News 11/03/2015

OPEC Seen by Attiyah Keeping Oil Policy Unless Others Cut

(Bloomberg) -- The Organization of Petroleum Exporting Countries won’t change policy at its next meeting unless other producers cut first, Qatar’s former energy minister said.

OPEC is scheduled to next meet in Vienna in June, seven months after deciding to maintain output levels and protect market share. Production by non-OPEC members such as Mexico rose in February from the month before, U.S. output is forecast to be the highest in three decades and Russian supply climbed to a post-Soviet high in January.

“I don’t advise OPEC to have an extraordinary meeting without having a concrete decision” to change policy, Abdullah bin Hamad al-Attiyah, who was Qatar’s energy minister from 1992 to 2011, told the Doha Energy Forum on Tuesday. OPEC won’t change policy at its next meeting in June unless non-OPEC producers join in a collective cut, he said.

Brent crude, a benchmark for more than half of the world’s oil, has dropped 26 percent since OPEC’s decision on Nov. 27. Futures fell 1.3 percent to $57.75 a barrel by 11:19 a.m. on the ICE Futures Europe exchange in London. OPEC’s next regular meeting is scheduled for June 5.

OPEC President Diezani Alison-Madueke said in an interview with the Financial Times in February that she will call a meeting if prices keep declining. Saudi Arabia’s Oil Minister Ali Al-Naimi said in Germany last week he was unaware of any plans for OPEC to meet before June.

The Energy Information Administration forecast that U.S. output will increase to 9.3 million barrels a day this year, the most since 1972. Russia produced 10.71 million barrels a day in January and Petroleos Mexicanos, Mexico’s state-controlled oil company, boosted output to 2.33 million barrels a day in February from 2.25 million barrels in January.

Crude Falls to One-Month Low as Glut Seen Growing, Dollar Gains

(Bloomberg) -- Oil dropped to a one-month low in London as the dollar strengthened and on speculation U.S. crude stockpiles surged, adding to the global supply glut.

Futures fell 3.4 percent in New York and 3.7 percent in London. U.S. crude supplies are projected to have increased from a record high last week, according to a Bloomberg survey before a government report Wednesday. The U.S. currency rallied to the highest against the euro since April 2003. OPEC won’t change policy at its next meeting unless other producers cut first, Qatar’s former energy minister said.

“U.S. crude inventories rose last week; it’s the size of the gain that we’re uncertain about,” Tom Finlon, director of Energy Analytics Group LLC in Jupiter, Florida, said by phone. “The dollar is strengthening, which makes it very hard to be bullish oil.”

Oil has rebounded after reaching a five-year low in January on optimism that a global surplus would diminish as the year progresses. Since the start of December, drillers in the U.S. have reduced the number of active rigs seeking oil by 41 percent to 922, the fewest since April 2011, Baker Hughes Inc. data showed.

Narrowing Spread

West Texas Intermediate crude for April delivery decreased $1.71 to $48.29 a barrel on the New York Mercantile Exchange. It was the lowest settlement since Feb. 26. Prices are down 9.3 percent this year.

Brent for April settlement fell $2.14 to end the session at $56.39 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Feb. 11. The North Sea crude is down 1.6 percent this year. The European benchmark grade settled at an $8.10 premium to WTI.

U.S. crude inventories probably expanded 4.75 million barrels in the week ended March 6, according to the median estimate in the Bloomberg survey of 10 analysts. Supplies climbed to 444.4 million the prior week, the highest level in weekly Energy Information Administration records dating back to August 1982. Production increased by 39,000 barrels to 9.32 million a day, the highest level in weekly data from the EIA since January 1983.

Oversupply Problems

Crude supplies fell 404,000 barrels last week, the American Petroleum Institute reported, according to reports on Twitter.

“The problems of oversupply haven’t gone away,” Michael Hewson, London-based senior market analyst at CMC Markets Plc, said by phone. “Inventories keep on building yet prices haven’t collapsed. It will be interesting to see whether the U.S. has to cut production when it hits its storage capacity.”

The EIA reduced its 2015 forecast for WTI prices as production is poised to rise further. The U.S. benchmark will average $52.15 a barrel this year versus a February projection of $55.02, the Energy Department’s statistical arm said Tuesday in its monthly Short-Term Energy Outlook. Production will climb to 9.35 million barrels a day in 2015, up 50,000 barrels from last month’s estimate.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Permian and Eagle Ford in Texas and the Bakken in North Dakota.

“We’re expecting the ninth straight healthy crude inventory gain, which is weighing on the market,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “The global excess of supply is just too large to ignore.”

The Bloomberg Dollar Spot Index rose 0.8 percent. A stronger U.S. currency lowers the appeal of dollar-denominated commodities as an investment.

OPEC Policy

The Organization of Petroleum Exporting Countries will keep the same policy at its next meeting in June unless non-OPEC producers agree to collective action, Abdullah bin Hamad al-Attiyah, Qatar’s former minister of energy and industry, said at the Doha Energy Forum Tuesday. For countries in the Persian Gulf, $60 a barrel is not a bad price “if they correct their budgets,” he said.

Kuwait’s governor to OPEC, Nawal al-Fezaia, said at the same conference that oil won’t fall below $40 a barrel because demand will pick up in the second half of the year as economic growth improves in the U.S., China and Europe. She also expected OPEC to maintain its policy as “no big change” is expected in the oil market before June.

Bets on WTI falling below $35 a barrel by June have lost almost 80 percent of their value as futures recovered from a six-year low. June $30 and $35 puts, or wagers that prices will drop below those levels, have declined since January. Prices traded within an $8 range last month, the least since September.

Fuel Stockpiles

The EIA is projected to report Wednesday that U.S. stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, fell last week, according to the Bloomberg survey.

Gasoline futures for April delivery dropped 5.64 cents, or 3 percent, to close at $1.8183 a gallon on the Nymex. April ultra low sulfur diesel slipped 2.63 cents, or 1.4 percent, to $1.8135 a gallon, the lowest settlement since Feb. 5.

Regular gasoline at U.S. pumps has rebounded after falling in January to the lowest level since April 2009.

Bets on Oil Falling Below $35 Slide 80 Percent as Drop Eases

(Bloomberg) -- Bets that oil prices will plunge below $35 a barrel by June have lost almost 80 percent of their value after the U.S. benchmark recovered from a six-year low.

June $30 and $35 puts, or wagers that West Texas Intermediate oil will drop below those levels, have tumbled since January. Prices traded within an $8 range last month, the least since September.

The oil market has stabilized as explorers canceled rigs at a record pace, boosting speculation that U.S. production will decline later this year. Goldman Sachs Group Inc. said its forecast for crude at $40 a barrel may be too low as demand recovers. An index of price volatility slid from the highest level since 2009.

“People are kind of settled in and feel comfortable with the current price range,” Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors, said by phone on Monday. The likelihood of oil slumping to $30 has “lower probability at this point based on the fundamentals that we currently see emerging here.”

