The oil market may be underestimating Iran’s ability to disrupt oil flows in and out of the Middle East and its potential repercussions.
Consensus opinion has been dismissive of Iran’s recently renewed threats to block oil flows through the Strait of Hormuz in retaliation against US sanctions as pure bluster, especially in view of the heavy US military presence around the Persian Gulf. But an attack by the Iran-aligned Houthi rebels in Yemen on two Saudi oil tankers, which prompted Aramco to indefinitely suspend oil shipments through the Bab el-Mandeb strait from July 26, shows that Tehran has the other major chokepoint of the Arabian Peninsula within its reach as well.
Other Middle Eastern producers’ oil shipments through the Bab el-Mandeb, a narrow waterway that connects the Red Sea with the Arabian Sea, have remained normal and traders were expecting Saudi shipments to resume once the kingdom had made adequate security escort arrangements for its tankers. But it would be dangerous to discount the nuisance value of the Houthis, who have stepped up missile attacks against Saudi Arabia over the past several months, and who may be leveraged even more by Tehran amid an escalating war rhetoric with the US.
While the target of the Houthi rebels, who took over the government in Sana’a in late 2014, is Saudi Arabia, which backs the now exiled government of Yemen, an escalation of attacks in the Bab el-Mandeb strait or the Red Sea could bring all oil traﬃc through those waters to a complete halt.
The strait is a busy channel for crude and refined product shipments moving in both directions, north and south. An estimated 4.8 million b/d of crude and refined products flowed through the waterway in 2016, according to the US Energy Information Administration. The strait is also a conduit for Middle East crude and refined product shipments to Europe and the US through the Suez Canal and the SUMED pipeline to its north in Egypt, which connect the Red Sea to the Mediterranean Sea. Some 3.9 million b/d of crude and products passed through the Suez Canal in 2016, while the SUMED pipeline system has the capacity to move 2.34 million b/d of crude, according to the EIA.
Crude flows into and refined product exports out of the Yanbu and Rabigh refineries on the west coast of Saudi Arabia, each with a capacity of 400,000 b/d, also need access to the Bab el-Mandeb. Only the Yanbu refinery can receive Saudi crude from Jubail via an overland East-West pipeline system.
For Iran, targeting the Bab el-Mandeb and onshore Saudi oil installations through the Houthis provides wider access to the kingdom’s facilities as well as deniability, which it would not have, were it to attack the Strait of Hormuz on its own.
The crude market largely shrugged oﬀ the growing war of words between the US administration and Iranian leaders this week. But it will be forced to take notice if the Houthis escalate attacks against Saudi Arabia and maybe even its ally the UAE, or continue targeting ship movements through the Red Sea. Houthis claimed they attacked the international airport in Abu Dhabi using an armed drone that flew over 1,500 km to its destination on Thursday, though the UAE flatly denied such an incident occurred, while experts doubted that the rebels have such capability.
Though crude’s price recovery this week from the depths plumbed last week was also helped by a draw reported for last week in US crude and refined product stocks, the upside was limited. Two major bearish factors remain in view: increased supply from Saudi Arabia and a few other OPEC/non-OPEC producers, and a possible slowdown in oil demand if the US-China trade war continues to fester.
A potential supply shock if Washington adopts a tough stance against buyers of Iran crude may seem distant, given the November 4 implementation of US sanctions against Iran’s oil sector. But the Bab el-Mandeb attack this week shows oil supply could be jolted from other directions and at any time.
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Malaysia has the fourth largest oil and gas reserve in Southeast Asia and produces a whopping 30,000 megawatts of energy per year. The country continues to be hopeful about the prospects of its oil & gas industry and expects it to contribute meaningfully towards the growth of its economy. But then again, what does it mean for the employees who are working in the industry or plan to enter it? Is it a profitable industry in terms of salary growth and expectations? Let’s figure out what the industry holds for its employees and job seekers of oil and gas jobs in Malaysia.
What does the number say?
The best way to analyze the oil and gas job sector is to look at the recent studies and research conducted, which can give a substantial view into the future of the industry. As per the statistics department, Malaysia saw 8.1% growth in the salary in 2017 amounting to RM 2880 as compared to 2016, in which the average salary recorded was RM 2657. Additionally, the chief statistician of the department, Datuk Seri Dr Mohd Uzir Mahidin, said that an increase in the mean monthly salary and also the wages are in sync with the country’s economic performance. Even the exports indicated to grow by 20.3% which amounts to RM935.5bil. He made these observations based on the results of Salaries and Wages Survey 2017 of oil and gas professionals and entry-level oil and gas job seekers.
