New York Gets Frigid Winter Warning From Siberia Snowfall

The snow in Siberia is piling up, and if it keeps coming, people in New York may have to bundle up this winter.

There’s a theory that the amount of snow covering Eurasia in October is an indication of how much icy air will sweep down from the Arctic in December and January, pouring over parts of North America, Europe and East Asia.

Last year, the snow level across Eurasia was the fourth highest for the month in records going back to 1967. In January, frigid temperatures dubbed “the polar vortex” slid out of the Arctic to freeze large portions of the U.S.

It was a pattern that repeated itself during the Northern Hemisphere winter and helped make the first three months of this year the coldest in the 48 contiguous states since 1985, according to the National Climatic Data Center in Asheville, North Carolina.

With the snow now piling up across Eurasia, will this winter be a grim reminder of last year’s?

“It’s still early in the game,” said Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts, a division of Verisk Climate.

Month’s Data

While “the snow has gotten off to an incredible start,” Cohen said he needs to see how much covers the area through the entire month before he can make an accurate forecast. The National Science Foundation has sponsored his research into the link between Eurasian snowcover and the severity of the Northern Hemisphere’s winter.

As of Oct. 13, Cohen calculated, 12.2 million square kilometers of Eurasia were covered by snow, compared with 10.8 million square kilometers on the same day last year.

About 12.9 million square kilometers covered Eurasia in October 2013, according to the Rutgers University Global Snow Lab. The record was 17.2 million in 1976.

It’s important to note that snowcover ebbs and flows and isn’t a constant all the way through the month. Last year, some of it melted away before Oct. 31 arrived. Cohen said the same may happen this year.

According to Cohen’s research, there’s a link between the snowcover and how much cold spills out of the Arctic and where it ends up once it escapes.

Cold Blocker

A big piece of this depends on the North Atlantic Oscillation, or NAO, which is a pressure differential across the basin. When it’s in its negative phase, cold air can be bottled up across the eastern U.S., and that can also mean more snow both there and in Western Europe.

A good indication of what the negative phase of the NAO can do was the winter of 2009-2010, when 56.1 inches (142.5 centimeters) of snow fell in Washington and the “Snowmageddon” storm halted travel in the U.S. Northeast.

That was also the year when a satellite photo showed the U.K. covered with snow, Cohen said.

Cohen said we need to wait a few weeks before he’ll predict what the NAO will do.

“Our research has shown that you need all 31 days” of October, Cohen said. “A lot can go wrong.”

Oil Knows Smart Money Sees No Inflation With Futures Drop

For signs of just how much inflation concerns have been erased by the global economic slowdown, look no further than oil.

West Texas Intermediate crude, the U.S. benchmark, has plunged 22 percent since June 20 to $83.65 a barrel, the lowest in more than two years. A year ago, WTI crude for delivery this month traded at $95.91 a barrel, a level that implied a 6.3 percent decline over the next 12 months. Prices ended up falling even more as demand slowed across Europe and Asia and the dollar rallied, touching a two-year high against the euro.

The speculation that unprecedented central-bank stimulus would push up inflation has proven unfounded. In Europe, policy makers are now trying to stave off deflation while demand for inflation protection in the U.S. bond market is drying up and growth in China is slowing. Oil futures traders were ahead of this, anticipating falling prices as expanding U.S. supply sparked competition with OPEC just as demand weakened.

“The oil market seems to be a better economic indicator than anything else,” Phil Flynn, an analyst at Price Futures Group Inc. in Chicago, said in an Oct. 10 phone interview. “We probably wouldn’t have the stronger dollar if we didn’t have rising U.S. oil production, and we wouldn’t have the price of oil fall as far if we didn’t have a stronger dollar.”

WTI futures sank 0.1 percent on Oct. 13 to $85.74 on the New York Mercantile Exchange, the lowest settlement since December 2012. Gasoline futures fell to $2.2553 a gallon on the Nymex, close to a four-year low. Pump prices for regular unleaded averaged nationwide were at $3.186 a gallon, the lowest in 11 months, according to Heathrow, Florida-based AAA.

Stronger Dollar

The dollar has risen 4.6 percent this year against 10 peers, making raw materials priced in the greenback more expensive for buyers outside the U.S. and deepening the selloff in crude.

World oil consumption will expand at the slowest pace since 2009 this year as economic growth slows in Europe and Asia, according to the International Energy Agency. The Paris-based adviser to industrialized countries cut its demand forecast yesterday for the fourth time in a row, to half what it predicted in June.

As demand slumps, output is increasing.

The U.S. is adding an unprecedented 1.1 million barrels a day this year, the Energy Department estimates. The Organization of Petroleum Exporting Countries boosted September output to a one-year high of 30.935 million barrels a day.

‘Feedback Loop’

“There’s a feedback loop,” Wittner said. Oil reflects a stronger dollar and also contributes to lower inflation because fuel is a major component of consumer spending, he said.

Many economists, including John Taylor, professor of economics at Stanford University, and Douglas Holtz-Eakin, a former director of the Congressional Budget Office, have been warning that the Federal Reserve’s stimulus -- almost $4 trillion of bond purchases since 2008 -- would spark an inflation surge.

Instead, prices as measured by the Fed’s preferred gauge, the personal consumption expenditures price index, rose just 1.5 percent in the 12 months through August. The rate has remained below the Fed’s 2 percent target for more than two years, causing concern among policy makers that inflation will remain too low or prices will even start to fall, which can create a vicious circle of lower spending and declining wages.

Central Bankers

Central bankers including regional Fed Presidents William Dudley of New York, Charles Evans of Chicago and Narayana Kocherlakota of Minneapolis recently cited below-target inflation as a risk that weighs against raising interest rates too soon. Weaker-than-anticipated foreign growth could lead the Fed to slow down removing support for the economy, Fed Vice Chairman Stanley Fischer said in an Oct. 11 speech at the International Monetary Fund’s annual meetings in Washington.

Minutes of the Fed’s September gathering released Oct. 8 showed officials highlighted concern that deteriorating growth abroad and a stronger dollar may hurt the domestic economy by curbing exports and damping inflation.

The outlook in Europe and Asia is more dire. The European Central Bank plans to stimulate growth by buying asset-backed debt, while economists have cut estimates for Chinese growth after disappointing data on industrial profits, factory output and credit. The IMF last week cut its forecasts for global growth in 2015 to 3.8 percent from 4 percent.

Bond Investors

Bond investors, who have put five-year Treasuries on track for the biggest monthly rally in three years, are betting that U.S. inflation will remain below the Fed’s 2 percent target through 2019. Their expectations for average annual inflation -- as measured by the gap between fixed-rate securities and those linked to consumer prices -- have plunged to about 1.5 percent from 2.1 percent in June.

As demand for oil has waned, so has the appeal of the inflation-linked notes, known as TIPS. Investors have withdrawn $871 million from exchange-traded funds that invest in securities designed to protect against inflation, or 4 percent of the holdings of those funds, since Sept. 1, data compiled by Bloomberg show. The $12.4 billion iShares TIPS ETF run by BlackRock Inc., has had $835 million in outflows since Sept. 1, following four consecutive months of inflows, data compiled by Bloomberg show.

Mitchell Stapley, chief investment officer for Cincinnati-based ClearArc Capital, which manages $7 billion, said he noticed on his way to work recently that gasoline prices had fallen to as low as $2.99 a gallon at one station.

“The following thought as a portfolio manager is not, ‘Gee, I need to buy some TIPS to protect against a wave of inflation about to wash over us,’” Stapley said in an Oct. 8 phone interview.

Oil and Junk Don’t Mix as Worst Bonds Sink as Much as 19%

By Lisa Abramowicz  Oct 15, 2014 4:32 AM GMT+0700  4 Comments  Email  Print

If you’re wondering why junk bonds keep selling off, consider this: Oil prices are tanking and energy companies now account for a record proportion of the below investment-grade market.

Debt of high-yield energy companies has tumbled 4.6 percent since August, leading the market down as the price of Brent crude futures plummeted to the lowest in about four years. Some securities have fared much worse, like the 19 percent plunge in oil and gas producer Samson Investment Co.’s bonds.

“It’s been a pretty sharp move,” said Matt Eagan, a fund manager at Loomis Sayles & Co. in Boston. “This is the first time in a long time where a sector has seen a big setback.”

Every time the U.S. junk-bond market has faltered since 2008, it’s been rescued by record monetary stimulus that’s fueled demand for the higher-yielding debt. Now, there’s renewed concern that the world’s biggest economy won’t be able to escape a global slowdown, which would damp demand for energy at a time when the U.S. is producing more supply than ever.

Junk-bond investors piled into oil debt in the past decade. Energy companies now account for 15 percent of U.S. high-yield bonds, up from 9.7 percent at the end of 2007, Bank of America Merrill Lynch index data show.

Debt Plummets

Performance has suffered along with demand for oil, which will grow this year at the slowest pace since 2009, the International Energy Agency said yesterday. Brent for November settlement fell $3.85 yesterday on the London-based ICE Futures Europe exchange to $85.04 a barrel, the lowest close since Nov. 23, 2010.

The overall high-yield market posted losses of 2.3 percent since the end of August. Meanwhile, the extra yield investors demand to own energy debt instead of the average U.S. junk bond is the most in at least a decade, according to Bank of America Merrill Lynch index data.

Investors are being punished more for purchasing recent oil and gas bond offerings. Take, for example, $580 million of bonds that Paragon Offshore Plc sold in July at 100 cents on the dollar. The 7.25 percent notes maturing in 2024 have since plunged to 77 cents.

Hercules Offshore Inc., the Houston-based drilling company, sold $300 million of eight-year notes in March at 100 cents on the dollar. They’re now trading at 59.8 cents.

Samson Investment, a Tulsa, Oklahoma-based oil and gas explorer and producer owned by investors including KKR & Co., sold $2.25 billion of bonds in July that have fallen to 78.5 cents on the dollar from as high as 103.5 cents in August. Its debt is the worst performing among the 50 biggest junk-rated energy issuers in the Bank of America Merrill Lynch index.

Oil and junk, for now at least, don’t mix.

Putin Loses His Best Friend: Expensive Oil

Attendees inspect a digital map of the Russian Federation displayed at the OAO Transneft pavilion during the 21st World Petroleum Congress in Moscow on June 17, 2014.

The decline in oil prices may be depriving Russian President Vladimir Putin of his biggest ally.

Oil has been the key to Putin’s grip on power since he took over from Boris Yeltsin in 2000, fueling a booming economy that grew 7 percent on average from 2000 to 2008.

Now, with economic growth slipping close to zero, Russia is reeling from sanctions by the U.S. and the European Union over its land grab in Ukraine, and from a ruble at a record low. Putin, whose popularity has been more than 80 percent in polls since the annexation of the Crimean Peninsula in March, may have less money to raise state pensions and wages, while companies hit by the sanctions also seek state aid to maintain spending.

“His ratings remain high but for a person conducting such a risky policy, Putin has to understand the limits of patience for the people, business and political elite,” said Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences in Moscow. “Putin is thinking hard how not to lose face while maintaining his support.”

Brent crude is down more than 20 percent from its June high, cutting billions of dollars in tax revenue from Russia’s most valuable export. The budget will fall into deficit next year if oil is less than $104 a barrel, according to investment bank Sberbank CIB. At $90, close to the current level, Russia will have a shortfall of 1.2 percent of gross domestic product.

The country has spent about $6 billion on currency interventions this month trying to keep the currency afloat. Russia’s largest oil company, OAO Rosneft; gas producer OAO Novatek and the largest lender, OAO Sberbank, are among companies targeted by the sanctions.

Bigger Threat

The curbs will subtract 1 percent to 1.5 percent from GDP and are a bigger threat than oil prices, according to Alexei Kudrin, the finance minister from 2000 to 2011 who steered Russia’s accounts back to surplus.

“The sanctions are having an across-the-board impact,” Kudrin said by phone. “It isn’t just about the loss of money but the worsening investment climate, rising capital flight and a slide in the currency.”

Russia faces weak growth even if the EU sanctions expire next year as expected, Charlie Robertson, the chief economist at Renaissance Capital Ltd., said by phone. The International Monetary Fund earlier this month reduced its 2015 forecast for Russia to 0.5 percent from 1 percent in July.

Contraction Foreseen

“Growth is virtually nonexistent this year and isn’t terribly much better next year,” Robertson said Oct. 10, adding that the economy could contract 1.7 percent in 2015 if crude averages $80 a barrel.

Putin, 62, a former KGB colonel, has criticized the U.S. and Europe for expanding the North Atlantic Treaty Organization up to Russia’s borders, and he has vowed to keep neighboring Ukraine out of the Cold War-era military alliance.

Top Kremlin officials said after the annexation of Crimea that they expected the U.S. to artificially push oil prices down in collaboration with Saudi Arabia in order to damage Russia, according to Khryshtanovskaya. Putin’s spokesman, Dmitry Peskov, didn’t respond to a request for comment on this issue, nor did he respond over four days of calls requesting comment about oil’s importance to Putin.

“Prices are being manipulated,” state-run Rosneft’s spokesman Mikhail Leontyev said Oct. 12 in an interview with Russkaya Sluzhba Novostei radio. “Saudi Arabia has started offering big discounts on oil. This is political manipulation, manipulation by Saudi Arabia, which can end badly for it.”

No War

The reason Saudi Arabia cut its crude prices earlier this month was to boost margins for refinery clients and the move didn’t signal rising competition for market share, a person familiar with the nation’s oil policy said last week.

The Russian budget loses about 80 billion rubles ($2 billion) for every dollar the oil price falls, according to Maxim Oreshkin, head of strategic planning at the Finance Ministry. Brent crude traded at $88.33 a barrel yesterday on the London-based ICE Futures Europe exchange, down more than $26 a barrel since June.

In 2009, Russia posted a 5.9 percent budget deficit when oil averaged $61.30 a barrel, 40 percent less than the $98 that was needed to balance the budget that year.

The oil price has collapsed to its lowest in four years as demand growth slows and output in the U.S. is near a 30-year high. Producers in the Organization of Petroleum Exporting Countries, including Saudi Arabia and Iraq, have cut prices.

Currency Reserves

Russian currency reserves are at a four-year low after dropping $57 billion in 2014 to $455 billion last week. The ruble, down 20 percent against the dollar this year, has fallen for five weeks, the longest stretch of losses since March.

Russia’s central bank intervened over the past 10 days to stabilize the ruble, Central Bank Governor Elvira Nabiullina told lawmakers in Moscow Oct. 13. The action has so far failed to halt the ruble’s decline amid a domestic foreign currency shortage stemming from sanctions.

Putin and the central bank earlier this month ruled out capital controls after two officials with direct knowledge of the discussions said they were under consideration.

Russia’s economic fortunes have fluctuated along with the swings in oil prices since the Soviet era. In the 1970s, after the Arab oil embargo sent prices soaring, Soviet leader Leonid Brezhnev presided over a period of relative prosperity and rising global influence.

Living Standards

An oil glut in the 1980s led to a six-year decline in prices, contributing to the Soviet Union’s failure to keep its shelves stocked with basic consumer goods and undermining its economy. Putin has described the collapse of the Soviet Union as the greatest geopolitical catastrophe of the 20th century.

Crude prices remained low throughout Yeltsin’s presidency, when the economy was racked by hyperinflation, wage arrears and falling standards of living that culminated in the 1998 Russian financial crisis.

The “addiction” to oil “is a big part of why the Soviet Union collapsed,” said Michael Bradshaw, professor of global energy at the Warwick Business School in Coventry. “Putin rode a wave of high oil prices in his first two terms, so his job now could get trickier if prices stay down.”

With oil prices falling amid an abundance of global oil supplies and slowing demand, Russia may be forced to tap its sovereign wealth funds to bail out companies blocked by sanctions from international borrowing.

Economy Minister Alexey Ulyukayev said on Oct. 8 that Russia may start putting about $19.6 billion from the $83.2 billion Wellbeing Fund into infrastructure projects as early as this year. The fund was originally intended to ensure the long-term viability of the country’s pension system.

Aid Request

Rosneft and Novatek both have applied for state funding and may receive the money as early as this year if they complete the paperwork on time, Finance Minister Anton Siluanov said on Sept. 20. Each could get as much as $4 billion, including from the Wellbeing fund, he said.

If Putin is concerned about the state of Russia’s economy, he isn’t showing it.

“The state is ready to support those sectors and companies that faced unjustified external sanctions,” the president said at a banking forum in Moscow Oct. 2, adding that the measures would help strengthen Russia’s resolve to boost growth.

If crude prices remain depressed, the Kremlin could cut social programs and pressure businessmen to maintain full employment, Clifford Gaddy, an economist specializing in Russia at the Brookings Institution in Washington, said by phone.

More Prepared

“This regime is more consciously prepared to deal with low oil prices than either the Soviets or the authorities in the 1990s,” Gaddy said. “It’s possible that they are over-extended, but Putin is a strategic planner who has certainly considered life at various price points.”

Shunned by the U.S. and the EU, Russia is stepping up efforts to reach out to other nations. Chinese Premier Li Keqiang on Oct. 14 signed an agreement with Prime Minister Dmitry Medvedev to build a high-speed transport corridor linking Moscow and Beijing.

The two countries in May signed a $400 billion, 30-year natural gas deal after more than a decade of talks. Chinese banks have stepped up to help fill the void created by the closure of U.S. and Europe debt markets.

Closer to home, Armenia last week signed a deal to join Russia, Belarus and Kazakhstan in the Eurasian Economic Union, which was conceived by Putin as a post-Soviet version of the EU.

Putin managed to avoid mass unemployment during the 2008 financial crisis, when the price of oil dropped further and faster than currently, Gaddy from Brookings said. If Russia faces an extended slump now, his handling of the last crisis could serve as a template.

“If there is a prolonged period of low prices, it’s crucial that people don’t lose their jobs,” Gaddy said.

Permian Crudes Weaken After Crude Spill Shuts Sunoco Pipeline

Crude extracted from the largest U.S. oil field weakened against the U.S. benchmark after producers lost access to Midwest markets when a 4,000-barrel spill in Louisiana forced the shutdown of a key pipeline.

