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Your Weekly Market Currents in Oil & Gas, 15 to 19 August 2016


Last week in the world oil

It’s happier days for crude prices, as OPEC’s upcoming meeting in Algeria has triggered speculation that the organisation will finally agree to a production freeze not only within its members, but also with non-OPEC producers like Russia. Brent closed above US$50/barrel last week, and WTI just a shade below the mark, but analysts are warning that the rally is based on optimism and not fundamentals.


With Iran engaging in a mild price war with Saudi Arabia over crude market share in Asia, buyers are welcoming the challenge. Japan tripled its crude imports from Iran in July, while South Korea has quadrupled its Iranian crude liftings y-o-y. The lifting on sanctions on Iran has been a boon for Asian refiners, benefiting from lower prices as Iran and Saudi Arabia jostle for position to supply crude, scrambling with Russia as well.  India’s July imports from Iran also leapt, even as total imports fell slightly.

A Malaysian oil tanker reported as missing and possibly hijacked early last week has instead been taken to Indonesia over an ‘internal dispute’ between the crew and the ship’s operator.

India’s growing appetite for natural gas is currently fed by imports, but BP India believes that the country has the potential to unlock gas reserves of at least 10-15 trillion cubic feet (tcf) by 2022, which would halve imports. The announcement came as part of a push to stimulate investment and simplify rules to revitalise the country’s existing and upcoming natural gas fields in line with increasing the gas share of energy mix from 8% to 15% by 2030.

With its once prodigious local fields faltering, Thailand is preparing to expand its LNG import capacity to feed its vast network of gas-fed infrastructure that came about from the discovery of domestic sources. State oil firm PTT announced plans to nearly double LNG imports to 5 million tons in 2017, aiming to source LNG from Shell, BP and Qatar. 

Just next to Thailand, Australia’s Woodside is preparing to begin its drilling campaign in Myanmar next year, to commercialise its Shwe Yee Htun-1 and Thalin-1a discoveries with 2.4 tcf of gas reserves. Long isolated due to the ruling military junta, Myanmar has tremendous reserves of natural gas, traditionally exploited by Thailand’s PTT, but the thawing of international relations after political developments have now brought up plenty of foreign investors eager to capitalise on the country.

Two Australian upstream giants – Santos and Woodside – have reported disappointing results for the first half of 2016. Santos recovered a loss of US$1.1 billion, while Woodside’s profits halved to US$340, as weak oil and gas prices offset gains in production. Woodside is in a better position, given its low holdings of debt, but Santos is in a trickier position scrambling to slash costs and reduce debts.

The oil debt malaise hitting Singapore that claimed Swiber is spreading to Malaysia, with offshore rig contractor Perisai Petroleum Teknology likely to miss a US$125 million securities payout due in October, triggering a fall in its bonds to distressed levels. Expect the contagion to keep spreading, as offshore contractors in Singapore and Malaysia combat mounting debts amidst a stagnant market.


After a year of delay, Iran will begin exporting natural gas to Iraq via pipeline in September, beginning with a contract to supply 7 million cubic metres a day to a power plant in Baghdad. A second route to Basra will be added next year, with the long-term goal of reaching 70 million cubic metres per day. The move will help Iraq to free up crude supplies for export, with fields in Kurdistan resuming pumping last week after a dispute between the government and the Kurdish regional authorities was settled.

The number of oil and gas rigs operating in the US rose for an eighth-consecutive week, up by 10 to 491. Oil rigs were up by ten, as producers came in to capitalise on rising crude prices ahead of OPEC’s September meeting.


Saudi Arabia’s combined crude and product exports reached 8.83 million barrels in June 2015, 450,000 barrels higher y-o-y and 1.1 million barrels higher than June 2014. The uptick comes during a period when the Kingdom traditionally exports less to divert fuel to local power stations for cooling during its scorching summers, indicating the level of aggression Saudi Arabia is taking to maintain and combat Russia and Iran over oil market share, particularly in Asia.

Iraq has started up its Misan natural gas processing plant in its southeastern region to capture gas that was previously flared for power generation purposes. Iraq currently flares some 70% of its gas output, a tremendous waste that it is aiming to rectify, ordering that all fields coming onstream in Misan, including Fakka and Bazargan, be connected to the plant.