June $30 puts, which had the most contracts outstanding among WTI options as of March 6, dropped to 10 cents a barrels Monday, down from 52 cents on Jan. 23. The June $35 puts declined to 25 cents from as high as $1.08 on Jan. 23.

Front-month WTI futures gained 16 cents to $50.16 a barrel in electronic trading on the New York Mercantile Exchange at 12:15 p.m. Singapore time. Prices closed at $44.45 on Jan. 28, the lowest level since 2009. The June WTI contract added 19 cents to $53.14.

Volatility Index

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, dropped to 47.09 on March 5, the lowest level since December. It surged to 63.14 on Feb. 5, the highest since April 2009.

Volatility eased after “the oil price arrested its decline and moved higher in early February before consolidating into a $48 to $53 range,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said March 6. “With prices moving in a narrow range, the scope for large daily changes in price has declined.”

Price fluctuations are still high compared with the average of about 18 in the first half of 2014, before WTI’s plunge. Volatility may pick up again as U.S. crude supply keeps rising, according to Tchilinguirian.

“Consecutive positive supply shocks could lead to another sharp leg down in oil prices,” he said. “This implies that the official exit from the winter season at the end of March can see the potential for another pick up in volatility.”

Slower Production

Oil prices may still reverse their recent advance, though the failure of inventories to increase amid weather-related disruptions and stronger-than-expected demand means there’s a risk prices will miss its target for the next two quarters, according to a Goldman report dated March 8. Goldman forecast in a Jan. 11 note that WTI would drop as low as $40.50 a barrel in the second quarter.

WTI gained 3.2 percent in February, the first monthly increase since June. Rigs targeting oil decreased to 922 in the week ended March 6, the lowest level since April 2011, according to Baker Hughes Inc. The rig count was as high as 1,609 in October.

“The market anticipates that prices are going to be higher in the second half because our production will slow down and eventually come to a halt,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas.

Bank of America Corp., which had forecast last month that WTI will fall to $32 by the end of this quarter, raised its price target to $45 in a report dated March 6.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures, increased 536,000 barrels in the week ended Feb. 27, the smallest gain since November, according to the Energy Information Administration.

Venezuela sanctions don't extend to oil

Daniel J. Graeber

WASHINGTON, March 10 (UPI) --WASHINGTON, March 10 (UPI) -- While an official in Caracas said sanctions are an act of war, a top U.S official said the measures will have no direct impact on oil revenue for Venezuela.

President Barack Obama issued an executive order Monday that sanctions seven Venezuelan officials for human rights offenses. A White House spokesman said the Obama administration is "deeply concerned" by the culture of political intimidation in Caracas.

"Venezuela's problems cannot be solved by criminalizing dissent," the spokesman said.

President Nicolas Maduro has faced mounting pressure from his opponents at least since taking the reins in Caracas after his predecessor Hugo Chavez died in 2013.

María Corina Machado, a former assemblywoman who helped lead protests against Maduro last year, recently called on Pope Francis to step in to a fracturing Venezuela.

Diosdado Cabello, speaker of the Venezuelan Congress, said Monday the sanctions on government officials in Caracas were an open threat from Washington. He called on all Venezuelans to "strongly reject the pretensions of North American imperialism, because what comes next ... are the [military] attacks on our land [and] our country."

The White House dismissed allegations from Caracas, saying the government there has a long history of blaming Washington for internal problems. A senior administration official said in a background briefing with reporters the sanctions have nothing to do with energy.

"In terms of the impact that it may have on the energy sector or the oil industry, there's no direct effect from these sanctions," the official said.

The United States and Venezuela are regional adversaries whose economies are linked nonetheless through oil. Venezuela is the No. 4 crude oil exporter to the United States, though the level of exports is down about 15 percent from 2014.

The International Monetary Fund last month said the low price of crude oil is creating fiscal pressures for countries that rely heavily on revenue from exports. The economic situation in Venezuela was described by the IMF as "precarious."

The Central Bank of Venezuela in December said the collapse in oil prices was in part to blame for a 2.3 percent drop in third quarter gross domestic product, sending the country into a formal recession.

Wood Mac gobbled up by Verisk

Published: March 10, 2015 at 6:58 AM

Daniel J. Graeber

JERSEY CITY, N.J., March 10 (UPI) --JERSEY CITY, N.J., March 10 (UPI) -- Energy consultant group Wood Mackenzie confirmed Tuesday it was acquired by Verisk Analytics for approximately $2.8 billion.

"Our teams stand ready to build on the strength of our existing solutions with the benefit of Verisk's analytic expertise, customer relationships, and financial resources," Stephen Halliday, chief executive officer of Wood Mackenzie, said in a statement.

Verisk, which has headquarters in New Jersey, said the deal establishes it as one of the more trusted data analytics providers in the global energy sector, a mirror of its position in the property and insurance industry. Verisk said it would finance the purchase through a combination of debt and equity in a cash deal expected to close during the second quarter of 2015.

Halliday will stay on to lead the new business, reporting to Verisk President and Chief Executive Officer Scott Stephenson.

Wood Mackenzie has a global energy client base that extends across more than 80 countries, competing with rival analytical group IHS.

IMF: Canada squeezed by low oil prices

Published: March 10, 2015 at 6:08 AM

Daniel J. Graeber

WASHINGTON, March 10 (UPI) --WASHINGTON, March 10 (UPI) -- The low price of oil may be spilling over to other parts of the Canadian economy, notably housing, a review from the International Monetary Fund said.

A January report from the IMF found lower crude oil prices would be a drag on investment activity in Canada, with the energy sector bearing the brunt of market trends. In its latest review, the IMF said Canada is facing additional pressures from an "over-heated" housing market and high household debt.

Forecasters in January warned the Canadian housing market be slowing as interest rates rise with lower oil prices. Oil-rich Alberta province faces a risk of a "hard landing" in response.

"Canada's overvalued housing market may be cooling off," the IMF's latest report said.

Alberta leaders take up fiscal issues Tuesday when they convene for the start of a new legislative session. Premier Jim Prentice last week said lawmakers need to focus on a sustainable economic model that does away with an over-reliance on revenue generated from oil and natural gas.

Nearly all of the oil Canada exports heads to a U.S. market that relies less on foreign resources in part because of the increase in production from shale reserves.

Prentice said Monday the fiscal challenges for the oil-rich province are significant.

"In the coming year, we are looking at a $7 billion revenue shortfall, with continued shortfalls in the years after that. Alberta has benefited from high revenues and low taxes, and used resource revenues to cover the difference," he said in a statement. "That is no longer sustainable."

The IMF in its January report said the Canadian economy has expanded at a steady pace since 2013, but growth is unbalanced.

Oil price rally waning, though WTI holding strong

Published: March 10, 2015 at 9:49 AM

Daniel J. Graeber

NEW YORK, March 10 (UPI) --NEW YORK, March 10 (UPI) -- Crude oil prices continued their slow fade Tuesday even as U.S. data show evidence the bear market had an impact on the production behind recent market trends.

