Russia is set to raise the export duty on its main Urals crude export blend and other blends -- except those enjoying a more favorable tax regime -- to $385.2/mt, or $52.77/barrel, for July, compared with $385/mt in June, the Prime news agency reported Monday.
The move reflected an increase in the average Urals price in the international market during the monitoring period. In 2014, the top marginal ratio for Russia’s standard crude oil duty has been set at 59% of the international Urals price over the monitoring period.
The July diesel export duty is set to be $250.30/mt, up from $250.20 in June. The export duty for diesel is 65% of the crude duty. The gasoline and naphtha duty for July -- 90% of the crude duty -- is set to reach $346.60/mt, up from $346.50/ mt in June.
The July export duty for other oil products is set to be $254.20/mt, up from $254.10/mt in June. Russia’s export duty for other oil products is 66% of the crude duty. The July export duty for blends enjoying a more favorable tax regime, such as East Siberian and Caspian crudes, is to be fixed at $189.40/mt, up from $189.20/mt in June.
US crude stocks are expected to have fallen 1.4 million barrels for the reporting week ended June 13, according to a Platts analysis and survey of oil analysts Monday. Combined product stocks likely fell however, amid a flurry of export fixtures out of the US Gulf Coast and steady domestic summer gasoline demand.
The American Petroleum Institute will release its weekly report at 4:30 pm EDT (2030 GMT) Tuesday and the US Energy Information Administration is scheduled to release its weekly data at 10:30 am EDT (1430 GMT) Wednesday.
The expected draw in crude stocks will likely be a product of higher crude runs at US refineries. Analysts expect US refinery utilization rates to have risen by 1.3 percentage points last week to 89.2% of capacity, according to EIA data.
Marathon Petroleum last week restarted a 256,000 b/d crude unit at its massive 522,000 b/d Garyville, Louisiana, refinery, which had been shut following a tornado touching down nearby on May 28.
And units remain down at ExxonMobil’s 502,500 b/d Baton Rouge refinery. In Texas, Valero last week reported a process upset in a unit at its 290,000 b/d Port Arthur refinery. But it was unclear if there was any impact to production.
And units at Motiva’s 600,000 b/d Port Arthur refinery -- the largest in the US -- remain in turnaround, according to Platts data. In addition to this, Motiva confirmed operational incidents took place last week, resulting in unplanned work.
In the Midwest, Citgo’s 180,000 b/d Lemont, Illinois, refinery saw units shut down last week following a power outage, but the units were restarted the same day.
Meanwhile, Shell was forced to shut a major unit at its 165,000 b/d Martinez, California, refinery last week. Four other West Coast refineries have units under maintenance.
In California, Chevron’s 290,000 b/d El Segundo and Tesoro’s 166,000 b/d Golden Eagle have units down, and in Washington, Shell’s 145,000 b/d, Puget Sound and Tesoro’s 120,000 b/d Anacortes, refineries have units down.
On the US Atlantic Coast, Platts data shows units remain under maintenance at two New Jersey refineries: Phillips 66’s 238,000 b/d Bayway and PBF’s 180,000 b/d Paulsboro.
August Eastern Canadian crude program to offer nine cargoes
Nine crude cargoes will be available for lifting in August from fields off the Newfoundland and Labrador coast in Eastern Canada, three less than in the June loading program, a term lifter said Monday.
Zero Terra Nova cargoes will be offered for August, three less than in July, the source said. The Terra Nova oil platform will be in scheduled maintenance for 21 days in August.
Suncor, the operator, has a 33.99% stake in Terra Nova. The other partners in the field are ExxonMobil (22%), Statoil (15%), Husky (12.51%), Murphy Oil (12%), Mosbacher Operating (3.5%) and Chevron (1%).
Six Hibernia cargoes will be available for lifting in August, one less than in the July program. ExxonMobil (33.125%), Chevron (26.875%), Suncor (20%), Canada Hibernia Holding (8.5%), Murphy Oil (6.5%) and Statoil (5%) co-own the Hibernia project.
Three White Rose cargoes will be offered in August, one less than in July. Husky Energy operates the White Rose field and has a 72.5% stake, while Suncor holds the remaining 27.5%.
Growing US shale production, and the ability to quickly ramp up and down, is dampening US crude oil price volatility, Adam Sieminski, administrator of the Energy Information Administration, said Monday.
Increased US oil output and changes in drilling rates in relation to the market may “reduce volatility to the downside,” Sieminski said at the IAEE international conference held in New York.
He noted on the conference sidelines that US prices would have had a bigger reaction to oil supply concerns in Libya, Sudan, Yemen and Syria had the country not been undergoing a shale boom.
The EIA expects US crude production, which averaged 7.4 million b/d in 2013, to climb to 8.42 million b/d in 2014 and then 9.27 million b/d in 2015, which would be the highest annual average since 1972.
Despite the rosy forecast, US oil prices have shown to still be reactive to international supply concerns. Just last week volatility jumped on uncertainty in Iraq. Implied volatility in front-month NYMEX crude increased to over 18% last Thursday and into Friday in the wake of the recent Iraq fighting, after having hovered around 16% since the beginning of April, CQG data shows.
In Monday morning US trade, implied volatility for at-the-money crude was around 17%. At the same time, front-month NYMEX crude prices rallied to trade at a nine-month high of $107.68/b Friday after surging $2.37/b Thursday.
Front-month ICE Brent jumped around $3.07/b Thursday, pushing to trade as high as $114.69/b Friday, the highest level since September 9.
Monday afternoon, the price was $106.90/b. US oil prices can go up “whether we are importing all of our oil or even a little bit of it,” said Sieminski. But he added that shorter lead times in shale oil development may “change the model that people will think [about] in terms of production and price volatility.”
He noted shale production can be “turned on and turned off,” citing as an example the movement of gas rigs in the Marcellus over to shale oil production in 2012 after gas prices moved lower.
The front-month premium for Brent crude futures over Dubai crude swaps has widened substantially over the last week on the back of fears of potential supply disruptions in Iraq, trading sources said Monday.
The August Exchange of Futures for Swaps (EFS), which measures the relative strength of Brent and Dubai, traded as high as plus $4.88/barrel on Monday morning, up almost 30 cents since last Monday, trading sources said.
The August EFS was assessed by Platts at plus $4.87/b Friday, the highest since September 16 last year, Platts data shows. Swaps traders attributed the firmer EFS to the significant gains on ICE Brent futures since last week, on concerns that prolonged fighting in Iraq could threaten the country’s crude production.
The swift takeover of several cities in northern Iraq by the jihadist group the Islamic State of Iraq and al-Sham (ISIS) since early last week jolted futures markets, pricing in the risk of outages should the group make further gains or security deteriorate further.
“Brent rallied to nine-month highs in volatile trading at the end of last week. The deteriorating situation in Iraq boosted the price risk premium, with Baghdad quickly losing control of the country and already pushing the US into contemplating military assistance -- though with no troops on the ground -- as ISIS rapidly advances through the country,” said Commerzbank in an analyst note.
Iraq -- the second largest producer in OPEC after Saudi Arabia -- expects to export some 2.6 million b/d of crude in June, according to Iraqi oil minister Abdul-Karim al-Luaibi, Platts reported previously.
So far the physical crude market has remained unaffected by the situation, with Iraqi production, the bulk of which comes from the south of the country, continuing as normal.
“In our view, the two most likely scenarios are a stalemate or a limited retrenchment of ISIS as the Iraqi army fights back,” said Bank of America Merrill Lynch analysts in a research note Monday.
“In both instances, we see Brent in a $105-$115/b range. In the unlikely scenario where ISIS temporarily enters Baghdad, Brent could head $10-15/b higher. In the highly unlikely scenario where 2.6 million b/d of Iraqi exports are disrupted, the impact would be quite severe, with Brent rising as much as $40-50/b. A swift peaceful resolution would likely take Brent $5 to $10/b lower. But as Syria and Libya have shown, limited US military involvement can be a recipe for instability.”
But sources said that with the EFS at these levels, Asian demand for Brent-related crudes was expected to stay thin, making Dubai-related crudes more attractive.
By Mark Shenk Jun 17, 2014 2:35 AM GMT+0700
June 16 (Bloomberg) -- Ian Bremmer, president and founder at Eurasia Group, talks with Tom Keene about the violent unrest in Iraq, Iran’s talks with the U.S. as it focuses on a nuclear deal and Russia cutting natural gas supplies to Ukraine. He speaks on Bloomberg Television’s “Bloomberg Surveillance.”
Brent crude was projected by Wall Street analysts to average as much as $116 a barrel by the end of the year. Now, with violence escalating in Iraq, how far the price will rise has become anyone’s guess.
The international benchmark surged above $114 on June 13 for the first time in nine months as militants routed the Iraqi army in the north and advanced toward Baghdad, threatening to ignite a civil war. The Islamic State in Iraq and the Levant, known as ISIL, has halted repairs to the pipeline from the Kirkuk oil field to the Mediterranean port of Ceyhan in Turkey.
The conflict threatens output in OPEC’s second-biggest crude producer. The Persian Gulf country is forecast to provide 60 percent of the group’s growth for the rest of this decade, the International Energy Agency said June 13. Global consumption will “increase sharply” in the last quarter of this year and OPEC will need to pump more oil to help meet the demand, according to forecasts from the Paris-based IEA.
“We’ve been waiting for the other shoe to drop in this tightly balanced market and now it’s happened,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said June 13 by phone. “There have been lurking risks but nobody was projecting how quickly things would turn worse.”
Rising Prices
Brent for August settlement rose 48 cents, or 0.4 percent, to end at $112.94 a barrel on the London-based ICE Futures Europe exchange today. The July contract expired June 13 after climbing 0.4 percent to $113.41, the highest close for a front-month future since Sept. 9. Vikas Dwivedi of Macquarie Group Ltd. predicts Brent will average $116 in the fourth quarter. He was the best forecaster of Brent prices in the first quarter, according to Bloomberg Rankings.
West Texas Intermediate crude, the U.S. benchmark, slid 1 cent to $106.90 a barrel on the New York Mercantile Exchange today. U.S. regular gasoline at the pump rose 0.1 cent to an average of $3.662 a gallon yesterday, the fifth consecutive daily gain, according to AAA in Heathrow, Florida, the largest American motoring group.
Meet al-Qaeda's Heirs Fighting to Reshape the Arab World
Oil-price volatility rebounded from the lowest on record as the violence escalated in Iraq. The 20-day historical volatility of Brent futures rose as high as 13 percent on June 12, according to exchange data compiled by Bloomberg. It was at 7.2 percent on June 3, the least since the contract began trading in 1988. The volatility is a reflection of market uncertainty, according to Olivier Jakob, managing director of Switzerland-based researcher Petromatrix GmbH.
Market Movements
“The market is going to be whipsawed by headlines from Iraq,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said June 13 by phone. “If there’s shooting on the streets of Baghdad, we’ll get a spike in prices, but I don’t see WTI passing $120.”
ISIL has control of the pipeline to the 310,000-barrel-a-day Baiji refinery, the country’s biggest. The insurgents also took Mosul, the country’s second-largest city. Kurdish forces moved into Kirkuk to protect the northern oil fields from the militants. The main pipeline from that field to Turkey hasn’t operated since early March because of attacks.
The fighting hasn’t spread to the south, which the U.S. Energy Information Administration says is home to three-quarters of Iraq’s crude output. The country’s three biggest oilfields -- Rumaila, West Qurna-2 and Majnoon -- lie in the south, and crude production there has been increasing. The region has a Shiite majority opposed to ISIL’s Sunni militants.
