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IS IT A NIGERIAN GAS FLARE COMMERCIALISATION PROGRAM ?

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Items filtered by date: July 2019

It came as no surprise when the US announced sanctions on Zhuhai Zhenrong, a Chinese state backed enterprise which was set up 25 years ago as the sole importer of Iranian crude to China. Beijings response was swift and equally predictable " “We oppose the bullying and sanctions by the US of China’s enterprises and individuals based on US’s domestic laws. We strongly condemn and firmly oppose sanctions on related Chinese companies by the US.”. Zhuhai Zhenrong will be barred from engaging in foreign exchange, banking or property transactions under US jurisdiction, as will its chief executive, Youmin Li
Data obtained from Chinese customs and cited by Reuters indicated Iran sent a bit over 208,000 bpd of crude to China in June , which was down from over 250,000 bpd in May while the waivers were still in effect.

According to Reuters ,most of the Iranian oil shipments to China in June were discharged at Tianjin, at about 163,000 bpd. Tianjin, in northern China, along with two other ports Jinzhou and Huizhou are China’s three main oil hubs. It has been difficult to assess the full extent of Chinas imports of Iranian oil as much of the trade is clandestine with vessels deactivating their transponders in an effort to evade detection.

Beijing has made it clear that they would not comply with US Sanctions unlike their E3 counterparts and signatories to the JCPOA. Sino-American relations are at their lowest point in a generation and have entered a level of mutual mistrust and suspicion not seen since the 1970s. Trump’s trade war with China has metastasized Sino-American relations. Washington is now trying to decouple and dismantle China’s interdependence with the American economy, restrict its role in global governance, counter its foreign investments, cripple its companies, block its technological advance, punish its many deviations from liberal ideology, contest its borders, map its defenses, and sustain the ability to penetrate those defenses at will. Indeed Washington now regards China as a full spectrum threat and to most Chinese Iran sanctions are an extension of that strategy.

"We're going to zero [exports of Iranian crude] and ... countries that don't abide by US sanctions will face repercussions for not abiding by US sanctions," S&P Global Platts quoted a State Department spokeswoman as saying two weeks ago. "That goes for China or any other country in the world. We expect all countries to abide by US sanctions."

Yet companies like Sinopec may continue to buy oil from Iran. The company claims to have made investments in the oil zone West of the river Karoun in Iran's Khouzestan Province. Reports say Iran owes money to Chinese companies Sinopec and CNPC for their help in developing its oil fields. Both companies have received oil from Iran. In fact part of the oil reported to have reached China in June might have gone to these companies as a payment Iran owes but more likely as a good pretext to evade US sanctions.

Iran is set to lose over $25 billion in revenues this year. As Iran has lost market share in China, Saudi Arabia has taken over the Iran’s lost oil sales. In June Riyadh boosted its exports to China by 84 percent to a total of 1.88 million barrels a day, instead of 1.1 million in May. Russia has also increased exports to China by 45 percent in June compared to the volume in June 2018.

The increases in Saudi and Russian oil exports to China are because of U.S. sanctions on Iran. But the U.S.-China trade war has reduced China’s purchase of American oil. which U.S. ally Saudi Arabia and its geopolitical rival Russia have wasted no time stepping in to fill the gap.

 

Published in OIL MARKETS

OPEC oil output hit an eight-year low in July as a further voluntary cut by top exporter Saudi Arabia deepened losses caused by U.S. sanctions on Iran and outages elsewhere in the group, a Reuters survey found.

OPEC pumped 29.42 million barrels per day (bpd) in July, the survey showed, down 280,000 bpd from June's revised figure and the lowest OPEC total since 2011.

Saudi Arabia has demonstrated recently its willigness to ignore US pressure and maintain its strategy of voluntarily restraining output by more than called for by an OPEC-led supply deal to support the market. Despite lower OPEC production global crude oil benchmarks have fallen from a 2019 high above $75 a barrel in April to $65 on Wednesday, weighed down by predictions on slowing economic growth.