West Texas Intermediate in Midland, Texas, weakened by 75 cents a barrel to a discount of $7 relative to the same grade in Cushing, Oklahoma, at 11:47 a.m., according to data compiled by Bloomberg. It’s the largest discount since Oct. 1. Midland is the pricing point for the Permian Basin, which produces about 1.76 million barrels of oil a day.

Sunoco Logistics Partners LP (SXL) shut a segment of its Mid-Valley Pipeline between Longview, Texas, and Mayersville, Mississippi, after it spilled as much as 4,000 barrels of crude last night, Travis Lawson, a spokesman for the Philadelphia-based company, said by phone. The Mid-Valley line delivers Permian crude from Longview to six states, including Ohio and Michigan.

“There’s no question that that’s going to contribute to weakness in West Texas crudes,” Andrew Lebow, senior vice president at Jefferies Bache LLC in New York, said by phone.

West Texas Sour, a medium-density, high-sulfur crude also priced in Midland, weakened by 65 cents a barrel to a discount of $5.75 to WTI in Cushing.

The Mid-Valley line carried about 228,000 barrels of crude a day through Louisiana in July, the most recent month for which data is available, according to the state’s Department of Natural Resources. Longview, in northeast Texas, is connected to the Permian by the Sunoco’s West Texas Gulf pipeline system.

After shutting the Longview-Mayersville segment following yesterday’s spill, Sunoco closed the entire Mid-Valley line this morning for 48 hours of planned maintenance because of a refinery turnaround, Lawson said.

This is the second time this year Sunoco has had to shut a section of the Mid-Valley because of a spill. The 20-inch pipe leaked 240 barrels of crude near Colerain Township, Ohio, in March.

Husky Energy Inc. is monitoring the pipeline situation, and so far operations at its refinery in Lima, Ohio, are not affected, spokesman Mel Duvall said by e-mail.

Israel Sees Gas as Key to Transforming Mideast Relations

After this summer’s war in Gaza battered Israel’s international reputation, the country’s leaders say they have a new foreign policy tool to build relations with its neighbors: natural gas.

By the the end of the year, Israel may have binding agreements to sell billions of dollars of gas to Egypt, Jordan and the Palestinian Authority. Preliminary talks are taking place with customers in Turkey, even though President Recep Tayyip Erdogan is among Israel’s fiercest critics. Gas may even help improve relationships in the Gaza Strip.

“There are now extraordinary opportunities for Israel based on energy policy, both economically and diplomatically,” said Israeli Foreign Ministry spokesman Emmanuel Nachshon. “This is a real game-changer of common interests and benefits for many actors in the region. It could also bring about better relations with Turkey, and with other regional actors with whom Israel is not yet in close contact.”

Israel’s chance to be a regional energy power comes from two mammoth fields under the Mediterranean Sea, holding more gas than the country could consume in decades. In addition to building ties with neighbors that have often been antagonistic since the state was founded in 1948, gas exports will be a fillip for Israel’s economy, improving the balance of trade and boosting economic growth by as much as a percentage point.

Israel’s gas bonanza “is a huge strategic advantage that allows us to enjoy both political and economic fruits,” Israeli Energy Minister Silvan Shalom said in an interview. “We are much more accepted in the world as a result of us finding natural gas.”

Tamar, Leviathan

The Tamar gas field was discovered off Israel’s Mediterranean coast in 2009 and the Leviathan field a year later. Together, they hold an estimated 29 trillion cubic feet.

Selling the gas to other markets may be more of a challenge than extracting it. Israel’s relations with its Arab and Islamic neighbors range from cool acceptance to virtual states of war, and getting the fuel to international markets will require the country to navigate a minefield of geopolitical hazards.

Partners in the Leviathan field, including Houston-based Noble Energy Inc. (NBL), the Israeli units of Delek Group Ltd. and Ratio Oil Exploration 1992 LP signed a preliminary deal Sept. 3 to sell about $15 billion of gas to Jordan’s National Electric Power Co. over 15 years. That followed supply deals earlier this year with Jordan’s Arab Potash Co. and the West Bank-based Palestine Power Generation Co.

‘Fundamental’ Orientation

Some analysts caution against excessive Israeli optimism that energy resources may help ease regional tensions heightened by its policy toward Palestinians, and other contentious issues.

In the Middle East, “you don’t see countries change their fundamental strategic orientation because of economic issues,” said David Wurmser, director of Delphi Global Analysis Group in Rockville, Maryland.

That said, diplomatic considerations and economic interests will both play a key role in pending decisions by Egypt and Turkey on whether to form energy ties with Israel that will enable it to export gas beyond its immediate neighbors and into the global market.

“When you have something other people need, then people are prepared to talk to you. And when you talk, ice is broken in other areas,” Yaniv Pagot, chief strategist at Israel-based Ayalon Group Ltd., said in a phone interview. “Talk about economics could be a base for political communication.”

Slowing Economy

The prospect of gas exports has become even more alluring given Israel’s economic slowdown. The Bank of Israel cut its 2014 growth forecast for the country on Sept. 22, to 2.3 percent, from 2.9 percent at the end of June. The 2015 forecast is 3 percent, still below the nation’s 3.2 percent growth last year. Exports account for about a third of Israel’s $270 billion economy, with the country’s main trading partners being the U.S. and China, according to data compiled by Bloomberg.

The Tamar and Leviathan partners signed preliminary agreements this year to deliver as much as 6.25 trillion cubic feet to two liquefied natural gas terminals operated in Egypt.

Noble and Delek’s Avner Oil Exploration LP and Delek Drilling-LP units are planning to send the gas to Egypt through pipelines under the Mediterranean Sea. They expect binding agreements to be finalized by year end, pending Egyptian government approval.

Trade Reversal

That would be a significant reversal. Egypt exported gas to Israel until 2012 through a pipeline across the Sinai. Egypt canceled the contract after multiple attacks by militants on the conduit.

“We are talking about perhaps an initial $60 to $70 billion of gas sales to Egypt and Jordan over 15 years,” Pagot said. “This could translate into $2.5 to $3 billion dollars in exports a year, which would represent 1 percent of Israel’s GDP.”

Selling gas may help warm trade relations with Egypt and Jordan, which now are closer to lukewarm, totaling around $170 million and $365 million respectively last year. Importing the fuel would help Jordan and Egypt ensure much-needed energy security, said Michael Leigh, senior adviser to the German Marshall Fund of the U.S., a Washington-based public policy institute.

Energy Security

“Jordan is under tremendous pressure as a result of the violent conflicts in Iraq and Syria. Israel is making a contribution to the political stability of Jordan by strengthening the country’s energy security,” Leigh said. “Egypt is in a tight squeeze, with a drop in domestic gas production. The opportunity to import gas from Israel is an attractive way to satisfy domestic demand.”

Noble and its Israeli partners are also targeting Turkey, Delek Chief Executive Officer Asaf Bartfeld said in September. Turkey’s Zorlu Enerji Elektrik Uretim AS (ZOREN) said last year it is in preliminary talks with Noble and Delek for a 15-year gas deal, and Turcas Petrol AS has said it’s considering building a pipeline from Leviathan at a cost of about $2 billion to import gas.

They may face opposition from the government. Turkey’s president Erdogan is a fierce critic of Israel’s policy toward Palestinians and Energy Minister Taner Yildiz said in August his country won’t participate in any gas projects with Israel unless the country changes its Gaza policies.

Business, Politics

Business probably won’t trump politics in Turkey, said Delphi Global’s Wurmser. “The ideological proclivities of Erdogan will ultimate sabotage any deal with Israel,” he said.

Israeli energy diplomacy may get another boost from a gas field discovered in 2000 by BG Group Plc about 30 kilometers off the coast of the Gaza Strip in waters under the legal authority of the Palestinian Authority, which controls parts of the West Bank. Development of BG’s Gaza Marine license has stalled due to the conflict between Israel and the Palestinians, and the internal divide between Palestinian President Mahmoud Abbas’s Fatah faction and the Hamas Islamic movement that rules Gaza and is classified as a terrorist group by Israel, the U.S. and European Union.

The Palestinian Authority’s energy and resources minister Omar Kitaneh has said that while developing the Gaza field and other joint energy projects may help ease Israel’s entry into the Middle East market, further steps are dependent on advancing the peace process. That prospect was set back in recent months by the collapse of Israeli-Palestinian peace talks in April, and the Israeli military operation against Hamas in Gaza over the summer.

Further down the road, Israeli policy makers are looking at potential links with the fuel-rich Sunni Arab nations of the Persian Gulf, with regional economies connected by gas.

“The European Union began as a coal-and-steel union in the 1950s, and theoretically, natural gas can serve the role for this region that coal served for the EU,” said the Foreign Ministry’s Nachshon.

Saudis to Build Biggest Water Storage Project in Riyadh

National Water Co., the biggest water supplier in oil-rich Saudi Arabia, plans to build a 1.8 billion-riyal ($480 million) storage facility in its desert capital Riyadh.

The 4.6 million-cubic-meter storage facility is part of the first phase of a project to “achieve a sustainable and secure water supply and meet the challenges of providing water-sector services” in the kingdom’s largest city, the state-owned company said today in an e-mail.

The second phase of the biggest Saudi water-storage project will add 6 million cubic meters more of capacity at a cost of 2.6 billion riyals to serve the city’s 5 million residents.

Chief Executive Officer Luay Al Musallam said last year that the Saudi state projects are part of a 51 billion-riyal water-resources investment in cities including Riyadh, Mecca and the port of Jeddah. This year alone, the government has allocated 16.6 billion riyals for desalination projects to cope with the potable water needs of a population that’s quadrupled in 40 years to 30 million people.

OPEC to Put Shale to the Test by Maintaining Output: IEA

By Grant Smith  Oct 14, 2014 9:09 PM GMT+0700  8 Comments  Email  Print

OPEC nations supplying 40 percent of the world’s oil will increasingly test the price at which North America’s surging crude output is profitable by maintaining production as demand slumps, the International Energy Agency said.

The Organization of Petroleum Exporting Countries boosted output by the most in 13 months in September, even as prices plunged into a bear market and demand growth weakens to a five-year low, the Paris-based adviser to governments said in a report today. Both Saudi Arabia and Kuwait, the largest and third-largest members of OPEC, have indicated the price slump doesn’t warrant immediate production cuts, the IEA said.

The U.S. and Canada between them pumped the most crude since at least 1965 last year, according to data from BP Plc. OPEC members will test if that output can be sustained at lower prices, Antoine Halff, head of the IEA’s oil industry and markets division, said by phone from Paris today. For most of the past decade, OPEC would have responded to surpluses by cutting output, Halff said.

“This is a new situation and will likely elicit a new response from OPEC,” he said. “U.S. shale includes different situations, different economics depending on the players. I’m not sure U.S. shale is definitely the highest cost production, I see more pressures in Canada for instance. But we’ll test that.”

Brent crude, a benchmark for more than half the world’s oil, fell as much as 3.1 percent to $86.17 a barrel today, heading for the lowest closing price since November 2010 on the ICE Futures Europe exchange. The OPEC crude basket, made up of the group’s main export grades, fell to $85.93 yesterday, near a four-year low.

Saudi Share

Saudi Arabia has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said in a report today. Kuwait’s oil minister said there may be “no room” to restore prices by trimming supply.

Saudi Arabia, Iraq and Iran are offering the biggest discounts to buyers in Asia since at least 2009, amid speculation they are seeking to maintain market share.

Forecast Lowered

Global oil consumption will increase by about 650,000 barrels a day this year to an average 92.7 million a day, according to the IEA, which advises 29 nations on energy policy. The estimate for demand growth is 250,000 barrels a day lower than last month’s forecast, and about half the level the agency projected in June.

OPEC boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, the group said Oct. 10 in its latest monthly Oil Market Report. Saudi Arabia told OPEC it increased output by 107,000 barrels to 9.704 million. The group’s next meeting is scheduled for Nov. 27 in Vienna.

Saudi Arabia, which pumped almost one-third of the group’s output last month, won’t alter its supplies much between now and the end of the year, a person familiar with its policy said on Oct. 3.

Venezuelan President Nicolas Maduro gave instructions to ask for an emergency meeting of OPEC, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.

No Meetings

Kuwait hasn’t received an invitation to hold an emergency session to consider cutting output, the country’s Oil MinisterAli Al-Omair told the official Kuwait News Agency. Youcef Yousfi, Algeria’s energy minister, said Oct. 12 his government is “tranquil” about prices.

While oil-producing nations would prefer higher prices, there’s no scope for them to cut supply to achieve that, Al-Omair said.

“They’ve not come out and said ‘we will do what it takes to balance the market’,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Right now the economy is weak, and demand is weak in Europe and China. The market wants to see something fairly dramatic.”

Oil Demand Growth This Year Seen Weakest Since 2009

Oct. 14 (Bloomberg) – Bloomberg’s Scarlet Fu examine the crude oil markets with Bloomberg’s Betty Liu on “In The Loop.” (Source: Bloomberg)

(Corrects difference between call on OPEC and production in seventh paragraph.)

Oil demand will expand at the slowest pace since 2009 this year as global economic growth weakens, the International Energy Agency said. The adviser to governments also cut its estimates for 2015.

Oil consumption will increase by about 650,000 barrels a day this year, the Paris-based agency said in its monthly market report today. The reduction of 250,000 barrels a day from a previous estimate is the fourth in a row and means growth will be about half what it anticipated in June. Crude prices have plunged to a four-year low amid a glut.

“The sell-off is putting a spotlight on weaker-than-expected demand as a leading factor behind the drops,” said the IEA, which advises 29 nations on energy policy. A “staggering” increase in supply has also weakened prices.

Brent futures have plunged 20 percent this year, sinking below $90 a barrel last week amid speculation that OPEC will refrain from supply curbs needed to tackle a glut caused by muted demand, booming U.S. shale output and the return of production from Libya.

OPEC’s Role

Global fuel use will rise by 0.7 percent this year to 92.4 million barrels a day, the agency said. It cut 2015 demand estimates by about 300,000 barrels a day. Consumption will nonetheless accelerate next year, rising by 1.1 million barrels a day, or 1.2 percent, to an average 93.5 million a day.

The reduced outlook for global demand means that less crude will be needed from the Organization of Petroleum Exporting Countries than previously estimated, the agency said. This call on OPEC was cut by 200,000 barrels a day for both 2014 and 2015.

The group responsible for 40 percent of global oil supplies will need to provide an average of 28.8 million barrels a day in the first quarter of 2015. That’s about 1.9 million a day less than the 30.66 million its 12 members pumped in September, when output rose to a 13-month high amid a recovery in Libyan output, according to the IEA. OPEC will need to pump an average of 29.3 million a day in 2015.

Saudi Arabia, the group’s biggest member, has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the agency said. The country extended discounts for its customers on Oct. 1.

The IEA’s demand revisions follow a less optimistic outlook from the Washington-based International Monetary Fund, which on Oct. 7 reduced forecasts for global economic growth in 2015 to 3.8 percent, from a July projection of 4 percent.

Demand Response

Prices haven’t yet fallen sufficiently to stimulate demand, or to provoke producers into curbing supply, the agency said.

While the strain on revenues from oil’s drop may encourage some producers to “lower output targets,” such countries “are not signaling an imminent cut,” the IEA said. OPEC is next due to meet to review its target on Nov. 27. Most U.S. shale output, also known as “light, tight oil,” would remain profitable even if Brent dropped to $80 a barrel, according to the agency.

A 2.8 million barrel-a-day surge in global supply in September may “turn out to be a high-water mark,” the agency said, as output is set to slow in the former Soviet Union and China.

Increasing supplies swelled total oil inventories in developed nations in August, the agency said. Stockpiles rose by 37.7 million barrels to 2.7 billion, narrowing their deficit to the five-year average to the smallest since September 2013.

Oil demand down, IEA says

PARIS, Oct. 14 (UPI) -- Lower economic growth expectations mean the forecast for global oil demand is down, but should recover in 2015, the International Energy Agency said Tuesday.

The Paris-based IEA released its monthly market report for October, saying it cut its oil demand prediction for the year by 200,000 barrels per day from the previous month's report to 92.4 million bpd.

The IEA attributed the decline to lower economic growth. In its monthly report, the Organization of Petroleum Exporting Countries kept oil demand growth predictions steady at 1.05 million bpd for 2014.

"Annual demand growth for 2014 is now projected at 700,000 bpd, rising tentatively to 1.1 million bpd in 2015 as the macroeconomic backdrop improves," IEA said in its forecast.

OPEC last week said the global economy should grow by 0.6 percent next year to 3.6 percent. The Chinese and Indian economies should remain flat, while Europe continues to falter. TheUnited States, which is leading in non-OPEC production, should experience an economic uptick next year.

Supplies, meanwhile, are at relative highs, with OPEC and non-OPEC producers lifting global supply by more than 900,000 bpd to 93.8 million bpd in September, IEA said. For OPEC, that was relative to what it expected for 2015 demand in terms of barrels per day.

Market dynamics have translated to slumping oil prices. Prices are to the point that some producers may struggle to make a profit in some key areas, including the U.S. shale market.

China starts oil production in South China Sea

BEIJING, Oct. 14 (UPI) -- China National Oil Co. said its latest startup in the South China Sea will reach a peak production rate of 40,000 barrels per day within three years.

CNOOC said it started production at the Enping 24-2 field in the shallow waters in the Pearl River basin of the South China Sea.

"Currently there are two wells producing approximately 8,000 bpd, and the project is expected to reach its peak production of approximately 40,000 bpd in 2017," the company declared Monday.

CNOOC is trying to reverse sagging production from mature fields. During the first half of the year, production from the Bohai Bay, which accounts for more than half of all Chinese production, declined 2.5 percent from last year to 411,000 barrels of oil equivalent per day.

The pace of growth in Chinese oil demand is slowing along with its economy. The Organization of Petroleum Exporting Countries said in its latest monthly market report, however, it expects Chinese oil demand will increase 3.4 percent year-on-year.

Mixed second quarter for Gazprom

MOSCOW, Oct. 14 (UPI) -- Second quarter profits for the year are up, which offset some of the damage incurred by contracts with Ukraine, Russian gas company Gazprom said Tuesday.

Gazprom said Tuesday its operating expects for the six months ending June 30 increased 31 percent year-on-year. The company said the "major factor" behind the increase in the operating expense was "mostly related to doubtful trade accounts receivable of Naftogaz Ukraine."

