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In recent weeks, numerous Energy Analysts and Commodity Experts have predicted a rebound in WTI prices into the $45-$50 range in 2016. While this would be great news for struggling energy companies, there are a few data points to consider when evaluating these predictions. Looking at the global supply/demand balance of crude oil through 2016 and the picture remains pretty bleak. Specifically, the global oil oversupply situation remains at roughly 1.4 million barrels per day, with OPEC member countries continuing to pump oil at record levels. The IEA recently noted that it expects non-OPEC production to decline by ~600,000 barrels per day in 2016, however this will likely be offset by roughly 500,000 barrels of new oil production from Iran coming online this year. These numbers would suggest that the world will remain oversupplied by 1-1.5 million barrels per day through 2016. Combined with an easing of global oil demand with the slowing of China's economy (likely 1 million barrels per day or less in increased oil demand in 2016), and its not a clear path back to $50 WTI anytime soon. If the 2015 oil route has taught us anything, its that predicting oil prices is extremely difficult......
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With the recent news that Saudi Arabia may look to IPO state-owned Saudi Aramco, it is clear that the Saudi government is shifting strategy. It would appear that the new Saudi government, spearheaded by 30 year old Prince Mohammad bin Salman, is trying to use the oil price collapse over the last two years to remake the economy and shift away from an oil-funded, government-dominated system to one where private business has a larger role. Notably, Saudi Arabia’s oil income currently furnishes about 90 percent of government revenue. A full public listing of Saudi Aramaco would likely be very complicated (i.e. scrutiny on company spending, reserves and public reporting), as such, the Saudi government will likely only put a small portion of Saudi Aramco on the market or perhaps a package of refineries and other assets. Nonetheless, it is pretty clear that the countries new, younger leadership team is pushing for broad changes in the kingdom’s economy. This change is likely being driven by the Kingdom's view that oil prices will be lower for longer.
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Jason SawatzkyA Canadian Energy expert Archives
October 2020
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