Narrow Price Gap Opens Door for African Oil Exports to U.S. East
Oil traders are boosting shipments of Mediterranean and West African crude to the U.S. East Coast as the narrowest gap in more than a year between U.S. and international prices makes imports more affordable.
Traders booked cargoes from Turkey and West Africa on Oct. 6 for delivery to the U.S. Atlantic Coast. There were three crude fixtures from Europe and Africa to the East Coast over the four weeks prior to that day, according to shipping data compiled by Bloomberg.
The shipments are coming as the discount for U.S. West Texas Intermediate crude versus Brent, Europe’s benchmark grade, averages $2.89 a barrel this month. That would be the smallest monthly spread since July 2013. The U.S. has reduced waterborne imports by 47 percent since 2005 as it raises domestic production to the highest level since 1970 and improves its ability to transport oil by rail.
“The arb is open for waterborne movements to East Coast refineries,” said Tom Finlon, the director of Energy Analytics Group Ltd. in Jupiter, Florida. “International sweet crudes are able to compete for now, at least on the East Coast, with railed domestic crude.”
The arbitrage won’t last any longer than a few weeks as U.S. oil supplies weigh on domestic crude prices and WTI’s discount to Brent widens again, John Auers, the vice president at Turner Mason & Co., a Dallas-based consultant, said by phone yesterday. The spread is at $3.24 a barrel today, compared with $3.26 yesterday, as WTI fell as low as $88.38 in New York and Brent dropped to $91.57 in London.
“I could see this lasting for a few weeks, but for six months?” Auers said. “For even three months? It can’t happen. It’s a supply and demand issue.”
Voyager, Cosmic
The delivered cost of Dated Brent to the East Coast was about $93.38 a barrel yesterday, according to data compiled by Bloomberg and freight cost estimates from Charles R. Weber Co., a shipbroker in Greenwich, Connecticut.
That compares with $96.75 a barrel for Light Louisiana Sweet shipped from the Gulf Coast on U.S.-owned tankers. Bakken oil from the shale field in North Dakota at a rail terminal in the state was offered at $81.85 yesterday, according to Calgary-based broker Net Energy Inc., which would put its delivery cost to the East Coast at about $93.85.
The State Oil Co. of the Azerbaijan Republic booked the Voyager to carry crude from Ceyhan, Turkey, to Philadelphia, with loading expected on Oct. 25. TTMI Sarl, a subsidiary of JPMorgan Chase & Co., chartered the Cosmic from West Africa to the U.S. Atlantic Coast for loading around Oct. 27.
Bakken producers and rail freight operators might drop their prices to remain competitive with imports, George Los, an analyst at Weber, said on Oct. 6.
Violent clashes broke out across southeast Turkey, with several people reported dead and curfews imposed, as the region’s Kurds protested the advance of Islamic State just across the Syrian border.
Demonstrators clashed with police and, in some areas, with members of local Islamist groups, according to Turkish media. Haberturk website said that 15 people were killed, most of them in Diyarbakir, Turkey’s largest Kurdish city. A curfew was imposed there at 10 p.m. local time yesterday, as well as in Mardin, Siirt, Batman and Van, according to Hurriyet newspaper.
The outpouring of anger came as Syrian Kurdish fighters battled to prevent Islamic State militants from overrunning Kobani, a mostly Kurdish city in north Syria a couple of miles south of the Turkish border. Kurds have blamed the Turkish government for not doing enough to help the town’s defenders.
About 2,000 jihadist fighters penetrated the town late on Oct. 6 after a three-week siege, Turkey’s Anadolu news agency said, and street battles continued yesterday. The U.S., which is leading a coalition in an aerial bombing campaign against Islamic State, has increased strikes around Kobani.
U.S. and allied planes carried out five airstrikes there yesterday and the previous day, destroying an Islamic State unit and several armed vehicles, the U.S. Central Command said in an e-mailed statement.
The airstrikes against militants “were effective and have slowed their advance,” Ibrahim Kurdo, a local official in Kobani, said by phone, describing the Kurdish position there as “better than it was two days ago.”
Airstrikes ‘Effective’
Turkish President Recep Tayyip Erdogan said yesterday that Kobani, also known as Ayn al-Arab, is “falling or about to fall.”
Its capture would extend Islamic State’s grip on territory along Syria’s border with NATO-member Turkey. The group’s self-declared caliphate extends from there into Iraq, where it has taken control of major towns in Anbar province to the west of Baghdad in recent days.
It would also deliver a blow to the autonomous administration that Syria’s Kurds have established as the government of President Bashar al-Assad lost control of large swaths of land to rebels during three years of civil war.
Turkey has pledged to join the U.S.-led campaign against Islamic State, without specifying what it will do. Its main goal in Syria has been the removal of Assad’s regime. Prime Minister Ahmet Davutoglu told CNN this week that Turkish troops would only take part in operations in Syria if they were part of a wider U.S.-led strategy against Assad.
Angry Kurds
Erdogan said yesterday that ground troops supported by a no-fly zone are necessary to defeat Islamic State. In Washington, State Department spokeswoman Jen Psaki told reporters that a no-fly zone or a buffer zone inside Syria, another idea promoted by Turkey, are “not an active part of our consideration.”
Kurdish leaders say Turkey and the U.S.-led alliance aren’t doing enough to help them battle the al-Qaeda breakaway group, which is equipped with tanks and heavy artillery, out-gunning Kobani’s lightly armed defenders. Turkey has massed tanks and troops near the border.
Most civilians have already fled Kobani, according to the U.K.-based Syrian Observatory for Human Rights, with tens of thousands escaping to Turkey in the past few weeks. Hundreds more escaped since Oct. 6 when fighting reached the town, it said. The group estimates that 400 people have been killed in the three-week battle for Kobani.
The Syrian Kurds fighting there have links to the Kurdistan Workers’ Party, or PKK, which has been fighting for autonomy in Turkey for three decades, and is classified as a terrorist group by Turkey and the U.S.
“We are against the PKK as much as we are against” Islamic State, Erdogan said yesterday.
Overnight Curfew
The tensions over Kobani are endangering the peace process that Erdogan initiated with Turkey’s Kurds, seeking an end to a three-decade conflict that has left tens of thousands dead. The PKK has threatened to end a cease-fire if Kobani falls.
In Diyarbakir and other Kurdish cities in Turkey, supporters of political parties linked to the PKK fought with police and attacked government buildings, according to Haberturk. Police fired tear gas and water cannons, and gunfights broke out between the demonstrators and rival groups supporting an Islamist movement, it said.
Curfews are due to last until 7 a.m. There were also protests and clashes in the main western cities of Istanbul and Izmir, and the capital Ankara. The government canceled police leave, according to Haberturk.
There have been demonstrations in solidarity with Kobani by Kurds in European cities including The Hague, where about 100 people briefly occupied the Dutch parliament before leaving early yesterday.
Firefighters contained the blaze triggered by the derailment of a Canadian National Railway Co. (CNR) train carrying petroleum products and toxic material in a rural area in Saskatchewan yesterday.
While there were still flames at the site in the early evening, firefighters managed to “significantly diminish” the blaze and prevent it from spreading, Jim Feeny, a company spokesman, said by phone yesterday. No one was injured in the accident on the Canadian Prairies. Two of 26 derailed cars spilled petroleum distillate at the site, causing the fire, Feeny said.
The crash extended a series of fiery derailments dating to July 2013, when an unattended crude-oil train rolled downhill, derailed and exploded in Lac Megantic, Quebec, killing 47. That tragedy and crashes like a CSX Corp. (CSX) train that burned in downtown Lynchburg, Virginia, have spurred U.S. and Canadian regulators to seek tougher tank-car standards.
“Our government has done tremendous work on rail safety in this country but it does show that accidents like this can happen,” Transport Minister Lisa Raitt said during Question Period in Parliament in Ottawa after the accident. “The Transportation Safety Board will conduct their study to determine what the cause of this was.”
