Oil traders almost uniformly bullish.
Friday, September 28th, 2018
WTI and Brent held onto their gains during early trading on Friday and look set to close out the week strongly up. The tension between dwindling Iranian supply and the extent to which Saudi Arabia will increase production is sure to dominate the market narrative over the next few weeks.
Oil traders almost uniformly bullish. The mood at the Asia Pacific Petroleum Conference (APPEC) in Singapore was highly bullish on oil prices in the short-term, largely because of the supply losses from Iran. Bloomberg also noted that the number of Brent options has surged to its highest ever, “driven by record call trading, including bets on $100.” Oil traders Mercuria and Trafigura see global production losses of about 2 million barrels per day and 1.5 mb/d, respectively, mostly related to Iran.
EU financing vehicle for Iran probably won’t help oil. The “special purpose vehicle” to help Iran continue to do business with European companies may not have much of an impact on the oil trade. Buyers are not likely to be entirely protected from U.S. secondary sanctions. “I think it is a welcome development,” Daniel Martin, a partner and sanctions expert at Holman Fenwick Willan in London, told Bloomberg. “But oil is not the arena it is going to be tested and used first.”
Total SA sees $100 oil. Total SA (NYSE: TOT) CEO Patrick Pouyanne says $100 oil is possible but isn’t excited about it. “I’m not sure it’s a good news” he told Bloomberg. “Even for the oil industry, because you know, when price goes too high then you open the door to your competitors” while demand will likely decline, he said.
Saudi Arabia fears supply glut. OPEC+ decided against further production gains last weekend, although Saudi Arabia has indicated it would increase production in September and October. However, Saudi Arabia is also wary about creating a new supply glut, as the market will see a seasonal dip in demand in the winter. Riyadh is running the risk of a supply crunch in the fourth quarter, but Saudi officials fear the opposite problem if they increase production too much.
How much spare capacity does Saudi Arabia have? As the oil market tightens, scrutiny over Saudi Arabia’s spare capacity is picking up. Saudi Arabia claims it can produce up to 12.0-12.5 mb/d, implying spare capacity of at least 1.5 mb/d. Analysts and industry insiders are skeptical. Bloomberg reports that executives at the Asia Pacific Petroleum Conference in Singapore privately questioned Saudi Arabia’s ability to even go beyond 11 mb/d. “Near-term spare capacity is effectively maxed out,” Amrita Sen of consultant Energy Aspects Ltd. said.
Texas frac sand replacing Wisconsin white sand. Shale drillers have relied on high-quality white sands from Wisconsin for their operations for several years, but new sand mines in Texas are opening up, pushing out sand supplies from far away. Hi-Crush Partners (NYSE: HCLP) announced plans this week to idle an operation in Wisconsin due to “temporary softness in completions activity and frac sand demand,” the company said. The decision is a sign that new Texas mining operations are making the market tough for sand suppliers that are located far away from drilling operations.
Oman benchmark price surges. The Oman oil benchmark on the Dubai Mercantile Exchange spiked this week as speculators bid up the price on fears of supply outages in Iran. The Oman price gained 11 percent in two days and is now more expensive than Brent. “It is very unusual to see DME at a premium to ICE Brent, let alone at such a high level. Given that the vast share of Omani crude is delivered to China, it is easy to conclude that it is the main driver for this unusual jump,” JBC Energy said in a note.
Permian pipeline woes may not be so bad. The pipeline bottleneck may end sooner than expected as pipelines are being fast tracked, according to a new report from Raymond James. The backlog should ease by late 2019, and the discount for WTI in Midland won’t be as wide as feared. The firm downgraded its estimated discount for Midland WTI to just $15 per barrel relative to Brent, down from an earlier estimate of $25.
Shell looks at stake in Gazprom project. Royal Dutch Shell (NYSE: RDS.A) is reportedly considering buying a stake in a project spearheaded by Russian gas giant Gazprom. If Shell moves forward, it would be a rare move into Russia, which has been under western sanctions since 2014. “For Gazprom Neft, it’s a chance to raise quick money, while for Shell - to get cheap reserves,” a source told Reuters.
