Monday, June 18, 2018

Exxon Mobil, Plains Partner on Permian Pipeline Project

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Exxon Mobil is joining the race to build out pipeline networks that stretch hundreds of miles across Texas to deliver crude oil from the booming Permian Basin to refining and port hubs near Houston.

Exxon Mobil said Tuesday it plans to create a joint venture with Houston's Plains All American Pipeline to construct a multibillion-dollar pipeline stretching from west of Midland to the Houston and Beaumont areas that would carry oil and condensate.

Plains and Oklahoma-based Magellan Midstream Partners recently expanded their BridgeTex oil pipeline, which has served as the major artery from West Texas to the Houston region.

Permian oil production, however, is at a record high and rapidly rising and the lack of pipelines are creating bottlenecks that hamper the pace of growth and create discounts to Permian-produced oil.

Friday, June 15, 2018

All eyes on OPEC’s November meeting

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VIENNA, June 2, 2016 (Xinhua) -- Qatari Oil Minister Mohammed bin Saleh al-Sada (C) receives interviews before the 169th meeting of the OPEC conference in Vienna, capital of Austria, on June 2, 2016. (Xinhua/Qian Yi) 


The next OPEC meeting due on 22nd June is shaping up to be one of the more significant gatherings. 
 
Discussions will centre around whether to maintain production cuts or increase production. Naturally, the tanker market is hoping for production increases, Poten & Partners said in a comment.
 
Since the current production restrictions came into effect in January, 2017, oil prices have increased from $55 to $80 per barrel for Brent. US Commercial inventories have come down by 100 mill barrels from a peak of 534 mill in April, 2017 to around 436 mill barrels in the first week of June, 2018.
 
While these two elements seem to indicate that the OPEC cuts have achieved their objective, it remains highly uncertain what OPEC (and non-OPEC participants, like Russia) will ultimately decide to do. The tanker market is holding its collective breath.
 
A meaningful increase in long-haul flows from some of the key OPEC exporters would go a long way in turning the crude tanker market around, especially since it will impact the physical market, as well as provide a boost to the all-important market psychology.
 
While the production cutbacks and resulting oil price increases seem to have turned OPEC members finances around, some countries are benefiting more than others.
 
Revenues declined by an average of 45%, before the cuts. As the largest OPEC producer and exporter, Saudi Arabia suffered the most. The value of the Kingdom’s petroleum exports dropped from $284 bill in 2014 to $153 bill in 2015, so it was no surprise that OPEC decided in 2016 that it needed to curtail production.
 
This led to a significant recovery in price, which boosted the revenues for all OPEC members. However, the total value of exports remains significantly below the 2013/2014 numbers.
 
The different OPEC members paths may diverge from here. Sticking to the production agreement may lead to higher oil prices and this will further improve OPEC’s finances. However, the world economy is not immune to higher oil prices and pressure from the US on OPEC is building to increase production.
 
Unfortunately, while higher prices help all OPEC members (at least in the short term), a production increase will only benefit the countries with spare capacity (ie, mostly Saudi Arabia).
 
Not surprisingly, Venezuela and Iran would rather keep the production cuts in place, as neither country has much, if any, spare capacity and both are facing US sanctions, which could lead to further reductions in output. Iran’s exports will be facing challenges when sanctions start to bite in November.
 
What are the possible scenarios for the tanker market? The worst case would be a decision later this month to do nothing, ie continue the production cuts. This will lead to rising prices, as problems in Venezuela continue to mount and many Iranian buyers gradually start to reduce their purchases to avoid US sanctions.
 
As we move closer to the November cut off, Iranian exports may decline further.
 
A tightening oil market in combination with rising geopolitical tension could push oil prices to levels where it starts to impact global demand. Rising US oil production is a positive for global oil balances, but, due to a lack of pipeline capacity, US shale producers are facing increasing problems getting their product to (export) markets.
 
