NrgEdge Editor

Sharing content and articles for users
Last Updated: December 19, 2019
1 view
Business Trends
image

Market Watch   

Headline crude prices for the week beginning 16 December 2019 – Brent: US$65/b; WTI: US$60/b

  • Oil prices have stayed their recent gains, as cautious hope from the new OPEC+ deal mingles with the announcement of a phase 1 trade deal between the US and China, providing some optimism for the immediate future
  • The partial trade deal – which has not yet been signed – does not reverse any of the existing tariffs placed on US and Chinese goods by either country, but it did prevent new tariffs from kicking in on December 15; tariffs on US crude and LNG entering China, however, still remain in place
  • The deal is expected to be signed in January, provided an armistice to the trade war, but a more comprehensive trade deal probably remains further off as there are key disagreements between the two countries left unresolved
  • In response, the EIA raised its crude price forecast for the second time in a row, averaging at around US$60/b in 2020, but warns of increases in global oil inventories ‘particularly in the first half of 2020’
  • In Saudi Arabia, the Aramco IPO has proven to be a wild success; the first day of trading valued the world’s most profitable oil firm at a record US$18.8 trillion, bursting past the target US$2 trillion mark on its second day of trading
  • The valuation will underscore Saudi Arabia’s more aggressive stance at the recent OPEC meeting, balancing a need to ensure compliance with the group’s targets with keeping oil prices at an acceptable level
  • The US active rig count broke a long streak of declines, staying flat last week as a gain of 4 oil rigs was offset by the loss of 4 gas rigs; the overall rig count remained at a 32-month low at 799
  • Optimism over the trade deal will keep crude prices firm, although a lack of details on the deal’s specifics may hold back the market; Brent will remain in the US$64-66/b range, while WTI will trade at US$60-62/b levels

 

Headlines of the week

Upstream

  • Total is deepening its foothold in Libya, with the National Oil Corp approving the French supermajor’s acquisition of Marathon Oil’s assets – including a minority stake in the Waha concessions – for some US$450 million
  • Mexico’s Quesqui deposit – touted as Pemex’s most important find in three decades – might be smaller than expected, with estimates of 500 million barrels of light oil, condensate and gas in place, and output levels of 69,000 b/d
  • Ghana National Petroleum Company and Springfield E&P have announced a ‘significant’ oil discovery offshore Ghana, at the Afina-1 well in the West Cape Three Points Block 2, with some 1.5 billion barrels of oil in place
  • Chevron has sanctioned development on its US$5.7 billion Anchor project in the US Gulf of Mexico – the first deepwater high-pressure development in the industry, capable of handling pressures of up to 20,000 psi – with capacity for 75,000 b/d of crude and 28 mcf/d of natural gas
  • Guyana’s first crude oil exports are expected to begin in January or February 2020, a remarkable turnaround for a country where first oil was only discovered in 2015, with discoveries indicating a potential for 750,000 b/d of production
  • Talos Energy has acquired a portfolio of US Gulf of Mexico assets – from ILX Holdings, Castex Energy and Venari Resources – for some US$640 million, with a current production rate of 19,000 boe/d
  • Malaysian state giant Petronas has raised some US$1.4 billion through block trading of stakes in its subsidiaries Petronas Dagangan, Petronas Gas and MISC in order to raise capital to fund further overseas expansion in the Americas
  • ExxonMobil’s exit from Norwegian upstream is now official, with Var Energi confirming that its acquisition of ExxonMobil’s NCS assets has been completed
  • Equinor has started up its third UK crude project in 2019, with the Barnacle field starting up recently with estimated peak production levels of 4,300 b/d

Midstream/Downstream

  • China has announced the creation of a national oil and gas pipeline company, which will merge the pipeline networks of PetroChina, Sinopec and CNPC into a single firm that aims to streamline infrastructure and drive demand
  • China’s Zhejiang Petroleum & Chemical has launched its 3.8 million tpa reformer unit at its 200,000 b/d Zhoushan refinery, processing naphtha into aromatics alongside existing 1.4 mtpa ethylene and 4 mtpa paraxylene plants
  • Indonesia’s beleaguered drive to improve its refineries might clinch a concrete deal soon, as Pertamina and Saudi Aramco are reportedly ready to sign a deal to upgrade capacity at the Cilacap refinery by 50 kb/d to 400 kb/d in Q1 2020
  • Even as it is finalising the sale of four refineries in Brazil, Petrobras is looking to expand its Comperj refinery with a lubricant plant that will raise blending capacity there to 225,000 cubic metres through a US$400 million investment

