In this week's oil industry insider report, we will be looking at some of the most important oil market movers and how they influence oil prices. We will also have a look at the recent changes in the oil market fundamentals, and how they point toward oil market balance.
We will then look at the current events and developments taking place in the oil industry and we will end the report with an answer to the question "is there still any hope for a successful meeting in Doha?"
Oil prices fell sharply to one-month low this Monday as investors doubted the possibility of a successful output freeze meeting in Doha, Qatar following the comments from Prince Mohammed Bin Salman that Saudi Arabia will not freeze output without Iran and other major producers doing so. Another factor that has contributed to the sharp fall in oil prices this week was a stronger than expected U.S. jobs report which raises the prospects of interest rate rise. Brent crude fell 2.5 percent to $37.69 a barrel, and U.S. crude settled down $1.09 or nearly 3 percent, at $35.70 a barrel.
Fortunately, the fall in oil prices didn’t continue further through the week. And despite the decision of Saudi Arabia to freeze oil output only if Iran does too, on Tuesday, oil prices edged up on Kuwait's insistence that major oil producers will agree to freeze output with or without Iran's participation. While the gains in crude prices were limited at first as traders awaited U.S. oil inventories data which analysts polled by Reuters expected to have risen by 3.2 million barrels, it then jumped 5 percent on Wednesday as a result of a surprise decrease in U.S. crude stockpiles.
According to the Energy Information Administration, U.S. crude oil inventories decreased by 4.9 million barrels from the previous week at At 529.9. While the EIA report contained some bearish data such as a sudden increase in gasoline stockpiles, traders -who are looking for any spark of hope- chose to focus on the bullish side of the report. This is an important point that we should be looking at, which represents the current emotional state in the oil market.
A state where traders are more focused on the positive aspects of the oil market despite some bearish sentiments. It is an emotional state where hope is more dominant than desperation and depression. Understating the current emotional state of market analysts, traders and speculators helps to understand what influence their decisions and better figure out the near term trends in the oil market.
Technically, the unexpected fall in U.S. stockpiles signaled an important shift in the fundamentals of oil market. Supported by a continuous fall in U.S. oil production and rig count, the fall in U.S. stockpiles if continued, it will not only prevent the market from going lower in the near term but also it will sustain the oil prices rally and gives it a momentum.
Based on Baker Hughes rig count data, it is definitely obvious that U.S. rig count roller-coaster is still on the run. U.S. rig count was down 14 at 450 for the week of April 1, 2016. The number of rotary rigs for oil was down 10 at 362 and the number of rig count for gas was down 4 at 88. U.S. rig count is at its lowest level since Baker Hughes started its rig count service in 1944. In a similar trend, the international rig count was down 33 at 985 on March 2016 according to the Baker Hughes rig count service.
The number of rig count will still experience a falling trend at least for a few weeks from now as the oil market is in a critical time in which more decrease in rig count and oil production is needed to create the balance in supply and demand. While rig count has decreased sharply in the past months, the use of new and advanced technology and improved efficiency enabled oil companies to offset the impact of falling rig count on oil production.
Oil Supply & Demand
In terms of oil supply, a notable addition of oil into the international market came from Iran. According to its oil minister, Iran increased its oil and condensate exports by 250,000 barrels per day in March. The country is determined not to participate in the coming oil output freeze deal until its exports reach to pre-sanctions levels. This means adding around 1 million barrel per day to its export total.
While such news could drive oil prices down giving the fact that the oil market is still oversupplied, we don’t see much negative impact for it in the oil market. This is happening due to three reasons.
First of all, Iran is trying to gain back its own position in the oi market. A position that was filled by other producers who are supposed to cut back their outputs after the return of Iran into the international oil market. The second reason lays on the fact that the oil market is more concerned and focused on Doha's meeting to the point that other events taking place in the oil market are not given much attention. The last and most important reason is the fact that the intensity of fundamentals pointing toward oil market balance is increasing as shale oil production continues to fall, and signs of growing demand are becoming more obvious.
In the demand side, more positive signs of growing oil demand are appearing. A bullish outlook for the oil markets that was issued by the investment bank Credit Suisse which stated that oil demand is alive and well. In general, oil demand is correlated with the industrial demand. As industrial demand is slow and global economy is very fragile, demand for oil is less. But Credit Suisse pointed out to emerging market middle classes that are well and consequently fueling consumption of oil as they buy new vehicles.
Based on the Credit Suisse outlook, oil demand should continue to outperform the long existed historic correlation with industrial production. They expect oil prices to hit $50 as soon as May and demand continues to grow at more than 2 percent on an annual basis.