For the second quarter, Gazprom said its profits increased 13 percent to $5.63 billion.

Russia and Ukraine are sparring over gas prices and debt. Ukraine, which pays more for gas than many of its regional counterparts, owes Gazprom more than $5 billion for gas.

European leaders are set to sit down at the negotiating table with Ukrainian and Russian officials next week. The European economy gets about a quarter of its gas needs met by Russia, though most of that gas runs through the Soviet-era transit network in Ukraine.

Disputes between Ukraine and Russia in 2006 and 2009 brought gas disruptions to European consumers. Since Kiev started pivoting toward the European Union in November, Russia has faced increasing sanctions pressure on its energy sector because of its reaction.

For the first half of the year, Gazprom said profits were down 23 percent compare to the same period in 2013.

Foster Wheeler gets Mexican refinery contract

ZUG, Switzerland, Oct. 14 (UPI) -- Oil services company Foster Wheeler said Tuesday it was awarded a contract in Mexico that is part of the country's emerging energy reform.

"We are delighted to be playing a key role in helping Petróleos Mexicanos achieve its vision for a new future, for which the energy reform has been the catalyst," Roberto Penno, the chief engineering officer for Foster Wheeler, said in a statement.

The engineering company said the award is related to a $500 million investment on the part of the Mexican energy company, also known as Pemex, to develop cleaner fuels. Foster Wheeler will help the company reduce the sulfur content from diesel produced at its Salina Cruz refinery in Oaxaca, Mexico.

Mexican lawmakers have embraced plans by President Enrique Peña Nieto to draw international energy companies into the nation's energy sector by privatizing Pemex, which has controlled the Mexican oil sector as a monopoly for the last 70 years.

As part of that reform effort, Pemex last month said it's spending $2.5 billion to upgrade domestic refineries to produce more diesel and gasoline. The effort could cut back on Mexico's imports from the United States and eventually lead to fuel exports.

Foster Wheeler said its work at Salina Cruz should be finished by 2018.

Rouhani: Iran's oil sector recovering

TEHRAN, Oct. 14 (UPI) -- Iranian President Hassan Rouhani said Tuesday the oil sector was outpacing other parts of the economy since he took office in August last year.

Rouhani said the Iranian economy shrank by 6.8 percent to 2.9 percent during the past two calendar years. Since taking office in August last year, the president said some sections of the economy were recovering.

"The first sector that got out of stagnation last winter was oil," he said. "Oil exports have grown 13.7 percent [since then]."

Assessment from the International Monetary Fund finds the Iranian economy was contracting, but at a slower pace than before.

Sanctions imposed on the Iranian economy in response to a controversial nuclear program means oil exports are at about half of their 2.2 million barrel per day rate in 2012. Iran is allowed to export some oil under an international sanctions agreement reached in November, though the IMF said the oil-dependent economy is still shrinking at a rate of 1.7 percent.

Iran this week said the decline in price for its blend of crude oil wasn't a response to the Saudi effort to shore up its market share amid a bearish oil market. Instead, Tehran said the cut in price was a reflection of market conditions, where demand is low.

Gas prices at low mark for the year, AAA says

WASHINGTON, Oct. 14 (UPI) -- The average price for a gallon of regular unleaded gasoline in the United States started the week at the lowest level of the year, motor club AAA reports.

AAA reports a national average price Tuesday at $3.18 per gallon. That's nearly 2 full cents less than the Monday price, which was the low mark for 2014 and the lowest average price for the federal Columbus Day holiday in four years.

The motor club said low demand and high production means crude oil prices are plummeting. The average price for the 12 crude oil blends from members of the Organization of Petroleum Exporting Countries was $85.93 for Tuesday, down $9.75 from one month ago.

Declines in crude oil prices typically translate to lower prices at the pump.

"Additionally, while violence continues in Iraq, market watchers still assess the threat to oil production to be relatively limited," the motor club said in a Monday report.

Gasoline prices also start falling in mid-September, when refineries in the United States start making a winter blend of gasoline, which is cheaper to produce.

AAA said $3 per gallon could become commonplace by the end of the year. Six U.S. states reported a state average price Tuesday below the $3 per gallon mark.

Lundin declares oil success in Barents Sea

STOCKHOLM, Sweden, Oct. 14 (UPI) -- At least 85 million barrels of oil are thought to be in the Alta prospect following a successful Barents Sea drilling campaign, Lundin Petroleum said Tuesday.

Lundin announced the results from a drilling and exploration well in the Alta prospect. The company said a production test yielded 1.7 million cubic feet of natural gas per day and the site could be mixed with between 85 million and 310 million barrels of oil.

Lundin President Ashley Heppenstall said in a statement the Alta discovery was a significant find in the Barents Sea, one which consists of mostly oil.

Drilling in northern waters has raised safety concerns from environmental circles, though Heppenstall said the region was ice free all year and far away from the southern edge of arctic sea ice.

Norway is the European leader in terms of production and key exporter of energy resources to the regional economy.

The Norwegian Petroleum Directorate, the nation's energy regulator, said average daily production for September was about 1.47 million barrels of oil per day, 2.5 percent above what NPD had expected and 10 percent higher year-on-year.

Gazprom: All pieces in place for Chinese pipeline

MOSCOW, Oct. 14 (UPI) -- All of the documents needed to proceed with the Power of Siberia natural gas pipeline to China are in place, the head of Russian gas company Gazprom said.

Gazprom Chairman Alexei Miller met in Moscow with Wong Dongjin, the vice president of China National Petroleum Corp., to sign the final agreements on the 2,500 gas pipeline.

"All the necessary documents on gas supplies to China have been signed, including the intergovernmental agreement," Miller said in a statement. "The construction of Power of Siberia is in full swing."

The pipeline is part of Gazprom's effort to pivot away from a stagnant European market toward emerging Asia. In May, Gazprom and CNPC signed a 30-year sales agreement that calls for 1.3 trillion cubic feet of natural gas per year through the eastern pipeline route.

The deal was signed Monday in Moscow in the presence of Russian Prime Minister Dmitry Medvedev.

The Kremlin said the gas pipeline to China will tie the Russian energy sector to both poles of the economic world. Construction is slated for early 2015.

Statoil finds more gas offshore Tanzania

STAVANGER, Norway, Oct. 14 (UPI) -- A new natural gas discovery offshore Tanzania puts the total amount of reserves there at 21 trillion cubic feet, Norwegian energy company Statoil said Tuesday.

Statoil and its joint venture partner, Exxon Mobil, announced the discovery of about 1.2 trillion cubic feet of natural gas in place at the Giligiliani-1 exploration well offshore Tanzania. The new discovery pushes the total of in-place gas reserves above the 20 trillion cubic feet mark.

Nick Maden, regional exploration director for Statoil, said the discovery opens up additional drilling opportunities off the Tanzanian coast.

In June, Statoil unveiled a discovery of about 3 trillion cubic feet of natural gas off the coast of Tanzania in the Piri prospect.

With the latest find, the Norwegian company said it would move its Discoverer Americas drill ship to the central part of another nearby prospect for further exploration.

Statoil has been working in Tanzania since 2007. The Giligiliani-1 discovery is the company's seventh discovery so far through its joint venture with Exxon.

Last year, energy consultant group Wood Mackenzie reported Tanzania was among the growing number of emerging producers in East Africa.

U.S. Shale Oil Output Seen Growing Even as Prices Drop

By Dan Murtaugh and Jing Cao  Oct 15, 2014 3:14 AM GMT+0700  13 Comments  Email  Print

Oil output is expected to grow in all major U.S. shale plays in November despite falling global prices as drillers become more efficient.

Production per well was projected to increase in fields in North Dakota, Texas and Colorado, the Energy Information Administration said today in its Drilling Productivity Report. Brent futures fell to $85.04 a barrel on the ICE Futures Europe Exchange, the lowest settlement since Nov. 23, 2010.

Only about 4 percent of U.S. shale oil production needs prices above $80 for drillers to break even, the International Energy Agency said today in its monthly oil market report. Producers are getting more oil per dollar spent drilling, driving costs down as much as $30 a barrel since 2012, Morgan Stanley (MS) analyst Adam Longson said in a report yesterday.

“Prices aren’t low enough to put these projects at risk,” Matthew Jurecky, head of oil and gas research for the London-based research company GlobalData Ltd., said by e-mail today from New York. “The profit margin on most commercial unconventional oil plays will support prices as low as $50, many below that even.”

Total production in the Permian Basin in Texas and New Mexico, the largest U.S. oil field, is expected to rise 42,000 barrels a day to 1.81 million, the EIA said. Output from new wells will climb 4 barrels a day to to 176 per rig.

Hydraulic Fracturing

In South Texas’s Eagle Ford, production will increase 35,000 barrels a day and in North Dakota’s Bakken output will climb 29,000 barrels, the EIA said.

Horizontal drilling and hydraulic fracturing in hydrocarbon-rich underground shale layers has helped U.S. oil production grow 65 percent in the past five years to the highest level since 1986. That’s reduced U.S. crude imports by more than 3.1 million barrels a day since peaking in 2005.

The cargoes that the U.S. isn’t using have added supply into the world market at the same time that economic growth has slowed, leading to a 26 percent drop in Brent prices since June 19.

About 2.6 million barrels a day of crude production worldwide comes from projects with break-even prices above $80, the IEA said. U.S. tight oil contributes less than 200,000 barrels a day of that.

“Technological and organizational improvements that have enabled faster drilling rates, greater drilling density, and higher new-well production have all been important to maintaining production in the face of increasingly steep decline curves,” the agency said in its report.

Production Outlook

Research desks have varying views on how low oil prices can fall before shale production is affected.

U.S. shale producers could keep pumping oil economically even if Brent dropped to $60 a barrel, Bjornar Tonhaugen, an analyst with Oslo-based Rystad Energy, said in an e-mailed report. Brent would need to remain at $50 a barrel for 12 months before North American shale output drops 500,000 barrels a day, he said.

Morgan Stanley said Eagle Ford break-even costs range from $30 to $60 a barrel. Most U.S. tight-oil reserves break even from $60 to $80, Barclays Plc (BARC) said in slides presented at the Argus European Crude Conference in Geneva last week.

“We continue to be impressed by how much operators are improving their operations,” R.T. Dukes, an upstream analyst for Wood Mackenzie Ltd. in Houston, said by phone. “There’s enough out there that significant development would continue even at $75 or $80.”

Lag Time

If West Texas Intermediate, the U.S. benchmark, fell to $80 or less for an extended time, drilling activity in U.S. tight oil plays would decrease, RBC Capital Markets said in a note today. WTI fell to $81.84 today on the New York Mercantile Exchange, the lowest since June 28, 2012.

There will be a lag time between falling prices and any drop in drilling activity, Jurecky said. When oil prices dropped by $111 a barrel between July and December 2008, the oil rig count didn’t begin to decline until November, according to data from oil services provider Baker Hughes Inc. (BHI)

“Many developments will be insulated by contracts and hedging,” Jurecky said.

Saudi Prince Alwaleed says falling oil prices 'catastrophic'

Intervention of Saudi royal may pressure Opec to cut production at its forethcoming meeting to arrest the slide in prices

http://i.telegraph.co.uk/multimedia/archive/01997/Prince-Alwaleed-bi_1997699b.jpg

Prince Alwaleed - who is a member of the ruling house of Saud - is also a major international investor, who holds significant stakes in companies from News Corp through to Citigroup.

The publication of the letter comes as Brent oil prices crashed under $87 after the International Energy Agency slashed its forecast for oil demand this year amid signs of weaker global economic growth and a glut of crude.

Saudi Arabia is the world's largest exporter and has the capacity to pump 12.5m barrels per day (bpd) if needed, giving it tremendous power both within Opec but also the international market.

Reuters had earlier reported that Iran had rowed back on its earlier concerns over falling prices and was more willing to leave production unchanged at the next meeting of Opec in Vienna in November.

Prince Alwaleed had taken particular issue with a remark attributed to Saudi Arabia's oil minister, in which he said that falling prices were "no cause for alarm".

World oil demand slashed by top energy agency as price fall continues

The Paris-based International Energy Agency has shaved 200,000 barrels per day of its demand forecast for the year amid weak global growth.

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The world's top energy watchdog has slashed its forecast for oil demand this year as prices for crude continued to slide Tuesday.

The Paris-based International Energy Agency said in its closely watched monthly oil market report that the world will need to 200,000 barrels per day (bpd) less oil this year than it had originally thought because of weaker global growth.

Brent crude was down 0.5pc in London trading at around $88.5 per barrel following the release of the report, which comes on top of a 23pc decline in the global benchmark over the last year.

The market is now focused on the next meeting of the Organisation of Petroleum Exporting Countries (Opec) scheduled for November 27 in Vienna. The group, which controls about a third of the world's oil, is under pressure to cut output to defend prices. However, senior members of the grouping led by Saudi Arabia appear increasingly prepared to leave production set at 30m bpd unchanged in what is termed a "rollover".

The IEA also highlighted the problem with Opec producing too much crude to keep prices at current levels. The agency said that Opec output surged to a 13-month high in September "led by Libya’s continued recovery and higher Iraqi flows."

Speaking to the Telegraph yesterday, Fatih Birol, the IEA's chief economist said: “Production is for Opec to decide and I know they are very actively looking at the issues affecting the market”, adding that "almost every drop of oil produced in the world is still going to be profitable at around $80."

However, falling prices should be good for global growth. According to Capital Economics a $10 drop in the price of crude is equal to a 0.5pc of global gross domestic product. British motorists should also benefit from lower petrol prices at the pumps.

UK supermarkets have already cranked up their own petrol price war in the wake of falling oil prices. Sainsbury's and Asda are planning to cut the price of diesel by up to 2p a litre and unleaded petrol by a penny from tomorrow. Tesco, which is Britain's biggest petrol retailer with about 500 petrol stations, will cut unleaded petrol by 1p per litre, with diesel reducing by at least 1p a litre although some sites will get a 2p a litre price cut.

Kurnell shuts as refinery to become fuel import terminal

Caltex Australia Ltd.’s 135,000-b/d Kurnell refinery at Sydney has now become Australia’s largest fuel import terminal following the closure of refinery operations this week.

The refining infrastructure at the site is to be dismantled during the next few years.

The last refining units were shut down as Caltex reached a milestone on its way to converting the site to a fuel terminal. Cost of the conversion is $270 million (Aus.).

The terminal will provide 750 million l. of storage capacity and supply fuel to retail outlets and commercial customers in New South Wales and the Australian Capital Territory, which surrounds Canberra.

Caltex says the conversion of Kurnell marks the company’s transformation from two businesses (refining and marketing) into one integrated transport fuel supply chain company.

Kurnell, built in 1956, previously employed 430 people. The fuel import mode employs 45 people.

Australia’s refineries have been steadily decreasing in number. BP’s Brisbane facility is the next to go in 2015.

That means Australia will supply just one third of its own fuel, relying on imports for the remainder.

IEA reduces global oil demand forecast again on slower economic growth

By OGJ editors

The International Energy Agency’s Oil Market Report (OMR) for October continues to reduce its forecast of global oil demand for 2014 by 200,000 b/d from the previous month, to 92.4 million b/d, in line with lower expectations of economic growth and the weak recent trend. Annual demand growth for 2014 is now projected at 700,000 b/d, rising tentatively to 1.1 million b/d in 2015, as the macroeconomic backdrop improves.

In its October World Economic Outlook, the International Monetary Fund (IMF) cut its forecast of economic growth for 2014 and 2015 for the third time this year to 3.3% and 3.8% (vs. July’s 3.4% for 2014 and 4% for 2015) respectively, led by revisions for Europe, China, Brazil, and Russia.

Global supply rose 910,000 b/d in September to 93.8 million b/d, 2.8 million b/d higher compared with last year, as supply from the Organization of Petroleum Exporting Countries swung back to growth and amplified robust non-OPEC supply gains of 2.1 million b/d.

OPEC crude oil output surged to a 13-month high of 30.66 million b/d in September, led by Libya’s continued recovery and higher Iraqi flows, the report stated. Downward revisions to global demand outlook cut the “call on OPEC crude and stock change” by 200,000 b/d for 2015 to 29.3 million b/d. The “call” declines seasonally by 1.5 million b/d from this year’s fourth quarter to first-quarter 2015.

September non-OPEC supply increased by 495,000 b/d month-on-month to 56.7 million b/d, as many producers ramped up following seasonal maintenance. The US and UK were the largest contributors to the rebound, the report said.

Pressured by abundant supply, faltering demand, and a strong US dollar, oil prices fell for a third straight month in September and sank below $90/bbl in October, the report said. ICE Brent was last at a near 4-year low of $88.7/bbl, down more than 20% since June. NYMEX WTI was at $85.2/bbl.

Global refinery crude demand hit new highs in August, near 79 million b/d, with OECD runs leading the uptick. With the onset of seasonal plant maintenance through October, global crude runs are set to dip to 77.5 million b/d this quarter from 78.1 million b/d in the third quarter, with year-on-year growth rising over the same period to 1.4 million b/d from 900,000 b/d. As crude price declines outpaced those of products, refinery margins extended upward trend in September and into October.

OECD commercial total oil inventories surged by 37.7 million bbl over August to 2,698 million bbl, narrowing the 5-year average deficit to 38.1 million bbl at end-August from 67.1 million bbl one month earlier.

Ending U.S. oil export ban would lower fuel prices -study

By Timothy Gardner

WASHINGTON, Oct 14 (Reuters) - Ending a 40-year ban on U.S. crude oil exports would lower domestic gasoline prices because it would put more petroleum onto global markets, where fuel prices are primarily set, said a study released on Tuesday.

As the U.S. oil boom of the last six years builds an excess of light crude along the Gulf Coast refining hub, calls have risen for Congress and the Obama administration to relax the ban on shipments to global customers.

The restriction was put in place in the 1970s, following the Arab oil embargo. Many politicians so far have not embraced lifting the ban, fearing they could be punished at the ballot box for any increase in gasoline prices.

"Given the public's sensitivity to changes in the price of gasoline, many in Congress are reluctant to support eliminating the ban on crude oil exports," said the report, entitled "Lifting the Crude Oil Export Ban: The Impact on U.S. Manufacturing."

