Russia Sees No Need to Cut Oil Supply With Prices to Stabilize
Russia will keep its crude oil output steady next year and plunging prices will stabilize, Energy Minister Alexander Novak said, reiterating comments made almost three weeks ago that nation won’t adjust supply to halt a rout.
The world’s largest crude producer’s output will be similar to this year’s 10.6 million barrels a day, Novak said at a conference yesterday in Doha, the Qatari capital. Brent, the global benchmark, fell almost 50 percent since the end of 2013, contributing to a currency crisis in Russia, which relies on energy for half its budget.
By keeping oil output unchanged, Russia is mirroring a strategy by OPEC, which said Nov. 27 it won’t curb production to tackle a global surplus. The government planned to hold a meeting yesterday to discuss the nation’s deteriorating financial situation. Sanctions imposed by the U.S. and European Union over the conflict in Ukraine spurred the worst capital outflows in six years as the economy nears recession.
“The price will stabilize itself,” Novak told reporters at the meeting of the Gas Exporting Countries Forum. “Some investment projects by oil companies may be reconsidered, but so far they have not adjusted anything.”
The uble sank as much as 19 percent to 80.10 yesterday, before recovering in Moscow. The drop was the biggest since 1998, when Russia defaulted on local debt.
Driller Cuts
Brent crude fell as much 4.2 percent to its lowest since May 2009 on the ICE Futures Europe exchange by 3:34 p.m. in London yesterday.
Novak said Nov. 28 the price will recover in the medium term. Russian output will remain flat at 525 million to 526 million metric tons a year, he said.
Novak met with counterparts from Mexico and OPEC members Venezuela and Saudi Arabia on Nov. 25, where the four nations failed to reach a deal to cut output. They said instead that they would jointly monitor prices.
Output could fall by 1 to 2 percent next year at current price levels as producers reduce drilling, Alexei Kokin, an oil and gas analyst at UralSib Financial Corp., said.
“The government will pressure companies to keep production levels up,” Kokin said. “But even that won’t be enough to keep up drilling activity at $60 a barrel.”
Iran Said to Discount Light Crude to Asia to Deepest in 14 Years
By Anthony DiPaola Dec 16, 2014 7:40 PM GMT+0800
Iran is said to be offering its main crude grade to customers in Asia at the deepest discount in 14 years, taking a cue from Saudi Arabia in trimming price differentials.
National Iranian Oil Co. cut its official selling price for January shipments of light crude to Asia to a discount of $1.80 a barrel below the regional benchmark as Middle Eastern producers vie to keep selling in the region, according to four people with knowledge of the decision. An official at NIOC’s crude-marketing department in Tehran declined to comment.
Iran cut the differential to a discount from a premium of 13 cents a barrel to the average of the Oman and Dubai benchmark crudes for December. The light crude grade hasn’t sold at such a steep discount since Bloomberg began tracking the country’s official selling prices in March 2000.
Oil prices have collapsed since the Organization of Petroleum Exporting Countries decided on Nov. 27 to maintain its output target, fanning speculation that Saudi Arabia and other members are determined to make North American shale drillers and other producers share the burden of reducing oversupply. Saudi Arabia’s state oil company prompted speculation that the kingdom was seeking to preserve market share when it lowered prices for November.
Expanding supplies from North American shale deposits coupled with weakening demand growth in China, the world’s second-largest oil consumer, helped push crude into a bear market this year. Middle Eastern producers are increasingly competing with cargoes from Latin America, North Africa and Russia for buyers in Asia.
Arab Light
Saudi Arabian Oil Co. lowered the official selling price for its Arab Light grade to Asia next month to $2 a barrel less than a regional benchmark, the company said by e-mail Dec. 4, marking the biggest discount since Bloomberg began compiling data in June 2000. Saudi Aramco, as the company is known, cut all differentials in January for buyers in Asia and the U.S. and raised them for customers in Europe.
Fellow OPEC members Iraq and Kuwait also cut selling prices to Asia, on Dec. 8 and Dec. 10, respectively.
Iran deepened the discount for Iran Heavy crude to $3.51 a barrel for January sales to buyers in Asia, compared with a $1.66 discount for December, according to the people, who asked not to be identified since the pricing information is confidential. That cut puts Iran’s heavy crude at the deepest discount December 2008.
Saudi Aramco set the discount for its comparable Arab Medium crude at the deepest level since December 2008.
