OPEC Overproduction  Biggest Industry Concern

OPEC Overproduction Biggest Industry Concern

OPEC overproduction, China’s slowdown and the reentry of Iran to the oil market are issues weighing heaviest on the minds of oil industry executives, a new study has revealed.

Research by law firm Clyde & Company shows that “OPEC policy is the single most important geopolitical factor affecting oil and gas businesses today”, with its supply volumes having a huge impact on prices. 

Three-quarters of all respondents nominated OPEC as being the primary issue, Global Trade Review reported.

Concerns over the Chinese slowdown only caused a headache for 50% of those surveyed, who were chosen from international producers, explorers, financiers and traders.  Despite China’s declining heavy industries, the country has still been gobbling up oil at its deflated price, but demand is still insufficient to buoy the price.

A senior commodities banker in Asia told GTR that their outlook on oil remains poor and that, along with many banks in the region, it has been actively removing smaller companies in the sector from their balance sheet. In response to the poor market outlook, more than half of those surveyed said they were considering cancelling projects, which would further hit a market that has been devastated by the slowdown.

In January, oil and gas consultancy Wood Mackenzie estimated that $380 billion of projects had been cancelled since 2014. In 2015, the firm says 68 major projects were cancelled, which would have brought 27 billion barrels of oil onto the market.

However, the lack of new production should eventually filter through to the oil price. The firm predicted more cuts in 2016.

One area of light for contractors may be the situation in Iran. While surplus crude from the Persian Gulf state will drive prices down further, its aging infrastructure requires some $200 billion of investment over the next five years.

Other intra-industry concerns are related to payments and insolvencies. A vast majority of those quizzed said they were worried about the breaking of contracts for offtake, while a similar number were concerned over partners going bankrupt.

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