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Last Updated: July 18, 2016
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Last week in the world oil:

-         Crude oil ended the week aroundUS$45/b, as the market largely shrugged off the attempted coup in Turkey andlooked ahead to healthy economic indicators from the US and China, although astronger US dollar weighed down on prices slightly.

 

Last week in Asian oil:

-        Iran’s new oil industryinvestment framework will be ready by the end of July, with the once-isolatednation looking to entice international oil firms to assist in bringing its oilindustry out from the cold. Several Asian firms, including those from China,India and Iran, have already announced proposed plans, and the new contractshould bring in other Western firms, including BP, Total, Rni and Repsol. Thenew system replaces the old buy-back system where foreign firms were bannedfrom booking reserves or taking equity in Iranian companies.

-        Pertamina’s goal of increasingits domestic output to meet federal targets by taking over private oil fieldsin Indonesia is gaining pace, with reports indicating that it is eyeing a partof the gas-rich Masela block in Arafura Sea, while expediting its takeover ofthe mature Mahakam block in East Kalimantan from Japan’s Inpex and Shell.

Downstream

-         China’s refineries processed arecord amount of crude in June, rising 3.2% y-o-y to 11 million b/d,contributing to the highest refining figure for the first six months of anyyear. The increase in mainly coming from the ‘teapot’ refineries – independentrefiners that were last year allowed to directly import crude – tempted byhealthy refining margins.

-         Meanwhile, CNOOC (ChinaNational Offshore Oil Company) is aiming to cap its crude runs to 1 million b/dby 2020 to ease oil product oversupply, and instead focus on expanding itsservice station fleet to 2000 over the same period, as the upstream firmcontinues its push downstream.

-         Flooding along the Yangtze hasdisrupted oil distribution and also damaged facilities in China’s central andsouthern regions, with Sinopec stating that some 500 of its gas stations weredamaged and some refining operations disruption.

-         Indonesia’s state power firmPLN has criticised the government’s upcoming B30 mandate for gasoil used inindustrial/power burning. Indonesia has ambitious plans to move to higherbiodiesel blends to ease pressure on oil product imports, but PLN says that thenew rules are ‘unworkable’ as it has not allowed for sufficient technicaltesting, potentially damaging equipment.

Natural Gas

-         Echoing Japan, South Korea isaiming to become an LNG hub as well. The Korean efforts will focus on becominga regional LNG bunkering hub along its southern cost, as the shipping industrygradually moves away from burning dirty fuel oil to cleaner LNG. The hope isthat by creating a hub, Korea’s LNG import volumes will rise, giving it morebargaining power as a buyer.

-         Thailand’s PTT wants to investmore in Malaysia, including a proposed LNG project with Petronas that PTT hopeswill ease its long-term energy demands. Thailand uses natural gas for almost70% of its power generation, traditionally from Thai gas fields in the Bay ofBangkok and its west offshore coast, but output is dwindling and PTT is lookingoverseas.


Last week in international markets

 

Upstream & Midstream

-         ExxonMobil has declare a force majeure on its Nigerian Qua Iboe crudeexports, traced to a ‘system anomaly’ at its loading facility that may take upto four weeks to repair. The issue is thought not to be connected to therampage of the Niger Delta Avengers, which continue its sabotage with morepipeline attacks on Eni, Shell, Exxon and NNPC facilities in the last twoweeks.

-         Aiming to capitalise on the post-Brexit shuffle in the UK government,where the climate change department has been bundled into the department ofbusiness, petrochemical giant Ineos is aiming to accelerate shale gasdevelopment in the UK by lodging up to 30 planning application for drill testwells through to the end of 2016.

-         BP’s Argentine subsidiary Pan American Energy plans to spend some US$1.4billion to exploit Argentina’s conventional and unconventional resources,including the Cerro Dragón oil field and shale gas in Neuquén and Tierra delFuego.

-         In a sign that US crude producers are seeing brighter times ahead, theUS oil rig count increased for the sixth time in seven weeks, up by 6 to 357,coming from Louisiana and New Mexico. The gas rig count rose by one, bringingtotal operational rigs in the US to 447.

Downstream

-         The 65 kb/d Cienfuegos refineryis Cuba will be partially shut down for 120 days, or four months, for extensivemaintenance. Technical problems have kept the Soviet-era refinery running atminimum capacity, causing shortages. Cuba depends on Venezuela for most of itscrude and oil imports, and problems there have affected the isolated Caribbeannation.

-         South African Airways hascompleted a test flight using bio-jetfuel refined from tobacco, part of aglobal aviation push to move to renewable resources. With refining marginsdeclining, jet fuel a dependable bright spot in oil products, but even thismight come under pressure soon.

Natural Gas

-         Shell and its partners on theLNG Canada project have delayed the final investment decision on the proposedLNG export terminal on Canada’s western coast for the second time this year.‘Global industry challenges, including capital constraints’ were cited as thereason to delay the project, aimed at exporting LNG to Asia, principally due toan emerging LNG glut.

Corporate

-         ExxonMobil has made another bidto acquire Canada’s InterOil, outbidding Oil Search Ltd with a ‘superior offer’as it looks to merge InterOil’s large natural gas reserves in Papua New Guineawith its own. Exxon has faced issues in building pipelines, and InterOil’sfields are logistically less complicated, and closer to the proposed coastalLNG plant, speeding up the ambition of PNG becoming a major LNG exporter.

 

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May, 20 2022
High Oil Prices and Indonesia’s Ban on Oil Palm Exports

Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.  

A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.

Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.

Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.

And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.

That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.

Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.

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Market Outlook:

  • Crude price trading range: Brent – US$110-1113/b, WTI – US$105-110/b
  • As the war in Ukraine becomes increasingly entrenched, the pressure on global crude prices as Russian energy exports remain curtailed; OPEC+ is offering little hope to consumers of displaced Russian crude, with no indication that it is ready to drastically increase supply beyond its current gentle approach
  • In the US, the so-called NOPEC bill is moving ahead, paving the way for the US to sue the OPEC+ group under antitrust rules for market manipulation, setting up a tense next few months as international geopolitics and trade relations are re-evaluated

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May, 09 2022
Importance of Construction Supply Online Shop

An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.

Nowadays, everyone is shopping online - from groceries to clothes. And it's no different for construction supplies. With an online store, you can find all your supplies in one place and have them delivered to your doorstep. Construction supply online shops are a great way to find all the construction supplies you need. They also offer a wide variety of products from different suppliers, making it easier for customers to find what they're looking for. A construction supply online shop is essential for any construction company. They are the primary point of contact for the customers and they provide them with all the goods they need.

Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.

Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.

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