Thursday, April 2, 2020

Saudi-Russia Oil Price War: Will It Script the End of Opec?

Saudi Crown Prince Mohammed bin Salman, left, and Russian President Vladimir Putin
Saudi Crown Prince Mohammed bin Salman, left, and Russian President Vladimir Putin at the G-20 summit in Osaka, Japan, on Jun. 28, 2019. Jacques Witt/AFP/Getty Images


As is customary, Opec is supposed to reach its 60th year this year, and perhaps it will not celebrate this event as expected, this year.

The reason is Saudi Arabia’s decision to reduce and discount the price of selling oil and increase its production, after Russia refused to reduce its oil production.

In Opec, Saudi seems to be punching above its weight, resulting in the breakdown of the joint production agreement between Opec and Opec Plus that came into force in 2017. Saudi Arabia and the Opec had wanted to decrease production by one million barrels per day and ask for a corresponding decrease of half a million barrels per day from its non-Opec partners, of which Russia is one.

This was widely seen as an urgent measure to support market stability in light of the economic impact of coronavirus epidemic, but this proposal was not agreed upon by Russia. Russia had called on Saudi Arabia to increase its production and simultaneously increase the surplus in the market to about 4 million barrels daily in the market of the total promised oil supplies during the next month.

This means that as of April, when the current production cut agreement expires, all producers from inside and outside Opec allies, most notably Russia, Kazakhstan and Mexico, will be allowed production levels as they wish and without a ceiling, which means dumping a market, already suffering from slowing demand, with additional shipments of oil.

Saudi Arabia is supposed to make options that are in line with the current situation of the oil markets in terms of supply and demand and avoid the flare-up of an all-out oil war, which may lead to the end of Opec as it is betting on making use of its sovereign wealth fund to bridge the rift in the financial situation that will emerge as a result of falling prices.

While the need for more reductions in production is in agreement and coordination with Opec members and Russia; regarding future production, the Opec Plus agreement reflects the solidarity and consensual work as a temporary solution between oil exporters. 

This is to maintain the market balance in terms of supplies, consumption, prices and refining capacity of oil refineries in light of the shrinking demand and decline in the global economy.

This decision will negatively affect the economy of Saudi Arabia, as it needs a barrel price of more than $70 in order to be able to balance its budget even though its production cost is only in the range of $7 per barrel.

As for Russia, where production costs are much higher than $20 a barrel, it can balance the budget at a price between $40 and $50 a barrel as it is in a better tax, financial and political leadership position than Saudi Arabia. 

It may enable Russia to win the current oil price war. That said, it depends on the extent of the American-Saudi relations affected by the energy price war and returning to the negotiating table or the drop in oil prices to about $15 per barrel or less soon.

Crude Oil Trades as Low as at $10 a Barrel in North America Amid Covid-19 Crisis

PSN Flash Sale Under 10 deals

Crude oil is selling for less than $10 a barrel across key North American hubs as the global demand shock from coronavirus leaves crude with nowhere to go.

The coronavirus pandemic has hit demand so hard that as benchmark futures plunge to their lowest in 18 years, oil is backing up throughout the distribution system, raising the prospect that producers will need to shut in wells.

Some of the hardest-hit areas have been those thousands of miles from export terminals, which would provide the possibility of escape, either to foreign markets or onto tankers as floating storage.

In Europe, the price of crude oil traded during the session at around $22 a barrel.

Refiners across the US, including PBF Energy, Valero Energy, and Phillips 66, are slowing fuel production as restrictions on travel and work reduced fuel and jet fuel demand to a trickle.

North Atlantic Refining will be idling its 130,000-barrel-a-day refinery in Newfoundland, Canada, for two to five months due to the outbreak.

The market is groaning under the weight of this oversupply so much so that US midstream operators such as Plains All American Pipelines have asked their suppliers to reduce oil production because storage capacity is reaching its limits.

Bakken crude in Guernsey, Wyoming, sank to a record-low $3.18 a barrel on Monday, according to data compiled by Bloomberg, while Western Canadian Select in Hardisty, Alberta, was worth just $4.18.

Even oil in West Texas is as cheap as it has ever been.

West Texas Intermediate in Midland was $10.68, just above its all-time low from 1998. And its lower-quality counterpart, West Texas Sour, slid to a record $7.18, the lowest in data going back to 1988.

