News 20/03/2015

Canadian Refiners Set to Buy More U.S. Oil With Wider Discount

(Bloomberg) -- Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.

Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.

Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.

U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”

U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.

Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.

The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.

Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.

“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”

Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.

“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”

Iran Could Add Million More Barrels a Day to the Oil Glut

by Anthony DipaolaGrant SmithIndira Lakshmanan

(Bloomberg) -- Iran says it could add a million barrels to daily oil production shortly after a deal to lift sanctions, reclaiming the position of OPEC’s second-largest supplier. While such a boost would take months because sanctions may be rolled back slowly, industry observers agree the capacity is there.

Going further than that and adding a second million barrels -- as the government has said it plans to do -- will prove a much bigger challenge. It would take some five years and tens of billions of dollars of investment, according to two former oil-industry executives who worked in the country.

“The number one need is investment,” said Mohsen Shoar, an analyst with Continental Energy DMCC in Dubai who helped ConocoPhillips negotiate oil contracts in Iran in the 1990s. “To get anywhere beyond 4 million barrels a day” will require foreign assistance, he said by phone.

Iran is seeking a final agreement with international powers by June that would curb its nuclear program in exchange for phasing out sanctions that have cut its crude exports, choked cash flow and halted most oil investment. The country produced 2.8 million barrels of oil a day last month, compared with 3.6 million at the end of 2011, according to data compiled by Bloomberg.

Increasing Production

Oil Minister Bijan Namdar Zanganeh said March 16 that the Persian Gulf nation would be able to raise production by a million barrels a day, bringing it to 3.8 million, “within a few months,” placing it behind only Saudi Arabia in the Organization of Petroleum Exporting Countries.

Once the restrictions are eased -- a process that itself could take many months -- Iran would need to seek foreign partners to boost output beyond pre-sanctions levels, said Robin Mills, an analyst at Dubai-based Manaar Energy Consulting, who worked with Royal Dutch Shell Plc in Iran into the middle of last decade.

Mills estimates the country can recover about 3.4 million from current fields, short of the million-barrel increase targeted by the oil minister. The International Energy Agency, a Paris-based adviser to 29 nations on energy policy, says Iran could pump 3.6 million barrels a day within three months of the removal of sanctions.

Iran has been making preparations to bring its crude back to the market. State-owned National Iranian Oil Co. is already in talks with at least three buyers in Asia to sell them more crude if the restrictions are lifted, four people with direct knowledge of the discussions said last week.

Straddling Borders

Brent crude, the international benchmark, has fallen 13 percent this month to $54.39 a barrel on the London-based ICE Futures Europe exchange at 2:45 p.m. local time. The announcement of a nuclear deal would drive prices even lower, said Bjarne Schieldrop, chief commodities analyst at SEB AB, Sweden’s fourth-biggest bank.

Beyond its ambitions for restoring pre-sanctions output, Iran seeks to add the further 1 million barrels a day to production capacity by developing fields straddling its borders with neighbors, Zanganeh said at a conference in Tehran May 6. The country wants to tap those deposits before its neighbors extract most of the oil, said Siamak Adibi, an analyst who focuses on oil production and Iran at consulting company Facts Global Energy in London.

Iranian ‘Potential’

“Iran has remarkable potential for growth in production capacity,” said Leonardo Maugeri, an associate at Harvard University’s Kennedy School, who was head of strategy at Italy’s Eni SpA until 2011 and worked on oil and natural gas projects in Iran. “Iran could explode in terms of production” if it opens to investment and improves contract terms for foreign companies, he said.

It will take about $50 billion of investment and at least five years for Iran to add a million barrels of daily capacity, Maugeri said by phone March 11. Mills estimated it would cost about $30 billion through at least the end of the decade for Iran to be able to produce 5 million barrels a day.

Zanganeh met with executives from BP Plc, Shell, Total SA and OAO Lukoil before the November OPEC meeting in Vienna and said all of those companies want to work in Iran after sanctions are lifted.

Foreign Companies

Lukoil would like to return to Iran when possible, Chief Executive Officer Vagit Alekperov said after the Vienna meeting Nov. 26. Officials from Shell, BP and Total declined to comment when asked about Iran on March 17.

Areas where Iran can add capacity are the Azadegan and Yadaravan deposits along the country’s border with Iraq, said Adibi and Mills. Iran is going ahead with development of the South Pars natural gas field located offshore in the Persian Gulf, Adibi said. The deposit, which connects to Qatar’s North Field, will raise production of condensate, a light oil found along with gas deposits, that will add to Iran’s liquid exports, Adibi said.

Nuclear Talks

Negotiators are seeking a framework agreement by the end of this month and have set an end-of-June deadline to reach an accord on how to implement it. Significant gaps still separate Iran and the six world powers, who may continue meetings until March 22 in Lausanne, Switzerland, a European negotiator, who asked not to be named in line with diplomatic rules, said Thursday. The talks are in the “final inning,” Iranian Foreign Minister Mohammad Javad Zarif told reporters.

Even if a final agreement is reached, U.S. officials say the country will suspend select economic penalties on Iran, perhaps for six months at a time, while United Nations inspectors verify if Iran is curtailing its nuclear activities.

“Practical circumstances make it unlikely that more Iranian oil is going to come out to market before 2016,” Richard Nephew, who was the top State Department sanctions official on the U.S. negotiating team until three months ago, said by phone Wednesday.

Iraqi Gains

Iraq, another OPEC member whose output was constricted by sanctions and conflict, reopened to foreign investment in 2009 with two auctions of rights to develop fields. The country planned for international companies to spend about $100 billion and boost crude output to 12 million barrels a day by 2016, said Hussain al-Shahristani, the oil minister at the time.

While Iraq has now halved this target, it did attract tens of billion of dollars of foreign investment, the IEA said Feb. 14. The country boosted daily output to 3.7 million barrels in December, the highest since 1979 and an increase of more than 50 percent since 2010, IEA data show. It surpassed Iran to become OPEC’s second-biggest producer in July 2012.

“Iran is one of the wild cards, one of the potential big surprises of the next five years,” said Maugeri of Harvard. “The country really has the ability to arrive in a relatively short period of time, let’s say five years, at production capacity of 5 million barrels a day of crude.”

In a World Awash With Crude Oil, Storage Companies Are Kings

(Bloomberg) -- In a world awash with cheap oil and plunging profits, one obscure corner of the energy business is shining brightly: the owners of storage tanks.

While not nearly as famous as giant oil producers like Exxon Mobil Corp. and Royal Dutch Shell Plc, storage companies including Vopak NV, Kinder Morgan Inc., Oiltanking GmbH and Magellan Midstream Partners LP are among those benefiting from rising demand for onshore tanks -- and higher prices to rent limited space.

“Storage is king,” said Jean Francois Lambert, global head of commodity finance at HSBC Holdings Ltd. in London. “Good tanking at the right location could make money.”

Driven by record production from shale fields, the oil glut is bigger in the U.S. than any other region, and particularly large around the hub of Cushing, the Oklahoma town that calls itself the “pipeline crossroad of the world.” The International Energy Agency anticipates that total U.S. stocks levels, already at a 80-year high of 459 million barrels, may soon test the limits of the country’s tank capacity.

In the U.S. and beyond, traders are filling tanks to take advantage of contango -- a relatively rare situation where forward prices are higher than current prices, allowing people to buy oil cheap, store the commodity in tanks and sell later, all the while locking in their income through the use of derivatives.

The price difference between a West Texas Intermediate oil contract for immediate delivery, the benchmark for U.S. prices, and the one-year forward -- a measure of the contango -- stood at minus $12.59 a barrel on Thursday, close to the highest since crude prices started falling last year.

Tank Farms

Oil traders believe that tank farms at Cushing will fill up as soon as late April, triggering a race to secure the last remaining tanks in the city.

“Demand for our storage services in Cushing has been robust,” said Robb Barnes, senior vice president for commercial crude oil at Magellan, a company with 12 million barrels of tanking capacity in the Oklahoman town. The company said all its tanks were already leased.

Mark Hurley, chief executive officer of Blueknight Energy Partners, a company with 6.6 million barrels of tank capacity at Cushing, told investors increased demand for his tanks meant fees had “been changing fairly rapidly over the last six months. Obviously, on the rise.”

Storage Fees

Storage companies keep the exact level of their fees confidential but oil traders said they charge around 20 U.S. cents to 50 U.S. cents a barrel a month, depending on the length of the contract.

The dearth of storage capacity is such that traders said short-term lease rates for the most sought after locations, such as Cushing, have gone up to as much as 80 U.S. cents a barrel.

