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Displaying items by tag: OIL

Friday, 21 February 2020 19:54



It is by definition complex, intricate, requires ingenuity and is perplexing. Out of a clear blue sky just as market analysts had snugly settled down with their forecast outlook for 2020, it  emerged without warning, a shock that  the market is still yet to fully comprehend. Despite the initial slump in global oil benchmarks the price of Brent  rebounded by over 10%  last week.

This week ending, West Texas Intermediate crude for April delivery CLJ20, -1.99%  on the New York Mercantile Exchange fell $1.13, or 2.1%, to $52.75 a barrel, while April Brent crude BRNJ20, -2.23% lost $1.37, or 2.3%, to trade at $57.94 a barrel on ICE Futures Europe. Coronavirus fears returned to the market as the pervading sentiment seems to be that the virus still has a course to run with no clear sign it has peaked.

With Refiners in China reported as processing 25% below seasonal averages  and an estimated reduction in transport fuel consumption of 30-40% the logical expectation would be that oil prices continued on their downward spiral. Apple Inc. have issued what is essentially an impartial  prognosis on the Chinese economy. A warning that would normally be regarded as a bellwethers. Setting aside the predictable short term spike in oil benchmarks the market experiences every time there is an US inventory build in excess of forecast, market sentiment seems to be driven by the rate and number of coronavirus infections.

There were initial reports at the beginning of the month that Chinese buyers had called a halt to West African grades, yet it seems that Chinese imports have remained fairly unabated at the seasonal rate of about 10 million barrels a day.  Some of China's biggest suppliers such as  Russia, Iraq and the Saudis have continued to export oil to China at typical rates. Though we will not know definitively until the begining of next month when China’s General Administration of Customs releases the data for February.

 The build up of oil cargoes  offshore at the beginning of February seemed to provide evidence of high refinery inventories  build as a result of low run rates and a general collapse in demand. Subsequently we have however learned that available storage has been freed up.  China’s overall crude storage is at 760 million barrels, versus a peak of 780 million barrels in early June last year which is about 65% capacity. Sources at Shandong ports have confirmed that while storage levels are high, they are working with refineries to move oil out and make way for more cargoes that are expected to arrive in the coming weeks. So in theory there is still a lot of spare capacity


Depending on what data the General Administration of Customs reports on crude oil imports the market will have a more precise gauge of the situation. If imports are close to seasonal averages it would confirm that China are increasing oil inventories. Such an act would be strategic yet would leave the market to ponder their motivation in a time of seeming crisis

It would only really make sense to put oil into storage if China is convinced the market was in contango and that the price of oil was bound to increase. It is a statement of confidence in their ability to spark the economy back into life, thus increasing the demand for oil. Stockpiling is a  hedge when you think future prices are going to increase.

Counterfactually,  if the General Administration of Customs reports shows a substantial decrease in imports well  below seasonal or pre COVID-19 levels for February,  it would confirm that the coronavirus is having a more detrimental effect on consumption and will continue to weigh on China’s economy for some time to come. It would also decrease the incentive for China to put oil into storage as it would send the market into prolonged  backwardation.


The integrity of the information emanating out of China has always been questionable. This adds to the  market's volatility.  In any event OPEC+ are well positioned to construct their own assessment of Chinese crude imports from amalgamating the member states export data. By the 5th of March there will also be significantly more trend data providing a clearer indication as to the state of the Chinese puzzle.



Published in OIL MARKETS
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Wednesday, 19 February 2020 22:05


Russia seem to have won the argument and OPEC+ will meet as scheduled in Vienna on March 5th- 6th. It could be that a resurgence  in the  Brent oil price benchmark which has seen it reach  $59.16/b as of 1719 GMT today, up 11% from the February 10th  low has alleviated the pressure .  However although the front month ICE future has rebounded it is still down over 10% year to date and far below the level most  OPEC members states  need to balance their domestic budgets.

 Russia has  been reluctant to agree to Saudi requests for members of  the alliance  to meet in  mid-February, as the effects of  the coronavirus outbreak caused oil prices to slump. Earlier in the month an OPEC+ technical  committee recommended that the  coalition deepen its existing 1.7 million b/d production cut accord by an additional cut of 600,000 barrels per day through the end of the second quarter to offset any demand impact from the COVID-19 infection.

