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Last Updated: August 23, 2018
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Market Watch

Headline crude prices for the week beginning 20 August 2018 – Brent: US$72/b; WTI: US$66/b

  • Trade and geopolitical worries continue to dominate the short, mid and long-term outlook for oil, with crude prices staying entrenched in their current range, sandwiched by the opposing factors.
  • China and the US are going back to the negotiating table after a two month impasse, hoping to ease the escalating trade war between the two. Most observers, however, do not expect much, if any, progress given the aggressive position of America.
  • Though LNG remains exempt from Chinese tariffs for now, news that PetroChina has considered halting spot purchases of American LNG this winter in favour of sourcing from other countries rattled US exporters, at a time when LNG infrastructure is ramping up in the Gulf Coast.
  • Despite pledging to increase output to President Trump, Saudi Arabia appears to have actually cut production, with OPEC also forecasting lower demand for its crude in 2019 due to increased supply from Russia and the US.
  • The question of how Iranian volumes will be replaced remains unanswered, though the US is now pulling back from strict interpretation of its sanctions, dangling the possibility of waivers to allies who comply. India, for example, is now aiming to halve its imports from Iran to secure a waiver based on the new American guidelines.
  • Iran is putting pressure on the EU to ‘save the nuclear deal’ to avoid companies pulling out of Iran, with reports that even Chinese ship owners may be avoiding carrying Iranian crude due to the impending sanctions.
  • In an effort to counter the removal of Iranian crude, the US Department of Energy is offering 11 million barrels of crude from the US Strategic Petroleum Reserve from October 1-November 30 2018.
  • The largest weekly stockpile build in US crude inventories since March 2017 spooked crude prices last week, underscoring the risk of slowing demand.
  • With crude prices still stuck in range, the active American rig count is flat, as no new oil and gas rigs started up, keeping the total count at 1,057.
  • Crude price outlook: The fragile global situation over trade and sanctions will remain, and with the November deadline looming for Iranian crude, we expect crude prices to inch up. Brent should trade at US$73-75/b and WTI at US$66-68/b.

Headlines of the week

Upstream

  • Iraq and Petrofac has signed a US$369 million deal to build a new 200 kb/d crude processing facility, which would boost the output at the giant Majnoon field from 230,000 b/d to 450,000 b/d by 2021; the Majnoon oilfield is now operated by Basra Oil Co after Shell departed the field in June.
  • Eni has acquired the new Nour offshore exploration licence in the East Nile Delta basin in Egypt, and has also received a 10-year extension of the Abu Madi West Development Lease, which contains the prolific Nooros field.
  • The much-touted recent Gulf of Mexico US exploration auction proved to be a damp squib with bids received for only 1% of the 14,575 blocks on offer.
  • Total is aiming to drill up to five exploration wells offshore French Guiana next year, hoping to strike similar riches that have been discovered in Guyana.

Downstream

  • New Mexican President Andres Manuel Lopez Obrador has pledged more than US$11 billion to boost the country’s refining capacity, split between a US$2.6 billion modernisation plan and a new US$8.4 billion refinery.
  • Japanese firms are cashing in on US LPG cargoes for heating, cooking and transport, after Chinese buyers began eschewing American propane and butane due to escalating trade tensions between the two countries.
  • PDVSA’s American subsidiary Citgo plans to resume long-delayed work to refurbish the idled 235,000 b/d Aruba refinery in the Caribbean.
  • Nigeria’s NNPC is mulling over a consideration to allow private investors to install new 100 kb/d refineries on the sites of its existing Port Harcourt and Warri sites to overcome chronic underutilization of its refining system.
  • Shell’s global refining boss Lori Ryerkerk will be stepping down after five years, to be replaced by Robin Mooldijk, VP of Manufacturing Americas.

Natural Gas/LNG

  • PetroChina may temporarily halt its purchases of American LNG this winter, switching to spot cargoes on the open market to feed its winter demand as the US-China trade war threatens to grow to include tariffs on LNG.
  • Cheniere’s Corpus Christi LNG project enters its commissioning phase, having been granted approval to feed first gas by energy regulator FERC.
  • Panama and the US have signed an agreement to pave way for more private investment into LNG importation and distribution, aimed at boosting US LNG exports into Central and South America.
  • Bangladesh has started up its first LNG import terminal after a three-month delay as the Excellence FSRU is now permanently moored. This will help offset a prolonged decline in the country’s natural gas production.
  • Japan’s Mitsubishi Corp has acquired 25% of the Summit LNG terminal in Bangladesh, which involves an FSRU unit to be installed off Moheshkali in Cittagong, with a target for commercial operations to begin in Q1 2019.
  • BP has inked a 5-year deal with PNG LNG, with purchases starting at 450,000 tpa over the first three years, then rising to 900,000 ton for the remaining two years.


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