A group of refiners that support a four-decade-old ban on oil exports today sought to debunk a key argument of opponents: that the U.S. can’t process all the light sweet crude being produced.
The Consumers and Refiners United for Domestic Energy, which includes PBF Energy Inc. (PBF), released a study estimating domestic refiners can process another 4.3 million barrels a day of light sweet crude by 2020 with only modest expansions. That figure exceeds U.S. production projections.
The release of the study, designed to challenge critics seeking to end the export ban, suggests support for overturning the restriction is gaining in Washington, where energy policy has focused on reducing reliance on overseas oil tyrants. Some lawmakers say restrictions limit U.S. geopolitical influence and could eventually impede the domestic production boom.
Jeffrey Peck, a Washington lobbyist and spokesman for the refining group, said an extended debate on the issue could harm U.S. energy security.
“The more uncertainty there is about what U.S. policy is, the less likely companies will be investing in refining expansion,” Peck said in an interview. The U.S. is “not energy independent,” he said.
Supporters of lifting the ban argue that U.S. refiners, particularly along the Gulf Coast, are better suited to process heavy crude that has a higher density than the oil produced in the North Dakota’s Bakken field of Texas’s Eagle Ford formation.
Glut Fears
Without access to overseas markets, some producers may stop producing oil, critics of the ban argue. Hess Corp. (HES), a major producer in the Bakken, is in talks with other companies to form a coalition that would push Congress and the administration to ease export restrictions.
The refining study “refutes” the contention that production of light sweet crude will soon exceed refining capacity, creating a glut unless producers get access to new markets, Peck said in a statement.
While Congress hasn’t made any serious effort to lift the ban, the debate has already picked up support.
Senator Lisa Murkowski of Alaska, who would become head of the chamber’s energy committee if Republicans gain control in the Nov. 4 elections, has made removing the ban a priority, spokesman Robert Dillon said in an e-mail.
The Brookings Institution, a nonprofit policy group in Washington, released a study last month that found lifting the ban could lower U.S. gasoline prices by encouraging more production, creating jobs and lowering the trade deficit.
Jet Fuel
Larry Summers, President Barack Obama’s former top economic adviser, said at a speech at Brookings that the only losers would be the oil refiners that benefit from current rules, which while prohibiting crude exports allow for the overseas sale of processed products like gasoline and jet fuel.
Some refiners that benefit from exports also have been reluctant to oppose free trade for producers.
Greg Goff, the chief executive officer of Tesoro Corp. (TSO), a San Antonio-based refiner, in a Washington speech today offered qualified support for lifting the export ban.
He said the U.S. government needs to take a “holistic” approach. If the U.S. lifts the export ban, it should also repeal the Jones Act, which requires American made ships and crews be used to carry goods from one U.S. port to another.
Refiners say the maritime law raises their costs and puts them at a disadvantage to foreign companies, that could buy U.S. produced oil more cheaply if the export ban were lifted.
Goff said the U.S. should also review the renewable fuels standard, which requires refiners to blend a certain amount of corn-based ethanol into their gasoline.
One of Russia’s prized oils, facing increased competition in Asia, is traveling to a rather unlikely destination: the U.S. West Coast.
As the U.S. threatens PresidentVladimir Putin with further economic sanctions over the conflict in Ukraine, light Sokol oil from Russia’s Far East is showing up in California for the first time in six years. Tankers have been carrying the crude to western states from Korea since May as Asia cherry-picks supplies from a growing pool of sources, including West Africa and Latin America, shipping data compiled by Bloomberg show.
Sokol’s emergence underscores how oversupplied markets have become with light crude as the U.S. produces record volumes from shale formations and reduces imports. The surplus has grown so large that slowing demand in China and other Asian countries mean it won’t be absorbed, according to Barclays Plc. (BARC)
“With China’s economic weakness, they may actually be turning away cargoes,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone yesterday. “That’s leaving a few orphan cargoes, and it looks like some of them found their way to the West Coast.”
While U.S. companies have been barred from helping drill in Russia’s oil plays, sanctions have so far spared exports of the country’s oil, leaving the door open for Western states.
The region has benefited the least from the U.S. shale boom because it lacks pipeline connections to oil-producing regions like North Dakota. Imports to the U.S. Gulf Coast have fallen by 1.53 million barrels a day in the last five years. Those to the West are up 75,000, government data show.
Tesoro Refineries
The U.S. had stopped importing Russian oil before the May shipment. All of the Sokol, which the U.S. Energy Information Administration describes as prized by Asian refiners for its high yield of jet fuel and kerosene, has been delivered to Tesoro Corp. (TSO) refineries, U.S. Customs data show.
While the crude had been regularly shipped to Hawaii and Alaska because of their proximity to Asia, it’s now showing up in Long Beach, California, as well as Anacortes, Washington. Tesoro declined by e-mail to comment Sept. 30.
“It’s basically light, sweet oil getting translated from North Dakota to California in a real roundabout way,” David Hackett, president of energy markets consulting company Stillwater Associates in Irvine, California, said by telephone Sept. 30.
Sokol is arriving even as the U.S. weighs further sanctions against Russia because of its involvement in separatist violence in Ukraine. European Union and U.S. companies are prohibited from helping drill in Russian deepwater, Arctic offshore and shale plays, and the U.S. Treasury has restricted financing to some Russian companies.
Maximizing Value
“The U.S. has not done any sanctions on flows of Russian crude,” Ed Morse, head of commodities research at Citigroup Inc. (C), said by telephone Oct. 1. “There really is no irony in Russian exporters trying to maximize value by selling crude into the highest-value market.”
The global glut of light oil is depressing prices in Asia, where Arab Light is selling at the biggest discount to benchmark Dubai crude since 2008. Russia’s ESPO, a grade slightly heavier than Sokol, is at a record low. Basrah Light to Asia is the cheapest in four years, and West African differentials were the weakest in about five years in August amid “slack demand,” the Organization of Petroleum Exporting Countries said in a Sept. 10 report.
Adjusting Supply
Even a recovery in demand expected later this year in the Pacific market won’t be enough to absorb the oversupply, Barclays analysts including Michael Cohen in New York said in a research note Sept. 26. “Supply will have to adjust to balance the market,” they said.
Both Iraqi and Iranian oil shipments to China reached records in April, according to China’s customs data. Asia accounted for 68 percent of Saudi Arabia’s oil exports last year, EIA data show.
The U.S. received the least amount of foreign oil in June since 1996. Net imports will fall below 6 million barrels a day next year as domestic output reaches a 45-year high, EIA forecasts show. Shipments from Nigeria have dropped to zero.
U.S.-bound Sokol cargoes will slow as companies boost the output of oil from Alaska’s North Slope, known as ANS, after seasonal maintenance and more domestic supply makes its way to the region by rail, Barclays’s Cohen said.
Rail Terminals
Alon USA Energy Inc. (ALJ) and Tesoro are among the companies building terminals along the West Coast capable of unloading rail cars of Canadian and U.S. oil. California received 16,373 barrels of crude a day by train in July, a seasonal record, state data show.
“All of that means the portfolio of options for West Coast refiners is, on average, a portfolio that’s getting closer to home,” Cohen said.
The West may be gaining access to so much supply that even demand for its mainstay ANS, a medium-sour oil, is weakening. ConocoPhillips (COP) loaded a cargo of the crude on Sept. 26 for export to South Korea, marking the first of what Morse said will be many bound for Asia to fetch higher prices.
“It’s an interesting parallel that Russia oil is going east and ANS is going west,” he said. “It’s rail and sour crudes coming to the West in greater quantities to escape the glut in the Gulf. If you think about it in terms of all the flows in the world, the West Coast has for the first time seen the spillover.”
Crude oil is poised to extend the biggest slump in more than two years after Saudi Arabia signaled it’s ready for a price war with other OPEC members, according to Commerzbank AG and Citigroup Inc.
Saudi Aramco, the state-run oil producer of the world’s biggest exporter, cut prices on Oct. 1 for all its exports, reducing those for Asia to the lowest level since 2008. The move suggests that the biggest member of the Organization of Petroleum Exporting Countries is prepared to let prices fall rather than cede market share by paring output to clear a supply surplus, according to Commerzbank.
“There is no indication whatsoever that the Saudis are going to put a floor into this market,” Seth Kleinman, head of European energy research at Citigroup in London, said by e-mail. “Saudi market share in Asia is really under assault. It is a price war. The Saudis will win, but it won’t be painless.”
Saudi Arabia has acted in the past to stop a plunge in prices. It made the biggest contribution to OPEC’s production cuts of almost 5 million barrels a day in 2008 and 2009 as demand contracted amid the financial crisis. The kingdom would need to reduce output about 500,000 barrels a day to eliminate the supply glut now stemming from the highest U.S. output in three decades, Citigroup and Barclays Plc estimate.
Slump Continues
Aramco reduced official selling prices, or OSPs, for all grades of crudes to all regions for November. It lowered the OSP for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest level since December 2008. OSPs are regional adjustments Aramco makes to price formulas to compete against oil from other countries.
“OPEC appears to be gearing up for a price war,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said in a report yesterday. “We therefore do not expect prices to stabilize until this impression disappears and OPEC returns to coordinated production cuts.”