 The Saudi energy minister Prince Abdulaziz bin Salman who reportedly spoke to the Russian energy minister Alexander Novak by phone on Tuesday acknowledged on Wednesday that he was unable to convince his Russian counterpart. Prince Abdulaziz bin Salman, never short of a quotation  had previously been quoted as  saying the price plunge in February called for decisive production cuts. "When there's a fire in your house, you call for the fire truck, not the garden hose," the sources quoted him as saying. Perhaps an oversimplified metaphor perhaps but it left the market in no doubt as to the urgency the Saudis position.

 Yet the Russian position is complex and seemingly set to become even more complicated.  The Russian news agency TASS originally quoted the Russian energy minister " Russia is now carefully studying the recommendation of the technical committee in order to assess the situation on the market and take a balanced approach based on the interest of the market as a whole". It was polite procrastination, whilst it is prudent to attempt to assess the full effect of the COVID-19 the process is open ended.

 Interestingly an impending $38-billion deal under which the finance ministry will buy state lender Sberbank is due to start in April and  is expected to lead to a stronger rouble, which is a factor that is generally disliked by oil exporters as it hits their profits.  At a meeting on Wednesday, oil companies asked Energy Minister Alexander Novak to tell central bank governor Elvira Nabiullina that they do not favour a strong rouble. It is however thought that the final decision will be Putin’s. A strong rouble would favour a production cut.

Furthermore it would appear that though the Saudis have cut back production their exports  do not seem to have dropped accordingly, so whilst other members like Nigeria are cutting exports the Saudis seem to be using reserves to maintain export volumes. The Russians have always been wary of surrendering market share to US shale

 The real issue is the fidelity of the alliance and its ability to demonstrate a unity of purpose. The  technical committee is essentially a unit which comes up with policy, if those ideas are not endorsed by both Russia and the Saudis these policy positions become just interesting suggestions. Russia has continually maintained that they are content with a lower crude oil price. Russia do not want to see an increase in US shale production facilitated by increased oil prices created by a rash OPEC+ production cut

Published in OIL MARKETS
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Wednesday, 19 February 2020 15:30


A slower decline in refined product prices compared to crude oil saw refinery margins strengthen. Though Chinese refining margins stayed firmly in negative territory, with Arab Medium cracking margins averaging minus $1.84/b, up from the minus $3.98/b the week earlier.The decline in the demand for transport fuel created by COVID-19 saw the number of Chinese transport passengers for all venues down by 30%-40%, according to data released by the Chinese Minister of Transport and reported by Platts S&P .

It remains to be seen whether the return of Chinese workers to work will make an appreciable difference to refined pproduct demand.
The weaker Chinese demand is creating external inventory builds too as refined product inventories in Fujairah rose 12% week on week to reach 24.252 million barrels, according to data released last week by the Fujairah Oil Industry Zone. Inventories in Singapore also rose marginally, with gasoline and light distillates up 3% to 7.332 million barrels, while middle distillates rose 1% to 4.058 million barrels, according to Enterprise Singapore data.

Singapore cracking margins for Dubai rose to average $1.32/b for the week ended February 7, up from the minus 10 cents/b the week earlier, Platts Analytics data showed.

Refining margins in the Amsterdam-Rotterdam-Antwerp region were stronger, with Urals cracking margins averaging $6.01/b, up from the $4.88/b the week earlier. Part of the strength was due to regional refineries beginning seasonal turnarounds, lowering demand for crude and reducing product inventories.

The lower refinery output cut into inventories. ARA diesel and gasoil stocks fell 3% week on week, to 2.470 million mt last week, or 18.1 million barrels, according to Insights Global data, while gasoline stocks rose 10% to 1.12 million mt, or 9.46 million barrels.

In stark comparison margins on the US West Coast continue to top all other regions, though they showed a small reduction week on week. The cracking margin for Alaska North Slope averaged $19.08/b for the week ended February 7, compared with the $19.09/b the week earlier.

Front-month ICE Brent prices averaged $54.62/b for the week, down $4.40/b from the week earlier, and the largest weekly drop since December 2014. The NYMEX front-month crude contract averaged $50.35/b for the week ended February 7, down $2.38/b from the week earlier.

