TOKYO (Reuters) - Brent crude prices inched lower on Tuesday after hitting a seven-month high a day earlier, but market momentum appeared strong on a weak dollar, French refinery restarts, Nigerian oil infrastructure attacks and falling U.S. crude inventories.
Brent crude for August delivery was down 14 cents at $50.41 a barrel by 0333 GMT, after settling up 91 cents on Monday. It rose as high as $50.49, just shy of $50.83 in the previous session, the strongest since Nov. 4.
NYMEX crude for July delivery was down 11 cents at $49.58 a barrel, after settling up $1.07 on Monday.
"With Brent staying above $50, oil is on an upward momentum with the restart of French refineries that were shut on strikes and pipeline attacks in Nigeria," said Kaname Gokon at brokerage Okato Shoji in Tokyo.
Preliminary work got underway on Monday to restart three of Total's French oil refineries stopped as part of nationwide strikes against planned changes to employment laws, which would lead to higher crude demand.
Nigerian production of Bonny Light crude is down by an estimated 170,000 barrels per day (bpd) following recent attacks on pipeline infrastructure, according to an industry source close to the matter.
Oil also got support from a weak dollar, which was wallowing near four-week lows against a basket of currencies. Federal Reserve Chair Janet Yellen said interest rate hikes are coming but gave little sense of when.
U.S. commercial crude oil inventories likely fell by 3.5 million barrels last week, marking a third straight weekly fall, a preliminary Reuters poll showed ahead of the data by the American Petroleum Institute due out at 2030 GMT.
Market intelligence firm Genscape reported a drawdown of 1.08 million barrels at the Cushing, Oklahoma delivery point for WTI futures during the week to June 3, traders who saw the data said.
Traders were also awaiting China's trade data for May due out on Wednesday for fresh incentives. A series of Chinese indicators are expected to reinforce views that the world's second-largest economy is steadying, but not gaining momentum.
U.S. Treasury Secretary Jack Lew said in Beijing that concerns about China's business climate have grown due to a more complex regulatory environment and the Chinese government should open the door wider to foreign investments.
By Osamu Tsukimori
(Editing by Richard Pullin and Ed Davies)
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The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
The engine oil market has grown up around 10 to 12% in the last three years because of various reasons, mostly because of the rise of automobiles.
According to the Bangladesh Road Transport Authority (BRTA), the number of registered petrol and diesel-powered vehicles is 3,663,189 units.
The number of automotive vehicles has increased by 2.5 times in the last eight years.
The demand for engine oils will rise keeping pace with the increasing automotive vehicles, with an expected 3% yearly growths.
Mostly, for this reason, the annual lubricant consumption raised over 14% growth for the last four years. Now its current demand is around 160 million tonnes.
The overall lubricants demand has increased also for the growth of the power sector, which has created a special market for industrial lubricants oil.
The lubricants oil market size for industries has doubled in the last five years due to the establishment of a number of power plants across the country.
The demand for industrial oil will continue to rise at least for the next 15 years, as the quick rental power plants need a huge quantity of lube oil to run.
The industries account for 30% of the total lubricant consumption; however, it is expected to take over 35% of the overall demand in the next 10 years.
Mobil is the market leader with 27% market share; however, market insiders say that around 70% market shares belong to various brands altogether, which is still undefined.
It is already flooded with many global and local brands.