West Texas Intermediate crude oil will find support around $75 a barrel should it break through $80 on a sustained basis, according to Auerbach Grayson & Co.
“We’re still keeping an eye on $80,” Richard Ross, global technical strategist at the New York-based brokerage firm, said yesterday. Below that level is a lot of support in the $75-to-$76 area, he said.
Prices have tumbled more 20 percent from their June peak, meeting a common definition of a bear market, as Iraqi output continued to flow despite conflict in the north of the country and production increased in Libya and the U.S. At the same time, forecasts for global oil demand growth have been reduced by the International Energy Agency.
Crude oil for November delivery fell 4 cents to $82.71 a barrel yesterday on the New York Mercantile Exchange. Last week, it touched $79.78, the lowest intraday price since June 29, 2012.
Members of the Organization of Petroleum Exporting Countries boosted crude output by 1.4 percent to 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey. The gain was led by Libya, where output climbed by 280,000 barrels a day to 780,000, the fifth straight increase.
OPEC Prices
OPEC’s biggest producers have responded to the drop in futures by cutting their official selling prices, sparking speculation they will compete for market share rather than trim output. Saudi Arabia, Iraq, Iran and Kuwait have deepened the discount for their barrels sold to Asia. The 12-member group meets to discuss production and prices in Vienna on Nov. 27.
U.S. crude output rose 0.9 percent to 8.95 million barrels a day in the week ended Oct. 10, the most since June 1985, according to Energy Information Administration data. The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central regions of the nation.
Ross identified $76.28 a barrel as a key retracement level of the drop from the record high of $147.27 on July 11, 2008, to the low of $32.40 touched Dec. 19 of that year.
Christophe de Margerie, the Total SA (FP) chief executive officer who oversaw the biggest increase in reserves at the French oil explorer in at least 15 years, died in a Moscow plane crash, Interfax reported.
The 63-year-old CEO died at Moscow’s Vnukovo Airport when a business jet crashed, Interfax said, citing an unidentified law enforcement official. Four people aboard a Dassault Aviation SA Falcon jet died when it crashed into a snowplow late yesterday, Elena Krylova, a spokeswoman for the airport, said by phone, adding it’s against policy to name the victims.
Russian officials started an investigation into the crash of the plane, which was headed to Paris, the Moscow regional transport prosecutor’s office said in a statement. Calls to Total spokesman Charles-Etienne Lebatard and to the French Foreign Ministry weren’t immediately returned.
During a 40-year career that began in Total’s finance unit, de Margerie oversaw far-flung operations for the French petroleum giant from Indonesia to the Middle East to Kazakhstan. Earlier this year he helped negotiate the Paris-based company’s entry into Russian shale under a Siberian drilling venture with OAO Lukoil; the company also is a partner in the vast Russian gas development on the Yamal Peninsula.
Big Mustache
Nicknamed the “Big Mustache” for his ample white whiskers, de Margerie cut a larger-than-life figure at international energy conferences including IHS Inc.’s CERAWeek event in Houston earlier this year when he discussed the impact of surging exploration and drilling costs on oil producers and consumers.
As CEO, de Margerie could be seen lingering with a glass of whisky in hand talking with analysts and industry representatives long after the end of conferences he addressed.
Total is the world’s fourth-largest non-state energy company by market value, after Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp., according to data compiled by Bloomberg. The French company’s $228 billion in annual sales exceeds the economic output of nations such as Ireland and Vietnam.
Under de Margerie’s reign, reserves-life, or the number of years of current production that could be replicated using existing reserves, rose in every year but one, the longest such streak for Total since at least 1998.
Total was reevaluating plans to explore for shale oil in Western Siberia with partner OAO Lukoil amid economic sanctions against Russia, the company said last month.
Iran, eager for an end to sanctions that have restricted its oil exports, is shunning its image as OPEC’s price hawk by avoiding calls for an emergency session of the group to support prices.
Oil Minister Bijan Namdar Zanganeh consulted with Iranian President Hassan Rouhani about political and economic reasons for the price collapse, the ministry’s news website Shana reported yesterday. No emergency meeting of the Organization of Petroleum Exporting Countries is necessary to discuss the slide, Shana said. Rouhani told Zanganeh to use the “oil diplomacy tool” to try to prevent a further decrease, the state-run Mehr news agency said Oct. 19, without elaborating.
“They have their wings clipped a bit at the moment because they can’t really produce any more than they do,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in an interview in Dubai yesterday. “It’s difficult for them to call for any strict action when they know that when sanctions are lifted, they’re the ones that are going to ramp up production.”
OPEC, supplier of about 40 percent of the world’s oil, is scheduled to meet Nov. 27 in Vienna to assess production and market conditions. Brent crude, a global benchmark, has tumbled 26 percent since June and settled at $85.40 a barrel yesterday in London. The decline has prompted speculation that OPEC may cut production to tighten supply. Venezuela has called for the group to convene earlier in an emergency session.
Nuclear Talks
Iran was for years a vocal advocate with Venezuela for reducing OPEC output as a response to falling prices. The Persian Gulf producer isn’t concerned about the latest decrease, Roknoddin Javadi, deputy oil minister and managing director of the National Iranian Oil Co., told the Mehr agency in an Oct. 14 report.
International sanctions imposed on Iran over its nuclear program are choking crude exports, the nation’s main source of income. The government is negotiating with the U.S. and five other world powers over an agreement that would lift the curbs. The countries have set a Nov. 24 deadline for an accord, three days before OPEC meets.
“Iran is constrained by sanctions,” Mehdi Varzi, a former Iranian diplomat and director of Varzi Energy Ltd., an energy-consulting company, said by phone Oct. 16. “They may have made the calculation that if a nuclear deal can be struck, they will be permitted to increase their exports, so why talk about an OPEC cut right now?”
Slowing Growth
The International Energy Agency, the Paris-based adviser to industrialized countries, projects that demand for crude this year crude will grow by the least since 2009. OPEC boosted production to a 13-month high in September, pumping 30.66 million barrels a day, the IEA said Oct. 14.
Saudi Arabia, the world’s biggest exporter, has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the IEA said. Kuwait’s oil minister said Oct. 12 there may be “no room” to restore prices by trimming supply.
Oil exports from Iran fell to the lowest level on record in August, according to a release yesterday by the Joint Organisations Data Initiative. Economic growth and energy demand is slowing in China, Iran’s biggest oil buyer, even as the country’s sales are restricted by U.S. and European Union sanctions.
Venezuelan President Nicolas Maduro called for an emergency meeting to address falling prices in a televised broadcast Oct. 17. Libya wants OPEC to cut output to stem the decline in prices, Mohamed Elharari, a spokesman for Libya’s National Oil Co., said by phone Oct. 17.
Sanctions’ Impact
Iran’s $400 billion economy shrank more than 7 percent over the past two years, according to International Monetary Fund data, as sanctions drove oil output to the lowest since 1990 and deterred investment. Growth is set to resume this year, the IMF says. Inflation has slowed to 15 percent, from a peak of 32 percent in October 2012, according to the Iranian central bank.
The country could boost output by 700,000 barrels a day within two months if international sanctions were lifted, Oil Minister Bijan Namdar Zanganeh told reporters at the OPEC meeting in Vienna in June.
“They’re trying to take a less aggressive stance,” Tom James, managing director of consultancy Navitas Resources, who counts sovereign wealth funds and crude producers among his clients, said by phone from Dubai Oct. 15. “They’re facing the issue of the sanctions negotiations now, so they don’t want to add fuel to that fire.”
Pro-Russian separatist fighters man a checkpoint near the airport of Donetsk, on Oct. 20, 2014.
Fighting shook the east of Ukraine a day before its government begins three-way talks with Russian and European Union officials in Brussels to negotiate the resumption of natural-gas deliveries which were halted in June.
The cease-fire in Ukraine’s easternmost regions, sealed Sept. 5, was broken several times during the past 24 hours, with two soldiers and 14 rebels killed, the military said yesterday. Ukraine’s state energy company NAK Naftogaz Ukrainy said the government in Kiev and the European Commission reached a “consensus” before the talks today. German Chancellor Angela Merkel said she wants the gas deal clinched and that a bridge loan for Ukraine may be needed to end the spat.
The standoff between the two former Soviet republics is coming to a head four months after Russia halted shipments over a pricing and debt dispute as a separatist insurrection raged in eastern Ukraine. The EU, which depends on Russian fuel piped across Ukraine for about 15 percent of its needs, has been seeking to broker a deal to avoid a repeat of supply cuts experienced in 2006 and 2009.
“Even if Ukraine will not freeze this winter, the conflict in Donbas probably will,” Dmitri Trenin, head of the Carnegie Moscow Center, said in a report yesterday, referring to the area of eastern Ukraine where pro-Russian rebels are pitted against government troops. “The battle lines are solidifying and turning into de facto borders.”
Russian Threat?
Energy has become a focus of Ukraine’s economic woes. Russian President Vladimir Putin said last week that supplies to Europe would be reduced if the Ukrainian government siphoned off fuel for its own use. Ukraine has said it won’t take any gas bound for Europe and that it’s a reliable transit country.
Ukraine will have gas for the winter after agreeing to pay $385 per thousand cubic meters of fuel from Russia until March 31, President Petro Poroshenko said. The government may use loans from the International Monetary Fund or other financial organizations to pay for the purchases, he said.
Putin said last week that Europe should help Ukraine pay upfront for natural gas to guarantee steady winter supply.
Naftogaz said yesterday the negotiations should produce an interim agreement for this winter, ensuring the supply of Russia’s gas to Ukraine and a stable transit flow to the EU.
Gazprom, Naftogaz
“Such an agreement should contain clear-cut guarantees of the supply of agreed gas volumes by Gazprom, on the one hand, and a guarantee of payments for the supplied gas by Naftogaz, on the other,” it said.
Merkel, Poroshenko and Putin sought during talks in Milan last week to shore up a six-week truce amid continuing skirmishes between government troops and separatists.
The airport in Donetsk, the biggest Ukrainian city in the conflict zone, twice came under attack yesterday by rebels, who used mortars and artillery, according to the military’s press office. Insurgents targeted government troops in five towns during the day, it said.
Donetsk was also rocked by a “powerful” explosion yesterday that probably occurred near a chemical plant, according to local authorities, who provided no other details.
There will be “no more talks about a cease-fire” following yesterday’s shelling of Donetsk, RIA Novosti reported, citing Alexander Zakharchenko, the premier of the self-proclaimed Donetsk People’s Republic.
Russian Sanctions
The EU and the U.S., which have limited technology exports to Russia and curbed the ability of state-run banks to raise funds abroad, have accused Putin’s government of providing the rebels with cash, weapons and fighters. Russia denies stoking its neighbor’s conflict, which the United Nations estimates has cost more than 3,500 lives.
EU Energy Commissioner Guenther Oettinger, Russian Energy Minister Alexander Novak and his Ukrainian counterpart Yuri Prodan will attend the talks in Brussels.
Ukraine and the European Commission should “find” about $1.6 billion by the end of the year for upfront payments through a bridge loan or a guarantee of “first class” European lenders, Russia’s Energy Ministry said on its website after the talks in Milan last week.
Ukraine also agreed to pay $3.1 billion of debt for past supplies by year end, which was another condition for the resumption of deliveries, according to OAO Gazprom Chief Executive Officer Alexey Miller.
The government in Moscow offered Ukraine a more flexible payment schedule, cutting its demand for the first debt payment to $1.45 billion from $2 billion, Novak said Oct. 13. Ukraine also agreed to that proposal, Miller said.
Gazprom has said it’s owed $5.3 billion for past supplies, an amount Ukraine disputes. Putin said last week that Russia has cut its estimate of the debt to $4.5 billion, which includes a discount if the countries resolve their dispute.
“The conflict with Russia is de-escalating slowly, in little bite-sized chunks,” Jan Dehn, the London-based head of research at Ashmore Group Plc, said in a report. Still, the “toughest diplomatic hurdles still have to be overcome.”
The Islamic State is earning about $2 million a day, or $800 million a year, selling oil on the black market, according to one estimate.
The terrorist group is producing 50,000 to 60,000 barrels a day, according to a report released today by Englewood, Colorado-based IHS Inc. (IHS) It controls as much as 350,000 barrels a day of capacity in Iraq and Syria.
The Islamic State has been targeted by U.S.-led airstrikes after posting videos showing the beheadings of journalists and aid workers. Extremist groups typically rely on foreign donations that can be squeezed by sanctions, diplomacy and law enforcement. Today’s report echoes U.S intelligence officials and anti-terrorism finance experts interviewed by Bloomberg News in August, who also determined the group was selling oil at $25 to $60 a barrel, creating a group that resembles Taliban with oil wells.
Al-Qaeda's Heirs
“This is financing and fueling a lot of their activities, military and otherwise,” Bhushan Bahree, a co-author of the report, said today in an interview. “For argument’s sake, let’s say their capacity were cut by half. They’ll still have $400 million coming in. This is many times more than any other source of funding we know of.”
Islamic State consumes about half its production. Even with the recent decline in Brent crude oil, an international benchmark, the group is still probably selling oil at an average of $40 a barrel, the report states.
Brent futures settled at $85.40 a barrel today, down 26 percent from its 2014 high in June.
Unsuspecting Buyers
Bombing oil-field pump stations may be the best way to cut off the flow of oil since they are stationary and difficult to replace, Bahree said. Airstrikes haven’t eliminated truck-mounted refineries that Islamic State uses to produce fuel for its war machines and to supply civilians within the territory it controls.
Trafficking has encouraged middlemen to buy crude and smuggle it into Turkey, Jordan or Iraq, where it’s blended with other oil and sold to unsuspecting buyers, according to the report.
“It is very hard to intercept,” Bahree said. “There has probably been smuggling of all sorts of things in this place for thousands of years.”
When Iraq’s regional Kurdish government tried to police long-established smuggling routes along a 1,000-kilometer (621-mile) border with what is now Islamic State territory, the organization found new outlets, he said.
Brent crude fell on speculation that OPEC won’t take any action to bolster prices before a meeting scheduled for Nov. 27 in Vienna. West Texas Intermediate futures were little changed.
Futures dropped 0.9 percent in London. Saudi Arabia and Kuwait have signaled the decline in prices doesn’t warrant immediate production cuts. Iran’s President Hassan Rouhani instructed the oil ministry to use diplomacy to halt the slide, state-run Mehr news agency reported yesterday.
“The harsh reality remains, we’re producing anywhere from 1.5 to 2 million barrels a day more oil than there’s demand for,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “The statements from Saudi Arabia and Kuwait make it clear that they aren’t doing anything until the meeting, which is more than a month away.”
Brent for December settlement declined 76 cents to end the session at $85.40 a barrel on the London-based ICE Futures Europe exchange. Futures touched $82.60 on Oct. 16, the lowest level since November 2010. Prices are down 23 percent this year.
WTI for November delivery decreased 4 cents to settle at $82.71 a barrel on the New York Mercantile Exchange. The more-active December contract slipped 15 cents to close at $81.91. Front-month prices have lost 16 percent this year.
Little Direction
“I’m not seeing a lot of conviction here,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “WTI is swinging back-and-forth without really finding a direction. There’s not a lot of fundamental news to move it one way or the other today.”
Banks including BNP Paribas SA (BNP) and Bank of America Corp. predict prices are near a floor, in part counting on the Organization of Petroleum Exporting Countries to reduce output. Goldman Sachs Group Inc. (GS) said Oct. 17 that a rout in oil had gone too far.
Some OPEC members require an average Brent price that’s higher than the current price to balance their budgets, according to Deutsche Bank AG. Venezuela needs an average price of $162 a barrel this year, while Saudi Arabia’s break-even price is $99.20, London-based analyst Robert Burgess said in an Oct. 17 report.
“Everyone is keeping an eye on the Saudis,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion of assets. “There’s no rush for the Saudis to do anything to boost the price. Only the Venezuelans are in a lot of trouble at the moment, and they aren’t that important.”
Diplomacy Tool
Rouhani told Iranian Oil Minister Bijan Namdar Zanganeh to use the “oil diplomacy tool” to try to prevent further decreases, vice president for planning and strategic supervision Mohammad Bagher Nobakht said, according to a Mehr report. Zanganeh made proposals after the president’s request, Nobakht said, without giving details.
Saudi Arabia, the world’s biggest exporter, has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the International Energy Agency said in a monthly report on Oct. 14.
The Paris-based IEA an adviser to 29 developed countries, projects that demand for crude this year crude will grow by the least since 2009. Global supply climbed 910,000 barrels a day to 93.8 million barrels last month, leaving supplies 2.8 million barrels higher than a year earlier, the agency said.
OPEC crude output rose 1.4 percent to 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey.
Same Fundamentals
“The market has tried to find some equilibrium but the bias remains lower,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The fundamentals remain the same. We’ve got surging supply while weakening economies are hurting the demand outlook.”
November gasoline futures fell 3.25 cents, or 1.5 percent, to settle at $2.2002 a gallon on the Nymex. Futures touched $2.1347 on Oct. 16, the lowest level since Nov. 24, 2010.
Regular gasoline at U.S. pumps fell to the lowest level since January 2011. The average retail price fell 1.3 cents to $3.10 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
Ultra low sulfur diesel for November delivery decreased 1.2 cents, or 0.5 percent, to close at $2.4856 a gallon.
From her little vantage point in Cuero, Texas, of the U.S. shale oil boom, Jill Potts doesn’t see anything to worry about.
Yeah, she’s heard about how much oil prices have plunged and she knows that investors in New York are concerned the declines could make some U.S. fields unprofitable.
Staring out the window of her oil equipment shop, though, Potts sees nothing but a long line of tanker trucks rumbling through the heart of the Eagle Ford shale field. Seven are lined up at a red light right in front of her. When the light turns red again, three more come to a stop. Nine at the next.
“You look at this corner and you wouldn’t be disillusioned with the oil field,” said Potts, who opened Summit Oilfield Supply in Cuero this year after running a similar business near Dallas for a decade. “I sometimes see 15 trucks waiting at the red light, and every one of them is headed to the oil field.”
Oil Prices
U.S. benchmark West Texas Intermediate oil has dropped 23 percent from its June high to $82.71 a barrel today, driven lower by a supply glut created in part by a surge in drilling that’s pushed the country’s output to a 29-year high. At the same time, demand is weakening across the globe, prompting the International Energy Agency last week to cut its outlook for consumption growth in 2014 and 2015.
Shale wells, like those in the Eagle Ford, deplete as much as 50 percent in their first year, faster than conventional ones, putting pressure on companies to find new wells. Even if drilling remains profitable, lower prices will erode some companies’ ability to raise money and make it tougher to repay debt and fund new outlays, said Shane Fildes, the Calgary-based head of global energy at BMO Capital Markets.
$80 Level
“You may be economic but if you can’t get the money to drill, you won’t be drilling,” Fildes said.
A decline in prices below $80 a barrel would trigger a slowdown in drilling in the U.S., Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, estimated earlier this month. Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, according to the Paris-based IEA.
So far none of this has meant much to folks in Cuero, a town of less than 10,000 in South Texas about halfway between San Antonio and the Gulf of Mexico.
Packed Hotels
At the Best Western on top of the hill by the high school, rooms were going fast on a recent weekday. Seventy-five of the hotel’s 79 rooms had been booked for the night before lunchtime. Across town, workers pushed ahead with the construction of two new hotels, a testament to just how difficult beds are to come by.
“We’re always full, just about every night,” said Martha Velasquez, the general manager at the Best Western.
The town of Cuero began growing around the turn of the 20th century, when a railroad line was put down, and its population peaked in 1950, according to the Texas Almanac.
While the town lost residents in the second half of the century, the infrastructure was in place for it to become a hub for oil workers when Petrohawk Energy Corp. drilled the first Eagle Ford well in 2008.
Oil production from the Eagle Ford region has jumped 27-fold in the six years since the Petrohawk well, thanks to techniques such as horizontal drilling and hydraulic fracturing that freed up oil and gas from underground shale rock. It’s projected to reach 1.61 million barrels a day in November, making it the largest field in the U.S. after the Permian Basin, a patch that lies several hundred miles to the northwest.
1980s Collapse
J.D. Jones, a downhole pump specialist for Knox Oil Field Supply Inc., has seen oil’s boom-and-bust cycle first-hand. In the mid-1980s, he watched his father’s independent drilling business sink into bankruptcy after oil prices plunged 60 percent in just four months.
The situation isn’t nearly as dire now, said Jones, who had traveled about 300 miles to Cuero from the company’s headquarters in San Angelo, Texas, to expand operations by installing a machine to build sucker rod pumps for wells. Oil had dropped to as low as $10 a barrel back in 1986.
“$80 a barrel still looks pretty good,” he said.
Potts, the shop owner, said she used to track commodity prices daily and would “freak out” when crude dropped.
She’s become more even-keeled over the years.
“If you worry about oil prices, you’re in the wrong business,” Potts said. “They’ll bounce back.”
Genel Energy Plc (GENL), the oil explorer headed by former BP Plc Chief Executive Officer Tony Hayward, discovered oil at its Moroccan project while it continues testing for definitive results.
The company has “encountered oil during drilling operations” in a well in the Sidi Moussa block offshore Morocco, Serica Energy Plc (SQZ), Genel’s partner in the project, said in a statement today. “Preparations are under way to perform cased hole testing.”
Some of the world’s biggest oil companies, including BP and Chevron Corp. (CVX), plan to expand operations off Morocco this decade, while oil explorers including the U.K.’s Cairn Energy Plc and Gulfsands Petroleum Plc have abandoned drilling in some blocks after failing to find commercial reserves.
“Genel confirms the information contained in the operational updates issued by its partners,” the London-based company said in a separate statement. “It is premature at this stage of operations and ahead of the forthcoming testing of the well to make any definitive technical interpretation.”
Shares in Genel, which holds a 60 percent working interest in the project, declined 3.7 percent to 687.5 pence at the close in London. Serica, which owns 5 percent stake in the project, rose 6.2 percent, to 12.875 pence.
San Leon Energy Plc (SLE), a third partner in the Moroccan project with a 10 percent working interest, gained 6.7 percent to 2.4 pence. Total well-testing costs at the project are expected to be about $22 million, San Leon said in a statement today.
Genel also operates in Iraq’s Kurdistan region.
President Energy Plc (PPC) made Paraguay’s first major oil discovery in the Chaco basin, sending the U.K. explorer’s shares surging by the most in eight years.
The discovery of light oil in the Lapacho well is expected to have commercial potential, with first output slated for next year, the London-based company said in a statement. The well may hold about 200 million barrels of oil equivalent, it said.
President’s stock price climbed 76 percent to 30 pence by the close on London’s Alternative Investment Market on nine times the 3-month average daily volume. That’s the biggest gain since January 2006. It earlier more than doubled to 35 pence.
“President has demonstrated beyond doubt that movable conventional oil does exist in the Paraguayan Chaco,” Chairman Peter Levine said in today’s statement. “This discovery represents a significant milestone.”
