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Wednesday, 31 July 2019 16:19

SAUDIS DIG IN AS OPEC PRODUCTION HITS 7 YEAR LOW

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

The Department of Petroleum Resources (DPR) the regulatory authority of the Nigerian oil and gas sector has revoked 5 Oil Mining Leases and a prospecting license.  The directive was reported to be from the President  Muhammedu Buhari who is also the petroleum minister. The licenses that were revoked belonged to Pan Ocean (OML98) Allied Energy and Resources (OML 120, 121) Express Petroleum (OML108), Cavendish Petroleum (OML110) and Summit Oil (OPL206). The ostensible cause being legacy debt which was presumably in the form of unpaid royalties and tax on profits and production bonuses. The Minister of State  for Petroleum Resources Dr Ibe Kachikvwu  in remarks made public in February, put companies on notice of the government's intentions. At the time he expressed concerns that companies were not making their statutory remittances as required by the Joint Venture agreements with the government.

‘‘A situation whereby we write to oil companies to pay up royalties, and for 90 days they are unable to comply. What that simply says is that they are not ready for business and we cannot continue to wait for such companies. We must move on. So going forward, I have asked the DPR to give additional 30 days grace period, after which their licenses will be withdrawn. I have instructed the DPR to revoke their licenses.’

It has been a long time  in coming, but in the good old Nigerian tradition nobody pays a blind bit of notice to any warning until it is too late. The upstream sector of the Nigerian oil and gas industry has for far too long treated signature bonus  payments, royalties and other statutory payments as optional obligations to be circumvented or evaded. The DPR cannot be absolved as it has enabled the poor payment behavior of these companies. There are bound to be more companies and perhaps this  spate of revocations will serve to galvanise  those companies to settle their outstanding obligations. Many of the indegenous Operators have struggled to generate free cashflow. The effect of low barrel prices and shut ins caused by militants hsve affected their liquidity. There is also the issue of theft which has seen some producers lose up to 20% of their daily production. So many have chosen not to breach their covenants with bondholders in favour of negotiating with a more pliable DPR. It is apparent that a clearly  cash strapped Federal Government is in no mood to indulge big oil

It will be interesting to see what the DPR does with the leases that have been revoked. Given that the directive came from the President it is difficult to see how such a revocation can be challenged. Under extant legislation, the Petroleum Act grants the Minister exclusive and unfettered power to grant licenses and leases and amend, renew, extend or revoke same pursuant to the provisions of the Act. There is no express right of appeal against the decision of a regulator. In practice, redress from regulatory decisions can be sought before the Federal High Court by commencing an action in court or by initiating arbitration. In reality challenging the authority of the President in a Nigerian court is a poor alternative, moreso when a clear breach in the terms of the lease has been established.

There is clearly a renewed agression in going after errant oil companies, most of whom are owned by prominent indegenous families. Much was made of the revocation of Summit Petroleum's OPL owned by the family of the late Chief  MKO Abiola the winner of the 1993 Presidential election in Nigeria. But Cavendish Petroleum belongs to the equally illustrious Mai Deribe clan and Allied Energy Resources to well connected  but recently troubled  Kase Lawal of Erin Energy. Express Petroleum and Gas Company is owned by the Dantata family who are a well known wealthy Northern family.  It has been alleged that Pan Ocean's lease OML98 was revoked after negotiations failed with the Government, the JV partner to resolve the issue of outstanding payments . There has also been the suggestion from other Leasees that payments were not made due to current well documented litigation between NAE and Allied Energy. The Leasees first instinct will be to reach for the law courts but their obligations under the lease terms are very precise. 

There is an unsubstantiated rumour  the exercise is a ploy to transfer the leases to other companies. I think that is a bit far fetched.  There is also the distinct possibility however,  that the action is targetted and is a coded message to elite owners of oil  blocks, many of  whom acquired them  through grand acts of generousity and patronage. Given the shifting sands of litigation and emerging legislation it is hard to see how any other  investor would have the confidence to take on those leases.  More importantly there is also the question of the borrowing which the assets secured.  Allied Energy have announced three of their  projects around OML147 will be ready for unveiling at the technical start-up taking place June 10, 2019.  This revocation clearly puts the solvency of the company at risk. It is also a time of worry for local banks that have overextended exposure to indegenous oil companies.

