The average price of regular gasoline at U.S. pumps slid to the lowest level in more than 10 months, dropping 11.64 cents in the three weeks ended Oct. 10 to $3.2577 a gallon, according to Lundberg Survey Inc.
Prices are 12.52 cents lower than a year ago, according to the survey, which is based on information obtained at about 2,500 filling stations by the Camarillo, California-based company.
The average is the lowest since Nov. 22, and pump prices may fall by a dime or more in the next few days if crude oil prices remain near current lows, according to Trilby Lundberg, the president of Lundberg Survey.
“Crude oil price declines were passed through by refiners and into their wholesale-gasoline prices,” Lundberg said in a telephone interview yesterday. “World demand growth has been weak. There’s certainly a flush supply of barrels hitting the market, chasing world demand.”
The highest price for gasoline in the lower 48 states among the markets surveyed was in San Francisco, at $3.66 a gallon, Lundberg said. The lowest price was in Tulsa, Oklahoma, where customers paid an average $2.93 a gallon. Regular gasoline averaged $3.48 a gallon on Long Island, New York, and $3.60 in Los Angeles.
Crude Prices
West Texas Intermediate crude, the U.S. benchmark priced in Cushing, Oklahoma, declined $6.59, or 7.1 percent, to $85.82 a barrel on the New York Mercantile Exchange in the three weeks to Oct. 10. It settled at $85.77 on Oct. 9, the lowest level since Dec. 10, 2012.
The International Monetary Fund said on Oct. 7 that the global economy will expand by 3.8 percent in 2015, down from a July projection of 4 percent. The International Energy Agency in Paris lowered its oil-demand forecasts for this year and next in its monthly report on Sept. 11. “Weakening oil demand is caused by inferior world economic growth,” Lundberg said.
U.S. oil output increased to 8.88 million barrels a day the week of Oct. 3, the most since March 1986. U.S. production has increased 65 percent in the past five years as companies have used horizontal drilling and hydraulic fracturing to tap into hydrocarbon-rich layers of underground shale rock.
The Organization of Petroleum Exporting Countries increased oil production by 402,000 barrels a day in September to 30.47 million, the group said in its monthly oil market report. It was the biggest monthly gain since November 2011 and the largest production in more than a year.
Saudi Arabia and Iran, both OPEC members, are discounting their main crude export grades to Asian buyers by the most in almost six years, prompting speculation that some OPEC nations are competing for market share.
Retail Premium
Refineries processed 15.6 million barrels of oil a day in the week ended Oct. 3, a seasonal record in Energy Information Administration records dating back to 1989.
Gasoline stockpiles grew 1.18 million barrels, or 0.6 percent, in the seven days ended Oct. 3 to 209.7 million, EIA data show. Demand over the four weeks ended Oct. 3 rose 0.1 percent to 8.7 million barrels a day.
Gasoline futures on the Nymex fell 35.39 cents, or 14 percent, to $2.2575 a gallon in the three weeks ended Oct. 10. The premium of gasoline at the pump to futures prices has widened to the highest level since 2012, foreshadowing further declines for motorists.
KUWAIT: The current decline in oil prices is not strange. Supply has been rising steadily since the 2008 crisis. According to EIA, total production of crude oil and liquid fuels rose by 10 percent in the last five years, from 83.3 million barrels per day (bpd) in early 2009 to 91 million in mid-2014. Additionally, in recent years, demand has been losing strength. United States, Europe and Japan have reduced their consumption of oil since 2008 by around 10 percent or four million bpd, due to improvements in energy efficiency and low GDP growth. Demand from emerging economies keeps rising, but growth is weaker than in previous years.
China, the main source of additional demand, is using every year an extra 300,000 bpd, but that number is stagnating, even coming down slightly in 2014. A similar pattern is taking shape in Africa and Latin America: Africa added 100,000 barrels per day in 2013, but growth will come down in 2014 and in 2015.
Latin America used almost 200,000 bpd in addition in 2013, but in 2015 additional consumption will be closer to 150,000 bpd. But these trends have been ongoing for years now. Why did prices hold? Oil remained above the $100 level because markets have been saddled with uncertainty in two fronts. First, a feeling of general tension prevailed about the possibility of conflict involving global powers that could affect global investment and trade.
Tension between Russia and Western countries about Ukraine is the most recent example but last year, geopolitical instability in the East and South China seas involving Korea, Japan, Philippines, Vietnam and China also added pressure to prices. Overall, the sentiment of insecurity was quite widespread. According to the Global Terrorism database of the University of Maryland, the number of oil-related terrorist attacks in 2013 was close to 200, more than twice the amount registered only in 2011. The second source of uncertainty came from the oil supply side. A number of countries traditionally considered “less reliable” suppliers started to deliver in a consistent manner. Iraq and the Kurdistan region are losing ground to terrorist organizations in the north of the country. Libya never managed to get full control of the country after the Arab Spring.
Nigeria is rampant with strikes and disruptions due to theft and poor maintenance. Iran is burdened with poor infrastructures and international sanctions and South Sudan remains a highly volatile country with common disruptions. Yemen and Syria are now close to be considered failed states. In early 2012, all countries mentioned above produced around 1 million bpd. Since then, even though most issues remain unresolved, the combined output more than trebled to 3.5 million bpd by the summer of 2013 and has sustained that level. Finally the steady supply weighed down on prices. But even if this period of relative peace lasts, it is unlikely that prices continue to fall consistently well above current levels.
Two key producers, United States and Saudi Arabia, will probably reduce supply if prices keep declining. In the case of the United States, the reduction in output would come due to the fact that extraction costs in the new shale fields are too high to remain competitive after a period of low prices. In the case of Saudi Arabia, rising domestic consumption will utilize a growing share of the country’s output. In fact, the Middle East is expected to register the fastest growth in global consumption in 2014, rising from 200,000 additional bpd demanded in 2013 to 300,000 bpd expected next year by the FGE consultants. Furthermore, rising breakeven prices in Saudi have reduced the country’s fiscal flexibility. The IMF estimates that Saudi needs more than $80 a barrel to be able to balance the budget. Incentives to cut production to support prices are higher now than in previous periods of low prices. A few months of prices below current levels will probably reduce output and support prices back to previous levels.
By Francisco Quintana
MOSCOW, October 12 (RIA Novosti) - The surplus of oil on the world market is a temporary phenomenon, Vice President of Russian oil giant Rosneft Mikhail Leontyev said Sunday.
"The current price dynamic, which has been developing for the last few months, may not reflect the objective trend," Leontyev told the Russkaya Sluzhba Novostei radio.
"Prices can be manipulative. First of all, Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly. The second factor is the stolen ISIL [Islamic State] oil, which reaches the market through Turkey and Israel with a triple discount. It is not much, but it is stolen, so it is cheap," the Rosneft vice president said.
The fact that the market, primarily in the United States, is filled with American oil, is due to the so-called shale revolution and it is a long-term factor, Leontyev stated.
On Friday, after the publication of the OPEC (Organization of the Petroleum Exporting Countries) October report which noted an increase in oil production in the countries belonging to the OPEC countries, the international oil prices began to decline.
November futures price for Brent Crude Oil on Friday at 14:56 GMT fell by 0.92 percent - to $89.23 per barrel. The cost of the November futures for WTI decreased by 1.06 percent - to $84.87 per barrel.
Energy stocks have taken a beating so far in October as commodity prices continue to deteriorate.
A wave of bad news has hit the commodities sector. A weakening global economy, a surplus in oil supplies and a strengthening U.S. dollar have combined to send oil prices lower in recent weeks.
On Oct. 9, the slide continued when Brent crude dropped below $90 per barrel for the first time in more than two years.
Poor economic data from Germany raised fears that a renewed European recession could be on the horizon. The S&P 500 lost 2 percent on Oct. 9, and the markets have experienced some of the worst volatility so far this year. The International Monetary Fund (IMF) also revised downwards its projection for global economic growth in 2014 and 2015, warning that “global growth is still mediocre.”
China’s oil demand remains weaker than it has been in years. To a certain extent, China’s oil imports have been artificially elevated as it has diverted oil into its strategic stockpile. Oil imports could soften as stockpiles fill up. China even posted a decline in oil imports for the month of July.
Elsewhere in Asia, demand is also tepid. Driven by a desire to boost budgets by cutting spending, countries like Indonesia, Vietnam, Thailand, India and Malaysia are all trimming fuel subsidies, according to The Wall Street Journal. That has sent fuel prices up 10 percent in Malaysia and 23 percent in Indonesia, for example. India’s decision to reduce subsidies has pushed demand growth for diesel to near zero for the year, after annual growth rates of 6 to 11 percent in the past.
Meanwhile, oil supplies continue to rise. OPEC production for September hit its highest level in almost two years. Libya has lifted its oil production to 900,000 barrels per day, up from just 200,000 barrels per day in June. And Saudi Arabia has yet to significantly cut production.
