Iran continues to dominate the headlines
Friday, May 11th 2018
Iran continues to dominate the headlines, keeping WTI above $71 per barrel and Brent at $77 per barrel as of early trading on Friday. The exchange of airstrikes between Iran and Israel is also adding to the tension. Meanwhile, aside from the huge increase in U.S. oil production, the EIA reported some bullish figures this week – a decline in both crude oil and gasoline inventories by more than expected.
OPEC sees Iranian outage as not immediate. Any loss of supply from Iran due to U.S. sanctions will take time, and OPEC won’t rush to increase output in the interim, sources told Reuters. The steep losses from Venezuela combined with the potential disruption in Iran could force OPEC to adjust production levels earlier than it had expected. But because U.S. sanctions don’t really take effect until November, OPEC is not scrambling just yet. “I think we have 180 days before any supply impact,” an OPEC source said. They will meet in Vienna in a month to evaluate the current status of the oil market and the production limits.
Short-term supply glut eases Iran fears. Although supply outages from Iran could severely tighten the oil market, Bloomberg reports that there is currently a bit of a supply glut, which should prevent a sudden price spike. Oil traders have reported unsold cargoes in north-west Europe, the Mediterranean, China and West Africa. The sudden emergence of a temporary glut is reflected in the Brent timespreads, with the July-August spread falling from 63 cents per barrel last month to just 24 cents per barrel this week, a five-month low. The narrowing of the spread is a “sure sign of an oversupplied market,” Bloomberg reports. However, timespreads further out are widening, a sign that the market expects things to tighten up towards the end of the year.
What will top buyers of Iranian oil do? China is the largest single buyer of oil from Iran at about 700,000 bpd. South Korea comes in second at a little over 250,000 bpd. The Trump administration’s plan of squeezing Iran hinges on the decisions made by these buyers. They have until November to reduce their purchases, although the U.S. Treasury told them to begin immediately. Still, it will be tough for U.S. diplomats to convince them. A spokesperson from the Chinese Foreign Ministry said that “normal, transparent and pragmatic cooperation with Iran” would continue.
California mandates rooftop solar on all new houses. California became the first state to mandate all new home construction come equipped with solar panels beginning in 2020. The law could add $10,000 to the cost of buying a house, although it could cut the cost of energy and maintenance by $19,000 over 30 years. Solar stocks soared on the news while homebuilders declined. Sunrun (NASDAQ: RUN), the largest residential solar installer in the U.S., saw its share price rise by more than 15 percent. The policy could add as much as 260 megawatts of solar capacity annually to the grid. “This is massive,” Morten Lund, chair of an energy storage initiative at law firm Stoel Rives LLP, told Bloomberg. “Essentially, this could turn residential solar into an appliance, like a water heater. There has always been a certain inevitability about that outcome, but this is moving faster than most of us thought likely.”
Gasoline prices hit highest level since Hurricane Harvey. Gasoline prices are at their highest point in years, save for the brief spike during Hurricane Harvey last year. Retail prices will surpass $3 per gallon in many more places in the coming days. With most analysts projecting crude oil demand to outpace supply for the reminder of the year, more price gains could be coming. "We don't have a gasoline glut. We don't even have a comfort zone," Tom Kloza, head of energy analysis at Oil Price Information Service, told CNBC. "It's not long term, but you're going to have higher numbers, and you could have drastically higher numbers if you have tropical storm weather during the summer," he added.
ConocoPhillips’ action against Venezuela could choke off exports. ConocoPhillips (NYSE: COP) moved to take control over several terminals from PDVSA in the Caribbean. PDVSA’s facilities on the island of Bonaire, Aruba and Curacao are crucial for about 16 percent of Venezuela’s oil exports. “This is a total disaster” for Venezuela, says Francisco Monaldi, a fellow at Rice University’s Baker Institute. “The Conoco situation, as it is, with PDVSA unable to use storage tanks in the Caribbean, is worse than the existing U.S. sanctions.” PDVSA is now trying to move cargoes through decrepit and ill-equipped ports in Venezuela and has limited ability to use supertankers. That could make it difficult to ship to China and India, which might mean that PDVSA has to sell oil to U.S. refiners at steep discounts.
Permian discount largest in years. The pipelines carrying Permian oil are essentially full, pushing the discount for crude in Midland into double-digits, recently topping $13 per barrel. New pipeline capacity won’t come online until the end of 2019. According to PLG Consulting, Permian supply could exceed pipeline capacity by as much as 750,000 bpd by September 2019, before new projects come online. That has producers looking to ship oil by rail and truck. A total of 500,000-600,000 bpd of rail capacity exists, although it would require upgrades to rail cars. Also, crude will have to compete with other products. The bottleneck could force the industry to throttle back on supply growth.
