China, India ramp up crude oil imports from Colombia in Q1 2014
Imports of Colombian crude oils by China and India have seen a sharp rise in the first quarter of 2014 as the Latin American producer looks east to find homes for volumes displaced by the North American shale revolution.
Latest Chinese customs data showed that the country imported 2.2 million mt (16.23 million barrels or an average 179,177 b/d) of crude oil from Colombia in the first quarter, nearly double the volume imported in Q1 2013. The volume was also up 116% from Q4 2013.
India, meanwhile, imported 14.37 million barrels (159,666 b/d) of Colombian crude oil in Q1 — more than a three-fold jump from 4.37 million barrels imported in Q1 2013, according to shipping data obtained by Platts. The volume was also up 45.5% from 9.9 million barrels imported in Q4 2013. India does not release official data on crude oil imports by source. The Chinese customs data does not break down volumes by specific grades, but traders said that China traditionally imports the heavy, sour Castilla and medium Vasconia grades from Colombia. Castilla Blend has an API gravity of 18.8 and 1.96% sulfur, while Vasconia has a gravity of 25-27 API and 0.9% sulfur.
A crude oil trader from a Chinese state-owned company said that while China’s imports of Castilla have been stable, it has been buying more Vasconia recently, which could be because the US has been taking lower volumes.
Another Chinese crude oil trader said: “The higher volumes [of Vasconia] into
Refiners
Chinese and Indian oil companies both load VLCCs in the Caribbean to lift the Castilla Blend. Looking further back, China has been increasing its intake of Colombian grades since 2008, when imports surpassed 1 million mt for the first time. Imports hit 2 million mt in 2010 and imports of Colombian crude oil last year rose 35.4% year on year to 3.94 million mt. Ecopetrol started to look east in 2011, when it decided to market more crude oil to China and India. In August 2012, Essar and Ecopetrol signed a $1.2 billion, 12 million-barrel Castilla Blend supply deal.
Sinopec sees ‘steady increase’ in Q1 crude production
State-owned China Petroleum and Chemical Corp., or Sinopec, said Monday it made a “steady increase” in first quarter oil output, but at lower prices.
First quarter crude production of 89.37 million barrels was up 8.76% over a year earlier, while the realized crude price of $95.39/barrel was $3.48/b below a year ago. The company cited “the downward trend of international crude oil price and cost increase in upstream production” for an 18.63% year-on-year drop in its exploration and production segment’s operating profit to Yuan 13.206 billion ($2.11 billion).
Overall Q1 net profit of Yuan 14.121 billion was down 15.33% year on year. In the downstream, Sinopec said it raised “high value-added gasoline and jet fuel products” output as it cut back on crude runs (down 2.5% from a year ago at 57.22 million mt). The company’s Q1 kerosene production was up almost 16% over a year ago at 4.86 million mt, while gasoline output was up 5.46% at 11.97 million mt. In contrast, diesel production was down 7.54% at 18.27 million mt.
US crude stocks likely rose 2.1 million barrels last week
US crude stocks are expected to have risen 2.1 million barrels last week, even as refinery run rates remain higher than usual for this time of year, a Monday survey of analysts polled by Platts showed. The American Petroleum Institute will release its weekly report at 4:30 pm EDT (2130 GMT) Tuesday, while the US Energy Information Administration is scheduled to release its weekly data at 10:30 am EDT (1530 GMT) Wednesday.
The increase in stocks is supported by what analysts expect to be continued builds in US Gulf Coast crude stocks. Gulf Coast crude stocks reached a record 209.6 million barrels for the April 18 reporting week.
At the same time, total US commercial crude stocks rose 3.52 million barrels to 397.66 million barrels. That is the highest on record since the EIA began tracking the data in 1982. Analysts from Macquarie said in a research note Monday that high Gulf Coast refinery runs, at 94.1% of capacity for the EIA’s April 18 reporting week, were masking the extent of that region’s oversupply. Macquarie estimates that Gulf
Coast crude oil demand has increased 930,000 b/d in 2014. The problem, they said, is that crude supply increased by an even more impressive 1.05 million b/d. Without the incremental demand, the analysts estimate that Gulf Coast stocks could have reached as high as 314 million barrels for the April 18 reporting week.
“There is visible additional supply set to hit the region as 2014 progresses and if demand cannot keep pace, we envision even higher stock levels and likely wider discounts for Gulf Coast crudes ahead,” the analysts said. “The current environment places a high burden on the industry’s ability to find new sources of demand to balance the Gulf Coast crude market,” they said. The spread of LLS and LHS to Brent have narrowed from around a $15/barrel discount to Brent in November 2013 to average closer to $4-$5/b so far in 2014 despite record Gulf Coast inventory levels. But the analysts expect those spreads to widen in the second half of 2014 given the possibility of even higher Gulf Coast crude stocks ahead.
