Friday, September 30, 2016

Watching the Brent/WTI spread

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The value of the variation between Brent and West Texas Intermediary (WTI) has gained further importance for the tanker market since the removal of the US crude export ban.
 
This is because it provides cargo holders with new commercial opportunities, dictating tanker trading patterns and global tanker demand, McQuilling Services said in a new report.
The repeal of the ban on US exports in late 2015 opened a variety of new markets beyond Canada for US crude oil. In the first five months of this year, crude exports averaged just under 500,000 barrels per day with only 61% heading to Canada, down from a 92% average in 2015, according to the US EIA.
The remaining 204,000 barrels per day were exported to countries, including the Netherlands, Curacao, Singapore, Italy and the UK. Curacao was the most popular destination for US crude next to Canada, with exports averaging 54,000 barrels per day in 2016.
Venezuela’s state-owned oil company, Petroleos de Venezuela (PDVSA) uses refining and storage infrastructure on the Caribbean island to facilitate the blending of US light oil with its domestic heavy grades for re-export to the East among other destinations.
The Netherlands is the third largest US crude export destination with exports to the European country averaging 39,000 barrels per day through the first five months of this year.
Demand for new crude sources outside of Europe is also growing amid lower production levels at North Sea oilfields and volatile supply in West Africa and North Africa.
Another major destination for US crude exports is the East, as steady volumes to Singapore and Japan have been observed. Data provided by JBC Energy indicated increasing demand for light distillates, such as gasoline and naphtha in the Far East and Southeast Asia since 2013, which is expected to continue.
In the summer months of June and July, the market saw lower US crude exports, driven by a weaker Brent/WTI spread. In June, Brent posted a discount to WTI for the majority of the month causing the spread to average $0.45 per barrel. Moving into July, Brent was pricing at an average of $0.15 per barrel above WTI.
Reported crude charter activity declined to six total fixtures during June and July, while May recorded five market fixtures. US EIA data further supported this notion, as total US exports fell 42% in June; however, the late summer widening of the Brent/WTI spread from $0.54 to $2.73 in August reversed this trend.
Market reported crude fixtures out of the US Gulf increased by seven month-on-month, to total nine cargoes for August. This activity is similar to the seven crude cargoes seen out of the US Gulf in April; however, the stem size increased.
The April cargoes averaged over 93,000 tonnes shipped on five Aframaxes, one Panamax and one co-loaded VLCC. The August cargoes were taken on two Aframaxes and seven Suezmaxes.
Another trend to note is that more US crude cargoes were destined to the East in 2016. The wider range of destinations opens opportunities for longer haul voyages and may support overall tonne/mile demand, McQuilling said.
August fixture data showed that seven US crude cargoes went East, compared to two voyages to South America. The recent destination of choice in the East was Singapore, as three crude fixtures were reported for August, more than any other month this year.
Two of these charters were fixed by a major trading house, who has traditionally sourced from the UK/Cont and West Africa to satisfy Asian crude demand.
In August, the freight rate for a VLCC on the West Africa/Singapore trade averaged $1.14 per barrel, while the rate for a Suezmax on the US Gulf/Singapore trade averaged $2.47 per barrel, representing a $1.33 per barrel cost variance.
Despite the recent calm, supply disruptions continued to be a concern in West Africa as militant attacks compromised key Nigerian oil terminals, while production levels in Angola remained relatively flat, due to curbed investment and operational challenges.
Lower oil supply in Europe, coupled with production disruptions in West Africa, could support Brent pricing and further widen the premium to WTI.
US production may have found a bottom as the rig count inched higher. Increasing production could pressure the pricing of WTI-linked crudes and create a higher discount to the North Sea grade, potentially resulting in more Suezmax and Aframax loadings in the US Gulf.
Forecasting to the end of 2016, McQuilling expected Suezmax freight rates on the US Gulf/Singapore trade to average $3.35 per barrel, while rates for a VLCC on the West Africa/Singapore route was anticipated to average $1.84 per barrel- a $1.51 per barrel cost variance.
Longer haul voyages from the West to the East would help support tonne/mile demand, increasing fleet usage and potentially adding some support to freight rates in the fourth quarter, McQuilling concluded.
OPEC’s decision to cut production on Thursday has taken analysts by surprise but most think it will put around $10 on Brent going forward.
It is too early to say how the drop will affect the tanker market and even if all member countries will abide by the ruling.

