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Last Updated: May 11, 2017
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Last week in world oil:


  • With Saudi Arabia and Russia seemingly in agreement that the OPEC and non-OPEC supply cuts must be extended into 2018 to support crude prices, oil has traded upwards over the past week. Levels, however, are still weak, as Libyan production returns to the market, with Brent trading just below US$50/b and WTI at US$46/b.

Upstream & Midstream

  • Suncor’s Syncrude oil sand project in Canada has restarted crude shipments from its Mildred Lake upgrader. Production had been halted as a result of a fire in mid-March, leaving Syncrude orders empty over April. Output at Mildred Lake – which upgrades mined oil sands bitumen into refinery-ready synthetic crude – will stay at 140 kb/d as maintenance is completed, ramping up to full capacity of 350 kb/d only in June.
  • American oil rigs numbered above 700 for the first time since April 2015, as the country gained another six oil and gas rigs to hit 877 in total.


  • Petrobras’ drive to reduce debt through a vast asset sale has been expanded to include its refineries. Thus far, the Petrobras divestiture program has been confined to oil fields, pipeline and peripheral downstream interests, but CEO Pedro Parente has now expanded the circle to include refineries as part of 40 assets to be offered through 2018 that the company hopes will fetch some US$42 billion.
  • Total has begun shutting down its 117 kb/d Feyzin refinery in France as workers downed tools on a strike over bonuses and compensation. With no clear end to the end, Total has opted to shut the refining and petrochemical platform completely, supplying clients from other sites.
  • The US will continue to probe the alleged dumping and unfair subsidies of biofuels from Argentina and Indonesia, potentially paving the way for punitive import duties, bringing a possible benefit to US producers.

Natural Gas and LNG

  • BP and Kosmos Energy announced a major gas discovery offshore Senegal, adding to a list of exploration successes made by BP, Total and smaller players in recent years. The Yakaar-1 find, while not yet quantified, has players sufficiently excited that it could support another LNG export project using Senegalese and Mauritanian natural gas.
  • Russia has suspended LPG exports to Ukraine for the second time in a month, citing that Russia’s regulator had not given clearance for the shipments. Ukraine is typically the second-largest market for Russian propane and butane, with volumes of 800,000 tons last year, but Russia has turned off the tracks (LPG is exported by train), saying it fears the fuel would be used for military purposes. It highlights the fragile relationship Russia has with its former vassal state since the annexation of the Crimean peninsula in 2014, yet still commercially dependent on Ukraine to absorb Russian exports and allow Russian gas through to Europe.
  • As it announced strong earnings results, Total has sanctioned its first project since 2014. FID was made on the US$500 million Aguada Pichana Este in Argentina’s Vaca Muerta, increasing its stake from 27% to 41% as well. It is the first of 10 major FIDs Total expects to make this year.

Last week in Asian oil

Upstream & Midstream

  • PetroVietnam is attempting to restart its joint venture with Venezuela’s PDVSA for the extra-heavy PetroMacareo project. Muscled out of more conventional projects by other state players, PetroVietnam’s first major upstream asset was meant to be the start of the state firm’s upstream ambitions; instead, plummeting oil prices and severe economic conditions in Venezuela halted the costly project. Although it initially considered selling its 40% stake in the project, it has instead retained its shares. And now, with oil prices moving up and Vietnam’s second refinery impending, PetroVietnam is revisiting the project, which could eventually produce 200 kb/d of crude at peak production.
  • Indonesia is pressing forward with a lawsuit against Thailand’s PTT and PTTEP for US$2 billion over environmental damage from the Timor Sea oil spill in 2009. PTTEP Australasia’s Montara wellhead caught fire then, leaking crude oil across Western Australian and (Indonesia alleges) the East Nusa Tenggara province. Indonesia claims that the spill damaged mangroves, corals and seagrass fields in its regions exposed to the currents of the Timor Sea, with PTTEP refutes the allegations, stating that ‘no oil from Montara reached Indonesia.’


  • Iran declared that it was now self-sufficient in petrol supplies, as President Hassan Rouhani opened the Bandar Abbas refinery. Years of sanctions had left Iran floundering in terms of fuel production, but as the country comes in from the cold, it is now in a position not only achieve fuel self-sufficiency but also resume product exports, particularly with energy-hungry India next door.
  • Iraq has opened bids for a 300 kb/d refinery in Fao, near the country’s southern city of Basra. The refinery will be export-focused, aiming to boost Iraq’s exports, which have been curtailed since the Islamic State militants overran and damaged the country’s larger oil processing plant in Baiji, north of Baghdad, in 2014. Iraq is offering either build-own-operate or build-operate-transfer options for the refinery, with bidding closing by August 1.

Natural Gas & LNG

  • Reliance is India’s first major coal-bed methane gas producer and, curiously, now its own customer. Produced at the coal seams of the Sohagpur block in Madhya Pradesh, Reliance outbidded other contenders by agreeing to pay US$4.23/mmBtu for the gas. Earmarked for its petrochemical plants in Maharashtra and Gujarat, which are currently dependent largely on imported gas, Reliance outbid fertiliser maker Deepak Fertilisers & Petrochemicals Corp and state utility GAIL.


  • PetroVietnam’s former chairman Dinh La Thang has been sacked from the country’s Politburo, the body that oversees all major political and policy decisions, over violations during his 2009-2011 tenure at the state oil player. Over 90% of the Central Committees members voted to remove him, a sign that the country’s top brass was taking allegations of corruption and leadership violations seriously.

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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
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