N Sea physical crude/paper spread at six-week high on increased demand
The physical North Sea market is strengthening against the paper market, reaching a six-week high on Friday and bid higher Monday, as the return of some refineries from maintenance adds to crude demand, while less output than expected is being seen from
Libya, sources said Monday. Dated Brent minus the Frontline swap rose to $0.29/b Friday, its highest since March 17, Platts data showed. The Dated Brent to Frontline Swap, which measures the relative strength of paper and physical North Sea crude, strengthened further this week in a stronger North Sea market. The May DFL swap was seen trading at plus 15 cents Monday afternoon compared to plus 5 cents on Friday.
In Europe, “refinery appetite is going to have a small bump higher,” said one trader Monday. “Possibly the Gulf Coast refineries will send a lot of products into the European continent, giving them less incentive to run as high as they’d want to. [But] overall, we still have a small window of opportunity (to the upside).”
Traders gave a range of dates for the end of the bulk of European maintenance, through mid-April into May. “[European maintenance] peaks around mid-May. After that incrementally they’ll come back, some will go on to June.”
On the supply side, some of the bullishness on prompt structure came from the Buzzard field maintenance that emerged last week, said traders, and is expected to end in the next few days. Buzzard, the UK’s biggest offshore oil field, is a major component of Forties Blend, which is the most actively seen of the four crude grades going into the Dated Brent benchmark. Less Libyan crude exports than expected by this time has also caused some traders to revise upwards their calculation of the balance of sweet crudes in Europe.
US Gulf Coast crude differentials higher as June trading begins
The cash differentials for US Gulf Coast crude grades strengthened in early action Monday as the trading of June barrels started, due to an expected increase in demand compared with May, sources said. The differential for Light Louisiana Sweet crude — the benchmark for light sweet Gulf Coast grades — traded at WTI plus $2.20/b and WTI plus $2.10/b early in the day, before being offered last at WTI plus $2.05/b.
Friday’s assessment for LLS on the final day of trading for May barrels was WTI plus $1.60/b Mars — the heavy sour Gulf benchmark — was last heard at WTI minus $3.95/b, following a bid at WTI minus $4/b.
On Friday, Mars was assessed at WTI minus $4.85/b. Sources said the higher values for June differentials regional refiners returning from planned turnarounds.
On April 21, ExxonMobil shut crude distillation units at both its 365,000 b/d Beaumont, Texas, refinery and its 200,700 b/d Chalmette, Louisiana, refinery for six weeks of planned labor. Meanwhile, the 600,000 b/d Motiva refinery in Port Arthur, Texas, will shut a crude distillation unit and a reformer unit for two weeks of planned work in May.
Iran, Kurdish Regional Government sign energy agreement
Iran and Kurdish Regional Government sign oil and natural gas trade agreement.
Iran signed an agreement with Iraq's Kurdish Regional Government for oil and natural gas on Sunday, according to a Kurdish official.
Abullah Akrayi, the Kurdish Regional Government official responsible for Iran affairs, told journalists that a delegation led by Rostem Qasimi, Iran's delegate for trade relations with Iraq, made the deal with the regional government's energy minister Ashti Hawrami.
The agreement proposes the construction of two pipelines between the Kurdish region of northern Iraq and Iran, and the regional government would receive between 3 and 4 million liters of refined oil fuel and natural gas in return for sending crude oil to Iran.
Currently, 1.5 million barrels of oil from the Kurdish Regional Government is stored in Turkey's Ceyhan port, waiting for the approval of Iraq's central government to be exported.
The regional government has been embroiled in a long-running row with the central government in Iraq over shares of oil revenues, with Baghdad opposing the export of stored Kurdish oil from Ceyhan, claiming it would bypass the country’s national oil company in violation of Iraq’s constitution.
Renewed tension in Ukraine and the announcement that the U.S. will impose new sanctions on Russia allowed oil prices to recapture ground that had been lost over the last few weeks.
As the crisis has intensified, oil prices have responded. Brent futures for June were up 0.6 percent during trading on April 28, to $110.20 per barrel. June delivery for West Texas Intermediate crude jumped 92 cents, to $101.52 per barrel, after dropping 3.6 percent last week.
After pro-Russian forces seized international monitors last week, U.S. Secretary of State John Kerry blasted Moscow for its failure to live up to the international accord agreed upon in Geneva earlier this month. The Russian move also gave the U.S. and EU the justification it needed to ratchet up sanctions. According to NATO, Russia has positioned 40,000 troops on the Ukrainian border.
Since then, the town of Lugansk, Ukraine declared its independence from Kiev, with pro-Russian forces declaring it the “Lugansk People’s Republic.” They announced that a referendum would be held May 11 on the question of formally joining Russia.
The mayor of Kharkiv, Ukraine’s second largest city, was also shot in the back and remains in critical condition. Kharkiv is in Ukraine’s east, where pro-Russian forces hold sway. The mayor had recently announced support for the new government in Kiev.
U.S. President Barack Obama announced new sanctions on April 28 against several members of Russian President Vladimir Putin’s inner circle and companies considered close to the Kremlin.
In all, the sanctions consist of travel bans and asset freezes on seven Russian officials and asset freezes on 17 companies. In addition to several banks, the list includes Igor Sechin, president of Russia’s massive state owned oil company, Rosneft.
