Middle East spot crude premiums surge on Asian demand, ChinaOil buying

In Oil & Companies News 14/04/2015

Spot premiums for June-loading Middle East crude oil surged this week as Asian demand was expected to recover after the end of the peak refinery maintenance season and ChinaOil’s buying spree for June cargoes was causing a scramble for refiners to secure spot barrels, traders said.

Abu Dhabi’s Murban began trading in the June-loading cycle at a premium of about 70 cents/barrel to the grade’s official selling price, up from a premium in the 30s cents/b last month for May cargoes.

Itochu was heard to have sold a June Murban cargo to SK Energy at a 70 cents/b premium to the OSP, traders said.

Earlier, Japan’s Mitsui was heard to have sold a similar June cargo of Murban to Cosmo Oil at a premium in the low 50s cents/b last week.

Traders said part of the strength in Murban premiums comes from the cut in the flow of North Sea Forties blend crude to Asia.

BP plans to shut the Hound Point terminal’s VLCC jetty for maintenance from May 6 to June 8, a spokesman told Platts Wednesday.

Jetty number 1 is where VLCCs load on the North Sea to Northeast Asia route for Forties crude.

Its closures means Forties cargoes will have to find a home with local refiners during this period, given the higher costs of exporting crude on smaller vessel sizes than a VLCC.

Among medium-sour grades, SK Energy was heard to have bought a June cargo of Qatar Marine from Unipec at a premium of 50 cents/b to the grade’s OSP.

The Qatar Marine premium was also up from a deal at about 35 cents/b earlier last week.

Traders said ChinaOil’s buying of a number of June-loading medium-sour spot cargoes has increased competition among regional refiners to secure supplies, driving up spot premiums.

“Medium grade is very tight, it’s a seller’s market now,” said a trader with a North Asian refiner.

So far this month, ChinaOil has bought 19 June-loading cargoes in the Platts Dubai Market on Close assessment process.

These include 13 cargoes of Oman crude and six of Abu Dhabi’s Upper Zakum.

Under the crude partials trading mechanism, two companies must trade a physical cargo when a total of 20 Dubai partials have been exchanged during the same month in the MOC process.

The seller has the option to declare delivery of Dubai, Oman or Upper Zakum crude upon convergence of the 20 partials.

The buyer must accept the cargo nominated to it.

Source: Platts

Market awaits assay on Iraq’s Basrah Heavy crude despite publication of OSP

In Oil & Companies News 14/04/2015

Traders are awaiting information about the quality of Iraq’s new Basrah Heavy crude grade, despite the release of a new official selling price for the grade for May.

Iraq’s crude oil marketing organization SOMO issued fresh OSPs for its crude oil grades loading in May on Sunday, including the first-ever official selling price for its Basrah Heavy crude grade, due to load from the country’s southern export terminals in conjunction with the more traditional Basrah Light crude.

For cargoes destined for Europe, the price of the newer grade has been set at Dated Brent minus $8.45/barrel, a $3.45/b discount to Basrah Light at $5/b.

But market sources said the lack of information about the quality of the grade — its density, sulfur content and product yield — has limited the interest from European end-users for May cargoes.

“[Refiners] have asked them to give an indication of the API to show an interest in buying it, but [SOMO] hasn’t given out that information, so [they haven’t] been all that inspired to buy it,” a crude trader said.

“It really depends on the API,” another trader said. “If the API is 22 degrees, than [the OSP] is not good. If the API is closer to 24 or 25 degrees, it might be okay. Sixty cents does not cover the loss in quality of one API degree.”

“It is one thing to get an OSP,” a crude trader said. “It is another to know what you’re buying.”

Source: Platts

Saudi repeats would need cooperation to improve oil prices

In Oil & Companies News 14/04/2015

The cabinet of top oil exporter Saudi Arabia reiterated that the kingdom would not act alone in restoring the stability of the oil market and improving prices, state news agency SPA said after a weekly cabinet meeting.

