Latest news from Heavy Lift & Project Forwarding International Magazine

Can the market sustain USD100 oil?

With oil prices hovering around USD80 per barrel, industry analyst McKinsey suggests that a combination of factors could tighten oil markets further and propel the commodity past USD100.

McKinsey’s Pawel Wilczynski and Evelina Pagkalou said that a lack of spare production capacity among the Organization of Petroleum Exporting Countries (OPEC) members, plus infrastructure constraints in the USA, could reduce the industry's ability to respond immediately to supply and demand disruption.

However, the long-term sustainability of USD100 per barrel oil was called into question as infrastructure bottlenecks are expected to subside and the outlook for the global economy worsens.

According to McKinsey, in the short term, Iran poses the largest risk to crude supply. Purchases of Iranian crude by Asian countries and European companies have already slowed considerably. According to Bloomberg, Iranian crude exports are down by 1 mn barrels per day (bpd) compared to April 2018 – the lowest levels since March 2016.

Venezuelan crude production is expected to decline by another 300-500 thousand barrels per day (kbd) as the country’s socioeconomic crisis continues. Internal strife between key political factions in Libya have the potential to remove 300-700 kbd in production and exports.

The oil industry’s ability to respond to these disruptions is questionable.

Currently, Saudi Arabia’s spare capacity is estimated at less than 2 mn bpd, potentially insufficient to cover the supply gap should multiple acute disruptions occur simultaneously. US shale oil output is typically very responsive to increases in oil prices, but pipeline and services constraints – particularly in the Permian Basin – are likely to limit the ability of shale operators to respond quickly enough to high prices.

However, post-2020, the picture starts to look quite different. Saudi Arabia has already announced a USD20 bn investment in maintenance and possible expansion of its spare capacity over the next few years. It also intends to bring two fields online with over 500 kbd output later this year.

In the Permian, four new pipelines will be gradually added after 2019 which should debottleneck the basin.

Planned pipeline capacity expansions include Sunrise, Cactus II, EPIC Crude, and Grey Oak. Any potential downturn in the global economy is likely to put downward pressure on oil demand, as witnessed in 2008-2009.

The increasing prominence of electric vehicles will likely reduce demand for  petroleum and diesel.

“When all these factors are combined, it seems unlikely oil prices can stay at above USD100 per barrel for a sustained run. While the oil markets have always been sensitive to shocks and should continue to be so, there do not seem to be any fundamentally structural changes pointing to a return to expensive oil,” said Wilczynski and Pagkalou.

This article is taken from the Capital Projects and Contracts newsletter.

Heavy Lift | News

Let’s go fly a “K”ite thumbnail image

Let’s go fly a “K”ite

June 11 - Kawasaki Kisen Kaisha (“K” Line) is installing an automated kite system onto one of its bulkers.
Views: 977
FROM THE MAGAZINE: China funds Africa’s age of opportunity thumbnail image

FROM THE MAGAZINE: China funds Africa’s age of opportunity

June 10 - With the population of Africa forecast to double by 2050, there is increasing demand for new infrastructure. Much of this is being funded by China, which has a huge appetite for the raw materials that are found on the continent, writes David Kershaw.
Views: 993
PCN adds to summit agenda thumbnail image

PCN adds to summit agenda

June 6 - The Project Cargo Network (PCN) is bolstering the agenda of its annual summit with four video sessions that have been produced by lifting and rigging industry expert Marco J. van Daal.
Views: 1108
FROM THE MAGAZINE: Navigating challenging times thumbnail image

FROM THE MAGAZINE: Navigating challenging times

June 4 - As risks to the global market economy stack up, HLPFI highlights some of the major challenges facing forwarders and shipping lines operating in the project logistics sector.
Views: 1312

Heavy Lift Across The World

Discover heavy lift and project logistics industry news from around the world by region.