Oil Prices May Have Further to Fall
Production aplenty means cheaper oil for longer
Oil bulls got another piece of bad news today from an unlikely source: the Federal Reserve. U.S. crude production has continued to rise in spite of the collapse in oil prices.
The Fed's oil extraction index clocked in at a seasonally adjusted 179.8 in February. That's up 0.4 percent from January and 14.4 percent from a year ago. As Morgan Stanley economist Ted Wieseman put it in a note to clients, the supply/demand imbalance in the oil market "isn't being addressed yet by lower U.S. supplies."
http://media.gotraffic.net/images/iQEdYxbmI.us/v1/-1x-1.png
The nosedive in oil prices has had an impact on oil and gas drilling. The Fed's index for that activity fell 17.4 percent in February from the month before and was down 21.4 percent from a year ago.
http://media.gotraffic.net/images/i596C_9.VjCU/v1/-1x-1.png
Oil analysts say the cutback in drilling eventually will lead to lower production as fewer new wells are developed. It's just not happening yet, based on the latest Fed data. And for a market where prices already are under pressure from a glut of oil, that's not a pretty picture.
Saudi Arabia Wooing Fired U.S. Shale Workers to ‘Join Our Team’
(Bloomberg) -- Workers fired from U.S. shale fields after the collapse in oil prices could soon have a new boss: the nation some blame for driving that decline.
The state-owned Saudi Arabian Oil Co., also known as Saudi Aramco, is posting new job ads online aiming to snap up experts in extracting oil from shale as the country seeks to become a leader in that rapidly expanding effort. Tens of thousands of U.S. workers have been fired since November as oil prices plunged because of oversupplies, driven in part by an OPEC decision supported by Saudi Arabia.
That’s now giving Saudi Aramco a better chance to lure experienced workers to its own shale formations. Difficult living conditions had previously made the country a hard sell, said Tobias Read, chief executive officer of Swift Worldwide Resources, a recruiting firm.
“We’ve seen people who have historically been reticent to look at Saudi Arabia who are now more accepting of a job there,” Read said in an interview.
For decades, the Saudis have recruited workers from the U.S. for its conventional drilling programs, offering hefty salaries and benefits as lures. Even so, “it’s been hard for us to put people there,” Read said. “The conditions are just quite difficult.”
Previously, Saudi Aramco didn’t need expertise in shale oil and natural gas exploration because it has large conventional oil reserves that don’t require expensive extra steps to develop, such as the hydraulic fracturing or horizontal drilling used in shale rock.
‘Unconventional’ Oil
As those highly productive fields age, however, development of shale resources, along with other hard-to-reach oil categorized as “unconventional,” may help Saudi Aramco maintain its dominance in the oil market, according to John Kingston, president of the McGraw Hill Financial Institute.
“With the layoffs, it’s a great time to do it,” he said about the recruitment effort.
Nigel O’Connor, a spokesman for Saudi Aramco didn’t answer questions on the specifics of the company’s campaign, or its timing. “To support the implementation of our strategy and continued growth, Saudi Aramco continues to hire expertise in a number of technical areas across the unconventional gas resource value-chain,” he said by e-mail.
In November, the Saudis led a decision by the Organization of Petroleum Exporting Countries to maintain production levels of its 12 member countries despite falling prices. The hiring campaign comes after some U.S. oil chiefs, including Continental Resources Inc. CEO Harold Hamm, blamed the Saudis for causing the North American cutbacks.
New Ads
In February, Saudi Aramco posted several new ads on websites including Rigzone and LinkedIn that focused on shale expertise. One recent LinkedIn listing for a petroleum engineer with shale experience drew 160 applicants in a month, according to data from the professional networking website.
“Consider the opportunity to join our team and help shape the future of key global unconventional resource development,” the ads say, referring to shale-rock exploration that’s led to a renaissance in U.S. oil and natural gas production.
Additionally, since the start of the year, Saudi Aramco has added an “unconventionals” category to its recruiting website, where 35 job listings require specific experience in shale. A recruiting company, Whitney Human Resources, has also written directly to prospective employees on Saudi Aramco’s behalf.
A February letter from Whitney obtained by Bloomberg News said there are three areas of the country where Saudi Aramco has an “active exploration program” for unconventional gas resources.
‘Exciting Development’
“Senior managers from the company will be in North America in the forthcoming months to meet professionals with your background who are interested in joining this exciting development,” the letter said.
A recruiting professional at Whitney declined to answer questions about its work with Saudi Aramco.
The nation is interested in developing natural gas in its shale formations to help replace the equivalent of 900,000 barrels a day of domestic crude and fuel oil used to generate local electricity supplies, according to a March 10 research note by a team of Barclays Plc analysts including David Anderson in New York.
On a recent trip to the region, the analysts learned that Saudi Arabia fears damaging its oil- and-gas-rich formations with shale drilling, which could hurt future production, Barclays said in the note. To date, only eight shale gas wells have been drilled in the country with plans to drill 135 wells over the next 3 years.
Recruiting Efforts
“Soon, Saudi Aramco will be known not just for conventional oil and gas production, but as a leader in full life-cycle unconventional gas development,” the company said in a recent ad.
Saudi Aramco’s shale recruiting efforts are akin to a Chinese factory running a U.S. factory out of business, then trying to hire the unemployed workers to improve operations in China, said Michael Webber, an associate professor at the University of Texas and deputy director of the Energy Institute.
After watching the U.S. shale revolution collapse on low prices, Saudi Aramco is seizing the opportunity to bolster its own expertise in shale.
“They don’t want to start from scratch,” Webber said. “They have no experience with shale and they have to hire outside workers. It’s a way to leapfrog.”
Saudi Arabia Will Need More Oil to Feed Local Refinery Expansion
by Angelina RascouetGrant SmithJulian Lee
(Bloomberg) -- Saudi Arabia’s plans to expand local refineries while maintaining its share of the global crude market point to one thing: higher production.
The world’s largest oil exporter will probably increase output this year to feed new refineries, deepening a global supply glut, according to analysts at Societe Generale SA and DNB ASA. The kingdom may go as high as 10 million barrels a day by April, according to Torbjoern Kjus, an analyst at DNB in Oslo. That would be the most in more than two years, according to data compiled by Bloomberg.