The U.S. said it would also prohibit exports of high-tech equipment that could be important to Russian military forces. The EU is expected to follow up with similar sanctions and has already met to discuss the details.
Nigeria orders 1.85 mln tonnes of gasoline imports
BY EMMA FARGE AND CLAIRE MILHENCH
Nigeria is Africa's top oil producer but relies on fuel imports because its refineries work at a fraction of their capacity due to poor maintenance and old age.
Africa's most populous nation suffered fuel queues in February and March, prompting state oil firm NNPC to release stocks.
"The (oil) Minister has approved the allocation of a total volume of 1,854,314 metric tonnes of premium motor spirit known as petrol as supplementary volumes for first quarters 2014 and second quarter 2014 June only delivery," NNPC said in a statement issued last week and confirmed by importers.
Import allocations, typically done on a quarterly basis, have been delayed due to disputes between the government and traders over a backlog of subsidy payments.
Nigeria belatedly issued its first quarter gasoline allocation at the end of February. In an attempt to get the calendar back on track, it has issued its second quarter allocation in two parts.
Some 750,000 tonnes have been allocated as "supplementary volumes" for the first quarter, whilst another 1.1 million tonnes have been designated for June-only delivery, the NNPC statement said.
"The idea of June only is to revert back to the normal quarterly sequence, ie July-September and October-December," said Ohi Alegbe, a spokesman for the NNPC.
Alegbe said the first quarter supplement was designed to cover "any under-delivery by marketers due to unforeseen financial challenges".
Industry sources said some of the winners for the second quarter included MRS Oil Nigeria, Conoil , Total, Oando, Forte Oil , Mobil Oil, Masters Energy, Techno Oil, Folawiyo Oil & Gas and NIPCO.
Oando, Total's local unit, and Folawiyo, in which global commodity house Glencore is a minority stakeholder, also won allocations in the first quarter.
PROVISIONS FOR SLIPPAGE
The Petroleum Products Pricing Regulatory Authority (PPPRA), Nigeria's downstream regulator, has inserted a provision in the allocation document which allows volumes to be deducted from a seller's subsequent allocation in the event of any default or slippage into July.
Traders welcomed the attempt to get the issuance cycle back on track, but noted that the total volumes allocated for the second quarter were significantly down on the 3.1 million tonnes that were allocated for the first quarter.
"It's good to see us revert back to the old sequence of April to June, July to September and October to December and not the February to May, June to August we shifted to two to three years ago," one trader said. "That helps with simplifying the planning of imports."
He suggested that the lower volumes could reflect the fact that the NNPC still has a lot of fuel in storage but supply chain issues are likely to be restricting adequate supplies into the market.
"We also note the increase in the number of importers from 27 in Q1 to 40 in Q2," he added. "This could again be due to the view that marketers are likely to have adequate capacity to deliver smaller volumes as against sharing large chunks to a few players." (Reporting by Claire Milhench and Emma Farge; editing by Jason Neely)
Libya Lifts Force Majeure on Second Oil Port
By Dow Jones Business News
LONDON--Libya's state oil company said Monday it was lifting force majeure on the Zueitina oil terminal after an eight-month blockade, paving the way for a rebound in exports from the country's embattled oil industry.
Libyan rebels occupying eastern oil ports had agreed to reopen two terminals three weeks ago, including the 70,000 barrels-per-day Zueitina, but Zueitina's reopening was delayed because of technical problems.
In a statement on its website, Libya's National Oil Co. said Zueitina was no longer under force majeure, making it legally possible for shipments from the terminal to resume. The port is exporting oil produced by a joint venture between Libya, Austria's OMV AG and the U.S.'s Occidental Petroleum Corp.
Another terminal, the 110,000-barrel-a-day Hariga, restarted exports mid-April following an agreement between the government and rebels led by militia chief Ibrahim al-Jathran who are seeking greater autonomy for eastern Libya. Two larger ports--Ras Lanuf and Es-Sider--have yet to be reopened.
Libya's oil production has fallen below 300,000 barrels a day--about a fifth of its normal level--following the blockade in Eastern ports and strikes and occupations in Western oil fields.
Write to Benoit Faucon benoit.faucon@wsj.com
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(END) Dow Jones Newswires
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Washington (Platts)
The US on Monday said it has imposed sanctions on seven Russian government officials, including Igor Sechin, president and chairman of state-owned oil company Rosneft, in response to the escalation of tensions in Ukraine.
Rosneft board member Sergei Chemezov is also among those sanctioned.
Rosneft itself was not sanctioned, though 17 other companies, including some that provide oil and gas services, were added to the US' list of sanctioned entities Monday.
US officials said the European Union would announce its own set of sanctions later Monday.
Sechin, a former deputy prime minster of Russia from 2008 to 2012, "has shown utter loyalty to [Russian president] Vladimir Putin -- a key component to his current standing," the US Department of Treasury said in announcing the sanctions.
Rosneft declined to comment on the announcement.
The sanctions freeze the US assets of the targeted individuals and companies and also prohibit any transactions between them and any US persons.