"The oil market, however, is worldwide and prices of various grades of oil are set in world markets," it said, adding that producing more U.S. crude oil will put additional downward pressure on global prices.

Lifting the ban would put some - "if modest" - downward pressure on U.S. gasoline prices, it said.

The report was issued by the manufacturing branch of the Aspen Institute, which is supported by energy companies including Exxon Mobil Corp, Conocophillips and Continental Resources Inc, as well as the MAPI Foundation, the research group of the Manufacturers Alliance for Productivity and Innovation.

A chart in the report shows gasoline prices could fall between 3 cents and 5 cents a gallon by 2016, and between 8 cents and 9 cents by 2025.

It was the latest study to say that gasoline prices would not rise in the face of U.S. exports.

In March, Resources for the Future, a non-profit energy and environment research group, concluded that U.S. gasoline prices would fall by about 3 cents to 7 cents a gallon.

But the RFF report also concluded there would be a downside: A rise in carbon emissions linked to climate change could result, it said.

In September, a Brookings Institution report said gasoline prices could fall 7 cents to 12 cents per gallon, if the ban were lifted.

Despite increasing support this year for lifting the ban from analysts and some lawmakers, including Republican U.S. Senator Lisa Murkowski from Alaska, Americans still fear a spike in gasoline prices, a Reuters-IPSOS poll found this month. (Reporting by Timothy Gardner; Editing by Ros Krasny, Marguerita Choy and Gunna Dickson)

Libya protesters threaten to close another oilfield

BENGHAZI: Protesters blocking Libya’s Abu Attifel oilfield threatened to close another field to force a state oil company to hire hundreds of local people, a spokesman for the protesters said on Tuesday.

The oilfield, a joint venture between Italian oil major Eni and Libya’s state oil company, has been closed for a year by locals who demand jobs, part of a wave of strikes at oil facilities that began in July 2013.

Protests have ended at other oilfields, but the shutdown continues at Abu Attifel in Jalu, in Libya’s volatile east.

In addition to Abu Attifel, which used to pump 60,000 barrels per day, the protesters have now also closed the nearby Jalo 59 and 103A fields.

In a third step, they plan to close the nearby 103B field, their spokesman said.

“If (state-run) National Oil Corp (NOC) does not meet our demands on Thursday, then the field will be closed.”

The closures have lowered the North African country’s oil output to less than 900,000 bpd, though NOC has not provided a recent production update.

The OPEC member’s oil industry has made a comeback since three major ports in the east reopened earlier this year as part of a deal with a group of rebels, who had blocked the terminals to campaign for regional autonomy.

But the eastern Zueitina port remained closed.

Oil workers there have been demanding a change of management at the port operator.

Reuters

IEA cuts estimates for 2014, 2015 oil demand growth

London (Platts)--14Oct2014/458 am EDT/858 GMT

The International Energy Agency on Tuesday again cut its forecasts for global oil demand growth for 2014 and 2015 on continuing weaker expectations for world economic growth, but said there were signs of recovery and that demand was not as "dismal" as it might appear.

In its latest monthly oil market report, the IEA revised down its demand growth forecast for this year by 250,000 b/d to 700,000 b/d compared with the previous month's report, while it trimmed its estimate for 2015 by 90,000 b/d to 1.13 million b/d.

"Annual demand growth for the year is now projected at 250,000 b/d less than previously forecast in line with reduced expectations of economic growth," the IEA said.

"Specific economic concerns regarding Europe, China and Russia act as a drag on the forecast," it said.

It said it had reduced its estimate of Chinese oil demand growth for 2014 to 2.3% compared with 2.4% in last month's report.

"Expectations of weaker, albeit still rising, economic growth have similarly trimmed the 2015 [China] forecast, by 50,000 b/d over last month's report, to 10.6 million b/d," it said.

The IEA also cut its estimates of the "call" on OPEC crude for the fourth quarter of 2014 by 300,000 b/d to 30.3 million b/d and for 2015 by 200,000 b/d to 29.3 million b/d.

It reduced the call on OPEC for Q1 next year by 100,000 b/d to 28.8 million b/d and for Q2 2015 by 200,000 b/d to 28.7 million b/d.

For the third and fourth quarters of 2015, it cut the call by 400,000 b/d and 300,000 b/d to 29.9 million b/d and 29.8 million b/d, respectively, meaning the call for all of 2015 is below OPEC's current production ceiling of 30 million b/d.

DEMAND MOMENTUM

Despite the lower call on OPEC, the IEA said it expected momentum to gather pace for global oil demand in 2015, albeit at a slower rate than projected last month, as the macroeconomic backdrop improves.

"Projections of oil demand growth for 2014-15 have been reduced, but growth is still expected to gain momentum," the IEA said.

"Recent data suggest that may already have started to happen, thanks in part to narrowing OECD losses. Record-high refinery throughputs in August and improved margins worldwide suggest demand is perhaps not as dismal as it might appear," it said.

It added that sweeping changes in trade flows were exacerbating perception of demand weakness.

"With North American refiners increasingly sourcing feedstock locally and those in Europe downsizing, exporters must compete in the same finite Asian markets," it said.

Having long paid a price "premium", Asian importers enjoy newfound buying power, the IEA said.

"Producers that have relied on long-term contracts, pricing formulae and strict destination clauses may soon find out that this rigid pricing system no longer works in their favor. These shifting flows could be more transformative in the longer run than temporary market rebalancing," it said.

OPEC OUTPUT

OPEC crude oil output, meanwhile, surged to a 13-month high in September, led by Libya's continued recovery and higher Iraqi flows, the IEA said.

Total OPEC production rose by 415,000 b/d from August to 30.66 million b/d.

Saudi supply edged up by 50,000 b/d in September to 9.73 million b/d, the IEA said, but added that flows may ease in October due to slower seasonal demand for domestic crude burn.

It said there was no let-up in Saudi supply to global customers in September, according to tanker tracking data, with a modest pickup in shipments versus August.

"Riyadh appeared determined to defend its market share in the increasingly competitive Asian market -- cutting its formula prices for a fourth consecutive month," it said.

Saudi Arabia's price cuts were followed by other OPEC heavyweights, including Iraq, Iran, the UAE and now Qatar.

Global supply rose by almost 910,000 b/d in September to 93.8 million b/d, on higher OPEC and non-OPEC output, the IEA said.

Stocks have also been rising -- OECD commercial total oil inventories built by 37.7 million barrels over August, to 2.698 billion barrels.

Preliminary data also indicate that inventories rose counter-seasonally by 14 million barrels in September, led by a steep 11.7 million barrel build in middle distillates, the IEA said.

Northwest European fuel oil Calendar 2015 hi-lo at record low on new sulfur rules

London (Platts)--14Oct2014/920 am EDT/1320 GMT

The northwest European fuel oil Calendar 2015 hi-lo swap -- the premium of 1% FOB NWE cargo swaps over 3.5% FOB Rotterdam barges -- has hit a record low ahead of new rules next year that will limit bunker fuel sulfur levels in emission control areas to 0.1%.

The swap was assessed at $8.50/mt Monday, Platts data showed, having been on a downward trend since late May when it was at $22.50/mt.

Demand for low sulfur fuel oil was expected to tail off significantly from 2015.

On Tuesday, the Calendar 2015 hi-lo traded several times at $8.75/mt, up 25 cents/mt day on day.

Refiners are aiming to produce less LSFO next year, and any residual material is likely to make its way in to the HSFO pool.

"The question is, how much?" a trader said.

The Calendar 2015/2016 FOB Rotterdam 3.5% sulfur swap time spread has moved to an 11.25/mt contango, in anticipation of the extra supply.

Next year, ships traveling within 200 miles of North America, the Baltic Sea, or the North Sea must limit sulfur emissions from fuel to 0.1%, down from 1%, according to International Maritime Organization rules.

Northwest European refineries are preparing for the changes by testing new specifications similar to 0.1% sulfur marine diesel grade, traders said.

One major oil company and two big Amsterdam-Rotterdam-Antwerp fuel oil suppliers are already offering the new product, priced at a $10-20/mt discount to gasoil, one European trader said.

Shell holds second open season for capacity on Westward Ho crude line

Houston (Platts)--14Oct2014/247 pm EDT/1847 GMT

Shell Pipeline on Monday launched a second open season for capacity on its proposed Louisiana-to-Texas Westward Ho crude pipeline, a company spokeswoman said.

The open season for the planned 400,000 b/d pipe that will run from St. James, Louisiana, to Nederland, Texas, began Monday at 5 pm CST and will concluded November 24 at 5 pm CST, Kimberly Windon said late Monday.

The 36-inch-diameter line would connect connect Texas refiners in Port Arthur and Beaumont to Louisiana crude hubs in St. James, Houma and Clovelly.

"Shell Pipeline's Westward Ho Pipeline would enhance access to the anticipated increase in domestic production of US Gulf of Mexico and foreign crude that will be available at St. James," she said. "Additionally, the Westward Ho Pipeline project will complement the new storage and logistics infrastructure that is being built in the St. James and Clovelly areas."

Windon earlier this month said construction of the Westward Ho pipeline was paused to allow the company to seek additional shipper commitments and is now slated to be completed in late 2017. The startup date of the pipeline was expected to be in early 2015.

The first open season for the pipeline was held in April 2012, she added.

LLS, Mars slump to lowest since Nov 2010 as front-month NYMEX crude tumbles

Houston (Platts)--14Oct2014/610 pm EDT/2210 GMT

The outright prices for benchmark US Gulf Coast crudes Light Louisiana Sweet and Mars fell to their lowest level Tuesday since November 2010 as the NYMEX November crude contract plunged.

LLS -- the benchmark for light sweet Gulf Coast crudes -- was assessed 20 cents/b higher at WTI plus $3.15/b, but the outright price dropped $3.57/b to $94.98/b, its lowest since November 23, 2010, when it was $84.96/b.

Heavy sour Gulf Coast crude benchmark Mars remained unchanged at WTI minus 55 cents/b, but its outright price declined by $3.77/b to $81.28/b. Mars was also assessed at its lowest level since November 23, 2010, when it was assessed at $79.26/b.

The decline in the LLS and Mars prices are mostly attributable to a falling NYMEX November crude contract, which fell $3.77/b on Tuesday to $81.83/b. The NYMEX November crude contract has shed $12.38/b since September 25 on weakening global demand at the same time as strong supply.

This week, Brian and Herman answer US crude policy questions, including discussions on Alaskan exports, the Jones Act, and Brent and WTI prices.

Tuesday's fall in crude futures came as the International Energy Agency cut its oil demand growth forecast and key OPEC members show no signs of trying to halt the price slide yet.

The IEA cut its oil demand growth forecast for a fourth straight month on a continuation of weaker expectations regarding world economic growth, helping reinforce a perception of weak fundamentals.

Demand is expected to grow 1.1 million b/d to 93.5 million b/d in 2015, the Paris-based agency said.

NYMEX November gas settles 10 cents lower at $3.816/MMBtu

Knoxville, Tennessee (Platts)--14Oct2014/413 pm EDT/2013 GMT

NYMEX November natural gas futures settled 10 cents lower at $3.816/MMBtu Tuesday, with analysts citing expectations for a strong storage injection, the absence of significant heating demand and spillover from falling crude prices.

"We're expecting another large injection this week, and so far we haven't seen any real cold weather," said Tom Saal, broker at INTL FC Stone.

Early estimates in the 90-Bcf range were circulating ahead of the US Energy Information Administration weekly storage report on Thursday, Saal said, compared with the five-year average build of 78 Bcf.

"That's the big reason for today's selloff," he said.

Other analysts said gas was likely also moving in sympathy with crude oil, which has been on the decline for most of the past week. The NYMEX November crude contract closed $3.90 lower Tuesday at $81.84/b.

"I personally wouldn't discount the fact that [gas] is trading down...simply due to the fact that [crude oil] is down," as well as other fuels, said independent analyst Jay Levine at enerjay.

"While natural gas isn't crude oil or heating oil or unleaded gasoline -- and vice versa -- sometimes it's just 'guilt by association,'" Levine said.

Aaron Calder, senior market analyst at Gelber & Associates, said "there is not enough demand, either current or expected, to warrant natural gas above $4. When prices started to creep near that level, traders took the opportunity to exit their long positions."

"The only thing that will be able to push the contract much past $4 is cold weather," Calder added. "And current forecasts are currently not calling for much in the way of sub-zero temperatures."

In its forecast out to two weeks, the US National Weather Service is showing lower-than-average temperatures only in the Southeast, with warmer-than-normal temperatures expected in most other regions.

November gas traded Tuesday in a range of $3.806-3.955/MMBtu.

The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).

Gazprom expects no major impact from sanctions, increases European sales in H1 2014

Moscow (Platts)--14Oct2014/901 am EDT/1301 GMT

Gazprom said Tuesday that it expects no major impact on its operations and financials from sanctions introduced by Western countries over Russia's role in the Ukraine conflict, and reported a slight increase in sales to Europe in the first half of 2014.

"The group continues to assess the impact of the ongoing sanctions but currently does not believe they have a significant impact on the financial position and results of operations of the group," Gazprom said in financial results for the first half of the year prepared in line with International Financial Reporting Standards.

Gazprom and its oil producing subsidiary Gazprom Neft have been targeted by Western sanctions aimed at restricting access to Western financing and technology used for oil production at deep water, Arctic offshore, and shale projects in Russia.

Gazprom also said it had agreed a loan for Eur500 million in September, valid until 2016, with Commerzbank acting as agent on the deal.

The company provided no further details on lenders or whether the deal was agreed before financial sanctions restricting access to Western financing were introduced on September 12.

The results also demonstrated an increase in sales revenues for the company, on the back of the weak ruble in the first half of the year.

The company said its revenues from sales to Europe were up 1.7% in the second quarter, to Rb492 billion (around $12 billion). This contributed to a 7% increase in revenues from European sales in the first six months of the year to Rb883 billion.

Gazprom attributed this "primarily to an increase in average prices in ruble terms (including customs duties) by 7%."

Gazprom exported 86 billion cubic meters to Europe in the first half of the year, up slightly on the the 85.5 Bcm it shipped in the same period of 2013.

Sales revenues from shipments to former Soviet countries increased 46% in the first half to Rb263 billion, "due to an increase in average prices in ruble terms (including customs duties) by 32% and an increase in volumes of gas sold by 12%, or 3.3 Bcm," Gazprom said.

Gazprom shipped a total of 30.7Bcm to Europe in the first half of the year.

DOLLAR DIVERSIFICATION

Separately Gazprom said Tuesday that it had discussed the possibility of issuing yuan-denominated bonds with Industrial and Commercial Bank of China, in a statement released following a meeting between Gazprom CEO Alexei Miller and his counterpart at the bank Jiang Jianqing.

The plan is the latest in a series of attempts by Gazprom, along with other Russian companies, to diversify away from the dollar in financial transactions.

In recent weeks Gazprom has said that payments for its supplies to China via the Eastern route will be completed in rubles or yuan, and Gazprom Neft said it has sold its first cargo of crude to China to be paid for in rubles.

Rosneft, CNPC expand cooperation into LNG sector, speed up refinery project

London (Platts)--14Oct2014/452 am EDT/852 GMT

Russia's Rosneft and China National Petroleum Corporation have signed an agreement to deepen their strategic partnership, including through developing joint LNG projects and accelerating work on a joint refinery construction, the Russian company said Monday.

"The parties intend to apply joint efforts to expand the strategic cooperation, including in the LNG sector, which embraces potential Russian LNG supplies to China," it said in a statement.

The agreement was signed during a visit by China's Premier Li Keqiang to Moscow, with Rosneft's CEO Igor Sechin and CNPC vice president Wang Dongjin inking the deal in the presence of Russia's Prime Minister Dmitry Medvedev.

Russia has been actively developing ties with China over the last few years to diversify its energy export markets away from Europe, and the pace of its reorientation seems to have accelerated in recent months against the backdrop of the ongoing standoff between Western countries and Russia over Moscow's role in the Ukrainian crisis.

"Russia and China are interested in deepening and expanding cooperation in the oil and gas sector," Sechin was quoted as saying after the signing ceremony.

"Our companies have created a favorable environment for cooperation and we intend to further promote long-term mutually beneficial collaboration," he said, according to the company's statement.

The Monday agreement "envisages elaboration of current and potential strategic cooperation areas," including upstream projects in Russian and refining projects in China, according to Rosneft.

TIANJIN REFINERY

In particular, the parties expected to make an investment decision regarding construction of the Tianjin Refinery in March 2016, with a view to completing it by the end of 2019, it said.

The partners previously expected to take the FID on the refinery in early 2017 and to build the facility by "no later than the end of 2020," Rosneft said in October 2013.

Current cooperation between Rosneft and CNPC includes: crude supplies under a long-term crude sale and purchase agreement; crude, oil products and petrochemicals exports within the framework of tenders; Vostok-Energy upstream joint venture to explore and develop an oil project in eastern Siberian Irkutsk region; Vostok Petrochemicals joint venture to build the Tianjin Refinery and the sale of refined products from the facility in China and across regional markets.

Last year, the partners agreed to increase the refinery's capacity to 16 million mt/year, or 320,000 b/d, up from 260,000 b/d originally planned.

Rosneft and CNPC first agreed to conduct the front-end engineering design study for the refinery and held a groundbreaking ceremony to mark the start of construction in September 2010. But there has been little progress on the project since then because of question marks hanging over its economic viability.

At the time, the planned 260,000 b/d refinery was expected to be built by 2015, at a cost of $5 billion.

CNPC owns a 51% stake in the JV, with Rosneft holding the remaining 49%.

Rosneft supplies 300,000 b/d of crude to CNPC under a long-term contract signed in 2009. Under a new deal reached in June, Rosneft is to gradually double crude supplies to CNPC by 2018, the Chinese company said at the time.

Lifting Oil Exports Ban Would Boost U.S. Manufacturing

http://www.manufacturing.net/sites/manufacturing.net/files/unplanned%20supply_0.jpg

The manufacturing sector, already a leading component of the U.S. economy, would benefit significantly if the crude oil ban were lifted, according to a new study.

This was the finding of a new report, titled Lifting the Crude Export Oil Ban: The Impact on U.S. Manufacturing that was sponsored jointly by The Aspen Institute’s program on Manufacturing and Society in the 21st Century and the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. Econometric modeling was conducted by Inforum, the Interindustry Forecasting Project at the University of Maryland.