The westbound CN train was headed for Saskatoon, Saskatchewan, after leaving Winnipeg, Manitoba. The crash occurred at about 10:40 a.m. local time near the village of Clair, Feeny said. The 50-person community is about 226 kilometers (140 miles) north of Regina, the provincial capital.
Regional Evacuation
Clair and nearby farms were evacuated, the Royal Canadian Mounted Police said in an e-mail. A 1-kilometer perimeter was set up around the crash site, the RCMP said.
Accidents involving oil are rising along with volumes. Crude carloads reached 408,000 in 2013, a 37-fold surge from 2009, according to the Association of American Railroads trade group in Washington. Drilling techniques such as hydraulic fracturing are allowing production in shale rock formations in North Dakota, Texas, Pennsylvania and Colorado beyond current pipeline networks.
Canadian and U.S. transportation officials want to phase out older tank cars that carry crude and mandate new cars with thicker steel and safer valves. Railroads in the U.S. have agreed to cut train speeds in urban areas and install sensors on tracks to detect faults.
Trade groups representing companies including Exxon Mobil Corp. and Warren Buffett’s BNSF Railway Co. pushed back last week against a U.S. plan to ban older tank cars in two years, saying it would create a shortage of rolling stock and curb the oil boom.
The narrowest gap between U.S. and European crude benchmarks in more than three years is drawing oil tankers from the Mediterranean and West Africa to the U.S. East Coast.
Traders booked cargoes from Turkey and West Africa yesterday for delivery on the Atlantic Coast. There were three total crude fixtures from Europe and Africa to the East Coast over the four weeks prior to yesterday.
The fixtures came as the discount of U.S. West Texas Intermediate to European Brent has averaged $2.84 a barrel this month, on pace to be the smallest monthly average gap since November 2010. The U.S. has reduced waterborne imports by 47 percent since 2005 with booming domestic production and increased railroad transportation.
“The arb is open for waterborne movements to East Coast refineries,” said Tom Finlon, director of Energy Analytics Group Ltd. in Jupiter, Florida. “International sweet crudes are able to compete for now, at least on the East Coast, with railed domestic crude.”
Voyager, Cosmic
The delivered cost of Dated Brent to the East Coast today would be about $93.38 a barrel, according to pricing data compiled by Bloomberg and freight cost estimates from Greenwich, Connecticut-based shipbroker Charles R. Weber Co.
That compares with $96.75 for Light Louisiana Sweet oil shipped from the Gulf Coast on Jones Act tankers. Bakken oil at a rail terminal in North Dakota was offered at $81.85 a barrel today, according to Calgary-based broker Net Energy Inc., which would put its delivery cost to the East Coast at about $93.85.
SOCAR booked the Voyager to carry crude from Ceyhan, Turkey, to Philadelphia, with loading expected on Oct. 25. TTMI Sarl,a subsidiary of JPMorgan Chase & Co., chartered the Cosmic from West Africa to the U.S. Atlantic Coast for loading around Oct. 27.
It’s unclear how long it will be economic for traders to send cargoes across the Atlantic to the U.S., George Los, an analyst at Weber, said yesterday. Bakken producers or rail freight operators might drop their prices to remain competitive with imports.
The oil market has been unkind to Alfa SAB as it gets deeper into the business.
Six weeks after the Mexican food and auto-parts maker disclosed a 17 percent stake in Colombia’s Pacific Rubiales Energy Corp. (PREC), oil prices are hovering near a 17-month low and the price of the stock had tumbled 17 percent. Alfa purchased additional shares this month, boosting its stake to 18 percent, according to Canadian filings yesterday.
Alfa, whose products include bacon strips, plastic bottles and car-engine parts, says it will vie for oil-drilling contracts in Mexico as the country opens its energy industry to private investment for the first time since 1938. While there’s speculation the Pacific Rubiales stake might be a precursor to a joint venture or full takeover, a growing number of analysts have expressed concern the oil company’s reserves are inflated, a potential problem made more acute by the tumble in oil.
“It is still very difficult to determine Alfa’s strategy,” said Marimar Torreblanca, an analyst at UBS AG in Mexico City who last week cut her rating on Alfa to hold from buy. “Our initial assumption when Alfa began to announce the buying of Pacific Rubiales shares was that the intention was to eventually form a joint venture. When they began to buy more and more, it became a bit more difficult to understand.”
The value of Alfa’s disclosed stake in Pacific Rubiales, which reached as high as $1.1 billion in late August, had fallen to about $860 million as of yesterday. Pacific’s shares fell another 5.1 percent today in Toronto trading, while Alfa’s shares fell 0.1 percent in Mexico.
Pacific Rubiales President Jose Francisco Arata told the Bogota-based newspaper La Republica in an interview published yesterday that the company and Alfa are signing a joint venture to bid on oil projects in Mexico.
Equity Stake
The company’s general counsel, Peter Volk, declined to comment on the possibility of a joint venture or to confirm Arata’s remarks. In an e-mailed statement, Alfa also declined to comment on the article.
“Alfa is analyzing opportunities to participate in the Mexican hydrocarbon industry, whether alone or with other businesses,” according to the statement.
Alfa first disclosed a 10 percent stake in the Colombian producer on May 20, triggering a month-long, 20 percent rally in Pacific Rubiales’s shares as some investors bet that a takeover was in the offing.
“We thought those purchases were a little weird, because a joint venture could be more appropriate for what Alfa wants,” said Victor Benavides, a London-based Latin America analyst at Mirabaud Asset Management Ltd. Benavides said the fund sold its Pacific Rubiales shares amid the rally.
Oil Prices
West Texas Intermediate crude oil, the basis for the New York futures contract, sank below $90 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut its prices to Asia. U.S. production is the highest since 1986, while OPEC output expanded to the most in a year. The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook.
Meanwhile, Alfa shares have gained 23 percent this year, partly because investors saw it as one of only a few Mexican companies with oilpatch experience. The company’s Newpek unit has drilling partnerships outside of Mexico, in such areas as Texas’s Eagle Ford.
Even so, Newpek generated just $42 million of revenue in the second quarter, or 1 percent of Alfa’s total. Chief Executive Officer Alvaro Fernandez said May 21 that it’s time for the San Pedro Garza Garcia-based company to come up to speed as “real oilmen.” The company sold $1 billion in bonds earlier this year to finance energy investments.
Oil Reserves
Thus Alfa’s interest in Pacific Rubiales, which is run by a group of Venezuelans who in 2007 started drilling what would become Colombia’s largest oilfield. At the start of this year, Pacific Rubiales’s stock had 27 analyst buy ratings and zero sells.
Since then, five analysts have changed their recommendations on the Colombian producer to sell.
Ian Macqueen of Paradigm Capital Inc. wrote in February that Pacific Rubiales’s reserves were “generously booked,” with about 46 percent of year-end 2012 reserves coming from mostly non-producing assets. Pacific Rubiales included reserves from a field that its partner wasn’t ready to count, Credit Suisse Group AG said in a June report.
Just last week, Credit Suisse analyst David Phung slashed his 12-month price target on Pacific Rubiales’s Canadian-traded shares to C$11.50, implying they still have a potential downside of 36 percent.
Toronto Law
“We believe that those that have cut their price targets or recommended a sell, they just don’t fully understand our business model and future outlook,” said Volk, the Pacific Rubiales general counsel. “We definitely do not agree that our reserves are in any way overreported or inflated.”
Alfa’s stake in Pacific Rubiales is just below the 20 percent threshold that would require a company to start a takeover bid in most cases under Canadian securities law. Pacific Rubiales trades in Toronto and is incorporated in Canada.
