Oil prices are down more than 20% with Brent crude trading at $35.98 a barrel.
Oil companies saw the biggest falls, with shares in Shell and BP both down by about 15%, while Premier Oil saw its shares more than halve in value.
The hefty falls were also seen elsewhere in Europe, with stock markets in France and Germany also opening more than 7% lower. Norway – a major oil exporter – saw its main stock exchange fall 12% in early trade.
The price of oil had already fallen sharply this year as the coronavirus disease began to spread internationally, with demand for fuel expected to decline.
Last week, oil exporters’ group OPEC – which includes Saudi Arabia – agreed to cut production in order to support prices.
However, it also wanted non-OPEC oil producers such as Russia to agree to cuts, and on March 6 Russia rejected the plans.
In response, Saudi Arabia has cut its official selling prices for oil and plans to increase production. The move is seen as Saudi Arabia flexing its muscles in the oil market to make Russia fall into line.
Asian investors also reacted to a slump in Chinese export figures and the shrinking of the Japanese economy.
In China, the benchmark Shanghai Composite share index fell 3%, while in Hong Kong, the Hang Seng index sank 4.2%.
On March 7, China released import and export figures for the first two months of the year. Exports fell by 17.2% while imports dropped by 4%. This gave the Chinese economy a trade deficit of $7.1 billion as it struggles with the economic impact of the coronavirus outbreak.
Meanwhile, Japan’s economy shrank at a faster rate than initially estimated in the final three months of 2019, according to the latest official figures.
More than4 billion metric tonnes of oil is produced annually. But as big as the oil and gas industry is, there are still significant factors affecting its success in 2019.
Here are 5 of the biggest trends set to shape the future of the oil and gas industry this year.
The oil industry relies on the supply of oil from the world’s oil-rich exporters. Fluctuations in this supply can affect oil prices. And oil prices affect the standing of companies in the oil and gas industries.
Energy outlook publications hold a lot of sway in the oil and gas industry. Publications like the International Energy Agency’s annual World Energy Outlook report don’t only offer projections. They themselves can have an effect on the industry as a whole.
When staying on top of industry trends, one must stay up to date with energy outlook publications.
Changing Energy Policies
Energy policies are strategies outlined by a government, intergovernmental agency, or firm to help balance resources and boost the energy landscape. These policies have shaped the oil industry for decades and will continue to do so.
Some great examples of such policies are those put forward by the US Department of Energy. Their policies refer to the production of all energy sources that affect the US.
The Popularity of Fracking
Fracking is a way of exploring gas and petroleum trapped beneath deep-rock formations. When fracking, fluid injects into rock formations under high pressure to crack the rock. This then releases hydrocarbons.
Fracking is common-practice but has come up against hurdles recently. The UK and Australia, in particular, are experiencingsocial and legal pushback when proposing new fracking projects.
Energy transition refers to the long-term structural shift of a nation’s energy mix. A great example of energy transition in effect is the switch from oil and coal to natural gas.
Today, we’re seeing another energy transition underway with the rise of renewable energy. Many governments are now laying out energy policies aimed at fostering this energy transition.
The shift to renewables is one of the biggest trends to affect the oil and gas industries. It’s led many major companies to expand their portfolio or even shift wholesale into the renewable market.
The Oil and Gas Industry Is in Flux
The oil and gas industry is one of the biggest in the world but that doesn’t mean there aren’t factors affecting major change. Oil supply, energy outlook publications, changing energy policies, the popularity of fracking, and energy transition are only a few of the trends bucking the status quo this year.
Interested in renewable energy? We asked the question: is solar power really the best way togenerate clean energy?
President Donald Trump has urged Saudi Arabia to increase its oil production to combat the rising cost of fuel.
He tweeted that he had asked King Salman of Saudi Arabia to raise oil output by up to two million barrels a day.
President Trump said the move was needed due to “turmoil and dysfunction in Iran and Venezuela”.
Oil prices rose last week, partly due to US plans to re-impose sanctions on Iran, a major oil producer.
The OPEC group agreed to increase output, as did Russia, but this failed to reassure markets.
The Saudi Press Agency confirmed that President Trump and King Salman had spoken by phone, giving few details. According to the news agency, they had discussed the need to “preserve the stability of the oil market”.