In 2008 and 2009, the last time the oil market was as oversupplied as today, the storage companies were slow to increase rates, allowing the traders who used their tanks to take an unusually large slice of the contango profit. This time, the split between tank owners and traders is more even, according to Mike Conway, head of trading at Shell in London.

“It looks like the owners of the storage facilities have extracted a bit more value for themselves,” he said in an interview.

Share Price

Investors are taking notice. In dollar terms, the share price of Vopak, the world’s largest independent oil storage company, has risen 4.4 percent since the beginning of the year. Vopak owns onshore tanks capable of storing roughly 210 million barrels of crude oil and petroleum refined products -- enough to supply Germany for almost three months.

In the same period, the MSCI World Energy index has dropped more than 7 percent weighed by lower oil prices.

Across the board, oil storage companies have told investors to expect stronger income in 2015 than in 2014.

On top of a dozen of publicly listed oil storage groups, the increase in demand would be a boon for privately owned companies such as Oiltanking, a unit of German-based Marquard & Bahls AG, and VTTI BV -- a venture including Vitol Group, the largest independent oil trader.

“You’ll find all the locations around the world that can store crude now, like Saldanha Bay or the Caribbean, are going to be full,” Jared Pearl, VTTI’s commercial director, said in an interview this week. “It would be crazy if they weren’t.”

The higher demand and fees are not the only factor boosting incomes. Some storage companies also take advantage of the contango by buying themselves crude oil for storage.

“We have five percent of our tankage in Cushing that is really for own account,” Greg Armstrong, CEO of Plains American Pipeline LP, told investors last month. “There are areas where we have strategically pulled off opportunities or massive tankage for our own account.”

Kuwait Says OPEC Has No Choice But to Keep Oil Production Target

(Bloomberg) -- OPEC has no plans for an extraordinary meeting to discuss ways to shore up oil prices and doesn’t have a choice but to keep its crude production unchanged to maintain market share, Kuwait Oil Minister Ali Al-Omair said.

If other producers want to cut supply, “we will be very happy,” al-Omair said in Kuwait City. No “serious” requests have come from OPEC members to hold early talks so “accordingly the next meeting will be in June,” he said.

OPEC producer Algeria is seeking to coordinate a global response from outside the group to tumbling prices, Algeria Press Service reported March 17, citing Energy Minister Youcef Yousfi. Crude has lost half its value since June as U.S. producers pumped oil at the fastest pace since 1983 and OPEC decided on Nov. 27 to maintain output. Prices stand to rebound by the end of 2015 on signs of economic growth, al-Omair said.

“Undoubtedly what we agreed on in November 2014 still stands,” al-Omair said. “We are looking for several factors to come into play that could determine the level of prices including the production levels of non-OPEC countries and rates of demand.”

Brent crude, a benchmark for more than half of the world’s oil, dropped 2.8 percent to $54.32 a barrel Thursday on the ICE Futures Europe exchange in London.

OPEC, which supplies about 40 percent of the world’s crude, pumped 30.6 million barrels a day in February, exceeding its target of 30 million barrels for a ninth-consecutive month, data compiled by Bloomberg show.

OPEC Production

Non-OPEC supply has grown by 6 million barrels a day since 2008 while production by members of the Organization of Petroleum Exporting Countries has remained at about 30 million barrels, OPEC Secretary-General Abdalla El-Badri said at a conference in Manama, Bahrain, on March 9.

Algeria’s oil minister met with his Angolan counterpart and Nigeria’s ambassador to Algiers to discuss an initiative by Algerian President Abdelaziz Bouteflika to increase dialogue between oil exporters, members and non-members of OPEC, and to restore balance to the oil market.

As part of Bouteflika’s initiative, messages have been sent since last month to Saudi Arabia, Oman, Azerbaijan, Kazakhstan, Mexico, Russia, Colombia, Nigeria, Gabon, Angola, Congo and Equatorial Guinea, APS said. Bouteflika earlier Monday discussed the oil price decline with Borge Brende, the foreign minister of non-OPEC producer Norway, APS said.

Saudi Role

“Saudi Arabia has relinquished its role in the market and it’s up to Russia and other non-OPEC producers to show us what they will do to stabilize the prices,” Kamel al-Harami, an independent Kuwaiti analyst, said Thursday by phone. “OPEC will not cut unless it sees a cut from Russia.”

The oil-price decline won’t affect Kuwaiti investment plans to boost crude output capacity to 4 million barrels a day from 3.2 million barrels a day, Hashem Hashem, chief executive officer of state-run Kuwait Oil Co., said at the same conference.

Kuwait is in a “critical situation” because crude oil accounts for 94 percent of the Persian Gulf nation’s revenue, al-Omair said at the time.

Al-Omair met with Russia’s Far East Development Minister Alexander Galushka in Kuwait City, and signed a protocol to boost cooperation in oil investment and technology.

Vitol Said to Post Highest Profit Since 2011 as Oil Prices Swing

(Bloomberg) -- Vitol Group earned $1.35 billion last year, the most since 2011, as the world’s largest independent oil trader profited from price swings in the energy market, a person familiar with the company’s accounts said.

Vitol is owned by its employees and does not publish its profits widely, but it does provide financial information to its lenders and some energy groups with which it trades. The person familiar with the accounts asking not to be named, citing confidentially clauses.

The company, formally based in Rotterdam, but with big operations in London, Geneva, Singapore and Houston, reported net income of $837 million in 2013, its worst result in 10 years.

Vitol declined to comment. Chief Executive Officer Ian Taylor earlier this week declined to comment on the company’s profitability, but in an interview he said, “2014 was better than 2013.”

Oil traders such as Vitol and rivals Trafigura Beheer BV, Glencore Plc, Gunvor Group Ltd. and Mercuria Energy Group Ltd. are profiting from the increase in volatility as oil prices plunge to about $50 a barrel, down from $100 a year ago.

Traders are filling tanks to take advantage of contango -- a relatively rare situation where forward prices are higher than current prices, allowing people to buy oil cheap, store the commodity in tanks and sell later, all the while locking in their income through the use of derivatives.

Taylor said in the interview, conducted in Cape Town, that Vitol profited across different business lines.

“We are a very diversified group today,” he said. “We also beginning to have some profits coming back from the investments we have made.”

The company had sales of $270 billion in 2014, down from $307 billion the previous year, the company said last week. It regularly publishes revenue figures, but doesn’t disclose profit.

Oil traders’ sales are largely influenced by the price of oil itself and have little impact on the company’s bottom line.

Vitol had its best year in 2009, when the energy market experienced a strong contango, earning net income of $2.28 billion.

The company has experienced strong growth over the last 15 years on the back of rising oil trade, large price swings and, more recently, investment in storage and refining. In 1999, Vitol earned just $60 million.

More Iran Oil May Flow Within Months of Deal, Officials Say

(Bloomberg) -- World powers have offered to suspend U.S. and European restrictions on Iranian oil exports, but only if the Islamic Republic accepts strict limits on its nuclear program for at least a decade, according to American and European officials.

The offer to begin lifting some sanctions within months of a deal comes amid the effort in Lausanne, Switzerland to reach the framework of an agreement by the end of the month, with the outcome still in doubt.

Iran has yet to agree to such conditions in exchange for relief from oil and banking sanctions. Even if the Islamic Republic does, the limits on its oil exports would be suspended only after it complied with an initial set of restrictions, such as disconnecting the majority of the centrifuges it uses to enrich uranium and submitting them for verification, said the officials, who spoke to Bloomberg News on condition of anonymity to describe the private negotiations.

Iran exports 1 million to 1.1 million barrels of crude per day, down from 2.5 million a day before strict U.S. and European Union sanctions went into effect in mid-2012.

Adding Production

Iranian officials have said they want to add 1 million barrels a day in a few months to the world market if the sanctions are suspended. Analysts said Iran could reach its pre-sanctions export levels, perhaps within a year of signing a deal, though exceeding that level quickly would be harder because of infrastructure issues.

Negotiating teams from six powers -- the U.S., U.K,, France, Germany, China and Russia -- are working toward a self-imposed March 31 goal to reach the framework of a nuclear agreement with Iran. Significant gaps remain, from the duration of the deal and the pace of sanctions relief to open access for inspectors and limits on research and development, according to a European official.

If all the hurdles can be overcome and a political understanding is reached, negotiators have given themselves until the end of June to complete technical annexes detailing all the steps Iran would have to take to limit its ability to enrich uranium and produce plutonium in exchange for phasing out sanctions that have cut crude exports, choked cash flow and halted most foreign investment in its oil industry.

