Iraq Could Review Oil-Supply Plans as Price Collapse Deepens

Iraq said a collapse in crude oil and the cost of fighting Islamic State militants could force the country to review its plans to boost production, highlighting the risks this year’s price plunge poses to new supplies.

“It may be necessary to revisit our ambitious plans for the next five years,” Iraq’s Deputy Prime Minister Rowsch Shaways said at a conference in London today, without specifying what measures the country might take. The country’s semi-autonomous Kurdish area will drive up output and exports in the next several months, an official from the region said.

Iraq is supposed to add more barrels by the end of this decade than any other member of the Organization of Petroleum Exporting Countries. The 12-nation group decided on Nov. 27 to maintain output amid a global surplus, prompting speculation that it’s willing to let crude slide to a level that would slow U.S. production, which is at a three-decade high.

“The low oil price will cut some greenfield oil projects, which the oil market will badly miss in the not so distant future,” Axel Herlinghaus, senior commodities strategist at DZ Bank AG in Frankfurt, said by e-mail. “That there might be a substantial number of ‘lost barrels’ stemming from Iraq doesn’t make things easier.”

Brent, the global benchmark, slumped 24 percent since the OPEC meeting and is down by almost half since the end of 2013. It fell as much as 2.2 percent today, and was trading down $1.04 at $58.97 a barrel at 1:42 p.m. in London.

Kurd Supplies

Iraq’s oil production will rise to 8.4 million barrels a day by 2018, the nation’s former oil minister said in June, the government’s most recent projection. It pumped 3 million barrels a day last month, the state Oil Marketing Co., or SOMO, said Dec. 11.

“We are committed to progress in this vital economic field with regard to production and export capacities,” Shaways, the Iraqi minister, said today.

The Kurdistan Regional Government will increase pipeline exports to 500,000 barrels a day by the end of March from 400,000 now, Ashti Hawrami, the KRG’s minister of natural resources, said at the London event. Total shipments, including supplies under a deal with the central government, could reach 800,000 barrels a day by then, he said. The region’s oil output will expand to 1 million barrels a day by the end of next year, he said.

Jeopardize Growth

The International Energy Agency estimated in June that the country would contribute about 60 percent of new OPEC supply this decade, while warning that fighting with Islamic State could jeopardize that growth.

OPEC’s November decision to maintain its production quota of 30 million barrels a day pushed crude deeper into a bear market. The group, led by Saudi Arabia, pumped 30.56 million a day in November, exceeding its target for a sixth straight month, Bloomberg surveys of companies, producers and analysts show.

The U.S. pumped 9.12 million barrels a day in the period ended Dec. 5, the most in weekly Energy Information Administration data that started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.

“They have a very aggressive output plan for how much they want to increase production over the coming years,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail, referring to Iraq. “They may try to support prices by saying that they just might scale back those plans.”

Saudi Arabia Spending Means Less Room for OPEC to Cut Oil Output

Saudi Arabia’s plan to continue spending on social projects and security increases the likelihood that the world’s biggest oil exporter will stick with OPEC’s policy of maintaining output even as crude prices plunge.

“Saudi Arabia is backing up OPEC policy with action to strengthen the home front against the adverse impact of falling oil prices,” Arabia Monitor Chief Economist Florence Eid-Oakden, whose firm advises investors on business risks in the Middle East, said yesterday by phone from London.

The Saudi stock market rebounded after Finance Minister Ibrahim al-Assaf announced that the government plans to fund “massive” development projects next year, focusing on health care, education, social services and security. The Tadawul stock index lost almost a third of its value since September amid expectations that falling oil prices will curtail government spending.

The Organization of Petroleum Exporting Countries decided Nov. 27 to keep its output unchanged, in spite of a global supply glut fed partly by production of shale oil in North America. Saudi Arabia led a group of Arab monarchies in opposing calls by Venezuela and other OPEC members, whose economies are threatened by the fall in oil prices, to cut output. OPEC supplies about 40 percent of the world’s oil.

“We do believe the Saudis when they say they are prepared for an extended period of low prices, long enough in duration to achieve their goal of slowing and possibly reversing U.S. production growth,” Michael Wittner at Societe Generale SA said yesterday in an e-mailed report.

‘Under Stress’

Brent crude, a pricing benchmark for more than half of the world’s oil, has dropped 47 percent this year and slid below $60 a barrel this week for the first time since 2009.

OPEC members Angola, Algeria and Iran are “under stress,” OPEC President and Nigerian Petroleum Minister Diezani Alison-Madueke said Dec. 4. Venezuela’s bonds dropped to a record low on Dec. 16, fueling speculation that the nation may default. Nigeria’s currency, the naira, fell yesterday to the lowest against the dollar since Bloomberg began compiling data in 1999.

“The Saudis are staying the course because they have the financial reserves to help support their budget,” Theodore Karasik, a senior adviser with Risk Insurance Management in Dubai, said by phone. “They are also betting the oil price will rebound at the end of the second quarter of 2015, based on slowing investment in new production.”

While Saudi Arabia hasn’t yet published its budget for 2015, King Abdullah’s government announced about $500 billion in projects over the past few years to build roads, airports and industrial centers as he seeks to reduce the country’s dependence on oil revenue and trim its 12 percent unemployment rate.

Saudi Arabia has maintained a counter-cyclical economic policy by increasing financial reserves and cutting public debt during periods of “high public revenue,” the state-run Saudi Press Agency cited al-Assaf, the finance minister, as saying.

This policy has provided the kingdom with “lines of defense” in times of need, including the financial crisis of 2008, al-Assaf said. “This policy will continue in the next budget.”