The company has been targeting as many as 1 billion barrels of oil and gas in Paraguay, a landlocked nation between Brazil, Argentina and Bolivia. The flat landscape, stable politics and favorable tax regime make it attractive, Levine said in January.
Production from the Lapacho find will supply the domestic market, reducing reliance on imports of oil and gas, Levine said by phone. Corporation tax is 10 percent with royalties set at 10 percent to 14 percent, depending on volumes, he said.
The explorer also plans to deepen its suspended Jacaranda well following testing of Lapacho, it said in the statement. Amerisur Resources Plc, which also has blocks in the country, earlier rose as much as 7 percent to 49.75 pence in London trading and ended unchanged at the close.
Brent crude fell on speculation that OPEC won’t take any action to bolster prices before a meeting scheduled for Nov. 27 in Vienna. West Texas Intermediate futures were little changed.
Futures dropped 0.9 percent in London. Saudi Arabia and Kuwait have signaled the decline in prices doesn’t warrant immediate production cuts. Iran’s President Hassan Rouhani instructed the oil ministry to use diplomacy to halt the slide, state-run Mehr news agency reported yesterday.
“The harsh reality remains, we’re producing anywhere from 1.5 to 2 million barrels a day more oil than there’s demand for,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “The statements from Saudi Arabia and Kuwait make it clear that they aren’t doing anything until the meeting, which is more than a month away.”
Brent for December settlement declined 76 cents to end the session at $85.40 a barrel on the London-based ICE Futures Europe exchange. Futures touched $82.60 on Oct. 16, the lowest level since November 2010. Prices are down 23 percent this year.
WTI for November delivery decreased 4 cents to settle at $82.71 a barrel on the New York Mercantile Exchange. The more-active December contract slipped 15 cents to close at $81.91. Front-month prices have lost 16 percent this year.
Little Direction
“I’m not seeing a lot of conviction here,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “WTI is swinging back-and-forth without really finding a direction. There’s not a lot of fundamental news to move it one way or the other today.”
Banks including BNP Paribas SA (BNP) and Bank of America Corp. predict prices are near a floor, in part counting on the Organization of Petroleum Exporting Countries to reduce output. Goldman Sachs Group Inc. (GS) said Oct. 17 that a rout in oil had gone too far.
Some OPEC members require an average Brent price that’s higher than the current price to balance their budgets, according to Deutsche Bank AG. Venezuela needs an average price of $162 a barrel this year, while Saudi Arabia’s break-even price is $99.20, London-based analyst Robert Burgess said in an Oct. 17 report.
“Everyone is keeping an eye on the Saudis,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion of assets. “There’s no rush for the Saudis to do anything to boost the price. Only the Venezuelans are in a lot of trouble at the moment, and they aren’t that important.”
Diplomacy Tool
Rouhani told Iranian Oil Minister Bijan Namdar Zanganeh to use the “oil diplomacy tool” to try to prevent further decreases, vice president for planning and strategic supervision Mohammad Bagher Nobakht said, according to a Mehr report. Zanganeh made proposals after the president’s request, Nobakht said, without giving details.
Saudi Arabia, the world’s biggest exporter, has “appeared determined to defend its market share” in Asia, even at the expense of lower prices, the International Energy Agency said in a monthly report on Oct. 14.
The Paris-based IEA an adviser to 29 developed countries, projects that demand for crude this year crude will grow by the least since 2009. Global supply climbed 910,000 barrels a day to 93.8 million barrels last month, leaving supplies 2.8 million barrels higher than a year earlier, the agency said.
OPEC crude output rose 1.4 percent to 30.935 million barrels a day in September, the most since August 2013, according to a Bloomberg survey.
Same Fundamentals
“The market has tried to find some equilibrium but the bias remains lower,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The fundamentals remain the same. We’ve got surging supply while weakening economies are hurting the demand outlook.”
November gasoline futures fell 3.25 cents, or 1.5 percent, to settle at $2.2002 a gallon on the Nymex. Futures touched $2.1347 on Oct. 16, the lowest level since Nov. 24, 2010.
Regular gasoline at U.S. pumps fell to the lowest level since January 2011. The average retail price fell 1.3 cents to $3.10 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
Ultra low sulfur diesel for November delivery decreased 1.2 cents, or 0.5 percent, to close at $2.4856 a gallon.
British Columbia will require that proponents of liquefied natural gas terminals from Royal Dutch Shell Plc (RDSA) to Petroliam Nasional Bhd. keep their carbon emissions at the lowest level in the world.
The government of Canada’s westernmost province, led by Premier Christy Clark’s Liberals, will require that facilities not exceed the equivalent of 0.16 metric ton of carbon dioxide per ton of LNG, the provincial Environment Ministry said today. Developers unable to meet the standard will be able to offset emissions by buying credits and paying into a technology fund.
“The centerpiece of the plan is a greenhouse-gas emissions intensity benchmark that is lower than any other LNG facility in the world,” Environment Minister Mary Polak, who announced the policy today before legislators in Victoria, said in a statement.
Clark is seeking to live up to pledges that British Columbia’s nascent LNG industry would be the world’s cleanest, while facing pressure to offer attractive financial terms for developers. The 18 proposals to ship LNG from British Columbia to meet Asian demand are competing with projects in Mozambique, Australia and the U.S.
The carbon intensity target would comprise all emissions from a facility, including combustion, electricity generation, and gas venting and leaks. Global LNG facility emissions range from 0.18 to 0.27 tons per ton of the fuel, according to government statements citing studies and analysis.
Technology Incentives
The policy will encourage developers to use technology to curb emissions by offering incentives, the government said, without explaining the incentives. To qualify for benefits, LNG terminals will be required to keep emissions below 0.23 tons of carbon per ton of LNG.
LNG facilities with emissions lower than the benchmark can sell performance credits to other shipping terminals.
Developers can offset emissions above the benchmark by investing in pollution reduction projects based in British Columbia or contributing to a technology fund at a rate of C$25 ($22) per ton of carbon.
The lower carbon stipulation for LNG plants would add to an existing levy on greenhouse gases in the province, which has a target to reduce emissions a third below 2007 levels by 2020.
Legislation regarding an LNG-specific tax is scheduled to be announced tomorrow.
With a majority in the provincial legislature, the Liberals are able to pass legislation regardless of the opposition’s stance.
WASHINGTON, Oct. 20 (UPI) -- North Dakota is on pace to meet its yearly goal for curbing the amount of natural gas burned off during oil production, the U.S. Energy Department said Monday.
"The first target of 26 percent flared is set for fourth quarter 2014, with continued decreases in flaring reaching 10 percent by 2020," the department's Energy Information Administration said.
North Dakota's energy infrastructure hasn't been able to keep pace with the rapid rise in oil production and, as a result, much of the gas associated with oil deposits is burned off, or flared.
EIA said North Dakota is already within 2 percentage points of meeting its target for the fourth quarter.
In September, the U.S. subsidiary of Norwegian energy company Statoil, along with a joint venture between General Electric and Ferus Natural Gas Fuels, announced plans to expand the so-called Last Mile project in order to capture flared natural gas and use it to power Statoil's drilling operations in North Dakota.
North Dakota lags behind other oil-producing states in gas utilization, but set a goal of capturing 90 percent of associated gas within six years.
NEW YORK, Oct. 20 (UPI) -- Brent crude oil for November delivery slipped in Monday morning trading after showing signs of rebounding, while West Texas Intermediate showed modest gains.
Brent was down more than 30 cents per barrel to trade at around $85.85 in early trading Monday. Brent ended up in Friday trading, after the benchmark price crashed after Arab members of the Organization of Petroleum Exporting Countries cut their prices to shore up market share.
West Texas Intermediate, the U.S. benchmark, increased its rally, trading up moderately from last week's gain to around $82.87 in Monday trading on the New York Mercantile Exchange.
The U.S. Energy Information Administration said WTI futures were down nearly $3 per barrel and off about $19.50 from one year ago.
EIA next week publishes a monthly report on national and regional crude oil supplies. Slumping demand and the glut of oil from North American producers has created a bear market for crude oil.
Producers and market players alike have shrugged off concerns that slumping oil prices may eventually throttle future production.
BAKU, Azerbaijan, Oct. 20 (UPI) -- Trade deals between Russia, Turkey and Azerbaijan should ease Kremlin concerns about Baku's energy agreements with Europe, an Azeri scholar said.
Elhur Soltanov, a foreign policy export at Azerbaijan Diplomatic Academy, told Turkish newspaper Hurriyet trilateral relations between Baku, Ankara and Moscow are a diplomatic success.
"This interdependence, with all the interrelated energy and trade deals, eases Russia's concerns over Azerbaijan's energy deals," he said Monday.
A European economy fearful that conflict in Ukraine could jeopardize the gas supplies Russia sends through the former Soviet republic has looked to Azerbaijan as a source of energy security.
Last week, the State Oil Co. of Azerbaijan Republic announced it signed contracts in Turkey for the construction of the Trans-Anatolian natural gas pipeline.
TANAP will transport natural gas from the Shah Deniz complex off the coast of Azerbaijan through Turkey to the Greek border. British energy company BP leads the group that last year picked the Trans-Adriatic pipeline to carry Shah Deniz gas from there to the European Union.
Though Azeri gas could cut into Russia's dominance, Soltanov said Russia has been able to keep a grip on Ukraine despite Western economic pressure.
"The signal [from the West] was very bad in the sense that it told everybody who is the real boss in the region, who is the real hegemon," he said.
LONDON, Oct. 20 (UPI) -- British Energy Secretary Ed Davey said Monday the European Union can lead the fight against climate change, but only if certain reforms are enacted.
"Europe has the opportunity to show the world how we can cut emissions while creating investment, jobs and growth, but only if we reform the system and reform it fast," he said in a statement.
"Otherwise we're facing increasing costs for businesses, uncertainty for investment and ultimately higher costs for consumers, which isn't acceptable."
Davey said his government was proposing a way to make an emissions trading system work better in the European economy. As it stands, with a skewed trading balance, the system is increasing the overall costs of meeting future carbon reduction obligations, he said.
His comments followed criticism from European Commission President Jose Manuel Barroso, who took a swipe at British consideration for leaving the European Union.
Addressing think thank Chatham House, the outgoing president said he was encouraged by British government support for climate policies in the EU, which Friday examines tighter emission reduction targets.
"When the United Kingdom engages, your voice carries weight, your arguments motivate and your pragmatism convinces," he said in his Sunday address.
Leaving, he said, would hinder the British government's own ambitions.
BRUSSELS, Oct. 20 (UPI) -- The European Commission said Monday it scheduled another round of talks with its Russian and Ukrainian counterparts to settle a lingering gas issue.
"The next trilateral gas meeting between Commission Vice-President Gunther Oettinger, Russian Energy Minister Alexander Novak and Ukrainian Energy Minister Yuri Prodan will take place on Tuesday in Brussels," the commission said in a statement.
Multilateral meetings in Milan last week were aimed at resolving a geopolitical crisis in Ukraine that spilled over into the regional energy sector. Ukraine's political upheaval in November left an already battered economy short on cash and the billions of dollars Kiev owes to Russian energy company Gazprom leaves downstream European consumers at risk.
Russian President Vladimir Putin said progress had been made during the latest round of talks. While gas supplies were ensured for the short-term, the president said the cash situation in Kiev was another story.
"We are aware of the financial condition of the Ukrainian partners," he said Saturday. "We have already agreed to meet them halfway in a sense as far as the payments for the already consumed gas are concerned, and we hope that our European partners, the European commission, will extend a helping hand to Ukraine to deal with the cash gap problem."
Austrian energy company OMV says production from Libya on the rebound. UPI/Mohamaad Hosam
VIENNA, Oct. 20 (UPI) -- Austrian energy company OMV said Monday its quarterly production was boosted by the resumption of operations in war-torn Libya.
"Production levels in the third quarter of 2014 increased by 5 percent versus the second quarter as production in Libya partially resumed," the company said in its report.
In its report for the second quarter, OMV said much of its Libyan assets were shut in by violence and the security situation there remained difficult.
OMV's statement follows a condemnation of the latest violence from the governments of France, Italy, Germany, the United Kingdom and the United States.
"Libya's hard fought freedom is at risk if Libyan and international terrorist groups are allowed to use Libya as a safe haven," their Saturday statement read.
Forces loyal to former Gen. Khalifa Haftar last week tried to reclaim the restive city of Benghazi from Islamist militias. At least 12 people died as a result of the violence.
In its latest monthly market report, the Organization of Petroleum Exporting Countries said production from member state Libya in September was around 800,000 barrels per day, about two-thirds its normal production levels.
RIYADH, Saudi Arabia, Oct. 20 (UPI) -- Authorities in Saudi Arabia said they're conducting an investigation into an incident that left an oil pipeline in the eastern part of the country ablaze.
The Saudi Press Agency reported authorities were able to control the blaze that erupted after a stray bullet hit the pipeline early Saturday. Local police said they conducted an investigation into the incident that followed a clash between area assailants and a security patrol.
A 2012 report from Press TV, a broadcast agency controlled by Saudi adversary Iran, attributed a pipeline explosion in eastern Saudi Arabia to a substantial rise in crude oil prices.
The report said a pipeline designed to carry as much as 6 million barrels of oil per day to the Ras Tanrua oil terminal was destroyed, though the account was later said to be fabricated.
The Saudi press report provided no data on pipeline capacity or details about the clash with area assailants.
TEL AVIV, Israel, Oct. 20 (UPI) -- The partnership in control of one of the largest natural gas basins off the coast of Israel announced their intention to sign an export deal with Egypt.
The consortium in charge of the Tamar natural gas field, led by Texas company Noble Energy and Israel's Delek Group, said Sunday they're negotiating the sale of at least 175 billion cubic feet of natural gas per year over the next three years with Egyptian buyer Dolphinus Holdings Ltd.
The partners managing Tamar estimate the field holds as much as 10 trillion cubic feet of natural gas.
Gas from Tamar would run through a pipeline system managed by Israel Gas lines to Ashkelon and then through a system managed by East Mediterranean Gas Ltd. for marketing to customers in Egypt.
Delek said gas sent from Tamar would be "interruptible," or designated only from excess reserves from the offshore field. The company said the gas price under the terms of any formal deal would be pegged to Brent crude oil prices.
The partners managing Tamar announced Jordanian companies Arab Potash and Jordan Bromine secured a total gross quantity of 66 billion cubic feet of natural gas from the field in early 2014.
TEHRAN, Oct. 20 (UPI) -- Despite reports the project has been abandoned, the Iranian government said it was determined to push ahead with a gas pipeline for Pakistan.
"Tehran and Islamabad are determined to implement their gas exports contract and a Pakistani delegation will travel to Iran soon to expedite construction of the gas export pipeline to Iran," the Oil Ministry announced Sunday.
No date for the visit was given.
Iran said it has most of the 775-mile section of the pipeline completed. Designed to give Pakistan as much as 21 million cubic feet of natural gas per day, the project has been delayed because of sanctions pressure on Iran.
Pakistan is facing energy reliability issues because of aging infrastructure, but has foreign lender support for renewable energy and liquefied natural gas port development projects.
A Saturday report in Pakistani newspaper Daily Times said the pipeline project has been scrapped because of lingering sanctions on Iran.
Iran last year pulled out of a finance deal for Pakistan because of sanctions pressure.
Washington (Platts)--20Oct2014/428 pm EDT/2028 GMT
The US Energy Department will conduct a comprehensive review of the Strategic Petroleum Reserve, which could result in changes to the size, location and even the composition of the crude it contains in light of changes in the US and world oil markets, according to an agency letter released publicly Monday.
DOE is in the initial stages of this review which will look at what the "optimal configuration and capabilities" of the SPR should be, Christopher Smith, a principal deputy assistant secretary with DOE's Office of Fossil Energy, wrote in a letter dated September 17.
The DOE review is expected to examine the type of crude kept in the SPR as production of light US oil continues to climb and may look at whether the SPR is best positioned along the Gulf Coast as US energy infrastructure has shifted with the dramatic increase in oil production in the northern US, primarily North Dakota.
This review will look at the composition, volume and location of the SPR, as well as "infrastructure requirements, distribution capability, and performance criteria," Smith wrote.
Smith's letter was in response to a US Government Accountability Office report on the impact of crude exports. The report, which highlighted four studies this year which claimed dropping current restrictions on US crude exports would result in lower consumer fuel prices and increases in domestic production, was released Monday by Senator Lisa Murkowski, an Alaska Republican. Murkowski, a leading supporter of US crude exports, is expected to chair the Senate Energy and Natural Resources Committee if Republicans win control of the Senate in next month's elections.
The report recommends that DOE look at the size of the SPR, which was established in tandem with US export restrictions to shield fuel consumers from global crude price shocks. The GAO report argues that the SPR has not reflected the ongoing increase in US production, and the resulting drop in imports, and is currently maintained at a level nearly three times the size mandated by the International Energy Agency.
If the US drops or weakens its current restrictions on crude exports and production climbs, as previous studies suggest, imports will likely be reduced even more, further diminishing the need for a substantially sized SPR, the GAO said.
As a member of the IEA, the US is required to keep public and private reserves of at least 90 days of net imports, but the GAO claims as of May the SPR held reserves of 106 days, worth roughly $73 billion, while private industry in the US held an additional 141 days of reserves, for a total of 247 days.
The SPR currently holds 691 million barrels of crude in underground salt caverns in Louisiana and Texas and is authorized to hold up to 1 billion barrels. From fiscal 2000 through fiscal 2013, the federal government spent $500 million to purchase crude and another $2.5 billion to operate and maintain the reserve, according to DOE.
Instead of maintaining such relatively large reserves, the US could sell this oil to fund other priorities, as it did in 1996 for federal budget deficit reduction, GAO said.
"If, for example, DOE found that 90 days of imports was an appropriate size for the SPR, it could sell crude oil worth about $10 billion," the report said.
DOE may also consider moving the SPR, the study suggested, since infrastructure changes, such as pipeline reversals to accommodate the Bakken oil boom, have made it more difficult to move SPR oil to refineries in the US Midwest and West.
The report also suggests that DOE look at whether the SPR should include heavier oil, since the majority of recent domestic production growth has been in light crude, a point Smith indicated in his letter the agency was examining.
Since the US oil boom began DOE has taken some steps to look at the impact of changing market conditions on the SPR, including a test sale of SPR crude oil in March and the announcement of a plan to set up a Northeast Regional Refined Petroleum Product Reserve in New York Harbor and New England. The agency is also studying the need for additional regional product reserves.
New York (Platts)--20Oct2014/453 pm EDT/2053 GMT
The oil futures complex settled lower Monday as a rebound in Libyan production and concerns over the global economy added to the perception of an already oversupplied market.
Front-month NYMEX crude closed 4 cents lower at $82.71/b, while ICE December Brent ended 76 cents lower at $85.40/b.
In refined products, NYMEX November ULSD settled down 1.2 cents at $2.4856/gal. NYMEX November RBOB closed 3.25 lower at $2.2002/gal.
Crude futures managed to avoid falling to multi-year lows seen last week, but were still unable to close in positive territory.
"Oil prices had a hard time maintaining any kind of rally," Phil Flynn, analyst at Price Futures Group, said.
A downturn in the US equity markets, combined with news out of Iran that the government is not calling for an emergency OPEC meeting, helped push oil prices lower, he said.
Another issue emerging Monday was the US Department of Energy's upcoming review on the Strategic Petroleum Reserve, Flynn said.
One conclusion reached could be the following: "Why have an SPR when we have North Dakota?" he said.
An agency letter released publicly Monday said the DOE will be looking at a range of issues related to the SPR, including its size, in light of changes in the US and world oil markets (See story, 1818 GMT).
The SPR currently holds 691 million barrels of crude in underground salt caverns in Louisiana and Texas and is authorized to hold up to 1 billion barrels.
Rising US crude production has been a major driver behind the slide in oil prices since the summer.
Another factor has been Libya, which has seen a recovery in production and exports, despite political turmoil and fighting.
Libyan output hit 925,000 b/d at the end of September before falling due to disruption by striking workers at eastern oil fields.
On Monday, Libyan crude production reached 890,000 b/d, up from 765,000 b/d earlier this month (See story, 1353 GMT).
Also in the Middle East, fresh data showed Saudi Arabia's exports fell to their lowest monthly volume since March 2011 (See story, 1210 GMT).
Saudi Arabia exported 6.683 million b/d in August, a 326,000 b/d drop from July, according to data from the Riyadh-based Joint Oil Data Initiative.
Weaker exports would seem to represent a counterpoint to the prevailing narrative that the world's largest oil exporter is more interested in cutting prices than output.
Though, one factor behind the lower exports was domestic demand. The amount of crude processed by Saudi refineries hit a record-high 2.167 million b/d in August as new refineries in Jubail and Yanbu have come online or ramped up.
"Looked at it from another perspective, the drop in prices over the past four months is simply the market's way of requesting a production cut," Citi Futures analyst Tim Evans said in a client note.
How much further oil prices will slide has become the focal point ahead of OPEC's next conference scheduled for November 27.
Analyst Philip Verleger said prices will continue falling until enough non-Middle Eastern production shuts in or until other producers understand that Middle Eastern countries will not accept a reduction in market share.
"The down trend is not over. It has just started," he said in a client note Monday.
This cycle is underway after Middle Eastern producers Kuwait, Iraq, Iran, the United Arab Emirates and Saudi Arabia slashed their discounts to oil benchmarks in every major market to ensure refiners will operate profitably, he said.
With an incentive to operate full-tilt, more products will enter the market, pulling product prices lower which will then drag down crude prices as well, Verleger said.
London (Platts)--20Oct2014/723 am EDT/1123 GMT
Physical high sulfur fuel oil cargoes in the Mediterranean have hit a 10-month high to Rotterdam barges amid improved fuel availability in Northwest Europe, sources said Monday.
The HSFO Med/North spread -- the difference between 3.5% FOB Mediterranean fuel oil cargoes and 3.5% FOB Rotterdam barges -- rose $1.75/mt Friday to be assessed by Platts at $7/mt, the highest since January 23 when it was $8.75/mt.
The FOB Rotterdam 3.5% HSFO barge market has seen large flows of HSFO coming out of the Baltic in line with elevated local output with the refinery turnaround season ending, trader said.
The improved supply picture in Northwest Europe has pressured the physical 3.5% FOB Rotterdam barge premium to the front-month swap, with a $2.25/mt drop to $1.25/mt Friday, Platts data show.
"We definitely have been shown a lot of barrels on both straight run and cracked RMG last week," one NWE trader said Monday.
"Producers were focusing on the production of RMG 380 instead of RMK 500," another source said.
"Tanks are getting filled and people are more interested in blending RMG now," the first source said.
Traders said that a closed East-West arbitrage window in the first half of October also contributed to the weakening premiums for the 3.5% FOB Rotterdam barge market.
Meanwhile, tight availability in the Mediterranean until the second half of November -- particularly in the west Mediterranean bunker hubs -- has seen traders struggle to find barrels to cover term and spot bunker demand, sources said Monday.
"There's tightness in the Mediterranean, particularly for low density product. Most material is being sourced from the North currently," a trader said.
London (Platts)--20Oct2014/712 am EDT/1112 GMT
Libya's state-owned NOC has called on workers to end strike action at fields in the east of the country, and to maintain production at the highest technical rate possible given the falling oil price, which is denting Libyan crude revenues.
Strikes continue at three Libyan oil fields as workers demand improved working conditions and other protesters urge NOC to provide hundreds of jobs for locals.
The sharp drop in the global oil price, which has lost 20% of its value in the past four months, has "negatively affected the state budget," NOC said in a statement on its website.
"The decline in crude oil prices on the global market to very low levels is reflected in the income of all producing countries and oil exporters, including the state of Libya, given that exports of crude oil is the only source of income for the Libyan state," NOC said.
"NOC calls on all workers in the oil and gas sector to work to maintain production rates at technically possible limits," it said, adding that all Libyans should look to limit fuel consumption.
"NOC also calls on Libyans to cease sit-ins at oil facilities in order to secure fixed incomes for the public treasury to meet the requirements of the country in these difficult times," it said.
To add to the confusion, the NOC website is currently reported to be controlled by a rival Libyan government set up recently in Tripoli, and not the officially elected administration currently in exile in eastern Libya.
The website carries a photograph of the rival government's oil minister, Mashallah al-Zawie, not that of the official government's minister, Mustafa Sanalla.
Libya produced an average of 780,000 b/d of crude in September, 230,000 b/d more than August's 550,000 b/d, according to a recent Platts survey.
September saw the highest volume since July last year when production fell to 1 million b/d as a series of strikes and protests shut in fields and facilities.
Production ramped up quickly in September after key export terminals Es Sider and Ras Lanuf reopened, reaching 925,000 b/d at the end of the month.
However, new strike action in the east of the country has pushed output back to around 765,000 b/d.
Libyan production had been running close to 1.6 million b/d in early 2011 before the beginning of the bloody uprising against Moammar Qadhafi, fell to negligible levels that summer and eventually recovered to 1.4 million b/d in early 2013.
Singapore (Platts)--20Oct2014/538 am EDT/938 GMT
An estimated 4.2 million barrels or 140,000 b/d of South Sudan's Dar Blend crude oil is expected to be exported in November, down 8.7% from 4.6 million barrels due to be exported in October, trade sources said Monday.
A total of five cargoes -- two of 600,000 barrels and three of 1 million barrels -- are scheduled for lifting in November, the sources said.
Dar Blend is a heavy, acidic crude produced at the Block 3 and Block 7 oil fields in South Sudan's Upper Nile State.
Malaysia's Petronas, which holds a 40% interest in Dar Petroleum Operating Company, on Monday issued a tender offering 1 million barrels of Dar Blend crude for loading over November 25-26. The tender will close on Tuesday.
Apart from this, the state-owned firm was heard to have sold 600,000 barrels of the crude for loading over November 7-8 to Unipec via another tender that closed last week.
Petronas is said to market the barrels on behalf of other equity holders of the crude grade, which included China National Petroleum Corporation, which holds a 41% interest in Dar Petroleum Operating Company.
Other stakeholders include South Sudan's Nilepet (8%), China's Sinopec (6%) and Egypt Kuwait Holding (3.6%), according to the US Energy Information Administration's website.
Apart from Petronas, South Sudan's Ministry of Petroleum and Mining has also offered a total of 2.6 million barrels of Dar Blend crude for November, down slightly from 3 million barrels for October.
The ministry was heard to have sold two 1 million-barrel cargoes for loading over November 18-19 and November 30-December 1 and one 600,000-barrel cargo for November 12-13 to Unipec via a tender last week, traders said.
South Sudan's Dar Blend crude production has remained relatively stable, largely left unscathed by the fighting in the country that has affected production of the country's other crude export, Nile Blend, trade sources said.
Production of Nile Blend crude from South Sudan's Unity state remains shut-in after rebels halted production following a failed coup against President Salva Kiir on December 15.
The South Sudan government had said it is working to restart the oilfields in Unity, which previously produced 40,000-50,000 b/d, but has yet to say when output might resume.
Knoxville, Tennessee (Platts)--20Oct2014/313 pm EDT/1913 GMT
The NYMEX November natural gas futures contract tumbled 9.6 cents to a $3.67/MMBtu settlement Monday -- the lowest close in 11 months -- as the market considered forecasts calling for mild weather into November as well as new US gas production records set over the weekend.
The last time the prompt month settled below $3.70/MMBtu was exactly 11 months ago, when the December contract closed at $3.674/MMBtu on November 20, 2013.
"We're at 11-month lows and the market can't seem to pick its head up," said Gene McGillian, analyst at Tradition Energy.
Updated forecasts released Monday now are calling for mild weather to extend into the first week of November. The US National Weather Service's forecast map is predicting above-normal temperatures for all of the US in its eight- to 14-day outlook.
Such weather could dampen demand and allow the industry to continue chipping away at historic storage deficits on likely strong injections, analysts noted.
On the supply side, Platts unit Bentek Energy reported that US dry gas production hit a new record over the weekend, topping out Sunday at 70.5 Bcf/d.
McGillian said light trading volumes may have sustained the price drop as well. "We've fallen past $3.70[/MMBtu] support and next we may test $3.50[/MMBtu]" on our way to the bottom, he said.
"The bears are in control" until the weather changes, he added.
"The levels that held up since the end of July" were finally breached as mild weather continues, noted Elaine Levin, president of brokerage PowerHouse. "We also continue to watch other markets, like crude and distillates, and see weakness across all the energies," she added.
November traded Monday in a range of $3.663-3.745/MMBtu.
The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).
London (Platts)--20Oct2014/947 am EDT/1347 GMT
International sanctions and the recent sharp fall in crude oil prices may have prompted Russia to seek a compromise in talks with Ukraine about natural gas supplies, Prime Minister Arseniy Yatseniuk said Sunday.
The EU and US should continue to pressure Russia in order to achieve even greater results, Yatseniuk said in an interview aired late Sunday by TSN-Tyzhden, a television news show.
"What does Russia have? They have two pedals: one is gas and the other one is oil. That is all. Therefore, the decline in oil price by more than 20% is an incredible blow to the Russian economy," Yatseniuk said.
"If we continue to keep the unity with our European and American partners, only then we will achieve the results."
Russia suspended gas supplies to Ukraine on June 16, citing disagreements on prices. The countries made progress in talks between their presidents -- Russia's Vladimir Putin and Ukraine's Petro Poroshenko -- on Friday.
The talks, now involving energy ministry officials, were supposed to continue on Tuesday in Brussels.
Poroshenko, in a sign of a breakthrough, indicated Ukraine has been willing to pay $385 per 1,000 cubic meters for Russian gas during the winter --until March 31 -- and $325/1,000 cu m during the summer, reflecting different levels of demand.
WARM HOMES
"Following the talks we can say that Ukraine will have gas and it will be warm in the homes of Ukrainians," Poroshenko said Saturday.
"This is the result of yesterday's agreement, provided that Ukrainian national interests are protected."
The progress came with Ukraine facing a shortage of at least 5 billion cu m of gas during the upcoming winter, according to Yatseniuk.
Ukraine had 16.76 Bcm of natural gas in underground storage facilities on October 18, or about 52.5% of capacity, according to Gas Storage Europe, a non-profit Brussels-based organization that provides energy statistics to the EU.
The figures showed Ukraine failed to meet its original target of 17.2 Bcm by October 15, the date when the six-month heating season usually begins.
Facing gas shortages, the government recently decided to postpone the start of the heating season to November 1.
Yatseniuk said the government was ready to start heating. "We have the resources needed to turn on the radiators," Yatseniuk said, adding weakening oil prices will probably further reduce the price of natural gas.
Dhaka (Platts)--20Oct2014/409 am EDT/809 GMT
Bangladesh has for the first time decided to set the domestic gas tariffs in line with the costs of production following requests from international oil companies for an increase, a former senior Petrobangla official told Platts Monday, October 20.
The Energy and Mineral Resources Division of the Ministry of Power, Energy and Mineral Resources, or MPEMR, asked Petrobangla earlier this month to propose an increase in the gas tariff by calculating upstream costs, former Petrobangla chairman Hussain Monsur said.
"We have started calculating the upstream costs of natural gas production," he said.
Natural gas will be treated as a commodity for the first time in the country and a tariff hike will be proposed accordingly, Monsur said.
Monsur served as Petrobangla chairman until October 18.
Once prepared, the tariff hike proposal will be submitted to the Bangladesh Energy Regulatory Commission to scrutinize and subsequently announce a gas tariff increase for all types of consumers in the country.
Bangladesh has never set gas tariffs by taking into account upstream costs, Monsur said.
Until now gas tariffs in Bangladesh have been fixed mainly by taking into consideration the profitability of gas marketing and distribution companies, a senior official of the country's sole oil and gas exploration company, Bangladesh Petroleum Exploration and Production Company Ltd, or BAPEX, told Platts Monday.
The market and political impacts had also been considered in previous tariff increases, he said.
But IOCs urged the government to revisit the price structures of domestic gas to encourage oil and gas exploration in the country's potential onshore and offshore structures.
Inadequate offshore fiscal terms in production sharing contracts and restrictive onshore access have resulted in limited exploration investment in the country, IOCs said during a meeting in May with MPEMR state minister Nasrul Hamid.
Bangladesh last raised gas tariffs for all types of domestic consumers, except CNG, by 11% on August 1, 2009.
The country's energy regulator increased the price of CNG by 20% on September 20, 2011.
Domestic natural gas prices in Bangladesh currently range from Taka 72.92/Mcf (93 cents/Mcf) to Taka 268.09/Mcf across industrial, commercial and power generation sectors, according to Petrobangla.
The country buys gas from international oil companies operating in the country in the much higher range of around $2-4.50/Mcf, a Petrobangla official said.
As at October 14, Bangladesh was producing 2.390 Bcf/day against demand of around 3.0 Bcf/day, Petrobangla data showed.
Of the total natural production, IOCs produce 54.56%, or 1.304 Bcf/d, while state-owned gas firms produce the remainder, the data shows.
Gas shortages in Bangladesh have prompted Petrobangla to ration new connections to industries, fertilizer factories and power plants, hindering economic growth since June 2009.
Kuwait City - A Kuwaiti oil trade union on Sunday condemned the unilateral closure by Saudi Arabia of an offshore oilfield jointly operated by the Arab neighbours, calling on the government to intervene.
Fadghoush al-Ajmi, head of the workers union at Kuwait Gulf Oil, urged ministers to take action to ensure that production at the Khafji oilfield resumed.
The head of operations at Khafji, Abdullah Helal, who represents Saudi national oil company Aramco, cited environmental reasons for ordering the halt to the field's 311 000 barrels per day output, Kuwaiti media reported.
Media cited an internal memo issued by Helal saying that the level of harmful emissions from the operations far exceeded the allowed pollution percentage.
Khafji is part of the neutral zone between Kuwait and Saudi Arabia which is jointly operated by the two nations and pumps around 700 000 bpd. The production is shared equally between them.
Al-Rai newspaper quoted unidentified Kuwaiti oil sources as saying they were surprised by the decision as the two countries had an understanding to address environmental issues by 2017.
Local media said the closure could be the result of differences between the two countries over a small export facility in the nearby Al-Zour area where Kuwait has decided to locate a large new refinery.
Independent MP Faisal al-Kundari has meanwhile asked Oil Minister Ali al-Omair to brief parliament about the reasons for halting production at Kafji and if Kuwait had been informed before production was stopped.