Export Impact
“The immediate impact on Iraq’s crude oil exports is limited for now as the conflict in northern and western Iraq is far from the southern -- and Shiite-controlled -- oilfields and export terminals from where all current oil exports originate,” Goldman Sachs Group Inc. analysts Damien Courvalin, Anamaria Pieschacon and Jeffrey Currie said in a report received by e-mail yesterday and dated June 13.
If the conflict reached the southern oil fields and the port of Basra, it would “likely have a significant impact on crude prices given current supply disruption in other OPEC members, in particular Libya,” the Goldman analysts said.
Iraq’s armed forces have attacked positions held by Sunni Muslim militants to try to halt their advance, while Prime Minister Nouri al-Maliki deployed the air force to defend his Shiite-led government.
U.S. Carrier
The U.S. has dispatched an aircraft carrier to the Persian Gulf as President Barack Obama weighs options to help Maliki repel ISIL attacks. The U.S. withdrew its forces from Iraq in 2011. Obama said on June 13 that the conflict can’t be resolved unless Iraq’s leaders bridge political differences.
Iraqi crude output capacity will increase by more than 1.2 million barrels a day in the six years through 2019, the IEA estimated. Production rose to 3.3 million barrels a day last month, according to data compiled by Bloomberg. Output surged to 3.4 million in February, the highest level since 2000. Neighboring Saudi Arabia had 2.83 million barrels of spare production capacity in May.
“A disruption of Iraqi supply would represent a global energy crisis,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone on June 13. “This isn’t hyperbole.”
The increase in concern about Iraqi supply comes as fighting in Libya has curbed production in the North African country, international sanctions against Iran for its nuclear program have cut its exports and sabotage reduced the flow of Nigerian barrels.
Libyan Output
Libyan output fell by 35,000 barrels a day to 180,000 in May, the lowest level since September 2011. Production was down 87 percent from a year earlier.
“The roughly 3 million barrels a day that Iraq is producing accounts for about 10 percent of OPEC’s overall production,” Kilduff said. “The Libyan outage and the up and down in Nigerian output leave OPEC with limited spare capacity. Saudi Arabia can’t make up for a loss of Iraq.”
The 12-member Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, kept its production target unchanged at 30 million barrels a day when ministers gathered in Vienna last week.
The conflict has the potential to push U.S. crude and gasoline prices higher, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone yesterday.
“Given the current unrest in Iraq, I expect oil prices to reach $110 here for WTI, which would mean that the national average would go towards $3.80 for gasoline,” he said. “Should we see a significant supply disruption in exports, then I expect oil prices to go to $125 and the national retail average to exceed $4 a gallon.”
It’s been almost six years since U.S. retail gasoline averaged more than $4 per gallon, in the week of July 21, 2008, according to data from the EIA.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Charlotte Porter
By Glen Carey and Deema Almashabi Jun 16, 2014 9:22 PM GMT+0700
June 16 (Bloomberg) –- Iraq's capital Baghdad appears safe, for now, from the militants that overran the northern city of Mosul last week amid large-scale defections from an Iraqi Army that the U.S. largely built from scratch. In today's Big Question, Bloomberg's Willem Marx looks into America's investments in the militaries of other countries. Video by: Brian Kartagener. (Source: Bloomberg)
The al-Qaeda breakaway group that has captured Iraq’s biggest northern city is on a recruitment drive in Saudi Arabia.
The evidence showed up last month in Riyadh, where drivers woke up to find leaflets stuffed into the handles of their car doors and in their windshields. They were promoting the Islamic State in Iraq and the Levant, which has grabbed the world’s attention by seizing parts of northern Iraq. The militant group is also using social media, such as Twitter and YouTube, to recruit young Saudi men.
Already at war with the governments of Iraq and Syria, ISIL also poses a potential threat to the Al Saud family’s rule over the world’s biggest oil exporter. Saudi authorities gained the upper hand in their battle with al-Qaeda, which targeted the kingdom a decade ago, yet analysts said the latest generation of militants may be harder to crush.
ISIL, known as Da’esh in Arabic, has “territorial ambitions and is far more difficult to deal with than al-Qaeda,” Mustafa Alani, an analyst at the Geneva-based Gulf Research Center, said in a telephone interview. “These people are able to hold ground, they have army-like units, and they conduct terrorist attacks.”
Oil Surge
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Stability in Saudi Arabia under the Al Saud has been essential for global oil markets. When supplies from Libya and sanction-hit Iran were disrupted after 2011, the kingdom increased output to meet demand. It produced 9.67 million barrels of oil a day in May, according to data compiled by Bloomberg.
Global oil markets have been rattled by the instability in Iraq. Brent crude posted its biggest weekly jump for almost a year last week, and West Texas Intermediate also surged. Brent futures pared gains today, dropping 0.8 percent at 2:30 p.m. in London, as Iraq’s military struck back at the insurgents.
In the past, the Saudi oil industry was an al-Qaeda target. The group’s followers, including Saudi veterans of the wars in Afghanistan and Iraq who returned to the kingdom, attacked Abqaiq, the world’s largest oil processing plant in the Eastern Province, with car bombs in 2006.
There are concerns that conflicts in Syria and Iraq will play a similar role to those earlier wars, pulling fighters from different Arab and European countries.
‘Sectarian Policies’
In its first public comment on the crisis in neighboring Iraq, the Saudi government said that the tensions there were due to “sectarian policies” which threatened its “stability and sovereignty,” according to the official Saudi Press Agency, which cited a cabinet statement. It warned against foreign intervention and urged Iraqis to form a national unity government.
Al-Qaeda’s offshoots such as ISIL are increasingly taking the initiative in the war against Syrian President Bashar al-Assad. In Iraq, they control a swathe of territory, and Saudi authorities are on guard against local cells. Saudi Arabia conducted large military exercises along its northern border in April, in a show of force against possible threats.
Meet al-Qaeda's Heirs
In May, the Interior Ministry said it arrested 62 militants who were planning attacks against domestic and foreign targets in the kingdom. Major General Mansour al-Turki, the ministry’s spokesman, told Al Arabiya that police are still looking for another 44 members. Some of the suspects had ties with ISIL in Syria and with al-Qaeda’s splinter group in Yemen.
‘Fake Beards’
“We recognize that all terrorist-related groups are a threat, including ISIL,” al-Turki said in an interview yesterday. “But our security forces are very well prepared to handle any terrorism threat.”
The leaflets showed up on cars on back streets in two residential neighborhoods in Riyadh in May, according to a Saudi security official, who asked not to be identified because police are still investigating the incident. It’s also unclear if those responsible had direct contact with ISIL or were acting on their own, the official said.
In the leaflets, the group warned against Muslims with “fake beards,” or those who pretend to be followers of Islam but are really its enemy, according to copies posted on Twitter by residents of the capital.
Such language has often been used by jihadi groups to criticize the Saudi monarchy, which enforces Islamic law at home and yet has also cultivated an alliance with the U.S., seen as enemies by most Islamists.
Extremist View
The kingdom is home to Mecca’s Grand Mosque, Islam’s holiest shrine, which was temporarily seized by militants in 1979. Juhayman al-Otaybi, who led the takeover of the mosque, had accused the ruling Al Saud family of being un-Islamic and called for them to stop selling oil to western powers.
“The Saudi leadership is seen by many extremist groups, even those groups that Saudis financially support, as corrupt,” said Paul Sullivan, a Middle East specialist at Georgetown University in Washington.
Saudi Arabia is backing the mainly Sunni rebels fighting Assad in Syria, though there is no evidence that authorities are funding ISIL.
ISIL’s printed literature also accused Western nations of using the war on “terror” to assault the Muslim world, a message that may ring true with some Saudis, who are suspicious of the U.S. role in the Middle East.
Painted Slogans
In the western Saudi city of Taif, a video posted on YouTube showed militant slogans spray-painted on government buildings.
Al-Turki said police monitor young Saudis who engage in activities such as spraying graffiti, or filming themselves carrying the banners of radical groups, “in response to requests posted on terrorism-related accounts” on social media. He said several are being questioned by authorities.
ISIL is “expanding its strategic campaign to the kingdom,” Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai, said in a phone interview. “ISIL is using simple information operations to get their message out.”
There’s a potential audience of sympathizers in Saudi Arabia. Earlier this year, a group of veiled Saudi women posted a video on YouTube calling upon ISIL’s leader, Abu Bakr al-Baghdadi, to topple Al Saud because of “their un-Islamic and unjust reign.” The authenticity of the video couldn’t be independently verified.
‘More Brutal’
The language in the leaflet, and on the video, is reminiscent of Osama Bin Laden, who also urged the overthrow of the Saudi rulers. By taking control of a swathe of territory across northern Iraq and Syria, Al-Baghdadi’s fighters have achieved gains that al-Qaeda never managed. The U.S. has dispatched an aircraft carrier to the Persian Gulf as President Barack Obama weighs options to halt the group’s advance in Iraq,
“Its members are more brutal in their killings,” Abdulsalam Mohammed, head of the Abaad Studies and Research Center in Sana’a and a specialist in Islamic movements, said in a phone interview. “They have a greater tendency to exploit and promote sectarian division. But they’re also willing to target Sunni groups.”
To contact the reporters on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net; Deema Almashabi in Riyadh at dalmashabi@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Ben Holland, Mark Williams
By Terry Atlas and Glen Carey Jun 17, 2014 5:53 AM GMT+0700
The U.S. signaled it’s ready to talk with Iran about how to deal with the crisis in Iraq, as Prime Minister Nouri al-Maliki’s forces battle an offensive by Sunni Muslim militants that threatens to split apart the country.
U.S. and Iranian officials spoke briefly on Iraq in an initial conversation on the sidelines of talks in Vienna on Iran’s nuclear program, according to a U.S. State Department official who commented on condition of anonymity.
“We’re open to discussions if there is something constructive that can be contributed by Iran, if Iran is prepared to do something that is going to respect the integrity and the sovereignty of Iraq and the ability of the government to reform,” Secretary of State John Kerry said in an interview yesterday with Yahoo! News.
The U.S. and Iran have been on opposite sides of most Middle Eastern conflicts for decades. They are now finding a common interest in thwarting the advance of the Islamic State of Iraq and the Levant, or ISIL, an al-Qaeda offshoot that has seized parts of northern Iraq in the past week, with support from some local leaders in the wider community of Iraqi Sunnis who resent al-Maliki’s Shiite-led government.
Weighing Intervention
The U.S. is weighing military intervention against the group in Iraq, President Barack Obama said last week. That may include sending a small number of special forces soldiers, who would be involved in training though not in direct combat, the Associated Press reported, citing unidentified U.S. officials. The Pentagon dispatched an aircraft carrier to the Gulf, and the Navy said yesterday it sent another ship with 550 Marines.
Obama planned to meet with his national security advisers at the White House “to get an update on the thinking of individual members of his team as they have been working over the weekend to prepare some options,” White House spokesman Josh Earnest told reporters aboard Air Force One.
The mounting violence threatens to plunge one of the world’s largest oil producers into a sectarian civil war like the one raging in neighboring Syria. Markets have been rattled by the conflict. Brent crude last week posted its biggest increase in almost a year, while Middle Eastern stocks have plunged.
The militants captured Mosul, the largest city in northern Iraq, a week ago. Uncorroborated reports that they executed 1,700 people, mostly soldiers from the Iraqi army, have surfaced on jihadist forums and other social-media sites.
