NrgEdge Editor

Sharing content and articles for users
Last Updated: September 27, 2018
1 view
Business Trends
image

Market Watch

Headline crude prices for the week beginning 24 September 2018 – Brent: US$80/b; WTI: US$72/b

  • International crude oil prices are now at their highest levels in four years, as the market fret over tight supply following a declaration by OPEC that it was approaching the issue of raising output cautiously ahead of a meeting of OPEC oil ministers in Algeria this weekend
  • Despite President Trump’s demand that the group steps in to control oil prices, OPEC is taking a wait-and-see approach; Saudi Arabia signalled that it was comfortable with US$80/b oil and was in no rush to bring prices down from current levels
  • OPEC also is not guaranteeing that its members (and its NOPEC partners) will automatically replace lost Iranian barrels due to upcoming American sanctions; coupled with still-strong energy demand, this is leading traders to predict a very tight oil market over the next few months
  • Most financial institutions are maintaining that oil prices will stay at US$80/b, but some bullish traders, including Mercuria and Trafigura, are predicting a return to US$100/b oil by early 2019
  • Saudi Arabia’s new best (oil) friend Russia reported a surge in its crude production to a new post-Soviet record of 11.3 mmb/d, but the US has leapfrogged that to become the largest crude oil producer in the world
  • Caught in an American web of sanctions, Iran warned that it would veto any decision by OPEC that ‘harms the Islamic Republic’, setting the tone for a testy meeting in Algiers this Sunday and in Vienna this December
  • Iran also issued veiled threats about jeopardising international peace as the US and Iran butted heads at the annual International Atomic Energy Agency meeting in Vienna
  • As the noose closes on Iran, even neighbouring India is cutting down on purchases; Chennai Petroleum (partly owned by the National Iranian Oil Co’s trading arm) announced it would stop processing Iranian crude from October onwards to maintain its insurance coverage
  • Meanwhile, the imbroglio between China and the US has reached LNG, with China slapping a 10% tariff on US LNG imports in response to a new tranche of duties imposed on US$200 billion of Chinese imports by the US, threatening to upend the accelerating LNG terminal development in the US Gulf Coast
  • Despite prices tending upwards, the US active oil rig count fell by one last week as ongoing infrastructure bottlenecks in onshore shale basins, particularly the Permian, hamper the marketability of liquids
  • Crude price outlook: Prices sustaining at high levels seem inevitable for the moment, as sanctions against Iran kick in in six weeks and the full scale of its impact remains uncertain. With OPEC content to let prices rise, we see Brent trading towards US$82/b and WTI towards US$73/b this week.


Headlines of the week

Upstream

  • Shell is reportedly looking to sell its 22.5% stake in the Gulf of Mexico Caesar Tonga field to Focus Oil for some US$1.3 billion, as it continues an asset rationalisation process kickstarted by its purchase of the BG Group
  • Canada has decided to restart the approval process for the Trans Mountain oil pipeline, hoping to circumvent or rectify shortcomings that led to a court ruling quashing the project’s permits on insufficient environmental impact studies
  • North Africa-focused SDX Energy is reportedly in discussion with BP to purchase a ‘significant package of assets’, which would add to SDX’s current interests in the South Disouq, Meseda, NW Gemsa and South Ramadan areas
  • Mexico’s Pemex has signed a landmark pre-unitisation deal with the three-way Block 7 Consortium, which will focus on developing the JV’s Zama-1 ‘world class oil discovery’ containing 1.2-1.8 billion barrels of oil
  • CNOOC’s Penglai 19-3 oilfield project in the Bohai Sea has commenced production, with a peak of 58,700 b/d expected to be hit by 2020, which should soften the persistentn decline in Bohai Bay upstream production
  • First oil has been produced at the Tortue field, in the offshore Gabon Dussafu PSC, a major milestone for its operator Panoro Energy

Downstream

  • Eni and Pertamina have signed an MoU meant to deepen cooperation between the two firms, particularly in Indonesian downstream, leveraging Eni’s experience in developing bio-refineries
  • Uganda has delayed its planned 60 kb/d oil refinery startup to a still ambitious 2022 over delays in the design and engineering phase; the refinery is meant to take Ugandan crude from fields co-developed by Total, CNOOC and Tullow, with delays in the upstream output also contributing to the pushback
  • After years of delays, Vietnam’s Nghi Son refinery is finally entering full production mode, offering its first cargo of gasoline for export, although Nghi Son will eventually focus on supplying fuels to the domestic market
  • China is reportedly considering issuing a new tranche of fuel export permits of some 3-4 million tons to prevent state-owned refiners from having to cut runs
  • Russian petrochemical producer Sibur has been sending out feelers on a possible stock market flotation, having spoken to several banks about listing some 15% of its shares in Moscow or international bourses