The price for Brent, the global benchmark, slid about 1.3 percent from Monday's close to trade near $57.70 per barrel for the April contract early in Tuesday trading. Brent hit a low mark of around $45.13 per barrel mid January and climbed 37 percent by late February. The rally, however, ran out of steam in March, with Brent crude oil prices down about 5.3 percent since the start of the month.

Crude oil prices entered a bear market in June as markets swung toward the supply side in response to gains in U.S. oil production. Prices had dipped to the point that most major oil companies were cutting back on revenue streams for exploration and production, with rig activity in the Bakken oil reserve area of North Dakota falling to a historic low.

Data in a drilling productivity report from the U.S. Energy Information Administration finds net production from key shale basins in the United States may slow down in April. Of the seven shale basins reviewed, only the Permian shale in western Texas shows a projected gain in April.

Those seven shale basins, located largely in the central United States, accounted for more than 90 percent of oil production growth from 2011-13, EIA said.

A November decision from members of the Organization of Petroleum Exporting Countries to keep production static despite sliding oil prices was seen as an effort to sideline shale, where production is at times more expensive than in conventional oil reserves.

The price for West Texas Intermediate crude oil, the U.S. benchmark, pulled further away from Brent, dropping 1.5 percent from the close Monday to $49.22. WTI prices since the beginning of the month are relatively stable.

US crude production to rise to 9.3 million b/d in 2015: EIA

Washington (Platts)--10Mar2015/432 pm EDT/2032 GMT

The US Energy Information Administration on Tuesday nearly tripled its forecast for the 2015 Brent-WTI spread to $7.35/b, largely due to a glut of US crude production.

The 2015 spread, which EIA in February forecast would be $2.54/b, was widened due to "continuing large builds in US crude oil inventories, including at the Cushing, Oklahoma storage hub," the agency said in its latest Short-Term Energy Outlook.

US commercial crude oil inventories increased to a record 444 million barrels at the end of February, up 50 million barrels since the end of 2014, EIA said. US crude storage capacity is now 62% full, compared with 48% full at the same point a year ago, EIA said.

"US commercial crude oil inventories, which are already at the highest level since 1930, are expected to continue growing over the next two months," EIA Administrator Adam Sieminski said in a statement.

"The increase in oil inventories is expected to moderate as refineries ramp up their processing of crude oil into petroleum products in the second quarter and domestic oil production slows," he added.

EIA now forecasts the WTI crude spot price will average $52.15/b in 2015 and $70/b in 2016, down $2.87/b and $1/b, respectively, from February's estimates.

At the same time, EIA forecasts Brent prices will average $59.50/b in 2015 and $75.03/b in 2016, up $1.94/b and 3 cents/b, respectively, from February's estimates.

EIA said Brent prices have been buoyed by falling US crude oil rig counts and reductions in capital spending by oil companies "both of which contributed to expectations that oil supplies could decline more quickly than previous market expectations."

EIA expects US crude oil production to increase to 9.35 million b/d in 2015 and 9.49 million b/d in 2016, compared with 8.65 million b/d in 2014. These estimates are largely in line with EIA's February forecast, which pegged production at 9.3 million b/d in 2015 and 9.52 million b/d in 2016.

EIA said it expects current WTI prices to cause a decline in onshore drilling both in emerging and mature oil production regions, and while crude production is expected to reach 9.4 million b/d in the second quarter of this year it will decline by 170,000 b/d in the third quarter.

Still, EIA said production will likely continue to climb as companies redirect investments to core tight oil plays and due to a reduction in the backlog of drilled, but uncompleted wells.

"Projected 2015 oil prices remain high enough to support continued development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian basins," EIA said. "Companies with lower drilling and debt service costs that operate on acreage in the sweet spots of these regions are expected to continue to drill highly productive wells in 2015."

The growth of US production is expected to continue to eat into net imports of crude oil and other liquids, which fell from 60% of the total share of US liquid fuels consumption in 2005 to an estimated 26% in 2014. That share is expected to fall to 20% in 2016, which would be the lowest level since 1968, EIA said.

Overall, total world production of petroleum and other liquids will rise to 94.10 million b/d in 2015 from 93.01 million b/d in 2014, EIA said.

EIA said 2015 global oil demand will be 93.13 million b/d in 2015, nearly the same estimate it put out last month.

Non-OPEC petroleum and other liquids production will climb from 56.55 million b/d in 2014 to 57.58 million b/d in 2015 and 58.17 million b/d in 2016, up 310,000 b/d and 90,000 b/d, respectively, from February's estimates.

OPEC crude production is expected to be 30.08 million b/d in 2015, the same as 2014, and then to fall to 29.75 million b/d in 2016. Those forecasts are mostly unchanged from last month.

Mexico to export crude oil to South Korea as seeks market diversity

Mexico City (Platts)--10Mar2015/655 am EDT/1055 GMT

Mexico's Pemex has negotiated regular monthly shipments of crude to South Korea, the state company said Monday, as it continues efforts to diversify its client base.

South Korea has already bought about 5 million barrels of Mexican crude on the spot market for delivery between January and April, Pemex said.

A source in the company said that the regular shipments would average 40,000 b/d each month, with some 80% light Isthmus crude and the rest heavy Maya.

Shipments will be placed through Hyundai Oilbank (80% of total volume) and GS Caltex Singapore (20%).

Mexico has been attempting to cut its dependence on the US market and its burgeoning supply of domestically produced shale oil.

About 60% of Mexico's 1.26 million b/d of crude exports in January went to the US, a steep drop from the same month last year, when Mexico's exports averaged 1.17 million b/d and 80% went to the US.

Over the last year, Pemex also has been sending monthly shipments to India and China.

In January, India received 116,000 b/d of Mexican crude, while China took in 29,000 b/d.

South Sudan's Apr Dar Blend crude oil exports to rise 4% on month to 4.8 mil barrels

Singapore (Platts)--10Mar2015/654 am EDT/1054 GMT

South Sudan is expected to export an estimated 4.8 million barrels, or 160,000 b/d, of Dar Blend crude oil in April, up 4.34% from 4.6 million barrels in March, a trader with knowledge of the preliminary program said late Monday.

A total of nine stems, which consists of six 600,000-barrel lots and three 400,000-barrel cargoes, are scheduled for lifting in April, the source said.

The cargoes are expected to be marketed as three cargoes of 1 million barrels and three 600,000-barrel cargoes.

In comparison, one 1-million-barrel cargo and six 600,000-barrel cargoes were offered in March.

Dar Blend is a heavy, acidic crude produced from blocks 3 and 7 in South Sudan's Upper Nile State.

South Sudan's Ministry of Petroleum and Mining was heard to have offered a total 2 million barrels of Dar Blend crude, consisting of two 1-million-barrel cargoes for loading over April 6-8 and April 22-24, in a tender that closed last week.

The outcome of that tender is not known yet.

For March, the ministry had offered 1.8 million barrels of Dar Blend crude, in three stems of 600,000 barrels for lifting over March 7-8, March 15-16 and March 24-25.

The cargoes were heard sold to Unipec at discounts of around $8-$9.80/barrel to Dated Brent, on an FOB basis, traders said.