“As of right now, Alfa is not really making lots of money on its stake,” Eric Conrads, who helps oversee about $500 million in Latin American stocks as a money manager at ING Groep NV, said in a telephone interview. “Sometimes you don’t know the rationale why someone is marrying someone else.”
U.S. Gulf crude is set to drop below international prices, after trading at a premium for the longest stretch in a year, as new pipelines bring additional supplies to the region.
Enbridge Inc. (ENB), Enterprise Products Partners LP (EPD) and Plains All American Pipeline LP (PAA) plan to start bringing oil from Canada, North Dakota and West Texas by the end of the year. That’s likely to push Light Louisiana Sweet, the benchmark for low-density, low-sulfur oil on the Gulf Coast, below Dated Brent, according to Turner, Mason & Co. It’s been at a premium since Sept. 22.
The U.S. produced the most oil since 1986 last month as producers use horizontal drilling and hydraulic fracturing to extract crude from underground shale rock. As LLS falls below Brent, shipments to the Gulf Coast, where more than half the U.S. refining capacity is located, become less attractive. Imports from countries other than Canada sank to the lowest level in 23 years in June.
“We have growing production, infrastructure that’s about to come online,” said John Auers, vice president at Dallas-based energy consultant Turner, Mason. “We’ll get to where Dated Brent is trading at a premium to LLS, and we’ll get there sooner rather than later.”
LLS was 94 cents a barrel more than Dated Brent yesterday, the 10th straight day it’s been at a premium. That’s the longest stretch since August 2013. The premium dropped to 77 cents a barrel at 1:58 p.m.
Enbridge Pipeline
Enbridge in November will begin filling the Flanagan South pipeline, which will carry crude from the Chicago area to Cushing, Oklahoma, a company spokesman said last month. The line will carry crude brought to the Chicago area via Enbridge systems that extend into Alberta and North Dakota.
While oil stockpiles at the Cushing storage hub have fallen by 51 percent since January, inventories in the Midwest outside of Cushing are at 68 million barrels, the highest on record for this time of year, according to Energy Information Administration data.
Following the Flanagan linefill, Enbridge and Enterprise will fill the Seaway twin pipeline starting Dec. 1, according to a person familiar with pipeline operations. Linefill will take about seven days, the person said. That pipeline will more than double Seaway’s capacity to Houston from Cushing to 850,000 barrels a day.
“New supplies becoming available with the imminent completion of the Flanagan South/Seaway pipelines should help to erode (the LLS) premium over Brent-linked crude grades,” George Los, senior tanker market analyst at Greenwich, Connecticut-based shipbroker Charles R. Weber Co., said yesterday in an electronic message.
Sunrise Pipeline
Plains expects to complete its Sunrise pipeline in West Texas by the end of the year, company president Harry Pefanis said in August. The line will connect growing Permian Basin production stored in Midland, Texas, with the BridgeTex pipeline in Colorado City, which can transport the oil to the coast.
While the Gulf Coast will eventually have to reckon with a flood of new supplies, several factors may align to delay that until 2015, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a phone interview yesterday.
Refineries in the Gulf are running at record rates for this time of year, helping to deplete inventories, and new rail terminals on the East and West Coast are expected to start operating before the end of the year, he said.
“Additional supplies of Mid-continent crude will make their ways to the East and West coasts as more crude-by-rail facilities come online in the fourth quarter,” Lipow said. That “helps alleviate a surplus from reaching the Gulf Coast.”
Production Impacts
Falling Gulf prices could have a ripple effect into inland oil fields, where prices are lower because of transportation costs and storage bottlenecks. Crude in the Permian, the largest U.S. basin, is $9.65 a barrel less than LLS. Bakken crude at a rail terminal in North Dakota was bid at $10.25 a barrel less than LLS this morning, according to Calgary-based brokerage firm Net Energy Inc.
“With new pipelines bringing more supply to the Gulf Coast, Brent prices sliding, refinery maintenance season coming, and US policy restricting oil exports, U.S. Gulf Coast prices could eventually fall to levels that will challenge the economics of developing marginal tight oil projects,” Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, said by e-mail today.
U.S. households will see heating costs drop this winter as milder weather reduces demand, the Energy Information Administration said.
The EIA said expenditures will fall by 15 percent on average for homes that rely on heating oil from October through March versus about 5 percent for natural gas consumers. Electricity costs will drop by 2 percent. The projections are based on a record rebound in gas stockpiles, a drop in crude oil prices and the National Oceanic and Atmospheric Administration’s forecast that the region east of the Rocky Mountains will be much warmer than last winter.
Heating costs surged early this year when waves of polar air spurred record demand for natural gas while depleting stockpiles of heating oil and propane. While the outlook for less intense cold will reduce household consumption, prices in the Northeast may climb at times because of limited gas pipeline capacity, the shutdown of a Vermont nuclear reactor in and heating oil stockpiles at an 11-year low, the report showed.
“U.S. households in all regions of the country can expect to pay lower heating bills this winter because temperatures are forecast to be warmer than last winter and that means less demand for heat,” EIA AdministratorAdam Sieminski said in an e-mailed statement.
Natural Gas
About half of U.S. households rely on natural gas for heating and 39 percent for electricity, EIA data show. Heating oil and propane each have a five percent share nationwide.
The threat of bottlenecks on pipelines going into the Northeast “is something that we are watching pretty closely” because they have been operating close to capacity and could lead to higher electricity prices, Sieminski said at a conference in Washington today. “It could take a couple years to get pipelines built.”
Households relying on natural gas will see heating costs drop 4.6 percent to $649 after rising the previous winter to three-year high of $680, the EIA said. The decline will be driven by a 9.8 percent drop in fuel consumption even as the price of gas increases by almost 5.8 percent in the period.
Utilities started stocking up for next winter in April and prices this year are on average higher than they were a year earlier, the EIA said.
Rising Supplies
Gas stockpiles rebounded at a record pace after dropping to an 11-year low of 822 billion cubic feet in March. The EIA expects stockpiles to jump to 3.532 trillion cubic feet by the end of this month, which would be the lowest for the time of year since 2008.
“Even if this winter is as cold as last year’s, the net withdrawal from natural gas inventories over the heating season would not be as large as last winter’s drawdown because domestic gas production this winter is expected to be significantly higher than it was last winter,” Sieminski said.
Natural gas futures for November delivery rose 6.1 cents, or 1.6 percent, to $3.959 per million British thermal units at 1:43 p.m. on the New York Mercantile Exchange. Prices are down 6.4 percent this year.
New England gas prices are trading significantly higher than they were a year ago, which are boosting on-peak power prices for January to $180 a megawatt-hour, EIA data show. These higher costs reflect possible constraints on gas pipelines feeding households and electricity producers and the shutdown of Entergy Corp.’s 604-megawatt Vermont Yankee plant, according to the winter fuels outlook.
Constrained Locations
“To say it’s not going to be that cold as last winter, that might be from a probability perspective accurate but we simply don’t know what it will be till the end of winter,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “In constrained locations a few days of really cold weather can result in significant price spikes on the daily market because you have a lot of demand.”
Households using heating oil will pay $1,992 this winter, 15 percent less than a year earlier, as prices and demand are projected to decline, the statistical arm of the Energy Department said.
“Heating oil prices are expected to be lower this winter because crude oil prices are lower,” said Sieminski.
The fuel will average $3.63 a gallon, down from $3.88 last winter. The amount of oil consumed is projected to slip 9.6 percent.
West Texas Intermediate oil fell to $1.31, or 1.5 percent, to $89.03 at 1:44 p.m. on Nymex.
Propane Demand
Propane consumers in the Midwest will see costs drop by 34 percent on average to $1,500 amid higher stockpiles, while in the northeast costs will be down 13 percent. Homes that rely on electricity will see drop of 1.8 percent to $938, according to the EIA’s winter fuels outlook.