“One of the most important drivers of a robust domestic manufacturing sector is the U.S. oil and gas production boom of the last five years,” said Thomas J. Duesterberg, Executive Director of The Aspen Institute’s Manufacturing and Society in the 21st Century program and the report’s co-author. “Higher levels of oil production require higher investment expenditures for capital equipment and construction, which in turn boost overall demand for goods. This stimulates the manufacturing sector and its supply and distribution chains. The resulting improvement in income and employment would boost the economy significantly.”

Donald A. Norman, Director of Economic Studies at the MAPI Foundation and report co-author, concurred.

“It makes sense to export (lighter) oil to markets where it is more highly valued because it can command a premium price,” he said. “This will provide additional incentive for U.S. producers to develop domestic resources.”

The paper employed the Inforum LIFT economic forecasting model to analyze how removing the ban on crude oil exports could add to growth in manufacturing by stimulating higher levels of oil production in the United States. It used a low export base (which results in a high of 2 million barrels per day [b/d] in additional oil production) and a high export case (which leads to an increase of 3.25 million b/d in 2025, and an average of 2 million b/d over the 10-year forecast period).

The study found both macroeconomic benefits and industrial sector gains.

For example, in terms of macroeconomic benefits:

·       GDP is higher by 0.93%, or about $165 billion, in 2019-2021, and levels off at approximately 0.74% higher, or about $141 billion in 2025;

·       A total of 650,000 jobs would be added at peak in 2019;

·       Real household income would be higher by $2,000 to $3,000 per household in 2025, an increase of 2.2%, and reaches a peak of 2.5% on a per household basis in 2019;

And in industrial sector gains:

·       Production of durable goods and materials would increase 1.4% ($8 billion) by 2017; mining and construction equipment would grow by 6% ($6 billion) in 2017;

·       All manufacturing jobs would see an average gain of 37,000 per year through 2025, construction jobs would grow by over 217,000 in the peak year 2017, and related professional services jobs would grow by an average of 148,000 per year; and

·       Capital investment for machinery—exploration and development—would increase by $7 billion in 2020.

“There is an excellent case on policy grounds to end the long-standing prohibition on exports of U.S. crude oil,” the report concludes, “but the economic case for such action is even more compelling.”

Russia proposes building natural gas pipeline to Japan -Nikkei

Oct 15 (Reuters) - Russia has proposed to Tokyo building a natural gas pipeline connecting fields in its far east with northern Japan, the Nikkei newspaper reported on Wednesday.

The construction of a gas pipeline between the two countries, which has been mooted for decades, would face many obstacles, including a dispute over islands taken by Russian forces at the end of World War II that has prevented Moscow and Tokyo from signing a formal peace treaty.

The plan to build a pipeline between Sakhalin and the northern Japanese island of Hokkaido was presented to Japan last month by Russia, the Nikkei reported, citing diplomatic sources it did not identify.

An official in Japan's Ministry of Economy, Trade and Industry involved in gas and oil denied Tokyo had received an offer from Russia, when contacted by Reuters. He declined to be identified due to the sensitivity of the matter.

Moscow, which is heavily dependent on taxes from oil and gas sales to western Europe, has been trying to shift focus to Asian countries including Japan and China as potential customers for its vast reserves in eastern Siberia.

It has been offering lower priced gas to Japan, which buys about a third of world shipments of liquefied natural gas (LNG), a supercooled form of the fuel, the Nikkei said.

Japan's imports of LNG have surged in the wake of the Fukushima nuclear disaster of March 2011, which has led to the shutdown of all the country's reactors. Russia supplied almost 10 percent of Japan's LNG imports last year.

Moscow and Tokyo have been discussing a number of projects involving LNG supplies to Japan from Sakhalin and Vladivostok, but talks have slowed as the Japanese government fell in line with sanctions on Russia over the Ukraine crisis.

The Nikkei report comes a day after Russia's state-controlled gas company Gazprom said it may drop its Vladivostok LNG project.

(Reporting by Aaron Sheldrick and Kentaro Hamada; Editing by Joseph Radford)

OPEC Finding U.S. Shale Harder to Crack as Rout Deepens

OPEC is resisting pressure to cut oil production while demand slumps as it tests how low prices must go to make U.S. shale oil unprofitable. As producers become more efficient, that floor is sinking.

The Organization of Petroleum Exporting Countries boosted output by the most in 13 months in September, even as crude plunged into a bear market and demand growth weakens to a five-year low, according to the International Energy Agency. Saudi Arabia and Kuwait, the largest and third-largest members of OPEC, indicated the price slump doesn’t warrant immediate production cuts, the IEA said.

While OPEC acted as a “swing producer” over the past decade, responding to surpluses by cutting output, it’s now letting oil slide to see if North American production can withstand lower prices, said Antoine Halff, head of the IEA’s oil industry and markets division. So far drillers are showing no signs of cracking, with the U.S. government forecasting record shale output in November, helping boost the nation’s crude supply to the highest level since 1986.

“This is a new situation and will likely elicit a new response from OPEC,” Halff said by phone from Paris yesterday. “We’re more likely to see OPEC let market forces play out and let the higher-cost production be the first one to cut.”

Brent crude, a benchmark for more than half the world’s oil, fell 4.3 percent to $85.04 a barrel yesterday, closing at the lowest level since Nov. 23, 2010 on the ICE Futures Europe exchange in London. Brent has dropped more than 20 percent from its June peak, meeting a common definition of a bear market. West Texas Intermediate crude on the New York Mercantile Exchange sank 4.6 percent to $81.84, a two-year low.

Saudi Determination

Saudi Arabia has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said in a report yesterday. Kuwait’s oil minister said there may be “no room” to restore prices by trimming supply. Saudi Arabia, Iraq and Iran are offering the biggest discounts to crude buyers in Asia since at least 2009, amid speculation they are seeking to maintain market share.

“It makes perfect sense for Saudi Arabia to let the price drift down,” said Jamie Webster, an analyst in Washington at IHS Inc. “There’s a lot of discussion on what is the break-even price for shale, and whatever you believe, the reality is there’s no clear consensus. It gives the Saudis the opportunity to test” that level, he said.

Iran, OPEC’s fifth biggest supplier, isn’t concerned about the drop in prices, which will pass, Roknoddin Javadi, deputy oil minister and managing director of National Iranian Oil Co., was quoted as saying by Mehr, the state-run news agency.

Break-even Costs

About 2.6 million barrels of daily production, or 2.8 percent of global output, requires an oil price of $80 a barrel or more to be profitable, the IEA said, with only about 4 percent of U.S. shale output needing prices above that level. Canadian synthetic oil projects are the most dependent on prices remaining above $80.

Horizontal drilling and hydraulic fracturing in hydrocarbon-rich underground shale layers has helped U.S. oil production grow 65 percent in the past five years to the highest level since 1986. That’s reduced crude imports by more than 3.1 million barrels a day since peaking in 2005.

Production per well was projected to increase in fields in North Dakota, Texas and Colorado, the Energy Information Administration said yesterday. Companies are getting more oil per dollar spent drilling, driving costs down as much as $30 a barrel since 2012, Morgan Stanley (MS) analyst Adam Longson said in a report Oct. 13.

Lower Prices

“Prices aren’t low enough to put these projects at risk,” Matthew Jurecky, head of oil and gas research for the London-based research company GlobalData Ltd., said by e-mail yesterday from New York. “The profit margin on most commercial unconventional oil plays will support prices as low as $50, many below that even.”

U.S. shale producers could keep pumping oil economically even if Brent dropped to $60 a barrel, Bjornar Tonhaugen, an analyst with Oslo-based Rystad Energy, said in an e-mailed report yesterday. Brent would need to remain at $50 a barrel for 12 months before North American shale output drops 500,000 barrels a day, he said. Morgan Stanley said Eagle Ford break-even costs range from $30 to $60 a barrel.

“We continue to be impressed by how much operators are improving their operations,” R.T. Dukes, an upstream analyst for Wood Mackenzie Ltd. in Houston, said yesterday by phone. “There’s enough out there that significant development would continue even at $75 or $80.”

Weaker Demand

Global oil consumption will expand by about 650,000 barrels a day this year to 92.7 million, the lowest growth since 2009 and about half the increase projected in June, the IEA said. OPEC boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, the group said Oct. 10 in its latest monthly oil market report. Its next meeting is scheduled for Nov. 27 in Vienna.

Saudi Arabia, which pumped almost one-third of the group’s output last month, won’t alter its supplies much between now and the end of the year, a person familiar with its policy said on Oct. 3.

“They’ve not come out and said ‘we will do what it takes to balance the market’,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Right now the economy is weak, and demand is weak in Europe and China. The market wants to see something fairly dramatic.”

Caspian Sea Could Be Key To Russian Control Of Eurasian Energy Markets

By Scott Belinksi | Tue, 14 October 2014 21:24 | 0 

The world’s favorite hotbed of instability, the Caspian Sea, has finally earned the right to be called, well… a sea. This is the unexpected epiphany of the September 29th Caspian Sea Summit that brought together the rulers of Iran, Russia, Azerbaijan, Kazakhstan and Turkmenistan to the cozy coastal Russian city of Astrakhan. The usually yawn-inducing Summit, now in its fourth edition, ended the 18-year old debate on whether the Caspian should be legally seen as a sea or a lake. Granted, questions of geographical metaphysics don’t seem to make a very fertile ground for momentous paradigm shifts in the way “the world hangs together” but as it turns out, in this case they do. And here’s why.

The Caspian Sea region is a very particular one, not least because some 48 billion barrels of oil and over 292 trillion cubic feet of natural gas await recovery by the five riparian countries. After the fall of the Soviet Union, the notion of determining its unclear legal status resurfaced with a vengeance in the tug-of-war that accompanied the retreat of Moscow’s influence from the region. Historically, Russia and Iran supported the idea of a Caspian lake, ruled under a condominium regime where all states would equally share its resources. If the Caspian were classified as a sea on the other hand, each state would literally get its own slice of the seabed and exclusive use of whatever it lies beneath. The problem is that under this definition, Kazakhstan, by virtue of having the longest coastline, would get more than half of the sea’s resources. Complicating things further, in the former case, Iran would be the big loser since its piece of the Caspian pie is poor in gas and oil. But the Gordian knot was finally untied, as the five leaders emerged victorious from the Summit, declaring the Caspian a “sea of friendship and peace” – emphasis on sea.

According to the Declaration, which comes with clear formulations on the delimitation of the seabed, every country will have exclusive sovereign rights to a 15-mile area. “This is a real breakthrough” a smiling Putin concurred. While the statement of principles has been agreed upon, the final document will only be signed at the next Caspian Summit, slated to happen sometime next year in Kazakhstan. The zesty gathering also concluded with a chest-thumping promise not to allow foreign militaries to set up camp in the Caspian region, an obvious snub at NATO’s aspirations with Azerbaijan.

Meanwhile, halfway across the world, European officials were probably rubbing their hands in satisfaction once the news transpired - because buried deep in questions of geographical metaphysics lurks Europe’s answer to one of its deepest woes: how to reduce Russia’s influence in the affairs of the continent while still securing its energy supply. And the answer is oft neglected, oft forgotten Turkmenistan, the real winner of the whole shebang.

Wait, who?

Home to the world’s sixth largest natural gas reserve and a burning desire to diversify its exports away from its overbearing northern neighbor, Turkmenistan seems a perfect candidate to scratch Europe’s Russian itch. Its production capacity of 2.3 Tcf in 2012 dwarfs 4 times over Azerbaijan’s. Alongside its bigger neighbor, Uzbekistan, the two Central Asian states have been most hostile towards Putin’s new Eurasian vision looking with increased anguish as the Ukrainian crisis unfolded. In the past decade, both countries have sought to build stronger ties with China and India, shifting their gravitational center away from Moscow’s wills and whims.

With the legal status of the Caspian squared, Turkmenistan can finally start negotiations with Azerbaijan over the building of the Trans Caspian Pipeline (TCP), the long mooted but time and again postponed 30-billion-cubic-meters-per-year project to send Turkmen gas to Europe via Turkey.  Even if the two presidents failed to reach an agreement during the Summit, allegedly over environmental concerns, it's only a matter of time before all the nuts and bolts will be hammered out. Speaking on the sidelines of the Summit, Turkmenistan President Gurbanguly Berdymukhammedov reiterated that Turkmenistan is “firmly committed” to seeing this project through.

At 300-kilometers long, this east-west pipeline would first touch ground in Azerbaijan, before being connected to European markets via the Trans-Anatolian Natural Gas Pipeline (TANAP), currently under construction in Turkey. Once built, the pipeline will be the fountainhead of Europe's diversification efforts, throwing a spanner in Moscow's capacity to constantly meddle in its politics.

“Caspian gas is our salvation”

This is how Gunther Oettinger, the outgoing European commissioner for energy, once referred to the prospect of tapping into the fertile Caspian seabed in order to break Russia’s grip over European markets. With consumption levelling out at 541bcm last year, of which some 162 bcm came from Russia, natural gas is a fundamental component of Europe’s energy mix. Adding into the equation Moscow’s boat-rocking threats to cut off gas exports flowing through Ukraine (roughly 80bcm), Brussels is more adamant than ever to diversify away from Russian-flavored exports.

An immediate solution would be for Norway and North Africa to crank it up a notch and boost their exports by a paltry 25bcm – the current spare capacity of pipelines coming to Europe. The only other countries that could successfully fill the gap left by ditching Gazprom are both in the Caspian: Azerbaijan and Turkmenistan.  In the long run, other options will arise: Cyprus sits on a massive offshore gas pocket of 3.4 tcm, or the equivalent of seven years’ worth of total European consumption. According to Bloomberg, the European Union has enough gas trapped in shale to free the bloc from reliance on Russian energy supplies for about 28 years if only the constituent countries would agree. But to quote Keynes, “in the long run, we are all dead”. Only by throwing Caspian gas in the energy mix today can Europe effectively wean itself off of Russian gas.

Stacking turtles in the Caspian

Now, any sensible person would ask one simple question - why would Russia fold its hand to Europe? By agreeing on the Caspian’s legal status, Moscow has essentially just handed Turkmenistan carte blanche to proceed with the TCP, which, once built, will put at risk Gazprom’s own exports. Has Putin finally lost his "geopolitical marbles"? Not quite.

What if one were to turn the issue on its head? In other words, since Europe is slowly but surely diversifying away from Russian gas, how can Moscow make sure it won’t lose its capacity to influence the Union’s energy security? Simple. Since the Caspian is Europe’s single best bet for new natural gas imports, all Putin needs now is to find a way to call the shots in the Caspian.

This would explain the Summit’s firm declaration to prevent foreign troops from setting up camp in the Caspian. Russia is afraid of the prospect of losing more ex-Soviet republics to the West, like it happened with Ukraine, and shutting NATO out of the region would greatly increase Kazakhstan, Azerbaijan and Turkmenistan dependence on Moscow. On a related note, the Summit also hashed out vague plans for establishing a free trade area in the Caspian, pulling it even closer to Russia’s orbit.

Essentially, with a stroke of a pen, Putin’s own “Pivot to Asia”, revived with the $400 billion historic deal struck with China over natural gas deliveries, just got a reinforced foothold in the Caspian region. This is Russia’s way of extending a carrot to the very countries the West is desperately courting for their massive gas resources. And since pipelines don’t get built over night, Moscow has ample time to create more powerful levers of influence in their internal politics. Therefore, hemmed in between Iran and Russia, Turkmenistan and Azerbaijan could very well be much easier to control than troublemaking Ukraine. Proceeding with the TCP in spite of Russian “opposition” would therefore simply play right into Moscow’s game.

Just like that famous anecdote of a flat world standing on the backs of an infinite number of turtles stacked ‘all the way down’, attempts at explaining the Caspian have very often failed to notice the turtles lurking underneath the ones closer to the top of the stack. It would be an unforgivable exercise in political reductionism to simply assume that this year’s Caspian Summit has not been one of the most far-reaching and game changing regional developments of the last 20 years. The Great Game of the 19th century has been suddenly rekindled, but only this time Russia seems to have the upper hand

By Scott Belinksi of Oilprice.com

Ukraine plans to build gas pipeline to Poland to get European gas

Ukraine plans to build a 110-kilometer-long gas pipeline for a yearly transit of up to 10 billion cubic meters of gas from Poland, TASS agency reported referring to UNIAN.

The project is estimated at $245 million. Radoslaw Dudzinski, deputy chairman of the board of Polish Polenergia, told a Baltic business form in Poland that the gas pipeline could become operational in 2019-2020.

Plans are to build the pipeline from underground gas storage facilities Bilshe-Volitsa in Ukraine’s Lvov region to the gas-measuring station Drozdovichi on the Ukrainian-Polish border.

If the project is translated into practice, Ukraine will be able to get gas from Germany, and it will also be possible to transport liquefied gas from a terminal in the Polish port city of Swinoujscie, which will become operational in 2015.

Dudzinski said that under plans, the gas pipeline could be also used for reverse gas supplies from Ukraine to Poland at times of peak consumption.

Ukraine, which transits Russian gas on to European consumers, currently does not receive Russian gas for its own needs due to an unsettled dispute with Moscow over prices. The country depends on Russia for more than half of its gas needs. Russian gas giant Gazprom on June 16 switched Ukraine’s national oil and gas company Naftogaz to prepayment for gas supplies because Kiev failed to pay part of its gas debt by the deadline of 10:00 Moscow Time on June 16. Gas supplies to Ukraine for its own needs were halted, but transit volumes were reportedly passing via Ukraine to Europe in line with the schedule.

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UPDATE 1-Brazil to hike fuel prices despite drop in oil abroad -source

By Luciana Otoni

Oct 14 (Reuters) - Brazil will maintain plans to raise domestic fuel prices this year, despite a sharp drop in international crude oil prices, to help debt-laden state-run oil company Petrobras, a government source said on Tuesday.

The price of gasoline on the international market has slipped below the domestic price of the fuel in Brazil, Credit Suisse said in a report earlier on Tuesday, a situation that should ease losses on imports at the refining division of Petrobras.

The government will adjust prices to help Petrobras make up for losses that stem from government policies that had forced the company to sell fuel to local consumers at prices below international ones, the source said.

