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Brent and WTI prices are now at their highest levels in two years. With Brent almost touching US$65/b and WTI within shot of US$60/b, this is cheer for the market, where most participants had resigned themselves to a prolonged period of US$50/b oil. There are several factors propelling this rise. OPEC 's insistence that its supply freeze is working is proving true; despite the rise in American production (and American exports hitting all-time highs), the OPEC deal appears to be slowly clearing out the global glut. And then there has been a re-emergence of something the market hasn’t seen in a while – geopolitical risk premium.
Saudi Arabia’s decision to embark on a corruption purge in early November shocked the market. The arrest of some 11 princes – as well as the mysterious killing of a 12th as his helicopter was downed – sparked fears of turmoil was imminent in Saudi Arabia. While much of what goes on (and is going on) in the world’s largest crude producer remains a black box. Detractors within the sprawling House of Saud are not unknown, but have previously been dealt with quietly. This very public campaign – which included ‘imprisoning’ the ‘corrupt’ in the plush Ritz-Carlton – is unusual, and the market worries about what the future could hold. The politics of Saudi Arabia are complicated, and it is unclear where things will end with Crown Prince Salman’s current actions. If its future growth from a more diversified economy is all that he wants, things should go on track. If it’s just a power grab, things turn out differently.
What is truly more worrying is the part of an ongoing escalation between Saudi Arabia (and its allies, including the US) against Iran. On the day the purge was announced, Saudi Arabia said it had intercepted a missile fired from Yemen. Then the Prime Minister of Lebanon resigned while in Saudi Arabia, saying he ‘feared for his life’. Bahrain recently blamed a pipeline fire on Iran. This is a slowburn intensification since the Gulf states decided to blockade Qatar. There must be a lot of politicking going on behind the scenes, but one thing is clear – the Middle East is rapidly positioning themselves into two camps, for Saudi Arabia and for Iran. Threats of war have been declared, and even though it is unlikely right now, the danger is still real. With American diplomacy learning towards the Saudis under Donald Trump with no real peace maker in sight, bold moves could be made and hostilities could break out. Oil prices, naturally, would rise if that happens. But even the notion of it happening is making traders nervous. And keeping prices up. It is a repeat of the situation in 2011-2013, when the Arab Spring sent prices soaring.
Based on basic supply/demand fundamentals, the level of crude prices right now should probably be with the range of US$50-55/b. The market has been adding on a risk premium to prices due to the current Middle East tensions. This could rise if Iran-Saudi Arabia relations continue to sour or unless it also derails the planned extension of OPEC production cuts in March 2018! Rising American production is also not pacifying the market, after five weeks of declines, American rig owners added nine new rigs last week, tempted by rising prices. It is likely oil price stay within US$60/level through the end of the year. Some traders are betting it will go further. A flurry of trades last week betted on Brent to hit US$80/b by Christmas. There might be smiles if that happens, but for that to occur there will have to be some serious supply disruptions in the Middle East.
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We are excited to bring together the first ever Caribbean Oil & Gas Virtual Summit-2020 to be held from 16th - 18th September 2020.
Due to the current situation, this event is aimed at keeping the region's Oil & Gas community connected virtually and present an excellent networking opportunity all from the comfort of your office/home without the need to travel in these challenging times. There will also be a dedicated Virtual Exhibition focusing on the Operators, Prime Sub Contractors, Governments, Associations as well as the wider regional and international Oil & Gas Community with a particular focus on Guyana, Suriname and Trinidad.
The Conference & Virtual Expo would feature Suriname, Guyana, Bahamas, Barbados and Trinidad and participants from around the globe would present thought provoking keynotes, oral and poster presentations; displays of services, technology and investment opportunities will be available for both national and international companies.
You can also check the website www.carivs.com for further updates. We are expecting around 200 companies to be part of this conference. Both the Website and the Brochure will keep getting updated in coming days with further information about Speakers, Exhibitors, Sponsors, Content, Agenda etc.
Also I have attached a dropbox link. You will get access to the event platform through this link. This is in order for you to get an understanding of how the event platform works.
Let me know if you have any questions in the meantime
Stay Safe.
https://www.dropbox.com/s/1an67vaywnbryo3/CARIVS%20Video%20Guide_4.mp4?dl=0
Source: U.S. Energy Information Administration, Weekly Petroleum Status Report
Recent declines in demand for petroleum products have led commercial crude oil inventories in the United States to reach an all-time high of 541 million barrels as of the week ending June 19, which is 5 million barrels more than the previous record set in late March 2017, according to data in the U.S. Energy Information Administration’s (EIA) Weekly Petroleum Status Report.
Source: U.S. Energy Information Administration, Weekly Petroleum Status Report
Commercial crude oil inventories do not include crude oil held in the U.S. Strategic Petroleum Reserve, which totaled 654 million barrels as of June 19. Total commercial crude oil inventories include volumes held at refineries and tank farms, as well as some amount of pipeline fill (crude oil held in pipelines) and stocks in transit by water and rail. When estimating storage capacity utilization, EIA removes the pipeline fill and stocks in transit so that utilization reflects the stocks held at refineries and tank farms as a percentage of working storage capacity.
