The first thing Kathy Parker did when she showed up for work at a Michigan gas station two days ago was change the price of gasoline displayed outside the shop to $2.99 a gallon from $3.04.
The second thing she did was fill up.
“I pulled my car around to the pump and topped off,” said Parker, a store manager at the station in the town of Grass Lake. “And then it got real busy. I didn’t ever think it’d get below $3 again.”
For the first time in almost four years, U.S. drivers are paying an average of less than $3 for a gallon of gasoline, according to the Heathrow, Florida-based motoring club AAA. That’s down from this year’s peak of $3.696 in April.
Sliding prices are seen saving the typical consumer $500 a year and are coming just in time to boost spending during the holiday shopping season, according to analysts including IHS Inc. (IHS) The bonus at the pumps represents the biggest benefit to consumers to date from a record boom in domestic oil production that has contributed to a global crude glut and helped bring down international prices.
“We’re in a new era of lower gasoline prices,” Phil Flynn, senior market analyst at Price Futures Group, said by telephone from Chicago. “I just worry about American drivers. When they pull up to the gas pumps and see $2.99 gasoline, they might have a heart attack. They’re going to think they’re in a time warp.”
Oil Prices
U.S. benchmark West Texas Intermediate oil tumbled $14.21 a barrel in the three months ended Sept. 30, the biggest quarterly decline since 2012, and on Oct. 27 slipped below $80 to the lowest level in 28 months. North Sea Brent crude, the global benchmark, slid $17.69 a barrel in the same quarter and settled at $85.86 yesterday.
Prices have fallen with U.S. oil output at the highest level since at least 1983 and the Organization of Petroleum Exporting Countries producing the most in more than a year. At the same time, the Paris-based International Energy Agency lowered its estimate for global demand growth for this year and next in an Oct. 14 report.
“For every penny that the national average falls, more than one billion dollars per year in additional consumer spending is estimated to be freed up,” Michael Green, an AAA spokesman in Washington, said on the group’s website.
Fuel Production
U.S. refiners are increasing fuel production to take advantage of cheaper crude costs. The nation’s plants processed 15.1 million barrels a day of crude in the week ended Oct. 24, the most for this time of year since 2006, Energy Information Administration data show.
Drillers are using a combination of horizontal drilling and hydraulic fracturing to pull previously inaccessible oil out of shale formations from Texas to North Dakota. The surge in production will propel domestic output next year to the highest level since 1970, EIA forecasts show.
The drop in energy prices means about $500 to $600 in additional disposable income for the U.S. consumer, Chris G. Christopher, U.S. economist at IHS, said by telephone Oct. 15 from Lexington, Massachusetts. With the help of extra money in shoppers’ pockets, holiday retail sales are expected to rise 4.2 percent this year, he said.
“‘When gasoline prices fall and everything else stays the same, confidence goes up,’’ Christopher said. ‘‘It’s just perfect when you get into November because that’s when people go out and buy presents for people and buy presents for themselves.”
Further Declines
Prices at the pump could keep falling into the $2.80’s at current oil prices, and could see even larger declines if crude takes another tumble, said Patrick DeHaan, a Chicago-based senior petroleum analyst for GasBuddy Organization Inc. Green at AAA said prices may drop another 5 to 15 cents a gallon as gas stations catch up to the declines in the wholesale market.
“Consumers are experiencing ‘sticker delight’ as gas prices unexpectedly drop below $3 in much of the country,” said Bob Darbelnet, AAA’s chief executive officer. “Lower gas prices are a boon to the economy just in time for holiday travel and shopping.”
Members of OPEC, the group that supplies 40 percent of the world’s oil, are engaged in an internal price war as they seek to preserve their share of an oversupplied market, Iraqi Oil Minister Adel Abdul Mahdi said.
“There is a price war within OPEC,” Abdul Mahdi told an evening session of the parliament in Baghdad yesterday, which was broadcast on state-run television. “The market’s fundamentals have changed, with an extra 3 million barrels a day of crude entering the market at a time when growth in China and India has slowed.”
Crude prices have collapsed more than 20 percent from their June peak, meeting a common definition of a bear market. Global supplies are rising as a shale boom spurs U.S. production to the highest level in 30 years and demand grows at the slowest pace since 2009. Saudi Arabia, the world’s top oil exporter, cut the price of its main crude export grade to Asia to the lowest in almost six years on Oct. 1, a move later matched by Iran.
“Saudi Arabia last month lowered its selling price by 75 cents on average as part of this price war, Iran has done something similar and we, in Iraq, lowered our price by 60 cents,” Abdul Mahdi said.
The Saudis will announce official selling prices for December next week. Asian traders are split on whether the kingdom will deepen the crude price cuts that propelled oil into a bear market. Seven respondents in a Bloomberg survey expected further discounts, six forecast prices would be unchanged and two anticipated an increase.