Apart from the ministry, other stakeholders are expected to jointly offer a total 2.8 million barrels of Dar Blend crude.

State-owned China National Petroleum Corporation was heard to have offered a 600,000-barrel cargo it jointly holds with the ministry for loading over April 2-3.

The cargo was heard placed to a Chinese end-user at a discount of around $8.85/b to Dated Brent.

CNPC, which holds 41% equity in Dar Blend oil field operator Dar Petroleum Operating Company, is also expected to market three other cargoes on behalf of other stakeholders, including Malaysia's Petronas which holds a 40% stake in DPOC.

Two 600,000-barrel stems are scheduled for loading over April 12-13, April 17-18 and a 1 million-barrel stem is expected to load over April 29-May 1.

Other stakeholders of the operating company include South Sudan's Nilepet (8%), China Petroleum and Chemical Corp. (6%) and Egypt Kuwait Holding (3.6%), according to the US Energy Information Administration's website.

South Sudan's Dar Blend crude production remained largely unaffected by fighting that has otherwise impacted output of the country's other crude export, Nile Blend.

Nile Blend crude from South Sudan's Unity state, which was earlier produced at a rate of 40,000-50,000 b/d, remains shut-in since rebels halted output after a failed coup attempt against President Salva Kiir on December 15, 2013.

Exports of the medium, low sulfur, waxy crude have since been sourced from oil fields in neighboring Sudan's Kordofan state, which have an estimated output of 60,000 b/d.

The latest loading program showed that Sudan's Nile Blend crude exports are expected to total 1.2 million barrels in March, said traders with knowledge of the matter.

The preliminary program showed a 600,000-barrel parcel held by CNPC for loading over March 25-27, a 182,000-barrel stem jointly held by Yemen's Ansan Wikfs and Star Oil -- a joint operating company with Sudan's Sudapet, which is expected to load over March 22-24.

The third cargo, scheduled for loading over March 29-31, is a 418,000- barrel stem jointly held by Malaysia's state-owned Petronas and India's ONGC Videsh Ltd.

Meanwhile, South Sudan has commenced talks with Sudan to reduce the oil pipeline fees which the land-locked country pays to transport its oil through Sudan's territory.

As part of an agreement in 2012, South Sudan currently pays a fixed amount of $25/b to transport its oil through Sudanese territory to the Marsha Bashayer Terminal, located along the Red Sea, for export.

Pipeline repairs halt Kirkuk oil pumping

ISTANBUL, 11 hours, 58 minutes ago

Pumping of oil along Iraqi Kurdistan's pipeline carrying Kirkuk and Kurdish crude to the Turkish Mediterranean port of Ceyhan has been halted since Monday due to repairs necessitated by theft, Turkish officials and an industry source said.

"There has been a theft on the pipeline and repairs are required, which will take around one to two days," an official at Turkey's state pipeline operator Botas said.

"The pipeline could reopen tomorrow," the official said.

Crude flow in the pipeline recently averaged around 450,000 barrels per day (bpd) and at times rose as high as 500,000 bpd, a source familiar with the matter said.

But he expressed concern over incidents of theft.

"We have seen an increase in the number of thefts on the Turkish side of the pipeline, around Urfa province," the source said, referring to the southeastern province of Sanliurfa bordering Syria.

"That's why we have seen pumping halted fairly frequently recently," he said.

Oil exports from Iraq's Kirkuk field via Ceyhan had stopped for months last year, when the Baghdad-controlled federal pipeline came under attack by Islamic State militants.

Iraq's state oil marketer SOMO resumed exports via Ceyhan late last year through the Kurdish-built pipeline after Iraqi Kurdistan and the central government in Baghdad struck a deal in December.

Under the deal, Kurds committed to export an average of 550,000 bpd from Ceyhan via SOMO in 2015, in return for the reinstatement of budget payments.

Kurdistan's regional government on Monday said it had supplied almost 97 per cent of the crude oil it agreed to hand over to SOMO during that period.

Loading data from Ceyhan on Monday showed exports from northern Iraq are set to reach 400,000 bpd for the first time since the agreement was struck, from an average of 350,000 bpd over the past week and some 275,000-300,000 in February and January.

"We have been told that pumping has stopped due to a technical problem," a shipping source said, adding that several tankers were waiting offshore. - Reuters

Brent crude dips below $58 on strong dollar

LONDON, 12 hours, 22 minutes ago

Brent crude futures dipped below $58 a barrel on Tuesday as the dollar hit multi-year highs and the oil market remained hobbled by oversupply and weak demand.

The US dollar hit a near 12-year peak against the euro and an eight-year high against the yen, hurting commodities priced in dollars by making them more expensive for holders of other currencies.

Brent was down 79 cents at $57.74, while US crude was 45 cents lower at $49.55.

Traders and analysts said there was a risk of further falls as speculative net long positions were so high, particularly in Brent, whilst the fundamental picture remained one of weakness with no sign of any slowdown in production.

"In order to balance the market we need the supply glut to be brought down, by rising demand or lower supply," Ole Hansen, senior commodity strategist at Saxo Bank, said.

Demand from China, the world's second-largest oil consumer, slowed in February as the Lunar New Year holiday cut into shipping volumes.

At the same time, global refinery maintenance is about to peak, with global offline capacity assessed at 5.7 million barrels per day (bpd) in April, according to Energy Aspects.

"Most of the supportive factors for Brent are starting to fade," they said in a note on Tuesday, pointing out that supplies hit by weather and technical issues were returning.

Libya is expected to export more than two million barrels of crude oil this week from two ports in the east, where output has topped 245,000 bpd.

"This could add to the bearish picture in Brent," Carsten Fritsch, an oil analyst at Commerzbank, said. He said Brent had tried and failed to regain the $60 a barrel level on Monday, which triggered selling from short-term investors.

"Brent could see further declines now, given the large overhang of speculative long positions," he said.

US crude has faired a little better helped by a report from market data firm Genscape that showed a modest stock build last week at the Cushing, Oklahoma, delivery point.

Investors are waiting for weekly US inventory reports from industry group the American Petroleum Institute and the US Department of Energy's Energy Information Administration to see if the Genscape numbers are confirmed.

According to a Reuters survey, US crude stocks are set to extend their record build for a ninth week. - Reuters

Opec expected to continue policy says top official

KUWAIT, 14 hours, 11 minutes ago

Opec is expected to decide to continue its current oil production policy at its next regular meeting in June, Kuwait's Opec Governor Nawal Al-Fuzaia said at an energy industry conference in Qatar on Tuesday.

Asked if she thought Opec would maintain its policy at the next meeting, Fuzaia replied: "I think so because there is less than two months, removing weekend and summer time, before the next Opec meeting.

"I don't think there would be a big change in the oil market supply/demand in this time."

Opec decided at its last meeting in November to keep production unchanged, rather than cutting it to support sliding oil prices.

Fuzaia also said she didn't expect oil prices to go below $40 a barrel. Brent crude is currently at about $58.

