News 13/03/2015

Iran is in talks with Asia Buyers About Raising Oil Sales

(Bloomberg) -- Iran is in talks with at least three buyers in Asia to sell them more crude if sanctions on the Middle Eastern country are lifted, according to four people with direct knowledge of the discussions.

State-owned National Iranian Oil Co. is talking with the buyers and hasn’t yet specified how much additional crude it might offer them, said the people who asked not to be identified because the conversations are confidential. A spokeswoman for Iran’s oil ministry wasn’t able to comment immediately.

The U.S. and five other global powers are negotiating with Iran to end a decade-long dispute over its nuclear program in return for removing sanctions that have cut its crude exports. Overseas crude shipments averaged 1.3 million barrels a day last year, or 1.2 million barrels a day below pre-sanction levels, according to the International Energy Agency.

“They are obviously very determined to come flying out of the starting blocks should negotiations result in a lifting of sanctions,” said Ole Hansen, head of commodity strategy at Copenhagen-based Saxo Bank A/S. “Imagine a million barrels extra crude from OPEC.”

Oil Prices

Brent crude fell 48 percent last year amid a surge in supply of North American shale oil and the refusal by the Organization of Petroleum Exporting Countries to cut production. Oil rebounded this year as growth in U.S. drilling slowed. Brent, a benchmark for more than half of the world’s oil, climbed 18 percent in February, the first gain in eight months.

U.S. and European Union sanctions restrict the amount of Iranian crude refineries can buy. EU fuel processors are forbidden from buying any Iranian oil, while U.S. restrictions allow for China, Japan, India, South Korea, Turkey and Taiwan to purchase limited amounts of the crude.

Iran could increase output by 800,000 barrels a day to its full capacity of 3.6 million a day within three months, the IEA estimated on Feb. 10. Production dropped from 3.8 million barrels a day in March 2010 to 2.8 million now, according to data compiled by Bloomberg.

The U.S., U.K., Germany, France, Russia and China make up the P5+1 group holding the nuclear negotiations with Iran. The U.S. and its allies are seeking to prevent Iran from producing a nuclear weapon. Iran, which said it isn’t trying to build a bomb, has said it needs to enrich uranium for its civilian nuclear reactor in Bushehr. The parties have set a deadline of the end of March to reach a political agreement outlining a deal and plan to reach a final accord by the end of June.

How Big Oil Is Profiting From the Slump

(Bloomberg) -- Europe’s largest oil companies are gaining support from an unlikely source as they confront the industry’s worst slump since the financial crisis: lower oil prices.

Although better known for their oil fields, refineries, and petrol stations, BP Plc, Royal Dutch Shell Plc and Total SA are also the world’s biggest oil traders, handling enough crude and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.

The trio’s sway in commodities trading, largely unknown outside the industry, is set to pay off in 2015 as the bear market allows traders to generate higher returns by storing cheap oil today to sell at higher prices later and using lower prices to make more bets with the same capital.

“Volatility has increased dramatically over the last three or four months,” said Mike Conway, the head of Shell’s trading and supply business. “Parts of your business that are volatility driven are probably doing pretty well.”

While companies are shy about revealing the financial results from their trading business, a look at the last major bear market provides clues to the opportunity they have today. In the first quarter of 2009, BP said it made $500 million above its normal level of profits from trading. That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income of $2.38 billion that quarter.

From dealing floors that resemble the operations of Wall Street banks in cities including Geneva, London, Houston, Chicago and Singapore, oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits.

European Trio

Few other publicly-listed oil companies trade at the scale of the European trio, although Statoil ASA, Eni SpA and OAO Lukoil all have trading desks.

The amount of crude oil and fuel traded each day by the three European majors together dwarf the combined size of independent traders such as Vitol, Glencore, Trafigura, Mercuria, Gunvor, based on company statements and people familiar with the market.

“The trading arms of the oil producers have the opportunity to monetize significant opportunities this year,” said Roland Rechtsteiner, a partner at consultants Oliver Wyman, who specializes in advising commodity-trading businesses.

The last time that a European oil major disclosed the profitability of its trading operation was a decade ago, when BP said it made $2.97 billion in 2005, or about 10 percent of the company’s total earnings that year.

Without giving away concrete financial results, the companies have indicated income from trading already rose in the fourth quarter of 2014 as oil prices fell.

Stronger Results

Brian Gilvary, BP Chief Financial Officer, said on Feb. 3 the group has benefited from an “improved result from supply and trading.” Gilvary ran BP’s trading arm from 2005 to 2009.

“We’re in a very strong commodity trading position,” Shell CFO Simon Henry said in a call with analysts on a Jan. 29. “Our ability to take advantage of volatility is some protection to mitigate the low price environment.”

BP and Shell declined to comment further. Total didn’t respond to requests for comment.

Although extra profits from trading won’t offset the much larger loss of revenue from lower oil prices, it could help the three companies to weather the crisis and, perhaps more importantly, beat analysts’ estimates.

Analysts estimate BP’s adjusted net income will drop to $6.2 billion in 2015, highlighting the impact a boost from trading could have in the final results.

Beyond the large oil producers, trading executives are optimistic they could reap strong profits in 2015.

Ivan Glasenberg, chief executive officer of Glencore, said on March 2 that if the market continues as in the first two months, oil trading “could have a blow-out year” in 2015.

Bear Markets

In the past, oil trading houses have enjoyed stronger returns during bear markets. Vitol, the world’s largest independent oil trader, had record income of $2.28 billion in 2009, up from $1.36 billion in 2008, according to the company’s accounts.

Fitch Ratings anticipates that oil traders “are likely to report healthy earnings in 2015 as they benefit from volatile oil prices.”

Several factors explain the expected rise in income. First, after years of steady prices, volatility has surged, allowing traders to make more bets about the direction of the market. Second, oversupply has pushed oil prices into a structure called contango -- a relatively rare situation where forward prices are higher than current prices, allowing traders to buy oil cheap, store the commodity and sell later. Third, lower prices mean it takes less capital to make trades.

Price Difference

The price difference between a Brent contract for immediate delivery and the one-year forward -- a measure of the contango - - stood at minus $7.18 a barrel on Wednesday. The spread hit an all-time high of minus $17.93 in December 2008.

Brent for delivery in April traded at $58.09 a barrel on Thursday, 46 percent lower than a year ago.

In addition to crude oil, BP and its rivals trade almost every refined product, from gasoline to fuel oil, plus electricity, petrochemicals, natural gas, currencies and even metals. On top of their own production from oil fields and refineries, the trio buys commodities from third parties.

The three companies also make significant bets in the derivatives commodities markets. Such is the scale of BP and Shell in the financial market that both are registered swap dealers in the U.S. under the Dodd-Frank act. Together with agricultural trader Cargill Inc., they’re the only non-financial firms among nearly 50 banks, insurers, brokers and others registered as swap dealers.

Market Intelligence

BP said on its website that its global trading activity generates a huge amount of market intelligence that other companies do not have.

“This gives us a clear advantage in converting up-to-the-minute data into effective market calls,” it says.

The large trading businesses Europe’s oil majors have aren’t mirrored at rivals in the U.S.

That’s largely the result of mergers in the late 1990s and 2000s where the acquiring companies had a non-trading culture that prevailed. As such Mobil trading slowly disappeared when it combined with Exxon, while Texaco followed suit after merging with Chevron.

BP employs in its Integrated Supply and Trading business, as the trading arm is known, about 3,000 people in trading floors in London, Chicago, Singapore and several other cities. Total Oil Trading SA, or Totsa, employs 500 in hubs in Geneva, Houston and Singapore. Shell International Trading and Shipping Company, known in the industry as Stasco, does not disclose the number of employees.

The trio trades at least 15 million barrels a day of crude and oil refined products, according to estimates from industry executives compiled by Bloomberg News.

How Big Oil Is Profiting From the Slump

(Bloomberg) -- Europe’s largest oil companies are gaining support from an unlikely source as they confront the industry’s worst slump since the financial crisis: lower oil prices.

European Trio

Few other publicly-listed oil companies trade at the scale of the European trio, although Statoil ASA, Eni SpA and OAO Lukoil all have trading desks.