OPEC, Russia and other non-members, known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from Jan. 1 this year. OPEC's share of the cut is 800,000 bpd, to be delivered by 11 members with the exemption of Iran, Libya and Venezuela.In July, the 11 OPEC members bound by the agreement, which now runs until March 2020, achieved 163% of pledged cuts, the survey found. All three exempt producers also pumped less oil.

The biggest supply drop came from Saudi Arabia, which has cut supply even further below its OPEC target in a bid to reduce oil inventories. The survey pegged Saudi production at 9.65 million bpd, down from its quota of 10.311 bpd.

The United States reimposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and six world powers. In bid to cut Iran's sales to zero, Washington in May ended sanctions waivers for importers of Iranian oil. Iran's crude exports declined to as little as 100,000 bpd in July, according to tanker data and an industry source, from more than 2.5 million bpd in April 2018.

In Venezuela, supply fell slightly due to the impact of a power blackout, U.S. sanctions on state oil company PDVSA and a long-term decline in production, according to the survey. "There was a blackout on July 22 which the various fields were slow to recover from," said an industry source who tracks Venezuelan output.

Libyan production dropped due to a stoppage at the Sharara oilfield, the country's largest. Output fell in Nigeria, but Africa's largest exporter which is seeking a higher OPEC quota continued to produce above its target by the largest margin. Among countries with higher output, Gulf producers Kuwait and the United Arab Emirates both raised supply while remaining below their OPEC targets. July output is the lowest by OPEC since 2011, excluding membership changes that have taken place since then, Reuters surveys show.

The Reuters survey aims to track supply to the market and is based on shipping data provided by external sources, Refinitiv Eikon flows data and information provided by sources at oil companies, OPEC and consulting firms.

Published in OIL MARKETS

U.S. crude oil inventories fell more than expected last week, logging their seventh-consecutive weekly draw.Initial gains in a knee-jerk reaction quickly faded as bulls turned cautious ahead of the Federal Reserve’s policy decision.

The Energy Information Administration said in its regular weekly report that crude oil inventories decreased by about 8.5 million barrels in the week to July 26. That was compared to forecasts for a stockpile draw of just 2.59 million barrels, adding to a higher-than-estimated draw in gasoline inventories and an unexpected decline distillate stockpiles.

While oil prices initially jumped an additional 30 cents after the data, those gains quickly faded. U.S. crude prices last rose 0.3% to $58.21 a barrel by 11:17 AM ET (15:17 GMT), down from $58.44 prior to the publication. London-traded Brent crude futures traded up 0.5% to $64.92 a barrel, compared to $65.09 ahead of the release.

“On the surface of it, this is a whopping drawdown, coming after last week’s 11-million-barrel drop, but the follow-up price movement seems to indicate that people are still having trouble ‘buying’ the strong numbers for crude after Hurricane Barry,” Investing.com senior commodity analyst Barani Krishnan said after the report. “Or maybe they are just waiting out the Fed.”

Oil has traded higher in the last five sessions in the run-up to the Fed’s rate decision at 2:00 PM ET (18:00 GMT). The U.S. central bank is expected to cut interest rates by a quarter point in what could provide incentive for diverting capital into inflationary assets such as oil. But concerns abound that the Fed will not provide as dovish a stance as markets are hoping.

Krishnan said that if the Fed followed through with the forecast of a 25-basis-point cut, WTI could show an immediate reaction to the upside.

“But after the initial euphoria, and barring more dovish overtones from Fed Chairman Jerome Powell, the oil rally could soon run out of steam,” he warned.

il prices rose for a fifth day on Wednesday, supported by a drop in United States' inventories and investor expectations that the US Federal Reserve will lower borrowing costs for the first time since the financial crisis more than a decade ago.

Brent crude futures , the international benchmark for oil prices, were up 40 cents, or 0.6 per cent, at $65.12 a barrel by 0842 GMT. U.S. West Texas Intermediate crude CLc1 gained 20 cents, or 0.3 per cent, to $58.25 a barrel.Central bankers in the U.S. began their two-day meeting on Tuesday and were expected to cut interest rates, with President Donald Trump, reiterating his call for the Fed to make a large cut.