The Gulf country plans to keep output steady until the end of the year, near the 9.6 million barrels a day pumped in August and September, a person with knowledge of the nation’s oil policy said on Sept. 26. It made the biggest cut to its production in 20 months in August, according to data the country submitted to OPEC.
Refraining from further cuts would preserve the volume of Saudi Arabia’s oil sales, curb revenues for competitors and discourage production of U.S. shale oil.
Discouraging Shale
“U.S. producers may lay down rigs and slow production if WTI keeps falling below $90,” Jeffrey Currie, Goldman Sachs’s head of commodities research, said in an interview Oct. 1.
Prices are close to a level that would make production unprofitable for some companies in higher-cost locations such as North Dakota, he said.
South American countries including Venezuela, Colombia and Ecuador have been exporting more crude to Asia as their traditional market, the U.S., becomes saturated with oil from shale wells and Canadian oil sands, according to data compiled by Bloomberg from Chinese customs data, the Petroleum Association of Japan and Korea National Oil Corporation
“Asia is the main focus of the cuts,” said Amrita Sen, chief oil economist for London-based Energy Aspects Ltd. The main reason is to deal with aggressive marketing strategies from competitors, including Iran and Iraq, she said. “That’s what it’s heading to -- who blinks first?”
Iranian Move
Iran dropped its OSP to Asia for Iranian Light to a premium of 18 cents a barrel to the average of Oman and Dubai crude in October, down from $3.96 in January and the lowest since November 2010. Iraq’s October OSP to Asia was a discount of $2.50 a barrel to the same crudes, the lowest level since January 2009.
“We do not see evidence that this latest adjustment is an effort to lift production, avoid production cuts or punish other producers,” Adam Longson, an analyst with Morgan Stanley in New York, said in a note to clients.
Rather than signaling an impending fight for market share in Asia, the Saudis are probably adjusting for rising freight costs and falling prices of Atlantic Basin crudes, he said.
“The decision to reduce OSPs is in line with declining crude prices,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London, said by e-mail. “There’s a mechanical aspect. If prices fall customers wouldn’t understand why you’ve maintained higher OSPs.”
While Asia is expected to be the fastest-growing consumer of oil, with demand expanding 44 percent through 2035 according to BP Plc (BP/), a battle for market share may be self-defeating, said Commerzbank’s Weinberg.
“I don’t think that a price war emerging within OPEC would bring the cartel, in the longer term, any meaningful advantage,” Weinberg said. By going for volume “OPEC is risking losing its major asset, pricing power, leading to lower prices in the longer term.”
U.S. gasoline prices are poised to drop to their lowest level in almost four years as crude futures tumble, the nation’s largest motoring group said.
Retail regular gasoline slid to $3.328 a gallon yesterday, down 10 percent from this year’s high and the lowest for this time of year since 2010, according to AAA. The national average may fall to a range of $3.10 to $3.20 before the year ends, the Heathrow, Florida-based group predicted. The last time the national average was below $3.15 was Feb. 16, 2011.
Pump prices have followed declines in New York-based gasoline futures and Brent crude, a global benchmark for oil prices. Rising production from shale has pushed U.S. crude output to a 28-year high, helping increase global supplies as demand is slowing and OPEC production is at a one-year high.
“All factors are pointing to lower gasoline prices this winter due to lower prices of crude oil, a decline in driving and abundant domestic supplies,” said Michael Green, a Washington-based spokesman for AAA. “For every $1 change in the price of crude oil, you can see gas prices drop about 2 cents per gallon.”
Pump prices dropped 9.2 percent in the third quarter, the biggest decline since the three months ended Dec. 31, according to AAA. Gasoline futures slid as much as 3 percent to $2.3755 today on the New York Mercantile Exchange, the lowest level since January 2011.
Below $3
Brent crude reached $91.55 a barrel on the London-based ICE Futures Europe exchange, the weakest since June 2012. A lower price for Brent can cut U.S. gasoline prices by reducing the cost of crude and fuel imports to the U.S. East Coast. West Texas Intermediate crude, a U.S. benchmark, declined to $88.18, falling below $90 for the first time in 17 months. Brent traded at $93.07 at 1:44 p.m. in New York, while WTI was at $90.60.
Drivers can find at least one station selling gas for $3 or less in 26 states on Sept. 30, AAA said in a monthly price report released on the same day.
Gasoline demand in the U.S. averaged 8.69 million barrels a day in the four weeks ended Sept. 26, the lowest since May, according to the Energy Information Administration.
U.S. oil consumption will decline to 18.92 million barrels a day this year from 18.96 million in 2013, the Energy Information Administration said in the monthly Short-Term Energy Outlook on Sept. 9.
Weak Demand
“There is no doubt that the weakness in gasoline demand is pushing prices down,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook. Higher exports from Libya and booming U.S. production “deepened the overhang in crude markets,” the Paris-based IEA said.
U.S. domestic crude production rose to 8.87 million barrels a day in the week ended Sept. 19, the most since March 1986, according EIA estimates.
Output from the 12-member Organization of Petroleum Exporting Countries rose by 413,000 barrels a day to 30.935 million in September, a Bloomberg survey of oil companies, producers and analysts showed. That’s the highest level since August 2013.
Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices, or OSPs, are regional adjustments Aramco makes to price formulas to compete against oil from other countries.
Europe will have another mild month in October, preserving the region’s fuel reserves as it braces for a winter with the threat of natural gas supply disruptions.
All eight meteorologists surveyed by Bloomberg projected higher-than-normal temperatures for most parts of Europe, with Germany and Poland the warmest relative to normal. Levels exceeded the average last month for most of the continent, according to MDA Weather Services in Gaithersburg, Maryland.
Warmer weather may slow declines in Europe’s record gas stores. Most countries will be able to meet normal levels of gas demand if a conflict between Russia, which meets more than 30 percent of Europe’s demand, and Ukraine halts flows from the east for three months, according to the Institute of Energy Economics at the University of Cologne, Germany.
“If above average temperatures continue, it will slow down storage withdrawals during the heating season,” James Brabben, an analyst at Cornwall Energy Associates Ltd., said today by phone from Norwich, England. “We could end up with high levels of storage being carried over into spring next year, which would mean lower prices.”
EU-28 countries had 76.3 billion cubic meters (2.7 trillion cubic feet) of gas in storage yesterday, the most since at least 2009, according to Gas Infrastructure Europe, a lobby group in Brussels.
A warm start to the period would extend a decline in gas and power prices and consumption, according to Societe Generale SA. Electricity demand slid 4.3 percent in the eight months through August from a year earlier while gas use fell 15 percent, the bank said Sept. 24, citing data covering 63 percent of the European Union’s use.
Power Prices
“A mild, wet westerly air flow is expected across northern Europe, and hence above-normal temperatures,” Eleanor O’Neil, a meteorologist at Andover, Massachusetts-based WSI Corp., said Sept. 30 by e-mail. “Some parts of the U.K. are in line to record the warmest year on record.”
Month-ahead German power prices are at their lowest level for the time of year since at least 2007, according to broker data compiled by Bloomberg. Electricity for November delivery rose 0.7 percent to 37.35 euros ($46.28) a megawatt-hour at 5:47 p.m. Berlin time, the data show.
Natural gas for November in the U.K., Europe’s biggest market, fell 0.9 percent to 56.37 pence a therm ($9.09 a million British thermal units) on the ICE Futures Europe exchange in London, the lowest for the time of year since 2010.
Temperatures are forecast to climb as much as 3 degrees Celsius (5.4 degrees Fahrenheit) above normal in Germany and Poland this month and as much as 2 degrees in France, according to Bethesda, Maryland-based Commodity Weather Group LLC. The U.K. will be near average, its estimates show.
Gas Supply
Slovakia reported reduced gas supplies from Russia via Ukraine yesterday. The government said it will call an emergency meeting if flows do not resume in the coming days. OAO Gazprom said today it has kept flows to Slovakia constant over the past 10 days. The nation suffered disruption to supplies along with the Balkans during freezing temperatures in 2006 and 2009.
Northwest Europe including the U.K. will have temperatures next week that exceed the seasonal norm of 12.4 degrees by 2.9 degrees, according to WSI data on Bloomberg using the GFS model. The Nordic region will be 2.8 degrees above a 7.9-degree seasonal norm, the data show.
Strong winds will blow across northwest Europe during the second week of this month, while solar output is predicted to be high across Spain and Germany at the start of October, according to Matt Dobson, a London-based senior meteorologist for MeteoGroup. Solar output may drop next week as clouds and rain spread, he said yesterday by e-mail.
High Pressure
Renewable energy has priority access to Germany’s grid and damps prices when supply rises. Wind generation on Oct. 7 will peak at 13,459 megawatts at 9 a.m. Berlin time, against today’s high of 1,119 megawatts, according to Bloomberg’s model. Solar output on Oct. 4 will reach 16,448 megawatts, 26 percent above today’s peak, the data show.
Meteorologists at MetraWeather, Commodity Weather Group, WSI, German state forecaster Deutscher Wetterdienst, the U.K.’s Met Office, MDA Weather Services, MeteoGroup and WeatherBell Analytics LLC forecast above-average European temperatures in October.
WSI forecasts milder-than-average weather to December as high pressure predominates over central and southern Europe, according to a Sept. 22 statement. There is a colder risk to the December forecast, WSI’s O’Neil said by e-mail.
