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Market Watch 

Headline crude prices for the week beginning 17 June 2019 – Brent: US$61/b; WTI: US$52/b

  • Bear-ish trends continue for global oil prices, as more signs of a global economic and manufacturing slowdown emerge, sending crude benchmarks to their lowest levels in almost five months
  • With OPEC and its OPEC+ allies meeting in Vienna soon, it seems like a foregone conclusion that the global supply deal will be extended to December; in the absence of any surprises, the meeting is unlikely to move the needle on crude prices much
  • However, the market has been rattled by a long impasse between Iran, Saudi Arabia and Russia over the date of the upcoming meeting; originally scheduled for June 25-26, the meeting has now been postponed to July 1-2, but not after reports of internal squabbles that exposed the fragile balance in the group
  • While OPEC+ is putting up a united front beyond its internal tensions, it has named international trade tensions as a catalyst for hurting current demand for oil, causing it to slash its consumption forecast for the year by 20%
  • US manufacturing production and housing sentiment are the latest indicators to show unexpected slowdowns, joining warning signs from China and Germany that the global economy was under pressure, as US crude stockpiles swell
  • With China now slapping a 25% tariff on US LNG imports and President Donald Trump considering additional sanctions, the American Petroleum Institute has urged Trump to return to the negotiating table to avoid a ‘negative and long-term impact on American businesses’
  • Geopolitical tensions are also high, as the recent attack on a Norwegian and a Japanese oil tanker in the Persian Gulf keeps the threat of conflict very real
  • With all these factors in play, the US EIA has lowered its Brent price forecast for 2019 to US$67/b, down from its previous expectations of US$70/b, citing ‘rising uncertainty about global oil demand growth’; last month, the IEA slashed its growth forecast for oil demand slightly to 1.3 mmb/d
  • With prices under pressure, the active US rig count dropped by a net six last week, losing one oil and five gas sites, bringing the total count to 969 sites
  • Prevailing concerns over the health of oil demand and the global economy will keep crude prices on a lowered trajectory, although we do expect some improvement in global benchmarks to US$62-64/b for Brent and US$53-55/b for WTI

Headlines of the week

Upstream

  • Cuba is the latest Caribbean country aiming for upstream riches, launching its first offshore licensing round in London offering 24 blocks in northwest areas in the Gulf of Mexico, with Eni, Premier Oil and CNPC expressing interest
  • ExxonMobil is moving ahead with the Bajo del Choique-La Invernada block development in Argentina’s Vaca Muerta basin, which should produce output of 55,000 boe/d within five years with plans for a 75,000 b/d second phase
  • China’s CNOOC will be offering five offshore blocks in the Pearl River Mouth basin in the South China Sea to international investors as part of a seven-year plan to expand offshore exploration in China

Midstream & Downstream

  • Shell is selling off its Martinez refinery in California to American refining specialist PBF Energy for some US$1 billion, expanding the latter’s presence on the US West Coast after Shell’s repeated attempts to sell Martinez since 2015
  • PetroChina’s expansion of its Huabei refinery has been completed, doubling crude capacity to 200 kb/d along with a new hydrocracker and hydrotreater
  • Cameroon’s sole 42 kb/d Sonara refinery will be shut down for a year following a major fire, forcing the country to cover fuel demand through increased imports
  • ExxonMobil and Saudi Arabia’s SABIC will be proceeding with a 1.8 mtpa ethane steam cracker in San Patricio, Texas – the world’s largest steam cracker that will power a major petrochemicals complex using Permian output
  • Indonesia has begun testing of B30 biodiesel blends in a bid to introduce a new national mandate in 2020, reduce oil imports and boost palm oil consumption
  • Phillips 66 has formed two new joint ventures totalling US$4 billion to construct pipelines delivering crude from shale basins to market, teaming up with Plains All American Pipeline for the Red Oak system connecting the Permian/Cushing to coastal Texas facilities and Bridger Pipeline for the Liberty pipeline connecting the Rockies/Bakken to Cushing, Oklahoma

Natural Gas/LNG

  • Total has begun production at its Culzean gas condensate field in the UK North Sea’s Block 22/25a near Aberdeen, which should deliver some 100,000 boe/d of natural gas or some 5% of the UK’s gas consumption
  • Poland’s PGNiG has signed a new agreement with Venture Global LNG to purchase an additional 1.5 mtpa of LNG from the Plaquemines and Calcasieu Pass LNG export projects, bringing PGNiG’s total purchase commitments with Venture Global LNG to 3.5 mtpa over a period of 20 years
  • Swiss trader Gunvor has inked a deal with Commonwealth LNG in Louisiana to purchase 1.5 mtpa of LNG for 15 years when it starts up in 2024
  • The first shipment of LNG from Shell’s Prelude FLNG facility in Western Australia has sailed, completing the last of Australia’s mega-LNG projects
  • US President Donald Trump is looking to implement US sanctions to halt the construction of the Nord Stream 2 pipeline between Germany and Russia, potentially derailing the controversial project and boost US LNG sales
  • The Tango FLNG vessel in Argentina has completed commissioning and handed over to state firm YPF, delivering its first cargo in early June
  • Kinder Morgan has delayed the start-up of its Elba LNG terminal Georgia, USA again, with no new timeline set for the 2.5 mtpa liquefaction terminal
  • Austria’s OMV will acquire stakes in the Achimov IV and V developments in the West Siberia Urengoy gas field from Gazprom for some US$1 billion

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September, 21 2019
Your Weekly Update: 16 - 20 September 2019