For Related News and Information: Deepest Saudi Oil Discount Intensifies Fight for Asia Market Iran Said to Set Dec. Lt Crude to Asia at 13cts Over Oman-Dubai.
Brent Seen Falling to $50 in 2015 as OPEC Fails to Act
By Grant Smith and Mark Shenk Dec 16, 2014 6:57 PM GMT+0800
Crude oil prices are poised to fall below half where they were six months ago, before producers begin dealing with a global glut.
Brent, the global benchmark, will slide to as low as $50 a barrel in 2015, according to the median in a Bloomberg survey of 17 analysts, down from the $115.71 a barrel high for the year on June 19. The grade already collapsed 49 percent since then and needs to fall further before producers clear the current glut, said five out of six respondents who gave a reason.
Brent futures sank in the weeks after the Organization of Petroleum Exporting Countries decided to maintain output even as the highest U.S. production in three decades swells a global surplus. The organization will stand by its decision even if prices fall to $40, United Arab Emirates Energy Minister Suhail Al-Mazrouei said.
Oil Prices
“This won’t stop until oil producers are on their backs,” Bjarne Schieldrop, chief commodities analyst at SEB AB, Sweden’s fourth-biggest bank, said by phone from Oslo. “There will be better demand in the second half, hopefully some demand effects from lower prices, and definitely softer growth in U.S. shale.”
Brent futures declined $1.69, or 2.8 percent, to $59.37 a barrel on the London-based ICE Futures Europe exchange at 10:56 a.m. London time. They fell as much as 3.3 percent earlier.
Negative Effect
OPEC decided at its Nov. 27 meeting to keep output unchanged to protect the group’s market share, even if it has a negative effect on crude prices, the official Kuwait News Agency reported, citing Oil Minister Ali al-Omair.
The U.S. pumped 9.12 million barrels a day in the period ended Dec. 5, the most in weekly Energy Information Administration data started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
Some respondents project the floor may be close to current levels. Drilling activity in the U.S. is showing some signs of slowing, which may grow as financing becomes more difficult, according to Saxo Bank A/S in Copenhagen. Output in some OPEC members outside the Persian Gulf will suffer before U.S. shale drillers curb operations, consultant Petromatrix GmbH predicts.
“OPEC has scored an own-goal,” Olivier Jakob, Petromatrix’s managing director, said by e-mail. “Non-Gulf OPEC countries will participate against their will in the supply re-balancing of 2015. Venezuela will fall before the Bakken does.”
Nigeria Oil Unions Set for Government Talks as Strike Continues
Nigeria’s two oil unions are set to meet with government officials for talks today as an indefinite strike aimed at curbing local fuel supply and exports entered a third day in Africa’s biggest crude producer.
The impact of the strike has been restricted to domestic fuel supply with oil lifting and export terminal operations unaffected at the moment, Francis Johnson, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria, or Pengassan, said by phone yesterday from Lagos, the commercial capital. Union leaders will hold talks with the authorities today in Abuja, the capital, he said.
Any reduction in pumping would coincide with a collapse in the price of Nigeria’s biggest source of government revenue. Brent crude oil plunged about 46 percent this year. Nigerian policy makers devalued the local currency last month and is proposing spending cuts for next year as it heads toward elections in February.
“Oil unions have capitalized on the highly politicized circumstances ahead of elections,” Gareth Brickman and Catherine Bennett, Africa analysts at Johannesburg-based ETM Analytics, said by e-mail yesterday. “While such strikes in the past have not had major impacts on production, the union are talking up disrupting export flows, which would only exacerbate the dollar deficit prevailing in the exchange rate.”
Ohi Alegbe, an Abuja-based spokesman for the Nigerian National Petroleum Corp. and the Oil Ministry, declined to comment on exports. Pengassan previously said the strike may curb exports. Domestic supply won’t be affected, with about 17 fuel tankers waiting to unload at the port of Lagos, NNPC’s Alegbe said in a Dec. 15 e-mail.
Protest Government
The action involves both Pengassan, as the managerial union is known, and the Nigerian Union of Petroleum and Natural Gas Workers, or Nupeng, its affiliate for manual workers. Nigeria’s crude oil output declined 3.2 percent when they last went on strike in September, data compiled by Bloomberg show. Nigeria pumped 2.3 million barrels of crude oil a day last year, 26 percent of Africa’s total output, according to BP Plc estimates.