“With more gas in storage this year, a mild winter would help mute the impacts of any disruption of gas flow transiting the Ukraine,” Trevor Sikorski, head of gas, coal and carbon at Energy Aspects Ltd. in London, said by e-mail today.
(An earlier version of this story said gas demand fell instead of rose in August in the sixth paragraph.)
Investors last month pulled more money out of U.S. exchange-traded products backed by commodities than they have all year, as signs of supply gluts drove the biggest price slump since the financial crisis.
About $1.05 billion was removed from the ETFs in September, the biggest monthly withdrawal since December, data compiled by Bloomberg show. Outflows were led by redemptions from precious metals and energy. Money mangers have cut their combined bullish bets across 18 U.S. traded commodities for 13 straight weeks, the longest streak since the data begins in 2006, while open interest in raw materials fell last quarter by the most in two years.
The Bloomberg Commodity Index slumped 12 percent in the three months ended Sept. 30, the most since the last quarter of 2008. Prices fell amid expanding supplies, a surging dollar and weakening economic growth in China, the world’s largest consumer of grains, metals and energy. Eighteen of the 22 raw materials tracked by the measure dropped.
“Demand has been tepid, more so than people expected, particularly for the crude-oil market, which is awash in supply,” Aakash Doshi, an analyst who tracks investor flows at Citigroup Inc. in New York, said in a telephone interview. “On the grain side, we’re seeing very strong Northern Hemisphere supply. On metals, there are concerns about China.”
The Bloomberg Commodity Index fell 6.3 percent this year, dropping to a five-year low today. The MSCI All-Country World Index of equities slid 0.1 percent. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, climbed 4.7 percent.
Climbing Supplies
U.S. farmers are collecting the biggest corn and soybean crops ever, and global inventories of nickel tracked by the London Metal Exchange are at an all-time high. U.S. crude oil production is near the highest since 1986, compounding a surplus. China is poised for its slowest expansion in two decades.
Combined net-long positions across 18 U.S. traded commodities dropped 10 percent to 450,424 futures and options contracts in the week ended Sept. 23, the lowest since August 2013, according to the Commodity Futures Trading Commission. Money managers are bearish on copper, sugar, soybeans and wheat, and are holding the smallest net-bullish wager on gold since January.
Investors pulled $776.6 million from ETFs tracking precious metals last month. Assets in gold-backed ETPs fell for seven straight quarters and are at the lowest in five years.
Gold Slide
Gold futures slumped 8.4 percent last quarter, the first such loss this year. The metal touched $1,204.30 an ounce on Sept. 30, the lowest since January. Goldman Sachs Group Inc. says the worst isn’t over for bullion, forecasting prices at $1,050 by year-end.
Platinum prices in New York fell to a five-year low yesterday on concern that demand will falter for the metal used in pollution-control devices in cars. Silver tumbled 19 percent last quarter.
Corn and soybeans will extend this year’s price slump as yields in the U.S., the world’s biggest grower, beat government estimates and boost domestic stockpiles,Damien Courvalin, a New York-based analyst at Goldman, said in a report Sept. 30. The grain extended a drop to a five-year low yesterday, and the oilseed dropped to the cheapest since 2010 in Chicago.
Societe Generale SA on Sept. 12 lowered its price forecasts for more than half of the 43 raw materials it tracks, and on Sept. 24, Citigroup pared its outlook on commodities including crude oil, gold, corn and wheat.
“I hope we’re nearing the end of this, but I think we’re in the middle of a substantial financial liquidation,” Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees $17 billion, said in a telephone interview from New York. “If it’s financial liquidation, it should be peaking” and create “a floor under commodity prices,” he said. “If instead, it really is global demand for commodities deteriorating, or being overwhelmed by supply, then it could continue.”
United Arab Emirates Energy Minister Suhail Al Mazrouei said he hopes BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Total SA (FP) have “a good chance to compete” for concessions in the nation’s biggest onshore deposits of crude oil.
The three companies, together with Exxon Mobil Corp. (XOM) and Portugal’s Partex Oil & Gas, were partners with Abu Dhabi, the U.A.E.’s largest emirate, in a joint-venture agreement that expired in January. The former shareholders, except for Partex, have been seeking deals to keep pumping oil in the Persian Gulf emirate and are among 11 bidders for new accords.
Al Mazrouei hopes government-run Abu Dhabi National Oil Co. will award new concessions “rather soon,” he told Bloomberg News today. He said he hopes Shell, BP and Total have a “good chance to compete with the new bidders and hopefully continue the long partnership history with Adnoc. We know that the process is fair to all and we are looking forward to the results of the bid round.”
Al Mazrouei didn’t mention Exxon. Partex wasn’t invited to bid for a new concession.
“We are looking for the best in term of capabilities and we wish them all good luck,” he said.
Abu Dhabi has pumped oil from its onshore fields under concession deals with Exxon, Shell, Total, BP and Partex -- or their predecessors -- since January 1939. Adnoc became a partner in the 1970s, joining with the companies to form Abu Dhabi Co. for Onshore Oil Operations, or ADCO. That venture was responsible for extracting 1.5 million barrels a day of Murban grade crude, the U.A.E.’s main blend.
Adnoc picked BP, Exxon, Shell, Total and seven other companies to submit bids for the oil fields by this month. It is reviewing the offers before submitting recommendations to the Supreme Petroleum Council, Abu Dhabi’s top energy policy body, for a final decision on the new partners.
The U.A.E. is the fourth-largest producer in the Organization of Petroleum Exporting Countries, pumping 2.85 million barrels a day of oil in September, according to data compiled by Bloomberg. Abu Dhabi, the country’s capital, holds most of its crude reserves.
By Jake Rudnitsky Oct 2, 2014 6:51 PM GMT+0700
Russian oil output rose to near a post-Soviet record last month, a sign the biggest source of revenue for President Vladimir Putin’s government has yet to be eroded by U.S. and European sanctions.
The nation increased output 0.7 percent to 10.61 million barrels a day, according to preliminary data from CDU-TEK, which is part of the Energy Ministry. The figure is within 0.3 percent of the record in January and is for crude and condensates, a type of oil that yields a greater proportion of high-value fuels.
The U.S. and the European Union have targeted Russia’s oil industry by banning exports of some equipment and technology, blaming Putin’s government for stoking a separatist insurgency in eastern Ukraine. Russia denies involvement. Production in the oil and gas sector hasn’t been affected by tighter sanctions yet, according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital in Moscow.
“The impact on production will probably not be seen until next year,” he said by phone, adding that the rising costs associated with the sanctions could limit output by about 0.5 percent in 2015. “The sector is still trying to understand the consequences of the sanctions.”
Exxon, Schlumberger
Sanctions already halted some joint work between Exxon Mobil Corp. (XOM) and OAO Rosneft, threatening a project in the Kara Sea where the state-run company said last week it may have identified a billion-barrel crude discovery.
Schlumberger Ltd., the world’s biggest oilfield services provider, is withdrawing employees who are citizens of the U.S. and EU due to the sanctions, according to two people with knowledge of the matter, who asked not to be identified because they aren’t authorized to discuss it.
The U.S. and EU announced the latest wave of sanctions last month, targeting the banking, energy and defense industries. They forbid providing services including drilling and well-testing for Russian deep-water, Arctic and shale oil exploration and production.
The price of Brent crude, used to price about half of the world’s oil including Russia’s main export blend Urals, fell 16 percent last quarter and was down 2.2 percent today at $92.11 on the ICE Futures Europe exchange at 12:14 p.m. in London.
Falling oil prices are coming at a time when Russian oil companies already face increasing costs due to the sanctions, Davletshin said.
“International service companies are scaling down their involvement in Russia, which means drilling costs could grow,” he said. “Companies may have to cut capital expenditures.”
Russia produced 10.64 million barrels of crude and condensate in January. It was as high as 11.48 million barrels a day in 1987, the Soviet-era peak, data from BP Plc show.
Oil and oil products represented 46 percent of the nation’s budget revenues in the first eight months of this year, the biggest single contributor, government data show.
Exxon Mobil Corp. (XOM), the world’s most valuable crude producer, signed an agreement with Petroleos Mexicanos as Mexico’s oil industry opens to private investment.
Exxon and Pemex, as the state-owned producer is known, signed a three-year memorandum of understanding and cooperation to exchange academic, scientific and technical knowledge, according to e-mailed statements by both companies. The companies agreed to analyze exploration, drilling and refining opportunities, according to Pemex’s statement.
The Irving, Texas-based company joins a growing list of major oil producers to express interest in entering Mexico’s energy industry, which is ending a 76-year state oil monopoly. Congress passed legislation last year to allow private companies to tap the country’s 13.4 billion barrels of proven reserves, which the government estimates will bring in $50 billion of investment between 2015 and 2018.
Chevron Corp. (CVX), Noble Energy Inc. (NBL) and BHP Billiton Ltd. are among companies interested in exploring for oil in Mexico. Authorities next year will auction 169 oil blocks -- 109 for exploration and 60 for production.
Italy’s imports of natural gas from Russia, its biggest source of the fuel, fell to the lowest level in more than four years as OAO Gazprom limited exports to Europe and supplies from other sources in the region increased.
Gas flows from Russia through the Tarvisio entry point declined 46 percent last month from a year earlier to the lowest level since May 2010, according to data from network operator Snam Rete Gas. Supplies from northern Europe via Passo Gries jumped 64 percent in the period, the data showed.