What the number means for prospects of oil and gas salary in Malaysia
If the above data is viewed on a sectoral basis, then the mining and quarrying sector indicated the highest monthly salaries as well as wages, which amounted to a mean of RM5,709 and a median of RM3,700.
Datuk Seri Dr Mohd Uzir Mahidin, further added that capital-intensive industries like the oil and gas, which is a major part of mining and quarrying sector, employs professionals, who are highly skilled and hence a bigger paycheck and higher mean and median salary.
The observation made by the chief statistician gets further backing by an online job site’s employment index. Although, it shows a decrease of 11% in May 2018 for the hiring activities in comparison to the previous year. However, it pointed towards a steep growth in the Oil & Gas sector. The hiring activity went up by 14% year-on-year in May 2018.
What can be the salary expectations for energy professionals?
The above studies and research indicate a positive outlook for both upstream and downstream players of this sector. However, it is important to note that a lot of factors help to determine your salary potential, which includes: education, years of experience, expertise, work ethics, job location, skill set and so on.
As per payscale.com, a Petroleum Engineer can earn on an average RM 104,343 per year. Which means an average salary of RM 99,803 with an estimated average bonus of RM 22,500 and profit sharing of RM 5120. Your experience and education play a major role in determining your salary. Similarly, in oil and gas industry, the average salary of a mechanical engineer amounts to RM 72,000 whereas the average salary of Account is RM 82,248 and for Project Engineer is RM 57,000 while a sales manager has the potential of RM 120,000.
Since the industry prefers professionals with high-level skills in the respective areas, it is advisable to enhance your overall employability factors to enjoy higher compensation and perks. And also use oil and gas professional networks to your advantage in getting the desired contacts and opportunities.
Headline crude prices for the week beginning 13 August 2018 – Brent: US$72/b; WTI: US$67/b
Headlines of the week
Source: U.S. Energy Information Administration, Weekly Petroleum Status Report
For the week ending July 6, 2018, the four-week average of U.S. gross refinery inputs surpassed 18 million barrels per day (b/d) for the first time on record. U.S. refineries are running at record levels in response to robust domestic and international demand for motor gasoline and distillate fuel oil.
Before the most recent increases in refinery runs, the last time the four-week average of U.S. gross refinery inputs approached 18 million b/d was the week of August 25, 2017. Hurricane Harvey made landfall the following week, resulting in widespread refinery closures and shutdowns along the U.S. Gulf Coast.
Despite record-high inputs, refinery utilization as a percentage of capacity has not surpassed the record set in 1998. Rather than higher utilization, refinery runs have increased with increased refinery capacity. U.S. refinery capacity increased by 862,000 barrels per calendar day (b/cd) between January 1, 2011, and January 1, 2018.
The record-high U.S. input levels are driven in large part by refinery operations in the Gulf Coast and Midwest regions, the Petroleum Administration for Defense Districts (PADDs) with the most refinery capacity in the country. The Gulf Coast (PADD 3) has more than half of all U.S. refinery capacity and reached a new record input level the same week as the record-high overall U.S. capacity, with four-week average gross refinery inputs of 9.5 million b/d for the week ending July 6. The Midwest (PADD 2) has the second-highest refinery capacity, and the four-week average gross refinery inputs reached a record-high 4.1 million b/d for the week ending June 1.
U.S. refineries are responding currently to high demand for petroleum products, specifically motor gasoline and distillate. The four-week average of finished motor gasoline product supplied—EIA’s proxy measure of U.S. consumption—typically hits the highest level of the year in August. Weekly data for this summer to date suggest that this year’s peak in finished motor gasoline product supplied is likely to match that of 2016 and 2017, the two highest years on record, at 9.8 million b/d. The four-week average of finished motor gasoline product supplied for the week ending August 3, 2018, was at 9.7 million b/d.
U.S. distillate consumption, again measured as product supplied, is also relatively high, averaging 4.0 million b/d for the past four weeks, 64,000 b/d lower than the five-year average level for this time of year. In addition to relatively strong domestic distillate consumption, U.S. exports of distillate have continued to increase, reaching a four-week average of 1.2 million b/d as of August 3, 2018. For the week ending August 3, 2018, the four-week average of U.S. distillate product supplied plus exports reached 5.2 million b/d.
In its August Short-Term Energy Outlook (STEO), EIA forecasts that U.S. refinery runs will average 16.9 million b/d and 17.0 million b/d in 2018 and 2019, respectively. If achieved, both would be new record highs, surpassing the 2017 annual average of 16.6 million b/d.