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Last Week in World Oil


  • While strong Asian economic data offers hope that oil demand will strengthen, rebounding Libyan production – with the Sharara field resuming production – offset some strength in crude prices. Brent started this week at US$53/b, while WTI edged up into the low US$50/b levels.

Upstream & Midstream

  • As the shine continues to come off oil sands, ConocoPhillips will be selling much of its Canadian oil sands assets to Cenovus for C$17.7 billion (US$13.3 billion). The assets include COP’s 50% non-operator interest in Foster Creek Christine Lake, along with most of its Deep Basin gas assets. The assets have an expected production of 298,000 boe/d per year.
  • Ten new oil rigs and five new gas rigs entered service in the US last week, bringing the total active rig count to 824, attracted by crude prices steadying around the US$50/b level. However, Canada lost 30 rigs, split evenly between oil and gas sites, facing more headwinds in terms of cost.  


  • Contrary to the expectation that a mature market like the US would shed refineries, two new refineries are being planned in Texas. Located within the hot Eagle Ford and Permian Basin shale plays, Raven Petroleum and MMEX Resurces are planning to a 50kb/d refinery each, focusing on processing light crude into gasoline for the Mexican market, which is short on the fuel and recently deregulated.
  • Italy’s Trans Adriatic Pipeline (TAP) has been given the go-ahead by the country’s top country, extending the US$40 billion Southern Gas Corridor that will transport natural gas from Azerbaijan’s Shah Deniz gas field in the Caspian Sea through Turkey, Greece, Albania and now Italy.

Natural Gas and LNG

  • Qatar has lifted its self-imposed moratorium on North Field. Development at the world’s largest natural gas field, shared between Qatar and Iran (which calls it South Pars), had been halted in 2005 to study the impact of rapid development under a huge slate of projects. Qatar now expects to start new production from the field – in the southernmost part – within five to seven years, potentially adding some 2 bcf/d of production, underlining Qatar’s throne as the world’s top LNG exporter.
  • With the debate over the Nordstream-2 pipeline heating up, Poland is considering alternatives. The country is now considering building a second LNG terminal in the Baltic Sea to diversify its natural gas sources. Planned for 2021 with a budget of €700 million, it will serve as an alternative should the gas pipeline from Norway not come to fruition.


  • Saudi Arabia has decided to cut the amount of tax paid to the government by its state oil firm Saudi Aramco. The move to slash the tax rate from 85% to 50%, according to financial analysts, could boost the value of the national oil giant by as much as US$1 trillion as it prepares for its impending IPO that will likely be the world’s largest.
  • Saudi Aramco has signed MoUs with ADNOC and green energy firm Masdar. The former focus on technological and efficiency cooperation, while the latter focuses on renewables and carbon management.

Last week in Asian oil:

Upstream & Midstream

  • Just a few months after Iran regained its status as India’s top supplier of crude oil, that reign is under threat over a political squabble. Demanding that the development of Iran’s Farzad B gas field be awarded to an Indian consortium, the impasse has led New Delhi to order Indian state refiners to cut Iranian crude imports by a fifth – from 240 kb/d to 190 kb/d. In retaliation, Iran is threatening to reduce the discount it offers Indian buyers on freight from 80% to 60%. An Indian consortium headed up by ONGC was favourite to win the Farzad B concession, but the recent lifting of sanctions may be tempting Iran to look elsewhere for a better deal.
  • Thailand will be holding petroleum concession auctions for the Erawan and Bongkot fields this December. Currently operated by Chevron and PTTEP, respectively, the existing concessions for the fields expire in 2022 and 2023, with the auction aiming to introduce more competition into Thailand’s upstream industry as well as introduce elements of PSCs.

Downstream & Shipping

  • Sinopec will be centralising its domestic fuels procurement in its Beijing office from April, a move that streamlines operations for the state refiner but leaves teapot refiners at a disadvantage. Sinopec has previously acquired gasoline and diesel through its regional offices that dealt with local suppliers, but the move to centralise buying in Beijing seems a bid to bolster bargaining power by depressing third-party margins.
  • Taiwan’s CPC will be starting trial runs of a new 150 kb/d CDU, two hydrotreaters with a total capacity of 70 kb/d and a 50 kb/d condensate splitter at its refinery in Talin in May. The move will modernise the aging refinery, which will have its existing 100 kb/d CDU scrapped, yielding a net capacity increase of 50 kb/d to 350 kb/d.