“Saudi Arabia will do the same thing as other OPEC members have always been doing: They’ll produce as much as they can,” Kjus said by phone March 11. Fellow OPEC members, the United Arab Emirates and Kuwait, will probably do the same because “they don’t want to be holding back on any potential exports.”
Crude’s rebound from the lowest in almost six years has faltered amid speculation that a global supply surplus may worsen. U.S. production and stockpiles continue to rise from the highest level in three decades, even after last year’s price slump of almost 50 percent. The Organization of Petroleum Exporting Countries has pumped more than its daily production target of 30 million barrels for nine months.
A February rally in the price of oil has been followed by two weeks of declines. West Texas Intermediate, the U.S. benchmark, fell as low as $42.85 a barrel Monday on the New York Mercantile Exchange, the lowest since March 2009.
New Refineries
Saudi Arabia, Kuwait, the U.A.E., Qatar, Bahrain and Oman will raise their combined refining capacity to 5.4 million barrels a day this year, an increase of 17 percent from 2014, according to Vienna-based JBC Energy GmbH. They will be able to process 6 million a day by 2020, the consultant estimates.
Saudi Arabia plans to start the main unit for making gasoline at the new 400,000 barrel-a day refinery at Yanbu on the Red Sea by the middle of the year. Another plant with the same capacity is scheduled to begin operation in 2017 at Jazan. The kingdom’s oil-product exports rose 44 percent last year following the start of the Jubail refinery, according to the Riyadh-based Joint Organisations Data Initiative.
In the U.A.E., the Abu Dhabi National Oil Co. is more than doubling the capacity of the 400,000 barrel-a-day Ruwais refinery. The International Petroleum Investment Company, a fund that focuses on energy, is also considering opening a 200,000 barrel-a-day refinery in the emirate of Fujairah.
Kuwait is planning the 4 billion-dinar ($13 billion) Al-Zour refinery that could open in 2020 with a capacity of 615,000 barrels a day. Oman will award a contract next year to build a 230,000 barrel-a-day plant to start production by the end of 2019.
Increase Exports
“Clearly the game plan is to increase product exports, to try to capture the extra margin,” Mike Wittner, head of oil research at Societe Generale, said of Saudi Arabia’s plans by e-mail March 11. “If they want to increase crude exports, they would need to increase crude production even further. Either way, those would be bearish headlines.”
Since 2010, Saudi Arabia, Kuwait and the U.A.E have increased their combined crude-oil output by about 3 million barrels a day, according to OPEC data. The group estimates that it pumped 30.022 million barrels a day last month, 1.9 million more than the forecast for global demand for its crude in the second quarter.
The effect on the global crude market of any additional production from these countries would be limited if the oil is processed locally before being exported, according to BNP Paribas SA. It would have a more pronounced impact on the prices of refined fuels and profits of European and Asian refiners, the bank said.
Product Markets
“You’ll have an upward drift in production in countries like Saudi Arabia,” Harry Tchilinguirian, the bank’s head of commodity-markets strategy, said by phone from London March 11. “But it doesn’t necessarily mean more crude will be delivered to the international market.”
Saudi Arabia increased crude production to 9.85 million barrels a day last month, the highest since September 2013, according to data compiled by Bloomberg. The country does not want to cede its share of the market and will continue to supply enough to meet its customers’ demands, Oil Minister Ali al-Naimi said in a speech in Berlin on March 4.
“There’s a genuine possibility of the Saudis keeping production high,” Miswin Mahesh, an analyst at Barclays Plc in London, said by phone March 11. “They will definitely have a rethink in terms of how much they’re keeping below the ground.”
Oil Trades Near 6-Year Low as U.S. Supplies Seen Worsening Glut
by Ben Sharples
(Bloomberg) -- Oil traded near the lowest price since March 2009 before U.S. government data forecast to show that crude stockpiles in the world’s biggest consumer expanded further from a record high.
Futures were little changed in New York after falling 2.1 percent on Monday. Crude inventories probably gained by 3.3 million barrels to 452.2 million last week, according to a Bloomberg News survey before an Energy Information Administration report. Prices may drop to $40 a barrel if they fail to stabilize at current levels, said Stephen Schork, who’s worked in commodities trading for more than 25 years.
Rising U.S. supplies are exacerbating a global glut that drove prices almost 50 percent lower last year. Iran could increase exports by 1 million barrels a day if international sanctions were lifted, its oil minister said as talks resumed over its nuclear program. The nation is the fifth-largest producer in the Organization of Petroleum Exporting Countries.
“There’s an issue with supply,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone. “We’re right on the lower end of the trading range. If it holds, it may break back through $45.”
West Texas Intermediate for April delivery was at $43.94 a barrel in electronic trading on the New York Mercantile Exchange, up 6 cents, at 11:19 a.m. Sydney time. The contract slid 96 cents to $43.88 on Monday. The volume of all futures traded was about 66 percent below the 100-day average. Prices have decreased 18 percent this year.
Crude Stockpiles
Brent for May settlement was 33 cents higher at $54.27 a barrel on the London-based ICE Futures Europe exchange. The April contract expired on Monday after losing $1.23 to $53.44. The European benchmark crude traded at a premium of $8.12 to WTI for the same month.
U.S. crude inventories have climbed for nine weeks through March 6 to 448.9 million barrels, the most in weekly EIA records dating back to August 1982. Production accelerated to 9.37 million a day, the fastest pace since at least January 1983, according to the Energy Department’s statistical arm.
OPEC, which supplies about 40 percent of the world’s crude, pumped 30.022 million barrels a day last month, about 138,000 a day less than in January, the 12-member group said in its monthly report on Monday. Output shrank to the lowest level since June as bad weather disrupted supplies.
In Iran, the government is negotiating an agreement with world powers to end a decade-long dispute over its nuclear program. Diplomats from the U.S. and Iran, working toward an end-March deadline, resumed talks Monday in Lausanne, Switzerland. The Persian Gulf nation produced 2.78 million barrels a day of oil last month, data compiled by Bloomberg show.
