Will OPEC lift production cut exemptions on Libya and Nigeria?

In Oil & Companies News 18/07/2017

OPEC’s technical advisory committee will meet on Saturday ahead of a full ministerial meeting next Monday. Will the meeting provide clues on whether OPEC plans to lift the exemptions on Libya and Nigeria from its production cut agreement? What’s supporting freight rates in the Asia Pacific? And will more Black Sea wheat be coming to Southeast Asia this week? Associate editor Jade Halford explores these and other topics that may impact Asia’s commodity markets this week.

In this week’s highlights, China to release data for June, the dry bulk market set to gain strength, and OPEC to consider including two more countries in its production cut agreement.

But the big news of the week is, China is due to release a slew of data for June across a range of commodities this week. It is also due to release its closely watched GDP data later on Monday.

Its oil data for June could show a further drop in domestic crude output, while its steel data is expected to show production hit a record high above 70 million tonnes in the month.

In nonferrous metals, China’s Xinjiang aluminium smelter is expected to announce output cuts this week. Anticipation of the cut has already boosted prices, and confirmation could provide further support.

In shipping, sentiment is set to be further boosted this week by summer coal demand in China. With most Chinese-flagged vessels engaged in moving domestic coal to demand centers, rates for other vessels in the Pacific are set to rise further.

Demand to move grain cargoes in the Atlantic is also supporting Panamax freight rates.

For insight into how to mitigate risks in a low-transparency shipping environment, we are holding a shipping and freight risk workshop with RPC Premier Law on Wednesday. Visit Platts.com/events for details.

Now, back to the markets.

The Asian LNG market is awaiting the results of key sell tenders from Indonesia’s Tangguh and Bontang projects this week. They are offering a total of nine cargoes for delivery later in the year. These prices will provide an indication of market fundamentals for the coming winter.

In the Philippines, the government has received proposals from China, Japan, Indonesia, South Korea and Russia to co-develop an LNG hub, which it targets launching by 2018.

In petchems, the Asian monoethylene glycol market is expected to pick up in the second half of this year amid healthy downstream demand in China.

In agriculture, wheat traders will be watching to see if more Black Sea milling wheat will head to Southeast Asia this week. This comes after the Australian premium white wheat price surged to a fresh record high last week.

And finally, in oil, OPEC’s technical advisory committee will meet on Saturday ahead of a full ministerial meeting next Monday. Traders will be watching both events closely for clues on whether OPEC plans to lift the exemptions on Libya and Nigeria from its production cut agreement.

So, our big question this week is, will OPEC cap Libya and Nigeria’s production and, if so, at what levels?

Source: Platts

Asia-Pacific Crude-Sept premiums for Australian supplies hold steady

In Oil & Companies News 18/07/2017

The Asia-Pacific crude market stayed firm on Monday with more Australian grades being sold at steady premiums from the previous month. *AUSTRALIA: Firm demand for ultra light sweet oil in Asia supported North West Shelf (NWS) condensate’s value. Chevron has sold a cargo loading on Sept. 26-30 at a premium of $1.50-$1.90 a barrel to dated Brent, traders said. For heavy sweet crude, Quadrant Energy has sold one of the two Pyrenees cargoes loading in September likely at a premium close to $2 a barrel. The buyers of these cargoes were not immediately available. *BRENT-DUBAI EFS: September Brent’s premium to Dubai swaps was at $0.85 per barrel, up 5 cents. *TENDERS: Pertamina bought from Shell a Rabi Blend crude cargo for September delivery to Balongan. This is the Indonesian refiner’s second purchase of the Gabon crude for September.

Taiwanese refiner CPC has bought its first cargo of Qatar’s deodorised field condensate to be delivered to its new splitter in September, trade sources said. Mitsui likely sold the cargo. The splitter is still undergoing trial runs and is able to process a mix of light crude and naphtha.

COUNTRY/COMPANY GRADE VOL CLOSE LOADING DATE (VALID)

MALAYSIA/PETRONAS s:Muda 300KB July 20 Sept 24-30 condensate (July 21)

INDONESIA/PERTAMINA s:Senoro 200KB July 17 August 18-19 condensate (July 19)

ABU DHABI/ADNOC b:Condensate 500-700KB July 11 September CFR (July 20) Ruwais

VIETNAM/PV OIL s:Chim Sao 3*300KB July 13 September 2-6, (July 18) 15-19, 26-30

QATAR/QP s:DFC/LSC NA July 18 September (July 19)

TENDERS AWARD

COUNTRY/COMPANY GRADE VOL COUNTERPARTY LOADING DATE /PRICE

*INDONESIA/PERTAMINA b:Rabi Blend 600KB Shell September 20-21 CFR Balongan

*TAIWAN/CPC b:DFC 500KB Mitsui September delivery

*INDONESIA/PERTAMINA b:NWS 3*650KB DTD above August 30-31, condensate +$2 C&F September 9-10, 18-19 CFR Tuban