However, the statement did not confirm that Saudi Arabia had agreed to the two million barrels a day figure.
Saudi Arabia is the world’s biggest exporter of oil and produced about 10 million barrels a day in May. The country is reported to have between 1.5 million and two million barrels a day of spare capacity – but experts told The Wall Street Journal it might not be keen to meet the president’s request.
A Saudi official told the WSJ: “Saudi Arabia does not really like going beyond 11 million barrels a day and has no intention of expanding its current production capacity. It is expensive.”
Donald Trump has repeatedly criticized OPEC even though US ally Saudi Arabia is a core member.
On April 20, President Trump tweeted that oil prices were “artificially very high”, saying this was “no good” and “will not be accepted!”
Iran, another OPEC member, has accused Donald Trump of trying to politicize the group and has blamed Riyadh for doing his bidding.
On June 30, Iranian Supreme Leader Ayatollah Ali Khamenei said the US was trying to drive a wedge between Iranians and their government using “economic pressure”.
He cautioned on his website: “Six US presidents before him tried this and had to give up.”
The value of Iranian currency, the rial, has tumbled since the US backed out of the Iran nuclear deal in May.
Earlier this week, thousands of traders at Tehran’s Grand Bazaar marched in protest against rising prices and the plummeting value of the rial. It was the biggest protest Tehran has seen since 2012.
BP’s profits double in Q4 of 2016 on the back of slightly higher oil prices and more cost-cutting.
Underlying replacement cost profit – BP’s preferred measure – was $400 million, up from $196 million a year earlier.
The oil giant took another charge of $799 million for the Deepwater Horizon disaster, bringing total charges to $62.6 billion.
BP CEO Bob Dudley said: “2016 was the year we made significant strides for future growth.
“We start this year with considerable momentum – and a sense of disciplined ambition. We have laid the foundations for BP to be back to growth.”
For the 2016 as a whole, underlying replacement cost profit – which strips out fluctuations in the value of oil stocks – fell to $2.58 billion, down from $5.90 billion in 2015.
However, the profit figures were below some analysts’ forecasts, and BP shares fell 2% at the start of trading in London.
In 2015, the company posted its biggest loss in at least 20 years, ravaged by Gulf of Mexico spill costs and tumbling oil prices, which caused the group to axe jobs and cut investments.
However, Bob Dudley said that the costs and liabilities from the fatal Deepwater Horizon oil platform disaster were “now substantially behind us. BP is fully focused on the future”.
BP said it would balance its books at an oil price of around $60 per barrel by the end of the year. Oil companies have been selling assets and cutting costs to adjust to lower prices. Brent crude, the international benchmark, averaged $44 a barrel in 2016, the lowest in 12 years.
Oil prices have dropped sharply after a meeting of oil producers in Qatar failed to agree a cap on output.
Brent crude fell 7% at one point, but then recovered slightly to stand down $1.87, or 4.3%, at $41.23 a barrel.
The meeting was attended by most members of oil producers’ group OPEC, including Saudi Arabia, but not Iran.
Saudi Arabia, the world’s biggest exporter, had been prepared to freeze output if all OPEC members had agreed.
However, Iran is continuing to increase output following the lifting of sanctions against it.
“As we’re not going to sign anything, and as we’re not part of the decision to freeze output, we ultimately decided it was not necessary to send a representative,” the Iranian government said.
After hours of talks in Qatar, energy minister Mohammed bin Saleh al-Sada said that the oil producers needed “more time”.
Mohammed bin Saleh al-Sada told reporters after the meeting: “We of course respect [Iran’s] position… The freeze could be more effective definitely if major producers, be it from OPEC members like Iran and others, as well as non-OPEC members, are included in the freeze.”
As well as the fall in Brent, the price of US crude oil fell nearly 7% before recovering some ground to stand $1.88 lower at $38.48 a barrel.
The meeting in Qatar was not formally an OPEC event, though most of the group’s members were represented.
OPEC has been slow to respond to the sharp fall in oil prices, which are still less than half the peak of $115 a barrel seen in June 2014.
Oil prices had risen in recent weeks, largely due to speculation that some major exporters would limit supply.
Oil prices will recover to $70 a barrel by 2020, oil producers’ group OPEC has said.
Prices have fallen from more than $110 a barrel in the summer of 2014 to less than $37 a barrel now due to oversupply and slowing demand.