“The only thing there’s angst or anxiety about this winter is in relation to the interruptibles,” those natural gas customers including apartment buildings and industrial complexes that, in return for lower rates, agree to switch fuels when demand peaks and cold weather constrains pipelines, said John Maniscalco, chief executive officer of the trade group New York Oil Heating Association Inc.
“When they come online, you can imagine what that does to New York Harbor,” he said. “That’s the issue. They drain the heating oil supply there.”
Oil prices that have plunged to a 27-month low are inflicting damage on a Russian economy already contending with escalating sanctions from the U.S. and European Union over its role in Ukraine.
The CHART OF THE DAY shows how an average oil price of $90 a barrel, close to where prices are now, would give Russia a budget deficit of 1.2 percent of gross domestic product next year, according to Sberbank CIB, the investment bank of Russia’s biggest lender. The right axis shows the budget balance as a percentage of GDP under different oil-price scenarios. The left axis measures spending and revenues in trillions of rubles.
The U.S. and EU have targeted individuals, companies and the finance, energy and defense industries to punish Vladimir Putin’s government after Russia annexed Crimea and gave support to separatists in eastern Ukraine. While Schlumberger Ltd. and Exxon Mobil Corp. scaled back oil-related operations in September, that didn’t stop Russian production of crude and condensates from rising to near a post-Soviet era record.
“In the short-term, the falling oil price will be a big blow to the economy, especially if it reaches $80 a barrel,” Alexei Kudrin, the finance minister from 2000 to 2011 who helped return Russia’s budget to surplus, said by phone today. “However, in the long run, the sanction will have a more serious impact.”
Russia will require an oil price of about $104 to balance its budget in 2015, Sberbank estimates. Brent crude, a benchmark for more than half the world’s oil including Urals, Russia’s main export blend, declined more than $20 since its 2014 peak in June and traded at about $92 a barrel today. It closed at $92.31 on Oct. 3, the lowest since June 2012.
Russia may have to cut spending if oil falls below $80 and stays there, according to Vladimir Pantyushin, chief strategist at Sberbank. The futures curve for Brent crude shows prices ranging from $93 to $96 a barrel next year, having averaged $107 so far in 2014.
The U.S. shale boom is producing record amounts of new oil as demand weakens, pushing prices down toward levels that threaten to reduce future drilling.
Domestic fields will add an unprecedented 1.1 million barrels a day of output this year and another 963,000 in 2015, raising production to the most since 1970, according to the U.S. Energy Information Administration. The Energy Department’s statistical arm forecasts consumption will shrink 0.2 percent to 18.9 million barrels a day this year, the lowest since 2012.
More supply from hydraulic fracturing and horizontal drilling, and less demand, are contributing to the tumble in West Texas Intermediate crude. The U.S. benchmark is down 17 percent since June 20 and fell below $90 a barrel on Oct. 2 for the first time in 17 months.
“If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Ralph Eads, vice chairman and global head of investment banking at Jefferies LLC, which advised 38 percent of U.S. energy mergers and acquisitions this year, said in an Oct. 1 interview. “It will be uncharted territory.”
WTI declined to $88.85 a barrel yesterday on the New York Mercantile Exchange, the lowest since April 22, 2013. Prices in domestic fields such as North Dakota’s Bakken shale are several dollars lower because transportation bottlenecks raise the cost of reaching refiners.
Lower Oil
The EIA cut 2014 and 2015 crude price forecasts yesterday because of rising production and falling consumption. WTI will average $94.58 next year, down from a September projection of $94.67. The outlook for Brent oil, the benchmark for more than half of the world’s crude, was lowered to $101.67 from $103. U.S. output reached 8.7 million barrels a day in September, the most since July 1986, the EIA said. U.S. demand is down because Americans are driving less and using more fuel-efficient cars, according to the EIA.
Shale oil is expensive to extract by historical standards and only viable at high-enough prices, Ed Morse, Citigroup Inc.’s head of global commodities research in New York, said by phone Sept. 23. 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, the Paris-based International Energy Agency estimates.
“There is probably something to the notion that if prices fell suddenly to $60 a barrel, the production growth would turn negative,” he said.
Price War
As U.S. supply rises and imports decline, the Organization of Petroleum Exporting Countries may be heading for a price war, according to Frankfurt-based Commerzbank AG. OPEC’s September output rose to a one-year high of 30.935 million barrels day.
Saudi Arabia, the world’s largest exporter, reduced selling prices on Oct. 1, signaling it is prepared to let prices fall rather than cede market share, according to Commerzbank. OPEC accounts for about 42 percent of world supply, according to London-based BP Plc, Europe’s third-largest oil company.
The SIG Oil Exploration & Production Index, a gauge of the shares of 21 U.S. oil and gas producers, has dropped 17 percent since Aug. 29, compared with a 1.9 percent decline in the Standard & Poor’s 500 Index of equities.
“There is some concern in the market broadly that ultimately the chickens of declining demand and increasing supply will come home to roost,” Bobby Tudor, chairman and chief executive officer of Tudor Pickering Holt & Co., an energy-focused investment bank in Houston, said in a Sept. 23 phone interview. Tudor was previously a partner with Goldman Sachs Group Inc.
Fewer Deals
Capital market transactions that would have been done three or six months ago will probably be postponed because of the downturn, Grant Porter, vice chairman in Barclays Plc’s energy group, said in an Oct. 2 phone interview. Barclays is the biggest adviser to U.S. energy companies selling shares this year, data compiled by Bloomberg show.
U.S. output is rising as companies are now getting more wells out of each rig and more oil out of each well, said Eads, whose team includes 26 technical experts. In the Permian basin of west Texas, the country’s largest onshore field, there are twice as many rigs but five times as many wells, according to Eads.
Each rig in the Permian added a record 171 barrels of new oil a day in October, up 21 percent from a year ago, EIA data show. In the Texas’ Eagle Ford, each rig is getting 536 new barrels a day, up 20 percent, according to the agency.
‘Holy Toledo’
“The thing that blows me away is every day somebody walks into my office with some new project and I say ‘Holy Toledo,’” said Eads, who was a fraternity brother at Duke University with Chesapeake Energy Corp. co-founder and former Chief Executive Officer Aubrey McClendon. “It’s unreal. We see that once a month.”
Globally, second-quarter consumption grew the least since 2011, according to the IEA. The adviser to industrialized countries cut its demand forecasts last month by 0.2 percent for this year and 0.1 percent for 2015.
The slowdown is “nothing short of remarkable,” the IEA said in a Sept. 11 report. It attributed the decline to slowing economic growth in China and Europe. Higher U.S. production and Libyan exports are contributing to ample supply, the agency said.
Advances in freeing natural gas from miles-deep shale rocks drove down prices 86 percent in April 2012 from the 2008 high. Prices peaked at $15.78 per million British thermal units in 2005 and dropped to a low in 2012 as shale resources pushed U.S. output to new highs.
Trading Oil
Oil prices are harder to move because crude trades more globally than natural gas, according to Stephen Trauber, vice chairman and global head of energy at Citigroup in Houston. While oil can be carried on ships, trucks and pipelines, gas has to be frozen before it can cross oceans.
Crude prices might not fall enough to shut in production. About 70 percent of U.S. reserves would remain economic with global prices at $75 a barrel, according to Wood Mackenzie, an industry consultant based in Edinburgh.
OPEC also may prevent further declines because members need high prices to support social spending. Saudi Arabia needs $87.63 a barrel to balance its budget, compared with $66.50 for the United Arab Emirates and $92.96 for Iraq, the International Monetary Fund estimates.
LNG Exports
The U.S. has approved four facilities to liquefy gas for exports. While the U.S. prohibits most crude exports, finished products such as gasoline trade freely. Producers are lobbying to loosen the rules for crude too.
The last time the U.S. had a domestic oil boom was in the 1980s, following the Arab embargo. It ended when new supplies overwhelmed the market. Prices dropped to $9.95 a barrel in April 1986 from $32.35 the previous August, and the annual average stayed below $30 a barrel until 2000.
