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Market Watch

Headline crude prices for the week beginning 15 October 2018 – Brent: US$81/b; WTI: US$71/b

  • After settling lower on promises of increased supply, the crude oil markets were rocked this week as it became clearer and clearer that the Saudi Arabian state was involved in the disappearance and alleged assassination of prominent Saudi critic Jamal Khashoggi in Istanbul
  • Internal condemnation has been loud, but US President Donald Trump has ruled out trade sanctions and cancelling of defense contracts with Saudi Arabia; the Kingdom issued veiled threats to use its vast oil reserves as a political weapon if punitive measures are taken against it – the first time it has made such a threat since the 1973 Arab oil war.
  • Grapevine chatter suggests that Saudi Arabia is preparing to admit its involvement of Khashoggi’s disappearance as the result of an ‘investigation gone wrong’, and has activated its diplomatic network to push back against criticism
  • This comes at a fragile time, with Saudi Arabia required to play a key role in balancing the market ahead of the new American sanctions on Iran and the upcoming OPEC meeting on December 3
  • Meanwhile, global oil demand and supply have risen to new records according to the International Energy Agency, with global supply rising to 100.3 mmb/d and demand very close to the 100 mmb/d level, implying a very narrow level of spare supply in the market
  • Fears of the removal of Iranian crude from the market continue to haunt prices, but Saudi Arabia did state that the Kingdom was ready to absorb the shock and supply additional to India to counter their loss of Iranian volumes
  • The level of crude prices is expected to persist at their current levels for a while, with BP now looking to sanction projects that would require crude oil prices at the US$60-65/b level, up from US$50-55/b last year
  • While China hasn't imposed sanctions on US crude imports yet, Chinese importers have largely halted all imports of American crude since August, moving to using West Africa and also tapping into cheap Canadian oil sands crude, which is currently selling for under US$50/b
  • With the American EIA reporting an unexpected decline in US crude inventories, crude prices also got a boost from that early this week
  • After weeks of caution, American drills boosted active rig numbers last week, adding 8 new oil rigs and 4 new gas rigs for a net gain of 11 sites, with all new rigs being onshore ones; this comes as signs are showing that mature wells in the Permian are showing high decline rates
  • Crude price outlook: The Saudi scandal over Jamal Khashoggi is concerning, but there is resistance to taking too harsh an action on the fear that it could lead to a deliberate supply shock. As the market settles, we think Brent and WTI will trend downwards to the US$79-80/b and US$69-70/b this week


Headlines of the week

Upstream

  • BP, Eni and Libya’s National Oil Corporation have agreed to work towards resuming exploration activities on the EPSA production contract in Libya, covering the onshore Ghadames basin and the offshore Sirt basin, with Eni acquiring 42.5% interest in the contract
  • Chevron is fully exiting the Norwegian portion of the North Sea Basin, transferring its 20% stake in the PL859 licence in the Barents Sea to DNO ASA, part of the plan to completely exit the area in search of higher returns elsewhere
  • While others are exiting the North Sea, others are still keen; RockRose Energy has sanctioned FID on the Arran field, expecting to produce 100 mscf/d and 4,000 b/d of condensate at peak production
  • Murphy Oil and Petrobras’ American subsidiary have agreed to enter into a joint venture merging their Gulf of Mexico, with Murphy holding 80% and Petrobras the remaining 20% of a JV covering the St. Malo field and other assets
  • ConocoPhillips has achieved first oil at the Greater Mooses Tooth#1 site on the Alaskan North Slope, with peak output expected to be 25-30,000 b/d

Downstream

  • Hammered by the recent rise in crude prices, India is taking a commercial model for its strategic petroleum reserves, inviting global oil producers and traders to invest US$1.5 billion in storing some 6.5 million tons of crude at two sites
  • Saudi Aramco and Total have signed a new joint development agreement for engineering and design of the giant 1.5 mtpa petrochemicals plant in Jubail, located next to the SATORP refinery and now scheduled for start-up in 2024
  • Fresh off signing an MoU with Italy’s Eni on developing bio-refineries, Indonesia is mulling plans to convert two of its aging refineries – Plaju and Dumai – into biofuels plants producing 100% biodiesel from palm oil
  • The new 200 kb/d SOCAR Star refinery in Turkey – the first in the country in 30 years – will be starting up this month, boosting Turkish capacity by 30%
  • Total has opened up a new state-of-the-art 40,000 tpa lubricants blending plant in Russia’s Kaluga region, aimed at localising production to feed Russia’s growing hunger for top quality lubricants