Thursday, September 29, 2016

Propane now US’ second-largest petroleum product export

The Galena Park Marine Terminal is one of only two commercial propane export facilities in the U.S. Gulf Coast, according to Targa Resources. Targa Resources, a provider of midstream natural gas and NGL services, is being recognized in the Chronicle 100 special section.
The Galena Park Marine Terminal is one of only two commercial propane export facilities in the U.S. Gulf Coast, according to Targa Resources. Targa Resources, a provider of midstream natural gas and NGL services, is being recognized in the Chronicle 100 special section.


Propane is now the second-largest U.S. petroleum product export, surpassing motor gasoline, the Energy Information Administration reported Wednesday.

U.S. propane exports increased from 562,000 barrels per day in the first half of 2015 to 793,000 bpd in the first half 2016. Exports to Asia and Oceania accounted for 94 percent of this growth. Japan imported the most U.S. propane at 159,000 bpd in the first half of 2016, an increase of 111,000 bpd from 48,000 bpd in the first half 2015. Exports to Panama, however, fell from 41,000 bpd in the first half 2015 to 7,000 bpd in the first half 2016, according to the report.

The EIA said the large increases in exports to Japan and the significant drop to Panama might be explained by reduced ship-to-ship transfer activity.

“Transfers on the Atlantic Ocean side of the Panama Canal likely involve moving cargo from a ship too large to transit the canal onto a slightly smaller ship that can make the passage,” according to an EIA report released in April. “Once through the canal, the smaller ship will either continue on to Asia or transfer the cargo back to a larger ship to complete the journey.”

As a result, some data represent delivery to the transfer site — such as Panama, Aruba and the Dominican Republic — and not the final destination, which can skew the actual final destination numbers. A Panama Canal construction project to accommodate larger vessels recently was finished, and there have been fewer propane transfers.

Demand for propane in Asia is driven largely by an expanding petrochemical industry that uses propane as a feedstock, as well as other industrial and consumer heating and cooking demand, according to the April report.

Wednesday’s report also said Mexico (775,000 bpd), Canada (579,000 bpd) and the Netherlands (271,000 bpd) received the significant volumes of U.S. petroleum products in the first half of 2016.

Gasoline exports increased 138,000 bpd in the first half of 2016 compared with the first half of 2015. Mexico represents the largest single recipient of U.S. gasoline exports at 363,000 bpd, up from 283,000 bpd in the first half of 2015, the EIA said.

Wednesday, September 28, 2016

OPEC Agrees on Need to Cut Oil Output



OPEC

http://www.wsj.com/articles/opec-reaches-understanding-on-output-cut-1475089079

ALGIERS, Algeria—OPEC reached an understanding that a crude-oil-production cut is needed to lift petroleum prices, Iran’s oil minister said, but the group will wait until November to finalize a plan to tackle a supply glut.

The consensus was reached Wednesday after a 4½ hour meeting in the Algerian capital. It represents the first collective acknowledgment from the Organization of the Petroleum Exporting Countries that it needed to take action to alleviate an oil-price slump that has wreaked havoc on the economies of oil producers. OPEC, whose 14 members control over a third of world oil output, has been producing at record levels as its members compete among themselves for buyers.

OPEC has proposed cutting its collective production to between 32.5 million barrels a day and 33 million barrels a day, down from August levels of 33.2 million barrels a day, Iranian Oil Minister Bijan Zanganeh said, according to the Iranian state media service Shana.
“Today, an exceptional decision was made at OPEC,” Mr. Zanganeh said.

Exactly how the production cuts would be achieved is unclear. Mr. Zanganeh said a committee would be formed to determine how much each country would have to cut and then report to the group at its next meeting on Nov. 30 in Vienna. 