Nuclear Monitors

It could then take perhaps an additional three to six months before United Nations nuclear monitors could verify that Iran has honored its commitments and give the green light for its oil exports to resume.

U.S. and European oil and financial sanctions would be suspended only for several months at a time to ensure that Iran complies with the agreement. The sanctions wouldn’t be “lifted,” U.S. officials say, because they want the power to re-impose them swiftly if Iran cheated.

U.S. President Barack Obama can temporarily suspend congressional sanctions on Iran’s energy, ports, shipping and banking through a national security waiver. Easing sanctions on oil exports alone would have no effect if sanctions remained in place on Iran’s state oil and tanker companies and their financial transactions.

Skeptics of a deal say that easing any sanctions would reopen Iran for business and enable the Islamic Republic to inoculate its economy against future pressure.

Oil Prices

“Once strictures are loosened, with so many international companies positioning to get back into Iran, it will be very difficult to persuade these companies to leave again,” said Mark Dubowitz of the Foundation for Defense of Democracies, which has advised Congress on sanctions and advocates adding more penalties.

Amid a worldwide glut of crude, a deal permitting more Iranian exports to Asia and Europe could drive prices even lower. If Iranian oil returned to the market, two officials said, the price of crude would drop another $10 a barrel. Brent crude, the international benchmark, has fallen 12 percent this month to $54.43 a barrel on the London-based ICE Futures Europe exchange as of 4:00 p.m. Thursday in New York.

Any increase after an agreement would take time.

“Iran will have to disconnect pipes, decontaminate machines, physically haul them out of tight, confined spaces, and then submit them to verification” so there’s accountability that designated centrifuges aren’t operating, said Richard Nephew, the former lead sanctions negotiator on the U.S. team, who is now a fellow at the Center for Global Energy Policy at Columbia University in New York.

Once allowed to do so, Iran could export some additional oil quickly because it has millions of barrels stored in tankers. It might be able to reach its pre-sanctions exports within a year of signing a deal, officials said, though exceeding that level quickly would be difficult because of limits on its infrastructure.

Iran produced 2.8 million barrels of oil a day last month compared with 3.6 million at the end of 2011, according to data compiled by Bloomberg. The second-biggest producer in OPEC before oil sanctions were imposed almost three years ago, Iran has dropped to fifth place.

Tripoli-Based Libya Oil Co. Calls for Buyer Loyalty Amid Split

(Bloomberg) -- Libya’s Tripoli-based management of the state-run National Oil Corp. called for buyer loyalty after a rival group from the company said it’s planning its own crude sales from eastern parts of the divided North African nation.

National Oil wants “all stakeholders to collectively stand together in a shared commitment to ensure the NOC continues to work in Libya’s interests,” according to an e-mailed statement from the company’s headquarters in Tripoli in the west of the country. NOC “is historically known for its commitment to upholding its valued relationship with all international oil companies.”

Libya has been divided between two administrations since July, when the Islamist Libya Dawn coalition captured the capital Tripoli, forcing the internationally recognized government to move to eastern cities. Libya Dawn set up a rival cabinet in the capital, where NOC has its headquarters.

Al-Mabrook Abu Seif, the NOC chairman appointed by the elected government, said March 17 his management team is drafting a loading program that is separate from the one implemented so far, designed by the Tripoli-based management.

Abu Seif’s appointment was announced in November by the internationally-recognized government to replace Mustafa Sanalla, who continues to chair the company in Tripoli with the approval of the Libya Dawn-backed cabinet.

‘Neutral Position’

“The NOC board of directors confirms that the NOC’s position is neutral and receives no directives from either the Tripoli- or Baida-based governments and operates in complete independence from both sets of authorities,” according to today’s statement. It said it deposits all revenue directly into a Central Bank of Libya designated account.

The infighting caused Libya’s output to drop to 220,000 barrels a day last month, according to data compiled by Bloomberg. The country, which has become the smallest producer of the Organization of Petroleum Exporting Countries, pumped about 1.6 million barrels a day before the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule.

The internationally-recognized government of Abdullah al-Thinni controls five of Libya’s nine oil export terminals, while Libya Dawn controls two.

Pimco Lowers U.S. Forecast Amid Strong Dollar, Oil Plunge

(Bloomberg) -- Pacific Investment Management Co., the manager of the world’s biggest bond mutual fund, lowered its expectations for U.S. economic growth this year because of the impact of a strong U.S. dollar and a slowdown in spending among energy companies.

Pimco sees economic expansion of 2.5 percent to 3 percent, Rich Clarida, global strategic adviser, and Andrew Balls, chief investment officer for global fixed income, said in a report on the Newport Beach, California-based company’s website today. That’s down from its 2.75 percent to 3.25 percent projection in December.

“Our baseline view remains that the U.S. is on track for solid if not spectacular above-trend growth,” they wrote in the outlook, formulated after a quarterly meeting that included experts such as former Federal Reserve Chairman Ben S. Bernanke.

Pimco said a stronger labor market and falling oil prices are a positive for U.S. consumers despite headwinds from sluggish exports and lower capital expenditures. The Fed will probably raise interest rates this year, although more slowly and to a lower level than in previous cycles, according to Pimco. The firm has predicted that rates will stay subdued for a prolonged period under a scenario it has dubbed the “new neutral.”

Pimco’s view compares with the 3 percent average forecast of 93 economists surveyed by Bloomberg. The firm’s assessment of the labor market is in agreement with that of Fed policy makers, who said after their meeting Wednesday that job-market conditions have improved. The dollar strengthened today, as the prospect that U.S. rates will rise this year contrasts with a backdrop of central-bank monetary easing from the euro area to Australia.

Pimco expects inflation to “bottom out near current levels” and rebound later this year, staying close to the Fed’s 2 percent call, Clarida and Balls wrote.

US crude settles down 70 cents, at $43.96 a barrel

6 Hours AgoReuters

Oil prices fell on Thursday as a rebounding dollar and Kuwait's stance that OPEC had no choice but to keep producing in an oversupplied market undercut a rally from the previous day.

U.S. crude for April delivery closed down 70 cents, or 1.57 percent, at $43.96 a barrel. It touched a session low of $42.75 earlier.

Brent for May delivery fell to a fresh session low below $54 on Thursday afternoon, before recovering to trade down $1.50 at $54.46 a barrel. Brent rose almost 4.5 percent on Wednesday.

Benchmark Brent oil and U.S. crude were down about 2 percent each, weighed by the dollar's rise against most currencies after the greenback's biggest tumble in 18 months on Wednesday.

In the previous session, Brent rose nearly 5 percent and U.S. crude about 3 percent on the dollar weakness.

"It's dollar play all over again today," said Phil Flynn, analyst at the Price Futures Group in Chicago. "The fact that the oil market is oversupplied is a given, so the only real variable now are currency moves and how they impact commodities demand."

A stronger dollar weakens demand from holders of other currencies for commodities denominated in the greenback. The dollar rose 2 percent against the euro on Thursday, after its selloff on Wednesday on disappointment over the lack of a clear timeline for a U.S. interest rate hike.

In Kuwait, oil minister Ali al-Omair said OPEC had to keep production steady, although he voiced concern about oil prices having been halved since the previous summer.

"We don't want to lose our share in the market," the minister said, reinforcing comments by OPEC kingpin Saudi Arabia of the need for members of the producer group to defend its output against rival shale oil producers in the United States and other non-OPEC nations.

While oil firms have slashed exploration budgets and the number of U.S. rigs drilling for oil has fallen to four-year lows, shale output in the United States has barely slowed.

Last week alone, U.S. crude stockpiles rose by 9.6 million barrels to reach above 458 million barrels, the highest in more than 80 years.

In Lausanne, Switzerland, nuclear talks between Iran and six major powers showed major differences remaining toward a deal, providing some support to oil prices. Iran, an OPEC member whose oil exports have been restrained by sanctions related to its nuclear program, has said it will add another million barrels to the market when the sanctions come off.

On Thursday data showed the number of Americans filing new claims for unemployment benefits rose only modestly last week, indicating the labor market remained on solid footing.

OPEC oil minister: We 'have no choice' on output

Matt Clinch | @mattclinch81

Oil prices fell once again Thursday, after a minister from the Organization of the Petroleum Exporting Countries (OPEC) said the group did not have a choice with regards to cutting oil production because it did not want to lose its global market share.