Production Increase
Members of the Organization of Petroleum Exporting Countries boosted production to a 14-month high of 30.974 million barrels a day in October led by Iraq, Saudi Arabia and Libya, according to a separate Bloomberg survey of oil companies, producers and analysts. U.S. oil production rose last week to the highest since at least 1983, according to the statistical arm of the Department of Energy.
Brent crude, the international benchmark, is headed for a sixth weekly loss, the longest losing streak since 2002. Both Brent and West Texas Intermediate, the U.S. benchmark, are on track for their biggest monthly decline in more than two years.
December Brent futures were down 1.8 percent to $84.70 a barrel on the ICE Futures Europe exchange in London at 2:06 p.m. WTI fell 1.7 percent to $79.72 a barrel on the New York Mercantile Exchange.
“The meeting planned by OPEC next month will discuss this matter and we hope to get an agreement on all issues,” Abdul Mahdi.
OPEC Showdown
The 12-member group is set for a showdown as Saudi Arabia is resisting calls to reduce production even as oil slides further, said the vice-chairman of IHS Inc. (IHS) consultants and Pulitzer Prize-winning author, Daniel Yergin.
“There’s going to be a classic brouhaha in OPEC about cutting,” he said in an interview at Bloomberg’s Singapore office today. “Everybody will have their own saga as to why they should only cut from a more theoretical level, and I don’t think the Saudis are going to buy into that.”
OPEC isn’t engaged in a price war, according to the group’s Secretary-General Abdalla El-Badri.
“Our countries are following the market. People are selling according to the market price,” he said at the Oil & Money conference in London on Oct. 29. Members of the group will decide on Nov. 27 in Vienna whether to alter their 30 million barrel-a-day collective output target, which was agreed in December 2011.
The only call for a reduction of the ceiling came last week from Libya’s OPEC governor, Samir Kamal. The target should be cut to 29.5 million barrels a day, he said, offering his personal view rather than the official position of the Libyan state.
Hedge funds cut bullish holdings in crude as record U.S. output added to a global supply glut, spurring the longest losing streak in prices in six years.
Money managers reduced net-long positions in West Texas Intermediate by 2.3 percent in the week ended Oct. 28, U.S. Commodity Futures Trading Commission data show. Long positions retreated to the lowest level in 17 months.
WTI fell 12 percent in October for a fourth consecutive drop, echoing the collapse in prices during the global financial crisis. Production by OPEC rose to the highest in more than a year last month, a Bloomberg survey showed, and U.S. output is running at the fastest pace since at least 1983. The gains came as the International Energy Agency reduced its estimate for demand growth this year and in 2015.
“In 2008 it was a collapse of demand that was largely responsible for the drop in prices,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management which oversees about $120 billion, said by phone on Oct. 31. “Now we’re awash in supply.”
WTI fell 1.7 percent to $81.42 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures dropped to $80.54 on Oct. 31.
October Gains
The Organization of Petroleum Exporting Countries pumped 30.974 million barrels a day in October, the most since August 2013, led by gains in Iraq, Saudi Arabia and Libya, a Bloomberg survey of oil companies, producers and analysts showed. OPEC, which supplies about 40 percent of the world’s oil, is scheduled to meet Nov. 27 in Vienna to discuss output targets.
“Investors are selling because OPEC is producing too much oil,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Oct. 31. “The focus in November will be on the OPEC meeting and whether they can come to an agreement to make cuts.”
The group’s biggest producers, Saudi Arabia, Iraq, Iran and Kuwait, cut their official selling prices last month, a sign that their primary aim is to preserve market share.
“Within OPEC, there is a price war because the market’s fundamentals have changed,” Iraqi Oil Minister Adel Abdul Mahdi told parliament Oct. 30, according to state TV.
Production Record
U.S. crude output rose 0.4 percent to 8.97 million barrels a day in the seven days ended Oct. 24, the highest in weekly Energy Information Administration data that began in January 1983.
The Paris-based IEA reduced its estimate of consumption gains this year for the fourth month in a row.
“The bearish supply news and economic weakness in Europe and Japan has largely been factored in,” Haworth said. “Now we’re going to see policy moves by governments and OPEC that could be bullish for the market.”
Net-longs for WTI declined by 4,288 to 182,486 futures and options combined during the week ended Oct. 28. Long positions dropped to 249,841, the least since May 2013, while short positions slipped 2.5 percent to 67,355.
In other markets, bullish bets on gasoline increased 0.3 percent to 31,086 futures and options, the highest level since August. Futures advanced 1.5 percent to $2.2134 a gallon on Nymex in the reporting period.
Pump Price
Regular gasoline at the pump, averaged nationwide, slid 0.7 cent to $3.003 a gallon Oct. 30, the lowest since Dec. 21, 2010, according to Heathrow, Florida-based AAA. Prices will drop below $3, the largest U.S. motoring group said.
Bearish wagers on U.S. ultra low sulfur diesel increased 13 percent to 35,704 contracts. The fuel fell 0.8 percent to $2.4931 a gallon in the report week.
