Royal Bank of Scotland warned that investors expecting the imminent return of China-fuelled oil price rises will be disappointed and that the supply side rather than demand will dominate the oil story in the coming decade.
RBS is still predicting a strong rebound in earnings from the titans of oil, thanks to moderately higher oil prices, however. But Iraq could change the picture entirely. The bank said: “We believe recent news flow from Iraq threatens a paradigm shift in oil markets that could cap oil price expectations and earnings forecasts in the medium term.”
Increases in output from Iraq are likely to be modest until 2013 leaving scope for shares in the sector to rise. But Iraq fears could begin building among investors this year, with the company strategy presentations approaching and the conclusion of Iraq's parliamentary elections in March likely to highlight the potential increase in oil supply.
Well, if you'd been reading this blog, you'd be well informed on both sets of issues :-)
I haven't fully made up my mind here. In particular, I don't yet understand why global oil production has been recovering so fast in the second half of 2009. However, it does seem to me that there is potential for both of the stories above to be true in sequence - there may be enough time for another oil price spike due to OPEC spare capacity getting used up, before an Iraq induced price fall if the al-Shahristani plan succeeds on something like the intended scale.
Update:
Also this:
HOUSTON (Dow Jones)--Schlumberger Ltd. (SLB) Chief Executive Andrew Gould said that he expects an increase in service activity in Iraq.
"I don't think it will have a material effect on results in 2010, but it may, we may well start to see the ramp-up in the second half of the year," Gould said in a conference call to discuss the company's fourth-quarter earnings.
Gould noted that there is the potential for a "huge amount of service activity" in Iraq over the next two to three years.
"huge amount of service activity" - no shit.
Seems everybody's now up to speed on Iraq. I wonder to what extent cheap oil pushes out the expensive stuff.
ReplyDeleteBloomberg on Schlumberger:
Revenue at the company’s largest segment, the oilfield-services unit, fell 17 percent to $5.17 billion.... North American sales plunged 44 percent to $873 million.
The high cost producers seem very sensitive to oil prices. What will they do with Iraq on the horizon?
My guess is that Iraq is still a little too far off and too uncertain to be factoring very heavily into prices yet. Once the situation becomes clearer, it's really going to come down to how well Iraq and OPEC (ie mainly the Saudi's) can co-ordinate their strategy.
ReplyDeleteOne interesting thing I didn't know until recently is that Iraq paid to build a pipeline through Saudi Arabia to export their oil. Following the first gulf war, Saudis just took it and don't plan to give it back. The Iraqis remain very pissed about it.
So cooperation between the Iraqi oil ministry and the Saudi oil ministry is certainly not a given.