Posted on 09/15/2015 5:35:36 AM PDT by thackney
Iraq has told foreign companies developing the country's southern oilfields that they may need to slash development spending next year because it has less money to pay them due to a slump in crude prices.
In a letter dated Sept. 6 sent to international oil companies and seen by Reuters, the oil ministry said "because of the drop in our oil sales revenues, the Iraqi government has sharply reduced the funds available to the Ministry of Oil."
"This will result in corresponding reductions of spending within the Ministry of Oil but will also reduce the funds available for the reimbursement of petroleum costs to our contractors," the letter said.
The slump in crude oil prices to around $46 a barrel from $115 in June last year has hit the government revenues of OPEC's second biggest exporter, just as it faces an economic crisis triggered by surging expenditure to fund a military offensive against Islamic State militants.
International firms such as BP, Royal Dutch Shell , ExxonMobil, Eni and Lukoil operate in Iraq's southern oilfields under service contracts, whereby they are paid a fixed dollar fee for production.
The arrangement has put Baghdad's coffers under immense strain, as a dramatic drop in crude prices since last year has hammered the revenue it receives from selling oil.
The oil ministry asked the companies to submit 2016 work programmes and budgets by end of this month "which should reflect the much lower costs for steel, services and equipment that are prevailing in the current market."
"We do not expect this constraint to reduce production from the levels that were stipulated in 2015 work programmes and budgets," the letter added.
The oil ministry could not be immediately reached for comment.
Oil companies have already proposed millions of dollars of budget cuts for this year...
(Excerpt) Read more at rigzone.com ...
Just another data point for those who think the worst is over for energy prices. Potential short squeeze coming for the oil bears.
Just another data point for those who think the worst is over for energy prices. Potential short squeeze coming for the oil bears.
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Not being critical but I don’t understand your comment. It seems contradictory in that the first sentence says the worst is yet to come but the second states that a short squeeze is coming for oil which by its very definition implies that there will be a rapid rise in the price of oil. What am I missing? Genuinely curious.
Futures markets mostly look forward. The underlying paradigm in the oil market is that the worst price fall is yet to come due to the supply/demand imbalance. The market participants have been and continue to be net short in their positions. Yet the oil market at WTI here has managed to stabilize here after the move down to the 38-plus level. We have had a couple of attempts to go back down towards it but the price has held in in the face of all the bearish news for world economic performance. The markets are telling us something . . . that the next move will be up if any production numbers fall. That’s happened here in the U.S.
We are down almost 500,000 barrels a day of production from the peak. Now the Iraqis are telling us their production will not come through. I’m highly skeptical the Iranians can come anywhere near their production targets. One small move from the Saudis and Russians to cut back and the market runs.
Hope that spells it out for you.
Thanks. It sounds like you’re saying many expect oil prices to drop further but the market has basically stabilized and the next price move will be upward. Is that essentially correct? If so, I happen to agree.
The wording that was confusing to me was the “worse is yet to come” statement implying that the next move would be down. Now I know what you meant.
If that was true, why are oil futures continuing to trade at higher prices in the future months?
http://online.wsj.com/mdc/public/page/2_3028.html?category=Energy&subcategory=Petroleum
I’m talking about the positions held by traders, not the actual market pricing
Traders are not most of the future markets?
Hard to put a fully accurate number on them. Many ETF’s, hedge funds, pension plans, etc. also play in that market. Managed futures funds too. The amount of oil traded far exceeds the actual crude that is produced if memory serves.
That is what I remember as well, hence my comment. If they are buying oil futures but not an oil consumer like a refinery, they are betting on market movement. It seems like those folks expect to see oil prices rise.
You also have to take inflation into account. Forward contracts tend to have an assumption of future growth built in.
The long-only ETF’s have definitely had an effect in the past but it also is too easy to use an ETF to go short. If there is one thing I do wish regulators in commodities would focus on it would be the 2x and 3x leveraged contracts. They definitely have too much impact in the short term.
7~10% per month is hardly inflation betting
Whoops, make the 0.7~1.0%
Sorry, not quite the movement I suggested
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