However, OPEC said oil prices would begin to rise next year and, longer term, would rise due to higher exploration costs.
It expects the market share of OPEC producers to shrink by 2020 as rivals prove more resilient than expected.
OPEC currently accounts for about 30% of the world’s oil production, down from 50% in the 1970s.
Part of the reason for this decline is the emergence of vast quantities of shale oil produced in the US. This has also been factor in pushing down the price of oil to 11-year lows.
Photo Getty Images
In its World Oil Outlook report, OPEC said it expected supply growth from US shale to slow dramatically in 2016, as producers struggled to cope with such a low prices.
OPEC’s strategy this year has been to allow prices to fall by maintaining production in the hope that, eventually, US shale producers will be forced out of business.
Another factor in low prices, OPEC said, was weaker economic growth, particularly in developing economies. It highlighted China, where the “economy seems to be maturing and growth is decelerating faster than previously expected”.
The group’s report also highlighted the “huge reductions” in spending on exploration and production by the industry as a whole due to low oil prices.
These cutbacks will ultimately see supply fall, it said, putting upward pressure on prices.
According to OPEC, another longer-term factor pushing prices up was higher exploration costs, as companies are forced to look harder for oil as traditional supply sources dwindle. Deep water drilling, for example, is considerably more expensive than drilling onshore.
Finally, OPEC said population and economic growth would see demand for energy rise by almost a half by 2040, increasing demand for oil.
OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
These countries have since been joined by Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007).
Oil prices and stock markets around the world have seen further falls, sparked by the renewed fears over the health of the global economy.
China shares fell 1.5% after the authorities intervened again on the stock market to little effect.
Expectations of a US interest rate rise dimmed after the Federal Reserve said the economy was not ready yet.
On Wall Street, the Dow Jones index opened 1% lower, while markets in Paris and Frankfurt fell more than 2%.
London’s benchmark FTSE 100 index shed 0.56%, while the price of Brent crude oil was down 0.4% at $46.97 a barrel, although US crude recovered from earlier falls to stand 0.6% higher at $41.35.
On August 19, the Fed released minutes from its meeting on July 28-29, showing that one policymaker was ready to vote for an interest rate rise at the meeting.
Overall, the Fed thought conditions for a US rate rise “were approaching”, but the economy was not ready yet.
Other policymakers remained concerned that inflation would remain weak because of the strong dollar and falling commodity prices, which act as a double depressant on imports.
The Fed’s key interest rate has been kept near zero since December 2008.
There has been speculation that the Fed will raise rates at its meeting in September, and last month Fed chair Janet Yellen said she thought a rate rise this year was likely.
Following the release of the Fed’s minutes, US stocks rallied briefly but then fell back, while the dollar weakened on the currency markets. The Dow Jones index ended August 19 trading down 0.9%.
The committee also cited China as a potential problem, saying that a “material slowdown” in the Chinese economy could affect the US economic outlook.
The FOMC’s meeting came before last week’s action by China to weaken its currency.
After days of volatility, Chinese stock market traded lower once again on August 20, despite Beijing’s efforts to calm markets.
China’s Shanghai Composite closed 1.5% down at 3,735.92 points.
The fall comes after the index saw strong volatility earlier in the week.
Traders appeared not to respond to efforts by the central bank to provide more liquidity to stabilize markets.
In assessing the strength of the US economy, the Fed has been keeping an eye on the US jobs market – where the unemployment rate has been falling and is now 5.3%. However, inflation is still below the Fed’s target of 2%.
The minutes from the Federal Open Market Committee’s (FOMC) July meeting noted that the labor market “had continued to improve, with solid job gains and declining unemployment”.
However, when assessing inflation, it said that “some members continued to see downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices”.
The FOMC said it would continue to monitor inflation “closely, with almost all members indicating that they would need to see more evidence that economic growth was sufficiently strong and labor market conditions had firmed enough for them to feel reasonably confident that inflation would return to the committee’s longer-run objective over the medium term”.
Inflation figures released earlier on August 20 showed that consumer prices rose by 0.1% in July, and were 0.2% higher from a year ago.
So-called core inflation, which ignores changes in food and energy prices, also rose 0.1% last month, but was up 1.8% over the year.
