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Last Updated: June 14, 2017
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Last week in the world oil:

Prices

  • Oil prices remain weak, but edged up at the start of the week on news that US inventories had declined and that Saudi Arabia would limit crude sales to Asia in July and slash shipments to the US. However, simmering geopolitical tensions in the Arabian Gulf and increased US drilling activity is likely to keep a lid on prices below US$50/b for a while.

Upstream & Midstream

  • Shell has lifted its declared force majeure on Forcados crude exports, bringing all of Nigeria’s oil export facilities online for the first time in 16 months, after local militants disrupted operations through a sustained series of sabotage. With Nigeria exempt from the OPEC supply cuts, it can now raise its production back to expected levels of 1.8 mmbpd.
  • After previous talks with the South Sudan government collapsed, France’s Total says that the country has reapproached the French major to resume talks on developing the B1 and B2 oil blocks. Tullow Oil is also involved in the negotiations as South Sudan seeks foreign investment to unlock its hydrocarbon potential. B1 and B2 are part of the three blocks that make up the former Block B, the largest untapped oil deposit in South Sudan and central to the government’s plans to raise production from 130 kb/d to 200 kb/d by end-2017 and 300 kb/d by end-2018.
  • Commercial production from Eni’s offshore Sankofa field in Ghana will start in July, three months ahead of schedule with production of 45 kb/d. This is Phase 1 of the US$7.9 billion Offshore Cape Three Points project, which includes expected 180 mcf/d output at the Gye Nyame gas reserve.
  • Libya’s major Sharara field has reopened and should resume normal production levels of 270 kb/d within the week after a short workers’ strike over medical treatment coverage for employees.
  • Total operational oil rigs in the USA reached 741 last week, adding 8 new units. Along with 3 new gas rigs, that brings the American total to 927.

Downstream

  • Utilisation rates at Venezuela’s 187 kb/d Puerto la Cruz refinery has dropped down to 16%, as the Mesa 30 crude it depends on is redirected to Cuba and Curacao. Mesa 30 is a superlight crude used to dilute heavy Orinoco oil, but also prized by PDVSA’s foreign clients. Cuba, in particular, has taken up to 1.4 mmbpd of Mesa 30 since March, providing valuable foreign currency but exacerbating Venezuela’s refining crisis.

Natural Gas and LNG

  • While the gas world focuses on selling LNG to Asia, France’s Total is also looking at alternatives to grow its gas business by investing directly in gas-consuming industries. It has identified Morocco and South Africa as key countries to invest in gas and power projects, which will support an LNG portfolio that is expected to double to 15 million tons by 2020. Total will be looking to get involved in a US$4.6 billion Moroccan LNG import project and a US$3.9 billion gas-to-power development in South Africa.
  • Greece will be launching a tender this month for the privatisation of the country’s natural gas grid operator DESFA, part of a condition of Greece’s bailout agreement with the EU and IMF. Azerbaijan’s SOCAR originally agreed to buy 66% of DESFAfor €400 million, but the deal later collapsed.

Last week in Asian oil

Upstream

  • Pakistan’s OGDC has struck oil in the Chabaro-1 well in Pakistan’s Khewari block. Test drilling has shown flows of 15 mcf/d and a tiny 20 bpd of condensate. This adds on to the Chhutto-1 well, also in the province of Sindh, with flows of 8.66 mcf/d of gas and 285 bpd of condensate. While small, the finds are also a signal that OGDC’s aggressive exploration is paying off, adding to its production level of 50 kb/d – representing half of Pakistan’s current oil output.

Downstream

  • In an unusual and coordinated move, an alliance of more than 20 of China’s largest independent oil refiners have urged the ‘teapots’ to work closely as a group to adhere to government rules on oil quotas and fuel taxes. Previously pursuing individual agendas, the importance of the teapots in domestic fuels and exports expanded in 2015 when they were first allowed to import crude directly. But with that came extra scrutiny. Accused by Sinopec and Petrochina of evading or under-paying taxes, the move is an attempt to band together and act as a single block to preserve and defend their interests as a whole, since the actions of a single errant member could cause negative consequences for all.
  • Iraq is planning to triple its refining capacity by 2021 to reduce its reliance on refined product imports. Capitalising on its vast crude reserves, Iraq is planning a second refinery in Basra (300kb/d), a 70 kb/d plant in Kirkuk, and a 150 kb/d facility with two Chinese companies, as well as upgrades to existing refineries in Basra and Daura. Assuming all projects are completed as scheduled by 2021, processing capacity in Iraq will rise from 500 kb/d to 1.5 mmb/d.
  • Financing issues have caused Indonesia’s Pertamina to rethink its schedule of upcoming refinery upgrades and its ventures with Rosneft and Saudi Aramco. Unable to juggle so many projects within a short period, the timeline will now be expanded to ensure that cost is not a burden concentrated within 1 or 2 years. The Balikpapan project, which would boost capacity to 360 kb/d from 260 kb/d has been pushed back to 2020 from 2019, with a second stage – aimed at improving fuel quality – delayed to 2021. The Cilacap upgrade project will be pushed to 2023 from 2021, pending Saudi Aramco sign-off, while the grassroots 300 kb/d Tuban refinery with Rosneft is likely to be moved to 2024 from 2021. All this will mean that Indonesia will remain highly dependent on fuel imports for the time being.

Natural Gas & LNG

  • As Australia aims to ease the gas shortage in its populous east coast, the Northern Territory has ok-ed the building of the Jemena A$800 million gas pipeline (owned by the State Grid Corp of China and Singapore Power), which will link the gasfields in northern Australia with consuming markets in Queensland. Meanwhile, further south, the state of Victoria is backing a floating LNG import project with AGL Energy to beef up its local gas supply. This is required since onshore gas drilling has been barred in Victoria, forcing the state to compete with LNG export projects pulling natural gas out of the country’s manufacturing hub.

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May, 20 2022
High Oil Prices and Indonesia’s Ban on Oil Palm Exports

Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.  

A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.

Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.

Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.

And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.

That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.

Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$110-1113/b, WTI – US$105-110/b
  • As the war in Ukraine becomes increasingly entrenched, the pressure on global crude prices as Russian energy exports remain curtailed; OPEC+ is offering little hope to consumers of displaced Russian crude, with no indication that it is ready to drastically increase supply beyond its current gentle approach
  • In the US, the so-called NOPEC bill is moving ahead, paving the way for the US to sue the OPEC+ group under antitrust rules for market manipulation, setting up a tense next few months as international geopolitics and trade relations are re-evaluated

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An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.

Nowadays, everyone is shopping online - from groceries to clothes. And it's no different for construction supplies. With an online store, you can find all your supplies in one place and have them delivered to your doorstep. Construction supply online shops are a great way to find all the construction supplies you need. They also offer a wide variety of products from different suppliers, making it easier for customers to find what they're looking for. A construction supply online shop is essential for any construction company. They are the primary point of contact for the customers and they provide them with all the goods they need.

Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.

Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.

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