Separately, the U.S. Energy Information Administration (EIA) reported higher than expected crude oil in inventories as refineries cut purchases and close for maintenance. Higher global supplies are pushing down prices.
The U.S. dollar also continues to strengthen, with the currency recently hitting a two-year high with the euro. A stronger dollar tends to weaken oil prices.
With oil prices hitting multi-year lows, the markets wiped out energy stocks. On Oct. 9, ExxonMobil lost 2.95 percent; Chevron lost 2.92 percent; BP was down 2.69 percent, and ConocoPhillips was off 3.20 percent.
But it wasn’t just oil companies. The markets continue to wallop the coal sector. Arch Coal lost 7.23 percent of its value; Alpha Natural Resources lost 11.11 percent, and Peabody lost 9.22 percent. In addition to the broader economic malaise, the coal sector got an extra bit of bad news on Oct. 9 when China declared that it would reinstate tariffs on certain types of imported coal that were scrapped a decade ago. The tariffs threaten to slash coal imports and boost China’s domestic coal industry.
The one-day sell off was the stock market’s worst performance of 2014. It is unclear where the markets will go from here as there are no signs that the supply and demand picture will change significantly anytime soon.
But if oil prices drop any further, the bite will really set in. Although specifics differ across companies and regions, some oil companies could begin to trim spending on exploration if oil prices drop below $85 per barrel. That would eventually lead to lower oil production and bring prices back up to some equilibrium.
Alternatively, prices may soon drop lower than Saudi Arabia is willing to tolerate. In such a scenario, the world’s only real swing producer would accept lower output in order to see prices increase to its desired range – somewhere between $95 and $110 per barrel.
However, Riyadh has remained silent thus far on its next steps.
By Nick Cunningham of Oilprice.com
Call for holding emergency meeting to take a stock of the situation
Gulf News
Abu Dhabi: Experts have predicted that oil prices are likely to fall further unless supplies are cut by the oil producing countries.
The Organisation of the Petroleum Exporting Countries (Opec) are due to meet on November 27 to take a decision on whether to cut production to stop the slide of prices.
“There are surely signs that Opec is willing to cut oil production to maintain certain price levels. The most obvious example is that cut of over 400,000 barrels per day by Saudi Arabia that was announced last August,” said Tim Boersma, a fellow of energy security initiative at the Brookings Institution in Washington.
He said that prices fell with some other producers ramping up production and the continued growth of the US oil production.
“We shall see whether Opec wants to further scale down production or at what price level US production will come under pressure.”
Brent crude futures slid below $90 a barrel on Friday for the first time since June 2012 on concern global demand is slowing while supplies increase.
There are already calls for holding an emergency meeting of Opec to take a stock of the situation.
Venezuela’s Foreign Minister Rafael Ramirez has called for an urgent meeting to discuss the matter, media reports said. According to him, Opec has to co-ordinate some type of action to stop the price fall.
“It’s a price that doesn’t suit anyone and there is a significant over-production,” Reuters quoted Ramirez as saying.
“It’s always been our position within Opec to seek stability in the oil market. It doesn’t suit anyone to have a price war, for the price to fall below $100 a barrel.”
Richard Mallinson, a Geopolitical Analyst from Energy Aspects in London said that there should be a seasonal improvement in demand and refineries return from maintenance in winter.
“However, the oil market remains oversupplied and there have been large stock builds. So we are likely to see Brent falling further unless supplies are cut back,” he said.
Dubai based Asiya Investments in its weekly analysis said that oil prices will not decline in the long run.
“Two key producers, the United States and Saudi Arabia will probably reduce supply if prices keep declining. In the case of the United States, the reduction in output would come due to the fact that extraction costs in the new shale fields are too high to remain competitive after a period of low prices,” the report prepared by Francisco Quintana, head of research at Asiya Investments said.
In the case of Saudi Arabia, the report said the IMF estimates that Saudi needs more than $80 a barrel to be able to balance the budget. “Incentives to cut production to support prices are higher now than in previous periods of low prices,” the report said.
“A few months of prices below current levels will probably reduce output and support prices back to previous levels.”
Boersma believed that the winter will have an upward effect on oil prices, but to what extent is hard to predict.
“There is of course speculation going on about where oil prices could fall too, and some analysts believe that $70 oil is well possible,” he added.
By Dow Jones Business News
By Wayne Ma
BEIJING--China imported 27.58 million metric tons of crude oil in September, equivalent to 6.74 million barrels a day, preliminary data from the General Administration of Customs showed Monday.
Imports were 7.4% higher than the 25.68 million tons of crude shipped in during the corresponding month last year, and up around 9.5% from 25.19 million tons in August, according to The Wall Street Journal calculations.
Refined oil-product imports totaled 2.47 million tons, while exports totaled 2.15 million tons, the data showed.
China imported 21.16 million tons of coal and exported 440,000 tons in September, according to the data.
Write to Wayne Ma at wayne.ma@wsj.com
(END) Dow Jones Newswires
10-12-142242ET
Copyright (c) 2014 Dow Jones & Company, Inc.
Oct 12 (Reuters) - OPEC is unlikely to cut oil production in an effort to prop up prices because such a move would not necessarily be effective, Kuwait's oil minister Ali al-Omair was quoted as saying by state news agency KUNA on Sunday.
Brent crude oil settled at $90.21 a barrel on Friday after earlier falling to $88.11, the lowest since December 2010, as Saudi Arabia said it raised production last month, adding to perceptions that the kingdom is looking to defend market share, rather than prices.
Oil ministers from the Organization of the Petroleum Exporting Countries (OPEC) are scheduled to meet in Vienna on Nov. 27 to consider whether to adjust their output target of 30 million barrels per day (bpd) for early 2015.
"I don't think today there is a chance that (OPEC) countries would reduce their production, especially since the target that OPEC has given itself is 30 million bpd, which we have not reached until now," Omair said, according to KUNA.
KUNA also quoted Omair as saying $76-77 a barrel might be the level that would end the oil price slide, since that was the cost of oil production in the United States and Russia.
He said cutting output would not necessarily prop up prices and indicated that oversupply in crude output was mainly because of an increase in production from Russia and shale oil from the United States, KUNA cited him as saying.
"If we have something (to do) to preserve the stability of the prices or bring it back to previous levels, we would not hesitate in doing it, but it is known that this fall is not because of a decision taken by OPEC," the minister said.
Some OPEC countries are becoming more worried about the drop in oil prices and Venezuela has called on OPEC to hold an emergency meeting to arrest the price slide.
The differing views within the 12-member group highlights a split between Saudi Arabia and its Gulf Arab allies and other members, such as Iran, who face greater budget pressures from sub-$100 a barrel oil.
In a monthly report issued on Friday, OPEC said the more than $20-a-barrel price fall since the end of June reflected weak demand and ample supply, but echoed the view of core Gulf OPEC members in saying winter demand would revive the market.
OPEC left its forecasts for global oil demand growth unchanged and still expects an acceleration of demand growth in 2015. Total OPEC output grew by 400,000 bpd to 30.47 million bpd, a rise led by Libya and Iraq.
Omair also said the oil price decline in recent weeks was expected, adding: "We are still able to adapt".
Oil prices are expected to rise "or at least to keep their current level" when seasonal demand pick up in winter, he said. (Reporting by Rania El Gamal and Ahmed Hagagy, editing by David Evans)
The Organization of Petroleum Exporting Countries is unlikely to cut oil production in an effort to prop up prices because such a move would not necessarily be effective, Kuwait’s oil minister said Sunday.
Brent crude oil settled at $90.21 (U.S.) a barrel on Friday after earlier falling to $88.11, the lowest since December, 2010, as Saudi Arabia said it raised production last month – adding to perceptions that the kingdom is looking to defend market share rather than prices.
Crude futures slip again due to an abundant supply. As Melanie Ralph reports the global market appears to be shifting from an era of scarcity, potentially damaging sanctions-hit Russia.
Jan Stuart, Head of Energy Research, Credit Suisse joins BNN to discuss why double-digit oil price will be the new norm.
Oil prices have been sliding for months amid rising production, particularly from U.S. shale plays and soft demand. The weaker prices have raised questions about whether any major producing regions would move to curtail output to add support to prices.
Oil ministers from OPEC are scheduled to meet in Vienna on Nov. 27 to consider whether to adjust their output target of 30 million barrels per day (bpd) for early 2015.
“I don’t think today there is a chance that (OPEC) countries would reduce their production, especially since the target that OPEC has given itself is 30 million bpd, which we have not reached until now,” Kuwait oil minister Ali al-Omair was quoted as saying by state news agency KUNA.
KUNA also quoted Mr. Omair as saying $76 or $77 a barrel might be the level that would end the oil price slide, since that was the cost of oil production in the United States and Russia.
He said cutting output would not necessarily prop up prices and indicated that oversupply in crude output was mainly because of an increase in production from Russia and shale oil from the United States, KUNA cited him as saying.
