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Last Updated: September 13, 2018
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Market Watch

Headline crude prices for the week beginning 10 September 2018 – Brent: US$78/b; WTI: US$67/b

  • International oil prices are holding steady on the high end of their range, as ongoing concern over the Iranian situation and escalating trade tensions continues.
  • The abating of Tropical Storm Gordon led the WTI discount to Brent to grow to US$11/b, the widest spread in over a month; however, with three new tropical storms developing, including Hurricane Florence due to hit the Carolinas, WTI prices could be in for a rocky road.
  • In the ongoing trade spat between the US and China, President Trump is now threatening to impose tariffs on an additional US$267 billion worth of Chinese imports; China’s room to retaliate with like-for-like tariffs is now constrained, and crude and LNG will now inevitably be dragged into the fracas.
  • The route in emerging currencies – particularly the Turkish lira, Indian rupee and Indonesia rupiah – has sapped some strength from the market over worries that these large oil buyers would have to curb demand.
  • On the impending Iranian sanctions, the US is returning to more of a hard-line stance, saying that it will consider waivers for dependent buyers like India only if imports are eventually eliminated completely.
  • Meanwhile, South Korea became the first of Iran’s major customers to cut its imports to zero, hoping to appease its ally during a delicate time in its relations with North Korea.
  • OPEC believes that world oil consumption will reach 100 mmb/d by the end of 2018, earlier than previously forecast and a sign of robust demand that validates the organisation’s decision to expand its oil supply.
  • Despite concerns over growing crude inventories in the US, investment into the Permian Basin continues unabated; some shale assets recently sold for US$95,001 per acre, more than double the previous record of US$40,001, as overall sales in a recent auction raised almost a billion dollars over two days.
  • While the future of the Permian remains bright, immediate action is cautious; US drillers cut active oil rigs for the second time in three weeks, shedding two sites, although two additional gas rigs left the net count unchanged.
  • Crude price outlook: Uncertainty will keep oil prices on an upward trend, with Brent likely to test to US$80/b level again, while WTI returns to the US$69-71/b level as the Atlantic hurricane season kicks into full gear.


Headlines of the week                                                                                    

Upstream

  • Hot on the heels of ExxonMobil’s stellar discoveries in Guyana, Tullow Oil will be drilling its first well in the Orinduik licence, which borders the recent Hammerhead-1 discovery by ExxonMobil and Hess.
  • Total has ruled out investing in the US shale oil industry, citing a lack of its own infrastructure in the region and increasing competition.
  • CNOOC has signed a new agreement with Uganda National Oil Company, paving the way for new exploration in the promising Albertine Graben.
  • Norway’s Equinor will begin drilling in Brazil’s North Carcara field by the end of 2018, aiming to increase output to 300-500,000 b/d before 2030.
  • Israel’s Ratio Oil Exploration was finally awarded its upstream rights in the Philippines, after winning the 416,000 hectare East Palawan block in 2015.
  • Despite national attempts to pull back away from energy, there is still great interest in Norwegian upstream, with 38 firms bidding in the latest APA auction.
  • Mexico’s incoming President Andres Manuel Lopez Obrador has allocated US$3.9 billion in the 2019 budget to resuscitate flagging national output.
  • Equatorial Guinea is threatening to exclude service firms like Technip, Subsea 7 and Schlumberger from operating for not complying with local content rules.
  • Gazprom, Mubadala Petroleum and Russia’s RDIF fund have established a joint venture to develop oil fields in Western Siberia’s Tomsk and Omsk regions.
  • Santos has sold a suite of its non-core Asian assets to Ophir Energy for US$221 million, including its interest in Indonesia’s Sampang and Madura Offshores PSCs and the Block 12W PSC in Vietnam.

Downstream

  • China’s Hengyi Industries International has delayed the startup of its 175 kb/d Pulau Muara Besar refinery in Brunei by several months, with construction now set to be complete by Q119, receiving first crude by end-March 2019.
  • ExxonMobil is looking at constructing a major petrochemicals complex in Guangdong, which would incorporate a 1.2 mtpa ethylene cracker, which could begin operations in 2023 if all milestones are hit.
  • Delta Air Lines is looking to sell off a stake in its Monroe Energy refining business, after its attempt to control jet fuel supply proved to be too risky alone.
  • Ahead of Saudi Aramco’s attempt to acquire part of SABIC, the Saudi petrochemicals giant has now purchased a 24.99% stake in specialty chemicals leader Clariant, beefing up its overall petchems capacity.

Natural Gas/LNG

  • Qatargas has signed a new 22-year agreement with PetroChina to supply up to 3.4 mtpa of LNG annually through to 2040.
  • Enterprise Product Partners has begun construction of a new 150 kb/d NGL fractionator in Mont Belvieu Texas – its tenth – aimed at boosting its total capacity to 1.4 mmb/d to service growing markets in Asia.
  • Anadarko’s Area 1 in Mozambique is now estimated to hold some 50-75 tcf of natural gas, enough to create some 50 mtpa of LNG.
  • Spain’s Repsol has agreed to purchase 1 mtpa of LNG from Venture Global’s Calcasieu Pass LNG plant in Louisiana over a period of 20 years.

Corporate

  • Transocean and Ocean Rig UDW has agreed to merge in a cash-and-stock transaction valued at some US$2.7 billion, consolidating the deepwater submersible industry even further.

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In its January Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) expects global demand for petroleum liquids will be greater than global supply in 2021, especially during the first quarter, leading to inventory draws. As a result, EIA expects the price of Brent crude oil to increase from its December 2020 average of $50 per barrel (b) to an average of $56/b in the first quarter of 2021. The Brent price is then expected to average between $51/b and $54/b on a quarterly basis through 2022.

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Source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO)

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