How Big Oil Is Profiting From the Slump
by Javier Blas
(Bloomberg) -- Europe’s largest oil companies are gaining support from an unlikely source as they confront the industry’s worst slump since the financial crisis: lower oil prices.
Although better known for their oil fields, refineries, and petrol stations, BP Plc, Royal Dutch Shell Plc and Total SA are also the world’s biggest oil traders, handling enough crude and refined products every day to meet the consumption of Japan, India, Germany, France, Italy, Spain and the Netherlands.
The trio’s sway in commodities trading, largely unknown outside the industry, is set to pay off in 2015 as the bear market allows traders to generate higher returns by storing cheap oil today to sell at higher prices later and using lower prices to make more bets with the same capital.
“Volatility has increased dramatically over the last three or four months,” said Mike Conway, the head of Shell’s trading and supply business. “Parts of your business that are volatility driven are probably doing pretty well.”
While companies are shy about revealing the financial results from their trading business, a look at the last major bear market provides clues to the opportunity they have today. In the first quarter of 2009, BP said it made $500 million above its normal level of profits from trading. That means that trading accounted for, at the very least, 20 percent of BP’s adjusted income that quarter of $2.38 billion.
From dealing floors that resemble the operations of Wall Street banks in cities including Geneva, London, Houston, Chicago and Singapore, oil trading could provide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own production, but largely eschew pure trading as a means of generating profits.
European Trio
Few other publicly-listed oil companies trade at the scale of the European trio, although Statoil ASA, Eni SpA and OAO Lukoil all have trading desks.
The amount of crude oil and fuel traded each day by the three European majors together dwarf the combined size of independent traders such as Vitol, Glencore, Trafigura, Mercuria, Gunvor, based on company statements and people familiar with the market.
“The trading arms of the oil producers have the opportunity to monetize significant opportunities this year,” said Roland Rechtsteiner, a partner at consultants Oliver Wyman, who specializes in advising commodity trading businesses.
The last time that a European oil major disclosed the profitability of its trading operation was a decade ago, when BP said it made $2.97 billions in 2005, or about 10 percent of the company’s total earnings that year.
Without giving away concrete financial results, the companies have indicated income from trading already rose in the fourth quarter of 2014 as oil prices fell.
Stronger Results
Brian Gilvary, BP CFO, said on Feb. 3 the group has benefited from an “improved result from supply and trading.” Gilvary ran BP’s trading arm from 2005 to 2009.
“We’re in a very strong commodity trading position,” Shell Chief Financial Officer Simon Henry said in a call with analysts on Jan. 29. “Our ability to take advantage of volatility is some protection to mitigate the low price environment.”
BP and Shell declined to comment further. Total didn’t respond to requests for comment.
Although extra profits from trading won’t offset the much larger loss of revenue from lower oil prices, it could help the three companies to weather the crisis and, perhaps more importantly, beat analysts’ estimates.
Analysts estimate BP’s adjusted net income will drop to $6.2 billion in 2015, highlighting the impact a boost from trading could have in the final results.
Beyond the large oil producers, trading executives are optimistic they could reap strong profits in 2015.
Ivan Glasenberg, chief executive officer of Glencore, said on March 2 that if the market continues as in the first two months, oil trading “could have a blow-out year” in 2015.
Bear Markets
In the past, oil trading houses have enjoyed stronger returns during bear markets. Vitol, the world’s largest independent oil trader, had record income of $2.28 billion in 2009, up from $1.36 billion in 2008, according to the company’s accounts.
Fitch Ratings anticipates that oil traders “are likely to report healthy earnings in 2015 as they benefit from volatile oil prices.”
Several factors explain the expected rise in income. First, after years of steady prices, volatility has surged, allowing traders to make more bets about the direction of the market. Second, oversupply has pushed oil prices into a structure called contango -- a relatively rare situation where forward prices are higher than current prices, allowing traders to buy oil cheap, store the commodity and sell later. Third, lower prices mean it takes less capital to make trades.
Price Difference
The price difference between a Brent contract for immediate delivery and the one-year forward -- a measure of the contango - - stood at minus $7.18 a barrel on Wednesday. The spread hit an all-time high of minus $17.93 in December 2008.
In addition to crude oil, BP and its rivals trade almost every refined product, from gasoline to fuel oil, plus electricity, petrochemicals, natural gas, currencies and even metals. On top of their own production from oil fields and refineries, the trio buys commodities from third parties.
The three companies also make significant bets in the derivatives commodities markets. Such is the scale of BP and Shell in the financial market that both are registered swap dealers in the US under the Dodd-Frank act. Together with agricultural trader Cargill, they’re the only non-financial firms among nearly 50 banks, insurers, brokers and others registered as swap dealers.
Market Intelligence
BP said on its website that its global trading activity generates a huge amount of market intelligence that other companies do not have.
“This gives us a clear advantage in converting up-to-the-minute data into effective market calls,” it says.
The large trading businesses Europe’s oil majors have aren’t mirrored at rivals in the U.S.
That’s largely the result of mergers in the late 1990s and 2000s where the acquiring companies had a non-trading culture that prevailed. As such Mobil trading slowly disappeared when it combined with Exxon, while Texaco followed suit after merging with Chevron.
BP employs in its Integrated Supply and Trading business, as the trading arm is known, about 3,000 people in trading floors in London, Chicago, Singapore and several other cities. Total Oil Trading SA, or Totsa, employs 500 in hubs in Geneva, Houston and Singapore. Shell International Trading and Shipping Company, known in the industry as Stasco, does not disclose the number of employees.
The trio trades at least 15 million barrels a day of crude and oil refined products, according to estimates from industry executives compiled by Bloomberg News.
Russia to Keep Oil Output Steady to 2035 Despite Price Drop
Russia plans to maintain oil output at current levels for the next two decades, Energy Minister Alexander Novak said, shrugging off sanctions and the slump in crude prices.
Production will remain at about 525 million metric tons a year, or 10.5 million barrels a day, until 2035, Novak said Wednesday at a conference in Moscow. Russia, which ranks with Saudi Arabia and the U.S. among the world’s biggest producers, pumped 10.71 million barrels a day in January, a post-Soviet record.
Crude oil dropped 48 percent last year because of global oversupply, prompting speculation that producers would curb output as fields became unprofitable. U.S. shale oil output will expand at the slowest pace in more than four years in April, according to a U.S. government report Monday.
“We aren’t making any assumptions about reducing output currently,” Novak said. “Our task and plan, as you know, is to maintain the plateau at 525 million tons. And we assume 525 million tons in the strategy that we are currently developing.”
Russia’s economy is poised to contract by 3 percent this year, according to government estimates, pressured by lower oil prices and U.S. and European Union sanctions imposed last year in response to the annexation of Crimea and the conflict in Ukraine.
Growth Forecast
The U.S. and EU have barred some oil companies from debt markets and banned exports of equipment and technology used to tap hard-to-extract crude and offshore resources in the Arctic. Production in those areas is set to grow, according to the minister.
Brent crude traded at $57.06 a barrel on the London-based ICE Futures Europe exchange at 3:37 p.m. local time. Prices slumped 61 percent from June to as little as $45.19 a barrel in January.
Russian companies can withstand oil at $55 for several years, with access to credit a greater risk, Fitch Ratings said in a report Wednesday.
“Sanctions have virtually eliminated access to Western capital markets for all Russian oil and gas companies,” Senior Director Maxim Edelson said. “If access to funding does not improve and export restrictions remain, producers may not be able to make the investments needed to maintain production.”
Offshore output may increase to as much as 50 million tons by 2035 from the current 16 million tons, while so-called tight oil output will grow to 80 million tons from 31 million tons, Novak said.
Euro's Slump Cushions Energy Giants Total, Eni From Oil's Plunge
(Bloomberg) -- The euro's slump is cushioning Europe's biggest oil and gas producers from the crash in crude prices.
France’s Total SA, Italy’s Eni SpA and Repsol SA of Spain will benefit the most, according to data compiled by Bloomberg Intelligence. The companies pay a large chunk of salaries, rent and other costs in euros, while earning revenue from oil and gas sales in U.S. dollars -- the industry’s dominant currency.
That's giving the euro area's oil producers an edge over rivals in the U.S. as they grapple with a drop in prices from more than $100 a barrel in June to less than $60 today. Investors are taking notice: an index tracking European energy companies is up 7.7 percent this year, while a U.S. equivalent has dropped 6.4 percent.
The euro dropped as low as $1.056 on Wednesday, the weakest since 2003.
“Foreign exchange effect can be quite substantial for euro oil companies,” said Philipp Chladek, an analyst at Bloomberg Intelligence in London. “The euro’s 20 percent devaluation since Brent crude’s latest peak in June 2014 has softened the oil-price decrease for European oil producers.”
Here’s an illustration of how big an impact currency can have. While benchmark crude prices dropped 50 percent last year in dollar terms, the slide has been just 36 percent when oil’s priced in euros, according to Bloomberg Intelligence.
The effect of the euro’s slump can be seen in the relative share performance of European and U.S. oil companies this year. Eni has gained 13 percent, Repsol 7.7 percent and Total 7.5 percent, while Exxon Mobil Corp. and Chevron Corp., the largest U.S. producers, are down 8.9 percent and 8.3 percent respectively.
Earnings Outlook
The impact of currency movements can also be seen in the outlook for earnings.
Total’s adjusted net income is projected to fall 35 percent this quarter, according to estimates compiled by Bloomberg. Repsol is seen declining 25 percent. Those numbers aren’t great, but they’re better than the 64 percent slump expected at Exxon and 74 percent drop predicted at Chevron.