Natural Gas/LNG

  • With Egypt’s giant Zohr gas field ramping out faster than expected, the country plans to revive its long-dormant Damietta LNG plant to resume LNG exports
  • Vitol has signed a long-term 15-year LNG agreement with Cheniere, with the trader taking in 700,000 tpa of LNG per year beginning end-2018
  • Trader Woodside has signed a mid-term deal with Germany’s Uniper to supply up to 600,000 tpa of LNG over a four-year period beginning 2019
  • Qatar Petroleum will be adding a fourth train to its North Field expansion project, which will expand its total capacity to 110 mtpa by 2024
  • French major Total has clarified that its LNG investment position will be to focus on what it calls the ‘Golden Triangle’ of the LNG market – cost-competitive projects in Qatar, Russia and the USA
  • Nigeria LNG expects to make a final investment decision on its planned US$7 billion, 8 million tpa Train 7 LNG expansion project by end-2018

oil oil and gas news oil and gas industry LNG oil and gas companies news weekly update market watch market trends latest oil and gas trends
3
2 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

The Impact of COVID 19 In The Downstream Oil & Gas Sector

Recent headlines on the oil industry have focused squarely on the upstream side: the amount of crude oil that is being produced and the resulting effect on oil prices, against a backdrop of the Covid-19 pandemic. But that is just one part of the supply chain. To be sold as final products, crude oil needs to be refined into its constituent fuels, each of which is facing its own crisis because of the overall demand destruction caused by the virus. And once the dust settles, the global refining industry will look very different.

Because even before the pandemic broke out, there was a surplus of refining capacity worldwide. According to the BP Statistical Review of World Energy 2019, global oil demand was some 99.85 mmb/d. However, this consumption figure includes substitute fuels – ethanol blended into US gasoline and biodiesel in Europe and parts of Asia – as well as chemical additives added on to fuels. While by no means an exact science, extrapolating oil demand to exclude this results in a global oil demand figure of some 95.44 mmb/d. In comparison, global refining capacity was just over 100 mmb/d. This overcapacity is intentional; since most refineries do not run at 100% utilisation all the time and many will shut down for scheduled maintenance periodically, global refining utilisation rates stand at about 85%.

Based on this, even accounting for differences in definitions and calculations, global oil demand and global oil refining supply is relatively evenly matched. However, demand is a fluid beast, while refineries are static. With the Covid-19 pandemic entering into its sixth month, the impact on fuels demand has been dramatic. Estimates suggest that global oil demand fell by as much as 20 mmb/d at its peak. In the early days of the crisis, refiners responded by slashing the production of jet fuel towards gasoline and diesel, as international air travel was one of the first victims of the virus. As national and sub-national lockdowns were introduced, demand destruction extended to transport fuels (gasoline, diesel, fuel oil), petrochemicals (naphtha, LPG) and  power generation (gasoil, fuel oil). Just as shutting down an oil rig can take weeks to complete, shutting down an entire oil refinery can take a similar timeframe – while still producing fuels that there is no demand for.

Refineries responded by slashing utilisation rates, and prioritising certain fuel types. In China, state oil refiners moved from running their sites at 90% to 40-50% at the peak of the Chinese outbreak; similar moves were made by key refiners in South Korea and Japan. With the lockdowns easing across most of Asia, refining runs have now increased, stimulating demand for crude oil. In Europe, where the virus hit hard and fast, refinery utilisation rates dropped as low as 10% in some cases, with some countries (Portugal, Italy) halting refining activities altogether. In the USA, now the hardest-hit country in the world, several refineries have been shuttered, with no timeline on if and when production will resume. But with lockdowns easing, and the summer driving season up ahead, refinery production is gradually increasing.

But even if the end of the Covid-19 crisis is near, it still doesn’t change the fundamental issue facing the refining industry – there is still too much capacity. The supply/demand balance shows that most regions are quite even in terms of consumption and refining capacity, with the exception of overcapacity in Europe and the former Soviet Union bloc. The regional balances do hide some interesting stories; Chinese refining capacity exceeds its consumption by over 2 mmb/d, and with the addition of 3 new mega-refineries in 2019, that gap increases even further. The only reason why the balance in Asia looks relatively even is because of oil demand ‘sinks’ such as Indonesia, Vietnam and Pakistan. Even in the US, the wealth of refining capacity on the Gulf Coast makes smaller refineries on the East and West coasts increasingly redundant.

Given this, the aftermath of the Covid-19 crisis will be the inevitable hastening of the current trend in the refining industry, the closure of small, simpler refineries in favour of large, complex and more modern refineries. On the chopping block will be many of the sub-50 kb/d refineries in Europe; because why run a loss-making refinery when the product can be imported for cheaper, even accounting for shipping costs from the Middle East or Asia? Smaller US refineries are at risk as well, along with legacy sites in the Middle East and Russia. Based on current trends, Europe alone could lose some 2 mmb/d of refining capacity by 2025. Rising oil prices and improvements in refining margins could ensure the continued survival of some vulnerable refineries, but that will only be a temporary measure. The trend is clear; out with the small, in with the big. Covid-19 will only amplify that. It may be a painful process, but in the grand scheme of things, it is also a necessary one.