“If we have something [to do] to preserve the stability of the prices or bring it back to previous levels, we would not hesitate in doing it, but it is known that this fall is not because of a decision taken by OPEC,” the minister said.
Some OPEC countries are becoming more worried about the drop in oil prices and Venezuela has called on OPEC to hold an emergency meeting to arrest the price slide.
The differing views within the 12-member group highlight a split between Saudi Arabia and its Gulf Arab allies and other members, such as Iran, who face greater budget pressures from sub-$100 a barrel oil.
In a monthly report issued on Friday, OPEC said the more than $20-a-barrel price fall since the end of June reflected weak demand and ample supply, but echoed the view of core Gulf OPEC members in saying winter demand would revive the market.
OPEC left its forecasts for global oil demand growth unchanged and still expects an acceleration of demand growth in 2015. Total OPEC output grew by 400,000 bpd to 30.47 million bpd, a rise led by Libya and Iraq.
Mr. Omair also said the oil price decline in recent weeks was expected, adding: “We are still able to adapt.”
Oil prices are expected to rise “or at least to keep their current level” when seasonal demand pick up in winter, he said.
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Venezuela wants Opec to hold an emergency meeting to arrest the slide in oil prices, Foreign Minister Rafael Ramirez said, the first member of the group to formally call for action ahead of next month's gathering.
"We have received instructions from the president to request an extraordinary Opec meeting," said Ramirez, who was oil minister and head of state oil company PDVSA prior to a recent cabinet reshuffle by President Nicolas Maduro.
"We believe that Opec has to coordinate some type of action to stop the fall in the price of oil, especially when we are convinced it has nothing to do with market situations but a manipulation of the price to create problems for big producing countries," said Ramirez.
The Organization of the Petroleum Exporting Countries (Opec) is not due to meet until November 27, but some members have already begun talking about the need to curb production in order to revive oil prices that have dropped to their lowest since 2010.
While Venezuela is a founding member of Opec, its influence has waned in recent years as production has flagged and it has shown little willingness to join in previous production cuts.
The price fall has come at a bad time for Venezuela, whose economy is widely believed to be in recession even though it is suppressing official GDP data, and which is facing an onerous debt maturity burden this year and next.
"It's a price that doesn't suit anyone and there is a significant over-production," Ramirez said. "It's always been our position within Opec to seek stability in the oil market. It doesn't suit anyone to have a price war, for the price to fall below $100 a barrel." -- Reuters
World oil prices are on the brink of sliding another $10 or more, according to chart analysts who say the over 20 per cent drop since June has wiped out key support levels and left behind a "technical graveyard".
Brent crude dropped to its lowest level in nearly four years before ending near flat at $90.21 a barrel. A combination of unrelenting supply from the US shale oil boom and disappointing demand from Europe and China has walloped markets, with Saudi Arabia reluctant to curtain output.
According to analysts who use historical chart patterns to anticipate price movements, the worst may not be over.
On a weekly chart, Brent futures had earlier closed in on $88.49 a barrel - the pivot support level representing a 76.4 per cent Fibonacci retracement of their most recent high and low from February to June of 2012.
"If we get a weekly close below $88.49, it's a very bearish indicator that will likely signal the acceleration of the downward trend," said Jay Bishen, analyst at CitiFX, Citigroup's technical research team in New York.
A weekly close below the level suggests Brent crude could fall much further to the lows reached in February and May of 2010, near $68 a barrel, he said.
Oliver Sloup, director of managed futures at iiTrader in Chicago, said the chart for US crude oil futures was a "technical graveyard" after their rout sent prices crashing below all major moving averages in the last three months, making Fibonacci numbers the next best indicators.
"The next critical support for WTI is $76, the full retracement from the highs and lows of 2010. It's a big level that a lot of traders and algorithms are looking at," he said.
Bishen said a bearish head-and-shoulder pattern that started in July 2012 indicates a downward move toward the $75-$77 range is possible.
Fibonacci numbers are a common technical tool used to predict the relationship between percentage changes and a sequence of important numbers.
"There is an old saying: The trend is your friend. There is no reason to try to pick a bottom here," Sloup said. "We see short covering today but that happens in a bear market, and the downward trend is likely to continue." -- Reuters
Top oil exporter Saudi Arabia told the Opec it raised its oil production in September by 100,000 barrels per day, adding to signs it has yet to respond to a drop in prices well below $100 a barrel by trimming output.
In a monthly report issued on Friday, the Organization of the Petroleum Exporting Countries (Opec) said Saudi Arabia reported September production of 9.704 million barrels per day (bpd), up from 9.597 million in August.
The lack of a Saudi cut could add to perceptions of traders and analysts that the kingdom is looking to defend market share, not prices. Oil in September fell below $100 a barrel, a level endorsed by Saudi Arabia, for the first time in 14 months and hit $88.11 on Friday, its lowest since 2010.
Opec’s report said the more than $20-a-barrel price fall since the end of June reflected weak demand and ample supply, but it echoed the view of core Gulf Opec members in saying winter demand would revive the market.
"This increased demand would lead to a higher crude intake by refineries, thus also supporting the crude oil market in the coming months," the report from OPEC's Vienna headquarters said.
Opec meets on November 27 in Vienna for what will be one of its most important meetings in years. The group has not cut output collectively since the 2008 financial crisis and so far comments from officials suggest it is no closer to any collective steps to support the market.
Iran's oil minister this week, in a comment that appeared to be a reference to Saudi Arabia, said Opec would tolerate the price fall until "Opec majors" cut their output.
Following those remarks, an Opec delegate said it looked unlikely Opec would agree to reduce supply in November and that it was up to the Saudis to cut.
"The question should be posed to Saudi Arabia," the delegate said. Sau di officials could not be reached this week for comment due to the Eid holiday.
DEFENDING MARKET SHARE?
Saudi Arabia, supported by Kuwait and the United Arab Emirates, has boosted supply informally to cover for unplanned outages in other Opec members in recent months including in Libya, which is now seeing its production recover.
No sign of a significant throttling back of the extra crude and Saudi Arabia's decision to lower the official selling price of its oil have sparked talk of a change of tack.
"The Saudis are not responding to lower prices. They're defending market share,"Gary Ross, chief executive of PIRA Energy Group, who has been consulting with Opec members for decades, told Reuters on Thursday.
Opec also issues production figures from secondary sources, a legacy of past Opec disagreements about countries' reported output figures. The sources include consultants and industry media.
According to these, Saudi Arabia cut output by 50,000 bpd to 9.60 million bpd in September but overall Opec output rose to 30.47 million bpd, due to a recovery in Libya and higher exports from Iraq.
Details on the amount of oil that Saudi Arabia supplied to the market, which may differ from production depending on the movement of barrels in and out of storage, in September is not yet available.
The supply figure is watched by traders. In August, Saudi production fell but supply was little changed, according to figures in Opec's report last month and industry sources in Saudi Arabia.
In the report, Opec left its forecasts for global oil demand growth unchanged in 2014 and 2015. It still expects an acceleration of demand growth in 2015.
Rising supply outside Opec, particularly in the United States due to its shale energy boom, has squeezed Opec’s market share. Opec forecasts global demand for its crude will fall to 29.20 million bpd in 2015.
Friday's report indicates supply will exceed demand by 1.27 million bpd next year should Opec keep pumping at September's rate, which could put downward pressure on prices.
Another closely watched report on global supply and demand is due next Tuesday from the International Energy Agency, adviser to industrialised countries. - Reuters
NEW YORK, 2 days ago
Kuwait, Saudi Arabia's traditional Gulf ally, is leading the challenge to its bigger neighbour in an increasingly competitive battle for market share, selling oil to buyers in Asia at the widest discount to a comparable Saudi grade in 10 years.
Yesterday (October 10), reductions in Iran's monthly oil prices appeared to intensify the "price war" that has spooked global markets, reported the Gulf Daily News, our sister publication.
However, since Iran typically adjusts its prices relative to Saudi crude only once a quarter, the $1 a barrel reduction in November light crude prices, identical to Saudi Arabia's cuts announced last week, were little surprise.
It is not Iran, whose production has been sharply curtailed by sanctions, but Kuwait that has mounted the most aggressive effort to protect and expand its market share in Asia, the only region with a growing appetite for Opec oil. Whether Kuwait Petroleum Corporation (KPC) makes deeper cuts to its November prices, due out any day, may determine whether the battle escalates.
Last week, Saudi Arabia sharply cut its official oil prices for Asian customers in November, in the clearest sign yet that it is competing harder for market share.
Kuwaiti crude in October is already 50 cents a barrel cheaper than Saudi Arabia's official selling price (OSP) for its Arab Medium grade, the widest discount since at least 2004 and double the discount from a year ago.
Many traders expect KPC to cut its price by 70 cents, keeping pace with last week's drop in Arab Medium; some want more.