“The cabinet renews in this context the kingdom’s affirmations that it remains willing to participate in restoring market stability and improving prices in a reasonable and acceptable manner,” the cabinet said in a statement.

“But this can only be with participation from major oil producing and exporting countries and it must be transparent,” the statement added.

The cabinet praised a conference in Riyadh last week at which Saudi Oil Minister Ali al-Naimi delivered the same message.

Its statement also repeated that Saudi Arabia does not use oil for political purposes against any country, and that it is not in competition with shale or other high-cost oil supplies.

“On the contrary, it welcomes all new energy sources which add depth and stability to the market,” the cabinet said.

Source: Reuters (Reporting by Reem Shamseddine; Editing by Andrew Torchia)

Rate of $55-60 is to remain for a long time

In Oil & Companies News 14/04/2015

There is not even a single positive sign indicating the possible improvement of the oil prices in the near future. The rate of $55-60 is to remain for a long time. Oil production is still at its peak and even a little higher after Saudi Arabia made announcements about maintaining production at 10.5 million barrels. Part of it will be required for meeting the local demand during summer season while ensuring to keep a firm grip on its global market share.

Oil prices are still within the range of $53-55 without any hope of increasing to $60 per barrel which is the market expectation. These prices are bound to remain for some time even though some oil analysts are predicting that the prices could fall to as low as $40 due to introduction of more oil into the market by Iran and Iraq, while Saudi Arabia is pushing for higher daily production of more than 10 million barrels.

Some kind of miracle or catastrophe is required for the oil prices to increase, such as an agreement among Iran, Russia and Saudi Arabia for joint production cuts.

The basic factors for any kind of price increase are currently nonexistent especially with too much oil supply and insufficient demand. Every oil-producing country is producing as much as they can and store with the hope that the prices will increase in the near future.

Anyone can read the oil market situation easily these days and understand that the availability is much more than any immediate demand, but that everything seems to be under control. No adjustments or modifications are required particularly since the political situations seem to be under control and the world seems to be getting used to a few skirmishes as long as there are no major obstacles to oil supply especially with the agreement reached between Iran and the western world.

The fact that the oil price is below $60 per barrel is bad news for the annual budgets of most OPEC countries especially with deficits in the current accounts, and their expenditures exceeding their oil revenues. These countries have to cut down their expenditures and borrow from international banks. The rigid bank conditions and regulations may require them to cut down governmental spending, ease their economies and opt for privatization.

Even though these were the same advices given when the oil prices were high, we now have to follow them the hard way. We have not yet learnt any lesson in the past 40 years to find alternative source of income besides oil. Our fathers had given us this advice, which we are now passing on to our children. The truth is that we have failed. Will our children be able to do something to improve the situation or will some miracle occur for the oil prices to bounce back to above $60 per barrel?

Source: Arab Times Online

Oil above $58 on U.S. shale output report, Mideast

In Oil & Companies News 14/04/2015

Crude oil rose on Tuesday after a forecast that U.S. shale oil output would record its first monthly decline in more than four years and on tension in Yemen, where top oil exporter Saudi Arabia is embroiled in a civil war.

Brent crude for May (LCOc1) was up 50 cents at $58.43 a barrel by 0815 GMT, while U.S. crude (CLc1) was up 60 cents at $52.51.

The U.S. Energy Information Administration (EIA) said on Monday it expected U.S. shale production to fall by 45,000 barrels per day (bpd) to 4.98 million bpd in May.

Shale production has helped boost U.S. oil output by more than 4 million bpd since 2010 and has been a key factor behind the collapse in world oil prices over the last year.

But much lower oil prices, down from above $115 a barrel last June, have now begun to hit exploration.

“It’s a small change, just a drop in the ocean, but an excuse to buy,” said Carsten Fritsch, analyst at Commerzbank.

