => [post_modified] => 2020-10-16 13:55:03 [post_modified_gmt] => 2020-10-16 12:55:03 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=41866 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [6] => WP_Post Object ( [ID] => 40621 [post_author] => 111 [post_date] => 2020-09-01 12:10:07 [post_date_gmt] => 2020-09-01 11:10:07 [post_content] => Following the sharp recovery in the oil price, which saw Brent increase by more than $16/b during the months of May and June 2020, the Brent price has been stuck in the narrow $40/b-$45/b range since July and despite the heightened uncertainty, volatility has been exceptionally low. On the one hand, this reflects the fact that the recent price recovery was driven by improved market fundamentals both on the demand and the supply side and hence the current price range is well supported. On the other hand, the narrow price range and low volatility reflect a market that is not yet ready to move to a higher price range as the V-shaped recovery in demand seems to have now stalled as concerns over the recent resurgence in Covid-19 cases have resurfaced in many parts of the world. Given the wide uncertainty surrounding the medium and long-run prospects of oil demand and the slowdown in the momentum behind short-term oil demand, the role of the supply side in supporting the oil price becomes even more important in the current context. The historic OPEC+ agreement in April to cut output has been the key factor shaping the supply side. But the historic size of the cut would not have had its desired impact on prices and balances without the high compliance shown by OPEC+ (in the first phase of the agreement between May and July, OPEC+ producers achieved a high compliance rate of 97%). Achieving such high compliance without accounting for losses due to geopolitical disruptions and without GCC3 (Saudi Arabia, UAE and Kuwait) cutting above their quota and thus compensating for the rest of OPEC+ non-compliance has been a key feature of the recovery phase so far. This success could be attributed to Saudi Arabia’s clear signal that it will not tolerate any non-compliance as the cost of Saudi Arabia achieving full compliance on its own while the rest not fully complying is high enough to induce a shift in its output policy. The break-up of the OPEC+ agreement in March showed in a dramatic way that without a collective action on cuts, Saudi Arabia is willing to shift oil policy until players are ready to enter into an agreement. Once the agreement has been reached, Saudi Arabia offered to cut additional 1 mb/d in June, but this additional cut was temporary and limited in duration to one month and in July Saudi Arabia restored its output to the agreed quota level signaling that these additional measures should not be considered as permanent or be counted on to balance the market as was the case previously. The monthly meetings of the JMMC and the introduction of the compensation regimes are additional signals of the importance that Saudi Arabia attaches to compliance and its determination to lead on this front. Looking ahead, the pace of demand recovery and OPEC+ responses are the key dynamics that would shape market outcomes and will determine in which direction and how fast the oil price will break away from the current range. Our model indicates that the breakout will occur in Q4, but it will be gradual and limited on the upside. Also, the market seems more prepared to move to a higher rather than to a lower price range and has been waiting for some positive signals on the demand side, particularly from the US and India. A key reason for this ‘upward’ bias is that there is a belief that generalised lockdowns similar to what we have seen in March and April are not likely and therefore demand will recover even though at a slower pace. In the background, the view that the oil industry cannot increase investment and bring new supplies in this price environment and it will take time for US shale output to recover to its previous peak are also gaining traction. Also, the market has a pessimistic view on the return of some of the disrupted supplies from countries such as Iran, Venezuela and even Libya. But a key premise underlying the upward bias is that OPEC+ cohesiveness and high compliance will be maintained, and this represents a fundamental shift from previous cycles. [post_title] => After the Initial Oil Rebound: What Next for Market Fundamentals and Prices? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => after-the-initial-oil-rebound-what-next-for-market-fundamentals-and-prices [to_ping] => [pinged] => [post_modified] => 2020-09-01 12:10:07 [post_modified_gmt] => 2020-09-01 11:10:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=40621 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [7] => WP_Post Object ( [ID] => 38815 [post_author] => 111 [post_date] => 2020-06-23 10:30:56 [post_date_gmt] => 2020-06-23 09:30:56 [post_content] => This presentation provides an historical perspective from 1990 to 2018 of the functioning of the world oil market with and without OPEC. Analysis builds on a new methodology simulating counterfactual (i.e. what-if) outcomes in the rich context of state-of-the-art structural VAR models of the world oil market to empirically assess OPEC’s contribution to oil markets and the global economy by quantifying the impact of OPEC’s balancing role via its spare capacity cushion on the historical evolution of oil supply and demand, oil prices, volatility, the joint evolution of the supply and demand elasticities, global stocks and global welfare. A counterfactual scenario is constructed of how global oil production would have evolved if OPEC had been producing at maximum capacity, held no spare capacity and had held no balancing role since 1990. The analysis also employs a general equilibrium approach to determine the global welfare implications of a world without OPEC spare capacity across oil-exporting and oil-importing regions. The welfare effects are calculated based on regional GDP gains and losses following changes in oil production patterns globally. The methodology to determine the impact on GDP is based on a computable general equilibrium (CGE) framework which offers a high level of detail regarding the world economy in terms of economic sectors and regional interdependencies. The overarching aim is to assess the historical benefits and costs of OPEC for global oil market stability. Executive Summary [post_title] => OPEC at 60: The World With and Without OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-60-the-world-with-and-without-opec [to_ping] => [pinged] => [post_modified] => 2020-06-23 10:32:43 [post_modified_gmt] => 2020-06-23 09:32:43 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=38815 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [8] => WP_Post Object ( [ID] => 37659 [post_author] => 111 [post_date] => 2020-05-11 11:39:40 [post_date_gmt] => 2020-05-11 10:39:40 [post_content] => April 2020 will be remembered as the bleakest month in the history of oil markets in terms of balances and prices. But looking ahead, there are signs of improvement both on the supply and demand fronts, though from a very low base. Many countries have started to ease the coronavirus-induced lockdowns which is expected to have positive impact on oil demand. On the supply-side, OPEC+ cuts will come into effect, while the supply responses outside the OPEC+ producers have been fast and severe. The impact of these factors is already being felt on oil prices and physical markets. In this Energy Comment we explore the range of uncertainties surrounding the post-crisis recovery of market balances and prices and assess the key factors that will shape oil market outcomes in 2020 and 2021. We identify the shape of the recovery of oil demand as the key factor dictating the rebalancing process. The oil market balances are also sensitive to OPEC+ compliance. If OPEC+ producers fail to abide fully by their quotas, the market rebalancing will be delayed till the end of 2020. The final factor determining the sensitivity of oil balances is the extent of supply reductions outside OPEC+. Unlike the 2014-2016 cycle, which came at the back of a sustained period of Brent prices above $100/b, the scale of the current demand shock is much bigger, and the financial position of all players is relatively weaker and therefore the supply contractions/production shut-ins will be deeper and faster in this cycle. The current oil shock and the transformation of the supply curve as a result, will present some opportunities to low cost producers with ability to increase production, particularly to Saudi Arabia. If the demand recovery proves to be stronger than expected, the Kingdom may find itself in a position to increase production and capture market share by substituting for production losses elsewhere (high output / low price).  