Speaking to reporters in Kuwait City, Ali al-Omair, the Kuwaiti oil minister, said the dramatic drop in the price of oil would affect the country's revenues and its fiscal budget for the year, Reuters reported Thursday.

"Within OPEC we don't have any other choice than keeping the ceiling of production as it is because we don't want to lose our share in the market," he said Thursday morning, according to the news agency.

"If there is any type of arrangement with (countries) outside OPEC, we will be very happy."

Weak global demand and booming U.S. shale oil production are seen as two key reasons behind the price plunge, as well as OPEC's reluctance to cut its output. OPEC is next due to meet in June, when it will decide on its output policy after deciding to keep its production steady at the end of 2014.

Rumors of an unscheduled meeting in January were quashed by United Arab Emirates Oil Minister, Suhail bin Mohammed al-Mazroui, who said he was adamant the strategy would not change. The group produces about 40 percent of the world's crude oil.

Prices have slumped around 60 percent since last June and tipped lower again on Thursday morning after a volatile week. The drop was compounded by a larger-than-expected build up in U.S. crude inventories, according to new data on Wednesday.

West Texas Intermediate (WTI) futures fell 3 percent on Thursday morning to 43.31 a barrel by 8:00 a.m. GMT, close to six-year lows. Brent crude futures fell to $55.10 a barrel.

'Huge build' in crude stocks

This week's U.S. petroleum report was bearish for crude, according to Michael Wittner and Ashish Karel, two analysts from Societe Generale.

"The highlights of the week were a huge build in crude stocks," they said in a note late Wednesday.

"Looking ahead, we expect the WTI versus Brent discount to narrow in the (second quarter of 2015). In April, refinery runs should increase in the U.S. but drop in Europe and Asia, due to planned maintenance."

The build up in stocks comes despite a fall in the amount of operational rigs in the U.S.

Analysts at Citi, headed by Eric Lee, said this should "eventually" slow down U.S. production growth, but state that this isn't happening yet despite storage tanks filling up toward "critically high levels."

Cheap oil’s a $90 gift for Americans: Wilbur Ross

There are winners and losers from the 60 percent tumble in oil prices—and U.S. consumers are definitely in the former camp, billionaire investor Wilbur Ross told CNBC on Thursday.

"I think it probably puts in the American consumer's pocket something like $90 a month for each family," the 77-year-old chairman of private equity firm WL Ross & Co said.

"While that may not sound like a lot, it really is, because there are an awful lot of folks who live payroll-to-payroll, so putting $90 more cash money (into their pockets) is a good thing."

WL Ross invests in energy, along with other industries including financial services, transportation, building materials, metals and mining, and real estate. It holds around $7 billion investments and an additional $3 billion in co-investments with partners.

Prices of both Brent and WTI crude oil have slid since June last year, and now trade around $55 and $44 respectively, having priced at above $100 for around three years previously.

"I think the lower price of oil is certainly good for the developed world. The U.S., despite all the shale, is still a net importer, so are most of the European countries and certainly so is China and so is Japan," Ross told CNBC on Thursday.

The U.S. investor added: "You have already seen sales of the heavier fuel-guzzling vehicles—the SUVs and the light trucks—get very strong, once the gasoline prices at the pump went below $3."

Oil prices have seesawed over the week, rallying on Wednesday after comments from the U.S. Federal Reserve indicated that rates would not rise in June, before falling back again on Thursday, with the global oversupply of oil back in focus.

Regarding when the Fed might raise its key rate, Ross said: "Frankly, I think there is way too much focus on whether they raise it a little bit in June, or they do in September. I think in the scheme of things it doesn't really make that much difference."

Boone Pickens: Why I see $70 oil by year's end

Energy entrepreneur Boone Pickens said Thursday he sees $70-a-barrel oil by year's end, and between $80 and $90 within 12 to 18 months.

In an interview on CNBC "Squawk Box," Pickens said U.S. producers are in the process of rebalancing the market—pointing to the decline rig count in response to the continued collapse in crude prices.

But Pickens did dial down his longer-range forecast from December, when he predicted on "Squawk Box" $90 to $100 barrel in 12 to 18 months.

Last week, oilfield services company Baker Hughes said rigs seeking oil fell to 866. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

Pickens said U.S. producers in recent years ramped up too much, and overshot demand, which has led to the current price slide of about 50 percent since June.

Oil prices turned sharply lower again Thursday—dipping under $43 a barrel on U.S. crude—after Kuwait said OPEC had no choice but to keep production steady, refocusing the market on global oversupply.

Oil had surged Wednesday, after the dovish Fed comments.

Pickens also predicted $6 natural gas within five years. Nat gas was lower early Thursday, trading around $2.84.

Updating progress on the Pickens Plan—calling for trucks to run on nat gas—he said: "It's happening. But man, it's happening slow."

"The thing you can count on in natural gas, the price isn't going to run up on you, like it does on oil," said Pickens, who's been arguing for years that a switch to nat gas trucks could vastly reduce the nation's oil dependency.

With more than a half century in the oil and gas business, Pickens spent most of his career building Mesa Petroleum into a powerhouse. After selling Mesa in 1996, he founded BP Capital Management, an investment firm focusing on the energy industry.

Saudi Oil Exports Rebound After A Disappointing 2014

By Andy Tully

Saudi crude exports rallied in January to their highest levels in nine months, ending a disappointing slump in demand throughout much of 2014.

Oil exports from Saudi Arabia, the world’s most copious exporter, rose to 7.47 million barrels per day in January, a significant step up from the 6.934 million barrels per day shipped the month before, according to the UN’s Joint Organizations Data Initiative (JODI).

Oil production in Saudi Arabia, however, was steady in both months: 9.680 barrels per day in January compared with 9.630 barrels per day in December, JODI found.

For the Saudi oil industry, the numbers are a refreshing change from 2014, when it exported 5.7 percent less oil because of a decline in demand from China, its largest Asian customer, demonstrating that the plunge in oil prices since June didn’t help increase demand. Chinese data show it reduced imports of Saudi oil by 7.9 percent in 2014, while increasing imports from Angola, Iran, Iraq and the UAE.

Saudi exports averaged 7.11 million barrels a day in 2014, a drop from the 7.54 million barrels a day the year before and the lowest since 2011, according to JODI data. The worst month of last year was December, when exports dropped 5 percent below November’s level of 6.9 million barrels a day.

“When you see your shipments to China declining, you have to be worried about your market share,” John Sfakianakis told Bloomberg. He said Saudi Arabia needs to keep exports at a minimum of 7 million barrels a day to maintain its $229 billion 2015 budget, and the cost of a barrel of oil must average $80 this year. That price, though, has been closer to $60.

Yet market share is the driving force of Saudi Arabia’s – and OPEC’s – strategy to restore pricing balance to the oil market. At the cartel’s meeting in November, under Saudi leadership, OPEC refused to reduce overall production from 30 million barrels a day in an effort to keep prices so low that US shale producers and others with expensive extraction methods can’t make a profit.

Until then, OPEC had been losing customers to American oil companies, and US demand for the cartel’s oil was diminishing. Since then, though, heavy financial pressure has been on shale producers, who have been forced to cut spending and reduce the number of rigs they need to extract oil trapped in shale.

Saudi Oil Minister Ali al-Naimi said the rise in Saudi oil exports in January shows that demand is beginning to rebound and that he believes that oil prices may begin to stabilize after hitting their lowest point in six years during that month.

In fact, al-Naimi has been predicting that outcome for weeks. On Feb. 25, he told reporters in the southwestern Saudi city of Jazan that the price of benchmark Brent crude had stabilized at $60 per barrel, showing that the oil market has cooled off and that his strategy put in place at the November OPEC meeting was working.

Not only was the low price of oil putting a financial pinch on OPEC’s competitors, it was beginning to stimulate demand, both in China and the United States, and said it was not only useless but dangerous not to recognize this positive shift. “Why do you want to rock the markets?” he asked. “The markets are calm. … Demand is growing.”

Whether the markets remain calm and demand continues to grow, though, is another matter. Data for one month, no matter how accurate, doesn’t make a trend, and there’s no evidence yet that demand for oil will keep rising.

By Andy Tully of Oilprice.com

Lifting The U.S. Oil Export Ban Is No Solution To Low Oil Prices

By Arthur Berman

Posted on Wed, 18 March 2015 22:24 | 1

Tight oil producers are hoping for an end to the U.S. oil export ban. They hired IHS to write the second report on this topic in less than a year.

In Unleashing The Supply Chain, IHS argues that U.S. jobs are the casualty from the export ban. The problem, they say, is that the U.S. lacks the capacity to refine all of the light tight oil being produced and that lowers the price.

