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Market Watch

Headline crude prices for the week beginning 11 December 2017 – Brent: US$63/b; WTI: US$57/b

  • The shutdown of the Forties pipeline system in the UK North Sea has been a shock to the market, pulling Brent and WTI prices up. Repairs to the important oil conduit will take at least two weeks to complete.
  • The hairline crack at Forties – connecting North Sea oilfields to the Hound Point export terminal in Scotland – is less severe than expected, cutting off a rally that was beginning to gain steam.
  • The UAE announced that OPEC and NOPEC will outline an exit strategy for the extended supply freeze deal at the next meeting in June; Kuwait suggested that if oil market tightens by then, the deal could be ended before the current planned 31 December 2018 deadline.
  • Threats of a strike by one of Nigeria’s two main oil unions over a mass sacking of workers could disrupt production in Africa’s largest oil producer, but tensions seem on the lid for now.
  • US crude oil stockpiles fell more than expected by 2.89 million barrels as refineries hiked output, supporting prices, but gasoline and distillate inventories also posted surprisingly large stockpile gains.
  • JP Morgan believes that the new tipping point for American shale is US$60/b, with the investment bank believing that only a sustained run above that level will lead to shale drillers rethinking their spending plans for 2018, which were based on a US$45-55/b WTI range.
  • Active US rig count gains slowed down; only 2 new sites entering operation last week – both oil – but the small net gain masks a flurry of activity within the main shale basins.
  • Crude price outlook: With threats of a prolonged Forties shutdown subsiding and the strike risk in Nigeria abating, there does not appear to be much driving crude prices up this week. Prices should drift down to US$62/b for Brent and US$56/b for WTI.


Headlines of the week

Upstream

  • A leak at the Forties Pipeline System in the North Sea has triggered a shutdown at the UK’s most important site, causing jumps in global prices.
  • After slashing costs by almost half to KR49 billion, Statoil has sanctioned the Castberg offshore Arctic oil project, with production due in 2022.
  • Hungary’s MOL is reportedly seeking to exit the UK North Sea, as the prolonged slump in oil prices placed its margins under pressure.
  • Enterprise will be converting one its Permian-Texas Gulf Gas pipelines from NGLs to crude oil, upping its oil pipeline capacity to 650 kb/d.
  • Total and Sonangol have signed several agreements covering upstream and downstream in Angola, paving the way for a spat of new projects.
  • PetroChina has conducted a major internal transfer of 16 E&P blocks between its subsidiaries that will allow those with mature fields in the east to explore for new discoveries in the west and central regions.
  • Eni has restarted production at the Goliat oil field in Norway’s Barents Sea, after problems at the platform caused a 2-month shutdown.
  • China is offering five oil and gas blocks in the remote Tarim basin in Xinjian to domestic investors in an auction that excludes the state oil giants to promote private sector participation in its upstream industry.

Downstream

  • ExxonMobil has sent its first fuel cargo – 120,000 barrels of diesel and gasoline – to Mexico as the drive to supply the country turns into a race.  
  • MMEX Resources had doubled the capacity of its planned refinery in West Texas, from 50 kb/d to 100 kb/d, capitalising on the Permian Basin boom.
  • Nigeria plans to break ground on Petrolex Oil & Gas’ new 250 kb/d refinery in Ibefun, Ogun state this month.
  • BP is building a third lubricants blending plant – which will be its largest ever - in China; the 200 mtpa plant serving as a strategic hub for BP and Castrol when complete in 2021.
  • Petronas’ South African unit Engen and retail specialist Vivo Energy have struck a US$256 million deal to combine their African fuel network assets.
  • Vietnam’s PVOil and Binh Son Refining, which runs Dung Quat, has struck two large crude purchase deals with Azerbaijan’s Socar and Glencore.

