Thursday, February 21, 2019

Twelve Empty Supertankers Reveal Truths About Today’s Oil Market

Sunset, Tanker, Oil Tanker, Sea, Abendstimmung
  • Ships are sailing without cargo after producers cut exports
  • Booming U.S. shipments still need to go to Asian refineries

They are slowly plowing their way across thousands of miles of ocean toward America’s Gulf of Mexico coastline. As they do, twelve empty supertankers are also revealing a few truths about today’s global oil market.

In normal times, the vessels would be filled with heavy, high sulfur Middle East oil for delivery to refineries in places like Houston or New Orleans. Not now though. They are sailing cargo-less, a practice that vessel owners normally try to avoid because ships earn money by making deliveries.

The 12 vessels are making voyages of as much as 21,000 miles direct from Asia, all the way around South Africa, holding nothing but seawater for stability because Middle East producers are restricting supplies. Still, America’s booming volumes of light crude must still be exported, and there aren’t enough supertankers in the Atlantic Ocean for the job. So they’re coming empty.
“What’s driving this is a U.S. oil market that’s looking relatively bearish with domestic production estimates trending higher, and persistent crude oil builds we have seen for the last few weeks,” said Warren Patterson, head of commodities strategy at ING Bank NV in Amsterdam. “At the same time, OPEC cuts are supporting international grades like Brent, creating an export incentive.”

The U.S. both exports and imports large amounts of crude because the variety it pumps -- especially newer supplies from shale formations -- is very different from the type that’s found in the Middle East. OPEC members are likely cutting heavier grades while American exports are predominantly lighter, Patterson said.

Gasoline Glut

By industry standards, American oil is considered light and low in sulfur, making it great for churning out gasoline, with the result that a glut of the automotive fuel is starting to build up. By contrast, Middle East crude often needs more processing -- not a problem for Gulf of Mexico plants that were designed specifically for that task -- but it can have a smaller gasoline yield.

“There is still going to be a lot of growth from U.S. tight oil this year,” said James Davis, director of short-term global oil service at Facts Global Energy. “This will continue to push U.S. exports up.”

Shippers are counting on the U.S. exports to help the tanker market withstand supply restrictions by the Organization of Petroleum Exporting Countries and allies including Russia. Industry analysts, who actually raised their estimates for what they think the ships will earn this year after the OPEC+ pact was announced in December, are citing rising American shipments as a contributing factor.

There are usually three or four empty supertankers -- very large crude carriers in industry jargon -- that would sail empty to the U.S. at any one time, according to shipbrokers.

The shift has produced knock-on effects around the shipping market. Daily earnings for the VLCCs, which can haul two million barrels of oil, on the benchmark Middle East-to-China route doubled to $29,337 in the past week, according to Baltic Exchange data.

“Following a fixing frenzy from the U.S. Gulf Coast late last week, most available tonnage in the Atlantic basin has been soaked up,” said Espen Fjermestad, an analyst at Fearnley Securities AS in Oslo. “With ships ballasting West, rates have shifted up also in the East.”

— With assistance by David Marino, Alex Longley, Zimri Smith, and Julian Lee

Wednesday, February 20, 2019

Fire hits pumping station, disrupts Venezuela crude transportation

A fuel filling station of PDVSA, the Venezuelan state-owned oil and natural gas company. 
Valery Sharifulin | TASS | Getty Images
A fuel filling station of PDVSA, the Venezuelan state-owned oil and natural gas company.

  • On Tuesday, a fire hit a Venezuelan crude oil pumping station and disrupted crude transportation, state-owned oil company Petroleos de Venezuela said.
  • The fire at the Ero pumping station, which has the capacity to transport 300,000 barrels per day of crude, was controlled and no one was injured. But the incident will affect transport of crude through pipelines, a source at the company said.
  • This incident comes as the cash-strapped firm struggles with the impact of U.S. sanctions.

A fire hit a crude oil pumping station in Venezuela's Orinoco belt region on Tuesday, state-owned oil company Petroleos de Venezuela (PDVSA) said, disrupting crude transportation as the cash-strapped firm struggles with the impact of U.S. sanctions.

