Brent crude oil shot up over US$77 per barrel on 5 July, after OPEC members and their allies failed to reach an agreement on a production policy that would have seen as much as 2M barrels of oil returned to the market by the end of 2021
No firm date has been set for the next meeting. There is some bullish sentiment in the market that oil will reach US$80 per barrel.
Prices, however, eased over the next two days. Brent crude oil (ICE) was trading at US$75.10 per barrel for September contracts as of 7 July at 9:21 AM EDT.
“The cause of the sudden price dip could either be the market reaching a profit taking threshold, the increasing US and Russian pressure for an OPEC+ deal that will bring some market stability, but also the realisation that there is a possibility of an OPEC+ rebellion that could bring unregulated output back to the market,” said Rystad Energy oil markets analyst Louise Dickson.
Added Ms Dickson, “Oil is in for a wild ride until some concrete supply policy is agreed upon and if traders were expecting a calm July they now have to sit tight instead, as the market’s unpredictability can cause tremors.”
The price volatility comes as the global economy continues to recover from the Covid-19 pandemic, with increased oil demand as the US moves into its summer travel season, and the UK moves towards lifting coronavirus restrictions later on 19 July.
Meanwhile, offshore drilling activity continues to strengthen, led by improvements in the North Sea and southeast Asian jack-up market, and rising South American floater contracting. As a result, the overall number of offshore drilling rigs contracted reached a new yearly high, hitting 450 jack-up and floaters for week 27, according to Westwood Global Energy’s RigLogix.
In its latest fleet status report, Vantage Drilling noted new work for two of its jack-up rigs starting in Q3 2021. One contract for Sapphire Driller with Trident Energy will see it active in Equatorial Guinea for the entire quarter, while Aquamarine Driller will conduct a campaign for CPOC in Malaysia into Q1 2022.
Global floater activity rose two units week-on-week to 116, led by an increase in the South American drilling market. Rio de Janeiro-based drilling contractor Constellation Oil Services reported signing a new contract with state-run oil company Petrobras for drill ship Laguna Star. In a social media post, Constellation said the contract was for a duration of 1,095 days, with the start of the drilling campaign scheduled for January 2022 on the Brazilian coast, and includes integrated services and the use of an MPD system.
In the West African floater market, NYSE-listed Valaris Limited was awarded a four-well contract by BP offshore Mauritania and Senegal for drill ship Valaris DS-12. Commencing in Q1 2022, the contract will keep the drill ship busy for an estimated duration of 285 days.
Maersk Drilling’s Samsung 96K drill ship, DP3-capable Maersk Viking, arrived at the Port of Busan earlier this month to conduct its first ever campaign South Korea. Capable of operating in over 3,600 m of water and drill to a maximum depth of 12,000 m, Maersk Viking will drill an exploration well in Block 6-1 for Korea National Oil Corp.
Offshore drilling at crossroads
Market conditions in offshore drilling have improved since the start of 2021, but the industry is not out of the woods yet. Faced with the double-barrel crisis of a low-priced oil environment and Covid-19 energy demand destruction, the offshore drilling industry has responded nimbly but more work has to be done, said Maersk Drilling chief executive Jørn Madsen during his keynote at the IADC World Drilling Conference in mid-June.
Saying the drilling industry was at a “crossroads”, Mr Madsen noted three issues the industry must address. “Firstly, our industry’s long-term financial durability. Secondly, our response to the climate challenge. And thirdly, our ability to significantly increase the profitability of our customer’s drilling projects.”
Rig owners have scrapped jack-ups and floaters at record levels and even sold units for other purposes outside the drilling market, improving supply-demand market balance, and invested in lowering emissions from rig operations to support clients’ ambitions of reducing CO2 emissions from oil and gas exploration and production to mitigate climate change.
For its part, Maersk Drilling has committed to cutting the carbon intensity of its operations by 50% by 2030. It is investing in battery power and digitalisation for its rigs to lower emissions, increase energy efficiency, while improving operational efficiency, lowering drilling campaign costs for clients.
All this makes good sense for the environment and the bottom line, noted Mr Madsen. “Our customers need to significantly increase the profitability of their drilling projects. And fortunately, profitability, efficiency and emissions reductions go hand-in-hand.”
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