Natural Gas/LNG

  • Production at Novatek’s Yamal LNG 5.5 mtpa Train 1 has officially began, with the first cargo leaving the port of Sabetta last week to China.
  • Cheniere has chartered 7 additional LNG tankers bringing its total fleet up to 22 as it attempts to supply Northeast Asia’s furious winter demand.
  • Italy, Greece, Cyprus and Israel have collectively agreed to building the €3 billion East Med gas pipeline to link new discoveries in the Levantine Basin to western Europe via Greece and Italy.
  • Steelhead LNG has pulled the plug on its proposed FLNG project in Canada’s Malahat over land squabbles with the Malahat First Nation.
  • Arrow Energy has signed a deal to supply some 5 tcf of coalbed methane gas from the Surat Basin over a contract life of 27 yeas to Shell’s Queensland Curtis LNG project starting in 2021.
  • The Asian Development Bank has stepped in to provide some US$583 billion in financing to development the Reliance Bangladesh LNG project.

Corporate

  • Pertamina will be taking over state gas utility PGN by 1Q18 as Indonesia forms a new national energy holding company and prevent ‘asset duplication’, with PGN absorbing Pertagas to act as the state gas arm.
  • Thailand’s Gulf Energy Development made its debut on the Stock Exchange of Thailand, with the natural gas-power producer trading at 27.8% higher than the IPO price.
  • Adnoc has set a target of raising US$902 million by floating its fuel-retail unit, reducing the stake on sale from 20% to 10%.

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January, 17 2019
EIA forecasts world crude oil prices to rise gradually, averaging $65 per barrel in 2020

monthly Brent and WTI crude prices

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2019

EIA’s January Short-Term Energy Outlook forecasts that world benchmark Brent crude oil will average $61 per barrel (b) in 2019 and $65/b in 2020, an increase from the end of 2018, but overall it will remain lower than the 2018 average of $71/b. U.S. benchmark West Texas Intermediate (WTI) crude oil prices were $8/b lower than Brent prices in December 2018, and EIA expects this difference to narrow to $4/b in the fourth quarter of 2019 and throughout 2020.

EIA expects U.S. regular retail gasoline prices to follow changes to the cost of crude oil, dipping from an average of $2.73/gallon in 2018 to $2.47/gallon in 2019, before rising to $2.62/gallon in 2020. Because each barrel of crude oil holds 42 gallons, a $1-per-barrel change in the price of crude oil generally translates to about a 2.4-cent-per-gallon change in the price of petroleum products such as gasoline, all else being equal.

EIA estimates that global petroleum and other liquid fuels inventories grew by an average rate of 0.4 million barrels per day (b/d) in 2018 and by an estimated 1.0 million b/d in the fourth quarter of 2018. EIA expects growth in liquid fuels production in the United States and in other countries not part of the Organization of the Petroleum Exporting Countries (OPEC) will contribute to global oil inventory growth rates of 0.2 million b/d in 2019 and 0.4 million b/d in 2020.

Although EIA forecasts that oil prices will remain lower than during most of 2018, the forecast includes some increase in prices from December 2018 levels in early 2019 in order to keep up with demand growth and support the increased need for global oil inventories to maintain five-year average levels of demand cover. EIA expects crude oil prices to continue to increase in late 2019 and early 2020 because of an increase in refinery demand for light-sweet crude oil, which is the result of regulations from the International Maritime Organization that will limit the sulfur content in marine fuels used by ocean-going vessels.

world liquid fuels production and consumption balances

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2019

EIA expects global oil production growth in 2019 to be led by countries that are not part of OPEC, particularly the United States. EIA expects non-OPEC producers will increase oil supply by 2.4 million b/d in 2019 which will offset forecast supply declines from OPEC members, resulting in an average of 1.4 million b/d in total global supply growth in 2019.

In 2020, EIA expects oil production to increase by 1.7 million b/d because of production growth in the United States, Canada, Brazil, and Russia, while overall OPEC crude oil production is expected to remain flat. EIA forecasts global oil demand to grow by 1.5 million b/d in 2019 and in 2020. In both 2019 and 2020, China is the leading contributor to global oil demand growth.