But this may require that prices remain in a range of $40-50/b so as not to encourage rapid supply growth in other parts of the world and to support the demand recovery. With higher production and more importantly higher exports, this strategy may result in similar payoff to a strategy of lower output and higher prices say in the $60-70/b range (low output / high price). But the higher output/lower price strategy has additional advantages. First, this is consistent with an array of existing domestic policies aimed at improving efficiency of energy consumption, energy pricing reforms, and increasing the share of gas and renewables in the power sector which will reduce domestic demand and free crude for exports. Second, by increasing production, the Kingdom can engage in faster monetization strategy at times when there are concerns that the energy transition will result in lower long-term demand for oil. Third, given that oil production still constitutes a significant part of GDP, higher production can support overall Saudi GDP growth. Fourth, when the next cycle arrives, Saudi Arabia can negotiate cuts with other producers from a much higher base. Finally, if the US shale supply response turns out to be weaker than in previous cycles because investors require higher price in order to be attracted again to US shale, especially in the aftermath of the shock of negative prices, then Saudi Arabia can increase both its exports and revenues. [post_title] => Is the Worst of the Oil Crisis Behind Us? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => is-the-worst-of-the-oil-crisis-behind-us [to_ping] => [pinged] => [post_modified] => 2020-05-11 15:42:50 [post_modified_gmt] => 2020-05-11 14:42:50 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=37659 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [9] => WP_Post Object ( [ID] => 36466 [post_author] => 111 [post_date] => 2020-03-30 11:43:40 [post_date_gmt] => 2020-03-30 10:43:40 [post_content] => The large contraction in oil demand due to the spread of COVID-19 and the dissolution of the OPEC+ agreement has combined to generate large shockwaves through oil and financial markets. The impact on prices and balances has been severe with Brent and WTI falling by more than 50% over two weeks in March 2020. Daily Brent tumbled to $24.9/b on March 18 from $51.9/b on March 2, while at the same time WTI fell to $20.4/b from $46.8/b. Volatility has heightened and the market has seen some extremely volatile price movements. The market has flipped from backwardation to deep contango with time spreads reaching levels wider than those during the 2008 global financial crisis. According to our structural VAR model, the supply-demand imbalance is projected to reach 5.7 mb/d in 2020 and 3.3 mb/d in 2021 which will further deepen the contango as inventories continue to build and traders increasingly resort to floating storage. Combined with the increase in exports from OPEC+ producers, this has already caused a large increase in Very Large Crude Carriers (VLCC) rates. Concerns about availability of storage will continue to put severe pressure on front prices and the shape of the forward curve. Physical differentials have also come under severe pressure and there are reports that prices for some US crudes in physical markets have turned negative. The ramping up of exports by OPEC+ producers in the face of collapsing demand is already causing a massive shift in trade flows with oil exporters such as West African producers finding it increasingly difficult to clear their loading programs, forcing them to slash differentials and offer their crude at large discounts. In short, this is a market that is being tested to its limits and all previous records in terms of price movements and physical indicators are being, or are set to be, broken. This presentation sets out to examine some of the recent dynamics and producers’ behaviour shaping the oil market and their likely evolution in the next few months. Executive Summary  [post_title] => Oil Supply Shock in the time of the Coronavirus [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-supply-shock-in-the-time-of-the-coronavirus [to_ping] => [pinged] => [post_modified] => 2020-03-30 13:36:29 [post_modified_gmt] => 2020-03-30 12:36:29 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=36466 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [10] => WP_Post Object ( [ID] => 32655 [post_author] => 111 [post_date] => 2019-11-04 11:27:30 [post_date_gmt] => 2019-11-04 11:27:30 [post_content] => OPEC is faced with a wide range of uncertainties, which are perhaps best reflected in the gulf in narratives between the bulls and the bears. For the bulls, OPEC is in a strong position: the declines in non-OPEC supply are structural while the slowdown in global economic growth is temporary. Based on this view, a mini super-cycle is just around the corner: as demand rebounds, OPEC would be operating close to its maximum sustainable capacity at times when the geopolitical backdrop may reduce spare capacity further—a perfect combination for a sustained rise in oil price. Paradoxically, many of the bulls are the ones calling for deeper OPEC cuts. For the bears, it is the other way around: non-OPEC (US shale) supply would rebound strongly in response to higher oil prices and deeper OPEC cuts and the slowdown in the global economy could persist for longer as there is no end in sight for the US-China trade war. Also, according to this view, there is enough supply held off the market and thus concerns about spare capacity are exaggerated. The reality is likely to lie between these polar views and OPEC should resist being pushed into a corner. If either of these views does eventually materialize, the costs associated with maintaining and extending the current cuts into 2020 are low, with the potentially upside benefit that some of the views about the end of US shale growth could be put to the test. OPEC should leave part of the rebalancing to market mechanisms and resist reacting to noisy daily signals. OPEC+ is in a good position to do so especially its dominant players Saudi Arabia and Russia have succeeded in managing market expectations so far and have not infused the view that they would pursue deeper cuts and that they would do whatever it takes, at any cost, to support the oil price (interestingly, signals that the Kingdom would rebalance the market at any cost have emerged from other OPEC members, that have not been complying with their quotas, and are determined to defend prices by cutting Saudi barrels). For the first time in several years, Saudi Arabia is, so far, approaching the December meeting by not reacting to immediate market pressures and by not over-promising and hyping market expectations, which may give it the chance to over-deliver in 2020.     [post_title] => The Dilemma Continues: OPEC choices amid high uncertainty [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => the-dilemma-continues-opec-choices-amid-high-uncertainty [to_ping] => [pinged] => [post_modified] => 2019-11-04 11:31:58 [post_modified_gmt] => 2019-11-04 11:31:58 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=32655 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [11] => WP_Post Object ( [ID] => 32369 [post_author] => 111 [post_date] => 2019-10-24 10:37:54 [post_date_gmt] => 2019-10-24 09:37:54 [post_content] => In a series of recent speeches and interviews, a consistent message coming from Saudi Aramco is that ‘future profit growth will be more from diversification into integrated oil refining and petrochemicals, besides natural gas production and supply for both the domestic and international markets’. But what about opportunities in the upstream oil sector and the potential expansion of oil productive capacity? How does upstream oil fit within the future portfolio of Aramco and the Kingdom’s role as the ‘central bank of oil’ as some describe it? These are key questions, which don’t only have implications for Saudi Aramco’s capex budget and how the budget is allocated across the various business segments and the company’s future sources of profitability growth, but also on oil market dynamics and the future of the Kingdom’s revenue paths. Much of the recent discourse has focused on the upside potential of Saudi Arabia’s oil productive capacity and every time Saudi Aramco announces plans to expand an existing field or develop a new field, there is much speculation whether this would represent a net capacity addition. Also, at times when expectations about global oil demand peaking soon are rife, many have argued that this would induce a shift in the output strategies of large resource owners. Those who recommend a fast monetization strategy however fail to appreciate the constraints that Saudi Arabia faces in pursuing such a strategy given the heavy reliance of the government’s income on oil revenues. For Saudi Arabia to pursue a strategy of fast monetization, it needs to diversify its sources of income away from oil exports, for instance by heavily taxing its businesses and individuals, without jeopardizing political and social stability. This requires deep