The sanctioned companies include several owned or linked to Gennady Timchenko, co-founder of commodity trading firm Gunvor, and Arkady and Boris Rotenberg, brothers whose companies provide construction services to Russian state-owned gas giant Gazprom.
The US had previously imposed sanctions on Timchencko and the Rotenberg brothers.
The new sanctions target Volga Group, a holding company solely owned by Timchenko, as well as oil and oil products rail freight operator Transoil and oil, gas and petrochemical construction firm Stroytransgaz, both of which are owned or controlled by the Volga Group.
Rotenberg-linked companies sanctioned include gas pipeline construction company Stroygazmontazh and two banks.
"The United States made clear it would impose additional costs on Russia if it failed live up to its Geneva commitments and take concrete steps to de-escalate the situation in Ukraine," White House Press Secretary Jay Carney said in a statement.
"Consequently, today the United States is imposing targeted sanctions on a number of Russian individuals and entities and restricting licenses for certain US exports to Russia."
--Herman Wang, herman.wang@platts.com
--Stuart Elliott, stuart.elliott@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com
Prepared by Alison Ciaccio, Platts Markets Editor
New York - April 28, 2014
Platts Survey of Analysts
Crude oil stocks up up 2.1 million barrels
Gasoline stocks down 1.75 million barrels
Distillates stocks up 1 million barrels
Refinery utilization, or run rate, or run rate, up 0.3 percentage point at 91.3% of capacity, based on EIA data
U.S. crude oil stocks are expected to have risen 2.1 million barrels the week ended April 25, even as refinery run rates remain higher than usual for this time of year, a Monday survey of analysts polled by Platts showed.
The American Petroleum Institute (API) will release its weekly report at 4:30 p.m. EDT (2130 GMT) Tuesday, while the U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1530 GMT) Wednesday.
The increase in stocks is supported by what analysts expect to be continued builds in U.S. Gulf Coast (USGC) crude oil stocks.
USGC crude oil stocks reached a record 209.6 million barrels the reporting week ended April 18. At the same time, total U.S. commercial crude oil stocks rose 3.52 million barrels to 397.66 million barrels. That is the highest on record since the EIA began tracking the data in 1982.
Analysts from Macquarie said in a research note Monday that high USGC refinery runs, at 94.1% of capacity for the EIA's April 18 reporting week, were masking the extent of that region's oversupply.
Macquarie estimates that USGC crude oil demand has increased 930,000 barrels per day (b/d) in 2014. The problem, they said, is that crude oil supply increased by an even more impressive 1.05 million b/d. Without the incremental demand, the analysts estimate that USGC stocks could have reached as high as 314 million barrels during the April 18 reporting week.
"There is visible additional supply set to hit the region as 2014 progresses, and if demand cannot keep pace, we envision even higher stock levels and likely wider discounts for Gulf Coast crudes ahead," the analysts said. "The current environment places a high burden on the industry's ability to find new sources of demand to balance the Gulf Coast crude market."
USGC CRUDE OIL SPREADS NARROWED, BRENT-WTI WIDENS
The spreads of Light Louisiana Sweet and Light Houston Sweet to Brent crude oil have narrowed from around a $15 per barrel (/b) discount to Brent in November 2013 to average closer to $4-$5/b so far in 2014 despite record USGC inventory levels.
But the analysts expect those spreads to widen in the second half of 2014 given the possibility of even higher USGC crude oil stocks ahead.
In the futures market, though, the front-month, Brent-WTI spread widened to $9.24/b on April 25, up from a low of $3.24/b just two weeks earlier.
New York Mercantile Exchange (NYMEX) front-month crude oil was the weakest segment of the global petroleum complex during the April 18 reporting week, reflecting the waning influence of declining stocks at Cushing, Oklahoma, while IntercontinentalExchange Brent firmed amid ongoing worries regarding Russian oil exports.
Several analysts expect crude oil inventories to remain tight at the NYMEX delivery hub at Cushing, where stocks are estimated to have fallen by around 1 million barrels the week ended April 25.
Cushing inventories were at 26.04 million barrels during the April 18 reporting week, EIA data showed, putting stocks at a 34% deficit to the EIA five-year average.
Bill O'Grady, chief market strategist at Confluence Investment, estimated that total U.S. crude oil stocks rose 3 million barrels the week ended April 25.
While demand for products like gasoline remains low in the U.S., O'Grady said, marginal barrels are being exported and skewing the normal seasonal patterns.
"The U.S. economy is doing marginally better, but not great, and the wet blanket remains high private sector debt levels ...” O'Grady said. “It is tough for the economy to get signs of traction as banks don't want to lend, and that ends up stifling consumption [of oil]."
"We are seeing more product exports,” he said. “And refining it before selling it is good on one hand because it's value added, but it also limits how much you can get out of the U.S. refining sector."
"Run levels are likely to be well into the 90s this summer," he added.
RUN RATES TO RISE, PRODUCT STOCKS MIXED
Analysts polled estimate U.S. refinery utilization rates to have inched 0.3 percentage point higher the week ended April 25 to 91.3% of capacity, based on EIA data.