Without giving away concrete financial results, the companies have indicated income from trading already rose in the fourth quarter of 2014 as oil prices fell.

Stronger Results

Brian Gilvary, BP Chief Financial Officer, said on Feb. 3 the group has benefited from an “improved result from supply and trading.” Gilvary ran BP’s trading arm from 2005 to 2009.

BP and Shell declined to comment further. Total didn’t respond to requests for comment.

Analysts estimate BP’s adjusted net income will drop to $6.2 billion in 2015, highlighting the impact a boost from trading could have in the final results.

Beyond the large oil producers, trading executives are optimistic they could reap strong profits in 2015.

Ivan Glasenberg, chief executive officer of Glencore, said on March 2 that if the market continues as in the first two months, oil trading “could have a blow-out year” in 2015.

Bear Markets

Fitch Ratings anticipates that oil traders “are likely to report healthy earnings in 2015 as they benefit from volatile oil prices.”

Price Difference

Brent for delivery in April traded at $58.09 a barrel on Thursday, 46 percent lower than a year ago.

Market Intelligence

BP said on its website that its global trading activity generates a huge amount of market intelligence that other companies do not have.

“This gives us a clear advantage in converting up-to-the-minute data into effective market calls,” it says.

The large trading businesses Europe’s oil majors have aren’t mirrored at rivals in the U.S.

The trio trades at least 15 million barrels a day of crude and oil refined products, according to estimates from industry executives compiled by Bloomberg News.

Norway Bets Cutting Pollution Abroad Is an Easier Battle

(Bloomberg) -- Norway is wagering it will be easier to cut carbon emissions overseas than at home.

The nation may pay about 1.5 billion euros ($1.6 billion) for emission cuts in European Union nations, or if that negotiation fails, buy permits elsewhere under a planned global climate deal. Norway currently expects its own greenhouse gas levels to be about the same in 15 years, so will meet its 40 percent reduction goal by paying for curbs abroad.

Rich nations from Japan to Luxembourg have bought emissions rights under the United Nations’ Kyoto Protocol, or from poorer countries that don’t have mandated targets. China, the biggest polluter, plans a national carbon market by next year after agreeing to limit emissions by 2030, and some U.S. states are considering their own programs.

“Carbon trading can speed up the global transition away from a fossil economy,” said Jens Froelich Holte, a political adviser at the Norwegian ministry for climate and environment. “Trade creates benefits and this is as true for carbon as it is for other commodities,” he wrote in an e-mail Feb. 16.

At current EU carbon allowance prices, the purchase of emission reductions by Norway would be valued at about 1.5 billion euros for the decade through 2030. Norway on Feb. 4 adopted a plan to cut emissions by the equivalent of 40 percent below 1990 levels by 2030. Its emissions from energy were at a record in 2013.

Price Boost

Norway’s plan may boost EU carbon prices, which fell 81 percent since 2008, said Tim Yeo, chairman of the U.K. parliament’s energy and climate change committee. Higher prices will in turn influence investment decisions, he said by phone Feb. 25.

Norway, which is not an EU member, is the bloc’s second-biggest oil and gas supplier, and participates in Europe’s carbon market for certain industries including oil and natural gas production. Norway’s emissions from those industries rose 80 percent since 1990, with the total from all uses up 4.6 percent.

By buying from Europe, Norway leaves less space for others in the bloc to emit, Yeo said. Fifteen EU nations including Germany and the U.K. are seeking “urgent” rule changes to the market to deal with a glut of allowances that has reached about 2 billion metric tons, more than a year’s supply.

Norway said Feb. 4 it has an option to use carbon allowances from the existing EU market to cover an unspecified portion of its emissions currently outside it, including those from transport and agriculture. This could erode the accumulated surplus in the EU carbon market, the world’s biggest.

Environment Groups

Trading alone won’t save the climate, according to environment groups. Over-reliance on carbon markets “is more than lazy, it’s counterproductive to the basic task of cutting emissions,” said Rasmus Hansson, the only Green Party member of parliament in Norway.

Still, the EU can “now put pressure on Norway that Norway is not willing to put on itself,” Hansson said Feb. 9 by phone.

Under the so-called joint fulfillment trade for the decade through 2030 planned by Norway and the EU, the Nordic nation may buy 195 million tons of allowances, equal to what Germany produces in about two months. The details are still being negotiated, said Holte, the Norwegian official. At that size, Norway’s agreement to cut emissions would represent the biggest trade ever, according to a list of transactions from Bloomberg New Energy Finance.

Paris Talks

The Nordic nation will continue other environmental spending, such as 3 billion kroner ($370 million) a year on forest protection through 2020, that is not designed to help it comply with climate targets, Holte said.

Most of the world’s nations will meet in Paris in December to negotiate a new international climate deal. If the targets set are “ambitious,” then Norway would seek to be carbon-neutral by 2030 at the latest, implying that its trading program could be much bigger, according to a statement on a government website overseen by the country’s environment agency.

The global climate agreement should allow cuts under a commitment by one country or group of countries “to be claimed towards the commitment of another,” the European Commission, the EU’s executive arm, said Feb. 25 in a statement outlining its preferences.

Trades are already happening under the Kyoto Protocol. Japan and its companies have bought about 165 million tons of UN emission credits, UN data show. Norway bought 29 million tons.

Estonia, Switzerland

In 2010 and 2011, Luxembourg spent 44 million euros on emissions rights from Estonia and Lithuania. Switzerland said last month it planned to buy credits.

New environmental rules may spur U.S. states to introduce cap-and-trade policies to protect the market share of their power industries from incursions by neighbors, according to a report published last week by Resources for the Future, an environment policy think tank in Washington.

In China, the planned national market will replace test programs in states and cities. Together, China, the U.S. and the EU made up 55 percent of global emissions from energy in 2013, BP Plc data shows.

If other countries choose not to trade, they will either adopt weaker climate targets or pay more to meet their goals, Daniel Rossetto, director of Climate Mundial, which advises on carbon trading, said Feb. 20 by phone from Maputo, Mozambique.

Norway’s plan “throws down the gauntlet to every other nation,” he said.

Fuel-Thirsty California Takes Tankers From East Canada, Asia

(Bloomberg) -- Fuel producers in California, facing plant outages and upsets that are squeezing supplies, are looking as far off as Asia and eastern Canada for reinforcements.

A tanker carrying refined products such as gasoline, diesel and jet fuel was bound for Los Angeles on Wednesday after loading at the Point Tupper terminal in Nova Scotia, shipping data compiled by Bloomberg show. At least seven other fuel tankers were headed to the U.S. West Coast after leaving Asia, the data show.

Tankers are bound for California after a spate of refinery shutdowns that propelled the premium for the state’s special blend of gasoline to a seasonal record. Pump prices surged by the most ever, making California home to the most expensive fuel in the U.S.

“Due to U.S. refinery outages, Korea has had export opportunities of Carbob to the U.S. West Coast,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said in a research note on Wednesday.

Spot gasoline in Los Angeles traded at a 19-cent-a-gallon premium over futures on the New York Mercantile Exchange on Thursday, the biggest seasonally since Bloomberg began assessing pricing there in November 2007. The fuel surged to as high as 65 cents a gallon over futures late last month on speculation that refinery outages would curb local supplies.

An explosion at Exxon Mobil Corp.’s Torrance refinery near Los Angeles and the shutdown of Tesoro Corp.’s Golden Eagle refinery near Martinez in Northern California have both “created arbitrage opportunities” on the West Coast, New York-based Poten & Partners Inc. said in a report March 6.

Sending Carbob

The tanker Estia was expected to reach Los Angeles by March 27 after leaving Point Tupper with as much as 500,000 barrels of fuel, shipping data compiled by Bloomberg show. Irving Oil Ltd.’s Saint John refinery in New Brunswick markets Carbob to California, home to the strictest fuel emissions standards in the U.S., the company said on its website.

NuStar Energy LP operates a 7.5 million-barrel oil and petroleum products terminal at a former refinery site in Point Tupper. It can handle the world’s largest tankers.