Kuwait's price cut to Asia, and cuts by other Middle East producers including Saudi Arabia and Iraq, have underscored competition for oil sales to the region as a rout in global benchmarks threatens the national budgets of some Opec members.
Defending and winning share in Asia's still growing markets has become the primary focus, too, as demand has softened in the US with rising shale oil output and in Europe with weak economic growth in the euro zone.
Iraq has also priced its Basra Light crude at the widest discount against Arab Medium in a year, after Asian buyers had steered clear of its flagship grade on fears an Islamist insurgency would disrupt supplies.
Kuwait, Iraq and Iran typically adjust their crude prices using the Saudi OSPs as a guide, but with the world's biggest exporter cutting its prices for a fourth month in a row on October 1, they may struggle to respond to protect market share.
Iran has set the November OSP for Iranian Light at 82 cents a barrel below Oman/Dubai quotes, the lowest since December 2008.
Kuwait's discount to Arab Medium has doubled from last year after it lost market share to abundant and cheaper supply from Iraq, and as Iran's exports rose after Western sanctions eased, traders said.
Asia's top four crude buyers, China, India, Japan and South Korea, imported just over 1.1 million barrels per day (bpd) of Kuwaiti oil in the first eight months this year, down from close to 1.4m bpd last year.
To boost sales, Kuwait concluded in August a new 10-year deal with China's Sinopec Corporation to nearly double its supplies by offering to ship oil and sell it on a more competitive cost-and-freight basis.
It also locked in 2015 oil sales to Philippine refiner Petron in a separate deal.
A well-supplied global market has tipped the balance in favour of Asian buyers, who are switching to cheaper oil from Africa and the Americas as they reduce their reliance on Middle Eastern crudes. – TradeArabia News Service
Ecuador's Oil Minister Pedro Merizalde told Reuters that current oil prices are normal given an increase in US production, and that they will be discussed at the Organization of the Petroleum Exporting Countries (Opec) meeting in late November.
Global oil prices have dropped well below Opec's preferred level of $100 a barrel, triggering calls for a supply cut by some members of Opec while core Gulf members have shrugged off the decline.
"A meeting is planned in late November and that's when we will talk," about prices, Merizalde said when asked whether Opec should hold an emergency meeting before its planned November 27 gathering in Vienna.
But Merizalde said Ecuador, the smallest member of Opec, isn't worried about oil prices.
"It's normal given the increase in production in the US due to shale oil and shale gas," Merizalde said on the sidelines of an event to showcase new oil contracts aimed at increasing the South American country's production.
"It's within the range of price variations," he added.
The Andean country produces roughly 540,000 barrels per day (bpd).
Opec's output is climbing, reaching 30.96 mbpd in September, its highest since November 2012, due to further recovery in Libyan production and higher levels from the Gulf producers, according to a Reuters survey. -- Reuters
Largely because of geopolitical unrest that has curtailed production from Libya, Iraq, and Iran, commodity prices have remained relatively high for the first half of the year in the Middle East, said an industry expert.
“Expectations for continued upward pressure on prices for the remainder of the year may make producers less likely to part with assets,” explained Kenneth McKellar, partner in charge of the energy and resources industry at Deloitte Middle East, a major provider of audit, tax, consulting, and financial advisory services.
“Meanwhile, natural gas prices have remained stable, and the potential for increased demand from US exports of liquefied natural gas (LNG) may draw some new buyers to the market as they look to increase their exposure to gas,” he added, commenting on latest report entitled "Mergers and Acquisitions Report – Midyear 2014: The deal market may be poised for a rebound” from Deloitte.
The report delivers the insights of Deloitte mergers and acquisitions specialists on what is driving activity in the oil and gas industry.
A total of 299 merger and acquisition transactions were completed in the first six months of 2014 in the oil and gas industry globally, with value of $141 billion, up 38 per cent from $102 billion recorded in the first half of 2013, the report said.
The first half of 2014 saw a continuation of many of the oil and gas industry trends present in 2013, it added.
Companies continue to be focused on cost containment and organic growth, particularly in the upstream sector, where producers are looking to ensure they have the right mix of properties in their portfolio, according to the Deloitte report.
The US and Canada accounted for 61 per cent of all deal activity, though this percentage slipped slightly from the first half of 2013. In the first half of the year, both Asia and South America saw increases in their share of the deal count rising nearly 20 per cent and 50 per cent, respectively.
“The uptick in deal activity in June of this year could signify a stronger deal market in the second half of the year. Upward pressure on commodity prices is likely to drive more transactions, and private equity investors, in particular, are likely to continue to show interest and be a source of capital,” said Humphry Hatton, CEO of Deloitte Corporate Finance Limited, regulated by the Dubai International Financial Center.
Deloitte’s new report covers deals from the past six months by industry sector. Highlights include:
• North American shale plays continue to dominate the deal market in the exploration and production (E&P) sector.
• The oilfield services sector saw an increase in deal value, thanks in part to three large deals, and margin pressure from the E&P sector may drive additional consolidation among middle market players.
• There has been a dramatic slowdown in deal activity in the midstream sector during 2014 after a flurry of transactions in 2012 and 2013. – TradeArabia News Service
Money managers reduced bets on rising oil prices by the most in five weeks, helping push U.S.- traded futures into a bear market.
Hedge funds and other large speculators lowered net-long positions in West Texas Intermediate crude by 4.8 percent in the seven days ended Oct. 7, U.S. Commodity Futures Trading Commission data show. Short positions climbed 8 percent, the most in almost a month.
WTI joined Brent, the European benchmark, in falling more than 20 percent from its June peak, meeting a common definition of a bear market. U.S. oil inventories rose the most since April in the week ended Oct. 3 as domestic production rose to a 28-year high and refineries shut units for maintenance. Demand nationwide will slip this year to the lowest since 2012, the government predicted Oct. 7.
“The extended decline is compounded mainly by supply-driven concerns,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said in an interview in New York on Oct. 10. “The U.S. is not short of crude oil.”
WTI futures fell $2.31, or 2.5 percent, to $88.85 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Prices sank to $85.77 on Oct. 9 and settled at $85.82 the following day. Brent traded on the ICE Futures Europe exchange in London fell for a third week, closing at $90.21.
Crude Stockpiles
U.S. crude stockpiles climbed by 5.02 million barrels to 361.7 million in the seven days ended Oct. 3, according to the Energy Information Administration. Weekly production averaged 8.88 million barrels a day, the highest since March 1986.
“Several big, smart commodity hedge funds said oil is going to zero,” Seth Kleinman, Citigroup’s global head of energy strategy, said Oct. 7 at the Energy Department’s Winter Energy Outlook Conference in Washington. “They are being somewhat dramatic, but they were incredibly bearish.”
Output will climb to 9.5 million barrels a day next year, the most since 1970, the EIA estimated Oct 7. Production is surging as a combination of horizontal drilling and hydraulic fracturing, or fracking, unlocks supplies from shale formations.
Refineries processed 15.6 million barrels a day of crude in the week ended Oct. 3, down from 16.6 million in July, according to the EIA. U.S. refiners schedule maintenance for September and October as they transition to winter from summer fuels.
Turnaround Season
“It’s the turnaround season in the U.S.,” Mike Wittner, the head of oil market research at Societe Generale in New York, said by phone on Oct. 7. “Runs should be going down and crude stocks should be building.”
Global supply is also growing. The Organization of Petroleum Exporting Countries increased output by 402,000 barrels a day in September to 30.47 million, the group’s Vienna-based secretariat said in a monthly report Oct. 10. Iran was said to sell its oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia.
“You are getting a big bear run here,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone on Oct. 10. “You’ve got rising supply and weakening demand, with high inventories. That’s making people very nervous.”
Fuel Demand
The EIA forecast that the U.S. will consume 18.92 million barrels a day of oil this year, down from 18.96 million in 2013. The International Energy Agency last month reduced global demand projections for this year and next and the International Monetary Fund cut its 2015 world economic growth forecast on Oct. 7.
Net-longs for WTI decreased by 9,655 contracts to 192,208 futures and options combined during the week ended Oct. 7, the CFTC said Oct. 10. Long positions fell 1.6 percent to 266,241.
In other markets, bullish bets on gasoline almost doubled to 20,363 contracts. Futures slumped 21.86 cents, or 8.5 percent, to $2.3683 a gallon on Nymex in the reporting period.
Regular gasoline at the pump, averaged nationwide, slid 1.3 cents to $3.208 a gallon on Oct. 11, the lowest since Nov. 17, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.
Bearish wagers on U.S. ultra low sulfur diesel increased 2.5 percent to 30,604 contracts. The fuel sank 3.99 cents, or 1.5 percent, to $2.6073 a gallon in the report week.
Natural Gas
Net-long wagers on U.S. natural gas fell 27 percent to 83,671 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 16.4 cents, or 4 percent, to $3.957 per million British thermal units through Oct. 7.
Barclays Plc lowered its oil price forecast on Oct. 9, citing weaker demand, rising supply and a stronger dollar. WTI will average $85 this quarter, down from $98 in an earlier forecast.