Iran Can Add Million Barrels a Day of Oil Should Sanctions Halt
(Bloomberg) -- Iran could raise oil exports by 1 million barrels a day without international sanctions, its oil minister said, as talks resumed with the U.S. over the nation’s nuclear program.
“If sanctions are lifted, we can raise our exports by one million barrels per day within a few months,” Oil Minister Bijan Namdar Zanganeh said Monday in Assaluyeh, Iran. The Persian Gulf nation shipped 1.2 million barrels a day last month, the International Energy Agency said in a March 13 report.
Iran and world powers are negotiating an agreement to end a decade-long dispute over the Persian Gulf country’s nuclear program. Diplomats from the U.S. and Iran, working toward an end-March deadline, resumed talks Monday in Lausanne, Switzerland.
“If we get an announcement of a framework deal within the next couple of weeks, obviously from a market psychology, we’re going to have a bearish knee-jerk reaction,” Mike Wittner, the head of oil market research in New York for Societe Generale SA, said by phone. It’s unclear when sanctions might end and it would take six months to a year for Iran to add a million barrels a day, he said.
Brent crude, the global benchmark, plunged by 61 percent in the seven months through mid-January because of concern about oversupply. Brent futures dropped to $52.50 by 6:32 p.m in London on Monday on the ICE Futures Europe exchange, the lowest since Feb. 2. WTI slumped to $42.85 in New York, a six-year low.
“It may be that Iran simply can’t say yes to the kind of deal that the international community is looking for,” U.S. Secretary of State John Kerry said at the weekend.
Iran is the fifth-largest producer in OPEC, pumping 2.78 million barrels a day in February, according to data compiled by Bloomberg.
Canada Crude Falls Below $30; BMO Seeks Oil Sands Cost Cuts
(Bloomberg) -- Canadian heavy oil prices fell below $30 for the first time in more than six years as Bank of Montreal warned that oil sands producers must cut costs.
Western Canadian Select fell 59 cents to $29.85 at 12:28 p.m. Mountain time, the lowest since Feb. 18, 2009, according to data compiled by Bloomberg. The grade’s discount to U.S. benchmark West Texas Intermediate narrowed 80 cents to $13.60 a barrel. Crude futures settled at a six-year low of $43.88 in New York on concern record supply may strain storage capacity.
The cash costs of oil sands producers must shrink to remain competitive in the “new normal of lower oil prices for longer,” BMO analyst Randy Ollenberger said in a note today. The majority of Canada’s crude comes from oil sands in Northern Alberta and is among the most expensive to produce. Companies including Royal Dutch Shell Plc and Cenovus Energy Inc. have cut costs and suspended projects as prices plunged.
“You will see companies do another round of budget cuts if oil settles in the low 40s,” Ollenberger said.
Crude from oil sands is produced from bitumen, which must be dug or pumped out of the ground after it’s melted by steam. The bitumen is upgraded to lighter synthetic crude or is diluted with condensate and shipped by pipeline or rail car thousands of miles to refineries, most in the U.S.
Shell withdrew an application to develop the Pierre River mining project to focus on existing ones, Shell Canada President Lorraine Mitchelmore said in a statement last month. Cenovus suspended construction on Christina Lake Phase G with work to resume when market conditions improve, Chief Operating Officer John Brannan also said last month. Both companies, along with Suncor Energy Inc., have also cut staff to reduce costs.
Cost Savings
Major sources of costs savings that may have been overlooked include lower royalty rates and reduced blending costs, Ollenberger said in his note today. Per-barrel costs can be cut with increased production through existing facilities, he said.
Canadian Oil Sands Ltd., among the largest five producers, needs a WTI price of about $50 a barrel to sustain business with no production declines, Chief Financial Officer Robert Dawson said March 11. Smaller companies are facing financial troubles. Southern Pacific Resource Corp. has defaulted on debt and Connacher Oil and Gas Ltd. says it’s in danger of not being able to pay creditors.
Canada’s oil sands production will grow 8.3 percent this year, the country’s National Energy Board said Feb. 10. Projects to extract bitumen require billions of dollars of up-front investment.
Most producers will continue producing from existing operations and complete projects under construction, Jackie Forrest, vice president of Calgary-based ARC Financial Corp., said in a Jan. 29 e-mail.
WTI crude would have to stay between $30 and $35 a barrel for at least six months before wells and mines are shut, Dinara Millington, a vice president at Canadian Energy Research Institute, said Feb. 19.
Exxon CEO Said to Visit Moscow Amid Talk of More Sanctions
(Bloomberg) -- Exxon Mobil Corp. leader Rex Tillerson is visiting Moscow this week for meetings with Russian oil producer OAO Rosneft and government officials amid talk of further sactions, according to people familiar with the matter.
The chief executive officer, who increased Exxon’s drilling rights in Russia fivefold last year, has preliminary plans to meet with officials on Wednesday, said two of the people who asked not to be identified because details of the visit are confidential. Exxon declined to comment, saying the travel plans of its executives aren’t public.
The trip comes even as the U.S. and Europe consider further sanctions on Russian companies and individuals over the annexation of Crimea one year ago. Exxon snapped up millions of acres in Russia last year, including in the Arctic, where its venture with Rosneft hit oil with the first well drilled. Exxon, BP Plc and Royal Dutch Shell Plc all continue to walk a fine line between the West’s political tensions with Russia and that nation’s long-term potential for oil and natural gas production.
Ventures with Rosneft to tap the Arctic offshore and Russian shale were halted by sanctions last year. Exxon said last month that sanctions may cost it as much as $1 billion. State-owned Rosneft declined to comment on Tillerson’s visit.
Other Partners
BP has a 20 percent shareholding in Rosneft, while Shell, Europe’s largest producer, is a partner in the Sakhalin gas-export project.
Last year, Christophe de Margerie, then head of France’s Total SA, was killed when his jet crashed while taking off from a Moscow airport. The company is investing in a liquefied natural gas plant in northern Russia.
As well as their exploration projects, Rosneft and Exxon have a project producing oil from the ice-choked Sea of Okhotsk off the coast of Sakhalin in Russia’s Far East.