Analysts contend that the refinery maintenance season was likely bottoming out and crude oil stock builds could slow in the coming weeks.
ExxonMobil on April 21 shut a crude oil distillation unit at its joint-venture, 200,700 b/d refinery in Chalmette, Louisiana, for an unspecified period, Platts data showed. The work was said to be planned.
On the same day, ExxonMobil shut a crude oil distillation unit at its 365,000 b/d Beaumont, Texas, refinery for six weeks of work.
Also the week ended April 25, Petrobras' Pasadena Refining shut a fluid catalytic cracking (FCC) unit at its 106,000 b/d refinery in Pasadena, Texas, after an upset caused a release of catalyst and flaring for about 14 hours ending April 22, the company said in a filing with the Texas Commission on Environmental Quality.
In restarts, reports showed that Tesoro completed maintenance the week ended April 25 at the company's Los Angeles, California, refining complex following planned and unplanned repairs.
BP is said to have plans to restart its 80,000 b/d FCC at its Whiting, Indiana, refinery the week of May 5.
"I will likely be still looking for build in crude stocks over the next week or two as refiners kick in ... and the summer driving season picks up," O'Grady said.
U.S. gasoline stocks are expected to have declined 1.75 million barrels the week ended April 25, while U.S. distillate stocks are estimated to have risen 1 million barrels.
NYMEX RBOB futures were the firmest element of the complex the week ended April 25 as declining U.S. gasoline stocks and seasonal demand prospects have been supportive to prices. However, the market should be on alert for a possible seasonal price peak, said Tim Evans, commodity analyst at Citi Futures Perspective.
Front-month, ultra-low-sulfur diesel futures firmed over the reporting week and the forward curve remains higher than year-earlier levels, Evans noted, as is consistent with a deficit in U.S. distillate stocks to the EIA's five-year average.
As of the April 18 reporting week, distillate stocks were 2.4% lower than the same week in 2013 and were at a 16.7% deficit to the five-year average.
By Sumit Roy/Seeking Alpha
Crude oil exports are currently banned in the U.S., a consequence of the energy crisis of the 1970s. But that hasn’t stopped the country from exporting record amounts of oil anyway—in the form of petroleum products. Essentially a loophole in the 1975 law, while crude exports are forbidden, exports of refined products such as gasoline and distillate fuels are completely legal.
For decades, none of this really mattered. As the U.S. saw its demand grow and production plummet, it became increasingly reliant on oil imports. Exports were the last thing on anyone’s mind.
But that’s all changing now, and those trends are in reverse. U.S. demand is slowly but steadily declining as automobiles become more fuel efficient, while production is surging on the back of the shale oil boom.
That said, the U.S. still consumes more oil than it produces, and is not expected to be completely oil independent until the year 2035. However, where the U.S. has a significant amount of excess capacity is in the refining sector. Each year, consumers are using less and less gasoline and heating oil. Thus, refiners have turned to other markets to sell their products.
According to the Energy Information Administration, exports of petroleum products averaged 3.5 million barrels per day in 2013, and hit a record 4.3 million barrels per day in December.
http://static.cdn-seekingalpha.com/uploads/2014/4/28/saupload_1_averageannualpetroleumproductexports.jpg
The U.S. has been exporting worldwide. Refiners have found eager customers in developing regions such as South America and Africa. The EIA points out that the relatively low cost of crude oil and natural gas in the U.S. gives the country’s refiners an advantage over refiners elsewhere. Thus, petroleum product exports—which have more than doubled over the past five years—will likely continue higher in the coming years.
http://static.cdn-seekingalpha.com/uploads/2014/4/28/saupload_2_usexportflows.jpg
Ironically, while U.S. product exports grow, the country remains reliant on product imports as well. “Although the Gulf Coast is a large net exporter of gasoline, given present infrastructure constraints the East Coast continues to import substantial amounts of gasoline from Europe and Canada,” explained the EIA.
“Likewise, imports play a critical role in supplying distillate and propane during the winter, particularly on the East Coast, when in-region production along with shipments from other regions are insufficient to meet the increases in demand, especially during very cold weather, as much of the country experienced this past winter,” said the EIA.
By Christian Berthelsen/Wall Street Journal
Global crude prices fell to the lowest level in more than two weeks Monday after sanctions announced by the U.S. and European Union against Russia were less aggressive than expected.
Brent crude for delivery in June fell $1.46, or 1.3%, to $108.12 a barrel on the ICE Futures Europe exchange, the lowest settlement since April 11. The market was up in early trade but began falling shortly before the sanctions were announced and continued to slip further throughout the day. Brent prices have fallen 2% in the past two trading sessions.
Prices for the benchmark U.S. contract flipped between gains and losses all day before settling 24 cents higher at $100.84 a barrel on the New York Mercantile Exchange.
The U.S. froze the assets of seven Russian officials and 17 companies and prohibited the officials from receiving U.S. visas. The individuals and companies were thought to be closely linked to Russian President Vladimir Putin. The European Union also imposed new sanctions on 15 Russian and Ukrainian individuals. The announcements came as the situation in Ukraine continued to deteriorate, with pro-Russian separatists taking hostages in recent days and the mayor of an eastern Ukrainian city shot by a sniper while jogging on Monday. The mayor was rushed to a local trauma center for surgery and was in serious condition.