At least 80 percent of Nigeria’s crude is pumped by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA in joint ventures with the state-owned NNPC.
Shell is “aware of the strike and monitoring the situation,” Precious Okolobo, a Lagos-based spokesman, said by phone yesterday. Officials at Exxon Mobil, Chevron, Total and Eni didn’t immediately reply phone calls and e-mails seeking comments.
The action is to protest government failure to fix refineries, cut gasoline prices in line with the slump in crude, and also to press for the passage of a new oil law, according to an e-mailed statement from Pengassan.
The two unions want the authorities to expedite passage of the petroleum industry bill, curtail crude theft and pipeline sabotage, and address what they say are unfair labor practices by some energy producers, according to its statement.
The West African nation relies on crude for about 70 percent of government revenue and 95 percent of foreign exchange income.
London - Oil prices have now fallen to an unsustainable low level. Futures contracts for Brent and WTI have fallen below $60 and $55 per barrel respectively but many crude producers are receiving much lower prices.
Plains Marketing, for example, is now offering just $39.69 per barrel for Williston Basin Sweet crude and less than $50 for a wide range of other US crude oils, according to its latest pricing bulletin, published on December 15.
Billions of dollars of capital expenditure projects have been or will be postponed by the major international oil companies, independents and shale producers, which, if they all remained cancelled, would generate an enormous shortfall in oil supplies by the end of the decade.
At these prices, shale production on most leases across the United States cannot breakeven. Only a few of the most favourable areas with the best geology and low transport costs remain profitable. Even in these cases profit margins are razor thin.
If posted prices remain at current depressed levels, almost all shale drilling activity will eventually cease, and US oil production would start to fall rapidly towards the end of 2015 and into 2016 as output from existing wells starts to decline.
Just as prices were unsustainably high when Brent was trading above $100 throughout most of 2011 to 2014, encouraging too much drilling and conservation, oil prices have now plunged to an unsustainably low level.
The market has over-reacted to signs of an impending surplus in production in 2015 by cutting prices to a level that will cancel not just marginal projects but almost all new drilling given enough time.
It is a classic bubble - the mirror image of the frenzied rise in prices towards their peak at $147 per barrel in July 2008.
Like any bubble, it is impossible to predict how long it will continue to inflate or how far prices might eventually be distended before the bubble bursts.
In a bubble, prices tend to become far more distorted than rational observers thought possible before correcting, so there is no reason why oil prices cannot fall further in the short term.
But bubbles also tend to be fairly short-lived because their internal dynamics are so unstable and the divergence between market prices and underlying supply/demand fundamentals becomes too stretched to ignore.
In 2007/08, it took Brent prices nine months to double from around $75 in Oct 2007 to peak just below $150 in July 2008. In 2014, it has so far taken six months to halve from $115 to $59.
If it is impossible to predict how low prices might fall before correcting it is at least possible to surmise the turning point is not far off in terms of time.
The four previous plunges in oil prices over the last four decades (1985/86, 1997/98, 2000/01 and 2008/09) were all quickly followed by price rises after the market over-reacted on the downside.
The market appears to be headed for something similar in the current environment as prices fall to levels which are simply unsustainable for more than short period of time.
Low oil price pushing Oman to diversify away from oil: minister
Doha (Platts)--16Dec2014/637 am EST/1137 GMT
Sinking oil prices are pushing Oman to diversify away from oil, and talks with Iran for gas imports are continuing, the country's oil minister said Tuesday.
"We want this gas because we want to diversify away from oil," said oil minister Mohammed al-Rumhy on the sidelines of the Gas Exporting Countries Forum in Doha.
Giving the opening address at the forum, Qatar's energy minister, Mohammed al-Sada said the "major challenge of today is the increasing volatility of the energy market."
Lower oil prices presented a double-edged sword, according to al-Rumhy. "When the oil price is low, diversifying the economy is the talk of the town," he said.
"Sometimes it is a catalyst for doing projects, like this [referring to the Iranian import scheme]; sometimes, because money is tight, it can slow things down," he elaborated.
From a production perspective, Oman's crude oil costs are higher than other countries in the region, but there are no worries about production becoming unprofitable "unless the oil price goes below $30/barrel," a senior member of the Omani delegation said on the sidelines of the forum.