Net-long wagers on U.S. natural gas dropped 41 percent to 19,686 contracts, the lowest since March 2012. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.
Nymex natural gas fell 10.5 cents to $3.711 per million British thermal units during the report week.
OPEC Quotas
OPEC last cut quotas in December 2008, trimming its target by 2.46 million barrels a day in response to the global recession that sent WTI tumbling from a record $147.27 a barrel in July 2008 to a low of $32.40 in December of the same year.
“The market has a chance to turn here, provided OPEC does something about cutting quotas and actual production levels,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone on Oct 17. “We’ll soon learn how much recent statements have been posturing. Historically, the weaker the price the more OPEC tends to act together as a group.”
For signs of how the U.S. shale boom is transforming the global flow of oil, look halfway across the world at South Korea.
The Asian nation, which relies on the Middle East for about 86 percent of its oil imports, is benefiting as new output from Texas to North Dakota displaces the crudes that fed U.S. refineries for decades. South Korea received this month a shipment of Alaskan oil for the first time in at least eight years and may buy more, the importing company said. The country was one of the first to receive a cargo of the ultralight U.S. oil known as condensate after export rules were eased.
The U.S. shale revolution has driven oil output to the highest in more than three decades, reducing America’s need for overseas purchases and sinking global prices into a bear market. South Korea is seeking to reduce its dependence on Middle East crude just as OPEC’s biggest members discount supplies to protect market share and Goldman Sachs Group Inc. predicts the group is losing influence.
“The import burden for the U.S. has come down over the last few years,” Virendra Chauhan, a London-based analyst at Energy Aspects Ltd., said by phone Oct. 29. “A lot more crudes have become available to flow east into countries such as Korea.”
South Korea, which imports about 97 percent of the supplies used to satisfy its energy needs, receives more than a third of its oil from Saudi Arabia, the world’s biggest crude exporter and the largest member in the Organization of Petroleum Exporting Countries.
Mideast Supplies
Its purchases from other OPEC members are declining. Crude imports from Iran fell to 4 million barrels last month, 27 percent below the five-year average, according to data from Korea National Oil Corp. compiled by Bloomberg. Libyan supplies declined 55 percent last month from August, while shipments from Iraq dropped by 16 percent.
“The need for diversifying supplies grew more than ever as the Middle East turned into a region full of instabilities,” Oh Sae Sin, an associate research fellow at Korea Energy Economics Institute, a government-funded researcher, said by phone on Oct. 27. “South Korea is laying the groundwork for a relationship with the U.S.”
WTI for December delivery fell 0.7 percent to $80.54 on the New York Mercantile Exchange at 11:35 a.m. New York time. Brent for December settlement dropped 0.4 percent to to $85.86 on the London-based ICE Futures Europe exchange.
Political Unrest
The Middle East and North Africa, home to eight OPEC members, have been rife with political instability and potential threats to oil supplies since 2011. Libyan leader Muammar Qaddafi was ousted and an uprising against Syrian leader Bashar al-Assad began in that year. In 2014, Islamic State militants routed the Iraqi army in the north, raising concern they were a danger to oil fields in the country’s south.
The U.S. imported 7.6 million barrels a day in July, 9.7 percent below the five-year average, according to the Energy Department. The country will export more energy than it imports by 2025, Wood Mackenzie Ltd. said this month.
As shipments from traditional suppliers shrink, crudes from the Americas and Africa are making their way to South Korea. Bogota, Colombia-based Ecopetrol SA sold its first cargo of Castilla Blend crude to South Korea this month and the country’s refiners this year imported the first Ecuadorean oil since at least January 2010.
Tax Rebate
Starting next year South Korean refiners can receive a tax rebate of as much as 16 won (2 cents) per liter (0.26 gallon) of refined fuel sold domestically derived from non-Middle East crude, according to the Petroleum and Petroleum-Alternative Business Act signed into law in September by President Park Geun Hye.
“South Korean refiners are testing different crudes to cut their expenses as their profits are suffering,” Lee Chung Jae, an analyst at KTB Securities Co. in Seoul, said by phone on Oct. 28. “Refiners will need to figure out if the subsidies they get will take away the additional costs they needed to pay to get crude from outside the Middle East.”
The U.S. Commerce Department in June opened the door to more U.S. oil exports as long as the crude is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the last four decades. Condensates have been abundant in shale formations during the drilling boom, leading to oversupply on the U.S. Gulf Coast.
SK Innovation Co., South Korea’s largest refiner, bought 400,000 barrels of the U.S. condensate for delivery next month from Mitsui & Co. and is seeking to purchase more, a company official said on Oct. 2.
Diversifying Supply
“Companies need to get qualified products,” Kim Seung Woo, a senior analyst at Samsung Securities Co., said by phone on Oct. 28. “But as long as the prices are right and there’s a guarantee that companies are getting the products they need, they will want to diversify supplies to reduce risks.”
