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Thursday, April 20, 2017

Why #oil price will not shoot up because of #OPEC


Most oil producers bank on high oil prices. Saudi Arabia has the lowest cost to produce a barrel of oil ($8.95) and yet their budget needs oil to be at $105 a barrel.
Here is where it gets interesting. The top pic shows OPEC countries. You do not see USA or Canada on that list. Russia is not OPEC but they also need prices to go up and reason why they agree with OPEN to cut down production. The danger with OPEC cutting down production without securing an agreement with USA and Canada is because these two countries can ramp up production and fill every gap of OPEC cut backs.
If you look at both images, Venezuela needs oil to be at $117.5 to balance their budget. Oil closed around $53 yesterday and the chart says it is gonna follow gravity. Brent Oil has crossed into Bear Market Territory so strap your seat belts because it is gonna be a wild ride.
It would be prudent for OPEC to negotiate with President Donald Trump and Prime Minister Justin Trudeau to sign onto the cuts. But who is talking to who and who is not talking? Failing this you will see Oil go Hit and Miss. Most oil and energy traders and investors know that USA and Canada have massive deposits of oil and natural gas. 
Then of course we have the African countries who can only break even on production at $50 to $65 a barrel and if you look at their inflated budgets, most of them need their budgets balancing in the neighbourhood of $150 and of course naturally expect AMERICA to pay for their oil activities which by now you know that President Trump will not pay for.
When countries like Uganda which are predominantly Agriculture land grab and people cannot grow food for their families or the city markets (some which have been demolished), banking on oil, we have a problem.
I would like to point the world to the current situation in the Oil of Uganda.  We have thousands of families who were evicted off their land and are living in IDP camps (Internally Displaced People).  We do not have a refinery.  We also do not have an Oil Pipeline.  
Heritage Oil exited Uganda.  Tullow this year sold everything to TOTAL and Total will soon exit (oh yes they will).  Then in the end we will have CNOOC (a Chinese company) and if you have never done any business with China, then go learn how to use chop sticks and enjoy your noodles.  Uganda gave CNOOC production licensese before Tullow and Total, both companies which invested a lot in the oil business in Uganda.
You might also want to know that Uganda's budget is balanced at $168 a barrel.  So far from where oil is trading.  Furthermore, Heritage Oil and Tullow are ramping up production of oil in Kenya and have a combined stored barrels of something like 130,000 and this is for when Kenya starts formally exporting in June 20147.
Heritage Oil and Tullow offered to build a refinery at their cost to process 20,000 barrels a day soon after the oil had been discovered in 2006. Uganda govt pushed back and demanded for a refinery of 100,000 barrels a day and of course using their good looks.
Some 11 years later and Uganda does not have a refinery.  As a matter of fact, the refinery being negotiated currently with the likely funder being China will go in 2 phases.  The first phase will be for 30,000 barrels with expected ready to operate in 2022.  Then the second phase for 30,000 barrels is supposed to be in place by 2030.  ALL this is going to be on money lent by EXIM to CNOOC and Chinese contractors to do all the work since Uganda does not have Engineers to build roads or refineries.
Did you get all that?  Heritage Oil and Tullow would have had a paid refinery by them many years ago.  It does not hurt that the price of oil will be in the dumps!
Martha Leah Nangalama
Staff Infrastructure Analyst, Exxonmobil Business Support Centre, Canada.
I hold Oil shares in IMO and XOM.  All opinions are mine and have never or will never reflect anyone else except the sinner here. 

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