economic and political structural transformations, which will take a long time to implement with no guarantee of success. Rather than pursing an aggressive monetization strategy, the question perhaps should be posed differently. In the current context of wide uncertainties about global oil demand and the speed of the energy transition and the limited diversification of government’s income, is there a case for Saudi Arabia to reduce its capacity to lower levels and/or let its spare capacity erode? It is argued that the strategy to manage a reduction of its output capacity could maximise revenues over the medium-term especially given that the capital costs are low in implementing such a strategy. However, there are adverse consequences for the Kingdom as a result of this strategy. For instance, Saudi Arabia would become a price taker; it would end up with a lower market share; it would undermine the Kingdom’s geopolitical status; and it would lose an important discipline mechanism. These are all significant costs. It may also require coordination with other low cost producers that would be eager to increase capacity. Such coordination is extremely difficult if not impossible. But it is important to make a few points. The alternative strategy of fast monetization of reserves is also associated with a high cost in terms of lower revenues. Also, Saudi Arabia cannot afford to be reactive in the event that the impacts of energy transition fully materialize, as the costs of absorbing such a shock are too high, not only in absolute terms, but also relative to other options. [post_title] => Saudi Arabia's Oil Productive Capacity - The Trade-Offs [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-oil-productive-capacity-the-trade-offs [to_ping] => [pinged] => [post_modified] => 2019-10-24 10:37:54 [post_modified_gmt] => 2019-10-24 09:37:54 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=32369 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [12] => WP_Post Object ( [ID] => 31851 [post_author] => 111 [post_date] => 2019-08-12 12:09:03 [post_date_gmt] => 2019-08-12 11:09:03 [post_content] => The sharp decline in the Brent price to below $60/barrel and the weakening of the oil demand outlook due to the US-China trade war has brought to the fore the issue of Saudi Arabia’s next move. There have been multiple media reports indicating that Saudi Arabia would not tolerate the latest price slide and that the Kingdom has approached other OPEC members to discuss possible steps to arrest the decline in the oil price. To most analysts and investors, this signals that Saudi Arabia is willing to cut its output further to try to maintain a floor under the oil price regardless of the nature of shocks hitting the market. Given that demand shocks are more persistent and that the trade war could take a long time to resolve with resulting repercussions being felt for many years, the required cuts may have to be deeper and maintained for longer. Saudi Arabia also faces the challenge of convincing other OPEC+ members to implement deeper cuts, especially given that the pool of those countries that can cut is small. Cutting unilaterally risks distorting other OPEC+ members’ incentives, shifting the entire burden of rebalancing to Saudi Arabia. But even if Saudi Arabia does cut output unilaterally, the oil price response may be muted in which case the Kingdom may end up with lower revenues. But if cutting output may not necessarily lead to higher revenues in the current context, could a policy of increasing output result in higher revenues in the medium term? In other words, could the revenue calculus facing the Kingdom change in the face of a negative demand shock? If the numerous reports that US shale is on its last legs and ‘the time for US shale is up’ are correct, and given that most of the growth in non-OPEC supply originates from the US, then it is straightforward to construct a scenario in which higher Saudi output would accelerate the slowdown in US shale and Saudi Arabia’s medium term revenues would rise as the Kingdom could increase its market share without negatively impacting the price. The reality however is that the US shale response is not yet understood and as recent history has shown, its performance can’t be predicted with any accuracy and it could be that many of the reports highlighting the extent of the current weaknesses and the decline in productivity of US shale are exaggerated. As such, the costs of undertaking such a strategy could be high while the benefits are highly uncertain. Given the risks and costs associated with each of the above options and the wide uncertainty regarding the size of the shocks and their persistence, the most likely scenario is for Saudi Arabia will not to deepen its cut further nor seek a new OPEC+ agreement for deeper cuts, in the hope that slower US shale growth and geopolitical outages will outweigh demand weakness and stocks will fall in the second half of the year. Looking at current market fundamentals alone, there is no urgent need to shift gears for now: the overall compliance within OPEC+ is robust, supply outages remain high, and US shale production growth has been showing signs of deceleration. Thus, on the supply side, almost everything is going in the Kingdom’s favour. The problem lies elsewhere and supply measures alone can’t counter the broad macro factors. Sometimes the best course of action is to do nothing. However, looking ahead into next year, the challenge of balancing the market gets more difficult if demand weakens further and Saudi Arabia may need to reconsider its policy. If expectations of a sharp fall in demand growth do materialise, it should consider all options as the trade-offs and the revenue calculus could change. However, until the divergence in expectations narrows and the macro sentiment stabilises, OPEC may find that its best option is to ‘stay on the sidelines’ but prepare for the increasing possibility of harder times ahead. [post_title] => Saudi Arabia's Next Oil Move [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => saudi-arabias-next-oil-move [to_ping] => [pinged] => [post_modified] => 2019-08-12 12:09:03 [post_modified_gmt] => 2019-08-12 11:09:03 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31851 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [13] => WP_Post Object ( [ID] => 31704 [post_author] => 111 [post_date] => 2019-06-26 14:08:53 [post_date_gmt] => 2019-06-26 13:08:53 [post_content] => Nowadays, oil market observers often start their analysis by pointing to two sets of factors pushing the oil price in opposite directions. On the one hand, supply outages from Iran and Venezuela and the rising geopolitical risks in the Middle East as US-Iran tensions escalate are keeping an upward pressure on the oil price. On the other hand, the US-China trade war and a general deterioration in global macroeconomic indicators are preventing prices from moving higher. In the background, the usual factors, such as whether OPEC will extend its cuts to the end of 2019, or even beyond, and the performance of US shale, will continue to shape market expectations and price outcomes. While it is relatively easy to construct ‘bullish’ scenarios in which oil market balances remain constructive and OECD stocks fall in the second half of 2019 - with the impact (in barrel terms) of supply outages from Iran and Venezuela and potentially Libya more than offsetting the impact of lower oil demand growth due to a weaker global economy, this type of analysis is too simplistic given that the shocks that hit the oil market are not alike. There is plenty of evidence to suggest that the nature of the shock matters and that demand shocks and supply shocks do not have the same impact on oil prices, with demand shocks being more persistent and having a bigger impact on oil price movements. In a similar vein, not all supply shocks are alike and historically the impact of exogenous supply shocks due to geopolitical outages has been shown to be short-lived, while demand shocks in the face of capacity constraints can have a persistent impact. Thus, building a case for a sustained rise in oil prices based on geopolitical outages and the ‘war risk’ premium on their own is not realistic in the current context of weaker demand prospects and when key OPEC members are cutting output to levels below their agreed quotas. In contrast, any deterioration in global oil demand prospects remains the biggest drag on oil prices. In fact, one could argue that in so far as geopolitical tensions act as a dampener on global growth by undermining investors’ confidence and pushing oil prices higher, as demand for precautionary purposes rises and the ‘war risk’ premium becomes more important, the recent rise in geopolitical tensions are not necessarily supportive of oil prices in the medium term. In this presentation, we provide evidence on the importance of identifying the nature of shocks when analysing oil market dynamics and oil prices and what these shocks imply