Russia’s Yamal LNG project led by Novatek has received some €780 million in funding from China to help move to project ahead. The Yamal project in Siberia is remote and costly, and with Western powers cutting off Russia’s access to funds over its role in the Ukrainian crisis, China through the China Development Bank and Export-Import Bank of China has stepped in filled the gap, and no doubt enable China to demand more offtake of Yamal LNG when it starts up in 2017.


If the oil industry has taken a battering from low prices, it is worst in shipping. Danish shipping giant AP Moller-Maersk has been badly hit by the slump in shipping, raising the option of the company being split into two: one focusing on shipping and transport, and one focusing on energy.


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The Impact of COVID 19 In The Downstream Oil & Gas Sector

Recent headlines on the oil industry have focused squarely on the upstream side: the amount of crude oil that is being produced and the resulting effect on oil prices, against a backdrop of the Covid-19 pandemic. But that is just one part of the supply chain. To be sold as final products, crude oil needs to be refined into its constituent fuels, each of which is facing its own crisis because of the overall demand destruction caused by the virus. And once the dust settles, the global refining industry will look very different.

Because even before the pandemic broke out, there was a surplus of refining capacity worldwide. According to the BP Statistical Review of World Energy 2019, global oil demand was some 99.85 mmb/d. However, this consumption figure includes substitute fuels – ethanol blended into US gasoline and biodiesel in Europe and parts of Asia – as well as chemical additives added on to fuels. While by no means an exact science, extrapolating oil demand to exclude this results in a global oil demand figure of some 95.44 mmb/d. In comparison, global refining capacity was just over 100 mmb/d. This overcapacity is intentional; since most refineries do not run at 100% utilisation all the time and many will shut down for scheduled maintenance periodically, global refining utilisation rates stand at about 85%.

Based on this, even accounting for differences in definitions and calculations, global oil demand and global oil refining supply is relatively evenly matched. However, demand is a fluid beast, while refineries are static. With the Covid-19 pandemic entering into its sixth month, the impact on fuels demand has been dramatic. Estimates suggest that global oil demand fell by as much as 20 mmb/d at its peak. In the early days of the crisis, refiners responded by slashing the production of jet fuel towards gasoline and diesel, as international air travel was one of the first victims of the virus. As national and sub-national lockdowns were introduced, demand destruction extended to transport fuels (gasoline, diesel, fuel oil), petrochemicals (naphtha, LPG) and  power generation (gasoil, fuel oil). Just as shutting down an oil rig can take weeks to complete, shutting down an entire oil refinery can take a similar timeframe – while still producing fuels that there is no demand for.

Refineries responded by slashing utilisation rates, and prioritising certain fuel types. In China, state oil refiners moved from running their sites at 90% to 40-50% at the peak of the Chinese outbreak; similar moves were made by key refiners in South Korea and Japan. With the lockdowns easing across most of Asia, refining runs have now increased, stimulating demand for crude oil. In Europe, where the virus hit hard and fast, refinery utilisation rates dropped as low as 10% in some cases, with some countries (Portugal, Italy) halting refining activities altogether. In the USA, now the hardest-hit country in the world, several refineries have been shuttered, with no timeline on if and when production will resume. But with lockdowns easing, and the summer driving season up ahead, refinery production is gradually increasing.

But even if the end of the Covid-19 crisis is near, it still doesn’t change the fundamental issue facing the refining industry – there is still too much capacity. The supply/demand balance shows that most regions are quite even in terms of consumption and refining capacity, with the exception of overcapacity in Europe and the former Soviet Union bloc. The regional balances do hide some interesting stories; Chinese refining capacity exceeds its consumption by over 2 mmb/d, and with the addition of 3 new mega-refineries in 2019, that gap increases even further. The only reason why the balance in Asia looks relatively even is because of oil demand ‘sinks’ such as Indonesia, Vietnam and Pakistan. Even in the US, the wealth of refining capacity on the Gulf Coast makes smaller refineries on the East and West coasts increasingly redundant.

Given this, the aftermath of the Covid-19 crisis will be the inevitable hastening of the current trend in the refining industry, the closure of small, simpler refineries in favour of large, complex and more modern refineries. On the chopping block will be many of the sub-50 kb/d refineries in Europe; because why run a loss-making refinery when the product can be imported for cheaper, even accounting for shipping costs from the Middle East or Asia? Smaller US refineries are at risk as well, along with legacy sites in the Middle East and Russia. Based on current trends, Europe alone could lose some 2 mmb/d of refining capacity by 2025. Rising oil prices and improvements in refining margins could ensure the continued survival of some vulnerable refineries, but that will only be a temporary measure. The trend is clear; out with the small, in with the big. Covid-19 will only amplify that. It may be a painful process, but in the grand scheme of things, it is also a necessary one.

