Oil & Gas Focus
Bull or Bear?
August 2019
Oil prices are expected to stabilise after five weeks of drilling rig declines. Bearish factors such as low economic growth expectations, slower manufacturing activities and the US-China trade war are offset by bullish factors, such as shale oil producers' lack of capacity to compete with OPEC procedures and oil removed from the global supply due to the sanctions on Iran.

According to Helmerich & Payne Inc, the number of shale drilling rigs continued to fall during the first half of 2019. The full effect of the industry’s emphasis on disciplined capital spending continues to reverberate through the oil field services sector. Fracking giant Halliburton Co. is eliminating jobs and unused warehousing equipment, and Superior Energy Services Inc. announced in July that it’s looking for ways to cut costs and sell assets to raise cash.

China's new regulatory measures that took effect in late-July have opened doors to foreign oil and gas companies, without the need to develop joint ventures with local companies. In June, the Chinese National Development and Reform Commission announced it would remove the joint venture requirement for oil and gas projects, along with a rule stating that only local firms can control gas networks in cities with populations of over half a million people. These market reforms have encouraged large oil majors like BP and Shell to get involved in China's oil and gas activities.

In July, Novateck – Tarkosaleneftegas (a subsidiary of Novateck) has announced that the production in South-Khadyryakhinskoye field has commenced with annual gas production capacity at about 1Bcm. The field is in close proximity to the company’s existing infrastructure, which has facilitated a shorter start-up period and optimized the field’s capital cost.

Oil prices rallied in July amid increasing tensions between Iran and the US. Brent crude oil prices rose to US$64.26/bbl in July, up from US$62.96/bbl in June. Bonny Light prices followed the same trend, with prices standing at US$66.25 in July, up from US$64.6 in June. Natural gas saw a more subdued drop, with Henry Hub trading at US$2.32/MBtu in July, down from US$2.35/MBtu the previous month. Further production cuts by Saudi Arabia, as well as lower output from Iran due to sanctions, and outages in Libya and Venezuela have seen OPEC's crude oil production in July fell to its lowest level since 2011. Saudi Arabia continues to cut production as part of its efforts to reduce oversupply and support oil prices.