“The move has long been anticipated and represents a double boon for oil prices – on one hand, it should encourage U.S. oil demand and on the other, it will apply downward pressure on the dollar,’’ said PVM Oil Associates analyst, Stephen Brennock. Oil stockpiles fell again last week, along with gasoline and distillate inventories,
data from the American Petroleum Institute industry group showed on Tuesday.

Crude inventories fell by six million barrels to 443 million barrels in the week ended July 26, against a forecast for a drop of 2.6 million barrels in a Reuters’ poll of analysts.

“The outlook for another draw in U.S. crude inventories and renewed outages in Libya is supporting oil prices,’’ said UBS oil analyst, Giovanni Staunovo.

Libya’s Sharara oilfield, the country’s largest, shut down on Tuesday after a problem with a valve on the pipeline linking it to the Zawiya oil terminal. Tensions in the Middle East remain high, providing another bullish catalyst for prices, with the U.S. formally asking Germany to join France and Britain to help to secure the Strait of Hormuz after the seizure of a British tanker by Iran.

Germany has expressed scepticism about the request. BP Finance Chief, Brian Gilvary said the British company has not taken any of its oil tankers through the Strait of Hormuz since a July 10 attempt by Iran to seize one of its vessels.

Market participants are also closely watching the U.S.-China meeting in Shanghai as both countries seek to end a year-long trade war. Although, expectations are low for progress after combative remarks from President Trump, News Agency of Nigeria and Reuters report.

The meeting comes as a survey showed that China’s factory activity shrank for the third month in a row in July, underlining the growing strains placed by the trade war on the world’s second-biggest economy and one of the biggest oil consumers.

Published in OIL MARKETS

 

The catastrophic decision by the UK authorities to seize the MT Grace1 was done either as an act of malign intent by a departing Prime Minister or without thinking through the ramifications of such an action and the damage it might cause to our long term interests. Indeed it is difficult to understand how such an action could be in the wider political interests of the country.

The  implausible  fantasy propagated by  the Chief Minister of Gibraltar accepting sole and  full responsibility for the seizure of the vessel is a clear indication of the woeful logic behind the incident and calamitous  failure of UK policy decision making.

It is inconceivable that the British government would not expect retaliation from Iran in response to what is frankly a brazen act based on dubious legality. Yet it now emerges despite  alleged earlier attempt to seize ‘British flagged’ vessels, the UK were ill prepared to either  provide protection or deter Iranian retribution.

It is inevitable that the seizure of MT Grace 1 would start both Iran and the UK on an escalatory  tit for tat trajectory despite the UK governments protestations to the contrary. All this at a time the UK is seeking to assure Iran as a part of the E3 to remain in the JCPOA despite its own breach.

The decision to accede to the US request would have had to come from the Prime Minister. It has turned out to  be a very poor decision. It exposed the lack of UK naval capacity, created a divide within the E3, undermined UK’s position as an independent actor and united the discordant factions in Iran against a colonial actor long considered untrustworthy, unreliable and duplicitous.

The Foreign Minister Jeremy Hunt has now in an apparent attempt to distance the UK from the US, confusingly  announced his intention to create  a European naval force to protect shipping in the Persian Gulf. Quite which other EU nations would comprise this force remains to be determined.  It seems more likely given Whitehall’s predilection to acquiesce to Washington’s every demand, that the UK be drawn into military action against Iran as a part of a US coalition. This would achieve the US strategic objectives of terminating the JCPOA by creating a coalition against Iran.

In any event the legal basis for the seizure of the Iranian vessel is contentious and unprecedent. The vessel  was passing through  EU waters but the eventual destination of the vessels cargo was by no means certain. Despite the Gibraltar government updating  its sanctions enforcement  regulations 36 hours before it seized the tanker in an attempt it now seems clear, to provide a legal basis for detaining the vessel.  