GS Caltex Corp., which unloaded 800,000 barrels of Alaskan North Slope crude this month is considering whether to buy more of the grade, according to a company official. U.S. West refineries, traditional buyers of Alaskan oil, are turning to other North American crudes.
To defend market share, Arab producers are cutting prices instead of reducing output because their ability to influence the value of benchmark crudes is waning as U.S. shale production boosts global supplies, according to Goldman Sachs. The bank cut forecasts for Brent and West Texas Intermediate this week, saying a decline in benchmark U.S. prices would need to fall to $75 a barrel to slow the growth in output.
Saudi Cut
State-owned Saudi Arabian Oil Co., the largest crude exporter, on Oct. 1 cut its Arab Light price differential for shipments to Asia to the lowest since December 2008. The company holds the largest stake in S-Oil Corp. (010950), South Korea’s third-largest oil refiner.
The joint venture helps ensure a market for Saudi oil and limits the amount of new crudes and suppliers refiners can choose from, Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England, said by phone on Oct. 27.
The hunt for more oil suppliers goes on. Crude may flow from Canada to South Korea after the two signed a free-trade agreement in September that removed a 3 percent import duty on oil. JBC Energy GmbH said last month the Asian nation’s refiners were beginning to show interest in Canadian grades.
“It is because of huge demand for crude in Korea,” International Energy Agency Executive Director Maria van der Hoeven said Oct. 27 in Singapore. “They would like to diversify their sources and that’s a very legitimate wish.”
Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled producer, didn’t discuss a fuel price increase that investors had been anticipating at a board meeting today, said a person with knowledge of the board meeting.
Petrobras rose 6.7 percent to 15.28 reais today in Sao Paulo on speculation the company would increase the prices for diesel and gasoline. The recent plunge in the price of crude has brought international benchmarks more into line with its subsidized refinery gate prices. Petrobras will meet again on Nov. 4 and it is unclear if fuel prices will be discussed, the person said.
Petrobras, which is controlled by the government through a majority of voting shares, normally announces fuel price increases after board meetings, even though it can adjust prices without board approval. The Rio de Janeiro-based producer hasn’t adjusted gasoline and diesel prices since last November.
President Dilma Rousseff’s administration has used Petrobras as an inflation-fighting tool, and the most indebted publicly-traded oil company has booked more than $44 billion in operating losses at its refining unit from selling fuel at below-market prices.
Petrobras’s debt has more than doubled to $139 billion during Rousseff’s first term because revenues were insufficient to finance more than $40 billion a year in investments. Moody’s Investors Service cited the lack of a market-based fuel price policy as one of the reasons it downgraded the company’s debt on Oct. 21.
Fa U.S. Oil Rig Count Declines by 13, Baker Hughes Says
Rigs targeting oil in the U.S. dropped by 13 this week after crude futures traded below $80 a barrel for the third time in a month.
Rigs drilling for crude declined to 1,582, Baker Hughes Inc. (BHI) said today. Gas rigs were up 14 to 346, data posted on the Houston-based field services company’s website show. Miscellaneous rigs rose by one to one.
U.S. benchmark West Texas Intermediate crude has tumbled by more than $20 a barrel in the last four months amid the highest domestic oil production levels since the 1980s. The slide in prices threatens to slow a drilling boom in U.S. shale formations that has helped drive down prices at the pump to the lowest levels since 2010 and shrink the nation’s dependence on foreign oil imports.
“We’re seeing the impact of lower crude oil prices,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone today. “Nobody’s going to drill to break even. I’m expecting us to be below 1,500 oil rigs by the end of the year.”
U.S. benchmark West Texas Intermediate crude for December fell 58 cents to settle at $80.54 a barrel on the New York Mercantile Exchange, down 18 percent in the past year. The contract traded as low as $79.55.
As much as half of shale oil is uneconomic at current prices, according to OPEC Secretary-General Abdalla el-Badri. New York-based Sanford C. Bernstein & Co. estimates about a third of U.S. production from shale loses money at $80 a barrel.
Scaling Back
ConocoPhillips (COP) plans to scale back drilling in emerging oil regions such as West Texas and the Rocky Mountains, Chairman and Chief Executive Officer Ryan Lance told investors yesterday. The Permian Basin of West Texas and New Mexico, the biggest onshore U.S. crude play, lost the most oil rigs this week, dropping by seven to 555.
“The Permian is on the high end of the cost range, so it makes sense that it’s showing up with the greatest drop in oil rigs,” Williams said.
U.S. oil production rose 36,000 barrels a day, or 0.4 percent, in the week ended Oct. 24 to 8.97 million, the highest level in at least three decades, Energy Information Administration data show. Crude supplies gained by 2.06 million barrels to 379.7 million.
U.S. gas stockpiles rose 87 billion cubic feet last week to 3.48 trillion, according to the EIA. Supplies were 8.2 percent below the five-year average and 7.8 percent under year-earlier inventories.