ExxonMobil completes phase of Beaumont refinery. ExxonMobil (NYSE: XOM) said that it has completed a nearly $500 million expansion of its Beaumont refinery, which will give it greater capacity to refine light oil from Texas shale fields. More expansions are on the way, including a plastics production facility. The Beaumont site could soon become one of the U.S.’ largest refineries.
SEC sues Elon Musk. Elon Musk has been sued by the U.S. Securities and Exchange Commission for fraud related to Musk’s tweet about possibly taking Tesla (NASDAQ: TSLA) private. The suit could result in Musk being barred from running the company. Tesla’s share fell more than 4 percent in after-hours trading on Thursday.
New battery could break lithium dependence. A new battery from NantEnergy, headed by the California billionaire Patrick Soon-Shiong, operates on only zinc and air, and may even cost less than lithium-ion batteries. The zinc battery could allow the energy storage industry to move beyond lithium, where production is concentrated in just a handful of countries and is expected to struggle to keep up with demand.
WTI and Brent held onto their gains during early trading on Friday and look set to close out the week strongly up. The tension between dwindling Iranian supply and the extent to which Saudi Arabia will increase production is sure to dominate the market narrative over the next few weeks.
Oil traders almost uniformly bullish. The mood at the Asia Pacific Petroleum Conference (APPEC) in Singapore was highly bullish on oil prices in the short-term, largely because of the supply losses from Iran. Bloomberg also noted that the number of Brent options has surged to its highest ever, “driven by record call trading, including bets on $100.” Oil traders Mercuria and Trafigura see global production losses of about 2 million barrels per day and 1.5 mb/d, respectively, mostly related to Iran.
EU financing vehicle for Iran probably won’t help oil. The “special purpose vehicle” to help Iran continue to do business with European companies may not have much of an impact on the oil trade. Buyers are not likely to be entirely protected from U.S. secondary sanctions. “I think it is a welcome development,” Daniel Martin, a partner and sanctions expert at Holman Fenwick Willan in London, told Bloomberg. “But oil is not the arena it is going to be tested and used first.”
Total SA sees $100 oil. Total SA (NYSE: TOT) CEO Patrick Pouyanne says $100 oil is possible but isn’t excited about it. “I’m not sure it’s a good news” he told Bloomberg. “Even for the oil industry, because you know, when price goes too high then you open the door to your competitors” while demand will likely decline, he said.
Saudi Arabia fears supply glut. OPEC+ decided against further production gains last weekend, although Saudi Arabia has indicated it would increase production in September and October. However, Saudi Arabia is also wary about creating a new supply glut, as the market will see a seasonal dip in demand in the winter. Riyadh is running the risk of a supply crunch in the fourth quarter, but Saudi officials fear the opposite problem if they increase production too much.
How much spare capacity does Saudi Arabia have? As the oil market tightens, scrutiny over Saudi Arabia’s spare capacity is picking up. Saudi Arabia claims it can produce up to 12.0-12.5 mb/d, implying spare capacity of at least 1.5 mb/d. Analysts and industry insiders are skeptical. Bloomberg reports that executives at the Asia Pacific Petroleum Conference in Singapore privately questioned Saudi Arabia’s ability to even go beyond 11 mb/d. “Near-term spare capacity is effectively maxed out,” Amrita Sen of consultant Energy Aspects Ltd. said.
Texas frac sand replacing Wisconsin white sand. Shale drillers have relied on high-quality white sands from Wisconsin for their operations for several years, but new sand mines in Texas are opening up, pushing out sand supplies from far away. Hi-Crush Partners (NYSE: HCLP) announced plans this week to idle an operation in Wisconsin due to “temporary softness in completions activity and frac sand demand,” the company said. The decision is a sign that new Texas mining operations are making the market tough for sand suppliers that are located far away from drilling operations.
