U.A.E. Concerned That Oil Glut May Curb Exploration, Production

The collapse in oil prices may deter investment in exploration and production projects predicated on $100 crude, according to Suhail Al Mazrouei, energy minister of the United Arab Emirates.

“What worries us is that some investors will not continue to invest,” Al Mazrouei told reporters in Abu Dhabi. “Not us, others, are not going to continue to invest. And in a few years, we’re going to face difficulties finding enough investments in the market.”

Oil has fallen into a bear market this year on increased output of U.S. shale and other supplies. The Organization of Petroleum Exporting Countries, including the U.A.E., will meet Nov. 27 to assess the market and production. Saudi Arabia and Kuwait have resisted calls for the group to cut production, while Libya, Venezuela and Ecuador have asked for action to keep prices from falling lower. Brent crude has tumbled 29 percent since June 19.

“This isn’t the first time that we see a drop in the market,” Al Mazrouei said yesterday. “If this is a phenomenon that’s going to last, it will affect some future investment, especially in the more expensive oil developments. If this is a short fluctuation, we’re not going to be panicking. And we never panic.”

Spending Cuts

The oil industry is over-committed to capital expenditure and will probably need to reduce spending on exploration and production next year, Wintershall AG Chairman Rainer Seele said yesterday at a conference in Abu Dhabi. Oil at $80 a barrel won’t stop BP Plc or Total SA from exploring for and developing crude, BP Chief Executive Officer Robert Dudley and Arnaud Breuillac, Total’s president of exploration and production, said Nov. 10 at the same conference.

Many companies made investment decisions over the past three or four years on the premise that crude would sell at $100 a barrel, Al Mazrouei said.

“There is a concern, but the long-term investors will continue investing in those large projects,” he said. “Some who are producing at a higher oil-price assumption, they will suffer.”

The oversupply of oil “didn’t come from us,” Al Mazrouei said of the U.A.E. and OPEC, which provides about 40 percent of the world’s oil. “We kept the market balanced. So we need to wait to see. Now OPEC members are meeting to discuss.”

The group exceeded its official target of 30 million barrels a day by 974,000 barrels a day in October, according to data compiled by Bloomberg.

“No single country can give you an indication of the result” of OPEC’s decision before it meets this month in Vienna. “We’ve been wise in much more difficult times than this. Let’s wait for that meeting,” Al Mazrouei said.

Canadian Heavy Oil Boosted as Imperial Shuts Kearl Operation

Canadian heavy oil strengthened the most in more than a month after Imperial Oil Ltd. (IMO) shut operations at its Kearl oil sands project.

Operations were suspended after vibrations were detected in an ore crusher unit at the site, the company said in an e-mailed statement. The shutdown will last “several weeks” and customers will be supplied from inventories and through purchases of crude on the market, spokesman Pius Rolheiser said by phone. Imperial was producing 92,000 barrels a day at Kearl in the third quarter, the company said.

Western Canadian Select, a heavy blend that is a benchmark for oil-sands production, strengthened by $1 a barrel to a $15.10 discount to West Texas Intermediate at 11:48 a.m., according to data compiled by Bloomberg.

“This should help support prices,” John Auers, vice president of the Dallas-based consulting company Turner Mason & Co., said by telephone. “It’s not super unusual for them to have unanticipated shutdowns, so I’d take them at their word if they’re saying it’ll be back up in a few weeks.”

Kearl, located 70 kilometers (44 miles) north of Fort McMurray in Alberta, contains about 4.6 billion barrels of recoverable bitumen, which is mined from the earth, according to the company Website. Imperial plans to ramp up production to 110,000 barrels a day, the company said.

Production from Kearl will average 62,400 barrels a day in the fourth quarter, RBC Capital Markets said in an e-mailed statement.

Canadian oil sands producers are projected to raise production at an annual rate of 170,000 barrels a day through 2030, according to data by the Canadian Association of Petroleum Producers.

Oil sands output will increase to 2.3 million barrels a day in 2015 from 1.9 million barrels a day last year, according to the group.

This Week’s Bitter Cold Is Courtesy of the Tropics

Record cold, banks of snow in the upper Midwest and a chill that will give people shivers from Canada to Texas this week are courtesy of Pacific Typhoon Nuri, which morphed into a super storm that set a barometric pressure record in the Bering Sea.

The storm touched off a chain reaction that will end with most of the U.S. watching thermometers drop way below normal.

“It will encompass all of the eastern, central and even southern states,” said Bruce Terry, a meteorologist with the U.S. Weather Prediction Center in College Park, Maryland. “The only areas that will be spared are the central and southern parts of the Florida peninsula.”

Winter storm warnings and weather advisories cover parts of Wisconsin, Minnesota and Michigan today as well as Wyoming. Freeze warnings stretch from New Mexico into Oklahoma and Texas, the National Weather Service said.

Warnings for freezing rain, snow and winter storms also extend into northern Ontario and parts of Quebec, according to Environment Canada.

Minneapolis had about 3 inches (8 centimeters) of snow as of 2 p.m. local time, while some areas north of the city got as much as 16.5 inches, the Weather Prediction Center reported. Eighteen inches to two feet fell in parts of Michigan and Wisconsin. Cheyenne, Wyoming, which had a high of 52 degrees Fahrenheit (11 Celsius) yesterday, dropped to 4 today. In Lubbock, Texas, the high was 81; it was 25 at 7 a.m. local time.

Temperature records are sure to fall this week. And the extreme change from typical autumn weather will be jarring, said Tom Kines, a meteorologist with AccuWeather Inc. in State College, Pennsylvania.

Temperatures Plunge

“It will probably feel like single digits with the wind blowing,” Kines said. “It’s highly unusual because there will be some records broken. It isn’t something that happens every year this early.”

The northern Rocky Mountains and the upper Great Plains will suffer the worst of the cold in the U.S., Terry said. Temperatures are forecast to drop 35 to 40 degrees below normal for this time of year.

With the wide expanse of the plains before it, there won’t be anything to stop the cold from reaching far to the South.

“There is nothing to hold it up, no higher elevations, no mountains,” Terry said.

Eastern Outlook

Lower readings will reach the U.S. East Coast by the weekend, although they won’t have the sting that the central part of the country and Canada will feel.

“As it goes south and east, the departures from normal will be less but you will notice a big change,” Terry said.

New York City began its yearly personnel shift yesterday to ensure sanitation workers are available for snow plow duty around the clock.

Back to Typhoon Nuri.

It was born in the Pacific south of Japan and then curved north and east toward Alaska. The super storm that developed out of Nuri’s remains dropped pressures across the Bering Sea last week while pressures rose ahead of it. On the other side of that high ridge, more low pressure developed, sucking the cold south across central Canada and into the U.S.

Warm air followed the storm north and this “creates a compensating surge of arctic air downstream into the U.S.,” said Todd Crawford, a meteorologist at Weather Services International in Andover, Massachusetts.

“Sort of like shaking a jump rope, the big storm created a ‘wave train’ downstream that has resulted in what will be an unusually cold air mass for so early in the season,” Crawford said. 

Typhoons are known to have this kind of an impact.

In July, one moderated the heat of summer, while last year another cold outbreak could be traced back to tropical origins, said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland.

So when that cold cuts through your coat and freezes your nose solid, just keep remembering, it’s all started in the tropics. Maybe that will warm you up. 

 Senate Democrats Said to Consider Keystone Vote Soon

Senate Democrats are considering a vote in the lame-duck session to force approval of TransCanada Corp. (TRP)’s Keystone XL pipeline, a party aide said, a move that may bolster Louisiana Democrat Mary Landrieu’s re-election chances. 

Similar measures have failed to advance in the Senate this year and Senate leaders will have trouble mustering the votes for passage now. President Barack Obama could veto the measure. 

The Senate Democratic aide, who requested anonymity to discuss the plans, said specific language for a proposal hadn’t been determined. 

The purpose of the vote would be symbolic: To highlight Landrieu’s support for the pipeline, as well as her influence on energy issues in Washington -- a centerpiece of her campaign. Casting a vote in favor of the pipeline may benefit Landrieu in her Dec. 6 runoff election, in which she faces Republican Representative Bill Cassidy. 

Congress returns tomorrow for a post-election session. 

Landrieu, 58, chairwoman of the Energy and Natural Resources Committee, in her campaign has sought to distance herself from Obama on energy issues, including his delay in approving the pipeline. She has backed the pipeline project. 

Landrieu will face Cassidy, 57, in a run-off after neither won a majority of support from Louisiana voters in the Nov. 4 election. Even if Landrieu is re-elected, she will lose her position as chairwoman of the energy committee when Republicans take control of the Senate in January.

Seven Seats 

Republicans last week won at least seven seats held by Democrats, giving them the majority for the next session of Congress. 

Senate Republican leader Mitch McConnell of Kentucky and House Speaker John Boehner, an Ohio Republican, have said Keystone approval will be a top legislative priority in 2015. 

Starting in January, there may be enough Keystone supporters in both chambers of Congress to pass the measure. Yet supporters probably would fall short of the 67 Senate votes needed to overcome a veto by Obama. 

Getting ahead of that effort could allow Landrieu to vote on the matter on her own terms. 

A bipartisan group of lawmakers, including Landrieu, has been trying to force a vote by the Senate to approve the pipeline. Senate Majority Leader Harry Reid, a Nevada Democrat who sets the chamber’s agenda under Democratic control, has resisted bypassing the Obama administration, which is deciding whether to allow the project to move forward.

Four Shy 

Earlier this year, pipeline supporters said they had backing from 56 senators, four shy of the 60 needed to prevent it from being blocked. They included all 45 Senate Republicans. The House has passed similar measures by broad majorities. 

Allowing senators to vote to circumvent an administration study and approve the pipeline could antagonize the White House, and may draw an Obama veto. 

In his news conference following the election, Obama said the independent process evaluating Keystone led by the State Department should “play out.” 

Press Secretary Josh Earnest said Nov. 6 that the White House would consider legislation approving Keystone, though he deferred on a question of whether a bill would prompt a veto threat. 

One thing is more clear: Environmental groups that spent record amounts of money in a losing effort to protect the Democratic Senate majority likely would oppose any vote on a project they consider a threat to the climate. 

The $8 billion pipeline has been under review by the State Department for six years. The agency has jurisdiction because the project would cross an international border. 

Keystone XL would transport Alberta’s heavy crude to refineries in the U.S. Gulf Coast. Environmental groups say it would encourage development of the carbon-heavy oil sands. Supporters say it would create thousands of jobs and increase North American energy security. 

 In New Oil Order, OPEC’s Choice Is Pricing Power or Sales  

The decision OPEC faces at this month’s meeting isn’t just over whether to cut oil production. It’s a choice of whether the group is willing to fight to maintain the sway it has had over crude markets for decades. 