Repsol and Eni, as well as smaller rivals like Portugal’s Galp Energia SGPS and Austria’s OMV AG, will benefit because they report in euros, translating the weaker currency directly into their income statements. While France’s Total will still gain from having a good proportion of costs in euros, it now reports results in dollars.
“There’s a positive translation impact for European oil and gas producers reporting in euros, like Eni and Repsol,” said Jean-Pierre Dmirdjian, an analyst at Liberum Capital Ltd. in London. “Most of these companies’ downstream activities are in Europe and there they benefit from the euro’s decline against the dollar.”
Accelerated Tumble
Even though the euro’s tumble versus the dollar has accelerated this week as the European Central Bank started its bond-buying program, the effect of the weaker currency was already felt in fourth-quarter results, announced by companies last month.
Lower oil “didn’t impact as badly as it could have been, however, given that the dollar was also strong against the euro,” David Davies, chief financial officer of Vienna-based OMV, said on a call with investors on Feb. 19.
The consequences of a weaker currency aren’t all positive. Oil companies tend to borrow heavily in dollars and that may force some to revalue their debts in euro terms, Bloomberg Intelligence’s Chladek said.
Europe Refiners’ Gasoline Profit at 10-Month High on Exports
(Bloomberg) -- European refiners are making the highest profit from gasoline in more than 10 months amid speculation that demand is rising to ship the motor fuel to West Africa, the U.S. and Latin America
Gasoline’s crack, or premium to Brent crude, rose to $13.46 a barrel on Tuesday, the highest since April 29, according to PVM Oil Associates Ltd, one of the largest brokers for the fuel, before falling to $13.13 at 1:21pm London time. The flow of ships carrying oil products to New York from Rotterdam climbed to the highest in nine months, a Bloomberg survey of shipbrokers showed.
“Exports have been supporting Europe with good demand to West Africa, particularly Nigeria, as well as to the U.S. and Latin America,” Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix, said by phone. “The refinery maintenance period is coming up which is likely to provide further support.”
Europe produces more gasoline than it consumes and relies on export demand to offload the surplus. Traders booked tankers with the capacity to haul about 7.3 million metric tons of refined fuels to West Africa from Europe so far this year, according to lists of charters compiled by Bloomberg. That compares with 4.6 million tons in the first quarter of 2014.
A total of 22 tanker charters have been completed or anticipated for the Rotterdam-to-New York voyage in the next two weeks, the highest since June 4, the Bloomberg survey showed. Gasoline cargoes have left Europe bound for Mexico and Togo in recent weeks, according to researcher PJK International BV.
In the U.S., gasoline demand averaged 8.7 million barrels a day in the four weeks to March 6, Energy Information Administration data showed Wednesday. That’s the highest by that measure for the time of year since 2011.
Oil Shock Leaves Gulf Arabs Ruing Missed Chance to End Addiction
(Bloomberg) -- Salim Al Aufi, Oman’s undersecretary for oil and gas, likens attempts to cut the reliance on oil during a price slump to acting “with a gun pointed at your head.”
If you have to make decisions under pressure, “you will probably make the wrong ones,” he said March 3 in Muscat during a panel discussion on the impact of the oil shock. Oman relied too much on revenue from crude exports when prices were high, he said.
Oman isn’t alone. Most Gulf Arab nations did little to create alternative sources of revenue during the decade-long spending spree that filled their cities with glittering towers and trophy projects such as man-made islands. They may have missed their best chance to break out of the dependency trap, as Malaysia and Mexico did.
The region’s monarchies amassed trillions of dollars in reserves and sovereign wealth funds that acquired stakes in companies from Barclays Plc to General Electric Co. A prolonged drop in prices will erode their fiscal buffers and may force them to change spending strategies, according to Moody’s Investors Service and HSBC Holdings Plc. Rulers seeking to ward off any repeat of the unrest that toppled several Arab regimes in 2011 will have less revenue to distribute among fast-growing populations.
Budget Deficits
“At $60 a barrel, the old model of generating economic growth through ever higher levels of public expenditure just can’t be sustained,” Simon Williams, chief economist for central and eastern Europe and the Middle East at HSBC, said in a phone interview. “Deficits will rise, spending growth will fall and the economies will slow.” Brent crude prices have tumbled almost 50 percent since June to less than $60 a barrel on Wednesday.
The six-nation Gulf Cooperation Council will post a combined budget deficit of more than 6 percent of gross domestic product this year, compared with surpluses that regularly exceeded 10 percent in recent years, International Monetary Fund data show. Growth will slow to 3.4 percent from 3.7 percent in 2014.
Turbulence in the Middle East makes sweeping changes in economic policy harder. The GCC nations, key U.S. allies, are struggling to contain the influence of Iran and face new threats from the rise of Islamic State in Syria and Iraq.
“Regimes like this tend to be risk-averse, and the regional political environment is potentially too nerve-wracking for governments to take urgent action,” said Crispin Hawes, managing director of research firm Teneo Intelligence in London. “The environment is never quite stable enough to allow for deep structural reforms.”
Regional Unrest
Governments responded to the Arab Spring by boosting spending on public-sector wages, subsidies and defense. Investments focused on infrastructure, and mostly didn’t create alternative sources of foreign currency, according to an IMF study in December. Oil still accounts for almost 90 percent of revenue in Saudi Arabia, the world’s biggest exporter.
Reducing reliance on oil is “very difficult,” and typically depends on policies put in place before revenue is hit by a price shock, the IMF said. It cited Malaysia, Indonesia and Mexico among countries that have succeeded.
Exceptions include Dubai, home to the region’s biggest airline and financial center, though its model may be difficult for other Gulf nations to replicate.
For equity investors, the result is that Gulf markets have become more like a proxy for oil since the slump.
It’s a “noticeable shift,” said Simon Kitchen, a strategist at EFG-Hermes, a Cairo-based investment bank.
‘More Conscious’
Investors are “much more conscious now of oil prices than before,” Kitchen said by phone. Before the decline gathered pace, “the correlation between these markets and oil prices was negative,” he said. “It almost felt like oil fell into the background.”
Now it’s in the foreground. In the last quarter of 2014, the Bloomberg GCC 200 Index fell 18 percent, the biggest quarterly drop since 2008, and almost four times the decline on the MSCI Emerging Market Index in the same period.
Standard & Poor’s last month cut the credit rating of Oman and Bahrain. It changed Saudi Arabia’s outlook to negative and said the kingdom could lose its AA- rating, the fourth-highest debt grade, in two years if there’s a decline in the country’s “liquid assets” or fiscal position.
Main Exception
The Gulf nations point to the expansion of their non-oil economies over the past decade. The IMF study acknowledged that growth and also drew attention to its limits.
“The share of non-hydrocarbons output in GDP has increased steadily, but is highly correlated with oil prices,” the Fund said. “Progress with export diversification, a key ingredient to sustainable growth, has been more limited.”
The main exception is the United Arab Emirates, where Dubai has bucked the trend by developing exports of services and manufacturing outside the chemicals industry, transforming itself into a modern economy, the IMF said.
Dubai’s success can’t be a direct model for Gulf peers, though, because there’s only room for one regional hub in the areas where it excels, according to Jim Krane, author of “Dubai: City of Gold” and a research fellow at Rice University’s Baker Institute for Public Policy in Houston.
‘First Mover’
“Dubai leveraged first-mover advantage in airlines, financial services and shipping, even light manufacturing,” Krane said. Other governments “have to find a sector that Dubai hasn’t already claimed.”
The IMF recommends steps to encourage exports and manufacturing, and cutting energy subsidies and government jobs that act as a deterrent to entrepreneurship.
That won’t be easy. Kuwait raised the cost of diesel and kerosene in January, only to roll back some of the increase a month later after domestic opposition. The backlash was expected, Finance Minister Anas Al-Saleh said.
“We are doing it in a prudent manner,” he said. Saudi Arabia has yet to take the plunge.
“Saudi companies can adapt to reasonable energy prices in the kingdom but they will have to reduce their operating costs, such as labor, and be more efficient,” Mutlaq Al Morished, chief executive office of National Industrialization Co., which has a market capitalization of 18 billion riyals ($4.8 billion), said in his office in Riyadh.
An oil rebound could yet rescue Gulf economies from the dilemma. Some energy revenue also comes from long-term contracts, making countries such as Qatar, the world’s top exporter of liquefied natural gas, less vulnerable.
High oil prices have been “a blessing and a curse,” Hatem Al-Shanfari, a member of the board of governors of Oman’s central bank, said in an interview in Muscat.
“We have made a lot of progress on the social indicators because of oil spending,” Al-Shanfari said. The downside: “We became so addicted to it that we are not far away from where we started many decades ago.”
Trains Carrying Crude in Canada to Face Tougher Safety Standards
(Bloomberg) -- Canada is strengthening proposed new safety standards for rail cars carrying crude oil, requiring thicker steel and other improvements after a 2013 derailment killed 47 people.
The latest Transport Canada proposals, published online Wednesday, go beyond earlier announcements by requiring rail cars carrying crude to have thicker steel, full “head shields,” mandatory thermal “jacket” protection among other upgrades. Canada continues to work with the U.S. on rail standards, the document said, adding the U.S. will make its own decisions.
In its online update, Transport Canada said the Transportation Safety Board had pushed for improvements from those initially published in January 2014. Transport Minister Lisa Raitt announced the new standards, which are still subject to federal cabinet approval, in parliament Wednesday.
The standards create “a new class of tank car specifically designed to transport flammable liquids by rail,” said Zach Segal, a spokesman for Raitt. The updated proposals were published Wednesday for transparency and “as part of the department’s ongoing discussions with industry,” he said, adding, “I want to emphasize that this work is being conducted in an expedited manner.”