California used to require more frequent imports, said Andy Lipow, president of Lipow Oil Associates LP in Houston and a former trader at Vitol SA. The state’s gasoline demand has waned in the last decade and U.S. refiners have raised their own production because of cheaper crude and natural gas costs.

“Years ago, I brought barrels into California from Europe and Asia,” Lipow said. “We haven’t seen it in a number of years as West Coast refiners have been able to satisfy the demand.”

Three Tankers

At least three tankers were scheduled to load jet fuel in March for delivery to the U.S. West Coast from Korea, India and China, ship-fixture data compiled by Bloomberg show. Tanker Res Cogitans was near Los Angeles on Wednesday after leaving South Korea last month. The Pine Galaxy was off the coast of San Francisco after leaving Asia.

The Stolt Spray and the Maersk Miyajima were both bound for Los Angeles after leaving Asia this month. A ship takes about 15 days to go to Los Angeles from Ulsan, South Korea, according to SeaRates.com, an online freight exchange.

Noble Group Ltd. had an option on tanker Ipanema Street to ship California-blend gasoline, known as Carbob, to the West Coast from Pembroke, U.K., the fixtures show. Stephen Brown, a spokesman for the Hong Kong-based company, declined to comment.

Ghana Raises Budget-Deficit Target as Oil Revenue Target Cut

(Bloomberg) -- Ghana said this year’s budget deficit will be wider than previously projected after a fall in crude oil prices curbed revenue.

The target for the gap was revised to 7.5 percent of gross domestic product from 6.5 percent, Minister of Finance Seth Terkper told Parliament Thursday in the capital, Accra. The deficit has averaged about 10 percent in the past three years. The benchmark oil price in the budget was cut to $52.80 per barrel from $99.38, he said.

“This is the fiscally responsible and prudent thing to do,” the minister said. The revisions “address the impact of these shocks.”

Ghana is seeking to rein in inflation and stabilize a currency that has been Africa’s weakest, plunging 40 percent against the dollar over the past year. The government reached an agreement with the International Monetary Fund last month for almost $1 billion of loans. Brent crude oil traded in London has dropped 47 percent in the past year.

The target for revenue and grants was cut 8.3 percent to 29.7 billion cedis ($8.3 billion), while the target for spending was lowered 3.6 percent to 39.7 billion cedis, Terkper said. The government will take money from the Stabilization Fund to help finance the budget deficit, he said.

Terkper slashed the oil revenue estimate to 1.5 billion cedis from the previous estimate of 4.2 billion cedis. Oil output will remain around its 2014 average of 102,000 barrels a day this year, he said.

Ghana has started preparations for a Eurobond sale this year and will submit the plan to parliament soon, Terkper told reporters at a press conference later on Thursday. He said the government will seek partial guarantees for the debt from international institutions including the World Bank and African Development Bank.

Ghana will use $500 million of the revenue from the bond sale to pay debt due in 2017, Terkper said.

Gasoline, Diesel Slide as Striking Oil Workers Wait for Offer

(Bloomberg) -- Gasoline and diesel tumbled in New York on speculation that the union representing 30,000 U.S. oil workers will reach an agreement with refiners on a new contract, ending a strike that’s dragged on for more than a month.

Diesel futures slid as much as 2.6 percent and gasoline as much as 1.8 percent as the United Steelworkers union sent delegates to Houston to review any proposals from Royal Dutch Shell, which is bargaining on behalf of oil companies. The union was waiting for Shell to make an offer on Thursday, three people familiar with the talks said, while asking not to be identified because the information isn’t public.

An accord would end a strike at refineries that account for almost 20 percent of total U.S. refining capacity. Traders sold gasoline and diesel futures, betting that an end to the strike would ensure ample fuel supplies and weaken products that had been trading at the highest level relative to crude in almost two years.

“Now that the strike may be over, some of those speculative trades are being taken off as that risk to production issues goes away,” Eric Rosenfeldt, the vice president of supply and trading at Papco Inc. in Virginia Beach, Virginia, said by electronic message on Thursday. “Part of the strength in crack spreads was driven by speculation that the refinery strike would impact production.”

Gasoline for April delivery fell 1.3 percent to $1.8031 a gallon on the New York Mercantile Exchange at 12:43 p.m. East Coast time. Diesel was down 2.3 percent to $1.7782. Gasoline’s premium to oil was $28 a barrel after reaching $33.31 on Feb. 27, the widest since April 1, 2013.

The anticipation of a labor agreement is “going to put pressure on the products markets,” Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston, said by phone on Thursday. “Once you get to a high level, people are out there looking to take a profit. The market taking a breather here on news like this isn’t unusual.”

Striking U.S. Oil Workers Reach National Pact With Shell

(Bloomberg) -- The United Steelworkers union representing 30,000 U.S. oil workers reached a tentative deal on a four-year contract with Royal Dutch Shell Plc that may soon end a nationwide strike that has lasted over a month.

The proposed deal includes annual wage increases and maintains the cost-sharing ratio of the union’s current health-care plan, the United Steelworkers said in a statement on Thursday. It also contains language addressing the USW’s concerns about worker fatigue and performance of routine maintenance by contractors rather than union members.

The accord could end a strike at U.S. plants that began on Feb. 1 and has spread to sites accounting for almost 20 percent of the country’s refining capacity. It’s the first national walkout of U.S. oil workers since 1980, when a work stoppage lasted three months. The USW represents workers at plants that together account for 64 percent of U.S. fuel output.

“We salute the solidarity exhibited by our membership,” Leo Gerard, the USW’s international president, said in the statement. “There was no way we would have won vast improvements in safety and staffing without it.”

Wayne Ranick, a USW spokesman in Pittsburgh, said by e-mail late Thursday that the work stoppage would continue until the national contract is ratified by union membership. The USW said about 6,550 people were on strike as of Thursday.

Curtis Smith, a spokesman for The Hague, Netherlands-based Shell, said by e-mail from Washington earlier on Thursday that the negotiations were “ongoing.”

Gasoline Futures

The deal comes after the USW, which has workers at more than 200 U.S. refineries, fuel terminals, pipelines and chemical plants, rejected seven previous offers from Shell, which is negotiating on behalf of employers including Exxon Mobil Corp. and Chevron Corp.

Gasoline futures for April delivery sank 0.9 percent on Thursday to settle at $1.8095 a gallon on the New York Mercantile Exchange.

“Rumors of an agreement already put downward pressure on the market today,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone on Thursday. “The reaction tomorrow will be very tempered. The market’s already priced it in. They paid due respect today.”

The walkout began on Feb. 1 with: Tesoro Corp.’s plants in Martinez and Carson, California, and Anacortes, Washington; Marathon Petroleum Corp.’s Catlettsburg complex in Kentucky and Galveston Bay site in Texas; Shell’s Deer Park complex in Texas and LyondellBasell Industries NV’s Houston plant.

Joined Stoppage

Workers at BP Plc’s Whiting, Indiana, and Toledo, Ohio, refineries joined the work stoppage a week later. And late on Feb. 20, the USW expanded it to include Motiva Enterprises LLC’s Port Arthur, Texas, refinery, the nation’s largest, as well as its refineries in Convent and Norco, Louisiana. Motiva is a joint venture between Shell and Saudi Arabian Oil Co.

United Steelworkers members operate units, perform maintenance and work in labs at the refineries. The work stoppage also covers a Marathon cogeneration plant in Texas and two Shell chemical plants in Texas and Louisiana.

The USW and Shell began negotiations on Jan. 21 amid the biggest collapse in oil since 2008, driven largely by surging output from U.S. shale formations that cut prices by 49 percent in the second half of 2014.

Refiners in the Standard & Poor’s 500 have almost tripled since the beginning of 2012, when the steelworkers last negotiated an agreement. Marathon and Tesoro went on that year to take their place among the 10 best performers in the S&P 500 Index.

The national agreement, which addresses wages, benefits and health and safety, will serve as the pattern that companies use to negotiate local contracts. Individual USW units may still decide to strike if the terms they’re offered locally don’t mirror those in the national agreement.

