Just over a month ago Nigerian, Mohammed Sanusi Barkindo, was named the acting Secretary General of the Organisation of the Petroleum Exporting Countries (OPEC), replacing Libya’s Abdalla El-Badri who had been in the post for 9 long years, since 2007. Barkindo’s new appointment as Secretary General commences on the 1st of August 2016.
Barkindo takes the top position at one of the most challenging times OPEC has ever faced. Sustained low oil prices, continued growth in US fracking operations shifting supply trends, and tension between OPEC members Saudi Arabia and Iran.
However, Barkindo is not new to these types of challenges. Prior to his appointment last month he was the managing director of the Nigeria National Petroleum Corporation (NNPC) between 2009 to 2010, was Nigeria's representative to OPEC's Economic Commission Board for fifteen years, and even served as acting Secretary-General of OPEC in 2006.
The 72 year old, who originally studied in the UK and Caribbean, was also a director of the National Engineering and Technical Company (1991–1993), chairman of Stirling Civil Engineering Nigeria Limited (1991–2003) and chairman of the Federal Radio Corporation of Nigeria (2003–2005).
Barkindo will hope his extensive experience will help him navigate the OPEC ship through the stormy years to come. He will be buoyed by this week’s 23 cent gain in Brent Crude futures to $50.58 per barrel (as of July 5th 9:30 GMT). U.S. Crude was not left behind either as the Clc1 held gains of 17 cents to $49.16 per barrel.
However, there is no denying the severe volatilities that crude oil experienced over the last six months, making it nearly impossible to predict whether the "black gold" was going up or down at any particular time. Nevertheless, the main trend remained in an upward movement this week as investors continued to redevelop confidence in the once reliable commodity.
We can give Barkindo some credit for the rally in oil prices this week, after recent comments made by the OPEC chief and Khalid al-Falih, Saudi's energy minister. Perhaps the two most powerful men in OPEC agreed that the global oil market is nearing a point of normalisation. The duo also noted that an uptrend in crude oil prices would confirm the return of balance to the crude oil markets.
Barkindo was in Saudi Arabia as a guest of King Salman bin Abdulaziz for the Ramadan meal of iftar, in the holy city of Mecca. He no doubt also took the opportunity to discuss the impact of Iran re-entering the global oil market free of sanctions, which have held them back for many years. However, the oil rich Persian nation has hostile relations with Saudi Arabia and is keen to finally increase production to make up for export revenue they have missed out on, potentially destabilising a precariously balanced and over-supplied sector.
Barkindo will need to address the Iran situation, and has also planned talks with Russia “to discuss global oil markets, not mutual actions on global markets”, said Roman Morshavin, from the Russian Energy Ministry. The recent combined effort of OPEC and Russia to freeze production failed, with Saudi Arabia refusing to take part in any proposal that did not include Iran.
Back in Barkindo’s native Nigeria a June ceasefire with the Niger Delta Avengers militant group allowed a boost of output from 90,000 bpd from May, to a total 1.53 million bpd. Unfortunately, the ceasefire seems to have been temporary, as the Avengers again made headlines on Sunday with fresh attacks on oil infrastructure in the Delta.
All of this turbulence, both internal and external,
has called OPECs very existence into question, with several key figures calling
for the dissolution of the oil cartel. If Barkindo thought his appointment to the
hot seat was difficult, he will be looking anxiously ahead.
Can he influence and steer the cartel to what it was designed to achieve, a common sense win-win amongst member states? The world will be closely watching (and hoping) this August.
What do you think should be his top priorities in office?
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)