The persistence of oil prices in the US$40-50/barrel region had weighed on the earnings of oil majors over the last two years, and with refining margins joining it in the doldrums, the Q2 financials revealed a challenging situation.
This week, the US majors posted financials that missed analyst expectations. ExxonMobil, the world’s largest traded oil company, reported a 59% slide in profit to US$1.7 billion, while Chevron reported its worst quarterly loss since 2001, being US$1.47 billion in the red. Their European counterparts, Royal Dutch Shell and BP also revealed disappointing earnings, with profits falling by 70% and 44%, respectively, with BP reporting its weakest refining margins in six years. Total’s profit fell by 32.8%, while the recently divorced ConocoPhillips and Phillips66 also saw their profits down sharply.
The era of low crude prices is here for at least another 12 months, and with that weakness spilling over in products, oil majors now have to balance managing cash flow to appease investors, while concentrating on projects that have good long-term viability. That means natural gas.
While crude prices have fallen, natural gas prices have been comparatively stronger.
Witness ExxonMobil’s recent US$2.5 billion purchase of InterOil and BP’s decision to go ahead with the expansion of Tangguh in Indonesia. Shell’s acquisition of BG will pay off in the long run, and Chevron has its vast LNG assets in Australia. The bet is that Asia’s thirst for LNG will offset weaker demand for oil, and with the Panama Canal widening, the race is on to ship LNG from Australia, Canada and the US Gulf to Asian customers. But there is a glut brewing there as well; so much LNG is earmarked for Asia that an eventual depression in prices is inevitable. But at least there is a future in that.
Because as weak as the oil majors are, it is worse on the service side. Keppel, the world’s largest rigmaker in Singapore, reported a 48.1% fall in profits. Swiber Holdings, a construction service provider, is tottering on the edge of bankruptcy, with financial analysts warning that Ezra Holdings and SwissCo holdings may soon join the melee. The prolonged downturn has seen Singaporean service companies hit hard – rumours that no new contracts have been signed in the last two years persist – and mounting debt is providing crushing pressure. Service companies with a healthier cash flow and lesser debts are performing better, but are still not immune – Schlumberger, which is international in its reach, saw its Q2 profits plunge by 37%, while Halliburton beat expectations with only a 9% dip.
Unlike the majors, which have some rare pockets of sunshine amidst the gloom, service companies depend on the health of the oil industry to survive. The long boom in oil and gas created a large landscape of competition; perhaps too large, as the chickens are now coming home to roost and there isn’t enough space for all of them. They will be hoping that oil prices can, and must, improve. Saudi Arabia’s intent to wipe out cheap American shale oil by pumping to keep prices low may very well cause several other extinctions on the service side. Everyone knows that prices need to rise for the better of the industry, but in the game theory of oil and gas, it’s always ‘your move first’.
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In the last week, global crude oil price benchmarks have leapt up by some US$5/b. Brent is now in the US$66/b range, while WTI maintains its preferred US$10/b discount at US$56/b. On the surface, it would seem that the new OPEC+ supply deal – scheduled to last until April – is working. But the drivers pushing on the current rally are a bit more complicated.
Pledges by OPEC members are the main force behind the rise. After displaying some reticence over the timeline of cuts, Russia has now promised to ‘speed up cuts’ to its oil production in line with other key members of OPEC. Saudi Arabia, along with main allies the UAE and Kuwait, have been at the forefront of this – having made deeper-than-promised cuts in January with plans to go a bit further in February. After looking a bit shaky – a joint Saudi Arabia-Russia meeting was called off at the recent World Economic Forum in Davos in January – the bromance of world’s two oil superpowers looks to have resumed. And with it, confidence in the OPEC+ club’s abilities.
Russia and Saudi Arabia both making new pledges on supply cuts comes despite supply issues elsewhere in OPEC, which could have provided some cushion for smaller cuts. Iranian production remains constrained by new American sanctions; targeted waivers have provided some relief – and indeed Iranian crude exports have grown slightly over January and February – but the waivers expire in May and there is uncertainty over their extension. Meanwhile, the implosion in Venezuela continues, with the USA slapping new sanctions on the Venezuelan crude complex in hopes of spurring regime change. The situation in Libya – with the Sharara field swinging between closure and operation due to ongoing militant action – is dicey. And in Saudi Arabia, a damaged power repair cable has curbed output at the giant 1.2 mmb/d Safaniuyah field.
So the supply situation is supportive of a rally, from both planned and unplanned actions. But crude prices are also reacting to developments in the wider geopolitical world. The USA and China are still locked in an impasse over trade, with a March 1 deadline looming, after which doubled US tariffs on US$200 billion worth of Chinese imports would kick in. Continued escalation in the trade war could lead to a global recession, or at least a severe slowdown. But the market is taking relief that an agreement could be made. First, US President Donald Trump alluded to the possibility of pushing the deadline by 2 months to allow for more talks. And now, chatter suggests that despite reservations, American and Chinese negotiators are now ‘approaching a consensus’. The threat of the R-word – recession – could be avoided and this is pumping some confidence back in the market. But there are more risks on the horizon. The UK is set to exit the European Union at the end of March, and there is still no deal in sight. A measured Brexit would be messy, but a no-deal Brexit would be chaotic – and that chaos would have a knock-on effect on global economies and markets.
But for now, the market assumes that there must be progress in US-China trade talks and the UK must fall in line with an orderly Brexit. If that holds – and if OPEC’s supply commitments stand – the rally in crude prices will continue. And it must. Because the alternative is frightening for all.
Factors driving the current crude rally:
Already, lubricant players have established their footholds here in Bangladesh, with international brands.
However, the situation is being tough as too many brands entered in this market. So, it is clear, the lubricants brands are struggling to sustain their market shares.
For this reason, we recommend an impression of “Lubricants shelf” to evaluate your brand visibility, which can a key indicator of the market shares of the existing brands.
Every retailer shop has different display shelves and the sellers place different product cans for the end-users. By nature, the sellers have the sole control of those shelves for the preferred product cans.The idea of “Lubricants shelf” may give the marketer an impression, how to penetrate in this competitive market.
The well-known lubricants brands automatically seized the product shelves because of the user demand. But for the struggling brands, this idea can be a key identifier of the business strategy to take over other brands.
The key objective of this impression of “Lubricants shelf” is to create an overview of your brand positioning in this competitive market.
A discussion on Lubricants Shelves; from the evaluation perspective, a discussion ground has been created to solely represent this trade, as well as its other stakeholders.Why “Lubricants shelf” is key to monitor engine oil market?
The lubricants shelves of the overall market have already placed more than 100 brands altogether and the number of brands is increasing day by day.
And the situation is being worsened while so many by name products are taking the different shelves of different clusters. This market has become more overstated in terms of brand names and local products.
You may argue with us; lubricants shelves have no more space to place your new brands. You might get surprised by hearing such a statement. For your information, it’s not a surprising one.
Regularly, lubricants retailers have to welcome the representatives of newly entered brands.
And, business Insiders has depicted this lubricants market as a silent trade with a lot of floating traders.
On an assumption, the annual domestic demand for lubricants oils is around 100 million litres, whereas base oil demand around 140 million litres.
However, the lack of market monitoring and the least reporting makes the lubricants trade unnoticeable to the public.
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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