The fire at the Ero pumping station, which has the capacity to transport 300,000 barrels per day of crude, was controlled and no one was injured, the company said in a statement. But the incident will affect transport of crude through pipelines, a source at the company said, without providing further details.

The incident comes weeks after the United States slapped sanctions on PDVSA to try to oust socialist President Nicolas Maduro from power. Venezuela, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), holds the world's largest crude reserves, but production has collapsed amid mismanagement and an economic crisis.

In the statement, PDVSA said the fire was caused by "an act of sabotage perpetrated by the right-wing opposition."

PDVSA said the Ero station receives crude from its Petrocarabobo oilfield, a joint venture with Spain's Repsol, and from its Petroindependencia joint venture, which is 34 percent owned by Chevron.

PDVSA's facilities for producing, refining and transporting oil and fuel often experience outages due to a lack of spare parts and delayed maintenance following years of underinvestment.

Tuesday, February 19, 2019

Saudi Arabia's oil deal with Russia is now 'more fragile than ever,' analyst says

Saudi Arabia's Minister of Energy, Industry and Mineral Resources, Khalid Al-Falih (R) speaks during a press conference with his Russian counterpart Alexander Novak at the Ritz Carlton Hotel in the capital Riyadh on February 14, 2018.

  • Crude futures have been slowly rising after Russia and Saudi Arabia agreed to cut oil supply.
  • Saudi producers appear to be doing more to meet supply commitments than Russian counterparts.
  • Riyadh's oil deal with Moscow is now 'more fragile than ever,' analyst says
A rolling oil pact between Russia and Saudi Arabia which seeks to support prices by reducing output looks to be on shaky ground with only the Arab nation appearing to fulfil its promises.

Late last year, OPEC producing countries, and non-OPEC producers, led by Russia, agreed to cut supply by 1.2 million barrels per day(bpd), an arrangement known as OPEC+.

Saudi Arabia agreed to account for the bulk of OPEC nation cuts and has confirmed it will drop its crude oil production by a further 400,000 barrels per day to 9.8 million b/d in March. If achieved it would mean that since the December, Saudi Arabia has become responsible for 70 percent of the total OPEC+ target.

In turn, Russia was set to account for the greater share of non-OPEC cuts, but from October to the beginning of February had only decreased output by 47,000 barrels per day.

The slow pace to cuts from Russian oil producers drew criticism from Saudi Arabia's Energy Minister Khalid al-Falih, who told CNBC in January that Moscow had moved "slower than I'd like."

That barb led to a response from Russian Energy Minister Alexander Novak who said at the beginning of February that Russia was "completely fulfilling its obligations in line with earlier announced plans to gradually cut production by May this year."

During 2018, oil prices were dragged lower by increasing U.S. shale supply and fears over global demand. President Donald Trump has repeatedly criticized OPEC on its decision making, claiming prices should be lower.

In November 2018 Trump tweeted that he hoped OPEC wouldnot cut oil output.
On Tuesday International benchmark Brent crude was trading at $66.39 a barrel at around 12 p.m. London time (7 a.m ET), down around 0.1 percent, while West Texas Intermediate (WTI) stood at $56.09, almost 1 percent higher.

Oil prices have steadily edged higher since the OPEC+ promise to cut supply and are now sitting at levels not seen since November 2018.

But Torbjorn Soltvedt, principal MENA politics analyst at Verisk Maplecroft, said in a note Tuesday that any end to Russian-Saudi coordination would likely add significant downward pressure on prices.

"Although our base case is still that Riyadh and Moscow find a compromise to extend the agreement, the pact is now looking more fragile than ever," said Soltvedt.

The political analyst added that to save the pact he expected Saudi Arabia may even have to settle for "low levels of (Russian) compliance to save the pact."

Verisk Maplecroft estimate that Riyadh needs $80 a barrel in order to fund its 2019 budget while in turn, Russian President Vladimir Putin has claimed that $60 is enough to satisfy Moscow's needs.

The next meeting of OPEC and non-OPEC oil producers takes place in mid-April.