ARBITRAGE

India’s Bharat Petroleum Corp has made its first purchase of U.S. oil, buying high sulphur crudes Mars and Poseidon in a tender, its head of refineries R. Ramachandran said. BPCL has bought a cargo containing 500,000 barrels each of Mars and Poseidon for delivery from Sept. 26 to Oct. 10. A trade source said BPCL has bought the cargo from Shell. Traders in the North Sea oil market have found a solution to the persistent overhang of unused barrels as Asia’s hunger for crude is prompting its suppliers to get creative and provide some unusual exports. Shell booked supertanker Olympic Leopard to load UK’s Forties and Russian Urals.

The oil major is also taking the first cargo of Brent to Asia in over a decade, traders and Reuters shipping data showed. NEWS Total declared force majeure on exports of Djeno crude oil in the Republic of Congo following a ship collision, traders said on Friday. Shell’s Nigerian subsidiary declared force majeure on Bonny Light crude oil exports effective on Thursday, the company said in a statement on Friday, after the Nembe Creek Trunk Line was shut down, one of two pipelines transporting the grade. China’s oil refineries increased throughput in June to their second highest on record, with some independent plants raising output even as state oil majors prepare to take drastic steps to cut production during the peak summer season.

Source: Reuters (Reporting by Florence Tan; Editing by Vyas Mohan)

Middle East Crude-Robust demand from Shell supports Sept al-Shaheen

In Oil & Companies News 18/07/2017

The Middle East crude benchmarks stayed firm on Monday with Oman slightly stronger, while Shell’s robust demand for al-Shaheen underpinned the crude’s value in Qatar Petroleum’s tender. TENDERS: Qatar Petroleum sold five al-Shaheen cargoes at an average discount of 59 cents a barrel below Dubai quotes, against minus 93 cents last month. Shell bought at least three cargoes, while ExxonMobil purchased one, traders said. Taiwanese refiner CPC has bought its first cargo of Qatar’s deodorised field condensate to be delivered to its new splitter in September, trade sources said. Mitsui likely sold the cargo. The splitter is still undergoing trial runs and is able to process a mix of light crude and naphtha.

COUNTRY/COMPANY GRADE VOL CLOSE (VALID) LOADING DATE

**BAHRAIN/BAPCO s:Banoco AM July 18 (July Sept 21)

INDIA/BORL b:sour July 18 (July Sept 2-12 arr 20)

INDIA/MRPL b:sour 1000KB July 18 (July Sept 1-15 20)

INDIA/BPCL b:sour July 17 (July Aug-Sept 19)

QATAR/QP s:DFC/LSC NA July 18 (July September 19)

SRI LANKA/CEYPETCO b:Murban 700KB July 19 (72 Oct 16-20 arr hours)

SRI LANKA/CEYPETCO b:Murban 700KB July 19 (72 Sept 28-Oct 2 hours) arr

SRI LANKA/CEYPETCO b:Murban 700KB July 19 (72 Sept 10-14 arr hours)

TENDERS AWARD

COUNTRY/COMPANY GRADE VOL COUNTERPARTY/P LOADING DATE RICE

*QATAR/QP s:al-Shaheen 5*500-600KB Shell, Exxon Sept 1-2,13-14, Dubai -59 c/b 15-16,16-17, avg 21-22

*TAIWAN/CPC b:DFC 500KB Mitsui September delivery

*INDIA/IOC b:Basra Lt 2000KB H2 Sept

*INDIA/BPCL b:Oman 1000KB Dubai -70-80 Aug 16-Sept 5 c/b loading; Sept 26-Oct 15 arr

*INDIA/BPCL b:Mars + 2*500KB Shell Sept 26-Oct 15 Poseidon arr

*JAPAN/FUJI OIL b:Qatar Land 2*500KB P66 OSP +10-15 Sept c/b

TRADES: Petro-Diamond has sold a September-loading Upper Zakum at a Dubai-linked price to an unknown buyer. WINDOW: Shell remained the sole buyer of September Dubai partials as it picked up another six from Total, Lukoil and Unipec on Monday. Cash Dubai’s discount to swaps was at 56 cents, 1 cent wider than Friday.

Seller-Buyer Price

Total-Shell 47.70

Lukoil-Shell 47.70

Total-Shell 47.70

Total-Shell 47.70

Total-Shell 47.70

Unipec-Shell 47.65

PRICES ($/BBL) CURRENT PREV SESSION

DME OMAN 47.78 47.01

DME OMAN DIFF TO DUBAI -0.43 -0.55

CASH DUBAI 47.65 47.01

ARBITRAGE

India’s Bharat Petroleum Corp has made its first purchase of U.S. oil, buying high sulphur crudes Mars and Poseidon in a tender, its head of refineries R. Ramachandran said. BPCL has bought a cargo containing 500,000 barrels each of Mars and Poseidon for delivery from Sept. 26 to Oct. 10. A trade source said BPCL has bought the cargo from Shell.

