Join NrgEdge to View Member's Profile. It's Free
Fill up your particulars with:
Fill up your particulars with:
OPEC/non-OPEC supply boost likely but keeps oil market on a knife-edge
A fortnight after an unexpected proposal to boost global oil supply by 1 million b/d emerged from a meeting of the Saudi and Russian energy ministers in St. Petersburg, the market has been left hanging in suspense as to whether or not it will be implemented.
The difference between a “yes” and a “no” has so far amounted to a spread of around $4/barrel for Brent futures, between a nervous market driving up prices towards the $80/bbl psychological mark and furiously selling off to pre-empt an increase in supply.
Should a production hike of 1 million b/d be agreed, we estimate a slump of another $4/barrel or so in Brent, cooling it to the low-$70s compared with the 42-month high close of $79.80 notched on May 23.
Between the two diametrically opposite options of raising output by 1 million b/d and keeping the current cuts intact, lies the possibility of agreeing a smaller boost, as we discussed in last weeks viewsletter. The increment would need to be at least more than 500,000 b/d. Anything less would be ineffective in countering the unintended losses from Venezuela and Iran, among others, likely leaving Brent in the mid-$70s, ready to spike again if the supply tightness worsens. As we have said before, even an increase of 1 million b/d is conservative.
Global oil production uncertainties are the highest since the Arab Spring took hold in 2011 and could swing the market into a supply shock that leaves OPEC struggling to plug the gap promptly, or worse, plugging it at all, given the group’s limited spare capacity.
These supply uncertainties arise from accelerating natural declines in conventional oil fields across the globe, amplified by sustained and severe cuts in upstream investment since 2015; delays and teething issues in the few greenfield oil projects coming online; and heightened geopolitical tensions haunting several major oil-producing countries.
Meanwhile, WTI has drifted off again, disconnecting from the global markets. August NYMEX WTI futures closed at a discount of $11.43/barrel to the corresponding ICE Brent contract on June 7, the widest since February 2015. WTI Midland, the price of tight oil in the prolific Permian basin, remains under pressure as surging production has bumped against pipeline takeaway capacity and the forward curve shows a dim view of wellhead prices until September 2019.
WTI Midland is also dragging down NYMEX WTI futures, which represent the value of barrels at the Cushing storage in Oklahoma. Such is the bearish outlook due to the Permian/Cushing bottleneck that not even a third consecutive weekly decline in Cushing stocks reported by the US Energy Information Administration on Wednesday provided any lift.
The drama around Venezuelan output and Iran sanctions has reached a crescendo. We bring you our perspective on the latest twists and what they mean for the ministers meeting in Vienna on June 22.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
International expansions for Saudi Aramco – the largest oil company in the world – are not uncommon. But up to this point, those expansions have followed a certain logic: to create entrenched demand for Saudi crude in the world’s largest consuming markets. But Saudi champion’s latest expansion move defies, or perhaps, changes that logic, as Aramco returns to Europe. And not just any part of Europe, but Eastern Europe – an area of the world dominated by Russia – as Saudi Aramco acquires downstream assets from Poland’s PKN Orlen and signs quite a significant crude supply deal. How is this important? Let us examine.
First, the deal itself and its history. As part of the current Polish government’s plan to strengthen its national ‘crown jewels’ in line with its more nationalistic stance, state energy firm PKN Orlen announced plans to purchase its fellow Polish rival (and also state-owned) Grupa Lotos. The outright purchase fell afoul of EU anti-competition rules, which meant that PKN Orlen had to divest some Lotos assets in order to win approval of the deal. Some of the Lotos assets – including 417 fuel stations – are being sold to Hungary’s MOL, which will also sign a long-term fuel supply agreement with PKN Orlen for the newly-acquired sites, while PKN Orlen will gain fuel retail assets in Hungary and Slovakia as part of the deal. But, more interestingly, PKN Orlen has chosen to sell a 30% stake in the Lotos Gdansk refinery in Poland (with a crude processing capacity of 210,000 bd) to Saudi Aramco, alongside a stake in a fuel logistic subsidiary and jet fuel joint venture supply arrangement between Lotos and BP. In return, PKN Orlen will also sign a long-term contract to purchase between 200,000-337,000 b/d of crude from Aramco, which is an addition to the current contract for 100,000 b/d of Saudi crude that already exists. At a maximum, that figure will cover more than half of Poland’s crude oil requirements, but PKN Orlen has also said that it plans to direct some of that new supply to several of its other refineries elsewhere in Lithuania and the Czech Republic.
For Saudi Aramco, this is very interesting. While Aramco has always been a presence in Europe as a major crude supplier, its expansion plans over the past decade have been focused elsewhere. In the US, where it acquired full ownership of the Motiva joint venture from Shell in 2017. In doing so, it acquired control of Port Arthur, the largest refinery in North America, and has been on a petrochemicals-focused expansion since. In Asia, where Aramco has been busy creating significant nodes for its crude – in China, in India and in Malaysia (to serve the Southeast Asia and facilitate trade). And at home, where the focus has on expanding refining and petrochemical capacity, and strengthen its natural gas position. So this expansion in Europe – a mature market with a low ceiling for growth, even in Eastern Europe, is interesting. Why Poland, and not East or southern Africa? The answer seems fairly obvious: Russia.