But there were plenty of jobs over the last several years when oil prices were high even though the export ban was in place. That is because over-supply has lowered oil prices and over-production, not the export ban, is the problem.

The chart below shows that tight oil production from the U.S. and Canada is the anomaly responsible for global over-supply.

https://oilprice.com/images/tinymce/Evan1/ada2029.jpg

And it’s a world problem of over-supply, not just an American problem. Oil companies everywhere are cutting staff and budgets. All companies are being hurt by low oil prices because they need $100 oil to break even.

The IHS report claims that the oil export ban causes lower oil prices in the U.S. compared to international prices. Actually, U.S. oil pricing has nothing to do with international prices. It is a simple matter of supply and demand. When U.S. companies supply more oil than is needed, the price goes down. If there were less supply, the price would be higher.

In fact, there was no difference between U.S. WTI and International Brent prices until late 2010 when tight oil started to become a big factor in U.S. production (see chart below).

https://oilprice.com/images/tinymce/Evan1/ada2031.jpg

If the U.S. export ban were removed, U.S. companies would make more money per barrel for a short time until the extra U.S. supply pushed down the price of world oil even further.

The biggest problem with making an economic argument to lift the oil export ban is that U.S. tight oil companies were losing money at WTI oil prices of more than $90 per barrel. The table below summarizes 2014 year-end financial data from the oil-weighted U.S. land-based companies that I follow.

https://oilprice.com/images/tinymce/Evan1/ada2033.jpg

Summary table of 2014 year-end financial data from oil-weighted U.S. land-based E&P companies. All dollar amounts in millions of U.S. dollars. FCF=free cash flow; CF/CE=cash flow from operations/capital expenditures. Source: Google Finance and Labyrinth Consulting Services, Inc.

The table is ordered by 2014 FCF (free cash flow: cash from operations minus capital expenditures). Only 3 of the sampled companies had positive free cash flow in 2014. All the rest spent more money than they earned.

For the 20 sampled companies, total free cash flow was -$10.5 billion in 2014, -$4.9 billion more negative cash flow than in 2013. On average, these companies only made 75 cents for every dollar that they spent. 2014 debt was $90.3 billion, an increase of almost $7 billion from 2013. Average debt-to-equity was 92%.

WTI prices averaged $93 per barrel in 2014. So, if oil-weighted companies were losing money at more than $90, how are they going to benefit by selling oil at international prices of $53 per barrel at the time of this post?

There is a strategic reason not to allow crude oil export: to keep enough of our own oil in reserve in case there are supply disruptions or our relationships with foreign suppliers sour.

The U.S. does not have significant oil reserves in spite of what we read and hear in the mainstream media. It is true that we are producing a lot of oil today, more liquids than Saudi Arabia. That does not mean that we will have enough for ourselves in a few years. In fact, the U.S. is only 11th in world for proven reserves with 33 billion barrels compared with Saudi Arabia’s 268 billion barrels.

https://oilprice.com/images/tinymce/Evan1/ada2035.jpg

World proven crude oil reserves. Source: EIA

And while tight oil has added new reserves that we didn’t think we had a few years ago, it only amounts to about 2 years of supply if we had to rely solely on tight oil proven reserves to meet our annual consumption. There is another year-and-a-half if we add proven undeveloped reserves that have been identified but not yet drilled.

https://oilprice.com/images/tinymce/Evan1/ada2036.jpg

Years of U.S. supply of tight oil. Source: EIA.

The real issue is that U.S. tight oil producers have over-supplied both the domestic and world markets and that has led to depressed world oil prices. Low oil prices are introducing discipline into U.S. tight oil production that companies are apparently unable to provide on their own. Companies that couldn’t make money at $93 oil prices will not make money at $53 international prices.

Lifting the oil export ban would only perpetuate the problem of over-production. That is no solution to low oil prices, lost jobs or lower oil-related spending.

Over-production is the problem, not the oil export ban.

By Art Berman for Oilprice.com

Forget About Keystone XL – Canadian Crude Is Coming

By Mark Hill

Posted on Thu, 19 March 2015 22:32 | 0

While Congress and the White House continue to wrangle over the Keystone XL pipeline extension, the oil industry is taking matters into its own hands.

Markets are primed for an influx of Canadian crude oil, but with pipeline transport off the table for the foreseeable future, producers have built alternative modes to meet the demand. The problem is, recent disasters have soured legislators and environmentalists on road and rail for moving oil.

Alongside political uncertainties are other wild cards like extreme weather and the unknowns that arise from an emerging logistics infrastructure, which can all impact the flow of goods. That makes the proposition of a non-pipeline solution particularly thorny. How should supply chain decision makers position to connect with premium energy markets, manage the attendant risks, while also addressing the strong likelihood of an increased regulatory burden?

From the source of the commodity to the end consumer, the ability to track Canadian oil assets in real-time is set to become more important than ever.

Boom Times For Oil Producers

Production from Canada's oil sands is on the rise, with output expected to nearly double by 2030 to 6.7 million barrels per day. That accounts for about 98% of the country's oil reserves.

Primary market opportunities exist in both Canada and the US, where replacements for offshore imports are desired. Getting the oil to premium and secondary markets however is another matter.

Considering the gooey consistency of Canada's pure bitumen, rail makes sense as the main pipeline alternative. Rail transport doesn’t require dilution prior to shipping, as it does in pipeline transport; so shipping bitumen in its pure form would require fewer barrels. That creates an incremental netback on rail transport of about $6 per barrel, compared to pipeline processing.

Recent train derailments, however, have attracted public outcry in both countries for tighter controls. That means more regulation is likely, with stiffer compliance for all parties participating in the oil supply chain.

Despite those concerns, the Keystone delay has spurred producers to start shipping Canadian crude by truck, rail and barge. TransCanada, a major energy company based in Calgary has plans to build rail terminals in Alberta and Oklahoma. Exxon Mobil is also planning a new Canadian rail terminal, set for operation this year at a cost of about $250 million. Its completion would accommodate shipments of nearly 100,000 barrels per day.

With Canadian crude assets traversing a complex, closely regulated and shifting supply chain, the question of how to effectively manage the risks inevitably pops up. Any process based on spreadsheets won’t be up to the task. They can’t keep up with the moment-to-moment churn of data required to manage activity and make good decisions.

How much inventory is at risk, where energy assets stand at any given time and the associated capital commitments, all need to traceable down to the carload -- this is literally where the rubber meets the road. Unless systems and processes embrace the real-time, buy-sell-trade environment in oil, you will be hard pressed to react quickly enough when the inherent risks of Canadian crude positions raise their head.

Oil producers and energy traders need to build a robust capability that can handle all that risk data efficiently. That means integration of all the necessary partner and reporting data points. Maps, schematics, and trending data need to be presented graphically, with quick summaries of all active positions, assets and related histories. Given the shift to mobile working and BYOD, all the better if information can be accessed across the full range of devices and operating systems we use to conduct business.

Even with the recent market unrest, America’s appetite for energy is not diminishing. As supply lines for Canadian crude stretch across modalities, borders, time zones, weather patterns, regulatory regimes and market conditions, the ability to monitor assets from the wellhead to the marketplace is critical. Successful oil supply chain risk management will help managers capture the details of every Canadian crude purchase down to the penny, from the front office to the back.

By Mark A. Hill

Russia expects some economic recovery by 2016

MOSCOW, March 19 (UPI) --MOSCOW, March 19 (UPI) -- Russia's economy is expected to contract by about 3 percent, though Finance Minister Anton Siluanov said Thursday there may be a light at the end of the tunnel.

A forecast for 2015 by the Russian Economy Ministry expects export revenues to decline as Russian energy products wane from the world market. Siluanov said it was unclear how long the recession for the country would last.

"We estimate the drop in the annual rate of economic growth at around 3 percent," he said. "In our view, investment demand is the only possible source of recovery."

Russia's economy depends heavily on oil and gas revenue. A decline in energy prices on the world market, coupled with Western economic sanctions imposed in response to crises in Ukraine, has put a strain on the country's financial health.

The World Bank in December said it expected Russia's real gross domestic product should contract by 0.7 percent. That forecast was based on oil priced at $78 per barrel, nearly 30 percent higher than the current price.

The Kremlin last month said the industrial sector may help offset some of the economic pain, but real disposable income should decline along with investment activity for the midterm.

Nevertheless, finance officials in Moscow said Thursday they expect the annual rate of inflation to reach healthy levels by early next year.

