Easwaran Kanason

Co - founder of PetroEdge
Last Updated: November 1, 2016
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Last week in world oil

After oil prices rose from optimistic news that OPEC could at last focus on the bigger picture and agree to a supply cut, the latest measure now appears dead in the water as Iran and Iraq are now refusing to participate, citing erroneous data. A failure of OPEC to agree internally will kill an attempt to negotiate a freeze with non-OPEC members, which left oil falling below the psychological US$50/b barrel. 

ExxonMobil may have to write down almost 20% of its proven oil and gas reserves as part of an assessment of major long-lived assets, owing to the persistent low prices of crude. The amount that could be de-booked could be as much as a billion oil equivalent barrels. 

For the first time in 17 weeks, the US oil rig count has fallen. The US shed 2 oil rigs, bringing the total operating number down to 441, as uncertainty over OPEC’s ability to implement a freeze dominated. However, six more gas rigs were added, bringing the total count to 557. 

The main three contenders for Chevron’s South African downstream assets are Total, Glencore and Gunvor. With an estimated price tag of US$1 billion, the assets include Chevron’s fuel retail network in South Africa and Botswana, as well as a75% stake in the 110 kb/d Cape Town refinery. The leading contenders do indicate the possible evolution of the global downstream industry: France’s Total would like to strengthen its portfolio to rank among the Big Four, while Gunvor and Glencore represent the willingness of energy traders to move into areas like refining and storage, to complement their trading activities. 

Croatia is faced with the decision of shutting down, or modifying, one of the country’s two oil refineries as it faces the same problem most European economies are facing – declining oil demand leading to poor utilisation of overcapacity. There are two oil refineries currently operating in the country, both owned by state energy firm INA and Hungary’s MOL, one in Sisak and one in the port city of Rijeka.

General Electric, together with Endeavor Energy and Sage Petroleum, has received approval from the Ghanaian government to proceed with the construction of the world’s largest LPG powered-electricity plant in Tema. 

Israel’s natural gas ambitions are now taking shape. With the option of either LNG or a physical pipeline, either Egypt, Turkey or Cyprus, Israel appears to have chosen the more politically-benign option, aiming to send the gas by pipeline first to Cyprus, then to Greece, before moving to Western Europe through Italy. The estimated cost of the pipeline project is €5 billion, allowing Israel to finally monetise its two giant natural gas discoveries after legal and regulatory issues have been settled.

ExxonMobil is reportedly considering building a full-scale trading division to buy, sell and trade oil products, including its own.  The move would allow some diversification of ExxonMobil’s operations, to counter prolonged depressed oil prices.

China imported more crude from Angola than any other country in September. Typically, China’s main supplier is Russia, but imports from Angola have jumped by 45.8% y-o-y, reaching 1 mb/d, just under the record 1.11 mb/d in August. This is the second consecutive month that Angola has been China’s top exporter, and volumes are expected to increase with the end of refinery maintenance season in October.

Indonesia is expected to harmonise the gasoline and diesel prices across the far-flung archipelago next year. The move is part of the government’s efforts to overhaul the downstream retail industry, which started in 2014 with an overhaul of the fuel subsidy scheme. Currently, there is a reference price for subsided gasoline and diesel across Indonesia – which accounts for over 90% of demand – but the price varies by region, with surcharges on remote regions to account for transportation. The new rules will eliminate this, requiring the single price to be valid across the country, with any distribution costs by incurred by the fuel retailers.

Aiming to become the Asian trading hub for LNG to complement its status as the oil trading hub, Singapore has picked Shell and Pavilion Gas to be its next suppliers of LNG. The two companies will be granted exclusive rights to sell up to 1 million mtpa of LNG annually for three years beginning 2017, as well as the option for spot trading. Singapore has encouraged firms to open LNG trading desks in bid to become Asia’s LNG hub – an ambition also shared by Japan and South Korea – and in 2013, named the BG Group as its first supplier, for 3 mtpa of LNG over 10 million. That contract is considered separate from the new agreement with Shell, which took over the BG Group last year. 

Chevron announced a huge US$5 billion cost overrun at its Wheatstone LNG project, blamed on cost underestimation and tardiness of third-party module contractors. The giant Wheatstone project, developed with Woodside Petroleum, will now cost a total of US$34 billion.

Japan’s Inpex has struck gas in offshore wells not explored since the 1980s. Test drills revealed natural gas indications offshore the Shimane and Yamaguchi prefectures, but early signs are that the discoveries will not be significant enough to make a dent in Japan’s huge gas appetite. 

All three Chinese state oil firms have dramatically scaled back their capital expenditure for this year, grappling with uncertainty over oil prices and growth in the domestic market. Sinopec reported capex for the first ninth months of 2016 that was 75% below projected levels, while PetroChina’s is down 23% and CNOOC’s down 50% from their respective projected 2016 budgets. The slashing of spending shows the great change in Chinese optimism for oil and gas, preferring to hoard cash instead of continue on freewheeling investing.

