Crude oil markets have mirrored the price movement over the previous week, in that it has eased over the early half only to rebound by the end of the week. Front-month Brent continues to oscillate around the $111/bbl mark, while the equivalent WTI contract has once again bounced back after inching below the $90/bbl mark. Geopolitical risks continue to escalate, with protests reported in Iran following the sharp depreciation of its currency, while tensions have escalated on the Turkish-Syrian border.
Fundamentally, the supply system has a cocktail of positives and shortfalls, both among OPEC and non-OPEC producers. Starting with the positives, Iraqi oil exports are showing strong growth due to recent capacity expansion at its southern fields and export system.
Further, with the central government and the Kurdistan region reaching an agreement on oil revenue sharing, exports have resumed from the former region as well, which has helped buoy output. This week saw a further firming of this agreement, as Baghdad made the first set of payments.
Although output is increasing, Barclays continues to highlight the geopolitical situation in the region that continues to pose a risk to output levels from the country. Further in the non-OPEC, Russian production continues to grow as well, although exports have been limited by strong demand within the FSU.
While the positives on the supply side are welcomed by a market with limited supply buffers, the tally of shortfalls continue to build up as well.
This week saw further cargo delays in the North Sea. Three more Forties crude cargoes for export in October were delayed, bringing the total deferrals for the month to ten. The delays are a result of longer-than-expected maintenance at UK’s biggest oil field Buzzard (200 thousand b/d), as well as reduced output from other North Sea fields.
Among the OPEC producers, shortfalls in Nigeria have come to the spotlight again as on Sunday, a fire on the Bomu-Bonny trunk line has affected about 150 thousand b/d of Nigerian Bonny light exports. So far, although Shell has not declared force majeure for Bonny light exports so far, two October loadings of cargoes have been delayed.
Finally, in terms of data releases, the weakness in Brazilian output continues to persist. Output from the country touched a 22-month low in August. The latest data peg total output at 2.096 mb/d, lower y/y by 43 thousand b/d (- 2%). NGL output growth was flat, and the weakness was due entirely to the falling crude profile, pegged at 2.006 mb/d (46 thousand b/d lower y/y).
Along with the delays in bringing new fields online, the weakness was pronounced in August because of scheduled maintenance at the giant Rancador and Marlim Leste fields in the Campos Basin. Further risks to production were expected in September as offshore drilling contractors Transocean and Chevron were served with injunctions to shut in their oil production. The injunctions were issued as part of a civil case involving last November’s oil spill at the Frade field. If the injunction had gone through, this would have dented Brazilian output significantly. However, Brazil’s court lifted the injunction on Transocean on 1 October.
With regards to Chevron, the court has not lifted the full ban, asking the company to continue only those activities related to the mitigation and monitoring of the November oil spill in the Frade offshore field. In the year-to-date, Brazilian production growth is now flat. Overall, Barclays expects Brazilian output to decline y/y by 60 thousand b/d in 2012.
Source: Barclays