Natural Gas/LNG

  • Milestone after milestone is being hit in the US Gulf LNG sector, with Freeport LNG’s Train 1 in Texas starting up commercial production; Freeport LNG Train 2 is expected in January 2020 and Train 3 in May for a total of 15 mtpa
  • Pakistan Energas is aiming to start up the country’s largest LNG import terminal in 2021 pending regulatory approval, with ExxonMobil supporting the project
  • Shell and Husky Energy have reached separate deals with CNOOC to take significant stakes in the giant Lingshui deepwater gas play near Hainan

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

Pricing-in The Covid 19 Vaccine

In a few days, the bi-annual OPEC meeting will take place on November 30, leading into a wider OPEC+ meeting on December 30. This is what all the political jostling and negotiations currently taking place is leading up to, as the coalition of major oil producers under the OPEC+ banner decide on the next step of its historic and ambitious supply control plan. Designed to prop up global oil prices by managing supply, a postponement of the next phase in the supply deal is widely expected. But there are many cracks appearing beneath the headline.

A quick recap. After Saudi Arabia and Russia triggered a price war in March 2020 that led to a collapse in oil prices (with US crude prices briefly falling into negative territory due to the technical quirk), OPEC and its non-OPEC allies (known collectively as OPEC+) agreed to a massive supply quota deal that would throttle their production for 2 years. The initial figure was 10 mmb/d, until Mexico’s reticence brought that down to 9.7 mmb/d. This was due to fall to 7.7 mmb/d by July 2020, but soft demand forced a delay, while Saudi Arabia led the charge to ensure full compliance from laggards, which included Iraq, Nigeria and (unusually) the UAE. The next tranche will bring the supply control ceiling down to 5.7 mmb/d. But given that Covid-19 is still raging globally (despite promising vaccine results), this might be too much too soon. Yes, prices have recovered, but at US$40/b crude, this is still not sufficient to cover the oil-dependent budgets of many OPEC+ nations. So a delay is very likely.

But for how long? The OPEC+ Joint Technical Committee panel has suggested that the next step of the plan (which will effectively boost global supply by 2 mmb/d) be postponed by 3-6 months. This move, if adopted, will have been presaged by several public statements by OPEC+ leaders, including a pointed comment from OPEC Secretary General Mohammad Barkindo that producers must be ready to respond to ‘shifts in market fundamentals’.

On the surface, this is a necessary move. Crude prices have rallied recently – to as high as US$45/b – on positive news of Covid-19 vaccines. Treatments from Pfizer, Moderna and the Oxford University/AstraZeneca have touted 90%+ effectiveness in various forms, with countries such as the US, Germany and the UK ordering billions of doses and setting the stage for mass vaccinations beginning December. Life returning to a semblance of normality would lift demand, particularly in key products such as gasoline (as driving rates increase) and jet fuel (allowing a crippled aviation sector to return to life). Underpinning the rally is the understanding that OPEC+ will always act in the market’s favour, carefully supporting the price recovery. But there are already grouses among OPEC members that they are doing ‘too much’. Led by Saudi Arabia, the draconian dictates of meeting full compliance to previous quotas have ruffled feathers, although most members have reluctantly attempt to abide by them. But there is a wider existential issue that OPEC+ is merely allowing its rivals to resuscitate and leapfrog them once again; the US active oil rig count by Baker Hughes has reversed a chronic decline trend, as WTI prices are at levels above breakeven for US shale.

Complaints from Iran, Iraq and Nigeria are to be expected, as is from Libya as it seeks continued exemption from quotas due to the legacy of civil war even though it has recently returned to almost full production following a truce. But grievance is also coming from an unexpected quarter: the UAE. A major supporter in the Saudi Arabia faction of OPEC, reports suggest that the UAE (led by the largest emirate, Abu Dhabi) are privately questioning the benefit of remaining in OPEC. Beset by shrivelling oil revenue, the Emiratis have been grumbling about the fairness of their allocated quota as they seek to rebuild their trade-dependent economy. There has been suggestion that the Emiratis could even leave OPEC if decisions led to a net negative outcome for them. Unlike the Qatar exit, this will not just be a blow to OPEC as a whole, questioning its market relevance but to Saudi Arabia’s lead position, as it loses one of its main allies, reducing its negotiation power. And if the UAE leaves, Kuwait could follow, which would leave the Saudis even more isolated.

This could be a tactic to increase the volume of the UAE’s voice in OPEC+, which has been dominated by Saudi Arabia and Russia. But it could also be a genuine policy shift. Either way, it throws even more conundrums onto a delicate situation that could undermine an already fragile market. Despite the positive market news led by Covid-19 vaccines and demand recovery in Asia, American crude oil inventories in Cushing are now approaching similar high levels last seen in April (just before the WTI crash) while OPEC itself has lowered its global demand forecast for 2020 by 300,000 b/d. That’s dangerous territory to be treading in, especially if members of the OPEC+ club are threatening to exit and undermine the pack. A postponement of the plan seems inevitable on December 1 at this point, but it is what lies beyond the immediate horizon that is the true threat to OPEC+.