Kundari also asked Omair if Opec member Kuwait will be able to make up for lost oil production and about financial losses expected to be incurred by the Gulf emirate.
Both countries have excess production capacity and are likely to make up any loss in output if the problem is not quickly resolved.
Saudi Arabia, the world's largest oil exporter, is pumping around 9.6 million bpd and has just under 3.0 million bpd of extra capacity.
Kuwait on the other hand, has a production capacity of over 3.2 million bpd and is pumping an average of 3.0 million bpd.
The two governments signed the neutral zone agreement almost 50 years ago.
By James Hamilton | Mon, 20 October 2014 22:07 | 0
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.
Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
Source: FRED.
When oil demand fell in the 1981-82 recession, the Saudis cut production by 6 million barrels a day in an effort to soften the decline in oil prices. They also cut production in response to lower demand in the 2001 recession and the most recent recession. On the other hand, the kingdom boosted production quickly beginning in August 1990 and January 2003 in anticipation of lost production from Iraq in the two Gulf Wars. This historical behavior led many observers to believe that Saudi Arabia would always play the role of a swing producer to stabilize the price of oil.
Monthly crude oil production from Saudi Arabia, January 1973 to June 2014, in thousands of barrels per day. Data source: EIA. Shaded regions correspond to U.S. economic recessions.
But that’s hardly an accurate characterization of what happened during 2005-2007, when Saudi production declined even as prices skyrocketed. If that production decline was intentional, it was a dramatic departure from previous patterns. I think a better interpretation is that the market moves after 2005 became too big for the Saudis to control, and they gave up trying. I remain skeptical of the claim that Saudi Arabia is ever going to produce much in excess of 10 mb/d, regardless of what’s going on in the market.
Last week I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy.
As far as Libya is concerned, the politics on the ground remain quite unsettled. It makes sense to wait and see if anticipated production gains are really going to hold before anybody makes major adjustments.
In terms of surging U.S. production, the key question is how low the price can get before significant numbers of U.S. producers decide to pull out. If world economic growth indeed slows, and if most of the frackers are willing to keep going strong even if the price falls to $80 a barrel, trying to maintain the price at $90 could be a losing bet for the Saudis. They’d be giving up their own revenue just in order to keep the money flowing into ever-growing operations in Texas and North Dakota.
And if some of the U.S. producers do move into the red at current prices, it’s in the Saudis’ longer-term interests to let that pain take its toll until some of the newcomers decide to pack up and go home. If U.S. production does decline, prices would quickly move back up. But if that happens after a shake-out, the next time there would be less enthusiasm for everybody to jump into the game if they always have to keep an eye on whether they might be undercut again. This may be less of an issue for the U.S. tight oil producers, who can move in or out much more easily than operations like deepwater or arctic, where there are huge fixed costs, long lead times, and a much bigger unavoidable loss if you gamble on prices always staying high.
And as for worries of another global economic downturn, so far they are only that– worries. If and when we see a downturn materialize, then I would expect to see the Saudis cut back production.
But until then it’s primarily a question of responding to surging output of U.S. tight oil. My guess is that Saudi Arabia would lower prices rather than cut production as long as that’s the name of the game.
And if it comes down to a game of chicken, I know who’s going to win.
By James Hamilton
(Source: http://econbrowser.com/ )
By Nick Cunningham | Mon, 20 October 2014 22:24 | 0
Japan’s record purchases of liquefied natural gas (LNG) show no sign of slowing as the country continues to try and fill the energy shortfall created when it took its nuclear plants offline three years ago.
With its lack of substantial domestic sources of fossil fuel, Japan is cripplingly dependent on imported oil, coal, and natural gas. Before the 2011 meltdown of the Fukushima nuclear plant, Japan was the third largest nuclear generator in the world, behind the United States and France, with 54 reactors.
Those reactors were critical to cutting Japan’s fuel import bills, and accounted for 20 percent of the country’s electricity generation. But post-Fukushima, the sum total of Japan’s nuclear power plants were shuttered and imports of fossil fuels, particularly LNG, have skyrocketed.
Japan has undertaken a heroic effort to replace that lost capacity. It instituted one of the world’s most generous feed-in-tariffs for solar energy, which is essentially a guaranteed price for solar developers. That made Japan a hot spot for solar development nearly overnight: it installed 7 gigawatts of solar power for the fiscal year ending in March.
Other efforts included conservation and electricity rationing to avoid overstressing the grid. Taken together, the inspiring efforts by the Japanese people helped avoid severe electricity shortages.
Nevertheless, Japan is still importing an enormous volume of LNG to fuel its power plants. For the first eight months of 2014, Japan’s LNG imports averaged 11.85 billion cubic feet per day (bcf/d) according to the U.S. Energy Information Administration. That is near a record high.
Japan is by far the world’s largest importer of LNG. Dependence on imported energy is sapping the country’s economy and has fueled more than two years of consecutive monthly trade deficits. This is causing the Japanese yen to weaken, making imports yet more expensive.
Japan is trying to mitigate this vulnerability, and several of the country’s largest LNG importers are joining forces to create a buyer’s pact.
The issue at hand is the quirky pricing that reigns over LNG deals. Traditionally, LNG is sold under long-term contracts with prices linked to the price of oil. But in many places of the world – the U.S. in particular – natural gas has become significantly cheaper than oil on an energy-equivalent basis. But in Asia, importers often still pay the higher oil-linked price for LNG.
Japan hopes to change that. Two large Japanese companies, Tokyo Electric Power Company (owner of the crippled Fukushima power plant) and Chubu Electric Power Company agreed earlier this month to cooperatively negotiate contracts with LNG suppliers. By banding together, they believe they will have enhanced leverage.
Together, they plan on jointly purchasing 35 to 40 million metric tons of LNG per year (mtpa), which amounts to around half of Japan’s total LNG consumption.
But for a country so dependent on LNG imports, wouldn’t it seem that they actually have very little leverage over pricing?
Working in Japan’s favor are the massive supplies that are set to come online over the next four years. Australia is set to surpass Qatar is the largest LNG exporter by 2018, with 62 mtpa of LNG capacity under construction. In other words, Australia is expected to quadruple its LNG export capacity in four years.
Add to that the series of projects under construction in the United States. As a result, LNG supplies, while pretty tight in the short-term, will surge in the coming years, which is likely to cause prices to decline. Moreover, merely on the expectation that prices will decline, Japanese buyers are balking at the prices being demanded by suppliers.
Instead, Japan is pushing for more of a liquid spot market based on supply and demand fundamentals. And given the trajectory of the market, many analysts think this is inevitable. “The shift away from oil-based pricing can be made, will be made, and must be made,” Craig Pirrong, a professor at the University of Houston said in a study.
Even BHP Billiton, a major LNG supplier, seems resigned to the inevitable. “BHP believes that LNG will behave like any other commodity and that is that it will be priced on its merits — and that will happen over time,” BHP’s CEO Mike Henry said at a conference.
That is good news for Japan. Given the country’s dependence on imports, it can’t happen soon enough.
By Nick Cunningham of Oilprice.com
By Euan Mearns | Mon, 20 October 2014 21:54 | 0
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.
For 4 years now the oil price (Brent) has been range bound between $90 and $130 per barrel (Figure 2). This is where it settled after the convulsions of the $148 per barrel peak in 2008 followed by the financial crash. Recently it has dipped to around the $80 mark and although we have seen a slight recovery many analysts believe it could break lower.
With the world in turmoil, including OPEC producers Iraq and Libya ± Iran, and Russia cast out by the West, one might expect the oil price to be quite perky. But the opposite is true. This post takes a look at some of the key production indicators from OPEC, Europe, N America and Russia. But I believe one needs to look no further than Figure 1 to understand the weakness in the oil price. Rampant production in the USA, the world’s largest oil producer and importer, means that competition for supplies on the international markets is weakening. The world is once again drowning in oil.
Figure 1 USA oil production has grown an astonishing 4 million barrels per day in 4 years thanks largely to shale oil development supported by high oil price.
So does that mean the real energy crisis is over? Well not quite. One needs to understand that shale oil, the US miracle, is expensive to produce. Over production of an expensive resource that dumps the price below the profit level is one of the effects of broken capitalism on the back side of Hubbert’s peak.
Data
All data reported here are taken from the monthly International Energy Agency (IEA) oil market reports. OPEC data are for crude oil only and specifically exclude condensate and natural gas liquids (NGL). Production figures for other countries are for crude oil, condensate, NGL and non-conventional sources. The IEA data are used in preference to other sources because they are now the only source to report on OPEC spare capacity which is on occasions a key indicator. All data are to August 2014, the July and August figures subject to minor future revisions.
The latest chapter of the oil story begins with the plunging oil price (Figure 2). Range bound for 4 years, it is now threatening to break out to the low side. What fundamental aspect of supply and demand has changed to cause this chronic weakness in price?
Figure 2 Brent oil price from The Financial Times 13 October 2014.
Oil production and consumption are always roughly in balance since global oil storage is small in relation to the massive daily flows. Global production is rising steadily, and has been doing so since the illusory 2008 peak caused by the financial crash (Figure 3). There is absolutely nothing in the global total supply figures to warn of impending weakness in price.
Figure 3 Global oil production continues to grow reaching a recent peak of 93.4 million barrels per day in June 2014 confounding any notion of a pending peak in global production.
OPEC
For a number of decades, OPEC and in particular Saudi Arabia, have been astute at matching global supply to demand in order to deliver the price that OPEC (i.e. Saudi Arabia) wants. Figure 4 shows the stack of OPEC production + spare production capacity. Total OPEC capacity has been on a plateau of 35 million barrels per day since 2009 and if anything is now drifting slowly down. The only remarkable thing about OPEC production has been its stability in recent years when confronted with chaos in major producers Iraq and Libya. Notably, there has been no move to reduce production to support price in the face of an additional 4 million barrels per day production in the USA.
Figure 4 The black band of Ecuador marks the top of actual OPEC production, the grey band at top denotes spare production capacity (see Figure 5)
Figure 5 The oil price spike of 2008 was marked by OPEC spare capacity being squeezed close to zero, i.e. everyone was pumping flat out to meet rampant demand. The financial crash put an end to that party and saw OPEC rein in production by about 5 million bpd to compensate for the temporary destruction of demand. While most OPEC countries book some spare capacity in most cases this is small and it is widely held that the only country with meaningful capacity to spare is Saudi Arabia.
Figure 6 There is no sign of Saudi Arabia cutting production to make way for new US production in the global market. Saudi production has been stable at about 10 million barrels per day for about 4 years with spare capacity running at around 2. 5 million barrels per day. NZ = neutral zone between Saudi Arabia and Kuwait where the two countries share production equally from the Wafra oil field.
Figure 7 Iraqi production remains on a growth trend with no real sign of recent turmoil having any significant impact. Most of Iraq’s production comes from the south of the country, a long way away from the IS incursions to the north. But there are large fields in the centre and north of the country such as Kirkuk and East Baghdad.
Figure 8 According to the IEA data, Libyan production remains largely off line although this chart over on PeakOilBarrel which is OPEC data up to September 2014 suggests Libyan production may be recovering. This might add further weakness to the oil price.
Figure 9 I’m not sure what is going on with Iranian production. Iran has been subject to western sanctions and this initially impacted their exports. Sanctions may also impact Iran’s ability to maintain production equipment etc.
Figure 10 Angola is an OPEC country facing natural production declines. As all production off shore is deep water, Angolan production may go the same way as the North Sea.
North America
Figure 11 Canada and Mexico are not changing much in recent years, a small rise in Canada cancelling slow decline in Mexico. The North American story is dominated by production growth in the USA (Figure 1).