Assad Fight
ISIL came to prominence with its growing role among the opposition groups fighting to oust Syria’s President Bashar al-Assad, a key Iranian ally. In that conflict the U.S. supports the rebel side, and it came close to launching air strikes against Assad last year. At the same time, the U.S. has become concerned about the growing role played by Islamist militants such as ISIL.
Brent for August settlement gained 48 cents to end at 112.94 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for July delivery fell 33 cents to $106.58 a barrel on the New York Mercantile Exchange.
The U.S. paved the way for al-Maliki’s rise to power, at the head of Iraq’s first ever Shiite-led government, by invading the country to overthrow Saddam Hussein in 2003. Iran, the region’s leading Shiite power, also backs al-Maliki. Moreover, U.S.-Iranian ties have thawed in the past year as the longtime rivals made some progress talks on curbing Iran’s nuclear program.
‘Inclusive’ Agenda
Yet it’s not clear whether the U.S. and Iran will agree on how to act in Iraq, even if their goals overlap.
Iran is “strongly against U.S. military intervention in Iraq,” said Marzieh Afkham, a spokeswoman for the Iranian Foreign Ministry, according to the official IRNA news agency.
Earnest, the White House spokesman, said the goal would be “encouraging Iraq’s leadership to pursue an inclusive diplomatic agenda.” At the Pentagon, Rear Admiral John Kirby, a spokesman, said that “there is absolutely no intention and no plan to coordinate military activities between the United States and Iraq.”
Al-Maliki’s government has been criticized for alienating Iraq’s minority Sunnis. There are signs that local Sunni tribes and other groups helped ISIL to gain control of Mosul and surrounding areas as Iraq’s mostly Shiite army fled.
‘Terrorist Entity’
Regardless of the Baghdad government’s failings, “the bottom line is that this terrorist entity cannot be allowed to run roughshod over the express desires of the people of Iraq,” Kerry said. He said he didn’t think Obama will “just sit by.”
Al-Maliki’s party retained its position as the largest bloc in parliament in April 30 elections and is seeking to form a new coalition. His forces have counter-attacked against the insurgents and say they have regained some ground.
There were conflicting reports of the latest fighting, especially from the town of Tal Afar, between Mosul and the Syrian border, which was the site of a victory by combined U.S. and Iraqi forces against Sunni insurgents in 2005. ISIL gunmen have captured most of the town, according to Jabar Yawar, a spokesman for Kurdish forces positioned nearby. State-run Iraqiya TV said the army is nearing victory there.
Shiite leaders in Iraq have called on their supporters to take up arms in the fight against ISIL, increasing the risk of a wider sectarian conflict.
Iranian forces are also helping the army, the Wall Street Journal reported last week. Discussing potential co-operation with Iran, Kerry said “we need to go step-by-step.”
U.S. Embassy
“We are open to any constructive process that could minimize the violence, hold Iraq together, the integrity of the country, and eliminate the presence of outside terrorist forces that are ripping it apart,” he said.
The U.S. has been reducing the staff at its embassy in Baghdad while bolstering security.
In a letter to Congress, Obama said “approximately 275 U.S. Armed Forces personnel are deploying to Iraq to provide support and security for U.S. personnel and the U.S. Embassy in Baghdad.” The force is “equipped for combat,” he said.
To contact the reporters on this story: Terry Atlas in Washington at tatlas@bloomberg.net; Glen Carey in Riyadh at gcarey8@bloomberg.net
To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net Ben Holland, Larry Liebert
By Dan Murtaugh and Eliot Caroom Jun 17, 2014 12:44 AM GMT+0700
Oil exports from the U.S. in April rose to the highest level in 15 years as Canadian refineries replaced more expensive imports from Europe and West Africa with shale oil from North Dakota and Texas.
The U.S. shipped 268,000 barrels a day in April, the Energy Information Administration reported today. That’s the most since April 1999, and a more than sixfold increase since April 2012. Federal law allows exports of unrefined crude to Canada and restricts them to most other destinations.
The increase in exports follows a boom in oil production driven by horizontal drilling and hydraulic fracturing, or fracking, in places like North Dakota and Texas. The surge in output has increased supplies in the U.S., driving down prices relative to the rest of the world.
“The boom in U.S. production caused a price differential to grow between foreign crude and U.S. crude,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, today. “The margins for U.S. crude are just so good that there’s no reason a Canadian refinery wouldn’t want to use it if possible.”
U.S. crude output rose to 8.47 million barrels a day in the week of May 23, the highest level since 1986. Eagle Ford light crude in south Texas sells for $9.71 a barrel less than Brent, the benchmark for European and African oil, according to data compiled by Bloomberg. It costs $2 a barrel to ship crude from Texas to Canada, Marathon Petroleum Corp. (MPC) said in a May presentation.
Canadian Refineries
Exports to Canada from the U.S. Gulf Coast averaged 134,000 barrels a day in the first quarter, according to the EIA. March U.S. exports were 246,000 barrels daily.
Refineries on Canada’s East Coast are designed to process light, low-sulfur crude like the type produced by fracking in the U.S., said Hannah Breun, a Washington D.C.-based analyst for the EIA. Plants on the U.S. Gulf Coast are generally better suited to refine thick, high-sulfur crudes from Mexico, South American and Western Canada.
Corpus Christi, Texas, the closest port to the Eagle Ford field, shipped out 468,000 barrels a day in April, according to data from the city’s Port Authority. That’s up from 15,000 barrels two years earlier. About 80 percent of that oil stays in the Gulf Coast, with the rest going to Canada and the U.S. East Coast, Brad Barron, NuStar Energy LP (NS) Chief Executive Officer, said in April.
Refineries in Ontario, Quebec and Canada’s Atlantic Coast imported about 615,000 barrels a day in February, according to the country’s National Energy Board. Under current export rules, shipments to Canada from the U.S. will rise to 400,000 barrels a day in 2015 and stay at that level through 2020, Damien Courvalin, a New York-based analyst for Goldman Sachs Group Inc., said in a June 10 research note.
To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Eliot Caroom in New York at ecaroom@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Stephen Cunningham
By Khalid Al-Ansary and Nayla Razzouk Jun 16, 2014 5:38 PM GMT+0700
Kurdish troops pushed outside their semi-autonomous enclave in northern Iraq to protect the nation’s fourth-biggest oilfield from Islamist militants and take control of areas claimed both by Kurds and the central government.
More than 100,000 Kurdish fighters, known as pershmergas, are guarding a “front line” from Iraq’s eastern border with Iran to the northern town of Fishkabur near Turkey, Jabbar Yawar, Peshmerga Ministry secretary-general, said in an interview in Erbil, the Kurdish region’s capital. The Kurds now occupy areas around the contested city of Kirkuk, where BP Plc has been in talks with Iraq’s government to help reverse declining output at the oilfield discovered in 1927.
Iraq’s army abandoned Kirkuk last week amid an offensive by militants of the Islamic State in Iraq and the Levant. Peshmergas now control all energy facilities and oil deposits in the Kirkuk area other than a refinery in Baiji, which ISIL forces have surrounded, Yawar said. ISIL also seized part of the pipeline for oil exports from Kirkuk to Turkey, he said. Oil flows through the pipeline have been halted for security reasons since March 2, according to Iraq’s oil ministry.
“Currently all disputed areas are inside the Kurdistan region or protected by the region’s forces,” Yawar said. “It is not possible that the Iraqi government return and fill these huge areas that it left,” he said.
OPEC Producer
Prime Minister Nouri al-Maliki’s Shiite-led government is seeking to turn back battlefield advances by ISIL, a break-away al-Qaeda Sunni Muslim group. Sectarian strife is pushing the second-largest oil producer in the Organization of Petroleum Exporting Countries closer to civil war, three years after the U.S. withdrew its forces from Iraq.
Oil wealth is the basis for Kurdish economic independence. The Kurdistan Regional Government, which controls 45 billion barrels of proven crude reserves, has attracted international oil companies including Exxon Mobil Corp. and Total SA with financial terms many investors see as more generous than those on offer in the rest of Iraq.
Maliki’s government has for years disputed with the KRG over oil revenue and territory. Tensions increased last month when the Kurds started to export crude to Turkey though a separate pipeline without approval from the central government.
Kirkuk, which is also a province and the name of the oilfield, has been a central point of contention. The field contains 8.9 billion barrels of crude reserves, according to data compiled by Bloomberg, and the KRG has criticized BP’s planned oilfield work there.
“The Kurds have extended control over the city, and from what we understand over the field as well,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said late yesterday in a phone interview. “The Kurds are obviously in a much better position as long as they don’t overreach. I find it extremely hard to see how they would withdraw.”
To contact the reporters on this story: Khalid Al-Ansary in Baghdad at kalansary@bloomberg.net; Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, Alaa Shahine
By Anna Edwards, Mark Barton and Anthony DiPaola Jun 16, 2014 4:52 PM GMT+0700
June 16 (Bloomberg) -- Crescent Petroleum Co. Chief Executive Officer Majid Jafar talks about his company's operations in Iraq amid fighting between the military and Sunni Muslim insurgents. He speaks with Anna Edwards and Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
The conflict in Iraq is causing “serious doubts” about the country’s ability to achieve planned oil production and export increases, said the head of Crescent Petroleum, a closely held producer in the country.
“Iraq had been seen as a major exporter going forward with major potential,” Crescent Chief Executive Officer Majid Jafar said in a Bloomberg Television interview today. “It hasn’t delivered so far and with the current weakness of the state and conflict, there are even bigger concerns over its ability to deliver.”
Attacks by a breakaway al-Qaeda group whose fighters captured territory north of Baghdad and advanced on key energy infrastructure have put in doubt the central government’s rule. Prime Minister Nouri al-Maliki’s Shiite Muslim-led government is seeking to reassert control as its military assaults Sunni insurgents’ positions. Kurdish forces today said they had taken control of the city of Kirkuk and oil production facilities there.
Iraqi crude production capacity will increase by more than 1.2 million barrels a day in the six years through 2019, the International Energy Agency said June 13. Output surged to 3.4 million barrels a day in February, the highest level since 2000, and was 3.3 million last month, according to data compiled by Bloomberg.
Operations Normal
Crescent Petroleum’s natural gas production in the northern Kurdish region of Iraq is running normally even as fighting rages between militants and state forces to the west, Jafar said. Crescent is taking security precautions in the semi-autonomous region and its facilities “haven’t been negatively impacted” by fighting. Crescent is producing about 80,000 barrels of oil-equivalent a day there, he said.
The company also has investments in Egypt and the United Arab Emirates, where it is based. It previously sought to import gas from Iran before that project stalled in a dispute over fuel prices.
Global markets will need Iran’s oil to be available to meet future energy demand, Jafar said. Negotiators from the Islamic republic and six global powers resume today in Vienna in an effort to limit Iran’s nuclear program in return for stopping economic and energy sanctions.
The Middle East has been losing share in global oil markets as output slips in countries like Libya and Iraq amid strife and from Iran due to sanctions, while North American output has increased from shale deposits.
“The problem we have in the Middle East, apart from the politics and the conflict, is huge energy subsidies and not the right incentives for investment by the private sector,” Jafar said. Rates of remuneration from production in the region aren’t high enough, he said.
Meet al-Qaeda's Heirs Fighting to Reshape the Arab World
To contact the reporters on this story: Anna Edwards in London at aedwards49@bloomberg.net; Mark Barton in London at barton1@bloomberg.net; Anthony DiPaola in Dubai at adipaola@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron
By Yuriy Humber and Andy Hoffman Jun 16, 2014 2:28 PM GMT+0700
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Trafigura Beheer BV, the world’s second-largest metals trader, said half-year profit climbed 24 percent as gains in its oil business combined with volume growth and “healthy” trading margins.