Italian shippers got 9.3 percent less Russian gas than ordered last month as Gazprom limited exports to nations including Poland and Slovakia, citing the need to meet its domestic demand. Russian gas flows fell short of orders by 16 percent, or 9.5 million cubic meters (0.33 billion cubic feet), on Sept. 30, and by 24 percent yesterday, Snam data showed.
“Flows at Tarvisio yesterday were 48.2 million cubic meters instead of the 63.4 million cubic meters nominated,” Snam said today in an e-mailed response to questions. “Deliveries to end users have been totally guaranteed.”
Northern Europe
Italy consumed 4.1 billion cubic meters of gas last month, down 1.6 percent from a year earlier, Snam data show. It received 1.27 billion cubic meters via Tarvisio and 1.7 billion via Passo Gries, the first time since May 2010 supplies from northern Europe exceeded those from Russia, the data showed.
Gazprom limited flows to Poland last month, preventing the nation from shipping fuel to Ukraine for two days. Slovak Prime Minister Robert Fico said yesterday Russian shipments to the nation, which also supplies Ukraine, fell 50 percent while Gazprom said flows were stable for the past 10 days. Hungary suspended deliveries to Ukraine for an “undetermined time,” gas transit company FGSz said Sept. 25, citing a projection for a “significant increase” in domestic usage.
“I expect some of the Italian companies are involved in selling gas back into Ukraine from Baumgarten after the route from Slovakia was opened in September,” Andrew Morris, an Oxford, England-based analyst at Poeyry Oyj, said by e-mail today. Austrian gas pipelines are connected to Slovakia at the Baumgarten entry and exit point.
Reverse Flows
While the reductions in Russian flows compared with ordered amounts are “unusual,” reports suggest they might be within contract-allowed tolerances, Trevor Sikorski, head of gas, coal and carbon at London-based consultants Energy Aspects Ltd., said today by e-mail. If Russia were providing more fuel to Europe, more supplies would be flowing to Ukraine, which is against Gazprom’s interest, according to Societe Generale SA.
“Thinking that Gazprom was going to provide too much gas for Europe to allow reverse flow to Ukraine was a mistake in the first place,” Thierry Bros, an analyst at Societe Generale in Paris, said by e-mail today. “Gazprom is playing the flexibility of the contract in its favor and making sure their power is increasing ahead of the winter.”
Russia halted gas exports to NAK Naftogaz Ukrainy on June 16 amid a debt and price dispute. Ukraine owes Gazprom $5.3 billion, according to the Moscow-based company. The two nations and the European Union on Sept. 26 announced a preliminary agreement for Russia to provide at least 5 billion cubic meters this winter. Russia said yesterday talks between the three parties won’t resume until next week.
Contract Renegotiation
Russian gas meets 29 percent of Italy’s demand, according to Eurogas, a Brussels-based lobby group. Eni SpA (ENI), the Mediterranean nation’s largest oil company, revised in May its contract with Gazprom, its biggest supplier. The new terms align the price indexation with the market and enhances Eni’s ability to recover gas pre-paid under take-or-pay clauses. Eni declined to comment on the reduction of Russian gas flows to Italy by e-mail yesterday.
Sergei Kupriyanov, a spokesman at Gazprom in Moscow, declined to comment in a text message today. Gazprom Chief Executive Officer Alexey Miller said last month European clients may need to wait until November to receive additional volumes as Russia needs to fill domestic storage.
Italy is prepared for any possible disruption due to the Ukrainian crisis this winter, Carlo Malacarne, Snam’s chief executive officer, said in a Sept. 29 interview in Berlin. The country’s storage sites were 96 percent filled as of yesterday, the highest level for this time of year since 2011, according to Gas Infrastructure Europe, a lobby group in Brussels.
TEHRAN, Oct. 2 (UPI) -- A trade official in Iran said the issue of oil swaps may be on the table along with refinery construction during possible talks with Russian investors.
Hassan Khosrowjerdi, head of the Iranian Oil, Gas and Petrochemical Products Exporters Association, said he plans to lead a delegation to Moscow to discuss trade relations in the energy sector.
"Iranian companies have good experience in swap and transit, particularly under the conditions of sanctions," he said Wednesday. "These experiences should be exported to other countries."
Western governments had expressed concern over the possibility that Iran was working on an oil-for-goods swap deal with Russia. Iranian Oil Minister Bijan Zanganeh has said the Iranian government endorsed such a deal, but nothing was formalized.
Both sides already cooperate in a variety of fields, with Russia supplying fuel for Iran's nuclear reactor at Bushehr. Both countries are also the targets of Western economic sanctions, with Russia facing pressure for its stance on Ukraine and Iran getting squeezed for its controversial nuclear program.
U.S. officials have said it would be "very troubling" should an oil swap deal materialize.
No date for the trade visit to Moscow was announced.
MOSCOW, Oct. 2 (UPI) -- A subsidiary of Russian oil company Gazprom Neft said Thursday it embarked on a new stage of assessing the shale oil potential in Western Siberia.
Subsidiary Gazpromneft-Khantos started drilling into a shale oil well in the Krasnoleninsky field in the Bazhenov complex of Western Siberia. The company said it employed hydraulic fracturing at the site in order to improve oil extraction.
"The Bazhenov formation is an example of our work with non-traditional deposits, which is an area the company is focused on developing," Gazprom Neft Chief Executive Officer Vadim Yakovlev said in a statement.
The company offered no estimate of the shale oil potential other than to say "commercial oil flows" have been achieved already at some of the wells in the region.
In December, Russian energy company Rosneft, one of the largest energy companies in the world, signed an agreement with its Norwegian counterpart Statoil to explore the shale oil potential in the Ural mountains of Russia.
The U.S. Energy Information Administration lists Russia as the No. 3 energy producer in the world, behind Saudi Arabia and the United States. Technology used to extract oil and gas from shale helped boost U.S. production exponentially, though geographical complexities elsewhere in the world are impediments to development.
STAVANGER, Norway, Oct. 2 (UPI) -- Norwegian energy company Statoil said Thursday it was making strides in opening up new exploration areas in the Barents Sea.
The company announced it finished a seismic survey program in the southeastern waters of the Barents Sea through a multilateral process. Statoil said new forms of cooperation in that field translate to a more efficient way to acquire data.
"This warrants rethinking and exploring new business approaches and forms of cooperation in order to reduce costs and work more efficiently also elsewhere," Jan Helgesen, Statoil's head of geophysical operations, said in a statement.
The company said data would be ready for review by late 2015. This in turn would help with a licensing round for the southeastern Barents Sea, the first new area opened up on the Norwegian continental shelf since 1994.
Last year, Norway sent 92 percent of its oil exports and at least 98 percent of its gas exports to European markets.
The European economy is looking to diversify an energy sector dependent on Russia. Norwegian Energy Minister Tord Lien said his country has the resources and infrastructure in place to serve as a steady partner in the European energy sector.
MOSCOW, Oct. 2 (UPI) -- The head of the Russian Central Bank said Thursday sanctions on the energy sector are getting in the way of efforts to control inflation.
The U.S. and European governments have imposed punitive sanctions on Russian energy companies Rosneft, Gazprom Neft and others in response to the crisis in Ukraine. In September, the European Bank for Reconstruction and Development said sanctions were taking their toll on the Russian economy.
"It's already obvious that we will not reach our goal on inflation this year; according to our assessments, inflation will be around 8 percent," Russian Central Bank Director Elvira Nabiullina said Thursday.
The bank this year said it expected Russian inflation would be around 7 percent for 2014. In August, it said it was ready prop up some of the institutions burdened by sanctions pressure.
Exports of crude oil, petroleum products and natural gas account for nearly 70 of all Russian export revenues in 2013.
A report from the World Bank finds Russia's export-based economy leaves it vulnerable.
"Current geopolitical tensions are adversely impacting" Russia's trade relationships, the bank said.
ERBIL, Iraq, Oct. 2 (UPI) -- Most of the international oil companies working in the Kurdish north of Iraq are back to normal operations, the semiautonomous Kurdish government said.
The influx of militants with the group calling itself the Islamic State prompted some oil and natural gas companies working in northern Iraq to pull staff from the region as a security precaution. The Peshmerga, a Kurdish military force, has been able to keep the northern region relatively secured and some companies have returned to service.
"Kurdistan's oil and gas infrastructure remains unaffected by the operations against terrorists," the Kurdish Ministry of Natural Resources said in a Wednesday statement. "All security forces are aware of oil and gas assets and are committed to continuing to protect them."
British energy company Gulf Keystone Petroleum was the most recent to announce staffing levels in the Kurdish north were back to normal levels. Since January, the company said it's been able to get 4 million barrels of Kurdish oil to the international market despite the rise of the Islamic State in the region.
The Kurdish Ministry of Natural Resources said about 70 percent of the production areas are in operation and 95 percent of the companies with assets in the region have returned to normal work.
LONDON, Oct. 2 (UPI) -- Advocacy group Greenpeace said Russian investigators have closed the books on its probe into the actions of activists dubbed the Arctic 30.
Greenpeace last year used its Arctic Sunrise vessel to gain access to the Prirazlomnaya rig, deployed by Russian energy company Gazprom for work in the country's arctic waters. Two freelance journalists and 28 Greenpeace activists, dubbed the Arctic 30, were held by Russian authorities on piracy charges last year.