Oman benchmark price surges. The Oman oil benchmark on the Dubai Mercantile Exchange spiked this week as speculators bid up the price on fears of supply outages in Iran. The Oman price gained 11 percent in two days and is now more expensive than Brent. “It is very unusual to see DME at a premium to ICE Brent, let alone at such a high level. Given that the vast share of Omani crude is delivered to China, it is easy to conclude that it is the main driver for this unusual jump,” JBC Energy said in a note.
Permian pipeline woes may not be so bad. The pipeline bottleneck may end sooner than expected as pipelines are being fast tracked, according to a new report from Raymond James. The backlog should ease by late 2019, and the discount for WTI in Midland won’t be as wide as feared. The firm downgraded its estimated discount for Midland WTI to just $15 per barrel relative to Brent, down from an earlier estimate of $25.
Shell looks at stake in Gazprom project. Royal Dutch Shell (NYSE: RDS.A) is reportedly considering buying a stake in a project spearheaded by Russian gas giant Gazprom. If Shell moves forward, it would be a rare move into Russia, which has been under western sanctions since 2014. “For Gazprom Neft, it’s a chance to raise quick money, while for Shell - to get cheap reserves,” a source told Reuters.
ExxonMobil completes phase of Beaumont refinery. ExxonMobil (NYSE: XOM) said that it has completed a nearly $500 million expansion of its Beaumont refinery, which will give it greater capacity to refine light oil from Texas shale fields. More expansions are on the way, including a plastics production facility. The Beaumont site could soon become one of the U.S.’ largest refineries.
SEC sues Elon Musk. Elon Musk has been sued by the U.S. Securities and Exchange Commission for fraud related to Musk’s tweet about possibly taking Tesla (NASDAQ: TSLA) private. The suit could result in Musk being barred from running the company. Tesla’s share fell more than 4 percent in after-hours trading on Thursday.
New battery could break lithium dependence. A new battery from NantEnergy, headed by the California billionaire Patrick Soon-Shiong, operates on only zinc and air, and may even cost less than lithium-ion batteries. The zinc battery could allow the energy storage industry to move beyond lithium, where production is concentrated in just a handful of countries and is expected to struggle to keep up with demand.
Volf
28.09.2018 kl 22:03
1266
Global Energy Advisory - 28th September 2018
With the November 4 launch of U.S. sanctions against Iran drawing near, uncertainty about how much of global supply will be affected is running high. Mixed signals coming from some of Iran’s biggest oil clients are not helping, either, and chances are that this uncertainty will remain even after the sanctions snap back, until the first shipping data starts arriving.
Few things are certain and there is a lot of speculation. There is official information that the association of Japanese refiners has suspended its crude oil purchases from Iran and South Korean refiners have also stopped buying Iranian crude in the hope that Washington will grant the heavily import-dependent nation a sanction waiver.
Meanwhile, Bloomberg reported India’s largest refiners have not ordered any Iranian crude for November deliveries, suggesting India might follow suit with, but then clarifying that the deadline for purchasing oil cargoes for November delivery is still a couple of weeks away. Earlier this month, India said it could use rupees to settle its trade transactions with Iran and a government official said there has been no state decision to ask refiners to suspend Iranian oil purchases.
In Europe, the EU has come up with a mechanism to continue trading with Iran, notably in oil and oil products, but analysts are skeptical about how effective it will be. The mechanism basically means transactions will use the barter principle rather than money—a mechanism the USSR used during the Cold war. The skeptic camp, however, says that since a transaction is a transaction, with or without money, the U.S. could expand sanctions to cover barter deals as well.
Some close observers of the situation warn that despite all the upbeat rhetoric from Washington, things in Iran are not so bad: the country has the resources to withstand the crisis the sanctions will bring about, and it won’t suffer such grave consequences regarding its oil exports. Its VLCC fleet, TankerTrackers said earlier this week, is large enough to handle 1.85 million bpd in exports, and Iranian insurers are sure to provide coverage. The drama continues.
