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Last Updated: September 6, 2018
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Market Watch

Headline crude prices for the week beginning 3 September 2018 – Brent: US$78/b; WTI: US$71/b

  • Worries over Tropical Storm Gordon landing over the Mississippi Gulf Coast combined with renewed unrest in Libya and perennial concerns over Venezuela and Iran pushed oil prices higher at the start of this week.
  • Failing to become a hurricane, Gordon brought lashings of rain but largely spared offshore and onshore upstream infrastructure, which could allow a quicker ramp up of facilities that had been shut down for precaution.
  • A tanker collision had partially shut down Venezuela’s main oil-shipping port Jose last week, affecting shipments and adding to the country’s struggles.
  • In Iran, oil exports for August fell to a 30-month low of 2.1 mmb/d as key Asian buyers avoided cargoes in the lead-up to new American sanctions; there is room for more declines but perhaps not too much, as PetroChina commented that its refining network would be adversely affected by more cuts.
  • Faced with the renewed sanctions, Iran is once again threatening to blockade the Strait of Hormuz, effectively halting a large portion of Middle Eastern crude exports if it is not allowed to use the Strait
  • Despite the dwindling of Iranian exports, improved Libyan production and better exports from Iraq’s southern fields lifted OPEC oil production up by 220,000 b/d to 32.79 mmb/d in August, the highest level this year.
  • American trade belligerence has now led CNPC – China’s largest natural gas supplier – to halt all purchases of spot LNG cargoes from the USA until the trade dispute is settled; LNG has not yet been corralled into tit-for-tat trade war but will inevitably be drawn in, if President Trump expands import duties to an additional US$200 billion of Chinese imports.
  • The US EIA confirms that American crude oil production rose to a new record of 10.674 mmb/d in June 2018, up 231,000 b/d or 2%, with the largest gains seen in Texas, where onshore output grew to 4.4 mmb/d.
  • With crude prices in ascendance again, the active rig count in the US gained for the first time in three weeks as drillers added 4 new rigs – 2 oil and 2 gas – bringing the total count to 1,048.
  • Crude price outlook: As Tropical Storm Gordon eases, crude prices should settle into their range. Unrest in Libya is a worry, but unless the situation escalates further, Brent should trade in US$76-78/b range and WTI easing back down to US$68/70/b.


Headlines of the week

Upstream

  • South Sudan has restarted production at the key Toma South field, idled since 2013 due to conflict; part of the Unity fields, an initial 20,000 b/d is being produced at Toma South and with the El Mar, El Toor, Manga and Unity fields expected to resume later this month, output could reach some 80,000 b/d.
  • Another hit for Eni in Egypt, as the Italian firm reports a new onshore gas discovery in Faramid South, East Obayed concession with some 25 mmscf/d.
  • In Alaska, Eni has acquired 124 exploration leases in the Eastern North Slope, a prime area with high potential just southeast of the giant Prudhoe Bay field.
  • Lundin Petroleum has raised its estimates for the Rolvsnes field in Norway’s North Sea from 3-16 mmboe to 14-78 mmboe, with FID targeted at 2020/21.
  • ExxonMobil has commenced drilling off Australia’s southeast gas in search of natural gas, which could help ease the growing gas supply gap in the east.
  • In search of the next Permian Basin, oil firms are now looking at Wyoming’s Powder River Basin, with some US$260 million in land deals already exchanging hands in an area where pipeline infrastructure is not congested.

Downstream

  • Chevron’s subsidiary Caltex Australia is looking to sell some of its fuel retail convenience assets for some A$2 billion, covering some 12-25% of existing freehold sites as its 1H18 profits came in at the low end of projections.
  • Even as the private Dangote refinery moves ahead, Nigeria’s NNPC is conducting a feasibility study for two 200,000 b/d condensate refineries in the states of Delta and Imo as part of a wider plan to slash fuel imports.
  • The first fuel stations in the city of Tianjin have replaced gasoline with ethanol, as China fires its first salvo in unfolding an ambitious biofuels plan.
  • Plans to shut down the only oil refinery in Trinidad and Tobago has prompted threats of a general strike by the country’s oilfield workers trade union.
  • Gunvor has halted plans to upgrade its Rotterdam refinery for cleaner marine fuels, citing adverse market conditions affecting financial viability.

Natural Gas/LNG

  • Despite the threats of sanctions from the US, Nord Stream 2 AG claims the natural gas pipeline connecting Russia to Germany is progressing on schedule.
  • Indian Railways is attempting to shift some of its rail fuel demand away from (dirtier) gasoil to natural gas, with GAIL appointed as the sole supplier.
  • Freeport LNG in the USA has signed Japan’s Sumitomo as its first client for its Train 4, shipping 2.2 mtpa over 20 years beginning in 2023 when Train 4 of the complex in Texas is expected to start up.
  • Bangladesh is updating and improving its PSC terms ahead of a planned offshore licensing round next year, hoping that the new contracts will be able to attract international firms to reverse dwindling natural gas output that has already forced the country to turn heavily towards LNG imports.

Corporate

  • Nicke Widyawati has been confirmed as the new CEO of Pertamina by the Indonesia government and Dharmawan Samsu as Pertamina’s new Upstream Director, with the aim of growing crude/gas output, boosting refining capacity and shedding fuel imports in favour of biodiesel usage.
  • Amid disappointing results in the oil sector, Russian state firms are proving to be a bright spark, with Gazprom beat expectations by reporting a 539% jump in 2Q18 net profits to RUB259 billion (~US$3.8 billion).

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Renewables became the second-most prevalent U.S. electricity source in 2020

In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.

In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.

Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.

We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.

monthly U.S electricity generation from all sectors, selected sources

Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.

July, 29 2021
PRODUCTION DATA ANALYSIS AND NODAL ANALYSIS

Kindly join this webinar on production data and nodal analysis on the 4yh of August 2021 via the link below

https://www.linkedin.com/events/productiondataanalysis-nodalana6810976295401467904/

July, 28 2021
Abu Dhabi Lifts The Tide For OPEC+

The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.

How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.

The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.

The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.

On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.

But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.

For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.

End of Article 

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Market Outlook:

  • Crude price trading range: Brent – US$72-74/b, WTI – US$70-72/b
  • Worries about new Covid-19 infections worldwide dragging down demand just as OPEC+ announced that it would be raising production by 400,000 b/d a month from August onward triggered a slide in Brent and WTI crude prices below US$70/b
  • However, that slide was short lived as near-term demand indications showed the consumption remained relatively resilient, which lifted crude prices back to their previous range in the low US$70/b level, although the longer-term effects of the Covid-19 delta variants are still unknown at this moment
  • Clarity over supply and demand will continue to be lacking given the fragility of the situation, which suggests that crude prices will remain broadly rangebound for now

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July, 26 2021