Oilfield Safety a Concern as Companies Cut Costs During Downturn

(Bloomberg) -- A deadly oil well explosion in Texas’s Permian Basin this week offers a cautionary note of the industry’s challenges as companies cut costs during a market downturn.

Even as deaths in the industry have climbed much less than the breakneck pace of hiring for the U.S. shale boom, the three fatalities in Upton County on Tuesday are a reminder of the many risks facing workers.

“Even in downturns like this, people tend to want to watch their bottom lines, but safety is just as important now as it was when things were busy,” said Kenny Jordan, executive director at the Association for Energy Service Companies, a Houston-based industry organization. “That’s one of the concerns.”

The oil and gas industry saw 112 workers die in 2013, the latest figures available from the U.S. Bureau of Labor Statistics. That’s up 31 percent from 2003. Meanwhile, producers and drillers doubled their workforce in the same period, to 507,000.

This week’s explosion that killed three workers occurred at a well owned by Parsley Energy Inc. The workers were employed by Mason Well Service Ltd. of Odessa, Texas, said Lisa Elliott of Dennard-Lascar Associates, an outside communications firm speaking for Parsley, who confirmed the deaths. She didn’t return phone and e-mail messages today seeking further comment.

The U.S. Occupational Safety and Health Administration is investigating, Diana Petterson, a spokeswoman for the Department of Labor, said in a phone interview. She was unable to give more information about the accident.

Permian Basin

The Permian is the biggest oil-producing region in the U.S. and remains one of the most active drilling areas despite the downturn in the oil market. Oil rigs in the Permian Basin of Texas and New Mexico make up more than a third of the U.S. total and 31 percent of those drilling in all of North America, according to data compiled by Houston-based Baker Hughes Inc., the world’s third-largest field-services company.

The industry has announced more than $40 billion in spending cuts and is eliminating 100,000 jobs globally as crude prices have fallen by more than half since June.

The industry could get safer in a downturn, as some of the younger, more inexperienced workers leave oil and gas, Jordan said.

Oilfield deaths fell by 43 percent in 2009 to 68, the lowest amount in a decade, as a collapse in natural gas prices led to drilling cutbacks, according to the Bureau of Labor Statistics. The number of active drilling rigs, a measure of workload, fell 57 percent from August 2008 to June 2009, according to Baker Hughes data compiled by Bloomberg.

Parsley, based in Austin, Texas, is run by Bryan Sheffield, the 36-year-old son of Scott D. Sheffield, who is chairman and CEO of Irving, Texas-based Pioneer Natural Resources Co., another Permian operator.

Oil CEOs Said to Ask Obama Administration to Lift Export Ban

by Dawn KopeckiBradley Olson

(Bloomberg) -- About a dozen U.S. drilling executives, including ConocoPhillips Chief Executive Officer Ryan Lance, were in Washington this week trying to persuade White House officials and lawmakers to lift the 40-year ban on U.S. oil exports, according to two people familiar with the meetings.

Chief executives from the lobbying group Producers for American Crude Oil Exports, or PACE, met with White House senior energy policy adviser Brian Deese March 11 to ask the Obama administration to roll back a prohibition on most U.S. oil exports imposed after the 1973 Arab oil embargo, according to two people, who asked not to be identified because the discussions weren’t public.

Producers are eager to lift the ban because oil in the U.S. is selling for about $10 less than the global benchmark. An end to the ban would allow U.S. producers to sell for higher prices.

CEOs from eleven of PACE’s 16 member companies flew to Washington for meetings with administration officials and lawmakers, including Marathon Oil Corp. CEO Lee Tillman, Chesapeake Energy Corp. CEO Doug Lawler and Occidental Petroleum Corp. CEO Steve Chazen, according to the group. They also briefed federal officials and lawmakers on market conditions, including industry job cuts, oil-production levels and the idling of oil rigs, said one of the people who was briefed on the discussions.

More Conversations

“We’ve had a series of very productive meetings with senators from both parties and the administration and look forward to continuing those conversations in the months ahead,” PACE Executive Director George Baker said in a statement.

Frank Benenati, a White House spokesman, didn’t respond to a request for comment.

Administration officials, including Energy Secretary Ernest Moniz, have called the restrictions antiquated, and they are being reviewed in a years-long study in the department.

U.S. energy policies severely restrict crude exports while applying no such limits to products processed in refineries. U.S. refiners are exporting record amounts of gasoline while producers contend with depressed oil prices. The U.S. has surpassed Russia and Saudi Arabia as the world’s largest producer of oil and natural gas, according to the U.S. Energy Information Administration.

Free Trade

Exxon Mobil Corp. CEO Rex Tillerson urged the government and Congress to allow U.S. exports of oil and natural gas.

“With free trade in energy and common-sense regulatory reforms, the U.S. energy industry can strengthen U.S. energy security and continue to pioneer the innovations that make possible the safe and responsible development of energy,” Tillerson said in remarks Thursday to the Economic Club of Washington, according to an Exxon statement.

Executives also met on Capitol Hill with aides to Senator Lisa Murkowski, chairwoman of the Senate Energy and Natural Resources Committee. Murkowski, a Republican from Alaska, has publicly backed lifting the ban on U.S. oil exports and is working on a broad rewrite of U.S. energy laws.

‘Listening Sessions’

“We’ve been holding a series of listening sessions and PACE has been part of that,” said committee spokesman Robert Dillon. Oil executives met with Republican and Democratic committee staff this week. “As we start to draft legislation, we want to make sure we gather all the ideas. We want to hear from everybody.”

Producers calling for an end to the ban have been beset by the biggest oil-market crash since 2009, which has made it harder to turn a profit by drilling in shale, a technological achievement that helped unlock a boom in North American supply.

Last year, the Department of Commerce began to clarify some rules relating to a kind of ultra-light crude called condensate. That review allowed companies including Pioneer Natural Resources Inc. to export condensate after a minimal amount of processing, akin to existing regulations that allow refined products such as gasoline and diesel to be exported.

It isn’t clear how much exports have increased because of those allowances, since government data doesn’t release a separate tally of how much condensate has been shipped abroad. U.S. crude exports rose 11 percent in January from December, to 491,000 barrels a day, according to Bloomberg calculations from U.S. Census Bureau data. Of that total, 400,000 barrels a day went to Canada, where U.S. producers and traders are allowed to export under federal rules.

Mexico Cuts Production and Reserve Forecasts After Prices Slid

(Bloomberg) -- Mexico’s National Hydrocarbons Commission lowered the country’s estimates for proven oil reserves and state-run Petroleos Mexicanos cut its 2015 production forecast after crude prices collapsed and its budget was reduced.

Pemex cut its 2015 output forecast by more than 100,000 barrels to 2.288 millon barrels a day, Gustavo Hernandez, exploration and production director, said Thursday at a builders congress in Mexico City. Mexico’s proven oil reserves slid 3.1 percent to 13.02 billion barrels from a year earlier, Hydrocarbons Commissioner Juan Carlos Zepeda said Thursday in an interview at Bloomberg’s Mexico City offices.

Pemex’s failure to boost reserves and drilling activity shows that opening the oil industry to outsiders is needed, Zepeda said. Mexico is opening its energy industry to foreign producers for the first time since 1938. Pemex drilled 120 wells in the fourth quarter, 36 percent less than a year earlier.

“These numbers are distant from the target we have as a country,” Zepeda said, referring to the reserves. “The energy reform will help by complementing Pemex’s investments and multiplying exploration, development and reserves.”

Mexico City-based Pemex posted a ninth straight quarterly loss on slumping crude prices as output tumbled to 2.36 barrels a day in the fourth quarter. Pemex Chief Executive Officer Emilio Lozoya said in a January interview that the original output forecast of 2.4 million barrels a day for this year was “a conservative goal.”

Curbed Growth

Mexico’s recovery rate for proven oil reserves fell to 67.4 percent last year, short of its target of 100 percent, Zepeda said.

Lower-than-expected oil production last year subtracted 0.4 percentage point from Mexico’s economic growth, according to the Finance Ministry. Output in 2014 was 2.43 million barrels a day compared with an initial target of 2.52 million barrels a day, the Finance Ministry said.