Published in OIL MARKETS

For most commentators it was simply a matter of time. The correction would come as the potential effect of the China - US war intensified and investors and the market priced it in. The escalating U.S.-China trade war came into the sharp focus as oil price benchmarks plummeted lastThursday amid increased trade tensions between the two protagonists. The bearish sentiment supported by a dampening of the outlook for  global economic and oil demand growth on a day after the EIA reported further increases in US stockpiles of crude by 4.7 million barrels or 1%, to 476.8 million barrels commercial inventory sent oil prices tumbling  joining global sell-offs in equities.

The front-month July Brent futures contract and front-month July NYMEX contract traded at below $70/b and $60/b, respectively, for the first time since March. China's commerce ministry said on Thursday that the country would not hold trade talks with the US until the US "adjusts its wrong actions," according to a CNBC report. Oil prices rose early on Friday recouping some of the hefty losses of the previous day when both benchmarks plunged in their worst one-day drop in six months, prices posted the largest weekly decline of 2019 as rising U.S. crude inventories and fears of an economic slowdown have overshadowed signs of tightening global supply brought about by US sanctions on Iran and Venezuela in recent days.

It is easy to understand why Investors are increasingly worried about the state of the global economy and, by extension, the outlook for global oil demand growth for the forseeable future. It is unlikely that the US and China reach any sort of trade agreement any time soon. Trade agreements are notoriously complex, take an immense amount of time and require goodwill. The very best that trade talks will achieve is a ceasefire providing the combatants the space to implement counter measures. A populist Trump has declared open season on China, the trade war is a precusor to a Trumpian strategy to counter the growing influence of a China, technologically, militarily, politically, industrially and diplomatically. The Trump administration’s response to China’s increasing influence does not bode well for this future. It serves to establish a mutual resentment and hostility that will prove to be indelible.

The prevailing mood in washington is that China is the adversary and any notion of working together as allies is over. Mercantilism is the policy de jure in Washington , minimizing imports whilst maximizing exports as part of a government effort to manage trade with unilateral tariffs and quotas. The new catchphrase in Washington is "decoupling" The U.S. has decided it should start to disentangle its economic relationship with China in key sectors in its own national interest and security. Such a policy comes with potentially negative albeit unintended consequence . Most of the U.S.'s allies and partners in Asia, Japan, South Korea, Taiwan and Singapore are far more integrated with China than they are with the U.S., they won't necessarily follow Washington's lead.

The trade war seems here to stay with China seemingly doubling down and playing the long game. Whilst the outlook on the demand side looks bearish, US sanctions on both Iran and Venezuela will create volatility as sentiment has become increasingly skewed by President Trump's tweets and the tension in the Persian Gulf. It now seems inevitable that OPEC will extend their production cut to the end of the year.

Published in OIL MARKETS

the Director of Department of Petroleum Resources (DPR), Mordecai Ladan has announced that Nigeria’s gas reserves increased by 7.3 per cent from 187 trillion cubic
feet (tcf) to 200.79 tcf. Nigeria has long been regarded as primarily a gas producing nation. The official reserves now place Nigeria ahead of Venezuela as having the
6th largest natural gas reserves in the world. The crucial difference is that there has never been any gas exploration in Nigeria and the reserves represent gas
discovered in oil exploration activities or the gas that got in the way of producing the oil. The fiscal regime of the new draft Petroleum Industry Bill seeks to address this
by encouraging and incentivising gas exploration. The Nigerian National Petroleum Corporation (NNPC) has put Nigeria's current undiscovered gas potential at
around 600 trillion Cubic Feet (TCF), which would give the country the 4th largest gas reserves in the world after Russia, Iran and Qatar.


