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Last Updated: January 31, 2020
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Headline crude prices for the week beginning 27 January 2020 – Brent: US$58/b; WTI: US$52/b

  • With a new global health emergency emanating out of China, crude oil prices have tumbled as the market considers the impact of the Wuhan coronavirus outbreak on oil demand
  • With cities in the Hubei province on lockdown – totalling up to 40 million people – and the outbreak spreading quickly globally, oil demand will be impacted as jet travel, economic activity and transportation slows down; the question now is: how long will this last for?
  • In 2003, the SARS health crisis lasted a full five months before dissipating; in 2020, the more connected nature of the world – coupled with the Lunar New Year holidays – has meant that contagion has spread ever faster
  • Most financial analysts are predicting a major, if temporary, hit on oil demand, although Saudi Arabia is putting on a braver face, stating that it believes the crisis will have a ‘very limited impact’ on consumption
  • While the Wuhan outbreak hits demand, supply has been curtailed as well, as the ongoing standoff by Libya warlord Khalifa Haftar is keeping Libya’s oil output at an extreme minimum
  • On the Iran situation, the US continues to tighten the screws on Iranian energy exports, sanctioning four new companies for trading in Iranian oil and petrochemicals, with three of the companies located in China
  • After overtures, Brazil looks unlikely to accept an invitation to join OPEC, as the Energy and Mines Ministry stated that it instead intends to maximise output expansion, which could see Brazil’s crude production reach 7 mmb/d by 2024
  • In Venezuela, the crippling US sanctions has prompted the regime of Nicolas Maduro to consider privatising its oil industries, holding talks with Rosneft, Repsol and Eni to take stakes in the state giant PDVSA
  • Amidst the global turmoil, the US active rig count went back into decline, losing a net 2 rigs last week; the Baker Hughes rig count is now down 265 rigs y-o-y to 794 sites
  • The Wuhan coronavirus outbreak will continue to dominate the headlines in the oil market, providing a significant degree of pessimism; crude oil prices have lost some 10% since the outbreak began, and will stay in the US$57-59/b range for Brent and US$52-54/b for WTI as the market assess the full impact


Headlines of the week

Upstream

  • ExxonMobil hits sweet sixteen in Guyana, announcing a new oil discovery at the Uaru well that raises the estimated recoverable reserves at the Stabroek Block to over 8 billion barrels of oil equivalent
  • While it strikes new riches in Guyana, ExxonMobil continues its exit from Europe, starting an immediate sale process for its UK North Sea assets and also initiating a sale of its oil and natural gas holdings in Germany
  • Crude production from the shared Kuwait-Saudi Arabia Wafra field will resume in 2020, as Kuwait ratified an agreement to restart up to 500,000 b/d of crude output in the Neutral Zone that has been idled since 2015
  • Total and Tullow Oil have begun proceedings to sell part of their Kenyan oilfields, with Total looking to sell half of its 25% stake and Tullow looking to reduce its 50% stake in the country’s eastern oil fields to 30%
  • Kazakhstan has suspended exports of crude oil to China by pipeline after contamination was detected, recalling the Russian Druzhba contaminated crude crisis that knocked out supply in north-western Europe in mid-2019
  • Petronas may be taking a 7% stake in Pakistan’s domestic energy giant Oil & Gas Development Company as well as invest in the country’s upstream oil and gas sector, with both countries looking to deepen economic ties
  • ADNOC subsidiary Al Yasat Petroleum has kick-started production at the Bu Hasser 2 offshore platform, delivering an initial 15,000 b/d of crude
  • The Keystone XL pipeline connecting Alberta to US Gulf Coast refineries has taken another step towards reality, with the US federal government authorising construction on a key swathe of federal acreage in Montana

Midstream/Downstream

  • The fire-hit Philadelphia Energy Solution refinery will be sold to real estate developer Hilco Redevelopment Partners for US$240 million, removing the likelihood that the site will be revived as an oil refinery
  • India’s three state refiners – IOC, BPCL and HPCL – are all close to signing annual supply deals for Russian oil, moving away from the country’s dependence on Middle East crudes to hedge against geopolitical risk
  • Phillips 66 has cancelled its renewable diesel project with Renewable Energy Group in Washington state, citing ‘uncertainties’ in the market

Natural Gas/LNG

  • After a valiant attempt to renegotiate terms with Total, the government of Papua New Guinea appears to be making better headway with ExxonMobil, as reports suggest both parties are close to agreeing new fiscal terms for the P’nyang gas project that underpins the three-train PNG LNG export project
  • Egypt’s attempt to become a regional LNG export powerhouse has taken a slight setback from weak gas prices, with the country reducing spot cargoes available in 2020 and moving to negotiating longer-term sales deals
  • Novatek is reporting that its Arctic LNG 2 project in West Siberia’s Gydan Peninsula is progressing ‘slightly ahead of schedule’ for completion in 2023
  • Gazprom has signed MoUs with Bangladesh’s Petrobangla and Bapex to initiate exploration activities around Bhola Island in the remote Chittagong region
  • Eni remains on track to start up its Coral South FLNG project in Mozambique by 2022 with the basic completion of the Coral Sul vessel in South Korea
  • Qatar has turned down India’s request to renegotiate long-term supply contracts involving 8.5 million tpa of LNG, with India citing ‘soft global gas prices’

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