Net income was $470 million in the six months through March 31, the company said in a statement on its website. Revenue rose 3 percent to $63.8 billion, while bulk-commodities trading volume jumped 67 percent from a year earlier.
The results are the last for the 21-year-old commodity trading firm with co-founder Claude Dauphin at the helm as chief executive officer. Dauphin, 63, stepped down as CEO in March for medical reasons. He remains executive chairman and said today his successor, Jeremy Weir, a 50-year-old Australian, is “well suited” to run Amsterdam-based Trafigura. Weir formerly was head of Trafigura’s mining unit and its hedge fund business.
“Growth in some emerging markets may have slowed substantially, but others are picking up momentum, notably in Africa where urbanization and industrialization are creating a growing middle class and new resource needs,” Dauphin said in the statement. China’s slower growth “still translates into a need for ever-higher volumes of raw materials and energy.”
Softening economic growth will likely lead to lower prices and less market volatility, as opposed to less consumption, and that bodes well for Trafigura, Dauphin said. Trafigura’s gross margin was 1.5 percent, the same as last year, the company said.
Oil Volumes
Trading volumes in oil and petroleum products rose 7 percent from the same period last year and Trafigura said it regularly trades more than 2.5 million barrels a day, equivalent to the maximum daily output of Nigeria, Africa’s largest producer.
The 67 percent gain in non-ferrous and bulk trading volumes was driven by an “especially pronounced” advance in coal, Weir said in the statement. Bulk and metals trading gross profit margins recorded a slight decrease while oil trading profit margins increased, Trafigura said on its website.
The third-largest independent oil trader, Trafigura has purchased stakes in pipelines, mines, smelters, ports and storage terminals to diversify its business and wring efficiencies from its trading operations.
The 2014 half-year results included a $93.6-million one-time gain on the sale of its bitumen business to Puma Energy, the oil storage and retail fuel company. Trafigura had a $1.43 billion one-time gain in 2013 after cutting its stake in Puma to 49 percent from 62 percent.
Banks Exit
While trading margins are under pressure, commodity trading houses such as Trafigura, Vitol Group and Mercuria Energy Group Ltd. are benefiting as banks including Barclays Plc (BARC), Morgan Stanley and Deutsche Bank AG exit or reduce their commodity operations because of increased regulatory scrutiny. Mercuria agreed in March to buy JPMorgan Chase & Co. (JPM)’s commodity unit for $3.5 billion.
Noble Group Ltd. (NOBL), a Hong Kong based commodity trading firm, said first-quarter profit more than tripled this year partly due to banks exiting commodity trading.
The withdrawal of investment banks from commodities has shifted regulatory attention to trading houses and prompted some to ask whether the failure of a major commodity trader would jeopardize markets and banking systems. In February, the U.K.’s Financial Conduct Authority produced its first report on the commodity sector in half a decade while vowing to pay close attention to trading houses.
Trafigura commissioned a report released in April that concluded that commodity trading firms probably don’t pose systematic risks to the global economy.
To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Andy Hoffman in Geneva at ahoffman31@bloomberg.net
To contact the editors responsible for this story: Timothy Coulter at tcoulter@bloomberg.net John Viljoen, Tony Barrett
By Mikael Holter Jun 16, 2014 4:56 PM GMT+0700
Norway, western Europe’s biggest crude producer, vowed to keep a close watch on oil companies to ensure projects aren’t delayed as the industry prepares to cut investments for the first time in five years amid rising costs.
“We’ll be on guard if time-critical projects are affected,” Elnar Remi Holmen, an adviser to Petroleum and Energy Minister Tord Lien, said in an e-mail today. “We don’t want profitable opportunities to pass us by.”
Oil and gas companies operating in Norway expect to invest 174.5 billion kroner ($29.1 billion) next year, excluding shutdowns and removals, the nation’s statistics agency said on June 12, citing a quarterly survey of producers and explorers. That’s 16 percent lower than the corresponding estimate a year earlier and would be the first drop in spending since 2010.
State-controlled Statoil ASA (STL), which operates more than 70 percent of Norway’s oil and gas output, has cut its planned spending by 8 percent for the three years through 2016 and set up an efficiency program to lower costs. As the Stavanger-based company becomes more selective in investments, it’s reviewing, among other plans, a project to build a new platform at the North Sea’s Snorre field to extend production until 2040.
Norway’s government, seeking to maintain production after a 20 percent drop during the past decade, has already warned Statoil and its competitors to avoid “unacceptable delays.”
‘Not Dramatic’
Authorities have encouraged the industry to deal with costs that have risen about 10 percent a year during that period. That’s led to estimated investments climbing to a record 231.7 billion kroner this year, a more than fourfold increase since 2002 as costs and activity increased, supported by new finds.
If lower investments next year also reflect efficiency measures, that would be “positive,” Holmen said. “It’s not very dramatic if investments for next year are somewhat reduced from today’s record level,” he said. “Investments will be at a high level going forward.”
Statistics Norway’s survey excludes spending on the Johan Sverdrup field, the country’s biggest oil discovery in decades, as a development plan isn’t scheduled to be filed until early next year.
“There’s therefore reason to believe that investments in 2015 will be somewhat higher than what Statistics Norway quantifies,” Holmen said.
To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Alastair Reed, Tony Barrett
Exxon Chief Hails Russia Plans Alongside Sanctioned Rosneft CEO
By Eduard Gismatullin Jun 16, 2014 6:37 PM GMT+0700
Exxon Mobil Corp. (XOM) Chief Executive Officer Rex Tillerson talked up his company’s prospects in Russia, appearing in Moscow alongside OAO Rosneft (ROSN) CEO Igor Sechin, who’s been sanctioned by the U.S. government.
Work between Texas-based Exxon, the world’s largest oil company by market value, and state-run Rosneft on Sakhalin Island in Russia’s Far East provides a template for further exploration, especially in the Arctic’s Kara Sea, Tillerson said at the World Petroleum Congress in Moscow today.
“We look forward to taking advances achieved in the cutting-edge success in the Far East of Russia and building on them to unlock new supplies of oil and gas,” Tillerson said.
Exxon Mobil is pursuing a global alliance with Rosneft even after the U.S. imposed sanctions on Sechin, a close ally of President Vladimir Putin, as part of a package to punish Russia for annexing Crimea from Ukraine. The two companies plan to drill a well in the Kara Sea later this year, targeting a formation that could hold more than 8 billion barrels of oil.
“All major projects this year are related to our joint work with Exxon,” Sechin, who’s banned from traveling to the U.S., said at the same event. It’s “business as usual.”
Tillerson declined to comment on U.S. sanctions on Sechin.
As well as the Sakhalin project and Kara Sea exploration, Exxon’s alliance with Rosneft includes shale exploration in Siberia and joint venture fields in Texas.
The remoteness of the Arctic well -- four days voyage from the nearest port in iceberg-prone seas -- means it will be among the most expensive Exxon has ever drilled, costing at least $600 million.
To contact the reporter on this story: Eduard Gismatullin in Moscow at egismatullin@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Tony Barrett
Japan’s Chubu to Increase LNG Portfolio Contracts to Cut Costs
By Tsuyoshi Inajima and Emi Urabe Jun 17, 2014 6:42 AM GMT+0700
Chubu Electric Power Co., Japan’s second-biggest purchaser of liquefied natural gas, plans to increase its use of a type of LNG contract that allows buyers more flexible terms and competitive prices.
The Nagoya-based utility will get a quarter of its LNG through so-called portfolio contracts by the early 2020s, up from about 15 percent now, Hiroki Sato, the general manager of the fuels department, said in an interview.
Chubu is attempting to diversify its purchases amid rising supply from producers including Australia and Russia and as North America is poised to become a major exporting region. Buyers benefit from the contracts because they offer cheaper, stable supplies from multiple sources while sellers can choose cargoes from among global assets to maximize profits, Sato said.
“Sellers, particularly oil and gas majors, want to do a portfolio contract because they can optimize their operations to increase profits,” Sato said in an interview at Chubu’s Tokyo office on June 12. “We, in return, want to have economic LNG and more flexible terms.”
Chubu Electric agreed in May to buy about 720,000 metric tons of LNG annually for 20 years from Royal Dutch Shell Plc (RDSA) through its third long-term portfolio contract. The company, which signed the first such deal among Japanese power utilities in 2010, has similar agreements with BG Group Plc and BP Plc. LNG users have traditionally sourced supplies directly from specific projects in exporting countries such as Malaysia, Qatar and Australia.
The Shell contract allows Chubu Electric to resell LNG in the spot market, people with knowledge of the deal said earlier this month. The price level is “very competitive” compared with typical deals among Asian buyers, Sato said. He declined to give details of the price formula because they’re confidential.
Chubu Electric plans to restructure its portfolio of LNG contracts by the early 2020s as some deals will expire in coming years, Sato said. A long-term LNG contract with Qatar for 4 million metric tons a year will end in 2021, which accounts for about 30 percent of Chubu’s total imports, according to data compiled by Bloomberg.
To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Ramsey Al-Rikabi
By Elena Mazneva and Daryna Krasnolutska Jun 16, 2014 10:41 PM GMT+0700
Ukraine said Russia cut natural gas supplies after demanding advance payments for the fuel, the first time shipments have been affected in this year’s crisis in relations between the two countries.
Russia’s OAO Gazprom (GAZP) is only providing enough gas to Ukraine’s pipeline system to meet demand from European customers and not the country’s needs, Ukraine’s state gas company said. Ukraine must pay its debt and then will only receive gas paid for up front, Gazprom Chief Executive Officer Alexey Miller said today after a deadline of 10 a.m. in Moscow passed without receiving payment.
The European Union, dependent on Russian gas piped through Ukraine for about 15 percent of its demand, has been trying to broker a deal to maintain shipments and overnight negotiations in Kiev ended yesterday without a deal. A supply cutoff may have less impact in the European summer, when consumption is lower and stockpiles higher.
“Ukraine was ready for such developments,” said Ukrainian Energy Minister Yuri Prodan. “We will provide reliable supply of gas to consumers in Ukraine and we will provide reliable transit to the European Union.”
European gas prices jumped the most in more than three months on concern regional supplies may be disrupted. U.K. front-month gas jumped as much as 8.8 percent, the biggest increase since March 3 and a record for the July contract, on the ICE Futures Europe exchange in London.
Transit Volumes
The company doesn’t see ground for renewed takes with Ukraine unless the country, which he described as bankrupt and “destroying itself,” starts paying debts, he said.
Ukraine’s $4.5 billion gas debt is a “serious” sum even for Gazprom, Miller said.
Gazprom is shipping more than 180 million cubic meters of gas a day through Ukraine and will monitor transit volumes, Miller said at a news conference in Moscow.
The grid operator in Slovakia, where Ukrainian pipelines arrive at the EU, said there was no reduction in gas pressure or import volumes.
Stocks in EU gas underground storage sites are larger than in in previous years and the region is able to cope if there are disruptions, EU Energy Commissioner Guenther Oettinger, who has been involved in the trilateral talks since they started in May, told a press conference in Vienna today.
EU Plan
Under the EU’s last plan, Ukraine would pay its debt in installments, with $1 billion paid immediately and the rest by the year-end, according to Oettinger.
Ukraine must pay $1.95 billion to partially settle its debt by the deadline, Gazprom said yesterday. The company previously extended the payment deadline for Ukraine after receiving $786 million for supplies delivered in February and March.
Ukraine refused to pay the rest of its debt demanding market-based prices, which it says would be lower than Gazprom proposed.