West Texas Intermediate Light (WTL) traded at around $7.50 a barrel below the WTI Midland benchmark yesterday, said traders, the equivalent of about $3 a barrel outright.

Including transportation costs from the wellhead, that would mean the very light crude is worth near-zero, if not negative, when it comes out of the ground.

Even oil that makes it to a dock isn’t immune from the price plunge, as refineries around the world slow down.

Oil tanker rates double as demand for storage and transport resurfaces

Supertanker freight rates were on the rise for a second time in March as producers, refiners and traders scrambled to secure ships to transport crude or store a fast-growing global glut of oil, according to Reuters reports. 
Freight rates for very large crude-oil carriers (VLCC) along the Middle East Gulf to China route were assessed at about $180,000 a day on Monday, up from some $125,000 on Friday and a weekly low of about $90,000 a day on March 25, according to several ship broking sources.

Monday, March 30, 2020

Oil Tanks Are So Full That Traders May Stow It on Pipe Networks

Liquid Pipeline Map 
 More than 190,000 miles of liquid petroleum pipelines traverse the United States. They connect producing areas to refineries and chemical plants while delivering the products American consumers and businesses need. Pipelines are safe, efficient and, because most are buried, largely unseen. They move crude oil from oil fields on land and offshore to refineries where it is turned into fuels and other products, then from the refineries to terminals where fuels are trucked to retail outlets. Pipelines operate 24 hours a day, seven days a week.

The glut of U.S. oil is growing so fast that at least one pipeline owner is concerned wily traders may try to stow away crude on its network until prices improve.

Plains All American Pipeline LP is requiring customers to prove they have a buyer or place to offload crude they’re shipping through the company’s pipes, according to people familiar with the matter. The idea is to prevent anyone from using Plains’s network to park oil in lieu of higher prices.

With the key storage hub in Cushing, Oklahoma, already more than half full, concern is rising among investors and oil producers that the surfeit of American crude may overwhelm storage capacity and force companies to shut down wells. Shale explorers are dialing back drilling but it won’t have a meaningful impact on overall crude supplies any time soon.

Similar anxieties are wracking the fuel markets as the Covid-19 outbreak saps demand and foreign producers swamp global markets with oil. Colonial Pipeline Co., operator of the busiest U.S. fuels conduit, last week warned clients that any gasoline or diesel on their system that had no end-user or storage reservation would be sold off to the highest bidder.

Sunday, March 29, 2020

Tullow Terminates Maersk Venturer drilling contract for Ghana program

Maersk Drilling announced that it has received notice from Tullow Oil that it would be terminating its contract for services related to its drilling program offshore Ghana which was to utilize the Maersk Venturer drillship.

Since February 2018, Maersk Venturer has worked for Tullow offshore Ghana with an expected end of contract in February 2022. The rig is now expected to end the contract in June 2020. As a consequence of the termination, Maersk Drilling’s revenue contract backlog is reduced by USD 175m covering the period from the end of the contract to February 2022.

Subject to commercial prospects, Maersk Drilling will take measures to reduce Maersk Venturer’s operating costs following the end of the contract.

Maersk Drilling maintains the profitability guidance for 2020 of EBITDA before special items of USD 325-375m as announced on 20 March 2020.

Friday, March 27, 2020

U.S. indicts Venezuela’s Maduro on narcoterrorism charges, offers $15 million reward for his capture 
 Venezuelan President Nicolás Maduro speaks during a news conference this month at the Miraflores presidential palace in Caracas. (Manaure Quintero/Reuters)

March 26, 2020 at 5:42 p.m. EDT
The Trump administration unsealed sweeping indictments against Venezuelan President Nicolás Maduro and members of his inner circle on narcoterrorism charges Thursday, a dramatic escalation in the U.S. campaign to force the authoritarian socialist from power.

The administration also announced a $15 million reward for information leading to Maduro’s capture or conviction, an extraordinary bounty on a man still recognized by the Russians, Chinese and others as Venezuela’s rightful leader. The move effectively turns the 57-year-old former union leader into an internationally wanted man, giving Venezuelans new motivation to act against him and adding a new level of risk to any travel he might attempt beyond the confines of his power center in Caracas.

Attorney General William P. Barr announced the indictments of Maduro and other current and former Venezuelan officials on charges including money laundering, drug trafficking and narcoterrorism. Barr and other U.S. officials alleged a detailed conspiracy headed by Maduro that worked with Colombian guerrillas to transform Venezuela into a transshipment point for moving massive amounts of cocaine to the United States.

