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Items filtered by date: October 2019

Monday, 28 October 2019 22:29


A combination of tardy economic growth, a reduction in global oil demand, falling energy prices  and shrinking margins in the petchem market have seemingly conspired to plunge 3rd quarter earnings for supermajors. Five of the world’s largest publicly traded oil and gas companies, Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA and BP Plc -- are expected to disclose a 42% plunge in third-quarter earnings, on average, when they post their  results this week. Oil prices have only dropped by 18% over this same period.

BP plc (NYSE: BP) will be  the first to report third-quarter results. When the company issues its report Tuesday morning, analysts are looking for earnings per American Depositary Share (ADS) of $0.59 and revenue of $64.16 billion. In the third quarter of last year, BP reported earnings per ADS of $1.14 and revenue of $79.47 billion. In the second quarter of this year, the company posted earnings per ADS of $0.83 and revenue of $72.68 billion. A contrarian trend which will not please investors.

The oil industry faces an uncertain future. Every conceivable projection has the global transport fleet increasingly electric. The renewable footprint is growing larger as public opinion and the weight of  scientific evidence seek to eliminate the use of fossil fuels in an attempt to combat extreme climate change.

BP,  similar to many oil majors have sought to make investments in renewables. These have been modest compared to the capital spent  in E&P. One reason for the imbalance is that profits on oil and gas have always been better than profits on renewables, but as costs of renewable energy continue to fall, fossil fuel producers are going to have a n increasingly more difficult time keeping competitive.

As the call for fossil fuel reduces over the next decade supermajors are going to have to make that difficult transition from oil and gas companies to energy companies. A de facto change of their DNA. All this at a time  when these companies have asset values predicated on billions of barrels  of stranded or uneconomically producible reserves.

The supermajors have long been among the stock market’s most generous dividend payers but in the new world of plentiful crude and anti-fossil fuel campaigns, increasing payouts and share buybacks are seen as key to retaining investors. Just as critical is whether the companies can afford them: the supermajors’ dividend yields this year surged to more than double the return on 10-year Treasury notes.


While none of the five companies’ dividend programs are in jeopardy, investors are keen to see how sustainable they are when balanced against costly drilling and construction projects, such as Exxon’s $30 billion-a-year spending program, and Shell’s investments in lower-profit renewable power.

Published in OIL MARKETS

Far East Refiners margins have been hit hard as freight rates soar. Spot VLCC freight rates for shipping crude from the Persian Gulf to the Far East breached the 200 Worldscale mark  with ship owners  earnings extending beyond  the $200,000/day figure for the first time in over a decade. The dearth of tonnage has been  caused by  US sanctions on China's Cosco Dalian Tanker Shipping as well as ships sent to the dry docks for the installation of scrubbers in preparation for IMO2020 and  is causing charterers to jostle for super tankers to haul their crude cargoes

This scramble has resulted in VLCC freight rates jumping over 37% overnight as refiners and trading houses  have tried to secure ships even before the November crude cargo nominations were announced according to industry sources.

The key Persian Gulf-China freight rate leapt to w205 last Friday when charterer SPC provisionally hired the Dalian to move a 270,000 MT crude cargo from the Persian Gulf to Japan basis November 3 loading, according to shipbrokers tracking the VLCC market. The owner of the Dalian, Dynacom Tankers, has confirmed the rate, while sources at SPC were not available to comment.

"All charterers are trying to grab a ship in advance even without the Persian Gulf term supply nominations for November have been announced. There are very limited vessels rolling over from October," a charterer said. The bullish VLCC market has registered a  w100 point hike in the Persian Gulf to China freight in a matter of five trading days to touch w205  last  Friday.

"By the end of next week, the market could be looking towards w300," a source with a VLCC shipowner said, adding that around 50 ships are out of the market due to US sanctions on Cosco and a similar number anchored at dry docks for scrubber retrofit in the wake of IMO 2020.

The tonnage scarcity has resulted in the day earnings of VLCC owners racing to over $205,000/day on the benchmark Persian Gulf to China route at w205, over double the  $100,000/day when Platts assessed this voyage at w120 on October 7. The last time earnings on a VLCC transporting crude from the Persian Gulf to the Far East reached $200,000/day was in early 2008.


The rush for ships before the crude loading nomination for November could be fraught with risks. According to a VLCC broker, charterers who have already taken ships may not be able to match the loading dates when crude stems are allocated.

This could result in charterers being forced to either re-let the ships they have already taken or find "replacement" tonnage or end up paying the demurrage costs.

"Charterers can't afford to wait," a VLCC broker said. Though regional grades traded on a CIF basis remain largely unaffected as CIF levels set at beginning of the year. The Arrival of WTI/Midland into Europe is a major influence on the Dated Brent market. Where it is bought on a delivered basis high freight increases costs but since WTI/Midland is being pushed out of the US and not pulled,  the market encourages Sellers to provide discounts where FOB differentials in Europe make WTI less competitive; effectively discounting crude to compensate for freight.

Rather alarmingly for Nigeria it cost a record $8 a barrel to ship West African crude to Asia last Friday, according to data compiled by Bloomberg. That’s roughly four times the average for January through August, the month before rates began to rally. Ship brokers were reporting additional bullish charters on Monday

There has also been the increased temptation to capture the arb by converting clean vessels to dirty tankers.  LR1 and LR2 tankers particularly  provide exponential yield  for shipowners adequately compensating for the cost of converting the vessel back to clean when the window closes.

Published in OIL MARKETS
Wednesday, 02 October 2019 17:41




Oil fell as concerns about the U.S. economy triggered another sharp selloff on Wall Street, with the S&P 500 off 1.7%, falling below 2,900. Crude oil benchmarks fell n morning trading Wednesday on the NYMEX on a larger than forecast build in crude inventories and a sharp decline in US equities. WTI futures fell 2.3% to $52.37, around its lowest in September and Brent was also down 2.3% to $57.55.

In recent days US economic data has raised concerns and heightened bearish sentiment. Oil fell as concerns about the U.S. economy triggered another sharp selloff on Wall Street, with the S&P 500 off 1.7%, falling below 2,900.

It has also been reported that September private payrolls came in below expectations at 135,000 following Tuesday’s equity losses after the Institute for Supply Management’s manufacturing PMI came in at a 10-year low. That raises questions about future demand for oil in the U.S. at a time when global economic growth is tardy.


The EIA reported U.S. oil inventories were up 3.1 million barrels last week, Analysts had predicted a rise of about 1.57 million barrels of crude for the week ended Sept. 27. The American Petroleum Institute (API) which is rapidly losing all credibility had predicted a 6 million barrel draw. The inventory conundrum is just that and depends on Refinery runs, importation and stocks of gasoline and distillates to be computed to obtain a reliable figure in addition to factoring in production, manufacturing and purchasing indexes. The build was more than twice the EIA predictive model forecast.


All this against the backdrop of lowest OPEC production for over a decade and geopolitical disruption in Saudi Arabia . It seems clear that the market is more sensitive to the outcome and effects of the US-China trade war on global demand than any imminent geopolitical supply side disruption. Impending US-China trade talks have far greater effect on oil benchmark prices than the possibility of a supply disruption.

Published in OIL MARKETS
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