U.S. Talking Oil Exports Just When World Needs It Least

By Dan Murtaugh and Lynn Doan Dec 18, 2014 4:32 AM GMT+0800

The U.S. Congress is talking about allowing unfettered oil exports for the first time in almost four decades. Its timing couldn’t be worse.

There’s space in the global market for 1 million to 1.5 million barrels a day of U.S. crude if the ban vanishes, Energy Information Administration chief Adam Sieminski told a congressional subcommittee at a Dec. 11 hearing. That would be less than 2 percent of worldwide demand. With prices sliding amid a glut, the figure is bound to be even smaller, according to consultants including Wood Mackenzie Ltd.

As members of Congress promise more hearings on repealing the restrictions on oil exports, the world is awash in the stuff. Global prices have fallen by almost half since June to the lowest in five years amid slower demand growth and rising supply. What’s more, the kind of crude flowing in record volumes from U.S. shale plays is already abundant in the market.

Oil Prices

“If they dropped the export ban today, how much crude would get exported?” Harold York, vice president of integrated energy research at WoodMac in Houston, said by telephone. “Today? I say none. At these prices, why would a barrel leave?”

Global crude prices have fallen 45 percent this year to below $60 this week for the first time since 2009. Producers say the U.S. shale boom may falter if they can’t reach overseas markets, while refiners fight to keep the limits, which have reduced domestic costs and allowed them to export record amounts of gasoline and diesel.

‘Lower End’

Brent, the global benchmark, rose 2.2 percent to settle at $61.18 a barrel on the London-based ICE Futures Europe exchange. The U.S. marker West Texas Intermediate gained 54 cents to $56.47.

Congress will hold more discussions on repealing the law in 2015, Representative Ed Whitfield, a Kentucky Republican and chairman of the House Energy and Power Subcommittee, said at the Dec. 11 hearing in Washington.

Sieminski said his export estimates, which come to about 15 percent of U.S. production at most, were based on demand at foreign refineries for light oil. About 15 percent of global refining capacity is designed for light oil, compared with about 30 percent of production, York and his colleague Michael Wojciechowski said by e-mail.

During the meeting, Sieminski described the amount of potential shipments abroad as being “more to the lower end than to the upper end” of the range.

Price Discount

“The kind of oil we have in surplus here is a light, sweet crude, and the market for that is not unlimited,” he said. “So the question is, how much of that could you put out on the global market” before it’s saturated, he said.

Light Louisiana Sweet, the benchmark price for light oil on the U.S. Gulf Coast, would need to sell for several dollars less than Brent, the global marker, to attract foreign buyers to charter ships and send it abroad, York said. The discount has averaged about $1 a barrel this month, down 79 percent since May.

 “LLS is selling close to parity with Brent, so it can’t fetch a higher price somewhere else,” said York. “That said, the debate we’re having on oil exports is still worth having even if the opportunity to export isn’t commercial today.”

Once the U.S. starts shipping more crude oil, it will put more supply on the global market and leave less in the U.S., shrinking the price difference further and making it less economic to export, said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Congressional Hearing

Congress is debating whether the U.S. still needs export restrictions passed in 1975 on the heels of the Arab oil embargo that caused gasoline shortages and long lines of cars at retail pumps. Horizontal drilling and hydraulic fracturing have pushed U.S. oil production to the highest in 31 years.

Sieminski told the subcommittee that U.S. output may soon hit an all-time high, surpassing the record of 9.6 million barrels a day set in 1970, while gasoline demand is down 4.4 percent from the peak in 2007 and likely to fall further because of more stringent fuel economy standards.

Current exceptions to the ban include shipments to Canada and re-exports of foreign oil. The U.S. has sent abroad 314,000 barrels a day this year, on pace for the highest annual level on record. The U.S. also gave permission in March to companies to export ultra-light crude after lightly processing it.

Representative Joe Barton, a Republican from Texas, introduced legislation last week to end the export ban, saying the domestic oil boom has rendered the law outdated.

Jones Act

Jay Hauck, executive director of Consumers and Refiners United for Domestic Energy, a group opposed to lifting the ban, said the benefit of exporting U.S. oil doesn’t outweigh the damage done to refiners, who are sending 3.6 million barrels of petroleum products a day abroad, the most in the world.

One way to ease the pain to refiners would be to grant more waivers to a law that forces companies to use U.S. ships to transport cargo between two American ports.

Known as the Jones Act, the law makes it more expensive to ship Texas crude to New Jersey than to Montreal. That would put coastal refiners in the U.S. at a disadvantage to foreign counterparts for oil from the two largest shale fields in the U.S., the Eagle Ford and the Permian Basin.

Refiners don’t expect a full repeal of the shipping law, said Stephen Brown, a lobbyist for Tesoro Corp. (TSO), the largest refiner by capacity on the U.S. West Coast. Waivers for coastal fuel shipments would be a compromise, he said.

“Refiners will be at the table for any discussion of relaxing the crude export restriction and reform of the Jones Act in that context will need to be part of that conversation,” Brown said in Washington after the hearing.

Turmoil Boosts Hedge Funds That Bet Against Russia, Oil

Dec. 17 (Bloomberg) -- How are Russian citizens dealing with the collapse of the ruble and the resulting rate hike to boost the currency? Bloomberg’s Henry Meyer reports on “Bloomberg Surveillance.”

Randy Smith’s Alden Global Capital has been betting against the ruble for the past month and a half. Yesterday, it paid off when Russia’s currency fell as much as 19 percent.

Alden, a $1.8 billion New York-based hedge fund firm, is emerging as one of the winners from a recent spike in geopolitical turmoil.