The Organization of Petroleum Exporting Countries, buffeted by plunging prices, could reassert control by cutting output, said Societe Generale SA, ceding more market share to U.S. shale oil producers. The alternative -- waiting to see if lower prices choke off the North American shale boom -- would usher in a “new oil order” where pricing power is handed to drillers in Texas and North Dakota, according to Goldman Sachs Group Inc. 

“We’ve not seen a turning point like this in decades,” Mike Wittner, Societe Generale’s head of oil market research in New York, said by phone yesterday. “Is OPEC going to abdicate its role in the market? If the Saudis do exactly what they’re signaling, and just let the market take care of the overproduction, then it could certainly become irrelevant.” 

Oil plunged into a bear market last month, the result of a surge in shale drilling that has lifted U.S. production to a three-decade high as well as slowing growth in global demand. The drop has caused financial pain for some OPEC members, prompting Ecuador, Venezuela and Libya to call for action to halt the slide. Nigeria’s currency slumped to an all-time low last week and Venezuela’s benchmark bond fell yesterday to 56.63 cents on the dollar, the lowest level since March 2009. 

The group’s data show shale output has trimmed a percentage point from its market share and will take it to the lowest in more than 25 years during this decade. Reducing output is a tougher decision to make when there are more competitors ready to supply clients cut off by OPEC. 

Brent crude for December settlement fell 67 cents to $81.67 a barrel on the London-based ICE Futures Europe exchange. It dropped 1.3 percent yesterday to close at the lowest level since October 2010. WTI advanced 54 cents to close at $77.94 on the New York Mercantile Exchange. 

U.S. output surged 14 percent in the past year to 8.97 million barrels a day, the highest in U.S. Energy Information Administration data beginning in 1983. 

Ministers from two of OPEC’s founding members, Saudi Arabia and Venezuela, will attend a natural gas forum in Acapulco, Mexico today and tomorrow, two weeks before all 12 members are scheduled to meet Nov. 27 in Vienna.

Saudi Intent 

Saudi Arabia’s decision on Oct. 1 to cut prices for sales to Asian customers was a sign that the world’s largest oil exporter intends to preserve its sales volumes rather than pare output to defend prices, according to Commerzbank AG. The kingdom increased Asian prices this month, while deepening discounts for U.S. consumers. Iraq, OPEC’s second-largest producer, made similar changes yesterday. 

OPEC Secretary-General Abdalla El-Badri said at a conference in London on Oct. 29 that current oil prices could take 50 percent of shale oil output “out of the market” as investment in higher-cost production dries up. The shale drilling boom showed signs of slowing last week. Oil rigs sank by 14 to 1,568, Baker Hughes Inc. said. 

“OPEC has signaled a paradigm shift recently as countries moved from concentrating on price to concentrating on market share,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said by e-mail on Nov. 4. 

The group is retreating from its traditional role as a “swing producer” that influences prices by raising or lowering output to balance the market, Jeff Currie, head of commodities research at Goldman Sachs in New York, said in a report on Oct. 26. Such a shift would suspend the role OPEC has played since the 1980s, according to the International Energy Agency, a Paris-based adviser to 29 nations.

OPEC Estimates 

OPEC’s own estimates show its share of the global oil market shrinking to 37 percent in 2017 from 40 percent last year. That would be the lowest in more than 25 years and well below the peak of 54 percent reached in 1973. 

OPEC would need to cut production by 1 million to 1.5 million barrels a day to eliminate the supply glut and boost prices, Wittner estimates. A reduction of that size would take the group’s output to the lowest since 2011, according to data compiled by Bloomberg. OPEC produced 31 million barrels a day in October, 3.3 percent above its target of 30 million barrels. 

Preserving market share by letting oil fall to a level that undermines U.S. shale production isn’t a practical option for many OPEC members, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, said by phone from London on Nov. 6. The strategy would require a Brent price of $70 a barrel for a prolonged period, a level too low for most members to cover government spending, Tchilinguirian said.

Balancing Budgets 

At current prices only Kuwait, Qatar and the United Arab Emirates will earn enough to balance their budgets, while Iran, Iraq and Algeria need at least $100, the International Monetary Fund said in a November 2013 report. 

There’s the added risk that producers in North America would respond to lower prices by developing cheaper ways to find and produce oil, meaning shale output would continue to grow even at lower prices, Ole Sloth Hansen, an analyst at Saxo Bank, said by e-mail from Copenhagen on Nov. 4. Production costs have fallen as much as $30 a barrel since 2012, Morgan Stanley analyst Adam Longson said in a report on Oct. 13. 

OPEC’s 12 members are divided over how to respond to Brent crude’s plunge to its lowest in four years.

Cutting Target

The group should cut its collective output target to 29.5 million barrels a day, Samir Kamal, Libya’s governor to the group, said on Oct. 27. Ecuador Finance Minister Fausto Herrera told reporters Nov. 4 that his government is working with Venezuela and other members in a bid to “improve” prices. Kuwaiti Oil Minister Ali Al-Omair said in Abu Dhabi yesterday he doesn’t think there will be a supply cut and expects prices to stabilize when the market absorbs surplus production

Saudi Oil Minister Ali Al-Naimi said in September that there was no reason for a special OPEC meeting to deal with the crude drop because prices “always fluctuate and this is normal.”

The last time OPEC ministers failed to reach consensus at a meeting, in June 2011, the existing output target was kept in place. The group may struggle to regain its influence if doesn’t reach a decision this time, said Weinberg at Commerzbank.

“This meeting in Vienna should give some answers on whether we’re witnessing ‘the end’ of the group,” he said. “Or its re-emergence as one entity with a strong voice.”

For Related News and Information: Iraq Tracks Saudi Arabia With Discounts for Its Crude Oil Sales OPEC’s Weak Links Feel Pain That U.S. Shale Producers Seek U.S. Oil Suppliers Seen Hurt First by Slump as Saudi Pumps at $4

Rosneft Must Keep Hands Off State Wealth Fund, Kudrin Says

The man who designed Russia’s rainy-day fund to protect against swings in commodity prices says the country’s state oil company shouldn’t be allowed anywhere near the money

OAO Rosneft (ROSN), headed by Igor Sechin, a long-time ally of President Vladimir Putin, asked last month for more than $44 billion from Russia’s Wellbeing Fund to finance investment after sanctions closed capital markets for the company. The request runs totally against the spirit of the reserve, designed to hedge against dependence on energy exports, said Alexei Kudrin, who was finance minister for more than a decade until 2011.

Investing the fund’s $81.7 billion in oil and gas defeats the purpose, as does concentrating so much of the money in one place, said Kudrin, who charted Russia’s path through the 2008 financial crisis when oil crashed to less than $40 a barrel. He envisaged one of the fund’s roles as insuring Russia’s public pension system.

“Otherwise, at the moment when it’s necessary to use it, the value of the Wellbeing Fund will fall, together with oil and Russian capital markets, and will be of no help,” he said.

Russia, the world’s largest energy exporter, stands on the brink of recession, caught by the impact of economic sanctions and crude oil’s tumble to a four-year low. Faced with a darkening economic outlook and cut off from international capital markets, the country’s largest oil producers are looking to the government for support.

For Rosneft, the timing of sanctions couldn’t have been worse because it has to repay almost $30 billion in loans by the end of the next year, debt racked up in the 2013 purchase of competitor TNK-BP.

Refinance Debt

 As well as helping to refinance debt, Rosneft wants state money to replace funds it had expected to get from international oil companies to pay for exploration of the Arctic. Prior to sanctions on drilling, Exxon Mobil Corp. (XOM), Eni SpA (ENI) and Statoil ASA (STL) had planned to spend $14.4 billion searching for oil by 2018.

 As the country’s largest taxpayer, with a credit rating equal to Russia’s, Rosneft has grounds for seeking Wellbeing funds, Sechin said on state television Oct. 29.

 Parties seeking Wellbeing Funds must provide securities in exchange for the cash, Deputy Finance Minister Tatiana Nesterenko said in Moscow last month.

 “The main terms are that a project is economic,” she said. “If this condition is fulfilled then the project will be considered for support from the Wellbeing Fund.”

Arctic Exploration

 Rosneft will have to present a financial justification for its use of the money, Artem Konchin, an oil and gas analyst at Otkritie, said by e-mail. Arctic exploration might not fit the bill, he said.

 OAO Novatek (NVTK), Russia’s second-largest natural gas producer, has a request for 150 billion rubles ($3.3 billion) to finance the Yamal project to liquefy natural gas.

 Rosneft’s press service declined to comment on the request for funds.

 The Russian state owns 69.5 percent of the world’s largest traded oil producer by output, BP Plc (BP/) owns just under 20 percent and the remainder is in free float.

 Russia successfully used money from the Reserve Fund, another rainy-day fund worth $90 billion, to support currency exchange rates and recapitalize banks after the global financial crisis in 2008 and 2009, Kudrin said. This crisis has only begun and may last several years, Kudrin warned.

‘New Age’

 “A new age has dawned in the Russian energy space, one that threatens to shake the sector’s investment cases to their core,” Sberbank CIB oil and gas analysts Alex Fax and Valery Nesterov wrote in research report today.

 Growth prospects, dividends and even ownership rights, are now coming under question, according to the note.

 Russia, which relies on oil and gas revenues for half of its budget income, has seen Brent crude prices fall 26 percent since the start of the year to under $82 a barrel.

 “My advice to Rosneft is not to take from the Wellbeing Fund,” Kudrin said. “Even if the Wellbeing Fund became simply a source of anti-crisis financing instead of the principal insurance for the pension fund, that means that it will be judged that Rosneft is in crisis. That’s not in Rosneft’s interests.”

  Namibia Expects Explorers to Drill Up to 5 Oil Wells in 2016

 Namibia sees as many as five oil exploration wells being drilled in 2016 as companies searching for deposits off the southwest African coast are undeterred by 19 dry wells.

Tullow Oil Plc (TLW) and Royal Dutch Shell Plc, which has two exploration blocks in the Orange River Basin, will probably sink wells in 2016, Namibia’s Petroleum Commissioner Immanuel Mulunga said. Murphy Oil Corp. (MUR) may drill toward the end of 2015 or early 2016, he said. The basin is off the country’s southern coast.

“In 2016 we might have three to five wells being drilled,” Mulunga said in a phone interview in Windhoek yesterday. “There could be some other players which might also drill during that same time,” he said, citing HRT Participacoes em Petroleo SA (HRTP3), Serica Energy and Chariot Oil & Gas. (CHAR)

Basins off Namibia have attracted attention from the world’s biggest oil explorers on a bet the nation’s coastal shelf may mirror that of Brazil across the Atlantic and its northern neighbor Angola, Africa’s second-biggest oil producer. The government may revoke some of the 46 exploration licenses it has awarded if the holders haven’t met their obligations, said Mulunga.