The new proposed standards for what would be called TC-117 cars would apply to new cars and see some existing cars retrofitted. Rail cars carrying flammable liquids, such as crude, would need to be “jacketed” with an extra layer of protection against extreme heat and have steel at least 9/16ths of an inch thick, an increase from earlier proposals.
Head Shields
Cars would also need full “head shields” to protect the front of the rail car from being punctured, added protection atop the car and a new valve at the bottom.
TSB spokesman Chris Krepski said the agency was reviewing Transport Canada’s latest proposal as it assesses changes made after the the 2013 derailment of a train carrying oil in Lac-Mégantic, Quebec, that killed 47 people.
Canada’s two major railways welcomed the new suggested standards.
“The new standards represent a clear advance in tank car safety,” Mark Hallman, a spokesman for Canadian National Railway Co., said in a statement. He noted that the “vast majority” of tank cars carrying crude are owned by shippers or rail-car leasing companies. “CN is committed to running a safe railway and complies fully with federal government regulations governing the transportation of dangerous goods.”
Martin Cej, a spokesman for Canadian Pacific Railway Ltd., said its chief executive officer, E. Hunter Harrison, has long advocated for safer tank cars. “CP welcomes any progress towards full implementation of safer tank car standards,” Cej said in a statement.
Under the proposed guidelines, the safer tank car standards would be phased in to replace “non-jacketed DOT-111” cars carrying crude by May 2017, and those carrying ethanol by May 2020.
King Salman vows to continue Saudi oil and gas projects
RIYADH, 12 hours, 28 minutes ago
Saudi Arabia's King Salman said that the kingdom would continue oil and gas exploration despite the fall in crude prices, and vowed to build a strong, diversified economy.
In a speech broadcast on state television, King Salman, who ascended the throne after the death of his brother King Abdullah in January, also said he had ordered a review of regulations to help eradicate corruption, and that he would not allow anyone to meddle with Saudi security and stability.
King Salman noted the historically high revenues of recent years and said the government would reduce the impact of oil price decline on development projects and continue to explore for oil and gas reserves.
His speech also focused on the need to create private sector jobs for young Saudis, a main policy goal for many years as Riyadh strives to meet a looming demographic challenge while controlling public spending. -Reuters
Kuwait raises April crude OSP for Asia
TOKYO, 12 hours, 57 minutes ago
Kuwait set the official selling price (OSP) for its crude oil sales to Asian buyers for April at $2.75 a barrel below the average of Oman/Dubai quotes, up $1.35 a barrel from the month before, traders said on Wednesday.
Kuwait's crude price formula is loosely linked to that of Saudi Arabia's Arab Medium grade. - Reuters
Exxon, Shell 'may withstand oil slump better'
LONDON, 13 hours, 0 minutes ago
The world's two biggest oil firms, Exxon Mobil Corp and Royal Dutch Shell, may withstand the oil price collapse better than their rivals because they are closer to finishing expensive investment projects while others must keep spending.
The near halving of oil prices since June is likely to send all the biggest listed oil companies into negative cash flow this year, and has sparked a rush to cut costs across the sector as a result. But depending on where they are in their spending cycles, some companies are finding those cuts easier to make than others.
"Both (Exxon and Shell) had already entered a lower spending phase, with major projects reaching completion and coming on stream over the next two years," Moody's rating company said in a report.
Exxon started eight major oil and gas production projects last year in locations ranging from Papua New Guinea to the Gulf of Mexico and Abu Dhabi.
Shell started four big production start-ups last year in the Cardamom and Mars B oil fields in the Gulf of Mexico as well as other oil fields in Nigeria and Malaysia.
As a result Exxon, the world's biggest publicly traded oil company, was able to cut its 2015 project spending by 11 per cent to around $34 billion without significant impact on its production. Shell, the second-largest, opted for a $15 billion cut over the next three years and maintained its 2015 capital spending at $35 billion which will also not affect its output.
Chevron and Total, on the other hand, are both in the midst of large project spending cycles, and will have to tap into more debt in order to stay afloat, Moody's said.
Elsewhere BP, despite cutting costs and jobs and freezing salaries, still faces sizeable outgoings related to its 2010 Gulf of Mexico oil spill fine and its stake in Russian oil champion Rosneft.
Most big oil firms announced cuts of 10 to 15 per cent to their 2015 budgets versus last year. Some suspended share buybacks, revived dividend payment via company stock, known as scrip shares, and maintained dividends flat in order to boost cashflows.
While all companies are expected to keep paying high dividends by increasing borrowing, Anglo-Dutch Shell and Texas-based Exxon appear to be most able to cover both spending and dividend payouts if oil prices stay at their current $60 a barrel.
They are also likely to be able to pick up bargain assets, while the price collapse shakes the sector out.
"Those who have stronger balance sheets would be able to acquire more assets in the downturn, for example distressed and cheap U.S. shale producers," said Kirill Pyshkin who helps manage over $400 million in global and US equity funds at Mirabaud Asset Management in London, including shares in Shell.
Pyshkin noted too: "If oil prices recover they won't have to sacrifice their growth budgets and hence will be growing faster than peers in future."
LOWER BREAKEVEN
Exxon and Shell also lead the rest of the pack in terms of where their cashflow breaks even. They can survive on a much lower price of oil to cover project spending, operating costs and dividend payments.
According to analysts at Jefferies, Shell and Exxon both have 2015 breakevens of around $75 to $80 a barrel.
While that's still significantly higher than the average 2015 Brent price of around $56 a barrel, it's healthier than Chevron, BP and Eni's breakevens which Jefferies forecast at around $95, $100 and $120 a barrel respectively.
For some however, while Exxon is a safe investment, its dividend is relatively low compared to its peers and its shares offer little upside because of the steady course the firm is now on. Other peers and smaller companies offer better returns.
"Although it (Exxon) retains significant defensive strengths should oil prices dip again, we think the market is now beginning to deploy its investment dollars in higher risk plays," BMO Capital Markets analyst Iain Reid wrote in a note to investors.
Reid's key pick is Shell, which still has "plenty of firepower to deliver further upside via more aggressive restructuring". Total, which is further behind in the spending cycle may however also offer higher returns for investors in the future, Reid added. - Reuters
Tanker lifts 1m barrels of crude at Libyan port
BENGHAZI, Libya, 13 hours, 10 minutes ago
A tanker has lifted one million barrels of crude at the eastern Libyan Hariga port, an oil official said on Wednesday.
Another tanker was expected to dock at the port later this week, he said, asking not to be named.
The port had resumed work after Libya managed to fix a pipeline damaged in a blast last month. - Reuters
Brent oil hits one-month low below $56
LONDON, 13 hours, 6 minutes ago
Brent crude oil slipped to a one-month low below $56 a barrel on Wednesday before steadying as a rally in the US dollar and global oversupply weighed.
The dollar hit a fresh 12-year high against the euro, gaining more than 1 per cent to trade at $1.0561 against the single currency. The dollar index has rallied by 25 per cent since last May, making commodities priced in the greenback more expensive for holders of other currencies.
Russia's crude oil exports are also set to rise this year, Energy Minister Alexander Novak said, despite some expectations of a plunge in production due to lower prices following the crash from above $100 a barrel last year.
"We expect more downward pressure today," said Phillip Futures oil analyst Daniel Ang in Singapore, after Brent fell more than 3 per cent on Tuesday.
Brent for April delivery hit a one-month low of $55.92 a barrel before recovering to trade unchanged on the day at $56.39 by 1126 GMT. It dropped $2.14, or 3.66 per cent, in the previous session.
West Texas Intermediate for April delivery climbed 24 cents to $48.53 a barrel, after falling $1.71, or 3.42 per cent, on Tuesday. Its discount to Brent was at $7.86 a barrel, close to its narrowest in a month.
The US crude benchmark took some support from a surprise drop in crude stocks in the world's largest oil consumer last week, with the American Petroleum Institute reporting a 404,000-barrel fall late on Tuesday. Analysts had expected a 4.4-million-barrel build.
Despite the draw, crude stocks rose by 2.2 million barrels at the Cushing, Oklahoma delivery point of the WTI contract, the API said, keeping price gains in check.
Traders are now waiting for official data from the US Energy Information Administration to see whether it confirms the API numbers. - Reuters
Some US refinery work delayed due strike, good margins
New York (Platts)--11Mar2015/347 pm EDT/1947 GMT
Some refinery maintenance planned for the second quarter at US refineries may be delayed as the strike by United Steelworkers continues into its sixth week and personnel who are manning the plants are unable to make the necessary preparations to work on the units, sources said.
Already, Motiva has pushed back work planned on several units at its 600,000 b/d Port Arthur refinery in Texas, the nation's largest, due to lack of preparation time, a source familiar with refinery operations there said.
"Motiva's reactions are logical and I would expect similar actions by others," said John Auers, executive vice President of Dallas-based consultants Turner, Mason & Company.
"This is based on the fact that engineers, [turnaround] planners, and other salaried personnel who would be involved with planning and executing maintenance and capital activities are preoccupied with helping to operate the refineries," Auers said.
The strike by the USW began February 1 when workers at 15 facilities, including refineries and chemical plants, walked out. The only plant to shut because of the strike was Tesoro's 166,000 b/d Golden Eagle refinery in Martinez, California. Other strike-hit refineries remain operational as management and other personnel perform work normally done by striking workers.
Cognizant of the labor tension, some refiners had planned their work accordingly. Delta Airlines' Monroe Energy unit began planned work on February 12 on the naphtha unit at its 185,000 b/d refinery in Trainer, Pennsylvania, with plans to bring it back up before its contract with local USW workers expired on March 1, a source familiar with refinery operations there said. While refiners generally plan scheduled work on their units ahead of time, they have some latitude when the work needs to be done, sometimes letting profit margins dictate when to start. Few refiners like to take units offline when margins on gasoline and diesel are strong.