Among those personally targeted by the sanctions was Igor Sechin, the president and chairman of Russian state oil company Rosneft, but the company itself wasn't targeted. Analysts had been watching to see whether major players in the oil market might be hit by the sanctions and what ripple effects that might have for prices if their participation were curtailed, but since they escaped sanctions for the moment the potential for disruption appeared limited.
"We're just slapping Russia with wet noodles," said Philip Verleger, an oil economist and consultant. "Unless we do something stronger, what we're saying is Russia is free to take what it wants."
Analysts and investors have also been waiting to see whether Morgan Stanley's deal to sell its physical oil franchise to Rosneft might be affected. In an interview on Bloomberg television Monday, Morgan Stanley chief financial officer Ruth Porat said the deal remained on track to close in the second half of 2014.
News that Libya's Zueitina oil terminal could resume operations in the near future also provided a bearish note to the market. Libya's oil shipments would add to already abundant global supplies.
A factor weighing on the U.S. market is the high level of domestic crude inventories, with stockpiles hitting an all-time record of 397.7 million barrels last week, according to the U.S. Energy Information Administration. Analysts said the glut is beginning to be reflected in prices paid for physical crude on the U.S. Gulf Coast with the expiry of the May contract last week.
"The cash market for trading crude oil on the Gulf has weakened significantly," said Andrew Lipow, president of Houston-based consultancy Lipow Oil Associates.
Reformulated gasoline blendstock, or RBOB, for May delivery fell 3.48 cents, or 1.1%, to $3.0403 a gallon, the lowest since April 11. May diesel fell 3.47 cents, or 1.2%, to $2.9519 a gallon, the lowest settlement since April 14.
Write to Christian Berthelsen at christian.berthelsen@wsj.com
By Telegraph
The US Treasury blacklisted Igor Sechin, the mastermind of the Kremlin’s energy strategy and Russia’s second most powerful man
Russian President Dmitry Medvedev (L) speaks with Vice Premier Igor Sechin at an opening ceremony of the supply gas pipeline for Petropavlovsk-Kamchatsky, the regional capital of Russia's Pacific Kamchatka peninsula, in Sobolevo
http://i.telegraph.co.uk/multimedia/archive/02895/russia_2895197b.jpg
Russian President Dmitry Medvedev (left) and Igor Sechin Photo: AFP
Ambrose Evans-Pritchard By Ambrose Evans-Pritchard10:05PM BST 28 Apr 2014 Comments61 Comments
The US has tightened the noose yet further on the Russian economy, imposing sanctions on the kingpin of Russia’s oil industry in a move that could have serious consequences.
The US Treasury blacklisted Igor Sechin, chairman of Russia’s top oil producer Rosneft and a former KGB official from the inner circle of Russian president Vladimir Putin. He is thought to be the mastermind of the Kremlin’s energy strategy and Russia’s second most powerful man. It also targeted his deputy.
Rosneft is the world’s biggest traded oil company, producing 2.5m barrels a day and paying $75bn a year in taxes to the Russian state. The move by Washington creates a legal and political tangle for BP, which owns 19.75pc of Rosneft’s shares under a legacy deal from the TNK-BP venture.
Market reaction to the news was muted. Rosneft’s shares fell to a 10-month low in Moscow, while yields on its benchmark 2022 bond spiked to a record high, but damage was light by the end of the day.
Russia’s MICEX index of equities rallied as the package of US sanctions was dismissed as thin gruel by traders. The list excluded major banks, instead targeting 17 corporate bosses, companies and political operatives at the Kremlin, as well as an export ban on hi-tech defence goods.
State-owned lender Sberbank jumped 5.5pc. “The sanctions were not as bad as had been rumoured or feared. It is clear that the US and EU are divided,” said Chris Weafer, from Macro Advisory in Moscow.
Officials in Washington say they have an arsenal of “sectoral sanctions” in reserve that could cripple the Russian economy by hitting banking system, oil and gas, and the mining industry, if Mr Putin sends Russian tanks across the border into eastern Ukraine.
Yet the market calm may be deceptive. Mr Weafer said the risk is slow suffocation for “several years” as foreign banks retreat and investment is shelved, with an erosion in oil revenues gradually undermining investor faith.
While Rosneft itself was not placed on the black list, it may nevertheless be constrained if US regulators deem that Mr Sechin has decisive control over the company, or even if he tries to run it at arms length.
Washington has a number of stealth measures it can use to tighten the screws. Officials say that the US Treasury could quietly pressure the compliance divisions of US, European, and Asian banks to force their traders to liquidate holdings of Sberbank debt.
This could be painful since Rosneft has $52bn of debt that must be rolled over, largely in dollars. The foreign capital market is effectively shut. This may force the company to repay debt from cash flow, cutting back on investment plans.