 Tullow Oil is planning to drill a well in 2016, George Cazenove, a spokesman for the London-based company, said in an e-mailed statement. Shell is conducting a seismic survey in its license area 250 kilometers (155 miles) off the Namibian coast and once that data has been analyzed, the company will make a decision on whether to proceed with an exploration well, said spokeswoman Kayla Macke.

Murphy Oil, which has two exploration blocks in the Luderitz basin, said on Nov. 7 that it’s proposing to drill as many as two possible exploration wells to appraise the potential of the geological structure.

“We are not panicking even after all these dry wells,” said Mulunga. “I know a discovery will come.”

Nigeria Won’t Cut Spending Yet With Oil Above Budget Peg

Nigeria, Africa’s biggest oil producer, won’t cut spending while crude prices remain above the benchmark used for this year’s budget, Trade and Investment Minister Olusegun Aganga said.

“Through a coordinated approach between the monetary and the fiscal side of things, I think we can wade through this,” Aganga said in a Nov. 7 interview in Abuja, the capital. “I don’t see any immediate cuts in spending because everything is still above the benchmark.”

Nigeria based its 2014 budget on an oil price of $77.50 a barrel and a daily output of 2.39 million barrels. Africa’s biggest economy and most populous nation of about 170 million people relies on oil for 70 percent of government revenue and 95 percent of export earnings. Average crude prices among members of the Organization of Petroleum Exporting Countries have dropped below $80 a barrel for the first time in four years. Brent crude, which compares with Nigeria’s light crude, traded at $81.87 a barrel as of 12:44 a.m. in London, the lowest in four years.

Nigeria’s naira fell to an all-time low of 170.25 against the dollar on Nov. 6 as foreign investors exited the market amid tumbling crude prices, prompting the central bank to intervene by selling dollars. Slumping oil prices may curb the West African nation’s ability to keep defending the naira, according to Samir Gadio, head of African strategy at Standard Chartered Plc.

‘Diversify Economy’

The immediate impact of lower oil prices is to cut the amount of money that accrues above the price used for the budget, which goes to the Excess Crude Account, Aganga said. The fund currently has a balance of $4.11 billion, according to the Finance Ministry.

The strategy outlined by Aganga is based not only on the assumption of “oil price remaining above the budgeted benchmark but also on an output target being met, something which historically has not occurred,” Gareth Brickman and Catherine Bennett, analysts at ETM Analytics in Johannesburg, said in an e-mailed note today.

“The medium-to-long-term strategy here is more about how we diversify the economy of the country away from oil,” Aganga said. “And that journey started a few years ago.”

Under an industrialization plan being implemented by the government, automakers including Nissan Motor Corp., Volkswagen AG, Seoul-based Hyundai Motor Corp., India’s Tata Motors Ltd. (TTMT) and Toyota Motor Corp. (7203), have either set up assembly plants or shown interest in investing in Nigeria.

Such investments will help Nigeria cut an import bill of $6.5 billion a year for cars and their spare parts, reducing some of the pressure on the country’s currency, according to Aganga.

“If we keep on importing cars, that is one direction,” he said. “We must invest in assembly and increase our local content, and be part of the global value chain for the auto industry.”

 China Seen Overtaking U.S. as World’s Biggest Oil User

China will overtake the U.S. as the world’s biggest oil consumer within two decades, according to the International Energy Agency.

“A landmark is reached in the early 2030s, when China becomes the largest oil-consuming country, crossing paths with the United States,” the agency said in a summary of its World Energy Outlook, which forecasts long-term energy trends. The full findings of the report will be presented at a press conference in London today.

Growth in oil demand to 2040 will also be driven by India, Southeast Asia, the Middle East and sub-Saharan Africa, the IEA said. Consumption in developed economies will shrink, with oil use in the U.S. falling to the lowest level in decades, it said.

Brent crude fell to a four-year low yesterday and is trading in a bear market amid signs that global demand growth isn’t keeping pace with supply. Members of the Organization of Petroleum Exporting Countries including Saudi Arabia and Iraq are resisting calls to cut output. They have instead reduced export prices to the U.S., where they’re competing with the fastest rate of production in more than 30 years.

U.S. production of “tight oil” from shale deposits will plateau in the next 10 years and eventually fall, the IEA said, reiterating similar comments from last year’s outlook.

Global oil demand will rise 16 percent to 104 million barrels a day in 2040, compared with 90 million last year, the Paris-based adviser to industrialized nations said. The pace of demand growth will slow to 1 percent a year from 2025 after climbing more than 2 percent annually in the last two decades, it said.

The developing nations of Asia will account for 60 percent of total demand growth in the period, the agency said. Oil use will probably decline in members of the Organisation for Economic Cooperation and Development, which includes the U.S., Germany and Japan.

“For each barrel of oil no longer used in OECD countries, two barrels more are used in the non-OECD,” the IEA said.

Shale Boom Masks Multiple Threats to World Oil Supply, IEA Says

The U.S. shale boom masks threats to global oil supply including Middle East turmoil, conflict in Ukraine and the difficulty of unconventional oil production beyond North America, the International Energy Agency said.

“The global energy system is in danger of falling short of the hopes and expectations placed upon it,” the IEA said in its annual World Energy Outlook today. “The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers.”

 Global oil consumption will rise to 104 million barrels a day in 2040 from 90 million barrels a day in 2013, driven by demand for transport fuel and petrochemicals in developing countries, the report said. To meet that growth and replace exhausted fields will require about $900 billion a year in investment by the 2030s as oil companies develop fields from Canada’s oil sands to the deep waters off Brazil, the IEA said.

Oil prices slumped to a four-year low this month on concern that supply from U.S. unconventional fields is rising faster than global demand. The recent price slowdown is threatening investment in the industry as companies try to insulate profits from the price fall. While the near-term picture is secure, the development of capital-intensive areas outside North America is at risk, the IEA said.

Oil Sands

In the Canadian oil sands, among the most expensive oil deposits in the world to exploit, a slowdown is already evident and the IEA estimates about a quarter of projects are at risk as prices fall. Likewise, the complexity and capital intensity of developing Brazil’s deepwater fields could also contribute to a shortfall in investment.

Replicating the U.S. shale oil boom outside of North America will also be a challenge, the report said. A lack of existing oil and gas infrastructure, environmental opposition to fracking, and uncertain geology are among the reasons unconventional drilling hasn’t spread.

 Threats to new investment stand alongside political risks to oil and gas production. Sanctions that restrict access to Russia’s technologies and capital markets have raised concerns about security of supply from the world’s largest energy exporter, the IEA said.

Iraq is the biggest risk to the security of oil supply, the report said, contributing to the most turbulent time in the Middle East since the 1970s. The region is heavily depended upon as the only large source of low-cost oil. With Asian countries set to import two out of every three barrels of crude traded internationally by 2040, over-reliance on the region for production growth is a concern, the IEA said.

The Paris-based IEA advises industrialized nations on energy policy and produces the World Energy Outlook each year, making long-term forecasts on global oil and gas supply.

 LNG Will Offer Protection Against Gas Supply Halts: IEA

Rising liquefied natural gas output will help protect against disruptions globally as the conflict between Russia and Ukraine rekindles concerns about security of supply, according to the International Energy Agency.

Natural gas production is expected to rise in almost all regions except Europe and the volume of LNG output will almost triple by 2040, the IEA said in its World Energy Outlook published today. China and the Middle East will lead an increase in natural gas demand of more than 50 percent by 2040, the fastest rate among fossil fuels, according to the Paris-based adviser to 29 developed countries.

“Concerns about the security of future gas supply are allayed in part by a growing cast of international gas suppliers, a near-tripling of global liquefaction sites and a rising share of LNG that can be re-directed in response to the short-term needs of increasingly interconnected regional markets,” the IEA said.

Gas supply to Europe risks being disrupted for a third winter since 2006 amid a conflict between Ukraine and Russia, which meets about a third of the region’s needs for the fuel. Even with a Sept. 5 truce and an Oct. 30 gas deal, fighting continued in eastern Ukraine between government forces and pro-Russian rebels, while NAK Naftogaz Ukrainy is yet to pay Russia’s OAO Gazprom in full to secure winter fuel supplies.

Gas will become the leading fuel in the energy mix of developed nations by about 2030, aided by U.S. regulations limiting emissions from electricity generation, the IEA said. So-called unconventional gas will account for almost 60 percent of global supply growth, it said, referring to production including from shale rocks and coal beds.

 Fossil Fuels With $550 Billion in Subsidy Hurt Renewables

Fossil fuels are reaping $550 billion a year in subsidies and holding back investment in cleaner forms of energy, the International Energy Agency said.

Oil, coal and gas received more than four times the $120 billion paid out in subsidy for renewables including wind, solar and biofuels, the Paris-based institution said today in its annual World Energy Outlook.

The findings highlight the policy shift needed to limit global warming, which the IEA said is on track to increase the world’s temperature by 3.6 degrees Celsius by the end of this century. That level would increase the risks of damaging storms, droughts and rising sea levels.

“In Saudi Arabia, the additional upfront cost of a car twice as fuel efficient as the current average would at present take 16 years to recover through lower spending on fuel,” the IEA said. “This payback period would shrink to three years if gasoline were not subsidized.”

Renewable use in electricity generation is on the rise and will account for almost half the global increase in generation by 2040, according to the report. It said about 7,200 gigawatts of generating capacity needs to be built in that period to keep pace with rising demand and replace aging power stations.

The share of renewables in power generation will rise to 37 percent in countries that are members of the Organization for Economic Cooperation and Development, according to the IEA.

It said that globally, wind power will take more than a third of the growth in clean power; hydropower accounts for about 30 percent, and solar 18 percent. Wind may produce 20 percent of European electricity by 2040, and solar power could take 37 percent of summer peak demand in Japan, it said. 

The IEA singled out the Middle East as a region where fossil fuel subsidies are hampering renewables. It said 2 million barrels per day of oil are burned to generate power that could otherwise come from renewables, which would be competitive with unsubsidized oil. 

“Reforming energy subsidies is not easy, and there is no single formula for success,” the report said. 

Russia wades deeper into Iranian nuclear waters 

MOSCOW, Nov. 11 (UPI) -- Russian nuclear organization Rosatom said Tuesday a series of deals were signed in Moscow to expand the footprint in the Iranian nuclear sector. 

The state-run Russian atomic energy corporation said an agreement was signed between the two countries to build four new power units at the Iranian nuclear facility at the existing plant at Bushehr. 

The agreement calls for "four similar power units on another site in Iran, which will be provided by the Iranian party later." 

The agreement comes as representatives from the so-called P5 +1 -- Britain, China, France, Russia and the United States, plus Germany -- are working from Oman on resolving a nuclear impasse with Iran. 

With a Nov. 24 deadline to reach a nuclear agreement looming, U.S. Secretary of State John Kerry said "the time is now" to make decisions on Iran's controversial program. 