The action, rumored for years, comes as the U.S.-backed opposition movement to oust Maduro has struggled to maintain momentum. The coronavirus has effectively halted the opposition rallies that have been a signature of the movement.

On Thursday, Barr accused Maduro of “deploying cocaine as a weapon” to undermine the United States.

“Maduro and the other defendants expressly intended to flood the United States with cocaine in order to undermine the health and well-being of our nation,” Barr said during a news conference in Washington.

The charges against Maduro, brought in indictments in New York and Florida, carry a mandatory minimum sentence of 50 years in prison and a maximum of life. The U.S. Attorney in Manhattan, Geoff Berman, seemed to concede that U.S. authorities could not arrest Maduro in Venezuela, but noted that the leader might travel outside his country.

The charges, described as “a decade” in the making, recalled the U.S. indictment of Panamanian strongman Manuel Antonio Noriega in 1988. In that case, President George H.W. Bush eventually ordered U.S. forces to invade and capture Noriega. But Venezuela’s far better-equipped military and Russian support for Maduro would complicate any attempt by the U.S. to take him into custody the same way.

The Trump administration broke diplomatic relations with Maduro last year and recognized National Assembly leader Juan Guaidó as Venezuela’s legitimate president. Barr said officials expect to arrest Maduro, but declined to say whether the administration would entertain a military option, as it did in Panama.

“We’re going to explore all options for getting custody,” Barr said. “Hopefully, the Venezuelan people will see what’s going on and will eventually regain control of their country.”

Also charged were the head of Venezuela’s National Constituent Assembly, a former director of military intelligence, a former high-ranking general, the defense minister and the chief justice of the Supreme Court. Some of the indicted officials — notably Defense Minister Vladimir Padrino López and Chief Justice Maikel Moreno — were involved in plotting a military uprising against Maduro last spring, but failed to live up to secret pledges to move against the president. The charges suggest the Justice Department was pursuing their alleged links to narcotrafficking even as U.S. officials endorsed and encouraged the efforts of the Venezuelan opposition to solicit their participation in that plot.

The indictments are a sharp escalation in tactics that officials have gradually ramped up against Maduro since President Trump entered the White House. A campaign that started with targeted sanctions on individual Venezuelan officials broadened to measures that have locked the government out of the U.S. financial system. A U.S. oil embargo imposed last year has denied Caracas its single largest source of hard currency.

Maduro rejected the U.S. charges Thursday.

“There’s a conspiracy from the United States and Colombia and they’ve given the order of filling Venezuela with violence,” he said on Twitter. “As head of state I’m obliged to defend peace and stability for all the motherland, under any circumstances.”

Maduro is scrambling to cope with an outbreak of the coronavirus as Venezuela’s broken hospitals reel from chronic shortages of medicines, dilapidated equipment and unsanitary conditions. Barr suggested the pandemic had delayed Thursday’s announcement, but he said the time was right because Venezuela’s “people are suffering.”

“They need an effective government that cares about the people,” Barr said. “We think that the best way to support the Venezuelan people during this period is to do all we can to rid the country of this corrupt cabal.”

In a January interview with The Washington Post, Maduro scoffed at allegations that his government had established agreements with Colombian guerrillas engaged in narcotrafficking and kidnapping on the Venezuelan-Colombian border.

“It makes me laugh,” he said.

Prosecutors allege that Maduro and other Venezuelan officials have operated the Cartel do los Soles, or Cartel of the Suns, since at least 1999, corrupting Venezuela’s government institutions so they could flood the U.S. with hundreds of tons of cocaine. They say the cartel worked with the Revolutionary Armed Forces of Colombia, or FARC, to ship the drug by air and sea through the Caribbean and Central America to the United States. (The FARC, a Marxist guerrilla movement that engaged in a decades-long war against the Colombian government, officially disbanded with the Colombian peace accord of 2016, but more than 2,500 dissident members remain active.)

Prosecutors allege that Maduro led the operation, negotiating shipment quantities, directing the cartel to provide military-grade weapons to the FARC and coordinating with officials in other countries to facilitate the drug trafficking.

Barr said the Maduro government is “awash in corruption and criminality.”

“While the Venezuelan people suffer, this cabal lines their pockets with drug money and the proceeds of their corruption,” Barr said.