Natural Gas/LNG

  • The first cargo at Inpex’s Ichthys LNG export project in Australia is ready for loading this week, finally bringing to a fruition a much-delayed project
  • Qatar Petroleum has signed a new mid-term supply agreement with China’s Oriental Energy, providing 600,000 tpa of LNG over a five year period
  • Egypt’s plan to import natural gas from Israel is accelerating, with partners now evaluating the condition of the East Mediterranean Gas pipeline, expecting the first gas to flow in March 2019 at 100 mscf/d
  • Shell is reportedly dropping plans to purchase a stake in Kazakhstan’s KazMunayGas National Co, after the results of a due diligence study into the role of the Kazakh state in the natural gas firm
  • ExxonMobil has signed a long-term, 20-year deal to supply Zhejiang Provincial Energy Group with LNG, as the Chinese power utility player expands on its role in energy after agreeing to a joint venture with Glencore this year
  • Novatek has made a massive 11 tcf gas discovery in the Ob Bay area of the North Obsk licence area, expected to feed into a future Arctic LNG project

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LG XBOOM GO PL2 Review


The LG XBOOM Go PL2 is the smallest and least expensive offering in LG's latest speaker trio including larger PL7 and PL5 models. All three models share the same design language and all have Meridian-tuned audio.

LG XBOOM PL2 is portable, small and light enough to be transported easily and offers 10 hours of battery life so it can run almost for a full day without being plugged in.


Ratings: 7.2

+ IPX5 water resistant

+ Easy to setup and use

+ Meridian tuned sound

- No integrated voice assistant

- No EQ adjustments


The LG XBOOM PL2 has IPX5 splash proof rating, which means it can withstand being sprayed with water but should not be submerged. We ran it under a faucet for a few seconds and the speaker kept working as it should.


The PL2 is based on version 5.0 of the Bluetooth standard and the range is quite similar to that of other speakers in the same price range. It can remain connected to more than 25 feet indoors from the audio source.

January, 26 2021
The Growing Divergence In Energy

Two acquisitions in the energy sector were announced in the last week that illustrate the growing divergence in approaching the future of oil and gas between Europe and the USA. In France, Total announced that it had bought Fonroche Biogaz, the market leader in the production of renewable gas in France. In North America, ConocoPhillips completed its acquisition of Concho Resources, deepening the upstream major’s foothold into the lucrative Permian Basin and its shale riches. One is heading towards renewables, and the other is doubling down on conventional oil and gas.

What does this say about the direction of the energy industry?

Total’s move is unsurprising. Like almost all of its European peers operating in the oil and gas sector, Total has announced ambitious targets to become carbon-neutral by 2050. It is an ambition supported by the European population and pushed for by European governments, so in that sense, Total is following the wishes of its investors and stakeholders – just like BP, Shell, Repsol, Eni and others are doing. Fonroche Biogaz is therefore a canny acquisition. The company designs, builds and operates anaerobic digestion units that convert organic waste such as farming manure into biomethane to serve a gas feedstock for power generation. Fonroche Biogaz already has close to 500 GWh of installed capacity through seven power generation units with four in the pipeline. This feeds into Total’s recent moves to expand its renewable power generation capacity, with the stated intention of increasing the group’s biomethane capacity to 1.5 terawatts per hour (TWh) by 2025. Through this, Total vaults into a leading position within the renewable gas market in Europe, which is already active through affiliates such as Méthanergy, PitPoint and Clean Energy.

In parallel to this move, Total also announced that it has decided not to renew its membership in the American Petroleum Institute for 2021. Citing that it is only ‘partially aligned’ with the API on climate change issues in the past, Total has now decided that those positions have now ‘diverged’ particularly on rolling back methane emission regulations, carbon pricing and decarbonising transport. The French supermajor is not alone in its stance. BP, which has ditched the supermajor moniker in favour of turning itself into a clean energy giant, has also expressed reservations over the API’s stance over climate issues, and may very well choose to resign from the trade group as well. Other European upstream players might follow suit.