The director said the country’s daily gas production stood at 1.2 billion standard cubic feet (scf) with 41 per cent of the daily production exported while 48 per cent
went to the domestic market, and 11 per cent was being flared. He was further quoted as saying “We have got greater potential if we are to increase the volume of
gas reserves growth. It is very strategic to keep growing the reserves in order to boost export". He also confirmed “We found our gas reserves by accidental exploration.
so a dedicated gas exploration is very important and that’s part of the regulatory initiatives of the DPR".

He went on to urge all the operators to support the Nigerian Government's plan to end gas flaring by supporting the Nigerian Gas Flare Commercialisation
Programme (NGFCP). “The objective of the NGFCP is to eliminate gas flaring through technically and commercially sustainable gas utilisation projects developed by
competent third party investors,” he added. The director said the investors would be invited to participate in a competitive and transparent bid process.

In my opinion the program still lacks a firm financial proposition and is still somewhat of a work in progress. It seeks to rely on a mechanism that will be perfected
through competitive tendering or a bidding process. The Director said: “the commercialisation approach has been considered from legal, technical, economic,
commercial and developmental standpoints, but having seen the initial drafts and broad commercial proposition I remain largely unconvinced or compelled by his
assessment.
Though the Director goes on to describe it as " a unique and historic opportunity to attract major investment in economically viable gas flare capture projects whilst
permanently addressing a 60 year environmental problem in Nigeria”, the potential yield for investors must be such that it adequately compensates them for their risk
and that currently remains unclear.

 

Published in OIL MARKETS
Wednesday, 01 May 2019 13:10

NIGERIA TO DOUBLE OIL PRODUCTION BY 2025


Nigeria has announced ambitious plans to double its oil production by 2025, targetting 4 million bpd in six years’ . Maikanti Baru, Group Managing Director at the
Nigerian National Petroleum Corporation (NNPC), admits that the target is aggressive but appeared certain when he said last week that Nigeria is committed to
meeting it. The GMD has a penchant for making overly optimistic if not widly unreasonable predictions which only serve to undermine confidence in the National oil company.

Nigeria currently pumps around 2.2 million bpd in both crude oil and condensate. In March Nigeria’s crude oil production stood at 1.733 million bpd, up by 11,000 bpd
on the previous month. Over 10 years ago Nigeria commited to increase oil reserves to 40 billion barrels, that commitment never really looked plausible and has been kicked down the road until 2025 too. Nigeria has not had a bid round for over 10 years during which the passage of the Petroleum Industry Bill, the legislation created to provide certainty to investors has not been passed. It is hard to see how any investment can be made when the legislation that is meant to provide the fiscal and regulatory regime has not be passed.

Published in OIL MARKETS

Aiteo declares force majeure on Nembe Creek Trunk line (NCTL) after a fire incident. The company an indegenous E&P player produces 150,000 bpd of oilIn a statement released by the company they confirmed the fire outbreak was discovered by the company’s surveillance team on Sunday 21st of April. Aiteo explained that despite its urgent intervention and containment action, they were constrained to shut in injection as well as other related operations into the NCTL. I

The NCTL has recently enjoyed uninterrupted operation prior to this incident, raising the spectre that the fire may have been an act of sabotage by one of the many militant groups that operate in the Niger Delta.The company added that relevant investigations were continuing while further information about the remote and direct causes of the fire would be communicated as soon as these became available. Aiteo Group acquired block OML 29 from Royal Dutch Shell and has emerged as one of Nigeria’s leading oil and gas companies.

The fire has created further disruption as Nembe Creek T^runk Line is one of the two major evacuation pipelines for both Amenam and Bonny Light crude grades. Royal Dutch Shell along with Total have been forced to declare force majeure. Exports of Amenam are typically around 100,000 bpd with May and June loadings for Bonny Light about twice that amount.

The NCTL has been a target for the Niger Delta Avengers a militant group which boasts of broadbased support in the region and who have been involved in targetting oil and gas installations. It remains to be seen if this incident signals an upsurge in violence in the region. In any event a single simple and perhaps strategic fire has taken over 300,000 bpd production of sweet light crude off the market

Published in OIL MARKETS
Monday, 22 April 2019 21:37

SHALE THE DOTCOM THAT WEARS ROBES

In the past decade, the shale-fracking revolution has made the U.S. the world’s largest oil-and-gas producer and reshaped markets. Despite this shale has been a dreadful impulse for most investors. For example Since 2007, shares in an index of U.S. producers have fallen 31%, while the S&P 500 rose 80%. Energy companies in that time have spent over $280 billion more than they have generated from operations on shale investments.