The Organization of Petroleum Exporting Countries said in its market report for March the Russian economy is expected to contract by 3.2 percent this year, compared to an estimated 2.4 percent forecast in the previous month's report.

"Russia's economy is forecast to face a significant decline," OPEC said.

The steep decline in oil prices presents "risks and uncertainties" to oil producers on both sides of the Atlantic, the market report added.

Statoil 'highly impacted' by low oil prices

STAVANGER, Norway, March 19 (UPI) --STAVANGER, Norway, March 19 (UPI) -- Norwegian energy company Statoil said Thursday its productivity for full-year 2014 was strong, though financial results are "highly impacted" by low oil prices.

Statoil said full-year equity production of 1.93 million barrels of oil equivalent for 2014 was a 4 percent increase from the previous year. The company said results show it's among the leading companies in the industry.

"In 2014 we continued to deliver solid operational results," President and Chief Executive Officer Eldar Saetre said in a statement. "Our production efficiency improved significantly, we are on track with our improvement programs and we continued to deliver good safety results."

Momentum for Statoil is building behind the Johan Sverdrup oil field, where production is slated for 2019. Peak production is expected to be as high as 650,000 barrels of oil equivalent per day, which Statoil said will represent about 25 percent of the combined production from the Norwegian continental shelf once it's in full swing.

For its overseas portfolio, the company strengthened its position Wednesday with new acreage in the U.S. waters of the Gulf of Mexico.

A sustained period of low oil prices is forcing the energy company to cut back on spending and staff. Saetre said his company would not be spared by slumping markets.

"The profitability of our industry continues to be challenged and Statoil's financial results are highly impacted by the fall in oil prices," he said.

Rig data paints mixed oil picture

Published: March 19, 2015 at 7:33 AM

Daniel J. Graeber

DENVER, March 19 (UPI) --DENVER, March 19 (UPI) -- Industry data show the number of rigs deployed in shale-rich U.S. states is a poor indicator of industry health, though government records suggest otherwise.

North Dakota state data show 107 active rigs as of Thursday, down 45 percent year-on-year and 3.6 percent less than last week. The rig count of 111 last week was the lowest since April 2010.

Bentek Energy, a forecasting division of energy reporting agency Platts, found crude oil production in and around the Bakken shale formation in North Dakota averaged 1.2 million barrels per day. That is around 276,000 bpd higher than February 2014, despite the drop off.

"Producers are countering the decline in rig count with a drive for efficiency gains in drilling and completion techniques and an increased focus on their more productive acreage," Catherine Bernardo, Bentek's manager of energy analysis, said in a statement.

Data from the North Dakota Industrial Commission found the 1.19 million bpd produced in January, the last full month for which data are available from the agency, was 2.5 percent less than the all-time high reported in December.

Data in a drilling productivity report from the U.S. Energy Information Administration, meanwhile, finds net production from key shale basins in the United States may slow down in April. Of the seven shale basins reviewed, including Bakken, only the Permian shale in western Texas shows a projected gain.

Bentek, however, finds production from the Eagle Ford shale basin in Texas increased 3.1 percent year-on-year to average 1.6 million bpd. Yet, when combined with the Niobrara shale in Colorado, EIA data show expected production from Bakken and Eagle Ford will drop off by 24,000 bpd by April, which would be the first decline since EIA drilling record-keeping began in 2013.

EIA attributed the drop off in rig deployments to the low price of oil and subsequent spending cuts.

"When producers make the decision to lay down some drilling rigs, they generally start by idling the older, least-efficient ones first," it said in a Wednesday brief. "The effect on production depends on the productivity of the remaining rigs."

Kurdish oil production to increase

Published: March 18, 2015 at 8:43 AM

Daniel J. Graeber

LONDON, March 18 (UPI) --LONDON, March 18 (UPI) -- Production from oil operations in Kurdish Iraq is expected to increase following a payment from the regional government, Gulf Keystone Petroleum said.

The company said Wednesday it resumed production from the Shaikan reserve area in the Kurdish north of Iraq after receiving payments for future crude oil sales. Production is now expected to increase to levels consistent with the installed capacity of 40,000 barrels of oil per day.

Gulf Keystone was upbeat when, in December, the Kurdish and Iraqi central governments brokered a deal ending a simmering impasse over who controls what parts of the oil sector in the country. Operations were suspended in February amid a payment row with the semiautonomous Kurdistan Regional Government.

"Over recent weeks we have maintained a flexible and prudent approach, ensuring that we can maximize revenues from Shaikan," Chief Executive Officer John Gerstenlauer said in a statement. "We remain confident of a regular payment cycle for Shaikan crude being established in the near term."

The company, which has headquarters in London, is producing oil from nine wells in the Shaikan development in the Kurdish north of Iraq. Total production was around 40,000 barrels of oil per day at the end of 2014. New prospects under development were billed by the company as "potentially prolific."

Gulf Keystone made no reference to a February announcement that it was engaged in talks with "a number of parties" about a possible sale of the company or transaction of assets. In response to email questions about the possible sale, company spokesman Mark Antelme said "we're not saying" if the matter was related either to issues with the Kurdish government or the weak crude oil market.

Kurdish oil production to increase

Published: March 18, 2015 at 8:43 AM

Daniel J. Graeber

Conoco becomes latest energy company to cut spending

Published: March 18, 2015 at 6:43 AM

Daniel J. Graeber

HOUSTON, March 18 (UPI) --HOUSTON, March 18 (UPI) -- U.S. energy company ConocoPhillips said it was cutting capital spending by more than 25 percent in order to stay competitive in the low oil price cycle.

The company said spending of $11.5 billion through 2017 was a cut of 28 percent from its earlier expectations. That mirrors announcements from peers ranging from BP to Exxon Mobil, who've all said the low price of oil forced a cut in capital expenses and staff.

Conoco Chairman and Chief Executive Officer Ryan Lance said his company expects low oil prices to endure the foreseeable future.

"We're taking this period of commodity price weakness to position ConocoPhillips for long-term success in any price environment," he said in a statement on Tuesday.

Oil prices rallied from around $45 per barrel in February, but have pulled back in recent weeks. The price for West Texas Intermediate, the U.S. benchmark, hit a six-year low this week to trade below the $43 per barrel mark.

The U.S. Energy Information Administration expects WTI will average around $52 per barrel for the year, about $7 below Brent, the global benchmark.

The drop in crude oil prices reflects a market favoring the supply side as greater U.S. oil production leaves more reserves in storage.

Lance said the company expects overall production to increase despite the reduction in capital spending. More details on the plan will be revealed during the company's April 8 analyst and investor meeting.

Why Goldman Sachs Is Wrong About Commodity Prices: Philip Richards

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Source: JT Long of The Mining Report (3/17/15)

Goldman Sachs delivered a dire commodities outlook earlier this year, but RAB Capital Founder Philip Richards still sees compelling buying opportunities. In this interview with The Mining Report, Richards discusses his outlook for oil, gold, vanadium, zinc and nickel, and profiles companies with projects that will see the light of day even in harsh price environments. A few of these names have doubled in stock value in recent months, and still others look poised to deliver multiple returns on investment.

The Mining Report: Goldman Sachs cut its price outlook for almost all commodities, including oil, which it said could go as low as in the high $30 per barrel ($30/bbl) range. Do you see that as realistic?

Philip Richards: I think that oil has now made a bottom. I look at Brent crude more than West Texas Intermediate. Brent bottomed at around $46/bbl and has since rallied around 30%. The reason for thinking that oil could go lower is that oil is a relatively price-inelastic commodity. That means if you have a big move in the price, you don't necessarily get a big response on the demand side. Nevertheless, demand is picking up at these lower levels. In fact, even in the U.S., which is a material market, there has been a notable uptick in the growth of oil use at these lower prices, so oil is responding a bit on the demand side.

The other question is whether supply can move dramatically in one direction or the other. Now, Iraq is beginning to pump more oil, and may add another 1–2 million barrels per day (1–2 MMb/d) within the next two years. On the other hand, the whole Middle East is becoming increasingly traumatized, by the Islamic State in particular. There is ongoing unrest across the region, such as Shi'ite Houthi militia taking over strategic sites in Yemen. That could destabilize Saudi oil provinces, which have Shi'a Muslims, who are disaffected with the Saudi regime.

Also, about 5% of oil production drops out of the equation every year simply because reserves run out. This is a commodity with production running at around 92 MMb/d, so about 5 MMb/d must be replaced every year. With the lower oil price, a lot of investment has been curtailed, and consequently, that will slow the pace of new supply coming on-line.