Pierre Andurand, who foresaw the oil market’s peak in 2008, made an 18 percent gain for his hedge fund in November by predicting OPEC’s refusal to cut crude production and how that would strengthen the U.S. dollar against other currencies, including the Japanese yen, according to a letter to clients, a copy of which was obtained by Bloomberg News. Warren Naphtal’s $3.9 billion currency fund is up about 24 percent this year after recent bets on a stronger dollar, according to an investor report.

The hedge funds are making money from the trades at a time when many competitors are struggling to eke out a profit. This year’s more than 40 percent decline in oil prices has curbed global growth and hobbled Russia’s economy. Bill Gross, who ran the world’s largest bond fund at Pacific Investment Management Co. before joining Janus Capital Group Inc. in September, said an excess of leverage, or borrowed money, is making markets more volatile.

 “When levered money moves and tries to seek a safe haven basically you have violent price movements,” Gross said in a Dec. 12 Bloomberg Surveillance interview with Tom Keene.Emerging Markets

A $3.3 billion fund at Gross’s former firm has been one of those hit. The Pimco Emerging Markets Bond Fund (PEBIX) held $803 million of Russian corporate and sovereign bonds at the end of September, equal to 21 percent of total assets, an amount that’s more than double that of the benchmark it tracks, according to data compiled by Bloomberg. The fund has lost 7.9 percent in the past month, trailing 95 percent of its peers.

Alden, in addition to betting against the ruble, has also been profiting from a decline in Russian stock indexes, said two people familiar with the trades, who asked not to be identified because the information is private. Russian equities are down 42 percent in the past month and a half, according to the dollar-denominated RTS Index. (RTSI$)

Andurand, the 37-year-old London hedge fund manager, said earlier this month Brent crude will continue its collapse into next year as the Organization of Petroleum Exporting Countries stops balancing the global market. His firm’s bearish stance on oil in October helped his fund reverse losses in 2014 after Brent slumped during the month.

Oil futures continued their slide today after Russia, the world’s largest crude producer, said it would refrain from cutting supply to tackle the global surplus. West Texas Intermediate dropped 2.7 percent to $54.44 a barrel in New York. Brent crude for February settlement fell 1.7 percent to $59.02 a barrel in London.

Quant Funds

Naphtal’s Boston-based P/E Investments benefited indirectly from oil’s plunge as it bet on currencies with little exposure to commodities, according to two people familiar with the matter, who asked not to be identified because the information is private. The firm’s main fund, which relies on computer models to trade, rose 4 percent in November, helped by the U.S. dollar and by wagers against the Canadian and Australian dollar, the euro and the Swiss franc, according to one of the people.

The firm joins other quant funds in using computer programs to beat star managers this year, in part from the plunge in oil prices that some human traders dismissed. Hedge funds on average are trailing the Standard & Poor’s 500 Index for a sixth year. Hedge funds returned 1.7 percent this year through November, according to data compiled by Bloomberg, compared with a gain of 12 percent for the S&P 500.

Canada’s U.S. Oil Imports Dwarf Saudis’ Share: Chart of the Day

Canada’s share of U.S. oil imports is dwarfing Mexico and Saudi Arabia, as the country is faced with few outlets for its growing oil sands production.

The CHART OF THE DAY tracks the proportion of U.S. crude oil imports supplied by Canada, Saudi Arabia and Mexico since November 2004, when each provided a bit more than 15 percent of demand. Canada’s dominance started in 2006, when output from Alberta’s oil sands formations boosted the country’s production to a then-record 3.29 million barrels a day. Its share has climbed to about 42 percent while the others combine for 24 percent, according to data compiled by Bloomberg.

Canadian production rose 5.6 percent to a record last year and is projected by the U.S Energy Information Administration to reach 4.47 million barrels a day in 2015. The country’s refineries can process 2.12 million barrels a day, according to the Canadian Association of Petroleum Producers.

 “Canadian production has only a limited range of outlets, so as production grows it moves across the border to the U.S.,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone yesterday. “A lot is shipped by rail and by pipelines that run to the Midwest where refineries have upgraded” to cope with the Canadian barrels.

U.S. imports of Canadian crude climbed to a record 3.13 million barrels a day in September, the most recent month with comparable data, according to the EIA. That compares with 1 million from Saudi Arabia and 816,000 from Mexico, 22 percent lower than a year earlier.

Gulf can cope with low oil: IMF

The Arab energy exporting states of the Gulf can cope comfortably with sliding oil prices, an International Monetary Fund official said on Tuesday, as a plunge in regional stock markets showed some local investors were panicking.

Brent crude oil dropped below $60 a barrel on Tuesday for the first time since 2009, from around $115 as recently as June.

If those levels persist next year, the six rich nations of the Gulf Cooperation Council will face the most dramatic change in their fortunes since the global economic crisis in 2008. All except Qatar would run state budget deficits as oil revenues shrank; Bahrain and Oman would be deep in the red.

Harald Finger, the IMF's head of mission for the UAE, told a financial conference in Dubai that because the big GCC economies had built up huge fiscal reserves, they would not have to cut state spending deeply, and could therefore avoid sharp economic slowdowns.

"Most of the GCC countries have quite significant buffers in the form of foreign assets in sovereign wealth funds or central banks, plus most of these countries have a capacity to borrow, so there is no need now for a very steep and quick reduction of spending, which would not necessarily be desirable," he said.

But as he spoke, GCC stock markets were tumbling in a rout which erased about $49 billion of market value on Tuesday alone.

Saudi Arabia's stock market closed 7.3 percent lower, while Dubai also lost 7.3 percent, bringing its losses this month to 28 percent. Qatar sank 3.5 percent.

The collapse over recent weeks suggests the impact of low oil prices on Gulf business and investor sentiment could be greater than the monetary hit to governments' balance sheets.

"We are in panic mode now, there is no more support and investors are not rational any more," said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.

The slide has been worsened by a lack of regulatory structure that would allow traders to make money from falling markets, as well as heavy leveraged share purchases during a recent rally.

RESERVES

Finger said the UAE might have to tap into its store of foreign assets to sustain government spending if oil prices stayed at current levels or went lower.

Abu Dhabi's largest sovereign wealth fund is believed to have nearly $800 billion of assets, roughly twice the UAE's entire annual gross domestic product, so it could cover many years of budget deficits.

UAE economy minister Sultan bin Saeed Al Mansouri told the conference that the country's fiscal reserves would let it avoid any significant cuts to development projects in coming years.

Senior economic officials from the two biggest emirates in the UAE, forecast on Tuesday their economies would stay strong. Abu Dhabi predicted average growth of 5.5 percent annually between 2014 and 2018; Dubai forecast rates above 4.5 percent.

So far, international investors appear to agree that the big Gulf economies can ride out an era of lower oil prices without facing debt crises or steep reductions in their economic growth.

Bond yields and credit default swap prices in Saudi Arabia, the UAE, Kuwait and Qatar have not risen sharply, suggesting little stress on financial systems. In contrast to 2008, moves in foreign exchange forwards markets do not indicate major pressure on Gulf countries' currency pegs to the dollar.

However, the stock markets' collapse shows the local retail investors who dominate equities trade in the Gulf are unnerved by the speed of oil's decline and worried by the fact that their governments do not appear to have tried to support oil prices.

Mohamad Lahouel, chief economist at the Dubai Department of Economic Development, acknowledged that poor sentiment related to oil prices could slow growth next year.

"Households may anticipate low future oil prices and lower income and start reducing their spending in 2015," he said in a presentation to the conference.

After the markets closed, Mansouri issued a statement intended to reassure stock market investors, saying they should act rationally and that markets tended eventually to resume rising after falls.

Copyright © 2014. Dubai Media Incorporated. All rights reserved.

No need to change OPEC decision – Kuwait minister

KUWAIT CITY, Dec 16, (AFP): Kuwait’s oil minister said Tuesday that OPEC should stick by its decision to maintain production levels despite sliding prices, as Brent crude breached the $60 mark. “There is no need for OPEC to change its decision” taken on Nov 27, Ali al-Omair told reporters outside parliament. “Kuwait believes the decision was correct and we should continue with it,” he said, brushing aside calls for the Organisation of Petroleum Exporting Countries to take action. The decision was not aimed at triggering “a price war”, he added. Brent crude dived to a five-year low under $60 as markets were rocked by shrinking Chinese manufacturing output and turmoil in Russia.

Benchmark contract Brent North Sea crude for January delivery slumped to $59.02 per barrel — the lowest level since May 2009 — and New York’s West Texas Intermediate (WTI) for January hit a similar low at $54.01. The oil market has plummeted by almost 50 percent since June, dented by OPEC’s decision to hold its output ceiling in an oversupplied market. Omair supported a statement by the OPEC secretary general, Abdullah el-Badri, that there was no need for an emergency OPEC meeting to study deteriorating oil prices and global markets. “No country (from OPEC) has so far called for an emergency meeting,” Omair said.

The minister hinted that oil prices could continue to slide. “Undoubtedly many of the shale oil and sand oil companies are producing at a cost higher that current oil prices,” Omair said. “It depends on the capability of these producers to continue pumping at such a low price,” he said. Omair said that OPEC pumps around 30 percent of global supplies and “we cannot reduce this level. We took the initiative of keeping production unchanged when we had the capability to produce more.” The minister said that “surplus crude supplies are drying up... which shows that things will stabilise. It’s a matter of time.”

Don’t Expect Low Oil Prices To Last For Long

By Dave Summers | Tue, 16 December 2014 20:28 | 4

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.   

When I last wrote about the global supply of oil, it was back in October, as the fall in oil prices was developing. Since then the price has continued to fall, with prices now below $60 a barrel. I was doubtful back then that the price would fall as far as it has, and remain cynical that it will remain down for very long. Since this seems to go against much current wisdom, let me explain why I remain pessimistic that the boost to the global economy from access to cheaper fuel will continue for any great length of time.

It depends on whose data you believe regarding how much more supply than demand there currently is in the market. When looking at the numbers in the past I used a number of roughly 1 mbd, but this is hard to realistically quantify. Why – well the problem comes with the regions of the Middle East and North Africa (MENA) where there are current conflicts. The ones of particular concern are Libya and Iraq, although the fluctuating state of exports from Iran cannot be neglected. When the Libyan conflict first impacted the export of oil from that country Saudi Arabia began increasing its production to offset the loss in Libyan exports.

There came a time in September when Libyan exports, which had fallen to around 300 kbd from a high of over 1.6 mbd, shot back up to around 900 kbd. The EIA has recently shown an inverse correlation between Libyan production and oil price:

Brent Oil Price and Libyan oil production (EIA )

https://oilprice.com/images/tinymce/Evan1/ada975.png

Figure 1. Brent Oil Price and Libyan oil production (EIA )

Thus, when an additional 600 kbd suddenly appeared back in the marketplace, it is not surprising that it had an impact on prices. However while there was already some surplus in the market (from increased production in the US etc, which I will comment on below) the volume of the addition had a more significant impact on prices, and when KSA decided not to reduce production this led the market to assume that we had returned to plentiful sufficiency, and prices have continued to fall since.