The source said that while Saudi Arabia has built up large financial resources that would enable its government to ride out a period of low oil prices, some of its smaller Arab neighbors, including Oman, are not so well buffered. However, Oman doesn't have a choice over oil prices and will have to wait and see what happens, he added.
Iran and Oman signed an initial agreement in March to build a $1 billion 200-km undersea gas pipeline by 2018, to import 10 Bcm/year of gas from Iran's giant offshore South Pars gas field.
At the same time, Oman will continue to export gas in the form of LNG under long term contracts to Asian buyers, which will end around 2025, al-Rumhy said.
More Kurdish oil expected after field upgrades
BUDAPEST, Hungary, Dec. 16 (UPI) -- Oil companies working in the Kurdish north of Iraq said Tuesday they completed infrastructure that should increase total production by more than 60 percent.
Hungarian energy company MOL and Gulf Keystone Petroleum, which has headquarters in London, said in coordinating statements three wells in the Shaikan oil play in the Kurdish north are now connected to existing production facilities.
With the addition, the companies said total production should increase from a combined average of 24,000 barrels of oil equivalent per day to 40,000 boepd.
"We continue to focus our efforts to achieve volumetric increase in our assets in the Kurdistani Region of Iraq and also work together with the Ministry of Natural Resources in order to monetize production the most efficient way," MOL's vice president in charge of upstream operations, Alexander Dodds, said in a statement.
Iraqi and Kurdish leaders earlier this month brokered a deal breaking a simmering impasse over oil in the country. Both sides have been at odds over jurisdictional issues.
The semiautonomous Kurdistan Regional Government under the terms of the agreement funnels 250,000 barrels of oil per day to Baghdad and agrees to use the federal State Oil Marketing Organization for marketing. Both sides will also facilitate exports from oil fields in disputed territory in Kirkuk.
Oil companies working in the Kurdish north praised the agreement as a welcome step toward meeting production goals.
"[I] look forward to boosting Shaikan production to our near-term target," Gulf Keystone Chief Executive Officer John Gerstenlauer said in a statement.
Both companies said crude oil taken from the Shaikan reserve area was making its way to the export market from the Turkish coast.
Spain's Repsol buys Canadian energy company Talisman
MADRID, Dec. 16 (UPI) -- An $8.3 billion deal to acquire Canadian energy company Talisman catapults Spain's Repsol to the top of the global heap, its top executive said Tuesday.
"This is a transformative and exciting deal, which will make us one of the world's most significant players," Repsol Chairman Antonio Brufau said in a statement.
Repsol adds what it said was high-quality and productive assets in North America to its global portfolio. Talisman was also a stakeholder in South-East Asia, Latin American and in Scandinavian basins, which means output from Repsol will increase by 76 percent to 680,000 barrels of oil equivalent per day.
The Spanish energy company through the deal becomes a player in more than 50 countries and positions itself as among the 15 largest private oil and gas companies in the world.
Talisman Chairman Chuck Williamson said the benefits to shareholders will be immediate.
"The deal underscores Repsol's strong belief in the high quality portfolio that Talisman has worked hard to develop," he said in a separate statement.
North America already accounts for 10 percent of Repsol's production and the combined company through the merger will designate $15 billion, or 30 percent of its capital, to the region.
North American oil production is skewing markets toward the supply side, with the United States alone producing more than 9 million barrels per day, largely because of the increase from shale basins.
Shares in Repsol tumbled 2 percent in pre-market trading Tuesday to $19.44, while Talisman stock soared more than 19 percent to $5.12. Repsol said it based its offer on Talisman shares at $8.
The Spanish company said it financed the acquisition in part from the $6.3 billion recovered from the expropriation of YPF.
Argentine President Cristina Fernandez de Kirchner signed legislation in 2012 to seize the YPF shares held by the Spanish energy company.
Repsol in May completed the sale of its assets in Argentina to JP Morgan Securities including the bonds it received as compensation for the expropriation of its 51 percent stake in YPF.
The companies aim to complete the transaction in the middle of next year. Repsol said it would continue to rely on local talent to oversee operations from a Calgary base.
U.S. drivers saving millions of dollars on gas
By Daniel J. Graeber Follow @dan_graeber Contact the Author | Dec. 16, 2014 at 6:28 AM
WASHINGTON, Dec. 16 (UPI) -- Consumer benefits of low oil prices are "abundantly clear" as U.S. drivers are saving more than $400 million per day on gasoline, motor club AAA said.