In April, after Ukraine’s Kremlin-backed President Viktor Yanukovych was ousted in street protests, Gazprom rescinded a gas discount it had previously granted Ukraine. Russian President Vladimir Putin also stripped the Ukraine of a 2010 export-duty reduction that it exchanged for a lease on its Black Sea fleet’s port in Crimea, which Russia annexed in March.
Street Protests
Ukraine was ready to accept the EU proposal of a price range between $300 and $385 per 1,000 cubic meters, still above the $286.5 that the country paid in the first quarter, NAK Naftogaz Ukrainy, the state gas company, said today. Gazprom’s final offer was $385, Miller said today.
Ukraine, which relies on Gazprom for about half its gas, is able to survive without Russian fuel until the middle of September as its current gas consumption almost matches domestic output due to low seasonal demand and the stalling of production at its chemical plants in the east, according to Concorde Capital, a Kiev, Ukraine-based investment company.
Ukraine has been filling underground storage facilities over the past few months to provide a buffer in the event of disruption, Andriy Kobolyev, CEO of Naftogaz, said today. “We have time,” he said.
The European Commission, the 28-nation EU’s executive arm, said in a statement today that it still aims to help broker an agreement that secures supplies from Russia.
To contact the reporters on this story: Elena Mazneva in Moscow at emazneva@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
European Gas Jumps Most Since March as Russia Cuts Ukraine Flows
By Isis Almeida and Anna Shiryaevskaya Jun 16, 2014 7:13 PM GMT+0700
U.K. and Dutch natural gas prices climbed the most in more than three months as Russia’s pipeline-gas export monopoly OAO Gazprom (GAZP) cut shipments to Ukraine, threatening flows to the European Union.
U.K. front-month gas jumped as much as 8.8 percent on ICE Futures Europe, the biggest increase since March 3, the first trading day after Russian President Vladimir Putin got approval from lawmakers to send troops into Ukraine’s Crimea region. Dutch prices rose 10 percent to their highest level since May 12, according to broker data compiled by Bloomberg.
The EU tried in vain to broker an accord between the two nations that would avoid disrupting supplies to the bloc, which gets about 15 percent of its gas via Ukrainian pipelines from Russia. The reduction follows similar cuts in 2006 and 2009.
“The response of European natural gas prices is coherent in face of the risk of Europe seeing 15 percent of its natural gas supplies at risk,” Lysu Paez-Cortez, an analyst at Natixis SA in Paris, said today by e-mail. “I think the market expected the European Energy Commission to succeed in its attempt to try and make the two parts to find an exit to the differences.”
U.K. next-month gas rose as high as 45.55 pence a therm ($7.69 a million British thermal units) on ICE, the highest since May 13, and traded at 42.90 pence at 1:03 p.m. in London. Dutch prices for July, which also increased the most since March 3, climbed as high as 20 euros ($27) a megawatt-hour on the TTF hub and were recently at 18.50 euros.
Russia cut flows to Ukraine and is providing only gas destined for the EU, Andriy Kobolyev, chief executive officer of Ukrainian energy company Naftogaz Ukrainy, said today, adding that a “fair price” would be sought via arbitration.
Outstanding Debt
Ukraine failed to pay a debt of more than $4.4 billion for deliveries in November, December, April and May, and Moscow-based Gazprom is providing full volumes to European partners and has alerted the EU about possible gas transit risks and is doing all it can to ensure stable gas shipments, it said.
Day-ahead prices in the U.K. rose 13 percent in the five days through June 16 in its biggest weekly gain since June amid supply concerns, broker data showed.
“The fundamental view of the markets has been shifting over the last couple of weeks as the gas flow deadline for Ukraine loomed on the horizon,” Stuart Jones, head of European gas at Tradition Financial Services Ltd. in London, said today by e-mail. “The recent bias has definitely been to the upside, and there has been a sense of inevitability of a return to extreme volatility. I feel the market will trade in waves over the next couple of days as players digest the ramifications. It’s going to be a rocky ride for all.”
Frosty Weather
Earlier price disputes between Russia and Ukraine disrupted flows to Europe in 2006 and 2009 amid freezing weather. Supplies to at least 20 European countries were affected for almost two weeks in 2009 after talks between the two nations collapsed. Gazprom at the time accused Ukraine of siphoning off gas meant for transit to the 28-nation EU, a charge the nation denied.
Europe is better prepared now after the warmest winter in seven years left EU storage 64 percent full, the highest for this time of the year since 2011, according to Gas Infrastructure Europe, a lobby group in Brussels.
Unlike in 2009, Europe can now get some of its supplies via the Nord Stream pipeline connecting Russia and Germany through a link under the Baltic Sea. Gazprom said June 13 it was ready to increase flows via Nord Stream in case of disruption. Supplies of liquefied natural gas can also help Europe. The U.K. received 10 cargoes in May, the most in a year, according to port authorities and ship-tracking data.
Power Stations
“At the moment, LNG is freely flowing into the U.K., storage levels are up against historical average, and on the continent, power stations are favoring coal over gas,” Nick Campbell, an analyst at Inspired Energy Plc (INSE) in Kirkham, England, said today by e-mail.
Gazprom raised prices for Ukraine by 81 percent this year to $485 per 1,000 cubic meters by removing two discounts. It said last week it could provide a $100 discount, Ukraine rebuffed the offer and said it would be prepared to pay $326 per 1,000 cubic meters, a compromise proposed by the EU.
While a short disruption of gas supplies to Europe during summer would be “manageable,” a longer period would leave the region unable to refill storage, transferring shortages to winter, the International Energy Agency said June 10 in its medium-term gas market report.
“The market will slowly have to adapt to this increased risk,” Thierry Bros, an analyst at Societe Generale SA in Paris, said by e-mail.
To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net
To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Dan Weeks, Sharon Lindores
Coal’s Share of World Energy Demand at Highest Since 1970
By Nidaa Bakhsh Jun 16, 2014 6:24 PM GMT+0700
Coal dominated world energy markets last year by supplying the biggest share of demand since 1970, making it the fastest growing fossil fuel, according to an annual review by BP Plc.
Consumption grew 3 percent last year, driven by coal use in developing nations, according to a statement today from Europe’s third-largest oil company. Use of renewables such as solar and wind also reached a record, accounting for 2.7 percent of all energy demand.
The findings are another indication that consumers are prioritizing cheap fuels over efforts to rein in greenhouse gas emissions blamed for global warming. Coal is the dirtiest fossil fuel, and use of it expanded at utilities from China to Germany.
“Europe is increasing its carbon emissions because it’s using too much coal because it’s cheap,” Royal Dutch Shell Plc’s Chief Financial Officer Simon Henry said in an interview on Bloomberg Television June 3.
Coal’s share of global energy use reached 30.1 percent, just below the 32.9 percent share for crude oil, which lost market share for a 14th consecutive year. China was the world’s biggest coal consumer, followed by the U.S. and India.
China’s Coal
In China, coal accounted for 67.5 percent of the total energy demand, the lowest on record because of new measures to combat pollution. Carbon dioxide emissions from fossil fuels use grew by 4.2 percent, or 358 million metric tons, the slowest in five years, the report showed.
“The big story in coal markets is China,” Christof Ruehl, BP’s chief economist, said today at a presentation in Moscow. “New policies to combat local pollution by shutting down coal-intensive production and encouraging coal substitution may have played a part” in cutting the fuel’s dominance to the lowest on record.
Natural gas consumption rose 1.4 percent, below the historical average of 2.6 percent, to account for 23.7 percent of world primary energy use. Gas demand growth was below average everywhere but North America, where hydraulic fracturing technology opened new supplies.
That so-called fracking technique also helped boost oil supply in the U.S., which had record output, a trend that will continue this year, Ruehl said.
Oil Supply
Disruptions in oil-producing nations such as Libya, Sudan and Nigeria were offset by the increase in U.S. production from shale and other “tight” geological formations where supplies are difficult to extract with traditional techniques.
“This underlines the importance of continuing to secure these new supplies through continued access to new resources, policies to encourage markets and investment, and the application of new technologies worldwide,” BP’s Chief Executive Officer Bob Dudley said in the statement.
Worldwide, energy consumption rose 2.3 percent in 2013, faster than the 1.8 percent pace of the year before but below the 10-year average of 2.5 percent, BP said. Emerging economies accounted for 80 percent of demand growth.
China’s energy consumption rose by 4.7 percent, below the 10-year average of 8.6 percent, BP said.
To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Reed Landberg, Tony Barrett
Calgary (Platts)--16Jun2014/215 pm EDT/1815 GMT
A proposed free trade agreement between Canada and South Korea would remove the current 3% to 8% tariff that Canadian oil and gas producers have to pay for exports into that Asian nation, a Canadian government spokeswoman said Monday.
Claude Rochon, a spokeswoman with Foreign Affairs and International Trade Canada, said crude oil and LNG exports -- with current duties of 3% -- would become "duty-free immediately" upon implementation of the FTA.
A duty of up to 8% imposed by the South Korean government on imports of Canadian refined products would be removed in stages, she said, noting 96% would be "free" right away with the FTA coming into effect and the remaining 4% over the next five years.
Canada is not known to export large volumes of crude oil to South Korea, but Rochon said the deal would significantly improve market access for the Canadian oil and gas sector in Asia.
"Canada's average annual exports of petroleum products to South Korea between 2011 and 2013 totaled about C$700,000 [$620,000]," she said in an email from Ottawa. "But that market is becoming increasingly important as Canada's energy trade matures."
Significantly, the FTA with South Korea "does not differentiate between different production and extraction methods" of heavy oil, Rochon said, unlike a free trade deal that Canada is pursuing with the European Union, where the latter has spoken of imposing a compliance fee of $6-11/barrel on Canadian heavy oil exports into Europe due to its high greenhouse gas intensity levels.
"Asian buyers are not picky at this time about carbon levels, as energy security and diversity of crude oil supplies is of bigger concern," Gordon Houlden, director of China Institute at the University of Alberta, said Monday, adding South Korea is heavily reliant on the Middle East for its crude oil needs.
"It has been [South Korea's] dream to access Russian oil and gas resources by building pipelines. But the geopolitical uncertainty there is making them look towards North America," Houlden said.
Terming the FTA with South Korea as the first in Asia and one that would serve as a gateway to the wider Asia-Pacific region, Rochon said the deal would provide increased and preferential access for Canadian businesses to South Korea, the fourth-largest economy in that region.
RE-EXPORT THROUGH US GULF COAST
Some South Korean oil and gas majors, like Korea National Oil Corp. and Korea Gas Corp., have already invested in Western Canada.
While KNOC-owned Harvest Operations Corp. is aiming complete the 10,000 b/d first phase development of its BlackGold oil sands facility in Alberta in late 2014, Kogas holds a 15% stake in a grassroots LNG facility planned by Shell in neighboring British Columbia.
The BlackGold facility is 6 miles southeast of Conklin and has 259 million barrels of proved and probable bitumen resources.
"The first choice for [South] Korea will be to take their equity oil from the Canadian Pacific Coast through the planned Northern Gateway pipeline. But another option has also been opened up by Alberta's producers of re-exporting through the US Gulf Coast, utilizing a planned expansion of the Panama Canal," Houlden said.
Meanwhile, the FTA -- which was tabled in the Canadian Parliament on June 12 -- is expected to be signed in the coming months, Rochon said, without setting a deadline.
"When [the Canadian] Prime Minister Stephen Harper and South Korean President Park [Geun-hye] announced the conclusion of the negotiations on March 11, they stated their mutual intention to have the agreement enter into force as soon as possible," she said.