“What always happened is you’d get too much oil and gas and the price gets too cheap and you quit drilling -- can’t make money,” T. Boone Pickens, founder and chairman of BP Capital LLC in Dallas, said in a Sept. 15 phone interview. “You break the price down and you’ll stop the boom right quick.”
When it comes to Brazil’s presidential election, you’d be hard-pressed to find bondholders watching more closely than those of Petroleo Brasileiro SA. (PETR4)
Bonds from the state-controlled oil producer gained after Aecio Neves, who has challenged President Dilma Rousseff’s fuel-price caps that have cost Petrobras billions of dollars, surprised analysts to take second place in first-round voting over the weekend to force a runoff. The rally pushed down yields on notes due 2023 by the most in six weeks.
With the head-to-head vote less than three weeks away, the price swings in Petrobras bonds are unlikely to abate as Neves and Rousseff jockey for votes, according to Fabiano Santin, a fixed-income analyst at XP Investimentos CCTVM SA. Over the past month, the bonds have been the most-volatile debt securities in Brazil, data compiled by Bloomberg show.
“I don’t think anyone has a crystal ball to know what the next survey will show,” Santin said in a telephone interview from Rio de Janeiro.
Rousseff, representing the Workers’ Party, got 42 percent of votes, compared with 34 percent for Neves, a member of the Brazilian Social Democracy Party.
Nomura Holdings Inc., Barclays Plc and Gradual Investimentos say Neves has at least a 50 percent chance of winning because he’s likely to draw votes from other opposition candidates who are out of the race. Tendencias, Eurasia Group and Capital Economics say Rousseff is more likely to win.
Ups, Downs
For a sense of just how volatile Petrobras bonds have been, take a look at yields on the company’s 2043 bonds since Aug. 6. That’s when they rose to 6.55 percent as polls showed Rousseff 16 percentage points ahead of Neves. They fell to 4.92 percent on Sept. 4 after opposition candidate Marina Silva rose to a statistical tie in polls. Then, as Rousseff went on the attack and labeled Silva unprepared to govern, the yield jumped back up to 6.51 percent on Oct. 1.
Neves’s strong showing in the first round of the election pushed the yield back down to 6.31 percent as of yesterday.
Fuel price caps have contributed to more than $44 billion of operational losses at Petrobras during Rousseff’s first term because the company can’t fully pass along the costs of the refined fuel it sells to consumers.
Requirements to have Petrobras buy equipment and services from local suppliers have also caused projects to take longer and cost more, according to the Instituto Brasileiro de Petroleo, an industry lobbying group known as IBP.
Neves Pledge
Neves has pledged to eliminate the price caps, which the government implemented to slow inflation. He has also vowed to appoint Petrobras board members according to merit instead of political affiliation, while criticizing legislation approved by the ruling Workers Party that requires the company to take on more investments than it can handle.
Petrobras would be the “near-term winner from an opposition win,” Jose Pluto, a fixed income analyst at Thornburg Investment management Inc., said in a telephone interview from Santa Fe, New Mexico.
Officials at Petrobras declined to comment on the volatility of its bonds, and neither Rousseff’s office nor her campaign responded to e-mail messages seeking comment. Neves’s campaign didn’t respond either.
Shares rose 5.8 percent to 21.58 reais at 2:55 p.m. in Sao Paulo, the highest in almost three weeks.
Energy Experience
Rousseff was energy minister under President Luiz Inacio Lula da Silva from 2003 to 2005, and she was also the chairwoman of Petrobras from 2003 through 2010.
She helped Lula draft so-called profit-sharing contracts to increase Petrobras’s control of the largest group of discoveries this century deep in the Atlantic Ocean.
In televised debates, Rousseff said her government has done more to investigate corruption at Petrobras than previous administrations, and that the company will increase oil production as it develops new discoveries.
The fuel-price caps are designed to protect consumers from swings in international oil markets, she says.
“I think it’s very strange for anyone to talk about the destruction of Petrobras,” Rousseff said in a Sept. 8 interview with Estado de Sao Paulo.
The government will probably allow fuel-price increases even if Rousseff is re-elected, Siddharth Dahiya, the head of emerging-market corporate debt at Aberdeen Asset Management Plc, said in a telephone interview from London. Rousseff’s finance minister, Guido Mantega, said in a Sept. 2 interview that Petrobras should increase fuel prices later this year.
“Anyone who comes to power will have to reduce the subsidies,” said Dahiya, adding that Aberdeen has had an overweight position in Brazil since before Neves’s surge.
Petrobras bondholders are signaling that they favor Neves. With the price caps so closely linked to Rousseff, the bonds are likely to move “up and down with whoever is likely to be the next president,” Omar Zeolla, a corporate credit analyst at Oppenheimer & Co., said by phone from New York.
NEW YORK, Oct. 7 (UPI) -- Those taking part in a survey commissioned by the Natural Resources Defense Council said they support a fracking ban in New York, the group said Tuesday.
"People here know that fracking is a snake oil cure for economic woes, one that comes with steep costs -- in the form of water pollution, air contamination, health issues and destroyed communities," advocacy director Kate Sinding said in a statement.
A survey of 802 likely voters in September found nearly 80 percent supported a moratorium on hydraulic fracturing in the state.
New York hosts a part of the Marcellus shale formation, one of the premier shale gas basins in the United States. There's a current state moratorium on hydraulic fracturing.
The Court of Appeals in Albany in July ruled in two separate cases that municipalities can use zoning laws to ban hydraulic fracturing within their borders.
New York Gov. Andrew Cuomo is mulling whether or not to lift the ban in the state. Supporters of hydraulic fracturing say it may provide a source of economic stimulus, though NRDC's poll found most people in the state felt the benefits would be fleeting.
The NRDC poll was commissioned from Franklin, Maslin, Maullin, Metz & Associates -- FM3, for the Natural Resources Defense Council. It was conducted from Sept. 18-22 and had a margin of error of plus or minus 4 percentage points.
VANCOUVER, British Columbia, Oct. 7 (UPI) -- Malaysian energy company Petronas said Tuesday it may have to suspend plans to develop a Canadian liquefied natural gas project because of fiscal uncertainty.
Members of the government in British Columbia are debating tax and regulatory policies on planned West Coast LNG projects. Petronas said it was encouraged by support thus far from legislatures in the province for the company's Pacific Northwest LNG project, but expressed reservations because of the lack of a clear fiscal framework.
With falling energy prices, Petronas President Tan Sri Dato' Shamsul Azhar Abba said his company needs to hedge its bets on its project investments. Potential regulatory policies in Canada could threaten the competitiveness of the western LNG project.
"This is further exacerbated by preliminary project costs, which indicates cost of local contractors to be higher and not benchmarked to global contractor's cost," he said in a statement.
The Canadian economy depends largely on the United States for exports of its energy products. Canadian Prime Minister Stephen Harper, however, has pressed for more export infrastructure to tap into Asian markets for oil and natural gas.
Last year, British Columbia Premier Christy Clark offered more than $120 million in royalty credits for work in the natural gas sector.
"Fundamentally, we believe that the LNG project has the ability to monetize, add value and link British Columbia natural gas to the global market; to the benefit and prosperity of Canadians, especially to British Columbians," the Petronas director said.
MOSCOW, Oct. 7 (UPI) -- Matters governing the construction of the South Stream gas pipeline from Russia should be settled between the Kremlin and Brussels, a Serbian diplomat said.
Serbian Foreign Minister Ivica Dacic arrived Tuesday in Moscow for a bilateral trade summit. Serbia would play host to a section of the South Stream pipeline and the diplomat said preparatory work for the project was proceeding as planned.
"All other matters will be settled between Russia and Brussels," he said. "It's a matter of political agreements."