"It is difficult to predict (the) oil price point because it is not just moving on sentiment - prices are effected by geopolitics, disruption in Iraq, Iran," Fuzaia said.

"Yes, there is an increase of production in Iraq, but the situation is still not clear.

"In Iran it is all linked with how the nuclear file will progress with the West. Even otherwise, I think the production in Iran will increase, but still not increase quickly, because the situation has been affected. The maintenance, recovery in field, bringing new equipment, will all take time." – Reuters

Bahrain oil refinery expansion to cost $5 billion

MANAMA, 15 hours, 19 minutes ago

An expansion of Bahrain's Sitra crude oil refinery is expected to cost around $5 billion and the facility is likely to be commissioned by 2019, the kingdom's energy minister said on Tuesday.

"We have the refinery modernisation which will cost around $5 billion. Already front-end engineering and design (FEED) has been awarded - FEED should be ready by the end of the first quarter of 2016," Abdul-Hussain bin Ali Mirza told Reuters.

"The increase in capacity according to the current plan is from 260,000 barrels per day to 360,000 and it will be commissioned by 2019."

He added, "Financing will be through borrowing, we haven't finalised this yet."

Bahrain lacks the ample crude oil and financial resources of the big Gulf energy exporters, and its state finances are under heavy pressure from the plunge of oil prices since last year. But Bahraini officials have said they will press ahead with key projects that are needed to develop the economy.

Construction of a pipeline between Saudi Arabia and Bahrain, which will replace an ageing one and lift capacity to 350,000 bpd from 230,000, is expected to be finished by 2018, Mirza said. Previously, officials had estimated the pipeline would be completed by the third quarter of 2016. Mirza did not give a reason for the change.

He added that this year Bahrain would ask companies to bid to explore offshore blocks for oil and gas. He did not give a specific date or say which companies would participate as a roadshow for investors has not taken place yet.

The chief executive of Bahrain's National Oil and Gas Holding Co, Mohamed al-Khalifa, told reporters on Monday that the launch of the bidding round "will depend on the situation of the market".

Mirza said in a speech late on Sunday that his country had completed a pilot project to generate 5 megawatts of solar power and was close to launching another pilot plant to generate 3 MW of solar power and 2 MW of wind power. – Reuters

By Sam Shaw

Published Mar 10, 2015

Oil price is bottoming out: BlackRock

The falling price of oil has caused “acute and concentrated pain” for oil exporters and energy companies, but the end could be in sight, a report from BlackRock suggests.

The BlackRock Investment Institute said in a report last month that the price of crude was bottoming, with modest gains expected in 2016.

Cheaper oil had helped retail industries and nations that imported the commodity, such as India and Japan, the report said. But countries that exported oil, such as Venezuela, and businesses with limited cash buffers and restricted access to debt had been hit hard.

The price of oil has been on a roller-coaster ride, with the globally recognised benchmark Brent crude falling from $115.70 (£75.42) per barrel on June 19 last year to less than $50 in January.

The price has now recovered somewhat, climbing to more than $60 per barrel last week, but the level is still well below that just months ago.

BlackRock is favouring the super oil majors for their strong balance sheets, high dividends and integrated business models, while oil services firms are largely being avoided.

“[Oil services companies] may appear cheap, but we believe a lot more pain is to come,” the report said.

“Oil explorers are shifting into survival mode, cutting capital expenditure and negotiating lower servicing rates.”

The company added that oil producers would also be in for a rough ride.

The report categorised producers into three groups: countries that have accumulated large amounts of foreign assets, such as Saudi Arabia, United Arab Emirates and Norway; oil producers with smaller fiscal cushions, such as Mexico, Malaysia, Bahrain, Oman and Colombia – which may revert to austerity and increased borrowing; and finally those with little cash and poor access to international debt markets, such as Venezuela and Nigeria.

“Energy makes up 97 per cent of Venezuela’s goods exports, yet its foreign reserves are a paltry 2 per cent of GDP,” BlackRock said.

The report, ‘Concentrated pain, widespread gain – the dynamics of lower oil prices’, pointed to a consumption boost beyond savings at the petrol pump, based on previous oil downturns.

US housing could be set to uptick due to rising consumer confidence and improved cash flows, as well as a decrease in mortgage rates because of lower inflation.

Also, purchases of durable goods have surged during previous downturns, with people taking advantage of the drop in the cost of consumer financing.

The knock-on effect should also be swift. The report stated any petrol price decline that was part of an extreme fall of more than 15 per cent in a quarter “tends to generate a bump in consumption in the next quarter that is four times as large as the effect of milder price falls”.

While the “winners” enjoying lower operating costs – the transport industry, retailers, restaurants and other consumer discretionary stocks – had already rallied, BlackRock thought they could climb higher as analysts upgraded their earnings estimates.

With the falling price of oil contributing to lower inflation across many countries, emerging market oil importers have seen their inflation levels track even US levels in the past three years.

BlackRock said agriculture and food prices were also likely to fall as a consequence.

Saudi Exec Expects $1 Trillion Drop In Energy Investments

By Andy Tully

Posted on Tue, 10 March 2015 21:49 | 0

A high-ranking Saudi Aramco executive says the plunge in energy prices already has caused many in the industry to cut spending on oil and gas projects, and the trend probably will continue for a few years, perhaps reaching a cut of $1 trillion in investments.

“Challenges during down cycles are more complicated today than before,” Amin Nasser, a senior vice president for exploration and development at Saudi Aramco, told the Middle East Oil and Gas Show on March 9 in Manama, Bahrain.

“At this moment the global industry is poised to potentially cancel about $1 trillion in capital funding,” Nasser said.

Later Nasser told reporters on the sidelines of the conference that the $1 trillion amount included initiatives that might be delayed, not merely those that would be canceled altogether. “What we’ve heard from the industry is that there is $1 trillion of planned projects that will be dropped or deferred over the next couple of years because of what’s happening,” he said, without identifying his source.

The price of oil has plunged since late June from around $115 per barrel to around $60 today because of an oversupply caused by increased US production of shale oil and weaker demand for oil, especially in China and Europe.

This has eaten into the profits of both big and small energy companies, leading them to cut costs in many ways, including employee layoffs. But the largest hits are being felt in capital expenditures in companies ranging from Exxon Mobil Corp. of the United States, Norway’s Statoil and Britain’s BP.

Even the wealthy Aramco is feeling the pinch. The Arab Petroleum Investment Corp. in Riyadh said in a December report that it expects Saudi investments to drop to $127 billion during 2015-2019 from its previous estimate of nearly $180 billion during 2014-2018. A month later, Aramco’s CEO, Khalid al-Falih, said the company would renegotiate some existing contracts and postpone some projects.

For example, Aramco is working to renegotiate its contract with the Italian engineering company Saipem to reduce the $2 billion costs of building processing facilities at the Khurais oil field in east-central Saudi Arabia. It is expected to add 300,000 barrels of oil per day of production capacity at Khurais, which already produces 1.2 million barrels per day.