Published in OIL MARKETS
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Friday, 31 January 2020 18:30


Saudi Arabia has opened a discussion about moving the upcoming OPEC+ policy meeting to early February from March, four OPEC+ sources said, after a swift slide in oil prices alarmed Riyadh. Worries over the economic impact of China’s coronavirus has rattled global markets, helping send the price of crude down to around $58 a barrel from above $65 a barrel on Jan. 20.

No final decision over the new date of the meeting has been made, and not all OPEC members are on board yet, with Iran a possible contender to oppose the move, the OPEC+ sources said.Russia was also not keen on advancing the meeting to early February, though it was not immediately clear whether Moscow had officially communicated its final position, the sources said.

One Russian oil source suggested that Moscow may want to reassure the market it is willing to advance the meeting to prevent oil prices from falling further.

OPEC officials and investors are trying to assess what economic damage the virus might
At 10:52 a.m. EDT on Thursday, WTI Crude was down 2.38 percent at $52.06 and Brent Crude was trading down 2.39 percent at $57.52, both flirting with bear market territory.

Since the outbreak of the coronavirus in China, oil prices have lost more than 10 percent, and are now at their lowest levels since early October 2019.

Even with Libya’s oil production plummeting by nearly 1 million barrels per day (bpd) due to the port blockade by forces loyal to General Khalifa Haftar, oil prices have seen downward pressure over the past week and a half as fears of oil demand destruction currently outweigh supply outages.

Yesterday’s EIA inventory report was also not supportive for oil prices, after the Energy Information Administration reported a build in oil inventories of 3.5 million barrels for the week to January 24. Analysts had expected a draw of 460,000 bpd, after last week the EIA reported a draw of 400,000 bpd for the seven days to January 17.

According to oil market analysts, until the impact of the Wuhan virus on the Chinese economy and oil demand becomes clearer, market participants will continue to be spooked by the specter of waning oil demand at a time when demand is weakest in the year.
The Wuhan virus outbreak and its economic fall-out on Asia, the engine room of the world, remains the most crucial issue facing oil markets, with any rally likely to have short half-lives,” Jeffrey Halley, senior market analyst at OANDA, told Reuters.

“There is the risk that sentiment gets hit further in the near term,” ING strategists said on Thursday, noting that “A number of international flights to China have been cancelled and if this trend continues in the coming days and weeks it will likely only deepen demand concerns.”

Yet, if losses in Libya’s oil supply to the market persist for longer, they would be enough to tip the oil market into deficit this quarter, ING strategists Warren Patterson and Wenyu Yao said.

Published in OIL MARKETS
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Tuesday, 07 January 2020 21:59


OPEC oil output fell in December as Nigeria and Iraq adhered more closely to pledged reductions and top exporter Saudi Arabia made further cuts ahead of a new production-limiting accord. On average, the OPEC member States pumped 29.50 million barrels per day (bpd) last month, which was down about 50,000 bpd from November’s revised output figure.

Crude prices have rallied to above $70 a barrel in 2020, extending a 23% gain in 2019, supported by ongoing OPEC-led curbs and increased Middle East tensions after the killing of a top Iranian general. This has increased concern of conflict that could further cut supply.

“Looking ahead, geopolitical risks will remain front and centre of investor concerns,” said Stephen Brennock of oil broker PVM.

“A tense waiting game has begun to see if the fallout will lead to a disruption in regional oil supplies.”

OPEC, Russia and other allies, known as OPEC+, had an agreement to reduce supply by 1.2 million bpd in 2019. OPEC’s share of the cut was about 800,000 bpd, to be made by 11 members, with exemptions for Iran, Libya and Venezuela.

At meetings in December, OPEC+ agreed to make an additional cut of 500,000 bpd as of Jan. 1, 2020. The 11 OPEC members bound by the agreement easily exceeded the pledged cuts, thanks in large part to Saudi Arabia and its Gulf allies cutting more than called for to support the market. The December report suggests Nigeria and Iraq, both frequently delinquent in observing OPEC imposed quotas,improved compliance. Compliance rose to 158% in December, thereport confirmed, from 153% in November.

OPEC’s largest production drop of 80,000 bpd was in Nigeria, which exported less crude according to ship-tracking data and loading schedules. Much of this decline came from reduced shipments of Bonga crude, which traders say has been undergoing maintenance.