Market Watch  

Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b

  • Global crude oil prices surged at the start of the week as news that a successful drone strike on the Abqaiq processing plant and the Khurais oil field in Saudi Arabia took out over half of the Kingdom’s crude production capacity
  • Brent prices jumped above US$70/b at one point on fears on global supply disruption, but abated as President Donald Trump authorises the release of US strategic petroleum reserves to cover the market
  • Initial fears that the Saudi Arabian crude output would be crippled for months proved to be extreme, with Saudi Aramco announcing that some 70% of capacity at Abqaiq had been restored within days
  • But more worryingly is that this incident escalates the risk of a full-blown military confrontation with Iran; the US was quick to accuse Iran of the attack, citing data on the attack, which was denied by Iran
  • Yemen’s Iran-backed Houthi rebels claimed responsibility for the attack, although initial results of a Saudi investigation pointed to the weapons originating from Iran
  • For now, crude oil prices have retreated as the risk of widespread supply disruption abated, but tensions are still high in the region
  • This comes after President Trump signals that he was considering easing sanctions in an apparent thaw in the US-Iran relationship; this opportunity now appears to have evaporated
  • Saudi Arabia’s new oil energy minister, Prince Abdulaziz bin Salman, made a positive impression at the recent OPEC+ meeting, with errant members of the group signalling that they were now ready to adhere to the supply deal
  • In Venezuela, the oil crisis continues as ongoing US sanctions now mean that the country cannot find enough vessels to transport its crude, as shippers fear losing insurance coverage if they transport Venezuelan oil
  • Iran has released the UK-flagged Stena Impero vessel that it had impounded, a lone bright spot in a region now clouded by geopolitical tensions
  • Against this backdrop, the US active rig count recorded yet another fall, losing five oil and seven gas rigs for a net drop of 12 to a new total of 886 rigs
  • With the shock of the Saudi drone attacks abating, crude oil prices are retreating back to their previous range – US$60-63 for Brent and US$56-59/b for WTI – as the impact of global supply was minimised; another attack, however, might cause a more permanent shift in prices


Headlines of the week

Upstream

  • Equinor has received consent from the Norwegian Petroleum Directorate to continue operations at the Tordis and Vigdis fields through 2036 and 2040, respectively, extending the life of the North Sea fields by 34 years
  • BP has announced that it will deploy continuous measurement of methane emissions for all future oil and gas projects in a bid to reduce emissions
  • CNOPC and Niger have agreed to collaborate on a 1,892km pipeline to carry oil from Niger’s Agadem rift basin to port facilities in Benin
  • The South African government is tabling a new law that will allow the state to take a free stake of up to 10% in all new oil and gas ventures, hoping to capitalise on a surge in upstream interest after Total’s Brulpadda discovery

Midstream/Downstream

  • As the IMO deadline for low-sulfur marine fuels approaches, refiners have begun stockpiling supplies of very low-sulfur fuel oil to ensure adequate supply; this includes Japan’s Cosmo Oil that aims to begin supplying VLSFO to the domestic marine market by October 2019
  • IndianOil’s Gujarat refinery stated it ready to produce 12,900 b/d of VLSFO by October while its Haldia refinery will start producing 5,500 b/d of VLSFO by December; this should be adequate to cover the India’s marine fuel demand
  • India is considering selling a stake in BPCL, the country’s second largest refiner, to an international firm to boost competition in downstream fuel retailing that has historically been dominated by state firms
  • Valero Energy and Darling Ingredients are launching the first renewable gasoil plant in Texas, focusing on producing renewable diesel and naphtha
  • In the UK, Essar Oil’s Stanlow refinery aims to increase its diet of US crude from a current 35% to 40%, leveraging on cheaper American oil
  • The after-effects of Russia’s contaminated crude through the Druzhba pipeline continues as Total issues a tender to sell 1.3 million barrels of tainted Ural crude through Rotterdam after failing to process it

Natural Gas/LNG

  • Poland has won a ruling from the EU courts to reduce Russian control over the key EU Opal pipeline that carries Russian gas from the Nord Stream link to Germany, preventing Gazprom from using most of Opal capacity in a bit to increase energy security for Eastern European countries
  • Vitol and Mozambique’s state player ENH have set up a new joint venture in Singapore to capitalise on trading opportunities for LNG, LPG, and condensate
  • Australia’s Liquefied Natural Gas Ltd and Delta Offshore Energy will supply gas from the Magnolia fields to an LNG-to-power project in Bac Lieu, Vietnam
  • Eni’s Baltim South West gas field offshore Egypt has started up production, only 3 years after discovery, producing an initial 100 mscf/d of gas
  • US gas player Sempra is looking to take FID on its Energia Costa Azul LNG project in Mexico’s Baja California region by the end of 2019
  • Egypt has announced that it expects to receive first natural gas from Israel by end-2019 through the East Mediterranean Gas pipeline, with initial supplies of 200 mscf/d that will rise to 500 mscf/d by 2020
  • The Independence floating LNG terminal in Lithuania – built to reduce the Baltic region’s dependence on Russian gas – is set to receive its first-ever cargo from Siberia, likely from Novatek’s LNG projects in Yamal
September, 20 2019
Financial Review: Second-Quarter 2019
Key findings
  • Brent crude oil daily average prices were 9% lower in second-quarter 2019 than in second-quarter 2018 and averaged $68 per barrel
  • The 117 companies in this study increased their combined liquids production 4.6% in second-quarter 2019 from second-quarter 2018, and their natural gas production increased 5.0% during the same period
  • Nearly half of the companies were free cash flow positive—that is, they generated more cash from operations than their capital expenditures
  • Dividends plus share repurchases were nearly one-third of cash from operations, slightly lower than the six-year high set in first-quarter 2019

Distributions to shareholders via dividends and share repurchases amounted to nearly 33% of cash from operations


See entire second-quarter review

September, 20 2019