Natural Gas & LNG

  • Japan’s Kansai Electric Power Co, the country’s second largest power utility, is setting up a trading unit in Singapore. Aimed at boosting its buying and negotiation power over LNG trade, moving from cumbersome multi-decade contracts to short-term, opportunistic trading, the new desk is one of a score set up in Singapore over the last year, strengthening the island nation’s bid to become Asia’s LNG trading hub.
  • More woes at the massive Gorgon project, where production was halted at Train Two again, once of several shutdowns since it began producing gas last October. The most recent shutdown was linked to a ‘planned turnaround to enhance reliability.’ Meanwhile, production has kicked off at Train Three, the final production unit at Gorgon, ending a trouble-prone development period that Chevron will now be eager to monetise.
  • Shell will be doubling the capacity of its planned LNG import facility at Hazira, India. Spurred by growing demand, the original plan called for capacity to be increased to 7.5 million tons by 2017, but Shell is now aiming to go higher to hit 10 million tons per year by 2020.
  • Malaysia’s Petronas and Singapore’s Pavilion Energy have inked an MoU that will see both companies collaborate on LNG trading. Pavilion Energy, backed by Singapore Temasek, is the gatekeeper to Singapore’s LNG ambitions, made all the more important as it races to become an LNG hub.

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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
From Certain Doom To Cautious Optimism

A month ago, the world witnessed something never thought possible – negative oil prices. A perfect storm of events – the Covid-19 lockdowns, the resulting effect on demand, an ongoing oil supply glut, a worrying shortage of storage space and (crucially) the expiry of the NYMEX WTI benchmark contract for May, resulted in US crude oil prices falling as low as -US$37/b. Dragging other North American crude markers like Louisiana Light and Western Canadian Select along with it, the unique situation meant that crude sellers were paying buyers to take the crude off their hands before the May contract expired, or risk being stuck with crude and nowhere to store it. This was seen as an emblem of the dire circumstances the oil industry was in, and although prices did recover to a more normal US$10-15/b level after the benchmark contract switched over to June, there was immense worry that the situation would repeat itself.

Thankfully, it has not.

On May 19, trade in the NYMEX WTI contract for June delivery was retired and ticked over into a new benchmark for July delivery. Instead of a repeat of the meltdown, the WTI contract rose by US$1.53 to reach US$33.49/b, closing the gap with Brent that traded at US$35.75b. In the space of a month, US crude prices essentially swung up by US$70/b. What happened?

The first reason is that the market has learnt its lesson. The meltdown in April came because of an overleveraged market tempted by low crude oil prices in hope of selling those cargoes on later at a profit. That sort of strategic trading works fine in a normal situation, but against an abnormal situation of rapidly-shrinking storage space saw contract holders hold out until the last minute then frantically dumping their contracts to avoid having to take physical delivery. Bruised by this – and probably embarrassed as well – it seems the market has taken precautions to avoid a recurrence. Settling contracts early was one mechanism. Funds and institutions have also reduced their positions, diminishing the amount of contracts that need to be settled. The structural bottleneck that precipitated the crash was largely eliminated.

The second is that the US oil complex has adjusted itself quickly. Some 2 mmb/d of crude production has been (temporarily) idled, reducing supply. The gradual removal of lockdowns in some US states, despite medical advisories, has also recovered some demand. This week, crude draws in Cushing, Oklahoma rose for the second consecutive week, reaching a record figure of 5.6 million barrels. That increase in demand and the parallel easing of constrained storage space meant that last month’s panic was not repeated. The situation is also similar worldwide. With China now almost at full capacity again and lockdowns gradually removed in other parts of the world, the global crude marker Brent also rose to a 2-month high. The new OPEC+ supply deal seems to be working, especially with Saudi Arabia making an additional voluntary cut of 1 mmb/d. The oil world is now moving rapidly towards a new normal.

How long will this last? Assuming that the Covid-19 pandemic is contained by Q3 2020, then oil prices could conceivably return to their previous support level of US$50/b. That is a big assumption, however. The Covid-19 situation is still fragile, with major risks of additional waves. In China and South Korea, where the pandemic had largely been contained, recent detection of isolated new clusters prompted strict localised lockdowns. There is also worry that the US is jumping the gun in easing restrictions. In Russia and Brazil – countries where the advice to enforce strict lockdowns was ignored as early warning signs crept in – the number of cases and deaths is still rising rapidly. Brazil is a particular worry, as President Jair Bolosnaro is a Covid-19 skeptic and is still encouraging normal behaviour in spite of the accelerating health crisis there. On the flip side, crude output may not respond to the increase in demand as easily, as many clusters of Covid-19 outbreaks have been detected in key crude producing facilities worldwide. Despite this, some US shale producers have already restarted their rigs, spurred on by a need to service their high levels of debt. US pipeline giant Energy Transfer LP has already reported that many drillers in the Permian have resumed production, citing prices in the high-US$20/b level as sufficient to cover its costs.