January, 17 2019
Your Weekly Update: 7 - 11 January 2019

Market Watch

Headline crude prices for the week beginning 7 January 2019 – Brent: US$57/b; WTI: US$49/b

  • Crude oil looks set to climb back to previous support levels as OPEC’s new supply deal kicks in and the US Federal Reserve sought to soothe investor confidence after initiating a surprise hike in interest rates that caused widespread global financial panic in December
  • Even as OPEC+ moves forwards with a planned 1.2 mmb/d cut in collective output, production across OPEC had already fallen over November and December as Saudi Arabia throttled production to support falling prices
  • Together with dwindling production in Venezuela, disruptions in Libya and losses in Iran, oil output from OPEC countries has already fallen by 530,000 b/d in December to 32.6 mmb/d, the sharpest pullback since January 2017
  • This has managed to re-assure the market that the global supply/demand balance is on firmer footing, even as Russian oil output reached a post-Soviet high of 11.16 mmb/d, just slightly off the all-time record of 11.42 mmb/d in 1987
  • With the recovery in prices, planned upstream projects will be back on firmer footing, with Rystad Energy expecting some US$123 billion of offshore projects to be sanctioned over 2019 if Brent crude averages US$60/b
  • Also supporting the upward momentum is the removal of 8 oil rigs from the active US rig count, as American drillers weighed up the risks of the fragile trajectory in WTI prices
  • Crude price outlook: Momentum is with crude oil prices this week, and we expect that to continue as OPEC+ implements its production plan, with Brent recovering to US$60-62/b and WTI to US$51-53/b


Headlines of the week

Upstream

  • Eni has acquired the remaining 70% of the Oooguruk field in Alaska from Caelus Natural Resources, bringing its stake to 100% to synergise with the nearby Nikaitchuq field, where Eni also owns a 100% interest interest
  • The deepwater Egina field in Nigeria, operated by Total through an FPSO, has started up production, with peak output expected at 200,000 b/d
  • Commercial production of crude at PAO Novatek/Gazprom’s Yaro-Yakhinskoye field has commenced, with output expected at 24,000 b/d
  • Total has sold a 2% interest in Oman’s Block 53 to Sweden’s Tethys Oil, bringing it into Occidental Petroleum’s 100,000 b/d Mukhaizna field
  • Brazil is preparing for its sixth round of upstream auctions, offering up pre-salt acreage in five areas expected to raise more than US$2 billion in sales
  • After recently making its 10th discovery in Guyana, ExxonMobil has its sights set on more as it drills two more exploration wells – Haimara-1 and Tilapia-1 – in the prolific Stabroek block, both close to existing discoveries
  • Ecuador is initiating a probe into some US$4.9 billion worth of oil-related infrastructure projects initiated by the previous administration on charges of corruption and looting

Downstream

  • China appears to be tempering crude demand, with the first batch of crude oil import quotas issued to state and private refineries at 26% lower than 2018, with quotas for teapots at some 78% of the 89.84 million tons approved
  • Saudi Aramco has acquired complete ownership of German specialty chemicals producers Lanxess AG by acquisition Dutch firm Arlanxeo’s 50% stake at €1.5 billion, strengthening its foray into petrochemicals
  • Iran will be investing some US$212 million into Chennai Petroleum’s 180 kb/d expansion of the Nagapatinam refinery on India’s east coast, as Iran looks for ways to ensure captive demand for its crude in one of its largest markets
  • The Mariner East 2 NGLs pipeline – transporting ethane, propane and butane over 560km to the Marcus Hook processing plant in Pennsylvania – has been completed, with the Mariner East 2X pipeline schedules for late 2019

Natural Gas/LNG

  • Shell’s 3.6 mtpa Prelude FLNG has finally started up initial production, the last of Australia’s giant natural gas projects to be completed
  • Brunei Shell Petroleum (BSP) has completed the onshore Darat Gas Project in Lumut, expanding LNG capacity in Brunei by 5% at the Rasau station
  • ExxonMobil’s Rovuma LNG project in Mozambique will be aiming to sanction FID in 2019 for its first phase, involving two trains with a combined capacity of 7.6 million tpa from the offshore Area 4 block
  • As LNG developments in Papua New Guinea move quickly to commercialisation, the PNG government has passed new laws to impose a domestic gas requirement and other provisions for new gas projects, to ensure adequate supply of resources for growing local demand
January, 11 2019