--Ashok Dutta, newsdesk@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com
London (Platts)--16Jun2014/902 am EDT/1302 GMT
The US posted a second consecutive year of record oil production growth in 2013 with its surging shale industry balancing out supply disruptions to underpin an unprecedented period of stable global oil prices, BP said Monday.
US output grew by 1.1 million b/d in 2013, up from 1 million b/d growth the year before, to reach 10 million b/d, the highest level since 1986, BP said in its latest annual statistical review.
The US' tight, light oil revolution continues to gather momentum and the country's production growth was again the biggest annual increase in the world and in the country's history, BP said.
The US oil supply estimate includes crude, shale oil, oil sands and natural gas liquids but excludes biofuels, which when added to the total, are widely believed to place the US as the world's biggest liquids producer above Saudi Arabia and Russia.
Overall, global oil production rose by 560,000 b/d or, 0.6%, to 86.8 million b/d last year, BP said. The US accounted for nearly all of the non-OPEC oil output increase of 1.2 million b/d last year to reach a record 50 million b/d.
But global oil production alone did not keep pace with the growth in global oil consumption in 2013, BP said. Global oil consumption grew by 1.4 million b/d or 1.4% -- just above the historical average -- to total 91.33 million b/d, BP said.
The US saw its own oil demand surge by 400,000 b/d last year, the largest single increment to global oil consumption that year and outpacing Chinese growth for the first time since 1999, BP said.
While China's oil demand grew 3.8% last year to 10.76 million b/d, a slowdown in the country's economic growth saw oil demand in China rise 390,000 b/d.
Globally, energy demand accelerated slightly to grow by 2.3% last year, slightly below the historical average, reflecting the continued weakness of the global economy, BP said.
Oil remains the world's leading fuel, BP said, with 33% of global energy consumption, but it lost market share to gas and other rivals for the 14th consecutive year. At the end of 2013, oil's share of the global energy market had slipped to the lowest level since BP's annual review began in 1965.
PRICE STABILITY
BP said the soaring US output remained a key factor in keeping oil prices from rising sharply last year, following a further period of oil supply disruptions mainly in Libya, Nigeria and the Middle East.
Oil prices were "extremely stable" last year, with oil price volatility the lowest since global oil prices become deregulated in the early 1970s, BP chief economist Christof Ruhl said.
Ruhl estimated that the world had seen a cumulative 3 million b/d in supply disruptions since the start of the 2011 Arab uprising, a similar figure to the incremental volumes of US production since then.
"The answer to this puzzle is that you have an almost perfect match between these outages in the Middle East and North Africa and the supply increase in the US output," Christof told reporters. "It's really just a coincidence, but they have perfectly matched...canceling each other out."
Dated Brent averaged $108.66/barrel in 2013, a decline of $3.01/b from the 2012 level, BP said.
Looking ahead, however, Christof recognized that oil price stability is under threat should the volumes and timing of US supply growth and/or supply disruptions begin to change.
"It means that they won't last forever and at some point the market will fall off a cliff on one side or the other," he said.
RESERVES GROWTH
BP's widely respected energy review shows that global oil reserves grew in 2013 to end the year at 1.688 trillion barrels, sufficient to support current global production levels for another 53.3 years. The figure was 1.1% higher than in BP's 2012 reserves estimated a year ago but little changed from a revised total of 1.687 trillion barrels for 2012 in the current report.
Most of the shale oil revolution has yet to feed through to BP's proven reserves figures, however, as they need to progress from being classified as being technically recoverable to economically recoverable.
Downstream, BP said global refinery crude runs increased by a below-average 390,000 b/d, or 0.5%, last year with non-OECD countries accounting for all of the net increase, rising by 730,000 b/d.
OECD refinery throughputs fell by 340,000 b/d, the seventh decline in the past nine years despite an increase of 320,000 b/d in US refinery runs, as the US continued to ramp up net product exports, BP said.
BP said global oil trade in 2013 grew by 2.1% or 1.2 million b/d, with import growth in Europe and emerging economies more than offsetting declines in the US and Japan.
Global biofuels production grew by a below-average 80,000 b/d of oil equivalent, or 6.1%, driven by increases in the two largest producers, Brazil and the US.
--Robert Perkins, robert.perkins@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com
World Oil News Center
WASHINGTON, D.C. -- The U.S. exported 268,000 bpd of crude oil in April (the latest data available from the U.S. Census Bureau), the highest level of exports in 15 years, reported the U.S. Energy Information Administration. Exports have increased sharply since the start of 2013, and have exceeded 200,000 bpd in five of the past six months. The increase in crude exports is largely the result of rising U.S. crude production, which was 8.2 million bpd in March.
To export crude oil from the U.S., a company must obtain a license from the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce. Under export licensing requirements, the following kinds of transactions will generally be approved:
Exports from Alaska' s Cook Inlet
Exports to Canada for consumption or use therein
Exports in connection with the refining or exchange of strategic petroleum reserve oil
Exports that are consistent with international energy supply agreements
Exports of foreign-origin crude
Exports of California heavy crude up to an average of 25,000 bpd
Temporary exports or exchanges
Licenses for other exports of U.S.-origin crude are considered on a case-by-case basis. For such other exports, the regulations describe the characteristics of transactions that will generally be approved as in the national interest.
Almost all of the crude oil exported from the U.S. has been delivered to Canada, and most of the recent increase in crude oil exports has been from the U.S. Gulf Coast (PADD 3). Gulf Coast crude exports averaged 134,000 bpd in first-quarter 2014, a 283% increase over 2013' s record high of 35,000 bpd. In first-quarter 2014, nearly 75% of Gulf Coast exports have left the region from the Houston-Galveston district, in Texas. The remaining barrels were loaded in Port Arthur, Texas, and New Orleans, La.
Exports from the East Coast (PADD 1) averaged 30,000 bpd in first-quarter 2014, down slightly from 2013 levels, but up from 9,000 bpd in 2012. First-quarter exports from PADD 1 were evenly distributed between the Port of New York and Portland, Maine, which is the starting point of a pipeline that delivers crude to refineries in the Montreal area. Exports of crude from the Midwest (PADD 2) have long been a source of crude for refineries in Sarnia, Ontario.
New pipelines set to hit U.S. Gulf with Canadian heavy crude
By Catherine Ngai, Reuters | June 16, 2014 9:16 AM ET
http://wpmedia.business.financialpost.com/2013/06/pipelines.jpg?w=620
A new chapter in the North American oil revolution is about to open on the Texas coast, with two major pipelines poised this summer to deliver an unprecedented influx of heavy Canadian crude to U.S. refineries – and potentially beyond.
The anticipated startup of the Seaway Twin oil pipeline later this month will open the door for another 450,000 barrels per day (bpd) to flow from Cushing, Oklahoma, to oil tanks near Houston. A second line, Flanagan South, built at a cost of US$2.6-billion, will start pumping even more Canadian crude from Illinois to Oklahoma.
They are part of a wave of investment that is reshaping the domestic crude oil market, reversing the flow of oil that traditionally moved inland from the coast and increasingly replacing imports from long-time suppliers Mexico and Venezuela, whose heavy crudes face growing competition from Canada’s.
“There is a new landscape of connectivity coming for the second half of the year,” said Michael Cohen, an analyst at Barclays in New York.
The one-two punch may land hardest on domestic crudes such as Southern Green Canyon, an offshore, medium grade delivered into Nederland, Texas. It may initially spare some rivals like Mars, which is traded in Louisiana, where new pipelines are slow to deliver Canadian oil.
The first jolt will come from the expansion of the Seaway pipeline, a 400-mile conduit that was reversed in 2012 to accommodate the unexpected flow of burgeoning Canadian and North Dakota crude in the north to refiners in the south.
In 2012, operators Enterprise Product Partners and Enbridge Inc got commitments to more than double its capacity to a total 850,000 bpd with a US$2-billion parallel line called the Seaway Twin or Loop. That should begin pumping by the end of this month, the company said this month.
Other projects will also offer new trading flexibility along the Houston Ship Channel, such as a 6 million barrel expansion of Enterprise’s Echo storage terminal in early 2015, forcing market participants to grapple with shifting patterns, volatile prices and fluctuating stockpiles.
One question will be how much of the new oil ends up flowing overseas. The first known cargo of Canadian crude re-exported via the U.S. Gulf sailed for Spain a month ago out of the Freeport, Texas, terminus of the original Seaway line.
SGC VS MARS
To be sure, the Twin is capable of carrying a variety of crude oil from across North America, including the Midcontinent and the Bakken play in North Dakota, according to its website.
However, with surging production at the nearby Eagle Ford and Permian Basin plays already sating much Gulf Coast demand for lighter, sweeter crudes like Bakken, trading sources say the focus will be on shipments of Canadian crude instead.
Exports of Canadian crude directly to Texas have risen sharply this year, reaching a record of nearly 110,000 bpd in March, more than three times as much as in February, according to Energy Information Administration (EIA) data. But that’s barely a trickle for Gulf Coast refiners, which churn out nearly half of America’s fuel, burning more than 7 million barrels of crude daily.
Traders say the Seaway Twin has almost enough committed shippers to run at full rates, although it won’t likely run full in the near term until there is increased capacity to bring Canadian crude to the Midwest.
That will change in the third quarter, however, when Enbridge’s nearly 600,000 bpd Flanagan South will connect the company’s main Canadian export pipeline to Cushing. It will run 600 miles from Pontiac, Illinois.
“Seaway Twin is mostly going to be designed to bring Canadian barrels, which won’t happen greatly until Flanagan starts up,” said Sandy Fielden of RBN Energy consultancy.
The most immediate impact is likely to be felt on Southern Green Canyon (SGC), which is named for a region in the Gulf of Mexico and is produced by oil majors including BP Plc, Anadarko Petroleum Corp, Marathon Oil Corp and BHP Billiton Petroleum.
SGC production has risen recently, according to data on the Cameron Highway Oil Pipeline System (CHOPS), which delivers SGC to the coast. CHOPS pumped just over 190,000 bpd in the first quarter, double the rate of 2012, according to a Securities and Exchange Commission filing by operator Genesis Energy L.P.
SGC is comparable to Mars sour in quality: its API gravity is 0.6 points lower and its sulphur content is 0.5 percent weighted higher, according to an assay on BP’s website.
But a major difference is location. SGC is delivered into Nederland, Texas, some 100 miles from the terminus of the Seaway Twin, while Mars is delivered into Clovelly, Louisiana.
SGC is already beginning to suffer by comparison. It traded as much as $1.90 a barrel above Mars crude in 2012, but cash prices have collapsed more recently as it faces competition from grades crude being pumped into the Houston area.
On the 30-day moving average, SGC has traded at a discount of as much $2.44 a barrel versus Mars, according to Reuters data, the biggest such discount since production began more than five years ago. Last Wednesday the discount was $3.13 a barrel, and traders expect demand for SGC to continue to weaken once the pipeline starts up.
THE SECOND BLOW
Seaway Twin is coming online at a moment of seismic change in the way excess domestic inventory is being distributed.
Until recently, inventory tended to pool up at Cushing, the delivery point for futures and the biggest hub of independent oil storage tanks. But with rising production in the north and new pipelines pumping oil all the way to the coast, the location of the growing domestic glut has shifted.
Cushing stocks fell recently to their lowest levels in six years, while stocks on the Gulf Coast rose to a record high at the start of May, according EIA data.
Adding to the flexibility of oil flows, a 95-mile, 30-inch-diameter lateral pipeline will soon connect the Echo storage and distribution terminal in south Houston to the Beaumont and Port Arthur, Texas, area, expanding the reach of WCS crude beyond Houston’s refinery row.
