Strain of Falling Oil Prices Continues unabated
Venezuela needs an oil price of $100 per barrel to balance its external accounts, but oil is falling rapidly towards $40 per barrel and so far, Venezuela has failed to persuade other oil producers to reduce production in order to support the price.
Moody’s assessment assumes that Venezuela’s problem is mainly a balance of payments crisis caused by a rapidly falling oil price and inadequate foreign reserves.
Ivanhoe Energy has announced that the company is scaling back its activities in Ecuador in response to significantly lower oil prices and a delay in discussions with Ivanhoe’s partner on moving ahead with development plans for Ivanhoe’s Block 20 heavy-oil project.
Total will cut spending on ageing North Sea fields and on U.S. shale production after the recent plunge in oil prices, its chief executive said on Wednesday.
The low oil price could force firms to abandon Norway’s mature fields early, leaving recoverable deposits in the ground and shortening the lifetime of some projects, the head of the country’s oil directorate said on Wednesday.
Losses from lower oil exports should sap up to $300 billion from economies in the Middle East and Central Asia this year, as countries in the region adjust to falling crude prices, the International Monetary Fund said on Wednesday.
Brazilian oil and natural gas company Oleo e Gas Participacoes said on Wednesday it will cut its workforce by 40 percent, or more than 40 workers, to bring costs in line with revenues.
BHP Billiton, to cut its US shale oil operation by 40%. It is also reducing the number of rigs from 26 to 16 by the end of the June.
Total chief executive Patrick Pouyanne said: “We have fields on the US East Coast and my instructions have been pretty clear – we will limit investments. But I can come back in one year when prices come back.”
We believe that demand for oil is low because of weak economic activity generally, increased efficiency via technology, and a growing switch away from oil to other fuels such as Solar power. Also as America has become a major oil producer. it now imports much less, creating a lot of spare supply in the global market. Until recently America used to be the worlds biggest importer of oil from Nigeria and other Opec members.
OPEC has stuck to their guns. ‘If we had cut in November we would have to cut again and again as non-OPEC would be increasing production,’ OPEC Secretary General Abdullah al-Badri said in Davos. ‘Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let’s produce the lower cost oil first and then produce the higher cost,’ Badri said. ‘Prices will rebound. I saw this 3-4 times in my life.’ Al-Badri said the policy was not directed at Russia, Iran or the United States.
Saudi Aramco Chief Executive Khalid al-Falih also appeared unfazed, saying that although it could take some time, the oil market will eventually balance itself.