US benchmark gains more ground after rising in the previous session
US crude edged higher for a second day on Tuesday, underpinned by high compliance with Opec's production cuts even as the market remains anchored by rising US production.
Opec has so far surprised the market by showing record compliance with oil-output curbs, and could improve in coming months as the biggest laggards - the United Arab Emirates and Iraq - pledge to catch up quickly with their targets.
"With the prospect of Opec extending the current cuts even longer, we would expect to see prices continue to push higher from here," ANZ said in a note.
West Texas Intermediate crude oil added 11 cents, or 0.2%, to $54.16 a barrel early on Tuesday, while benchmark Brent crude oil added 17 cents, or 0.3%, to $56.10 a barrel.
For the month, US crude is up 2.6% after falling in January, while Brent oil has risen marginally.
Under the deal, Opec agreed to curb output by about 1.2 million barrels per day from 1 January, the first cut in eight years. Russia and 10 other non-Opec producers agreed to cut around half as much.
A Reuters survey of Opec production later this week will show compliance for February.
Passive investment funds are poised to shift an estimated $2 billion from far-term to near-term crude futures over the next week, anticipating an energy market rally as the Opec output cut slashes supply.
At the same time rising US oil production continues to limit gains.
"Talking about more Opec cuts, they can't have too much higher cuts as it will lead to more US shale oil coming into the market," said Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance.
US producers boosted crude production to over 9 million bpd during the week ended 17 February for the first time since April 2016 as energy firms search for more oil, according to federal data.
US drillers added five oil rigs in the week to 24 February, bringing the total count up to 602, the most since October 2015, energy services firm Baker Hughes said on Friday.
A bearish target at $53.37 per barrel has been aborted for US oil, as it seems to have stabilised around a support at $53.99, said Wang Tao, Reuters market analyst for commodities and energy technicals.
Brent oil looks neutral in a range of $55.93-$57.26 per barrel, and an escape could suggest a direction.
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Headline crude prices for the week beginning 12 November 2018 – Brent: US$71/b; WTI: US$60/b
Headlines of the week
It seems to have been a topic that has been discussed for years, but a decision could finally be made. The Philippines has short-listed three different groups who are in the running to build the country’s first LNG import terminal, whittling them down from an initial 18 that submitted project proposals. The final three consist of the Philippines National Oil Company (PNOC), a joint venture between Tokyo Gas and domestic firm First Gen Corp and China’s CNOOC. The Philippines hopes to choose the final group by the end of November – an optimistic decision that belies that many, many complications that have come before.
First of all, the make-up of only one of the groups has been finalised. A local partner is a requirement for this project; CNOOC has yet to officially tie-up, although it has been talking to Manila-based Phoenix Petroleum, while state oil firm PNOC does not have a (deep-pocketed) partner yet. Firms including Chevron, Dubai’s Lloyds Energy Group and Japan’s JERA have reportedly contacted PNOC to express their interest, but a month before the Philippines wants to make a decision, its own home-grown hero hasn’t yet got its ducks lined up in a row.
And time is of essence. The once giant Malampaya gas field is running out of resources. Supplying piped natural gas to three power plants that feeds some 45% of Luzon’s electricity requirements, the Shell-operated field is expected to be completely depleted by 2024. With the country aiming to move away from burning coal or (imported) gasoil for power, gas is needed to replace gas. Even though the Philippines is pushing for a bilateral agreement with China to pave to way for joint exploration activities in disputed areas of the South China Sea – to the consternation of its citizens – any discovery in the Palawan basin or Scarborough Shoal will be years from commercialisation.
So LNG is the answer. And LNG has been the answer since 2008, when the need for an LNG import terminal was first identified. And it is not like no projects have been proposed – Australia’s Energy World Corp (EWC) has been wanting to build an LNG receiving terminal and power station in the Quezon province near Manila for years, but the project has been described as ‘trapped in a bureaucratic quagmire’ due to hurdles from various government agencies, or stymied by groups with competing interests.
PNOC itself has been wanting to build its own terminal in Batangas, within range of existing gas and power transmission facilities currently drawing Malampaya gas. But, just like Pertamina in Indonesia, it is cash-strapped and unable to drive the project on its own, hence the requirement for a partner/s. First Gen Corp and Phoenix Petroleum are both private players, with First Gen already operating four of the country’s five gas-fired plants while Phoenix Petroleum has close ties with CNOOC Gas.
Many announcements have been made and gone, but with this shortlist of three groups, it does finally look like the Philippines will be able to get its LNG ambitions of the ground. And it is thinking even bigger; wanting the terminal to become a LNG trading hub for the region – capitalising on the existing habit of ship-to-ship transfers of LNG cargoes into smaller parcels in the Philippine waters for delivery into southern China – challenging existing ambitions in Japan, South Korea and Singapore. But perhaps that is getting a bit ahead of themselves. Getting a project – any LNG project – off the ground is the first priority. And the rest can come after that.
Other Proposed LNG Projects In The Philippines: