Saturday, January 25, 2020

Saudi Arabia: All options open to OPEC+ as China virus weighs on price

Saudi Arabia’s minister of energy, Prince Abdul Aziz bin Salman Al-Saud, pictured here at the World Economic Forum at Davos, Switzerland, warned it was too early for OPEC+ to make a decision on oil supply. (Reuters)
  • Group will meet in Vienna in March to set policy, with the possibility of further oil production cuts firmly on the table
DUBAI: Saudi Arabia’s Minister of Energy Prince Abdul Aziz bin Salman Al-Saud said all options were open at an OPEC+ meeting in early March, including further cuts in oil production, Al Arabiya reported. But he added it was too early to make a call on the need for more cuts.

“I can’t judge now if the market needs additional cuts because I haven’t seen the balances for January and February,” he said.

He added that when the Organization of Petroleum Exporting Countries and its allies led by Russia convened for an emergency meeting in March, the grouping would study where the market is and “objectively decide” if more cuts are needed.

OPEC+ agreed in December to widen supply cuts by 500,000 barrels per day (bpd) to 1.7 million bpd until the end of March.

Prince Abdul Aziz said the aim of OPEC+ was to reduce the size of the seasonal inventory build that takes place in the first half of the year.

OPEC+ is due to meet in Vienna on March 5 and 6 to set their policy. A ministerial monitoring committee for the deal will meet in Vienna on March 4.

Oil slipped below $62 a barrel on Friday and was heading for a weekly decline as concern that a virus in China may spread, curbing travel and oil demand, overshadowed supply cuts.

The virus has prompted the suspension of public transport in 10 Chinese cities. Health authorities fear the infection rate could accelerate over the Lunar New Year holiday this weekend, when millions of Chinese travel.

Global benchmark Brent is down almost 5 percent this week, its third consecutive weekly drop. US crude was also on course for a weekly decline.

“One should be prepared for negative surprises when it comes to Chinese demand,” said Eugen Weinberg, analyst at Commerzbank. “The impact of this is all the greater because the restrictions are being imposed during the busiest travel season for the Chinese.”

China is the world’s second-largest oil consumer so any slowdown in travel would show up on demand forecasts.

Offering some support for prices was the US Energy Information Administration’s latest weekly supply report, which showed crude inventories fell 405,000 barrels in the week to Jan. 17.

Nonetheless, the upside for prices was limited. Oil inventories in the wider industrialized world are above the five-year average according to OPEC figures, which analysts say is limiting the impact on prices of supply losses.

“Such is the bearish pressure that a raft of ongoing crude supply outages are not gaining much traction,” said analysts at JBC Energy in a report.

Friday, January 24, 2020

U.S. Shale Patch Sees Huge Jump In Bankruptcies

 Scan Patriot

More than 200 oil and gas companies in North America have filed for bankruptcy since 2015, and the list of casualties could continue to climb this year.

From 2015 through November of last year, 208 companies filed for bankruptcy, according to a new report from law firm Haynes and Boone. Those filings involved a combined $121.7 billion in debt.

Since the last update from Haynes and Boone at the end of the third quarter last year, nine firms went bankrupt. In fact, in 2019, bankruptcies surged by 50 percent compared to a year earlier, and hit the highest number since 2016.
The rate of bankruptcies could accelerate this year as the price of natural gas recently tumbled below $2/MMBtu and crude oil prices have fallen back once again. “I think the trend line should be moving up in the first half of 2020,” Buddy Clark, partner at Haynes and Boone, told Reuters.

The IEA predicts that the oil market will remain in a state of surplus this year, even after taking into account the recent OPEC+ cuts. The IEA said that OPEC+ may need to cut deeper in order to avoid a chronic surplus.

The problem for the sector is the tidal wave of debt that comes due in the next few years. According to the Wall Street Journal, North American oil and gas companies have a combined $200 billion in debt that matures over the next four years, with $40 billion due this year alone.

The financial stress is causing a slowdown in the pace of drilling. Already, gas production in the all-important Marcellus shale may have come to a halt. The EIA sees gas production contracting in the Anadarko, Appalachia, Eagle Ford and Niobrara shales. As for oil, U.S. production growth is expected to rise by 22,000 bpd in February, a tepid rate compared to typical months last year and the year before. Some shale basins are facing decline, including the Anadarko, Eagle Ford and Niobrara.  

But less drilling has knock-on effects, dragging down oilfield service companies which make their money on drilling activity. The same is true for pipeline companies, which make their money on oil and gas flows. Kinder Morgan just announced a $1 billion impairment charge on one of its gas pipeline assets.  

Halliburton also announced a 21-percent decline in revenue in the fourth quarter in its North American division, due to weaker activity and pricing reductions. “The U.S. shale industry is facing its biggest test since the 2015 downturn,” Jeff Miller, Halliburton CEO, said on an earnings call on January 21. “As expected in the fourth quarter, customer activity declined across all basins in North America land, affecting both, our drilling and completions businesses. The rig count in U.S. land contracted 11% sequentially and completed stages had the largest drop we have seen in recent history.”