Norway’s Statoil said it is suspending its joint drilling in the Arctic High North with Rosneft, though it cited other reasons for the action. Exxon Mobil also has major investment plans in the Artic that could quickly become a political hot potato.
It is unclear whether BP’s chief executive, Bob Dudley, can continue to sit on Rosneft’s board if Mr Sechin remains in control. The Treasury statement said that “US persons are generally prohibited from dealing with” anybody on the sanctions black list. Mr Dudley is an American citizen.
For now the beleaguered British oil group is once again trying to put the best face on its disastrous misadventures in Russia. “We are committed to our investment in Rosneft, and we intend to remain a successful, long-term investor in Russia,” said a spokesman.
The US Treasury dropped plans to place Gazprom chief Alexei Miller on the black list after pleas from Germany and other EU countries alarmed by possible disruptions of gas supplies. It also spared the company’s financial arm, Gazprombank.
Oil is a better target for the White House because it generates the lion’s share of Russia’s state budget, yet a loss of Russian supply in Europe can be replaced in part from sources around the world – including the US strategic petroleum reserve, if need be. New crude is also coming on stream from Iraq and Libya.
A top administration official said the US and EU are working together to ensure that targets are picked in such a way that frontline EU allies are not left bearing the full brunt of the consequences.
The mood in Europe has hardened since the capture of international observers from the OSCE, now held as hostages by pro-Russian activists. “A number of Europe capitals are looking very hard at sectoral sanctions in response to the egregious treatment of these observers. These guys were paraded on television like POWs forced to make a statement to the press. There is broad belief that they have also been abused in captivity,” said the official.
Rosneft is Russia’s biggest oil producer, accounting for a quarter of the country’s total output. It already has plans to sell 500,000 barrels a day to China and this could be raised if Rosneft to switch its strategic priority to the Asia. The question is whether Beijing would wish to come to the rescue with funding and investment, given its own fears about Uighur separatists in Xinjiang trying to break up China’s borders.
Mr Sechin began his carrier as a Portuguese and French specialist, serving the KGB in Africa. He joined Mr Putin’s team at the St Petersburg’s mayoral offices in the early 1990s, later taking charge of Russia’s energy policies as his mentor rose to power.
He built Rosneft with assets that were in effect seized from Yukos, the oil empire once controlled by Mikhail Khodorkovsky before he crossed political swords with Mr Putin and ended up in a Siberian prison. That alone has made Mr Sechin a particular target for the White House.
Imports of Colombian crude oils by China and India have seen a sharp rise in the first quarter of 2014 as the Latin American producer looks east to find homes for volumes displaced by the North American shale revolution.
Latest Chinese customs data showed that the country imported 2.2 million mt (16.23 million barrels or an average 179,177 b/d) of crude oil from Colombia in the first quarter, nearly double the volume imported in Q1 2013. The volume was also up 116% from Q4 2013.
India, meanwhile, imported 14.37 million barrels (159,666 b/d) of Colombian crude oil in Q1 — more than a three-fold jump from 4.37 million barrels imported in Q1 2013, according to shipping data obtained by Platts. The volume was also up 45.5% from 9.9 million barrels imported in Q4 2013. India does not release official data on crude oil imports by source. The Chinese customs data does not break down volumes by specific grades, but traders said that China traditionally imports the heavy, sour Castilla and medium Vasconia grades from Colombia. Castilla Blend has an API gravity of 18.8 and 1.96% sulfur, while Vasconia has a gravity of 25-27 API and 0.9% sulfur.
A crude oil trader from a Chinese state-owned company said that while China’s imports of Castilla have been stable, it has been buying more Vasconia recently, which could be because the US has been taking lower volumes. Another Chinese crude oil trader said: “The higher volumes [of Vasconia] into
China could be due to suitable price and stable supply, but the crude is also suited to Chinese refiners. I think this could be the start of a longer-term trend.” India, too, has been buying Castilla Blend mainly, though Reliance Industries Ltd. imported a cargo of Vasconia in January this year, shipping data showed. Refiners
RIL, Essar Oil and Hindustan Mittal Energy Ltd. are the main buyers of Colombian crude oil, with imports by RIL accounting for over 50% of the total imports. The US has been Colombia’s dominant export market for crude oil but state-owned Ecopetrol has been marketing more volumes to Asia as the shale revolution has cut US Gulf Coast refiners’ appetite for imports.
Chinese and Indian oil companies both load VLCCs in the Caribbean to lift the Castilla Blend. Looking further back, China has been increasing its intake of Colombian grades since 2008, when imports surpassed 1 million mt for the first time. Imports hit 2 million mt in 2010 and imports of Colombian crude oil last year rose 35.4% year on year to 3.94 million mt. Ecopetrol started to look east in 2011, when it decided to market more crude oil to China and India. In August 2012, Essar and Ecopetrol signed a $1.2 billion, 12 million-barrel Castilla Blend supply deal.
State-owned China Petroleum and Chemical Corp., or Sinopec, said Monday it made a “steady increase” in first quarter oil output, but at lower prices.