"Petrobras had to carry that price burden for some time and that was considered in the decision," said the official, who asked for anonymity to speak freely.

A finance ministry spokesperson did not immediately respond to requests for comment.

Unable to meet all domestic fuel needs from a dozen local refineries, Petrobras has had to make up the rest with imports. The government, though, has not allowed Petrobras to raise domestic fuel prices in line with international prices, forcing the company to sell the imports at home at a loss.

On Monday, however, the international price of gasoline was 1 percent below the Brazilian domestic price, the Swiss investment bank's Sao Paulo-based Brazil Economics Team said in a note to investors.

Futures prices suggest the discount on imports will increase to about 4 percent in December if the U.S. dollar-Brazilian real exchange rate remains constant, the report said.

That outlook could reverse, making imported gasoline 4 percent costlier than domestic gasoline if Brazil's real weakens as far as 2.60 to the dollar from 2.39 reais today.

From January to September, international gasoline cost on average 17.3 percent more than Brazilian fuel. The last time international fuel prices were below domestic fuel prices was in late 2010, according to Petrobras.

The price of gasoline and other petroleum-based fuels has fallen along with the price of crude oil.

Brent crude fell 4.3 percent, the most for a single day going back to September 2011, after the International Energy Agency cut estimates for oil demand this year and next.

That gap between Brazilian and international fuel prices contributed to Petroleo Brasileiro SA, as Petrobras is formally known, racking up 8.69 billion reais ($3.64 billion) of losses in the first half of 2014.

Petrobras has seen its debt rise and cash drain away and is now the world's most indebted and least profitable major oil company, according to Thomson Reuters data.

The government has held Brazilian wholesale fuel prices steady in an effort to control inflation which in September jumped to 6.75 percent, a level above the 6.5 percent limit of the central bank's target range. (Additional reporting by Jeb Blount in Rio de Janeiro; Editing by Lisa Shumaker)

Norway’s Statoil Sells Share In Caspian Oil Field For $2.25 Billion

By Andy Tully | Tue, 14 October 2014 19:37 | 0

Statoil, Norway’s largest energy company, is selling its share in a major Caspian Sea oil field and a pipeline in the Caucasus to Petronas, Malaysia’s state-owned oil and gas company, for $2.25 billion.  Statoil’s stake in the Shah Deniz field in the Caspian near Baku, the capital of Azerbaijan, is now 15.5 percent, the same stake it has in the South Caucasus Pipeline Co., which ships gas from Azerbaijan to Turkey and Georgia. Statoil also is selling its 12.4 percent share in the Azerbaijan Gas Supply Co.  Lars Christian Bacher, Statoil’s executive vice president for international development and production, issued a statement on Oct. 13 saying, “The divestment optimizes our portfolio and strengthens our financial flexibility to prioritize industrial development and high-value growth.”

In other words, like other large energy companies, Statoil has been selling assets to shore up profit margins that recently have been eroded by rising operating costs and declining oil prices. The sale is expected to close early in 2015, once it receives regulatory approval.

The Shah Deniz oil field, about 40 miles southeast of Baku, was discovered in 1999 and began production in 2006. In the second quarter of 2014, Statoil’s share of the recovered assets from the field was the equivalent of 38,000 barrels of oil a day.

Britain’s BP owns about 28.8 percent of Shah Deniz’s extracted oil. Other investors include Russia’s LUKoil; the Naftiran Intertrade Co., the Swiss-based subsidiary of Iran’s national oil company; Azerbaijan’s State Oil Co.; and the Turkish energy company Turkiye Petrolleri Anonim Ortakligi.  Petronas, the new owner of Statoil’s stake in Shah Deniz and the South Caucasus Pipeline, already has production and exploration efforts under way in at least 22 countries in Africa, Central Asia, Latin America and Southeast Asia, which account for nearly one-fourth of its total oil and gas reserves. It also has interests in Mexico, Argentina and Canada.

Meanwhile, Statoil’s withdrawal from Shah Deniz isn’t the first from the oil field this year. In May France’s Total SA sold its 10 percent share in the project, again to cut back on capital investments and make up for the lower price of oil and the rising costs of operations.

To illustrate these rising costs, the second phase of the Shah Deniz project is to export gas through new pipelines to Italy in an effort to reduce Europe’s dependency on Gazprom, the Kremlin-run Russian gas giant. The cost of setting up that phase is expected to be $28 billion.

Since 2010, Statoil has sold assets for prices totaling more than $22 billion, including a 10 percent share in Shah Deniz in 2013. It also has cut back on its planned investments for 2015 in hopes of increasing returns for its shareholders.

By Andy Tully of Oilprice.com

CORRECTED-Saudi price war should fuel drive for U.S. crude exports

By Jessica Resnick-Ault and Timothy Gardner

Oct 14 (Reuters) - Saudi Arabia's move to keep crude oil production high, fueling a steep global price slump, may have an unexpected consequence: intensifying the campaign by U.S. producers to scrap Washington's decades-old ban on exports of domestic crude.

Global oil prices plummeted nearly 5 percent on Tuesday to their lowest since 2010, as OPEC's core members showed no sign of intervening to support the market. Amid talk of a price war, Iran, generally a price hawk, has changed course and said it can live with lower prices.

U.S. crudes have been trading at a discount to global prices since the rise of the shale revolution four years ago. That price squeeze has domestic producers eager to end the export ban enacted during the Arab oil embargo of the 1970s.

"Fully lifting the oil export ban would go a long way toward keeping U.S. oil production up even if prices continue to languish," said Chris Faulkner, Chief Executive of Breitling Energy Inc. "Our country can't afford to see the oil and gas boom start to bust."

But many Americans, fearful of high gasoline prices, support the ban, as do their members of Congress. President Barack Obama has some leeway to allow more exports of some types of oil, but political experts have said he is unlikely to do so without evidence that below-market U.S. crude prices are forcing shale drillers to cut back or shut in output.

That scenario was highly unlikely during the past few years, when crude prices spent a lot of time above $100. But with oil plummeting and Saudi Arabia comfortable with crude as low as $80 a barrel, the day may arrive sooner than many had expected.

U.S. gasoline pump prices have also dropped to near $3 a gallon for the first time since 2010. If prices stay that low, Americans could grow less fearful that exporting crude will trigger a spike in retail prices, and more receptive to studies showing exports would actually boost the economy.

"I think it would be a harder argument to make at $80 than at $100," said Guy Caruso, Senior Adviser at the Center for Strategic & International Studies.

PRICE WAR

The makings of an oil price war took shape this month, when Saudi Arabia and Kuwait said they would not cut production, signaling they would rather allow prices to drift lower to curtail production from places like the U.S. shale patch and Russia.

It remains to be seen how quickly lower prices begin to hem in U.S. production of light, sweet shale crude, which has boomed. For the moment, U.S. shale oil prices remain only a few dollars below global rivals due to strong refinery demand.

But few analysts expect that to last much longer, with a retreat to discounts of $10 a barrel or more that will amplify the price pain for drillers.

"The question is whether or not the Saudis want $80 Brent or $90 Brent. If it's $80 our fear is we'd get a $10 to $15 discount, and at $65 crude then a lot of the U.S. plays are uneconomical," Scott Sheffield, chief executives of Pioneer Natural Resources, said on Tuesday at the Aspen Institute, a Washington D.C.-based think tank.

Lifting the ban would allow U.S. producers to recapture the traditional price premium held by Brent, which is now about $3 a barrel, but was nearly $10 this summer, Sheffield said.

Many experts say they see little reason for Obama or Congress to push forward an issue that may be seen as caving to Big Oil interests at the expensive of the U.S. motorist.

However, if lower prices slow the drilling boom that has been a pillar of the U.S. economic recovery, politicians in Washington may have more reason to take action.

"The President would be able to stand up and say `we have to do this because we don't want this production shut in,'" said Amy Myers Jaffe, Executive Director of Energy and Sustainability at the University of California, Davis.

AFTER WHICH ELECTION?

Some analysts expect further action after elections. Congressional mid-terms this November could tilt the Senate into the control of export-friendly Republicans, or the 2016 presidential election could result in a more oil-friendly administration.

Sheffield at Pioneer, one of two companies that has approval to export lightly-processed condensate crude, said he hopes the Commerce Department will bless more exports after November.

Even so, opponents are not backing down.

"Just because oil prices are lower does not change the fact that ending the export ban would increase prices, cut American refinery jobs, and get us no closer to energy independence," said U.S. Senator Robert Menendez, a New Jersey Democrat.

"I understand that Big Oil wants to make more money, but last I checked they are doing pretty well for themselves." (Reporting By Jessica Resnick-Ault and Timothy Gardner, editing by Jonathan Leff and David Gregorio)

Oil producers face price war over slowing global demand

The rout in world crude markets has gained momentum and may not stop as OPEC members are showing little willingness to cede market share to North American oil suppliers in the face of slowing global demand.

Global producers face the threat of a nasty price war that could drive prices down to levels not seen since the depths of the 2009 recession, some analysts warned Tuesday. Major exporters such as Saudi Arabia and Iran have so far not been willing to cut supply to defend prices, while Libya is boosting production that had been derailed by civil war among militias.

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.

In New York, West Texas Intermediate fell $3.61 a barrel to $82.13 (U.S.) in trading in New York, while the leading international benchmark, Brent, slumped by $2.65 a barrel to $86.24. Both prices have plunged more than 20 per cent since the highs in June in the face of rising global production and unexpected economic weakness in key markets around the world.

The sharp drop in oil prices has battered the oil-heavy Toronto market, with the S&P index losing 190 points, or 1.3 per cent, at 14,036.68 on Tuesday.

The index was dragged down by across-the-board losses among oil and gas producers, including companies such as Encana Corp. off 6.7 per cent; Penn West Petroleum Ltd. losing 7.4 per cent, and Talisman Energy Inc. down 8.6 per cent. The oil index slumped to a 14-month low and the TSX has dropped 10.4 per cent since Sept. 3.

“This has turned into a downward spiral, and it seems like each day we have a fresh dose of bearish news,” said Jim Ritterbusch, president of Ritterbusch & Associates, an advisory firm in Chicago. “I don’t see a bottom yet,” he said. North American crude could fall to $80 a barrel within the next couple of days and Brent will continue to drift lower, he added.

In a report released Tuesday, the Paris-based International Energy Agency (IEA) shaved its demand forecast for the third straight month. Annual demand growth is now expected to hit 700,000-barrels per day this year, down from 1.1-million the IEA forecast in spring.

In contrast, global production was up by 910,000 barrels a day in September alone, and stood at 2.8-million barrels per day higher last month than September 2013.

But even with prices in the low $80s, the IEA warned that the market will remain over-supplied. “Further oil price drops would likely be needed for supply to take a hit or demand growth to get a lift,” it said in its monthly oil report.

Saudi Arabia actually boosted production in September and engaged in aggressive price discounting in Asia to defend its market from African producers whose exports have been pushed out of North America due to booming production here and who are looking for a new home for their crude. The kingdom – which produces 9.7-million barrels per day – has so far dismissed calls for it to unilaterally cut production or accede to Venezuela’s call for an emergency meeting of the Organization of Petroleum Exporting Countries.

Iran, typically a price hawk in OPEC, has down played concerns about lower prices, noting that a rising U.S. dollar has offset the pain for many producers. The cartel is scheduled to meet at the end of November.

 “The fundamentals are definitely weak – there is no doubt you have too much supply and you do need some taken out [of the market],” Jamie Webster, head of global oil director for IHS Inc. “And now we’re starting to move into momentum trading, and no one is making any sort of moves. And Saudi Arabia has been remarkably quiet on this subject.”

The Paris-based agency said some Canadian oil sands producers are particularly vulnerable to lower prices, including existing producers who upgrade their bitumen and companies planning new projects. Existing producers of diluted bitumen virtually all have break-even points below $80 per barrel, it said.

Tight oil producers in the U.S. Bakken and other fields are also vulnerable, though they typically can earn a commercial return at $80. However, the U.S. producers have to constantly drill to keep their production flowing, and lower revenues will strain their ability to maintain that activity.

Some analysts believe Saudi Arabia is prepared to drive prices down further to disrupt production and investment in North America.

“I’m describing this as a price war of necessity,” said Philip Verleger, an independent oil consultant based in Colorado. “And the Saudis are doing it because their market share is threatened. And I think their target is Alberta.”

He said oil sands producers are aiming to increase exports of heavy crude to the U.S. Gulf Coast by 1-million barrels, which would drive out Saudi imports.

More oil sands production is slated to come from steam-driven plants, which “are relatively well insulated” at a WTI price of $85, said Judith Dwarkin, director of energy research at ITG Investment Research in Calgary. “Some of it is as economic as Bakken,” she said. “It’s the mined oil sands that is most exposed.”

But Ms. Dwarkin said prices could pick up again if the global economy shows signs of life, or if there is an outage in the Middle East or North Africa, while a slowdown in investment would ease cost pressure for those producers who do proceed.

“It’s too soon to say that we’re looking at structurally lower oil prices for the longer term because of the events of the past month,” she said.

With a file from Jeffrey Jones

Follow us on Twitter: Jeff Lewis @jeffalewis, Shawn McCarthy @smccarthy55

Saudis prepared for $80 oil in bid to retain market share: sources

LONDON and NEW YORK — Reuters

Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.

Some OPEC members including Venezuela are clamouring for production cuts to push oil prices back up above $100 a barrel.

But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.

The discussions, some in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto aim of holding prices at around $100 a barrel for Brent crude in favor of retaining market share in years to come.

The Saudis appear to be betting lower prices - which could strain the finances of some members of the Organization of the Petroleum Exporting Countries - will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.

The conversations with Saudi officials did not offer any specific guidance on whether - or by how much - the kingdom might agree to cut output, a move many analysts are expecting in order to shore up a global market that is producing substantially more crude than it can consume. Saudi Arabia pumps around a third of OPEC’s oil, or about 9.7 million barrels a day.

Asked about coming Saudi output curbs, one Saudi official responded “What cuts?”, according to one of the sources.

Also uncertain is whether the Saudi briefings to oil market observers represent a new tack it is committed to, or a talking point meant to cajole other OPEC members to join Riyadh in eventually tightening the taps on supply.

One source not directly involved in the discussions said the kingdom does not necessarily want prices to slide further, but is unwilling to shoulder production cuts unilaterally and is prepared to tolerate lower prices until others in OPEC commit to action.

OPEC angst

With most other members of the cartel unable or unwilling to reduce their own output, the group’s next meeting on Nov. 27 is set to be its most difficult in years. OPEC has agreed to cut production only a handful of times in the past decade, most recently in the aftermath of the 2008 financial crisis.

On Friday, Venezuela - one of the cartel’s most price-sensitive members - became the first to call openly for emergency action even earlier. Foreign Minister Rafael Ramirez said “it doesn’t suit anyone to have a price war, for the price to fall below $100 a barrel.”

On Sunday, Ali al-Omair, oil minister of Saudi Arabia’s core Gulf ally Kuwait, appeared to be the first to articulate the emerging view of OPEC’s most influential member, saying output cuts would do little to prop up prices in the face of rising production from Russia and the United States.

“I don’t think today there is a chance that (OPEC) countries would reduce their production,” state news agency KUNA quoted him as saying.

Omair said that prices should stop falling at around $76 to $77 a barrel, citing production costs in places such as the United States, where a shale oil boom has unexpectedly reversed dwindling output and pushed production to its highest level since the 1980s.

Saudi oil officials have made no public comments on the deepening swoon in markets. Senior officials did not reply to questions from Reuters about recent briefings.

Global benchmark Brent crude oil futures have fallen steadily for almost four months, dropping 23 per cent from a June high of over $115 a barrel as fears of a Mideast supply disruption ebbed, U.S. shale production boomed and demand from Europe and China showed signs of flagging.

Brent fell below $88 a barrel on Monday, hitting its lowest in almost four years, after news of the Saudi and Kuwaiti statements.

“In light of these comments, one should not expect any OPEC output cuts before the Nov. 27 meeting,” said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.

An OPEC delegate from outside the core Gulf Arab group said he did not think OPEC would cut output at the November meeting but added he believed the Saudis should cut output unilaterally: “The question should be posed to Saudi Arabia.”

The growing difference in opinions means OPEC is heading for its most tense meeting since mid-2011 when it failed to agree on an increase in output despite a loss of Libyan production.

Until recently, Gulf OPEC members have been saying that the price dip was a temporary phenomenon, betting on seasonal demand in winter to prop up prices. But a growing number of oil analysts now see the latest slide as something more than a seasonal downswing; some say it is the start of a pivotal shift to a prolonged period of relative abundance.

Rather than fight the decline in prices and cede market share in the face of growing competition, Saudi Arabia appears to be preparing traders for a sea change in prices.

The Saudis want the world to know that “nobody should be surprised” with oil under $90 a barrel, according to one of the people. Another source suggested that $80 a barrel may now be an acceptable floor for the kingdom, although several other analysts said that figure seemed too low. Brent has averaged around $103 since 2010, trading mostly between $100 and $120.

While the latest discussions are the bluntest efforts yet to signal the shift in Saudi strategy, early signs had already begun sending shivers through the oil market. In early October the kingdom cut its official selling prices more sharply than expected in a bid to maintain customers in Asia, widely seen as the opening shots in a price war for Asian customers.

“Riyadh’s political floor on oil prices is weakening,” Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, wrote in a note to clients following a trip to Saudi last month.

McNally said he is not aware of any specific Saudi price or timing strategy, but told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the U.S. shale oil sector.”

As that message began to dawn last week, the price rout quickened, with Brent lurching to its lowest level since 2010.

“Until about three days ago the absolute and total consensus in the market was the Saudis would cut,” said McNally. That is no longer a foregone conclusion, he said. “The market suddenly realizes it is operating without a net.”

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IEA cuts 2015 oil demand growth outlook, sees supply hitting prices

LONDON — Reuters

Demand for oil in 2015 will grow far slower than previously forecast as global economies remain weak, the International Energy Agency said on Tuesday, and prices may extend their sharp fall so long as OPEC shows no sign of countering a supply surge.

The IEA said it cut its 2015 estimate for oil demand growth by 300,000 barrels per day (bpd) from its previous forecast and now expects demand growth of 1.1 million bpd to 93.5 million. It cut its 2014 estimate by 200,000 bpd to 0.7 million bpd.