“If the decline in the production platform hadn’t materialized, we would have had 2.5 percent growth in 2014 instead of the 2.1 percent we observed,” the ministry said March 10 in an e-mailed response to questions.

Pemex is analyzing a series of actions to reduce spending after reporting a quarterly net loss of $7.75 billion and a 10 percent decline in sales, Chief Financial Officer Mario Beauregard said on an earnings conference call Feb. 27. Pemex will cut staff in the next few weeks after trimming $4.1 billion of its budget amid the fall in prices, Beauregard said last month in an interview with Radio Formula.

Crude prices have slumped about 50 percent in the past year. As many as 10,000 contract workers for Mexican oil service companies were laid off in early January as Pemex eliminated contracts.

Brent extends rally as EU industrial production falters

Daniel J. Graeber

NEW YORK, March 12 (UPI) --NEW YORK, March 12 (UPI) -- Crude oil prices gained ground in Thursday trading as European industrial production declines offset continued improvements in the U.S. labor market.

Brent prices increased for the second straight day Thursday, gaining 1.3 percent from the previous close to sell at $58.32 per barrel for the April contract. Brent in mid-January sold for less than $45 per barrel, but has been unable to hold above the $60 mark for any extended period so far this year.

Oil prices are trading at a discount from their June 2014 high above $100 per barrel as markets shift away from the demand side on continued concerns about the health of the global economy.

Eurostat, the statistics office for the European Union, said Thursday there were still lingering problems for the regional economy. Industrial production in December grew by just under one-half percent but dropped 0.1 percent in January. Year-on-year, industrial production grew by 1.1 percent across the European economy.

A weak European economy has pushed the value of the euro to historic lows, diminishing the buying power for regional consumers that may otherwise benefit from the low price of oil.

In the United States, the Labor Department said seasonally adjusted claims for unemployment for the week ending March 7 fell 36,000 from the previous week. Fewer people in Texas filed claims, while more people in North Dakota did so for the week, the department said. Texas and North Dakota are the No. 1 and No. 2 oil producers in the nation, respectively.

The low price of oil is forcing energy companies to cut staff and spend less on exploration and production. Rig numbers in North Dakota, which provides a benchmark for energy sector activity, is down 42 percent from this week in 2014.

The price of West Texas Intermediate, the U.S. benchmark, was up a fraction of a percent from the previous session to $48.43 per barrel.

A March note from Energy Intelligence finds oil markets sustained on the supply side, suggesting a mid-term drop in oil prices seems "inevitable." Prices short-term may be vulnerable as the April contract expires next week.

Brent extends rally as EU industrial production falters

Published: March 12, 2015 at 9:50 AM

Daniel J. Graeber

Oil prices are trading at a discount from their June 2014 high above $100 per barrel as markets shift away from the demand side on continued concerns about the health of the global economy.

A weak European economy has pushed the value of the euro to historic lows, diminishing the buying power for regional consumers that may otherwise benefit from the low price of oil.

The price of West Texas Intermediate, the U.S. benchmark, was up a fraction of a percent from the previous session to $48.43 per barrel.

Vitol bruised by low oil prices

Published: March 12, 2015 at 8:18 AM

Daniel J. Graeber

ROTTERDAM, Netherlands, March 12 (UPI) --ROTTERDAM, Netherlands, March 12 (UPI) -- Dutch-owned Vitol, the largest independent energy trader in the world, said Thursday its 2014 revenue dropped 12 percent on low oil prices.

"As the largest independent trader of energy, the rapid slide in the price of crude in the last quarter of 2014 impacted our headline revenue figure which has fallen to $270 billion," President and Chief Executive Officer Ian Taylor said in a statement.

Oil prices are down around 40 percent from the June 2014 highs about the $100 per barrel mark, forcing many in the industry to cut spending for exploration and production. Brent crude oil prices hit a low mark in 2015 at $44.13 per barrel and are up only 5 percent since the beginning of the year to sell near $58 per barrel in Thursday trading.

Taylor in February expressed pessimism over any sustained rally in oil prices because of expected growth in U.S. crude oil stockpiles and production. While low oil prices present a source of economic stimulus to some countries, international security creates long-term uncertainties for market dynamics.

"Looking ahead, despite an improvement in near-term product demand, questions remain on both the demand and supply sides," he said.

Revenue for Vitol fell to its lowest level in four year. The company said it handled 268 million tons, or around 1.9 billion barrels of oil equivalent, last year, down nearly 3 percent from the previous year.

Alberta gets good marks for pipeline safety

Published: March 12, 2015 at 9:16 AM

Daniel J. Graeber

EDMONTON, Alberta, March 12 (UPI) --EDMONTON, Alberta, March 12 (UPI) -- Oversight of the pipeline network in the oil-rich Canadian province of Alberta was found to be effective, though there's room for improvement, an audit found.

The Auditor General in Alberta reviewed pipeline safety for the province and found its energy regulator in general had performed well in terms of risk management and safety.

While the provincial Department of Environment was not meeting expectations, the Alberta Energy Regulator performed well "with a board and management that think as regulators," the audit found.

Alberta Energy Minister Frank Oberle said pipeline safety is important to a province at the heart of the nation's oil industry.

"Pipeline safety is important to Albertans and I am pleased that the Auditor General has found that we have a well-functioning system with effective oversight and enforcement," he said in a statement.

The Alberta Energy Regulator is tasked with ensuring pipeline operators act responsibly. Provincial authorities in 2013 found Plains Midstream Canada didn't act appropriately in its response to the release of about 28,000 barrels of crude oil from the Rainbow pipeline in Alberta, one of the largest spills since the 1970s.

In December, the Canadian Energy Pipeline Association said it welcomed proposed changes to a federal pipeline safety measure that would secure commitments to a polluter-pay principle.

At the provincial level, the Auditor General said improvements could be made in closing a skills gap and expanded analysis on the underlying causes of pipeline safety incidents.

Oberle said provincial leaders were working to implement the recommendations.

Spending cut planned for Kurdish oil operations

Published: March 12, 2015 at 7:38 AM

Daniel J. Graeber

CALGARY, Alberta, March 12 (UPI) --CALGARY, Alberta, March 12 (UPI) -- The bulk of spending for 2015 will target oil operations in northern Iraq and, while spending is reduced, output should be static, Oryx Petroleum announced.

Oryx, a Canadian company focused on operations in the Kurdish north of Iraq, said it was planning 2015 capital spending of $140 million, a 60 percent reduction from the budget set in November.

Oryx Chief Executive Officer Michael Ebsary said low oil prices and "disruptions to market access" in the semiautonomous region led in part to the spending revision.

"Accordingly, we have moderated our capital expenditure plans to focus on our core development assets to enable us to achieve our targeted near term production growth," he said in a statement. "We are also reducing costs throughout the organization in order to increase our overall efficiency."

The company in June sold its first volumes of crude oil from the Demir Dagh reserve area to the domestic market. The rise of the self-proclaimed Islamic State last year curtailed operations in northern Iraq when several oil companies operating in the region evacuated non-essential staff as a security precaution.

Oil work is continuing in the northern Kurdish region of Iraq as military pressure pushes back the insurgency waged by the Islamic State. Despite its oil wealth, however, the World Bank said the Kurdish region needs at least $1.4 billion to stabilize the economy in 2015.

Nearly all of the spending for Oryx will target the Hawler license area in Kurdish Iraq, with about 35 percent designated for linking up to an export pipeline through Turkey. Total production is expected at around 40,000 barrels per day, which is unchanged from the previous guidance.

Spending cut planned for Kurdish oil operations

Published: March 12, 2015 at 7:38 AM

Daniel J. Graeber

Oryx, a Canadian company focused on operations in the Kurdish north of Iraq, said it was planning 2015 capital spending of $140 million, a 60 percent reduction from the budget set in November.

Oryx Chief Executive Officer Michael Ebsary said low oil prices and "disruptions to market access" in the semiautonomous region led in part to the spending revision.