However, this perception is already unraveling. The Libyan conflict has continued to embroil their oil fields. The Sharara field, which produces 300 kbd closed in November as fighting overwhelmed it. At the moment two of the oil export terminals are threatened, and with them another 300 kbd of oil. But it is not possible, at this point, to predict what is going to happen in either location. There is little sign that the conflict is any closer to resolution, meaning the production will continue to be threatened into the foreseeable future. Sadly it is more likely that this will have a negative impact on oil production, so it might be wiser to assume lower rather than higher volumes coming from the country.

The situation is a little clearer and more optimistic in Iraq, where the pipeline through Kurdish territory has lessened the impact of the Islamic State take-over of a large swath of the country. The recent agreement between the Iraqi Federal Government (IFG) and the Kurdistan Regional Government (KRG) approved early this month is already raising questions over the volumes that the KRG will put onto the market. The agreement calls for sales of around 550 kbd, but there is an additional 100 kbd that is available, the status of which is unclear. The country is exporting, overall, around 2.51 mbd and the pipeline to Turkey is currently carrying 280 kbd, but is being boosted to carry 400 kbd, with an ultimate throughput of 700 kbd. Part of the problem in assessing the market for this, however, in the short term is that the Iraqi crude is often heavier and of relatively lower quality than the market average. This is currently causing some marketing problems, leading the IFG to lower prices in order to find a market. In neither case, however, is the current conflict likely to impact the production for export, and while it is difficult to anticipate much production above 3.5 mbd. (The December OPEC MOMR suggests that they are producing 3.36 mbd at the moment) we are unlikely to see any significant reduction in production going forward. The significant growth in global production to meet a still predicted rise in demand next year (albeit down slightly from previous estimates) will, therefore, not come from OPEC, who still anticipate that they will produce, on average 400 kbd less than they have this year. It is still expected that American production will continue to rise to meet expectations of increased global demand.

The problem, unfortunately, with that view, is that increases in US production are tied to output from fracked horizontal wells that are expensive to drill, and have a relatively short production life, with the majority of production coming in the first year of operation. Thus, in order to sustain production, more wells must be drilled each month to cover the loss in production from existing operations. The North Dakota Department of Mineral Resources projects that 225 or more drilling rigs are needed to sustain the growth of production from the state over the next three years (at which time it will plateau at around 1.5 mbd). Presently there are roughly 180 rigs operating, with the count falling by the week, as the rewards, at present, do not match the cost. The agency anticipates that the number will fall by an additional 40-50 rigs by the middle of next year. Well completions are also falling by the month, as the industry likely plans to wait out the current hiatus in prices. The impact of this on even short term production should not be discounted. There has already been a slight fall in production, rather than a gain, in October, and that will likely accelerate.

Without any gain in production, and in fact, the potential for a drop in US production over the next year, then the anticipated surplus between oil supply and demand will likely disappear. Remember that the MENA nations are seeing growth in their internal demand for oil (in the KSA this has already passed 3 mbd) so that if they had no impetus to reduce production and exports in the face of falling prices, so they are unlikely to increase production when prices pick up. They haven’t before.

When will this all happen? Well I got the size of the price fall wrong, so don’t hold me to the exact timing, but I would anticipate that when we see the start of the driving season next year, the oil market will tighten rather quickly. Following that and given the inertia in getting production back in the US, we will, as I have been expecting for a couple of years, see the global concern over supply start to be a significant factor in 2016.

By Dave Summers

India Imports 38 Percent more Iranian Oil in Jan-Nov

TEHRAN (FNA)- India imported about 38 percent more oil from Iran in the first eleven months of the current year in comparison with the same period last year, trade sources said.

An eventual deal between Iran and the six major world powers would remove sanctions on Tehran and likely lead to another jump in Iranian exports, the Hindu Business Line reported.

India, Iran's top client after China, imported 250,600 barrels per day (bpd) crude last month, tanker arrival data obtained from trade sources showed, a growth of 14 percent from a year ago.

Private refiner Essar Oil was the biggest buyer of Iranian oil in November followed by state-run Mangalore Refinery and Petrochemical Ltd. The two are India's only regular monthly importers of Iranian crude.

Arrivals from Iran over the first 11 months of the year stood at 270,100 bpd, up 37.7 percent on year.

In the first eight months of the current contract year beginning April, India shipped in 35 percent more oil from Iran from a year ago at about 174,000 bpd, the data showed.

India's overall imports for November totaled 3.86 million bpd, a growth of about 6.8 percent from a year ago, the data showed.

Iran's share of Indian oil imports was about 7.1 percent in the first eleven months of the year, compared with 5 percent last year, the data showed.

Kuwait says OPEC will not step in to support oil prices

KUWAIT CITY (AFP) ― OPEC has no plans to intervene in the oil market to shore up sagging crude prices, the Kuwaiti oil minister said Tuesday, as Brent crude breached the $60 mark.

 “At OPEC’s meeting in November, we took two decisions,” Ali al-Omair said at a lecture in Kuwait City.

“The first was to keep the production ceiling unchanged and the second to hold the next meeting in June. So far, nothing has changed and there are no calls for holding an emergency meeting,” Omair said.

He declined to answer a question on what price would force the Organization of Petroleum Exporting Countries to step in to bolster the market.

“As of now, there are no plans. We will talk about it when it comes,” the minister said in response to a question on whether OPEC would meet if prices drop to $40 a barrel.