The current era of relatively peaceful cooperation between Saudi Arabia and Russia in the oil sphere is recent. Very recent. It was not too long ago that Saudi Arabia and Russia were locked in a crude price war, which had devastating consequences, and ultimately led to the détente through OPEC+ that presaged an unprecedented supply control deal. That was through necessity, as the world faced the far ranging impact of the Covid-19 pandemic. But remove that lens of cooperation, and Saudi Arabia and Russia are actual rivals. With the current supply easing strategy through OPEC+ gradually coming to an end, this could remove the need for the that club (by say 2H 2022). And with Russia not being part of OPEC itself – where Saudi Arabia is the kingpin – cooperation is no longer necessary once the world returns to normality.
So the Polish deal is canny. In a statement, Aramco stated that ‘the investments will widen (our) presence in the European downstream sector and further expand (our) crude imports into Poland, which aligns with PKN Orlen’s strategy of diversifying its energy supplies’. Which hints at the other geopolitical aspect in play. Europe’s major reliance on Russia for its crude and natural gas has been a minefield – see the recent price chaos in the European natural gas markets – and countries that were formally under the Soviet sphere of influence have been trying to wean themselves off reliance from a politically unpredictable neighbour. Poland’s current disillusion with EU membership (at least from the ruling party) are well-documented, but its entanglement with Russia is existential. The Cold War is not more than 30 years gone.
For Saudi Aramco, the move aligns with its desire to optimise export sales from its Red Sea-facing terminals Yanbu, Jeddah, Shuqaiq and Rabigh, which have closer access to Europe through the Suez Canal. It is for the same reason that Aramco’s trading subsidiary ATC recently signed a deal with German refiner/trader Klesch Group for a 3-year supply of 110,000 b/d crude. It would seem that Saudi Arabia is anticipating an eventual end to the OPEC+ era of cooperative and a return to rivalry. And in a rivalry, that means having to make power moves. The PKN Orlen deal is a power move, since it brings Aramco squarely in Russia’s backyard, directly displacing Russian market share. Not just in Poland, but in other markets as well. And with a geopolitical situation that is fragile – see the recent tensions about Russian military build-up at the Ukrainian borders – that plays into Aramco’s hands. European sales make up only a fraction of the daily flotilla of Saudi crude to enters international markets, but even though European consumption is in structural decline, there are still volumes required.
How will Russia react? Politically, it is on the backfoot, but its entrenched positions in Europe allows it to hold plenty of sway. European reservations about the Putin administration and climate change goals do not detract from commercial reality that Europe needs energy now. The debate of the Nord Stream 2 pipeline is proof of that. Russian crude freed up from being directed to Eastern Europe means a surplus to sell elsewhere. Which means that Russia will be looking at deals with other countries and refiners, possibly in markets with Aramco is dominant. That level of tension won’t be seen for a while – these deals takes months and years to complete – but we can certainly expect that agitation to be reflected in upcoming OPEC+ discussions. The club recently endorsed another expected 400,000 b/d of supply easing for January. Reading the tea leaves – of which the PKN Orlen is one – makes it sound like there will not be much more cooperation beyond April, once the supply deal is anticipated to end.
End of Article
Get timely updates about latest developments in oil & gas delivered to your inbox. Join our email list and get your targeted content regularly for free or follow-us on LinkedIn.
Market Outlook:
- Crude price trading range: Brent – US$86-88/b, WTI – US$84-86/b
- Crude oil benchmarks globally continue their gain streak for a fifth week, as the market bounces back from the lows seen in early December as the threat of the Omicron virus variant fades and signs point to tightening balances on strong consumption
- This could set the stage for US$100/b oil by midyear – as predicted by several key analysts – as consumption rebounds ahead of summer travel and OPEC+ remains locked into its gradual consumption easing schedule
-------------------------------------------------------->
The Third-party Inspection assertion given from the European authorities about May well 26 explained the European authorities provides in the short term accepted an idea to be able to routine lazy acrylic bore holes so that you can plan the particular resumption regarding acrylic creation following your international creation stops actions run out inside 2022.
Within the arrangement attained with all the Firm regarding Petroleum Transferring Nations around the world, Italy arranged inside May well and also Summer to cut back the everyday acrylic creation simply by concerning a couple of. Third Party Inspection Service 5 thousand barrels to be able to 8. 5 thousand barrels, the best stage inside higher than a ten years.
Any office regarding Russia’s initial deputy excellent minister, Andrey Belousov, mentioned any authorities associate achieved about Thursday and also consented to help the particular Ministry of energy and also Statutory Inspection ServiceFinance’s offer to aid acrylic makers create a great “unfinished well” finance.
The first thing that comes to mind when you think of college, university, or school is "Who can do my homework online?" It can be time-consuming to complete college assignments. We understand that college assignments can be time-consuming.
This is why we offer a unique opportunity to pass your course, improve academic results, and save you time.
Over 100,000 high school and college students have used our best online writing service to get academic help. This is what you get when you use our service:
Could You Help me with my Assignment?
If you need to have your assignment done for you, look no further. Online homework help is available for any academic difficulty and complexity, whether it's a high school, college or university. We can help you with any type of assignment: case study, lab reports, research papers, etc. Our writers are available 24/7 to provide high-quality academic assistance, no matter what paper it is, such as math homework or case studies.
College homework help is available at any time
When you wonder “I need help with my homework online”, we respond quickly. Even if there is an urgent deadline, our skilled writers will complete any task efficiently and quickly. They have exceptional customer service in mind and can research, write essays, and double-check them for originality in a timely fashion. This entire process takes less time than research.