“There is no reason for the market to go up,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Oct. 9. “In order for prices to turn around, there has to be a measurable alteration in global production.”
Ukrainian President Petro Poroshenko dismissed Defense Minister Defense Minister Valeriy Geletey yesterday after Russia announced it was pulling back forces from Ukraine’s borders.
Poroshenko said he’ll present a new defense minister candidate to parliament in Kiev today and that he expects to win approval tomorrow for the person, whom he didn’t identify. This will “strengthen power structures and defense capability of Ukraine,” Poroshenko said in the statement published on his website.
The new military chief will be Ukraine’s fourth defense minister since the ouster of President Viktor Yanukovych in February. Geletey came under criticism following Ukrainian armed forces losses in a pro-Russian separatist offensive in late August. Poroshenko fired the head of Ukraine’s border guard service last week and replaced the governor of the war-torn Donetsk region.
Ukraine, the U.S. and the European Union accuse Russia of providing weapons, financing and troops to the separatists, an allegation Moscow denies. The two sides imposed tit-for-tat sanctions that have depressed economic growth in both the EU and Russia, causing the latter to flirt with a recession.
Russian Pullback
President Vladimir Putin ordered Russian forces to withdraw from Ukraine’s borders on Oct. 11. About 17,600 soldiers, who were on drills since the summer in the Rostov region, are to be redeployed at their permanent bases, according to a statement on the Kremlin’s website. Russian soldiers have started their withdrawal, state-owned newswire RIA Novosti reported yesterday, citing the Defense Ministry in Moscow.
“We’ve seen this before with Putin withdrawing and then sending back forces,” Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin Bureau of the German Marshall Fund of the U.S., said by phone. “Winter is coming and it’s good for the morale of Russian troops and their families to go to their home bases and not camp out.”
Separatists made 36 assaults on government positions in a 24-hour period Saturday to Sunday, Ukraine’s Defense Ministry said on Facebook. Rebels also used anti-tank missiles, artillery and mortars in fighting at Donetsk airport and near Debaltsevo, Avdiyivka and Shchastya. Rebels also fired mortars in the Luhansk region.
Civilians Killed
Twelve civilians, including six women and one child, were killed in shelling attacks on Donetsk residential areas over the weekend, Interfax said, citing information from the self-proclaimed Donetsk People’s Republic press service. Two people were injured in shelling yesterday, the Donetsk city council said on its website.
“We still haven’t banished the threat of a new escalation,” German Foreign Minister Frank-Walter Steinmeier said in an interview yesterday with Berlin’s Tagesspiegel newspaper.
While a truce, sealed Sept. 5, has reduced the bloodshed in Ukraine’s easternmost regions, it’s been broken by almost daily violence. There have been at least 331 deaths since the deal was agreed, the United Nations estimates.
“I am ready to pull back troops if the Ukrainian military fulfills its commitments,” Vladimir Kononov, the Donetsk People’s Republic defense minister, said Oct. 11 on the DPR’s website. “Unfortunately, they don’t fulfill them” and “until the Ukrainian army pulls back its heavy artillery and its large amounts of armored vehicles there can be no talk of us pulling back.”
Donetsk Airport, which has been the scene of almost daily fighting, is still under control of Ukrainian government forces, though separatists say they have seized large parts of it.
“Donetsk airport is destroyed as a strategic object of infrastructure,” Oleksandr Kikhtenko, the governor of Donetsk, who was appointed by President Petro Poroshenko on Oct. 10, said an in interview with Kiev’s Zerkalo Nedeli newspaper.
Iraq joined Saudi Arabia and Iran in cutting crude selling prices as Brent futures extended their slump to the lowest in almost four years. West Texas Intermediate fell after its biggest weekly loss since January.
Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, trimmed its price differentials for Basrah Light supplies to Asia and Europe for November, the country’s state Oil Marketing Co. said today. Futures slid as much as 3.6 percent in London to the lowest intraday level since December 2010, and WTI lost 1.8 percent after tumbling into a bear market on Oct. 9.
The world’s two most-traded oil futures are collapsing as demand growth slows and output expands in the U.S., Russia and other nations. OPEC’s biggest producers are responding by cutting prices, sparking speculation they are ready to compete for market share. Iran last week said it will sell oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia.
“The risk remains to the downside for both contracts,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “There’s the potential for Brent to test $87.50 in the next session or two. It’s likely that if we see further pressure, we could see some action from OPEC.”
Brent for November settlement slid as much as $3.21 to $87 a barrel on the London-based ICE Futures Europe exchange and was at $89.14 at 12:27 p.m. Sydney time. The contract closed at $90.05 on Oct. 9, the lowest since June 2012. Prices have decreased almost 20 percent this year.
OPEC Output
WTI for November delivery was at $84.80 a barrel in electronic trading on the New York Mercantile Exchange, down 1.2 percent. The contract settled at $85.77 on Oct. 9, the lowest since December 2012. The U.S. benchmark crude was at a discount of $4.37 to Brent. It closed at $4.39 on Oct. 10.
Iraq set its November Basrah Light crude at $3.15 below the average of Oman and Dubai prices for buyers in Asia, SOMO said in an e-mailed statement. The spread was $2.50 for October. It will sell the crude to Europe at $5.40 below Dated Brent, from $4.75 in October. Prices for U.S. buyers were unchanged.
State-run National Iranian Oil Co. cut its selling prices for buyers in Asia, two people with knowledge of the decision said Oct. 9. A week before, Saudi Arabia, the world’s largest oil exporter, reduced the price of Arab Light crude for Asia to the lowest since December 2008.
Market Share
Middle East producers including Iran, Iraq and Kuwait almost always follow Saudi Arabia’s lead when deciding whether to raise or lower export prices. The scale of November’s cuts prompted speculation some members are ready for a price war.
OPEC increased output by 402,000 barrels a day in September to 30.47 million, the group said in its latest monthly oil market report. It was the biggest gain since November 2011 and the largest output in more than a year. OPEC predicted demand will accelerate in the next few months.
U.S. oil output increased to 8.88 million barrels a day in the week ended Oct. 3, the most since March 1986, according to the Energy Information Administration. Crude inventories in the world’s biggest oil consumer gained by 5.02 million barrels to 361.7 million, the EIA, the Energy Department’s statistical arm, said on Oct. 8.
Russia increased output 0.7 percent to 10.61 million barrels a day last month, according to preliminary data from CDU-TEK, part of the Energy Ministry. The figure, including crude and condensates, is within 0.3 percent of the post-Soviet record in January.
The International Monetary Fund said on Oct. 7 that the global economy will expand by 3.8 percent in 2015, down from a July projection of 4 percent. The International Energy Agency in Paris lowered its oil-demand forecasts for this year and next in its monthly report on Sept. 11.
Islamic State militants may capture Kobani within days if the U.S.-led coalition doesn’t step up airstrikes to help forces defending the besieged Kurdish stronghold in Syria, a Kurdish lawmaker said.
The al-Qaeda breakaway group has seized water wells on the outskirts of Kobani, Faysal Sariyildiz, a lawmaker in the Turkish parliament, said in an interview at the border with Syria yesterday. Even if the wells were under Kurdish control, the lack of diesel due to the siege renders them useless, he said.
The shortage of water and food adds to the woes of the lightly-armed Kurdish force, which is struggling to stop the advance of Islamic State fighters backed by tanks and heavy weapons. The militants pushed deeper into Kobani during the weekend in spite of a round of U.S. airstrikes, which sought to prevent them from encircling the town.
“If airstrikes by allied forces do not succeed in stopping the onslaught, Kobani could fall within a few days,” Sariyildiz said. Kurdish fighters in Kobani are largely militiamen of the YPG, an affiliate of the Kurdistan Workers’ Party or PKK, the separatist group long viewed as Turkey’s top security threat.
Still, U.S. Secretary of State John Kerry said today that the events in Kobani won’t define the strategy of the coalition. "Kobani is one community and it’s a tragedy what’s happening there," he told reporters in Cairo.
Airstrikes
U.S., Saudi and United Arab Emirates aircraft attacked Islamic State targets in Kobani, the U.S. Central Command said yesterday. In Cairo, United Nations Secretary-General Ban Ki-moon called on “all parties that can act to step up to prevent a massacre and protect civilians in Kobani.”
“Those countries who are able to provide support should do all that they can. The lives of many civilian populations are at risk,” Ban told reporters in Cairo. “We should not repeat what we have all seen in other places in the past.”
A surgeon who is treating wounded YPG fighters said some of those who arrived across the border in Turkey suffered from wounds they said were sustained during hand-to-hand combat with the militants.
“One of them had not slept for a week, and we could not wake him up for two days,” he said in an interview. “Some others had not eaten anything for days, and their intestines and even bladders were completely empty.”