Western powers have expressed concern Iran is using its nuclear program to pursue the technology needed to manufacture a weapon, a claim the government in Tehran denies. The International Atomic Energy Agency, the U.N.'s nuclear watchdog, said Iran has cooperated with its investigations, but the group has been so far unable to verify all of Iran's nuclear research was non-military in nature. 

"The entire construction project of the nuclear power units in Iran, including equipment and nuclear fuel supplies, will be under the IAEA safeguards and fully meet the nuclear nonproliferation regime the same way as during construction of the first power unit of Bushehr," the Russian company said in a statement. 

State Department spokeswoman Jen Psaki said during a Monday meeting with reporters that issues raised by the IAEA have been addressed. 

"The Iranians have confirmed that they will not continue that activity as cited in the IAEA report, so it's been resolved," she said. 

Bilateral trade between Russia and Iran was $1.6 billion last year, a 31.5 percent decline from the previous year. The Kremlin attributes the drop to sanctions on Iran. 

EU sees light at the end of the climate tunnel 

BRUSSELS, Nov. 11 (UPI) -- The ability to limit global warming and effectively combat climate change is within our reach, the European climate commissioner said Tuesday. 

"We have a choice and we must have the political courage to act now, with ambition and collectively," 

Members of the European Union in October agreed to cut greenhouse gas emissions by 40 percent, increase the renewable energy footprint by 27 percent and enhance energy efficiency by 27 percent from a 1990 benchmark by 2040. 

Miguel Arias Cañete, European commissioner for climate action and energy, told the European Committee on the Environment, Public Health and Food Safety the bloc has the policies in place to arrest climate change. 

A report published last week by the Intergovernmental Panel on Climate Change found emissions of carbon dioxide, a potent greenhouse gas, from the combustion of fossil fuels accounted for 78 percent of the total emissions increase from 1970 to 2010. 

The IPCC report said warming trends could slow under a scenario in which renewable energy grows from roughly 30 percent of the energy share to 80 percent by 2050. 

Cañete said the IPCC's report sent a clear message of hope. 

"This message is clear: it remains within our power to tackle climate change and limit global warming," he said. 

European member states account for about 11 percent of the global emissions. The October agreement builds on a package of 20 percent targets for the three measures by 2020. 

It was Sept. 25 last time gas prices went up 

WASHINGTON, Nov. 11 (UPI) -- It's been 47 days since the U.S. average price for a gallon of gasoline increased, the longest streak in six years, motor club AAA said. 

AAA reports a national average price for a gallon of regular unleaded gasoline at $2.926, just one tenth of one cent lower than Monday's average price. Nevertheless, it's been nearly two months since the average price went up, the longest streak since the middle of the last decade. 

Gasoline prices in the United States passed below the psychological threshold of $3 per gallon during the first weekend in November, the first time that happened in nearly four years.

AAA said there are 22 states in the Lower 48 with an average price above the $3 mark. New York has the highest state average price per gallon with $3.29. South Carolina had the lowest state average, with $2.67 reported for Tuesday.

Since reaching a peak national average of $3.70 in late April, the motor club said in a Monday brief the price at the pump has dropped 77 cents. That translates to about $250 million per day in savings for U.S. commuters collectively.

"Absent any unanticipated market-moving events this winter, the retail price for gasoline is expected to remain relatively low," its report said. "As gasoline stations continue to adjust to falling oil prices in the global market, consumers are likely to experience the lowest Thanksgiving prices since 2009."

Gasoline prices typically decline after September because refiners can start making a winter blend of gasoline, which is less expensive to produce.

Outlook uncertain for offshore Norway, a major energy supplier for Europe

STAVANGER, Norway, Nov. 11 (UPI) -- The world economy remains fragile and, with oil prices at historic lows, investments in the Norwegian energy sector may be tempered, an industry group said.

The Norwegian Oil and Gas Association, the industry's lobbying group in the country, said costs of working offshore have risen "substantially" since 2004. That, in turn, has led to a reduction in the number of developments on the Norwegian Continental Shelf.

The group it expected total capital spending in the offshore sector to fall from $32.5 billion in 2014 to just over $29 billion per year in 2019.

"We assumed that 2014 would be a peak year because a number of the large producing fields on the continental shelf were then set to complete their biggest modifications," Bjorn Harald Martinsen, manager for economics at the Norwegian Oil and Gas Association, said in a Tuesday statement. "The current decline in investment therefore represents to a great extent an anticipated correction."

Oil prices since June have shed about 20 percent of their value. They've reached a point where energy companies may find it too expensive to continue producing at their current rates.

The industry group said it drafted its annual report on the Norwegian energy sector with the assumption that the world economy is still fragile six years after the global recession and at a time when oil prices are at their lowest level in four years.

Norway has more oil reserves than any other European country. Last year, it exported 1.19 million bpd worth of oil, with most of that headed to the British and Dutch economies.

In terms of gas, it's the third largest exporter in the world behind Russia and Qatar.

Wood Mackenzie: Oil exports hinge on U.S. political maneuvering

HOUSTON, Nov. 11 (UPI) -- If nothing happens soon, lifting restrictions on crude oil exports will have to wait until after U.S. presidential elections in 2016, Wood Mackenzie says.

U.S. crude oil exports are restricted under legislation enacted in response to the 1970s export embargo from Arab members of the Organization of Petroleum Exporting Countries. There are no restrictions on certain petroleum products like gasoline and some companies have recently started testing the moratorium with the export of condensate, an ultra light form of oil found in U.S. shale deposits.

Harold York, an analyst of the refining sector at Wood Mackenzie, said condensate exports amount to a de facto ease on the restrictions, though, according to him, there are few "overt calls" from either side of the U.S. political aisle to lift the ban completely.

Last week, Australian company BHP Billiton said it was the one that concluded oil products processed from the Eagle Ford shale play in Texas are legally eligible for exports after thoroughly examining the issues involved.

 York said policy makers need to catch up with the industry in order to capitalize on the potential benefits of easing the crude oil export restrictions, which he said would lead to $70 billion in investment spending in the U.S. oil sector and further economic stimulus.

 With Republicans moving in control of both chambers of the new Congress in 2015, York said President Barack Obama will need to keep his options open during his last two years in office.

"These drivers will be sustained for the next two years such that if a political accommodation is not reached next year, conventional wisdom suggests the dynamics of an election year in 2016 would likely pause the debate until 2017," York said in his Monday brief.

RWE: Build starts on German wind farm at old mine site

BEDBURG, Germany, Nov. 11 (UPI) -- German energy company RWE said Tuesday it started construction on the second phase of a wind farm located at the site of a reclaimed opencast mine.

 "With the commencement of construction of nine further wind turbines the wind park will, once fully commissioned, be capable of supplying 58,000 households with climate-friendly electricity each year," Hans Bunting, managing director of the company, said in a statement. 

The twelve wind turbines that make up phase one of the Konigshovener Hohe project should be completed by the end of the year, with phase two developments scheduled for service by the end of 2015.

 Germany aims to have the bulk of its energy supplied through renewable resources by 2050. Combined, the wind farm will have a peak capacity of 67 megawatts.

 The wind farm is situated on the Garzweiler opencast mine, a reclaimed coal mine of RWE's located near the western German town of Bedburg, which has a 49 percent stake in the project.

 RWE said the wind farm was deemed economically viable under the terms of the German Renewable Energy Act of 2000, which helps encourage the development of renewable energy resources for the German grid.

 The project represents a $137 million investment for the German energy company.

 BP commits to big Egyptian investments

 CAIRO, Nov. 10 (UPI) -- British energy company BP said Monday it was committed to investing heavily in the Egyptian energy sector for the benefit of the Egyptian people.

 BP said it committed to invest $240 million on developing two new exploration blocks near the Nile Delta and in the northwestern Egyptian waters of the Mediterranean Sea through a partnership with Emirati energy company Dana Gas.

 "Exploring the two blocks will require substantial investments to unlock their potential, and will be done as part of our commitment to meeting Egypt's energy needs," Hesham Mekawi, regional president for BP, said in a statement.

 BP said it will spend at least six years on exploration and production in the area.

 BP's announcement follows a downgrade from rival BG group, which said last month it expects its Egyptian gas production to decline.

 BG Group said its activities in Egypt accounted for 10 percent of its production and around 3 percent of its earnings during the third quarter. Output from exploration and production operations in the country was 55,000 barrels of oil equivalent per day, 51 percent less than the same period for 2013.

 BP said it produces almost 40 percent of the oil in Egypt through its regional partnerships and accounts for nearly 30 percent of total natural gas production.

 As Oil Plunges Further, Why It Might Be 'Game Over' For The Fracking Boom

 The price of oil fell some more on Tuesday, down as low as $75.84 before closing at $77 a barrel. The decline is blamed on Saudi Arabia cutting prices rather than cutting output amid signs of global glut. That’s discouraging to America’s highly leveraged drillers, who had been hoping beyond hope that $80 would act as a floor on prices.

 If prices don’t recover soon this could be the beginning of the end of the Great American oil fracking boom. Already ConocoPhillips COP +0.21% and Shell have announced a pull back in onshore investment. But the real pain will be felt by the army of smaller independent producers.

 There’s been a lot of talk about the breakeven prices per barrel needed to sustain drilling in various oil plays. Some say $80, others say $70. If you have acreage in a sweet spot you might be safe down to $50.

 But let’s get real — breakeven just isn’t good enough. Investors need returns on capital, not just returns of capital. And for myriad small drillers this fall in prices has virtually eliminated any possibility of turning real cash profits. Over the long run, a company that can’t generate a profit is worthless.

 Though oil prices are down “just” 30%, shares in some drillers with shaky balance sheets have plunged 60%. It is always the case that shares in leveraged commodity producers are more volatile than the underlying commodity. Equities are ultimately priced on a company’s ability to generate profit. Small moves in commodity prices have a huge impact on earnings.

 At $100 a barrel, the average oil company can generate net income on the order of $15 a barrel (see the comments section for more discussion of this). But as prices fall, this margin evaporates quickly. A decline of $10 to $90 leaves a margin of only $5, that means profits plunge 66%. Thus, at current prices, the average oil company won’t be profitable at all, and the weaker ones, loaded up with debt, are the walking dead. A perfect example is Goodrich Petroleum GDP -0.82%, which announced some big new discoveries in the Tuscaloosa Marine Shale. While the oil may be there, “the play is not economic at current oil prices,” wrote Cowen & Co. analyst Christopher Walling yesterday, adding that “liquidity is a growing concern.”  Goodrich shares are down 70% in six months.

 The oil industry is a study in contrasts. When you look at the financial statements of Exxon Mobil XOM +0.14%, you see a fortress — the company generates more than enough cash to pay all its capital spending and still have $20 billion a year left over for dividends and buybacks. Exxon will survive the downdraft just fine — its shares are down just 7% this year.

 Contrast that with the small shale-only drillers, which have been borrowing like crazy to acquire acreage and deploy fleets of rigs. They may post net income every quarter, but their profitability is only an accounting illusion. Their capex has outstripped cashflow generation year in and year out. Without big borrowing (backed by rosy forecasts of future production growth) they are toast.