Traders in the North Sea oil market have found a solution to the persistent overhang of unused barrels as Asia’s hunger for crude is prompting its suppliers to get creative and provide some unusual exports. Shell booked supertanker Olympic Leopard to load UK’s Forties and Russian Urals.

The oil major is also taking the first cargo of Brent to Asia in over a decade, traders and Reuters shipping data showed. NEWS Total declared force majeure on exports of Djeno crude oil in the Republic of Congo following a ship collision, traders said on Friday.

Shell’s Nigerian subsidiary declared force majeure on Bonny Light crude oil exports effective on Thursday, the company said in a statement on Friday, after the Nembe Creek Trunk Line was shut down, one of two pipelines transporting the grade. China’s oil refineries increased throughput in June to their second highest on record, with some independent plants raising output even as state oil majors prepare to take drastic steps to cut production during the peak summer season.

Source: Reuters (Reporting by Florence Tan; Editing by Amrutha Gayathri

Oil prices ease on signs of steady output from some producers

In Oil & Companies News 18/07/2017

O

il prices were about 1 percent lower on Monday as investors continued to await strong indications that an OPEC-led effort to drain a glut was proving effective but output increases in some top producers eased, keeping losses in check.

Libya’s national oil production stood at 1.03 million barrels per day (bpd), little changed from its level since the end of last month, an oil industry official said.

U.S. drillers added two oil rigs in the week to July 14, bringing the total to 765, Baker Hughes (BHGE.N) said on Friday. RIG-OL-USA-BHI Rig additions over the past four weeks averaged five, the slowest pace of growth since November.

Still, U.S. shale oil production was forecast to rise for the eighth consecutive month, climbing 112,000 barrels per day (bpd) to 5.585 million bpd in August.

Key technical indicators are bullish, however, with prices rising above the short-term 50-day moving averages, traders said.

Brent crude LCOc1 fell 49 cents, or 1 percent, to settle at $48.42 a barrel. U.S. crude CLc1 ended the session 52 cents, or 1.1 percent lower at $46.02. Prices had earlier touched their highest since July 5.

“The idea of higher production levels, particularly in the U.S., Libya and Nigeria … I think that seems to have been priced in for the moment,” said Gene McGillian, manager of market research at Tradition Energy.

“I am skeptical. I think the market has bounced but it’s having trouble finding traction to move higher probably because some the drop off in inventories are likely due to gasoline demand picking up.”

A sharp drop in U.S. crude inventories in the week to July 7 supported prices last week. [EIA/S] But crude stocks in industrialized nations remained high, putting a brake on the oil price rally. [IEA/M]

“The market is not doing too much today – it feels like wait and see,” said Olivier Jakob of oil analyst Petromatrix. “There is some rebalancing in products, but overall the layers of stocks are still very large.”

U.S. gasoline margins RBc1-CLc1 rose to the highest since April 24 amid signs of improved demand and inventory declines, traders said.

Oil prices are less than half their mid-2014 level because of a persistent glut, even after the Organization of the Petroleum Exporting Countries with Russia and other non-OPEC producers cut supplies since January.

While OPEC-led cuts have offered prices some support, rising supplies from Nigeria along with Libya, two OPEC states exempt from the pact, and increasing U.S. production have weighed on the market.

Kuwait said on Friday the market was on a recovery track due to rising demand and said it was premature to cap Nigerian and Libyan output. An OPEC and non-OPEC committee meets in Russia on July 24 to discuss the impact of the deal.

In a sign of strong demand, data on Monday showed refineries in China increased crude throughput in June to the second highest on record. OPEC is hoping higher demand in the second half will drain excess inventories.

Source: Reuters (Devika Krishna Kumar; Additional reporting by Alex Lawler in London, Henning Gloystein; Editing by David Clarke and Andrew Hay)

Oil Skeptics Let a Little Sunshine In

In Oil & Companies News 17/07/2017

Oil skeptics are letting a little sunshine in.

After the worst June for oil in six years, hedge fund bets on declining West Texas Intermediate retreated. That made room for futures to rebound more than 5 percent last week on optimism that the summer will finally boost demand for crude and gasoline.

“The market is starting to recognize that demand is a little better than what has been the consensus view so far this year,” Matt Sallee, who helps manage $16 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas, said by telephone.

While doubts persist that the Organization of Petroleum Exporting Countries and its allies will manage to bring the oil market back to balance anytime soon, the mood improved as the International Energy Agency said world demand is climbing faster than initially estimated. Meanwhile, Libya and Nigeria may be asked to join the other members of OPEC in capping output, according to Kuwait’s oil minister.

In the U.S., data from the Energy Information Administration showed crude and gasoline stockpiles shrinking.