Europe
Figure 12 After a decade of decline and recent records in investment, North Sea production appears to have stabilised at above 3 million barrels per day. This stabilisation will also have a negative impact upon the oil price since North Sea decline was, in part, absorbed by the growth in North American production.
Russia and FSU
Figure 13 No grand tour of global production would be complete without a look at the Former Soviet Union where production is little changed over the last 4 years. The other FSU production is dominated by Azerbaijan and Kazakhstan.
Discussion
The explanation of weakening oil price appears quite straightforward. Production of expensive shale oil in the USA has boosted production by 4 million barrels per day in 4 years. Natural declines in other areas like the North Sea have been arrested and will be reversed in the years ahead as a number of large new projects come on stream. OPEC has made no move to reduce production to make way for additional US oil and the price has given way to the economic reality of supply exceeding demand driving prices down.
Other factors to consider are the on-going economic concerns in the OECD, parts of which are set to slide back into recession as the debt burden continues to weigh and slowing growth in East Asia. Lower oil prices will of course help on those fronts.
Political and social turmoil stretching from Ukraine through Iraq and N Africa to northern Nigeria is having remarkably small impact upon oil supplies, apart from Libya. But Libya too is perhaps emerging from the abyss and new oil from Iraqi Kurdistan that is likely by-passing the international metering system, will be adding to the over-supply woes.
Why has OPEC not cut production? This would certainly boost oil prices and countries like Saudi Arabia reportedly require an oil price over $100 / barrel to remain solvent. It is also reported that US shale oil requires a price over $90 / barrel to turn a profit. And so, if Saudi were to close some valves this would help sustain the US shale boom and result in expanding the current over supply situation.
The oil markets are in for a period of instability while Saudi Aramco tries to stare down the US shale operators. Who will blink first?
by Euan Mearns
(Source: http://euanmearns.com)
Forty-one years ago this month, the Arab oil embargo began. The countries that were part of it belonged, of course, to the Organization of Petroleum Exporting Countries — OPEC — which had banded together 13 years earlier to strengthen their ability to negotiate with international oil companies. The embargo led to widespread shortages in the United States, higher prices at the gas pump and long lines at gas stations. By the time it ended, the price of oil had risen to $12 a barrel from $3.
Perhaps more important than the price increases themselves was the new world order the embargo signaled. The embargo “set in motion geopolitical circumstances that eventually allowed [OPEC] to wrest control over global oil production and pricing from the giant international oil companies — ushering in an era of significantly higher oil prices,” as Amy Myers Jaffe and Ed Morse noted in an article in Foreign Policy magazine that was published last year at the 40th anniversary. Twice a year, OPEC’s oil ministers would meet in Vienna, where they would set oil policy — deciding to either hold back or increase oil production. There was always cheating among members, but there was usually enough discipline in the ranks to keep prices more or less where OPEC wanted them.
As it happens, the title of that Foreign Policy article was, “The End of OPEC.” Jaffe and Morse are both global energy experts — she is the executive director of Energy and Sustainability at the University of California, Davis, and he is the global head of commodities research at Citigroup — who say that if America plays its cards right, OPEC’s dominance over the oil market could be over. I think that day may have already arrived.
“OPEC is not going to survive another 50 years,” Morse told me. “It probably won’t even survive another 10. It has become extremely difficult for them to forge an agreement.”
When Morse and Jaffe wrote their article last year, the price of oil was more than $100 a barrel. Today, the per-barrel price is in the low- to mid-$80s. It has dropped more than 25 percent since June. There was a time when $80 a barrel would have been more than satisfactory for OPEC members, but those days are long gone. Venezuela’s budgetary needs requires that it sell its oil at well above $100 a barrel. The Arab Spring prompted a number of important OPEC members — including Saudi Arabia and the United Arab Emirates — to increase budgetary spending to keep their own populations quiescent. According to the International Monetary Fund, the United Arab Emirates needs a price of more than $80 to meet its budgetary obligations. That’s up from less than $25 a barrel in 2008.
Not long ago, Venezuela asked for an emergency OPEC meeting to discuss decreasing production. Iran has said that such a meeting is unnecessary. Meanwhile, Saudi Arabia has made it clear that it is primarily concerned with not losing market share, so it will continue to pump out oil regardless of the needs of other OPEC members. This is not exactly cartel-like behavior. The next OPEC meeting is scheduled for late November, but there is little likelihood of an agreement.
And why does OPEC suddenly find itself in such disarray? Simply put, the supply of oil is greater than the demand, and OPEC has lost its ability to control the supply. Part of the reason is a slowdown in global demand. China’s economy has slowed, and so has its voracious appetite for oil. Japan, meanwhile, is increasingly turning to natural gas and nuclear power.
CONTINUE READING THE MAIN STORY WRITE A COMMENT
But an even bigger part of the reason is that the shale revolution in North America is utterly changing the supply-demand dynamic. Since 2008, says Bernard Weinstein, an energy expert at Southern Methodist University, oil production in the United States is up 60 percent. That’s an additional three million barrels a day. Within a few years, predicts Morse, America will overtake Russia and Saudi Arabia and become the world’s largest oil producer.
What’s more, according to another article Morse wrote, this one for Foreign Affairs magazine, “the costs of finding and producing oil and gas in shale and tight rock formations are steadily going down and will drop even more in the years to come.” In other words, the American energy industry might well be able to withstand further price drops easier than OPEC members.
When I got Jaffe on the phone, I asked her if she thought OPEC was a spent force. “You can never say never,” she replied, and then laid out a few dire scenarios — mostly revolving around oil fields being bombed or attacked — that might make supply scarce again. But barring that, this is a moment we’ve long been waiting for. Thanks to the shale revolution, OPEC has become a paper tiger.
20 Oct 2014, 9.16 pm GMT
Washington, 20 October (Argus) — The US Energy Department is conducting a broad review of the US Strategic Petroleum Reserve (SPR), rethinking the size, configuration and role of the emergency stockpile.
The US Government Accountability Office (GAO), in a report released today, urged the Energy Department to reassess the size of the 691mn bl emergency reserve. In May, that crude – valued at $73bn – was enough to cover 106 days worth of oil imports in the event of a supply disruption, while private companies held another 141 days.
That's far more than the 90 days of public and private reserves the US is required to hold as a member of the consumer country organization the International Energy Agency.
The GAO report recommended the Energy Department "undertake a comprehensive reexamination of the appropriate size of the SPR in light of current and expected future market conditions." The Energy Department last assessed the size of the SPR in 2005, "when the general expectation was that the country would increasingly rely on foreign crude."
Principal deputy assistant secretary for fossil energy Christopher Smith, in a 17 September letter to GAO, said a study looking only at the size of the reserve would be "too narrow in scope" and would fail to examine the reserve's ability to reduce the effects of a supply disruption.
Instead, the Energy Department has launched a long-range review to determine "what the near-term and long-term role of the SPR should be," Smith said.
The review will examine composition of the reserve, as well as volume, location of petroleum products, infrastructure needs, distribution capacity and performance capability, Smith said. The review also will look at financial, managerial and legal questions.
The Energy Department did not immediately respond to an inquiry about the review.
If you would like to review other ArgusMedia.com content options, request more information about Argus' energy news, data and analysis services.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
20 Oct 2014, 9.20 pm GMT
Bogota, 20 October (Argus) — Colombia's state-controlled Ecopetrol will start selling Castilla Blend grade crude to South Korean Hyundai Oilbank at the end of this month.
"In line with the strategy to diversify destinations of its exports, Ecopetrol authorized the first sale of Castilla crude to the Hyundai Oilbank, a South Korean refinery, for 1mn barrels," Ecopetrol said.
The first delivery of 1mn bl of 18.8˚API Castilla crude is planned for 24 October, said Ecopetrol.
Shipping data indicates that Hyundai has fixed the Suezmax Delta Ocean starting 24 October from the Colombian port of Covenas, bound for South Korea.
Hyundai made clear its interest in maintaining this direct purchase and to increase crude volumes in the future, Ecopetrol said.
Ecopetrol's South Korea-bound shipment coincides with the company's effort to diversify its crude export destinations and pivot toward the Asia-Pacific market.
The company already sells crude to China and India.
Of Ecopetrol´s total crude exports in the second quarter, 42pc went to Asia, 24.5pc to the US Gulf Coast, 17pc to Europe, 8pc to Central America and the Caribbean, 5.7pc to the US West Coast and 2.1pc to South America.
In the second quarter, Ecopetrol's crude oil export basket was indexed to Brent (62pc) and Maya (38pc), according to the company. Ecopetrol exported around 58pc of its crude production in 2013.
Ecopetrol produced 601,000 b/d of crude in the second quarter.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserve
By Global Risk Insights | Mon, 20 October 2014 21:22 | 0
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.
Russia, Saudi Arabia, and the US will feel the effects of oil prices in radically different ways.
It would be logical to think that the emergence of ISIL would have increased oil prices, but Brent crude oil prices have plummeted since July. Having now traded as low as $80 per barrel, oil is at its lowest price since 2012. The steep decline can be attributed to three trends: surging supply led by US fracking production, stagnating European demand, and a strengthening dollar.
Declining prices could have a negative impact on oil-producing economies around the world, but some have significantly more risk than others. There is no silver lining for an already weak Russian economy, while the US stands to benefit from its strengthening currency. Saudi Arabia’s fate remains largely in its own hands, depending on how much influence it can exert on other OPEC members.
Russia
Of all the major trends driving oil prices to two-year lows – dwindling European demand, a glut of global supply, and a strengthening dollar – not one bodes well for Russia’s economy. These negative effects are only compounding the miserable year Russia is already having, between sanctions from the US and Europe and rapid capital flight. The World Bank projects Russia to only grow 0.5% this year, which at this point may be optimistic.
Related: Falling Oil Prices: Good News for the Pump
As a result, the ruble has fallen to historic lows against the dollar and euro. To prevent further depreciation the Central Bank of Russia is spending billions – up to $3.2 billion a week – to prop up its currency. As the ruble becomes weaker, Russian consumers’ buying power of foreign goods will deteriorate. This leaves Russia facing a perfect storm of sanctions, decreased import revenue from oil, and decreased buying power of its remaining income.
To add to the grim outlook, 79% of Russia’s oil is exported to Europe, with the remaining bound for China. Europe’s economic activity, which is highly correlated with its oil consumption, has stalled even in previously healthy countries such as Germany. If Russia is to return to growth, it will have to find buyers for its oil and gas outside of Europe.
Falling oil revenue will put pressure directly on the Kremlin’s finances. Half of Russia’s government revenue comes from oil and gas. Swings in the price will determine whether Russia will have a deficit in 2015. With sanctions cutting Russia off from many of the largest long-term debt markets, financing the deficit will be difficult. Russia’s budget falls into deficit at oil prices between $100 and $110 per barrel.
United States
The outlook for the US is much better than for Russia. In large part, this is due to the end of quantitative easing and that oil across the globe is traded in dollars. The Federal Reserve is beginning to tighten monetary policy, although it is still far from raising rates, at the time Europe and Japan are loosening. As a result, the Dollar Index has risen 21% since July. Since oil is traded in dollars the world over, the US is not exposed to exchange rate risk like Russia is.
Further, the price of oil will naturally fall with a stronger dollar. Around 10% of the fall in Brent crude prices since July are likely due to the rallying dollar. Much of the rest of the fall has been precipitated by the fracking boom in North Dakota and Texas.