OPEC’s two top producers, Saudi Arabia and Iraq, each reduced output by 50,000 bpd. This puts Saudi supply more than 500,000 bpd below its 2019 target. Iraq’s compliance, at 59%, is far lower than Saudi Arabia’s but is up from 23% in November. The United Arab Emirates made a further voluntary curb in December, while Kuwaiti output was steady.

Among countries pumping more, the largest increase was in Angola, which boosted exports after maintenance affecting the Girassol crude stream had curbed supplies.

Venezuela, which is contending with U.S. sanctions imposed on state oil firm PDVSA and a long-term decline in output, managed a small boost to supply with exports increasing in December. Production from the other two exempt producers Libya and Iran edged lower.


Thursday, 12 December 2019 22:23


Organization of the Petroleum Exporting Countries (OPEC) has revised its outlook yet again and now forecasts  that there will be  a small deficit in global  oil markets in 2020 and believes  that the market is much tighter than previously predicted. The new outlook  provided support for crude oil benchmarks as  prices edged  higher today (Thursday). Brent futures increased 28 cents to $64 a barrel, while West Texas Intermediate (WTI) crude edged up 12 cents at $58.88 a barrel.


This new  forecast is a significant downward revision from the OPEC World Oil Outlook which  predicted 700kbpd  oversupply in 2020. This is largely down to a revised evaluation of the rate of slow down of U.S Shale production growth,  which was originally forecast at about 600kbpd. Though it could be the type of wishful thinking that is now being proselytised by a Saudi- centric OPEC, desperately looking for bulls to support a $2 Trillion Aramco IPO. Not least because it also assumes 100% OPEC compliance on quotas and ignores the  condensate loophole.


Conversely, US crude stockpiles rose  last week, gaining more than 800,000 barrels, contrary  to analysts predictions  which forecast a 2.8 million barrel decline. US Petroleum inventories also increased with gasoline stocks surging by more than five million barrels the largest weekly build in gasoline since January, according to EIA data. Distillates also gained over four million barrels.


The market is now focussed on what happens on monday, the deadline for the imposition of another round of tariffs on an additional  $156 billion of Chinese imports.


Last week, the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+ including Russia agreed to increase output cuts from 1.2 million barrels per day (bpd) to 1.7 million bpd in an attempt to balance the market and to support prices. Yet oill prices fell for a second day in a row on Tuesday as a slowing global demand outlook outweighed OPEC’s agreement to cut production in 2020

Brent crude was down 33 cents, or 0.5%, at $63.92 per barrel by 1134 GMT while West Texas Intermediate oil was 29 cents, or 0.5%, lower at $58.73 a barrel.The benchmarks had fallen 0.2% and 0.3% respectively on Monday.

The OPEC decision is a response to global demand contraction brought about by the ongoing US-China trade war. Gazprom Neft CEO Alexander Dyukov said on Tuesday a decision by OPEC and its allies to cut output would help support oil prices at $55-65 per barrel in the first quarter.There was not a great deal more OPEC+ could have done, though I believe the cut was insufficient and to shock the market they should have cut by 1 million barrels a dy. That would provide medium term support in the face of increased no OPEC supply from Shale, Brazil and Norway. The main imponderable is however the ultimate outcome of the US-China trade war which shows very little sign of abaiting. December 15th marks the next deadline in this trade war with the US poised to impose another round of tariffs of some $156bn on Chinese imports. The Agriculture Secretary Sonny Perdue said on Monday - that President Trump did not want to impose these tariffs but he wants “movement” from China to avoid them. There is little likelihood China will proffer the sort of concessions the Trump Administration wants to see.

Data released on Sunday increased bearish sentiment as it showed an unexpected contraction of exports from China in November down 1.1% from a year earlier,
China has witnessed growth in imports of major commodities in recent months, providing optimism that Beijing’s stimulus efforts may be working and that the impact of the trade war maynot stiffle growth as much as it has been feared.The market will also be looking at the EIA inventory data which will be published on wednesday.

Friday, 22 November 2019 02:58


Opec may have no appetite to cut oil production deeper when it meets next month, but flaring political crises across the group are once again threatening supply.
Unrest erupted in Iraq and Iran this month – two of the Middle East’s biggest producers – as people took to the streets protesting financial hardship and bad governance. That’s adding to the range of supply threats already afflicting the Organization of Petroleum Exporting Countries, from economic collapse in Venezuela to simmering discontent in Algeria.
“We kind of had a second Arab Spring, but it’s been under the radar,” said Helima Croft, chief commodities strategist at RBC Capital Markets. “The real question is what is going to happen in Iraq.”