The best-case scenario for the tanker market would be a decision by OPEC to boost output, mainly from producers in the Middle East (Saudi Arabia, UAE, Kuwait). Combined with Iranian sanctions and more floating storage, this could reverse the decline in OPEC-related tonne/mile demand that resulted from the production cuts in 2017.
 
Falling oil prices may provide an additional boost to tanker demand as it stimulates oil demand growth and stock building. We don’t know what will happen, but we do know what tanker owners are hoping for, Poten concluded.
 
Some analysts are already predicting a rise in production at next week’s meeting - Ed.

Thursday, June 14, 2018

Venezuela eyes first-ever refining of foreign oil - documents

PdVSA's Amuay refinery complex. The country's falling production has proved a boon - so far - for other producers participating in an output cut deal. Carlos Garcia Rawlins / Reuters 
FILE PHOTO: A general view of the Amuay refinery complex which belongs to the Venezuelan state oil company PDVSA in Punto Fijo, Venezuela November 17, 2016. REUTERS/Carlos Garcia Rawlins/File Photo

HOUSTON (Reuters) - Venezuela is considering producing fuels from foreign crude oil for the first time, according to planning documents seen by Reuters, as the country struggles to meet its obligations despite having the world’s largest crude reserves. 

State-run oil company PDVSA may process up to 57,000 barrels per day (bpd) of foreign crude in June at the country’s largest refinery, according to a monthly refining plan which was viewed by Reuters on Wednesday. The output would help fulfill fuel contracts for Russian, Chinese and other customers and reduce purchases of fuels for domestic use, the documents showed. 

PDVSA did not respond to a request for comment. 

PDVSA has been falling short on fuel exports in recent years due to a lack of lighter crudes to refine, a shortage of spare parts, poor maintenance, and management upheaval at its domestic refining network. PDVSA also lost access in May to inventories produced in Curacao, where it operates the Isla refinery. 

Declining revenue resulting from falling oil production and exports have driven Venezuela into a severe economic recession, and led to a loss of skilled workers, and widespread food and medicine shortages. Some energy experts say further production declines could contribute to a global crude shortfall. 

U.S.-based ConocoPhillips (COP.N) last month seized some of PDVSA’s assets in the Caribbean seeking payment for a $2 billion arbitration award, reducing PDVSA’s ability to deliver fuel and crude exports to Asian customers and regional allies. 

Venezuela, an OPEC member country, has never before imported foreign crude oil for its domestic refineries, although it has blended African, Russian and U.S. crudes with its extra heavy oil to make exportable products. It also has purchased foreign oil for Caribbean refineries and to supply allies, including Cuba. 

DECADES-LOW OUTPUT 

In May, the country produced 1.53 million bpd of crude, according to numbers delivered to OPEC, but other sources put the figure at 1.39 million bpd, which would be the lowest monthly output since the 1950s. 

If PDVSA chooses to refine the imported crude, one of two scenarios outlined in documents showing its production, supply and contract requirements, the imports would alleviate a lack of domestic lighter crudes needed at the refineries, which have been running at about a third of their capacity. It could use Russian, Iranian or Angolan crudes, according to the documents. 

“The larger processing of crude would increase our fuel availability. It would also decrease the requirements (to import) of vacuum gasoil and diesel,” said one of the documents prepared in May. 

The alternative, not using imported crude, would mean the shortfall in fulfilling contracts to supply fuel would increase, the document showed. Most of these fuel contracts cover oil-for-loans with Chinese and Russian companies. 

As of June 13, two tankers holding Russian Urals crude were waiting in Venezuelan waters to discharge, according to Thomson Reuters vessel tracking data. One of the two, the Advantage Atom, is waiting near its Amuay refinery. 

FILE PHOTO: A man walks past a gas station with the logos of the Venezuelan state oil company PDVSA in Caracas, Venezuela December 23, 2016. REUTERS/Carlos Garcia Rawlins/File Photo
 
Venezuela in January started routine imports of Urals crude to supply Cuban refineries, spending nearly $440 million on the purchases for its Caribbean ally. 

