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Last Updated: April 27, 2017
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Last week in world oil:


  • After a flurry of support over supply disruptions in Libya and the extension of OPEC supply cuts, crude oil prices have returned to their previous levels, at US$52/b for Brent and US$49/b for WTI. While analysts and traders remain reasonably confident that OPEC will agree to extend the freeze, there are jitters over non-OPEC commitments to the move, with Russia indicating it could begin lifting output. 

Upstream & Midstream

  • ExxonMobil’s attempt to apply for a waiver that would allow it to override existing sanctions to drill for oil in Russia has been refused by the Trump administration. Perhaps an indication that the White House does not want to show overt favouritism, the decision comes during a time when the US government is probing Russian influence in US elections. 
  • Suncor’s Syncrude Canada oil sands project will resume production in May and June, but at reduced rates, after output was knocked out completely by a fire in March. The 350 kb/d plant produces light synthetic crude, necessary to be mixed with heavy oil sands to enable flow through pipeline. The unavailability of Syncrude has hampered oil sands production in Alberta over April, and will only pick up in late May. 
  • The active US oil and gas rig count continues to rise, hitting 857 sites last week. Ten new rigs – five apiece between oil and gas – entered production, though this was offset by a loss of 19 rigs in Canada.  


  • ExxonMobil and Saudi Arabia’s petrochemicals firm SABIC have selected a site in Corpus Christi, Texas as the site for their joint venture petrochemical complex. One of the 11 projects proposed by ExxonMobil as part of its US$20 billion US Gulf Coast investment drive, the ethylene-focused plant will have a capacity of 1.8 million tons per annum. 
  • Philadelphia Energy Solutions, the largest refiner on the US East Coast, will no longer receive rail deliveries of Bakken crude in June, a sign that the impending Dakota Access Pipeline is changing trade flows – diverting volumes from North Dakota down to the US Gulf Coast, and possibly ending the crude-by-rail boom that has sustained East Coast refiners. 
  • As negotiations between the UK and the EU over Brexit continue, British negotiators should aim to secure continue participation in the EU energy market, according to energy minister Greg Clark. The UK has deep connections in the energy sector, particularly in LNG and in Ireland, in the arena of electricity transmission and grid connections.
  • Chevron has sold its downstream assets in Canada’s British Columbia to Parkland Fuel Corp, for US$1.09 billion. The assets include 129 fuel stations, three terminals and the 52 kb/d Burnaby oil refinery, which will held boost Parkland’s extensive existing operations in Canada. 

Natural Gas and LNG

  • American natural gas transmission company William Partners is divesting its interest in the Nova Chemicals olefins plant, for US$2.1 billion, as it prepares to focus more on its core product. Williams Partners will continue to work with Nova, supplying natural gas in long-term supply deals to the ethylene-focused plant. 

Last week in Asian oil:

Upstream & Midstream

  • Iraq will build three new plants to capture natural gas at its southern oil fields. The gas is currently being flared, a chronic problem in the country as it lacks the necessary infrastructure to isolate and process gas hydrocarbons. Only one gas processing company exists – the Basrah Gas Company – and Iraq thinks three more are necessary to convert all gas (at the fields controlled by the government) into fuel for power generation. 
  • China is making a second attempt at launching a domestic crude oil futures contract after failing in 2014, as domestic stock volatility and the depression in commodity markets hit. The International Energy Exchange in Shanghai is now aiming to relaunch the contract in the third quarter of 2017, in what could eventually become the Asian crude oil benchmark. 
  • China’s CNOOC will be offering 22 open blocks covering an area of 47,270 square kilometres as the state upstream players attempts to attract foreign investments through relaxed terms and rules. All 22 blocks are offshore, concentrated southeast in the waters off Guangdong and Hainan. 
  • After rhetorical belligerence during his campaign period, Donald Trump’s administration admitted that Iran was complying with the nuclear deal struck by his predecessor. Some sanctions were reapplied in January, but the US is not yet ready to lift them, but placing them under ‘review’.

Natural Gas & LNG

  • Australia’s LNG boom has not benefitted its major population centres in the southeast, with most of the natural gas produced earmarked for exports. Now, the country’s competition regulator is ordering a review over the ability of LNG projects to export gas that should be earmarked for domestic consumption in Victoria and New South Wales. The recent purchase by Santos of 20% of natural gas available for consumption in the east coast to fuel LNG production for export at the Gladstone plant over internal gas shortages sparked the ordered review. This has caused a domestic dichotomy, with Australia’s internal spot LNG prices soaring while it exports record amounts of gas overseas. As an attempt to ease the problem, ConocoPhillips has said it is open to diverting gas from its northern Australian fields to the planned transcontinental Trans-Australia gas pipeline, linking production in the north to the major domestic markets in the southeast. 
  • ConocoPhillips and its partners are mulling over an expansion of the Darwin LNG plant in Australia’s Northern Territory. Supply from its current gas source, the Bayu-Undan field, is expected to run out in 2022 and ConocoPhillips is looking beyond developing its own fields for US$10 billion to incorporate output from other currently undeveloped gas resources in the area. There are currently five joint ventures with undeveloped resources in the Northern Territory backing ConocoPhillips’ study, including Shell, Petronas, Eni, Santos and Origin. 
  • Pakistan has approved construction of a new US$1 billion gas pipeline to transport LNG volumes from the port of Karachi inland to Lahore. The project by Sui Northern Gas Pipelines is part of the government’s plans to add 1.2 bcf per day of LNG volumes, and will be constructed in two phases – a 780km pipeline from Sawan to Lahore, and a 130km tie-in to the existing transmission  network. 

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June, 12 2022
OPEC And The Current State of Oil Fundamentals

It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.

And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.

That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.

The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.

In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.

The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.

But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.

With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.

But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.

A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.

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June, 12 2022