Markets will likely slow over the holidays but there are a few peculiarities that may cause disruptions to oil production and distribution as we head toward year-end and into 2018.
1. Venezuela’s oil production has been slowly dropping since March 2017 but now the country’s beleaguered national oil company, PDVSA, is struggling to fulfill promised orders of crude oil and refined products to its customers. Oil production in October was the lowest it has been in 30 years and PDVSA has not been able to pay its service providers. The company’s financial situation is precarious. PDVSA has not made any payments it owes Indian oil company ONGC for the Indian company’s $450 million investment in an energy project in Venezuela. Even though PDVSA was able to restructure the $3.15 billion it owes to Russia, Venezuela will still need to make minimal payments to Russia over the next 6 years. All told, PDVSA is $45 billion in debt and the company’s inability to pump enough oil to meet minimal customer contracts makes a looming default all that more likely in 2018.
2. The problems plaguing the Forties pipeline in the North Sea have continued to buoy oil prices this week. Even though Ineos, the company that owns the pipeline, has been sticking to its original repair timeframe of 2-4 weeks from December 11, Ineos is still examining repair options. The good news for the company is that the crack has not grown over the past week. The bad news is that 80 offshore platforms have had to halt production (a drop of around 450,000 bpd) and the Grangemouth refinery is only processing half of it regular 200,000 barrel per day load. The company admits that while it is sticking with its 2-4 forecast to restart the pipeline, it is still too soon to know how long repairs will take since they have not yet begun. Any outages beyond the 4-week mark will push oil prices even higher in January 2018. However, expectations are that this problem will not linger through the rest of 2018.
3. News from Rosneft’s vice president hints that perhaps the largest Russian oil producer is not as confident it its ability to increase crude oil production in 2018 as it was earlier in 2017. In June 2017, Rosneft (OTC:OJSCY) CEO Igor Sechin touted the company’s production capacity and told reporters that if the OPEC deal were to falter, Rosneft would be ready to increase production. At the last OPEC meeting, Russian oil minister Alexander Novak noted that Russian oil production would not be able to increase over the coming winter months, as Siberian oil production typically declines during this time. At a meeting in Sochi earlier this week, Rosneft’s vice president revealed that the company’s strategic plan takes into account a possible extension of the OPEC deal past 2018 and is aimed at shoring up existing assets rather than new drilling. Perhaps this is Russia’s way of admitting that aging oil fields that have been working full time for the past several years will require maintenance in 2018?
4. The water injection system on Saudi Arabia’s offshore Manifa field will likely be getting some needed repairs in 2018. This might involve taking the field offline, disrupting the 900,000 barrels per day produces. It is unclear when and how this work will take place and the extent to which production will be effected, but Aramco has already awarded contracts to the Italian firm Saipem (OTC:SAPMY) to build a new pipeline and to upgrade the water injection system. If the disruption is prolonged, it is possible—though not definite—that Aramco could compensate with increased production elsewhere.