Exxon boosted its Russian holdings to 63.7 million acres in 2014 from 11.4 million at the end of 2013, according to data from U.S. regulatory filings. Last year’s additions were the culmination of preliminary agreements signed with Rosneft in 2011 and 2013. Exxon’s Russian position now dwarfs the 14.6 million acres of rights it holds in the U.S., until last year its largest exploration prospect.
Tillerson helped establish the company’s presence in the country as a production vice president in the early 1990s. He met Russian President Vladimir Putin for the first time in 1999 when the politician’s flight to Japan made a stopover at Sakhalin.
The visit would coincide with the March 18 anniversary of Russia’s annexation of Crimea, which started the political crisis with the U.S. and Europe. Planning for meetings with government officials Wednesday may be influenced by events marking the anniversary, one official said.
German Chancellor Angela Merkel said Monday that the European Union would consider imposing further sanctions this week if there’s a major violation of the cease-fire in eastern Ukraine.
Algeria Seeks Global Oil Producers’ Accord to Halt Price Decline
(Bloomberg) -- Algeria is seeking to coordinate a global response from oil-producing nations to tumbling prices, Algeria Press Service reported, citing Energy Minister Youcef Yousfi. Crude fell to a six-year low in New York on Monday.
“The drastic fall in oil prices has had an extremely negative impact on the economies of all exporting countries, whether OPEC or not members of the Organization of Petroleum Exporting Countries,” Yousfi said after a meeting in Algiers with Angolan Oil Minister Jose Maria Botelho de Vasconcelos. Nigeria’s ambassador to Algiers also attended the discussions.
U.S. oil futures slumped to the lowest level since March 2009 on speculation that record supply may start to strain the country’s storage capacity. West Texas Intermediate for April delivery dropped as low as $42.85 a barrel by 2:36 p.m. in New York Monday on the New York Mercantile Exchange. Brent for April settlement fell $1.84, or 3.4 percent, to $52.83 a barrel on London’s ICE Futures Europe exchange.
The meeting in Algiers was part of an initiative by Abdelaziz Bouteflika, the North African country’s president, to increase dialogue between oil exporters, members and non-members of OPEC, and to restore balance to the oil market, APS reported. Nigeria and Angola are OPEC members.
So Important
As part of Bouteflika’s initiative, messages have been sent since last month to Saudi Arabia, Oman, Azerbaijan, Kazakhstan, Mexico, Russia, Colombia, Nigeria, Gabon, Angola, Congo and Equatorial Guinea, APS said. Bouteflika earlier Monday discussed the oil price decline with Borge Brende, the foreign minister of non-OPEC producer Norway, APS said.
“The impact of the oil price decline is so important, especially for African countries, that it is necessary that we all remain together to share our experience and come up with strategies that would allow us to find a solution,” Nigerian Ambassador Haruna Ginsau said, according to APS. Angola’s de Vasconcelos said he “exchanged viewpoints and thinking on the international oil market situation.”
Crude dropped 61 percent from June to January after OPEC, the supplier of 40 percent of the world’s oil, signaled in November it would leave U.S. shale producers and other suppliers to bear the brunt of the glut. Saudi Arabia, OPEC’s largest producer, led the 12-member organization to keep its target production unchanged at 30 million barrels a day.
Iran could raise oil exports by 1 million barrels a day within a few months should international sanctions imposed on the OPEC member be lifted, Oil Minister Bijan Namdar Zanganeh told reporters Monday as talks resumed in Lausanne, Switzerland, on the nation’s nuclear program.
U.S. Secretary of State John Kerry told reporters at the weekend that “important gaps” remained going into the Lausanne talks with Iranian Foreign Minister Mohammad Javad Zarif, and that the U.S. is ready to walk away if the two countries can’t reach a satisfactory deal before the end-of-March deadline.
Oil Price Seen by Schork at $40 a Barrel Unless Price Stabilizes
(Bloomberg) -- U.S. oil prices are at risk of sliding to $40 a barrel or lower if they fail to stabilize at current levels, according to Stephen Schork, a consultant who’s worked in commodities trading for more than 25 years.
“If the market doesn’t find support here, it clears a path to $40 and below,” the president of Schork Group Inc. said in an interview with Bloomberg Radio broadcast on Monday. “The bottom line is we have too much supply, not enough demand.”
West Texas Intermediate, the U.S. benchmark, slumped to a six-year low of $43.57 a barrel amid speculation that the country’s supplies may strain available storage. Breaking through the previous low reached in late January shows there’s little to prevent crude from plunging further, said Schork, whose company is based in Villanova, Pennsylvania.
The oversupply, coupled with strength in the U.S. dollar, mean prices are headed lower, said Schork, whose clients include speculators and oil consumers.
OPEC Pumps Least Oil Since June as Weather Cuts Iraq Export
(Bloomberg) -- OPEC said its production declined to the lowest level since June as bad weather disrupted supplies in Iraq and output weakened in Libya and Nigeria.
The Organization of Petroleum Exporting Countries pumped 30.022 million barrels a day last month, about 138,000 a day less than January, according to the 12-nation group’s monthly market report. It didn’t change forecasts for global oil demand and the amount of crude it will need to produce this year. Low prices may start to crimp U.S. shale output toward the end of the year, it said.
Exports from Iraq, OPEC’s second-biggest member, was curbed by bad weather at the country’s southern ports, while Libya’s output has been disrupted amid political feuding between the government and its Islamist rivals. Oil slipped to a six-year low in New York on Monday on signs that U.S. production is withstanding the price rout.
“Crude oil output decreased mostly from Iraq, Nigeria and Libya, while production showed increases in Saudi Arabia and Kuwait,” the organization’s Vienna-based research department said.
The supply losses leave OPEC’s output in line with its target of 30 million daily barrels, first agreed in 2011 and upheld at a meeting in November. Production is about 1.9 million barrels a day higher than the 28.1 million the group estimates will be needed from it during the second quarter.
Iraq Losses
Iraq’s production declined by 78,400 barrels a day to 3.32 million a day, according to data compiled by OPEC from media and other institutions. Bad weather caused delays at southern ports in February, affecting some of the nation’s crude supplies, the International Energy Agency said Feb. 10.
Nigerian output slipped by 64,000 barrels a day to 1.896 million a day, while Libya’s dropped by 35,000 to 311,000 a day.