New oil production starts in Alberta

Published: March 12, 2015 at 7:10 AM

Daniel J. Graeber

CALGARY, Alberta, March 12 (UPI) --CALGARY, Alberta, March 12 (UPI) -- Canadian oil producer Husky Energy said it started production at its Sunrise project in Alberta, where output should reach 60,000 barrels per day by 2016.

"Sunrise is the latest in a series of resilient, low sustaining capital projects to come online from our diverse portfolio," Husky Chief Executive Officer Asim Ghosh said in a statement.

The company said it started an enhanced oil recovery technique called steam injection at the Sunrise facility in December. The method heats the viscous form of oil in Alberta reserve areas.

Ghosh said Sunrise should have a 40-year lifespan once peak production of 60,000 bpd is reached.

Some of the early efforts at enhanced oil recovery have been problematic. Regulators in Canada placed restrictions on steam injection at an Alberta exploration site in June 2013.

More than 12,000 barrels of bitumen, the viscous form of oil found primarily in Alberta, leaked from a site near the Cold Lake Air Weapons Range operated by Canadian Natural Resources Ltd. in 2013.

The company said a process dubbed cyclical steam stimulation, or CSS, may have contributed to what the report described as a flow-to-surface event. CSS may have cracked open other subsurface layers, allowing oil to leak out of control from the site.

Shell expects to drill offshore Alaska this year

Published: March 12, 2015 at 6:46 AM

Daniel J. Graeber

THE HAGUE, Netherlands, March 12 (UPI) --THE HAGUE, Netherlands, March 12 (UPI) -- Drilling in the arctic waters of Alaska should proceed this year assuming timely approval from the U.S. federal government, Royal Dutch Shell said Thursday.

Shell's preliminary drilling program in arctic waters offshore Alaska in 2012 was plagued by problems, including a grounded drilling rig, violations of air pollution limits, engine failures on a tow ship and an oil spill containment system damaged during testing.

Shell Chief Executive Ben van Beurden said in an annual report, published Thursday, the Interior Department was reviewing a supplementary environmental impact statement on operations in the Chukchi and Beaufort seas.

"We anticipate that the Department of Interior will continue to work in accordance with their proposed timeline to complete the [impact statement] in sufficient time to allow us to pursue our plans to drill in 2015," he said in the report.

The Port of Seattle signed a two-year lease last month that would let Shell use a terminal as a base of operations for arctic drilling plans. More than 60 people spoke during a public forum to express frustration with the port's decision earlier this week, the Seattle Times reported.

Advocacy groups argue drilling in the region would create substantial risks to the health of safety of people living in the region. Supporters view Shell's planned operation as a source of economic stimulus.

Van Beurden said there were "technical, fiscal, regulatory, political" and other issues that may interfere with frontier development in the arctic.

"Failure to replace proved reserves could result in lower future production, cash flow and earning," he said.

The company devoted about $5 billion and more than eight years of work for its Arctic oil exploration off Alaska's coast in the Chukchi and Beaufort seas.

IMF: Energy reforms key to Ukraine's success

Published: March 12, 2015 at 6:09 AM

Daniel J. Graeber

WASHINGTON, March 12 (UPI) --WASHINGTON, March 12 (UPI) -- Energy sector reforms and the addressing of "deep-rooted" structural issues in Ukraine will return the country's economy to growth, the IMF said.

The International Monetary Fund announced it approved the immediate disbursement of about $5 billion to Ukraine, with a little more than half of that allocated to budget support for the former Soviet republic.

The Ukrainian administration that took over in the wake of political upheaval in late 2013 said the economy was left in shambles by former President Viktor Yanukovych. More than a year later, the IMF said real gross domestic product is expected to contract by 5.5 percent.

Gripped by conflict and interference by its former Soviet patrons, the IMF nonetheless said some of the onus lies with Kiev.

"Addressing deep-rooted structural problems is critical to create an enabling environment for investment and private sector activity," acting IMF Chairman David Lipton said in a Wednesday statement.

That sentiment was backed earlier this week by Victoria Nuland, assistant U.S. secretary of state for European affairs, who told lawmakers in Washington the leaders in Ukraine were "in a race against time" to enact the reforms necessary to reboot the nation's economy.

For the IMF, addressing reforms in an energy sector plagued by debt and pressured by its Russian counterparts is paramount for success. Lipton said Ukrainian authorities plan to eliminate the debt carried by state-controlled energy company Naftogaz by 2017 in part by fundamentally restructuring the company.

The performance of Ukraine's energy sector is a vital concern for a European market as 20 percent of the Russian natural gas headed west runs through the Soviet-era pipeline network in Ukraine. Trilateral talks to discuss gas-related dates may take place as early as next week.

The IMF said Ukraine's economy is expected to return to growth as early as next year, when real GDP is expected to grow by 2 percent.

US oil settles down 2.3%, at $47.05 a barrel

Global oil prices weakened on Thursday, with both benchmark Brent and U.S. crude surrendering early gains in volatile trading before the expiry of their front-month contracts and in fears of a supply build at the delivery point for U.S. oil.

The reopening of the Houston Shipping Channel for oil imports and the potential nearing of a deal to end a U.S. refinery workers strike contributed to market bearishness, traders said.

"The ship channel opening allows crude to get to refineries and the expectation is that with margins strong, refiners will produce as much as they can and this is putting some pressure on oil futures," said Phil Flynn, analyst at Price Futures Group in Chicago.

"The strike news is mainly psychological in that it hadn't yet had a big impact on production, but a settlement would soothe concerns about the possibility the strike could eventually hurt output."

Oil prices had earlier risen after the dollar's rally stalled on surprisingly weak U.S. February retail sales data. Dollar-denominated commodities, such as oil, become more appealing to holders of other currencies when the greenback depreciates.

Front-month U.S. crude closed down $1.12, or 2.33 percent, at $47.05 a barrel. It rose nearly 60 cents in earlier trade.

Benchmark Brent's front-month was down 50 cents, at $57 a barrel, after rising more than $1 earlier.

U.S. crude prices fell after market data provider Genscape estimated a stock build of 2.2 million barrels since Friday in the Cushing, Oklahoma, delivery point for oil, traders said. The estimate came after U.S. government data showing Cushing stocks rose by 2.3 million barrels in the week to Friday.

"The Cushing estimate shows more of the same old for U.S. crude—intense amounts of supply and shaky demand," said John Kilduff, partner at New York energy hedge fund Again Capital.

Brent also slid after trading higher to U.S. crude as uncertainty crept into the market ahead of next week's expiry of the April front-month contracts for both oils. But Brent's premium to U.S. crude still widened to a near one-week high.

The Brent-U.S. crude spread, one of the biggest volume trades in oil, widened by more than $1 earlier to above $10 a barrel, its highest since Friday.

Hamm: Americans pay price for US oil export ban

Billionaire oilman Harold Hamm said Thursday that U.S. refineries can't handle all the oil that's being produced domestically.

"Basically, there's 18 million barrels-a-day refinery space and $12 million barrels a day has been set-up for heavy sour crude," which contains a higher percentage of sulfur impurities than U.S.-produced light sweet crude, the founder and chief of Continental Resources said in a CNBC "Squawk Box" interview. "That's doesn't do us any good. We're producing light sweet crude, the best in the world, and we need to get to the refineries in the world that can handle it."

Hamm, a long-time opponent of the decades-old ban on U.S. crude exports, said there are refiners in South Korea, as well as U.S.-friendly countries in Europe and South America, that would be glad to process American crude, but the oil export ban prohibits that.

"Americans consumers ... are paying for that. Right now, the refineries are getting Brent prices, world prices" for their product, he said. "We're out here trying to compete at a discounted price. West Texas Intermediate is right now about $9.50 a barrel less than Brent prices. So we're not on a level playing field at all."

Oil prices, nearly cut in half over the past six months, were helped early Thursday by a slightly weaker dollar, making greenback-traded commodities such as crude more attractive to holders of other currencies. But the dollar index, a measure against a basket of currencies, has increased nearly 25 percent in the past year.

Hamm said he's hopeful the Obama administration will lift the 40-year-old oil export ban, pointing to a meeting Oklahoma's Republican governor, Mary Fallin, had at the White House last month. She said at the time that President Barack Obama was willing to talk about whether to allow U.S. companies to export crude.