Iran, Libya and Nigeria are all trying to increase production, while countries like Venezuela and Algeria can ill afford to lose oil revenue by reducing output. Saudi Arabia, the group’s largest producer, has been pumping at record levels in recent months and was expected to slow down output in the fall and winter anyway.

The meeting lacked the participation of the world’s largest producer of crude oil, Russia, which is pumping record levels of oil. Russia isn’t a member of OPEC but had been heavily involved in talks with the group about jointly slowing down production.

A person familiar with the matter said the output cuts would be discussed with non-OPEC members soon.

The prospect of OPEC returning to its traditional role of propping up oil prices with production cuts—a weapon it had kept sheathed since oil prices fell in 2014—sent the crude market on a wild ride. Prices rose more than 5%, to above $49 a barrel, after reports of a deal surfaced Wednesday following a volatile day of trading.

OPEC kicked off Wednesday’s meeting against a bleak backdrop in the oil industry. After years of prices around or above $100 a barrel, oil prices fell below $30 a barrel this year for the first time in over a decade and have remained stuck between $40 and $50 for months. It has resulted in cheap energy costs for consumers but also tens of thousands of layoffs in the petroleum business, which has dragged on the U.S. economy at times.

OPEC hasn’t taken any concrete action to help the market since prices first began falling in 2014. Saudi Arabia, the group’s de facto leader, reasoned that an American shale-oil boom made OPEC’s traditional move of cutting production levels less effective at propping up the market. Instead, Saudi Arabia and other OPEC members opened the spigots full blast and pumped record levels in a competition for market share.

The previous position of Saudi Arabia’s oil officials had been that low oil prices would push shale producers out of the market, and that prices would eventually rise as demand overtakes falling supply.
But U.S. production has been more resilient than most observers expected, and billions of barrels of the world’s vast oversupply of oil has been put into storage, delaying the day when demand catches up to supply.

At OPEC’s last meeting, in June, when the group took no action, OPEC believed supply and demand would harmonize—and prices would recover—late this year or early next.

“Our expectations about the rebalancing process have shifted,” said OPEC Conference President Dr. Mohammed Bin Saleh al-Sada, in a speech to the group before its private gathering. “It is evident that there is now a greater degree of urgency.”

Saudi Energy Minister Khalid al-Falih said this week that the market needed reassurance, “a gentle adjustment.” It wasn’t a call for significant action, but it represented a departure from Mr. Falih’s predecessor, Ali al-Naimi, who had declared that OPEC was no longer a cartel and that the days of production cuts were over.

Write to Benoit Faucon at benoit.faucon@wsj.com, Georgi Kantchev at georgi.kantchev@wsj.com and Selina Williams at selina.williams@wsj.com

Oil gains as U.S. crude supply falls a fourth week, traders await OPEC news

 


Oil futures gained ground Wednesday as traders awaited news from major producers holding discussions in Algeria on potential limits on production levels.

A fourth-straight, unexpected weekly decline in U.S. crude inventories, also helped to pitch futures higher.

Members of the Organization of the Petroleum Exporting Countries and other big oil producers were holding discussions Wednesday on the sidelines of an energy forum in Algeria on ways to help stabilize the oil market.

OPEC may announce an agreement on an output freeze after the meeting, but it won’t offer full details until the official Nov. 30 cartel meeting in Vienna, Reuters said in a tweet Wednesday, citing sources.
November West Texas Intermediate crude CLX6, +2.71% added $1.07, or 2.4%, to $45.74 a barrel on the New York Mercantile Exchange trading new the session’s high of $45.89 after tapping a low of $44.45. The November contract for global crude benchmark Brent LCOX6, +3.13% was up $1.18, or 2.6%, to $47.15 a barrel on the ICE Futures exchange in London.

“It is more likely that a freeze or production limit would be put in place than a cut as countries like Iran, Libya, Nigeria, Venezuela all have plans to increase production,” said John Macaluso, an analyst at Tyche Capital Advisors. “Any type of limit or cap on production at near current levels would not help the global oversupply issue.”

But the meeting isn’t expected to result in any official agreement among producers an official from Saudi Arabia has said that the meeting is “consultative.” A decision isn’t expected to be made until OPEC’s next meeting in Vienna on Nov. 30.

