Last Updated: January 15, 2018
1 view
Business Trends
image

Far from slipping into correction mode, crude made a dash for new peaks this week. Brent flirted with the $70/barrel mark, while WTI topped $64 in intra-day trade Thursday. Both hit resistance and retreated, but still settled at fresh three-year highs.

They were back-pedalling again Friday, but only marginally, compared with their spectacular cumulative rise of a little over 20% in the past three months alone.

The market remains split between those calling for a correction and those betting on continued strength.

It is worth noting that the calls are for a market correction, not a crash. A correction is typically a 10-20% retracement from the 52-week high. A drop of more than 20% would be called a crash and bear market territory.

Thus, a correction in Brent from the current levels would be a pullback of between $7 and $14, giving us a range of $56-63/barrel.

Based on the current expectations and variables in the 2018 oil market, we regard the lower end of that range as unrealistic. The exceptions would be an unanticipated large jump in US shale output or a major dent in global oil consumption due to an economic slowdown or price elasticity of demand, all tail risks at this point.

We don’t expect OPEC’s cohesion on output cuts to break down amid higher prices and are factoring in a smooth, well-managed “exit” from the restraint strategy along with non-OPEC collaborators sometime after 2018.

Brent’s descent to the upper end of the correction band, the low- to mid-$60s, is possible, but may need a bearish jolt, for example data showing a big build in global oil stocks or a sharp drop in demand over the winter months. Again, neither of those events are a high probability.

Meanwhile, a severe La Nina winter unfolding in the northern hemisphere is likely to keep crude market sentiment buoyant in view of the seasonal oil demand peak, at least through February. It makes a sell-off more difficult.

The gradual erosion of some of the fear premium that has been layered into crude prices over the past several months is a possibility. But we see the various geopolitical tensions that have spurred successive price upticks, including the ones that have not caused any oil supply disruptions, an allor-none factor: the lingering presence of even one keeps the whole bunch top of mind. Increasingly, the cloud hanging over Iran’s 2015 nuclear deal appears to be that one worry.

uploads1515998733561-What+determins+the+price+of+oil+%282%29.png

Always wanted to understand the mechanics of oil pricing, but didn’t know where to begin? Now explained succinctly and simply on the 27 March in Singapore. This short course is a primer on how global benchmark oil prices are set and how that information percolates down to the price tag at the petrol pump or on your LPG cylinder.  

What Determines the Price of Oil: https://goo.gl/fz3YrL

oil price training vandana oil pricing demand supply trading
3
3 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

In 2018, the United States consumed more energy than ever before

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Primary energy consumption in the United States reached a record high of 101.3 quadrillion British thermal units (Btu) in 2018, up 4% from 2017 and 0.3% above the previous record set in 2007. The increase in 2018 was the largest increase in energy consumption, in both absolute and percentage terms, since 2010.

Consumption of fossil fuels—petroleum, natural gas, and coal—grew by 4% in 2018 and accounted for 80% of U.S. total energy consumption. Natural gas consumption reached a record high, rising by 10% from 2017. This increase in natural gas, along with relatively smaller increases in the consumption of petroleum fuels, renewable energy, and nuclear electric power, more than offset a 4% decline in coal consumption.

U.S. total energy consumption

Source: U.S. Energy Information Administration, Monthly Energy Review

Petroleum consumption in the United States increased to 20.5 million barrels per day (b/d), or 37 quadrillion Btu in 2018, up nearly 500,000 b/d from 2017 and the highest level since 2007. Growth was driven primarily by increased use in the industrial sector, which grew by about 200,000 b/d in 2018. The transportation sector grew by about 140,000 b/d in 2018 as a result of increased demand for fuels such as petroleum diesel and jet fuel.

Natural gas consumption in the United States reached a record high 83.1 billion cubic feet/day (Bcf/d), the equivalent of 31 quadrillion Btu, in 2018. Natural gas use rose across all sectors in 2018, primarily driven by weather-related factors that increased demand for space heating during the winter and for air conditioning during the summer. As more natural gas-fired power plants came online and existing natural gas-fired power plants were used more often, natural gas consumption in the electric power sector increased 15% from 2017 levels to 29.1 Bcf/d. Natural gas consumption also grew in the residential, commercial, and industrial sectors in 2018, increasing 13%, 10%, and 4% compared with 2017 levels, respectively.

Coal consumption in the United States fell to 688 million short tons (13 quadrillion Btu) in 2018, the fifth consecutive year of decline. Almost all of the reduction came from the electric power sector, which fell 4% from 2017 levels. Coal-fired power plants continued to be displaced by newer, more efficient natural gas and renewable power generation sources. In 2018, 12.9 gigawatts (GW) of coal-fired capacity were retired, while 14.6 GW of net natural gas-fired capacity were added.

