LIFE signs are emerging on crude horizon. Crude prices moved slightly higher, late last week, after Baker Hughes reported its weekly count of US oil rigs ticked down for a fourth consecutive week. The number of rigs drilling wells in US oilfields fell by four last week, bringing the total to 640. At this time last year, drillers had 1,592 rigs online. Lower oil prices are impacting the US output — it seems. Conflicting signals though continue to confuse. Iran remains a big if! Iran's oil production will reach 4.2 million bpd by the end of 2016, Iranian Petroleum Minister Bijan Zangeneh told the CNN. Zangeneh underlined that Iran will not hold back its oil production once the sanctions are lifted. “Can we wait and not produce after lifting of the sanctions? Who can accept it in Iran? Do you believe that our country will accept not to produce, to secure the market for others? It's not fair,” he said. Already the Iranian exports are up. China's August crude oil imports from Iran rose 61.4 percent from a year earlier to 503,110 bpd. This was though 12.6 percent lower from 575,700 bpd registered in July, Reuters reported. South Korea's total crude oil imports from Iran in August too rose 3.5 percent to 88.7 million barrels. Iran is now banking upon lifting of sanctions to enhance its exports. It expects to increase its oil exports by 500,000 barrels a day by late November or early December, a top Iranian oil official said last week. By mid-2016, Iran expects that its exports will exceed today's by 1 million bpd, Ali Kardor, the chief of investment for the National Iranian Oil Company said. “We are ready,” Kardor said, speaking on the sidelines of a conference in Geneva promoting business ties between Europe and Iran. Iran also plans to press for the country's full return to the market at OPEC's next meeting in December in Vienna. “Some countries should reduce their production…They should reach a compromise,” Kardor was quoted as saying by the Wall Street Journal. Overall, Iran today produces a little less than 3 million bpd, down from peaks of more than 4 million bpd, most of it consumed domestically. Iran is endeavoring to resurrect its decaying oil infrastructure. A “Norwegian-Austrian” group of companies has finalized a “master development plan” for one of Iran's key offshore oil fields, Esfandyar, Iranian press reported. Iranian Offshore Oil Company (IOOC) suggested that this might be a first step toward a full-blown foreign contract for the field. With IOOC's managing director Saeid Hafezi saying that the European group is “ready to start work based on Iran's new oil contract models.” IOOC is also in talks with “a Ukranian company” on development of the Dorud oil field. And as per the Russian press, Iran is already negotiating with European majors Total and Eni on possible field contracts. Investment banks hence do not appear optimistic. Oil prices will remain lower for longer period and will not recover substantially in 2016, but they will not fall any further either, some are now asserting. A survey of 13 investment banks by The Wall Street Journal saw the average forecast for Brent crude cut sharply by $9 to $58.70 a barrel for next year compared to the prediction just last month. Credit ratings agency Standard & Poor's said that marginal production costs in places such as the United States were poised to fall due to improved drilling efficiencies, meaning production will not decline as steeply as expected. “The decline in oil price assumptions represents the prospects of a more prolonged recovery,” S&P analyst Thomas Watters said. S&P cut its Brent and WTI forecasts by $5 to $50 per barrel and $45 per barrel respectively for this year and said it saw 2016 prices at $55 for Brent and $50 for WTI. HSBC too is saying that markets had focused too much on China's slowdown, warning that many developed economies were faltering as well. “It turns out that developed market imports haven't been anywhere near as robust as relatively upbeat local demand data would suggest ... For all their recent swagger, developed markets are hardly firing on all cylinders. So, don't just blame China,” the bank underlined. Russian government too has been discussing ways to tackle the tough economic environment if oil falls to as low as $30 per barrel next year, RBC daily reported, citing government sources. But despite the bearish outlook, some other factors too are coming into play. Saudi spare capacity, so critical to the market psychology, is beginning to get low. And this could play havoc with markets and warning shots are now being fired. As high cost production comes off line amid lower oil prices and the market starts to rebalance, the industry will have a limited capacity to increase production meaningfully if there is a sudden disruption. This would leave the market vulnerable to a big price shock, the Oslo-based consultancy Rystad Energy said in a recent report. The spare crude production capacity of Saudi Arabia, the world's largest crude exporter, stands at 1.1m barrels a day, according to Rystad data. Financial Times quoted Nadia Martin, senior analyst at Rystad Energy saying: The oil market is at risk of price spikes despite the focus on oversupply. Current spare capacity is far lower than the 2.1m b/d of spare capacity the Kingdom held in 2009, when the oil market last demonstrated a significant misbalance in supply and demand. A price spike could occur as early as February of next year. And hence some are getting itchy. Dismissing the Goldman projection of the possibility of crude touching even the $20 mark, Oppenheimer issued a note arguing that oil is looking for a “new normal” price around $65-$75 a barrel. And there are reasons for the renewed faith in crude market. If oil is below $50 a barrel, $1.5 trillion worth of oil projects will begin to lose money and would be canceled, argued a report from Wood Mackenzie. This could also make markets tighter. “As the upstream industry responds to the low oil price, investment is down $220 billion in 2015 and 2016 compared with our pre-oil price crash projections. In addition to reduced activity onshore North America, a total of 46 projects has been deferred as a result of the oil price fall.” All this makes the markets uneasy. OPEC is already forecasting the oil prices to creep up to $80 in 2020 — ‘rising by about $5 annually to 2020 from $55 this year.' Markets seem to be performing the balancing act — and with some ingenuity.