“A lot of speculative financial investors think oil is cheap and are looking for a reason to get into the market.”

Oil also found support from tension in the Middle East, where fighting is continuing in Syria, Iraq and Yemen.

Yemen’s liquefied natural gas (LNG) plant said on Tuesday it declared force majeure due to deteriorating security and halted all production.

Yemen is a small oil producer, pumping only around 130,000 bpd of crude in recent months, but analysts fear its civil war could destabilise its northern neighbour, Saudi Arabia.

“Geopolitical risk in oil markets remains elevated,” JP Morgan analysts said in a note. “From a fundamental perspective however, supply from the Middle East is expected to remain high, with Saudi Arabia and Iraqi production on the rise.”

In Asia, China exported 750,000 tonnes of crude oil in March, its largest volume since 2006, in a possible sign the world’s second largest crude importer is running out of storage capacity.

Analysts also said that China’s demand growth would likely slow further.

“With China’s Q1 GDP figures about to be released tomorrow, we see very little upside even if prices move up today,” Singapore-based brokerage Phillip Futures said.

China’s economy is growing at its slowest pace in 25 years and its export sales contracted 15 percent in March, deepening concern over Chinese economic growth.

Source: Reuters (Additional reporting by Henning Gloystein in Singapore; Editing by Crispian Balmer)

Chinese steelmaking ready for an April rebound?

In Commodity News 14/04/2015

The outlook for China’s steel market during April remained at similar levels to March, underpinned by expectations of stronger construction activity during China’s warmer spring months, according to the latest Platts China Steel Sentiment Index (Platts CSSI), which showed a headline reading of 74.7 out of a possible 100 points.

The April index rose 2.4 points from 72.2 in the previous month, and was the highest reading since March last year. The CSSI reflects expectations of market participants for the month ahead.

A CSSI reading above 50 indicates an increase/expansion and a reading below 50 indicates a decrease/contraction.

The latest CSSI shows the seasonal aspect of China’s steel market as March and April in both 2014 and 2015 were by far the strongest months in terms of expectations of new orders, said Paul Bartholomew, Platts managing editor, steel & steel raw materials.

With Chinese New Year and the coldest winter months now out of the way, construction activity is expected to resume and help drive demand for steel.

There has been greater emphasis on domestic demand for steel in the past two months rather than exports, which China relied on heavily last year.

The crude steel production reading of 55.3 indicated the market expects output to remain at similar levels to last month. There was a big change in the outlook for steel inventories, with most industry participants expecting steel inventories to start declining after staying high for much of this year.

The monthly Platts CSSI is based on a survey of approximately 50 to 75 China-based market participants including traders, stockists and steel mill operators.

The survey of month-ahead sentiment is conducted during the last full working week of each month, with the results published via press release and Platts products and services before the 10th of the next month.

Platts began tracking steel sector sentiment in China in May 2013.

The Platts China Steel Sentiment Index survey plays no role in Platts formal price assessment processes.

Source: Platts

BHP, Rio Faulted by Barnett on Iron as Citigroup Sees $30s

In Commodity News 14/04/2015

The biggest iron ore miners including BHP Billiton Ltd. and Rio Tinto Group are pursuing a flawed strategy of boosting output into an oversupplied market and they should slow growth, the premier of Western Australia said.

“The signal’s going out to the market that there’s going to be ever-increasing amounts of iron ore available even at lower prices,” Colin Barnett said in an interview. “The market signal is wrong, and I believe the major companies have a flawed strategy. I don’t think it’s good business for them or their shareholders,” said Barnett, whose state includes the ore-rich Pilbara, where the bulk of Australian supply is concentrated.

Iron ore sank below $50 a metric ton this month as surging low-cost supply from Rio, BHP and Brazil’s Vale SA spurred a glut as China’s demand faltered. The federal government is contemplating a price as low as $35 in May’s budget, Treasurer Joe Hockey told the Australian Financial Review, while Citigroup Inc. and UBS Group AG cut forecasts. The slump is eroding government revenues in Australia and forcing smaller miners to shut, with Atlas Iron Ltd. saying on Friday it’s halting output.