Auers noted that margins are very good now -- "which I expect to continue as we head into the driving season, [and] certainly contributes and helps support the plans to delay the downtimes."
Platts data shows LLS cracking netback margins along the US Gulf Coast, home to over half of the nation's refinery capacity, are up so far this quarter compared with same period last year -- at $12.81/barrel compared to $12.37/b.
Imported crudes show more of a lift, with Arab Medium cracking netback margins at $7.99/b so far in the quarter, compared with the $3.38/b seen last year at this time.
Refinery work planned in the second quarter is relatively light for crude units and gasoline-making fluid catalytic cracking units, a recent report from the US Department of Energy showed.
The report shows most refiners planned work for the first quarter. No work was planned along the East Coast in Q2, while maintenance in Midwestern refineries would take 4% of CDU capacity offline in April and 3% in May.
Planned work in the second quarter on the Gulf Coast was mostly on FCC units, with 3% of capacity offline in April and May, and 1% offline in June, the report showed.
SELECTED SECOND QUARTER PLANNED REFINERY OUTAGES
Refinery owner: CHS
Refinery location: McPherson, Kansas
Unit: n/a
Duration: March 6-April 16
Refinery owner: Flint Hills Resources
Refinery location: Rosemount, Minnesota
Unit: n/a
Duration: April 13-May 15
Refinery owner: Motiva
Refinery location: Port Arthur, Texas
Units: vacuum pipestill, catalytic reformer #4, hydrotreater, two lube units
Duration: May 30-June 30
Refinery owner: Valero
Refinery location: Port Arthur, Texas
Unit: CDU (75,000 b/d)
Duration: April 25-June 15
European refiners enjoy March margins rebound on strong light ends
London (Platts)--11Mar2015/832 am EDT/1232 GMT
The profit margin for European refiners has risen to one-month highs, according to Platts data, as a resurgent gasoline market makes up for some of the losses in jet, diesel and gasoil cracks from their February peaks.
"I'd say light ends have been performing very well," said one North European refiner Wednesday. "Naphtha and gasoline [are] remaining strong."
The physical Eurobob gasoline crack reached a 5-month high Tuesday, when it was assessed at $13.55/barrel, up from $13.44/b Monday, and the highest since last October.
The physical Naphtha crack meanwhile bounced into positive territory at points in February and March, historically very unusual for the light product that usually prices at a discount to the crude used to produce it.
Sources said the Northwest European gasoline market was supported by refinery turnaround season, in particular at the region's reforming units, as well as recent bullishness from the US gasoline market from strikes at refineries and maintenance in recent weeks.
Other sources pointed to a higher-than-usual demand balance for NWE gasoline globally, supported by lower supply in Asian markets during Indian refinery turnarounds, making Northwest European barrels increasingly favorable for the arbitrage to the Persian Gulf.
The model margin for refining Oseberg, a Norwegian light sweet grade, rebounded to $7.28/b Tuesday, according to Platts data, its highest in a month.
The margin for refining sour Russian grade Urals (basis Italy) rose to $4.89/b, its highest since October 2014.
UAE's ADNOC trims Murban crude oil supply to Asia as Ruwais ramps up runs
Singapore (Platts)--11Mar2015/345 am EDT/745 GMT
UAE's Abu Dhabi National Oil Co has started making small but widespread cuts in its flagship Murban crude oil supply to buyers in Asia as it starts diverting more oil to the massive new Ruwais refinery west of Abu Dhabi city, several market sources said this week.
Some refiners began seeing the change with February-loading cargoes when ADNOC turned down requests for slightly higher volumes using the positive tolerance option common in crude trading.
Similar changes followed for more refiners in March.
Starting with loadings in April, ADNOC was said to be using the option to supply cargoes with slightly lower volumes within the negative tolerance limits for several Asian refiners, traders said.
ADNOC could not immediately be reached for comment.
While the overall impact of the cuts so far is still relatively small, traders said it would boost fundamentals for the light sour crude.
"It's just marginal, but it will support sentiment," said a trader with a North Asian refiner who expects supply from Abu Dhabi to continue to tighten in the near term.
The cuts are largely limited to Murban and have not affected exports of ADNOC's other key export grades Das Blend and medium sour Upper Zakum, traders said.
The move coincides with first product exports flowing out of the massive Ruwais refinery, suggesting more Murban crude is now being processed domestically, traders said.
ADNOC is in the process of commissioning new units that would double the capacity of 840,000 b/d.
ADNOC subsidiary Abu Dhabi Oil Refinery Co. (Takreer), started production from the new 417,000 b/d crude distillation unit and hydrotreater in early February.
The new 127,200 b/d residual fluid catalytic cracker is expected to start running this month.
ADNOC had scheduled its first exports of 10 ppm gasoil from the newly commissioned units in March.
US crude production to rise to 9.3 million b/d in 2015: EIA
Washington (Platts)--10Mar2015/432 pm EDT/2032 GMT
The US Energy Information Administration on Tuesday nearly tripled its forecast for the 2015 Brent-WTI spread to $7.35/b, largely due to a glut of US crude production.
The 2015 spread, which EIA in February forecast would be $2.54/b, was widened due to "continuing large builds in US crude oil inventories, including at the Cushing, Oklahoma storage hub," the agency said in its latest Short-Term Energy Outlook.
US commercial crude oil inventories increased to a record 444 million barrels at the end of February, up 50 million barrels since the end of 2014, EIA said. US crude storage capacity is now 62% full, compared with 48% full at the same point a year ago, EIA said.
"US commercial crude oil inventories, which are already at the highest level since 1930, are expected to continue growing over the next two months," EIA Administrator Adam Sieminski said in a statement.
"The increase in oil inventories is expected to moderate as refineries ramp up their processing of crude oil into petroleum products in the second quarter and domestic oil production slows," he added.
EIA now forecasts the WTI crude spot price will average $52.15/b in 2015 and $70/b in 2016, down $2.87/b and $1/b, respectively, from February's estimates.
At the same time, EIA forecasts Brent prices will average $59.50/b in 2015 and $75.03/b in 2016, up $1.94/b and 3 cents/b, respectively, from February's estimates.
EIA said Brent prices have been buoyed by falling US crude oil rig counts and reductions in capital spending by oil companies "both of which contributed to expectations that oil supplies could decline more quickly than previous market expectations."
EIA expects US crude oil production to increase to 9.35 million b/d in 2015 and 9.49 million b/d in 2016, compared with 8.65 million b/d in 2014. These estimates are largely in line with EIA's February forecast, which pegged production at 9.3 million b/d in 2015 and 9.52 million b/d in 2016.
EIA said it expects current WTI prices to cause a decline in onshore drilling both in emerging and mature oil production regions, and while crude production is expected to reach 9.4 million b/d in the second quarter of this year it will decline by 170,000 b/d in the third quarter.
Still, EIA said production will likely continue to climb as companies redirect investments to core tight oil plays and due to a reduction in the backlog of drilled, but uncompleted wells.
"Projected 2015 oil prices remain high enough to support continued development drilling activity in the Bakken, Eagle Ford, Niobrara, and Permian basins," EIA said. "Companies with lower drilling and debt service costs that operate on acreage in the sweet spots of these regions are expected to continue to drill highly productive wells in 2015."
The growth of US production is expected to continue to eat into net imports of crude oil and other liquids, which fell from 60% of the total share of US liquid fuels consumption in 2005 to an estimated 26% in 2014. That share is expected to fall to 20% in 2016, which would be the lowest level since 1968, EIA said.
Overall, total world production of petroleum and other liquids will rise to 94.10 million b/d in 2015 from 93.01 million b/d in 2014, EIA said.
EIA said 2015 global oil demand will be 93.13 million b/d in 2015, nearly the same estimate it put out last month.
Non-OPEC petroleum and other liquids production will climb from 56.55 million b/d in 2014 to 57.58 million b/d in 2015 and 58.17 million b/d in 2016, up 310,000 b/d and 90,000 b/d, respectively, from February's estimates.
OPEC crude production is expected to be 30.08 million b/d in 2015, the same as 2014, and then to fall to 29.75 million b/d in 2016. Those forecasts are mostly unchanged from last month.
Platts Analysis of U.S. EIA Data
U.S. crude oil stocks rose 4.5 million barrels last week
Platts Oil Futures Editor Geoffrey Craig
New York - March 11, 2015
U.S. commercial crude oil stocks rose 4.5 million barrels during the week ended March 6, U.S. Energy Information Administration (EIA) data showed Wednesday.
Analysts surveyed by Platts on Monday had expected crude oil stocks to increase 4.2 million barrels week over week.
At 448.9 million barrels, inventories pushed further into record-high territory.
Crude oil imports dropped sharply the week ended March 6, though stocks still built as production was estimated to have risen 42,000 barrels per day (b/d) to 9.366 million b/d. Daily crude oil output exceeded the year-ago level by 14.5%.
Stocks at Cushing, Oklahoma, increased 2.3 million barrels, marking a return to large, weekly builds at the New York Mercantile Exchange (NYMEX) futures contract delivery point.
In 2015, Cushing stocks averaged an increase of 2 million barrels each week through February. For the week ended February 27, however, Cushing inventory rose only 536,000 barrels, sparking debate as to whether or not the pace was set to decelerate.
At 51.5 million barrels, Cushing stocks are 300,000 barrels shy of their record high set in 2013 and represent 72.7% of working capacity.
By region, the largest build occurred on the U.S. Gulf Coast (USGC), where stocks rose 2.54 million barrels to 222.4 million barrels.