 So who’s in the worst shape? The companies with a combination of high debt, high costs and relatively poor acreage, like Goodrich. Another early casualty could be Swift Energy, which has piled up $1.2 billion in debt in recent years to drill high-cost wells on marginal acreage. Swift’s investors are clamoring for change as shares have plunged 50% this year. Swift’s net debt has climbed to more than 3 times estimated 2014 EBITDA, or more than 80% of enterprise value.

According to data from U.S. Capital Advisors, other operators with high leverage that are living well outside their means include SandRidge, which has debt of 2.6 times EBITDA and 51% of enterprise value; EXCO Resources XCO +5.66% with debt 4.3 times EBITDA and 83% of enterprise value; and Magnum Hunter Resources MHR +3.97%, with debt 4.8 times EBITDA and 38% of enterprise value.
Why the oil price is a serious problem for Russi                                

If oil prices stay where they are now, Russia's economy could be in serious trouble and could face recession in the coming year, analysts warn.

Sergei Guriev, a former advisor to the Russian government, told CNBC that, should oil prices stay at their near-record lows of around $82 a barrel, Russia, which is basing its economic forecasts on a much higher oil price, would face a "serious problem."

"The Russian budget now is including $100 per barrel for the next three years and some more optimistic assumptions on economic growth, which are probably over-optimistic," Guriev, who is currently a professor of Economics at Sciences Po, a French public research and higher education institution, told CNBC at the UBS European Conference in London.

"With $100 a barrel, the Russian budget will probably be balanced over the next two or three years, with eating into reserve funds but not really tragically. But if the oil price is where it is now, it will be a serious problem over the next couple of years."

Brent crude for December delivery traded just below $82 per barrel (pb) on Tuesday, just above a four-year low of $81.63 hit last week. The price has fallen nearly 30 percent since late June but despite the decline, the Organization of the Petroleum Exporting Countries (OPEC) shows no signs of cutting output.

The decline in oil prices has hit Russia hard as its wealth relies heavily on its export-orientated oil and gas markets. In 2013, for example, Russia's energy exports constituted more than two-thirds of total exports amounting to $372 billion of a total $526 billion, according to research by Renaissance Capital bank released on Monday.

The oil price decline, coupled with Russia's conflict with Ukraine which has led to Western sanctions on Russia, has hit the economy as well as investor confidence in the country. As a result, the ruble has declined almost 30 percent against the dollar this year.

President Vladimir Putin tried to reassure global investors that Russia's economy was in safe hands and that there were no "fundamental economic reasons" for the currency's slide.

Shortly after his comments, however, Russia's central bank lowered its 2014 growth forecast to 0.3 percent and forecast 0 percent growth in 2015. It also estimated that capital flight had risen above forecasts to 128 billion in 2014 as investors sought a safer haven for their assets.

Russia's economic growth depends very much on different oil price scenarios, according to Oleg Kouzmin and Charles Robertson, economist and chief economist respectively at Renaissance Capital bank.

Now, investors are eyeing an OPEC meeting on November 27 to see whether the organization could even cut prices further in an attempt to retain its global market share, particularly in the face of competition from the U.S. where oil production has increased thanks to the shale gas industry.

In a research note entitled "Risk scenarios if oil prices change" published on Monday, the economists gave the best and worst case scenario for Russian growth given an increase or further fall in the oil price.

"If oil prices go to $110 a barrel (bl) or $115/bl, gross domestic product (GDP) growth in Russia might be even stronger next year, at over 2 percent [but] we estimate growth is likely to remain positive only with oil prices above $92-93/bl. Otherwise, we see growth turning negative and the ruble hitting new lows."

Assuming a Brent oil price of $105/bl for 2014 and 2015, Kouzmin and Robertson forecast GDP growth of 0.8 percent in 2014 and 1.7 percent in 2015 as a base case scenario, far below the central bank's latest forecasts. Though they added that the "risks to our Russian growth forecast are clearly slanted to the downside."

Russia's current significant cyclical headwinds resulted from very tight credit conditions, softened business confidence and other spillovers from intensified geopolitical tension, they said.

A full-year recession would only be likely for Russia in 2015 if oil prices drop closer to $90/bl, above where they are now.

"We would expect -0.4 percent growth in 2015 at $90/bl, given our assumptions on geopolitics. With oil at $90/bl, we also estimate an average annual exchange rate close to 41 rubles against the dollar." Furthermore, if oil prices dropped further from their current level to $80 a barrel, RenCap's economists said growth could turn negative, at -1.7 percent in 2015.

Holly Ellyatt Assistant Producer, CNBC.com

OPEC feeling pain as oil slides to new 4-year low 

Expectations of growing U.S. crude supplies sent world oil prices sliding to a new four-year low and are turning up the heat on OPEC members to cut production when they meet later this month.

OPEC convenes in Vienna, Austria, on Nov. 27, and the market is highly focused on whether members of the Organization of the Petroleum Exporting Countries will get over their differences and cut production. Saudi Arabia, the biggest producer, has indicated it does not want to go it alone with a production cut, and it has been adjusting its official selling price to maintain market share, particularly in Asia.

"Now Iraq's saying they don't want to cut either. The market is in the process of forcing them to cut. The market is going to keep grinding lower and lower into that OPEC meeting to see if they have a response or not," said John Kilduff of Again Capital.

Kuwait also has said a production cut is not likely, but Reuters quoted unnamed OPEC delegates Tuesday as saying a production decrease could be discussed and OPEC could trim 500,000 barrels, bringing production back to its 30-million-barrel-per-day target.

Platt's reported that OPEC pumped 30.3 million barrels a day in October, down from 30.6 million barrels in September. OPEC countries hold about 80 percent of the world's oil reserves, and OPEC produces about a third of the world's oil.

U.S. oil production continues to grow, and has been averaging above 8.9 million barrels a day for the past month, close to the just more than 9 million barrels a day produced by Saudi Arabia.

Citigroup analysts said Saudi Arabia is defending its share in Asia where it is challenged by sales from Iraq, Kazakhstan, Oman, Russia and Iran.

"The kingdom appears to have accepted that with U.S. oil production growth and a pending wave of competitive Canadian crude about to reach the refining system on the U.S. Gulf Coast, it will have to continue to see deliveries to the U.S. slip," they wrote. Saudi Aramco sold 1.5 million barrels a day to the U.S. in September 2013, and lately that amount has fallen below 900,000 barrels a day.

Kilduff said he is anticipating seeing a further build in U.S. supply when weekly government inventory data are reported Thursday, instead of Wednesday, as it was delayed by Tuesday's Veterans Day holiday. Platt's said oil stocks have been well supplied by historic standards, at 380.2 for the week ended Oct. 24, 5.5 percent above the five-year average.

Citigroup analysts said a cut in OPEC production is possible but not likely this month, and there may be a better opportunity for OPEC to cut after the winter. "Not enough pain has been spread among OPEC countries ... yet," they wrote in a note.

Chart provided by Citigroup

"At Brent prices in the low $80s, Algeria, Bahrain, Iran, Iraq, Libya, Oman, Venezuela, Yemen, Russia and likely even the Saudis cannot balance their budgets ... Saudi Arabia has plenty of cash to enable it to endure low prices for some time," they wrote.

The Citigroup analysts also said the Saudis do not want to act as sole swing producer and they would like to see a willingness on the part of other producers to share in a production cut before agreeing to one.

Brent fell below $81 a barrel Tuesday for the first time in four years, and was trading at $81.48 per barrel in afternoon trading. West Texas Intermediate was barely higher, at $77.48 per barrel.

"I think the market by remaining under pressure is trying to force OPEC into a decision to cut production," said Andy Lipow, president of Lipow Oil Associates. "The market is signalling to OPEC they have more than adequate supply at this time. If OPEC doesn't take any action, the market is going to fall even more."

Bank of America Merrill Lynch commodities analysts expect OPEC to cut production and they expect a slowdown in U.S. production as a result of lower prices. But they anticipate Brent to recover and average $98 per barrel next year.

Patti Domm CNBC Executive News Editor

Russia In Weak Position For New Gas Deal With China

In a continued shift towards the east, Russia has inked a second major natural gas deal with China.

The latest deal, worth a bit less than the landmark $400 billion natural gas deal in May 2014, could see major volumes of natural gas flowing into western China. Exact terms have yet to be agreed upon.

What is unique about this deal is that the natural gas will actually come from fields that also service European customers. The move would provide Russia with enhanced flexibility, giving state-owned natural gas company Gazprom the ability to shift natural gas exports from Europe to China if it sees the need to do so.

However, it could come at a price.

The first natural gas deal was sealed this past May after several years of impasse. The breakthrough in negotiations came as a result of the standoff between Russia and Europe over Ukraine, which made Russian President Vladimir Putin more anxious to cut a deal with China. As a result, China prevailed over Russia on its pricing demands. That agreement could see 38 billion cubic meters of Russian gas exported to China beginning in 2018. It would involve the development of natural gas fields in Siberia, plus the construction of new pipelines connecting into China at multiple points in the east.

The latest deal will likely be even more lopsided in China’s favor. That is because Russia’s leverage has been severely diminished in just the few months since the May 2014 deal. Western sanctions have struck a severe blow to the Russian economy. A 30 percent decline in oil prices is likely blowing a huge hole in the Russian budget, which depends on oil and gas exports for 52 percent of its budget revenues.

The Russian currency, the ruble, has plummeted 25 percent over the last few months as capital leaks out of the country. All of this puts Russia in a weaker bargaining position vis-à-vis gas exports to China.

But more importantly, connecting Russian gas fields to China’s western provinces is not as critical to China, where much of its industrial needs are in the east. “The new deal is less attractive to China, Gazprom might need to agree on a serious discount to get the contract,” Alexander Kornilov, a Moscow-based energy analyst, told Bloomberg in an interview.

The head of commodity research at Nomura Holdings, Gordon Kwan, agreed. “Given weaker oil prices and rubles, we believe China can extract even better terms on this second deal versus the first,” he said in the Wall Street Journal.

Nevertheless, if completed, the deal would add an additional 30 billion cubic meters of natural gas exports to China each year. Combined, the 68 billion cubic meters would be enough to make China the largest export market for Russian gas, surpassing Germany. This would bolster Russia’s shift away from unfriendly customers in Europe. For China’s part, the two deals could account for 17 percent of its natural gas needs by 2020.

A lot still needs to be ironed out, but if the two deals come to fruition, it would have major impacts on worldwide natural gas trade. A slew of massive liquefied natural gas (LNG) export projects would take a hit. Australia and the U.S. are in the midst of an enormous build out of LNG export capacity, banking on the rising demand in China, Japan, and Korea. If China were to suddenly get about one-fifth of its natural gas supplies from onshore pipelines, that would cut into demand projections for LNG.