About a dozen wounded fighters died of loss of blood or lack of proper first aid over the past week when Turkish authorities declined to call in ambulances to the border crossing of Mursitpinar, citing danger from nearby clashes, according to Onat and Sariyildiz. Izzettin Kucuk, the governor of the border province of Sanliurfa, denied the allegation yesterday, according to state-run Anadolu news agency.
Kurdish Autonomy
Kobani has been under siege for more than three weeks, and the UN says more than 170,000 people have fled their homes. Temporarily pushed back by airstrikes carried out by a U.S.-led coalition, Islamic State has resupplied its fighters with arms and sent in reinforcements, according to the Syrian Observatory for Human Rights, a U.K.-based group monitoring the war in Syria.
The fall of Kobani, also known as Ayn al-Arab, would extend Islamic State’s grip over a stretch of the Syria-Turkey border. It would also deliver a blow to Kurdish autonomy in the region that has deepened as the Syrian government lost control of large swaths of land to rebels during the country’s civil war.
U.S. drivers are closer to seeing $3 gasoline over the holiday season than they’ve been in four years as New York-traded futures are selling for $1 a gallon below retail prices, signaling further declines at the pump.
Gasoline for November delivery settled at $2.2575 a gallon on the New York Mercantile Exchange yesterday, 98.25 cents below the pump price, according to Heathrow, Florida-based motoring club AAA. That’s the biggest gap since October 2012, which was the last time the discount topped $1. The futures, which help dictate retail costs, have dropped about 40 cents in the past two weeks while prices at the pump are down 10 cents.
The widening spread indicates that filling stations have yet to match declines in futures, according to Michael Green, an AAA spokesman in Washington. The group has projected that retail prices will fall below $3.10 a gallon and may reach $3 by the time drivers hit the road for the end-of-year holidays.
“It’s possible that we see an average of $3 this year with futures so low and it only being early October,” Green said by phone Oct. 9. “We wouldn’t be surprised if retail prices dropped another 20 cents a gallon by the time you load your car up for Thanksgiving” on Nov. 27.
Prolonged declines in gasoline futures typically take two to three weeks to translate into lower pump prices as individual gasoline stations adjust their pricing, Green said. U.S. retail prices averaged $3.24 a gallon Oct. 9, data compiled by AAA show. The last time the nationwide price was below $3 was in December of 2010.
Filling Stations
“If you’re the owner of a gas station, you’re paying lower wholesale prices now, but there’s no guarantee they’ll continue to drop,” Green said. “They have little motivation to cut their prices unless futures remain where they are. Then some gasoline station owner will lower prices and competition will kick in and it’ll turn into lower prices for everyone.”
Gasoline is sliding as oil prices trade at the lowest levels since 2012. U.S. output of crude, which makes up about two-thirds of the cost of gasoline, has surged to a 28-year high as drillers pull record volumes out of shale formations from North Dakota to Texas. The domestic boom has contributed to a glut of light oil as global demand growth slows.
U.S. refiners are cashing in on the cheaper domestic supplies by processing the most crude for this time of year since at least 1989, according to data from the Energy Information Administration, the Energy Department’s statistical arm.
Below $3
Gasoline prices in Missouri fell below $3 a gallon earlier this week, becoming the first state with an average under $3 since Jan. 23, AAA said Oct. 7. Almost 10 percent of U.S. stations were selling the motor-fuel for less than $3 a gallon at the time, the group said.
The EIA lowered its retail gasoline forecasts on Oct. 7, projecting that prices will bottom out at $3.14 a gallon in December, 4 cents lower than its previous outlook, T. Mason Hamilton, a petroleum markets analyst at the agency in Washington, said by telephone yesterday.
“Of course that’s because of lower crude prices,” Hamilton said.
Petroleos Mexicanos, Mexico’s state-run oil producer, is optimistic of a crude discovery at the Vasto-1 ultra-deep water exploratory well by year-end, said Exploration and Production Director Gustavo Hernandez.
Pemex, as the Mexico City-based producer is known, has found “evidence of hydrocarbon content” at the Vasto-1 well and hopes to announce an ultra-deep water find by year-end, Hernandez said today in a phone interview from Mexico City. If confirmed the discovery would be the latest in the Perdido area, where the company estimates that as much as 10 billion barrels of potential reserves can be pumped.
“We are working on the well and if it turns out to be as satisfactory as we hoped, I think we will be making another announcement in the near future,” Hernandez said of the Vasto-1 well. “It has shown good results that are going to allow us to determine and evaluate the economic potential.”
Drilling at the Vasto-1 well started on April 11 with the Bicentenario rig, according to a company presentation in July. Pemex is “practically done” drilling, having reached a depth of 6,500 meters (21,326 feet), 600 meters shy of a 7,100-meter goal, Hernandez said.
Maximino
Pemex is also drilling an exploratory well 17 kilometers from the U.S-Mexico border at Maximino to determine the size of the field, Hernandez said. The company announced its third ultra-deep water discovery at the Maximino field last year.
Once the size of the Maximino field is determined, Pemex will seek a partner in the form of a joint venture to assist production, Hernandez said. Maximino was not included by Pemex as one of the 10 fields where the company seeks a joint venture next year during Mexico’s first bid round for private oil companies. Pemex is looking for a joint venture partner in the Trion and Exploratus deep water fields in the Perdido area for next year.
“Practically in all the areas, with the exception of the Trion farm-out, we want to be the operators,” Hernandez said. “In the deep water is where we want technology, experience and capital in a partner. In Trion, we don’t want to be the operating partner.”
Mexico will offer 169 blocks to private companies for exploration and production next year, including 11 in the Perdido area near the Mexico-U.S. border. Tender details for deep-water blocks being auctioned will be announced in March with contracts to be awarded in October, according to Juan Carlos Zepeda, who heads the National Hydrocarbons Commission.
The premium of gasoline at the pump to futures prices has widened to almost $1 a gallon for the first time since 2012, foreshadowing further declines for motorists and bringing U.S. holiday travelers closer to $3 gasoline than they’ve been in four years.
Gasoline for November delivery settled at $2.2575 a gallon on the New York Mercantile Exchange today, 98.25 cents below the retail price posted by Heathrow, Florida-based motoring club AAA. That’s the biggest gap since October 2012, which was the last time the discount topped $1. The futures, which help dictate retail costs, have dropped about 40 cents in the past two weeks while prices at the pump are down 10 cents.
The widening spread indicates that filling stations have yet to match declines in futures, according to Michael Green, an AAA spokesman in Washington. The group has projected that retail prices will fall below $3.10 a gallon and may reach $3 by the time drivers hit the road for the end-of-year holidays.
“It’s possible that we see an average of $3 this year with futures so low and it only being early October,” Green said. “We wouldn’t be surprised if retail prices dropped another 20 cents a gallon by the time you load your car up for Thanksgiving” on Nov. 27.
Prolonged declines in gasoline futures typically take two to three weeks to translate into lower pump prices as individual gasoline stations adjust their pricing, Green said. U.S. retail prices averaged $3.24 a gallon yesterday, data compiled by AAA show. The last time the nationwide price was below $3 was in December of 2010.
Filling Stations
“If you’re the owner of a gas station, you’re paying lower wholesale prices now, but there’s no guarantee they’ll continue to drop,” he said. “They have little motivation to cut their prices unless futures remain where they are. Then some gasoline station owner will lower prices and competition will kick in and it’ll turn into lower prices for everyone.”
Gasoline is sliding as oil prices trade at the lowest levels since 2012. U.S. output of crude, which makes up about two-thirds of the cost of gasoline, has surged to a 28-year high as drillers pull record volumes out of shale formations from North Dakota to Texas. The domestic boom has contributed to a glut of light oil as global demand growth slows.
U.S. refiners are cashing in on cheaper domestic supplies by processing the most crude for this time of year since at least 1989, according to data from the Energy Information Administration, the Energy Department’s statistical arm.
Below $3
Gasoline prices in Missouri fell below $3 a gallon earlier this week, becoming the first state with an average under $3 since Jan. 23, AAA said Oct. 7. Almost 10 percent of U.S. stations were selling the motor-fuel for less than $3 a gallon at the time, the group said.
The EIA lowered its retail gasoline forecasts on Oct. 7, projecting that prices will bottom out at $3.14 a gallon in December, 4 cents lower than its previous outlook, T. Mason Hamilton, a petroleum markets analyst at the agency in Washington, said by telephone today.
“Of course that’s because of lower crude prices,” Hamilton said.
By Michael J. Moore Oct 11, 2014 2:18 AM GMT+0700 0 Comments Email Print
Morgan Stanley (MS) said an agreement to sell its oil-merchanting business to Russia’s OAO Rosneft may not be completed in time to beat a year-end deadline.
“We are continuing to operate the business in the ordinary course, and should the deal not close, we would consider a variety of options,” New York-based Morgan Stanley said today in an e-mailed statement.