Recent “comments [from] the Saudi Arabian and Iranian oil ministers indicate the ongoing stalemate,” said Matt Smith, director of commodity research at ClipperData. 

But the Saudis have indicated that they are willing to have exemptions under a freeze agreement and it appears that Iran may be willing to freeze once it reaches production of 4 million barrels a day, he said. “Either way, no decision appears forthcoming before the next official OPEC meeting,” so it’s ‘a cast-iron case of kicking the can down the road.”
U.S. crude supply falls again
On Wednesday, the U.S. Energy Information Administration reported that domestic crude supplies fell unexpectedly for a fourth week in a row.

Crude inventories fell by 1.9 million barrels in the week ended Sept. 23. A 3.2 million-barrel climb was expected by analysts polled by S&P Global Platts, while the American Petroleum Institute late Tuesday reported a decline of 752,000 barrels. 

Coming into the fourth quarter, Macaluso said he expected to see consecutive builds in crude supplies as refinery maintenance season begins. 

“Following numerous large draw’s this month, the price of oil is a telling tail of how over supplied the market is with prices still trading in a tight range,” he said. 

Gasoline supplies, meanwhile, rose by 2 million barrels, while distillate stockpiles were down 1.9 million barrels, according to the EIA. 

On Nymex, October gasoline RBV6, +3.30%  rose 3.2 cents, or 2.3%, to $1.426 a gallon and October heating oil HOV6, +3.27%  added 4.4 cents, or 3.1%, to $1.454 a gallon.

October natural gas NGV16, -1.97%  fell by 8.8 cents, or 2.9%, to $2.908 per million British thermal units, in volatile trading ahead of the contract’s expiration at Wednesday’s settlement.

The EIA report also showed that total U.S. crude production edged down by 15,000 barrels a day to 8.497 million barrels a day last week, after a modest increase in the previous week.

Tuesday, September 27, 2016

Nigeria Mulling Oil Assets Sale That Could Reshape the Industry

President Muhammadu Buhari official Portrait 2015 
 President Muhammadu Buhari
  • Country needs $15 billion to boost economy, reserves: Dangote
  • Sale amid low crude prices may affect assets’ value: analyst
Nigeria’s possible sale of some of its oil and gas assets to raise money and boost the contracting economy in Africa’s most populous country could reduce the government’s influence over its biggest industry.

President Muhammadu Buhari’s economic advisers are working on a plan “to generate immediate large injection of funds into the economy through asset sales, advance payment for license rounds, infrastructure concessioning,” to help deal with the slump in oil revenue, Budget Minister Udoma Udo Udoma said in a Sept. 24 statement. The ministry of Petroleum Resources is examining what oil assets could be sold, Udoma’s spokesman, James Akpandem, said last week.

Battered by low oil prices and a dearth of foreign investment, Nigeria’s economy will probably shrink in 2016 for the first time in 25 years, according to the International Monetary Fund, which forecasts a 1.8 percent contraction. A 15-month currency peg, fuel and power shortages and a slump in crude production, have cut output. The country’s foreign-exchange reserves have fallen by more than a third since the end of September 2014 to $24.8 billion.

Selling upstream assets “will most likely change the structure of the Nigerian oil industry,” Chijioke Nwaozuzu, a professor at the Institute of Petroleum Economics at the University of Port Harcourt, the country’s oil hub, said by phone. A transfer of petroleum reserves to private investors would diminish government influence in the sector, likely resulting in improved efficiency and capacity utilization and “it could also mean mortgaging future crude-oil exports,” he said.
Nigeria has an average 55 percent stake in joint ventures run by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA. These account for about 90 percent of Nigeria’s oil production, which generates roughly two thirds of government revenue. The state also owns 49 percent of Nigeria LNG Ltd, a multibillion-dollar company which operates Africa’s biggest liquefied natural gas plant.

The sale of such stakes, augmented by offshore borrowing, would help the country raise the $15 billion that is needed to revive the economy, Africa’s richest man, Aliko Dangote, said in an interview with Bloomberg TV on Sept. 22.