The Urals cargoes had been discharged in Curacao for transfer to Cuba, but since Conoco began seizing PDVSA’s Caribbean assets, tankers arriving from Russia have been diverted to Venezuela’s Paraguana Refining Center (CRP), which includes its Amuay and Cardon refineries.

NOT ENOUGH FOR ALL

To meet its domestic demands and PDVSA’s fuel supply contracts, Venezuela would have to produce some 850,000 bpd of fuels, the documents show. 

Neither of the June alternatives show it getting close to that level. If PDVSA decides to process the foreign crude, it would produce 606,000 bpd, and less if it does not. 

 
COP.NNew York Stock Exchange
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From January through March, PDVSA’s refineries supplied 78 percent of the 365,000 bpd of the fuels demanded by Venezuela’s domestic market, which forced the company to import finished products including gasoline and diesel. 

Under the plan excluding foreign oil imports, PDVSA’s domestic refineries this month would work at about 36 percent of their total capacity, or 473,000 bpd of Venezuelan crude, according to the documents, reflecting an acute lack of spare parts and delayed maintenance projects. 

On Wednesday, PDVSA’s 310,000-bpd Cardon refinery restarted a vacuum distillation unit that was waiting for spare parts to be repaired. Last week, the 645,000-Amuay refinery restarted one of its crude distillation units. 

Those repairs are just some of the many still pending, according to the documents. At Venezuela’s smallest refineries, Puerto la Cruz and El Palito, the lack of medium and light crudes has kept several distillation units out of service for months. 

The insufficient fuel production is affecting China’s CNPC [CNPC.UL] and its subsidiaries the most as PDVSA would have to ship 258,000 bpd of fuel oil and jet fuel to these companies for repaying Chinese loans extended to the Venezuelan government in the last decade, but it typically delivers less than 100,000 bpd. 

Russia’s Rosneft (ROSN.MM) this month is entitled to 80,000 bpd of fuel oil, jet fuel and natural gasoline under oil-for-loan contracts, while Cuba and members of Petrocaribe should receive at least 108,000 bpd, according to current contracts. 

Reporting by Marianna Parraga, editing by Diane Craft

It looks like North Korea is coming through with a 'major' denuclearization step for Trump

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  • US president Donald Trump left experts baffled when he said North Korea had agreed to destroy a missile engine testing site, but it now looks like North Korea is making good.
  • North Korea will reportedly destroy a large-scale facility in Tongchang-ri, North Pyongan Province that was used to test engines for the intercontinental-range ballistic missile, the Hwasong-14.
  • The Hwasong-14 was the first North Korean missile experts said could hit the US mainland with a nuclear payload.
  • Measures like the destruction of testing sites in North Korea, if monitored by US and international experts, could build the kind of trust needed to carry out denuclearization.

US president Donald Trump left experts baffled when he said North Korea had agreed to destroy a missile engine testing site after emerging from his summit with Kim Jong Un, but it now looks like North Korea is making good. 

"They secured the commitment to destroy the missile engine testing site. That was not in your agreement," Trump said in a press conference after the summit, referencing the joint statement which made no mention of concrete steps towards denuclearization. 

"I got that after we signed the agreement. I said do me a favor. You have this missile engine testing site. We know where it is because of the heat. It is incredible the equipment we have to be honest with you. I said can you close it up. He's going to close it up," Trump continued. 

Trump's statement at the press conference confused many and may have even divulged a bit much on the military intelligence side, but now reports of the details of the testing site have surfaced. 

North Korea will destroy a large-scale facility in Tongchang-ri, North Pyongan Province that was used to test engines for the intercontinental-range ballistic missile, the Hwasong-14, according to South Korea's Chosun Ilbo

The Hwasong-14 was the first North Korean missile experts said could hit the US mainland with a nuclear payload.