Following Keppel’s recent report of weak financials and job-cutting, rig builder Sembcorp Marine has followed suit, reporting a 53% fall in Q3 profits, necessitating a further 8000 job cuts. 

GE and Baker Hughes merge their respective oil & gas business to create a "new" Baker Hughes, a GE company. With a combined revenue of $32 billion, the new company will have operations in over 120 countries in oil field equipment, technology and services.  As always this transaction will be subject to approval by the sharholders and regulators.  

ConocoPhillips reported a smaller loss in Q3, amounting to USD1 billion, compared to USD1.1 billion loss in the same quarter in the previous year. However, Statoil reported a wider loss of USD431 million quarterly loss, at increase of 41% from a year ago.  Better news from Total, it posted USD2.1 billion profit due to its aggressive reduction in operating costs. 

ExxonMobil makes a big discovery in Nigeria, with an estimated recoverable resources of 500 million to 1 billion barrels of oil offshore Nigeria. ExxonMobil holds a 27% stake in this venture with other local and international partners.

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Crude Oil Prices: Changing Gear

In the last week, global crude oil price benchmarks have leapt up by some US$5/b. Brent is now in the US$66/b range, while WTI maintains its preferred US$10/b discount at US$56/b. On the surface, it would seem that the new OPEC+ supply deal – scheduled to last until April – is working. But the drivers pushing on the current rally are a bit more complicated.

Pledges by OPEC members are the main force behind the rise. After displaying some reticence over the timeline of cuts, Russia has now promised to ‘speed up cuts’ to its oil production in line with other key members of OPEC. Saudi Arabia, along with main allies the UAE and Kuwait, have been at the forefront of this – having made deeper-than-promised cuts in January with plans to go a bit further in February. After looking a bit shaky – a joint Saudi Arabia-Russia meeting was called off at the recent World Economic Forum in Davos in January – the bromance of world’s two oil superpowers looks to have resumed. And with it, confidence in the OPEC+ club’s abilities.

Russia and Saudi Arabia both making new pledges on supply cuts comes despite supply issues elsewhere in OPEC, which could have provided some cushion for smaller cuts. Iranian production remains constrained by new American sanctions; targeted waivers have provided some relief – and indeed Iranian crude exports have grown slightly over January and February – but the waivers expire in May and there is uncertainty over their extension. Meanwhile, the implosion in Venezuela continues, with the USA slapping new sanctions on the Venezuelan crude complex in hopes of spurring regime change. The situation in Libya – with the Sharara field swinging between closure and operation due to ongoing militant action – is dicey. And in Saudi Arabia, a damaged power repair cable has curbed output at the giant 1.2 mmb/d Safaniuyah field.

So the supply situation is supportive of a rally, from both planned and unplanned actions. But crude prices are also reacting to developments in the wider geopolitical world. The USA and China are still locked in an impasse over trade, with a March 1 deadline looming, after which doubled US tariffs on US$200 billion worth of Chinese imports would kick in. Continued escalation in the trade war could lead to a global recession, or at least a severe slowdown. But the market is taking relief that an agreement could be made. First, US President Donald Trump alluded to the possibility of pushing the deadline by 2 months to allow for more talks. And now, chatter suggests that despite reservations, American and Chinese negotiators are now ‘approaching a consensus’. The threat of the R-word – recession – could be avoided and this is pumping some confidence back in the market. But there are more risks on the horizon. The UK is set to exit the European Union at the end of March, and there is still no deal in sight. A measured Brexit would be messy, but a no-deal Brexit would be chaotic – and that chaos would have a knock-on effect on global economies and markets.

But for now, the market assumes that there must be progress in US-China trade talks and the UK must fall in line with an orderly Brexit. If that holds – and if OPEC’s supply commitments stand – the rally in crude prices will continue. And it must. Because the alternative is frightening for all.

Factors driving the current crude rally:

  • Renewed supply cut pledges from Russia and Saudi Arabia
  • Unplanned supply outages in Saudi Arabia
  • Supply issues in Venezuela, Iran and Libya
  • Optimism over a new US-China trade deal
February, 22 2019
“Lubricants Shelf” to Assess Engine Oil Market

Already, lubricant players have established their footholds here in Bangladesh, with international brands.

However, the situation is being tough as too many brands entered in this market. So, it is clear, the lubricants brands are struggling to sustain their market shares.

For this reason, we recommend an impression of “Lubricants shelf” to evaluate your brand visibility, which can a key indicator of the market shares of the existing brands. 

Every retailer shop has different display shelves and the sellers place different product cans for the end-users. By nature, the sellers have the sole control of those shelves for the preferred product cans.

The idea of “Lubricants shelf” may give the marketer an impression, how to penetrate in this competitive market. 

The well-known lubricants brands automatically seized the product shelves because of the user demand. But for the struggling brands, this idea can be a key identifier of the business strategy to take over other brands.