“They should reschedule some of their production and give a signal to the market that yes, we’ll cater to iron ore demand and we’ll cater for growth, but we’re not going to flood the market,” Barnett said in Singapore on Sunday. “If Rio and BHP come to me in the future, they will have to seek rights to expand their projects. I might say ‘yes’, I might say ‘no’.”

Citigroup’s Outlook

Iron ore demand in China is declining while expansion plans by the biggest miners remain intact, Citigroup said in a report received on Monday that cut price forecasts into the $30s. The bank sees export supply growth of over 110 million tons in 2015, of which 68 million will come from Rio. UBS cut annual forecasts through 2019, according to its report on Monday.

BHP declined to comment specifically on Barnett’s remarks, while highlighting statements made by its executives. Jimmy Wilson, head of BHP’s iron ore unit, said last month that increasing production while improving efficiency was aiding Australia’s competitiveness. Cutting output would penalize shareholders as supply would be made up by others, Wilson said.

Rio flagged comments from Andrew Harding last month, when the iron ore chief executive said cutting supply or scaling back expansions wouldn’t be in shareholders’ interests. Chief Executive Officer Sam Walsh said in February if Rio reduced output, the forfeited supply would be made up by rivals.

Ore with 62 percent content at Qingdao advanced 2.7 percent to $48.82 a dry metric ton on Monday, according to Metal Bulletin Ltd. Prices declined to $47.08 on April 2, the lowest since 2005, based on daily and weekly data from Metal Bulletin and annual benchmarks for ore delivered to China compiled by Clarkson Plc. The commodity is 31 percent lower this year.

No Floor

Hockey’s outlook for prices as low as $35 compares with $60 in December’s budget update and would mean about A$6.25 billion ($4.8 billion) less revenue a year, the report said. There seems to be no floor, the newspaper cited him as saying.

Barnett, 64, led his Liberal-National coalition to power in 2008, and his administration approved the expansion of the iron ore industry as Chinese demand spurred exports and prices. Iron ore peaked at $191.70 a ton in 2011.

Citigroup cut its price forecasts through 2020 by as much as 50 percent, according to its report. Iron ore may average $45 this year, down from a previous forecast of $58, analysts led by Ed Morse wrote. The commodity will average $36 in the third quarter and $38 in the final three months of the year. UBS cut its 2015 forecast to $50 a ton from $59, citing rising output.

Weakest Pace

Global seaborne supply will expand 8.2 percent this year, outpacing demand growth of 3.9 percent, according to Morgan Stanley. China, which buys about two-thirds of the iron ore transported by sea, grew last year at the weakest pace since 1990 and will probably slow further in 2015.

China imported 80.5 million tons of iron ore in March, 18.5 percent more than February and 8.9 percent higher than a year earlier, according to customs data on Monday. The largest steelmaker buys from overseas to supplement local supplies.

Rio plans output of 330 million tons this year from 295 million in 2014, while BHP targets 225 million tons this fiscal year from 204 million. Vale expects to produce 340 million tons this year. Fortescue Metals Group Ltd. will maintain production at current levels of 165 million tons, Chairman Andrew Forrest told the Financial Review.

While BHP and Rio shares fell on Monday, they’ve still outperformed iron ore this year. BHP lost 2.4 percent to A$29.42 by the close in Sydney, paring this year’s gain to 0.2 percent. Rio dropped 2.8 percent to A$55.30, and is 4.7 percent lower in 2015. Fortescue slumped 35 percent this year.

“I do expect BHP and Rio to expand and have expansion plans, but not bringing it on too quickly,” Barnett said. “To bring on rapid expansion in a depressed market is just not good business. It’s not a good outcome.”

Source: Bloomberg