Setting aside for a moment the question of the validity of the extra territorial jurisdiction of EU sanctions, even if the final destination of the crude was the Baniyas Refinery surely the Iranian vessel seized in Gibraltar waters was in transit to its destination. Similarly if you were to send medicine from a country that met all legal requirements in one country to another country with the same standards, would there be a legal basis to seize such medicine should it transit through a  third country that had different standards.

Iran are no more bound by EU sanctions than they are by US sanctions. This was an extraterritorial application of EU sanctions to a transaction thought to be planned for execution    outside of EU jurisdiction, between  two foreign parties. Furthermore  US sanctions rely completely on the dissuasive effect of probable  US punitive financial actions, they have no basis in international law.

The UK has offered to release the vessel if Iran was prepared to provide an undertaking that the cargo would not be shipped to Syria. There was no way Iran could agree to that as it would create a precedent which would mean Iran could not send a vessel through the strait of Gibraltar without it being subject to EU (UK) scrutiny and more importantly capitulate to be bound by EU sanctions.

This is further compounded because the UK proxy Gibraltar acted pre-emptively under the guise that they had reasonable evidence. Yet it has neither been established that the cargo was consigned to the refinery or Syria for that matter.

That Gibraltar in the days leading to the seizure of MT Grace 1 had upgraded their regulations regarding Syria sanctions points to the inescapable conclusion that this episode was planned well in advance with the objective of mounting pressure on Iran with the UK government as a willing conspirator. What is more difficult to ascertain is what was in it for the UK

 

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Published in OIL MARKETS

When the end came it came quickly an end that is to Irans policy of strategic patience. In a meticulous well planned and flawlessly executed operation, a detachment of Her Majesty's Royal Marines boarded and seized the Iranian oil tanker MTGrace 1 in waters off Gibraltar. It really did'nt need to be daring, the element of surprise was sufficient. We were told a party of 30 Royal Marines under the control of Gibraltar Customs and Police Officers secured the vessel in the early hours of the 4th of July. It is alleged that the vessel was carrying a crude oil cargo bound for Banyas refinery in Syria. The Gibraltar authorities said it had acted as it had reasonable grounds to suspect that the MT Grace 1 intended to breach EU sanctions.

The Gibraltar explanation is unconvincing especially given that in the 8 years the sanctions have been in place not one vessel has been intercepted. It is more likely the Spanish narrative is what happened. The seizure appears to have been co-ordinated at the behest of the US with the UK's assistance and therein lies the problem. At a time when the UK is seemingly attempting to convince Iran as a member of the E3 of its sincwrity in respect of circumventing US sanctions via INSTEX and keeping the JCPOA alive, this action exposes the UK's insincerity. The timing could not have been worse, which raises the question as to why now?. The Iranians would be forgiven for feeling it is one thing to not provide protection against US Sanctions under the JCPOA but entirely another assisting them to enforce sanctions militarily against you.

That such an action is unprecedent in the 8 years the sanctions have been in place, makes it unconcievable that deep consideration has not been given to it and to the likely effect such an act would have on the overall JCPOA. Is this a decision Theresa May would have made or either of the current or previous Foreign Ministers. One thing is for sure such a decision must have been agreed at the highest level of UK Government, whatever the wording of the communique delivered by the Gibraltar Minister. Is this decision an indication of the UK's post Brexit place in the world.

The Iranians would be justified in concluding the UK has made up its mind and given up all pretence of neutrality and sided with the US. Despite our ptotestations to the contrary, Theresa May must know by now her old trick of trying to ride two horses ends in ultimate folley. It is difficult to see how this will not escalate. If we are to believe comments emerging from Iran attributed to senior former commanders of the IRGC, it is a matter of time before Iran retaliate by seizing a British vessel. How much more preverse can it get when the UK begin to enforce sanctions for the EU at a time we cannot wait to leave the group and as a consequence create ramifications for ourselves long after we have left.