Platt’s quotes anonymous sources as saying there’s been no decision on the Khurais project, but that it could be extended in an effort to cut costs, or it could be canceled altogether.

And Reuters, also citing anonymous sources, reports that Aramco has delayed exploration for oil and gas in the Red Sea as well as plans to build a clean-fuels plant for $2 billion at its largest oil refinery at Ras Tanura on the Saudi east coast.

By Andy Tully of Oilprice.com

Oil Prices Drop on Supply Expectations

Analysts see inventories world-wide continuing to grow

By NICOLE FRIEDMAN

Oil prices slid Tuesday on expectations that U.S. crude stockpiles hit another record high last week.

The scheduled seasonal refinery maintenance is getting underway, but some analysts say the issue of global oversupply is returning. Here, a view of a Chevron refinery in Richmond, California, on March 3, 2015. (Photo by Justin Sullivan/Getty Images) PHOTO: GETTY Light, sweet oil for April delivery fell $1.71, or 3.4%, to $48.29 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 26.

Brent, the global benchmark, settled down $2.14, or 3.7%, at $56.39 a barrel on ICE Futures Europe, the lowest level since Feb. 11.

The U.S. Energy Information Administration will release its inventory data for the week ended March 6 on Wednesday. Analysts surveyed by The Wall Street Journal expect that crude supplies rose by 4.8 million barrels in the week. Crude stocks are already at their highest level in about 80 years.

The analysts also expect the EIA to report that gasoline supplies fell by 1.7 million barrels, while stocks of distillates, including heating oil and diesel, fell by 2.3 million barrels.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the same week showed that crude supplies fell by 404,000 barrels, while gasoline stocks rose by 1.7 million barrels and distillate inventories also rose by 1.7 million barrels, according to industry sources.

Prices spiked briefly on the news.

Growing U.S. inventories have weighed on the U.S. benchmark in recent weeks more than on Brent prices. In its monthly short-term energy outlook released Tuesday, the EIA forecast the price difference between the two benchmarks would be wider this year and next than it previously expected.

The agency also raised its projections for international petroleum supplies this year and next, while slightly lowering its global consumption forecasts.

The report was a “disappointment to the bulls,” said Tim Evans, analyst at Citi Futures. “It basically leaves us looking at a somewhat larger surplus that may take somewhat longer to work off…We’re just seeing more barrels of supply.”

The International Energy Agency is set to release its own monthly market report later this week, and the Organization of the Petroleum Exporting Countries’ report will come out Monday.

A strong dollar weighed on prices Tuesday. The dollar rose to multiyear highs against developed-market currencies on Tuesday on expectations that the U.S. would raise interest rates around midyear. Oil is priced in dollars, so a stronger dollar makes oil more expensive to buyers using other currencies.

“The prospect of further gains for the U.S. currency remains a major headwind for commodity prices,” said Capital Economics in a note.

After oil futures lost half of their value in 2014, prices stabilized in February as freezing temperatures in the U.S. boosted demand for heating oil and diesel fuel and bad weather hampered crude exports from other regions, including Iraq.

However, weather-related issues are fading at the same time as refineries around the world are shutting units for seasonal maintenance, which reduces demand for crude oil.

“Most of the supportive factors for Brent are starting to fade,” said Energy Aspects in a note released Monday. “We expect prices to fall in the coming weeks.”

Gasoline futures settled down 3% at $1.8183 a gallon. Diesel prices fell 1.4% to $1.8135 a gallon, the lowest settlement since Feb. 5.

Write to Nicole Friedman at nicole.friedman@wsj.com

U.S., Global Oil Prices Diverge on Supply Issues

By NICOLE FRIEDMAN

The U.S. and global oil-price benchmarks diverged Monday, as the U.S. market rose on stockpile expectations at a key storage hub while concerns about a continued oversupply weighed on global prices.

Light, sweet crude for April delivery settled 39 cents, or 0.8%, higher, at $50 a barrel on the New York Mercantile Exchange.

Brent, the global benchmark, fell $1.20, or 2%, to $58.53 a barrel on ICE Futures Europe.

Data service Genscape Inc. reported Monday that oil stockpiles in Cushing, Okla., rose by 1.7 million barrels between Feb. 27 and March 6, according to two market watchers, with most of the increase in the first part of that week.

Genscape’s numbers were “a lot lower than everybody expected,” said Carl Larry, director of oil and gas at Frost & Sullivan. “It looks like we’re seeing a lot more crude being pushed down from Cushing to the Gulf Coast,” where inventories are ample but not as close to maximum capacity.

Cushing is the physical delivery point for the benchmark Nymex oil-futures contract, so futures prices are sensitive to supply levels at the hub. For years, oil was flowing into Cushing faster than it could be sent to refineries along the Gulf Coast, causing a glut to form at the hub and depressing U.S. oil prices.

But in 2014, supply levels at Cushing fell sharply after a new pipeline opened to ship oil from the storage hub to the Gulf Coast.

Recently, Cushing storage has begun to refill, with stockpiles nearing a two-year high.

The U.S. Energy Information Administration will report on Wednesday its inventory data, which includes Cushing, for the week ended March 6. The American Petroleum Institute, an industry group, will report its own data for the same week on Tuesday.

Meanwhile, Brent prices fell as traders expected the global market to remain oversupplied.

Brent futures have risen more than U.S. prices this year amid stronger demand and reduced exports from some countries. However, much of the demand and some of the supply disruptions were weather-driven, said Goldman Sachs in a note released Sunday.

“Weather has played a great part in keeping crude off the market” this year, the bank said. “We expect Brent oil prices…to reverse their recent strength.”

In January, Goldman called for U.S. prices to trade near $40 a barrel for most of the first half of 2015.

In its most recent note, the bank said its $40 forecast is likely too low, but its forecast for prices to average $65 a barrel in 2016 is probably too high because U.S. oil producers are preparing to ramp up activity later this year by raising equity, reducing debt and waiting to pump oil from existing wells until prices rise.

“Our expectation going forward is therefore for the global crude inventory build to resume,” the bank said.

Growing supply levels are a major reason that some analysts expect prices to drop in coming weeks and even test the multiyear lows that were reached in January.

“Very high inventory levels are perhaps the main micro reason to remain cautious on oil prices,” analysts at Bank of America Merrill Lynch said in a report projecting a global inventory increase of 180 million barrels by the third quarter of 2015. While the bank upgraded its oil price forecasts on the back of gains in February, it said prices are bound to fall again.

The bank sees the U.S. benchmark ending the second quarter at $41 a barrel, while Brent is expected to fall to $48 a barrel over the same period.

Gasoline futures dropped 0.4% to $1.8747 a gallon Monday. Diesel prices fell 1.6% to $1.8398 a gallon.

— Georgi Kantchev contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com

Saudi King Salman vows to maintain stability

RIYADH, 5 hours, 14 minutes ago

Saudi Arabia's King Salman said he would fight corruption, diversify the economy and confront anybody who challenged the stability of the world's top oil exporter in his first big speech since taking power on January 23.