USGC refineries were less active the week ended March 6, as crude oil runs dipped 88,000 b/d to 7.8 million b/d, helping stocks accumulate. USGC crude oil imports were down 251,000 b/d, mitigating the region's stock build.
Total U.S. crude oil imports fell 575,000 b/d to 6.8 million b/d, which was below the EIA five-year low for the same reporting period.
Imports from Canada were down 29,000 b/d to 2.9 million b/d. Imports from Saudi Arabia fell 86,000 b/d to 659,000 b/d. Imports from Mexico decreased 73,000 b/d to 766,000 b/d.
U.S. crude oil runs rose 187,000 b/d to 15.3 million b/d, raising the refinery utilization rate 1.2 percentage points to 87.8% of operable capacity.
Analysts had expected a 0.5 percentage-point decline.
Refinery utilization dropped sharply in January and stayed low through February, as some refineries entered seasonal maintenance or performed unplanned repairs.
These refineries typically return in March and begin ramping up in preparation for the peak summer driving season, drawing more crude oil in the process.
DISTILLATE STOCKS RISE
Total U.S. distillate stocks increased 2.5 million barrels the week ended March 6, EIA data showed, compared with the 2.3 million-barrel decline analysts expected.
At 125.5 million barrels, distillate stocks were 6.9% below the EIA five-year average for the same reporting period.
The build was largest on the USGC. The region's combined low- and ultra-low-sulfur diesel stocks rose 1.3 million barrels to 39.1 million barrels, which is 8.5% above the EIA five-year average.
U.S. Midwest (USMW) combined stocks drew 150,000 barrels to 31.835 million barrels, a 4.1% surplus to the five-year average. U.S. Atlantic Coast (USAC) combined stocks increased 1 million barrels to 23.8 million barrels, a 3.6% deficit to the five-year average.
Gasoline stocks on the USAC -- home to the New York Harbor-delivered NYMEX futures contract -- built 432,000 barrels to 68 million barrels, a 12% surplus to the five-year average.
Implied demand* for gasoline slipped 115,000 b/d to 8.5 million b/d.
Total U.S. gasoline stocks were down 187,000 barrels to 239.9 million barrels the week ended March 6. Analysts had expected a 1.7 million-barrel decline.
USGC gasoline stocks increased 684,000 barrels to 79.7 million barrels, a surplus of 8.7% to the five-year average. USMW inventory was down 101,000 barrels to 54.2 million barrels, a deficit of 0.4% to the five-year average.
* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.
Oil selloff talk picks up as supply balloon grows
A government report showing an increase in already-record crude supplies fanned speculation the market is setting up for a selloff that could take oil prices to a new cycle low.
West Texas Intermediate futures fell below $48 per barrel after the morning report, but bounced back to close just slightly lower at $48.17, down 12 cents. Futures for Brent, the international benchmark, traded higher, just below $58 a barrel.
Crude oil supplies rose 4.5 million barrels in the last week to 448.8 million—a ninth week of gains and an 80-year high, according to the Energy Information Administration. Oil stored at Cushing, Oklahoma, the physical delivery point for WTI futures, rose by 2.3 million barrels to 51.5 million.
"It says a lot of the world's oversupply is finding its way to storage in North America," said Andrew Lipow, president of Lipow Oil Associates. "It's bad for producers. Compared to this time last year, crude oil inventories are over 20 percent higher."
Many oil analysts expect another violent selloff in crude this spring. Some project that to take WTI closer to the $40 level or lower, carving a new bottom for prices. WTI's recent closing low was $44.53 per barrel on Jan. 29, before moving higher during February.
Production of U.S. oil last week rose to a multidecade record of 9.37 million barrels a day, from 9.32 million the week earlier. Weekly data show oil production has consistently surpassed 9 million barrels a day since November in the longest stretch since the 1970s.
"It says prices are going to remain under pressure," said Lipow, who expects oil to retest its recent low and head to $40 before the next selloff is over.
Targets may vary, but oil analysts expect the seasonal forces and supply to combine to spur another selloff.
"I'm not necessarily calling for a new low. We may have seen it in the price crash. I'm just saying we're in for a serious wave of downward pressure," said Michael Wittner, head of U.S. commodities research at Societe Generale. Wittner said he expects an average price of $47 per barrel for WTI in the second quarter, and that should rise in the second half of the year.
Demand drops off seasonally when refineries undergo maintenance as they shift to summer blend gasoline. The industry is currently in the process of that maintenance, but the refiners, in the past week, processed 15.3 million barrels a day, a slight increase from 15.1 million barrels the week earlier.
One surprise in the government report was a substantial drop in the amount of weekly crude imports, to 6.3 million barrels a day from 6.9 million barrel and well below the four-week average of 7.1 million barrels. Lipow said much of the drop was on the West Coast, and could have been impacted by the outage at Exxon Mobil's Torrance, California, refinery.
"Cushing continues to build. Refinery runs picked up a little bit, and I think the most interesting thing was despite all the refinery problems with cat cracker issues, gasoline inventories were virtually unchanged," said Lipow. He added that the recent rise in gasoline prices appears to be ending, with retail prices turning Tuesday after climbing for 40 days.
Wittner said the high level of U.S. oil production means supply—and pricing pressures—will remain for now. But he said fresh government data Tuesday showed that the shale oil drillers are vulnerable to lower prices.
U.S. oil production is closely watched as it was expected to level out and possibly decline on lower prices for crude. Wittner said shale is showing some vulnerability though overall production has grown.
The EIA revised its 2015 oil production expectations higher to 9.35 million barrels a day, from 9.3 million. However it reduced 2016 to 9.49 million barrels a day from 9.52 million. It cited anticipated production declines in North Dakota's Bakken fields and Eagle Ford in Texas.
Goldman's Gary Cohn: Beware $30 oil
Goldman Sachs President Gary Cohn told CNBC on Wednesday he is very concerned about the short-term window for oil and said crude prices could fall to $30 a barrel as the industry runs out of storage space.
With the winter heating oil season ending, refineries are turning to producing more gasoline for the summer driving season, he said. That means they will not need crude oil for weeks or months, depending on turnaround and maintenance time, he added.
"That crude oil backs up in the system," he said. "I'm concerned we're going to run out of crude oil storage, land-based storage in the United States, especially in the mid-continent and Texas."
On Wednesday, the Energy Information Administration reported that inventories of U.S. commercial crude rose by 4.5 million barrels, pushing stockpiles to the highest level on record. The Associated Press previously reported that the United States is now importing or producing about 1 million barrels of crude per day above what it can consume.
If the industry runs out of storage, front-month contracts for oil could plummet, Cohn warned. "Forward prices could stay relatively stable, but the headline may read, 'We've got $30 oil in the United States," he added.
That will likely boost consumer sentiment and would have a fairly big impact on Federal Reserve's timeline for raising interest rates, he said.
"It's hard to raise interest rates potentially when you see deflationary oil prices," Cohn said.
Did lower oil prices help the economy at all?
The oil price plunge has been touted as a global growth elixir, but so far the impact on the economy has been subtle and it's unclear when that will change.
"Local fuel prices have almost fully adjusted to lower crude oil prices," Goldman Sachs said in a note last week after tracking data from 24 countries. But it expects the stimulus impact on the economy won't be straightforward, depending on whether low prices are perceived as likely to persist and government policy responses.
"Income gains of households might not necessarily translate into significant spending rises," it said, adding that corporate gains would likely be reflected more slowly.
For companies, "the price pass-through mechanism is quite complex, with oil windfalls spread out to dividends, wages, and retained earnings, not necessarily spilled over directly to consumers via lower retail prices," Goldman said. "The use of oil is also quite diverse, entailing transportation, feedstock, and energy and a significant part of final goods are exported, with any spillover of windfalls going overseas."
What spending boost?
These factors appear to be playing out in the U.S. economy.
Households there don't appear to be spending the oil largesse just yet, Paul Dales, an economist at Capital Economics, said in a note Monday.
Real disposable income in the U.S. rose by 0.5 percent on month in both November and December, but "these extra funds, however, have not made it into the cash registers in the shopping malls or the bars and restaurants on Main Street," Dale said, adding households are saving, not spending their windfall.
Indeed, U.S. households in January bought 6 percent more gasoline than a year-earlier, but they spent $120 billion less doing it. The windfall appears to have gone to savings as the savings rate in January rose to a two-year high of 5.5 percent, Dale noted. Brent oil prices for April delivery are trading around $56.88 a barrel, off the lows under $49 touched in January, but they remain sharply down from their level over $115 a barrel in mid-June of last year.
"Households just want to make sure that lower gasoline prices are here to stay," Dale said. "Assuming that gasoline prices stay close to current levels, as we expect, then it is only a matter of time before real consumption rises more rapidly."
Elsewhere, spending is on the rise
In other regions globally, however, Capital Economics noted that households are starting to loosen the purse strings.
"Household spending has picked up sharply in response to the collapse in oil prices," it said in a separate note last week. "In January, the growth rate of underlying retail sales in advanced economies reached its highest level since 2006," Capital Economics said. "Even consumers in the euro zone are participating in the upturn, though Japanese households are not. Business surveys suggest that broader economic activity has also rebounded."
With the cost of motor fuel in major developed economies down by an average of 30 percent compared with last summer, consumers in the four largest advanced economies should see around $250 billion annually get freed up for other spending, Capital Economics said.
Uneven growth recovery
But while Capital Economics sees signs the oil savings will spur economic growth ahead, the economic recovery is "highly uneven" globally.
