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Delays, Restrictions, and Costs. Oh My! Oil in 2020?

Last week, The Government of Iran announced the discovery of a new drilling site on the western side of the country.  The estimates, given by current president Hassan Rouhani, could lead to an additional 53 billion barrels to be added to the country’s current stockpiles bringing the total to over 200 billion. 

If this account is true, then this would make this the second largest drilling field for the country. Of course this is only oil. Specifically oil is still in the ground.  Drilling and storing it is unlikely to come even close to the number spouted.

The assumption is that only a fraction of the amount will be gathered in the near future.  That number will be closer to 10 to 15 billion barrels.

The increased oil reserves mean very little in the immediate future due to sanctions the U.S. and other nations have placed on Iran, effectively preventing the new reserves from entering western markets.

The sanctions are likely to continue as the Iranian government has breached the limits on stockpiles of uranium stated in the JCPOA or as many come to know it “The Iran Deal” that was signed in 2015.

Oil speculators are being placed in a precarious situation since oil reserves in Iran are outside of reach and the Abqaiq attack has damaged Saudi Arabia’s reserves. While Saudi Arabia is slowly recovering we are unsure when they will return to full strength.

Now for some insight into the North American Oil and Gas Industry. Our most promising advancement is the Trans Mountain Pipeline, but due to several delays,

(Rich Kruger) CEO of Imperial Oil stated “I think the Industry has largely gotten to the point where we will believe it when we see it.” Although, the Canadian Federal Government purchased the pipeline from Kinder Morgan in 2018, and has approved the Expansion project to start in June of 2020.

Delays, Restrictions, and Costs

Though this may be taken as good news for the Oil Industry, there is still a bill that the Canadian Senate voted in that upholds a ban on oil tankers in British Columbia’s northern coast.

The concern is that the expansion of the Trans Mountain would be rendered pointless. All of the moving pieces will fall onto the Supreme Court for a final decision that will continue to cause a divide in Canada’s Industrial and Environmental advocates. 

The fracking sector intends to pump less and plans are underway to restrict cost for the 2020 year due to low returns on their investments.  The foundling industry has seen criticism from investors as they demand reductions in spending.

On top of all this many producers in this field have seen a reduction in output.  Expectations for 2020 are not incredibly optimistic.

Restriction to oil surely will play a major role in the industry in the following year.  With production slowing in domestic markets and restrictions on large segments of the foreign market, only time will tell how the market will adjust to the flattened price of oil due to the gluttonous production brought about in previous years. For now, the future is uncertain. 

For further reading on the US-Iranian conflict: https://www.texasflange.com/the-rising-us-iranian-conflict-causes-major-events-and-possible-effects/

Further reading on the Saudi Oil attack:

https://www.texasflange.com/saudi-oil-attacks-what-you-need-to-know/

For further insights on shale:

https://www.texasflange.com/shale-is-the-new-black-permian-pipelines-relieve-bottleneck/

Sources:

https://www.nationalobserver.com/2018/08/30/news/court-quashes-trudeaus-approval-trans-mountain-pipeline

https://www.timesofisrael.com/jews-get-new-year-greeting-from-irans-president/

https://www.thebalance.com/what-is-shale-oil-and-how-is-it-produced-3306195

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