for OPEC’s next move. Executive Summary  [post_title] => Demand Shocks, Supply Shocks and Oil Prices: Implications for OPEC [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => demand-shocks-supply-shocks-and-oil-prices-implications-for-opec [to_ping] => [pinged] => [post_modified] => 2019-06-26 14:08:53 [post_modified_gmt] => 2019-06-26 13:08:53 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31704 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [14] => WP_Post Object ( [ID] => 31592 [post_author] => 1 [post_date] => 2019-05-22 10:29:28 [post_date_gmt] => 2019-05-22 09:29:28 [post_content] => The recent movements in the oil price complex indicate some deep dislocations between the physical and futures markets and in market expectations about current and future oil market fundamentals. Despite the various supply shocks hitting the oil market, the general deterioration in the geopolitical backdrop and the rise in US-Iran tensions, the Brent price has continued to trade within a very narrow price range since early April 2019. In contrast, time spreads are pointing towards very tight market conditions. In fact, the oil market finds itself in an almost opposite position to the same time last year when futures prices rose sharply in the expectation that market fundamentals would tighten, while the time spreads and physical differentials were pointing towards a well-supplied market. The divergence was eventually resolved in 2018 H2 by flat prices falling sharply. Looking ahead into 2019 H2, the oil market faces the key issue of how this divergence in expectations and the mixed signals from the physical and futures markets will eventually be resolved and, as ever, Saudi Arabia's output decision will play a key role in shaping market outcomes. In this respect, Saudi Arabia finds itself in a very similar position to last year where it has to make some hard choices and play a balancing act to try to achieve multiple objectives: Not risk pushing the market out of balance causing oil prices to fall, while at the same time preventing prices from getting too high and harming consuming countries and oil demand. Pressures from Russia to ease the supply curb and from the US to keep prices lower are not very different from last year’s, perhaps with one major difference, President Trump may be willing to live with slightly higher oil prices, recognizing that in a low oil price environment, US shale production growth would stall and that his key allies in the Middle East need a higher oil price to maintain government spending. Saudi Arabia would also be sensitive to the dynamics within OPEC+, aiming towards maintaining the deal that it has engineered and reinforcing the message that Saudi Arabia’s oil policy is driven purely by market fundamentals. Saudi Arabia’s deep cuts since December 2018, with current output at levels below its agreed quota, gives the Kingdom some flexibility to increase output without exiting the deal.  But, as in 2018, this balancing act is hard to maintain given the wide uncertainties engulfing the market. [post_title] => Has Saudi Arabia's Balancing Act Gotten Any Easier? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => has-saudi-arabias-balancing-act-gotten-any-easier [to_ping] => [pinged] => [post_modified] => 2019-06-06 10:32:27 [post_modified_gmt] => 2019-06-06 09:32:27 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31592 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [15] => WP_Post Object ( [ID] => 31524 [post_author] => 111 [post_date] => 2019-04-25 15:21:02 [post_date_gmt] => 2019-04-25 14:21:02 [post_content] => Before the recent announcement on Iran sanction waivers, the base case for most analysts was that the US would renew the waivers allowing a few buyers to continue importing limited quantities of Iranian oil. The logic behind this thinking was very simple: the Trump administration would not risk an oil price spike that could endanger US growth prospects and hurt motorists by tightening sanctions on Iran and disrupting oil exports further. Thus, President Trump’s latest decision not to reissue waivers caught the market off guard and caused a mini rally in the oil price with Brent prices reaching a six month high of near $75/b. Trump has been keen to emphasize that the US secured offset commitments from Saudi Arabia and the UAE, and that these countries ‘along with other friends and allies, have committed to ensure that global oil markets remain adequately supplied ... and that global demand is met as all Iranian oil is removed from the market’. This latest decision comes on the back of a quarter which saw market fundamentals tighten due to deep output cuts from Saudi Arabia, which exceeded the pledged target, the sharp deterioration of Venezuelan output, and demand remaining relatively healthy despite widespread pessimism about global growth prospects. As the Brent price consolidated at above $70/b in early-April, market focus quickly shifted to whether OPEC+ will relax its output cuts or even exit the deal altogether in June. The US campaign of ‘maximum pressure’ on Iran has added another layer of uncertainty to an already complex web of events; Saudi Arabia’s response, the future of the OPEC+ agreement, the success of the US in driving Iran exports to ‘zero’, as well as demand prospects on both the upside and the downside. This comment assesses these risks and discusses the market outcomes under the different choices facing OPEC and Saudi Arabia. [post_title] => Iranian Sanctions 2.0: Oil Market Risks and Price Stakes [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => iranian-sanctions-2-0-oil-market-risks-price-stakes [to_ping] => [pinged] => [post_modified] => 2019-04-25 15:21:02 [post_modified_gmt] => 2019-04-25 14:21:02 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31524 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [16] => WP_Post Object ( [ID] => 31501 [post_author] => 111 [post_date] => 2019-04-02 12:11:48 [post_date_gmt] => 2019-04-02 11:11:48 [post_content] => In the second half of 2018, the oil market exhibited high volatility not only in terms of price levels but also time spreads and quality spreads. After reaching highs of $81/b and $71/b in October, monthly Brent and WTI prices ended the year in December at $57/b and $49/b respectively. At the same time, time spreads switched from backwardation to contango, as inventories rose above their 5-year average and the prospects for global demand worsened amid supplies increasing. The spreads between light sweet-medium sour crude also exhibited wide volatility, with the Brent-Dubai and WTI-Dubai spreads collapsing signalling a shortage of heavier sour crude globally. Brent and WTI prices have gained significantly since December 2018, ending-March 2019 near $67/b and $60/b respectively (about $10/b higher), and time spreads are once again in backwardation. That said, while the Brent price in the front of the curve has increased sharply since the last quarter, the back end of the forward curve remains relatively sticky at around $60/b, suggestive of the fact that the dominant narrative remains relatively bearish. This presentation provides an overview of the oil market and price dynamics in early 2019, discussing the key challenges in the year ahead and examining possible outcomes. Executive Summary [post_title] => An Overview of the Crude Oil Market in 2019 [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => overview-crude-oil-market-2019 [to_ping] => [pinged] => [post_modified] => 2019-04-02 12:30:46 [post_modified_gmt] => 2019-04-02 11:30:46 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31501 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [17] => WP_Post Object ( [ID] => 31468 [post_author] => 111 [post_date] => 2019-03-13 16:06:03 [post_date_gmt] => 2019-03-13 16:06:03 [post_content] =>

President Trump’s tweet on February 25 urging OPEC to ‘relax’ and to take it ‘easy’ with their cuts, and that a ‘fragile’ global economy can’t tolerate a higher oil price, did have an immediate price impact, with the Brent price declining by 4 per cent on the day, from nearly $67/b down to $64/b. But the ‘Trump tweet’ impact faded fairly quickly with oil prices gaining again towards the end of the same week. A clear signal from the Saudi energy minister Mr. Khalid Al-Falih in which he confirmed that OPEC and its partners would continue with their output cuts with the objective of achieving a more balanced market was a key factor behind the fast recovery. Extrapolating Saudi Arabia’s behavior in 2018 into 2019 is risky and the assumption that Saudi policy will reverse its current strategy under Trump’s pressure does not reflect the shift in Saudi thinking and the current uncertainties and weaknesses engulfing the oil market. This Energy Comment sheds some light on the current market uncertainties pertaining to the drivers and prospects of global demand growth in 2019, the clearing of the stocks overhang and the dilemma that OPEC and its partners currently face.