Answer to Question of The Week
The bad luck of the oil industry lays on the fact that politics and immature politicians still play a huge role in setting the direction of the industry. Doha's OPEC and non-OPEC producers meeting is a simple example. The outcomes of the meeting and hence the end of the oil market downturn depends entirely on the decision of few producers who may or may not agree depending on what they see fit their geopolitical agenda.
While many have seen the recent decision of Saudi Arabia not to freeze oil production unless does too as a move against Iran, I don’t see it that way. In fact, if Saudi Arabia meant that move against Iran, it would have done it during February's meeting.
Saudi Arabia's main aim is squeezing shale oil producers out of the market. When it agreed to freeze its oil output during February's meeting, it was to prevent oil prices from falling further. And when it did, oil prices rebounded to $40 a barrel level, and many in the oil market expected more. But that is not what Saudi Arabia wants, because their market share war against shale oil producers didn’t really achieve its goals. Shale oil producers are still producing and their production is not decreasing as Saudi Arabia expected.
If Saudi Arabia agreed on freezing output on April 17's meeting, it would give a positive push to oil prices to go up to $50 a barrel, and that will give shale oil producers something to hold on for as it means the worse is over. That is not what Saudi Arabia wants.
I don’t expect the meeting to be successful and even if it did and Saudi Arabia changed its mind, I don’t expect the producers to hold on to the agreement. There will be some disturbance in order to keep oil prices at low levels at least above $35 a barrel for the near term in order to force many more of shale oil producers out of the market.
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A lot of complications arise when a government changes. Particularly if the new government comes in on a mandate to reverse alleged deficiencies and corruption of previous governments. This is amplified when significant natural resources are involved. It has happened in the past – when Iran nationalised its oil industry by kicking out BP – and it could happen again in the future – in Guyana where the promise of oil riches in the hands of foreign firms has already caused grumbles. And it is also happening right now in Papua New Guinea, as the new government led by Prime Minister James Marape took aim at the Papua LNG deal.
Negotiated by the previous government of Peter O’Neill, the state’s new position that is the current gas deal is ‘disadvantageous’ to country. A complex set of manoeuvres – accusing O’Neill of multiple levels of corruption – led to a proposed vote of no confidence and an eventual resignation. With the departure of O’Neill, public opinion on the Papua LNG project (as well as the PNG LNG project) switched from being viewed as a boon to the economy to one of unequal terms that would not compensate the nation fairly for its resources.
So, despite a previous assurance in early August that the new government of Papua New Guinea would stand by the previous gas deal agreed with the Papua LNG stakeholders in April, Marape sent a team led by the Minister of Petroleum Kerenga Kua to Singapore to renegotiate with the project’s lead operator Total.
As the meeting was announced, suggestions pointed to a hardline position by Papua New Guinea… that they could ‘walk away from a new deal’ if the new terms were not acceptable. In a statement, Kua stated that the negotiations could ‘work out well or even disastrously’. From Total’s part, CEO Patrick Pouyanne said in July that he expected the government to respect the gas deal while Oil Search stated that it was seeking ‘further clarity on the state’s position’. The gas deal covers framework of the Papua LNG project, which was scheduled to enter FEED phase this year with FID expected in 2020, drawing gas from the giant onshore Elk-Antelope fields ahead of planned first LNG by 2024. So, the stakes are high.
With both sides locked into their positions, reports from Singapore suggested that the negotiations broke down into a ‘Mexican standoff’. No grand new deal was announced, and it can therefore be inferred that no progress was made. There is a possibility that PNG could abandon the deal altogether and seek new partners under more favourable terms, but to do so would be a colossal waste of time, given that Papua LNG is nearing a decade in development. Total and ExxonMobil have already raised the possibility of legal moves if the deal is aborted, with compensation running into billions – billions that the PNG government will not have unless the Papua LNG project goes ahead.
But the implications of the deal or no-deal are even wider. The PNG state has already stated that it will look at the planned expansion of the PNG LNG project (led by ExxonMobil and Santos) next, which draws from the P’nyang field. Renegotiation of the current gas deals in PNG may have populist appeal but have serious implications – alienating two of the largest oil and gas supermajors and two of PNG’s largest foreign investors could lead to a monetary gap and a mood of distrust that PNG may be unable to ever fill. Hardline positions are a good starting position, but eventual moderation is required to ever strike a deal.
