Volatility in oil prices saw Monday’s low of 44.79 rise to 45.68 only to recede to 45.03.
Events in the major energy production countries and companies are keeping the oil market volatile with BP announcing a pay freeze, the UK limiting shale production and comments from Saudi Arabia and OPEC on oil prices.
BP cap pay
Bob Dudley, chief executive of BP announced through the company’s intranet site that there would be a pay freeze on basic salary with a few exceptions “for specific circumstances around the world. We will review salaries again in a normal way in 2016.” BP has suffered on the back of the 50% decrease in oil prices in the last 6 months and the employment spending bill for 83,900 employees at $14bn in wages and pension contributions is the latest cut necessary for BP to continue business and debt repayment. The expected restructuring charge of $1bn that BP announced in December was in response to the firm’s need to cut thousands of jobs.
UK energy controls
In the UK on Monday, the government allowed legislation for shale energy production (fracking) to go through but with amendments that will control and limit output. At present the UK is seen by the fracking business and politicians alike as a test bed for fracking production, and alongside Poland and Argentina, the UK is being watched to see if it can be as successful as the U.S. in combatting import dependency. The FT reported that, ‘As output from the UK’s ageing North Sea oil and gasfields has fallen, Britain’s dependency on imports for its energy needs has grown. The Centre for Policy Studies estimates that by 2020 up to 70 per cent of natural gas used in the UK could be imported.’ Limits and controls in the amended legislation were proposed by a group of MPs who believe that ‘fracking should be put on hold because it would increase reliance on fossil fuels and was incompatible with targeted cuts in carbon emissions,’ according to the FT. The bill’s amendments now prohibit fracking in national parks and put stronger environmental monitoring in place, plus wider community consultation and benefit schemes. Shale companies that are looking for licenses will now have to wait to see how the new environmental controls affect them in terms of additional costs.
OPEC sticks to output
On Monday, secretary-general of OPEC Abdalla El-Badri, said that “maybe prices have reached a bottom.” The Financial Times reports El-Badri saying, “How long will it last? I don’t know . . . but I am sure the price will rebound,” adding, “We know the market is oversupplied but it is not because of OPEC. For the last 10 years we have been producing 30m barrels a day. Non-OPEC has increased by 7.5m barrels a day. We are not the cause of the oversupply, so we are not cutting.” This is yet another confirmation from both Saudi and OPEC that their members will not cut production and would prefer to maintain market share than to support oil prices.
It was on Friday last week that King Abdullah bin Abdulaziz al-Saud of Saudi Arabia passed away and the oil-rich country that leads OPEC saw his half-brother 79-year-old, Crown Prince Salman bin Abdulaziz, take charge. The oil price immediately surged to $49, dived to $45.88 and leveled out to $46.70. The key to the seamless exchange of OPEC heads will depend on the new King’s approach and whether Saudi’s oil minister Ali al-Naimi, who has been the instigator and spokesperson for the Saudi’s stance on oil, is retained.
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