[post_title] => OPEC Policy in the Age of Trump [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-policy-age-trump [to_ping] => [pinged] => [post_modified] => 2019-03-13 16:06:03 [post_modified_gmt] => 2019-03-13 16:06:03 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31468 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [18] => WP_Post Object ( [ID] => 31455 [post_author] => 111 [post_date] => 2019-03-06 11:03:06 [post_date_gmt] => 2019-03-06 11:03:06 [post_content] => The current sweet-sour crude oil imbalance is creating challenges for producers and refineries alike. While OPEC+ is striving to balance the market by the first half of 2019, unplanned outages from countries such as Venezuela, Iran and Canada and OPEC+ cuts have contributed to a large deficit in medium/heavy sour crudes. This is having a big impact on key market outcomes including trade flows, the dynamics of crude price differentials, and refining margins. The crude imbalance is also complicating planning and risk management decisions, especially at times when the International Maritime Organization (IMO) will enforce a new 0.5% global sulphur cap on bunker fuel from the 1st of January 2020. This Energy Comment examines the dynamics of the sweet-sour crude price differentials, represented by the Brent-Dubai (BD) price spread and assesses how supply factors can impact the crude quality imbalance between light/heavy oil and sweet/sour crude and hence the crude price spreads in 2019. The results show that the current supply outages and OPEC+ cuts do not only impact price levels, but also the price differentials between the key sweet-sour benchmarks. Since most of the recent supply losses are concentrated in the medium/heavy sour category, while most of the supply gains are concentrated in the light sweet category in big part due to the strong growth in US shale, the light sweet-medium sour crude spread has collapsed and at certain instances was trading at negative values. Looking ahead, our paper predicts that, other things being equal, the downward pressure on light sweet - medium sour crude spreads will persist throughout this year as losses from countries like Iran and Venezuela due to sanctions may accelerate and as Saudi Arabia and its partners are expected to maintain the cuts until the end of 2019. This may have come as a surprise to some market analysts. A few months ago, the conventional wisdom was that the Brent-Dubai spread would widen as IMO rules start taking effect and the shipping industry shifts towards consuming cleaner fuels including Marine Gasoil (MGO) and compliant low sulphur fuel oils. This should have the impact of increasing demand for light sweet crudes while lowering demand for sour crudes. What our results show is that the IMO is only one of the many factors impacting spreads and supply factors are as important (if not more important) in determining movements in price differentials. In other words, the widening of the sweet-sour spreads may still occur, but this is far from a forgone conclusion. Our results also show that the current sweet-sour imbalance presents a challenge for OPEC+ and may complicate its efforts to balance the market. On the one hand, OPEC+ cuts are contributing to balancing the market in terms of volumes; on the other hand, the surplus in light sweet crude persists. By cutting output, OPEC+ is tightening an already very tight medium/heavy sour market with potential implications on refining margins and eventually on global oil demand if complex refining margins weaken significantly. The key question facing OPEC+ producers is whether they should or can take any measures to resolve this quality imbalance or should they just leave it to the market mechanisms to resolve it. [post_title] => The Light Sweet-Medium Sour Crude Imbalance and the Dynamics of Price Differentials [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => light-sweet-medium-sour-crude-imbalance-dynamics-price-differentials [to_ping] => [pinged] => [post_modified] => 2019-03-06 15:09:23 [post_modified_gmt] => 2019-03-06 15:09:23 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31455 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [19] => WP_Post Object ( [ID] => 31409 [post_author] => 111 [post_date] => 2019-02-13 12:03:30 [post_date_gmt] => 2019-02-13 12:03:30 [post_content] => After a sharp fall towards the end of 2018, oil prices in 2019 started on a positive note recovering some of their losses. From the low point of $50/b reached on 28 December, the daily Brent price has increased to above $60/b with many analysts now expecting another year of sustained price volatility driven by a wide uncertainty pertaining to global supply and demand trends. But unlike 2017 and 2018, the woes engulfing the oil market in 2019 have extended to the demand-side. The prospects of the global economy and its potential impact on global oil demand, as well as the ability of OPEC+ producers to successfully enforce the agreed or even implement future deeper cuts (if necessary) to rebalance the market in the face of negative demand shocks are at the core of the current debate. Also, the unfolding geopolitical developments in Iran and Venezuela are expected to play a pivotal role in shaping oil market outcomes in 2019. In this Energy Insight, we revisit the main factors that shaped oil market dynamics in 2018 and analyse how the oil price path could evolve in 2019 by evaluating the prevailing risks underlying the world oil market using real-time forecast scenarios of the Brent price. Executive Summary

 

[post_title] => Oil Price Paths in 2019: Navigating Volatile Markets [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2019-navigating-volatile-markets [to_ping] => [pinged] => [post_modified] => 2019-02-14 15:56:40 [post_modified_gmt] => 2019-02-14 15:56:40 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31409 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [20] => WP_Post Object ( [ID] => 31282 [post_author] => 111 [post_date] => 2018-11-28 12:19:41 [post_date_gmt] => 2018-11-28 12:19:41 [post_content] => Oil market sentiment has turned very bearish over the last few weeks. The Brent price has fallen from highs of above $80/barrel in October to currently trading close to $60/barrel, global economic prospects have become highly uncertain, Saudi Arabia’s production is at record level of above 11.1 mb/d in November, Russia and other OPEC+ members that could increase production are producing at or close to maximum capacity, the range of estimates of Iranian losses remain very wide, OECD liquids stocks have returned to above their 5-year average, net-length financial positioning has fallen sharply, US shale output keeps surprising on the upside, and President Trump’s tweets about OPEC and oil prices have become a regular occurrence. Thus, when OPEC+ members meet next in December, they find themselves in a very different environment than the June 2018 meeting when the market’s main concern at the time was whether Saudi Arabia has enough spare capacity to put a cap on the oil price. In contrast, in the forthcoming OPEC meeting, the market concern is whether OPEC and its partners will implement deep enough cuts to reverse the recent decline in the oil price. This short presentation assesses the various choices that OPEC and its key player Saudi Arabia face. Executive Summary [post_title] => OPEC Choices are Getting Harder and Harder [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-choices-getting-harder-harder [to_ping] => [pinged] => [post_modified] => 2018-11-28 12:19:41 [post_modified_gmt] => 2018-11-28 12:19:41 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31282 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [21] => WP_Post Object ( [ID] => 31199 [post_author] => 111 [post_date] => 2018-09-21 11:12:02 [post_date_gmt] => 2018-09-21 10:12:02 [post_content] =>

As OPEC’s Declaration of Cooperation with non-OPEC producers draws to a close (ending-2018), the future of this historic joint effort of 24 (now 25) OPEC and non-OPEC oil-producing countries has moved to the top of the producers’ agenda. The next Joint Ministerial Monitoring Committee’s meeting on September 23rd in Algiers, could provide some hints regarding the future of the cooperative framework between the producers. Although OPEC and non-OPEC producers have collaborated in the past, albeit on a smaller scale, the Declaration of Cooperation has been a landmark agreement due to its success in meeting the many challenges faced in its planning, coordination and monitoring – at least in the short-term. Assessing its effectiveness beyond compliance levels and evaluating the dynamics underlying the success of the Agreement’s current framework as well as its members’ need for institutionalising a long-term cooperative framework, is of paramount importance for understanding what lies ahead and why oil policy will continue to matter in years to come. This Energy Comment discusses 5+1 key facts about the Declaration of Cooperation that shed light on the prospects and challenges in OPEC/NOPEC producers’ pursuit of cooperation.