Monday, February 18, 2019

Nigeria's new gusher just made OPEC compliance a little harder


ABUJA and LONDON (Bloomberg) -- Nigeria is about to ship the first cargo of crude oil from a new deposit about 90 mi off its coast.

The 1 MMbbl consignment, which will head toward the Dutch port of Rotterdam, comes at a tricky moment for the West African country, given a pledge it has made to OPEC and other oil producing countries to help them avert a glut of crude.

The tanker, the Achilleas, will export from a mooring linked to the Total SA-operated Egina field. When fully up and running, the European oil company anticipates flows reaching about 200,000 bopd.

The kind of crude is exactly the variety the oil market needs, but is also the kind that the Organization of Petroleum Exporting Countries doesn’t. It has an API gravity of 2.73° degrees, making it a so-called medium grade, and a very low sulfur content of 0.165%, according to Total marketing literature seen by Bloomberg. That will make it invaluable for making fuels that comply with International Maritime Organization rules to restrict shipping’s sulfur emissions starting next year.

The extra barrels come just as the country is supposed to be lowering its output by 53,000 bopd in the first half of this year as part of a wider initiative by OPEC and allied nations to restrict collective supplies. It’s supposed to pump about 1.685 MMbopd in the first half of 2019. In January, it averaged 1.792 MMbopd, according to OPEC figures.

Nigeria’s Minister of State for Petroleum Resources Emmanuel Kachikwu has suggested the oil might be classified as a condensate -- a much lighter, more gasoline-rich oil that’s not bound by the OPEC+ curbs.

Condensates are hydocarbons that are gases at reservoir temperature and pressure, but condense into liquids at the surface. There is no simple way to distinguish crude and condensate once they have been extracted, as the definition relates to the type of field from which they are produced. Condensate comes from gas fields, crude from oil fields.

OPEC agreed a technical definition of condensates in 1988 that is based on API gravity, the ratio of gas to liquids in the production stream and the composition of that stream.

Condensates normally have an API gravity above 45° (the higher the number, the lighter the oil). To put the 27.3 figure into context, even Brent and West Texas Intermediate crudes are both around 40 API, making them lighter than Egina.

In its January press release announcing the start of production from Egina, Total made no mention of gas, suggesting that the gas:oil ratio may be fairly low. That would reduce the likelihood of Egina meeting OPEC’s requirements for classifying its output as condensate.

If that is indeed the case, then Nigeria may have a decision to make when Egina really gets going: cut output elsewhere to adhere to its OPEC pledge, or not.

Friday, February 15, 2019

Venezuela Supreme Court orders prosecution of new oil boards

Opposition leader Juan Guaido (L) is locked in a battle with President Nicolas Maduro (R) for control of Venezuela (AFP Photo/Federico Parra , Leo RAMIREZ)

Caracas (AFP) - Venezuela's Supreme Court on Thursday ordered that executives appointed to boards affiliated with state oil firm PDVSA -- in a bid for control by opposition leader Juan Guaido -- face criminal prosecution.

The court -- packed with Maduro loyalists -- ordered legal action against 15 executives that the National Assembly, headed by Guaido, named on Wednesday to form four new executive boards for PDVSA and its US-based affiliate Citgo.

Guaido -- who has been recognized as acting president by more than 50 countries -- is locked in a battle with Maduro for control of the crisis-hit country.

Guaido celebrated the appointments as a "step forward in the reconstruction of PDVSA," but Maduro had warned that those accepting "illegal" appointments would face justice.

The high court ruled that the executives were named by a legislature whose decisions are "null," and that the appointees should face prosecution for crimes including "usurpation," "corruption," "organized crime" and "terrorism."

The Supreme Court decision set in motion the process of extraditing the accused, most of whom are in the United States, and freezing their accounts.

U.S. judge rules former Venezuelan oil minister owes $1.4 billion

Rafale Ramirez
Venezuela's Rafael Ramirez

HOUSTON (Reuters) - A federal judge in Houston ordered a former Venezuelan oil minister this week to pay the owners of a defunct Houston oil company $1.4 billion in damages in a fraud suit, although it is unclear if or how the payment will ever be made. 