Greenpeace said its lawyers were informed by the Kremlin that the investigation was officially closed.
"Since this story began, the [Russian] Investigative Committee has tried to bend the rule of law to persecute those who dare to oppose Arctic oil drilling," Greenpeace International Executive Director Kumi Naidoo said in a Wednesday statement. "This persecution has had the opposite effect, and our movement is much stronger both in Russia and around the world."
The Russian Foreign Ministry said the action "had the appearance of extremist activity." Greenpeace said it was concerned about the potential for an oil spill in the harsh arctic environment.
Greenpeace activists in May staged a similar protest against Gazprom and Norwegian energy company Statoil for their planned operations in the frigid northern climate.
In New Zealand, activists smeared themselves Thursday with fake oil to protest against Statoil's campaign there.
MOSCOW, Oct. 2 (UPI) -- The Turkish government said it reached a deal with Russian energy company Gazprom to receive nearly 20 percent more gas per year from the Blue Stream pipeline.
Turkish Energy Minister Taner Yildiz met with Gazprom officials in Moscow to discuss bilateral relations. Turkey consumes about 1.5 trillion cubic feet of natural gas annually and more than half of that comes from Russia.
During meetings with Russian Energy Minister Alexander Novak and Gazprom Chief Executive Alexei Miller, the Turkish government said the amount of gas sent from Russia though the Blue Stream pipeline would increase by about 18 percent to 670 billion cubic feet per year.
Turkey aims to exploit its geographical position to serve as an energy bridge between Middle Eastern and Asian suppliers to the Middle East.
The Trans Anatolian pipeline, dubbed TANAP, would transport natural gas from the giant Shah Deniz gas field off the coast of Azerbaijan through Turkey to the Greek border and onto European consumers.
Europe is eager to break Russia's grip on the region's energy sector through projects likes Shah Deniz and TANAP.
The first cargo of Alaska North Slope to be exported from the US in a decade may have a limited impact on the fervent debate in Washington to weaken the current export limits regime, but its influence will be felt far more in crude pricing, which analysts said was the chief motive behind the cargo.
"Everything has a ripple effect," said Edward Morse, the global head of commodities research at Citigroup. "This is just another piece of a rapidly changing framework."
Morse said that despite the restrictions on US crude exports, with possible growth in Alaska crude exports, shipments to Canada, and exports of processed condensate, the US will soon be exporting over 1 million b/d of crude and condensates, up from "virtually nothing" in early 2013.
Hydrocarbon exports are now leading all US sectors in exporting and boosting national economic interests, bolstering the case for additional crude exports.
"I think you get these things adding up, and I think you'll see [a weakening of crude export restrictions] in increments," Morse said.
ConocoPhillips shipped 800,000 barrels of ANS crude by the Suezmax Polar Discovery last weekend. It is expected to be received by South Korean refiner GS Caltex Corp next week.
The cargo is the first ANS export since 2004, but is not a shift in US policy. President Bill Clinton authorized the export of ANS in 1996 and nearly 95.5 million barrels of Alaskan oil was exported between 1996 and 2004, according to the US Energy Information Administration. These exports, which represented about 2.7% of Alaska's total production during that time, were shipped to South Korea, Japan, China and Taiwan, EIA said.
Michael Cohen, head of energy commodities research at Barclays, said crude exports out of Alaska could "move the dial" on public perception of exports, which is seen as a chief hurdle to a change in current export policy. He said it remains unclear if the ConocoPhillips shipment is the first of many, or "just a flash in the pan."
Still, Kevin Book, managing director of ClearView Energy Partners, said that unlike the recent Commerce Department rulings giving Eagle Ford players legal backing to export processed condensate, the Alaska crude exports did not signal any indication of a policy change.
"Processed condensate exports may not be an explicit change of policy, but they certainly suggest a change in the way existing policy has been interpreted," Book said. "By contrast, Alaska North Slope exports have been in-bounds since 1996, and would appear to derive from more fundamental supply-demand drivers than any policy catalyst."
Cohen said the fate of Alaskan crude on the global market may rest on the arbitrage between ANS and Dubai crude, which was open through late August through the second week of September, potentially compelling ConocoPhillips to export its recent cargo.
Spot ANS averaged at a $1.60/barrel discount to second month Dubai in September, down from a 67 cents/b discount in August, and a $1.47/b premium in July, according to Platts data.
Cohen cautioned that ANS exports may not be entirely price driven though, since the recent cargo may have been pushed by a shutdown of a Flint Hills Resources refinery near Fairbanks, an unexpected uptick in ANS production and shifts in US West Coast demand.
A narrowing Brent/WTI spread would suggest that it has become more profitable to import crude, rather than export. However, a weakening ANS spot price differential to WTI has so far compensated for the narrowing Brent/WTI spread.
ANS was assessed at a 94 cents/b premium to the WTI CMA (calendar month average) Wednesday, down from an average of $3.39/b in September, and $6.19/b August.
And with rail capacity increasing on the US West Coast, bringing more Canadian and US shale crude into the region, downward price pressure should remain on ANS, Morse and other Citi analysts said in a recent report.
"Citi expects these [price] spreads to further incentivize ANS export as PADD V becomes increasingly glutted with crude, pushing ANS export volumes above the 70 k b/d levels last seen in the late 1990s," they said.
Citi is estimating total USWC rail unloading capacity to reach 300,000 b/d in 2014, up from 80,000 b/d in 2013, before climbing to 832,000 b/d in 2015 and 1.132 million b/d in 2016.
For the time being, the weaker ANS price may make the economics work for exporting barrels, but it also improves the refining margin for ANS on the USWC, which may boost USWC refiner demand for ANS.
The USWC ANS cracking margin closed at $16.54/b Wednesday, up from a September average of $11.78/b and an August average of $5.50/b.
Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason.
Mexico City (Platts)--2Oct2014/1258 pm EDT/1658 GMT
Pemex and ExxonMobil signed a memorandum of understanding and cooperation, the Mexican state-owned company said Thursday, as the country embarks on an opening of its oil and gas sector to foreign investment.
The MOU was inked "to establish the basis of dialogue and understanding in areas of upstream and downstream business," Pemex said.
Pemex has long maintained accords on technical cooperation with international oil companies, but the wording of the new agreement with ExxonMobil indicates a potential alliance as Mexico prepares for its first rounds of bidding since the state monopoly was established in 1938.
Bids are to be invited soon for 169 blocks in Round One of Mexico, including areas of deep and shallow waters, heavy crude and non-conventional areas.
Every Monday, Capitol Hill newshounds Brian Scheid and Herman Wang analyze, dissect and debate the key US oil policy issues affecting the industry.
This week, Brian and Herman look at what advanced baseball statistics can tell us about US crude oil production data. Do we need to rethink the way we gather and use oil production stats?
The statement said the signing of the accord "adds to other efforts being made by Pemex to attract new technologies, capital and partners that will permit to compete efficiently in the new Mexican hydrocarbons market, ensure production and generate jobs in the nation's energy sector."
In recent days, Pemex has signed similar agreements with BHP Billiton and Malaysia's Petronas.
The signature of Thursday's agreement was witnessed by Rex Tillerson, chief executive of ExxonMobil and his counterpart in Pemex, director-general Emilio Lozoya.
London (Platts)--2Oct2014/916 am EDT/1316 GMT
The CIF Northwest Europe naphtha cargo value was assessed Wednesday at $806.50/mt, $4.25/mt lower on the day and its lowest level in over 16 months, as the market lengthened while end-user demand remained low and the arbitrage to Asia difficult to work, market sources said.
The last time CIF NWE naphtha cargo was assessed as low or lower was May 2, 2013, when it was $791.50/mt, Platts data showed.
Moreover, the contango between NWE physical naphtha cargoes and front-month CIF NWE swaps plunged to its widest level in three weeks Wednesday as the CIF NWE naphtha cargo value was assessed at $8/mt discount to the front-month swap. The last time it was assessed at a wider discount was September 9, when it was assessed at a $8.25/mt discount to the October swap, according to Platts data.
"Physical buying in the East is terrible and it looks pretty poor in Europe too," a trader said. "Prompt barges are offered by September's bull at discounts [to the delivery month swap]."
Mid-week, CIF NWE open spec physical naphtha cargoes were heard offered at a discount of $1/mt to $3/mt for October delivery, while bids were reported very rare and if any at a discount of $4/mt to $5/mt.
"The physical market is dead," a second trader said, adding that buying interest for open spec, if any, was shown at a $4/mt discount.
According to a trader, the October month has started on a very weak note. "I think that people are less able to work arbs to the East so cargoes are stuck in Europe and have to find an outlet...Too many Med cargoes are being forced to move into NWE," he said.
Gunvor in particular was heard offering in Northwest Europe a prompt LR2-size cargo of naphtha out of Ust Luga. Gunvor declined to comment. According to market participants, such a cargo would in usual circumstances have made its way to Asia.
Singapore (Platts)--2Oct2014/315 am EDT/715 GMT
Asia's outright price for jet fuel/kerosene plummeted to a fresh 27-month low of $108.62/barrel at Wednesday's Asian close, in line with lower crude.
The jet fuel outright price was last lower June 28, 2012, at $108.50/b.