"The threat of deflation continues to hang over the euro-zone while Japan is yet to get back to its pre-tax-hike levels of consumption or gross domestic product (GDP)," Capital Economics said, citing data showing economic growth slipped to 2.4 percent in the last quarter of 2014.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1
Oil prices rally on expectations of tightening supply in 2015 - report
Kuwait News
KUWAIT, March 11 (KUNA) -- Oil prices rallied in February to finish the month up for the first time in seven months as markets turned more bullish on expectations that the supply glut, which has been such a dominant factor in oil's slide since the middle of 2014 could begin to unwind later on this year.
International crude futures benchmark, ICE Brent, increased by USD 9.5 to close at approximately USD 62.5 per barrel (bbl) for April delivery-the biggest monthly rise since May 2009, said a monthly report issued by the National Bank of Kuwait (NBK).
Since mid-January, when prices touched a six-year low, Brent has climbed almost 31 percent, it said.
The US benchmark, West Texas Intermediate (WTI), increased by USD1.59 to reach USD 49.76/bbl in February, it said, adding similarly, local crude, Kuwait Export Crude (KEC), also gained during the month, ending February up at least USD12.0 to USD 55.0/bbl. Recent weeks have also seen the spread between Brent and WTI widen to over USD13/bbl; WTI had actually been trading at a premium to Brent in mid-January, it said.
Active US oil rigs are down by a sizeable 39 percent from their peak count in October 2014 to 986, according to rig count data provided by Baker Hughes, an oil services company, it pointed out.
The scale of the fall is unprecedented, even if the decline in rigs involved in horizontal fracking-the technique most commonly associated with shale oil production-has been a little less severe, it added.
According to OPEC data based on secondary sources, OPEC oil output declined by 50,000 b/d to 30.15 million barrels per day (mb/d) in January, it noted.
Declines of 260,000 b/d by Iraq and 150,000 b/d by Libya were largely responsible for the fall, it said.
For Iraq, recent momentum which saw the country hit a 35-year output high of 3.62 mb/d in December seemed to slow in January, while Libya, which is beset by strife between militias allied to the two warring governments, recorded its third successive month of falling output, to 0.34 mb/d, it made clear.
On the other hand, oil production was seen edging up in Saudi Arabia, the UAE and Kuwait among GCC producers, to reach 9.68 mb/d, 2.84 mb/d and 2.78 mb/d, respectively, it concluded. (end) fnk.hm
Oil prices rally on hopes of tightening supply in 2015
http://news.kuwaittimes.net/wp-content/uploads/2015/03/nbkreport.jpg
KUWAIT: Oil prices rallied in February to finish the month up for the first time in seven months as markets turned more bullish on expectations that the supply glut which has been such a dominant factor in oil’s slide since the middle of 2014 could begin to unwind later on this year. International crude futures benchmark, ICE Brent, increased by $9.5 to close at approximately $62.5 per barrel (bbl) for April delivery-the biggest monthly rise since May 2009. Since mid-January, when prices touched a six-year low, Brent has climbed almost 31 percent. US benchmark, West Texas Intermediate (WTI),increased by $1.59to $49.76/bbl in February.
Similarly, local crude, Kuwait Export Crude (KEC), also gained during the month, ending February up at least $12.0 to $55.0/bbl. Recent weeks have also seen the spread between Brent and WTI widen to over $13/bbl; WTI had actually been trading at a premium to Brent in mid-January but ballooning commercial crude inventories in the US, which are at record highs and in excess of the normal average for the winter season, have made the supply glut especially acute in the US.
This has helped to suppress the WTI rally in February. Moreover, with US production continuing unabated and the Spring refinery season just around the corner, US commercial crude stocks are likely to remain high over the coming months, which would likely keep the Brent-WTI price differential relatively wide. Indeed, the issue of crude stocks has been an important factor shaping the trajectory of the oil futures markets over the last seven months, when the futures curve moved into contango-a term that describes a scenario where the price of oil is higher for future delivery compared to more immediate delivery.
This has naturally encouraged traders to route crude into storage for future sale. Brent crude futures prices are currently ranging between $68/bbl for oil deliveries in December 2015 and $74/bbl for oil deliveries in December 2017. February’s price rally was fueled by weekly data showing the number of active US oil rigs declining week-on-week and a spate of announcements by US and international oil companies that their capital spending commitments would be pared back in 2015, because low oil prices are increasingly rendering projects uneconomical.
Active US oil rigs are down by a sizeable 39 percent from their peak count in October 2014 to 986, according to rig count data provided by Baker Hughes, an oil services company. (Chart 4.)The scale of the fall is unprecedented, even if the decline in rigs involved in horizontal fracking-the technique most commonly associated with shale oil productionhas been a little less severe. While rig counts present only part of the picture-they don’t take into consideration rig productivity, for example-their use as a guide to future production has some merit, nonetheless. Notable among the companies announcing cutbacks are BP and Total as well as several leading US shale oil producers including EOG, Noble Energy and Devon Energy; the selast three are envisaging cuts of 20-40 percent in spending this year. EOG indicated that it intends to delay further investment and utilization of its oil reserves until 2016, when oil prices are expected to be higher, thereby maximizing its return on reserves.
Nevertheless, despite the current bullish sentiment, the fundamental imbalance of excess supply in the context of weak demand remains in place: non-OPEC and especially US oil production continues to surge; OPEC output remains above the amount required to balance oil demand (the ‘call on OPEC crude’); and OECD commercial crude stocks remain close to historical highs. Furthermore, as land-based storage fills up and buyers mobilize floating units such as VLCCs (very large crude carriers) for their oil, costs are rising, which will likely further depress near-term prices.
Global oil demand The International Energy Agency (IEA) expects world oil demand growth to accelerate slightly from a modest 600,000 barrels per day (b/d) in 2014 to 900,000 b/d in 2015 on expectations of a stronger global economy. Total world oil demand is forecast to come in at 93.4 mb/d in 2015, led by increases in demand from non-OECD countries in Asia, including China, Latin America and the Middle East. Outages in Libya According to OPEC data based on secondary sources, OPEC oil output declined by 50,000 b/d to 30.15 million barrels per day (mb/d) in January. Declines of 260,000 b/d by Iraq and 150,000 b/d by Libya were largely responsible for the fall. For Iraq, recent momentum which saw the country hit a 35-year output high of 3.62 mb/d in December seemed to slow in January, while Libya, which is beset by strife between militias allied to the two warring governments, recorded its third successive month of falling output, to 0.34 mb/d. On the other hand, oil production was seen edging up in Saudi Arabia, the UAE and Kuwait among GCC producers, to reach 9.68 mb/d, 2.84 mb/d and 2.78 mb/d, respectively. Capital expenditure cutbacks have compelled the IEA to revise downwards its projections for non-OPEC supply growth in 2015. Citing the reductions in capital expenditure recently announced by oil majors, the agency has also cut its projection for non-OPEC supply growth in 2015 by 100,000 b/d to 800,000 b/d. This downward revision was also echoed by OPEC in its monthly oil report. The OPEC report highlighted falling US oil rig counts and decreasing drilling permits as well as reductions in capital spending as the main reasons for their reassessment. US supply has also been revised downwards, by 200,000 b/d, from January’s report to come in at an expected 12.4 mb/d in 2015. Most of the cuts are expected to come during the second half of the year. The IEA has cautioned, however, that potential US output declines are likely to be ‘limited in scope’ because the cost structure of the US Shale industry is constantly changing as technological gains improve the longevity of oil wells and producers constantly strive for improved efficiency.
NBK ECONOMIC REPORT
Japan's 2015 crude imports from Russia may hit record high
Business Mar. 12, 2015 - 06:01AM JST ( 2 )
TOKYO —
Japan’s imports of Russian crude may set another record high this year as refiners scoop up spot cargoes to take advantage of strong refining margins, short shipping distances and multiple-year low prices for its neighbor’s oil, industry sources said.
Russian crude imports, which started on a solid footing this year with January imports up 63%, help reduce Japan’s nearly 95% reliance on Middle East crude as part of its goal for diversification of supply.
Russian crude output last year hit a post-Soviet record high of 10.58 million barrels per day (bpd), and Russia’s Energy Ministry expects crude exports to rise by 5 million tons (roughly 100,000 barrels per day) this year because of changes in taxation.
Russian oil, which can be delivered to Japan in a few days, gives the world’s fourth-biggest buyer a flexibility to make purchases closer to target delivery dates than for crude from other suppliers, sources said. Deliveries from the Middle East, for instance, typically take about three weeks.
The shorter distance also allows refiners to buy more crude quickly when refining margins are high - such as when oil prices are falling rapidly - as there’s no guarantee on how long the higher returns for refined fuels will last.
“
Other Asian nations have also been increasing imports from Russia. China’s imports of Russian grades jumped 36% to a record of 662,000 bpd in 2014.
Russia last year eclipsed Kuwait to become the fourth-biggest supplier to Japan with 280,760 bpd, up 12% from a year earlier. That is the highest intake on records that go back to 1988, Ministry of Finance figures showed.
Russia’s exports to Japan surged from 2010 after the Eastern Siberia-Pacific Ocean (ESPO) pipeline was linked to the Russian Far East coast in 2009.
“
Harada was referring to Russia’s annexation of Ukraine’s Crimea peninsula in March. A pro-Moscow insurgency in eastern Ukraine has left 6,000 people dead, and Western countries and Japan have slapped sanctions on Russia over the crisis.
Russia is also the fourth-biggest supplier of liquefied natural gas to Japan, according to government figures.
(c) Copyright Thomson Reuters 2015.
Report: Feds Keep 19 Billion Barrels Of Oil Out Of Reach
Posted By Michael Bastasch On 2:02 PM 03/11/2015 In | No Comments
The Obama administration locked up nearly 19 billion barrels of oil and 94.5 trillion cubic feet of gas as it restricts oil and natural gas drilling on federally-controlled lands.