Natural gas for December delivery settled at $3.873 per million British thermal units today on the Nymex, up 8.2 percent in the past year.
Iran, holder of the world’s largest natural gas reserves, plans to double production of the fuel to 1 billion cubic meters a day by 2017, largely on output from the South Pars field, the head of its state-owned gas company said.
Iran produces as much as 550 million cubic meters of gas a day, and work on four phases of South Pars will add 100 million cubic meters by March, Hamid Reza Araghi, managing director of National Iranian Gas Co., said in an interview in Tehran.
“Our forecast is that during the winter this year our production will reach 680 million cubic meters,” including output from fields other than South Pars, he said yesterday, without identifying the additional deposits. “Over the next three years, our plan is to increase production to 1 billion cubic meters per day.”
Iran’s economy is hampered by international sanctions imposed over its nuclear program. Revenue from crude exports has plunged since 2012, and financial woes at NIGC have complicated the nation’s efforts to develop its gas resources. Iran is seeking a removal of the curbs on foreign investment in its energy assets as a Nov. 24 deadline for nuclear talks with the U.S. and other world powers looms.
The Persian Gulf country plans to achieve its gas target for 2017 even if sanctions stay in place, Araghi said. South Pars, together with Qatar’s North Field, comprises the world’s biggest gas deposit.
Iraq Market
Iran exports 30 million cubic meters of gas a day, mostly to Turkey, and has signed an agreement to start supplying power plants in neighboring Iraq by April, he said. Exports to Iraq are due to increase to 25 million cubic meters a day in three years, he said.
“Right now we only have a contract to supply Baghdad,” Araghi said. Iran is able to expand supply to include buyers in Iraq’s southern Basra province and the country’s northern Kurdish region, depending on the outcome of talks between the two governments, he said.
Iran isn’t concerned by the deterioration of security in Iraq, as “those are matters for Iraq,” he said. “We will be ready to export gas if they can be ready to receive it from us. If they can’t, then we can use it for our own supply needs.”
Iran also has a $1.3 billion contract with neighboring Pakistan to supply that country with 21.5 million cubic meters of natural gas a day. The project has been on hold as Pakistan has failed to build its section of a shared pipeline because of a lack of funds.
NIGC has restructured its finances since running up debts to banks and contractors under Iran’s previous government, Araghi said, without providing financial details. State-run Mehr news agency reported last November that the company declared bankruptcy with more than 100 trillion rials ($4 billion) in debt.
U.K. natural gas prices fell the most in six weeks as Russia agreed to restore flows to Ukraine after a four-month halt, with Societe Generale SA casting doubts on the eastern European nation’s ability to pay for fuel.
Russia said it will resume gas flows to Ukraine after it receives $1.45 billion, the first tranche of debt repayments, and prepayment for November supplies under an accord yesterday brokered by the European Union. Societe Generale SA, which cut its U.K. gas price forecast after the deal, said there are still risks of supply disruptions in the first quarter of 2015.
The EU, which had been trying to broker an agreement since May, sought to avoid a repeat of 2006 and 2009, when disputes between Russia and Ukraine disrupted flows to the region amid freezing weather. Ukraine agreed to pay $3.1 billion of its gas debt to Russia by the end of the year under yesterday’s deal, said Russian Energy Minister Alexander Novak.
“Europe has gained security of transit via Ukraine in 2014, but 2015 is still open to question,” Thierry Bros, a European gas and LNG analyst at Societe Generale in Paris, said in a report e-mailed today. “What if Ukraine doesn’t have or pay the $1.65 billion available on 31 December?”
U.K. gas for December, a European benchmark, fell as much as 2.9 percent on the ICE Futures Europe exchange, the most for a front-month contract since Sept. 19. The contract dropped to 53.96 pence a therm ($8.62 a million British thermal units), the lowest since it started trading in August 2010, and was 2.8 percent lower at 54.04 pence a therm by 3:34 p.m. London time. The volume of all futures traded was 62 percent below the 100-day average for the time of day.
Priced In
“The December contract has continued to sell off this month, so the deal is a bearish development, but likely already priced in,” Chris Main, an analyst at Citigroup Inc., said today by e-mail. “It just alleviates some of the pressure on Europe to reverse flow gas to Ukraine,” he said, referring to deals to flow gas from Europe to Ukraine.
Fuel for delivery in the first quarter fell as much as 2.9 percent to its day’s minimum of 55.2 pence a therm, the lowest for that contract since its start in December 2011.
Ukraine, which hasn’t received Russian fuel since June 16, has funds to pay for 4 billion cubic meters of gas in November and December, according to Energy Minister Yuri Prodan. The country, which is getting gas from EU countries including Slovakia and Poland, needs to buy an additional 5 billion cubic meters of gas to last the winter without Russian supplies, Andriy Kobolyev, NAK Naftogaz Ukrainy’s chief executive officer, said Oct. 23.