The Gibratar authorities insist they organised the vessel siezure " as a direct result only of it having reasonable grounds to believe that the vessel was acting in breach of
established EU sanctions against Syria”. From a strictly legal point of view they would have to have had sight of the vessel charterparty to identify the refinery as the consignee. For the cargo to be illegal under EU law the consignee would have to be a named sanctioned entity. there can be little doubt that this most recent action has been conceived to send a message to both Iran and its Syrian ally. Do Iran now put armed guards on their vessels as a precaution. They clearly need to stay out of Gibraltar waters. We are witnessing a very dangerous game. A game where it seems that US law now supercededes international law. Where this rules base world order is the gospel according to America.

As an interesting but no less significant aside. The Spanish are clearly incensed too. They believe the instructions came from the US and the UK carried out the seizure in what they contest are Spanish waters, This ignites a difficult situation as Spain have complained over the incursion said JosepBorrell Fontell the new EU Foreign Minister. British diplomats have however affirmed “It was done in observance of international law, and we have no doubt whatsoever that the government of Spain also supports the sanctions regime, even though we admit that both governments still have a pending dispute over the territory of Gibraltar. It seems that Spain felt the US should have informed them. when the UK informed Spain of the impending action, they erroneously imformed them that the action would take place in the Port of Gibraltar which is undisputed UK territory.

It is rare I find myself agreeing with Tucker Carlson the Fox News Commentator, but on this occasion he seems to have got it spot on. What is the agenda of the Neo Con
lobby in Washington. There are elements in the Trump Administration that will welcome an escalation, I am not certain Donald Trump is one of them. There seems to be an increasingly rogue foreign policy establishment in Washington led by Bolton, Pompeo and until recently Nikki Hayley, who are set on creating their own 'Gulf of Tonkin' moment. The Trump approach of "destructive disorder" has created a incoherent policy approach which basically allows any US Department free reign in dealing with the Iran situation, with no recourse to each other.

Given the history between the UK and Iran and its oil, it is hard to find a country outside the US more reviled than the UK by Iranians. The history which dates back to 1913 is a litany of unconscionable liberties culminating with the Mohammad MosaddeghI coup d'etat very obligingly declassified by the CIA a couple of years ago; which many commentators believe was instrumental in getting us to where we are now. To many Iranians this action is a stark reminder of those times. I suppose we should share a thought for poor old Nazanin Zaghari-Ratcliffe, whatever remote possibility she might have had of being released as well and truly gone

Published in OIL MARKETS

In the end the only surprise was that it was Putin that announced its confirmation at the G-20 meeting in Osaka  last week. When questioned about the decision to extend OPEC+ cuts, he seemed to confirm the extension even before the meeting had even taken place, confirmation if any was needed that it is Putin and the Saudis that are now calling the shots. OPEC said it's decision was based in part on the fact that "economic bearishness is now increasingly prevalent" because of trade tensions, central bank policies and "geopolitical issues." Additionally, OPEC agreed in principle to formalise a charter for cooperation with non-member producers’ led by Russia despite objections from Iran, which insisted the 'charter' must be ratified by national governments. Not however according to OPEC Secretary General Mohammed Barkindo who is of the opinion that such a Charter will last for 'eternity'.

 OPEC may well have added the following to their statement ,that budgets and economic pressures in member countries mean that they need to maximise the barrel price not least in Saudi Arabia where it is thought a price of $84/b is required to balance their budget or in Nigeria, where the budget is premised on $65/b oil but they too need $85+ to meet the burden of debt repayments. OPEC does not need to have a particularly long memory to remember the disasterous price war with US shale in 2014  which saw the barrel price drop from over $100 to $30/b whilst wreaking havoc on the economies of OPEC member states. Nobody wants to countenance a repeat performance of that catastrophe.

 Cutting production in the face of weakening demand would make perfect sense if it did not provide increased market share for non OPEC+ producers. OPECs dwindling production now under 30 million barrels a day, has made way for Shale production growth. Cutting production seems to have created a market that shale can survive,    though I have my misgivings about shale's long term sustainability, especially against the backdrop of the Fed's anticipated policy of quantitative tightening.

 Meanwhile though the Iranians were not consulted and do not like  the fact that the decision making for the alliance now seems to be firmly a Riyadh-Moscow

prerogative, were on this occasion prepared to agree to extending the production cuts . Zanganeh the Iranian Oil Minister did  object to  Saudi Arabia and Russia

taking unilateral decisions for the group.