Saudi Arabia, the group’s biggest member, boosted production by 37,000 barrels a day to 9.68 million. Iran and Kuwait were the only other members whose output increased.
OPEC’s 12 members will next meet to review their production target on June 5 in Vienna.
The slump in prices, which has prompted U.S. drillers to cut back on the number of rigs in operation, may start to take its toll on shale-oil production in the second half of the year, according to the report. Rigs targeting oil in the U.S. fell by 56 to 866, Baker Hughes Inc. said on its website Friday, the lowest level since March 25, 2011
“As drilling subsides due to high costs and a potentially sustained low oil price, a drop in production can be expected to follow, possibly by late 2015,” OPEC said.
The group forecast that global oil demand will increase by 1.17 million barrels a day, or 1.3 percent, to an average of 92.37 million a day this year. The projection is unchanged from last month.
The organization increased estimates for non-OPEC supply in 2015 by 80,000 barrels a day. Non-OPEC producers led by the U.S., Canada and Brazil will boost output by 850,000 barrels a day to an average of 57.16 million a day. OPEC kept its forecast of U.S. oil production little changed at 13.65 million barrels a day.
Saudi Oil Adviser Says Strengthening Demand Will Lift Prices
(Bloomberg) -- Global crude consumption is strengthening, and prices will stiffen as demand matches supply, a senior adviser to Saudi Arabia’s oil minister said.
Prices have stopped falling at about $60 a barrel as expanding demand helps contain the global glut, Ibrahim Al-Muhanna said at a conference in Doha, Qatar. It’s too early to say if the Organization of Petroleum Exporting Countries, which kept output unchanged in November, will alter policy when it gathers again on June 5, he said.
“I am confident that demand is and will be stronger,” said Al-Muhanna, adviser to Saudi Oil Minister Ali Al-Naimi. “Supply will remain healthy, and the price will firm up.”
OPEC’s refusal to cut production amid the surge in U.S. shale output fed a surplus that contributed to a drop of almost half in prices last year. Cheaper crude benefits energy importers and is easing inflation expectations worldwide, even as it leaves Persian Gulf producers such as Saudi Arabia with less revenue to disburse among fast-growing populations. China, India and Vietnam are taking advantage of lower prices to boost strategic reserves and refinery stockpiles, according to the International Energy Agency.
Crude dropped 61 percent from June to January after OPEC signaled it would leave shale producers and other suppliers to bear the brunt of the glut. OPEC pumps about 40 percent of the world’s oil, and Saudi Arabia is its biggest producer.
Greenspan’s View
Brent crude, a benchmark for more than half of the world’s oil, fell 46 cents to $54.21 a barrel on the London-based ICE Futures Europe exchange at 8:05 a.m. local time. U.S. crude inventories may start to stretch the country’s storage capacity, the IEA said in a report on Friday. Prices haven’t hit bottom yet as U.S. supply will continue rising, former Federal Reserve Chairman Alan Greenspan said.
“Europe may be an exception, but the overall global picture remains positive,” Al-Muhanna said. “Day after day, thousands of people enter the middle class and will further increase demand for energy.”
Oil gained 8 percent in London in the past two months as U.S. drillers idled rigs in response to the biggest plunge in prices since 2008. Low oil prices hurt all producers, including his country and Russia, Al-Muhanna said. “Saudi Arabia has never been in a price war with anybody.
Oil markets should be in balance by the third quarter, when demand may even exceed supply, Paul Horsnell, the global head of commodities research at Standard Chartered Plc, said at the Doha conference. U.S. shale production can’t increase at current prices, and Horsnell sees reason to be optimistic about supply, he said.
Growth in U.S. output, currently rising by 1.2 million barrels day, will slow by the end of this year to 500,000-700,000 barrels a day, Ed Morse, Citigroup Inc.’s head of commodities research, said at the conference. The slower rate of increase in U.S. production could last for a decade, Morse said.
S Korea's February Iran crude imports down 50pc
SEOUL, 10 hours, 52 minutes ago
South Korea's imports of Iranian crude oil dropped 50 per cent in February from a year earlier, and the country's oil shipments from the Opec country in the first two months of this year met international sanction requirements.
Seoul imported 557,174 tonnes of crude oil from Tehran last month, or 145,860 barrels per day (bpd), compared with 1.1 million tonnes a year ago, preliminary customs data from the world's fifth-largest crude oil importer showed.
The world's fifth-largest crude importer brought 830,800 tonnes or 103,216 bpd of crude from the Middle Eastern country in the first two months of this year, below last year's average at 125,000 (bpd).
Iranian crude shipments in 2014 were 6.2 million tonnes, or 124,497 bpd, down 7.1 per cent from the 2013 average of 134,000 bpd, according to the data and Reuters calculations in January.
Major world powers have begun talks about a United Nations Security Council resolution to lift UN sanctions on Iran if a nuclear agreement is struck with Tehran, a step that could make it harder for the US Congress to undo a deal, Western officials said.
Under current sanctions, big Asian buyers, including South Korea, should hold their crude imports from Tehran at end-2013 levels.
Iran said earlier this month that it would increase crude exports if Western sanctions over its nuclear programme were lifted, according to the semi-official Mehr news agency.
Of South Korea's four refiners, only SK Energy Co and Hyundai Oilbank Co import Iranian oil and their imports fluctuate each month.
Overall, South Korea imported 10.74 million tonnes of crude last month, or 2.54 million bpd. The total was 7.7 per cent higher than the 9.98 million tonnes imported in February of 2014, the customs data showed.
Final data for last month's crude oil imports will be released by state-run Korea National Oil Corp later this month.--Reuters
Opec says low oil prices may hit US output by late 2015
LONDON, 11 hours, 1 minutes ago
US oil output could start to take a hit by late 2015, the Organization of the Petroleum Exporting Countries (Opec) said, suggesting the exporter group will have to wait beyond its next meeting in June to see if the oil price collapse is beginning to dent the shale oil boom.
The halving of oil prices since June 2014 has prompted spending cuts by oil companies and a drop in US drilling, raising expectations of slowing output in countries outside the Opec.
But in a monthly report, Opec left its forecast for non-Opec supply this year unchanged and said output of US "tight" oil, also known as shale, might only start to be curbed towards the end of the year.