The squeeze on Halliburton and other service providers will continue. Miller said the “equipment attrition” – jargon for idling or scrapping rigs and other unneeded equipment – began to pick up last year. But, “this is just the beginning,” Miller said. “We believe a lot more equipment will exit the market as lower demand, increasing service intensity and insufficient returns take their toll.” Halliburton cut its capacity by 22 percent last year. 

He added that “gassy” regions, such as the Marcellus, will be hit hardest. “Gas prices in the U.S. are below breakeven levels,” he added.

The message from Schlumberger was similar. The oilfield services giant expects 2020 to mark the second year of contraction in North America, with “high single-digit to double-digit” decline, as the company’s CEO Olivier Le Peuch put it on an earnings call. Schlumberger said it would slash its oilfield service capacity in North America by 30 percent and put a “self-imposed cap” going forward.

It all points to a potential peak in drilling and production, although many analysts still see modest growth. Capex from all U.S. shale E&Ps is expected to decline around 14 percent this year.

But cutting spending may not save a lot of indebted drillers. More bankruptcies are inevitable.
By Nick Cunningham of

Thursday, January 23, 2020

European refineries are the least prepared as IMO 2020 regulations loom large

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European refineries expect the largest impact from new IMO 2020 regulations, yet just 23% of these refineries are focussing on operational improvements targeting higher availability to make low sulphur fuels, according to a global study of senior employees in the refining industry, commissioned by Aspen Technology, a global leader in asset optimisation software.
The survey also revealed a shortfall globally in refineries with this focus on clean fuels, with just 37% claiming to be doing that as a result of IMO 2020.
However, four out of ten (43%) refineries globally are focusing on operational improvements targeted at improved overall utilisation, relying on digital investment to secure operational efficiency improvements, with mid-sized refineries focussing on this most, in a ‘survival of the fittest’ battle in the lower quartiles.
Nearly two-thirds of oil refineries, globally, (64%) have not made any capital expenditure against IMO 2020 regulations which came into effect on 1st January.
The study also found that refineries expect fuel oil production is likely to fall as a result of IMO 2020, with more than a third (34%) of refineries globally expecting to produce less fuel oil in 2020, while just 24% expected to increase production.
Ron Beck, Industry Marketing Director at AspenTech, said: “We are in a challenging period, but there are still many margin improvement opportunities refineries can make. There are two clear options to help them compete: operational improvements to increase utilization or increased availability.  Today’s technology can improve both.”
Beck added: “Given the overall reduction in production that IMO 2020 is likely to bring, fuels that enable shippers to comply will be comparatively more valuable in the market. It’s concerning that most refineries are failing to focus on improved utilisation. Such investment is becoming ever more urgent as IMO 2020 approaches. Digital approaches can significantly help operators who have yet to decide on capital investments.”
Additional/ supporting key findings:
  • The study also discovered that a third of refineries (33%) are upgrading equipment to process higher sulphur oil. Only 29% of plants are shifting to use lower sulphur crude slates to help cope with the regulation.
  • It appears likely that fuel oil production could fall as a result of IMO 2020, with more than a third (34%) of refineries globally expecting to produce less fuel oil in 2020, while just 24% expected to increase production
  • BPCL Mumbai refinery in India achieved 90% improved sulphur recovery in under six months in 2018 by implementing digital twinning on their sulphur removal processes.

Wednesday, January 22, 2020

Exclusive: Philadelphia refinery expected to be sold to real estate developer - sources

Philadelphia refinery that caught fire is city’s biggest single polluter
Matt Rourke / AP

NEW YORK (Reuters) - The bankrupt Philadelphia Energy Solutions is expected to sell its fire-damaged refinery site to real estate developer Hilco Redevelopment Partners, three sources familiar with the situation said on Tuesday.

The agreement between PES and Hilco, a Chicago-based developer that specializes in redeveloping industrial properties, is expected to be announced as soon as Tuesday. PES and Hilco did not respond to requests for comment. A city official declined to comment. 

Any sale would have to be approved by the United States Bankruptcy Court for the District of Delaware. 

A sale to Hilco would reduce the possibility that the more-than 1,300-acre (526-hectare) Philadelphia site would be resurrected as an oil refinery. 

Hilco, which has $2.5 billion of assets under management and has acquired 5,000 acres in North America, specializes in redeveloping obsolete industrial sites, according its website.

However, it is possible that Hilco could lease the site to a refinery, biofuels or other heavy industrial operation, two sources said. 

The 335,000 barrel-per-day refinery is the largest and oldest on the U.S. East Coast, but was shut after a fire and series of explosions on June 21 last year that destroyed a key processing unit. PES filed for Chapter 11 bankruptcy a month after the blaze and put the 150-year-old refining operation up for sale. 