Moreover, Japan is inching closer to bringing some of its nuclear reactors back online. Two reactors have obtained most of the necessary government approvals to return to operation. They could come online in early 2015. If more are to follow, Japan’s LNG demand could also be lower in the coming years.

The LNG benchmark price in Asia is now at a three-year low.

Again, it is important to note that China and Russia still need to agree to some important commercial details before the latest natural gas deal can be sealed. But, if they can come to terms, it would further cement a growing energy relationship between the two countries.

By Nick Cunningham of Oilprice.com

Plunging crude paving way to oil shortages, price spikes: IEA

Global energy consumers are enjoying lower prices today but the plunge in crude costs – coupled with rising geopolitical tensions – is setting the stage for future supply shortages and price spikes, the International Energy Agency says in its annual World Energy Outlook.

“The global energy system is in danger of falling short of the hopes and expectations placed upon it,” said the Paris-based group that advises richer countries on energy policy. Its annual survey was released Wednesday, and provides a stark warning that the world is falling short of the investment required to meet energy demand and reduce greenhouse gas emissions from fossil fuels.

The challenges lie across the energy spectrum but are particularly acute in the global oil market, where the recent plunge in prices will deter capital expenditures that are needed to offset declining production from aging fields, even as lower pump prices spur demand growth.

That decline in supply and increase in demand would drive prices higher in the coming years than they would be under a stable price scenario.

“The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers,” primarily in the Middle East, it said.

In an interview from Paris, IEA chief economist Fatih Birol said Canada’s oil sands are an important source of secure supply as other major producing regions – from Russia and the Middle East – face political upheaval.

“We expect Canadian production will be a very important cornerstone of the security of global oil markets,” Mr. Birol said. The IEA forecasts that Canadian production will grow from four million barrels a day currently to 7.4 million by 2030, with virtually all of that growth coming from the oil sands.

Environmental groups have launched concerted attacks on oil sands production, primarily by aiming to block pipelines that would facilitate its growth. They argue that the world must not develop carbon-intensive fossil fuels like Canada’s oil sands if it is to rein in climate change, and that the necessary shift to cleaner energy will leave the oil sands and its pipelines as “stranded assets” in a few decades.

But the IEA forecasts that global crude demand will continue to grow to 104 million barrels a day by 2040 from 90 million currently, and Mr. Birol said the difference between emissions from the oil sands and conventional crude is virtually immaterial to the global climate battle.

“The additional contribution [of greenhouse gases] coming from the oil sands in Canada, compared to the same amount of oil from Middle East or Brazil or central Asia, is completely peanuts,” he said. “It is less than one day of CO2 emissions of China – less than one day; it’s a couple of hours.”

He said the real challenge involves less where the crude comes from, but in reducing oil demand as quickly as possible, and in switching the world’s electricity system off coal-fired power.

In a report this summer, the IEA laid out the investment challenges required to ensure adequate energy supply to meet growing demand, particularly in the high-growth countries of Asia and the Middle East.

The IEA said that over the next 20 years, the world will need investments of $40-trillion (U.S.) across the energy spectrum, 60 per cent of which would be needed just to replace aging assets and meet current demand. Some 80 per cent of upstream oil and gas investment would go to offset declines in today’s fields and keep production at current levels.

But the agency warned in its report released Wednesday that conflict in the Middle East, North Africa and Ukraine could forestall that much-needed investment in new oil production.

Iraq is a key linchpin, with potential to add five million barrels a day of production over the next two decades. But given security concerns in the Middle East, “the appetite for investment is very, very weak,” Mr. Birol said.

By 2020, the IEA expects the U.S. to have peaked in oil production and begin to decline, yielding more market share for the Organization of Petroleum Exporting Countries. And the U.S. supply growth from the unconventional tight oil fields will be weaker than expected if prices don’t rebound.

“We estimate if prices remain at today’s level, there will be a 10-per-cent decline in U.S. upstream capital expenditure in 2015,” Mr. Birol said.

“Given a rather shorter investment cycle, the impact on production levels for tight oil will be much more pronounced than in other resource basins.”

Follow Shawn McCarthy on Twitter: @smccarthy55

Low oil prices to bite into 2015 U.S. shale growth: IEA

 (Reuters) - Falling oil prices may cut investment in U.S. shale oil by 10 percent next year, the International Energy Agency (IEA) said, slowing growth in a sector that has turned the United States to a major global producer.

The recent drop in oil prices "should not blind us to the problems that may be around the corner," Fatih Birol, the IEA's chief economist, told Reuters ahead of the launch of the agency's 2014 World Energy Outlook.

Benchmark oil prices have dropped by about 30 percent over the past four months to around $82 a barrel due mostly to increased supplies from the Middle East and North America, squeezing budgets of oil producing nations and oil companies.

"If prices remain at these lows, this may result in a decline in U.S. upstream capital expenditures by 10 percent in 2015, which will have implication for future production growth," Birol said.

U.S. oil production has risen by 1 million barrels per day (bpd) per year over the past year as strong oil prices led to a boom in shale oil production through fracking, a technique that uses high pressure to capture gas and oil trapped in deep rock. Production is set to grow by an additional 963,000 bpd in 2015, according to the U.S. Energy Information Administration.

IEA executive director Maria van der Hoeven told Reuters last month that some 98 percent of U.S. shale plays have a breakeven price of below $80

Oil prices could however rise as weak prices perk demand.

"Given the negative impact of $80 on investments, and given the $80 positive impact on demand and oil demand growth there will be upward pressure on oil prices within a couple of years if not earlier," Birol said.

The IEA forecast global oil demand to rise from 90 million bpd in 2013 to 104 million bpd in 2040, when the energy supply mix divides into four almost-equal parts between oil, gas, coal and low-carbon sources.

Strife in the Middle East, mostly in Iraq, poses a threat to future supplies - hampering investments necessary to sustain production growth there, Birol said.

Demand for gas is set to grow by more than half by 2040, the fastest rate among the fossil fuels, and increasingly flexible global trade in liquified natural gas (LNG) will decrease risks of supply disruptions, the IEA said.

(Reporting by Ron Bousso)

Kazakhstan To Use National Fund For Oil Price Damage Limitation

For the second time in seven years, Kazakhstan will tap its National Fund as one way to help sustain its economy, which has become a victim of the global drop in oil prices.

“One of the main tasks of the fund is to ensure the stability of our economy against external shocks, which include a fall in world prices for natural resources,” President Nursultan Nazarbayev said Nov. 11 in a televised address to the nation.

He said his government will use $3 billion a year from 2015 through 2017 “to develop transport, energy, industrial and social infrastructure,” but he also stressed that the expenditures will be accompanied by unspecified “structural reforms” to Kazakhstan’s economy.

He said the country is also expected to receive $9 billion during the three-year period from international financing organizations, including the Asian Development Bank, the European Bank for Reconstruction and Development and the World Bank.

Together with the withdrawals from the National Fund as well as an additional $6 billion from the fund to support private businesses, Nazarbayev said, the investment in Kazakhstan’s economy will be $24 billion through 2017.

The National Fund is fed by revenues from oil exports, and contained $76.8 billion at the end of October. Nazarbayev previously spent $10 billion when Kazakhstan came under great pressure during the global financial crisis of 2007-09. The country’s total international reserves, including gold and foreign currency reserves, total more than $100 billion today, twice what they were in 2007.

Kazakhstan’s economy is crucial in its neighborhood. It’s the world’s 18th largest producer of oil, which provides the government with half its revenues and accounts for two-thirds of the country’s exports. It’s also Central Asia’s largest economy and, after Russia, it is the second-largest oil producer among the states that once made up the Soviet Union.

Meanwhile, Nazarbayev’s government also is considering several ways of hedging against lower energy revenues because of the drop in the price of its oil. Kairat Kelimbetov, the governor of Kazakhstan’s central bank, told the Financial Times that the Finance Ministry is working with the investment bank Goldman Sachs to determine an appropriate hedge program.

One option would be to follow Mexico’s example, Kelimbetov said, which has been spending heavily each year on derivatives – contracts based on the value of a given commodity, in this case oil – in an effort to protect its petroleum industry from a precipitous decline in oil prices.

“We studied the Mexican experience with Goldman Sachs,” Kelimbetov said. “From the commercial point of view it seems very attractive.” But he stressed that the talks with Goldman were still at “very early stages,” and that a hedge strategy was “quite controversial” among local government officials.

By Andy Tully of Oilprice.com

Hess boosts 5-year oil production forecast

Nov 10 (Reuters) - Oil and gas producer Hess Corp boosted its five-year production forecast on Monday, citing strength in output from North Dakota's Bakken shale formation and the Utica shale in Ohio.

The company expects its production to grow 6 to 10 percent each year through 2018. Hess previously forecast growth of 5 to 8 percent.

The new estimates are based at Brent oil prices around $90 to $100 per barrel, far above current levels.

Hess said it expects Bakken production to hit 175,000 barrels of oil equivalent per day by 2020, roughly double current levels. (Reporting by Ernest Scheyder; Editing by James Dalgleish)

Oil price plummet won’t help U.S. with Iran or Russia

Plummeting oil prices — down more than 25 percent since June to three-year lows — should relieve pressure on consumers at the pump. But is it pushing oil-exporting regimes past the breaking point?

The answer is no. Despite their reliance on oil revenue, the governments of Russia, Iran, Saudi Arabia, and Venezuela are not teetering. This is no “oil Arab Spring,” where cratering prices topple governments, spreading like wildfire from one dependent authoritarian state to another. In fact, the price drop won’t even change their stances on the geopolitical issues Washington cares most about

Cheaper oil won’t shift Iran’s posture in nuclear negotiations. Despite the looming deadline, there is still a huge gulf between the two sides. Iran refuses to eliminate most of its existing stockpile of enriched uranium and centrifuges; Washington insists that any proposal without those concessions would be stillborn. Yet, Iran doesn’t feel pressured to cede ground, particularly when Moscow has offered support to Iran if there is no sanctions relief. And Iran’s economy has stabilized somewhat: since President Hassan Rouhani took office last year, inflation has dropped from 40 percent to 21 percent. A deal could still happen, but it would be the result of creative diplomacy and deeper compromise on both sides — not oil forcing Iran to capitulate.

Nothing will deter Vladimir Putin in his bid to destabilize and maintain influence over Ukraine. Russia can stomach the economic consequences inflicted by Western sanctions and cheaper oil for the foreseeable future. Despite massive capital flight and a battered ruble, Putin still has the will, the foreign reserves, and the popular support — his approval ratings are near historic highs — to continue his offensive.

For the time being, Saudi Arabia remains the oil supplier of last resort. It can cut and expand production to alter global supply-demand dynamics. Riyadh has amassed an enormous rainy day fund to weather storms such as this. Saudi Arabia will participate in Washington’s anti-Islamic State campaign only insofar as it aligns with its own aims. A sectarian anti-Shi’ite stance is the guiding force in Saudi Arabia’s foreign policy; cheaper oil will have no bearing on that.