Data source: Energy Information Administration
The rise of fracking (especially in North Dakota, which produced very little oil before 2005) has changed the domain of US energy policy. Energy independence may still be a longshot, but much more realistic than it was ten years ago. The wealth and jobs flowing to North Dakota has also been a game changer: unemployment during the peak of the recession was just 4.2% and currently sits at national low of 2.8%. The average apartment in Williston, ND, now rents for more than in Manhattan.
The irony of the fracking boom is that it may ultimately cause its own end. For a fracking project to be profitable, the price of oil must be higher than traditional oil projects. The full-cycle breakeven price is about $80 per barrel, which it has been since 2010. Given that many players in Texas and North Dakota have already started to set up new wells, the breakeven price now may be closer to $40. That has led to the acceleration of US production, and ultimately to a record excess stockpile. If the current trend of supply outpacing demand continues, the fracking boom may end itself.
Saudi Arabia
Another emerging risk for the US fracking boom is a price war waged by Saudi Arabia and OPEC. As the largest producer in OPEC, Saudi Arabia has an incentive to throttle oil supply to maximize its own profits. Its costs of production are also much lower than fracking producers. If Saudi Arabia’s oil leaders have the wherewithal, they may be able to produce enough oil in the short-term to push many US producers out of the market for the medium-term.
As FT Alphaville notes, however, this is complicated by the Saudi’s lack of ability to control the production of Algeria, Angola, Libya, and Nigeria. Faced with the problem of falling prices and exploding US production, a complete reworking of OPEC production guidelines – and the nasty negotiations that would go with it – may now become a pressing issue. This would be the only way to guarantee that Saudi Arabia could coordinate the cartel to its benefit – and the fracking boom’s detriment.
By Alex Christensen
(Source: http://globalriskinsights.com )
Oil market battles weak demand, ample supplies
DUBAI: Saudi crude exports fell in August for the fourth month in a row to their lowest levels in three years, official data showed on Monday, as the top oil exporter fights for market share amid weak demand and ample supplies from rival producers.
Saudi crude exports have been sliding in the past few months as shale oil squeezes Saudi oil out of US markets and as demand in Asia, particularly in China, has been slower than expected.
The OPEC heavyweight exported 6.663 million barrels per day in August, down from 6.989 million bpd in July, according to data from the Joint Organizations Data Initiative (JODI).
The August export figures were the lowest since March 2011 and down from 7.795 million in August last year. They compared with 6.946 million bpd in June and 6.987 million bpd in May.
North America's shale boom has started to squeeze Saudi oil out of the US market, the International Energy Agency said in a report last month, estimating Saudi exports would run below 7 million bpd for the last four months of the year.
US imports of crude oil from Saudi Arabia averaged around 1.0-1.2 million bpd from May to August, compared with around 1.3-1.6 million bpd from mid-2013 through April 2014, analysis of data from the US Energy Information Administration and Thomson Reuters Trade Flows shows.
A large volume of Saudi oil output went to the domestic market in August due to the seasonal burning of crude to generate power for air-conditioning in the hot summer months, and as the Kingdom launches two refineries to add 800,000 barrels per day (bpd) in combined capacity to process crude.
Saudi refiners processed 2.167 million bpd of crude in August, up from 1.915 million bpd in July and 1.551 million in August 2013, according to the JODI data. Crude volumes used by domestic refineries in August were the highest since at least January 2002, the start of JODI's records.
Meanwhile, Saudi oil use for power generation was 769,000 bpd in August, down from 899,000 in July and little changed from a year ago.
Industry sources in Saudi Arabia say domestic consumption has no relation to exports, given the kingdom's significant spare capacity.
Riyadh can easily ramp up production, running at around 9.6 million bpd in August, or draw on storage to cover any surge in domestic demand and keep its exports steady. But that could leave it in the long run with less than the 1.5 million to 2 million bpd of spare capacity it would like to retain in case of any unexpected global supply shortage, as risk remains high in the complex politics of the Middle East.
Lower crude burning may free up some Saudi crude oil for exports in coming months, analysts say.
But a 400,000 bpd refinery in Jubail, known as SATORP, reached full capacity in the middle of 2014, and another 400,000 bpd refinery in Yanbu started trial runs last month.
Saudi Arabia is likely to keep its oil output steady throughout the rest of the year, an industry source told Reuters. Industry observers estimate that monthly Saudi exports will amount to around 6.9 million to 7.1 million bpd until December.
"Once the peak summer demand is over for power, there will be some changes in Saudi production which have nothing to do with exports," said Sadad Al-Husseini, a former Aramco executive, referring to output adjustments related to domestic demand.
"I think they will try to stay at around 7 million bpd in exports."
Rania El Gamal (Reuters) / 21 October 2014
Saudi crude exports fell in August for the fourth month in a row to their lowest levels in three years, official data showed on Monday, as the top oil exporter fights for market share amid weak demand and ample supplies from rival producers.
Saudi crude exports have been sliding in the past few months as shale oil squeezes Saudi oil out of US markets and as demand in Asia, particularly in China, has been slower than expected.
The Opec heavyweight exported 6.663 million barrels per day in August, down from 6.989 million bpd in July, according to data from the Joint Organisations Data Initiative, or Jodi.
The August export figures were the lowest since March 2011 and down from 7.795 million in August last year. They compared with 6.946 million bpd in June and 6.987 million bpd in May.
North America’s shale boom has started to squeeze Saudi oil out of the US market, the International Energy Agency said in a report last month, estimating Saudi exports would run below seven million bpd for the last four months of the year.
US imports of crude oil from Saudi Arabia averaged around one to 1.2 million bpd from May to August, compared with around 1.3 to 1.6 million bpd from mid-2013 through April 2014, analysis of data from the US Energy Information Administration and Thomson Reuters Trade Flows shows.
Last week, Saudi officials briefed oil market participants in New York on the kingdom’s shift in policy, making clear for the first time that the kingdom is prepared to tolerate a period of lower prices — perhaps as low as $80 a barrel — to retain market share, Reuters reported on Monday.
It has already cut selling prices for its crude to hold on to Asian customers.
Domestic demand
A large volume of Saudi oil output went to the domestic market in August due to the seasonal burning of crude to generate power for air-conditioning in the hot summer months, and as the kingdom launches two refineries to add 800,000 barrels per day in combined capacity to process crude.
Saudi refiners processed 2.167 million bpd of crude in August, up from 1.915 million bpd in July and 1.551 million in August 2013, according to the Jodi data. Crude volumes used by domestic refineries in August were the highest since at least January 2002, the start of Jodi’s records.
Meanwhile, Saudi oil use for power generation was 769,000 bpd in August, down from 899,000 in July and little changed from a year ago.
Industry sources in Saudi Arabia say domestic consumption has no relation to exports, given the kingdom’s significant spare capacity.
Riyadh can easily ramp up production, running at around 9.6 million bpd in August, or draw on storage to cover any surge in domestic demand and keep its exports steady.
But that could leave it in the long run with less than the 1.5 million to two million bpd of spare capacity it would like to retain in case of any unexpected global supply shortage.
Lower crude burning may free up some Saudi crude oil for exports in coming months, analysts say.
But a 400,000 bpd refinery in Jubail, known as Satorp, reached full capacity in the middle of 2014, and another 400,000 bpd refinery in Yanbu started trial runs last month.
“Lower demand for direct burn in the fourth quarter versus August allows for higher exports currently than in August, but structurally the increase of refinery runs in Saudi Arabia is a new challenge to its role of swing producer,” said Olivier Jakob, oil analyst at Petromatrix in Switzerland
By Timothy Puko
NEW YORK--Natural-gas prices hit their lowest closing price since November as warm October weather suggests heating demand won't pick up soon.
The front-month November contract settled down 9.6 cents, or 2.6%, to $3.67 a million British thermal units on the New York Mercantile Exchange. That is the lowest closing price for the front-month contract since Nov. 19 when it closed at $3.556/mmBtu. A five-session losing streak has gas below $3.70/mmBtu for the first time since Nov. 22.
Weather forecasts, already warm for October, grew even warmer over the weekend. Weather is one of the most important variables for natural gas prices because the fuel heats half of U.S. homes. The new forecasts suggest this October will be the third warmest in 15 years: comfortable weather with little demand for gas heating, according to Commodity Weather Group LLC in Bethesda, Md.
"We're seeing a massive demand contrast to last year. Huge demand losses year on year," company president Matt Rogers said. "I think that's what's getting the market today."
Options traders have started putting a slew of new bets that the price will fall to between $3.50/mmBtu and $3.70/mmBtu, Frank Clements, co-owner of Meridian Energy Brokers Inc. outside New York, said in a note. He had been encouraging clients to buy as gas prices fell, but Monday he warned clients to be careful as those options traders could push prices lower.
"The market is teetering on turning completely bearish," he said.
Write to Timothy Puko at tim.puko@wsj.com
NEW YORK--Natural-gas prices hit their lowest close in nearly a year as warm October weather suggests heating demand won't pick up soon.
The front-month November contract settled down 9.6 cents, or 2.6%, to $3.67 a million British thermal units on the New York Mercantile Exchange. That is the lowest closing price for the front-month contract since Nov. 19 when it closed at $3.556/mmBtu. A five-session losing streak put gas below $3.70/mmBtu for the first time since Nov. 22.
Weather forecasts, already warm for October, grew even warmer over the weekend. Weather is one of the most important variables for natural gas prices because the fuel heats half of U.S. homes. The new forecasts suggest this October will be the third warmest in 15 years: comfortable weather with little demand for gas heating, according to Commodity Weather Group LLC in Bethesda, Md.
"We're seeing a massive demand contrast to last year. Huge demand losses year on year," company president Matt Rogers said. "I think that's what's getting the market today."
Options traders have started putting a slew of new bets that the price will fall to between $3.50/mmBtu and $3.70/mmBtu, Frank Clements, co-owner of Meridian Energy Brokers Inc. outside New York, said in a note. He had been encouraging clients to buy as gas prices fell, but Monday he warned clients to be careful as those options traders could push prices lower.
"The market is teetering on turning completely bearish," he said.
Without immediate demand, producers are going to get an extended season for stockpile additions, reducing an already dwindling risk for any shortages in the winter to come, Teri Viswanath, natural-gas strategist at BNP Paribas SA in New York, said in a note. That will leave futures anchored below $4/mmBtu until heating demand grows large enough to start taking withdrawals from storage, she added. Analysts have estimated that may not happen until mid-November, a couple weeks later than usual.
But there are some who still believe this is the time to buy. It's worth considering locking in these lows prices even with the risk that prices will go lower in the coming weeks, Aaron Calder, senior market analyst at energy-consulting firm Gelber & Associates in Houston said in a note. Winter heating demand will arrive at some point and it's better for buyers to jump in now rather than miss the turnaround, he said.
"This is the tail end," said John Woods, president of JJ Woods Associates and a Nymex floor trader. "If you're a buyer, you're just going to wait a little bit longer and then buy it."
FUTURES SETTLEMENT NET CHANGE
Nymex November $3.67 -9.6c
Nymex December $3.765 -9.8c
Nymex January $3.851 - 10c
CASH HUB RANGE PREVIOUS DAY
El Paso Perm $3.50- $3.56 $3.49- $3.56
El Paso SJ $3.515-$3.56 $3.50- $3.56
Henry Hub $3.65- $3.71 $3.68- $3.74
Katy $3.60- $3.64 $3.57- $3.665
SoCal $3.65- $3.80 $3.66- $3.715
Tex East M3 $2.10- $2.42 $1.66- $2.10
Transco 65 $3.60- $3.64 $3.645-$3.695
Transco Z6 $2.25- $2.43 $1.67- $2.06
Waha $3.52- $3.55 $3.53- $3.57
Write to Timothy Puko at tim.puko@wsj.com