"Tight crude producers are aware that typical oil wells in shale plays decline 60 per cent annually, and that losses can only be recouped by drilling new wells," Opec said.
"As drilling subsides due to high costs and a potentially sustained low oil price, a drop in production can be expected to follow, possibly by late 2015."
Oil's collapse in 2014 gained impetus after Opec refused to cut output at a November meeting, seeking to slow higher-cost production in the United States and elsewhere that had been eroding its market share.
Opec holds its next meeting in June and comments from Opec officials so far suggest it will not adjust its output policy at the meeting as it waits for the strategy to take effect.
For now, Opec forecast no further rise in demand for its crude in 2015, trimming the forecast slightly to 29.19 million bpd, and left unchanged its estimate of global growth in oil demand this year.
In last month's report, Opec had sharply increased the 2015 forecast of demand for its oil due to a lower outlook for non-Opec supply.
Iran to boost its oil derivatives exports
DUBAI, 1 days ago
Iran's oil minister said the Opec members plan to raise its oil derivatives exports over the coming 12 months, the semi-official Fars news reported.
"We are planning to export 20 million tonnes of oil derivatives in the new Iranian year,” Bijan Zanganeh was quoted as saying.
Fars said that was a "considerable increase" but did not give further detail.
The next Iranian year starts on March 21, 2015.
"The export of oil derivatives plays an important role in the implementation of the oil industry projects... Oil projects are financed this way," Zanganeh added.
Iran has earned $1.35 billion for selling more than 3 million tonnes of fuel oil in the 10 months to Jan. 21, up 30 percent in revenue from the same period of last year.
Tehran also earned $963 million in gasoil revenue during the same period, a 30 percent increase from last year, and sold 107,000 tonnes of heating oil, an oil official said in February.
Tehran is in talks with world powers about its nuclear programme, seeking a deal to lift the sanctions that have halved its oil exports and hammered its economy.
US and EU sanctions that came into force in 2012 prohibit the import, purchase and transport of Iranian petroleum products to put pressure on Tehran to halt its disputed nuclear programme. Washington has also pressed its allies around the world to clamp down on the shipping of Iranian oil products.
But Iran is sidestepping the sanctions and managing to sell hundreds of thousands of tonnes of fuel oil and gasoil every month through companies based in the US-allied UAE, trading sources have told Reuters.
Tehran has used innovative methods to circumvent the restrictions, including ship-to-ship transfers, discharging and loading at remote ports, blending Iranian products with fuels from another source to alter the shipment's physical specification, the sources have said.--Reuters
Iran yet to receive $7.8bn for oil sales
DUBAI, 1 days ago
Iran has yet to receive $7.8 billion for crude oil sales made in recent months, government spokesman Mohammad Baqer Nobakht was quoted as saying, as Western sanctions keep Tehran shut out of the global banking system.
Iran's state-run Press TV said Nobakht gave no reason for payment delays, but reported that Tehran's oil customers were mainly China, India, Japan, South Korea and Turkey and that "US and European sanctions are preventing international banks from transferring money to the Islamic Republic."
Sanctions imposed by the West over Iran's nuclear programme have made it hard to obtain the US dollars Tehran needs for international transactions.
Iran says the sanctions are illegal and has vowed to sidestep them.
Tehran is in talks with world powers about its nuclear programme, seeking a deal to lift the sanctions that have halved its oil exports and hammered its economy.
Nobakht said oil revenue in the past 12 months had totalled $52.8 billion, Press TV reported. --Reuters
Oil prices will firm up: Saudi adviser
DOHA, 1 days ago
Oil prices have started to stabilise around $60 a barrel in past weeks and will continue to firm up, while crude demand will grow stronger, an adviser to Saudi Arabia's oil minister said.
The comments by Saudi oil adviser Ibrahim Al-Muhanna suggested that the top oil exporter sees no need to reverse its policy of allowing the market to correct itself without cutting output, despite the steep price drop since June last year.
Kuwait's Opec governor said last week that Opec was likely to extend its current production policy at the June meeting, in the first public comment on what will be a crucial decision determining the direction of global oil prices in the second half of this year.
It is still too early to say if Opec will keep its output ceiling unchanged when the group meets in June, Muhanna said, but he added that he was optimistic about crude oil demand growth and expected future supply to stay "healthy".
"None of us know the future. Once the conspiracy theories lost their traction, serious commentators went back to fundamentals and the price started to stabilise around the $60 mark seen in the last few weeks," he said at an energy conference in Doha.
"With this in mind, I have reason to be optimistic. I'm confident that demand will be stronger. Supply will remain healthy and prices will firm."
The recent drop in oil prices was due to expectations and speculation, not market fundamentals, Muhanna said, adding that Saudi Arabia remained committed to a stable oil market and stable oil prices.
Saudi Arabia was the driving force behind Opec's recent shift in policy at its last meeting in November, when the group chose not to cut output and instead to fight for market share.
Since then there has been some grumbling - and sometimes public criticism - among both Opec members and other producers outside the group that the November decision might not have been correct.
Global oil prices rebounded earlier this year, pushing Brent crude back above $60 a barrel for the first time since December, which may have led the Saudis to feel vindicated. However, Brent settled near a one-month low below $55 on Friday, after sliding 9 per cent on the week.
Muhanna said that before the November Opec meeting, Saudi Arabia met with Russia, Mexico and Venezula to discuss a joint production cut, but "none of the producers were prepared to cut".
Opec has said it believes global oversupply amounting to as much as 1.5 million barrels per day will evaporate as oil demand picks up and US oil production growth slows as companies drill fewer wells.
However, should US oil producers prove more resilient than Opec thinks, global oil oversupply could persist and become even larger if Western powers and Tehran reach a nuclear deal this year that lets Iran increase its oil exports. - Reuters
Iranian oil production near recent record
Published: March 16, 2015 at 9:23 AM
Daniel J. Graeber
VIENNA, March 16 (UPI) --VIENNA, March 16 (UPI) -- As nuclear negotiations enter the home stretch, the Organization of Petroleum Exporting Countries said Iran's oil production is close to a historic high.
