LOOKING into crude future is often a professionally hazardous undertaking. Yet - despite the pitfalls - at this stage, the medium- to long-term crude outlook appears least rosy. And there are reasons for it! New frontiers are emerging - all around - while traditional crude resources continue to produce at elevated levels. And in the meantime, local consumption growth is getting moderate too. Russia and Saudi Arabia, the two major crude producers, continue to pump at elevated levels. Russian output is already at record post Soviet level, climbing to 10.74 million bpd, one percent more than a year earlier and topping a record set in June. Soviet-era production peaked at 11.48 million barrels a day in 1987, according to BP Plc. Crude exports rose 3.4 percent from the previous year to 5.27 million barrels a day, according the available data. This was five percent more than the previous month. Deutsche Bank estimates that Russian output this year will average around 10.6 million bpd. That is above the 10.58 million bpd the country produced last year. And this is despite the fact that Russia concedes that market is soft. Russian Finance Minister Anton Siluanov conceded last week oil prices won't recover as quickly as after the 2008-09 financial crisis. His ministry sees oil averaging at $50 a barrel in 2016 and $52 in 2017. Yet, Moscow continues to underline that due to geology and harsh climate, Russian companies can't adjust oil output as easily as in other producing nations. Also, the depreciation of the ruble makes it relatively cheaper to produce oil in Russia, helping to preserve oil company margins. The increase comes while OPEC seems resolute about defending market share rather than cutting production amid a global output glut. And currently there are no indications that OPEC may change its course in the immediate future. And the strategy seems working too. Recent reports indicated Saudi Arabia, the OPEC kingpin, was slowly regaining market share. Saudi figures to July show its crude exports have been above 7 million bpd in every month of 2015 except May. This was in sharp contrast to seven months of 2014 when its exports were below 7 million bpd. In 2012 and 2013, Saudi crude exports exceeded that level every month. The US Energy Information Administration (EIA) and the IEA too point out that Saudi exports to major consumers in Asia and Europe were touching multi-year highs in the first half of the year. Exports year-to-date to the US have risen, but remain under pressure. A Reuters analysis of Saudi production and export data too underlines that Saudi crude exports have amounted to around 8.1 percent of the global market since November 2014, after falling to 7.9 percent in 2014. "Based on their own reported crude export numbers for first-half 2015, the Saudis do appear to have reclaimed some of the market share they lost during 2014," David Fyfe, a former senior IEA official, now working for Gunvor, was quoted as saying. And Saudi Arabia shows no sign of changing course. Minister Ali Al-Naimi too have been underlining in recent months that the strategy was working. Speaking at the G20 Energy Ministers' meeting in Istanbul last weekend, Minister Naimi underlined that Saudi Arabia was continuing with investments in exploration, production, refining as well as other alternative sources such as solar energy. The world needs clean, continuous and available energy now and for future generations, he added. On the other hand, Iran is also striving to increase its output. Tehran is planning to increase crude output by 2 million bpd from about 50 energy projects slated for investors at a conference to be held in Tehran soon, National Iranian Oil Co. Managing Director Roknoddin Javadi was quoted as saying. Iran is inviting foreign investors to actively develop its energy industry once sanctions are eased, hopefully in 2016, Javadi told Reuters on Thursday. In November, Iran plans to announce its new oil contracts, which would be a major improvement not only on the so-called buy-back contracts but also on the contracts rival and neighbor Iraq offered to oil majors during 2000s. "Our priority is developing the joint oilfields with neighboring countries," Javadi said. Iran will need $30 billion of investment over five years to boost oil production, starting with about 350,000 barrels of new output next year, Goldman Sachs Group Inc. said in a recent report. The supplies could keep pressure on oil prices and delay the market's return to balance, Henry Tarr, a Goldman analyst, said in the report. Javadi too agreed: “The global oil market will stay bearish in the short to medium term.” And although China has always been an interesting shale prospect, yet its specific geology made many pundits assert that for Beijing to exploit its shale resources would be difficult than in the US. But all that seems changing now. In a just released report, 'Shale gas development in China aided by government investment and decreasing well cost' EIA analyst, Fauzi Aloulou underlines: According to MLR, Sinopec and PetroChina are on schedule to reach 0.6 Bcf/d of shale gas production by the end of 2015. Although still a small fraction of China's overall production, estimated at 13.0 Bcf/d in 2014, increasing shale gas output could eventually help to meet growing demand for natural gas in China and to limit growth in the country's natural gas imports. And while all this is happening, the global economic outlook is also not too healthy - impacting the crude markets - rather adversely. Economies of the EU reportedly contracted 0.1 percent from the previous month. The seasonally-adjusted unemployment rate for the 19 countries that use the euro was 11 percent. An early September report from the International Monetary Fund said global economic growth "remains moderate and uneven." The World Bank, in a report on Russia, said the low price of crude oil, coupled with sanctions imposed in response to the Kremlin's stance on Ukraine, is hobbling the nation's economy which depends heavily on oil revenues. Demand outlook thus remains murky too. And the recently inducted IEA Executive Director Fatih Birol too conceded in Vienna, where he flew in last week specifically to pay a courtesy visit on OPEC Secretary General El-Badr, recognized that 'the next few quarters we will rather see a low price (crude) environment as there is a lot of supply out there.' Let's be candid. Fatih is very much on target. — SG