Generally speaking, my prognosis would be that we are looking at oil prices slowly increasing over time.

TMR: In this range of oil prices, what oil companies could be successful?

PR: A number of oil companies had their share prices come down quite a lot. I think you have to look at the mid caps or juniors for real bargain prices. The blue chips, the big-cap stocks, didn't come down as much.

Falkland Oil and Gas Ltd. (FOGL:AIM) has been a long-time favorite. It is just commencing a major five-well drilling program. The stock should show some upside, particularly if the oil price rises.

In the U.S., a company like Noble Energy Inc. (NBL:NYSE), which is a partner of Falkland Oil and Gas in the South Falklands Basin, is well positioned, and also has some decent production elsewhere in the world. Noble is a good example of a fairly large mid-cap stock that could do well in this range of oil prices.

If you looked into something a little bit smaller in, say, the United Kingdom, you might consider Premier Oil Plc (PMO:LSE), which has production. The share price has come off very considerably from its high. In September, the stock was at about 350 pence/share (350p/share). It's now at only 120p. So I would think that's a good example of a bargain stock.

TMR: One thing that Goldman did see increasing was gold. It raised its forecast to $1,262/ounce ($1,262/oz) from $1,200/oz, saying that the downward trend was short of its expectations. What are your expectations for gold?

PR: Gold should be a beneficiary of all the money printing that's been going on in the world. Central banks everywhere have been doing quantitative easing. The European Central Bank is now printing large volumes of euros. Gold should benefit from that. Likewise, just as with oil, the gold price has come down a lot from its peak of nearly $2,000/oz in 2011. So it's about 40% down from its peak. However, that drop has resulted in curtailed production, which should begin to cause a tightness in supply.

PR: I think they have to get involved in decent projects that can see the light of day. The bottom of the market was December/January. From the bottom, we've seen a few stocks move over 100%. Falkland Oil and Gas, which we discussed, bottomed at 18p/share. Recently, it was trading at 36p/share, so that's a 100% move. Sable Mining bottomed at around 0.65p/share, and it's actually been as high as 3p/share, so that was a nearly fivefold move. It has come back down, but it's still well off the bottom. Even though these names have been very risky and have been very painful to hold for quite some time, I think there is an opportunity there. People should grasp that.

TMR: Thanks for your insights.

Philip Richards is the Founder and President of RAB Capital Limited, having cofounded the company with Michael Alen-Buckley in 1999. He is the investment manager for the RAB Special Situations Fund. Prior to joining RAB, Richards was a Managing Director of European research and later Managing Director of investment banking at Merrill Lynch. Richards holds a Bachelor of Arts Honours from Oxford University (Corpus Christi College) in Philosophy, Politics and Economics.

Shifts in oil supply to reshape the market?

A panel of experts at a recent forum in Los Angeles, California have said that the dramatic decline in oil prices over the next six months is unlikely to reverse itself for the foreseeable future, and indicates that OPEC has lost control of the market. The consensus of the entire forum was that the decline in oil prices represents a tsunami, a long term shift that could hold per barrel prices in the US$50 – 60 region for the next several years.

Research Analyst J. Gibson Cooper said, “last October, with US oil production surging, the Saudis and other countries such as Oman, Kuwait and the UAE started discounting the price of oil to Asia in an effort to keep share. At the OPEC meeting a month later, there was an expectation that the cartel would use its natural control of the market to adjust the perceived supply/demand imbalance, but nothing was done, a signal that OPEC had lost control and that the cartel effect was over.” This has created a dramatically altered landscape that has forced financial advisors to rethink fundamental investment strategies.

Good news was spoken of by Ryan Brist, Head of US Investment and said that from a portfolio perspective, “you’ve got a lot of time here” a sentiment that Cooper echoed. “Our expectation is you will see defaults rise moderately in the energy sector. We don't think 2015 is a year of massive pain for high yield energy credits generally. Given our view that oil will probably stay around this price for a couple of years, 2016 is a bigger question.” Cooper did continue however that for now, the energy remarket remains appealing. “Yes, defaults will rise, but we think current spread levels and prices over compensate for default risk.”

It was indicated by Brist that there may be downside risk in the high grade marketplace, but that other opportunities are widely available. “There’s a great dispersion in energy and, especially in emerging markets like Russia and Brazil, where we’re talking about fraud and government intervention, I’d be cautious. But high yield looks pretty interesting; from a portfolio perspective, that would be my focus.”

Cooper looked more deeply at high yield, which he said is an extremely large market. “Broadly speaking, it’s three major sectors: exploration and production, oil service companies and then the midstream sector. That midstream space is still a large part of our strategy. Nearly all of those are structured as master limited partnership (MLPs), and we think that subset of energy will do just fine under any commodity environment.”

Right now, the analysts on the panel affirmed, the name of the game is liquidity. Cooper commented, “the question is whether you can build levers or bridges in your business to withstand a low commodity environment. Our assumption is that not everything works at US$50 – 60 in the US, or even globally.”

Also, upside risks always exist, particularly with a cartel that controls 30 million bpd of production, Cooper pointed out. “We’ve seen issues in Iraq, Libya has been a concern and there’s a big election in Nigeria that keeps getting postponed, it’s very violent and we’ve seen production in fits and starts there. However this past quarter, Cooper noted, everything ha gone right for production: the US has been doing well, OPEC production has been strong and volatility has stayed low.

As Brist see it, all of this reduces the chances of a dramatic surprise in oil prices. He said, “analysts are very good at counting barrels on the supply side, but demand is a hard thing to gauge,” and based on current conditions he said, “I think the base case, that US$50 – 50/bbl price, is our highest probability.”

Edited from press release by Claira Lloyd

Published on 19/03/2015

Oil Prices Will Recover: Market Fundamentals Are Working

Dan Steffens / Oilprice.com @oilandenergy

On St. Patrick’s Day the U.S. Energy Information Administration (EIA) reported that oil production from three of America’s largest shale plays is in decline. The EIA is forecasting that total U.S. oil production will be in decline in the 3rd quarter.

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The South Texas Eagle Ford, North Dakota’s Bakken/Three Forks and the Niobrara in Colorado & Wyoming are in decline. Since horizontal shale wells have very steep production decline rates (more than 50% in the first year), the oil supply “glut” will be corrected by market forces. Shale plays require continuous drilling or they quickly go on decline.

The price of West Texas Intermediate (WTI) crude oil is testing the 5-year low as I write this article. Oil traders are dealing with some facts and a lot of fiction these days. The physical market is obviously oversupplied today, but the word “glut” is being way overused.

There is no doubt in my mind that some of the “narrative” coming from Wall Street analysts is purposely meant to drive down the price of oil. More than 90% of the NYMEX futures contracts are now held by non-commercial “speculators”. Many of them are now “short” oil, hoping the price of WTI will fall. Once Wall Street gets oil prices as low as they can, they will suddenly change their tone and point out that demand for oil is going up and supplies are falling. I have seen this happen several times in my 35+ years in the industry. What’s happening now is not new.

During February, WTI rose off the low of around $45/bbl that was set in late January. Oil seemed to have found a home in the $50 to $55 per barrel range a few weeks ago. Investors moved some money back into the upstream sector; pushing several of my favorite E&P companies up more than 20% year-to-date. They have now pulled back in lock step with oil prices.

On March 13, the International Energy Agency (IEA) published their monthly Oil Market Report. It cause quite a stir on Friday the 13th and oil dropped more than $2.00/bbl. You can read the highlights of the report here: https://www.iea.org/oilmarketreport/omrpublic/

I thought the IEA report contained some rather bullish long-range forecasts, not the least of which is that the IEA believes global demand for refined products will increase 2.0 million barrels per day from where demand is today by the 4th quarter. They believe low fuel prices will continue to increase global demand, pushing demand for refined products up over 95 million barrels per day by year-end. I think their estimates may prove to be quite conservative. A year after the last big drop in oil prices that occurred in 2008, demand for liquid fuels increased by 3.3 million barrels per day in 2009.

So, why are oil prices still so low?

1. There is a lot of “FEAR” being generated by concerns over the rapidly rising amount of oil in storage. In my opinion, this is way over-blown.

2. U.S. oil production continues to rise, despite the sharp drop in the active rig count.

3. Seasonal and unplanned refinery outages have lowered demand for oil.

4. Traders are worried that President Obama will agree to a deal with Iran and lift the sanctions that are keeping an estimated million barrels per day off the market.

5. Strength of the U.S. dollar continues to weigh on commodity prices.

Let’s take these issues one at a time.

