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Market Watch

Headline crude prices for the week beginning 26 February 2017 – Brent: US$67/b; WTI: US$64/b

  • Crude prices chalked up a week of gains last week, gaining on positive signs in US demand and continued statements of support from OPEC to ‘manage global crude oil supply.’
  • Last week, US data showed a surprise drawdown of 1.6 million barrels in US crude inventories, with net imports dropping to a record low and exports surging. Stocks at the important Cushing, OK hub declined even further, defying market predictions that oil inventories were set to rise.
  • With US crude exports hitting 2 mmb/d, American net crude imports fell below 5 mmb/d, the lowest level since the EIA began recording data in 2001. Strong demand from US refineries supported the drawdown.
  • Various OPEC ministers voiced positive statements on the effectiveness of the supply freeze. Saudi Energy Minister Khalid al-Falih said the ‘market is rebalancing’ and ‘inventories should continue to decline’ over the year.
  • Al-Falih said Saudi Arabia’s exports have been averaging less than 7 mmb/d over January-March, with output well below its production cap. He also said OPEC and its allies were hoping to create a permanent framework to stabilise oil markets after the current agreement ends.
  • Algerian Energy Minister Mustapha Guitouni stated OPEC was looking to preserve ‘market stability’ to balance producers and consumers, suggesting that it could intervene again if prices fall dramatically.
  • American crude inventories are expected to reverse last week’s surprise decline, with data pointing to a million barrel gain, that capped gains in crude prices earlier this week.
  • The US active oil and gas rig count gained 3 sites last week. It was a fifth consecutive week of gains for oil rigs, inching up by 1 to 790, just shy of the 800 mark.
  • Crude price outlook: Lingering concerns over the swell of US crude output should trim crude prices back to US$65-66/b range for Brent and US$62-63/b for WTI.

Headlines of the week

Upstream

  • BHP Billiton and ExxonMobil, 50:50 partners in the Gippsland Basin Joint Venture, have dropped plans to sell their 13 fields, licences and associated infrastructure in some of Australia’s largest and oldest onshore oilfields.
  • Abu Dhabi has chosen Spain’s Cepsa to develop its offshore oil shores in a push to diversify partnerships; the Madrid-based player will take a 20% stake in the Umm Lulu and Sateh Al Razboot Persian Gulf fields.
  • India also gained a foothold in Abu Dhabi, with an ONGC-led consortium securing a 10% stake in the Lower Zakum concession for US$600 million.
  • Aker BP announced a moderate discovery in the North Sea’s Alvheim, with the Frosk well yielding ‘encouraging’ flows of 30-60 mmboe.
  • With turmoil in Iraq’s Kurdistan region dying down, Chevron has resumed drilling operations in the area, starting the Sarta 3 field.
  • South Korea’s SK Innovation has made an oil discovery in the PRMB 17/03 Block in China’s section of the South China Sea; SK Innovation has an 80% stake in the block, with CNOOC holding the remainder.
  • India’s ONGC has turn to international service firms for the first time, shortlisting Halliburton, Schlumberger and Baker Highs to assist in boosting production at its onshore Gujarat and Assam oil fields.
  • As Egypt prepares to offer ten new onshore blocks for exploration, Kuwait Energy announced it had struck oil in the South Kheir-1X well, with small flows of some 2,000 b/d of crude oil.

Downstream

  • Turkey’s first new oil refinery in 30 years, SOCAR’s US$6 billion 300 kb/d Star refinery, is scheduled to start up in the third quarter of 2018.
  • Amid US sanctions and Venezuela’s financial woes, PDVSA’s American arm Citgo Petroleum has slowed plans to upgrade its 235 kb/d refinery in Aruba. The Dutch territory has raised the issue with the US government.
  • Total, Borealis and NOVA Chemicals have formed a US Gulf Coast 50:50 petrochemicals joint venture, integrating the Bayport and Port Arthur facilities of Total and Novealis (a Borealis-NOVA joint venture).
  • ExxonMobil has acquired a 2.5% stake in the crucial Baku-Tblisi–Ceyhan (BTC) pipeline in Azerbaijan from Itochu’s subsidiary CIECO.

Natural Gas/LNG

  • ExxonMobil has halted operations at PNG LNG as a 7.5 magnitude earthquake struck the highlands Papua New Guinea; Oil Search also halted its drilling activities in the wake of the quake.
  • Petronas has inked its first LNG contract with India, agreeing to supply an undisclosed amount of LNG to Dubai-based H-Energy Mideast DMCC.
  • Spain’s Repsol will be selling its ‘non-strategic’ 20% stake in Gas Natural to CVC Capital Partners for €3.82 billion euros.
  • Thailand has pushed the new auctions for the Erawan and Bongkot gas fields back by a month to April, with a decision expected by end-2018.

Corporate

  • Extending a partnership that began with the Subsea Integration Alliance in 2015, Schlumberger and Subsea 7 have announced plans to form a 50:50 joint venture, which would boost their FEED capabilities.

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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