Deals, Mergers & Acquisitions
- CNOOC may sell parts of the stakes it holds in oil and gas production projects in the Gulf of Mexico and has no plans to spend money on new exploration there. The news comes from a spokeswoman for the Chinese overseas exploration company, coming on the heels of reports that CNOOC’s unit Nexen plans to exit the Gulf of Mexico amid the worsening trade spat between Washington and Beijing.
- Israeli Delek Group, Noble Energy, and Egyptian East Gas Co will buy into a pipeline owned by the East Mediterranean Gas Company as part of an agreement that will enable the resumption of Israeli natural gas exports to Egypt. Delek and Noble—which together develop Israel’s biggest gas fields—will pay $185 million for the stakes each, with East Gas Co paying $148 million for its interest. EMG, on the other hand, will end its arbitration case against Egypt linked to a canceled gas delivery deal from a few years ago.
- Shell may sell assets worth $1.3 billion to reduce its debt load, which swelled after its acquisition of BG Group. The assets are Shell’s 22.5% stake in the Caesar Tonga field in the Gulf of Mexico. The Anglo-Dutch supermajor’s partners in the field are Anadarko, Equinor, and Chevron.
Tenders, Auctions & Contracts
- Adnoc has awarded an $860-million engineering, procurement, and construction contract to a consortium between Spain’s Tecnicas Reunidas and local Target Engineering Construction Company for the second phase in the Integrated Gas Development Expansion project. This phase of the project will add 245 million cubic feet daily to the 1.4 billion cu ft of offshore and onshore gas sent to Adnoc’s Habshan gas processing plant.
- Pakistan and Russia have inked a deal for the construction of a $10-billion offshore gas pipeline to import gas into Pakistan. Gazprom has yet to conduct a feasibility study to see if the project is commercially viable but it looks like it’s a done deal as the Russian giant seeks to tap the growing Pakistani gas market while Pakistan wants to in turn expand its exports to Russia.
- Guyana is putting all oil tenders on hold until has an up and running Department of Energy to oversee all issues related to its newly found oil wealth. Exxon and its partners Hess Corp. and CNOOC started Guyana’s oil tale by discovering first oil a few years ago. To date, the reserves of all the discoveries the consrotum has made are about 4 billion barrels of crude.
Discovery & Development
- The UK’s Oil and Gas Authority has greenlit BP’s start of drilling at the Vorlich field in the central North Sea, which could tap 30 million barrels of oil equivalent from two wells. The project is worth $262 million. BP has a 66% stake in the Vorlich field and has partnered for its exploitation with Ithaca Energy. Production is expected to begin in two years, with peak daily output at 20,000 bpd of oil equivalent.
- CNPC said it will not stop drilling at its western fields during the winter in a bid to boost China’s domestic production to reduce its reliance on imports, especially now that prices are trending higher. Western fields as a rule stop production during the winter because of weather considerations that make drilling more expensive but CNPC has decided to make an exception, it seems, as production costs fall.
- French Total has announced one the biggest gas discoveries in the North Sea and certainly the biggest in the last ten years in the Glendronach reservoir. Wood Mac has estimated the reserves of the field at more than 1 trillion cubic feet of natural gas, the equivalent of 180 million barrels of crude.
- China’s Sinopec plans to build a $6.56-billion bitumen upgrader complete with a petrochemicals complex in Alberta. The facility will have a daily processing capacity of 167,000 barrels of diluted bitumen and will produce derivatives ranging from gasoline, jet fuel, and diesel, to basic chemicals.
- Tullow Oil announced disappointing drilling results for the Cormorant-1 offshore well in Namibia and said it will plug and abandon the well. The well was 3,855 meters deep but no commercial amounts of hydrocarbons were encountered. Namibia is a new hopeful on the oil horizon. The Cormorant prospect was estimated to hold some 124 million barrels of crude in reserves.