Hedge funds increased their WTI net-long position, or the difference between bets on a price increase and wagers on a drop, by 19 percent to 178,654 futures and options over the week ended July 11, the sharpest increase in seven weeks, according to data from the U.S. Commodity Futures Trading Commission. The improvement was entirely due to a 21 percent retreat in shorts, more than offsetting a 2.1 percent decline in longs.

The mood has been largely set by big swings in bearish wagers over the past months, with bullish bets not increasing more than 5 percent in any week since January.

Bets on the benchmark U.S. gasoline contract flipped to a net-bullish position for the first time since early June. The net-position on diesel was the least bearish in five weeks.

Investors are “starting to see, not necessarily full conviction, but a little bit more optimism about some of the developments in the market, even though the overall tone is clearly still bearish. It’s kind of going from bad to a little less bad,” Tamar Essner, an energy analyst at Nasdaq Inc. in New York, said by telephone. “The shorts were at very high levels. We knew that that wasn’t going to be sustainable.”

WTI closed at $46.54 a barrel on Friday after edging higher each day of last week. Stuck below $50 since May, the U.S. crude benchmark is still down 13 percent for the year and worth less than half its price three years ago.

“For the near-term, oil is in a $40-$50 a barrel range. As you get toward the low end of that range, you see shorts close out,” Sallee said. “Your risk-return is kind of skewed against you if you are on the short side and on the lower end of that range.”

Last week, EIA data showed U.S. crude stockpiles slid by 7.56 million barrels, the biggest decline since September, in the week ended July 7. Gasoline supplies fell for a fourth straight week, tumbling to the lowest level since December, and demand increased by 81,000 barrels a day.

“Perhaps, the worst is behind us,” Stewart Glickman, an energy equity analyst at CFRA Research in New York, said by telephone. “It doesn’t mean necessarily that we are on the verge of a V-shaped recovery. You can bounce along the bottom for quite a while.”

Source: Bloomberg

The Next Oil Boom Could Be Here Sooner Than You Think

In Oil & Companies News 17/07/2017

Despite the support of OPEC, crude prices remain in the doldrums again this year. While many initially expected that oil would stay in the mid-$50s, it has fallen well short of those forecasts, spending most of the year in the $40s. Driving down prices has been a combination of weaker demand growth and unexpectedly robust production from U.S. shale producers as well as Libya and Nigeria, which are both exempt from OPEC’s output cuts.

That said, the longer oil stays lower, the greater the risk it rockets higher in the future. That’s because weaker pricing continues to cause producers to curb long-term investment. In fact, the industry has deferred or delayed $2 trillion of oil projects due to pricing. It’s a situation that might cause an oil supply shortage as early as 2020, which could send prices higher.

Sounding the alarm

Earlier this year, the International Energy Agency (IEA) put out an update to its five-year oil market forecast. The IEA’s conclusion was that “global oil supply could struggle to keep pace with demand after 2020, risking a sharp increase in prices, unless new projects are approved soon.” It’s not alone in issuing a warning to the industry that it needs to start green-lighting new oil projects. One of the most recent voices of concern came from Mark Richard, who is a senior executive for oil-field services giant Halliburton (NYSE:HAL). He recently told the World Petroleum Congress that “the market is going to catch up… you’ll see some kind of spike in the price of oil. Maybe somewhere around 2020-2021, but it’s got to catch up sooner or later.”

Two factors are fueling this concern. First, global oil demand continues to expand. In fact, after a weak first quarter where it only grew by 1 million barrels per day (MMbpd), the IEA noted that demand growth accelerated to 1.5 MMbpd in the second quarter. That led the agency to boost its full-year demand forecast by 100,000 bpd to 1.4 MMbpd, with expectations that the market will expand by another 1.4 MMbpd next year and reach an average of 99.4 MMbpd. Overall, the IEA doesn’t expect oil demand to stop expanding until 2040, though growth in the future should come at a slower pace.

Meanwhile, global crude supplies from legacy fields continue to decline and deplete. According to a study by Bank of America Merrill Lynch, the output from the average oil field outside of OPEC drops by 5% per year. Consequently, the industry needs to add 2.8 MMbpd of new supply just to replace this lost production. When you add in demand growth, the gap widens.

Shale can’t rescue the market

While surging output from U.S. shale plays will help fill some of that gap, it alone can’t plug that hole. According to the IEA, if oil averages $60 per barrel, shale drillers could potentially add 1.4 MMpbd of new supply per day by 2022. Fueling that growth are companies like EOG Resources (NYSE:EOG) and Pioneer Natural Resources (NYSE:PXD), which thanks to their low costs, can expand output at a brisk pace even at lower prices. In EOG Resources case, it could grow its oil production by 25% annually through 2020 at $60 oil. Meanwhile, Pioneer Natural Resource can increase its oil equivalent production by a 15% annual rate for nearly a decade at $55 oil. That said, other shale drillers need higher oil prices to drive that level of growth, which is why the IEA thinks that the industry could expand production by 3 MMbpd barrels per day by 2022, topping 7 MMbpd, if oil climbed to $80 a barrel.