[post_title] => 5+1 Key Facts about the OPEC Declaration of Cooperation [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 51-key-facts-opec-declaration-cooperation [to_ping] => [pinged] => [post_modified] => 2018-09-21 11:12:02 [post_modified_gmt] => 2018-09-21 10:12:02 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31199 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [22] => WP_Post Object ( [ID] => 31174 [post_author] => 111 [post_date] => 2018-09-04 11:08:41 [post_date_gmt] => 2018-09-04 10:08:41 [post_content] => This presentation discusses the oil market outlook for 2018 and 2019. It outlines the main factors behind the rebalancing of the oil market, including stronger than expected global oil demand growth and strong OPEC cohesion (caused in part due to involuntary cuts). The presentation then analyses the main trends shaping oil price outcomes in the short-term, including  prospects for the global economy amidst growing concerns about escalating trade tensions and the health of emerging economies, US shale supply dynamics in the face of infrastructure constraints, OPEC behaviour, the recent shifts in crude oil trade flows and geopolitical disruptions. The presentation concludes with an analysis of the balance of risks facing the oil market and how the disconnections between short-term and long-term expectations are clouding the oil price outlook. [post_title] => The Crude Oil Market in 2018 & 2019 - How Did We Get Here & What Next? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => crude-oil-market-2018-2019-get-next [to_ping] => [pinged] => [post_modified] => 2018-09-04 11:08:41 [post_modified_gmt] => 2018-09-04 10:08:41 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31174 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [23] => WP_Post Object ( [ID] => 31158 [post_author] => 111 [post_date] => 2018-08-21 12:21:05 [post_date_gmt] => 2018-08-21 11:21:05 [post_content] => After a sharp rise in April/May this year, which saw Brent trading at above $80/barrel for several days, the upward pressure on the oil price eased in July with the Brent structure flipping into contango. This may have come as a surprise to many analysts who were expecting oil prices to continue on their upward trajectory. Because, after all, with OECD stocks falling below the five-year average, spare capacity at very thin levels, oil demand still growing robustly, production in Venezuela continuing its decline, supply losses from Iran projected to exceed 1 million b/d, and general deterioration of the geopolitical backdrop, surely the Brent price should have broken the $80/barrel ceiling? Instead, the oil price has held in the $70-$75/barrel range for most of July and into August 2018. While fears of trade wars and growing concerns about the health of emerging markets have impacted sentiment, it is the recent shift in OPEC, and particularly its dominant player Saudi Arabia’s, output policy which has had the biggest impact on physical balances, prices and the term structure to date. This reflects in part changing market fundamentals and a more uncertain environment, but also changes in the weight attached to the various objectives pursued by the Kingdom. This comment examines the causes of the most recent shift in Saudi oil policy, its adjustment in output in July, and the implications of recent behaviour on its signaling power.   [post_title] => What to Make of Saudi Arabia's Recent Shift in its Output Policy? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => make-saudi-arabias-recent-shift-output-policy [to_ping] => [pinged] => [post_modified] => 2018-08-21 12:27:43 [post_modified_gmt] => 2018-08-21 11:27:43 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31158 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [24] => WP_Post Object ( [ID] => 31087 [post_author] => 111 [post_date] => 2018-06-18 11:24:55 [post_date_gmt] => 2018-06-18 10:24:55 [post_content] => As the OPEC oil ministers prepare to meet for their bi-annual Ordinary Meeting on 22 June, they are faced with some difficult choices. On the one hand, by extending the output cutbacks amidst a higher risk of output disruptions, OPEC risks overtightening the oil market and pushing oil prices higher, leading to an inevitable demand response. Moreover, involuntary cuts originating mainly from Venezuela, Angola, and Mexico mean that the oil market is tightening more quickly than anticipated. On the other hand, by exiting the agreement too early OPEC runs the risk of prices falling if such a decision is not supported by favourable market conditions, especially as ‘the clouds over the global economy are getting darker by the day’, and risks dismantling a historic coalition of OPEC/NOPEC producers which took massive diplomatic efforts to put together and the coordination of which proved critical for the rebalancing effort. In this Energy Insight, we consider the hard realities of oil market and price dynamics for 2018 and 2019 to derive, analyse, and assess, oil output policy scenarios that are likely to drive discussions during the upcoming OPEC Ministerial Meeting, through the lens of a structural VAR model of the global oil market. The decision for OPEC members that have the capacity to increase production is not only whether or not to increase output, but also by how much to increase production and whether to do it incrementally. Our results call for a cautious approach in which OPEC increases output gradually and reassess its options in November as this will help keep a solid floor on the oil price, which remains a key objective for all producers. We also find that future oil demand growth (especially in 2019) hinges heavily on the outcome of the upcoming OPEC+ meeting, just as the success of its oil output policy hinges heavily on the prospects of global oil demand remaining healthy. Finally, how OPEC decides to implement the output increase also matters. If the decision is to increase output, then it is in the best interest of OPEC+ to reach a collective decision, however this may not be feasible in the current context as the producers who don’t have the capacity to increase production and those who are subject to US sanctions are likely to refuse a recommendation to increase output. If it is not possible to reach a collective agreement on increasing output, the producers who have the capacity, and who could really influence market outcomes are then faced with three options: either to extend the current agreement of output cuts in order to maintain the cohesiveness of the coalition and risk the impact of higher oil prices on