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UAE bullish on oil, invests billions, as oil at $100 looms near

Could oil be heading to $100 again?

Experts are factoring in sanctions on Iran’s oil supply in the picture as oil makes a comeback.

The UAE is talking stock of this as it drives its production and refining capabilities forward.

What’s the country up to?

Refined case

The UAE, OPEC’s 4th largest producer plans to increase oil production from 3.2 million bpd to 3.5 million bpd at end 2018.

Quoting AFP, the Economic Times said Abu Dhabi National Oil Co. on Sunday announced a $45 billion investment to modify the refining and petrochemicals plant at Ruwais, an existing facility, into one of the world’s largest integrated refining and petrochemicals plants.

The project aims to boost state-owned ADNOC’s refining capacity by 65% to 1.5 million barrels per day by 2025, according to firm’s CEO Sultan al-Jaber telling a downstream investment forum.

Abu Dhabi holds more than 98 billion barrels of crude oil reserves, and last November stated its intent to invest $109 bn in energy projects till 2022.

“Last month, ADNOC invited bids for exploration contracts for six major blocks with untapped oil and gas reserves, estimated to hold billions of barrels of oil and trillions of cubic feet of natural gas,” said AFP.

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Current oil price movement

US WTI closed last Friday near $71 per barrel and Brent at $77 per barrel, helped by US decision to sanction Iran and regional security tensions.
It was a busy week for oil traders, with prices moving in a $4.25 range of $71.89 per barrel down to $67.63 per barrel as the market digested the news.
“Meanwhile, aside from the huge increase in U.S. oil production, the EIA reported some bullish figures this week – a decline in both crude oil and gasoline inventories by more than expected, said, a robust industry site.

Prices on a leash
The return of sanctions could result in a reduction of oil exports from Iran by 200,000 barrels per day (b/d) to 500,000 b/d by the end of the year, and another 500,000 b/d to 700,000 b/d in 2019, according to S&P Global Platts.
But any loss of supply from Iran due to U.S. sanctions will take time, in fact not until November 2018, and OPEC won’t rush to increase output in the interim, sources told Reuters.
Between China and South Korea, the two countries alone buy some 1million bpd of oil from Iran. OPEC will meet in Vienna next month to evaluate the current status of the oil market and the production limits.

Bloomberg reports that there is currently a bit of a oversupply, which should prevent a sudden price spike.
“Oil traders have reported unsold cargoes in north-west Europe, the Mediterranean, China and West Africa,” said

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Oil at $100?
Crude is at risk of $100 per barrel in 2019 due to the declines in Venezuela and the potential losses in Iran, according to Bank of America Merrill Lynch.
The bank sees Brent hitting $90 per barrel in the second quarter of 2019.
“But that could be conservative since it assumes that OPEC increases production. That is why $100 is a viable scenario,” the bank says.
“Investors are already piling back into Big Oil stocks, a bet that crude’s 50% spike in the past year will mean fatter profits and bigger share buybacks,” said CNN Money.

History shows that when crude spikes by more than 80% in a year, it can pose serious problems, according to Brad McMillan, chief investment officer for Commonwealth Financial Network, reported CNN.
“This has been a reliable signal of past recessions,” McMillan wrote to clients last week.

CNN said that crude was fetching about $47 a barrel a year ago.

That suggests the price to watch is about $85 a barrel. That’s roughly 19% above current levels.

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Oil demand for the year
Last month, OPEC revised 2018 world demand growth to 1.63 million barrels per day.
Total demand for the year is forecast to average 98.7 million barrels per day, according to Investopedia.
In last month’s report, OPEC said that it expects non-OPEC supply to grow by 1.71 million barrels per day in 2018, with the U.S. accounting for most of the supply growth.
OPEC’s market share now stands at 32.6%.