Infographic: Global oil consumption and refining capacity (BP Statistical Review of World Energy 2019)

Region
Consumption (mmb/d)*
Refining Capacity (mmb/d)
North America

22.71

22.33

Latin America

6.5

5.98

Europe

14.27

15.68

CIS

4.0

8.16

Middle East

9.0

9.7

Africa

3.96

3.4

Asia-Pacific

35

34.75

Total

95.44

100.05

*Extrapolated to exclude additives and substitute fuels (ethanol, biodiesel)

Market Outlook:

  • Crude price trading range: Brent – US$33-37/b, WTI – US$30-33/b
  • Crude oil prices hold their recent gains, staying rangebound with demand gradually improving as lockdown slowly ease
  • Worries that global oil supply would increase after June - when the OPEC+ supply deal eases and higher prices bring back some free-market production - kept prices in check
  • Russia has signalled that it intends to ease back immediately in line with the supply deal, but Saudi Arabia and its allies are pushing for the 9.7 mmb/d cut to be extended to end-2020, putting the two oil producers on another collision course that previously resulted in a price war
  • Morgan Stanley expects Brent prices to rise to US$40/b by 4Q 2020, but cautioned that a full recovery was only likely to materialise in 2021

End of Article

In this time of COVID-19, we have had to relook at the way we approach workplace learning. We understand that businesses can’t afford to push the pause button on capability building, as employee safety comes in first and mistakes can be very costly. That’s why we have put together a series of Virtual Instructor Led Training or VILT to ensure that there is no disruption to your workplace learning and progression.

Find courses available for Virtual Instructor Led Training through latest video conferencing technology.

May, 31 2020
North American crude oil prices are closely, but not perfectly, connected

selected North American crude oil prices

Source: U.S. Energy Information Administration, based on Bloomberg L.P. data
Note: All prices except West Texas Intermediate (Cushing) are spot prices.

The New York Mercantile Exchange (NYMEX) front-month futures contract for West Texas Intermediate (WTI), the most heavily used crude oil price benchmark in North America, saw its largest and swiftest decline ever on April 20, 2020, dropping as low as -$40.32 per barrel (b) during intraday trading before closing at -$37.63/b. Prices have since recovered, and even though the market event proved short-lived, the incident is useful for highlighting the interconnectedness of the wider North American crude oil market.

Changes in the NYMEX WTI price can affect other price markers across North America because of physical market linkages such as pipelines—as with the WTI Midland price—or because a specific price is based on a formula—as with the Maya crude oil price. This interconnectedness led other North American crude oil spot price markers to also fall below zero on April 20, including WTI Midland, Mars, West Texas Sour (WTS), and Bakken Clearbrook. However, the usefulness of the NYMEX WTI to crude oil market participants as a reference price is limited by several factors.

pricing locations of selected North American crudes

Source: U.S. Energy Information Administration

First, NYMEX WTI is geographically specific because it is physically redeemed (or settled) at storage facilities located in Cushing, Oklahoma, and so it is influenced by events that may not reflect the wider market. The April 20 WTI price decline was driven in part by a local deficit of uncommitted crude oil storage capacity in Cushing. Similarly, while the price of the Bakken Guernsey marker declined to -$38.63/b, the price of Louisiana Light Sweet—a chemically comparable crude oil—decreased to $13.37/b.

Second, NYMEX WTI is chemically specific, meaning to be graded as WTI by NYMEX, a crude oil must fall within the acceptable ranges of 12 different physical characteristics such as density, sulfur content, acidity, and purity. NYMEX WTI can therefore be unsuitable as a price for crude oils with characteristics outside these specific ranges.

Finally, NYMEX WTI is time specific. As a futures contract, the price of a NYMEX WTI contract is the price to deliver 1,000 barrels of crude oil within a specific month in the future (typically at least 10 days). The last day of trading for the May 2020 contract, for instance, was April 21, with physical delivery occurring between May 1 and May 31. Some market participants, however, may prefer more immediate delivery than a NYMEX WTI futures contract provides. Consequently, these market participants will instead turn to shorter-term spot price alternatives.

Taken together, these attributes help to explain the variety of prices used in the North American crude oil market. These markers price most of the crude oils commonly used by U.S. buyers and cover a wide geographic area.

Principal contributor: Jesse Barnett

May, 28 2020
Financial Review: 2019

Key findings

  • Brent crude oil daily average prices were $64.16 per barrel in 2019—11% lower than 2018 levels
  • The 102 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2018 to 2019
  • Proved reserves additions in 2019 were about the same as the 2010–18 annual average
  • Finding plus lifting costs increased 13% from 2018 to 2019
  • Occidental Petroleum’s acquisition of Anadarko Petroleum contributed to the largest reserve acquisition costs incurred for the group of companies since 2016
  • Refiners’ earnings per barrel declined slightly from 2018 to 2019

See entire annual review

May, 26 2020