demand; exit the deal altogether and announce that they will increase their output regardless of the actions of other producers, bringing to an end the framework of cooperation; not dismantle the OPEC+ deal in the next meeting and postpone the difficult negotiations until November, while still going ahead and increasing output individually. While the last two options are not very different in terms of their impact on market balances, the choice of exit will affect sentiment and prices at least in the short-term. This shows the balancing role that OPEC has to play and the importance the key players should attach to retaining their flexibility. Executive Summary [post_title] => OPEC at the Crossroads [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => opec-at-the-crossroads [to_ping] => [pinged] => [post_modified] => 2018-06-18 11:24:55 [post_modified_gmt] => 2018-06-18 10:24:55 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31087 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [25] => WP_Post Object ( [ID] => 31020 [post_author] => 111 [post_date] => 2018-05-02 11:17:42 [post_date_gmt] => 2018-05-02 10:17:42 [post_content] => In this presentation, Bassam Fattouh and Andreas Economou analyse the choices facing OPEC+ in light of OECD stocks falling, recent gains in oil prices, alongside concerns that OPEC may be over-tightening the market and with commentators warning that current high oil prices will have a negative impact on oil demand and suggesting that OPEC+ should release withheld barrels back into the market to put a cap on the oil price. While OPEC+ should always be wary about the potential supply/demand responses in a higher oil price environment and should show willingness to act both on the upside and the downside, we argue that indicators based on stocks should not be its only guide for output policy and that stock movements should be seen merely as symptoms of underlying oil supply and oil demand shocks hitting the market. The fact that the market, and the media, as well as producers themselves would prefer to rely on ‘simple’, ‘measurable’ and ‘observable’ indicators, and that indicators based on shocks are highly uncertain as well as difficult to measure, does not mean that OPEC+ should not consider alternative and more complex metrics in their decision making. We consider OPEC+ exit strategy under different scenarios with price outcomes ranging from $80/b year-end to an average price of $50/b. It is perhaps this wide range of price outcomes, which may explain OPEC+ reluctance to exit the deal, especially given the time taken and the difficulties faced in concluding the output cut agreement and what makes it even more difficult for OPEC+ is that their decisions are endogenous and how they decide to act now will, in turn, shape market outcomes adding another layer of uncertainty. Executive Summary [post_title] => Oil Price Signals: What Next for OPEC+? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-signals-next-opec [to_ping] => [pinged] => [post_modified] => 2018-05-02 12:01:11 [post_modified_gmt] => 2018-05-02 11:01:11 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=31020 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [26] => WP_Post Object ( [ID] => 30974 [post_author] => 111 [post_date] => 2018-04-06 11:06:01 [post_date_gmt] => 2018-04-06 10:06:01 [post_content] => OPEC exit strategy has been one of the key uncertainties engulfing the oil market. Most market focus has been on the level of inventories, as this is seen by many as a key indicator as to when OPEC may shift its current output policy. In this presentation, it is argued that the level of inventories, however measured, is a backward looking indicator, and hence is of little use for guiding OPEC’s next steps. Instead, through thorough analysis of the previous cycles we show that in the presence of a new source of supply, which is highly responsive to price signals, demand related shocks become much more important in shaping OPEC behaviour. The high output strategy adopted in 2015 was undermined by a negative demand shock. The current strategy of cutting output has succeeded in large part due to a strong positive demand shock, which caused inventories to continue to decline despite strong US shale response. Thus, the risks of potential ‘trade wars’ and the potential negative impact on the global economy and on oil demand if these risks do materialise should constitute a serious concern for OPEC. OPEC’s current strategy hinges heavily on the prospects of future demand growth. If demand continues to surprise on the upside (positive demand shock), then OPEC will most likely maintain its strategy and may decide to release some of the withheld crude back to the market. If demand surprises on the downside (negative demand shock), then OPEC’s choices become very stark: OPEC could either decide to cut output to support prices or shift toward a higher output strategy. Both choices carry hefty risks reflecting the delicate situation that OPEC finds itself in as a result of the shift in policy back in November 2016. Executive Summary [post_title] => Oil Supply Balances: The Four Cycles of the OPEC Oil Output Policy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-supply-balances-four-cycles-opec-oil-output-policy [to_ping] => [pinged] => [post_modified] => 2018-04-06 11:18:20 [post_modified_gmt] => 2018-04-06 10:18:20 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=30974 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [27] => WP_Post Object ( [ID] => 30863 [post_author] => 111 [post_date] => 2018-02-13 11:41:06 [post_date_gmt] => 2018-02-13 11:41:06 [post_content] => 2018 started on a positive note for oil markets with Brent prices breaking through $70 a barrel for a few days and all the key international crude oil benchmarks flipping into backwardation. Yet, there is still a wide uncertainty engulfing the oil market, with very divergent views among market observers about how the oil price path could evolve in 2018, with some revising upwards their forecasts to higher than $80/b while others are less convinced that the market fundamentals can sustainably support a price above $70/b, expecting a lower path in the mid $60/b. The key uncertainties behind these divergent views mainly pertain to different views about:
  • The OPEC/NOPEC exit strategy from the output cut agreement reached in November 2016;
  • US shale supply response to the recent oil price rise;
  • The potential impact of higher oil prices on global oil demand;
  • The extent of supply disruptions amid a fragile geopolitical environment.