Papua LNG Factsheet:
The U.S. Energy Information Administration (EIA) estimates that members of the Organization of the Petroleum Exporting Countries (OPEC) earned almost $711 billion in net oil export revenues in 2018 (Figure 1). The estimate is up 29% from 2017, but about 40% lower than the record high of almost $1,200 billion in 2012. The 2018 earnings increase is mainly a result of higher crude oil prices. The Brent spot price rose from an annual average of $54 per barrel (b) in 2017 to $71/b in 2018. However, EIA forecasts annual OPEC net oil export revenues will decline to $593 billion in 2019 and to $556 billion in 2020. Decreasing OPEC revenues are primarily a result of decreasing production among a number of OPEC producers.
EIA estimates net oil export revenues based on oil production—including crude oil, condensate, and natural gas plant liquids—and total petroleum consumption estimates, as well as crude oil prices forecast in the August 2019 Short-Term Energy Outlook (STEO). EIA’s net oil export revenues estimate assumes that exports are sold at prevailing spot prices and adjusts the prices for benchmark crude oils forecast in STEO (Brent, West Texas Intermediate, and the average imported refiner crude oil acquisition cost) with historical price differentials among spot prices for the different OPEC crude oil types. For countries that export several different varieties of oil, EIA assumes that the proportion of total net oil exports represented by each variety is the same as the proportion of the total domestic production represented by that variety. For example, if Arab Medium represents 20% of total oil production in Saudi Arabia, the estimate assumes that Arab Medium also represents 20% of total net oil exports from Saudi Arabia.
Although OPEC net export earnings include estimated Iranian revenues, they are not adjusted for possible price discounts that trade press reports indicatedIran may have offered its customers after the United States announced its withdrawal from the Joint Comprehensive Plan of Action in May 2018. The United States reinstated sanctions targeting Iranian oil exports in November 2018. Similarly, EIA does not adjust for Venezuelan crude oil exports to China or India for volumes that are sent for debt repayments to China and Russian energy company Rosneft, respectively, and thus do not generate cash revenue for Venezuela.
If the $711 billion in net oil export revenues by all of OPEC is divided by total population of its member countries and adjusted for inflation, then per capita net oil export revenues across OPEC totaled $1,416 in 2018, up 26% from 2017 (Figure 2). The increase in per capita revenues likely benefited member countries that rely heavily on oil sales to import goods, fund social programs, and otherwise support public services.
In addition to benefiting from higher prices, some OPEC member countries have increased export revenues by reducing domestic consumption and consequently exporting more. For example, Saudi Arabia has significantly reduced the amount of crude oil burned for power generation. Limiting crude oil burn allowed Saudi Arabia to export more crude oil and to maximize revenues.
Others have been able to charge higher premiums based on the quality of their crude oil streams. As the global slate of crude oil has changed with more light crude oil production (with higher API gravity), OPEC members have benefited from a narrowing price discount for their heavy crude oils, which are typically priced lower than lighter crude oils because of quality differences. Smaller discounts for OPEC members’ heavier crude streams contributed to higher spot prices for the OPEC crude oil basket price, which incorporates spot prices for the major crude oil streams from all OPEC members (Figure 3).
Despite the increase in annual average crude oil prices in 2018, OPEC revenues fell during the second half of 2018, mainly because of lower production and export volumes from Iran and Venezuela (Figure 4). EIA estimates that OPEC total petroleum liquids production decreased slightly in 2018 when increased production in Saudi Arabia, Iraq, and Libya could not offset significant declines in Iranian and Venezuelan production. Combined crude oil production in Iran and Venezuela fell by almost 800,000 barrels per day (b/d), or 14%, in 2018 and again by over 1.0 million b/d in the first seven months of 2019. Although Iranian net oil export revenues increased by 18% from 2017 to 2018, a year-to-date comparison indicates a significant decrease in revenues in 2019 (Figure 4). EIA estimates that from January to July 2018, Iran received about $40 billion in export revenues, compared with an estimated $17 billion from January to July 2019. Further decreases in OPEC members’ production beyond current EIA assumptions would further reduce EIA’s OPEC revenue estimates for 2019 and 2020.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell nearly 3 cents from the previous week to $2.60 per gallon on August 19, 22 cents lower than the same time last year. The Gulf Coast price fell nearly 6 cents to $2.27 per gallon, the East Coast price fell nearly 4 cents to $2.52 per gallon, the West Coast and Rocky Mountain prices each fell nearly 2 cents to $3.24 per gallon and $2.67 per gallon, respectively, and the Midwest price fell nearly 1 cent, remaining at $2.52 per gallon.