Source: U.S. Energy Information Administration, Weekly Petroleum Status Report
To help stakeholders better assess crude oil storage and capacity, EIA provides weekly estimates of U.S. and regional crude oil storage capacity utilization in the Weekly Petroleum Status Report (WPSR). EIA’s most recent Working and Net Available Shell Storage Capacity Report was released on May 29, 2020, with data as of March 31, 2020. In this update, net available shell storage capacity in the United States increased by nearly 19 million barrels from the previous estimate as of the end of September 2019. An increase in Gulf Coast storage capacity offset relatively small changes in other regions.
As of June 19, U.S. net commercial crude oil inventories were at 62% of total available storage capacity. The majority of capacity and inventories are located in the Gulf Coast, a region which is also home to the majority of U.S. refining capacity and a key area for exporting crude oil. Total commercial Gulf Coast crude oil inventories have increased by 64 million barrels since March 13, when a national emergency was declared in the United States, and are now at an all-time record of 308 million barrels.
Crude oil storage capacity utilization in Cushing, Oklahoma, had increased to 83% of capacity as of the week ending May 1, but it declined to 58% on June 19. Storage considerations were among the reasons that West Texas Intermediate (WTI) crude oil prices—which are based on physical delivery of WTI crude oil at Cushing, Oklahoma—briefly dropped below zero on April 20 and April 21.
The sale of a mere 5% stake in the oil world’s crown jewel, Saudi Aramco had captured the attention of the entire investment community last year. Pushing through after years of debate and delays, the sale on the Tadawul stock exchange valued Aramco at a whopping initial US$1.6 trillion. Investors were mainly connected Saudi individuals and wealthy families, with international buy-in limited as a planned parallel listing on the London or New York Stock Exchange fell through. Still, the deal was enough to unleash several thousand pages of speculation and opinion over potential liberalisation of the oil and gas complex in the Middle East, especially the upcoming post-oil and carbon-neutral environment.
Aramco may have captured all the main headlines, especially with its huge acquisition of fellow Saudi jewel SABIC but the true entity pushing the boundaries of privatisation and deregulation in the Middle East is elsewhere. Specifically, just east of Saudi Arabia, in Abu Dhabi – the largest and most influential of the seven emirates that make up the UAE.
The latest headline involving ADNOC, Abu Dhabi’s state oil firm, hasn’t really made the rounds beyond the industry’s eyes but it is crucial to understanding how the Middle East oil sector could adapt to the changing industry over the next few decades. Partnering with a consortium of six investors, ADNOC has sold a 49% stake in its ADNOC Gas Pipeline Assets subsidiary, retaining a 51% majority stake and control. The sale had been bandied around for over a year, seen as a sign of a gradual opening of a tightly controlled oil and gas region, and follows three other significant sales involving ADNOC. The first was in 2017, when ADNOC raised nearly a billion US dollars through an IPO of its fuels distribution unit on the Abu Dhabi Securities Exchange, offering up 10% of its shares. Then late 2019, ADNOC partnered with Italy’s Eni and Austria’s OMV to nearly double oil refining capacity in Abu Dhabi to 1.5 mmb/d – the largest foreign participation in the Middle East downstream industry since the Shell Pearl GTL project in Qatar and Total’s Jubail refining and petrochemicals push over a decade ago. Around the same time, ADNOC also pocketed US$4 billion from US investment giants BlackRock and KKR through the sale of a 40% stake in its ADNOC Oil Pipelines subsidiary. And now it is the turn of ADNOC’s gas pipelines.
The chronology and regional aspect of ADNOC’s moves is interesting. While Aramco looks local, Abu Dhabi went abroad. The refining expansion involved established oil market players, Eni and OMV – and parallels a gradual unbundling of Abu Dhabi’s upstream concessions, where stakes have been offered to Total, PetroChina, Eni, Cepsa and India’s ONGC over the past five years. But the choice of new investors are now not from the industry. After the deep-pocketed BlackRock and KKR, ADNOC has once against turned to institutional investors for its latest, and largest, sale, with the US$20.7 billion gas pipeline and infrastructure deal going to a consortium consisting of Global Infrastructure Partners (GIP), Brookfield Asset Management, Ontario Teacher’s Pension Plan Board, Singapore’s GIC sovereign wealth fund, NH Investment and Securities and Italy’s infrastructure operator SNAM. ADNOC called the deal a ‘landmark investment (that) signals continued strong interest in ADNOC’s low-risk, income-generating assets’. But it also illustrates two other points: institutional interest in strategic Middle East assets and the challenging environment within the industry because of Covid-19 that has led investment interest expanding to new capital that is currently reluctant to make risky bets in an unstable economic environment. So the choice of ADNOC’s safe assets and a captive domestic market is rather attractive.
ADNOC’s strategy differs from Aramco’s fundamentally. Where Aramco sold a stake of itself, ADNOC has parcelled out different parts of itself while keeping control of the main body intact. This is what Malaysia’s Petronas has done to a great degree of success, listing subsidiaries through IPOs and partnering with foreign investors on upstream/downstream projects, using the proceeds to finance a global expansion that now stretches across all continents. Replicating this strategy, as ADNOC looks to be doing, could pay dividends, particularly since ADNOC has a wider domestic base, as well as stronger export markets, than Petronas. Between Saudi Aramco and ADNOC, the OPEC duo seems to have kickstarted a liberalisation drive within the Middle East energy complex. Kuwait Petroleum and Bahrain’s BAPCO are already reported to be considering similar moves. Which model could this second wave follow: Aramco’s or ADNOC’s? Aramco’s is a shock-and-awe move, a potential wow factor at the size of any possible deal. But ADNOC’s more piecemeal approach could actually be far more stable and sustainable over time.
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