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Last Updated: April 13, 2020
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Headline crude prices for the week beginning 30 March 2020 – Brent: US$33/b; WTI: US$26/b

  • Unprecedented times call for unprecedented measures, as crude oil prices got a boost from an unlikely source: President Donald Trump, and his proclamation that Saudi Arabia and Russia would agree on a new supply deal
  • The magic number touted by Trump was a massive cut of 10 mmb/d in production – which triggered the largest ever single-day jump in crude oil prices – as Saudi Arabia called for an emergency OPEC+ meeting to discuss the issue
  • The OPEC+ meeting, which took place on Thursday, yielded a historic agreement to reduce production by 10 mmb/d; the cuts will be at the maximum level of 10 mmb/d until June 2020, before tapering down to 8 mmb/d until December 2020, and then 6 mmb/d until April 2022
  • The scale of the new cuts is unprecedented, and did not include any pledges from non-OPEC+ countries – particularly the USA and Brazil – beyond a call to such countries to respond with equivalent cuts
  • Unusually, Mexico was the lone hold-out on the deal, refusing to agree to a requested cut of 400,000 b/d, but it seems that the deal will go ahead
  • Oil prices didn’t budget upon the announcement of the agreement; partially because the market had already priced in the announcement after it was telegraphed by President Trump but also because the cut will not be enough to offset the expected fall in oil demand, which some analysts are predicting could reach 35 mmb/d in 2020
  • Much will now depend on President Trump’s next meeting with American drillers – set for April 10 – and if he can cajole them into accepting a pact to reduce US output; it is a tough proposition in a free-market industry, and even if a deal is reached, adherence will be tough to achieve…. as it already is within OPEC+
  • Supporting oil prices was an announcement by China that it had begun purchasing crude to fill its strategic reserves, one of many measures by governments worldwide have been taking to capitalise on cheap crude
  • While the new OPEC+ announcement should provide a more stable environment for drilling soon, the US active rig count remains decimated, losing a net 64 sites (62 oil and 2 gas), bringing the total operational number to 664
  • The OPEC+ deal has kicked crude oil prices to new plateau, but the demand side is still too weak to push prices higher; unless something miraculous comes out of the US regarding a crude supply pact, crude oil prices will continue to trade in the range of US$30-33/b for Brent and US$22-24/b for WTI


Headlines of the week

Upstream

  • Bakken shale giant Whiting Petroleum has filed for bankruptcy, the first of many former shale darlings that are expected to go into administration as the US shale industry faces a dire reckoning from Covid-19 and the oil price war
  • In an unusual move, Pioneer Natural Resources and Parsley Energy have backed a plan for the Texas Railroad Commission – the state oil regulator – to implement a state cap on crude output to ‘set reasonable market demand’
  • Siccar Point Energy and Shell have deferred the planned sanction date for their Cambo project in the UK Continental Shelf from Q3 2020 to 2H 2021
  • Petrobras has struck new oil at its pioneer well in the pre-salt Santos Basin’s Uirapuru Block, which it shares with ExxonMobil, Equinor and Petrogal
  • The latest giant oil field to enter production, Equinor’s John Sverdrup field in the North Sea will reach peak plateau production for its first phase earlier than expected, hitting some 470,000 boe/d by early May
  • TC Energy has confirmed that it will be proceeding with the construction of the controversial Canada-US Keystone XL Pipeline Project after receiving some US$8 billion in financial support from the provincial government of Alberta
  • Total is gearing up to start drilling at its Luiperd wildcat in South Africa in June 2020, close to its recent giant Brulpadda discovery in Block 11B/12B

Midstream/Downstream

  • Chinese refineries have gone on a buying spree for US crude oil, tempted by huge discounts offered at a time when China is preparing to resume normal economic activity after emerging from the Covid-19 lockdown and after the country waved import tariffs on US crude as part of the Phase 1 trade deal
  • India’s HPCL has invoked force majeure on two cargoes of crude oil from Iraq’s SOMO, citing dramatic fuel demand destruction due to India’s lockdown
  • Shell has opted to restart refining units at its 404 kb/d Pernis refinery in the Netherlands – Europe’s largest – following a brief power outage
  • Meanwhile North Atlantic Refining’s 130 kb/d Come-by-Chance refinery in Canada’s Newfoundland and Labrador province has become the first site in North America to halt all operations due to the Covid-19 pandemic
  • Saudi Aramco is reportedly mulling the sale of a stake in its pipeline unit in order to raise cash as the Kingdom faces off with Russia over oil prices; Aramco’s move would be in line with a similar recent proposal by Adnoc
  • China will begin to grant export quotas for refined fuel products to non-state refineries in the Zhejiang province as part of a pilot free trade zone, with the aim to promoting the zone as an international hub for clean marine fuels

Natural Gas/LNG

  • US LNG giant Cheniere has made the unusual step of tendering to buy 6 shipments of LNG for delivery to Europe later in 2020, seen as a sign that it may intend to throttle back production on a global glut and seeking (cheaper) existing cargoes to fulfil its contractual commitments
  • Cryopeak LNG Solutions Corp has broken ground on its planned LNG production facility in Fort Nelson, British Columbia, which is expected to serve demand markets in northern Canada and Alaska
  • India’s ONGC has produced first gas at Block 98/2 in the offshore Krishna Godavari Basin, which will be tied back to the existing Vashishta facility and potentially reduce the country’s LNG imports by 10% alone

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Where to buy your Gun Parts from?

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May, 20 2022
High Oil Prices and Indonesia’s Ban on Oil Palm Exports

Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.  

A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.

Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.

Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.

And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.

That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.

Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.

End of Article

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Market Outlook:

  • Crude price trading range: Brent – US$110-1113/b, WTI – US$105-110/b
  • As the war in Ukraine becomes increasingly entrenched, the pressure on global crude prices as Russian energy exports remain curtailed; OPEC+ is offering little hope to consumers of displaced Russian crude, with no indication that it is ready to drastically increase supply beyond its current gentle approach
  • In the US, the so-called NOPEC bill is moving ahead, paving the way for the US to sue the OPEC+ group under antitrust rules for market manipulation, setting up a tense next few months as international geopolitics and trade relations are re-evaluated

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May, 09 2022
Importance of Construction Supply Online Shop

An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.

Nowadays, everyone is shopping online - from groceries to clothes. And it's no different for construction supplies. With an online store, you can find all your supplies in one place and have them delivered to your doorstep. Construction supply online shops are a great way to find all the construction supplies you need. They also offer a wide variety of products from different suppliers, making it easier for customers to find what they're looking for. A construction supply online shop is essential for any construction company. They are the primary point of contact for the customers and they provide them with all the goods they need.

Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.

Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.

May, 07 2022