Bank of America says $100 oil is possible. Crude is at risk of $100 per barrel next year due to the declines in Venezuela and the potential losses in Iran, according to Bank of America Merrill Lynch. The bank sees Brent hitting $90 per barrel in the second quarter of 2019, but that could be conservative since it assumes that OPEC increases production. That is why $100 is a viable scenario, the bank says.
Iran continues to dominate the headlines, keeping WTI above $71 per barrel and Brent at $77 per barrel as of early trading on Friday. The exchange of airstrikes between Iran and Israel is also adding to the tension. Meanwhile, aside from the huge increase in U.S. oil production, the EIA reported some bullish figures this week – a decline in both crude oil and gasoline inventories by more than expected.
OPEC sees Iranian outage as not immediate. Any loss of supply from Iran due to U.S. sanctions will take time, and OPEC won’t rush to increase output in the interim, sources told Reuters. The steep losses from Venezuela combined with the potential disruption in Iran could force OPEC to adjust production levels earlier than it had expected. But because U.S. sanctions don’t really take effect until November, OPEC is not scrambling just yet. “I think we have 180 days before any supply impact,” an OPEC source said. They will meet in Vienna in a month to evaluate the current status of the oil market and the production limits.
Short-term supply glut eases Iran fears. Although supply outages from Iran could severely tighten the oil market, Bloomberg reports that there is currently a bit of a supply glut, which should prevent a sudden price spike. Oil traders have reported unsold cargoes in north-west Europe, the Mediterranean, China and West Africa. The sudden emergence of a temporary glut is reflected in the Brent timespreads, with the July-August spread falling from 63 cents per barrel last month to just 24 cents per barrel this week, a five-month low. The narrowing of the spread is a “sure sign of an oversupplied market,” Bloomberg reports. However, timespreads further out are widening, a sign that the market expects things to tighten up towards the end of the year.
What will top buyers of Iranian oil do? China is the largest single buyer of oil from Iran at about 700,000 bpd. South Korea comes in second at a little over 250,000 bpd. The Trump administration’s plan of squeezing Iran hinges on the decisions made by these buyers. They have until November to reduce their purchases, although the U.S. Treasury told them to begin immediately. Still, it will be tough for U.S. diplomats to convince them. A spokesperson from the Chinese Foreign Ministry said that “normal, transparent and pragmatic cooperation with Iran” would continue.
California mandates rooftop solar on all new houses. California became the first state to mandate all new home construction come equipped with solar panels beginning in 2020. The law could add $10,000 to the cost of buying a house, although it could cut the cost of energy and maintenance by $19,000 over 30 years. Solar stocks soared on the news while homebuilders declined. Sunrun (NASDAQ: RUN), the largest residential solar installer in the U.S., saw its share price rise by more than 15 percent. The policy could add as much as 260 megawatts of solar capacity annually to the grid. “This is massive,” Morten Lund, chair of an energy storage initiative at law firm Stoel Rives LLP, told Bloomberg. “Essentially, this could turn residential solar into an appliance, like a water heater. There has always been a certain inevitability about that outcome, but this is moving faster than most of us thought likely.”
Gasoline prices hit highest level since Hurricane Harvey. Gasoline prices are at their highest point in years, save for the brief spike during Hurricane Harvey last year. Retail prices will surpass $3 per gallon in many more places in the coming days. With most analysts projecting crude oil demand to outpace supply for the reminder of the year, more price gains could be coming. "We don't have a gasoline glut. We don't even have a comfort zone," Tom Kloza, head of energy analysis at Oil Price Information Service, told CNBC. "It's not long term, but you're going to have higher numbers, and you could have drastically higher numbers if you have tropical storm weather during the summer," he added.
ConocoPhillips’ action against Venezuela could choke off exports. ConocoPhillips (NYSE: COP) moved to take control over several terminals from PDVSA in the Caribbean. PDVSA’s facilities on the island of Bonaire, Aruba and Curacao are crucial for about 16 percent of Venezuela’s oil exports. “This is a total disaster” for Venezuela, says Francisco Monaldi, a fellow at Rice University’s Baker Institute. “The Conoco situation, as it is, with PDVSA unable to use storage tanks in the Caribbean, is worse than the existing U.S. sanctions.” PDVSA is now trying to move cargoes through decrepit and ill-equipped ports in Venezuela and has limited ability to use supertankers. That could make it difficult to ship to China and India, which might mean that PDVSA has to sell oil to U.S. refiners at steep discounts.