Infographic: Global oil consumption and refining capacity (BP Statistical Review of World Energy 2019)

Consumption (mmb/d)*
Refining Capacity (mmb/d)
North America



Latin America









Middle East












*Extrapolated to exclude additives and substitute fuels (ethanol, biodiesel)

Market Outlook:

  • Crude price trading range: Brent – US$33-37/b, WTI – US$30-33/b
  • Crude oil prices hold their recent gains, staying rangebound with demand gradually improving as lockdown slowly ease
  • Worries that global oil supply would increase after June - when the OPEC+ supply deal eases and higher prices bring back some free-market production - kept prices in check
  • Russia has signalled that it intends to ease back immediately in line with the supply deal, but Saudi Arabia and its allies are pushing for the 9.7 mmb/d cut to be extended to end-2020, putting the two oil producers on another collision course that previously resulted in a price war
  • Morgan Stanley expects Brent prices to rise to US$40/b by 4Q 2020, but cautioned that a full recovery was only likely to materialise in 2021

End of Article

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May, 31 2020
North American crude oil prices are closely, but not perfectly, connected

selected North American crude oil prices

Source: U.S. Energy Information Administration, based on Bloomberg L.P. data
Note: All prices except West Texas Intermediate (Cushing) are spot prices.

The New York Mercantile Exchange (NYMEX) front-month futures contract for West Texas Intermediate (WTI), the most heavily used crude oil price benchmark in North America, saw its largest and swiftest decline ever on April 20, 2020, dropping as low as -$40.32 per barrel (b) during intraday trading before closing at -$37.63/b. Prices have since recovered, and even though the market event proved short-lived, the incident is useful for highlighting the interconnectedness of the wider North American crude oil market.

Changes in the NYMEX WTI price can affect other price markers across North America because of physical market linkages such as pipelines—as with the WTI Midland price—or because a specific price is based on a formula—as with the Maya crude oil price. This interconnectedness led other North American crude oil spot price markers to also fall below zero on April 20, including WTI Midland, Mars, West Texas Sour (WTS), and Bakken Clearbrook. However, the usefulness of the NYMEX WTI to crude oil market participants as a reference price is limited by several factors.

pricing locations of selected North American crudes

Source: U.S. Energy Information Administration

First, NYMEX WTI is geographically specific because it is physically redeemed (or settled) at storage facilities located in Cushing, Oklahoma, and so it is influenced by events that may not reflect the wider market. The April 20 WTI price decline was driven in part by a local deficit of uncommitted crude oil storage capacity in Cushing. Similarly, while the price of the Bakken Guernsey marker declined to -$38.63/b, the price of Louisiana Light Sweet—a chemically comparable crude oil—decreased to $13.37/b.

Second, NYMEX WTI is chemically specific, meaning to be graded as WTI by NYMEX, a crude oil must fall within the acceptable ranges of 12 different physical characteristics such as density, sulfur content, acidity, and purity. NYMEX WTI can therefore be unsuitable as a price for crude oils with characteristics outside these specific ranges.

Finally, NYMEX WTI is time specific. As a futures contract, the price of a NYMEX WTI contract is the price to deliver 1,000 barrels of crude oil within a specific month in the future (typically at least 10 days). The last day of trading for the May 2020 contract, for instance, was April 21, with physical delivery occurring between May 1 and May 31. Some market participants, however, may prefer more immediate delivery than a NYMEX WTI futures contract provides. Consequently, these market participants will instead turn to shorter-term spot price alternatives.

Taken together, these attributes help to explain the variety of prices used in the North American crude oil market. These markers price most of the crude oils commonly used by U.S. buyers and cover a wide geographic area.

Principal contributor: Jesse Barnett

May, 28 2020
Financial Review: 2019

Key findings

  • Brent crude oil daily average prices were $64.16 per barrel in 2019—11% lower than 2018 levels
  • The 102 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2018 to 2019
  • Proved reserves additions in 2019 were about the same as the 2010–18 annual average
  • Finding plus lifting costs increased 13% from 2018 to 2019
  • Occidental Petroleum’s acquisition of Anadarko Petroleum contributed to the largest reserve acquisition costs incurred for the group of companies since 2016
  • Refiners’ earnings per barrel declined slightly from 2018 to 2019

See entire annual review

May, 26 2020