However, with demand expected to reach 104 MMbpd by 2022, the industry needs more than just shale. The problem is that other oil projects take much longer to develop. While EOG Resources can turn a shale well into production in a matter of months, a large offshore project takes years and billions of dollars to develop. For example, Chevron (NYSE:CVX), Hess (NYSE:HES), and other partners are developing the Stampede deepwater project in the Gulf of Mexico. Initially sanctioned in 2014, the Hess-operated project won’t deliver first oil until next year, though at its peak, the $6 billion oil project should produce about 80,000 bpd.

Given that long lead time, major oil producers like Chevron will need to sanction additional long-term oil projects to meet the market’s anticipated demand early next decade. That said, given where oil is right now, producers are reluctant to make those commitments until they can get costs down. Because of that, Halliburton’s Richard stated that the timing of new project approvals “depends how quickly we can get to those price points [down] and how quickly our customers are able to see that their investment is going to be solid for the long term.”

That’s what Chevron is trying to do with its Rosebank project in the U.K. North Sea. The oil giant was initially on track to approve the $10 billion project in 2013, but it put those plans on hold due to rising costs. Chevron is now working on a scaled-down version that it hopes to sanction by 2019. However, even if it meets that accelerated timeline, the project still wouldn’t produce a drop of oil until 2022. That long lead time means that the industry is going to have to look at approving more medium-term projects just to ensure that it has the oil it needs come 2020, when supplies could really start to tighten.

Investor takeaway

Oil might be down right now, but it doesn’t look like it will stay there forever. Steady depletion of legacy fields, when met with consistent demand growth, could cause a growing shortfall in just a few years. That could push prices exponentially higher unless the industry starts approving more major projects that would come on line in a few years when the industry will need the supply. That forecast suggests that low-cost oil producers could thrive in the years ahead, which is why investors should consider parking some money in the oil patch.

Source: Motley Fool

Oil markets are cyclical — eventually they will rebalance

In Oil & Companies News 17/07/2017

This was an eventful week for oil markets. The great and good of the industry congregated at the 22nd World Petroleum Congress (WPC). The discussion was about the general state of the oil industry, electric vehicles, renewables, and when oil markets will finally balance.

The monthly oil reports from the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) were published. They threw a spanner in the works of optimists who hoped for higher oil prices. The commodity has slid 17 percent since the beginning of the year.

In December, OPEC and 10 non-OPEC countries agreed to cut production by a combined 1.8 million barrels per day (bpd). OPEC compliance was high, exceeding 100 percent at times. The IEA report said compliance had fallen to 78 percent in June, mainly due to unexpected increases in production by Nigeria and Libya. Both countries were exempted from the production cuts, reflecting their difficult internal political situations.

Over the last few months, they increased production by a combined 700,000 bpd, according to OPEC and the IEA. On the back-end of these reports, markets failed to react positively to a larger-than-expected 7.7 million barrel draw in US crude stocks. The price for Brent stood at slightly above $48 in Thursday midday trading.

What is new is that market participants seem no longer to be solely preoccupied by the increase in US shale production and US crude inventories, but increasingly worry about higher production from Nigeria and Libya.

Black swans

The Nigerian and Libyan production increases exceeded all expectations. This will be discussed at the Joint Ministerial Monitoring Committee (JMMC) overseeing the deal later this month in Moscow. The magnitude of production increases came as a surprise, but there is an element of unpredictability as to how they will be sustained, especially in Libya, where the political and security situations are fluid.

There are other surprises indicating higher production, such as the projected increase in Canadian production by 590,000 bpd in 2017/18. There are bound to be more unforeseen developments in other parts of the world. There may also be surprises indicating lower production. For instance, it is difficult to have visibility of political developments in Venezuela and how this will impact oil production over the next few months.

Balancing any market has two sides to the equation: Supply and demand. The demand picture looks positive. Different sources predict increases of about 1.2-1.5 million bpd for both 2017 and 2018. The economies of Europe, the US, China and India are humming, which is always good for demand.

There was a lot of talk of switching to electric vehicles at the WPC. This may be, but this is a longer-term phenomenon because it requires a substantial infrastructure build. The emerging middle classes in China and India expect to purchase and drive cars now. These vehicles will be gasoline-powered. The IEA has furthermore pointed out that the electronic-vehicle revolution has so far not reached the freight market, which is substantial.

In the medium term, we should probably look at the impact of investment cutbacks over the last few years. International oil companies cancelled billions of dollars of planned investments due to persistently low oil prices. This is a problem because oil fields have a limited lifespan and conventional oil is an ultra-long-cycle business.