Oil prices have reached a four-and-a-half month high on April 27 amid concerns over disruption to supplies from the Middle East.
Brent crude oil is at $65.37 per barrel and has gained around $9 since last month.
A slowdown in US shale oil production and the conflict in Yemen have been cited as the main reasons for the rise in the oil price in recent weeks.
It comes as BP, Shell and Exxon Mobil are expected to report sharp falls in Q1 2015 earnings this week.
Michael Hewson, chief market analyst at CMC Markets, said: “Overall we are in an upwards trend and we do appear to have found a short-term base. There’s a good chance we could see $70 a barrel [for Brent] over the course of the next month or so.”
While Yemen itself is not among the biggest oil producers in the Middle East, Gulf producers ship oil along the Gulf of Aden on Yemen’s southern coast and through the narrow straits of Bab el-Mandeb, between Yemen and Djibouti.
As a result fighting in the region could create log jams in delivery.
Oil prices will rise further, say industry leaders at the World Economic Forum on East Asia in Indonesia.
Industry leaders at the meeting in Jakarta said the long-term view was that demand for oil is growing.
Oil prices are around their highest levels for 2015.
The price of Brent crude was at $63 a barrel on April 21, up 40% from its January low of $45 a barrel and near its high for the year of $65.
Oil prices more than halved in the second half of last year, as falling demand and high levels of output caused a glut in supply.
Melody Boone Meyer, president of Asia-Pacific exploration and production at US energy giant Chevron, said that dramatic falls were not an uncommon feature of the oil market.
“The price of oil in the last 30 years has fallen five times by 50%,” Melody Boone Meyer said at the forum.
“There’s a surplus of supply right now, and inevitably the decline will occur.”
It was important to continue with projects that were in development, Melody Boone Meyer added, emphasising that Chevron had a lot of projects that are well supported at these price levels.
Shahril Shamsuddin, group chief executive at Malaysia’s SapuraKencana Petroleum, backed that view: “The light at the end of the tunnel is that, in the long term, demand is growing and over the next two to three years we will see prices come to an optimum level.”
Handry Satriago, the CEO of GE Indonesia, said that a lot of its customers in the country were delaying projects because of the slump in prices.
“Since last year we experienced some delay, but last year was because of the political situation of the country,” he said.
“We were having the election, and a new government, but now that delay has became more delayed due to the current situation.”
The company has been trying to work with partners to “keep projects warm” and not to cancel them.
“We show our commitment to them [oil partners], that we are here and we continue to support and work together,” Handry Satriago said.
“We also lobby to the government to make sure that the project can continue.”
With Asia expected to become a net importer of oil in the next decade as consumption booms, government officials said it was necessary to secure energy supplies, even with falling prices.
Indonesia, the world’s fourth most populous country, lost its position as South East Asia’s sole nation in the Organization of Petroleum Exporting Countries (OPEC) in 2008 after it became a net oil importer.
Oil prices rose by almost 6% after Saudi Arabia and its allies launched air strikes on Houthi rebel targets in Yemen.
Saudi Arabia is the world’s biggest crude exporter.
The move has raised concerns that the conflict could spread in the oil-rich Middle East and possibly disrupt supplies from the region.
West Texas Intermediate crude futures, the US benchmark, rallied to about $51 a barrel before falling back.
Brent crude climbed to $59.71 a barrel, but has since dipped to $56.50.
Pressure on the oil price eased slightly as it became clear there was no immediate threat to Middle East oil shipments. However, fears remain that Iran could be drawn into the conflict.
Yemen is located along an important international shipping route for global energy producers. But the country is sliding towards civil war.
Houthi rebels receiving support from Iran have marched on the southern Yemeni port city of Aden, where Yemen’s President Abdrabbuh Mansour Hadi took refuge after he was forced him to flee the capital, Sanaa.
Saudi Arabia, supported by regional allies the United Arab Emirates, Bahrain, Qatar and Kuwait, launched airstrikes on Thursday aimed at halting the rebel advance.
Iran and Saudi Arabia are both members of the Organization of Petroleum Exporting Countries (OPEC), the group that produces about 40% of the world’s oil. Oil exports to Europe pass through the narrow Red Sea strait between the port of Aden and Djibouti.
However, the current glut in global oil stocks, built up in part thanks to US shale production and plentiful output from Russia and other producers, means there is unlikely to be an acute crisis in supply.