The key objective of this impression of “Lubricants shelf” is to create an overview of your brand positioning in this competitive market.

A discussion on Lubricants Shelves; from the evaluation perspective, a discussion ground has been created to solely represent this trade, as well as its other stakeholders.

Why “Lubricants shelf” is key to monitor engine oil market?

The lubricants shelves of the overall market have already placed more than 100 brands altogether and the number of brands is increasing day by day.

And the situation is being worsened while so many by name products are taking the different shelves of different clusters. This market has become more overstated in terms of brand names and local products.

You may argue with us; lubricants shelves have no more space to place your new brands. You might get surprised by hearing such a statement. For your information, it’s not a surprising one.

Regularly, lubricants retailers have to welcome the representatives of newly entered brands.

And, business Insiders has depicted this lubricants market as a silent trade with a lot of floating traders.

On an assumption, the annual domestic demand for lubricants oils is around 100 million litres, whereas base oil demand around 140 million litres.

However, the lack of market monitoring and the least reporting makes the lubricants trade unnoticeable to the public.

February, 20 2019
Your Weekly Update: 11 - 15 February 2019

Market Watch

Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b

  • Oil prices remains entrenched in their trading ranges, with OPEC’s attempt to control global crude supplies mitigated by increasing concerns over the health of the global economy
  • Warnings, including from The Bank of England, point to a global economic slowdown that could be ‘worse and longer-lasting than first thought’; one of the main variables in this forecast are the trade tensions between the US and China, which show no sign of being solved with President Trump saying he is open to delaying the current deadline of March 1 for trade talks
  • This poorer forecast for global oil demand has offset supply issues flaring up within OPEC, with Libya reporting ongoing fighting at the country’s largest oilfield while the current political crisis in Venezuela could see its crude output drop to 700,000 b/d by 2020
  • The looming new American sanctions on Venezuelan crude has already had concrete results, with US refiner Marathon Petroleum moving to replace Venezuelan crude with similar grades from the Middle East and Latin America
  • While Nicolas Maduro holds on to power, Venezuela’s opposition leader Juan Guaido has promised to scrap requirements that PDVSA keep a controlling stake in domestic oil joint ventures and boost oil production through an open economy when his government-in-power takes over
  • Despite OPEC’s attempts to stabilise crude prices, the US House has advanced the so-called NOPEC bill – which could subject the cartel to antitrust action – to a vote, with a similar bill currently being debated in the US Senate
  • The see-saw pattern in the US active rig count continues; after a net loss of 14 rigs last week, the Baker Hughes rig survey reported a gain of 7 new oil rigs and a loss of 3 gas rigs for a net gain of 4 rigs
  • While demand is a concern, global crude supply remains delicate enough to edge prices up, especially with Saudi Arabia going for deeper-than-expected cuts; this should push Brent up towards US$64/b and WTI towards US$55/b in trading this week


Headlines of the week

Upstream

  • Egypt is looking to introduce a new type of oil and gas contract to attract greater upstream investment into the country, aiming to be ‘less bureaucratic and more efficient’ with faster cost-recovery, ahead of a planned Red Sea bid round encompassing over a dozen concession sites
  • Lukoil has commenced on a new phase at the West Qurna-2 field in Iraq, with 57 production wells planned at the Mishrif and Yamama formation that could boost output by 80,000 boe/d to 480,000 boe/d in 2020
  • Aker BP has hit oil and natural gas flows at well 24/9-14 in the Froskelår Main prospect in the Alvheim area of the Norwergian Continental Shelf
  • Things continue to be rocky for crude producers in Canada’s Alberta province; production limits were increased last week after being previously slashed to curb a growing glut on news that crude storage levels dropped, but now face trouble being transported south as pipelines remain at capacity and crude-by-rail shipments face challenging economics

Midstream & Downstream

  • The Caribbean island of Curacao is now speaking with two new candidates to operate the 335 kb/d Isla refinery after its preferred bidder – said to be Saudi Aramco’s American arm Motiva Enterprises – withdrew from consideration to replace the current operatorship under PDVSA
  • America’s Delta Air Lines is now reportedly looking to sell its oil refinery in Pennsylvania outright, after attempts to sell a partial stake in the 185 kb/d plant failed to attract interest, largely due to its limited geographical position

Natural Gas/LNG

  • Total reports that it has made a new ‘significant’ gas condensate discovery offshore South Africa at the Brulpadda prospect in Block 11B/12B in the Outeniqua Basin, with the Brulpadda-deep well also reporting ‘successful’ flows of natural gas condensate
  • Italy’s Eni and Saudi Arabia’s SABIC have signed a new Joint Development Agreement to collaborate on developing technologies for gas-to-liquids and gas-to-chemicals applications
  • The Rovuma LNG project in Mozambique is charging ahead with development, with Eni looking to contract out subsea operations for the Mamba gas project by mid-March and ExxonMobil choosing its contractor for building the complex’s LNG trains by April
February, 15 2019