The Obama administration has been making it harder for oil and gas companies to drill on federal lands, particularly in the western U.S., all while oil production booms on state and private lands, according to a report by the American Action Forum.
“
“
The federal government owns 28 percent of U.S. lands holding billions of barrels of oil and gas, but has been making more lands off limits to drilling and offering fewer opportunities for companies to even get permission to drill.
In the last three years, oil industry interest in drilling on federal parcels has doubled, according to AAF, but during that time the Bureau of Land Management decreased the amount of drilling leases by one-fifth.
Also, the BLM takes an average of 7.5 months to process a permit to drill on federal lands, much longer than approval processes in states which can take anywhere from a few days to a few weeks. In total the government has reduced oil and gas leasing activity 20 percent, according to AAF.
Despite faltering oil and gas production on federal lands in recent years, the Obama administration has stepped up its efforts to make it harder to drill on public lands. In February, the president designated three national monuments in three states that could make it harder to drill.
That move came after Obama asked Congress to permanently designate the Alaska National Wildlife Refuge a “wilderness” to put the whole region off limits to development for good. The move was contested by Republican lawmakers, who said Obama was essentially declaring war on Alaska’s energy.
“
As of October 2014, Obama designated 260 million acres of federal lands and waters as part of 13 national monuments, more than any other president since 1906. Obama’s national monument designations are equal to the size of California and Texas combined.
While national monument designations themselves don’t stop drilling, they can make it more difficult for companies to set up operations or get approval to drill.
“
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Harold Hamm Dismisses IEA Shale Prediction
By Thomas Miller
It might be discussed over coffee, at the gym, or when a group of friends gather on a Friday night. Analysts write about it, pundits prognosticate about it almost hourly on one cable news channel or another. And everyone probably thinks about it, consciously or unconsciously, when they pull into a gas station.
Where is the price of oil going next?
If that question could be answered with any degree of accuracy whatsoever, there would be a lot more wealthy traders in the world. The art, and science, of forecasting which direction oil prices are heading next, at the end of the day, is obviously less than precise. That’s what hedging is for – to cover the margin of error, and that doesn’t even always pan out as expected.
The International Energy Agency (IEA), Paris-based global research and analytical firm supporting 29 member countries, released an updated mid-term outlook for oil through 2020. In it, the IEA is expecting U.S. shale to basically peak at approximately 9.7 million barrels of oil in 2016, and then stay mostly flat into 2018, before resuming a mild uptrend to around 10.3 million barrels of domestic oil in 2020.
Harold Hamm, Chairman and CEO of Continental Resources, disagrees. Hamm said early-on that oil prices would turn in 2015. So confident was he in his crystal ball, that Continental pulled all its short-side hedges in October when oil was in the mid-70’s. Hamm admits he was off….by a mile. The company could have made far more than the $430 million dollars it did pocket since the summer peak.
Hamm was quoted recently in Forbes with a new term for what he says is the essence of what fostered the shale boom in the first place, and is what will carry America to the front of the stage of global oil influence. The word he coined is Cowboyistan, the independent, tough-minded, stubborn, get-‘er-done attitude that permeates the oil field.
According to Hamm, things will stay tough until supply and demand balances out, but he places a heavy weight on the affect of the decline curves. Shale wells produce large volumes of oil and gas at the beginning (called the IP, initial production, generally measured over the first 30 days of going online), but characteristically their output reduces greatly over each of the next two years, so that by year three, the flow is a trace of what it was originally. Hamm is convinced that once enough rigs go offline, supply will fall, simply based on the physics of shale production. No new investment, no growth in output, and likely a reduction in supply. When, and if that occurs, Hamm believes the price of oil will normalize in a range where producers can start drilling again, but consumers won’t be hurt by the sting of high fuel prices.
Hamm is not the lone voice saying the same thing. John Hofmeister, former head of Royal Dutch Shell’s U.S. operations echoes the same belief, as does Chris Faulkner of Breitling Energy in Dallas, both highly visible on cable business news programs.
While industry experts have their hopeful eye on the decline curve, many recently-released analyst reports, including the IEA February update, are not putting such a heavy weight on declines playing that big a factor in production, at least in the near term.
Also of note was the information released this week by Wood Mackenzie that as many as 3,000 wells have been drilled without being fracked. When prices do turn, that could become the lowest hanging fruit for new supply.
Furthermore, the IEA has come under fire periodically for not being the most accurate barometer by which to measure trends. Research scientist Schalk Cleote took a look at the last 15 years track record of the IEA and published his report on theenergycollective.com. While impressively accurate on natural gas forecasts, the agency does not fare so well for crude, according to his findings. In particular, Cleote reports, is a tendency to over-predict demand, and he notes they virtually missed the plateau of conventional production.
The bottom line is we have never been here before in over 150 years of American oil and gas production. Commercial shale extraction is just over a decade old now, but mostly in earnest for the last five years. How this plays out will certainly be scrutinized for more accurate predictions, but for now we’re in no-man’s land and only time, plus more monthly shale output numbers, will provide the answer.
Meanwhile, Cowboyistans around the world wait and watch for that ray of hope that will bring prices back to a more profitable production number while hopefully leaving consumers smiling every time they fill up.
By Thomas Miller For Oilprice.com
Kuwait says expects OPEC to continue policy beyond June Decision crucial to determine oil prices in H2
DOHA, March 10, (RTRS): OPEC is likely to maintain its production policy at a meeting in June, Kuwait’s OPEC governor said on Tuesday in the first public comment on what would be a crucial decision to determine the direction of global oil prices in the second half of the year.
Many OPEC oil ministers including Saudi Arabia’s Ali al-Naimi have defended the organisation’s November decision not to cut production but instead defend market share and curtail the output of more expensive producers such as the United States.
The accord sent oil prices below $50 per barrel, extending a sharp decline that began in June amid a global glut of crude.
The Organization of the Petroleum Exporting Countries has said it believes the oversupply, as much as 1.5 million barrels per day, will evaporate as oil demand picks up and US oil production growth slows, with companies drilling fewer wells.
However, should US oil producers prove more resilient than OPEC expects, the glut could persist and even be further aggravated if Western powers and Iran reach a nuclear deal allowing Tehran to increase its oil exports.
A deadline for a framework agreement on Iran’s nuclear programme between Tehran and six major powers is set for March, with a deadline for a full deal hoped for in June — the same month as the next scheduled OPEC meeting.
On Tuesday, Kuwait’s OPEC governor Nawal Al-Fuzaia said at an energy conference in Qatar that she thought OPEC would maintain its policy at the next meeting in Vienna on June 5.
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Fuzaia said she did not expect oil prices to go below $40 a barrel. Brent crude is currently at about $58.
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She said Iraqi oil production growth was uncertain after severe fluctuations in past months, while the return of large oil volumes from Iran could take longer than expected.
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Analysts from the Energy Aspects think tank said that even before fresh Iranian barrels return to the market, OPEC and other oil producers will have to face lower oil prices as demand is set to weaken in April-June.
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Bank of America Merrill Lynch said it saw downward pressure on oil persisting throughout the third quarter of 2015 as developed nations continued to build up commercial oil stocks.
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Everyone Is Guessing When It Comes To Oil Prices
London, 11 March 2015
Predicting and diagnosing the trajectory of oil prices has become something of a cottage industry in the past year. But along with all of the excess crude flowing from the oil patch, there is also an abundance of market indicators that while important, tend to produce a lot of noise that makes any accurate estimate nearly impossible.
First there is the oil price itself. The crash began last summer, and accelerated in November. Since then, predictions for oil prices for 2015 have been all over the map – from Citigroup's $20 per barrel, to T. Boone Pickens' prediction of a return to $100 per barrel. OPEC's Secretary-General even said prices could shoot up to $200 in the coming years as a result of overly drastic cutbacks and a failure to invest in new production. With those estimates at the extremes, most analysts think prices will continue to seesaw within a rough band of $40 to $70 for the rest of the year. Still that is quite a large range, highlighting the fact that everyone is merely guessing.
Aside from oil prices, the weekly measurement of the number of rigs still in operation has become one of the most watched indicators out there. Weekly rig counts from Baker Hughes have sparked the Twitter hashtag #Rigcountguesses, to which energy analysts post their predictions. For the week ending March 6, another 75 oil and gas rigs were pulled from operation, taking the total down to 1,192. That is the lowest level in years, and 43 percent lower than its 2014 peak. While the rig count metric has garnered a lot of attention as a leading indicator of a potential cut back in oil production, it has also been criticized for not being an entirely accurate portrayal of output. Drillers have become more efficient, able to use fewer rigs for the same amount of production. So the notion that a falling rig count will necessarily lead to a fall in production may be a bit more complicated than it seems.
A new metric that has popped up in recent weeks is the level of available storage. Excess oil has been stashed in storage tanks around the world, but government data suggests that storage space is starting to run low. The EIA says that about 60 percent of total U.S. storage is filled, a jump from 48 percent a year ago. Regional figures are higher, for say, the East Coast (85 percent). Oil storage is at its highest level in 80 years, and storage at the all-important hub in Cushing, Oklahoma could begin to run out of space this spring. Globally, the picture isn't any better – Citigroup says Europe is at 90 percent, while South Korea, South Africa, and Japan may all be nearing 80 percent. The growing shortage of places to put oil has led to the creation of an oil-storage futures contract by CME Group. As storage begins to run out, the glut could worsen, sending prices way down.
Another key number to keep in mind is the number of drilled but uncompleted wells out there. There are an estimated 3,000 wells that have not been completed as producers wait for prices to rebound. Instead of storing oil in tanks, simply holding off on finishing a well can allow drillers to "store" oil in the ground. Once completed, however, the backlog of wells will push down prices.