"I think the main issue OPEC has today is unilateralism,"  he went further to say  "OPEC needs to discuss with one another before decisions can be made. For one or two members to discuss outside OPEC and only bring the decision to OPEC for a final stamp of approval, this is the biggest threat to Opec at the moment".  Though he later soften his stance. He also confirmed that Iran had no intention of withdrawing from OPEC.  However he went on to voice Iranian concerns regarding quotas, "Even if

they extend for another three years, I have no problem," Zanganeh said. But cautioned that once US sanctions were removed, Iran would  not accept any constraints on its production.

The market had pretty much priced in an extension and so it was purely a matter of how long such an extension might be. Oil prices rallied on Monday in anticipationof the OPEC news and in response to the truce in the trade war between the United States and China. US oil prices finished the day 1.1% higher, giving back some

earlier gains. However Brent crude  futures fell today by $2.66, or 4.1%, to settle at $62.40 a barrel on with . U.S. West Texas Intermediate (WTI) crude  futures falling $2.84, or 4.8%, to settle at $56.25 a barrel, after touching their highest in more than five weeks on Monday.  Global oil demand growth for this year has fallen to 1.14 mbpd (million barrels per day) while non-OPEC supply is forecast to grow by 2.14 mbpd,” PVM analyst Tamas Varga wrote in a note. The major concerns around contracting economic growth and demand destruction have created a bear market that may require additional co-ordinated action from OPEC+

 

Putin yet again seems to have played a blinder. Though it must be acknowledged that he has been ably assisted in creating this new construct by an intransigent US

President that has put enormous pressure on Saudi Arabia to pump more oil at any cost.  US sanctions on Iran were responsible in part for sharp price increase in oil

prices in the first four months of this year. Oil prices have increased by over 20% since the beginning of the year. The loss of Iranian crude represents about 2.2 million bpd.

The Trump Administration has tasked both the Saudis and the U.A.E with pumping enough crude  to compensate for this loss and to meet Asia’s needs, but in particular Japan, South Korea, India and China.  The Saudis do have the spare capacity but have steadfastly continued to pump below their quota.  Saudi Oil Minister Khalid Al-Falih used a press conference on Monday night to say the kingdom was willing to keep cutting more deeply than its quota requires. Their objective is to drain the market of what it deems excess inventory and restore demand supply equilibrium.

 The Saudis clearly believe OPEC+ provides them a much better chance to counter US shale and withstand the unprecedented pressure the Trump Administration are subjecting them. OPEC and Russia are  unlikely bedfellows in what is a marraige of convenience.  Despite Zanganeh the Iranian Oil Ministers initial disquiet about how the decision to continue the production cut was reached,   by Monday evening  he had thrown his support behind the deal:

 “The meeting was good for Iran and we achieved what we wanted.”.

When asked if Putin was  now calling the shots the Saudi Energy Minister Khalid al-Falih responded “I don’t think Russia is calling the shots,”  when asked if Putin was now OPEC’s boss. he went on to say “I think Russia’s influence is welcome.” In a very rare show of unity Iran’s  OPEC governor Hossein Kazempour Ardebili concurred, echoing his boss Zanganeh’s conciliatory tone. Given the chorus of approval coming from OPEC member states it would appear for all intents the distrust and antipathy that had once characterised the relationship between the two parties is well and truly dissipated.

None of this will please President Donald Trump, who has repeatedly called for OPEC to pump more oil to keep US gas  cheap. Importantly there are potential political ramifications for  the 'special relationship' that currently exist between the US and Saudi Arabia. At a time when the US Congress have blocked arms sales to the Saudis. Russia seem to be fostering a much better, closer and  influential relationship with Riyadh. The collaboration could lend Saudi Arabia a non judgemental alternative to the US ,  it will crucially also bolsters Putin's clout in the Middle East. The Iranians seem to be singing a slightly different song and it is highly likely they too will reach out to the Russians

Published in OIL MARKETS
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