Permian discount largest in years. The pipelines carrying Permian oil are essentially full, pushing the discount for crude in Midland into double-digits, recently topping $13 per barrel. New pipeline capacity won’t come online until the end of 2019. According to PLG Consulting, Permian supply could exceed pipeline capacity by as much as 750,000 bpd by September 2019, before new projects come online. That has producers looking to ship oil by rail and truck. A total of 500,000-600,000 bpd of rail capacity exists, although it would require upgrades to rail cars. Also, crude will have to compete with other products. The bottleneck could force the industry to throttle back on supply growth.
Bank of America says $100 oil is possible. Crude is at risk of $100 per barrel next year due to the declines in Venezuela and the potential losses in Iran, according to Bank of America Merrill Lynch. The bank sees Brent hitting $90 per barrel in the second quarter of 2019, but that could be conservative since it assumes that OPEC increases production. That is why $100 is a viable scenario, the bank says.
Redigert 20.01.2021 kl 19:57
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Volf
12.05.2018 kl 10:16
1973
Global Energy Advisory May 11th 2018
The U.S. withdrawal from the Iran nuclear deal is now a fact and the market has reacted as expected, namely with a knee-jerk reaction that saw Brent and WTI both jump by over 2 percent a day after President Trump made his announcement and continue climbing up.
The implications of the U.S. withdrawal are multi-faceted. That sanctions will return, cutting a portion of Iranian exports off global markets is only one facet. Another is that Trump’s decision sets U.S. Middle Eastern policy on a different course from the United States’ Western European allies, who are still committed to upholding the deal. A third, and perhaps the most serious, is that tensions in the Middle East will rise now.
With regard to oil prices and fundamentals, most analysts agree that the gravity of the effect U.S. sanctions against Iran will have is questionable. While some U.S. allies such as Japan and South Korea will likely opt not to anger their Big Brother and stop importing oil from Iran, others, such as China and India, will continue buying Iranian crude as they are not dependent on the United States for their national security.
Yet interestingly enough, South Korea is now looking for ways to continue importing Iranian crude, its economic ministry said a day after Trump’s announcement. Japan, for its part, has joined the European signatories in the Iran deal in condemning the U.S. President’s decision.
Meanwhile, Saudi Arabia has signaled it is ready to start pumping more oil again in order to prevent a shortage on oil markets caused by the reduction in Iranian exports. It is still too early, however, to talk about a shortage: there is a 30-million-barrel overhang in global crude supplies. It is obvious, though, how the U.S. withdrawal from the Iran deal will benefit Saudi Arabia, which has been sacrificing market share to prop up prices with deeper than agreed cuts under the OPEC+ agreement.
Deals, Mergers & Acquisitions
• Shell will sell its stake in Canadian Natural; Resources for $3.3 billion, the Anglo-Dutch company said. Shell has already cut its presence in the Canadian oil sands considerably as it seeks to generate asset sales proceeds of $30 billion over three years to cut its debt load, which swelled significantly after the acquisition of BG Group.
• Chinese CEFC has dropped its bid for most of the stake that Glencore and the Qatar Investment Authority agreed to sell it last year. CEFC is the target of an aggressive investigation by the Chinese authorities and its CEO is missing. Glencore and QIA bought 19.5% in Rosneft in 2016 for $12.2 billion and last year inked an agreement to sell 14.16% to CEFC.
• Total will sell its retail operations in Haiti to a consortium from Haitian and other Caribbean firms. The move, according to the company, is part of its efforts to streamline its operations in the region.
• Petrobras is negotiating the sale of its fertilizer business with Russian Acron—a major internationally present fertilizer producer. The talks are exclusive for 90 days, the Brazilian company said. The sale would be part of Petrobras’ divestment plan seeking to reduce its sizeable debt.
Tenders, Auctions & Contracts
• Saudi Arabia will ship 1.8 million tons of crude oil to fuel-starved Sudan this year and will increase the shipments by 7% annually over the next four years. Sudan is suffering a shortage of cash and maintenance delays at an important refinery, which the government has blamed for the fuel shortage that has seen people queuing at filling stations for hours and black market fuel prices skyrocketing. After the split with South Sudan, Sudan was left with the smaller portion of the bigger country’s oil reserves.
• Italy’s Eni and the Egyptian government signed an agreement worth $105 million concerning oil and gas exploration off the Egyptian coast in the north. The six-year agreement envisages the drilling of two exploration wells. Eni already has a sizeable presence in Egypt, notably in the giant Zohr gas field.
