In light of the increased social distancing and lockdown measures to address the spread of the novel coronavirus, several industry analysts expect that the oil price will continue to be between a record low US$20 and US$15 a barrel. It may even go lower. In spite of this, Senior Upstream Research Analyst at Wood Mackenzie, Luiz Hayum said that he and his colleagues believe that Brent Crude Price will end the year with at least US$40 a barrel.
During an interview with Guyana Standard, Hayum said, “We expect the Brent price to start recovering in Q3 (the third quarter of the year), and close the year with Brent around US$40/bbl and slowly recovering to US$50/bbl from 2023 onwards. If the US$20/bbl persisted for years, we would have new investment and future phases at risk. But as more expensive production is shut-in and crude demand recovers from the coronavirus crisis, prices should recover.”
With prices currently under US$20 a barrel, many observers have questioned whether it is still economically feasible for Guyana to continue oil production since the breakeven for Liza Phase one was projected by Hess Corporation to be around US$30. In this regard, an optimistic Hayum said that Guyana faces no chance at this point of being forced to shut in.
The consultant, “We’ve been using a different metric from breakeven as we see the US$20/bbl Brent price as a short-term issue but not sustaining for much longer. We’ve been using a Short-Run Marginal Cost (SRMC) to tell if producers are burning (too much) cash by maintaining their fields in operation. SRMC is the cost to cover operational expenditure, royalties and taxes.”
For Liza, Hayum said that it estimates that SRMC is close to US$10/bbl, which therefore means that Guyana’s Stabroek operation is in top shape to weather the storm brought on by coronavirus.
ABOUT BRENT CRUDE
Brent Crude is a major trading classification of sweet light crude oil. It serves as one of the two main benchmark prices for purchases of oil worldwide, the other being West Texas Intermediate. This grade is described as light because of its relatively low density, and sweet because of its low sulphur content.
Guyana’s crude is traded against the Brent Crude benchmark price. In mid-February, Guyana was able to get a Brent Crude price (US$55 a barrel) for one million barrels of oil that was sold to Shell’s Barbados subsidiary. But considering the prediction by Wood Mac as well as other reputable agencies, Guyana’s sweet crude is highly unlikely to make the billions of dollars in profits that were projected last year at US$60 a barrel.