The Organization of the Petroleum Exporting Countries (OPEC)
agreed a deal at the end of November to curtail oil supply
for the first time in eight years following a ministerial
meeting in Vienna.
Iranian Oil Minister Bijan Namder Zanganeh said that OPEC
plans to reduce output to 32.5m barrels a day (bbl/d), compared
with an estimated average 33.64m bbl/day in October.
Prior to the official announcement, prices for crude oil rose
by as much as 8.8% in London following leaks of the news.
"The OPEC members have initiated a historic and long overdue
agreement which will help pave way to stabilise oil futures.
This decision will deliver a much needed market rebalance and
reduce oil supplies. Oil has risen about 7% today," said Mihir
Kapadia, CEO of UK-based investment management firm Sun Global
Investments, said at the time.
"As expected, OPEC is also very keen for non-OPEC members to
make a contribution of a 600,000 barrel reduction for the
benefit of the oil industry.
This is something that has to be respected and hopefully
adhered by the non-members as it is for the largest benefit of
all - something which cannot be burdened just on OPEC. We
expect oil prices to be on course towards $55 very soon which
has been our forecast for end-2016 since February when it was
trading at $28 per barrel," Kapadia added.
The deal includes an acceptance that Iran, as a special
case, will still be able to raise production.
Oil prices began a steady decline two years ago as the
sector has been plagued by oversupply.
The reduction in prices has resulted in a decline in rig
counts globally and particularly in North America, where less
profitable operations scaled back output.
OPEC has since 2014 failed to implement production caps,
following a pump-at-will policy.
In December last year, crude oil futures slumped to their
lowest point in nearly seven years following a meeting held by
OPEC, which failed to address production rates in an
According to the US Energy Information Administration (EIA),
crude oil production by OPEC is an important factor that
affects oil prices owing to production targets set for member
Impact on oilfield minerals
Among the materials used in the extraction of oil and
natural gas using the hydraulic fracturing (fracking) and
drilling processes are industrial minerals such as barite,
bentonite, silica (frac) sand, kaolin and bauxite.
The reduction in capex in the US oil and gas industry in
particular has severely impacted demand for oilfield minerals
over the past couple of years. While an increase in the number
of fracking stages and the re-fracking of old wells has offered
some respite, until oil prices lift, demand is unlikely to see
a substantial rebound.
More recently, proppant suppliers have pointed to signs of a
recovery in oil and gas, as while prices for both oil and frac
sand remain low, demand for proppants has shown an increase
from Q2 to Q3.
At the start of November, US Silica said the company
believes the market bottomed in the third quarter, with
indications of early stages of recovery.
"We’ve seen some stability in WTI pricing
driving subsequent growth in horizontal rig count," the
company’s CEO, Bryan Shinn, said at the time.
"Completion activity is picking up and our propriety models
indicate a 16% increase in working frac crews over the last 60
However, earlier this year participants at IM’s
4th Frac Sand conference in Minneapolis, US predicted that
oil prices would not recover until 2018 owing to excess
global supply and the huge global storage overhang, with new
supplies on the horizon further threatening the market
Shift in proppants
The downturn has also propagated a number of shifts in
proppant choices over the last few years. Oil and gas producers
have looked to increase production efficiency while cutting
costs, and ceramic proppant producers were the first to be hit
by the downturn as users looked to frac sand.
Since then, the sector has also seen a shift from premium
Northern White to brown sand for use in fracking, and while
some have argued that this is a temporary move, Preferred
Sands’ CEO, Michael O’Neill, does not
believe this is a reversible trend.
"You can’t mix all these proppants into the
same category," O’Neill told IM. "Ceramic
proppants were very expensive and it’s something
that producers experimented with and believed they needed, but
they weren’t getting better production."
"[Ceramic proppants] will become extinct,"
The shift from white to brown sand is also set to become a
permanent fixture of the market, as O’Neill noted
that the lowest oil and gas production is still exhibiting
"There is only a marginal difference between the best white
sand and a brady brown, so what producers found when they used
this sand was that the difference was so marginal that they
weren’t getting anything for the additional
dollars they were spending," O’Neill said. "The
move from white to brown sand? This is not a temporary move, if
producers can save money, it makes sense."
According to O’Neill, the shifts seen during
the current downturn have left behind a more streamlined oil
and gas sector, in addition to a more technically advanced
"Products that take route in this market are quality
products – they are effective in a $45 market, and
quality doesn’t have to mean expensive anymore,"
On the sand side, taking into consideration the small
difference between white and brown side, O’Neill
noted that producers need to have the lowest landed cost
instead, while on the technology side, the pressure on proppant
suppliers is to demonstrate a real return on product.
"Customers aren’t going to buy a story, they are
struggling in the market and they need to compete by taking
the same dollars and producing more from that," he said.
"It’s all accost game on the tech side, you need
to ensure you are creating huge additional production and
you’ve got to chase the cheapest barrel of oil."