However, the core of the API will remain American energy firms. And the stance among these companies remains pro-oil and gas, despite shareholder pressure to bring climate issues and clean energy to the forefront. While the likes of ExxonMobil and Chevron have balanced significant investments into prolific shale patches in North America with public overtures to embrace renewables, no major US firm has made a public commitment to a carbon-neutral future as their European counterparts have. And so ConocoPhillips acquisition of Concho Resources, which boosts its value to some US$60 billion is not an outlier, but a preview of the ongoing consolidation happening in US shale as the free-for-all days give way to big boy acquisitions following the price-upheaval there since 2019.

That could change. In fact, it will change. The incoming Biden administration marks a significant break from the Trump administration’s embrace of oil and gas. Instead of opening of protected federal lands to exploration, especially in Alaska and sensitive coastal areas and loosening environmental regulations, the US will now pivot to putting climate change at the top of the agenda. Although political realities may water it down, the progressive faction of the Democrats are pushing for a Green New Deal embracing sustainability as the future for the US. Biden has already hinted that he may cancel the controversial and long-running Keystone XL pipeline via executive order on his first day in the office. His nominees for key positions including the Department of the Interior, Department of Energy, Environmental Protection Agency and Council on Environmental Quality suggest that there will be a major push on low-carbon and renewable initiatives, at least for the next 4 years. A pledge to reach net zero fossil fuel emissions from the power sector by 2035 has been mooted. More will come.

The landscape is changing. But the two approaches still apply, the aggressive acceleration adopted by European majors, and the slower movement favoured by US firms. Political changes in the USA might hasten the change, but it is unlikely that convergence will happen anytime soon. There is room in the world for both approaches for now, but the future seems inevitable. It just depends on how energy companies want to get there.

Market Outlook:

  • Crude price trading range: Brent – US$54-56/b, WTI – US$51-53/b
  • Global crude oil benchmarks retreated slightly, as concerns of rising supplies and coronavirus spread impact consumption anticipations; in particular, new Covid-19 outbreaks in key countries such as Japan and China are menacing demand
  • Mapped against the new OPEC+ supply quotas, there is a risk that demand will retreat more than anticipated, weakening prices; however, a leaking pipeline in Libya has reduced oil output there by about 200,000 b/d, which could provide some price support
  • However, the longer-term prognosis remains healthier for oil prices factoring out these short-term concerns; the US EIA has raised its predicted average prices for Brent and WTI to US$52.70 and US$49.70 for the whole of 2021

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January, 22 2021
EIA expects crude oil prices to average near $50 per barrel through 2022

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.

EIA expects that growth in crude oil production from members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) will be limited because of a multilateral agreement to limit production. Saudi Arabia announced that it would voluntarily cut production by an additional 1.0 million b/d during February and March. Even with this cut, EIA expects OPEC to produce more oil than it did last year, forecasting that crude oil production from OPEC will average 27.2 million b/d in 2021, up from an estimated 25.6 million b/d in 2020.

EIA forecasts that U.S. crude oil production in the Lower 48 states—excluding the Gulf of Mexico—will decline in the first quarter of 2021 before increasing through the end of 2022. In 2021, EIA expects crude oil production in this region will average 8.9 million b/d and total U.S. crude oil production will average 11.1 million b/d, which is less than 2020 production.

EIA expects that responses to the recent rise in COVID-19 cases will continue to limit global oil demand in the first half of 2021. Based on global macroeconomic forecasts from Oxford Economics, however, EIA forecasts that global gross domestic product will grow by 5.4% in 2021 and by 4.3% in 2022, leading to energy consumption growth. EIA forecasts that global consumption of liquid fuels will average 97.8 million barrels per day (b/d) in 2021 and 101.1 million b/d in 2022, only slightly less than the 2019 average of 101.2 million b/d.

EIA expects global inventory draws will contribute to forecast rising crude oil prices in the first quarter of 2021. Despite rising forecast crude oil prices in early 2021, EIA expects upward price pressure will be limited through the forecast period because of high global oil inventory, surplus crude oil production capacity, and stock draws decreasing after the first quarter of 2021. EIA forecasts Brent crude oil prices will average $53/b in both 2021 and 2022.

quarterly global liquid fuels production and consumption

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

You can find more information on EIA’s expectations for changes in global petroleum liquids production, consumption, and crude oil prices in EIA’s latest This Week in Petroleum article and its January STEO.

January, 22 2021