Friday, October 18, 2019

Iranian Suezmax attack - insurance implications

Iranian state television reported the alleged attack resulted in an oil leak, which they say was later plugged. (SHANA via AP)
Iranian state television reported the alleged attack resulted in an oil leak, which they say was later plugged. (SHANA via AP)

Amidst heightened tensions in the Middle East, an Iranian Suezmax was damaged by an alleged rocket attack later last week in the Red Sea. 
The explosion caused an oil spill, which was brought under control, according to Iranian news agency, IRNA and the crew was reported to be safe.

Jonathan Moss, DWF Head of Marine & Trade, outlined the potential cost to the insurance market.

He said: "Marine insurance, Cargo and Hull & Machinery cover incorporating War Risks, is uncontrollably linked with geopolitical conflict. This latest incident will drive insurers to raise further War Risk insurance rates for vessels operating in the region, over and above the tenfold increase to rates since the attacks on tankers in May. 

“Shipping companies operating in the region will be forced to absorb these added costs with affordable insurance in this high risk zone becoming harder to find. This could lead to cost-cutting measures in other areas of maritime trade.

"The events leading to the attack in the Red Sea, off the coast of Saudi Arabia, are uncertain. There were reports that missiles struck the tanker and an accusation that Saudi Arabia had committed an act of terrorism while the vessel was carrying oil to Syria.

“Whether this was an act of terrorism or indeed a breach of international sanctions is of crucial significance in determining  whether and how cover might respond, if at all.

“What is certain, however, is that the continued instability and unpredictability in the region will have an adverse effect on sea trade, will reinforce the argument that the UK has too few naval assets to protect its interests in the area, and will add to the growing trend of increasing marine insurance premiums," he warned.

Thursday, October 17, 2019

Oil price holds firm despite massive stockpile increase

Cushing, Oklahoma storage tanks

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Thursday morning, showing that U.S. commercial crude inventories soared by 9.3 million barrels last week, maintaining a total U.S. commercial crude inventory of 434.9 million barrels. The commercial crude inventory is about 2% above the five-year average for this time of year. Over the past four weeks, the U.S. crude stockpile has added nearly 17 million barrels.

Wednesday evening, the American Petroleum Institute (API) reported that crude inventories increased by 4.13 barrels in the week ending October 10. For the same period, analysts expected crude inventories to rise by about 2.9 million barrels. Gasoline and diesel fuel inventories both fell, by 934,000 and 2.86 million barrels, respectively, according to the API. The EIA reported that gasoline inventories dropped by 2.6 million barrels last week and distillate inventories dropped by 3.8 million barrels.

West Texas Intermediate (WTI) crude traded at a high of $62.90 a barrel following the drone attack on Saudi oil processing facilities in mid-September. Crude had not traded at that level since late May.

WTI traded at around $53.20 Thursday morning, while May 2020 futures traded at $52.53. In May of this year, the difference between the spot price and the six-month forward price was about $3 a barrel. That market position, known as backwardation, is slowly giving way to the more usual position where future prices are higher than current spot prices (called contango).

However, concerns about a continuing trade war and an accompanying global economic slowdown have stifled any optimism for rising crude oil prices. Hedge funds cut their long positions in Brent crude by 10% last week and, until there’s some good news on trade relations between the United States and China, oil prices will continue to trade in a narrow band around $53 a barrel, barring further black-swan events like the drone attack. Even those, however, will generate primarily modest and short-lived price spikes.

Wednesday, October 16, 2019

Billion-Dollar Acquisitions Are Taking The Permian By Storm


Whiting Petroleum is talking acquisition with Abraxas Petroleum Corp., a Texas-based company with operations in the Permian, unnamed sources told Reuters.

According to one of the sources, the mostly likely scenario was for an all-stock acquisition. According to another, the tie-up would boost Whiting’s acreage in the Permian and also help it spread its overhead costs over greater oil production, Reuters noted.

Neither of the companies confirmed or denied the report, and the Reuters sources said that reaching a deal is far from guaranteed.

Consolidation among U.S. oil independents has been a topic of discussion for analysts for a while now, with many of the opinion that both independents and Big Oil would be willing to exit other shale plays in the U.S. to focus on the already crowded Permian where production is rising the fastest.

Earlier this year, Bloomberg reported that a wave of M&A was coming to the Permian as the larger players sought to expand their presence there. Indeed, Big Oil majors have been selling their operations in Europe to focus on the Permian at home. Yet if the Reuters report is confirmed, it would highlight that it’s not just Big Oil that is doubling down on the Permian. Independents are growing bigger, too.

Related: Iraq's Return To Oil's Top Table

Yesterday, Parsley Energy announced that it would buy rival Jagged Peak Energy for $1.62 billion in an all-stock deal. The acquisition would boost Parsley’s Permian acreage.

Shareholders don’t seem like they are too happy about this consolidation drive. Reuters reported on Monday that Parsley shares fell by as much as 11 percent following the deal announcement. On the other hand, consolidations usually cut costs, which should sit well with investors that have yet to see the higher returns they have been insisting on.

Besides the Permian, Abraxas Petroleum also has assets in the Rocky Mountains and in the Powder River Basin in Wyoming.

By Irina Slav for

Tuesday, October 15, 2019

Oil Spreads Weaken as Freight Surge Menaces World’s Crude Flows

  • Brent and WTI spreads decline as global shipping costs soar
  • Benchmark supertanker rates topped $300,000-a-day on Friday
The spectacular surge in the cost of chartering oil tankers is rippling through the crude market, as fears that shipments will be constrained begin to weigh on gauges of market strength.