His speech, carried on state television, focused on the need to create private sector jobs for young Saudis, a main policy goal for many years as Riyadh strives to meet a looming demographic challenge while controlling public spending.

He said the kingdom would continue oil and gas exploration despite the fall in crude prices, and vowed to build a strong, diversified economy.

Addressing the chaos around the region, he said no one would be allowed to tamper with Saudi Arabia's security or stability.

He said Saudi foreign policy would be committed to the teachings of Islam and spoke of a move towards greater Arab and Islamic unity to face shared threats, as well as a continued focus on working with other countries against terrorism.

He also pledged to maintain the kingdom's Sharia Islamic law, emphasising its central place in the kingdom, in a nod to the powerful clerical establishment that confers religious legitimacy on the unelected ruling dynasty.

Salman also reassured Saudis about lower oil prices, noting the historically high revenues of recent years and saying the government would reduce the impact on development projects and continue to explore for oil and gas reserves.

Addressing himself to young Saudis of both sexes, he said the state would do all it could to help develop their education, sending them to prestigious universities, to help them get jobs in either the public or private sector.

King Salman added that he had directed the government to review its processes to help eradicate corruption, a source of dissatisfaction among many Saudis, alongside concerns about expensive housing and joblessness. - Reuters

OPEC Boasts About Pain In U.S. Shale

By Evan Kelly

Posted on Tue, 10 March 2015 18:50 | 0

Oil prices continue to fluctuate in a relatively narrow band around $50 for WTI and $60 for Brent. On March 6, Baker Hughes reported another round of declining rig counts. Only this week the pace of cutbacks accelerated. An estimated 75 rigs were removed from the oil patch for the week ending on March 6, a big jump from a week earlier. It is important to remember that week-to-week numbers are largely statistical noise; the long-term trend line is more important. Still, after several weeks in which the rig count collapse appeared to be slowing, last week’s figures are a reminder that the rout is not over yet. After all, production has not dropped off – U.S. production surpassed 9.3 million barrels of oil per day in February, the highest level in decades.

Still, the falling rig count is evidence that OPEC’s strategy is working, something emphasized by its top official over the weekend. OPEC’s Secretary-General Abdallah Salem el-Badri spoke at the Middle East Oil and Gas Conference in Bahrain on March 7, in which he highlighted the growing cracks in the U.S. shale industry. His comments echoed confidence in OPEC’s strategy of undermining its main competitor. Without explicitly saying so, he emphasized that OPEC will successfully force some shale production out of the market as private companies pullback on investment. “When OPEC didn’t reduce its production, everything collapsed for the U.S. shale-oil-rig market,” el –Badri said. At the same time, he cautioned that the industry may be cutting too much, which could lead to a price spike in the future. “Projects are being canceled. Investments are being revised. Costs are being squeezed,” he warned. “If we don’t have more supply, there will be a shortage and the price will rise again.” Not that that would necessarily be a bad thing for OPEC

But as el-Badri noted, low prices are indeed putting a strain on the industry. Significantly lower revenues for oil and gas exploration companies have sparked a wave of credit downgrades, which along with new bond offerings, are contributing to an unsettling level of “junk” bonds. The energy sector accounts for a large and growing share of the high-yield credit market. Junk bonds in the energy sector have reached $247 billion, or 17.5%, the highest share for any industry. The growing level of debt with poor credit ratings is beginning to concern big banks, which warn that defaults are most likely just around the corner.

Urgent Note: As oil market volatility has calmed somewhat, many investors may be tempted by the promise of a price bottom to go bargain hunting. While plenty of opportunity remains in the market, not all that glitters is gold. This week, Martin Tillier details the various types of value traps awaiting investors in the oil and gas sector. Find out what to look out for to avoid getting burned, and make the best-informed investment decisions possible by clicking here and starting your free, no risk trial today.

This past week saw another spate of oil train derailments with one derailment and explosion in Illinois and another in Northern Ontario. Fortunately, major casualties were averted as the derailments occurred in remote areas. The two accidents come shortly after two prior derailments – a previous incident (also in Ontario), plus a much more spectacular fiery explosion in West Virginia. The railcars implicated in the string of catastrophes are the 1232 designs, purported to be safer and stronger than the older DOT-111 models. But the problems go beyond railcar specifications. A confusing distribution of responsibility between railroad companies, shippers, and oil producers, along with a mind-numbingly slow regulatory response from the U.S. federal government is perpetuating the situation. While it is unclear what happens next, one thing is for sure: the status quo is unsustainable.

A new round of attacks by Islamic State militants hit Libya’s oil industry on March 6. Eight people were reported to have been killed with at least seven foreigners kidnapped. The Islamic State has been able to fund a massive expansion in Iraq and Syria by capturing oil refineries and other oil-related infrastructure. They have attempted to follow the same script in Libya, but without enough strength, they have been unable to seize oil infrastructure for their gain. As a result, the extremist group has decided to settle on merely destroying oil pipelines and refineries to deprive their enemies of revenue-generating assets. The strategic decision to target Libya’s oil industry for destruction does not bode well for the country’s long-term ability to rebuild. It could even contribute to the state’s collapse and years of stagnant oil output if violence keeps up and infrastructure cannot be repaired.

A new type of investment just recently became available to individual oil & gas investors. Because of the recent crash in oil and the timing of a new law, it could be the most lucrative investment in modern history. I want to give you a step-by-step guide (at no cost) on how you can get started and potentially retire from it.

Despite the gloom and doom, there was a bit of positive news to Libya’s east. Egypt is working with BP (NYSE: BP) to develop its natural gas resources. Last week BP obtained the rights to a concession in Egypt’s West Nile Delta after it agreed to invest $12 billion to develop 5 trillion cubic feet of natural gas, with production starting in 2017. BP estimates that it will be able to ramp up production to 1.2 billion cubic feet per day, which would amount to about one-quarter of Egypt’s total gas production at today’s levels.

Just a few days after announcing the deal, BP announced that it had made a second major gas discovery in Egypt. On March 9 the oil major said that its deep-water well, the deepest ever in Egypt, came across a significant gas discovery in the Nile Basin. The “Atoll” well is about 15 kilometers north of the company’s 2013 “Salamat” discovery. “Success in Atoll further increases our confidence in the quality of the Nile Delta as a world class gas basin,” BP CEO Bob Dudley said in a statement. “The estimated potential in the concession exceeds 5 trillion cubic feet (tcf) and we now have a positive starting point for the next possible major project in Egypt after BP’s West Nile Delta project.” Egypt is pinning a lot of its energy hopes on BP’s success. The country is chronically short on energy, with a shortfall now hitting crisis levels. A growing population with rising energy needs is colliding with falling production, leading to a surge in blackouts. BP could help reverse that trend.

By Evan Kelly for Oilprice.com

Opec signals oil price war set to continue

Current policy of producing around 30m barrels per day of crude will continue

A labourer pours oil that he scooped up from the oil spill with a helmet into an oil drum, near Dalian port, Liaoning province

According to the credit rating agency Moody's Investor Service, crude oil is expected to average $55 a barrel throughout 2015 Photo: Reuters

By Andrew Critchlow

Opec’s Gulf oil producers have signalled that the cartel will persist with its current price war strategy when it gathers to decide on production quotas in June.