European Energy Commissioner Guenther Oettinger in June said the South Stream project should be put on hold because it's not in compliance with legislation passed in the European Union. Last month, members of the European Parliament passed a resolution calling on "EU countries to cancel planned energy sector agreements with Russia, including the South Stream gas pipeline."
European regulators in February ruled Serbia hasn't taken the steps necessary to keep natural gas suppliers out of the pipeline transit sector.
Russia says South Stream would diversify transit options for European gas. Most of the gas Russia sends to Europe runs through Ukrainian territory.
BRUSSELS, Oct. 7 (UPI) -- European Union members are called on to choose low-carbon fuels over more polluting ones like oil sands under new fuel rules, a commissioner said Tuesday.
A proposal Tuesday from the European Commission calls on regional refiners to report carbon emissions from feedstocks rather than list so-called oil sands as more carbon intensive than other types of crude oil.
The proposed directive, however, retains a provision for calculating carbon intensity of different fuel types over their life cycle.
"It is no secret that our initial proposal could not go through due to resistance faced in some member states," European Climate Commissioner Connie Hedegaard said in a statement.
European leaders in September met in Ottawa with Canadian Prime Minister Stephen Harper and trade representatives to discuss comprehensive economic and trade agreements.
Harper's administration is seeking to diversify an oil export economy that relies almost exclusively on the United States. Last year, the Canadian government said European emissions standards on the heavier grade of crude oil found in Canada were "unscientific and discriminatory."
The European Commission said the proposal maintains a requirement to reduce greenhouse gas emissions from fuels by 6 percent by 2020. Any increase in the volume of oil sands in the European market needs to be offset elsewhere, the commission said.
HOUSTON, Oct. 7 (UPI) -- The number of rigs exploring and developing land resources in the United States is up more than 10 percent year-on-year, Baker Hughes said Tuesday.
The oil services company released its monthly rig count data for September, highlighting the number of rigs actively exploring for or developing oil and natural gas reserves.
The number of rigs in service onshore in the United States in September was 1,866, up from the 1,695 counted in September 2013.
U.S. oil production is at its highest since the late 1980s thanks in part to advances in exploiting reserves locked in shale formations.
A September report from the U.S. Energy Information Administration, a division of the Energy Department, found the increase in drilling and improvements in drilling efficiency have led to more oil from U.S. shale.
The exponential rise in U.S. oil production has upset a market dynamic driven in the past by members of the Organization of Petroleum Exporting Countries. More oil on the international market, coupled with anemic demand, has pushed oil prices to historic lows.
KIEV, Ukraine, Oct. 7 (UPI) -- Ukraine is ready to find a mutually acceptable solution to ensure the reliable transit of Russian natural gas, the country's prime minister said.
Ukrainian Prime Minister Arseniy Yatsenyuk met in Kiev with visiting Victoria Nuland, a U.S. State Department official in charge of regional affairs. Yatsenyuk's office said "special attention" was paid to challenges of European energy security.
"The Ukrainian side is ready to a mutually acceptable solution on the basis of market pricing for gas and its transit," he said.
Ukraine under the terms of a proposal brokered with European and Russian officials agrees to settle its $3.1 billion in gas debt to Russian energy company Gazprom in exchange for assurances of reliable transit and a discount on gas prices.
The Kremlin was expected to announce a date for the next round of talks this week. Kiev had balked at earlier proposed deals from Russian, saying they were politically motivated.
Russia meets about a quarter of Europe's gas demand, though most of that volume runs through a Soviet-era pipeline network in Ukraine.
European leaders are looking to break Russia's grip on the regional energy sector. Gazprom, meanwhile, has focused its efforts on growing Asian economies.
LANSING, Mich., Oct. 7 (UPI) -- Michigan authorities said Canadian pipeline company Enbridge offered assurances two oil pipelines running under the Mackinac Straits are secured.
Line 5 of the Lakehead pipeline system splits into two 20-inch pipelines that carry the heavier grade of crude oil beneath the straits separating the Upper and Lower Michigan Peninsulas. They were installed in 1953.
Since an oil spill from Line 6b of the system in 2010, Enbridge has faced scrutiny about the integrity of the pipeline system. That spill was one of the worst onshore incidents of its kind in U.S. history.
The Michigan Petroleum Pipeline Task Force said it met with Enbridge officials to discuss Line 5 integrity.
A presentation delivered to the task force says pipeline sections are nearly an inch thick and are designed to safely deliver oil or natural gas "for decades."
"Company officials also asserted that testing and inspection of the pipelines show they maintain nearly 99 percent of their original integrity," the task force said.
Liz Kirkwood, executive director of state advocacy group Flow for Water, said Monday her concern was a pipeline designed to carry hundreds of thousands of barrels of oil per day was running through 20 percent of the world's fresh water. The task force, she said, is inadequate.
MOSCOW, Oct. 7 (UPI) -- Russian oil producer Lukoil said Tuesday it began the steps to restart operations in Romania, where activity was halted during a financial crimes probe.
Lukoil said last week it handed over documents at its refinery in Ploesti amid allegations of tax evasion and money laundering.
The company said it halted production and commercial operations at its Romanian refinery earlier this week when its bank accounts and commercial reserves were suspended. Following an appeal lodged in the Romanian courts, the company said Tuesday it started the procedures necessary to resume operations.
The company last week said there were no issues between it and Romania's tax or law enforcement officials. Arrears were made to state authorities and high quality products were supplied to the Romanian market, the company said.
Lukoil has been servicing the Romanian market since 1998 and is one of the largest companies of its kind operating there.
Cairn strikes black gold offshore Senegal
Oil futures fall on IMF forecast, signaling sluggish demand
Mediterranean sweet crude oil differentials to Brent up further on tight supply
Japan exports record high gasoline volume in Aug on low demand, weak yen
THE
A proposal published by the European Commission yesterday removed what could have been an EU obstacle to shipments of the crude. The proposal comes at a time when tensions between the EU and its top oil supplier, Russia, are running high.
EU sources, speaking on condition of anonymity, said the geopolitical situation had been a factor in removing the “dirty oil” tag.
Canada and the EU have been working on a trade deal for several years. EU officials have said a final pact is expected to be signed next year and become effective in 2016.
The commission had been lobbied heavily by Canada and its allies such as Britain. Canada sees Europe as a potential market for rising production from the tar sands of northern Alberta, the world’s third-largest crude reserve.
Copyright © 2014 City A.M. Limited
Falling oil prices are inflicting deeper economic pain on Russia’s economy, which is already reeling from EU and U.S. sanctions.
Russia is currently considering its budget for 2015-2017, and based on the numbers, the Kremlin is planning for leaner times. With oil revenue accounting for around half of the country’s budget, any dip in prices has a ripple effect.
And in recent years, Russia’s economy has become more dependent on oil to meet its budget commitments. Excluding oil revenue, Russia has run a budget deficit that hit 10.3 percent in 2013, the highest level in three years.
In other words, the government needs oil revenues to plug budget holes, and that need is growing.
Russia occupies a strong economic position when oil prices are high, but for every $1 decline in the price per barrel of oil, Russia loses $2.1 billion in revenue on an annualized basis. Slumping oil prices in recent months could see revenues to the state decline by $30 to $40 billion.
The Russian economy may only expand 0.4 percent this year, and just 1 percent in 2015. But even that meager growth rate is not a certainty. Russia is increasingly facing the possibility of recession, according to a Bloomberg survey of economists.
Oil prices dipped to around $92 per barrel in early October. While that won’t plunge Russia into an immediate economic crisis, the government needs oil prices to stay around $105 in order to balance the budget. Thus, if oil prices don’t rebound soon, problems will only grow worse for the Kremlin.
The upcoming budget plans for the possibility of persistent inflation, a weakening ruble, and the potential need for the state to dip into cash reserves in order to finance its budget. What is worse, even this negative outlook is based on highly optimistic assumptions – it assumes oil prices of around $100 per barrel.