A dollar invested in conventional oil today will result in production three, or more likely seven to 10 years from now. Sooner or later this lack of investment will start to bite. Assuming projected demand patterns, we may see shortages down the road. As we are dealing with long lead times, producers will not be able to just turn on the tap.

Cyclical markets

All of the above shows that oil markets are cyclical. They have always been, and will always be. OPEC plays the long game. It has to if it wants to fulfil its mandate and ensure markets are adequately supplied.

There are now also more non-OPEC players than before, both in the conventional and non-conventional (shale / tight oil) space. This is the context in which OPEC’s secretary-general said in Istanbul that all producers had to cooperate to get markets into balance.

BP CEO Bob Dudley told CNBC recently that the market was in balance on a daily basis, but the huge inventory overhang was looming large. He may have had a point, but markets are inherently psychological and short-term. At this point, their mindset is to look at supply rather than demand, which is why they react so sharply to any incremental production rise.

Source: Arab News

Kuwait Says Oil Supply-Cuts Deal Is ‘Working Well’

In Oil & Companies News 17/07/2017

Crude oil inventories will decline at a faster pace worldwide in the second half of the year as demand increases and OPEC members comply better with a global agreement to cut output, Kuwait’s OPEC Governor Haitham al-Ghais said.

The Organization of Petroleum Exporting Countries and other major producers including Russia agreed in May to extend their supply-cuts deal through March 2018 because stockpiles hadn’t fallen to their five-year historical average — the goal of the agreement. Yet for the past two weeks, U.S. crude inventories have declined, exceeding analyst expectations.

“I see this trend continuing with more conformity from OPEC and non-OPEC producers, coupled with a further growth in demand,” said al-Ghais, who was appointed Kuwait’s OPEC governor last month. It would be “illogical” for OPEC to change strategy now, he said in a phone interview in Istanbul. Kuwait leads the committee monitoring the output curbs.

OPEC’s compliance with the supply cutbacks fell in June to the lowest level since the deal started in January, the International Energy Agency said Thursday. Rising production from OPEC is threatening a re-balancing of the market, with the group’s output last month at the highest level this year, the IEA said. Benchmark Brent crude prices have slumped this year amid concerns that increased supply from Libya, Nigeria and the U.S. is negating the impact of OPEC’s cuts.

Unwarranted Concerns

Concerns that supplies will keep climbing in Libya and Nigeria, both exempt from the cuts deal, are “not justified” because their production is fluctuating within a range of 300,000 to 500,000 barrels a day on average, al-Ghais said. “We need to see if these increases will be sustained and stable,” he said.

Libya’s production has risen to 1.05 million barrels a day, a person with direct knowledge of the matter said Wednesday. That’s the highest level since June 2013, according to data compiled by Bloomberg. Nigeria is producing 1.7 million barrels a day, Minister of State for Petroleum Resources Emmanuel Kachikwu told reporters Wednesday. The nation’s output has climbed 17 percent this year, data compiled by Bloomberg show.

Libya and Nigeria were invited to send representatives to the next meeting of the OPEC and non-OPEC Joint Technical Committee in Russia later this month to discuss their production, according to al-Ghais, who chairs the committee. He is also head of research at Kuwait Petroleum Corp.

“OPEC is interested in knowing more about the situation in its member countries and their attendance doesn’t mean that OPEC is concerned by their recovery,” he said.

The committee reviews conditions in the market and sends findings to the Joint Ministerial Monitoring Committee led by Kuwait’s oil minister.

The supply-cuts deal is “working well,” and there is no need to take further action at this time, al-Ghais said. OPEC needs to “focus on its longer-term goal to lower oil stocks and balance the market,” he said.

Source: Bloomberg

Saudi Arabia’s worst-case oil scenario might surprise you

In Oil & Companies News 17/07/2017

Saudi Arabia might not be as frustrated as one would expect by the oil market’s weakness in the face of a coordinated cut by major global crude producers.

The Saudis are playing a longer game, write analysts at RBC Capital Markets, in a Thursday note. That’s because the key elements of the country’s ambitious Vision 2030 program to wean its economy off oil are 2018 events, notes Helima Croft, RBC’s global head of commodity strategy. That includes the crucial partial listing of state-owned Saudi Arabian Oil Co, known as Saudi Aramco, which could value the firm at as much as $2 trillion.

“This may well explain the lack of urgency to rescue prices this summer and instead, letting the current cut run its course and thus leaving the option to cut more in the tank,” Croft wrote.

In fact, the Saudis may be wary of a scenario in which a 2017 oil rally “destroys the 2018 recovery by facilitating a flood of production from the U.S. Hence, there may be a real advantage in waiting and keeping some moves in reserve,” Croft said.