Iranian oil production of 2.78 million barrels per day in February was higher than January's by a fraction of a percent and close to the recent record established in December, OPEC said in its monthly market report for March. Iranian oil production for full-year 2013, the year in which the current round of multilateral negotiations began, was 2.6 million bpd.
OPEC in a readout of the Iranian economy said gross domestic product during third quarter 2014 grew by 4.6 percent, accelerating from the 2.2 percent decline in the first quarter and the 3.8 percent recovery for the second quarter.
Since March 2014, the start of the Iranian calendar year, the Iranian economy added nearly 400,000 new jobs, OPEC said in its report.
Iran under the terms of a November 2013 agreement is allowed some oil exports in exchange for commitments to curb some of its nuclear research activity.
Sanctions against Iran may be revised if there's a breakthrough during the current round of talks. Iranian negotiator Ali Akbar Salehi said Monday he was "very optimistic" about the progress so far.
U.S. Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen testified before members of the Senate Banking Committee on the effectiveness of existing sanctions in January, saying Iran is exporting less than half of the oil it was in 2012 and only to six countries.
The budget for the current Iranian year, which ends later this week, relies on oil for 39.3 percent of government revenues. Drafts for next year call for a 6 percent decline in oil dependency.
Iranian Oil Minister Bijan Zangeneh said Monday he was confident the oil and natural gas sector would experience a period of prosperity in the coming calendar year.
© 2015 United Press International, Inc. All Rights Reserved.
China's Jan-Feb apparent oil demand rises 3% on year to 10.43 mil b/d: Platts estimates
Singapore (Platts)--16Mar2015/159 am EDT/559 GMT
China's apparent oil demand rose 2.6% over the first two months of this year to 83.92 million mt or an average 10.43 million b/d, Platts estimates showed Monday, March 16, based on recently released government data.
This is the highest rate of growth over the period since the 5.7% recorded in 2012.
Last year, there was a 0.6% year-on-year contraction in China's apparent oil demand over January to February.
China does not release official data on oil demand, or commercial and strategic oil inventories.
Production data for January and February is typically combined and released in March by the National Bureau of Statistics to even out distortions that might occur because of the Lunar New Year holidays, which were over February 18-February 24 this year.
The increase in apparent oil demand in the first two months was mainly driven by higher refinery throughput, which climbed 3.5% year on year to 82.64 million mt, or an average 10.27 million b/d, over January and February, according to preliminary data from the NBS on March 11.
WEAK ECONOMIC DATA
This was despite economic data over the first two months surprising to the downside, largely because of a stagnant manufacturing sector.
Industrial production expansion eased to a six-year low of 6.8% while fixed asset investment grew at an average 13.8%, down from 15% in December, according to the NBS.
"Manufacturing weakness is nothing new, but the current round of slowdown is the result of very difficult operating as well as financial conditions in 2014. And it is not only sectors with overcapacity which are seeing problems. Sectors such as equipment, automobile and infrastructure-related engineering also registered weaker performance," HSBC Research noted last week.
Breaking down the individual months, apparent oil demand in February was higher than in January, in line with historical trends.
FEB OIL DEMAND IS SECOND HIGHEST ON RECORD
However, demand last month contracted 1% year on year to 40.7 million mt or an average 10.66 million b/d, although this was the second-highest monthly volume to date.
Following government revisions to year-ago data, China's apparent oil demand in February 2014 has been adjusted to an average 10.76 million b/d -- a record high, while demand in December 2014, at 10.64 million b/d, is now the third-highest level to date.
Apparent demand last month was up 4.3% from January's average of 10.22 million b/d, with refinery throughput on a daily basis rising 2.4% month on month.
Oil demand growth in January, however, was 6.3% higher than the same month last year, on the back of a 9.7% expansion in refinery runs over the same period.
"Relatively strong December demand gains were offset by estimates of softness returning in January, emphasizing the apparent volatility that is contained in the monthly data, an occurrence heightened ahead of the Lunar New Year celebrations," the International Energy Agency said Friday in its latest Oil Market Report.
The agency is forecasting China's oil demand this year to reach 10.7 million b/d, up from 10.4 million b/d in 2014, translating to a 2.9% growth.
US oil rig count falls while production climbs
New York (Platts)--13Mar2015/544 pm EDT/2144 GMT
The US land oil fields continued to shed rigs this week while production kept climbing.
The land oil rig count fell by 56 to 866, Baker Hughes said in its weekly report.
Analysts expect the rig count to keep falling until at least the second quarter unless oil prices recover sufficiently enough to encourage more drilling before then.
In the big three onshore basins -- the Permian, Eagle Ford and Williston -- rig counts fell 23 to 305 for the week ending Friday, two to 127 and four to 104, the Baker Hughes data showed.
Every Monday, Capitol Hill newshounds Herman Wang and Brian Scheid analyze, dissect and debate the key US oil policy issues affecting the industry.
We're going to need a bigger boat: climbing crude production, stagnant demand, politics and more prove that trouble can come from anywhere in the world of oil prices. Brian and Herman wade into the waters to find out what sort of clues would let markets know that oil prices are about to tank.
There was also a sizable 19-rig decrease to 186 in what Baker Hughes calls the "Other" category, which is defined as "basins that are much smaller in size and geographies that do not fall within a specific basin."
PRODUCTION INCREASING, NOT CORRELATED TO RIGS
Production keeps climbing, despite the decrease in rigs. The US Energy Information Administration reported earlier this week that output rose an average 42,000 barrels a day to average 9.366 million b/d for the week that ended March 6.
Also, in the agency's monthly Short-Term Energy Outlook released earlier this week, 2015 production is expected to climb an average 700,000 b/d over 2014 totals to 9.35 million b/d.
While the rig count can provide a picture of upcoming production trends, there's no one-to-one connection between rigs and production volumes.
One reason is because producers are drilling more wells with fewer rigs. For instance, the average time to drill a well in the Anadarko, Permian and Williston basins fell throughout 2014, according to Bentek Energy, a unit of Platts.
In the Anadarko Basin, the average drill time sped up three days to 26. The Permian Basin average fell to 22 from 29 and, in the Williston Basin, the average time to drill a well fell to 13 days at the end of 2014 from 18.