The Kuwaiti minister said the current slide in oil prices had “surpassed all forecasts,” which initially predicted a slight drop in crude prices.

Kuwaiti oil minister Ali al-Omair (bottom) attends a Parliamentary session at Kuwait’s national assembly in Kuwait City on Tuesday. (AFP-Yonhap)

He said excess supplies in global markets had increased from 1.2 million barrels per day when OPEC met last month to 1.8 million bpd now.

Oil prices were also under pressure because “many world markets are saturated” with oil.

Earlier on Tuesday, Omair said OPEC should stick by its decision to maintain production levels despite sliding prices.

“There is no need for OPEC to change its decision” taken on Nov. 27, the minister told reporters outside parliament.

“Kuwait believes the decision was correct and we should continue with it,” he said, brushing aside calls for OPEC to take action.

The decision was not aimed at triggering “a price war,” he added.

Brent crude dived to a five-year low under $60 as markets were rocked by shrinking Chinese manufacturing output and economic turmoil in Russia.

London’s benchmark contract Brent North Sea crude for January slumped as low as $58.50 per barrel ― the lowest since May 2009.

It climbed back to $59.83 in late trading, still down $1.23 from Monday’s close.

New York’s West Texas Intermediate for January hit a similar five-year low at $53.60, although prices climbed back to $55.79 in midday trading.

Oil prices have plummeted by almost 50 percent since June, with losses picking up after OPEC’s decision to hold its output ceiling in an oversupplied market.

Sentiment was also hit Tuesday by the Russian central bank’s shock move to raise interest rates to 17 percent, a move which failed to arrest the slide of the ruble.

The minister hinted that oil prices could slide further.

“Undoubtedly many of the shale oil and sand oil companies are producing at a cost higher that current oil prices,” Omair said.

 “It depends on the capability of these producers to continue pumping at such a low price,” he said.

Omair said OPEC pumps around 30 percent of global supplies and “we cannot reduce this level.”

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Copyright Herald Corporation. All rights reserved.

Platts Analysis of U.S. EIA Data

U.S. commercial crude oil stocks fell 847,000 barrels week over week

Platts Oil Futures Editor Geoffrey Craig

New York - December 17, 2014

A drop in imports helped push U.S. commercial crude oil stocks 847,000 barrels lower the week ended December 12, U.S. Energy Information Administration (EIA) data showed Wednesday.

Analysts surveyed Monday by Platts had expected crude oil stocks to be down 2.5 million barrels.

Stocks at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange (NYMEX) crude oil contract, rose 2.9 million barrels.

Despite the Cushing build and smaller-than-expected draw in total stocks, oil futures jumped on a wave of short covering, with prompt-month IntercontinentalExchange (ICE) Brent and NYMEX crude oil futures rising $3 per barrel after the release of the EIA data.

Crude oil imports fell 564,000 barrels per day (b/d) to 7.1 million b/d, offsetting the impact of less demand from refiners on crude oil stocks.

Net inputs to U.S. refineries decreased 326,000 b/d to 16.301 million b/d. However, the decline comes one week after crude oil runs reached a record high of 16.627 million b/d.

The U.S. refinery utilization rate fell 1.9 percentage points. Analysts surveyed Monday by Platts had estimated the utilization rate would fall by 0.3 percentage point.

Even with the drop, refineries operated at 93.5% of operable capacity -- 2 percentage points higher than at this time last year.

On the U.S. Gulf Coast, the utilization rate moved about 2 percentage points lower to 95.3% of operable capacity. USGC crude oil stocks fell 656,000 barrels to 192.962 million barrels.

The biggest draw occurred on the U.S. Atlantic Coast (USAC), where stocks dropped 1.577 million barrels to 11.813 million barrels.

GASOLINE STOCKS RISE

U.S. gasoline stocks rose 5.25 million barrels as U.S. refineries continue operating at high levels, pushing more products into the market, according to the EIA data.

Analysts had projected gasoline stocks would increase 2.3 million barrels.

Over the last two reporting periods, gasoline stocks have increased 13.4 million barrels on account of strong crude oil runs.

Stocks on the USAC -- home to the New York Harbor-delivered RBOB contract -- rose 1.362 million barrels to 53.717 million barrels. The region remains at about a 3% deficit to the five-year average.

The gasoline build was largest in the U.S. Midwest (USMW), where gasoline stocks the week ended December 12 rose 2.087 million barrels to 47.414 million barrels. Stocks in the region are more than 5% below the five-year average.

U.S. distillate stocks fell 2.11 million barrels to 115.955 million barrels, according to EIA. Analysts had expected an increase of 670,000 barrels.

The draw was led by the USAC, where combined low- and ultra-low-sulfur diesel (ULSD) stocks fell 1.478 million barrels.

At 26.858 million barrels, USAC diesel stocks were about 1% above the EIA five-year average, the smallest surplus since the week ended June 13. As recently as October 17, USAC combined stocks stood 34% above the five-year average.

USMW combined diesel stocks rose 43,000 barrels to 24.742 million barrels -- a 7% deficit to the five-year average.

USGC combined low and ULSD stocks increased 1.086 million barrels to 36.371 million barrels. Compared with the five-year average, USGC combined stocks flipped from a deficit to a 3.8% surplus.

U.S. distillate production was essentially unchanged, sliding 17,000 b/d to 5.214 million b/d.

USAC heating oil imports leap as shippers supplement flagging pipeline supply

US Atlantic Coast imports spiked in the reporting week ended December 12, according to data released Wednesday by the Energy Information Administration, as increasing winter demand in the Northeast was met with dwindling pipeline supply, opening the arbitrage from Europe.