Venezuela’s broken health system is uniquely vulnerable to coronavirus. Neighbors are afraid the country will hemorrhage infected migrants.

U.S. authorities charged myriad Venezuelan officials in separate drug and money laundering cases in federal courts in New York, Florida and Washington.

In one case, prosecutors alleged Padrino López took bribes to allow drug traffickers to fly planes in his country’s airspace without fear of being shot down. In another, they said Moreno fixed criminal and civil court cases in exchange for kickbacks — including dismissing a fraud case against the state oil company and authorizing the sale of a $100 million General Motors plant in exchange for a cut of the proceeds.

U.S. officials and Venezuelan opposition leaders have sought dialogue with members of Maduro’s inner circle in an attempt to strip away or at least weaken his internal support. By targeting several members of his inner circle, the administration could push them to close ranks around Maduro, complicating efforts to isolate him.

The indictments appear to conflict with long-standing administration policy toward Maduro. For most of the last year, administration officials repeatedly emphasized their desire for Maduro to leave Venezuela for exile, where they pledged not to pursue him. “This is not about revenge,” one senior official said last year. “We would be happy to pay the airfare.”

By reducing the likelihood of a negotiated settlement, they could be putting Maduro in a position where he has little left to lose — and could increase pressure on Guaidó, who has enjoyed a level of protection under U.S. patronage.

In what appeared to be a retaliatory move, Maduro’s attorney general on Thursday announced an investigation into Guaidó and others for allegedly plotting a “coup.”

U.S. officials who deal with Venezuela policy say that the charges announced Thursday had more to do with Justice Department investigations — and the timing of grand juries weighing the matter in New York and Florida — than any change of position within the administration.

“This was not a policy move,” said one official, who spoke on the condition of anonymity because the official was not authorized to speak publicly on the matter.

Venezuela’s opposition embraced the charges. Iván Simonovis, Guaidó’s security commissioner, called the $15 million reward for Maduro’s capture and conviction, and $10 million for others, powerful incentive for other government officials to turn against them.

“There is a price for each one of them,” he told The Post. “You never know what could happen with that.”

Trump administration officials have given strong support to Guaidó, notably in his military uprising last April 30. That effort quickly petered out, and is increasingly being viewed as Venezuela’s Bay of Pigs — a lost opportunity to oust Maduro that might not come again.

One of the Venezuelans charged, retired Gen. Cliver Alcalá Cordones, posted video clips on Twitter proclaiming his innocence. He said he was living in Barranquilla, Colombia, with the full knowledge of the Colombian government, and had been cooperating for some time with both Guaidó and American officials.

“I'm at my home,” he said. “I'm not running.”

Last year, Maduro’s former spy chief, Gen. Manuel Ricardo Cristopher Figuera, told The Washington Post that he had provided details on locations and activities of Colombian drug cartels and criminal gangs operating on Venezuelan soil directly to Maduro, but Maduro declined to act.

“I gave him a folder with this and told him, ‘Look, this is the situation with the guerrillas,’” said Figuera, who turned against Maduro last year and is now in the United States.

“They never took action,” he said. “You could say that Maduro is a friend of the guerrillas.”

Analysts see differences between going after Maduro now and Noriega in the 1980s.

Maduro maintains a firmer grip on the Venezuelan military than Noriega had, and its officers have been less influenced by contact and cooperation with the U.S. military than were Panama’s. Venezuela’s military is better equipped with more sophisticated Russian weaponry.

Maduro’s government also has more international support. The Russians and Cubans, and to a lesser extent, the Chinese, have stood behind him, and Moscow has turned the shipment of Venezuelan oil to circumvent U.S. sanctions into a cash cow.

Perhaps the biggest difference is that Maduro, although broadly unpopular, is still seen by some in Venezuela as the anointed successor of Hugo Chávez, the father of the socialist state, who died of cancer in 2013. Maduro’s inner circle maintains control of the Venezuelan socialist movement, known as Chavismo, a still-formidable apparatus.

“You can lob a cruise missile and take him out, but you don’t take out Chavismo,” said Eric Farnsworth, vice president of the Council of the Americas and the Americas Society. “You don’t really take out the regime unless the military lays down its weapons and says we’re going to support the Americans. I don’t see that happening.”

Ana Vanessa Herrero in Caracas contributed to this report.