• The fifth auction for oil and gas reserves in Brazil’s pre-salt zone will likely take place on September 28 and will include four fields in the Campos and Santos basins. The pre-salt zone is one of the hot spots in global oil today, containing billions of barrels of untapped crude.
• Pemex has signed four contracts for the development of fields it won at the January offshore auction carried out by the national oil and gas regulator. Two of these fields the state-owned Mexican company will operate on its own. On the third one it will partner with Shell, and on the fourth one it will operate jointly with Chevron and Japanese Inpex.
• Norway will accept bids for the development of over a hundred offshore fields in the North Sea, the Norwegian Sea, and the Barents Sea by September in its latest round of offshore licensing. The licenses will be awarded in early 2019. Norway urgently needs new oil discoveries in order to maintain and hopefully even expand its crude oil and gas output.
Discovery & Development
• Iraqi North Oil Company has finally signed a contract with BP for the expansion of output from the oil fields around Kirkuk, in northern Iraq. The contract covers six fields, where production is planned to be boosted from around 300,000 bpd to over a million barrels daily. Iraq regained control of these fields last fall, after it moved to take control of Kirkuk from the Kurdish autonomous region following an ill-fated independence referendum.
• Iran and Spain have signed a preliminary agreement for the joint development of Iranian oil and gas resources that will see Spain share with Iran its technical knowhow in upstream, an downstream operations, transfer of knowledge, and deliveries of equipment. European countries have been eager to take part in Iran’s revival of its oil and gas industry, although this enthusiasm could be now dampened somewhat after the United States’ withdrawal from the Joint Comprehensive Plan of Action, commonly know as the Iran nuclear deal.
• Eni announced an oil discovery in the Western Desert in Egypt, where it operates a license in the Faghur Basin. The discovery was made from the first well the Italian company drilled in the license plot and consisted of 2,300 barrels of light crude daily and 400,000 cu ft of associated gas.
Company News
• ConocoPhillips has obtained two court orders giving it the right to seize PDVSA property in the Caribbean as it seeks to enforce a court ruling that awarded it $2 billion in compensation for the nationalization of its Venezuelan operations by the government of the late Hugo Chavez. In response, PDVSA is diverting loaded oil tankers from their original course to the Caribbean.
Politics, Geopolitics & Conflict
• In a flare-up of aggression in the Middle East Israeli jets targeted Iranian positions in Syria in response to an attack from these positions on Israeli ones in the Golan Heights.
• North Korean authorities freed three Americans as the country prepares for a summit between its leader Kim Jong Un and U.S. President Trump, which will most likely take place in Singapore.
• Malaysia’s ruling coalition surprisingly lost the parliamentary elections this week, with the most likely next Prime Minister 92-year-old Mahathir Mohamad, who already ruled between 1981 and 2003.
The U.S. withdrawal from the Iran nuclear deal is now a fact and the market has reacted as expected, namely with a knee-jerk reaction that saw Brent and WTI both jump by over 2 percent a day after President Trump made his announcement and continue climbing up.
The implications of the U.S. withdrawal are multi-faceted. That sanctions will return, cutting a portion of Iranian exports off global markets is only one facet. Another is that Trump’s decision sets U.S. Middle Eastern policy on a different course from the United States’ Western European allies, who are still committed to upholding the deal. A third, and perhaps the most serious, is that tensions in the Middle East will rise now.
With regard to oil prices and fundamentals, most analysts agree that the gravity of the effect U.S. sanctions against Iran will have is questionable. While some U.S. allies such as Japan and South Korea will likely opt not to anger their Big Brother and stop importing oil from Iran, others, such as China and India, will continue buying Iranian crude as they are not dependent on the United States for their national security.
Yet interestingly enough, South Korea is now looking for ways to continue importing Iranian crude, its economic ministry said a day after Trump’s announcement. Japan, for its part, has joined the European signatories in the Iran deal in condemning the U.S. President’s decision.
Meanwhile, Saudi Arabia has signaled it is ready to start pumping more oil again in order to prevent a shortage on oil markets caused by the reduction in Iranian exports. It is still too early, however, to talk about a shortage: there is a 30-million-barrel overhang in global crude supplies. It is obvious, though, how the U.S. withdrawal from the Iran deal will benefit Saudi Arabia, which has been sacrificing market share to prop up prices with deeper than agreed cuts under the OPEC+ agreement.