It said demand would be supported by prices near four year lows – oil is around $88 a barrel from above $115 (72.02 pounds) in June, a 25 per cent drop resulting from a boom in U.S. shale oil production, slow global growth and a strong dollar.

But it added that those low prices would remain under pressure because of supply levels: Global oil supply rose by almost 910,000 bpd in September to 93.8 million bpd, almost 2.8 million bpd higher than the previous year.

In a rare IEA comment on OPEC’s strategy, its chief analyst Antoine Halff said the producer group may no longer be willing or able to adjust production as the market has been transformed by the U.S. shale oil revolution.

Some OPEC members whose budgets depend on oil might prefer to keep selling at lower prices than lose their part of the market.

“We should not expect OPEC to necessarily play its traditional role of swing producer,” Halff told Reuters on Tuesday, adding that other players with higher production costs might cut instead, such as those extracting from deepwater or oil sands.

The Organization of the Petroleum Exporting Countries meets on Nov. 27 to discuss output policies and whether to act to stem the price slide.

Given that oil is currently in what analysts including JBC Energy call the biggest bear market since 2009, it’s likely to be the most interesting meeting in a while – particularly if, as several OPEC watchers suggest, its biggest exporter Saudi Arabia is less willing to cut production than in the past.

The IEA said oil prices might not yet have dropped enough to force OPEC cuts because an “analysis of light, tight oil supply suggests that most of it remains profitable at $80 a barrel Brent.”

“Recent price drops appear both supply and demand driven,” the West’s energy watchdog said in its monthly report. “Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.”

The IEA said that because of weaker global demand outlook it had also cut its estimate for demand for OPEC crude by 200,000 bpd for 2015 to 29.3 million bpd – more than 1 million bpd below current production levels.

OPEC crude oil output surged to a 13-month high in September, led by recovery in Libya and higher Iraqi flows. Production rose 415,000 bpd from August to 30.66 million bpd.

Crude supplies from top OPEC producer Saudi Arabia edged up by 50,000 bpd in September to 9.73 million bpd. The IEA said flows might ease in October due to slower seasonal demand for domestic crude burn.

It also said that it expected non-OPEC supply growth to average an impressive 1.3 million bpd in 2015.

“Total U.S. liquids production continues to exceed Russian and Saudi Arabian oil supplies. We estimate that total U.S. total liquids output will be above 12.0 million bpd next month and will remain above that threshold through December 2015,” it said.

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New York Gets Frigid Winter Warning From Siberia Snowfall

The snow in Siberia is piling up, and if it keeps coming, people in New York may have to bundle up this winter.

There’s a theory that the amount of snow covering Eurasia in October is an indication of how much icy air will sweep down from the Arctic in December and January, pouring over parts of North America, Europe and East Asia.

Last year, the snow level across Eurasia was the fourth highest for the month in records going back to 1967. In January, frigid temperatures dubbed “the polar vortex” slid out of the Arctic to freeze large portions of the U.S.

It was a pattern that repeated itself during the Northern Hemisphere winter and helped make the first three months of this year the coldest in the 48 contiguous states since 1985, according to the National Climatic Data Center in Asheville, North Carolina.

With the snow now piling up across Eurasia, will this winter be a grim reminder of last year’s?

“It’s still early in the game,” said Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research in Lexington, Massachusetts, a division of Verisk Climate.

Month’s Data

While “the snow has gotten off to an incredible start,” Cohen said he needs to see how much covers the area through the entire month before he can make an accurate forecast. The National Science Foundation has sponsored his research into the link between Eurasian snowcover and the severity of the Northern Hemisphere’s winter.

As of Oct. 13, Cohen calculated, 12.2 million square kilometers of Eurasia were covered by snow, compared with 10.8 million square kilometers on the same day last year.

About 12.9 million square kilometers covered Eurasia in October 2013, according to the Rutgers University Global Snow Lab. The record was 17.2 million in 1976.

It’s important to note that snowcover ebbs and flows and isn’t a constant all the way through the month. Last year, some of it melted away before Oct. 31 arrived. Cohen said the same may happen this year.

According to Cohen’s research, there’s a link between the snowcover and how much cold spills out of the Arctic and where it ends up once it escapes.

Cold Blocker

A big piece of this depends on the North Atlantic Oscillation, or NAO, which is a pressure differential across the basin. When it’s in its negative phase, cold air can be bottled up across the eastern U.S., and that can also mean more snow both there and in Western Europe.

A good indication of what the negative phase of the NAO can do was the winter of 2009-2010, when 56.1 inches (142.5 centimeters) of snow fell in Washington and the “Snowmageddon” storm halted travel in the U.S. Northeast.

That was also the year when a satellite photo showed the U.K. covered with snow, Cohen said.

Cohen said we need to wait a few weeks before he’ll predict what the NAO will do.

“Our research has shown that you need all 31 days” of October, Cohen said. “A lot can go wrong.”

Oil Knows Smart Money Sees No Inflation With Futures Drop

For signs of just how much inflation concerns have been erased by the global economic slowdown, look no further than oil.

West Texas Intermediate crude, the U.S. benchmark, has plunged 22 percent since June 20 to $83.65 a barrel, the lowest in more than two years. A year ago, WTI crude for delivery this month traded at $95.91 a barrel, a level that implied a 6.3 percent decline over the next 12 months. Prices ended up falling even more as demand slowed across Europe and Asia and the dollar rallied, touching a two-year high against the euro.

The speculation that unprecedented central-bank stimulus would push up inflation has proven unfounded. In Europe, policy makers are now trying to stave off deflation while demand for inflation protection in the U.S. bond market is drying up and growth in China is slowing. Oil futures traders were ahead of this, anticipating falling prices as expanding U.S. supply sparked competition with OPEC just as demand weakened.

“The oil market seems to be a better economic indicator than anything else,” Phil Flynn, an analyst at Price Futures Group Inc. in Chicago, said in an Oct. 10 phone interview. “We probably wouldn’t have the stronger dollar if we didn’t have rising U.S. oil production, and we wouldn’t have the price of oil fall as far if we didn’t have a stronger dollar.”

WTI futures sank 0.1 percent on Oct. 13 to $85.74 on the New York Mercantile Exchange, the lowest settlement since December 2012. Gasoline futures fell to $2.2553 a gallon on the Nymex, close to a four-year low. Pump prices for regular unleaded averaged nationwide were at $3.186 a gallon, the lowest in 11 months, according to Heathrow, Florida-based AAA.

Stronger Dollar

The dollar has risen 4.6 percent this year against 10 peers, making raw materials priced in the greenback more expensive for buyers outside the U.S. and deepening the selloff in crude.

World oil consumption will expand at the slowest pace since 2009 this year as economic growth slows in Europe and Asia, according to the International Energy Agency. The Paris-based adviser to industrialized countries cut its demand forecast yesterday for the fourth time in a row, to half what it predicted in June.

As demand slumps, output is increasing.

The U.S. is adding an unprecedented 1.1 million barrels a day this year, the Energy Department estimates. The Organization of Petroleum Exporting Countries boosted September output to a one-year high of 30.935 million barrels a day.

‘Feedback Loop’

“There’s a feedback loop,” Wittner said. Oil reflects a stronger dollar and also contributes to lower inflation because fuel is a major component of consumer spending, he said.

Many economists, including John Taylor, professor of economics at Stanford University, and Douglas Holtz-Eakin, a former director of the Congressional Budget Office, have been warning that the Federal Reserve’s stimulus -- almost $4 trillion of bond purchases since 2008 -- would spark an inflation surge.

Instead, prices as measured by the Fed’s preferred gauge, the personal consumption expenditures price index, rose just 1.5 percent in the 12 months through August. The rate has remained below the Fed’s 2 percent target for more than two years, causing concern among policy makers that inflation will remain too low or prices will even start to fall, which can create a vicious circle of lower spending and declining wages.

Central Bankers

Central bankers including regional Fed Presidents William Dudley of New York, Charles Evans of Chicago and Narayana Kocherlakota of Minneapolis recently cited below-target inflation as a risk that weighs against raising interest rates too soon. Weaker-than-anticipated foreign growth could lead the Fed to slow down removing support for the economy, Fed Vice Chairman Stanley Fischer said in an Oct. 11 speech at the International Monetary Fund’s annual meetings in Washington.

Minutes of the Fed’s September gathering released Oct. 8 showed officials highlighted concern that deteriorating growth abroad and a stronger dollar may hurt the domestic economy by curbing exports and damping inflation.

The outlook in Europe and Asia is more dire. The European Central Bank plans to stimulate growth by buying asset-backed debt, while economists have cut estimates for Chinese growth after disappointing data on industrial profits, factory output and credit. The IMF last week cut its forecasts for global growth in 2015 to 3.8 percent from 4 percent.

Bond Investors

Bond investors, who have put five-year Treasuries on track for the biggest monthly rally in three years, are betting that U.S. inflation will remain below the Fed’s 2 percent target through 2019. Their expectations for average annual inflation -- as measured by the gap between fixed-rate securities and those linked to consumer prices -- have plunged to about 1.5 percent from 2.1 percent in June.

As demand for oil has waned, so has the appeal of the inflation-linked notes, known as TIPS. Investors have withdrawn $871 million from exchange-traded funds that invest in securities designed to protect against inflation, or 4 percent of the holdings of those funds, since Sept. 1, data compiled by Bloomberg show. The $12.4 billion iShares TIPS ETF run by BlackRock Inc., has had $835 million in outflows since Sept. 1, following four consecutive months of inflows, data compiled by Bloomberg show.

Mitchell Stapley, chief investment officer for Cincinnati-based ClearArc Capital, which manages $7 billion, said he noticed on his way to work recently that gasoline prices had fallen to as low as $2.99 a gallon at one station.

“The following thought as a portfolio manager is not, ‘Gee, I need to buy some TIPS to protect against a wave of inflation about to wash over us,’” Stapley said in an Oct. 8 phone interview.

Oil and Junk Don’t Mix as Worst Bonds Sink as Much as 19%

By Lisa Abramowicz  Oct 15, 2014 4:32 AM GMT+0700  4 Comments  Email  Print

If you’re wondering why junk bonds keep selling off, consider this: Oil prices are tanking and energy companies now account for a record proportion of the below investment-grade market.

Debt of high-yield energy companies has tumbled 4.6 percent since August, leading the market down as the price of Brent crude futures plummeted to the lowest in about four years. Some securities have fared much worse, like the 19 percent plunge in oil and gas producer Samson Investment Co.’s bonds.

“It’s been a pretty sharp move,” said Matt Eagan, a fund manager at Loomis Sayles & Co. in Boston. “This is the first time in a long time where a sector has seen a big setback.”

Every time the U.S. junk-bond market has faltered since 2008, it’s been rescued by record monetary stimulus that’s fueled demand for the higher-yielding debt. Now, there’s renewed concern that the world’s biggest economy won’t be able to escape a global slowdown, which would damp demand for energy at a time when the U.S. is producing more supply than ever.

Junk-bond investors piled into oil debt in the past decade. Energy companies now account for 15 percent of U.S. high-yield bonds, up from 9.7 percent at the end of 2007, Bank of America Merrill Lynch index data show.

Debt Plummets

Performance has suffered along with demand for oil, which will grow this year at the slowest pace since 2009, the International Energy Agency said yesterday. Brent for November settlement fell $3.85 yesterday on the London-based ICE Futures Europe exchange to $85.04 a barrel, the lowest close since Nov. 23, 2010.

The overall high-yield market posted losses of 2.3 percent since the end of August. Meanwhile, the extra yield investors demand to own energy debt instead of the average U.S. junk bond is the most in at least a decade, according to Bank of America Merrill Lynch index data.

Investors are being punished more for purchasing recent oil and gas bond offerings. Take, for example, $580 million of bonds that Paragon Offshore Plc sold in July at 100 cents on the dollar. The 7.25 percent notes maturing in 2024 have since plunged to 77 cents.

Hercules Offshore Inc., the Houston-based drilling company, sold $300 million of eight-year notes in March at 100 cents on the dollar. They’re now trading at 59.8 cents.

Samson Investment, a Tulsa, Oklahoma-based oil and gas explorer and producer owned by investors including KKR & Co., sold $2.25 billion of bonds in July that have fallen to 78.5 cents on the dollar from as high as 103.5 cents in August. Its debt is the worst performing among the 50 biggest junk-rated energy issuers in the Bank of America Merrill Lynch index.

Oil and junk, for now at least, don’t mix.

Putin Loses His Best Friend: Expensive Oil

Attendees inspect a digital map of the Russian Federation displayed at the OAO Transneft pavilion during the 21st World Petroleum Congress in Moscow on June 17, 2014.

The decline in oil prices may be depriving Russian President Vladimir Putin of his biggest ally.

Oil has been the key to Putin’s grip on power since he took over from Boris Yeltsin in 2000, fueling a booming economy that grew 7 percent on average from 2000 to 2008.

Now, with economic growth slipping close to zero, Russia is reeling from sanctions by the U.S. and the European Union over its land grab in Ukraine, and from a ruble at a record low. Putin, whose popularity has been more than 80 percent in polls since the annexation of the Crimean Peninsula in March, may have less money to raise state pensions and wages, while companies hit by the sanctions also seek state aid to maintain spending.

“His ratings remain high but for a person conducting such a risky policy, Putin has to understand the limits of patience for the people, business and political elite,” said Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences in Moscow. “Putin is thinking hard how not to lose face while maintaining his support.”

Brent crude is down more than 20 percent from its June high, cutting billions of dollars in tax revenue from Russia’s most valuable export. The budget will fall into deficit next year if oil is less than $104 a barrel, according to investment bank Sberbank CIB. At $90, close to the current level, Russia will have a shortfall of 1.2 percent of gross domestic product.

The country has spent about $6 billion on currency interventions this month trying to keep the currency afloat. Russia’s largest oil company, OAO Rosneft; gas producer OAO Novatek and the largest lender, OAO Sberbank, are among companies targeted by the sanctions.

Bigger Threat

The curbs will subtract 1 percent to 1.5 percent from GDP and are a bigger threat than oil prices, according to Alexei Kudrin, the finance minister from 2000 to 2011 who steered Russia’s accounts back to surplus.

“The sanctions are having an across-the-board impact,” Kudrin said by phone. “It isn’t just about the loss of money but the worsening investment climate, rising capital flight and a slide in the currency.”

Russia faces weak growth even if the EU sanctions expire next year as expected, Charlie Robertson, the chief economist at Renaissance Capital Ltd., said by phone. The International Monetary Fund earlier this month reduced its 2015 forecast for Russia to 0.5 percent from 1 percent in July.

Contraction Foreseen

“Growth is virtually nonexistent this year and isn’t terribly much better next year,” Robertson said Oct. 10, adding that the economy could contract 1.7 percent in 2015 if crude averages $80 a barrel.

Putin, 62, a former KGB colonel, has criticized the U.S. and Europe for expanding the North Atlantic Treaty Organization up to Russia’s borders, and he has vowed to keep neighboring Ukraine out of the Cold War-era military alliance.

Top Kremlin officials said after the annexation of Crimea that they expected the U.S. to artificially push oil prices down in collaboration with Saudi Arabia in order to damage Russia, according to Khryshtanovskaya. Putin’s spokesman, Dmitry Peskov, didn’t respond to a request for comment on this issue, nor did he respond over four days of calls requesting comment about oil’s importance to Putin.

“Prices are being manipulated,” state-run Rosneft’s spokesman Mikhail Leontyev said Oct. 12 in an interview with Russkaya Sluzhba Novostei radio. “Saudi Arabia has started offering big discounts on oil. This is political manipulation, manipulation by Saudi Arabia, which can end badly for it.”

No War

The reason Saudi Arabia cut its crude prices earlier this month was to boost margins for refinery clients and the move didn’t signal rising competition for market share, a person familiar with the nation’s oil policy said last week.

The Russian budget loses about 80 billion rubles ($2 billion) for every dollar the oil price falls, according to Maxim Oreshkin, head of strategic planning at the Finance Ministry. Brent crude traded at $88.33 a barrel yesterday on the London-based ICE Futures Europe exchange, down more than $26 a barrel since June.

In 2009, Russia posted a 5.9 percent budget deficit when oil averaged $61.30 a barrel, 40 percent less than the $98 that was needed to balance the budget that year.

The oil price has collapsed to its lowest in four years as demand growth slows and output in the U.S. is near a 30-year high. Producers in the Organization of Petroleum Exporting Countries, including Saudi Arabia and Iraq, have cut prices.

Currency Reserves

Russian currency reserves are at a four-year low after dropping $57 billion in 2014 to $455 billion last week. The ruble, down 20 percent against the dollar this year, has fallen for five weeks, the longest stretch of losses since March.

Russia’s central bank intervened over the past 10 days to stabilize the ruble, Central Bank Governor Elvira Nabiullina told lawmakers in Moscow Oct. 13. The action has so far failed to halt the ruble’s decline amid a domestic foreign currency shortage stemming from sanctions.

Putin and the central bank earlier this month ruled out capital controls after two officials with direct knowledge of the discussions said they were under consideration.

Russia’s economic fortunes have fluctuated along with the swings in oil prices since the Soviet era. In the 1970s, after the Arab oil embargo sent prices soaring, Soviet leader Leonid Brezhnev presided over a period of relative prosperity and rising global influence.

Living Standards

An oil glut in the 1980s led to a six-year decline in prices, contributing to the Soviet Union’s failure to keep its shelves stocked with basic consumer goods and undermining its economy. Putin has described the collapse of the Soviet Union as the greatest geopolitical catastrophe of the 20th century.

Crude prices remained low throughout Yeltsin’s presidency, when the economy was racked by hyperinflation, wage arrears and falling standards of living that culminated in the 1998 Russian financial crisis.

The “addiction” to oil “is a big part of why the Soviet Union collapsed,” said Michael Bradshaw, professor of global energy at the Warwick Business School in Coventry. “Putin rode a wave of high oil prices in his first two terms, so his job now could get trickier if prices stay down.”

With oil prices falling amid an abundance of global oil supplies and slowing demand, Russia may be forced to tap its sovereign wealth funds to bail out companies blocked by sanctions from international borrowing.

