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Unexpected interruptions can occur at any time, as has already happened in the past. The geopolitical processes taking place in the world did not exert too much influence on the price dynamics since 2014, when the oil price crashed. Therefore, experts believe that interruptions in oil supplies will have a greater impact on oil prices.
Citi’s report says that five unstable oil-producing countries - Iran, Iraq, Libya, Nigeria and Venezuela - keep bearing the risks of possible supply disruptions. So, supplies from northern Iraq are threatened by the escalation of the conflict between the Kurdistan Regional Government, Baghdad and Turkey. Indeed, the five countries represent a potential threat for the oil market, each for different reasons.
Iraq
Experts believe that the biggest risk comes from Iraq. The unexpected seizure of the Kirkuk field by the Iraqi government has already led to interruptions in the supply of oil. As of October 19, the Bai-Hassan and Ayana fields near Kirkuk were closed. This means that delivery of at least 275,000 barrels per day has ceased.
It is assumed that interruptions will be temporary. A source told Reuters last week that it is searching for certain equipment that is needed to restore work in the fields.
The supply of oil in the Turkish port of Sheikhan, which usually receives oil from northern Iraq, fell to 196,000 barrels per day as a result of interruptions. Experts believe that possible outages will grow to 600,000 barrels per day, but they will be temporary.
Iran
According to experts, this country represents the greatest uncertainty in this list. At the same time, it is in the strongest position, compared to other countries included in the list. The danger for Iran is the possibility of renewing US sanctions, which will lead to a sharp reduction in Iranian exports.
It can also scare potential investors, even despite Rex Tillerson's assurances that the US will not seek to block business between Iran and European companies. According to Goldman Sachs, US sanctions will return with the worst development of events, which will lead to interruptions in the supply of several hundred thousand barrels of oil. However, this situation is considered only hypothetically, and experts believe that it is not worth seriously considering.
Libya
Despite the fact that Libya is a member of OPEC, it was an exception to the OPEC agreement to reduce production. At the same time, last year the country represented a downward risk for the oil market. This can be explained by the fact that it tripled production - from 300,000 barrels per day in August 2016 to almost 850,000 barrels per day at the moment.
Nevertheless, the damage done to export terminals in this country suggests that the supply in the short term has a ceiling of 1.25 million barrels per day. This means that Libya will not be able to return to pre-war levels of supply of 1.6 million barrels per day. However, the country is still a danger to the world oil market, as the country is highly unstable, and even the volumes that the country has achieved so far may face the threat of interruptions.
Nigeria
The situation here is reminiscent of Libya. The country has also become an exception to the OPEC agreement due to instability and a high level of violence and terrorism. Over the past year, the situation in the country has generally remained calm, which led to an increase in the level of oil production from 1.2 million barrels per day to 1.8 million barrels per day at the moment. However, the potential further growth in production is also limited, including because the country has promised to cut production when the level reaches 1.8 million barrels per day.
Nevertheless, peace in the country remains fragile. At any time, terrorist attacks can resume, which will undermine the supply of oil from this country.
Venezuela
Experts believe that the situation in this country will only worsen, which will lead to a sharp reduction in oil supplies. As of September of this year, Venezuela produced 1.89 million barrels per day, compared with 3.2 million barrels per day in the late 90's. For comparison, the country produced almost 2.4 million barrels per day in 2015.
Without money, the state-owned oil company PDVSA cannot invest in developing new fields and supporting existing fields in order to maintain production levels. According to reports, the quality of oil, which is still produced in this country, has become worse than before. The fact is that PDVSA does not have enough funds for high-quality processing of heavy crude oil.
In addition, the company has accumulated serious debts, which it will have to pay in the next couple of weeks. Analysts even predict the announcement of a default on debts.
All this creates instability for the oil market.
source: businessinsider.com
Citi’s report says that five unstable oil-producing countries - Iran, Iraq, Libya, Nigeria and Venezuela - keep bearing the risks of possible supply disruptions. So, supplies from northern Iraq are threatened by the escalation of the conflict between the Kurdistan Regional Government, Baghdad and Turkey. Indeed, the five countries represent a potential threat for the oil market, each for different reasons.
Iraq
Experts believe that the biggest risk comes from Iraq. The unexpected seizure of the Kirkuk field by the Iraqi government has already led to interruptions in the supply of oil. As of October 19, the Bai-Hassan and Ayana fields near Kirkuk were closed. This means that delivery of at least 275,000 barrels per day has ceased.
It is assumed that interruptions will be temporary. A source told Reuters last week that it is searching for certain equipment that is needed to restore work in the fields.
The supply of oil in the Turkish port of Sheikhan, which usually receives oil from northern Iraq, fell to 196,000 barrels per day as a result of interruptions. Experts believe that possible outages will grow to 600,000 barrels per day, but they will be temporary.
Iran
According to experts, this country represents the greatest uncertainty in this list. At the same time, it is in the strongest position, compared to other countries included in the list. The danger for Iran is the possibility of renewing US sanctions, which will lead to a sharp reduction in Iranian exports.
It can also scare potential investors, even despite Rex Tillerson's assurances that the US will not seek to block business between Iran and European companies. According to Goldman Sachs, US sanctions will return with the worst development of events, which will lead to interruptions in the supply of several hundred thousand barrels of oil. However, this situation is considered only hypothetically, and experts believe that it is not worth seriously considering.
Libya
Despite the fact that Libya is a member of OPEC, it was an exception to the OPEC agreement to reduce production. At the same time, last year the country represented a downward risk for the oil market. This can be explained by the fact that it tripled production - from 300,000 barrels per day in August 2016 to almost 850,000 barrels per day at the moment.
Nevertheless, the damage done to export terminals in this country suggests that the supply in the short term has a ceiling of 1.25 million barrels per day. This means that Libya will not be able to return to pre-war levels of supply of 1.6 million barrels per day. However, the country is still a danger to the world oil market, as the country is highly unstable, and even the volumes that the country has achieved so far may face the threat of interruptions.
Nigeria
The situation here is reminiscent of Libya. The country has also become an exception to the OPEC agreement due to instability and a high level of violence and terrorism. Over the past year, the situation in the country has generally remained calm, which led to an increase in the level of oil production from 1.2 million barrels per day to 1.8 million barrels per day at the moment. However, the potential further growth in production is also limited, including because the country has promised to cut production when the level reaches 1.8 million barrels per day.
Nevertheless, peace in the country remains fragile. At any time, terrorist attacks can resume, which will undermine the supply of oil from this country.
Venezuela
Experts believe that the situation in this country will only worsen, which will lead to a sharp reduction in oil supplies. As of September of this year, Venezuela produced 1.89 million barrels per day, compared with 3.2 million barrels per day in the late 90's. For comparison, the country produced almost 2.4 million barrels per day in 2015.
Without money, the state-owned oil company PDVSA cannot invest in developing new fields and supporting existing fields in order to maintain production levels. According to reports, the quality of oil, which is still produced in this country, has become worse than before. The fact is that PDVSA does not have enough funds for high-quality processing of heavy crude oil.
In addition, the company has accumulated serious debts, which it will have to pay in the next couple of weeks. Analysts even predict the announcement of a default on debts.
All this creates instability for the oil market.
source: businessinsider.com