The declines were also observed in the paper markets, as the November FOB Singapore jet/kerosene swap sank $2.08/b day on day to be assessed at $108.32/b Wednesday, a two-year low.
The front-month outright jet swap was last lower June 27, 2012, at $107.80/b.
The sharp overnight fall in jet fuel/kerosene prices was largely due to continued weakness in crude markets.
November ICE Brent crude futures fell $2.46/b day on day to $94.81/b at 4:30 pm Singapore time (0830 GMT) Wednesday, a 26-month low.
Front-month ICE Brent crude was last lower at the Asian close on June 29, 2012, at $93.01/b.
At 3 pm in Singapore (0700 GMT) Thursday, November ICE Brent crude was trading 7 cents/b (0.07%) lower than Wednesday's settle at $94.09/b.
Despite lower jet fuel prices, industry sources expect demand to remain steady on stable end-user requirements and limited spot liquidity.
They said a prevailing shut East-West arbitrage is also capping cross-regional flows.
Spanish gas demand in September rose 0.1% year on year on the back of higher electricity demand, data from grid operator Enagas showed Wednesday.
Total national demand was 23.59 TWh in September, the company said, as gas demand for power generation increased 20.3% year on year to 6.10 TWh, while conventional demand from homes and businesses fell 5.4% year on year, to 17.49 TWh.
It was the first year-on-year increase in demand since December.
With demand for gas-fired generation rising, the country's fleet of 67 CCGTs was seen operating at a 16.7% utilization rate during the month, up from 13.9% in August and 11.8% in July, according to the data.
Enagas said 6.20 TWh of gas was reloaded as LNG for export in September, up 53.5% year on year.
Pipeline gas exports to Portugal rose 45.1% year on year to 2.64 TWh.
The month's daily gas demand peaked at 933 GWh on September 3, when the country's CCGT fleet was operating at 26%, Enagas said.
Spanish gas demand in October is expected to rise 1.3% year on year to 26.1 TWh due to higher demand from homes and businesses. Enagas said conventional gas demand from homes and industry will likely rise 6.6% year on year to 21.1 TWh due to comparatively milder weather in October 2013.
Enagas expects October gas demand for power generation to fall 16.2% year on year to 5.02 TWh.
Seattle (Platts)--2Oct2014/528 pm EDT/2128 GMT
A fire that broke out Thursday morning on a Cook Inlet natural gas production platform has been brought under control, a spokeswoman for the Alaska Division of Oil and Gas said.
No injuries were reported, division spokeswoman Diane Hunt said.
Four workers were safely evacuated by helicopter off the Baker platform, operated by Houston-based independent Hilcorp Energy, at about 10:30 am Alaska time (1830 GMT), US Coast Guard Petty Officer 1st Class Shawn Eggert said.
There are no firefighting vessels in Cook Inlet but two vessels were reported on the scene spraying water to control the fire.
The fire broke out about 8:30 am Thursday morning, Eggert said. Gas production wells were shut in.
The Coast Guard is monitoring the situation with a C-130 aircraft and a MH-60 Jayhawk helicopter.
Baker platform, installed in the 1960s as an oil production facility, has been mothballed for several years but was reactivated recently by Hilcorp to support gas production. It is not known how much gas was being produced.
A Hilcorp Energy spokeswoman was not immediately available for comment. The company operates several offshore Cook Inlet platforms acquired from Chevron in 2012.
U.S. gasoline prices are poised to drop to their lowest level in almost four years as crude futures tumble, the nation’s largest motoring group said.
Retail regular gasoline slid to $3.328 a gallon yesterday, down 10 percent from this year’s high and the lowest for this time of year since 2010, according to AAA. The national average may fall to a range of $3.10 to $3.20 before the year ends, the Heathrow, Florida-based group predicted. The last time the national average was below $3.15 was Feb. 16, 2011.
Pump prices have followed declines in New York-based gasoline futures and Brent crude, a global benchmark for oil prices. Rising production from shale has pushed U.S. crude output to a 28-year high, helping increase global supplies as demand is slowing and OPEC production is at a one-year high.
“All factors are pointing to lower gasoline prices this winter due to lower prices of crude oil, a decline in driving and abundant domestic supplies,” said Michael Green, a Washington-based spokesman for AAA. “For every $1 change in the price of crude oil, you can see gas prices drop about 2 cents per gallon.”
Pump prices dropped 9.2 percent in the third quarter, the biggest decline since the three months ended Dec. 31, according to AAA. Gasoline futures slid as much as 3 percent to $2.3755 today on the New York Mercantile Exchange, the lowest level since January 2011.
Below $3
Brent crude reached $91.55 a barrel on the London-based ICE Futures Europe exchange, the weakest since June 2012. A lower price for Brent can cut U.S. gasoline prices by reducing the cost of crude and fuel imports to the U.S. East Coast. West Texas Intermediate crude, a U.S. benchmark, declined to $88.18, falling below $90 for the first time in 17 months. Brent traded at $93.07 at 1:44 p.m. in New York, while WTI was at $90.60.
Drivers can find at least one station selling gas for $3 or less in 26 states on Sept. 30, AAA said in a monthly price report released on the same day.
Gasoline demand in the U.S. averaged 8.69 million barrels a day in the four weeks ended Sept. 26, the lowest since May, according to the Energy Information Administration.
U.S. oil consumption will decline to 18.92 million barrels a day this year from 18.96 million in 2013, the Energy Information Administration said in the monthly Short-Term Energy Outlook on Sept. 9.
Weak Demand
“There is no doubt that the weakness in gasoline demand is pushing prices down,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook. Higher exports from Libya and booming U.S. production “deepened the overhang in crude markets,” the Paris-based IEA said.
U.S. domestic crude production rose to 8.87 million barrels a day in the week ended Sept. 19, the most since March 1986, according EIA estimates.
Output from the 12-member Organization of Petroleum Exporting Countries rose by 413,000 barrels a day to 30.935 million in September, a Bloomberg survey of oil companies, producers and analysts showed. That’s the highest level since August 2013.
Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices, or OSPs, are regional adjustments Aramco makes to price formulas to compete against oil from other countries.
October 2, 2014 by Abdelhak Mamoun No Comments
5U Iraq oil exports approach record levels, rise in September Baghdad (IraqiNews.com) Iraq’s oil exports have risen in the past month of September to 2.534 million barrels per day in comparison to 2.38 million bpd in the previous month of August.
Oil exports of September approached the record level achieved in Iraq last May when it registered 2.58 million barrels per day; it is the highest since 2003.
On Thursday Reuters quoted a spokesman for the Iraqi Oil Ministry that the country’s oil exports amounted to an average of 2.534 million barrels per day in September.
The spokesman said that the oil exports achieved revenues of 7 billion dollars.
The total exports are shipped in southern Iraq. The Kirkuk oil exports through the line of Kirkuk – Ceyhan are parked because of militant attacks on the line since last March.
After 3 months of the advancement of ISIS in northern Iraq, the oil prices raised to $ 115 a barrel, however, the fighting did not cause the decline in exports from the south of Baghdad, where there is the main port of the country’s shipments of crude to the world markets.
JOHN KEMP
LONDON: US oil refiners have been among the biggest beneficiaries of free trade in the last decade, so it is ironic some continue to lobby hard to maintain the protectionist ban on crude exports.
Domestic consumption of oil-based products fell by just over 2 million barrels per day (bpd) between 2005 and 2013, according to the US Energy Information Administration.
Refiners turned to export markets to fill the gap, increasing exports of finished petroleum products and other refinery liquids by just less than 2 million bpd over the same period.
The renaissance in US refining stems from the shale boom, but it would not have been possible without free trade policies guaranteeing access to export markets.
Production, profits and jobs at US refineries are increasingly underpinned by exports to Europe, Latin America and Asia. Without exports, falling demand at home for gasoline, diesel and fuel oil would have forced many refineries to close.
Several leading shale oil producers have been lobbying to lift the restrictions on crude exports. Most refiners have quietly accepted that the case for free trade applies to unprocessed crude as well.
But some smaller and more domestically focused operators continue to oppose any effort to ease or lift the restrictions on crude exports. Four smaller refiners have formed Consumers and Refiners United for Domestic Energy (CRUDE) to lobby Congress and the White House against repealing the four-decade old restrictions.
The crude export ban was originally introduced in response to the 1973 oil embargo, in which members of the Organization of Arab Exporting Countries (OAPEC) cut production and banned exports to the United States and the Netherlands in retaliation for their support for Israel.
The US oil export ban was meant to reserve US energy for US customers after supplies were cut from Saudi Arabia, Kuwait, Abu Dhabi, Bahrain, Qatar, Libya, Algeria, Egypt, Syria and Iraq.
The original logic of the ban has long since become moot in the changed strategic environment of the 21st century.
But opponents claim that permitting crude exports could harm American consumers and workers by raising fuel prices and leading to refinery closures.
Neither outcome is likely. There is no rational basis for maintaining a near-total ban on exporting crude while allowing refined products to be exported freely.
PUMP PRICES
Permitting crude oil exports would not raise the price of finished fuels such as gasoline and home heating oil for US companies and consumers.
Unlike crude, US fuel prices are set in global markets and track international benchmarks such as Brent rather than domestic crude prices such as WTI or Bakken.
