Tuesday, July 14, 2015

Can you survive $30 oil?

Now that US and Iran agreed to a nuclear deal, Iran will be ready to ramp up crude oil shipments, staring in the next 2 months or so, and ramping up to maybe a half million barrels/day in December. In 2016, Iran will make an effort to increase shipments to maybe a million barrels/day around June-July.
Recalling that there is already a 3 million barrels/day surplus, plus lingering recession in most of the world, there will be irresistible market forces to lower prices further, possibly to $30 to $35/barrel.

Surviving $30 oil

Saudi Arabia can afford to pump and make a profit above $15/bbl. Even fully 30% of US frackers can make a profit above $25 to 30/bbl. High cost producers of poor quality crude (in terms of yields and contaminants) will suffer loss of business.
And Iran needs the money to refurbish its oil infrastructure no matter what the price of a barrel is…

As a refiner, you MUST look very hard at market opportunities, relying on arbitrage price differentials:
  • ·       For US, export markets to Mexico, South America, and West Africa of gasoline and diesel
  • ·       For European refiners, exports primarily to Africa, Middle East, and Asia-Pacific
  • ·       For Middle Eastern refiners, primarily supplying the domestic market and Asia-Pacific
  • ·       For Asia-Pacific refiners, primarily supplying the domestic market and “Asian Tigers”

Another thing to consider is the new 2020/2025 global marine bunker Sulfur caps of 0.5% S. This will KILL the marine bunker business……more later…

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