Highlights

Challenges to output cut stability span Russia, Middle East

Collapse in oil investment appetite adds to uncertainty

Total, Equinor CEOs plan for continued, long-term demand

London — Current oil price stability is threatened by continued geopolitical and economic tensions, with a collapse in oil and gas investment outside Russia and the Middle East raising further questions over long-term stability, analysts told Norway’s ONS online conference Aug. 31.

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Speaking at the biennial event, Amrita Sen, co-founder of the Energy Aspects consultancy, said the market could be in for a relatively quiet year-and-a-half as April’s price collapse — after producers under-estimated the impact of COVID-19 — had prompted renewed discipline and production restraint by OPEC+ nations.

“Everyone has been so frightened by what happened in the spring… At the current [price] range we’re talking about, it holds together,” she said of the OPEC+ agreement that helped rescue the oil market.

However, Sen said Russia’s renewed commitment to production cuts was heavily dependent on the personal involvement of President , who she argued had taken his eye off the issue in the run-up to a constitutional referendum in the spring, allowing figures such as Rosneft chief executive Igor Sechin to get the upper hand in policy-making.

Russia slashed its crude production in May as the OPEC+ agreement kicked in, from almost 11 million b/d previously to around 8.6 million b/d, and kept output around that level in subsequent months, according to International Energy Agency figures.

“In April, Putin was too heads-down. Putin come May was a lot more active. That’s a very important dynamic to watch out for… whether Putin is active or not. Putin’s mind-set is very, very important for the wider cooperation. He thinks this has really helped him with the situation in Syria for instance,” Sen said, referring to Russia’s wider Middle Eastern goals.

US policy and any intensification of sanctions against Russian companies could throw a spanner in the works when it comes to Moscow’s commitment to collaborating with the Middle East on production cuts, Helima Croft, global head of commodity strategy at RBC Capital Markets, added.

In addition, with several OPEC nations struggling to balance budgets at current prices, civil unrest, or its potential in several countries threatens to destabilize markets, with recent instability in Iraq a particular example, Croft said.

“We still need to keep an eye on political instability, the security risks. This sort of $40 oil price does not work for a whole host of producers. We do need to be watching carefully what is happening in Iraq,” Croft said, highlighting issues also in Algeria and Nigeria, and major problems in Venezuela, which she described as “a mess.”

Investment collapse

For the longer term, Sen questioned whether sufficient investment was going into the oil and gas sector as the energy transition dominates sentiment, saying the US shale sector might not recover as quickly as some in the market appeared to expect, while demand was likely to return to something like pre-COVID-19 levels in late-2022.

Croft echoed her comments, saying Middle Eastern producers were preparing to “win the transition” as investment in oil and gas projects falls away elsewhere.

Sen said the drop-off of investor interest was reflected in service companies currently being very narrowly focused geographically. “Nobody wants to invest in oil and gas. I’m questioning whether there is any appetite right now. If you talk to the Baker Hughes and the Schlumbergers of this world they are very focused on the Middle East and Russia,” she said.

Doubts about the oil and gas sector’s future were offset at the event by the CEOs of Norway’s state-controlled Equinor, and French major Total, who defended the two fossil fuels’ relevance.

By 2050, “we think that we’ll have something like 40 million b/d of oil [demand] per day, but it’s not zero,” the Total CEO Patrick Pouyanne said. “It is much less than 100 million per day which is the [current] consumption… But we will still require oil.”

“We will produce oil and gas, the world is going to need oil and gas. It’s a fact and we will do that,” Equinor CEO Eldar Saetre said, going on to highlight his company’s ambitions in the renewables space.

“What we depend on is actually opportunities. There’s a lot of money that wants to go into renewables and we need to see that there are enough opportunities supporting this money. And we need to see costs continue to come down,” he said.

“We need to maintain the pride of actually producing oil and gas — this is both oil and gas, and renewables — so to keep that, and not look upon that as something that is left behind,” Saetre said.

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