U.S. Deepwater Prospects Revealed Amid Worries Over Iran Reducing Output

Barclays notes that while the fears may be unjustified, deepwater projects are influencing crude prices anyway. File Image / Pixabay

Even though the justification often proves to be lacking, fear is a predominant driver of crude prices, and one worry occupying the minds of many traders is the prospect in the near term of significant supply being suddenly taken off the market.   

Michael Cohen, head of energy commodities research at Barclays, addressed this concern directly on Monday by telling Bloomberg television that two things drove oil prices last week: an inventory draw in excess of market expectations, and a general assumption that if U.S. president Donald Trump scraps the Iran nuclear deal, it will be accompanied by "some kind of reduction in Iranian [crude] supplies."

But he added, "I'm not so sure that that's the case: there's a lot of different things Iran can do to kind of skirt sanctions; in the past they've used more oil in their power sector, they've actually sent oil to different places that can take it, so there's wiggle room from their existing suppliers.

"But clearly the market is focused on that, and that's why we saw this divergence in equities in oil last week."

Presumably, traders who take declarations from politicians at face value would be further disturbed by Fuad Masum, president of Iraq, who, at a meeting with Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), stressed the "need to support the deal to cut crude oil supply."

Reuters noted that as the second largest producer in OPEC, Iraq has limited its output in line with the cartel's pledge to cut supply by about 1.2 million barrels per day (bpd).

One emerging solution to all this - which jittery traders would perhaps also view as a new point of concern - is the rise of deepwater oil: Bloomberg reported that Chevron Corp. is "studding the ocean floor with heavy-duty pumping gear as part of an effort to make deepwater oil discoveries competitive with shale," by forcing crude from newly-drilled wells in the deepest parts of the Gulf of Mexico to flow through miles of pipe to platforms built years ago.

Jay Johnson, executive vice president for upstream at Chevron, remarked, "So new areas like Anchor, Waterloo, Tiger, Gibson, Whale, Valleymore, we've got a portfolio of new discoveries waiting for development as we continue to bring these costs down.

"There are a lot of questions whether deepwater can compete, but things are changing in deepwater quite dramatically."

One country that seems blithely unconcerned about geopolitical tensions is Saudi Arabia, whose crown prince, Mohammed bin Salmon, recently agreed with Donald Trump that the Iran nuclear deal was "flawed" and then remarked that he sees a "stable" oil market ahead.