Wednesday, April 29, 2015

Radio Show Q&A on Oil, Saudi Arabia and Gas Prices Charts

I'm doing an interview with a radio show later today. Most of you won't be able to hear it, so I'm posting the questions they sent ahead of time and my answers. This isn't a script, but will form the basis for our conversation (hopefully).

Q. --The shakeup in Saudi Arabia leadership, what does it mean for oil prices if anything?

A -- Many people fixate on the fact that Saudi Arabia’s king has removed his half-brother as crown prince, replacing him with his nephew, and elevated his son to the position of deputy crown prince.

That's not a story that could affect oil prices in any way. Unless the fact that the new crown prince is a terrorist fighter and military man means war with Iran. I wouldn't bank on that, though.

But what many people are missing is that the same royal decree made Saudi Aramco chief executive Khalid al-Falih the Health Minister and chairman of Aramco. He reports to Saudi oil minister Ali al-Naimi.

Why is that important? Naimi is 79 years old and has been oil minister since 1995. He was crucial in Saudi Arabia's decision last November to not cut production in support of prices. He won't last in the job forever. 

Now, it looks like maybe Naimi will step down sooner rather than later. And Falih will replace him. 

It's likely that Falih will continue Naimi's policies. But nothing is guaranteed. So watch that space.

Q--Do you think the new changes in ministers will do anything different? What changes can we see?

A-- I would watch Naimi and Falih.  I expect Falih to replace Naimi sooner rather than later.

Q. --Will this create uncertainty in the oil markets?

A. -- When isn't there uncertainty in the oil markets? But here's a thing: Saudi Arabia just said that A) the oil market is in "excellent condition" B) it sees strong demand from Asia and C) it will supply China “with any additional quantities” of crude it may need.

Let me say that again: ANY 
additional quantities

If you want to talk certainty, I think the Saudis are certain they can keep producing at recent prices. For uncertainty, look to Iraq, Venezuela, Nigeria. Those could all remove supply from the market. And maybe sanctions will lift on Iran, putting more oil on the market.

Some more interesting stuff:

  • Saudi Arabia aims to cut its own crude consumption by 1.5 million barrels of oil equivalent a day by 2030.
  • Saudi Arabia will begin producing shale gas in 2016 at an initial output of 20 million to 50 million cubic feet per day, before raising it to 500 million in 2018 and 4 billion in 2025

Q. --What is keeping oil prices so low, is it the U.S. producing so much oil?

A -- Well, West Texas Intermediate crude prices are actually up quite a bit from their March lows. Roughly 35%, to $59 per barrel. 


So, I wouldn't call oil prices low. And yes, we produce a lot of oil. In fact, Stockpiles rose another 1.9 million barrels in data reported today.  Stockpiles are at 80-year highs! Nonetheless, oil prices jumped on today's data because it wasn't as bad as traders feared. So, maybe the bottom is in. Maybe.

Q --With summer driving season not too far away, will prices stay low?

A -- Again, I wouldn't call prices low. But gasoline prices are certainly lower than last year. 

And oil prices should stay below $65 unless speculators run the table. Really, any big price moves to the upside are based on speculation.

Q, --What’s your view on oil prices? Do you expect prices to rise significantly in the near future?

A. If we based it on supply, no. The U.S. market is well supplied, and there is a 2 million barrel-per-day surplus in the global oil market. But speculators can push prices around. Never say never.

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