RIYADH: Growing crude output all around continues to dampen its prospects.

Russia and Saudi Arabia, the two major crude producers, are pumping at elevated levels. Russian output is already at record post Soviet level, climbing to 10.74 million bpd, one per cent more than a year earlier and topping a record set in June. Soviet-era production peaked at 11.48m barrels a day in 1987, according to BP Plc.

Crude exports rose 3.4pc from the previous year to 5.27m barrels a day. This was 5pc more than the previous month. Deutsche Bank estimates that the Russian output this year will average around 10.6m bpd. That is above the 10.58m bpd the country produced last year.

And this is despite the fact that Russia concedes that market is soft. Russian finance minister Anton Siluanov admitted last week; oil prices won’t recover as quickly as after the 2008-09 financial crisis.

On the other hand Organisation of the Petroleum Exporting Countries (Opec) too seems resolute about defending market — especially since the strategy seems working. It is now being reported that Saudi Arabia was slowly regaining market share. Saudi figures to July show its crude exports have been above 7m bpd in every month of 2015 except May. This was in sharp contrast to seven months of 2014 when its exports were below 7m bpd.

A Reuters analysis of Saudi production and export data too underlines that Saudi crude exports have amounted to around 8.1pc of the global market since November 2014, after falling to 7.9pc in 2014.

And Saudi Arabia shows no sign of changing course. Speaking at the G20 Energy Ministers’ meeting in Istanbul, last weekend, Saudi Minister of Petroleum and Mineral Resources Ali Al Naimi underlined that Saudi Arabia was continuing with investments in exploration, production, refining as well as other alternative sources such as solar energy. The world needs clean, continuous and available energy now and for future generations, he added.

On the other hand, Iran is also striving to increase its output by 2m bpd from about 50 energy projects slated for investors at a conference to be held in Tehran, National Iranian Oil Co. Managing Director Roknoddin Javadi was quoted as saying. Iran is inviting foreign investors to actively develop its energy industry once sanctions are eased, hopefully in 2016, Javadi told Reuters.

Iran will need $30 billion of investment over five years to boost oil production, starting with about 350,000 barrels of new output next year, Goldman Sachs Group Inc said in a recent report. The supplies could keep pressure on oil prices and delay the market’s return to balance, Henry Tarr, a Goldman analyst, said in the report.

Javadi too agreed: “The global oil market will stay bearish in the short to medium term.”

And although China has always been an interesting shale prospect, yet its specific geology made many pundits assert that for Beijing to exploit its shale resources would be difficult than in the US. But all that seems changing now. In a just released report, ‘Shale gas development in China aided by government investment and decreasing well cost’ Energy Information Administration analyst Fauzi Aloulou underlines.

According to MLR, Sinopec and PetroChina are on schedule to reach 0.6 Bcf/d of shale gas production by the end of 2015. Although still a small fraction of China’s overall production, estimated at 13.0 Bcf/d in 2014, increasing shale gas output could eventually help to meet growing demand for natural gas in China and to limit growth in the country’s natural gas imports.

And while all this is happening, the global economic outlook is also not too healthy — impacting the crude markets — rather adversely. Economies of the EU reportedly contracted 0.1pc from the previous month. The seasonally-adjusted unemployment rate for the 19 countries that use the euro was 11pc. An early September report from the International Monetary Fund said global economic growth “remains moderate and uneven.”

And the recently inducted International Energy Agency Executive Director, Fatih Birol too underlines, ‘the next few quarters we will rather see a low price (crude) environment as there is a lot of supply out there.’

Let’s be candid. Good, old friend Fatih is very much on target.

Published in Dawn, October 4th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play