AAA reports a national average retail price for a gallon of regular unleaded gasoline at $2.53 for Tuesday, about a penny less than Monday and 70 cents less than this date in 2013.
"Holiday cheer has come early for the motoring public, with the average for retail gasoline at its lowest level in more than five years," the motor club said in a Monday price briefing.
Low oil prices are driving down the price at the pump, falling for 82 consecutive days and down $1.16 from the peak price reached April 8. AAA estimates U.S. commuters are saving more than $400 million each day from what they paid last year for regular gasoline.
"The impact of falling global oil prices for consumers is abundantly clear in the retail gasoline market with prices lower nationwide on the week, month and year," AAA said.
Crude oil is trading in a bear market. The price for West Texas Intermediate crude, the U.S. index, is trading at nearly half of its June high of $107.26. AAA said continued concerns about sluggish demand, combined with the glut of crude from North America, means the crude oil market should continue looking for a bottom.
The U.S. Energy Information Administration in a separate brief said that, despite the historic lows, consumer habits aren't changed much in terms of travel.
"Gasoline is a relatively inelastic product, meaning changes in prices have little influence on demand," the brief read.
AAA said, barring any unforeseen events, gas prices should remain low for the foreseeable future.
North Dakota funds economic diversity effort
BISMARCK, N.D., Dec. 16 (UPI) -- Grants totaling more than a quarter of a million dollars will help communities across North Dakota diversify their economy, U.S. Sen. John Hoeven, R-N.D., said.
Hoeven said the U.S. Economic Development Administration funneled grants totaling $310,000 to the state for economic diversification assistance.
"These grants will help to develop and diversify the economies of communities across North Dakota," said Hoeven. "This builds on our work to create good jobs for our people and ensure our state's economy is healthy and strong now and into the future."
North Dakota's economy grew last year faster than any other U.S. state in terms of real growth in gross domestic product. The U.S. Commerce Department said in a state-by-state review North Dakota can credit the extractive industries for a sizable portion of its 9.7 percent growth rate in real GDP last year.
Oil prices have dropped to the point that some drillers may no longer find it profitable to keep moving forward and several major international energy companies have trimmed their investment forecasts as a result.
Tapping into shale, like the Bakken play in North Dakota, is more capital intensive than elsewhere in the world.
The North Dakota Industrial Commission issued its report on monthly crude oil production last week. It found production in October, the last full month for which data are available, was down about 4,000 barrels per day from the previous month.
NDIC said low oil prices were in part behind the decline in production. The number of rigs actively producing or exploring in the state is "set to fall rapidly" during the first quarter of 2015, the report said.
Less than 5 percent of all North Dakota oil production comes from areas outside the Bakken play.
Encana: U.S. shale tops agenda despite low oil prices
CALGARY, Alberta, Dec. 16 (UPI) -- Capital efforts in U.S. shale basins for 2015 are tailored to account for a "volatile price environment," Canadian energy company Encana said Tuesday.
Encana said it was directing about 80 percent of its capital expenses, or around $2.2 billion, toward the Montney, Duveray, Eagle Ford and Permian shale reserve areas in the United States.
Dough Suttles, the company's president and chief executive officer, said Encana was moving forward with a new aggressive strategy in mind.
"Built into our 2015 plan is the flexibility to respond to the challenges and act on potential opportunities presented in this volatile price environment," he said.
West Texas Intermediate, the U.S. oil price index, has shed close to half of its value since June. Prices are at the point where some drillers may have trouble generating a profit, which could slow the shale oil boom in the United States.
In its short-term energy report for December, the U.S. Energy Information Administration said drillers may be struggling already, though 2015 production should still be at its highest level in more than 40 years.
Oil prices are expected to remain high enough in 2015 to support new drilling in North American shale, EIA Director Adam Sieminski said.
Encana in September acquired Texas rival Athlon Energy to become one of the largest oil players in the Permian shale basin.
Permian production increased 58 percent from 2007 to reach 1.35 million barrels per day last year, which represents 18 percent of total U.S. crude oil production.
"We're well positioned as the steps we've taken have given us the resilient portfolio, organizational agility and operational expertise needed to thrive throughout the commodity price cycle," Suttles said.
Combined, the Canadian company said it expects production to grow by as much as 70 percent over 2014 levels to around 150,000 bpd next year.
The company said it's basing its 2015 program on WTI at $70 per barrel, about $15 more than the current price.