Rosneft, Russia’s largest oil company, was among the firms targeted by U.S. sanctions earlier this year in response to the confrontation in Ukraine. Russian President Vladimir Putin’s government annexed Crimea from Ukraine in March and has rebuffed demands to end support for rebels in eastern Ukraine.
Morgan Stanley agreed in December to sell the business to Moscow-based Rosneft as it divests its physical oil businesses to boost returns in its trading unit and avoid increased regulatory scrutiny. Terms weren’t disclosed.
The sale received U.S. antitrust approval in June, and Morgan Stanley Chief Executive Officer James Gorman, 56, said a week earlier that he expected it would be completed by the end of September.
Poland’s ambition to achieve energy independence from Russia is being undermined by drillers giving up on the nation’s shale wells after disappointing results.
The highest test flows during the country’s five-year search for unconventional gas were just 30 percent of what’s needed for commercial production, said Pawel Poprawa, a geologist at the AGH University of Science and Technology in Krakow. The number of active shale permits has fallen 43 percent from a high in January 2013 and explorers probably won’t extend all those expiring this year, according to Slawomir Brodzinski, the nation’s deputy environment minister.
3Legs Resources Plc, the Isle of Man-based company that was the first foreign explorer to buy a license in the East European nation, said last month it’s leaving after poor results at Poland’s biggest fracking operation in the northeastern Baltic Basin. The “poorly understood” formation may hold more gas than Texas’s Barnett Shale, where commercial output from 2000 helped turn the U.S. into the world’s largest gas producer, according to the U.S. Energy Department.
“If Europe really wants to do something about being a little bit more independent in gas, it has to develop its own resources as well and shale is one of them,” Maria van der Hoeven, executive director at the International Energy Agency, said Oct. 7 in an interview in London. “Shale gas is there, but it’s not as easy to explore as it was in the U.S.”
Energy Diversification
The European Union is trying to diversify its energy supplies as local gas output falls and a price conflict between Ukraine and Russia, the region’s biggest provider of the fuel, threatens to disrupt winter flows for the third time in eight years. Poland, which gets about 57 percent of its gas from Russia, encourages shale gas amid bans in other EU nations.
3Legs handed three permits in the Baltic Basin to partner ConocoPhillips last month, seven years after becoming the first foreign company to buy a license in Poland, citing poor results from their Lublewo well. Houston-based ConocoPhillips said Sept. 17 it would keep drilling.
Exxon Mobil Corp. left Poland in 2012 after results from early wells disappointed. Talisman Energy Inc. and Marathon Oil Corp. gave up in May 2013, while Eni SpA withdrew nine months ago.
The U.S. Energy Information Administration in 2013 cut its estimate of the nation’s technologically recoverable wet shale gas reserves by 21 percent from a 2011 forecast to 148 trillion cubic feet, of which 72 percent in the Baltic Basin. That would meet more than 250 years of current demand.
Polish Gas
Poland produced 4.2 billion cubic meters (150 billion cubic feet) of conventional gas last year, importing 9.6 billion from Russia and 1.8 billion from the rest of Europe, according to BP Plc’s annual statistical review.
Poland pays a “significant” premium for its gas compared with other European nations, according to Mariusz Zawisza, the chief executive officer of the nation’s dominant gas company, Polskie Gornictwo Naftowe i Gazownictwo SA. PGNiG will seek steeper gas price cuts than agreed two years ago when it starts talks with Russia’s OAO Gazprom next month, it said in September.
Lublewo produced less gas than predicted from Aug. 8 to Sept. 17, averaging 396,000 cubic feet a day and 157 barrels a day of light oil, according to 3Legs. That’s about 30 percent of what’s needed for commercial production, according to Poprawa, who’s also an adviser at the Warsaw-based think thank Energy Studies Institute.
“When you look at the shale gas production in Europe, at this moment there’s no shale gas production at all,” Van der Hoeven said. Poland doesn’t have “real nice rock layers like you have in the U.S.” and the shale gas is deeper, she said.
Red Tape
Polish shale’s organic content, reservoir thickness, permeability and porosity are near the lower end of acceptable levels for deposits in the U.S., Poprawa, who has been evaluating the nation’s shale since 2007, said by telephone on Oct. 7.
“Our geological conditions are more difficult, and we are also bound by strict European Union environment regulations, which means U.S. success isn’t being echoed in Europe,” Brodzinski, also Poland’s chief geologist, said Oct. 2 in a phone interview from Warsaw. “Without technological adjustments, there won’t be shale gas success in Europe.”
The permitting process takes on average eight months, compared with 45 days in Pennsylvania, according to Poprawa. The longer lead time slows the learning process needed to understand Poland’s rocks, he said. Marcellus, the largest U.S. producing shale basin, straddles Pennsylvania and West Virginia.
12 Wells
“The biggest problem is an administration that lacks experience, flexibility, doesn’t understand the industry and imposes suffocating procedures,” he said. “Some 1,600 wells are being drilled in Pennsylvania every year, while in Poland the share of work done by foreign drillers is declining.”
Five of the 12 wells completed in Poland this year through July were drilled by foreign investors, with the rest by state-controlled operators, Environment Ministry data show.
Poland’s Treasury Ministry last month published a draft law that will simplify investment in exploration, production and transport of oil and gas, cut the length of procedures such as obtaining environmental permits and boost foreign investment.
“After the recent proposals and earlier adjustments of the geological law, investors should agree that the government is showing good intentions,” Brodzinski said. “Once these two steps are complete, investors will have to put their cards on the table.”
Chevron Plans
Chevron Corp. supports the government’s desire to create effective laws and regulations to encourage shale gas development, Sally Jones, a London-based spokeswoman for the company, said by e-mail Oct. 1. Chevron plans to start drilling a well this month in the southeast together with state-controlled PGNiG after completing four Polish wells since 2012.
“Poland should create a better business environment for explorers,” said Marek Madeja, Poland manager for Cuadrilla Resources Ltd., a U.K. driller with one Polish license. “The exit of yet another company is a clear signal that Poland’s shale gas project is losing its importance for foreign players.”
ConocoPhillips has been advocating regulatory change that balances the needs to encourage drilling and to preserve the nation’s interests, Kris Sava, a Houston-based spokesman, said by e-mail on Sept. 29.
“The decision to withdraw from Polish shale gas concessions demonstrates the high level of technical uncertainty that still remains for shale gas operations outside of the U.S.,” Emma Wild, head of U.K upstream advisory practice at KPMG LLP, said Oct. 7 by e-mail. “Significantly more drilling is required to better understand the geology and identify any ‘sweet spots’ before any commercial shale gas production will be realized in Europe.”
Brent crude’s biggest slump in two years is coming to an end as the most timely measure of supply and demand signals a glut is clearing, Bank of America Corp. says.
The CHART OF THE DAY shows that Brent, the world’s most-traded oil contract, began to plunge in June as the front-month futures contract erased a premium to the second month and started trading for a discount, indicating a short-term surplus. That discount is contracting now, reflecting that the excess is diminishing and that the price rout should dissipate, the bank estimates.
“The fact that time-spreads are starting to narrow is an indicator that the supply overhang is starting to clear,” Francisco Blanch, head of commodities research at Bank of America, said by phone from New York on Oct. 7. “The downside is going to be somewhat limited, unless the macro turns a lot worse, and there aren’t a lot of reasons to believe the macro is going to turn a lot worse.”
Brent futures fell as low as $88.11 a barrel on Oct. 10, the weakest since Dec. 1, 2010, amid speculation that Saudi Arabia will refrain from supply cuts needed to drain an excess. The market remains oversupplied for now, and further price losses are possible, according to Blanch. Still, global demand is unlikely to deteriorate significantly and Saudi Arabia will curb output if necessary, he said.
The spread between the price of Brent oil futures and physical cargoes of the grade is also shrinking, indicating that the cost of storing crude is falling as traders have less need to stockpile excess supplies, Blanch said.
While earlier supplies remain cheaper than later deliveries for several months into the future, a pattern known as contango, the relationship between prices at the front of oil’s forward curve is the most important for determining supply and demand, said Blanch.
Fifty years since acquiring its first North Sea license, BP Plc (BP/) is preparing to start a 700 million-pound ($1.1 billion) project in the region that’s expected to produce oil and gas into the next decade.
The second-largest British oil producer will start output from the Kinnoull field this month, Chief Executive Officer Bob Dudley said at an event in London yesterday.
Output from Kinnoull is forecast to peak at 45,000 barrels a day and will be exported via the Forties pipeline to the Kinneil processing plant and through the CATS system to Teesside, according to company statements. It’s one of three reservoirs being developed as part of the Andrew area rejuvenation program. The reservoir holds 45 million barrels of oil equivalent, the company said.
BP has a 77.06 percent stake in the project and JX Nippon Oil & Energy Corp. holds the rest.
The startup will be BP’s sixth this year. It plans to start production at the Sunrise oil-sands project in Canada later this year.
