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Last Updated: December 7, 2017
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Market Watch

Headline crude prices for the week beginning 4 December 2017 – Brent: US$63/b; WTI: US$58/b

  • As expected, OPEC agreed to extend its oil supply freeze until the end of December 2018.
  • Nigeria and Libya are now part of the production deal, agreeing to limit output to their 2017 levels, roughly 2.8 mmb/d.
  • Compliance with the new supply extension is a worry, particularly Iraq within the OPEC fold and smaller African producers that form part of the Russia-led NOPEC group
  • However, OPEC members have agreed to revisit the deal in June 2018 with the option to rescind it if the market begins to overheat.
  • Recognising that further extensions of the deal is unlikely, Russia is pushing for a clear exit strategy to add clarity for the market.
  • Crude prices rose in the wake of the OPEC extension, but fell back on Monday as some profit-taking set in; the deal has been largely expected by the market and priced into the future curve.
  • Managed money continues to pour into the main crude benchmarks – Brent and WTI – providing a reasonable price floor at some US$60/b and US$55/b based on current fundamentals.
  • US crude output rose to 9.5 mmb/d in September, the highest monthly output levels since 2015 and near the absolute peak of 9.6 mmb/d recorded in 1970.
  • A report by the Massachusetts Institute of Technology suggests that the EIA’s assumptions of continued productivity increases at US shale wells are vastly overplaying the potential of America’s shale boom, potentially overstating output by some 10% through 2020.
  • US oil stockpiles increased last week when a stock drawdown was expected according to a Bloomberg industry survey, placing some downward pressure.
  • Active US rig count up by 6, with 2 new oil and 4 new gas sites. Gains mainly in Texas’ Haynesville and Permian basins.
  • Crude price outlook: Some profit-taking expected as oil trading starts to prepare for the winter break. OPEC deal extension is providing a strong floor, with American output driving trends. Prices to stay rangebound at US$62-63/b for Brent and US$56-57/b for WTI.  


Headlines of the week

Upstream

  • Total has sold its stake in Norway’s Martin Linge field (51%) and Garantiana field (40%) to Statoil for US$1.45 billion as part of a portfolio review following Total’s acquisition of Maersk Oil’s Norwegian assets.
  • Hoping to extend its winning streak in West Africa, ExxonMobil is on the verge of an oil and gas exploration deal offshore Mauritania, which would be in first venture into an area recently brimming with big discoveries.
  • Statoil has been awarded the Bajo del Toro Este light oil exploration licence in Argentina, holding 90% interest with GyP holding the rest.
  • PetroChina’s parent CNPC announced the discovery of a new oil field in Xinjiang’s Juggar basin, holding some 3.8 billion barrels in crude reserves.
  • Fellow Chinese upstream player CNOOC has also started up a new oil project - the Weizhou 12-2 Phase II project in the Beibu Gulf in the South China Sea. Peak output is expected to reach some 11.8 kb/d in 2018.
  • ExxonMobil’s Hebron project in eastern Canada has produced its first oil, on its way to an eventual peak production of some 150 kb/d.
  • Iraq is planning to boost output from its Rumaila oilfield to about 1.5 mmb/d in 2018 from a current output rate of 1.45 mmb/d.
  • The race for Iraq’s Majnoon oilfield is heating up, with Chevron, Total and PetroChina reportedly forming a consortium to take Shell’s stake.

Downstream

  • With squabbles over the use of the Kurdish crude export pipeline to Turkey continuing, Iraq is considering an alternative for Kirkuk crude – diverting volumes to the south for use in the Baghdad and Baiji refineries.  
  • Another first in US oil exports, as India’s MRPL made it first purchase of US crude, buying a cargo of high-sulphur Southern Green Canyon.
  • ExxonMobil’s new US$1 billion clean fuels delayed coker unit at the 320 kb/d Antwerp refinery will be ready for operation by June 2018.
  • Thai Oil is aiming for a 2022 completion of the US$4 billion upgrade of its Sriracha refinery, scrapping two old CDUs for a single new 200 kb/d one that will see the refinery only produce clean fuels and halt fuel oil output.
  • Total has completed the installation of a de-asphalting and hydrocracker unit at its Antwerp refinery, boosting clean fuels production capacity.
  • Indonesia’s Pertamina and Russia’s Rosneft have reported (finally) signed a deal to jointly built a new 300 kb/d refinery in Tuban, East Java.

Natural Gas/LNG

  • Austria’s OMW has bought a 24.99% share in the Western Siberian Yuzhno Russkoye natural gas field from Uniper SE for €1.719 billion.
  • Even as it becomes part of Total, Maersk Oil announced a plan to spend some US$3.3 billion to redevelop the Tyra gas field in Denmark, which would enable Tyra to continue production for at least 25 more years.
  • CNPC has completed the construction of the fourth Shaanxi-Beijing gas pipeline, with the 1,098km pipeline boosting supplies by some 70 mcm/d.
  • Inpex’s Ichthys LNG project in Australia has hit another snag, as a worker’s death has halted construction at an onshore site, adding more delays to the project’s timeline.

Corporate

  • ExxonMobil has reorganised its refining operations, part of CEO Darren Woods’ push to boost profits amid volatile oil and natural gas prices.
  • Vietnam’s state oil distribution firm PV Oil has scheduled its IPO for January 2018, offering 20% of shares for an estimated US$122 million. The government eventually plans to reduce its PV Oil stake to 35.1%.
  • As Venezuela and PDVSA face challenging times, President Nicolas Maduro has tapped Major General Manuel Quevado to take over the state oil firm. With no energy experience, though, Quevado’s challenge is steep.

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July, 01 2020
U.S. commercial crude oil inventories reach all-time high

weekly U.S. commercial crude oil inventories

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.

weekly total U.S. crude oil inventories

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.

weekly U.S. net crude oil inventories

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.

June, 30 2020
Changing Investment Winds In The Middle East

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.

Market Outlook:

  • Crude price trading range: Brent – US$39-42/b, WTI – US$37-40/b
  • Signs that the oil demand recovery has been better-than-expected as economies re-open have been tempered by fears that a resurgence of Covid-19 infections is on the horizon
  • The US recorded its highest single-day case number this week, while Europe recorded its first increase in a month and cases in Latin America and India are accelerating, prompting fears that a second round of lockdowns was necessary
  • Economies will have more time to prepare for a second round of lockdowns, but the disruption will still snuff out any current nascent improvement in demand
  • This will weigh heavily on OPEC, as it now has to consider another extension beyond the end of July, although compliance has improved among the OPEC+ club as Iraq, Kazakhstan, Nigeria, Angola, Gabon and Brunei all submitted new output schedules

End of Article

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June, 26 2020