Lower oil prices are an additional strain on Venezuela’s ailing economy. But $75-80 oil won’t send the country into default. President Nicolas Maduro is committed to servicing Venezuela’s external debt and he has room to maneuver: Venezuela will likely implement a managed devaluation of its currency and unlock additional liquidity from things like asset sales and changing the terms of its loans with China. Caracas can handle the economic pain for now, without ushering in social dislocation or political upheaval that would make the military withdraw its support for Maduro.

Longer term, it’s very clear that these regimes’ overdependence on oil revenue could threaten their survival. But each regime faces unique stresses, and the breaking points, should they come at all, are neither imminent nor interconnected. When it comes to regime stability, don’t read much into this price drop just yet.

But there is an overarching trend affecting all of these petrostates: a shifting energy landscape will make them dramatically more dependent on China.

It’s already on display in Russia and Venezuela. Venezuela relies on loans from China that it repays in future oil exports; pushing for more lenient terms of these loans is part of Caracas’ strategy for dealing with the recent oil price drop. Moscow has hedged against its cratering relations with the West by sidling up to Beijing. In May, the two countries completed a 30-year, $400 billion gas deal after Russia dropped its asking price; they inked additions to that agreement over the weekend.

Two structural changes will accelerate Russia’s tack to China in the years to come. First, as Russia continues to wield its energy as a political weapon, it will alienate European consumers who will actively seek out new supplies of natural gas that don’t carry such a hefty geopolitical price tag. Second, the North American unconventional energy revolution will help provide that source—and undermine Russia’s pricing power by offering alternatives and boosting global supply.

The North American unconventional energy revolution (from fracking, tar sands and other sources) will rattle geopolitics in the Middle East above anywhere else. The U.S. Energy Information Administration predicts that by 2020, more than four-fifths of the oil the United States consumes will come from the Western hemisphere. By that point, America could be the world’s largest oil producer, and energy self-sufficient by 2035 (according to the International Energy Agency). A reduced reliance on energy from the Middle East will make the US less dependent on the world’s most volatile region—and less interested in getting involved in its geopolitical flare-ups. Meanwhile, to feed its expanding economy and growing middle class, China will become increasingly attached to Middle Eastern energy producers—and vice versa.

Petrostates’ tectonic shift away from the United States towards China will have far-reaching ramifications for these governments, their neighborhoods, and the global energy picture. A risk-averse Chinese leadership will not address the geostrategic issues and security concerns that go hand in hand with energy production in volatile Eurasia and the Middle East. While Washington doesn’t have a formal strategy to intervene on behalf of American energy companies, U.S. engagement does coincide with these linkages. For example, robust energy ties between the United States and Saudi Arabia have underpinned the strategic alliance. That will not be the case with China as it increasingly inherits the United States’ role as the world’s principal energy importer. China will work to engage commercially with no strings attached: it will gladly ink sweetheart energy deals with Russian leadership, but that doesn’t commit Beijing to any deeper geostrategic engagement. That is a very different style of “partner” indeed.

China will likely choose to maintain this more transactional approach to diplomacy, contributing to an expanding power vacuum in these regions. Interventionist diplomacy beyond the Asia Pacific region is new for the Chinese, and meddling in distant countries is particularly troublesome for a leadership that so adamantly believes sovereignty is sacrosanct as it safeguards its own internal affairs against outside intervention. The only thing more problematic than an absence of leadership could be an inconsistent and opaque Chinese presence.

Don’t overestimate the near-term impact of oil prices in free fall. Yet, even if cheaper oil doesn’t upend these regimes — or align them with Washington — it will accelerate their deepening dependence on China. That is a recipe for greater instability and a more volatile global energy landscape.

New Senate Energy head will need time to lift U.S. oil export ban

By Timothy Gardner

(Reuters) - As incoming head of the Senate Energy Committee, Alaska's Lisa Murkowski will gain more clout in January to reverse the 40-year ban on most U.S. crude oil exports, but she is unlikely to rush into legislative action. 

The Republican senator has fought to relax the ban all year by issuing a series of papers detailing how such exports have been allowed in the past, holding a private meeting on the subject with Commerce Secretary Penny Pritzker, and hinting that 2015 could be the time to introduce ban-ending legislation.

When it became clear on Tuesday night that her fellow Republicans had won control of the Senate, Murkowski, at a party in Anchorage, gleefully held a chair over her head, proclaiming she was the chairman of the energy committee.

 But upon taking the reins, Murkowski's first steps to roll back the ban, imposed by Congress after the Arab oil embargo in the 1970s, are expected to involve holding hearings, pressuring Obama administration officials, and testing the level of support from party leadership.

"Murkowski probably could get a bill out of her committee if she pushed really hard, but that would be terribly impolitic because then she would be putting (new Senate Majority Leader) Mitch McConnell, and potentially some of her colleagues, in a difficult position " said Kevin Book, a policy analyst at ClearView Energy Partners

The current shale drilling boom has put the United States in a position to become the world's largest crude oil producer. Support in Congress for overturning the export ban has risen slightly as light crude, difficult for domestic refiners to process with current equipment, floods the Gulf Coast.

 In September, U.S. Representative Joe Barton, a Texas Republican and former chairman of the House Energy Committee, came out in favor of lifting the ban.

But many Republicans have been slow to take a position. Some worry about the impact on oil refiners, which could see higher costs if some of the abundant supply of U.S. crude oil is shipped abroad.

 The possibility that domestic gasoline prices could rise, angering voters, has also made lawmakers wary, although several studies suggest exports by themselves would not lead to higher U.S. prices at the pump.

 Murkowski spokesman Robert Dillon said she does not yet have a specific timeline on oil exports, but repeated that legislation would be needed if the administration does not overturn the ban. He said Murkowski will not talk much about oil exports until January.

 Murkowski will have other issues on her plate, too, including pushing for faster approvals of U.S. natural gas exports and holding hearings on the Interior Department's budget. 

Even if the White House lifts a hold at the Department of Commerce on more than 20 applications for exports of condensate, a minimally-processed light oil, or relaxes the ban by allowing swaps of light oil in exchange for heavy oil more appropriate for domestic refiners, pressure will still be on Murkowski.

More than a dozen oil producers, including ConocoPhillips, Continental Resources Inc, and Hess Corp teamed up last month to form Producers for American Crude Exports (PACE), to lobby Congress to reverse the ban. Only legislation will provide certainty the ban will be lifted for good, the group said.

Murkowski's year of experience fighting the ban could give her an opening to introduce legislation in the second half of 2015, said Bruce Oppenheimer, a professor at Vanderbilt University who focuses on energy politics.

"If you carve out a niche for yourself in the Senate in terms of policy expertise and you get things incubating ... often you get an opening where you can do something," he said.

(Reporting by Timothy Gardner; Editing by Ros Krasny and Marguerita Choy)

New Oil Tax Laws In Russia Could Backfire

Eurasian integration in the new Eurasian Economic Union forces Russia to introduce a so called “tax maneuver” in its oil industry with negative consequences.

Eurasian economic and political integration acquired special importance for Russia in the wake of the Ukrainian conflict, which was ignited by Ukraine’s desire to join the European trade bloc rather than the Eurasian one.

Russia is now trying to strengthen ties with its neighbors via the Eurasian Economic Union (EEU). The Union will be launched in January 2015 by five countries: Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

The establishment of a single economic space requires common regulations for a wide range of issues. Adjustment of tax rates, in particular export duties, is of primary importance. For example, crude oil export duties in Kazakhstan ($80 per ton) are considerably lower than in Russia ($350-370 per ton).

Unless aligned, the difference is highly likely to incentivize Russian oil companies to export crude oil through Kazakhstan and Belarus. This in turn would seriously damage oil-dependent Russian budget (estimated losses of $40-50 billion annually).

In this vein, Moscow introduced a so-called “big tax maneuver” in the oil industry, a gradual reduction of export duties on oil and light oil products over the course of three years (1.7 times for oil and 1.7–5 times for petroleum products) with a simultaneous increase in mining extraction tax (1.8 times for oil and 6.5 times for gas condensate) and export duties for fuel oil.

The “maneuver” should in theory balance budget losses from export duties with new gains from the mining extraction tax (MET). However, according to Russian finance minister Anton Siluanov, tax changes will negatively affect the budget anyway, since an increase in MET leads to a reduction in corporate profits inflicting lower tax collections (losses of about $5 billion in 2015). 

Another aim of the tax reform is the modernization of the oil refining industry. Currently, the sector has low refining depth at about 72% against 85% in Europe. Despite a decrease in export duties for fuels, oil refineries are expected to face serious drop in profit margins due to higher domestic prices for crude oil and growing cost of production. Government officials estimate that 100-150 small and medium private refineries will close due to inefficient economics. Accordingly, hi-tech refining engineering and equipment will be on the rise.

Russia’s oil refinery industry in 2013 (production in million tons). Data: EY 

The “maneuver” has also been repeatedly criticized by political heavyweight Igor Sechin, CEO of the Russian state oil giant “Rosneft” and close ally of Vladimir Putin. According to him, the tax changes will undermine the economy of the new oil refinery projects, namely Rosneft’s huge Far East Petrochemical Company, which will cost RUB 1.3 trillion ($32 billion). 

Even such powerful lobbying did not stop the bill. Now Rosneft seeks compensation by applying to receive up to RUB 2 trillion ($48 billion) from the Russia’s national sovereign funds. 

A clear beneficiary of the “maneuver” is Belarus. Once again Belarusian President Aleksander Lukashenko managed to maximize gains for his regime. After a set of talks, with increasing stakes at each round, Russia agreed to a deal whereby Belarus will keep proceeds from oil product exports, which will effectively add $1.5 billion to the Belarusian budget.

The “maneuver” is a classic example of political risk. Russia is strongly interested in tighter political and economic integration in the region, even though it inflicts budgetary losses amid a deteriorating economic situation. The political intentions forced the Russian government once again to change oil tax rules, which have already been altered more than a dozen times over the last five years. The unpredictable investment environment undermines the oil sector’s competitiveness and requires thorough reassessment of investment projects with possible suspensions. 

By Alexey Kobylyanskiy  

Libyan oil output slides to 540,000 b/d on field closures: source 

Cairo (Platts)--11Nov2014/616 am EST/1116 GMT 

Libyan oil production, having hit a recent high of 1 million b/d at the end of October, is now running at around 540,000 b/d, a source with close ties to state-owned NOC said Tuesday. 

The major slump in output follows the closure of two of Libya's biggest fields -- the neighboring Sharara and Elephant (El Feel) fields. 

The western export terminals of Zawiya and Mellitah are said to be experiencing loading delays because of the closure of the fields, which feed crude to the ports, while the Zawiya refinery is also said to have suspended operations. 