Market Outlook:

  • Crude price trading range: Brent – US$44-46/b, WTI – US$42-44/b
  • More positive news on Covid-19 vaccines have underpinned a crude price rally despite worrying signs of continued soft demand and inventory build-ups
  • Pfizer’s application for emergency approval of its vaccine is paving the way for mass vaccinations to begin soon, with some experts predicting that the global economy could return to normality in Q2 2021
  • Market observers are predicting a delay in the OPEC+ supply quota schedule, but the longer timeline for the club’s plan – which is set to last until April 2022 – may have to be brought forward to appease current dissent in the group

Get timely updates about latest developments in oil & gas delivered to your inbox. Join our email list and get your targeted content regularly for free.

Submit Your Details to Download Your Copy Today!

November, 25 2020
EIA expects U.S. crude oil production to remain relatively flat through 2021

In the U.S. Energy Information Administration’s (EIA) November Short-Term Energy Outlook (STEO), EIA forecasts that U.S. crude oil production will remain near its current level through the end of 2021.

A record 12.9 million barrels per day (b/d) of crude oil was produced in the United States in November 2019 and was at 12.7 million b/d in March 2020, when the President declared a national emergency concerning the COVID-19 outbreak. Crude oil production then fell to 10.0 million b/d in May 2020, the lowest level since January 2018.

By August, the latest monthly data available in EIA’s series, production of crude oil had risen to 10.6 million b/d in the United States, and the U.S. benchmark price of West Texas Intermediate (WTI) crude oil had increased from a monthly average of $17 per barrel (b) in April to $42/b in August. EIA forecasts that the WTI price will average $43/b in the first half of 2021, up from our forecast of $40/b during the second half of 2020.

The U.S. crude oil production forecast reflects EIA’s expectations that annual global petroleum demand will not recover to pre-pandemic levels (101.5 million b/d in 2019) through at least 2021. EIA forecasts that global consumption of petroleum will average 92.9 million b/d in 2020 and 98.8 million b/d in 2021.

The gradual recovery in global demand for petroleum contributes to EIA’s forecast of higher crude oil prices in 2021. EIA expects that the Brent crude oil price will increase from its 2020 average of $41/b to $47/b in 2021.

EIA’s crude oil price forecast depends on many factors, especially changes in global production of crude oil. As of early November, members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) were considering plans to keep production at current levels, which could result in higher crude oil prices. OPEC+ had previously planned to ease production cuts in January 2021.

Other factors could result in lower-than-forecast prices, especially a slower recovery in global petroleum demand. As COVID-19 cases continue to increase, some parts of the United States are adding restrictions such as curfews and limitations on gatherings and some European countries are re-instituting lockdown measures.

EIA recently published a more detailed discussion of U.S. crude oil production in This Week in Petroleum.

November, 19 2020
OPEC members' net oil export revenue in 2020 expected to drop to lowest level since 2002

The U.S. Energy Information Administration (EIA) forecasts that members of the Organization of the Petroleum Exporting Countries (OPEC) will earn about $323 billion in net oil export revenues in 2020. If realized, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues.

Crude oil prices have fallen as a result of lower global demand for petroleum products because of responses to COVID-19. Export volumes have also decreased under OPEC agreements limiting crude oil output that were made in response to low crude oil prices and record-high production disruptions in Libya, Iran, and to a lesser extent, Venezuela.

OPEC earned an estimated $595 billion in net oil export revenues in 2019, less than half of the estimated record high of $1.2 trillion, which was earned in 2012. Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programs, and support public services. EIA expects a decline in net oil export revenue for OPEC in 2020 because of continued voluntary curtailments and low crude oil prices.

The benchmark Brent crude oil spot price fell from an annual average of $71 per barrel (b) in 2018 to $64/b in 2019. EIA expects Brent to average $41/b in 2020, based on forecasts in EIA’s October 2020 Short-Term Energy Outlook (STEO). OPEC petroleum production averaged 36.6 million barrels per day (b/d) in 2018 and fell to 34.5 million b/d in 2019; EIA expects OPEC production to decline a further 3.9 million b/d to average 30.7 million b/d in 2020.

EIA based its OPEC revenues estimate on forecast petroleum liquids production—including crude oil, condensate, and natural gas plant liquids—and forecast values of OPEC petroleum consumption and crude oil prices.

EIA recently published a more detailed discussion of OPEC revenue in This Week in Petroleum.

November, 16 2020