With US refiners now exporting more than 1 million barrels of distillates, half a million barrels of gasoline and 200,000 barrels of jet fuel every day, arbitrage ensures American consumers pay the same at the pump as motorists abroad. Any price changes as a result of lifting the ban would be trivial.
The principal effect of the export ban is to transfer profits from domestic crude producers to refiners by artificially depressing the price of domestic crude oil while allowing product prices to be set at international levels.
Restrictions have boosted the profits of refineries and guaranteed them market share without making fuel any cheaper for consumers, at the expense of oil producers and royalty owners.
REFINERY JOBS
Export opponents imply jobs might be lost and refineries might close if the ban were lifted, but there is no real reason to expect either outcome.
US refineries would remain cost-advantaged by their proximity to domestic production. Most are also considerably more sophisticated than competitors in Europe and Latin America, so they have a technology advantage as well.
If the export ban is lifted, there are unlikely to be any significant refinery closures or job losses. Besides, focusing exclusively on refinery employment is too narrow.
US refineries directly employ around 76,000 workers, according to the US Bureau of Labor Statistics (BLS), compared with more than 210,000 workers directly engaged in oil and gas drilling.
Refineries have created fewer than 10,000 extra jobs over the past decade, while increased oil and gas production has generated nearly 100,000 and that number is still increasing.
Wage rates in field production and refineries are similar, according to the BLS, not least because many petroleum engineers and other highly skilled workers are equally able to find employment in the upstream or downstream sections of the industry.
Government policy should aim to maximize well-paid jobs across the industry, whether upstream, midstream or downstream, rather than in just one part of it.
PUBLIC INTEREST
The export ban is sometimes justified on the public interest and national security grounds that it reserves US oil for US customers and maintains a strong domestic petroleum industry.
But the ban does nothing of the sort. More than 4 million barrels of oil and gas liquids are already exported every day, mostly in the form of diesel, gasoline and liquefied petroleum gas.
Thanks to the shale revolution, the US has experienced a boom in oil and gas jobs and lower prices for both natural gas and oil products.
As a result of advances in drilling, it has a strong comparative advantage in oil and gas production and should focus on maximizing oilfield output and employment, rather than subsidizing refineries that do not need the help.
The ban on crude exports is illogical, unnecessary and serves only to enrich shareholders in a small number of domestically focused refineries.
It does nothing to promote jobs or cut fuel prices for ordinary Americans. Instead it exposes the US to charges of hypocrisy when US officials try to promote liberalization and oppose barriers erected by other countries, such as Chinaís restrictions on the export of rare earth elements.
Boosting domestic production, minimizing oil imports and maximizing exports serves the strategic interests of the US by reducing global price volatility, ensuring the stable flow of energy to allies and reducing the influence of other energy exporters who are hostile to the US.
The case for Congress and the president to lift outdated restrictions on crude exports is overwhelming. Lawmakers and the White House should act promptly once the midterm elections are over.
To continue enforcing the ban could be seen only as a cynical and arbitrary exercise in protectionism on behalf of a small number of vocal refinery owners.
John Kemp is a Reuters market analyst. The views expressed are his own.
REUTERS
LONDON: Commerzbank has slashed its 2015 average Brent crude price forecast by $5 to $105 per barrel, citing lackluster demand, rising production and a lack of supply disruptions.
The bank said the international benchmark would average $99 a barrel in the fourth quarter of 2014, below its previous outlook of $107, and $103 in the first quarter of 2015.
However, the bank expected a rise in prices in the medium term on expectations OPEC will trim supply.
“
It saw WTI crude CLc1 averaging $101 a barrel next year.
Reuters
Oil production in Russia increased by almost 0.9 percent month-on-month in September to 10.61 barrels per day (bpd) largely because of increased output at joint ventures with foreign majors, Energy Ministry data showed on Thursday.
In tons, Russian oil output reached 43.411 million in September versus 44.472 million in August, a month which has one more day than September.
Oil output under production sharing agreements (PSA), designed in the 1990s to encourage investment by foreign oil companies, jumped by 24 percent in September to almost 1.23 million tons (298,844 bpd).
The ministry does not provide a breakdown of the data for the projects, which include Sakhalin-1 of Rosneft, ExxonMobil , ONGC and Sodeco; Sakhalin-2 involving Gazprom , Shell, Mitsui, and Mitsubishi ; and Kharyaga with Total, Statoil and Zarubezhneft.
Small firms, which the ministry defines as "other producers," increased their oil production by 1.5 percent, while output at Rosneft, the world's top publicly traded oil company, remained flat, at 3.8 million bpd.
Russian daily gas output rose to 1.52 billion cubic meters (bcm) per day last month from 1.38 bcm in August.
Natural gas production at Gazprom, the world's largest gas producer, jumped 14 percent from August to 968 million cubic meters a day on an increase in seasonal demand.
By Reuters
Kuwait is in talks with five major oil companies to help boost crude production and develop some of its oilfields including Burgan, the world's second largest, a move that has faced fierce political opposition in the past.
Kuwait has invited Britain's BP, France's Total , Royal Dutch Shell, ExxonMobil and Chevron, to bid for a so-called enhanced technical service agreement for the northern Ratqa heavy oilfield, Hashem Hashem, chief executive of state-run Kuwait Oil Co (KOC) told Reuters on Thursday.
"We've invited the major five international oil companies (IOCs) to show interest. This is our approach," Hashem said in a phone interview, adding Exxon might not be interested in this bid.
"We are trying by first or second quarter of next year to conclude this contract."
CALGARY, Alberta Oct 2 (Reuters) - The price of Canadian heavy crude at Cushing, Oklahoma, hit fresh highs on Thursday, lifted by demand from new pipelines and narrowing differentials in Alberta, market sources said.
Rising prices are the latest sign of surging demand for crude at the storage hub, which is the delivery point for U.S. crude oil futures. The premium for Canadian crude at the hub strengthened to around $2 to $3 a barrel since the previous month, according to one trader.
Western Canada Select heavy blend for November delivery at Cushing traded at $4.75 per barrel below WTI, having changed hands at around $5.25 per barrel below on Wednesday.
Trading sources said increased demand for crude to fill Enbridge Inc's new 600,000 barrel-per-day Flanagan South pipeline, which runs from Illinois to Cushing and is due to start up by year-end, was pushing prices higher.
Meanwhile, Enbridge is also due to start shipping crude on its reversed Line 9 pipeline to Montreal in November.
WCS for delivery in Hardisty, Alberta, is hovering near a 14-month high hit last month of $13.00 per barrel below WTI. Western Canadian Select is generally priced at Hardisty, but pressure on Cushing has added to its strength there.
Traders have reported Cushing oil stocks are already short and on Wednesday an Enbridge executive said temporary supply issues on the 193,000 bpd Spearhead pipeline between Illinois and Oklahoma had forced the company to cut runs.
Enbridge is undertaking a multibillion-dollar expansion program on its 2.5 million bpd Mainline system, which carries the bulk of Canadian crude exports to the United States, but traders have voiced concerns that bottlenecks will simply move upstream and leave crude stranded in the northern portion of the network.
Last week, limited crude supplies at Cushing, Oklahoma, prompted Enbridge to implement steps to increase the flow into Cushing. (Reporting by Nia Williams and Catherine Ngai; Editing by Jessica Resnick-Ault and James Dalgleish)
U.S. crude stocks show unexpected 1.36 million-barrel draw
James Bambino, Platts Oil Futures & Options Editor
New York - October 01, 2014
U.S. crude oil, gasoline and distillate inventories fell across the board last week, with U.S. Energy Information Administration (EIA) oil data Wednesday showing an unexpected draw in oil stocks despite a sharp cut in crude runs and a slight bounce in imports.
U.S. commercial crude oil stocks fell 1.36 million barrels to 356.64 million barrels for the reporting week ended September 26. Gasoline and distillate stocks fell as well. Gasoline stocks dropped 1.84 million barrels to 208.49 million barrels, and distillate stocks fell 2.89 million barrels to 125.7 million barrels, EIA data showed.
Analysts surveyed Monday by Platts had been expecting a 1 million-barrel build amid a more-than 0.9 percentage point drop expected in U.S. refinery utilization rates, as many analysts rightly expected to see a large swath of U.S. refinery capacity enter the seasonal turnaround period.
In fact, crude capacity utilization, or run rates, last week fell to lows not seen since the beginning of the summer, EIA data showed. Total crude runs fell 525,000 barrels per day (/d) to 15.69 million b/d, putting them below 16 million b/d for the first reporting week since June 20, EIA data showed. This helped drag refinery utilization rates 3.6 percentage points lower to 89.8% of capacity.
Analysts had largely expected a sharp reduction in crude runs to increase inventories, as fewer barrels got processed by refineries. But the unexpected draw indicates the still-robust crude runs are more than a match for still-anemic imports, even as U.S. domestic production remains strong.
Gross inputs to U.S. refineries, of 15.7 million b/d - including alternative feedstocks other than crude oil -are well above the five-year average of EIA data at 14.93 million b/d.
U.S. imports last week rose 414,000 b/d to 7.28 million b/d; production ebbed 30,000 b/d to 8.84 million b/d. However, at this a year ago, production was approximately 100,000 b/d less, and imports were more than 100,000 b/d greater.