Non-OPEC oil supply rises by 6 million bpd –OPEC

by UDEME AKPAN on Mar 13, 2015 | No comments

Posted under: Business & Finance

Members of the Organisation of Petroleum Exporting Countries, OPEC, including Nigeria may witness prolonged low crude oil prices for their crude oil grades as supply from non-members have risen to six million barrels per day, bpd.

The Secretary General of the cartel, Dr. Abdalla S. El-Badri said at the 19th Middle East Oil & Gas Conference, Ministerial Panel Session, Manama, Bahrain yesterday that there has been consistent increase in non-member supply since 2008. “There have been rising supplies from non-OPEC producers.

In fact, since 2008 non-OPEC supply has risen by almost 6 million barrels a day. In contrast, OPEC’s production has been fairly steady at around 30 million barrels a day, “he said.

He said oil demand in 2014 was weaker than originally projected at the beginning of that year, although we do expect higher growth this year.

The Secretary General said in 2014, oil demand growth was just below 1 million barrels a day, while this year it is expected to rise to around 1.2 million barrels a day.

He said, it means that the supply and demand balance in the first half of 2015 points to an oversupply of around two million barrels a day, although the market should return to balance during the second half of the year.

“I should stress, however, we do not believe that actual market fundamentals warranted the almost 60 per cent drop in prices that the market saw between June 2014 and January 2015. It is clear that speculators also played a role in this fall,” he said.

He said of course, the current lower price environment is a test for all producers and investors. Lower oil prices mean less revenue.

El-Badri said, “Less revenue means tighter budgets. While prices will no doubt rebound, as they have done lately, it is clear that the industry is currently witnessing a landscape that is shifting the global oil industry.”

“For example, a number of projects are being cancelled or put on hold, rig counts have fallen dramatically, investment plans are being revised, costs are being cut and squeezed, and redundancies have been made,” he said.

He said, “These are the current realities. It is a challenging time for the industry. However, there are clearly many things that the industry can do with one eye on the current situation, and one eye on the future.”

He said it is important to look at new ways to reduce costs and achieve more efficient working practices.

“It is vital as an industry to enhance collaboration between National Oil Companies, International Oil Companies, service providers, as well as other industry stakeholders, to help further streamline the industry and discuss views on the industry’s future,” he said.

US rig plunge seen hastening recovery

The plunge in US drilling should help the oil market recover faster than had been expected, says an Oppenheimer analyst.

In a research report on the oil field services industry, James Schumm predicts a bottoming of the US rig count—now in “one of the sharpest activity reductions over the past 30-plus years”—by midyear.

Schumm expects the current cycle, the downturn of which began in December, to follow patterns of the prior two drilling slumps in 2001 and 2008. If it does, the trough will occur in June at about 900 rigs, down 53% from the peak in September.

Earlier, Oppenheimer expected the downturn to last longer because of a high number of land rigs under contract.

“However, many operators chose to pay early termination fees to react more swiftly to lower oil prices,” Schumm writes.

The faster drilling response, in turn, will hasten the market correction.

“We are likely to see a faster production response that should bring world oil markets into balance more quickly,” Schumm says.

Oil climbs above $58 on weak dollar, Iraq fighting

Brent oil futures rose above $58 a barrel on Thursday as the dollar weakened and Iraqi security forces battled Islamic State fighters in Tikrit.

The dollar was down 0.66 per cent against a basket of currencies, making dollar-traded commodities such as crude oil more attractive to holders of other currencies.

"A slightly weaker dollar is helping crude prices today," said Michael Hewson, chief markets analyst at CMC Markets.

"We've still got a significant supply glut. Overall I think the buyers are starting to shift a little bit lower."

Unrest in the Middle East also supported prices. Iraqi security forces and mainly Shi'ite militia exchanged fire with Islamic State fighters in Tikrit on Thursday, a day after pushing into Saddam Hussein's home city in their biggest offensive yet against the militants.

Brent for April delivery was up 70 cents at $58.24 at 1050 GMT, after gaining $1.15 during the previous session in a rebound from a one-month low.

West Texas Intermediate climbed 31 cents to $48.48 a barrel, after closing the previous session down 12 cents.

The April contracts for Brent and WTI expire next week.

"When contracts expire there is more uncertainty and volatility associated with oil. For investors speculating, directionally WTI seems to be facing more pressure heading down. Brent will move upwards," said Victor Shum, vice president of IHS Energy in Singapore.

Brent's premium to US crude widened to almost $10 a barrel, after dropping below $8 on Tuesday, its narrowest in a month.

Bearish sentiment towards WTI caused by a build in US crude stocks helped to widen the spread, limiting the gains in WTI, said Yusuke Seta, a commodity sales manager at Tokyo's Newedge Japan.

US crude inventories rose for the ninth straight week, gaining 4.5 million barrels last week to 448.9 million, US Department of Energy data showed.

That was the highest level at this time of year in more than 80 years.

Any price gains could be short-lived as oil stocks are forecast to rise further due to refinery maintenance, and the dollar could continue its recent strengthening against the euro, analysts said.

"There are still no signs that US crude oil production might be waning - output grew last week to just shy of 9.4 million barrels per day, putting it at its highest level in 42 years," analysts at Germany's Commerzbank said in a note. – Reuters

North Dakota Crude Production Falls from Record Highs as Oil Prices Slide

Crude output fell 3.3% January to 1.19 million barrels a day

North Dakota said Thursday that production of crude oil fell in January from all-time highs the previous month amid a slide in global oil prices.

The state, which has become second only to Texas in oil production due to a boom in hydraulic fracturing of Bakken Shale oil, said its crude output fell 3.3% on the month to 1.19 million barrels a day in January, down from a record 1.23 million barrels a day in December.

“We’re going to see some months of declining production,” Lynn Helms, director of the department of mineral resources, told reporters at a news conference. “It’s really mostly about oil prices,” he said.

Prices for Bakken sweet crude fell to a six-year low of an average of $31.41 a barrel in January, down from $40.74 a barrel in December.

As a result, the number of completions of previously drilled wells in North Dakota fell sharply to 47 in January, down from 183 in December.

The number of active rigs used to drill new wells in the state sank to 111 as of Thursday, the fewest since April 2010 and about half the peak number of 218 rigs in May of 2012. “We see the bottom of this thing at 100 drilling rigs,” Mr. Helms said, noting 115 active rigs are needed to maintain stable production.

But North Dakota’s oil production might increase in June, he said, due to a combination of new tax incentives linked to lower oil prices and pressure to complete drilled wells subject to regulatory deadlines.

U.S. crude oil production is expected to reach 9.4 million barrels a day in the second quarter before declining by 170,000 barrels a day in the third quarter, according to a report issued Tuesday by the U.S. Energy Information Administration.

Write to Chester Dawson at chester.dawson@wsj.com

Have Oil Prices Hit Their Floor?

New market equilibrium could come from U.S. shale drilling

After their sharp drop late last year, oil prices have been trading in a relatively steady band for more than a month, raising an obvious question: Has the market hit a bottom?

A number of fundamentals suggest not yet: Global storage levels are brimming. Economies in the U.S., Europe and Asia are all mixed, clouding demand forecasts. And some of the world’s biggest producers—including Saudi Arabia, its fellow OPEC members and Russia—are still pumping at full speed. All of that means the global glut of oil that caused the big price drop in the first place isn’t likely to ease soon.

Still, some investors and analysts expect a new market equilibrium to eventually take hold, one based on the assumption that U.S. shale producers can react to prices much faster than conventional drillers. Some say it may already be happening.

“We think (shale production) is a lot more responsive to price changes,” said Antoine Halff, head of oil and markets at the International Energy Agency, the global watchdog for consuming countries, in a recent speech. “This will make this recovery much different than previous ones…we see the market to be a little more smooth and balanced than in previous price swings.”

U.S. shale production is now a key component of global supply—growing from almost nothing to 3.6 million barrels a day last year, according to the IEA. That is still a fraction of the approximately 30 million barrels of crude that members of the Organization of the Petroleum Exporting Countries pump each day. But shale capacity can be switched on and off much more quickly than conventional wells, providing a more-immediate supply response to price moves, analysts say.