The nearest WTI contract is trading at a discount to the following month -- a bearish market structure known as contango -- while its Brent equivalent also slumped last week. The move reflected concerns that the usual shipments of key grades of crude from the North Sea, Russia, West Africa and the U.S. will be crimped, leaving an excess of oil with nowhere to go, traders said.
Crude spreads weaken as shipping costs soar
“The huge thing in the markets right now is the strong disruption on freight,” said Olivier Jakob, managing director at consultant Petromatrix GmbH. “That is limiting quite significantly the flows of crude oil and that is putting some pressure on the time-spreads.”

Benchmark shipping rates surged to about $300,000 a day on Friday, while one vessel was booked for more than $15 million last week and Indian Oil Corp. said the costs oblige it to cut spot purchases. The shift occurred following an attack on an Iranian oil tanker in the Red Sea, which exacerbated U.S. sanctions on units of China’s COSCO Shipping Corp. that had already clamped a chunk of the world’s fleet.

About 367,000 barrels-a-day of crude left the North Sea heading to the lucrative Asian market in September, according to ship-tracking data compiled by Bloomberg. About 1.2 million barrels of U.S. crude was exported to Asia daily in July, about 45% of total American exports, Energy Information Administration data show. Other crude grades that are shipped on long-haul journeys to Asia include Urals from Russia and oil from West Africa and the Middle East.

Freight-Based Slump

Though traders said that the surge in freight was limiting the viability of many of those trades, there’s only so long that situation is likely to last. Middle East producers may discount their crude to persuade oil refineries in Asia to take it instead of more local barrels, according to Jan-Jacob Verschoor, London-based director of Oil Analytics Ltd., which keeps track of the margins of hundreds of refineries around the world.

The premium for Brent December futures over the January contract fell to as little as 25c early on Monday; that was the weakest level in just over 2 months. At the same time, the nearest WTI time-spread reached a bearish contango of as much as 10c on Friday, falling as much as 21c from its highest level last week.

Though time-spreads often drop seasonally in the fall as refinery maintenance lessens demand for crude, the most recent slump is freight-based, said Tamas Varga, an analyst at PVM Oil Associates.
“It’s all to do with the freight rates,” he said. “Refiners will have to draw down on their product stocks.”

Monday, October 14, 2019

Want to Make a Big Bet on Oil Prices? Try Measuring Shadows | WSJ

Saudi Oil Attacks Send OPEC+ Compliance Soaring Past 200%


OPEC and its non-OPEC allies in the production cut deal achieved a compliance rate of more than 200 percent with their cuts in September, mainly due to last month’s attacks on vital oil infrastructure in OPEC’s largest producer Saudi Arabia, sources with knowledge of the matter told Reuters on Monday.

Last month, Saudi Arabia witnessed an unprecedented attack on its oil infrastructure, which knocked 5.7 million bpd - or 5 percent of global oil supply - offline.

Due to this attack, OPEC’s total production slumped by 1.318 million bpd from August to 28.491 million bpd in September, according to the secondary sources in OPEC’s closely-watched Monthly Oil Market Report.

This figure, reported by OPEC last week - is very close to the Platts survey from earlier last week which found that OPEC pumped 28.45 million bpd of crude oil last month, down by 1.48 million bpd from August - the steepest monthly drop in nearly 17 years.

According to OPEC’s secondary sources, production in Saudi Arabia plunged by 1.28 million bpd to 8.564 million bpd in September. The Saudis, however, self-reported to OPEC that production was down by just 660,000 bpd in September from August, at 9.129 million bpd.

Among other members with lower production as per OPEC’s secondary sources, non-compliant Iraq and Nigeria cut some of their overproduction last month but were still off target. Related: Inventory Build Sends Oil Prices Lower

Crude oil production in Iran further declined, by 34,000 bpd to 2.159 million bpd, amid the U.S. sanctions restricting Iranian oil exports. Venezuela’s crude oil production plunged again, by 82,000 bpd to average just 644,000 bpd in September, according to OPEC’s secondary sources.

The largest non-OPEC producer part of the pact, Russia, saw its oil production inch down in September, to 11.25 million bpd from 11.29 million bpd in August, but still above Moscow’s cap under the deal. Russia has vowed that it is still looking to comply with its share of the cuts.

By Tsvetana Paraskova for

Saturday, October 12, 2019

ExxonMobil Hands Out $13 Billion in Contracts for Rovuma LNG

ExxonMobil awarded a JGC Corp.-led group a contract to develop its Mozambique liquefied natural-gas project, which is set to be the biggest-ever private investment in Africa. The consortia taking the award, JFT, is made up of JGC, Fluor Corp. and TechnipFMC Plc.

JFT will develop Mozambique’s Rovuma LNG project in Area 4, according to Exxon Senior Vice President for LNG Peter Clarke in a speech given at an industry event in Maputo this week.

The complex will consist of two natural gas liquefaction trains, with a total LNG nameplate capacity of 15.2 million tonnes annually as well as associated onshore facilities. LNG production of the complex is expected to commence in 2025.

Area 4, which produces feed gas for the onshore LNG production complex to be built in Cabo Delgado, is operated by Mozambique Rovuma Venture S.p.A. (MRV), an incorporated joint venture owned by Eni, ExxonMobil and CNPC, which holds a 70 percent interest in the Area 4 exploration and production concession contract. Galp, KOGAS and Empresa Nacional de Hidrocarbonetos E.P. each hold a 10 percent interest.

The overall cost of the project is estimated to be somewhere between $23 and $27 billion.