Diplomacy in action

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The Hwasong-14.
KCNA via Reuters
"Kim promised Trump during their summit on Tuesday to dismantle this facility," a diplomatic source said told Chosun Ilbo.

"Kim Jong-un must have won a number of major concessions from Trump in other sectors in return for destroying such a major facility," the source continued.

North Korea did win a number of concessions from Trump, who agreed, also outside of the joint statement, to stop US and South Korean military drills without consulting Seoul first

World leaders have praised the summit as a great step towards peace and reducing tensions. Measures like the destruction of testing sites in North Korea, if monitored by US and international experts, could build the kind of trust needed to carry out earnest denuclearization.

Tuesday, June 12, 2018

Trump to Suspend Military Exercises on Korean Peninsula

US President Donald Trump (R) gestures as he meets with North Korea's leader Kim Jong Un (L) at the start of their historic US-North Korea summit, at the Capella Hotel on Sentosa island in Singapore - Donald Trump and Kim Jong Un have become on June 12 the first sitting US and North Korean leaders to meet, shake hands and negotiate to end a decades-old nuclear stand-off. 


President Trump said Tuesday that he was suspending military exercises on the Korean Peninsula and that he expected the North Korean leader, Kim Jong-un, to move “very quickly” to dismantle his nuclear arsenal after a day of discussions in Singapore.

But Mr. Trump said economic sanctions against North Korea would remain in place.

The summit meeting was the first of its kind between a sitting American president and a leader of North Korea, and it ended in a joint statement that opened the door to ending seven decades of hostility between the two countries.

Mr. Trump said at a news conference that the United States would stop “the war games,” in what appeared to be a concession to the North. Mr. Trump said the exercises were expensive and “very provocative.”

In their joint statement, the United States “committed to provide security guarantees.” In exchange, Mr. Kim “reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula.”

Here’s what happened:

• The two leaders first met privately for less than an hour in a one-on-one session with interpreters present, before breaking off for a larger meeting and then a working lunch with aides.

• The leaders signed their joint statement, in which the United States committed to providing guarantees of security to North Korea in exchange for denuclearization.

• “We had a historic meeting and decided to leave the past behind,” Mr. Kim said as he and Mr. Trump signed the joint statement, adding, “The world will see a major change.”

Mr. Trump was similarly optimistic about the progress they achieved, saying, “We are going to take care of a very big and very dangerous problem for the world.”

Monday, June 11, 2018

Trump upbeat ahead of North Korean summit; Kim visits Singapore sites



U.S. President Donald Trump said on Monday his historic summit with North Korean leader Kim Jong Un in Singapore could “work out very nicely” as officials from both countries sought to narrow differences on how to end a nuclear stand-off on the Korean peninsula. 
 
Kim, one of the world’s most reclusive leaders, made an evening tour of sites on Singapore’s waterfront, on the eve of the summit that is due to get underway on Tuesday morning at a nearby resort island. 

While Trump was optimistic about prospects for the summit between the old foes, U.S. Secretary of State Mike Pompeo injected a note of caution ahead of the first-ever meeting of sitting U.S. and North Korean leaders, saying it remained to be seen whether Kim was sincere about his willingness to denuclearize. 

Officials from the two sides held last-minute talks aimed at laying the groundwork for a meeting that was almost unthinkable just months ago when the two leaders were exchanging insults and threats that raised fears of war. 

But after a flurry of diplomatic overtures eased tension in recent months, the two leaders are now headed for a history-making handshake that U.S. officials hope could eventually lead to the dismantling of a North Korean nuclear program that threatens the United States. 

Offering a preview to reporters, Pompeo said it could provide “an unprecedented opportunity to change the trajectory of our relationship and bring peace and prosperity” to North Korea. 

However, he played down the possibility of a quick breakthrough and said the summit should set the framework for “the hard work that will follow”, insisting that North Korea had to move toward complete, verifiable and irreversible denuclearization.