Brent crude the global benchmark, is down more than 15% year to date, while West Texas Intermediate the U.S. benchmark, is off 14.6%. Both are up by more than 3% this week, however, buoyed in part by a sharp fall in U.S. crude inventories.

Crude’s 2017 slide has been a disappointment for bulls who expected oil to be underpinned by the agreement by the Organization of the Petroleum Exporting Countries and other major producers struck last year and extended this spring to curb production.

Croft’s colleague Michael Tran argued that the Saudis must avoid a replay of the past six months when “U.S. production elasticity proved to be the biggest downside driver of oil prices.” A material price rally that triggers another round of hedging by U.S. producers (see chart below) “is the worst-case scenario for the Kingdom given that it would return U.S. producers to an anti-fragile and price-agnostic state, opening the door for lower prices next year at a time when the Saudis need visibly higher prices the most,” Tran wrote.

In other words, a big rally now would give shale producers the opportunity to lock in those higher prices and maintain or boost production into next year.

Still, events could overtake the Saudis, Croft noted, should increased output by Libya and Nigeria, which have been exempt from the deal on production curbs, prove sustainable heading into the fourth quarter.

That could force Saudi Oil Minister Khaled al-Falih to make good on a May pledge to make more cuts to make room for the volatile producers, she said, while noting that a better outcome would be for the Saudis to find a way to bring the two countries into the production agreement given the lighter grades of crude they produce and the stronger signal such a move would send about “shared OPEC responsibility.”

Source: MarketWatch

The Mystery Behind OPEC’s Meeting With Shale Oil Producers

In Oil & Companies News 17/07/2017

The Secretary General of OPEC, Mohammad Barkindo, said today that the cartel he oversees, “has broken the ice in reaching out to shale producers in the U.S.” The announcement came as a surprise, since many have assumed that OPEC and shale producers are engaged in a prolonged battle in the oil market. Barkindo revealed that he and key shale oil producers met on the sidelines of this year’s World Petroleum Congress in Istanbul, Turkey.

He said the meeting was useful and productive. It is believed that the OPEC and the shale industry began talking in March at CERAWeek, an annual energy conference in Houston. Reports are that OPEC seeks further, more serious conversations with U.S. shale producers.

Barkindo’s statements leave much mystery. First, there is no unified entity of U.S. shale producers. Individual corporations operate shale wells in the U.S. Some are small wildcatters, some are giants like Royal Dutch Shell and some are in between. They generally all belong to trade organizations such as API, but these do not set production policy. Harold Hamm, the most prominent personality in U.S. shale and the CEO of Continental Resources CLR +1.74% for 40 years, does not and cannot collude with other producers like EOG Resources EOG +1.56%, ExxonMobil XOM +0.01%, Pioneer Natural Resources PXD +0.34% or a tiny wildcatter. He may wish to collude to decrease production, but U.S. antitrust laws forbid this.

In the past, the U.S. has permitted coordination between oil companies for specific causes , such as supplying allied efforts during World War II and negotiating with OPEC over oil prices in 1973. Even if the U.S. government were to grant an exemption today for shale producers to collude along with OPEC and others (Russia, most prominently), cooperation by the large shale firms alone may not be enough control production or raise the price of oil. U.S. shale production is simply too fragmented with too much production by small firms. The small producers, in particular, are too financially precarious to decrease production; they have creditors and anxious investors on Wall Street to face. If the price of oil were to rise, small producers would be even more eager to take advantage of high prices and produce. U.S. shale producers—particularly small ones—face too much debt to abide by any production cut agreement, even if the government permitted it.

Some wonder if Barkindo and OPEC representatives are talking to U.S. shale producers to learn more about the shale business . OPEC, as an organization, wants to understand a prominent competitor. Shale is part of the reason OPEC has not been able to raise prices over the last eight months, despite production cuts. In addition, OPEC nations must be interested in partnerships with experienced shale enterprises as they look more and more and exploiting this aspect of their natural resources.

The real questions raised by Barkindo’s comments are best answered by the unknown U.S. shale producers in these meetings. Which producers are talking to OPEC? What are they discussing? Do they discuss oil production levels? Do they discuss oil prices?

Source: Forbes

US shale to ‘attack’ OPEC oil customers

In Oil & Companies News 17/07/2017

By 2018, US shale oil will become one of the top ten exporters of oil in the world. Its export volume could reach more than 2,800 million barrels per day. It could become the highest exporter of oil to the United Kingdom, which is higher than any of OPEC member, by 2020.

Since the arrival of shale gas and then oil, USA has become aggressive in penetrating all nearby markets. It started by exporting gas to the UK, and eventually will to other potential markets in the Far East such as South Korea and Japan.

We should not be surprised if we witness the arrival of USA gas to our country, if it is competing with other suppliers in the world including our gas-rich neighboring countries like Iraq, Iran and Qatar. Their suppliers might also reach Saudi Arabia, Bahrain, and even the United Arab Emirates.

