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E&P Update - Dec. 18, 2017

On 12/14/2017 the IEA released its Oil Market Report, which indicated the global oil market will likely show a surplus in the first half of 2018, as rising U.S. supply offsets OPEC’s discipline in maintaining its production cuts for the whole of next year. “Total supply growth could exceed demand growth: indeed, in the first half the surplus could be 200,000 b/d before reverting to a deficit of about 200,000 b/d in the second half, leaving 2018 as a whole showing a closely balanced market.” Highlights from the report follow:
  • The forecast for global demand growth remains unchanged at 1.5 million b/d in 2017 (or +1.6%) and 1.3 million b/d in 2018 (or +1.3%),
  • Global oil supply rose 200,000 b/d in November to 97.8 million b/d, the highest in a year, on the back of rising U.S. production. Output was nonetheless down 1.1 million b/d on year over year when Russia and Middle East OPEC producers pumped at record rates,
  • Non-OPEC supply is set to rise by 600,000 b/d in 2017 and 1.6 million b/d in 2018,
  • OPEC crude supply fell in November for the fourth consecutive month to 32.4 million b/d, down 1.3 million b/d year over year. Output was lower in Saudi Arabia, Angola and Venezuela. Compliance with agreed cuts rose to 115%, the highest this year, and lifted the 2017 average to 91%.
  • OECD commercial stocks fell 40.3 million barrels in October the lowest level since July 2015. Stocks are now 111 million barrels above the five-year average. Chinese crude stocks likely fell in October for the first time in a year.


On 12/15/2017, Reuters reported an alleged crackdown on graft in Venezuela, seen by critics as an effort by President Nicolas Maduro to consolidate power, has sown panic across the country’s energy industry and all but paralyzed state-run Petroleos de Venezuela SA, or PDVSA, according to people at the company and across the sector. Decisions at some joint ventures with foreign firms are delayed. A growing number of oil tankers sit idle because no one authorizes payments. Employees struggle to get approval for routine expenses, from taxis to training.


The ongoing purge, in which prosecutors have arrested at least 67 executives including two recently ousted oil ministers, now threatens to further harm operations for the OPEC country, which is already producing at near 30-year-lows and struggling to run PDVSA units including Citgo Petroleum, its U.S. refiner. Many of those detained have not yet been replaced, as the once world-leading company, already struggling with a brain drain, wants for qualified personnel. Executives that remain, meanwhile, are so rattled by the arrests that they are loathe to act, scared they will later be accused of wrongdoing. “In PDVSA, nobody dares sign anything now, not even a Christmas card,” said one executive at a joint venture between PDVSA and a foreign firm in the Orinoco oil belt, asking to remain anonymous.


Combined, the woes are prompting analysts to question just how low Venezuela’s oil production will fall. The International Energy Agency predicts output will fall at least 500,000 bpd to 1.5 million bpd in 2018. Analysis firm Medley Global Advisors forecasts a decline of as much as 550,000 bpd, citing risks including “PDVSA’s militarization and purge of what remains of its technical capacity.”

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Industry Update
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Distribution of IB Services Firmwide
IB Serv./Past 12 Mos.
as of 12/18/17
Rating Count Percent Count Percent
Buy [B] 210 66.04 115 54.76
Neutral [N] 45 14.15 18 40.00
Sell [S] 4 1.26 2 50.00
Under Review [UR] 58 18.24 34 58.62
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