The 340,000 b/d capacity Sharara field, which was closed Wednesday after a security incident, had been producing close to 300,000 b/d. 

The 130,000 b/d Elephant field was shut in because it shares a power supply with Sharara. 

State-owned NOC is confident that once security is restored at Sharara both fields will be able to resume production, and trading sources said pumping could restart as soon as Wednesday. 

But there are also concerns that Sharara could fall victim to renewed attacks from militants loyal to the self-proclaimed Islamist-led government in Tripoli. 

Nigeria recovers $31 mil in illegal fuel subsidy payment: report 

Lagos (Platts)--11Nov2014/545 am EST/1045 GMT 

Nigeria has recovered Naira 5 billion ($31 million) in fuel subsidies fraudulently claimed by importers, the head of the country's anti-graft police was reported as saying Tuesday. 

Ibrahim Lamorde, the head of the Economic and Financial Crimes Commission (EFCC), told reporters in southeastern Enugu state that over 40 suspects involved in the subsidy scam had been arrested, the Vanguard newspaper reported. 

"In the oil subsidy fraud being investigated by the commission, over N5 billion has been recovered, while more than 40 suspects are being prosecuted in court," Lamorde was quoted saying. 

Presidential and parliamentary panels that probed corrupt fuel subsidy scheme in 2012 said mismanagement and theft by top Nigerian officials in league with private importers had cost the country $6.8 billion over three years. 

Nigerian President Goodluck Jonathan pledged that marketers involved in fuel subsidy scams would be made to repay the money and also face prosecution. 

Nigeria has since then been delaying payments of the subsidy on the grounds that it needed to scrutinize claims submitted by fuel importers. 

Despite ranking among the world's top 10 crude oil exporters, Nigeria imports more than 85% of its refined fuel needs due to neglect of its local refineries, mismanagement and corruption. 

The government subsidizes imports to keep domestic fuel prices low, but this has become a major drain on the country's finances. 

Nigeria's Supreme Court will next month open a hearing in a suit filed by governors of the 36 states against the federal government over the continued payment of the subsidies on imported fuel directly from crude oil export proceeds, which cut the funds for the states. 

Northwest European naphtha market hits fresh multi-year lows 

London (Platts)--11Nov2014/713 am EST/1213 GMT 

Northwest European naphtha prices have hit fresh multi-year lows under continuing pressure from lack of spot demand, a weakening Asian market, and a darkening outlook as storage options become more limited, trading sources said. 

"I am struggling to see where the floor is," a trader said. 

CIF Northwest European naphtha cargoes fell $21.50/mt Monday to be assessed at $613.75/mt, the lowest since July 16, 2010, when it was $613/mt. 

Meanwhile, the CIF NWE naphtha cargo's physical discount to the front-month swap widened $1.25/mt to $19.50/mt, its widest discount since December 5, 2008, when it was at a $20.50/mt discount. 

In the paper market, the front-month CIF NWE naphtha crack fell $2.05/barrel to a 28-month low of minus $13/barrel, while the November/December naphtha contango widened to $10.25/mt from $9.50/mt Friday, and the December/January contango deepened to $10/mt from $8/mt. 

"In Europe, bears control the market and, with refining margins strong, nothing is stopping the slide," a naphtha trader said. 

"LPG keeps replacing naphtha in the cracking pool," a petrochemical end-user said, adding the European naphtha market has not reached a floor yet as there was no improvement in sight. 

The main outlet for spot naphtha at the moment in Northwest Europe were storage tanks, with 500,000-720,000 mt of naphtha said to be in tanks, mostly in ARA, but also in the Baltics and the UK. 

"The only [spot] buying is to put in tanks," a broker said. "I guess it is slowly getting worse because there is more supply than demand for naphtha everywhere." 

Another naphtha industry source said: "With gasoil cracks up and gasoline unseasonably strong, refining margins encourage refiners to run, which will lead to further naphtha production." 

Price spread between Bakken crude markets trades at widest since 2012 

Houston (Platts)--11Nov2014/253 pm EST/1953 GMT 

Opposing fundamentals pushed the spot price difference between the two benchmark markets for Bakken crude to its widest level since 2012 in early trading Tuesday. 

Bakken injected into the terminal hub in Guernsey, Wyoming, was heard traded at the calendar month average of NYMEX light sweet crude (WTI CMA) minus $3/b, a $2.10/b jump from Monday's assessment. 

At the same time, Bakken in Clearbrook, Minnesota, was heard traded at WTI CMA minus $8/b, a 35 cents/b fall from Monday. 

That $5/b spread is the widest between the two markets since March 13, 2012, when it was at the same level. 

The price for Bakken at Guernsey has been supported almost entirely by demand from new takeaway capacity provided on Tallgrass Energy Partners' 230,000 b/d Pony Express pipeline, which carries Bakken and other light crudes from Guernsey to Cushing, Oklahoma. Bakken at Guernsey has been steadily gaining strength since the line started commercial service in early October. 

Meanwhile, Bakken at Clearbrook has followed the downward trend of Canadian crude prices, which have been pressured by refinery outages and a delayed pipeline start. 

The start of Enbridge's 300,000 b/d Line 9B reversal project failed to meet specifications for shut-off valves set by Canada's National Energy Board. 

Line fill for the pipeline, which will carry mostly light crudes from Westover, Ontario, to Montreal, was scheduled to begin November 1. There is no timetable for when the line might start. 

Crude futures settle lower on strong dollar, OPEC outlook 

New York (Platts)--11Nov2014/540 pm EST/2240 GMT 

ICE December Brent closed down 67 cents to $81.67/barrel as a strong US dollar and continued signs that OPEC members appear unwilling to cut production pushed the benchmark contract to a front-month low not seen since October 2010. 

NYMEX December crude ended the session up 54 cents to $77.94/b, one day after setting its own multi-year low. 

NYMEX refined products were mixed. December ULSD closed down 6 points to $2.4687/gal. Front-month RBOB settled up 25 points at $2.1036/gal. 

Comments by OPEC members downplaying the fall in oil prices as traders and analysts speculated whether the producer group will trim output at its November 27 meeting weighed on crude futures. 

Kuwaiti Oil Minister Ali al-Omair said current oil prices are unlikely to have a negative impact on the economies of Kuwait and other Gulf oil producers. Omair said a day earlier he did not expect OPEC to cut output at its next meeting. 

Algerian Oil Minister Youcef Yousfi told the country's national radio Tuesday there was no need to panic over the falling global oil price, saying its oil and gas investments would not be impacted as a result of lower prices. 

"OPEC is giving oil bulls little to hang their hat on," Price Futures Group analyst Phil Flynn said. "The message is clear that OPEC is going to pump oil until hell freezes over." 

The dollar's rise added to Brent's slide. The dollar gained against the Japanese yen, breaching a seven-year high reached last week of 115.6 yen, peaking at more than 116 yen. 

The possibility Japanese Prime Minister Shinzo Abe may delay a retail sales tax hike spurred risk appetite and caused the yen to tumble, analysts said. 

A strong dollar puts downward pressure on oil prices as dollar-denominated commodities, such as crude, become more expensive for holders of other currencies. 

"We are convinced that we've begun a long term, multi-year bull market for the dollar, and [to put] that in baseball terms, we are but in the second or third inning of a nine-inning game," Dennis Gartman, publisher of the Gartman Letter, said. 

Libyan oil production has fallen to around 540,000 b/d, down from a recent high of 1 million b/d at the end of October, a source with close ties to state-owned National Oil Company said Tuesday. 

The drop comes following the closure of Sharara and Elephant (El Feel) oil fields. The 340,000 b/d capacity Sharara field was shut after gunmen overran the facility last week, while the Elephant field was shut in because it shares a power supply with Sharara. 

However, the loss of Libyan output has had a muted market impact because the NOC insists both fields will resume production soon. 

Tim Evans, analyst at Citi Futures and OTC Clearing, said the outcome in Libya will influence OPEC strategy. 

"What we think is clear is that if Libyan production is [1 million b/d] or more going forward, then other OPEC members need to cut output or prices will continue to slide," he said. 

Libya's production averaged 860,000 b/d in October, the highest monthly volume since July last year, when output averaged 1 million b/d, a Platts survey of OPEC and oil industry officials and analysts showed Tuesday. 

Total OPEC crude output fell 300,000 b/d to 30.3 million b/d in October from 30.6 million b/d in September as supply from Saudi Arabia, Iraq and Nigeria fell, the survey found. 

The October total leaves OPEC overproducing its 30 million b/d output ceiling by just 300,000 b/d, but is some 900,000 b/d above OPEC's most recent forecast of demand for its crude in the first quarter of next year. 

"It's a fair assessment OPEC producers will look to bring their production back to the 30 million b/d target, but anything beyond that in terms of an actual cut to the ceiling would be a surprise," Tony Headrick, analyst at CHS Hedging, said. 

Ford CEO: Oil Prices Will Rise 

Oil prices in the U.S. are down more than 19% this year and Brent crude is down around 25%. Surging U.S. oil production and a strong dollar have lowered the cost of oil significantly, and as a result Americans are getting a break at the gas pump. We’re in the midst of the longest consecutive decline in gas price since 2008. While this is bad news for oil and gas companies, it could give a boost to the auto industry. 

Ford has scaled back production in order to revamp its factories to produce the 2015 F-150 pickup truck which will be made out of aluminum instead of steel and weigh 700 pounds less than previous iterations. While the lighter cars will help with fuel efficiency and attract buyers looking to save money on gas, Ford has lost over $3 billion in potential revenue to make them. 

Ford CEO Mark Fields doesn’t see it this way, he believes that the price of gas is on a long upward trend and that this is a momentary dip—taking the time and money to make a more fuel efficient car will pay off in the end. 

“When you look at the price of fuel these days and you relate it to the full-sized pickup buyer clearly over the last 20-years fuel economy is the number one unmet need for our full-sized pickup buyer,” he says. 

Gas is a non-renewable resource that will continue upwards despite cycles, he says. “Our approach as a company is for every one of our vehicles to have the best fuel economy in their segments." 

Despite the transition, Fields believes that this will be a strong year for Ford, “we’re guiding towards about $6 billion of profit globally.” 

Auto Bubble? 

There has also been talk recently of a return to long, sub-prime auto loans that point to bubble-like behavior. 

We’re not in a bubble, says Fields. “I think that when you look at some of the fundamentals that are driving the auto industry these days the economy is growing. When you look at economic growth right now I think that provides a firm foundation for things going forward.” He also points to the average age of cars in the industry, 50% of the vehicles are ten years-old or older so he expects replacement demand to increase. 

“I don’t think we’re approaching a bubble, but I do think that when you look at how much capacity this industry has taken out and the approach to disciplined pricing, it bodes well for a number of years for healthy industry sales,” he says.

Compared to four or five years ago the American consumer is in better shape, says Fields. “But it’s variable. There are still consumers out there that haven’t participated in some of the recovery that we’ve seen,” he says.