Kuwait’s governor to the organisation told an energy conference in Qatar on Tuesday that the current policy of producing around 30m barrels per day of crude will continue.

“I think so because there is less than two months, removing weekend and summer time, before the next Opec meeting,” said Nawal Al-Fuzaia. “I don’t think there would be a big change in the oil market supply/demand in this time.”

His remarks come just a few weeks after Nigeria’s oil minister and current Opec president Diezani Alison-Madueke floated the idea of convening an early meeting of the 12-member group to address falling prices, which are causing havoc among its economies. Opec controversially decided last November to allow oil prices to fall after it refused to respond to weakening demand by cutting its production quota. The decision, which has since opened up deep divisions within the cartel, saw crude plummet to levels well below $50 per barrel.

Saudi Arabia, the group’s largest producer, has formed together a core of wealthy Gulf allies within Opec who appear determined to hold the line on the current policy. This group is opposed by members including Iran, Nigeria and Venezuela, who are feeling the most economic pain from falling prices.

According to the credit rating agency Moody’s Investor Service, crude oil is expected to average $55 a barrel throughout 2015, around 30pc lower than its project for the final quarter of 2014. It says this level will put pressure on the economies of major producing countries and raise levels of debt.

Countries in the Gulf Co-operation Council such as Saudi Arabia and the United Arab Emirates “will be affected through lower oil revenues, which will likely lead to cutbacks in public expenditure and in some cases, rising debt burdens,” said Steffen Dyck, a senior analyst at Moody’s.

At the Telegraph’s Middle East Congress last month, the former Opec president Abdullah bin Hamad al-Attiyah warned that an emergency meeting would fail to reach agreement to reverse declines in prices which follow Opec’s gradual loss of oil market share to Russia and the US. In North America, Opec’s share of the market for crude has declined amid a rush to develop shale oil resources.

COLUMN-OPEC is winning its battle with U.S. shale: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

(Reuters) - U.S. shale producers are falling behind in the Red Queen's Race as the downturn in drilling means that new oil production is failing offset falling output from existing wells.

The famous race is named after the scene from Lewis Carroll's novel "Through the Looking-Glass", in which the Red Queen warns Alice: "It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run twice as fast."

The race is a metaphor for the relationship between increased oil production from newly drilled wells on the one hand and declining output from old wells on the other.

The net result is that the downturn in drilling is threatening to cut output for the first time since the start of the shale revolution.

Other forms of oil production, notably from offshore fields in the Gulf of Mexico, will continue to increase in the next few months. But in the shale sector, the Organization of the Petroleum Exporting Countries (OPEC) has won its battle with U.S. shale producers and forced output growth to a standstill.

By refusing to cut its own output in November and allowing prices to fall sharply, OPEC has attempted to force shale producers to curb their rapidly swelling output.

Production from three of the four largest shale oil plays in the United States will fall next month, the U.S. Energy Information Administration (EIA) says.

April production from the Bakken region is projected to fall by 8,000 barrels per day (bpd) from March. Eagle Ford, meanwhile, is expected to drop by 10,000 bpd and Niobrara by 5,000 bpd, according to the EIA's "Drilling Productivity Report", published on Monday.

Only the Permian Basin is expected to achieve continued growth next month, but the projected increase of 21,000 bpd is less than half the 43,000 bpd recorded in December (link.reuters.com/qak34w).

Once production from minor plays and gas-producing regions is included, EIA predicts oil output from shale regions will be flat next month.

Drilling is becoming more productive in all areas as producers concentrate on high-yielding acreage and abandon peripheral zones.

Weighted-average new production per well in the four plays is expected to increase almost 10.5 percent from 388 bpd for wells drilled in December to 428 bpd for wells drilled in February.

But the number of new wells drilled across all four fell by 30 percent to 765 over the same period, outstripping any productivity gains.

Wells drilled in December are expected to have added about 423,000 bpd of new oil when they were completed and put into production in February. But wells drilled in February are forecast to add only 328,000 bpd of new oil when they begin production next month.

At the same time, declining output from the stock of legacy wells is expected to worsen from 319,000 bpd in February to 330,000 bpd in April.

December's wells added a total of 103,000 bpd to net production in February. But February's new wells will add virtually nothing to net production in April. (Editing by David Goodman)

US oil settles down 3.4%, at $48.29 a barrel

A rallying dollar punished oil on Tuesday as players took profit on recent highs in the spread between Brent and U.S. crude, traders said.

In New York, U.S. West Texas Intermediate crude closed down $1.71, or 3.4 percent, at $48.29 a barrel, weighed by the dollar and expectations that U.S. crude inventories had swelled to another record high last week from new supply builds.

Brent, the London-traded global oil benchmark, slumped about 4 percent as expectations of a mid-year U.S. rate hike sent the dollar soaring to multi-year highs, making commodities denominated in the greenback costlier for holders of other currencies.

Brent was down $2, or 3.7 percent, at $56.50 a barrel.

Traders said WTI saw less pressure than Brent as players bet on a further narrowing of its discount to the London benchmark after forecasts for a modest build last week in the Cushing, Oklahoma delivery point for U.S. crude versus the rest of the country.

"The dollar's might is creating unexpected headwinds for oil. Brent particularly is taking it harder than WTI as people unwind and take profit in the spread between the two," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.

The Brent-U.S. crude differential fell to a 3-week low under $8 a barrel earlier on Thursday. The spread had narrowed by nearly 40 percent since hitting an end-February peak of $13, its highest in 13 months.

Carsten Fritsch, an oil analyst at Commerzbank, cautioned about a capitulation in Brent prices once it went below key support level $57.80.

"Brent is looking increasingly heavy with a decline likely to lowest levels in almost four weeks expected within the next couple of sessions," oil analysts at Jefferies Futures said in a note.

According to a Reuters survey, U.S. crude stocks are set to extend their record build for a ninth week.

Investors are waiting for weekly inventory reports from industry group the American Petroleum Institute later on Tuesday, and official stockpile numbers from the U.S. government's Energy Information Administration on Wednesday.

Also on Tuesday, the EIA revised upward its 2015 domestic oil production outlook, but lowered its 2016 forecast because it expects the slump in global prices to weigh on the country's shale boom next year.

Expected total oil production in 2015 will rise to 9.35 million barrels per day, slightly higher than the 9.3 million bpd forecast last month, the EIA said in its monthly short-term energy outlook.

The revision comes a day after the EIA released data showing that oil production from U.S. shale fields will grow at its lowest pace in over four years starting in April, on the back of low prices and company spending cuts.

An EIA spokesman said the revision is due to an increase in baseline expectations for the fourth quarter and to production in the Gulf of Mexico. Offshore production in the Gulf is more resistant to price swings than onshore production as it requires longer-term investment.

Meanwhile, 2016 total oil production was expected to slip to 9.49 million bpd from 9.52 million bpd in last month's report, the EIA said.

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