The recovery is ongoing. But what is likely to happen is an erratic recovery, with intermittent bouts of mini-booms and mini-busts. Consultancy IHS Markit Energy Advisory envisions a choppy recovery with ‘stop-and-go rallies’ over 2020 – particularly in the winter flu season – heading towards a normalisation only in 2021. It predicts that the market will only recover to pre-Covid 19 levels in the second half of 2021, and a smooth path towards that only after a vaccine is developed and made available, which will be late 2020 at the earliest. The oil market has moved from certain doom to cautious optimism in the space of a month. But it will take far longer for the entire industry to regain its verve without any caveats.

Market Outlook:

  • Crude price trading range: Brent – US$33-37/b, WTI – US$30-33/b
  • Demand recovery has underpinned a rally in oil prices, on hopes that the worst of the demand destruction is over
  • Chinese oil demand is back to the 13 mmb/d level, almost on par year-on-year
  • News that development of potential Covid-19 vaccines are reaching testing phase also cheered the market
  • The US active oil and gas rig count lost another 35 rigs to 339, down 648 sites y-o-y


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May, 23 2020
EIA expects record liquid fuels inventory builds in early 2020, followed by draws

quarterly global liquid fuels productionand consumption balance

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

As mitigation efforts to contain the 2019 novel coronavirus disease (COVID-19) pandemic continue to lead to rapid declines in petroleum consumption around the world, the production of liquid fuels globally has changed more slowly, leading to record increases in the amount of crude oil and other petroleum liquids placed into storage in recent months. In its May Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects global inventory builds will be largest in the first half of 2020. EIA estimates that inventory builds rose at a rate of 6.6 million barrels per day (b/d) in the first quarter and will increase by 11.5 million b/d in the second quarter because of widespread travel limitations and sharp reductions in economic activity.

After the first half of 2020, EIA expects global liquid fuels consumption to increase, leading to inventory draws for at least six consecutive quarters and ultimately putting upward pressure on crude oil prices that are currently at their lowest levels in 20 years.

As with the March and April STEO, EIA’s forecast reductions in global oil demand arise from three main drivers: lower economic growth, less air travel, and other declines in demand not captured by these two categories, largely related to reductions in travel because of stay-at-home orders. Based on incoming economic data and updated assessments of lockdowns and stay-at-home orders across dozens of countries, EIA has further lowered its forecasts for global oil demand in 2020 in the May STEO. The STEO is based on macroeconomic projections by Oxford Economics (for countries other than the United States) and by IHS Markit (for the United States).

changes in quarterly global petroleum liquids consumption

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

In the May STEO, EIA forecasts global liquid fuels consumption will average 92.6 million b/d in 2020, down 8.1 million b/d from 2019. EIA forecasts both economic growth and global consumption of liquid fuels to increase in 2021 but remain lower than 2019 levels. Any lasting behavioral changes to patterns in transportation and other forms of oil consumption once COVID-19 mitigation efforts end, however, present considerable uncertainty to the increase in consumption of liquid fuels, even if gross domestic product (GDP) growth increases.

Members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) agreed to new production cuts in early April that will remain in place throughout the STEO forecast period ending in 2021. EIA assumes OPEC members will mostly adhere to announced cuts during the first two months of the agreement (May and June) and that production compliance will relax later in the forecast period as stated production cuts are reduced and global oil demand begins growing.

EIA forecasts OPEC crude oil production will fall to less than 24.1 million b/d in June, a 6.3 million b/d decline from April, when OPEC production increased following an inconclusive meeting in March. If OPEC production declines to less than 24.1 million b/d, it would be the group’s lowest level of production since March 1995. The forecast for June OPEC production does not account for the additional voluntary cuts announced by Saudi Arabia’s Energy Ministry on May 11.

EIA expects OPEC production will begin increasing in July 2020 in response to rising global oil demand and prices. From that point, EIA expects a gradual increase in OPEC crude oil production through the remainder of the forecast and for production to rise to an average of 28.5 million b/d during the second half of 2021.

changes in quarterly global petroleum liquids production

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), May 2020

EIA forecasts the supply of non-OPEC petroleum and other liquid fuels will decline by 2.4 million b/d in 2020 compared with 2019. The steep decline reflects lower forecast oil prices in the second quarter as well as the newly implemented production cuts from non-OPEC participants in the OPEC+ agreement. EIA expects the largest non-OPEC production declines in 2020 to occur in Russia, the United States, and Canada.

May, 20 2020