Iraq, Opec’s second-biggest producer, has cracked down on demonstrations against corruption in recent weeks that have spread to the southern oil hub of Basra. Iran has seen its oil exports slashed by US sanctions and is suppressing protests spurred by the resulting economic stagnation.
Opec and its allies – who together pump about half the world’s oil – will meet in Vienna in early December to consider production levels for 2020, having cut output this year to prevent a global surplus. Despite signs that fragile demand and surging US shale supply will unleash a new glut, they’ve signalled no desire to reduce output further.
They may not have a choice.
In recent years, unplanned supply disruptions within Opec nations have done as much to keep markets balanced as the group’s deliberate cutbacks. Iran and Venezuela have lost a combined 1.7mn barrels a day since last October, more than all 24 nations in the Opec+ coalition agreed to cut this year.
As turmoil intensifies across the group, next year could see more accidental losses: oil prices of about $60 a barrel are already below levels most Opec nations need to cover government spending, and a further slump would only deepen the strain.
“There is no better way to put it: the geopolitical risk is rising in the Middle East again,” said Tamas Varga, an analyst at PVM Oil Associates Ltd in London.
Algeria is struggling to placate a mass youth-led movement seeking change after ousting long-term President Abdelaziz Bouteflika earlier this year, and Libya remains split by armed factions. Ecuador, which will leave Opec in January, suffered a 20% slump in oil production last month amid riots and looting.
In Iran protests were triggered by an increase in gasoline prices.
The biggest risk is posed by Iraq, according to RBC’s Croft. While the country’s oil sector has proven robust during recent turbulence, even boosting output when Islamic State militants captured swathes of territory five years ago, the latest demonstrations reflect a new level of popular discontent.
“If you had attacks on infrastructure, oil workers going on strike – Iraq is the place that could surprise the market,” she said.

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Brent Oil Futures was up 0.13% at $61.03 a barrel, as of 12:40AM ET (04:40 GMT), while Crude Oil WTI Futures was up 0.12% at $56.37 a barrel.

The EIA released an forecast predicting U.S. crude oil inventories decreased 4.8 million barrels in the week to August 30.

This comes after the American Petroleum Institute (API) placed crude oil inventory build at an estimated 401,000 barrels for the week ending Aug 29. This made stocks rise to 429.1 million barrels, against expectations of a 2.5 million barrel decline expected by analysts.

Oil prices also gained some traction after improved economic data emerged from China.

Recent data has shownChina’s services sector expanded by the fastest pace in three months in August, driven by new orders. China is the world’s second-largest oil consumer.

Investor sentiment has also been raised in Hong Kong since Chief Executive Carrie Lam’s decision to formally and fully withdraw a controversial extradition bill . The Chinese special administrative region has faced much political unrest since June due to the proposed bill.

Though many commentators see the unrest continue as protestors had only one of their five demands met.

Still, adding fuel to the gains is U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin’s announcement that talks with a Chinese delegate about the U.S.-China trade war have been scheduled for “the coming weeks” in Washington. 

Those talks will likely take place in October but it is unlikely they conclude in a trade agreement. Despite the damage to both economies these two pugilists seem intent on standing their ground. The trade war is the main factor in forecasting oil benchmarks. Comments from any of the actors the markets recognise as being key participants in the trade war have far more sway over market sentiment than any other single factor including OPEC production figures and US inventory numbers
Though both economies have suffered losses, neither seem willing to budge. The trade war has become the main factor of note when forecasting oil demand trends, taking precedence even over OPEC policies and rising U.S.crude oil production 

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Monday, 18 March 2019 12:27



Ten years after the Petroleum Industry Bill began its tortuous odyssey which has included the Bill being broken into four portions, both houses of the National Assembly have finally harmonized the Bill's first portion, the Petroleum Industry Governance Bill (PIGB). The PIGB which replaces Nigeria’s main legislation in the Oil and Gas Industry seeks to promote transparency and accountability, establish a framework for the creation of commercially viable petroleum entities, create the governing institutions with clear and separate roles and foster a conducive business environment for petroleum industry operations. This Bill will dissolve The Nigerian National Petroleum Corporation (NNPC) and create three companies out of it; one regulatory commission and two independent companies with shareholders.

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