48 Hours
Russia meets about 30 percent of Europe’s gas needs, half of which flow through Ukraine. Supplies to Europe were halted for 13 days in January 2009. Ukraine’s average demand in the winter of 2012-13 was about 6 billion cubic meters a month, according to Citigroup.
“We expect the deal to be fulfilled, but there are obviously risks given the current relationship between the parties involved,” Main said. “The 4 billion-cubic-meter deal helps Ukraine’s balances for the winter, but in the event of a particularly cold winter, it still leaves them in need of gas.”
Ukraine will pay $378 per thousand cubic meters of gas this quarter, Novak said in Brussels yesterday. That will fall to $365 in the first three months of 2015, according to Prodan. Gazprom can resume shipments to Ukraine within 48 hours of receiving Kiev’s first payment, CEO Alexey Miller said after the deal.
The new price represents “a significant increase compared to previous gas agreements, bringing Ukrainian gas prices closer in line with European averages,” Daragh McDowell, senior Russia analyst at risk consultants Maplecroft in Bath, England, said by e-mail. “While this will of course reduce the budgetary resources available to Kiev, a normalization of gas prices could be a net benefit in the long run.”
Price Forecasts
Societe Generale cut its price forecast for U.K. gas for the fourth and first quarters. Prices will average 56 pence a therm in the last three months of the year, 13 percent lower than a previous forecast. Prices will be 12 percent lower than estimated in the January-to-March period at 61 pence a therm.
“With the heating season ready to start, failure to get any Russian gas supply for Ukraine would have left downstream Europe with considerable supply disruption risks,” said Trevor Sikorski, head of gas, coal and carbon at consultants Energy Aspects Ltd. in London. The deal “reduces the risk of a supply disruption without removing it.”
U.K. Temperatures
Gas for delivery today fell the most in more than a year amid warmer-than-usual weather. The same-day contract dropped 11 percent to 46 pence a therm, according to broker data compiled by Bloomberg. Temperatures in Charlwood, England, rose to 22.5 degrees Celsius (72.5 Fahrenheit) today, making it the warmest Oct. 31 on record, according to the Met Office.
The “agreement last night of the much-anticipated deal between Ukraine and Russia for the resumption of supplies has seen prices across the NBP slump,” Marcel Boonaert, head of trading at Wingas U.K., said in an e-mailed report today. “Expectations of weaker demand over for the coming days have put additional pressure on prompt prices.”
Chevron Corp. (CVX)’s third-quarter net income rose for the first time in three years as refining oil into fuels buoyed returns amid the worst crude market of the decade.
Chevron more than tripled its profit from making gasoline, diesel, kerosene and other fuels by pushing more crude through its refineries as costs to acquire oil tumbled. In the U.S., the company’s plants processed enough crude during the quarter to fill 42 supertankers, helping make up for lower profit and production from its oil and natural gas wells.
Net income rose to $5.59 billion, or $2.95 a share, from $4.95 billion, or $2.57 a share, San Ramon, California-based Chevron said in a statement today. Excluding one-time gains and losses, the per-share result was 43 cents more than the $2.52 average of 20 analysts’ estimates compiled by Bloomberg.
Chevron’s refineries processed an average of 1.76 million barrels of crude during the July-to-September period, a 2.5 percent increase from a year earlier, according to the statement. In the U.S., so-called refinery throughput jumped by 11 percent.
Chevron rose 1.2 percent to $118.65 at 8:50 a.m. in New York. Before today, the shares had fallen 6.2 percent this year.
Brent crude futures that are a benchmark for more than half the world’s oil fell 5.6 percent during the quarter to an average of $103.46 a barrel. The domestic U.S. benchmark dropped 8.1 percent to $97.25.
Production Dilemma
Chevron warned investors in August that full-year output will be 1 percent to 2 percent below the company’s previous estimate. Chevron is counting on new gas-export and deep-water oil developments from Australia to Angola to revive production during the next two years, Chairman and Chief Executive Officer John Watson said in an interview last month.
Watson has so far shrugged off any long-term impact from the slump in world oil prices, which have fallen 25 percent from this year’s high in late June.
The company leading the Gorgon liquefied natural gas development in Australia -- the most-expensive of its kind ever -- only invests in projects that can turn a profit even during bear markets, Watson said during the interview.
WASHINGTON, Oct. 31 (UPI) -- Motor club AAA said Friday it expects the national average price for a gallon of regular unleaded gasoline to drop below $3 by the weekend.
AAA reports a national average price for a gallon of regular unleaded gasoline at $3.003. An abundance of oil supplies, coupled with lower demand, is keeping prices lower despite tensions overseas.
AAA said the national average price for gas will drop below the $3-a-gallon mark on Saturday, the first time prices will drop below that threshold in nearly four years.
"Overall, gas prices may remain relatively low this winter and could continue to drop another 5-15 cents per gallon in the near term as gas stations catch up with the steep declines in the wholesale market," the motor club said in a statement released to UPI.