Recently the U.S. government has cut its oil production forecast for the first time in six months as drillers scale back in smaller shale plays in the U.S. , the Permian and the Gulf of Mexico. Whilst crude output is still anticipated to reach record levels, the Energy Information Administration (EIA) revised down its 2019 forecast to 12.3 million barrels a day -- 110,000 barrels-a-day lower than the previious forecast. In 2020, production is expected to reach 13.03 million barrels a day --

Published in OIL MARKETS
Monday, 22 April 2019 17:06

HAWKS SWOOP AS IRAN WAIVERS GO TO ZERO

It seem the NSA John Bolton and the hawks in the Trump Administration have finally won the argument. Washington has confirmed that there will be no waivers for customers of Iranian Oil after 2nd of May. Oil jumped to a new 6 month high as  the news hit the headlines. This day always seemed inevitable, what is not so clear is the much anticipated fallout. Already China, the largest consumer of Iranian oil has accused the US of over reaching their jurisdiction. They went on to say “China’s cooperation with Iran is open, transparent, reasonable and legitimate, and should be respected,”According to White House Press Secretary Sara Sanders “The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied,” . President Donald Trump further  tweeted that “Saudi Arabia and others in OPEC will more than make up the Oil Flow difference in our now Full Sanctions on Iranian Oil. ”

US waivers expire  on May 2. These  allowed China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan to continue importing Iranian crude without  retaliatory U.S. sanctions. With the end of the waivers, the buyers face being cut off from the American financial system if they buy Iranian oil.  The difficulty for the Buyers comes from not only having to find suitable replacement grades but the increase in prices and the effect that will have on profits. It seems unconscionable that Japanese, Korean and Indian companies should be made to subsidise this US action. There is also the issue of the OPEC production cut agreement to consider, if we are to believe the US statement then the production cut agreement has effectively been terminated. The future of OPEC seems far from secure.  The special relationship between Washington and Riyahd undermines the basis for OPEC, where two member states are under US sanctions one of which holds the presidency of the organisation.

Tehran have warned that it will close the  Strait of Hormuz in tetaliation for the sanctions. Were such an act to take place', it would undoubtedly lead to conflict with oil prices spiralling out of all control. Were any such conflict arise however it would provide Iran the legal basis for closing the Straits. The ostensible objective of the sanctions is to get Tefhan to abandon its nuclear ambitions and as such the US can always rely on the Saudis for support

 

 

 

Published in OIL MARKETS

The narrowing spread between Northwest European diesel and gasoline cracks had helped support some Nigerian crude grades which have suffered from a lack of European demand, traders said.

The ARA front-month diesel crack was assessed at $14.54/b Monday, with the benchmark ARA front-month EBOB gasoline crack at $9.45/b. The spread between the two was $5.09/b, slightly wider than $4.53/b Friday — the narrowest differential since August 2018.

The recent narrowing of the spread has come on the back of stronger gasoline values, which have led to some Nigerian grades not falling below a certain price threshold. The gasoline strength is boosting demand for the country’s lighter sweeter crudes which are rich in the product.

Published in OIL MARKETS
Thursday, 28 March 2019 13:44

NIGERIA CRUDE OIL GRADES STAY STEADY

West African crude differentials were finding support from solid demand, traders said on Monday, while newly issued buying tenders were in focus.

April loading programmes were continuing to clear and around 20 remain. Exxon has sold some April-loading Qua Iboe, a trader said.

Qua Iboe for April was offered at dated Brent plus $1.70 to $1.80 a barrel, and May Exxon was offering May-loading Qua at a more ambitious dated plus $2.20, traders said.

Indian Oil Corp. is running a buy tender for crude cargoes loading May 20-29, a trader said. Uruguay’s state-run oil company ANCAP is also running a buy tender, but further details were not immediately available.

 

Published in OIL MARKETS
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