Atlantic Coast imports of heating oil with up to 2,000 ppm sulfur jumped 81,000 b/d to average 91,000 b/d for the week, according to the EIA data. This marks the highest since the week ended April 11, when it was 167,000 b/d.

The increased flow of imports hasn't led to higher stocks in the Northeast, though, as Central Atlantic and New England stocks have fallen by 58,000 barrels and 127,000 barrels, respectively. Central Atlantic stocks were 6.43 million barrels, while those in New England were 1.61 million barrels.

"For a while, the pipeline has been stuffed with gasoline, and not much distillate has been shipped up," an analyst said.

This drag on supply pushed up the price for USAC heating oil relative to the rest of the country, the analyst said.

"Europe heating oil prices have been very low, so that opened an arbitrage up for distillates to go from Northwest Europe to the USAC," the analyst said.

China's Nov oil products output rise on year, led by jet/kero gains

China's oil products output in November grew from a year earlier on increased refinery throughput, data from the National Bureau of Statistics showed Tuesday, December 16.

Domestic gasoil production last month rose 3.9% year on year to 15.12 million mt while LPG, gasoline and jet fuel/kerosene all posted double-digit growth rates.

Fuel oil output was up 4.5% from a year earlier at 2.29 million mt.

Only naphtha output showed a decrease last month, falling 3.2% year on year to 2.34 million mt.

The NBS had said on Friday that crude throughput last month rose 5.5% year on year to 42.25 million mt or an average 10.32 million b/d.

The gasoline yield as a percentage of overall crude throughput rose to 21.78% in November, from 20.77% a year earlier, while the gasoil yield slipped to 35.78% from 36.33% over the same period.

In the first 11 months of this year, refinery throughput was up 4.7% from the same period of 2013 at 455.41 million mt.

Output gains for individual oil products were led by gasoline and jet fuel/kerosene, although fuel oil production slipped 1.5% year on year to 23.27 million mt.

So far this year the gasoil yield has fallen to 35.14% from 36.19% over January-November last year, while the gasoline yield has edged up to 21.87% from 20.57% previously.

China's refiners have changed their production slate to maximize gasoline and jet fuel/kerosene output to meet high demand growth. Gasoil demand has tapered off in the last two years.

NWE fuel oil below $300/mt for first time since 2009 on crude's drop

Northwest European fuel oil prices fell below $300/mt for the first time since 2009 Tuesday.

3.5% FOB Rotterdam barges were assessed down $7.50 day on day at $293/mt, while 1% FOB NWE cargoes fell $6.75 to $299.75/mt. Both were last lower on May 1, 2009 when they were assessed at $283.50/mt and $299.25/mt respectively, Platts data shows.

European fuel oil prices have tracked the fall of crude futures and halved since June, when HSFO barges peaked at $603.25/mt.

A global supply glut has been dragging down benchmark crude futures, and the recent release of bearish Chinese economic indicators and OPEC member countries' decision to maintain their output ceiling have piled the pressure on oil prices.

No emergency Opec meeting needed, says UAE oil minister

There was no need for an emergency Opec meeting despite the drop in oil prices, UAE Oil Minister Suhail Bin Mohammed Al-Mazroui said, reinforcing the idea that major Gulf producers are ready to wait out lower prices.

"Opec is not a swing producer. It's not fair that we correct the market for everyone else ... I don't think that is a sustainable strategy anymore," he told reporters. "I don't see a reason to meet so quickly."

"We are of the view that the market should be left to balance itself," he said, echoing sentiments first expressed by his counterpart from close ally Saudi Arabia.

Global oil prices deepened their months-long decline following Mazroui's comments on Monday, with Brent nearing $60 a barrel as traders tested OPEC's resolve to hold off cutting output despite the deepest market rout since 2008.

The minister told reporters he was optimistic oil prices would stabilise at a fair level for producers and consumers.

"It's just a matter of time," Mazroui said. "No one was expecting such a drastic decrease in prices and unfortunately we cannot fix it because that's the right decision for the market, but we are committed."

Opec's late November meeting decided not to cut output to shore up prices, and the group would stick by that policy, said the minister from the United Arab Emirates.

"We are all in pain because we don't like (prices) we are seeing," he said. Opec was not targeting a specific oil price and would not intervene without the support of other major producers, he added.

"It's everyone's responsibility to correct the market," Mazroui said.

"We cannot cut production whenever someone over supplies the market. We can't cut production every time the price goes down." - Reuters

S Korea's Iran oil imports up, but not breaching sanctions

South Korea's imports of Iranian crude oil rose 6.5 per cent in November from a year earlier, but shipments for the first 11 months of the year were still below the 2013 average, in line with international sanction requirements.

Preliminary customs data from the world's fifth-largest crude oil importer showed that Seoul bought 567,611 tonnes of crude oil from Tehran last month, or 138,686 barrels per day (bpd), compared with 532,851 tonnes a year ago.

Iranian crude shipments between January and November were 5.65 million tonnes, or 124,012 bpd, down 7.6 per cent from a year earlier and 7.5 per cent below the 2013 average of 134,000 bpd, according to the data and Reuters calculations.

Iran has suspended higher-grade uranium enrichment and big Asian buyers, including South Korea, should hold their crude imports from Tehran at end-2013 levels under a preliminary deal between Iran and six powers agreed in November 2013.

 Talks between Iran and the six powers - the US, China, Russia, Britain, France and Germany - failed last month to resolve a 12-year stand-off over Tehran's nuclear ambitions as the sides agreed to  extend the talks till June 2015.