Oil prices have fallen further after the International Energy Agency (IEA) forecast weaker demand in 2015.
The IEA, a consultancy to 29 countries, said supply and demand would take “some time” to respond to sharp falls in oil prices.
It said it was too early to expect low oil prices to start constricting a US supply boom.
On December, Brent crude fell to below $63 a barrel, its lowest price since July 2009.
The price of Brent fell to $62.50 a barrel at one point before recovering slightly to $62.67. US crude was trading below $59 a barrel.
The IEA cut its forecast for global oil demand growth next year by 230,000 barrels per day to 900,000 barrels per day on the expectation of lower fuel consumption in Russia and other oil-exporting countries.
Photo Getty Images
Oil prices have been in steep decline since June due to slow demand growth and a US shale oil boom which has increased supply.
Prices “continued to plunge in November and into early December”, the IEA said, adding that, “it may well take some time for supply and demand to respond to the price rout”.
The root cause of the fall in prices was “a surge in non‐OPEC supply to its highest growth ever and contraction in demand growth to five‐year lows”.
It predicted that non-OPEC supply gains would add to a global glut of oil.
The US boom should push non-OPEC production to a record 1.9 million barrels per day this year, IEA said, but this figure should fall to 1.3 million barrels per day in 2015.
In Russia, the IEA said lower global oil prices combined with the effect of sanctions and a “collapsing currency” were likely to have an adverse effect on production.
Oil prices plunged after the OPEC oil producers’ cartel decided not to cut output at its meeting in Vienna.
OPEC’s secretary general Abdallah Salem el-Badri said they would not try to shore up prices by reducing production.
“There’s a price decline. That does not mean that we should really rush and do something,” he said.
Following the announcement Brent crude fell below $72 a barrel, hitting lows previously seen in August 2010.
The 12 OPEC members decided to maintain production at 30 million barrels per day as first agreed in December 2011.
“We don’t want to panic. I mean it,” said Abdallah Salem el-Badri.
“We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change.”
Crude oil prices have fallen 30% since June on sluggish global demand and rising production from the US.
The fall in the oil price has been causing concern for several members of the oil cartel, as most require a price above $80 a barrel to balance their government budgets and many need prices to be above $100 a barrel.
“Saudi Arabia and the Gulf states can resist for a while,” said Simon Wardell, energy expert at Global Insight.
“They have significant financial assets that mean they can sustain a lower oil price. They can secure their budgets without a higher oil price.”
Saudi Arabia is the largest producer within the OPEC oil producing cartel.
Analysts suggest the strategy of maintaining output may be aimed at retaining dominance of the market in the face of increasing shale oil production in the US.
The shale boom has been one of the drivers behind the decline in the oil price.
As the oil price dips, shale becomes less economical to produce.
If oil prices are allowed to remain low for some time that could cap shale production over the longer term.
OPEC accounts for a third of the world’s oil sales.
Global oil prices have reached their lowest level in nine months, despite fears that conflicts in Ukraine and Iraq would inflate prices.
Brent crude oil has fallen to $103.70 a barrel, its lowest rate since November 2013.
In July 2014, oil hit its highest level in nine months, valued at $115.71 per barrel. Violence in Iraq was cited as the reason for the rise.
The current dip in price has led to an increase in demand from wealthy states.
Global oil prices have reached their lowest level in nine months, despite fears that conflicts in Ukraine and Iraq would inflate prices
Iraq has scheduled to export about 2.4 million barrels per day of Basra Light crude in September, up from 2.2 million in the previous month.
In a report on Tuesday, the International Energy Agency (IEA) said: “Oil prices seem almost eerily calm in the face of mounting geopolitical risks spanning an unusually large swathe of the oil-producing world.”
The IEA said that while tensions in Iraq and fighting in Ukraine continued, other oil resources were available, such as those of the US, Libya and Saudi Arabia.
The agency said: “The Atlantic market is currently so well supplied that incremental Libyan barrels are reportedly having a hard time finding buyers.”
It had been thought that sanctions imposed by the US and EU on Russia over its support for Ukrainian rebels might affect oil distribution.
However, the IEA said: “The consensus in the industry seems to be that neither set of sanctions will have any tangible near-term impact on supplies.”