- Lundin Petroleum will upgrade its reserve estimate for the Alta discovery in the north of Norway after a successful product test that took two months. The initial estimate of the reserves at Alta and neighboring Gohta ranged between 115 and 390 million barrels of oil equivalent, the Swedish company said, but now these will be revised upwards.
Regulatory Updates:
- The two biggest oil unions in Nigeria have postponed a planned strike due to a dispute with Chevron and will instead negotiate with the company and the federal government. The unions have accused Chevron it was trying to fire thousands of oil workers in breach of their contracts.
- Petrobras has reached a settlement with U.S. anti-corruption authorities and will have to pay an $853.2-million fine. The Department of Justice had accused the Brazilian giant of bribing local politicians and concealing the truth, in effect, cheating shareholders. The settlement is the latest chapter in the operation Car Wash investigation that saw scores of senior business executives end up behind bars for corruption and toppled former President Dilma Rousseff.
Politics, Geopolitics & Conflict
A general strike in Nigeria has spread to the oil industry after the two biggest oil workers’ unions joined the industrial action that calls on the federal government to be more cooperative in negotiations about minimum wages.
With the November 4 launch of U.S. sanctions against Iran drawing near, uncertainty about how much of global supply will be affected is running high. Mixed signals coming from some of Iran’s biggest oil clients are not helping, either, and chances are that this uncertainty will remain even after the sanctions snap back, until the first shipping data starts arriving.
Few things are certain and there is a lot of speculation. There is official information that the association of Japanese refiners has suspended its crude oil purchases from Iran and South Korean refiners have also stopped buying Iranian crude in the hope that Washington will grant the heavily import-dependent nation a sanction waiver.
Meanwhile, Bloomberg reported India’s largest refiners have not ordered any Iranian crude for November deliveries, suggesting India might follow suit with, but then clarifying that the deadline for purchasing oil cargoes for November delivery is still a couple of weeks away. Earlier this month, India said it could use rupees to settle its trade transactions with Iran and a government official said there has been no state decision to ask refiners to suspend Iranian oil purchases.
In Europe, the EU has come up with a mechanism to continue trading with Iran, notably in oil and oil products, but analysts are skeptical about how effective it will be. The mechanism basically means transactions will use the barter principle rather than money—a mechanism the USSR used during the Cold war. The skeptic camp, however, says that since a transaction is a transaction, with or without money, the U.S. could expand sanctions to cover barter deals as well.
Some close observers of the situation warn that despite all the upbeat rhetoric from Washington, things in Iran are not so bad: the country has the resources to withstand the crisis the sanctions will bring about, and it won’t suffer such grave consequences regarding its oil exports. Its VLCC fleet, TankerTrackers said earlier this week, is large enough to handle 1.85 million bpd in exports, and Iranian insurers are sure to provide coverage. The drama continues.
Deals, Mergers & Acquisitions
- CNOOC may sell parts of the stakes it holds in oil and gas production projects in the Gulf of Mexico and has no plans to spend money on new exploration there. The news comes from a spokeswoman for the Chinese overseas exploration company, coming on the heels of reports that CNOOC’s unit Nexen plans to exit the Gulf of Mexico amid the worsening trade spat between Washington and Beijing.
- Israeli Delek Group, Noble Energy, and Egyptian East Gas Co will buy into a pipeline owned by the East Mediterranean Gas Company as part of an agreement that will enable the resumption of Israeli natural gas exports to Egypt. Delek and Noble—which together develop Israel’s biggest gas fields—will pay $185 million for the stakes each, with East Gas Co paying $148 million for its interest. EMG, on the other hand, will end its arbitration case against Egypt linked to a canceled gas delivery deal from a few years ago.
- Shell may sell assets worth $1.3 billion to reduce its debt load, which swelled after its acquisition of BG Group. The assets are Shell’s 22.5% stake in the Caesar Tonga field in the Gulf of Mexico. The Anglo-Dutch supermajor’s partners in the field are Anadarko, Equinor, and Chevron.
