In November 2016, OPEC agreed to reduce output. It kept its promise of oil output cut. Crude production was reduced by about 1million bpd to 32million bpd in January 2017. This was one of the deepest in the history of output cut initiatives by the cartel. Russia has also been able to reduce supply faster than expected. Oil Producers together have already removed 1.8 million barrels a day from the market.

The oil ouput cut which was initially for the first half of 2017 was extended r beyond six months and subsequently for the current year 2018 also.

OPEC and Russia are now working on a long-term deal to cooperate on oil supply curbs that that began in January 2017. They are considering an alliance that shifts from a year-to-year agreement to a 10-20 year agreement. This may partially reduce price instability.

These deals boost the expectations in the market that the  inventory overhang will be cleared  and push oil prices up. Brent is hovering between $50-$70 a barrel since January 2017 with an upward trend.

Hedge funds too have turned optimistic and are amassing the biggest ever bet on rising oil prices. Data from regulators and exchanges show the speculative investors holding a record net long position — the difference between bets on rising and falling prices — equivalent to almost 1bn barrels of crude in futures and options contracts.

 But as OPEC and Russia are cutting output, increase in oil price is making US shale industry more attractive. Drilling is ramping up; the number of drilling rigs deployed is increasing. Low oil price regime made shale producers more efficient and adopt cost-cutting techniques. Most of them are viable at $45 a barrel and can generate more demand for oilfield services. Drillers and frackers will be able to bargain for higher rates.

With a continued focus on high-tech and improving efficiency, U.S. oil production has already surged above its 1970 “peak” of 9.6 million barrels per day. The Energy Information Administration (EIA) estimates that its oil production will average 10.6 million bpd in 2018 and will rise further to 11.2 million barrels a day in 2019. This may counter balance the planned cuts by others and partially fill in gaps.

But Speculators react to even small developments in the physical markets, which creates temporary instability in the market. Brent crude had fallen by over 75% from $115 in June 2014 to $26 a barrel in January 2016. During this period, oil made efforts to recover and even reached near $70 but could not sustain and declined again and again.

The continued developments in crude oil production senerio and OPEC strategy are expected to bring some balance to the market and avoid extremes like $25 or $115. Except for any unforeseen events, these factors are likely to keep oil price moving between $55 and $75 in 2018; a range considered comfortable for both producers and consumers.

(Trustworthy’s article as published in ET Energyworld: Feb 14, 2017, and updated until March 2018)

India’s Natural Gas Production Outlook:

Government has fixed target

To ramp up Domestic Gas production to 50 BCM in next 3 years from last 3 years average of 31 BCM.
To raise the share of natural gas in the country’s primary energy mix to 15 per cent by 2030 from the present level of 6 per cent. Global average of gas share in energy mix is 24%.

Domestic gas production faced a steep decline from 48 BCM to around 32 in 10 years. Last year, Coronavirus pulled down it drastically below 29 BCM.

The Challenges ahead:

Gas price for nominated blocks, fixed based on the global average price at the hubs in the US, UK, Canada and Russia, has declined from $5 per million Btu to a low of $1.79 in six years.

Similarly, the price of Gas from Deepwater and other difficult areas though discovered through a bidding process, is subject to a cap/ ceiling of $3.62.

The Gas prices fixed or caped through Gas Pricing Formula are commercially neither viable for the existing gas producers nor attractive for new investors. Gas pricing policy needs a revisit to attract entrepreneurs and capital.

Long Term consistent assured production and supply of the Gas to the Industry is the Key to become a gas-based economy.Type your paragraph here.

The oil price has always remained uncertain and volatile, especially for the last five years. Brent crude had fallen by over 75% from $115 in June 2014 to $26 a barrel in January 2016. Since then, oil is making efforts to recover and but with wide fluctuations in the short-term.

The price of oil went on a wild ride in 2018, surging 30% before collapsing 40% from the peak, ending the year down 20%. The geopolitical factors kept oil prices moving in a wider range between $50 and $75 in 2019.

Producers, consumers, and investors all continue to watch the daily price movement graph with fear and hope.