The company’s shares declined along with oil prices, falling 1.6 percent to 428.15 pence at the close in London trading. That’s the lowest price since Dec. 31, 2012. Brent crude dropped to below $90 a barrel for the first time since June 2012.
VIENNA, Oct. 10 (UPI) -- U.S. imports into the Gulf Coast region are at six-year lows because shale output is suppressing the need for foreign oil, OPEC said in a Friday report.
The Organization of Petroleum Exporting Countries published its monthly market report, saying that despite signs of economic stagnation, its growth outlook remained static and with it are stable expectations of global oil demand.
For the United States, OPEC said the market there was becoming more self-reliant because of oil production from inland shale deposits.
"U.S. imports to the Gulf Coast have touched six-year lows in recent months as domestic shale production reduced the need for foreign crude, particularly from West Africa," the monthly market report for October read.
For the U.S. economy, OPEC said it expected acceleration in 2015.
The U.S. Energy Information Administration said in a short-term market report published Wednesday total U.S. crude oil production in September averaged 8.7 million barrels per day, the highest monthly level since July 1996.
By next year, EIA expects total U.S. crude oil production to reach 9.5 million bpd.
"If realized, the 2015 forecast would be the highest annual average crude oil production since 1970," EIA said.
MOSCOW, Oct. 10 (UPI) -- The Kremlin said Friday it agreed on a date for the next round of talks aimed at resolving a Ukrainian gas issue endangering European energy security.
"The Russian side has agreed to the proposed date of three-party talks in the Russia-Ukraine-EU format to discuss uninterrupted transit of gas via the territory of Ukraine," the Russian Energy Ministry said. "The new round of talks will take place Oct. 21 in Berlin."
Ukraine under an interim deal would pay the $3.1 billion it owes Russian energy Gazprom. Ukraine, in return, would get a price discount and assurances of adequate winter natural gas supplies.
Russia sends most of its gas for European consumers through the Soviet-era transit network in Ukraine. Contractual disputes in 2006 and 2009 between Kiev and Gazprom resulted in brief gas shortages in Europe, and ongoing crises in eastern Ukraine have exposed the European community to additional energy risks.
The World Bank and United Nations issued separate statements this week saying the gas issue was having secondary impacts on Ukraine's economy and its people.
Russian Energy Minister Alexander Novak said resolving the issue rests with a Ukrainian government the Kremlin sees as hesitant to broker a deal. Ukraine, for its part, has said past efforts to resolve the issue were part of a political ploy by Moscow.
Western governments have issued sanctions against the Russian energy sector in response to the Kremlin's actions in eastern Ukrainian conflicts.
WASHINGTON, Oct. 10 (UPI) -- The government of Venezuela declared victory following a ruling by an international court regarding Exxon Mobil claims on the country's offshore oil.
The International Center for Settlement of Investment Disputes, which receives funding from the World Bank, ruled Venezuela must pay Exxon Mobil $1.6 billion for taking over assets in 2007. That's far less than the $16.6 billion Exxon wanted, giving the government in Caracas a claim to victory.
"Once again, Venezuela, its government, institutions and workers have confronted and [have] been able to defeat the aggressions of the powerful transnational interests," a statement published Thursday read.
The court, in its 138-page ruling, said the compensation is owed "for the expropriation of [Exxon Mobil's] investments in the Cerro Negro project [in the Orinoco belt]."
Former Venezuelan President Hugo Chavez moved to put the state in control of several oil projects in 2007.
In March, ICSID ruled against Venezuela in a decision involving the seizure of ConocoPhillips assets. Venezuelan energy company Petroleos de Venezuela argued a 2013 ruling it failed to act in good faith in talks to compensate Conoco for assets seized in 2007 was unfair.
A spokesman for Exxon told the Wall Street Journal the latest court ruling wasn't ideal, but confirms Caracas "failed to provide fair compensation for expropriated assets."
LONDON, Oct. 10 (UPI) -- Though reserves encountered so far off the coast of Gabon are non-commercial, Tullow Oil said Friday it was encouraged by the West African results.
Tullow said its drilling partner, Perenco, ran into a 980-foot column of hydrocarbons while drilling into the Arouwe block off the coast of Gabon, but the reserve potential was considered too low to exploit commercially.
Nevertheless, Tullow Exploration Direction Angus McCoss said the data taken from the well was useful for future plans.
"This is an encouraging result from the pre-salt play, offshore Gabon," he said in a statement.
Reserves off the coast of Gabon are similar to those in Brazil in that they're located beneath a thick layer of submarine salt. Gabon's geological similarities to Brazil raised hopes for oil production among energy explorers, but so far the region has turned up mostly natural gas.
Italian energy company Eni and Australian major Woodside Petroleum are among the more active players in a re-emerging Gabonese oil sector.
Oil production peaked in the late 1990s and Gabon has since fallen from the No. 3 oil producer to the No. 6 position in the region because of field maturation.
By Daniel J. Graeber | Oct. 10, 2014 at 6:56 AM | 1 Comment
BISMARCK, N.D., Oct. 10 (UPI) -- Waterways were soiled by the spill of an unknown amount of material used to produce oil and gas in a North Dakota county, the state government said.
The North Dakota Department of Health said about 1,000 barrels of brine were spilled from a corroded pipeline at a well site owned by energy company Oasis in McKenzie Country.
Energy companies inject brine, or salt water, to improve oil and gas production from shale deposits.
"Much of the produced water brine was contained and recovered on the pad, but an unknown amount spilled over onto adjacent land and impacted a nearby stream," the Health Department said in a Thursday announcement.
The Environmental Protection Agency said brine may contain toxic metals and radioactive substances that can be "very damaging" to the environment and public health if released on the surface.
North Dakota lies at the heart of the shale boom in the United States. Oil production in July, the last full month for which data are available, was 1.1 million barrels per day on average, a state record.
There was no comment from Oasis on the release.
WASHINGTON, Oct. 10 (UPI) -- Two advocacy groups, the Sierra Club and Oil Change International, said multilateral development banks weren't doing enough ensure the poor have enough energy.
In a 19-page report, the two advocacy groups gave the World Bank, the Asian Development Bank, the African Development Bank and the Inter-American Development Bank a failing grade when it came to efforts to achieve global energy access by 2030.
"Development banks say they want to provide energy for the world's poorest people, but their actions don't back up their words," Heike Mainhardt, senior analyst at Oil Change International and the report's author, said in a Thursday statement. "These institutions must do better if we are going to meet the challenge of providing energy access for the poor."
World Bank President Jim Yong Kim issued the group's progress report during its plenary session Friday in Washington. A report released Thursday from the bank said some of the its economic prosperity goals are "achievable, but highly aspirational."
The advocacy groups call for increased funding for energy access, so-called off- and mini-grid clean energy projects and clear criteria for what counts as "energy access."
OSLO, Norway, Oct. 10 (UPI) -- A small natural gas discovery in the arctic Barents Sea waters by Norway's Statoil shows the risky campaign isn't worth it, Greenpeace said Friday.
The Norwegian Petroleum Directorate characterized a discovery in a wildcat well in the Johan Castberg area of the Barents Sea as a small find for the Norwegian energy company. A wildcat well is one drilled into an area not known previously to contain oil or gas reserves.
Erlend Tellnes, a Greenpeace campaigner, said the announcement of low gas volumes was a victory for the environment.
"Statoil unsuccessful drilling campaign in the Barents Sea shows that the strategy to be more aggressive in the Arctic has been unsuccessful," the campaigner said in a statement emailed to United Press International.
More than a dozen Greenpeace demonstrators took part in a protest against Statoil's drilling plans for arctic waters by boarding the Transocean rig Spitsbergen in May. Around half of them surrendered their campaign voluntarily and Statoil said the seven activists who remained behind were arrested by Norwegian police
Greenpeace has recommended that the drilling does not take place in the region, as it is too close to vulnerable seabird habitats at Bear Island.
KIEV, Ukraine, Oct. 10 (UPI) -- Ukraine needs to secure a reliable natural gas partner as shortages are expected during the upcoming winter, a Cabinet official said.
The U.N. High Commissioner for Human Rights this week said energy security issues in Ukraine may take on a humanitarian tone as residents there fear there could be a natural gas shortage this winter.
Cabinet Minist Ostap Semerak told Ukrainian news agency Glavkom some of those fears may come to fruition.
"We will have a gas shortage ... for the upcoming winter," he said in an interview published Thursday. "We must find this gas in order to survive the winter [and] to ensure the effective work of the economy."
The World Bank this week said lingering tensions in Ukraine were taking their toll on the nation's economy, though many of the problems stem from older structural issues.
Semerak said the Ukrainian government since political upheaval in November had taken the steps necessary to address some of the chronic economic maladies.
European, Russian and Ukrainian are still mulling the date for another round of talks aimed at resolving the energy issue. Ukraine under a proposal tabled last month would settle its outstanding debt to Russian energy company Gazprom in exchange for a discount on price and assurances of adequate winter supplies.