The U.S. average diesel fuel price fell nearly 2 cents to $2.99 per gallon on August 19, 21 cents lower than a year ago. The Midwest price fell over 2 cents to $2.90 per gallon, the West Coast and East Coast prices each fell nearly 2 cents to $3.56 per gallon and $3.02 per gallon, respectively, the Gulf Coast price fell more than 1 cent to $2.75 per gallon, and the Rocky Mountain price fell less than 1 cent, remaining at $2.94 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 4.0 million barrels last week to 90.5 million barrels as of August 16, 2019, 10.2 million barrels (12.7%) greater than the five-year (2014-18) average inventory levels for this same time of year. Gulf Coast, East Coast, Midwest, and Rocky Mountain/West Coast inventories increased by 2.0 million barrels, 1.0 million barrels, 0.7 million barrels, and 0.4 million barrels, respectively. Propylene non-fuel-use inventories represented 4.4% of total propane/propylene inventories.
Student guardian visa subclass 590 allows you to stay in Australia as a guardian or custodian or relative of an overseas student who is pursuing an education course in Australia. With 590 student guardian visa, You can stay with your child to take care of him/her in Australia until the course complete. Your child age must below then 18th years old before applying for a student guardian visa 590. If you're a relative then you can stay with the child by submitting written permission of a child’s caretakers like a guardian or grandparents. If your child is older then eighteen years then to apply for visa subclass 590 you need to show that you have special emergency circumstances. You can apply for a 590 student guardian visa outside from Australia and acquire enrollment in alternative courses up to three months with a 590 visa. You will be authorized to take care more then one child if you have. You can do the other study or coach just for 3 months with this Student Guardian Visa Subclass 590.
Step By Step Process About 590 Visa
1.Before Applying for Visa
Meet Eligibility Criteria
• You must be a parent or grandparents or relative of a non-Australian child who is below 18th of age.
• If you want to apply from inside of Australia then you need to hold a substantive visa except for domestic worker, temporary work visa, transit visa, visitor visa, etc.
• If your another child who is below 18th and not coming to Australia with you then you need to give evidence that you have made welfare arrangement for the child.
• You have to account for your all healthcare expenses so make sure that medical insurance can only reduce your expenses.
• Your past immigration history must be credible like you must not have any visa cancellation history.
• Your intention should be genuine at the time of applying for student guardian visa 590 and it should be not against Australian culture and policies.
• If your family members are also applying with you then they also need to meet health policies of the Australian government
• Only a parent or grandparents or custodian or step parents of an overseas student visa 500 holder can apply for this student guardian visa subclass 590.
• If parents are not present due to any reason for looking after the visa subclass 500 holder student then any relative can apply for this 590 student guardian visa.
• You must be a guardian of an international student who must be below 18th of age except for exceptional circumstances.
• You have to give assurance to immigration authorities that you will be able to provide welfare.
• Your age must be above 21 years old before going to apply for a student guardian visa 590.
• You have to pay back any type of debt to the Australian government if you have.
• If you have another child aged 6 years old then you can bring him/her to Australia but if your child if older then 6 years then you need to show emergency condition to bring him/her to Australia.
•Provide character certificate and other national identities.
•Submit bank documents and salary slips to prove that you will be enough capable to give welfare to the student.
•Provide guardianship documents to prove your credibility to that child.
•Translate your non-English documents into English.
•Submit legal student guardianship form.
•Provide dependent under 6 documents if you bring your child who is under 6 years of age.
2. Processing Time And Cost Of This Visa
Visa subclass 590 cost starts from AUD 560. This visa 590 may proceed in 2 to 4 months. But in case you forget to submit any documents then you processing time of visa can be increased. Your visa application processing time can be increased if you provide incomplete information.
3. Apply For The Visa
You need to apply online for the 590 student guardian visa 6 weeks before the student’s course starts. At the time applying for the visa, you have to prove that you are genuine and legal applicant by submitting legal documents. If you submit illegal information to immigration authorities then they have the authority to cancel your visa application immediately. You and your relative which is listed in visa application will not able to get a visa for the next 10 years in case of any fraud by you. You should contact an experienced Immigration Agent Adelaide.
4. Conditions After You Have Applied For The Visa
• You are not allowed to do any type of work in Australia.
• You can study only for 3 months.
• With visa subclass 590 you can’t apply for another visa
• At the time of leaving Australia, you must have brought the student to your country.
• If you have another child who is below 6th years of age then you can bring him/her to Australia.
Get The Direction To Migration Agent Adelaide - ISA Migrations and Education Consultants.