As more heavy, sour crude flows east from Houston, more Mars is likely to be displaced, and eventually imports, particularly Mexican Mayan and Venezuelan, will be pushed out, Fielden said.
“Will they sell their barrels somewhere else? This will impact trade flows.”
Gulf Coast region imports of Mayan crude dropped to 67,233 bpd in May from 81,125 bpd a year earlier, according to data from PIERS available via Eikon.
© Thomson Reuters 2014
By Alexander Kolyandr
MOSCOW--The unrest in Iraq isn't affecting oil markets or the country's oil output, the secretary general of the Organization of the Petroleum Exporting Countries said Monday.
Speaking on the sidelines of the World Petroleum Congress, Abdalla Salem el-Badri said: "Nothing is affected. production is still going well and exporting is going fine."
He said he doesn't expect the recent wave of unrest in the country to affect the balance of the supply and demand of the oil market.
The U.S. and Iran have publicly committed in recent days to provide military support if requested to Iraqi Prime Minister Nouri al-Maliki and help his government repel an offensive the Islamic State of Iraq and al-Sham has launched against Baghdad and other Iraqi cities over the past week.
"I hope that Iraq situation will go back to normal very soon," said the head of OPEC.
By Dow Jones Business News, June 15, 2014, 10:45:00 PM EDT
Chinese investment in nuclear energy, high-speed rail and North Sea oil will be high on the diplomatic agenda when Chinese Premier Li Keqiang visits the U.K. this week, building on what he has described as an "indispensable partnership" between the two countries, The Daily Telegraph reported on its website Monday.
Lord Sassoon, chairman of the China-Britain Business Council, told The Telegraph that securing more Chinese investment for critical U.K. infrastructure will be an important element of Mr. Li's three-day tour, which will include meetings with Prime Minister David Cameron.
The investment talks will "maintain the momentum" on nuclear power, following Chancellor George Osborne's announcement of a nuclear funding agreement between the U.K. and China during his trade visit to China last October, Sassoon told The Telegraph.
"The Chinese fully understand that there is nowhere [else] in the world in terms of the big economies where they would be allowed to invest in something as sensitive as nuclear power," said Sassoon, an executive director at Jardine Matheson Holdings and former Commercial Secretary to the Treasury, The Telegraph said.
Further Chinese investment in North Sea oil is also in the cards and China is "very interested" in the HS2 high-speed rail project--"although, clearly, HS2 is still some way off", said Sassoon, who will play a significant supporting role in discussions, The Telegraph reported.
Newspaper website: www.telegraph.co.uk
Write to: Dennis.Baker@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
06-15-142245ET
Copyright (c) 2014 Dow Jones & Company, Inc.
By James Hamilton | Mon, 16 June 2014 21:35 | 0
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
The group is calling itself the Islamic State of Iraq and al Sham, translated as the Islamic State of Iraq and Greater Syria, or ISIS. And so it may come to be.
From Friday’s Wall Street Journal:
A militant Islamist group that has carved out control of a swath of Syria has moved into Iraq, conquering cities and threatening the Iraqi government the U.S. helped create and support with billions of dollars in aid and thousands of American lives.
The group– known as the Islamic State of Iraq and al Sham– isn’t a threat only to Iraq and Syria. It seeks to impose its vision of a single radical Islamist state stretching from the Mediterranean coast of Syria through modern Iraq, the region of the Islamic Caliphates established in the seventh and eighth centuries.
https://oilprice.com/images/tinymce/James10/AE3305.jpg
Source: WSJ.
Kurdish Peshmerga forces in the northeast claimed separately to have taken control of Kirkuk, center for the key oil fields in northern Iraq, and roughly dividing up the country along sectarian lines between the Kurds, Sunni, and Shia.
https://oilprice.com/images/tinymce/James10/AE3306.jpg
Source: Juan Cole.
Let’s start with the immediate implications for Iraq’s oil production. Not too long ago, Iraq was claiming that it would be producing 12 mb/d by 2017. To describe those plans as “ambitious” seems too gentle a criticism. Gross overstatement of what was feasible was a necessary consequence of a bidding procedure in which awards were based on the daily volume that a company promised to produce. Nevertheless, some analysts like Leonardo Maugeri took Iraq’s claims half-seriously (literally), assuming that Iraq would be able to achieve half of those target levels by 2020.
https://oilprice.com/images/tinymce/James10/AE3307.jpg
Historical Iraqi oil production in thousands of barrels per day, 1973:M1 – 2013:M12, and linear extrapolation to goal of 12 mb/d by end of 2017.
Daniel Yergin, another of the former Iraq optimists, was quoted by the New York Times as saying on Friday:
All the oil companies are on alert… They are going to worry about the security of their people and installations. Obviously, no one is going to do anything new.
Four years ago, Stuart Staniford tracked down the specific details behind the proposed increases in Iraqi production. All but 200,000 b/d of the increase was supposed to come from southern and central Iraq, away from the areas now controlled by ISIS.
https://oilprice.com/images/tinymce/James10/AE3308.jpg
raq’s major oil fields. Source: Energy-pedia.
https://oilprice.com/images/tinymce/James10/AE3309.jpg
Oil fields targeted for big production increases in second auction. Source: Petroleum World.Only 10% of Iraq’s recent oil exports went through the north, and even these had been shut down for several months before the latest developments. The main oil field in the north is the Kirkuk oil field, which appears now to be in the hands of the Kurds. The New York Times opines:
Paradoxically, the unrest may help increase exports from the oil-rich northern Iraqi region of Kurdistan. The Kurdish government has recently opened a pipeline directly linking oil fields in the enclave to Turkey, raising the possibility of substantial exports in the range of 400,000 barrels a day of Kurdish oil though Turkey.
Although the consequences for Iraqi oil production of what has happened so far appear to be minimal, all this comes at a time when the earlier and still ongoing conflicts in Libya and Syria have already disrupted nearly 2 mb/d in world oil production. If Iraq’s recent 3 mb/d was also taken out, we would be talking about a significant disruption in world oil supplies, and likely an oil price in excess of $150 a barrel.
https://oilprice.com/images/tinymce/James10/AE3310.jpg
Crude oil production from Libya and Syria, 1994:M1 to 2013:M12, in thousands of barrels per day. Data source: EIA
How vulnerable would the U.S. economy be to another oil price spike? One of the mechanisms by which earlier oil shocks contributed to economic downturns was a sudden change in the composition of spending, as consumers for example stopped buying the less fuel-efficient vehicles that were historically central for North American car company profits. Sales of light trucks and SUVs manufactured in North America fell to the same numbers as cars during the Great Recession, but have since climbed back up to their pre-recession levels.
https://oilprice.com/images/tinymce/James10/AE3311.jpg
Retail sales of domestically manufactured cars and light trucks in thousands of units, seasonally adjusted.
But even so, the new vehicles people are buying today are much more fuel-efficient than the ones sold in 2006, and both the manufacturers and prospective buyers were already paying a lot of attention to fuel economy well before the latest developments. Another oil price spike in today’s environment is unlikely to have the same shock potential for the U.S. auto industry as it did the first time gasoline prices went to $4.00 a gallon.
https://oilprice.com/images/tinymce/James10/AE3312.jpg
Average sales-weighted fuel-economy rating (window sticker) of purchased new vehicles
Average sales-weighted fuel-economy rating (window sticker) of purchased new vehicles. Source: University of Michigan Transportation Research Institute.
North Sea Brent crude oil closed Friday at $113/barrel and West Texas Intermediate at $107. That’s up sharply for the week, but still below the highs of $125 and $110, respectively, that we’ve seen since 2011.
https://oilprice.com/images/tinymce/James10/AE3313.jpg
Price of Brent, dollars per barrel
Price of Brent, dollars per barrel. Source: EIA.
Cushing, OK WTI Spot Price FOB
The average U.S. retail price of gasoline is still 30 cents a gallon below recent highs as well. A modest move back up seems unlikely to shock consumers into different patterns of spending than they had already been planning.
https://oilprice.com/images/tinymce/James10/AE3315.jpg
36 Month Average Retail Price Chart
Energy expenditures overall are back down to about 5-1/2 percent of the average household’s budget.
https://oilprice.com/images/tinymce/James10/AE3316.jpg
Energy expenditures as a percentage of consumer spending
Energy expenditures as a percentage of consumer spending, 1959:M1 to 2014:M4. Calculated as 100 times nominal monthly consumption expenditures on energy goods and services divided by total personal consumption expenditures. Data source: BEA Table 2.4.5U. Blue line is drawn at 6.0%.
To summarize, my view is that the U.S. economy is less vulnerable to an oil price shock than we were in 2007. Moreover what has happened on the ground so far in Iraq should not have major immediate implications for the price of oil.
But longer term, we may have just witnessed the creation of an important new power in the Middle East. Among other spoils, ISIS apparently seized $425 million from the Iraq central bank in Mosul. From ABC News:
Analysts say the financial and strategic spoils of ISIS’s capture of Mosul and Tikrit could provide a significant, nearly unstoppable boon to its Syrian arm, helping turn the tide in the months-long battle for Deir Ezzor.
So the immediate implications for the U.S. economy may turn out to be minor. After that? The world seems to be changing.
By James Hamilton of Econbrowser
Bruno J. Navarro | @Bruno_J_Navarro
8 Hours AgoCNBC.com
While crude oil prices rose Monday amid escalating violence in Iraq, one portfolio manager sees a clear path to $150-a-barrel levels.
"It's a simple case of the world being able to cope with oil prices where they currently are, around $110 a barrel," Jonathan Waghorn of Guinness Global Energy Fund said.
"So, what we do is we think of oil being a cost of the global economy. Go back over 30 or 40 years, you see that cost has moved dramatically over time. Prices go too high, the world economy suffers. As we stands at the minute, the world oil prices, the budget as a total represents about 5 percent of world GDP. And we can see that the world appears to be coping with that pretty robustly."
On CNBC's "Halftime Report," Waghorn said that $150 was a real possibility within the next six years.
"As the world economy continues to grow, let's say 3 percent real growth to the end of the decade, we'd expect oil prices to inflate alongside," he said. "Simple maths, really, it takes you to $150 at the end of the decade. To nominal terms, maybe that's $125 in real terms. It's still a pretty substantial uplift where we are today."
Waghorn also said that he remained positive on energy stocks.
"This is still an early trade for us in terms of this resurgence of the macro environment, and that being recognized in energy prices," he said. "We think they are very, very cheap on price/earnings, on price to cash flow, on sum-of-the-parts basis."
Guiness Global Energy Fund is an equal-weighted energy fund that counts Total, Newfield, Canadian Natural, Unit and Devon Energy among its holdings.
"But recently we've been adding some more European names into the portfolio," Waghorn added.
— By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.
Prepared by Prepared by James Bambino, Platts Oil Futures & Options Editor
New York - June 16, 2014
Platts Survey of Analysts
Crude oil stocks down 1.4 million barrels
U.S. crude oil stocks are expected to have fallen 1.4 million barrels during the reporting week ended June 13, according to a Platts analysis and survey of oil analysts Monday.
Combined product stocks likely fell, however, amid a flurry of export fixtures out of the U.S. Gulf Coast (USGC) and steady domestic summer gasoline demand.
The American Petroleum Institute (API) will release its weekly report at 4:30 p.m. EDT (2030 GMT) Tuesday and the U.S. Energy Information Administration (EIA) is scheduled to release its weekly data at 10:30 a.m. EDT (1430 GMT) Wednesday.