Tenders, Auctions & Contracts
- Adnoc has awarded an $860-million engineering, procurement, and construction contract to a consortium between Spain’s Tecnicas Reunidas and local Target Engineering Construction Company for the second phase in the Integrated Gas Development Expansion project. This phase of the project will add 245 million cubic feet daily to the 1.4 billion cu ft of offshore and onshore gas sent to Adnoc’s Habshan gas processing plant.
- Pakistan and Russia have inked a deal for the construction of a $10-billion offshore gas pipeline to import gas into Pakistan. Gazprom has yet to conduct a feasibility study to see if the project is commercially viable but it looks like it’s a done deal as the Russian giant seeks to tap the growing Pakistani gas market while Pakistan wants to in turn expand its exports to Russia.
- Guyana is putting all oil tenders on hold until has an up and running Department of Energy to oversee all issues related to its newly found oil wealth. Exxon and its partners Hess Corp. and CNOOC started Guyana’s oil tale by discovering first oil a few years ago. To date, the reserves of all the discoveries the consrotum has made are about 4 billion barrels of crude.
Discovery & Development
- The UK’s Oil and Gas Authority has greenlit BP’s start of drilling at the Vorlich field in the central North Sea, which could tap 30 million barrels of oil equivalent from two wells. The project is worth $262 million. BP has a 66% stake in the Vorlich field and has partnered for its exploitation with Ithaca Energy. Production is expected to begin in two years, with peak daily output at 20,000 bpd of oil equivalent.
- CNPC said it will not stop drilling at its western fields during the winter in a bid to boost China’s domestic production to reduce its reliance on imports, especially now that prices are trending higher. Western fields as a rule stop production during the winter because of weather considerations that make drilling more expensive but CNPC has decided to make an exception, it seems, as production costs fall.
- French Total has announced one the biggest gas discoveries in the North Sea and certainly the biggest in the last ten years in the Glendronach reservoir. Wood Mac has estimated the reserves of the field at more than 1 trillion cubic feet of natural gas, the equivalent of 180 million barrels of crude.
- China’s Sinopec plans to build a $6.56-billion bitumen upgrader complete with a petrochemicals complex in Alberta. The facility will have a daily processing capacity of 167,000 barrels of diluted bitumen and will produce derivatives ranging from gasoline, jet fuel, and diesel, to basic chemicals.
- Tullow Oil announced disappointing drilling results for the Cormorant-1 offshore well in Namibia and said it will plug and abandon the well. The well was 3,855 meters deep but no commercial amounts of hydrocarbons were encountered. Namibia is a new hopeful on the oil horizon. The Cormorant prospect was estimated to hold some 124 million barrels of crude in reserves.
- Lundin Petroleum will upgrade its reserve estimate for the Alta discovery in the north of Norway after a successful product test that took two months. The initial estimate of the reserves at Alta and neighboring Gohta ranged between 115 and 390 million barrels of oil equivalent, the Swedish company said, but now these will be revised upwards.
Regulatory Updates:
- The two biggest oil unions in Nigeria have postponed a planned strike due to a dispute with Chevron and will instead negotiate with the company and the federal government. The unions have accused Chevron it was trying to fire thousands of oil workers in breach of their contracts.
- Petrobras has reached a settlement with U.S. anti-corruption authorities and will have to pay an $853.2-million fine. The Department of Justice had accused the Brazilian giant of bribing local politicians and concealing the truth, in effect, cheating shareholders. The settlement is the latest chapter in the operation Car Wash investigation that saw scores of senior business executives end up behind bars for corruption and toppled former President Dilma Rousseff.
Politics, Geopolitics & Conflict
A general strike in Nigeria has spread to the oil industry after the two biggest oil workers’ unions joined the industrial action that calls on the federal government to be more cooperative in negotiations about minimum wages.