Repurchase Clause

If the authorities decide to proceed with the sale of energy assets “it will ideally be to the existing partners who wish to increase their share,” Udoma’s spokesman, Akpandem, said. Any such deal would include a repurchase clause, he said.

“We’re looking at this very feverishly because the other alternative is to go mass borrowing,” State Minister for Petroleum Resources Emmanuel Kachikwu said in an interview last month. “But there’s a limit to your borrowing cap and we’re fairly close to that tipping point where you really can’t borrow anymore otherwise you can’t sustain the borrowing. The other thing to look at is your assets and rights that can be turned into cash.”

Buhari approved a 6.1 trillion naira ($19.4 billion) budget for this year and said he expected the government to raise about $5 billion from the Eurobond market and multilateral lenders.

Higher borrowing costs and the loss of almost half of the revenue projected for this year could push Nigeria’s debt service-to-revenue ratio above the projected 35 percent, according to documents from the budget and national planning ministry.
Dangote has recommended the state parts with some of its shares in NLNG, jointly owned with Shell, Total and Eni. Senate President Bukola Saraki has advocated for the sale of oil and gas interests and the privatization of airports and refineries, while former central bank governor Muhammadu Sanusi II said parting with assets could be done without hurting the government’s strategic interests and would give incentives to private investors.
 
Oil workers warned on Sept. 25 that they would go on strike if national assets were sold.

Unfavorable Timing

“Given the economic situation and the challenges, the rationale is there,” Rolake Akinkugbe, head of energy and natural resources at Lagos-based FBN Quest, said by phone. Nigeria is likely to do away with those oil fields where it has struggled to meet its share of capital contributions, leaving it with arrears of about $6 billion, she said.

The timing though, with oil prices at about half their 2014 levels and insecurity in the Niger River delta where militants are sabotaging oil and gas infrastructure, may not be right, according to Ayodeji Dawodu, a research analyst at Lagos-based Investment One.

“If it is because the economy is in an emergency, and you’re able to put in a buy-back clause, then it may be justified,” he said by phone. “There has to be a trade off and they should know what they’re trading off.”

Monday, September 26, 2016

Pemex says fire put out on tanker off Mexico's Gulf coast



A fire on a tanker carrying gasoline and diesel off Mexico's Gulf coast was put out Sunday, a day after the blaze began, the country's state oil company said. 

Firefighting boats had battled the blaze since Saturday aboard the Burgos, which is owned by the company, Petroleos Mexicanos, or Pemex.

A Pemex statement Sunday night said experts have begun investigating to determine what caused the fire in two of the ship's tanks. It said specialists from a Texas salvage company had boarded the vessel.

Pemex said a flight over the ship had determined that only a minimal amount of fuel was in the water and it was contained by floating booms.

Earlier in the day, the company had said the Burgos' double hull had prevented any fuel spill. It said that the volatility of the gasoline and diesel on the ship would aid in its evaporation.

Firefighters used a chemical extinguisher against the fire, the Veracruz Port Authority said.

Mexico's environmental protection agency, Profepa, said Sunday in a statement that a mile (1½ kilometers) of containment booms were deployed to prevent any spilled fuel from reaching the coast.
The Burgos was carrying about 168,000 barrels of gasoline and diesel, Pemex said.

The ship was anchored about 7 miles off the coast when it called for help at 11:30 a.m. Saturday. All crew members were rescued without injury.

The Burgos had been sailing from Coatzacoalcos in eastern Veracruz state to the Pemex terminal, Port Authority Director Juan Ignacio Fernandez said.

Niger Delta Avengers Claim Attack on Bonny Export Line

Niger-Delta-Avengers


The Niger Delta Avengers (NDA), a militant group in Nigeria’s Niger Delta, carried out its first attack on oil installations since declaring a ceasefire last month.

The NDA said on their website that they had taken out the Bonny crude export line in their attack on September 23.

“While we were promised that the concerns of the Niger Delta will be addressed once a truce is declared, the activities of the government and her agents are not assuring enough, there has been no progress,” the group said as reason for the latest attack.

The NDA did say however that it was still in favor of dialogue and negotiations with the government.