Nearly two dozen states are reporting an average price below the $3 mark as of Friday.
AAA says it expects prices at the pump to continue to drop in the near term, though there's a limit as to how low then can fall.
"Paying less than $3 for gas is a welcome holiday gift that may not last nearly as long as many would hope," AAA Chief Executive Officer Bob Darbelnet said in a statement. "It is possible that lower gas prices will soon be a faded memory, so enjoy it while you can. "
WASHINGTON, Oct. 31 (UPI) -- Global crude oil markets drive prices at the U.S. pump, meaning it's time to end the ban on oil exports, a consortium of U.S. oil companies said.
A report from the Energy Information Administration finds U.S. gasoline prices are driven more by the international price for crude oil than the U.S. index, West Texas Intermediate.
George Baker, executive director at industry consortium Producers for American Crude Oil Exports, said the EIA report suggests U.S. restrictions on crude oil exports are outdated.
"That's why removing the ban will not raise gasoline costs for consumers and it will create jobs, generate economic growth, and increase domestic oil production, which will provide greater energy security for the United States," he said in a statement e-mailed Thursday to UPI.
Policy enacted in the wake of the 1970s oil embargo from Arab members of the Organization of Petroleum Exporting Countries restricts crude oil exports from the United States.
Exports of crude oil are permitted from certain U.S. terminals and only under certain circumstances. EIA last week said the export of 401,000 barrels of oil per day in July was the highest level in more than 50 years.
A September report prepared for The Brookings Institution said, however, that lifting the ban on crude oil exports doesn't eliminate foreign dependency.
U.S. refiners are restricted in terms of crude oil exports, but face few road blocks in terms of gasoline exports. When gas prices at home decline, those in the refinery sector can look for a better price overseas, where some countries pay the equivalent of $10 for a gallon of gasoline. That, in turn, limits the floor on U.S. gasoline prices.
BEIJING, Oct. 31 (UPI) -- Government-controlled prices for petroleum products like gasoline in China are falling in response to global crude oil prices, data show.
The government cuts retail gasoline prices by 2.8 percent and diesel by 2.9 percent beginning Saturday, analysis from Platts shows.
The government adjusts its retail policies every 10 days in response to movements on the international commodity market.
Crude oil prices have shed about 20 percent of their value since June because of abundant supply and tepid demand.
The International Energy Agency in its monthly market report for October trimmed its prediction for global oil demand by 200,000 barrels per day, citing lower economic growth.
Nevertheless, analysis from Platts earlier this week found Chinese apparent oil demand, a reflection of how much oil goes into domestic refineries combined with net oil product imports, averaged 10.35 barrels per day in September, up 7.4 percent year-on-year.
Platts reported the weekend discount represents the seventh straight discount since crude oil prices started to fall in June.
TEHRAN, Oct. 31 (UPI) -- Iran's rate of carbon dioxide emissions is alarming, and it's time to start following the international community's lead, an industry official said.
A review from the World Bank finds Iranian emissions far outpacing its counterparts in Central Asia and the Middle East. Mohammad Reza Katouzian, the director of Iran's Research Institute of the Petroleum Industry, said the country was in the top tier in terms of CO2 emissions.
"Today, a great number of companies and businesses have defined a specific strategy for reducing the release of carbon dioxide, a path that we should follow, too," he said in comments published Friday by the Iranian Oil Ministry.
Analysis from the U.S. Carbon Dioxide Information Analysis Center finds CO2 emissions from Iran have increased at an average rate of 6.3 percent per year since 1954. Production of crude oil and petroleum products account for nearly half of those emissions, which scientists have linked to climate change.
Members of the Iranian Chamber of Commerce told the Oil Ministry's news website Shana last week the government should work to push oil revenue slowly out of the national budget.
On Wednesday, Tehran said non-oil product exports earned Iran $27 billion during the first five months of a calendar year beginning March 21.
CALGARY, Alberta, Oct. 31 (UPI) -- Security improvements in the Kurdish north of Iraq mean oil operations are making significant new progress, Oryx Petroleum said Friday.
Oryx, which has headquarters in Canada, said it was moving forward with development plans for its Demir Dagh prospect in the Kurdish territories of northern Iraq.
Located in the Hawler license area, the company said a single well at the Demir Dagh site should produce more than 5,000 barrels of oil per day. More testing and surveys of the region area are planned for early 2015.
"Overall, we are very pleased that improvements in the security environment have enabled us to resume activities in a large portion of the Hawler license area," Chief Operating Officer Henry Legarre said in a statement.
The semiautonomous Kurdistan Regional Government this week deployed its Peshmerga military force to help Kurdish militias in Syria defend the strategic border town of Kobane from militants with the group calling itself the Islamic State.
The United States has provided aerial support, launching airstrikes against IS targets surrounding the city.