Deals, Mergers & Acquisitions
• Shell will sell its stake in Canadian Natural; Resources for $3.3 billion, the Anglo-Dutch company said. Shell has already cut its presence in the Canadian oil sands considerably as it seeks to generate asset sales proceeds of $30 billion over three years to cut its debt load, which swelled significantly after the acquisition of BG Group.
• Chinese CEFC has dropped its bid for most of the stake that Glencore and the Qatar Investment Authority agreed to sell it last year. CEFC is the target of an aggressive investigation by the Chinese authorities and its CEO is missing. Glencore and QIA bought 19.5% in Rosneft in 2016 for $12.2 billion and last year inked an agreement to sell 14.16% to CEFC.
• Total will sell its retail operations in Haiti to a consortium from Haitian and other Caribbean firms. The move, according to the company, is part of its efforts to streamline its operations in the region.
• Petrobras is negotiating the sale of its fertilizer business with Russian Acron—a major internationally present fertilizer producer. The talks are exclusive for 90 days, the Brazilian company said. The sale would be part of Petrobras’ divestment plan seeking to reduce its sizeable debt.
Tenders, Auctions & Contracts
• Saudi Arabia will ship 1.8 million tons of crude oil to fuel-starved Sudan this year and will increase the shipments by 7% annually over the next four years. Sudan is suffering a shortage of cash and maintenance delays at an important refinery, which the government has blamed for the fuel shortage that has seen people queuing at filling stations for hours and black market fuel prices skyrocketing. After the split with South Sudan, Sudan was left with the smaller portion of the bigger country’s oil reserves.
• Italy’s Eni and the Egyptian government signed an agreement worth $105 million concerning oil and gas exploration off the Egyptian coast in the north. The six-year agreement envisages the drilling of two exploration wells. Eni already has a sizeable presence in Egypt, notably in the giant Zohr gas field.
• The fifth auction for oil and gas reserves in Brazil’s pre-salt zone will likely take place on September 28 and will include four fields in the Campos and Santos basins. The pre-salt zone is one of the hot spots in global oil today, containing billions of barrels of untapped crude.
• Pemex has signed four contracts for the development of fields it won at the January offshore auction carried out by the national oil and gas regulator. Two of these fields the state-owned Mexican company will operate on its own. On the third one it will partner with Shell, and on the fourth one it will operate jointly with Chevron and Japanese Inpex.
• Norway will accept bids for the development of over a hundred offshore fields in the North Sea, the Norwegian Sea, and the Barents Sea by September in its latest round of offshore licensing. The licenses will be awarded in early 2019. Norway urgently needs new oil discoveries in order to maintain and hopefully even expand its crude oil and gas output.
Discovery & Development
• Iraqi North Oil Company has finally signed a contract with BP for the expansion of output from the oil fields around Kirkuk, in northern Iraq. The contract covers six fields, where production is planned to be boosted from around 300,000 bpd to over a million barrels daily. Iraq regained control of these fields last fall, after it moved to take control of Kirkuk from the Kurdish autonomous region following an ill-fated independence referendum.
• Iran and Spain have signed a preliminary agreement for the joint development of Iranian oil and gas resources that will see Spain share with Iran its technical knowhow in upstream, an downstream operations, transfer of knowledge, and deliveries of equipment. European countries have been eager to take part in Iran’s revival of its oil and gas industry, although this enthusiasm could be now dampened somewhat after the United States’ withdrawal from the Joint Comprehensive Plan of Action, commonly know as the Iran nuclear deal.
• Eni announced an oil discovery in the Western Desert in Egypt, where it operates a license in the Faghur Basin. The discovery was made from the first well the Italian company drilled in the license plot and consisted of 2,300 barrels of light crude daily and 400,000 cu ft of associated gas.
Company News
• ConocoPhillips has obtained two court orders giving it the right to seize PDVSA property in the Caribbean as it seeks to enforce a court ruling that awarded it $2 billion in compensation for the nationalization of its Venezuelan operations by the government of the late Hugo Chavez. In response, PDVSA is diverting loaded oil tankers from their original course to the Caribbean.
Politics, Geopolitics & Conflict
• In a flare-up of aggression in the Middle East Israeli jets targeted Iranian positions in Syria in response to an attack from these positions on Israeli ones in the Golan Heights.
• North Korean authorities freed three Americans as the country prepares for a summit between its leader Kim Jong Un and U.S. President Trump, which will most likely take place in Singapore.
• Malaysia’s ruling coalition surprisingly lost the parliamentary elections this week, with the most likely next Prime Minister 92-year-old Mahathir Mohamad, who already ruled between 1981 and 2003.
Redigert 20.01.2021 kl 19:57
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