In 2015, the Obama administration had approved export of oil, after 40 years of embargo on crude oil exports. Now with the increased availability of shale oil, American refineries cannot take additional sweet crude. US refineries were built to run middle and heavy types of Middle-Eastern, Venezuelan, and Canadian crude oils, making them sell the light crude oil, and import more than 8 million barrels per day.

The impact of US’s export of oil will be more on OPEC countries with sweet light crude oil, mostly African countries like Nigeria, Algeria, and Libya. They will be forced to resort to the developing Asian countries, creating huge competition which will in turn push the oil prices further down.

The oil market is very open now. The USA is likely to reach more than 10 million of local production by next year. Its export of sweet crude oil will be increasing gradually to the core markets of OPEC and Russia in Europe.

The export facilities are ready for the export of more than 2.7 million barrels per day from next year. The US government’s funds will be very happy in supporting such a business opportunity that started from zero about five years ago. This is the nature of business — always competitive and always creative when it comes to making cash.

Source: Arab Times

A New Sign of Fear for U.S. Drillers

In Oil & Companies News 17/07/2017

For U.S. drillers, the dreaded correlation between stocks and bonds is back.

Earlier this year, while equity investors were killing them, the companies could bask in the warm glow of bondholders’ confidence. Then the U.S. price of oil tumbled below $50 a barrel and kept sinking. Natural gas took a dive, too. That’s when the warm glow turned cold.

Energy junk bonds have been hit especially hard. They slipped more than 2 percent in June, according to a Bloomberg index, after increasing 38 percent in 2016 — a year when 89 energy companies filed for bankruptcy. Meanwhile, the S&P 500 Energy Sector Index has slumped 16 percent since Jan. 3, while the S&P 500 is up nearly 8 percent in the same period.

That means bond investors have joined their shareholder counterparts in anticipating rocky times for U.S. oil and gas producers. They’ve begun to reevaluate whether companies can survive at current price levels. Many of them said the 2014 price bust, when West Texas Intermediate lost more than half its value in seven months, winnowed the weakest companies. But according to the numbers, traders have concluded that there’s more culling to come.

“People are thinking, ‘OK, this company may not actually make it,’” said Spencer Cutter, a Bloomberg Intelligence analyst. “Then you start to see the bonds begin to trade like equity.”

The broad index of junk-rated energy debt has been dragged down by the weakest companies. Notes rated in the triple-C range have dropped more than 7 percent this year, Bloomberg Barclays index data show, while bonds rated B and higher have gained.

Last month, bonds from triple-C-rated Denbury Resources Inc. decreased more than 16 percent and Los Angeles-based California Resources Corp. notes lost 14 percent. In the same period, shares of Denbury, a Plano, Texas-based explorer, were little changed and producer California Resources declined 21 percent.

Offshore Drillers

Offshore drillers’ debt also faltered in June, with W&T Offshore Inc. sinking 10 percent and Ensco Plc declining more than 4 percent, while shares fell 4 percent and 17 percent, respectively.

The fact that energy debt didn’t plunge as much as equities in the beginning of the year is an “interesting phenomenon,” QEP Resources Inc. Chief Executive Officer Charles Stanley said at a June 27 conference in New York.

“The equity responded negatively to the downturn in commodity prices much quicker than the debt has,” Stanley said. Shares of QEP, which is rated in the highest tier of junk-bond grades, have declined 45 percent so far this year, while its bonds dropped 1.9 percent in June.

Energy shares often nosedive before bonds because falling oil prices can crimp corporate profits. That’s bad news for shareholders, but less of a concern to bondholders, who worry most about a company’s ability to repay debts.

Another reason stock investors act on their bearishness before bondholders is bankruptcy law. Equity is wiped out in bankruptcies. Creditors, on the other hand, typically get some return, even if it’s just pennies on the dollar.

The broader high-yield universe is faring better than junk energy bonds. The Bloomberg Barclays U.S. Corporate High Yield Bond Index has gained 4.8 percent this year. The performance of junk bonds is less tied to energy prices this year, in part because more companies have hedged their exposure to the prices of commodities like oil, according to a report from JPMorgan Asset Management.

Oil Companies

On the equity side, oil-focused companies have been hit harder than those focused on natural gas, which has lost half its value since its peak in 2014, according to David Deckelbaum, an analyst at Keybanc Capital Markets Inc. in New York.

“There’s more companies that can make money at $3 gas than there are that can make money at $45 crude,” Deckelbaum said. “And not just make money but can grow.”

Oil at that price isn’t a death sentence for companies, especially since many have made strides to strengthen their balance sheets since the 2014 debacle, said Joan Okogun, an analyst at Fitch Ratings. Still, it’s enough to make investors jittery.

“There’s this psychological level between $45 and $50,” Okogun said. “People see numbers trending below that, and people start to get concerned.”

Source: Bloomberg