Economy Minister Alexey Ulyukayev said on Oct. 8 that Russia may start putting about $19.6 billion from the $83.2 billion Wellbeing Fund into infrastructure projects as early as this year. The fund was originally intended to ensure the long-term viability of the country’s pension system.

Aid Request

Rosneft and Novatek both have applied for state funding and may receive the money as early as this year if they complete the paperwork on time, Finance Minister Anton Siluanov said on Sept. 20. Each could get as much as $4 billion, including from the Wellbeing fund, he said.

If Putin is concerned about the state of Russia’s economy, he isn’t showing it.

“The state is ready to support those sectors and companies that faced unjustified external sanctions,” the president said at a banking forum in Moscow Oct. 2, adding that the measures would help strengthen Russia’s resolve to boost growth.

If crude prices remain depressed, the Kremlin could cut social programs and pressure businessmen to maintain full employment, Clifford Gaddy, an economist specializing in Russia at the Brookings Institution in Washington, said by phone.

More Prepared

“This regime is more consciously prepared to deal with low oil prices than either the Soviets or the authorities in the 1990s,” Gaddy said. “It’s possible that they are over-extended, but Putin is a strategic planner who has certainly considered life at various price points.”

Shunned by the U.S. and the EU, Russia is stepping up efforts to reach out to other nations. Chinese Premier Li Keqiang on Oct. 14 signed an agreement with Prime Minister Dmitry Medvedev to build a high-speed transport corridor linking Moscow and Beijing.

The two countries in May signed a $400 billion, 30-year natural gas deal after more than a decade of talks. Chinese banks have stepped up to help fill the void created by the closure of U.S. and Europe debt markets.

Closer to home, Armenia last week signed a deal to join Russia, Belarus and Kazakhstan in the Eurasian Economic Union, which was conceived by Putin as a post-Soviet version of the EU.

Putin managed to avoid mass unemployment during the 2008 financial crisis, when the price of oil dropped further and faster than currently, Gaddy from Brookings said. If Russia faces an extended slump now, his handling of the last crisis could serve as a template.

“If there is a prolonged period of low prices, it’s crucial that people don’t lose their jobs,” Gaddy said.

Permian Crudes Weaken After Crude Spill Shuts Sunoco Pipeline

Crude extracted from the largest U.S. oil field weakened against the U.S. benchmark after producers lost access to Midwest markets when a 4,000-barrel spill in Louisiana forced the shutdown of a key pipeline.

West Texas Intermediate in Midland, Texas, weakened by 75 cents a barrel to a discount of $7 relative to the same grade in Cushing, Oklahoma, at 11:47 a.m., according to data compiled by Bloomberg. It’s the largest discount since Oct. 1. Midland is the pricing point for the Permian Basin, which produces about 1.76 million barrels of oil a day.

Sunoco Logistics Partners LP (SXL) shut a segment of its Mid-Valley Pipeline between Longview, Texas, and Mayersville, Mississippi, after it spilled as much as 4,000 barrels of crude last night, Travis Lawson, a spokesman for the Philadelphia-based company, said by phone. The Mid-Valley line delivers Permian crude from Longview to six states, including Ohio and Michigan.

“There’s no question that that’s going to contribute to weakness in West Texas crudes,” Andrew Lebow, senior vice president at Jefferies Bache LLC in New York, said by phone.

West Texas Sour, a medium-density, high-sulfur crude also priced in Midland, weakened by 65 cents a barrel to a discount of $5.75 to WTI in Cushing.

The Mid-Valley line carried about 228,000 barrels of crude a day through Louisiana in July, the most recent month for which data is available, according to the state’s Department of Natural Resources. Longview, in northeast Texas, is connected to the Permian by the Sunoco’s West Texas Gulf pipeline system.

After shutting the Longview-Mayersville segment following yesterday’s spill, Sunoco closed the entire Mid-Valley line this morning for 48 hours of planned maintenance because of a refinery turnaround, Lawson said.

This is the second time this year Sunoco has had to shut a section of the Mid-Valley because of a spill. The 20-inch pipe leaked 240 barrels of crude near Colerain Township, Ohio, in March.

Husky Energy Inc. is monitoring the pipeline situation, and so far operations at its refinery in Lima, Ohio, are not affected, spokesman Mel Duvall said by e-mail.

Israel Sees Gas as Key to Transforming Mideast Relations

After this summer’s war in Gaza battered Israel’s international reputation, the country’s leaders say they have a new foreign policy tool to build relations with its neighbors: natural gas.

By the the end of the year, Israel may have binding agreements to sell billions of dollars of gas to Egypt, Jordan and the Palestinian Authority. Preliminary talks are taking place with customers in Turkey, even though President Recep Tayyip Erdogan is among Israel’s fiercest critics. Gas may even help improve relationships in the Gaza Strip.

“There are now extraordinary opportunities for Israel based on energy policy, both economically and diplomatically,” said Israeli Foreign Ministry spokesman Emmanuel Nachshon. “This is a real game-changer of common interests and benefits for many actors in the region. It could also bring about better relations with Turkey, and with other regional actors with whom Israel is not yet in close contact.”

Israel’s chance to be a regional energy power comes from two mammoth fields under the Mediterranean Sea, holding more gas than the country could consume in decades. In addition to building ties with neighbors that have often been antagonistic since the state was founded in 1948, gas exports will be a fillip for Israel’s economy, improving the balance of trade and boosting economic growth by as much as a percentage point.

Israel’s gas bonanza “is a huge strategic advantage that allows us to enjoy both political and economic fruits,” Israeli Energy Minister Silvan Shalom said in an interview. “We are much more accepted in the world as a result of us finding natural gas.”

Tamar, Leviathan

The Tamar gas field was discovered off Israel’s Mediterranean coast in 2009 and the Leviathan field a year later. Together, they hold an estimated 29 trillion cubic feet.

Selling the gas to other markets may be more of a challenge than extracting it. Israel’s relations with its Arab and Islamic neighbors range from cool acceptance to virtual states of war, and getting the fuel to international markets will require the country to navigate a minefield of geopolitical hazards.

Partners in the Leviathan field, including Houston-based Noble Energy Inc. (NBL), the Israeli units of Delek Group Ltd. and Ratio Oil Exploration 1992 LP signed a preliminary deal Sept. 3 to sell about $15 billion of gas to Jordan’s National Electric Power Co. over 15 years. That followed supply deals earlier this year with Jordan’s Arab Potash Co. and the West Bank-based Palestine Power Generation Co.

‘Fundamental’ Orientation

Some analysts caution against excessive Israeli optimism that energy resources may help ease regional tensions heightened by its policy toward Palestinians, and other contentious issues.

In the Middle East, “you don’t see countries change their fundamental strategic orientation because of economic issues,” said David Wurmser, director of Delphi Global Analysis Group in Rockville, Maryland.

That said, diplomatic considerations and economic interests will both play a key role in pending decisions by Egypt and Turkey on whether to form energy ties with Israel that will enable it to export gas beyond its immediate neighbors and into the global market.

“When you have something other people need, then people are prepared to talk to you. And when you talk, ice is broken in other areas,” Yaniv Pagot, chief strategist at Israel-based Ayalon Group Ltd., said in a phone interview. “Talk about economics could be a base for political communication.”

Slowing Economy

The prospect of gas exports has become even more alluring given Israel’s economic slowdown. The Bank of Israel cut its 2014 growth forecast for the country on Sept. 22, to 2.3 percent, from 2.9 percent at the end of June. The 2015 forecast is 3 percent, still below the nation’s 3.2 percent growth last year. Exports account for about a third of Israel’s $270 billion economy, with the country’s main trading partners being the U.S. and China, according to data compiled by Bloomberg.

The Tamar and Leviathan partners signed preliminary agreements this year to deliver as much as 6.25 trillion cubic feet to two liquefied natural gas terminals operated in Egypt.

Noble and Delek’s Avner Oil Exploration LP and Delek Drilling-LP units are planning to send the gas to Egypt through pipelines under the Mediterranean Sea. They expect binding agreements to be finalized by year end, pending Egyptian government approval.

Trade Reversal

That would be a significant reversal. Egypt exported gas to Israel until 2012 through a pipeline across the Sinai. Egypt canceled the contract after multiple attacks by militants on the conduit.

“We are talking about perhaps an initial $60 to $70 billion of gas sales to Egypt and Jordan over 15 years,” Pagot said. “This could translate into $2.5 to $3 billion dollars in exports a year, which would represent 1 percent of Israel’s GDP.”

Selling gas may help warm trade relations with Egypt and Jordan, which now are closer to lukewarm, totaling around $170 million and $365 million respectively last year. Importing the fuel would help Jordan and Egypt ensure much-needed energy security, said Michael Leigh, senior adviser to the German Marshall Fund of the U.S., a Washington-based public policy institute.

Energy Security

“Jordan is under tremendous pressure as a result of the violent conflicts in Iraq and Syria. Israel is making a contribution to the political stability of Jordan by strengthening the country’s energy security,” Leigh said. “Egypt is in a tight squeeze, with a drop in domestic gas production. The opportunity to import gas from Israel is an attractive way to satisfy domestic demand.”

Noble and its Israeli partners are also targeting Turkey, Delek Chief Executive Officer Asaf Bartfeld said in September. Turkey’s Zorlu Enerji Elektrik Uretim AS (ZOREN) said last year it is in preliminary talks with Noble and Delek for a 15-year gas deal, and Turcas Petrol AS has said it’s considering building a pipeline from Leviathan at a cost of about $2 billion to import gas.

They may face opposition from the government. Turkey’s president Erdogan is a fierce critic of Israel’s policy toward Palestinians and Energy Minister Taner Yildiz said in August his country won’t participate in any gas projects with Israel unless the country changes its Gaza policies.

Business, Politics

Business probably won’t trump politics in Turkey, said Delphi Global’s Wurmser. “The ideological proclivities of Erdogan will ultimate sabotage any deal with Israel,” he said.

Israeli energy diplomacy may get another boost from a gas field discovered in 2000 by BG Group Plc about 30 kilometers off the coast of the Gaza Strip in waters under the legal authority of the Palestinian Authority, which controls parts of the West Bank. Development of BG’s Gaza Marine license has stalled due to the conflict between Israel and the Palestinians, and the internal divide between Palestinian President Mahmoud Abbas’s Fatah faction and the Hamas Islamic movement that rules Gaza and is classified as a terrorist group by Israel, the U.S. and European Union.

The Palestinian Authority’s energy and resources minister Omar Kitaneh has said that while developing the Gaza field and other joint energy projects may help ease Israel’s entry into the Middle East market, further steps are dependent on advancing the peace process. That prospect was set back in recent months by the collapse of Israeli-Palestinian peace talks in April, and the Israeli military operation against Hamas in Gaza over the summer.

Further down the road, Israeli policy makers are looking at potential links with the fuel-rich Sunni Arab nations of the Persian Gulf, with regional economies connected by gas.

“The European Union began as a coal-and-steel union in the 1950s, and theoretically, natural gas can serve the role for this region that coal served for the EU,” said the Foreign Ministry’s Nachshon.

Saudis to Build Biggest Water Storage Project in Riyadh

National Water Co., the biggest water supplier in oil-rich Saudi Arabia, plans to build a 1.8 billion-riyal ($480 million) storage facility in its desert capital Riyadh.

The 4.6 million-cubic-meter storage facility is part of the first phase of a project to “achieve a sustainable and secure water supply and meet the challenges of providing water-sector services” in the kingdom’s largest city, the state-owned company said today in an e-mail.

The second phase of the biggest Saudi water-storage project will add 6 million cubic meters more of capacity at a cost of 2.6 billion riyals to serve the city’s 5 million residents.

Chief Executive Officer Luay Al Musallam said last year that the Saudi state projects are part of a 51 billion-riyal water-resources investment in cities including Riyadh, Mecca and the port of Jeddah. This year alone, the government has allocated 16.6 billion riyals for desalination projects to cope with the potable water needs of a population that’s quadrupled in 40 years to 30 million people.

OPEC to Put Shale to the Test by Maintaining Output: IEA

By Grant Smith  Oct 14, 2014 9:09 PM GMT+0700  8 Comments  Email  Print

Cnooc Shares May Offer `Good Value': Darling

OPEC nations supplying 40 percent of the world’s oil will increasingly test the price at which North America’s surging crude output is profitable by maintaining production as demand slumps, the International Energy Agency said.

The Organization of Petroleum Exporting Countries boosted output by the most in 13 months in September, even as prices plunged into a bear market and demand growth weakens to a five-year low, the Paris-based adviser to governments said in a report today. Both Saudi Arabia and Kuwait, the largest and third-largest members of OPEC, have indicated the price slump doesn’t warrant immediate production cuts, the IEA said.

The U.S. and Canada between them pumped the most crude since at least 1965 last year, according to data from BP Plc. OPEC members will test if that output can be sustained at lower prices, Antoine Halff, head of the IEA’s oil industry and markets division, said by phone from Paris today. For most of the past decade, OPEC would have responded to surpluses by cutting output, Halff said.

“This is a new situation and will likely elicit a new response from OPEC,” he said. “U.S. shale includes different situations, different economics depending on the players. I’m not sure U.S. shale is definitely the highest cost production, I see more pressures in Canada for instance. But we’ll test that.”

Brent crude, a benchmark for more than half the world’s oil, fell as much as 3.1 percent to $86.17 a barrel today, heading for the lowest closing price since November 2010 on the ICE Futures Europe exchange. The OPEC crude basket, made up of the group’s main export grades, fell to $85.93 yesterday, near a four-year low.

Saudi Share

Saudi Arabia has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said in a report today. Kuwait’s oil minister said there may be “no room” to restore prices by trimming supply.

Saudi Arabia, Iraq and Iran are offering the biggest discounts to buyers in Asia since at least 2009, amid speculation they are seeking to maintain market share.

Forecast Lowered

Global oil consumption will increase by about 650,000 barrels a day this year to an average 92.7 million a day, according to the IEA, which advises 29 nations on energy policy. The estimate for demand growth is 250,000 barrels a day lower than last month’s forecast, and about half the level the agency projected in June.

OPEC boosted production in September, pumping 30.47 million barrels a day, the most since August 2013, the group said Oct. 10 in its latest monthly Oil Market Report. Saudi Arabia told OPEC it increased output by 107,000 barrels to 9.704 million. The group’s next meeting is scheduled for Nov. 27 in Vienna.

Saudi Arabia, which pumped almost one-third of the group’s output last month, won’t alter its supplies much between now and the end of the year, a person familiar with its policy said on Oct. 3.

Venezuelan President Nicolas Maduro gave instructions to ask for an emergency meeting of OPEC, the country’s foreign ministry said in a post on its Twitter account on Oct. 10.

No Meetings

Kuwait hasn’t received an invitation to hold an emergency session to consider cutting output, the country’s Oil MinisterAli Al-Omair told the official Kuwait News Agency. Youcef Yousfi, Algeria’s energy minister, said Oct. 12 his government is “tranquil” about prices.

While oil-producing nations would prefer higher prices, there’s no scope for them to cut supply to achieve that, Al-Omair said.

“They’ve not come out and said ‘we will do what it takes to balance the market’,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “Right now the economy is weak, and demand is weak in Europe and China. The market wants to see something fairly dramatic.”

Oil Demand Growth This Year Seen Weakest Since 2009

Oct. 14 (Bloomberg) – Bloomberg’s Scarlet Fu examine the crude oil markets with Bloomberg’s Betty Liu on “In The Loop.” (Source: Bloomberg)

(Corrects difference between call on OPEC and production in seventh paragraph.)

Oil demand will expand at the slowest pace since 2009 this year as global economic growth weakens, the International Energy Agency said. The adviser to governments also cut its estimates for 2015.

Oil consumption will increase by about 650,000 barrels a day this year, the Paris-based agency said in its monthly market report today. The reduction of 250,000 barrels a day from a previous estimate is the fourth in a row and means growth will be about half what it anticipated in June. Crude prices have plunged to a four-year low amid a glut.

“The sell-off is putting a spotlight on weaker-than-expected demand as a leading factor behind the drops,” said the IEA, which advises 29 nations on energy policy. A “staggering” increase in supply has also weakened prices.

Brent futures have plunged 20 percent this year, sinking below $90 a barrel last week amid speculation that OPEC will refrain from supply curbs needed to tackle a glut caused by muted demand, booming U.S. shale output and the return of production from Libya.

OPEC’s Role

Global fuel use will rise by 0.7 percent this year to 92.4 million barrels a day, the agency said. It cut 2015 demand estimates by about 300,000 barrels a day. Consumption will nonetheless accelerate next year, rising by 1.1 million barrels a day, or 1.2 percent, to an average 93.5 million a day.

The reduced outlook for global demand means that less crude will be needed from the Organization of Petroleum Exporting Countries than previously estimated, the agency said. This call on OPEC was cut by 200,000 barrels a day for both 2014 and 2015.

The group responsible for 40 percent of global oil supplies will need to provide an average of 28.8 million barrels a day in the first quarter of 2015. That’s about 1.9 million a day less than the 30.66 million its 12 members pumped in September, when output rose to a 13-month high amid a recovery in Libyan output, according to the IEA. OPEC will need to pump an average of 29.3 million a day in 2015.

Saudi Arabia, the group’s biggest member, has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the agency said. The country extended discounts for its customers on Oct. 1.

The IEA’s demand revisions follow a less optimistic outlook from the Washington-based International Monetary Fund, which on Oct. 7 reduced forecasts for global economic growth in 2015 to 3.8 percent, from a July projection of 4 percent.

Demand Response

Prices haven’t yet fallen sufficiently to stimulate demand, or to provoke producers into curbing supply, the agency said.

While the strain on revenues from oil’s drop may encourage some producers to “lower output targets,” such countries “are not signaling an imminent cut,” the IEA said. OPEC is next due to meet to review its target on Nov. 27. Most U.S. shale output, also known as “light, tight oil,” would remain profitable even if Brent dropped to $80 a barrel, according to the agency.

A 2.8 million barrel-a-day surge in global supply in September may “turn out to be a high-water mark,” the agency said, as output is set to slow in the former Soviet Union and China.

Increasing supplies swelled total oil inventories in developed nations in August, the agency said. Stockpiles rose by 37.7 million barrels to 2.7 billion, narrowing their deficit to the five-year average to the smallest since September 2013.