First quarter crude production of 89.37 million barrels was up 8.76% over a year earlier, while the realized crude price of $95.39/barrel was $3.48/b below a year ago. The company cited “the downward trend of international crude oil price and cost increase in upstream production” for an 18.63% year-on-year drop in its exploration and production segment’s operating profit to Yuan 13.206 billion ($2.11 billion).
Overall Q1 net profit of Yuan 14.121 billion was down 15.33% year on year. In the downstream, Sinopec said it raised “high value-added gasoline and jet fuel products” output as it cut back on crude runs (down 2.5% from a year ago at 57.22 million mt). The company’s Q1 kerosene production was up almost 16% over a year ago at 4.86 million mt, while gasoline output was up 5.46% at 11.97 million mt. In contrast, diesel production was down 7.54% at 18.27 million mt.
US crude stocks are expected to have risen 2.1 million barrels last week, even as refinery run rates remain higher than usual for this time of year, a Monday survey of analysts polled by Platts showed. The American Petroleum Institute will release its weekly report at 4:30 pm EDT (2130 GMT) Tuesday, while the US Energy Information Administration is scheduled to release its weekly data at 10:30 am EDT (1530 GMT) Wednesday.
The increase in stocks is supported by what analysts expect to be continued builds in US Gulf Coast crude stocks. Gulf Coast crude stocks reached a record 209.6 million barrels for the April 18 reporting week.
At the same time, total US commercial crude stocks rose 3.52 million barrels to 397.66 million barrels. That is the highest on record since the EIA began tracking the data in 1982. Analysts from Macquarie said in a research note Monday that high Gulf Coast refinery runs, at 94.1% of capacity for the EIA’s April 18 reporting week, were masking the extent of that region’s oversupply. Macquarie estimates that Gulf
Coast crude oil demand has increased 930,000 b/d in 2014. The problem, they said, is that crude supply increased by an even more impressive 1.05 million b/d. Without the incremental demand, the analysts estimate that Gulf Coast stocks could have reached as high as 314 million barrels for the April 18 reporting week.
“There is visible additional supply set to hit the region as 2014 progresses and if demand cannot keep pace, we envision even higher stock levels and likely wider discounts for Gulf Coast crudes ahead,” the analysts said. “The current environment places a high burden on the industry’s ability to find new sources of demand to balance the Gulf Coast crude market,” they said. The spread of LLS and LHS to Brent have narrowed from around a $15/barrel discount to Brent in November 2013 to average closer to $4-$5/b so far in 2014 despite record Gulf Coast inventory levels. But the analysts expect those spreads to widen in the second half of 2014 given the possibility of even higher Gulf Coast crude stocks ahead.
The physical North Sea market is strengthening against the paper market, reaching a six-week high on Friday and bid higher Monday, as the return of some refineries from maintenance adds to crude demand, while less output than expected is being seen from
Libya, sources said Monday. Dated Brent minus the Frontline swap rose to $0.29/b Friday, its highest since March 17, Platts data showed. The Dated Brent to Frontline Swap, which measures the relative strength of paper and physical North Sea crude, strengthened further this week in a stronger North Sea market. The May DFL swap was seen trading at plus 15 cents Monday afternoon compared to plus 5 cents on Friday.
In Europe, “refinery appetite is going to have a small bump higher,” said one trader Monday. “Possibly the Gulf Coast refineries will send a lot of products into the European continent, giving them less incentive to run as high as they’d want to. [But] overall, we still have a small window of opportunity (to the upside).”
Traders gave a range of dates for the end of the bulk of European maintenance, through mid-April into May. “[European maintenance] peaks around mid-May. After that incrementally they’ll come back, some will go on to June.”
On the supply side, some of the bullishness on prompt structure came from the Buzzard field maintenance that emerged last week, said traders, and is expected to end in the next few days. Buzzard, the UK’s biggest offshore oil field, is a major component of Forties Blend, which is the most actively seen of the four crude grades going into the Dated Brent benchmark. Less Libyan crude exports than expected by this time has also caused some traders to revise upwards their calculation of the balance of sweet crudes in Europe.
The cash differentials for US Gulf Coast crude grades strengthened in early action Monday as the trading of June barrels started, due to an expected increase in demand compared with May, sources said. The differential for Light Louisiana Sweet crude — the benchmark for light sweet Gulf Coast grades — traded at WTI plus $2.20/b and WTI plus $2.10/b early in the day, before being offered last at WTI plus $2.05/b.
Friday’s assessment for LLS on the final day of trading for May barrels was WTI plus $1.60/b Mars — the heavy sour Gulf benchmark — was last heard at WTI minus $3.95/b, following a bid at WTI minus $4/b.
On Friday, Mars was assessed at WTI minus $4.85/b. Sources said the higher values for June differentials regional refiners returning from planned turnarounds.
On April 21, ExxonMobil shut crude distillation units at both its 365,000 b/d Beaumont, Texas, refinery and its 200,700 b/d Chalmette, Louisiana, refinery for six weeks of planned labor. Meanwhile, the 600,000 b/d Motiva refinery in Port Arthur, Texas, will shut a crude distillation unit and a reformer unit for two weeks of planned work in May.
