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Last Updated: December 21, 2017
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Market Watch

Headline crude prices for the week beginning 18 December 2017 – Brent: US$63/b; WTI: US$57/b

  • Suspension of a planned strike of Nigeria’s Pengassan oil union eased prices back, although talks deferred to January could still break down.
  • The hairline crack that prompted the shutdown of the Forties Pipeline System has not propagated, and repairs should be completed by the New Year, also easing speculative pressure on prices.
  • OPEC announced that it expects the market to be balanced by late 2018, underscoring that there will be no more extensions to its current supply deal.
  • The US EIA sees crude output at major American shale plays reaching 6.41 mmb/d a day in January
  • American domestic oil inventories slid by 5.2 million barrels last week, exceeding a forecast of 3.15 million barrels – an indication of healthy demand even with rising supply.
  • Active US rig sites fell by a net one last week; loss of 4 oil rigs offset a 3-site gain in gas rigs. Canadian rig count jumped by 19, all oil additions.
  • European gas prices spiked up after fire broke out at the Baumgarten gas hub in Austria, after jumping on the closure of the UK Forties pipeline system. Asian LNG spot prices followed suit, jumping to US$10.50 mmBtu for January deliveries.
  • Saudi Arabia will raise its capital spending to US$414 billion through 2027. Some US$134 billion will be spent on drilling/well services, US$78 billion on maintaining reserves and the remainder focused on expanding infrastructure and new businesses.
  • Crude price outlook: As supply threats abate and the market prepares for the long year-end break, no dramatic movement is expected in prices. Prices should drift down to US$62/b for Brent and US$56/b for WTI – a good way to start 2018.


Headlines of the week

Upstream

  • Repairs at the Forties Pipeline System is expected to take up to four weeks to complete, as Ineos declared force majeure on Forties deliveries.
  • Aker BP has unveiled plans to spend US$1 billion to develop the Ærfugl, Valhall Flank West and Skogul fields in Norway.
  • Interest in the UK North Sea continues with a new player on the scene – Spirit Energy, a joint venture between Centrica and Bayerngas Norge.
  • Lebanon has approved a consortium formed by Total, Eni and Russia’s Novatek to begin exploring for oil and gas in its waters, where the country hopes to extend the streak of big eastern Mediterranean discoveries.
  • ADNOC has been polling its Asian buyers on whether it should maintain its current system of retroactive pricing, or change to forward pricing as part of a major review of Abu Dhabi’s monthly crude pricing mechanism.
  • Fresh off its onshore success Uganda and Kenya, Tullow Oil is now adding South Sudan as a market of interest, owing to similar geology.

Downstream

  • A new processing unit has been added to Iraq’s Kirkuk refinery, increasing capacity to 56 kb/d, part of a push to have more Kirkuk crude processed locally instead of exported by pipeline.
  • PDVSA’s woes means that it is losing grip on a refining system created in its own backyard, pulling out of the Cienfuegos refinery in Cuba. PDVSA’s 49% stake in Cienfuegos, supplied by Venezuelan crude, has been transferred to the Cuban government as debt settlement.
  • BP is emerging as one of the early leaders in Mexico’s deregulated downstream, opening its 100th retail station last week and on target to achieve a network of 500 by the end of 2018.

Natural Gas/LNG

  • First gas has been produced from Eni’s Zohr field in Egypt less than two and a half years after discovery, transforming Egypt from a hungry net importer to a potentially powerful exporter.
  • After acquiring a 25% stake in the gas-rich Area 4 block in Mozambique from Eni, ExxonMobil confirms that it will now lead midstream operations and all liquefaction (plus related) facilities at Area 4. Eni, in return, will take the lead on all upstream operations and Coral FLNG.
  • Indonesia is aiming to sign off on final development of the Abadi LNG project in mid-2018, pushing for a start-up as early as 2023.
  • Rosneft has gained the licences to develop two major offshore gas fields in the country. With total reserves of 180 bcm, Rosneft holds the Patao and Mejillones licences for the next 30 years.

Corporate

Petrobras and ExxonMobil has formed a strategic alliance, aimed to cooperating on global energy projects across exploration, production and chemicals.

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Renewables became the second-most prevalent U.S. electricity source in 2020

In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.

In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.

Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.

We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.

monthly U.S electricity generation from all sectors, selected sources

Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.

July, 29 2021
PRODUCTION DATA ANALYSIS AND NODAL ANALYSIS

Kindly join this webinar on production data and nodal analysis on the 4yh of August 2021 via the link below

https://www.linkedin.com/events/productiondataanalysis-nodalana6810976295401467904/

July, 28 2021
Abu Dhabi Lifts The Tide For OPEC+

The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.

How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.

The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.

The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.

On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.

But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.

For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.

End of Article 

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Market Outlook:

  • Crude price trading range: Brent – US$72-74/b, WTI – US$70-72/b
  • Worries about new Covid-19 infections worldwide dragging down demand just as OPEC+ announced that it would be raising production by 400,000 b/d a month from August onward triggered a slide in Brent and WTI crude prices below US$70/b
  • However, that slide was short lived as near-term demand indications showed the consumption remained relatively resilient, which lifted crude prices back to their previous range in the low US$70/b level, although the longer-term effects of the Covid-19 delta variants are still unknown at this moment
  • Clarity over supply and demand will continue to be lacking given the fragility of the situation, which suggests that crude prices will remain broadly rangebound for now

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July, 26 2021