The expected draw in crude oil stocks will likely be a product of higher crude oil runs at U.S. refineries. Analysts expect U.S. refinery utilization rates to have risen by 1.3 percentage points the week ended June 13 to 89.2% of capacity, according to EIA data.
Marathon Petroleum the week ended June 13 restarted a 256,000 barrels per day (b/d) crude oil unit at its massive 522,000 b/d Garyville, Louisiana, refinery, which had been shut after a tornado touched down nearby on May 28. And units remain down at ExxonMobil's 502,500 b/d Baton Rouge refinery.
In Texas, Valero reported a process upset in a unit at its 290,000 b/d Port Arthur refinery the week ended June 13. But it was unclear if there was any impact to production.
And units at Motiva's 600,000 b/d Port Arthur refinery -- the largest in the U.S. -- remain in turnaround, according to Platts data. In addition to this, Motiva confirmed operational incidents took place the week ended June 13, resulting in unplanned work.
In the U.S. Midwest, Citgo's 180,000 b/d Lemont, Illinois, refinery saw units shut down the week ended June 13 following a power outage, but the units were restarted the same day.
Meanwhile, Shell was forced to shut a major unit at its 165,000 b/d Martinez, California, refinery the week ended June 13. Four other U.S. West Coast refineries have units under maintenance. In California, Chevron's 290,000 b/d El Segundo and Tesoro's 166,000 b/d Golden Eagle have units down, and in Washington, Shell's 145,000 b/d, Puget Sound and Tesoro's 120,000 b/d Anacortes refineries have units down.
On the U.S. Atlantic Coast, Platts data shows units remain under maintenance at two New Jersey refineries: Phillips 66's 238,000 b/d Bayway and PBF's 180,000 b/d Paulsboro. Delta's 185,000 b/d Trainer, Pennsylvania, refinery also has units down.
"There's going to be a slight rise back in runs this week so we think that is going to be enough to balance out an increase in imports," Oil Outlooks President Carl Larry said.
U.S. crude oil imports for the reporting week ended June 6 were pegged at 7.15 million b/d, well below the 7.85 million b/d seen over the same week in 2013.
PRODUCT EXPORT VOLUMES HARD TO GAUGE
Analysts surveyed expect U.S. gasoline stocks to have fallen by 1.5 million barrels, and distillate stocks to have risen by 600,000 barrels.
But U.S. product exports to Latin America and the Mediterranean were relatively thin the week ended June 13. Platts cFlow ship-tracking software shows just Overseas Kythnos and the Toccata left the USGC the week ended June 13, laden with products, headed to Brazil. En route to the Mediterranean from the USGC are the Teesta Spirit and the Ardmore Seamaster, both of which are laden with products.
However, there was a flurry of cargoes leaving from the USGC the week ended June 13, headed to the U.K.-Continent and laden with products: the MTM Hong Kong, the Usma, the Challenge Passage, the Miss Mariarosaria, the Apostolos, the Seafriend and the Hafnia Andromeda.
Platts freight assessments for a USGC-Europe Medium Range (MR) clean tanker route, basis 38,000 metric tonnes (mt), have been wallowing around multi-year lows during the past week, which could be due to either a lack of cargoes or an abundance of available tonnage.
Worldscale* (w) rates of around w60 convert to around $13.28/mt. MR rates had been as high as w100, or around $22.13/mt, as recently as early March.
But out of these 11 fixtures, 10 of them were for the larger, Long Range vessels, basis 55,000 mt and higher.
Platts does not currently assess rates for these sizes on this route.
* Worldscale freight rates are used to price the cost of shipping crude or refined products from one port to another by tanker.
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Seoul (Platts)--16Jun2014/707 am EDT/1107 GMT
South Korean President Park Geun-hye on Monday left for Uzbekistan, Kazakhstan and Turkmenistan to discuss deeper energy cooperation with the Central Asian countries.
Park is accompanied by Minister of Trade, Industry and Energy Yoon Sang-jick and dozens of CEOs from energy companies -- including state-owned Korea National Oil Corp., Korea Gas Corp., Korea Resources Corp. and Korea Electric Power Corp., as well as private firms such as LG Chem, Lotte Chemical, Samsung C&T and LG International.
In Uzbekistan, Park will hold summit talks with Uzbek President Islam Karimov Tuesday to discuss ways to strengthen the two countries' "strategic partnership," according to the energy ministry.
"The summit talks would be focused on the energy cooperation and speeding up the Surgil gas and chemicals project near the Aral Sea," a ministry official said.
In 2008, a joint venture called Uz-Kor Gas Chemical Investment Limited was set up to develop the Surgil gas field -- which is estimated to hold 130 billion cubic meters of gas -- and to build an associated petrochemicals plant. Uz-Kor is 50:50 owned by Uzbekneftegaz and Kor-Uz Gas Chemical Investment Limited, which in turn is owned by Kogas (45%), Lotte Chemical (49%) and STX Energy (6%).
Under the $3.88 billion Surgil project, South Korea originally planned to sell 2.6 million mt/year of methane pumped from the Surgil gas field to Uzbekistan from 2016, and build a gas-to-chemical plant at the field by 2016 with capacity to produce 390,000 mt/year of high density polyethylene and 80,000 mt/year of polypropylene. The project has, however, been stalled due to delayed financial investments. Details on the project's progress were not disclosed.
In Kazakhstan, Park will meet President Nursultan Nazarbayev on June 19, during which they will discuss energy cooperation, including a project to explore the Zhambyl offshore block in the Caspian Sea and construction of a petrochemical complex and a coal-fired power plant in the country.
On the final leg of her trip, Park is scheduled to spend two days in Turkmenistan as the first South Korean president to visit the Central Asian country since the two sides established diplomatic ties in 1992.
At the summit, Park will call for Turkmenistan to allow South Korean companies to take part in more large-scale projects in the country, the ministry said. Park returns home on June 21.
--Charles Lee, newsdesk@platts.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com
Reuters
Arbil: A bolder Kurdistan, a bulwark against Isil forces and strengthened by the seizure of the oil city of Kirkuk, wants a greater share of Iraq’s oil revenue.
The Kurdistan Regional Government believes its share of total Iraqi oil sales should be as high as 25 per cent, the KRG’s official spokesman said on Monday.
The Kurdish position has arguably never been stronger.
Baghdad’s military retreat from the north under the Islamic State of Iraq and the Levant (Isil) led assault last week allowed the Peshmerga forces of KRG to seize control of long-disputed Kirkuk and its oil reserves.
If the autonomous region holds onto Kirkuk, revenues from its major oil fields could far surpass any budget offer from Baghdad, boosting its any ambition of succeeding as a fully independent state.
Safeen Dizayee, the former foreign affairs and education minister for the KRG and the autonomous government’s official spokesman, said that while Arbil was supposed to receive 17 per cent of Iraqi oil revenues under current agreements, the total figure should be raised - based on its growing population and rising oil output.
“The figure should be far higher and indeed when the censuses are conducted we believe it could average 25 per cent,” Dizayee said from his office at the Council of Ministers in the region’s capital, Arbil.
“The 17 per cent was just an estimate that was used. But even now we don’t receive that.” While Dizayee said the KRG continued to pursue a legal solution to the status of Kirkuk with Baghdad, he acknowledged that his government was arguably in its strongest position ever to secure the city many Kurds consider their historical capital.
“We have been very patient. This has been an issue since the early 1960s, but obviously now we have a stronger position,” Dizayee said.
“We have not ever, even in 2003 when we had the opportunity, tried to take control of Kirkuk and to make a de facto position and impose it.” But he said that an atmosphere of mistrust permeated relations with Baghdad, and that the federal government’s refusal to hand over the KRG’s share of the budget since January was driving the two further apart.
“The fact is there has been a deliberate effort to marginalize, sideline and ignore these efforts,” Dizayee said, adding that budget cuts from Baghdad were behind the KRG’s decision to pursue independent oil sales outside the federal government’s control.
INDEPENDENT OIL SALESOn Monday Turkish Energy Minister Taner Yildiz said a third tanker was set to load a cargo of Kurdish crude oil from the Mediterranean port of Ceyhan on June 22, despite fierce protests from the government in Baghdad who have tried to block the sales.
“The flow of oil is continuing and we will continue to send it out and export it,” Dizayee said, adding that around 120,000 barrels of crude was flowing on a new pipeline to Ceyhan each day. The KRG wants independent sales to rise even higher.
“In order to cover the needs of the Kurdistan region or to counter the 17 pct of the budget that should come from Baghdad but that has been cut for the last six months we need at least 400,000 barrels per day to be exported to meet that budget.” That may be difficult for the KRG to achieve, however, due to a lack of suitable export infrastructure.
The 600,000 bpd Kirkuk pipeline, which accounted for the bulk of Iraq’s northern crude oil exports, has been offline since March following insurgent attacks
Attempts to repair it have been thwarted by Islamic militants in the region, who have targeted repair men trying to fix sections of the line that passes through territory outside KRG control.
“For the last three months under normal - well almost normal - security conditions to repair the pipeline it hasn’t been successful,” Dizayee said, when asked if the line would be prepared before the end of this year.
“It all depends to what extent the pipeline runs through areas controlled be these (Isil) elements. It wouldn’t be easy to predict.”
By Nick Cunningham | Mon, 16 June 2014 21:54 | 0
When U.S. President Barack Obama spoke briefly on June 13 outside the White House on the deteriorating security situation in Iraq, he ruled out sending in U.S. troops, but said that he had instructed his national security team “to prepare a range of other options.”
While the potential use of force – most likely consisting of airstrikes in some form – is what made headlines, Obama also hinted at the fact that his administration was working behind the scenes to plan for a possible major disruption in Iraqi oil output, which accounts for some 3.5 percent of global supply.
“One of our goals should be to make sure that in cooperation with other countries in the region, not only are we creating some sort of backstop in terms of what’s happening inside of Iraq, but if there do end up being disruptions inside of Iraq, that some of the other producers in the Gulf are able to pick up the slack,” Obama said.
Essentially, “other producers in the Gulf” really means Saudi Arabia, the only nation with significant spare capacity – i.e. dormant oil capacity that can be ramped up at a moment’s notice.
Coincidentally, OPEC met last week – before ISIS began is conquering drive across Iraq – and decided to leave its oil production quota unchanged. Even before the shockingly quick deterioration of Iraqi security, global oil production was already coming dangerously close to just meeting demand (at current prices). In order to avoid a price surge later this year, Saudi Arabia was already going to have to increase production.
Now, with Iraq’s production threatened, pressure on Saudi Arabia to raise outputs is even stronger.
But convincing Saudi Arabia to dramatically increase production could be a challenge. Saudi Oil Minister Ali Naimi has indicated that he’s content with the current market conditions. “Everything is good. Supply is good, demand is good, prices are good and the market is balanced,” he said ahead of the OPEC meeting in Vienna.
That may have been the case before last week, but the danger of a major supply cutoff cannot be ruled out. Iraq’s 3.3 million barrels per day exceeds what Saudi Arabia holds in spare capacity – which stood at 1.96 million barrels per day in the first quarter.
It is unlikely that Iraq will lose all of its production, particularly since two-thirds of its capacity is located south of the current turmoil, but should a significant volume be cut off from global markets, Saudi Arabia’s ability to make up for it is questionable.
As a result, oil prices could skyrocket, perhaps jumping as high as $150 per barrel, up from $112 last week. Even if Iraq’s southern oil fields are not affected by the violence, jittery markets will likely bid up oil prices as Iraq moves closer to civil war.
By Nick Cunningham of Oilprice.com