Shale producers drill more wells than conventional producers. Those wells can vary widely in costs, but to curb output, producers can simply slow down the drilling and completion work of some of these wells. That is a lot easier than “shutting in” production—or turning wells off—which can be costly and take months or even years to reverse.

Oil lost more than half its value in the last six months of last year and into the first weeks of 2015, the type of huge swing that has happened only once a decade or so over the past half century. Prices recouped some of their losses in early February and have since stabilized.

U.S. crude has been trading between about $47 per barrel to $53 per barrel. Still, that is well below the $107 a barrel it fetched in June of last year. Brent, the international benchmark, has been stuck in a recent range of around $56-$62 per barrel. Late Thursday in New York, U.S. crude was down nearly 2.3% on the day, trading around $47.

Last week, money managers increased their bullish bets on the direction of Brent, boosting long positions by about 5%, according to data provided by Intercontinental Exchange Inc. At the same time, though, traders pared back long positions on U.S. crude, according to U.S. Commodity Futures Trading Commission data.

Georgi S. Slavov, head of research at London-based commodities brokerage Marex Spectron, said crude hit its floor, at least for now, as Brent approached $40 a barrel in January. At that level, about half of the world’s output wasn’t profitable, he figures, suggesting producers would have to pull back.

“When oil came close to $40 in January, production capacity was quickly withdrawn, which caused the rebound,” he said. “This forms the floor.”

Indeed, the number of U.S. oil drilling rigs—a proxy for activity in the oil industry—has fallen sharply since prices headed south last year. There are now about 40% fewer rigs working since a peak in October.

That hasn’t yet translated into a drop in actual output, even though it has squelched production capacity. The U.S. Energy Information Administration earlier this week forecast that output in four of the five biggest shale production areas in the U.S. will fall next month, though overall production is still expected to rise by about 1,000 barrels a day.

Still, the magnitude of the U.S. drilling pullback is enough to support prices, Mr. Slavov said. At the same time, at $60 a barrel, “this spare capacity is brought back,” making that level an approximate “ceiling,” he said.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Bill Spindle at bill.spindle@wsj.com

Kurdistan and Iraq Reach an Oil Deal

Kurdistan agreed to export 97 percent of its oil to Baghdad. In return, the central government will allow northern Iraq to have more access to the monthly budget.

Major Producer

Kurdistan has become a major oil producer in recent years, and Baghdad officials are worried that the northern region is gaining greater autonomy. Exxon Mobil has been cozying up to the Kurds, but the oil giant has found itself at odds with the central government. Exports from northern Iraq reached 400,000 barrels a day on Monday, an increase from 350,000 bpd from the previous week, and up to 300,000 bpd in the beginning of 2014.

The Kurds have been trying to gain independence since the 1920s, and they have been an oppressed minority group in Iraq, most notably Saddam Hussein's genocide campaign. Now, many Kurds feel repressed economically. The Iraqi government forced the Kurds to concede by slashing the country's budget from January of this year. This was in response to Kurdistan's effort to export oil without permission from central authorities, and the cuts forced the region to take foreign loans to sustain the economy.

ISIS Response

One reason why the Kurds accepted the oil deal is that it needs additional funding to combat ISIS fighters in the region. Additionally, the Baghdad government benefits by having additional oil to help recover from low oil prices and spend extra money fighting ISIS. Iraqi forces have already contended with the burning of oil wells on the outskirts of Tikrit at the hands of ISIS, and the Peshmurga forces of Kurdistan are on the same offensive. The good news is that the Baghdad and Kurdistan governments are working together to fight a common enemy, but the two still cannot agree on economic matters.

The Feud Continues

Even though the north and south face a threat in the form of ISIS, the two governments are still at each other's throats, and this new deal is already going south. For instance, Baghdad only gave a portion of the budget amount agreed upon because authorities said the shipments were less than expected. But the Kurds point to outages in Turkey and issues at the Kirkuk oilfields as reasons for the shortage. It appears that the two sides will not agree on issues anytime soon, but both governments need to work together in protecting the oil fields and forging stronger economic ties, otherwise they may have nothing to fight about if ISIS continues to spread.

Saudi Arabia won’t cut production – because it knows the oil age is ending

by Guy Hands

THERE have been many explanations, including on these pages, for why Saudi Arabia has not cut production to shore up the price of oil. These range from the use of the oil price as a foreign policy weapon – whether to wage economic war against rivals Iran, or to help their US allies bring Russia into line – to the belief that the Saudis are protecting their long-term market position by making the exploitation of shale gas and tar sands unviable.

I suspect all of these reasons play a part in the Saudis sitting on their hands as the price of oil has collapsed. Certainly, those predicting only a few months ago that shale was going to transform the world as we know it are likely to be asking for a new crystal ball.

Nature has dealt the Kingdom a very good hand and its leaders have never been shy of using it for their advantage. Not only does Saudi Arabia possess perhaps a fifth of the world’s known reserves, but it can produce oil far more cheaply than its competitors.

Accurate figures about costs are hard to pin down. But because Saudi oil lies close to the surface and the size of the country’s fields enables big economies of scale, it is generally accepted that its oil can be produced for less than $10 a barrel. By comparison, it costs upwards of $40 to extract every barrel of North Sea oil. According to Oil & Gas UK, one third of the fields in UK waters are unprofitable even at the present price of around $60 per barrel.

So oil at $50 a barrel still allows Saudi Arabia to make plenty of money even if the government budget is based on a much higher price. But huge reserves, as the Kingdom has long realised, are of little use if no one wants to buy what lies under your sand.

It was Saudi Arabia’s long-serving energy minister Sheikh Yamani who, predicting demand for oil would run out long before reserves were exhausted, memorably remarked that “the Stone Age did not end for lack of stone”. Change was driven by the development of bronze, a much better material.

The days when oil will be replaced by a much better energy source are coming closer. As early as 2030, it is likely that no one will be building new power stations which use fossil fuels. By 2040, electric cars may have replaced those driven by petrol or diesel. By 2060, even shipping might be powered by solar energy.

The innovation and scale needed to make these predictions real is gathering pace. Solar panel prices, driven by production in China, have fallen by 75 per cent in the last five years. The total installed costs of large-scale solar plants are down as much as 65 per cent since 2010. The cost of onshore wind – the cheapest form of renewable power – has also fallen sharply.

Importantly, there is also rapid progress in the development of batteries to store power cheaply and efficiently – the Holy Grail for the renewable industry. By overcoming the problem of night time or calm days for solar or wind power, we can avoid the need for back-up gas or coal-fuelled plants.

There is a huge amount of exciting work in all these areas going on around the world. And despite the hopes of Big Oil supporters, this is not going to slow because the price of oil has fallen.

Concerns over climate change and energy security will continue to push Europe and China, for example, to continue investing heavily in innovation and renewable energy. And a recent report from the International Renewable Energy Agency found that onshore wind farms, biomass, hydro and geothermal power plants are already competitive with coal, oil and gas-fired power even at the new lower oil price.

Seen from this perspective, the Kingdom’s leaders are making a rational economic decision. They have determined that, in the long term, demand for oil will fall substantially, and intend to get their reserves out of the ground and sold as fast as they can.

There are some, of course, who have made a heavy bet that the fall in the price of oil will soon be reversed. But it is not something the oil-producing countries, frantically diversifying their economies or buying up assets to provide future revenue streams, believe. Nor the big oil companies themselves, who are busy cutting back on exploration and slashing investment.

For all but the companies and countries which depend upon a high oil price, the fall is much-needed good news. The still fragile global economy needs all the help it can get. But in the long term, the end of the oil age will see wealth and influence shift in dramatic ways – and not just from the Middle East.

When renewable energy provides a plentiful and reliable way to power economies 24 hours a day, Africa can replace Asia as a manufacturing base. European economies will have to find even smarter ways to create employment. The transformation in the global energy market which shale gas was going to deliver may now never happen, but there is a much bigger change on the way.

Guy Hands is chairman of Terra Firma Capital Partners.

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