The draw in crude stocks was largest in the U.S. Gulf Coast (USGC), where inventories fell 2.21 million barrels to 184.47 million barrels. Despite the draw, USGC stocks were still well-above the five-year average of 177.8 million barrels. This time last year, stocks were 183.72 million barrels.
USGC runs fell 234,000 b/d to 8.14 million b/d last week, helping to pull regional run rates down 3.8 percentage points to 90.5% of capacity. The USGC saw two more fluid catalytic crackers shut for maintenance, specifically a 38,000 b/d unit at Valero's Meraux, Louisiana, refinery and a 120,000 b/d unit at Marathon's Galveston Bay, Texas, refinery.
Midwest run rates fell 4.2 percentage points to 91% of capacity, amid a 160,000-b/d decline in crude runs, which fell to 3.46 million b/d. Despite this, Midwest crude stocks still fell 1.15 million barrels to 88.5 million barrels last week.
It is notable that the Midwest is more dependent on imports, which showed a decline for the period. Imports from Canada -- most of which head directly to the Midwest -- dropped 157,000 b/d to 2.75 million b/d.
U.S. Atlantic Coast (USAC) GASOLINE STOCKS TIGHT
US gasoline stocks fell sharply last week, largely in line with analysts' expectations. Tightness in spot blending components in New York Harbor led RBOB futures on a volatile ride late last week into this week, in the run-up to the October contract's expiration Tuesday.
New York Mercantile Exchange (NYMEX) October RBOB futures expired at a near 15 cent-per-gallon (/gal) premium to the November contract. November RBOB was trading more than 5 cents higher at $2.4891/gal in the wake of the EIA release.
Inventories, at 208.49 million barrels for the latest reporting week, are almost 2% below the EIA five-year average, and more than 11 million barrels below year-ago levels. But a drop in stocks on the U.S. Atlantic Coast -- home to the New York Harbor-delivered NYMEX RBOB contract -- was confirmed in Wednesday's data release, which showed a 1.9 million-barrel decline in inventories to 53.55 million barrels.
Atlantic Coast stocks are 1.15% below the five-year average, down from a 9% surplus June 13.
Midwest gasoline stocks remained tight, despite increasing 311,000 barrels. At 47.32 million barrels, Midwest gasoline inventories were almost 5.5% below the five-year average.
Despite the fluid catalytic cracker (FCC) issues on the U.S. Gulf Coast, gasoline stocks there rose 246,000 barrels to 72.61 million barrels. That said, USGC stocks were comparatively tight, sitting almost 1.5% below the five-year average.
USAC DIESEL SUPPLY STEADY
In contrast to the gasoline situation, the USAC is well supplied with diesel. Combined low- and ultra-low sulfur diesel stocks, at 35 million barrels the week ending September 26, were 19% greater than the five-year average.
That said, the larger-than-expected outright draw in total U.S. distillate stocks was felt most in the U.S. Gulf Coast. Combined stocks fell 1.78 million barrels to 32.71 million barrels, putting the region at a more-than 18% deficit to the five-year average.
But steady exports from the region to Europe and Latin America meant less products accumulation in storage. The amount of distillates carried by vessels departing the U.S. for Europe increased by 220,000 metric tons (mt) last week, according to Platts cFlow ship-tracking software. Eleven vessels carrying an estimated 500,000 mt of diesel left the U.S. for Europe last week for arrival in October, the data showed.
EIA monthly data for July, released Monday, pegged U.S. distillates exports at 1.22 million b/d. This was reflected in the weekly data released Wednesday, which showed exports rose to 1.23 million b/d last week after hovering at 1.2 million b/d for the prior five reporting weeks. The EIA weekly export data is just an estimate.
Russia’s Lukoil and France’s Total are pursuing talks on potential joint work at a shale oil project in West Siberia as western sanctions against Russia target such reserves, Lukoil CEO Vagit Alekperov, said Thursday.
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He said both companies would comply with the sanctions, but did not elaborate. The US and European Union imposed sanctions in August against Russia over its role in Ukraine’s crisis.
These include a ban on export of technologies needed to drill Arctic and deepwater oil reserves as well as shale oil drilling. Late last month the Financial Times reported Total CEO Christophe de Margerie saying it had suspended cooperation with Lukoil due to the sanctions.
Lukoil and Total agreed in May to set up a joint venture to explore and develop the Bazhenov shale oil formation at a number of the companies’ fields in West Siberia.
Combined reserves of the fields are estimated at 70 million mt of crude oil, but de Margerie said at the time he hoped that figure would rise after more exploration work. The two companies then said they had expected to invest $120-150 million in exploration within two years, starting seismic work in 2014 and exploration drilling in 2015.
Even as refiners in Asia await the results from their peers processing the first few cargoes of US condensate coming into the region, splitters — the other natural home for condensates — appear to be hesitating, saying the material might be too heavy for their purpose.
The topic of US crude and condensate exports dominated this week’s Asia Pacific Petroleum Conference in Singapore both on and off stage.
The emerging consensus in both forums appeared to be that condensate splitters — which have seen three greenfield additions totalling 350,000 b/d capacity in Asia in as many months — deem the US material not particularly suitable because it is heavier, has more residue and a big distillate cut.
The first US condensate exports began flowing into Asia in recent weeks following a confirmation by the Commerce Department in June that condensate processed through a distillation unit, or stabilizer, at the facilities of Enterprise Product Partners and Pioneer Natural Resources was a petroleum product that may be exported without a license.
Some analysts and industry insiders have said additional Commerce rulings, which would open the door to more exports of processed condensate, may be on the horizon. The US largely restricts exports of domestic crude, due to laws passed in the wake of the Arab oil embargoes of the 1970s.
A source at one of the new splitters in Asia said that while the company was not looking at US condensate for the time being, it was a possibility for the future, blended in with lighter condensates from Australia or Qatar.
Price competitiveness of the condensate, especially in view of the higher freight costs to Asia on account of the cargoes being only 300-400,000 barrels, and the 40 days of sailing time, would also be factors in the buying decisions, the source said.
US condensate yields more than 10% atmospheric residue, which does not suit splitters looking to produce light ends for downstream petrochemicals, a source familiar with the matter said. Some sources also noted the wide variation in gravity and quality of condensate from the US.
The lack of consistent quality and unsuitability for splitters might deter some Japanese buyers from taking cargoes on a regular basis, a Japanese industry analyst said.
At the same time, industry players shared the view that the condensate might work for refineries in the region, where it would be blended with other feedstock. So far, South Korean refiners GS Caltex and SK Innovation, and Japanese refiner Cosmo have bought US condensate.
The investigation into privatization of energy assets held by Russian oil producer Bashneft and the arrest of Bashneft’s key shareholder, businessman Vladimir Yevtushenkov, do not signal the Kremlin’s plans to review the Russian privatization campaign of the previous decades, President Vladimir Putin said Thursday.
Yevtushenkov was arrested in September on charges of money laundering while buying Bashneft assets in the 2000s from companies that, according to Russian authorities, may have illegally privatized them.
His arrest and the seizure of the Bashneft majority stake owned by Yevtushenkov’s Sistema fueled market concerns about deterioration of the Russian investment climate and growing state control over the country’s oil sector, with some likening the Bashneft case to that of the former Yukos.
“I would like to stress what I have already said: there aren’t going to be any wide-scale reviews of privatization,” Putin said at the Russia Calling investment forum organized by VTB Capital in Moscow.
“Yet if investigative bodies have questions regarding [privatization] deals or regarding any transactions with assets, we have no right to prevent the authorities from looking into such cases,” Putin said, adding he has no plans to influence the Bashneft case.
Russia retains its plans to privatize significant stakes in state-run energy companies if the market conditions are right, Putin said at the forum, adding that the state will keep a controlling stake in the energy majors.
Russia’s largest oil producer Rosneft is on the list of the state companies that are to be privatized in the next several years. Energy assets in Russia’s Bashkortostan republic, which currently belong to Bashneft, were privatized in the early 2000s by companies close to Ural Rakhimov, son of former Bashkortostan President Murtaza Rakhimov.
The companies subsequently sold the assets to Yevtushenkov’s Sistema, which completed their reorganization into a vertically integrated oil company in 2010. Several months ago, Russian authorities launched an investigation into circumstances of the privatization.
UK-listed independent Afren said Thursday it hoped to restart production at its Barda Rash oil field in Iraqi Kurdistan “as soon as possible” following an improvement in the security situation in the region.
Afren said it has begun returning its staff to normal levels at Barda Rash in the hope of fully resuming drilling and production activities by the end of October. “The decision to resume full operations at Barda Rash has been made following a close monitoring of the situation and in close consultation with the relevant authorities,” the company said in a statement.
Afren in late August cut its full year production outlook to 32-36,000 b/d from 40,000 b/d after the Barda Rash field was suspended following a precautionary evacuation of its staff earlier in the month.
The company said operations at the Ain Sifni field, operated by Hunt Oil, have already resumed to normal levels. The update comes a day after fellow UK-listed Kurdish player Gulf Keystone Petroleum said it had stabilized production from the giant Shaikan oil field after returning its foreign staff to the region.
Afren and Gulf Keystone were among a number of international oil companies that evacuated staff after the IS military offensive in northern and western Iraq that began June 9. The staff reductions, however, mainly affected exploration activities including drilling and had little impact on Kurdish oil production.
