Month in brief

• DOI: http://doi.org/10.1111/oet.12712
• Date: 01 June 2019
• Published date: 01 June 2019

THE MONTH IN BRIEF

Month in brief

Brent crude prices rose toward $75/bl at the end of April and

stayed above $70/bl through most of May, with attention

dominated by the impact of US sanctions on Iran and to a

lesser extent Venezuela (see Looking Ahead section). Other

important factors were a continued tight compliance from

most members of the OPEC/non-OPEC's December supply

constraint deal, especially from Saudi Arabia, and continuing

strong US onshore production growth despite consolidation

and declining capex (see below).

Demand forecasts have been lowered during the month.

OPEC cut its outlook for growth this year by 30 000 bd to 1.21

mn bd due to “slower-than-expected economic activity.”OPEC

has now revised demand projections for 2019 below 100 mn bd

for the first time since July 2018. The trade dispute between

United States and China is the biggest factor dampening global

growth. The IEA said Q4 2018 demand in OECD countries fell

by 300 000 bd year on year, which is the first such fall for any

quarter since the end of 2014. It is likely to have fallen again in

Q1 2019 due to weakness in some European economies.

In M&A, Occidental has beaten Chevron in a battle to

acquire US independent Anadarko. Anadarko's board had

accepted Chevron's $50 bn offer, but Warren Buffet

(through his Berkshire Hathaway investment group—calling

it a bet on oil) lent support to Oxy's bid, which was raised to

$57 bn. Chevron refused to up its bid, handing the prize to

Oxy. The deal is part of what is becoming a major consoli-

dation in the US shale sector, where most of Anadarko's

assets are located. Oxy believes it can save $3.5 bn in costs

from the merger, while Chevron estimated $2 bn in savings.

Anadarko also includes major African/liquefied natural gas

(LNG) and US Gulf assets; Oxy plans to sell the African

assets, including a share in Mozambique LNG, to Total for

$8.8 bn (although Algeria has said it will not permit the

transfer of Anadarko assets to Total).

The consolidation is partly in response to a maturing of

the North American shale sector, where capex is being

squeezed despite rising output, with most observers

expecting a decline of around 10% in onshore E&P invest-

ment this year compared to 2018 (exceptions include BP,

which is raising US onshore capex to $2–2.5 bn from $1 bn

in 2018). The cuts are being driven by demands from inves-

tors in independents—which still own the majority of

acreage—to live within cash flow and return cash to share-

holders, rather than reinvesting or drilling more wells. The

falling capex and rising output mean costs per well and per

barrel continue to fall—drilling costs are down by a half in

the Permian since 2016, according to analysts Drillinginfo.

Supplies of Russian crude through the 1 mn bd Druzhba

pipeline to eastern Europe were suspended at the end of April

and through most of May after high levels of organic chlo-

rides were found to have contaminated the crude. Russia is

cleaning up the contaminated pipelines, and supply of clean

Russian Urals crude returned to Belarus at the end of May,

with supply to Poland, Germany and other buyers expected to

resume by mid-June. Poland and the Czech Republic released

emergency crude stocks in response to the shutdown, with

Polish refineries having to be supplied by tanker from Russia.

How to cite this article: Month in brief. Oil and

Energy Trends. 2019;44:6. https://doi.org/10.1111/

oet.12712

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