Some oil companies operating in the Kurdish north of Iraq suspended operations briefly during the summer as IS advanced on the region
WASHINGTON, Oct. 31 (UPI) -- Pipeline planner TransCanada can expect to face "considerable opposition" to its Energy East tar sands pipeline for the eastern Canada, an advocacy group said.
TransCanada submitted a formal permit to move ahead with its Energy East pipeline. The project would add new pipeline and convert existing gas infrastructure to carry Alberta oil to the eastern Canadian market.
Advocates with the Natural Resources Defense Council's International Program said the project puts the eastern Canadian shoreline at risk.
"A new tar sands pipeline called Energy East proposed by TransCanada -- the company behind the contentious Keystone XL tar sands pipeline -- faces considerable opposition and numerous hurdles that make this project far from a done deal," they said in a Thursday statement.
TransCanada says Energy East would give refineries a source of domestic crude in a market otherwise dependent on foreign suppliers. Critics have countered the oil sent from Energy East is meant for exports.
The company said the $12 billion pipeline is good for Canadian energy security.
"It will provide the safest and most efficient access to markets for Canada's growing crude oil production, ensuring we realize the greatest value for our natural resources," TransCanada President and Chief Executive Officer Russ Girling said in a statement.
BANGKOK, Oct. 31 (UPI) -- Long-term fiscal policies in Thailand's booming economy might put the countries energy sector at risk, analysis Friday from Wood Mackenzie found.
A report released Thursday from the World Bank Group found Thailand improved its business environment to the point that it's among the best economies worldwide and the second best among emerging East Asian economies when it comes to doing business.
Under the terms of the country's current fiscal regime, Thailand's government takes 67 percent of oil and gas profits, compared with a 58 percent share average nationwide.
"There have been comparisons made with fiscal terms on offer in other South East Asian countries, but these comparisons must also consider a country's remaining prospectivity," Craig McMahon, Wood Mackenzie's head of Asia Pacific, said in a statement Friday.
The current average size of an oil and gas discovery in Thai territory is the smallest in the region and, at current rates, Wood Mackenzie's analysis finds commercial reserves in Thailand will be exhausted within nine years.
Friday's report says Thailand is not in a position to increase its share of oil and gas profits. Wood Mackenzie therefore recommends Thailand capitalize on what it has left in terms of natural reserves.
"If clear guidelines are offered on the future of expiring licenses, the country could stimulate new investment in mature fields, potentially increasing recovery of their remaining resources," McMahon said.
BRUSSELS, Oct. 31 (UPI) -- Political responsibility and economic sense have prevailed with the signing of a gas deal between Russia and Ukraine, the European Commission president said.
Negotiators in Brussels landed a deal late Thursday following several rounds of failed talks aimed at resolving a so-called gas war brewing at least since June.
"This is an important step for our shared energy security on the European continent," outgoing European Commission President Jose Manuel Barroso said in a statement. "There is now no reason for people in Europe to stay cold this winter."
European countries get about 20 percent of their gas from Russia, though most of that runs through a Soviet-era pipeline network in Ukraine. Gas rows between Russia and Ukraine left European consumers without gas in 2006 and 2009.
The Ukrainian government under the terms of the deal agrees to pay its $3.1 billion debt in installments. In return, Russian delivers gas under a pre-payment mechanism that extends through March.
The interim contract frees Ukraine from a take-or-pay clause, which would've obligated it to pay for set volumes of natural gas regardless of usage. Gas is also delivered to Ukraine at a discounted rate.
Russian energy company Gazprom said gas supplies to Ukraine would resume by the weekend.
"This breakthrough will not only make sure that Ukraine will have sufficient heating in the dead of the winter," European Energy Commissioner Gunther Oettinger said in a statement. "It is also a contribution to the de-escalation between Russia and Ukraine."
Western governments have enacted sanctions against Russia's energy sector in response to the Kremlin's stance on Ukraine.
TULSA, Okla., Oct. 31 (UPI) -- Midstream operator ONEOK Partners said it completed a pipeline in North Dakota that will help shale developers reach regional markets.
ONEOK, which has headquarters in Oklahoma, said an expansion of its Bakken NGL pipeline is completed, increasing the capacity by more than half to 135,000 barrels of unfractioned natural gas liquids, like butane and propane.
"The expansion of the Bakken NGL Pipeline reflects our continuing commitment to provide NGL transportation capacity to producers actively developing shale plays within our operating footprint," President and Chief Executive Officer Terry Spencer said in a Thursday statement.
North Dakota is among the top oil-producing states in the nation. Some of the natural gas associated with the shale oil deposits is burned off because of the lack of infrastructure needed to make it a commercial product.
ONEOK added its Garden Creek III gas processing facility in North Dakota was completed more than three months ahead of schedule.
"The Garden Creek III plant is the latest example of ONEOK Partners' ongoing commitment to building essential natural gas and natural gas liquids infrastructure to meet the needs of our customers," Spencer said.