U.S. fossil fuel energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Renewable energy consumption in the United States reached a record high 11.5 quadrillion Btu in 2018, rising 3% from 2017, largely driven by the addition of new wind and solar power plants. Wind electricity consumption increased by 8% while solar consumption rose 22%. Biomass consumption, primarily in the form of transportation fuels such as fuel ethanol and biodiesel, accounted for 45% of all renewable consumption in 2018, up 1% from 2017 levels. Increases in wind, solar, and biomass consumption were partially offset by a 3% decrease in hydroelectricity consumption.

U.S. energy consumption of selected fuels

Source: U.S. Energy Information Administration, Monthly Energy Review

Nuclear consumption in the United States increased less than 1% compared with 2017 levels but still set a record for electricity generation in 2018. The number of total operable nuclear generating units decreased to 98 in September 2018 when the Oyster Creek Nuclear Generating Station in New Jersey was retired. Annual average nuclear capacity factors, which reflect the use of power plants, were slightly higher at 92.6% in 2018 compared with 92.2% in 2017.

More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.

April, 17 2019
Casing design course
Candidates :Drilling engineers/ drilling supervisors- Venue: Istanbul/Turkey- Duration: 5 days- For more information contact me at: Tel: +905364320900- [email protected] [email protected]
April, 17 2019
A New Frontier for LNG Pricing and Contracts

How’s this for a first? As the world’s demand for LNG continues to grow, the world’s largest LNG supplier (Shell) has inked an innovative new deal with one of the world’s largest LNG buyers (Tokyo Gas), including a coal pricing formula link for the first time in a large-scale LNG contract. It’s a notable change in an industry that has long depended on pricing gas off crude, but could this be a sign of new things to come?

Both parties have named the deal an ‘innovative solution’, with Tokyo Gas hailing it as a ‘further diversification of price indexation’ and Shell calling it a ‘tailored solutions including flexible contract terms under a variety of pricing indices.’ Beneath the rhetoric, the actual nuts and bolts is slightly more mundane. The pricing formula link to coal indexation will only be used for part of the supply, with the remainder priced off the conventional oil & gas-linked indexation ie. Brent and Henry Hub pricing. This makes sense, since Tokyo Gas will be sourcing LNG from Shell’s global portfolio – which includes upcoming projects in Canada and the US Gulf Coast. Neither party provided the split of volumes under each pricing method, meaning that the coal-linked portion could be small, acting as a hedge.

However, it is likely that the push for this came from Tokyo Gas. As one of the world’s largest LNG buyers, Tokyo Gas has been at the forefront of redefining the strict traditions of LNG contracts. Reading between the lines, this deal most likely does not include any destination restriction clauses, a change that Tokyo Gas has been particularly pushing for. With the trajectory for Brent crude prices uncertain – owing to a difficult-to-predict balance between OPEC+ and US shale – creating a third link in the pricing formula might be a good move. Particularly since in Japan, LNG faces off directly with coal in power generation. With the general retreat from nuclear power in the country, the coal-LNG battle will intensify.

What does this mean for the rest of the industry? Could coal-linked contracts become the norm? The industry has been discussing new innovations in LNG contracts at the recent LNG2019 conference in Shanghai, while the influx of new American LNG players hungry to seal deals has unleashed a new sense of flexibility. But will there be takers?

I am not a pricing expert but the answer is maybe. While Tokyo Gas predominantly uses natural gas as its power generation fuel (hence the name), it is competing with other players using cheaper coal-based generation. So in Japan, LNG and coal are direct competitors. This is also true in South Korea and much of Southeast Asia. In the two rising Asian LNG powerhouses, however, the situation is different. In China – on track to become the world’s largest LNG buyer in the next two decades – LNG is rarely used in power generation, consumed instead by residential heating. In India – where LNG imports are also rising sharply – LNG is primarily aimed at petrochemicals and fertiliser. LNG based power generation in China and India could see a surge, of course, but that will take plenty of infrastructure, and time, to build. It is far more likely that their contracts will be based off existing LNG or natural gas benchmarks, several of which are being developed in Asia alone.

If it takes off  the coal-link LNG formula is likely to remain a Asian-based development. But with the huge volumes demanded by countries in this region, that’s still a very big niche. Enough perhaps for the innovation to slowly gain traction elsewhere, next stop -  Europe?

The Shell-Tokyo Gas Deal:

Contract – April 2020-March 2030 (10 Years)

Volume – 500,000 metric tons per year

Source – Shell global portfolio

Pricing – Formula based on coal and oil & gas-linked indexes

Learn more about LNG business, technology, markets and contracts
LNG Fundamentals - May, 27 – 29, Singapore
LNG Markets, Pricing, Trading & Risk Management - May, 27 – 29, Singapore
LNG Terminal Operations - June19 – 21, Singapore
Gas & LNG Contract Negotiations - August, 21 – 23, Kuala Lumpur
LNG Fundamentals – October, 22 – 24, Singapore
visit https://www.petroedgeasia.net/oil-and-gas-training-course

April, 15 2019