Oil Storage: At the end of February, the EIA reported that working oil storage capacity in the U.S. was 40% empty. The most talked about storage location – Cushing, Oklahoma – still has about 20 million barrels of working capacity remaining. As the tanks at Cushing approach capacity, the storage fees go up and oil will be directed elsewhere. There are many pipelines that take oil out of Cushing, so the oil is not “stranded” there. Oil will not start overflowing the tanks in central Oklahoma or anywhere else.

It is very important to understand that the weekly EIA oil storage reports (published on Wednesdays) includes pipeline fill and field level storage. Although it is somewhat hazy, it is estimated that the U.S. oil pipeline system and upstream field tanks have approximately 120 million barrels of above ground oil in “storage”. It is not included in the ~525 million barrels of commercial storage capacity that many analysts compare to the oil inventory number each week.

So, the real storage capacity in the United States is approximately 645 million barrels, compared to the 458.5 million barrels the EIA reported on March 18 as the crude oil inventory level. Therefore, we have almost 180 million barrels of storage capacity remaining and this does not include floating storage. Plus, we are only a few weeks away from the time refiners will draw more feedstock from storage.

When we combine U.S. commercial storage, other OECD storage and floating storage, there is no risk that the world will run out of places to store oil before demand starts to exceed supply. However, the weekly EIA storage reports are likely to remain bearish for at least six more weeks. The speculators that want oil to go lower will keep beating this drum.

U.S. Production Growth: Investors are puzzled by the reports that U.S. production continues to rise while the number of rigs drilling for oil has dropped more than 45% in six months. The reason for this is simple; the drilling of new wells is not what increases production. It is the connection of those wells to a gathering system that adds production. The lag time from spudding a horizontal well to completing it to connecting the supply to a pipeline can be over six months. There was a large inventory of wells “waiting on completion” when all of this started back in June and it takes time to work through this inventory.

Several of the companies I follow are now saying they plan to drill wells and hold off on completing them until oil prices move higher. Although I agree with this strategy, it is impossible to estimate how much this will impact daily production rates. My guess is not very much.

U.S. onshore production should peak this summer and go on decline in the 3rd quarter. There are several Gulf of Mexico projects coming on-line this spring that will increase total U.S. production by approximately 200,000 barrels per day. Gulf of Mexico production is expected to peak at close to 1.7 million barrels per day (BOPD) in the first quarter of 2016, up from 1.4 million BOPD currently.

Seasonal and unplanned refinery outages have lowered demand for oil: The real “consumers” of crude oil are refineries. Refiners are required to do annual maintenance and reconfigure their processes to go from producing winter blends of transportation fuels and home heating oil to producing summer blends of gasoline and diesel. Most of the maintenance related slowdowns occur in March and September. There was also a fire at a large California refinery a few months ago and a workers’ strike that lowered crude oil demand. More crude will be “taken” by refiners in the second quarter.

Iran: President Obama and Mr. Kerry seem “hell bent” on getting a deal done with Iran. In my opinion, this is very dangerous territory. Iran is a known sponsor of global terrorism and they supply weapons to several groups that want to kill us. I trust them about as far as I can throw an ICBM. They are taking control of Iraq as you read this and will soon have Saudi Arabia surrounded. Deals with the “devil” seldom work out well.

Based on the letter 47 senators sent to the leadership of Iran last week, I doubt any deal Obama and Kerry come up with leads to a lifting of sanctions anytime soon. Even if it does, it will take several months for Iran to ramp up their crude oil output.

Strength of the U.S. Dollar: This is a real concern.

The spike in the value of the dollar compared to a basket of other currencies can be viewed at: http://www.marketwatch.com/investing/index/dxy/charts

The dollar is up approximately 25% from where it traded during the 2nd quarter of 2014 and is responsible for at least $25/bbl of the drop in the price of WTI crude oil. Since oil trades in U.S. dollars, there is an inverse relationship between the dollar and the price of oil. This tops my list of “real” concerns when it comes to my long-term outlook for oil prices.

Conclusion: Your guess as to where oil prices are heading in the next few months is as good as mine. Even though there are plenty of places to store oil, the record high U.S. oil inventories will continue to give the bears support for lower price forecasts. In my opinion, we are nearing the mid-point of the bottoming process for oil. At the beginning of the year I predicted that oil would test the lows several times during February to May, and then begin to rise. I’ve seen nothing yet to change my opinion.

In the short-term, I am expecting energy investors to remain on the sidelines until they see U.S. production growth slow and demand increasing.

This article originally appeared on Oilprice.com

Platts Analysis of U.S. EIA Data

U.S. crude oil stocks rose 9.62 million barrels last week

U.S. commercial crude oil stocks increased 9.62 million barrels during the week ended March 13, according to U.S. Energy Information Administration (EIA) data released Wednesday.

Analysts surveyed by Platts on Monday had expected crude oil stocks to increase 3.7 million barrels week over week.

At 458.51 million barrels, U.S. stockpiles for this time of year are at the highest level seen in at least 80 years, EIA said.

Crude oil imports were up 703,000 barrels per day (b/d) to 7.5 million b/d, helping stocks accumulate. U.S. Gulf Coast (USGC) imports increased 326,000 b/d to 3.3 million b/d.

Imports from Saudi Arabia were up 448,000 b/d to 1.1 million b/d. Imports from Venezuela increased 345,000 b/d to 918,000 b/d.

Production was estimated to have risen 53,000 b/d week over week to 9.419 million b/d. Output was 1.2 million b/d above the year-ago level, despite crude oil prices having plummeted. Front-month New York Mercantile Exchange (NYMEX) crude oil settled at $44.84 per barrel (/b) March 13, compared with $98.20/b a year earlier.

Refinery demand rose, helping offset the build, as crude oil runs ticked 136,000 b/d higher to 15.436 million b/d.

Crude oil runs have increased two weeks in a row, an early sign of the seasonal pattern in which refinery activity increases during the spring in preparation for the summer driving season.

The refinery utilization rate edged 0.3 percentage point higher to 88.1% of operable capacity. Analysts had expected the rate would decline 0.1 percentage point the week ended March 13.

Crude oil stocks rose in every U.S. region the week ended March 13. The biggest increase was on the USGC, where inventories rose 3.27 million barrels to 225.683 million barrels.

Stocks at Cushing, Oklahoma -- delivery point for the New York Mercantile Exchange (NYMEX) crude oil futures contract -- increased 2.865 million barrels. At 54.4 million barrels, Cushing stocks eclipsed their previous record of 51.862 million barrels, set in January 2013.

Cushing has reached 76.8% of working capacity, EIA data show. With storage nearing capacity, market players are wondering how long it will be before tanks there are completely full.

GASOLINE STOCKS SEE SUBSTANTIAL DRAW

U.S. gasoline stocks decreased 4.473 million barrels to 235.4 million barrels, EIA data showed, compared with the 1.5 million-barrel decline analysts expected.

Implied* gasoline demand surged 745,000 b/d to 9.26 million b/d, the highest average since the week ended December 26.

The biggest draw occurred on the U.S. West Coast (USWC), where stocks fell 1.774 million barrels the week ended March 13. At 28.435 million barrels, the region's gasoline inventory stands 9.8% below the EIA five-year (2010-14) average.

USWC supply has been tight following unplanned outages at two California refineries.

An explosion February 18 at ExxonMobil's refinery in Torrance, California, knocked out the facility's gasoline-making fluid catalytic cracker.

Tesoro's refinery in Martinez, California, was the sole facility shut during a strike affecting 12 refineries that began February 1, and remains closed as bargaining continues on a local level after a tentative national agreement was reached the week ended March 13.

The unplanned outages have even led USWC refiners to import gasoline and alkylate from Asia, reversing a recent trend in which oil majors exported gasoline to meet their system requirements in the Asia-Pacific region, trading sources have said.

U.S. distillate stocks increased 380,000 barrels to 125.9 million barrels the week ended March 13. Analysts had expected a 1.1 million-barrel decline.

The biggest build occurred on the USGC, where combined low- and ultra-low-sulfur diesel stocks rose 1.56 million barrels to 40.687 million barrels, which is a 12.4% surplus to the five-year average.

Supply appears tighter on the U.S. Atlantic Coast following a 1.983 million-barrel decline the week ended March 13, lowering the region's inventory to 21.86 million barrels, which is a 10.5% deficit to the five-year average.

* Implied demand is the amount of product that moves through the U.S. distribution system, not actual end consumption.

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News 20/03/2015

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