There also is a backlog of uncompleted wells, which gives a false picture that, while rigs may be employed, producers may hold off on completing wells until prices or costs recover to a point that makes completion more profitable.
In North Dakota, home of the prolific Bakken Formation in the Williston Basin, there was a backlog of 825 uncompleted wells at the end of January, the state's Department of Mineral Resources said Thursday. This was up 75 wells from December. Uncompleted wells can be brought to production within 30-60 days, and has become a form of storage for producers.
Even though North Dakota's January oil production fell 37,000 b/d to 1.190 million b/d from December, there was plenty of production set to come online when producers see an opportunity.
And whenever those wells eventually come onstream, their production would not be connected to that week's rig count.
European fuel oil cracks at month-high on weaker crude, stronger fuel oil
London (Platts)--16Mar2015/831 am EDT/1231 GMT
The Northwest European fuel oil crack rallied to a month-high as Brent retreated below $55/b Friday while 3.5% FOB Rotterdam barges strengthened over the course of last week.
The 3.5% FOB Rotterdam barge crack was assessed at minus $10.11/b Friday and was last higher on February 12 at minus $6.64/b.
Meanwhile, Dated Brent dropped to $54.40/b Friday -- the lowest since February 11 when it was at $54/b -- while HSFO barges were at $281.25/mt.
The strength of fuel oil cracks was driven by a firming 3.5% FOB Rotterdam barge market due to expensive blending, while opportunities arose for fresh fixtures on cheaper freight from Rotterdam into Singapore.
According to traders, there was an abundance of straight run and M-100 stocks in the Amsterdam-Rotterdam-Antwerp region, but blending margins were not in favor of RMG finished grade due to expensive cutterstocks.
"Blending is extremely expensive," a source said.
Additionally, lower VLCC freight attracted strong buying interest for arbitrages, with sources reporting fresh VLCC and Suezmax fixtures for late March/early April.
As a result of strong product cracks, European refining capacity has remained high in recent months, leading to increased output of straight run and cracked fuel oil, traders said.
Prompt NYMEX crude sets six-year low on US inventories, Iran
New York (Platts)--16Mar2015/426 pm EDT/2026 GMT
NYMEX crude futures closed down 96 cents at $43.88/b Monday, the lowest front-month settle since March 2009, as concerns over rising US stockpiles and the potential for more exports from Iran dragged prices lower across the oil complex.
ICE April Brent settled $1.23 lower at $53.44/b. The April contract expired at the end of the trading session.
NYMEX refined product futures for April delivery were weaker. ULSD closed down 1.44 cents at $1.6986/gal, while RBOB settled 3.37 cents lower at $1.7286/gal.
Motiva, a joint venture of Shell and Saudi Aramco, began the start-up of a fluid catalytic cracker Sunday at its 600,000 b/d refinery at Port Arthur, Texas, the country's largest. The gasoline-making FCC will mean additional supply, putting downward pressure on prices.
Prompt NYMEX crude sets six-year low on US inventories, Iran
New York (Platts)--16Mar2015/426 pm EDT/2026 GMT
NYMEX crude futures closed down 96 cents at $43.88/b Monday, the lowest front-month settle since March 2009, as concerns over rising US stockpiles and the potential for more exports from Iran dragged prices lower across the oil complex.
ICE April Brent settled $1.23 lower at $53.44/b. The April contract expired at the end of the trading session.
NYMEX refined product futures for April delivery were weaker. ULSD closed down 1.44 cents at $1.6986/gal, while RBOB settled 3.37 cents lower at $1.7286/gal.
Motiva, a joint venture of Shell and Saudi Aramco, began the start-up of a fluid catalytic cracker Sunday at its 600,000 b/d refinery at Port Arthur, Texas, the country's largest. The gasoline-making FCC will mean additional supply, putting downward pressure on prices.
NYMEX April crude eclipsed the previous six-year low set January 28 when the prompt contract settled at $44.45/b.
Monday's settle extends a downward path after the futures contract closed last Friday down 10% week-on-week.
That said, NYMEX settled $1.03 above its intraday low of $42.85/b.
"The fact WTI managed to recover off its lows suggests the market's not in total collapse," said Jim Ritterbusch, president of Ritterbusch & Associates.
Cushing, Oklahoma -- delivery point for the NYMEX crude futures contract -- has seen its tanks reach 72.7% of working capacity, using US Energy Information Administration data.
Analysts surveyed Monday by Platts expect US crude stockpiles to have increased 3.7 million barrels last week. The US inventory already stands at a record-high 444.4 million barrels.
"It not just about Cushing any more," Frost & Sullivan oil and gas consultant Carl Larry said.
"People are concerned about overall storage," he said.
Another factor weighing on prices Monday was the possibility more Iranian barrels could hit the market if sanctions are lifted, analysts said.
US Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif resumed nuclear talks Monday in Switzerland, as the two sides try to meet an end-of-month deadline for an agreement.
"The perception that sanctions relief will lead to more oil in the market could pave the way for the next move down in oil prices," Barclays analysts said Monday in a research note.
But sanctions will not be removed "in one fell swoop," the bank analysts said.
Iranian Oil Minister Bijan Zanganeh said Monday the Islamic Republic would be able to increase its crude exports by up to 1 million b/d once international sanctions against Tehran were lifted.
Zanganeh told reporters in Assaluyeh, home of the onshore facilities of the giant South Pars gas field, that Iran would be able to market its crude across the world when restrictions on its exports were removed.
Iran had been exporting around 2.2 million-2.3 million b/d of crude before EU and US sanctions came into force in mid-2012, resulting in volumes falling by more than 1 million b/d.
Using secondary sources, OPEC estimated that Iran's production averaged 2.778 million b/d in February, up 8,000 b/d from January.
OPEC trimmed its growth expectations in non-OPEC crude supply by 30,000 b/d to 830,000 b/d this year from 2014. Just two months ago, in its January report, OPEC forecast that non-OPEC crude supply would increase by 1.27 million b/d year-on-year.
"Output for the non-OPEC marginal barrel this year, particularly for US tight oil and Canadian oil sands output, will become more evident in the coming months following ongoing declines in rig counts as well as cuts in capital expenditures by international oil companies," OPEC said.