In this Energy Insight, we analyse how the oil price path could evolve in 2018 by evaluating the aforementioned risks underlying the world oil market using a structural model of the oil market and considering various forecast scenarios. Forecast scenarios are not predictions of what will happen, but rather modelled projections of various oil price risks conditional on certain events that are known at the time of the forecast or some other hypothetical events. Our reference forecast scenario projects for Brent to trade within a narrow price range, with a price floor at above $60/b and a ceiling of below $75/b, with a 2018 average price of $67/b. The baseline forecast suggests that the momentum of stronger than expected oil demand and the OPEC/NOPEC output cuts have tightened the oil market in 2017 and even with no change in current market dynamics, the oil price will continue to be supported at around $65/b. Our results show that for 2018, US shale output growth will be the key factor putting a ceiling on the oil price, while supply disruptions could provide some support to the oil price, with a sharp fall in Venezuelan output constituting the biggest geopolitical risk that could push prices well above our baseline or reference forecasts. The results also show the paramount importance for the strong oil demand momentum experienced in 2017 to continue in 2018 for rebalancing the market and supporting the oil price. Finally, our results show that for OPEC/NOPEC to maintain the recent price gains, they have to extend their output cut until the end of 2018; releasing the withheld barrels under the current agreement would result in a sharp fall in oil prices, suggesting that OPEC/NOPEC should be very wary about unwinding the output cut agreement when they next meet in June 2018. [post_title] => Oil Price Paths in 2018: The Interplay between OPEC, US Shale and Supply Interruptions [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2018-interplay-opec-us-shale-supply-interruptions [to_ping] => [pinged] => [post_modified] => 2018-02-13 11:41:06 [post_modified_gmt] => 2018-02-13 11:41:06 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=30863 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [28] => WP_Post Object ( [ID] => 30761 [post_author] => 111 [post_date] => 2017-12-07 09:50:22 [post_date_gmt] => 2017-12-07 09:50:22 [post_content] => Using novel measures that decompose oil supply shocks into its exogenous supply (driven by exogenous geopolitical events in OPEC countries) and endogenous supply (driven by investment dynamics within the oil sector) components, this paper offers a fresh perspective on the role of supply, flow demand and speculative demand shocks in explaining the changes in the real price of oil over the last three decades. We show that while exogenous supply shocks are non-negligible, endogenous supply shocks have generated larger and more persistent price responses than previously thought. Earlier studies have consistently shown that positive shifts in the flow demand for oil were responsible for most of the oil price surge between 2002-2008. But this paper shows that endogenous production capacity constraints, which restricted the ability of producers to ramp up production to meet the unexpected increase in demand, added at least $50/barrel to the real price of oil during that period. More recently, endogenous oil supply shocks alone accounted roughly for twice as much as any other supply or demand shock in explaining the 2014 oil price collapse. Specifically, of the $64 per barrel cumulative decline in the real price of oil from June 2014 to January 2015, our model estimates that $29 have been due to endogenous oil supply shocks, $13 have been due to exogenous oil supply shocks, and $12 have been due to flow demand shocks. The paper concludes by demonstrating that forecasting models that are able to distinguish between exogenous and endogenous supply shocks generate more realistic out-of-sample estimates of the sequences of the structural shocks, thus resulting in higher real-time predictive accuracy than forecasting models that use a collective measure of a flow supply shock. Full paper [post_title] => A Structural Model of the World Oil Market: The Role of Investment Dynamics and Capacity Constraints in Explaining the Evolution of the Real Price of Oil [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => structural-model-world-oil-market-role-investment-dynamics-capacity-constraints-explaining-evolution-real-price-oil [to_ping] => [pinged] => [post_modified] => 2017-12-07 09:55:31 [post_modified_gmt] => 2017-12-07 09:55:31 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=30761 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [29] => WP_Post Object ( [ID] => 30041 [post_author] => 111 [post_date] => 2017-01-24 10:25:18 [post_date_gmt] => 2017-01-24 10:25:18 [post_content] =>

This paper explores how the oil price path could evolve in 2017 by assessing the various oil price risks under alternative forecast scenarios pertaining to future market conditions. It is shown that even without the OPEC-non-OPEC output cut agreement in November 2016, the three-year long price fall would eventually have come to a halt and stabilized at close to $41/b in 2017 based solely on market forces. The agreement, however, helped accelerate the price recovery by stabilising the oil price near $50/b. That said, the current price at above $50/b already incorporates the bulk of the expected gains from the full enforcement of the production cuts and reflects the positive shift of market sentiment that has been building-up in anticipation of the implementation of the output cut agreement. Thus, for the next year, the oil price path is more sensitive to downside risks depending on the discipline of OPEC and non-OPEC oil producers. In fact, for the price recovery to be sustained in 2017, OPEC efforts must be met by favourable market conditions in the form of an unexpected surge in global oil demand amid a moderate expansion of US shale supply. On the contrary, a deterioration of global economic activity, or an aggressive expansion of US shale supply, or both, could reverse the current momentum. Moreover, a return of oil production from conflict inflicted countries Libya and Nigeria could undermine the OPEC agreement from within. Eventually, whatever scenario plays out, OPEC will continue to assess the market conditions and in the second half of 2017, it can decide on whether to extend the agreement to offset any losses to the anticipated oil price recovery that may arise from changes in oil market conditions or to drop the agreement all together. But regardless which way the decision goes, the latest output cut agreement is critical to resolving fundamental uncertainties about the shock hitting the oil market and OPEC behaviour in a more uncertain world.

[post_title] => Oil Price Paths in 2017: Is a Sustained Recovery of the Oil Price Looming? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => oil-price-paths-2017-sustained-recovery-oil-price-looming [to_ping] => [pinged] => [post_modified] => 2017-01-24 10:25:18 [post_modified_gmt] => 2017-01-24 10:25:18 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=30041 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) [30] => WP_Post Object ( [ID] => 29442 [post_author] => 111 [post_date] => 2016-08-31 10:34:13 [post_date_gmt] => 2016-08-31 09:34:13 [post_content] => Analysis of oil price shocks using fundamental measures has for years puzzled researchers. Recent theoretical and empirical work has made considerable improvements on how to model the global oil market. Yet, many studies document a decrease in the explanatory ability of the supply side of the market, as there appears little evidence that oil supply shocks have historically been a key determinant of the oil price. This comment focuses on the underlying specifications of the supply determinant and predicts that the most important channel by which oil supply affects the price of oil is through shocks to the available operable capacity in crude oil production, relative to demand, as a consequence of the normal functioning of the global oil market. The full OIES paper that accompanies this comment can be found here. [post_title] => Not all oil supply shocks are alike either - Disentangling the supply determinant [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => not-oil-shocks-alike-either-disentangling-supply-determinant [to_ping] => [pinged] => [post_modified] => 2017-11-16 14:16:55 [post_modified_gmt] => 2017-11-16 14:16:55 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.oxfordenergy.org/?post_type=publications&p=29442 [menu_order] => 0 [post_type] => publications [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 31 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 43902 [post_author] => 111 [post_date] => 2021-07-28 10:44:13 [post_date_gmt] => 2021-07-28 09:44:13 [post_content] => This new OIES presentation looks at the extension of the OPEC+ deal to the end of 2022 and implications on oil markets:
  • Global oil demand has lost some momentum recently, but the fundamentals remain solid where demand is still expected to grow by 5.6 mb/d in 2021 and further 3.3 mb/d in 2022.
  • OPEC+ to unwind the 5.76 mb/d cut by September 2022. OPEC+ producers agreed to ease their output cuts by 2 mb/d between August and December 2021, adding 400 kb/d each month over this period. If the monthly 400 kb/d reductions per month carry on until April 2022, OPEC+ will add 3.6 mb/d to the market. OPEC+ aims to release the remaining 2.16 mb/d in monthly increments of 432 kb/d between May 2022 and September 2022.
  • Extension of the agreement until end of 2022 implies there is a buffer of up to 3 months in which OPEC+ may decide not to release the 400,000 b/d increment or increase cut by up to 400 kb/d.
  • The baseline adjustment does not affect the monthly increments and OPEC+ total production; it impacts how the monthly increment is distributed among member countries.
  • Assuming all the remaining barrels are released back to the market by September 2022, OPEC+ production can exceed 42 mb/d but the projected additional barrels released from OPEC+ back to the market in 2022 are likely to be less than the headline 5.76 mb/d figure.
  • Considering implied production capacity and maximum historical production levels sustained over a period of 3-6 months we estimate that OPEC+ producers can return only 4.4 mb/d of restrained supplies 1.2 mb/d below target.
  • With the supply path for OPEC+ clear the balance of risks to our price outlook is now limited to demand and geopolitical risks.
  • Despite the increase in production between August 2021 and December 2021 the market is projected to remain in deficit in Q3 and Q4 2021 and for the year as a whole.
  • Depending on global oil demand outcomes and the return of Iranian barrels, the market could switch into surplus in 2022 if OPEC+ stick to their deal showing the importance of OPEC+ balancing role in a uncertain environment.
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Latest Publications by Andreas Economou