U.S. District Court Judge Lee Rosenthal issued the default judgment on Wednesday after Rafael Ramirez did not contest Harvest Natural Resources’ claims, according to an opinion accompanying the ruling. 

James Edmiston, Harvest Natural’s former chief executive and director, said on Thursday he was pleased with the order. Whether the shareholders of Harvest will ever receive a payment from Ramirez “is the $1.4 billion question,” he said. 

Ramirez, in a message to Reuters, said he was not surprised by the order, but declined further comment. 

Harvest’s suit claimed Venezuela refused to allow the company to sell its assets in the country from 2012, leading it to lose $472 million. It accused Ramirez and others of seeking a $10 million bribe to approve the transaction. 

Rosenthal initially awarded Harvest $472 million in damages in December, an amount he tripled this week. 

Ramirez was appointed energy minister by late Venezuelan President Hugo Chavez, serving in that job until 2014. He later was the country’s ambassador to the United Nations, but left after being accused of corruption by Venezuelan officials amid a purge of executives at state oil firm PDVSA. 

Reporting by Erwin Seba, Editing by Rosalba O'Brien

Trafigura halts oil trade with Venezuela - source

FILE PHOTO: Trafigura logo is pictured in the company entrance in Geneva, Switzerland March 11, 2012. REUTERS/Denis Balibouse/File Photo

By Julia Payne

GENEVA (Reuters) - Global commodities firm Trafigura has decided to stop trading oil with Venezuela due to U.S. sanctions on the OPEC nation's energy sector, a source with direct knowledge of the matter said.

The decision will come as a blow to Caracas as Swiss-based Trafigura has a long-standing arrangement with state-run PDVSA to take Venezuelan crude and, in exchange, supply the Latin American country with refined products.

Washington imposed fresh sanctions on PDVSA last month to cut off a key source of revenue for President Nicolas Maduro. The move came after congress head Juan Guaido invoked constitutional provisions to become interim president, arguing that socialist Maduro's re-election last year was a sham.

Last year, trading company Trafigura directly took 34,000 barrels per day (bpd) of Venezuelan crude and products, which were mostly resold to U.S. and Chinese refineries, according to internal PDVSA trade documents seen by Reuters.

Trafigura will stop business with PDVSA after completing a small number of already-concluded trades, the source said.

Due to the size of Venezuela's oil-for-loan agreements with China and Russia and the weight of previous U.S. sanctions, cash-strapped PDVSA has become increasingly reliant on intermediaries to export its crude and import refined products.

PDVSA did not immediately respond to a request for comment.

Trafigura is due to load two cargoes of Venezuelan crude before the end of February, the source with direct knowledge and a shipping source said.

It was not immediately clear whether these two tankers were the last of the already-concluded trades, or how many - if any - product tankers would be sent in return.

For the trading firm, the decision means giving up a source of crude supply for Russia-backed Indian refiner Nayara Energy, in which Trafigura holds a near 25 percent stake.

Nayara would still be able to buy Venezuelan crude through Russia’s Rosneft and other intermediaries.

The U.S. sanctions limit U.S. refiners to paying for Venezuelan oil by using escrow accounts that cannot be accessed by Maduro's government. Foreign firms that use the U.S. financial system for oil trading or U.S. units are similarly restricted, cutting off avenues for PDVSA to collect revenue.

In an effort to ease domestic fuel shortages, PDVSA's imports skyrocketed last year. Its own refining system is hobbled by technical failure, a lack of investment, delayed maintenance and insufficient crude supply.

In the last three months of 2018, Venezuela exported about 1.45 million bpd of crude and products. Trading houses lifted 225,000 bpd of that, according to the PDVSA documents and Refinitiv Eikon data.

Exports to the United States, Venezuela’s primary export customer, have since dried up, as well as those to other destinations, with loaded tankers left stranded off Venezuelan ports.

(Reporting by Julia Payne; Additional reporting by Marianna Parraga in Mexico City; Editing by Dale Hudson)