“It is quite optimistic given where oil prices are at now and given how much the Russian budget depends on oil revenues,” Liza Ermolenko, an analyst at Capital Economics, told The Moscow Times. “For the next year, it's more likely that the oil prices will be lower than what they are penciling in.”
Running a deficit will be tricky because western sanctions have restricted access to financial markets. Major Russian companies targeted by the U.S. and Europe are unable to take out long-term loans. As a result, they are turning to the Russian state for funds. That has worked so far, but a Bloomberg report outlines an emerging fight within the Russian elite over a dwindling pile of money.
The mid-September arrest of Vladimir Evtushenkov, the head of oil company OAO Bashneft, was a sign that the situation is starting to deteriorate. He is the richest Russian arrested since Mikhail Khodorkovsky was thrown in jail in 2005 and whose oil company, Yukos, was taken over by the state. Evtushenkov, an ally of Prime Minister Dmitry Medvedev, is thought to have been arrested because of a growing rift in Russia’s elite that is at least partially due to the troubled economy.
“This is creating a dire financial situation, particularly for state companies friendly to Putin, which are now vying for shrinking state resources,” Yevgeny Yasin, a former Russian economy minister, told Bloomberg. Russian President Vladimir Putin and his allies are hunting for more assets as the economy worsens, according to the same article.
Oil prices could remain low for a while. Reuters reports that the Russian central bank is beginning to plan for a disaster scenario in which oil prices drop to $60 per barrel. Such a scenario would precipitate a dramatic weakening of the ruble, forcing the central bank into action.
But there is no easy way out. The Russian economy is far too dependent on the global price of oil, a volatile benchmark largely out of the Kremlin’s control.
By Nick Cunningham of Oilprice.com
Oct 7 (Reuters) - The U.S. Energy Information Administration trimmed its forecast of world oil demand growth next year and made even deeper cuts in its outlook for OPEC production, the latest signs of a shift toward surplus supplies next year.
The EIA cut its 2014 global demand forecast to 91.47 million barrels a day, compared with 91.55 million bpd expected last month, according to a monthly report from the agency on Tuesday.
As a result, it now expects consumption to rise by 1.24 million bpd, down 100,000 bpd from the previous month's report but still higher than the 1 mln bpd increase estimated for 2014.
On the backdrop of weakening demand, the agency curbed its forecasts for OPEC oil and other liquid fuels production to 35.51 million barrels a day in 2015, down 350,000 bpd from last month's forecast.
For crude oil output alone the EIA cut its forecast by 300,000 bpd to 29.24 million bpd. In September, OPEC pumped nearly 31 million bpd.
The agency made little change in its outlook for U.S. crude oil production, which has consistently outstripped growth forecasts. The EIA expects U.S. 2015 oil production of 9.50 million bpd compared with 9.53 million bpd a month earlier.
The agency also cut its expectations for Brent prices to $101.67 a barrel in 2015, compared with $103 a barrel expected previously.
"Weakening global demand helped North Sea Brent crude oil spot prices fall to an average of $97 per barrel in September, the first month Brent prices have averaged below $100/bbl in more than two years," the EIA said in the report. The EIA projects that Brent crude oil prices will average $98 a barrel in the fourth-quarter of 2014.
After hitting highs on unrest in the Middle East in June, Brent has retreated in the past two weeks, and is currently trading that $91.83 a barrel. (Reporting By Jessica Resnick-Ault; Editing by Chizu Nomiyama and W Simon)
7 Oct 2014, 8.56 pm GMT
Washington, 7 October (Argus) — US Energy secretary Ernest Moniz said yesterday that the US' role as a leading oil importer will likely temper the economic effects of a liberalized crude export policy, but added that the administration is still examining the issue.
Speaking before the Council on Foreign Relations in New York yesterday, Moniz said that "a number of members of the administration … are actively looking at the issue" of changing US export policy, though he said he had no specific change to announce. But he said the significant volume of oil imported into the US would likely temper the macroeconomic effects of such a policy shift.
"We remain very large oil importers," Moniz said. "That's why there's a little bit of unreality about some of the discussions around oil exports."
Moniz's comments come as oil producers have ramped up their efforts to pressure the administration and Congress to reduce or eliminate the export restrictions that have been in place since the oil shocks of the 1970s.
In March the American Petroleum Institute released a study saying that easing export restrictions would narrow the WTI-Brent spread and increase global oil supplies by 200,000 b/d by 2035. A group of 14 independent producers — including Marathon, ConocoPhillips and Hess — also joined together in August to create a working group to lobby Congress and the administration to eliminate the export restrictions.
Moniz has said before that the administration is examining the export restrictions, but little official policy change has materialized.
Earlier this year, US independent Pioneer Natural Resources and midstream company Enterprise Product Partners won permission from the Bureau of Industry and Security to export distilled condensate as a refined product. The US Energy Information Administration last month reported that the companies exported roughly 400,000 bl of condensate in July, and the companies say they've made other shipments. But the White House said the approval does not amount to a change in administration policy.
Copyright © 2014 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.
By Jonathan Saul
Oct 7 (Reuters) - European Union sanctions on Iran's main oil tanker firm NITC have been annulled after the EU failed to appeal against a court ruling that ordered the measures to be lifted, the shipping company said on Tuesday.
An EU official told Reuters the European Union was working to resolve the issue, adding: "The time for appeal had elapsed, but work is still ongoing on remedial action for maintaining the entity on the list."
NITC - a major transporter of Iran's oil - had contested the EU's blacklisting, arguing that the firm is privately owned by Iranian pension funds. It has denied any links with the Iranian government or with the Revolutionary Guards.
The sanctions - imposed in 2012 over Tehran's disputed nuclear programme - prohibited any trade between the EU, its companies and citizens, and NITC, including the provision of services such as insurance or banking.
In July the Luxembourg-based General Court, the second-highest court in the EU, ruled there were no grounds to blacklist NITC in the bloc. Rulings are typically suspended for two months pending appeals.
"We are relieved to see the lifting of these sanctions. We have always enjoyed good business relationships with our EU partners and look forward to resuming those now this difficult period has come to an end," NITC managing director Ali Akbar Safaei said.
The ruling could help NITC resume contacts and relations with European counterparts including shipping firms as well as access to potential blocked assets in the bloc.
However the company still remains on the U.S. government's sanctions list. Shipping and insurance officials have said this will mean the company will still struggle to secure international insurance cover given the restrictions.
Banks and other service providers will also be unlikely to risk any exposure which could threaten access to bigger U.S. markets.
In a statement issued last Friday, the British Treasury said NITC was no longer subject to an asset freeze after the EU failed to appeal the court ruling.
Iran and world powers are trying to agree on a nuclear deal before a Nov. 24 deadline, although talks in New York last month made little progress.
An interim accord signed last November has provided the Islamic Republic with some sanctions relief, helping to boost oil sales. But the restrictions on shipping and insurance have meant that a return to Tehran's pre-sanctions export level of over 2 million barrels per day is still some way off. (Additional reporting by Robin Emmott in Brussels; Editing by Pravin Char)
Ukraine and Russia said they are willing to continue the negotiations to find an interim gas deal. The two countries said they will continue working to find a solution.
‘Arseniy Yatsenyuk confirmed the readiness to continue together with the European Commission negotiations with the Russian side on supply of natural gas from Russia. The Ukrainian side is ready to a mutually acceptable solution on the basis of market pricing for gas and its transit, said the Prime Minister,’ the Ukrainian government wrote on Monday evening.
Similarly, Russian Prime Minister Dmitry Medvedev asked Energy Minister Alexander Novak to proceed with other rounds of negotiations.
“We certainly need to continue searching for compromises based on the understanding that debts have to be repaid but terms for Ukraine in this situation should be quite acceptable and this is what your meeting with the participation of the European Commission is now aimed at,” Medvedev said as reported by ITAR-TASS.
