The Supply Side
Some temporary factors are also in effect, such as the wildfire in Canada that has disrupted the supply for a couple of months. Elsewhere, internal political disturbance in Libya has led to a blockage and an embargo, which is suppressing some part of the supply. The two sides at either end of the conflict seem to be coming around and the remaining supply is also likely to be restored. In addition, Libya is not a major producer with only approx 1.5 mb/d supply and therefore, is not going to be a significant factor in the global supply.
Terrorism in Nigeria poses significant uncertainty, mainly because the country accounts for almost 6.3% of OPEC production that translates to about 3.5 mb/d. The Delta region attacks have crippled the supply by as much as 40%. Against the budget estimate of 2.2 mb/d, the current supply is only 1.4 mb/d. Nigeria is in a tough spot as nearly 70% of its national income depends upon crude exports and it has one of the highest break-even points among the OPEC members.
Venezuela is another important player, contributing to about 7.8% of OPEC production. The country’s economic turmoil doesn’t seem to be letting up and is impacting the oil production. The disruption is more deeply rooted and is likely to hinder its long-term production capability. Similar to Nigeria, Venezuela also depends largely upon oil exports, where weaker global prices do emancipate its production.
Market watchers expect crude prices to remain in the proximity of $45-50 for the rest of the year. However, this will hardly be enough for most producers, since they need much higher levels to break-even.
Eurion Constellation is a research and consulting firm serving businesses in U.S., Europe and India. The research services have a global reach with focus on industry / market / economic research, financial analysis, equity research, company valuations and report writing. The consulting wing in India focuses on the startup and SME sectors. Please feel free to get in touch for any business requirements. Visit http://www.eurionconstellation.com