The Oil and Gas Market Is Back to 1990s Again?

There are striking parallels between OPEC�s current situation and 1990s. During 1997-1999, OPEC lost the market control and the oil price slipped to below 10 USD/ barrel.

Whilst investors may wonder whether the markets will follow the same trajectory this time, it is important to remember that it was OPEC (Organization of Petroleum Exporting Countries) that emerged from that crisis to see the oil prices rebound to just about 150 USD/ barrel. If the history is repeating itself, OPEC would regain its control over oil prices.

Big OPEC members uplift production



In 1992, Venezuela had a growth surge that pushed its output from 2.2 million barrels/ day to 3.5 million barrels/ day. Saudi Arabia responded by raising its own production, the market becoming oversupplied. This time around, Saudi Arabia has hit record on output when pumping 10.6 million barrels/ day early this year, while Iran is planning to boost daily output by up to 1 million barrels next year after the sanctions are lifted.

Asia�s economic slowdown



In 1997, when OPEC lifted their production, Asia headed into the economic meltdown.The devaluation of the baht � the currency of Thailand in July that year, sparked a financial crisis that pushed Malaysia, Indonesia, Philippines, Singapore and Thailand into the recession. According to data from the International Monetary Fund (IMF), the group�s GDP decreased 8.3% in 1998 as compared to the average growth of 7.5% in the previous decade. This time around, Asia is not collapsing though, China is experiencing slowest expansion in 25 years.

�Ghost of Jakarta�



Back in 1997, at a meeting in the Indonesian capital, OPEC decided to raise production quotas just right in the time the Asian economic crisis began, making oil prices drop to as low as $10. Veteran oil ministers still refer to the �ghost of Jakarta� haunting OPEC�s decisions. Indonesia has now come back to the center of OPEC after this nation rejoined the group last week after suspending its membership in 2009.

El Nino

During 1997-1999, the oil slump is associated with El Nino that curbed demand for heating fuel. The ocean surface in the equatorial Pacific became warm, making fall and winter in the Northern hemisphere became milder than normal.

Back to 2015, El Nino has been becoming an issue of significant concern. The U.S and northern Europe�s heating oil stockpiles are high, potentially impacting the overall crude demand.

Naimi vs Zanganeh


al-Naimi (left), Bijan Namdar Zanganeh (right)

Just as they were around 2 decades ago, al-Naimi - the Saudi Arabian Minister of Petroleum and Mineral, and Bijan Namdar Zanganeh - Iranian Oil Minister, stand in opposition across the Vienna�s conference table. Both have a long history of working together in resolving oil gluts, but this time the differences loom larger. Saudia Arabia and Iran are standing in the conflicting position in Syria, Yemen and Iraq, which gets in the way of the oil business.

Political change in Venezuela


Hugo Chavez, President of Venezuela (1999�2013)

In 12/ 2008, Venezuela witnessed an abrupt political change when Hugo Chavez won presidential elections, opening a new era of socialism and creating the turning point for the oil and gas market. He joined Saudi Arabia in cutting the production, putting an end to a decade of increases, even though his policies slowly drove out of a number of the country�s foreign oil investors. After 16 years, the country�s crude production has fallen by 10%.

Early last week, the world has witnessed the change in political power in Venezuela when the opposition has won its first elections, taking a majority in Congress.

Cr: oil and gas manpower

Edited by vnrecruitment - 27 December 2015 at 10:54pm