Recently, the Ukrainian PM said that temporary price and terms can also be determined by the Stockholm arbitration court, adding that the tribunal should take a decision within a month.
On Monday, European Commissioner Gunther Oettinger said that he expects a deal within a month.
© 2014 NATURAL GAS EUROPE. ALL RIGHTS RESERVED
By Laura Barron-Lopez - 10/07/14 03:28 PM EDT
The Energy Department's stat shop is working on a number of studies examining the impact crude oil exports would have on the U.S. and is set to release a collective summary of them soon.
The Energy Information Administration (EIA) already released an analysis earlier this year on U.S. production of light sweet crude oil, but will release two more studies related to exports in the coming months.
In October, the EIA will put out a study on the financial impact of exports on the energy markets between the U.S. and other countries, as well as the effect on U.S. crude oil prices.
The next study, which is set to come out closer to December, will analyze the costs of processing more crude oil, specifically more light sweet oil and the technology needed to do it, said EIA spokesman Jonathan Cogan.
By the end of this year, or early next year, Cogan said, the EIA will issue a comprehensive summary of all of the studies to paint a thorough picture of crude oil production in the U.S. and potential impacts of exports.
If the U.S. decides to give the thumbs up to crude oil exports, it will be a dramatic policy shift that lifts a decades-old ban on exports of the product.
In recent comments, Energy Secretary Ernest Moniz, sought to calm rising murmurs among lawmakers and industry that the administration was moving toward lifting the ban.
Moniz said it was far too early to say if the administration would lift the ban, mentioning that the U.S. is still a large importer of crude oil.
©2014 Capitol Hill Publishing Corp., a subsidiary of News Communications, Inc.
Dubai: Iran Oil Minister Bijan Zanganeh said on Tuesday that Opec has no plans to hold an emergency meeting to discuss the recent slide in oil prices, Iran’s oil ministry news agency Shana reported.
Brent crude oil fell towards $92 a barrel on Tuesday, pushing towards 27-month lows as weak demand and ample supply outweighed the price support from a weaker dollar.
Oil ministers from the Organization of the Petroleum Exporting Countries (Opec) are scheduled to meet in Vienna on November 27 to consider whether to adjust their output target of 30 million barrels per day (bpd) for early 2015.
“For the moment, there is no plan for an Opec emergency meeting,” Shana quoted Zanganeh as saying.
He said Opec would tolerate the oil price fall “until Opec majors (decide) to cut their production”, according to Shana.
The drop in oil prices below Opec’s preferable level of $100 a barrel has triggered calls by some members for a supply cut, but core Gulf members are betting that winter demand will shore up prices, suggesting the group is no closer to any collective step.
To balance its budget, Iran has among the highest oil-price needs within the 12-member Opec and often supports measures likely to boost prices. Saudi Arabia and other Gulf Opec producers have lower pain thresholds.
Zanganeh appeared to downplay Saudi Arabia’s cut in the official selling price for its oil last week, which has sparked speculation among traders of an emerging Opec price-cutting war to defend market share.
“The actions of certain countries in reducing the price of their oil cannot be termed as a price reduction war,” the semi-official news agency Mehr quoted the oil minister as saying.
Separately, unidentified official at state-run National Iranian Oil Company was quoted by Mehr as saying: “Iran will supply oil according to the prices of the international market and has no plan to enter a price war that has been started by the Saudis.” Opec’s next meeting in November will be closely watched to see whether it leads to a supply cut.
Opec’s output is climbing, reaching 30.96 million bpd in September, its highest since November 2012, due to further recovery in Libyan production and higher levels from the Gulf producers, according to a Reuters survey.
Asian countries particularly India and China are fast buying Nigerian crude, thereby averting the negative consequences of shale gas discovery and development which made United states of America to shun the Nigerian oil export in the international market
China, India, Japan and South Korea, Asia’s four largest oil consumers, have collectively bought around 42 per cent more Nigerian crude so far this year compared with 2013, according to an analysis of import data monitored by Platts which was made available to Daily independent..
US imports of Nigerian crude tumbled to an average 73,000 barrels per day in the first seven months of 2014, according to data from the US Energy Information Administration, compared with a full-year 2013 average of 239,000 bpd – a decline of nearly 70 per cent.
In July, US imports from the country fell to zero for the first time on record, down from 89,000 barrels per day in June, data from EIA showed.
India, which replaced the US as the single largest importer of crude oil from Nigeria last year, dominates the Nigerian market, and has ramped up its intake of crudes from the country.
India ratcheted up its imports of Nigerian grades over January-August 2014 by 37 per cent from a year ago to an average of just under 367,000 bpd, according to data from ship brokers compiled by Platts.
The predominant buyers are seen to be the state-owned refiners, Indian Oil Corporation and Bharat Petroleum Corporation Limited, with Qua Iboe and Bonny Light, the grades of choice, according to data compiled by Platts from shipping fixtures.
Chinese imports of Nigerian crude jumped 105 per cent year on year to around 41,000 bpd over January-August, according to Chinese customs data.
Nigerian crude production, over the periods in focus, has remained constant, with January-August 2014 averaging 1.95 million bpd, according to Platts monthly surveys, same as 2013.
The lower intake from the US and steady production have led to surplus crudes from Nigerian and other West African exporters barrels, putting pressure on their differentials.
©Independent Newspapers Limited.
Forget quantitative easing by the European Central Bank. Surely the precipitous oil price decline in the last couple of weeks will finally be the catalyst to give the down-trodden European economy the big boost it needs. I mean, after three years of prices north of $100 a barrel surely a big cut in the European energy bill will provide the stimulus effect that ECB President Mario Draghi could only dream of? Well, I'm afraid it appears there will be no energy-induced bonanza as, like many other peculiar aspects of the European economy, consumers will hardly see the benefits of market falls in commodities.
To recap, the likes of OPEC are only getting circa $90 per barrel for their oil nowadays compared with around $107 per barrel as recently as June this year. So you could be forgiven for thinking that if the producers are getting less bang per barrel then the consuming nations of Europe would be a major beneficiary. Well that's not quite the case it seems.
Yes, the big red top headlines talk of the 'a couple of pence per liter' off pump prices but the major benefits will never come our way in Europe. Why? Simple. Europe is overwhelmed by taxation, subsidy, over-capacity and green incentivization plans that have conspired make hydrocarbons a dirty and expensive source of energy.
Europe's biggest economy, Germany, is at the heart of the issue in its noble pursuit to reduce greenhouse gases. Great ambition but stunningly expensive. By 2050 the Germans want to have 60 percent of their energy coming from renewables. This will be an impressive feat but may well seriously dent European competitiveness further.
Daniel Lacalle, Senior Portfolio Manager at Ecofin is worried. "Since the beginning of the crisis in 2008, average European power prices are up 38 percent whereas wholesale prices have actually fallen. The problem is that we don't see any of the benefits in Europe of the lower oil prices as we subsidize too many energy industries, we have oversupply and subsidies. In addition, there are so many green taxes that gasoline prices have been going up instead of down."
According to Lacalle German SMEs are now paying twice the price for energy as their U.S. counterparts.
The oil producers are also at pains to point out that it's not their fault that pump prices are so high. OPEC has for years tried to blame governments in Europe and elsewhere for taking too large a slice of the overall price of gasoline. OPEC has a lovely chart on its website where it gleefully shows that U.K. taxes on a liter of oil equate to around 58 percent of the total cost (2013 data). In Italy the figure is around 55 percent, in Germany over 50 percent. Compare this to the U.S. where taxes account for only 14 percent.
So, yes we can all celebrate the oil price slump as a boost for many parts of the world economy, but for European industry and consumers the gains will be limited at best it appears.
- By CNBC's Steve Sedgwick