 South Korea's SK Energy and Hyundai Oilbank import Iranian oil and their imports fluctuate each month. Overall, South Korea imported 11.1 million tonnes of crude last month, or 2.71 million bpd (mbpd).

 The total was 8.7 per cent higher than the 10.2 million tonnes imported in November last year, 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.

The customs data also showed that South Korea imported 48,600 tonnes, or 356,238 barrels, of crude worth $33.452 million from the US last month, representing an average price of $93.90 a barrel, according to Reuters calculations.

The shipment has been expected as South Korea's top refiner SK Energy bought US ultra light oil, or condensate, from Mitsui & Co.--Reuters

Iran imports gasoil after months, but unlikely to continue

Iran resumed gasoil imports this quarter after a gap of several months on rising consumption of heating oil during winter, but the arrivals are unlikely to continue as the demand is only seasonal, industry sources said.

Iran's imports are expected to have a muted impact on Asian gasoil margins as the volumes are too small and they come at a time when the region is flooded with supply from new capacity in the Middle East and China, traders said.

"Gasoil imports have been done due to seasonal conditions and they will certainly not continue," oil ministry news agency Shana quoted Mohsen Qamsari, the director of international affairs of the National Iranian Oil Co, as saying. Only small volumes have arrived over the past two months, Qamsari said.

A source close to the matter, who declined to be named as he was not authorised to speak to media, said Iran was expected to import about 2-3 cargoes of high sulphur gasoil this year.

"The imports might be similar to last year and are not as considerable as they used to be about 2 to 3 years ago, as production is up," he said.

Iran has had to increase its refining capacity over the past few years due to Western efforts to prevent it from importing fuel as part of sanctions over Tehran's nuclear activities.

 Iran hopes to boost its oil refining capacity to 3 million barrels per day (mbpd) by 2018 from 1.9 million now with the opening of new refineries as the Opec member seeks to reduce its dependency on imports of oil products.

 The gasoil cargoes coming to Iran are likely from the Middle East, a second source said, without giving any further details.

Each cargo to Iran, which uses gasoil to generate power, is likely to contain about 60,000 tonnes of gasoil, a trader said.

Australia, Asia-Pacific's top gasoil importer, imports about 800,000 to 1 million tonnes a month every month.

Qamsari also said that Iran has been exporting 500,000 tonnes a month of fuel oil and 100,000 tonnes a month of liquefied petroleum gas.

Talks between Iran and six powers, the US, China, Russia, Britain, France and Germany, failed last month to resolve a 12-year stand-off over Tehran's nuclear ambitions as the sides agreed to extend the talks till June 2015.--Reuters

Kurdish oil vital for Iraq, London says

LONDON, Dec. 17 (UPI) --LONDON, Dec. 17 (UPI) -- Developing the oil export potential in the Kurdish region of Iraq will help secure the future of a united country, the British energy minister said Wednesday.

Iraqi, Kurdish and other regional players gathered in London for an investment conference, two weeks after agreements in Iraq ended long-standing disputes over who has what level of control over the nation's oil sector.

British Energy Minister Matthew Hancock said investors need to stand by Iraq now that security and the political climate have improved. By 2040, he said, Iraqi crude oil production could triple to just over 8 million barrels per day.

"Reserves in Kurdistan play a significant role in this increase," he said. "Development and export opportunities in the Kurdistan region will play a very important role in the future energy sector of a united Iraq."

Gulf Keystone Petroleum, an energy company with headquarters in London, announced this week it linked oil wells in the Shaikan field to production facilities in the Kurdish north of Iraq.

With its partners at Hungarian energy company MOL, the company said the addition should increase total regional production from a combined average of 24,000 barrels of oil equivalent per day to 40,000 boepd.

Both companies said crude oil taken from the Shaikan reserve area was making its way to the export market from the Turkish coast.

Exports of Kurdish oil have sparked legal battles between the semiautonomous Kurdistan Regional Government and the central government in Baghdad. KRG under the terms of the agreement funnels 250,000 barrels of oil per day to Baghdad and agrees to use the federal State Oil Marketing Organization for sales.

Security threats posed by the group calling itself the Islamic State and the collapse in crude oil prices may dampen expectations in the Iraqi oil sector short term.

"All parts of the country and population must see investment and the right conditions for prosperity, creating a vibrant private sector," the British official said. "Iraq's economic development will be vital for its political future and stability."

© 2014 United Press International, Inc. All Rights Reserved.

Norwegian oil production down 5 percent

OSLO, Norway, Dec. 17 (UPI) --OSLO, Norway, Dec. 17 (UPI) -- Production figures from Norway show average daily oil production down about 5 percent year-on-year, a national regulator said in Wednesday report.

The Norwegian Petroleum Directorate released production figures for November, showing an average daily production of 1.46 million barrels of oil.

"The oil production is 5 percent below the NPD's prognosis for November and 5 percent below the oil production in November last year," the agency said in its report.

Major oil companies from BP to Marathon have trimmed back their expectations as oil prices continue to lose value. The price of oil, nearly 50 percent below June values, is at a point where some drillers may no longer be able to make a profit.

Noreco, a Norwegian energy company focused on North Sea oil operations, said Monday its financial situation was deteriorating because of low oil prices.

Norway is among the European leaders in terms of oil production. Most operators working in the Norwegian petroleum sector need oil priced at around $40 to make a profit.

NPD attributed the decline in production to technical problems at seven of its offshore fields.

"So far this year the oil production is about 1 percent above the NPD's prognosis and about 2 percent higher than for the same period in 2013," it said.

© 2014 United Press International, Inc. All Rights Reserved.