The most important indicator for trying to figure out where prices are going is actual levels of oil production. In the face of spending cut backs, drops in rig counts, and ongoing price pressure, oil production continues to defy gravity. Output continues to climb. At the end of February, the U.S. was producing 9.3 million barrels per day, up 10 percent since prices began crashing in June 2014, and even up 2 percent since the beginning of 2015. Low prices have yet to cut into the trend line, but will have to at some point soon.
One of the big unknowns is how oil demand will respond to low prices. Lower prices should push up consumption, but how quickly and how fervently consumers respond will go a long way to determining when the glut will subside. Overall demand is also largely determined by broader economic growth. With so much unknown about the rate of economic expansion around the world, demand projections are understandably all over the place. The IEA, OPEC, and EIA – the three most-watched energy prognosticators – have tinkered with their oil demand scenarios, but they haven't yet seen enough evidence to forecast a surge in demand.
Finally, clouding the entire picture are fluctuations in currency markets. Fluctuations in currencies influence – and are also influenced by – fluctuations in oil prices. Most important is the U.S. dollar because oil prices are priced in dollars. Just to take a recent example, the U.S. posted very positive employment numbers on March 6. While that should theoretically put upward pressure on oil prices because a stronger economy should lead to more oil consumption, oil prices actually fell. Why? A stronger economic outlook also raised speculation that the Federal Reserve may increase interest rates, which would strengthen the dollar. Since oil is priced in dollars, a stronger dollar tends to push down oil prices.
The set of indicators above is just a small selection of what energy prognosticators have to take into account when trying to predict oil prices. When you throw in geopolitics, technological advances, and changes in tax policy, for example, one quickly realizes that nobody knows which way oil prices are heading.
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How do lower rig counts affect oil production?
London, 11 March 2015
Capital Economics believe that US oil production will peak in the middle of this year as the backlog of drilled but uncompleted wells is used up. This should help support oil prices, especially in the US, in the second half of this year.
"The sharp fall in the number of rigs drilling for oil in the US has been the focus of many headlines over the last few weeks amid speculation about what fewer rigs means for US shale oil production. For a bit of background, a rig is the piece of equipment which physically drills the hole in the ground. However, the drilling rig doesn’t actually produce any oil. Once the hole, or well, has been drilled to the required depth, a cap is placed on it and the rig moves on to drill somewhere else. Another team then comes in to finish the well and start producing oil," accourding to Tom Pugh Commodities Economist at Capital Economics.
"As such the rig count is a good indicator of future production. However, there is not a linear relationship between the number of rigs drilling for oil and output of oil for a number of reasons. First, not all rigs are equal. Technological advances over the last few years mean that modern rigs can drill more wells than older ones in the same amount of time. Second, the productivity of shale oil wells can vary dramatically.
"Horizontal wells are much more productive than vertical wells. But even between wells of the same types, productivity depends heavily on the location, so simply drilling more wells may not translate into a rise in production if the new wells are in less rewarding spots. Indeed, there has been a sharp pullback in drilling in marginal areas as firms focus on the most productive “core” part of the shale area.
"In addition, over the last two years firms have been drilling wells faster than they can complete them. This means that there is a backlog of wells which have been drilled but not completed. Once a shale well has been drilled the cost of completing and operating the well is extremely low, perhaps as little as $10 - $20 per barrel. Therefore it makes sense to complete wells which have already been drilled as long as oil prices remain above operating costs. As these wells are brought online, total production will rise because new wells have an extremely high rate of output. This is the main reason why US oil output has continued to grow, even though the rig count has fallen.
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"However, eventually the backlog of wells available to be completed will run out and output will begin to fall as not enough new wells are being drilled to compensate for the declines in output from mature wells. Indeed, US shale oil production growth has slowed for the last four months in a row and the EIA estimates that the increase in April will be just 300 barrels per day. Admittedly, April’s very small rise is in part due to recent cold weather, but the downward trend remains clear."
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Capital Economics estimate that US oil production will peak in the summer and then should slowly decline over the second half of the year. This will mean that average US oil production over 2015 will probably be at a similar level to last year. But with US oil prices now markedly lower than Brent, US oil production could fall more sharply than most anticipate. "A sharp drop off in oil production later this year would undoubtedly put upward pressure on oil prices. However, any price rises would be limited by the ability of shale producers to boost output again. Indeed, we expect the price of WTI to be back at $60 per barrel by the end of the year, in line with our forecast for the price of Brent," Pugh adds.
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Saudi seeks to minimise impact of oil fall
AAPAAP – 1 hour 24 minutes ago
Saudi Arabia is trying to minimise the impact of plunging oil prices on its economy, King Salman says in a wide-ranging address promising a more diversified economy.
"The low prices witnessed by the oil market are having an effect on the income of the kingdom. However, we are working towards minimising the impact on development," Salman, 79, said in his first major speech since acceding to the throne on January 23.
Over the second half of 2014 the global price of crude oil dropped by about half, from above $US100 a barrel.
Yet the kingdom in December announced a 2015 budget that included a slight rise in spending to $US229.3 billion ($A301.00 billion) with a projected fall in revenue to $US190.7 billion. Those numbers leave the country with its first budget deficit since 2011.
Saudi Arabia is the Arab world's largest economy, and much of its spending is on health, education and social services as well as infrastructure.
Officials have said the kingdom's reserves, estimated at $US750 billion, enable it to withstand the global crude price drop.
Saudi Arabia is the world's biggest crude exporter and oil makes up about 90 per cent of government revenue.
Salman told government officials and other dignitaries that the search for new deposits of oil, gas and other natural resources in Saudi Arabia would continue.
"High petrol prices during the past few years have had a positive effect on the economy of the kingdom, in the development of projects," the king said.
But the plunge in oil prices has emphasised the need for economic alternatives, and Salman said the kingdom's future economy "will be based on a number of foundations", with a growing number of small- and medium-sized enterprises.
"The next few years will be full of important accomplishments aimed at emphasising the role of the industry and the service sectors in the national economy."
Salman delivered his wide-ranging palace address in front of Crown Prince Moqren, Deputy Crown Prince Mohammed bin Nayef, provincial governors, the top cleric Grand Mufti Sheikh Abdul Aziz al-Sheikh, other religious leaders, the Shura Council which advises the monarch, military officers and citizens.
"I have committed myself to continuing the work on the immutable foundations on which this blessed country has stood since its unification," he said, mentioning adherence to sharia Islamic law and preservation of unity and stability.
"We shall work continually towards the integrated, balanced and comprehensive development in all regions of the kingdom," added Salman, the latest in a line of ruling sons of King Abdul Aziz bin Saud, who founded Saudi Arabia in 1932.
The conservative Sunni-majority kingdom has a Shi'ite minority which has complained of marginalisation.
Salman urged officials to "be attuned to the citizens", and indicated that he wants the fight against corruption stepped up.
The kingdom's foreign policy "is based on the teachings of our religion that call for peace and kindness", Salman said, but "extremism and terrorism" will be fought at their roots in co-operation with others.
"Defence of Arab and Islamic causes, and in the first place the right of the Palestinians to a state with Jerusalem as its capital, will remain at the top of Saudi Arabia's demands," Salman said.
Analysts have expected the new king to maintain a steady course for the kingdom's oil and foreign policy after his half-brother king Abdullah died aged about 90.
In September, Saudi Arabia joined air strikes as part of a United States-led coalition of Western and Arab nations bombing the Islamic State group extremists who have seized swathes of Iraq and Syria.
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Low price unlikely to spur oil demand
March 12, 2015 - 3:33:30 am
BY SACHIN KUMAR
DOHA: Global demand for oil is unlikely to get boost despite lower oil prices. Strengthening of US dollar coupled with weakness in global economy will keep the demand for oil subdued in the short to medium term, according to a senior official of International Energy Agency (IEA).
“Current lower oil price are partly coming from slower demand growth than expected in the past several months. In such kind of weak economic growth backdrop, we expect that in spite of lower oil prices, the demand growth will be kind of slower compared with past cycles of oil prices. The current lower oil prices will not boost the global demand growth,” Keisuke Sadamori (pictured), Director- Energy Markets and Security at IEA told The Peninsula.
According to Sadamori, the global oil demand is likely to be around 0.9 million barrels per day in 2015.
Oil industry watchers were expecting that the sharp fall might prompt oil consuming countries to buy more oil but weaker economic growth in European countries, Japan and China has led to lower demand of oil from these countries.
Now appreciating US dollar has also emerged as a major drag in the oil demand. In the past one year dollar has risen significantly against many currencies due to recovery in US economy.
A depreciating currency affects imports of a country adversely as imports become costlier which means that these countries will not be able to reap the benefit of falling oil prices fully.
“Even though oil prices are going down in US dollar terms the dollar is appreciating against many currencies. So for the countries with weaker currencies, actually the oil prices are not as low for them, as in dollar denominated terms. For these countries, at the end consumer level, the oil products prices may not be going down much,” said Sadamori. “And there are some countries who are using this opportunity to reduce their fossil fuel subsidies like Indonesia, Thailand, Malaysia and India,” he added.
Brent crude prices had plunged below $50 a barrel in January this year from highs of above $110 in June last year. Prices have recovered to some extent as Brent Crude hovered around $60 a barrel in February.
Crude prices have declined on the back of new supplies hitting markets, in particular from shale oil production in the United States, and slower global economic growth, including in Asia. Now crude oil prices are trading around $55-$60 per barrel range.
He added that the additional demand for oil will be coming from China India and Asean countries. “Emerging Asia will the leader in the demand growth, also there will be additional demand from Africa, the Middle East and Latin America. Even though Africa will see fairly solid growth, but the starting point is lower than the Asian countries,” he said.
The Peninsula