There were more than a dozen initial bidders for the site. Only one of the groups, led by PES Chief Executive Officer Philip Rinaldi, had publicly stated intentions to revive the site as an oil refinery. 

A bankruptcy court hearing is set for Feb. 6, which could confirm any potential sale of the site. 

PES had struggled financially for years and had only exited a previous bankruptcy in 2018. More than 1,000 workers were laid off after the site closed last summer, including roughly 600 United Steelworkers local union members.

Hundreds of other workers belonging to unions that provided labor on a rotating basis to the refinery were also put out of work there. 

PES’s unsecured creditors, which includes companies that had long supplied contract work to PES, as well as the unions, have pushed for a buyer that would restart the refinery, according to two sources familiar with the situation. 

Community members have protested against a restart of the plant, which has been one of the city’s biggest polluters. 

Reporting by Laila Kearney; editing by Jonathan Oatis and Marguerita Choy

Tuesday, January 21, 2020

OPEC, IEA or EIA Completely Wrong in 2020 Oil Market Analysis

OPEC, IEA or EIA Completely Wrong in 2020 Oil Market Analysis

(Bloomberg) -- Somebody big has got their analysis of the 2020 oil market flat wrong.

That’s the bottom line from a comparison of supply-and-demand forecasts provided by OPEC, the International Energy Agency in Paris, and the U.S. Energy Information Administration. The Organization of Petroleum Exporting Countries agreed in December to deepen output curbs until the end of March.

OPEC’s own research team sees that pact continuing to drain global stockpiles throughout 2020. By contrast, the IEA and EIA see inventory levels rising -- even if the deal gets implemented in full. And even if were to be extended for the entirety of 2020.

The OPEC+ group agreed in December to lower their combined output target by a further 500,000 barrels a day, plus a voluntary additional reduction of 400,000 barrels a day from Saudi Arabia, which depends on everybody else meeting their targets.

OPEC’s latest forecast shows global oil inventories falling at an average rate of almost 100,000 barrels a day over the course of this year assuming the December deal is implemented as agreed and runs through March. That rate of draining could hit 300,000 a day if the measure were to last throughout 2020. Even if the group fails to implement the deal in full, with output remaining at its December level, OPEC’s numbers show there would still be a small decline in global inventories this year.

The IEA and the EIA both have very different, and less-bullish, outlooks. Both see stockpiles continuing to build, even if the agreed output cuts were to be implemented fully and extended for the whole year. 

The same differences are apparent in the views of the three agencies on the effectiveness of the OPEC+ output cuts since they were introduced at the start of 2017.

OPEC’s supply-demand balances show that global oil stockpiles have fallen by 653 million barrels since the output cuts were introduced at the start of 2017, with draws in both 2017 and 2019 offsetting a small build in 2018.

Once again, though, data from the IEA and the EIA both imply that the output restrictions have done no more than limit the size of global stock builds since the start of 2017. After initial draws in 2017, stockpiles were replenished the following year and then remained essentially flat in 2019. The net result, according to the EIA, is an increase in global oil inventories of 100 million barrels between the start of 2017 and the end of 2019, while the IEA data show them rising by 142 million barrels. 

So where is all this oil? Well, each agency will have slightly different things that it counts, different methods for counting and then, of course, their assessments can differ.

Divergences aside, OPEC and its allies remain resolved to press on with output cuts aimed at draining excess stockpiles, Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said in a Jan. 13 interview on Bloomberg television.

“Our endeavor in OPEC+ is to try to bring inventories to a certain level, where it is within the contours” of recent years, he said. That range should be around the average of the last five years and the period from 2010 to 2014, he said. That suggests that the group doesn’t have a precise target.

OPEC’s latest monthly report pegs OECD commercial oil stocks at 2.92 billion barrels at the end of November, a little higher than the 2.91 billion reported by the IEA. That puts inventories at between 8.9 million barrels (IEA) and 17.5 million (OPEC) above the average level for the last five years.
But there is one thing on which the IEA and OPEC do agree.

OECD commercial stockpiles are sufficient to cover 60.6 days of forward demand, 0.6 days below their latest five-year average. This is a much more useful measure of stockpiles than simple volume. And it would suggest that there’s agreement that OPEC has got inventory levels back to at least one of its measures of success. Now all it has to do is keep them there over the next two years as the high inventory levels of 2015 and 2016 drop out of the rolling five-year average.

To contact the author of this story:
Julian Lee in London at

Monday, January 20, 2020

Libya will face 'catastrophe' if oil blockade continues: Tripoli premier

BERLIN (Reuters) - Libya will face a “catastrophic situation” unless foreign powers put pressure on eastern-based commander Khalifa Haftar to lift a blockade of oilfields that has cut output to almost zero, the country’s internationally recognized premier said on Monday.

Since Friday, Haftar’s forces have closed Libya’s major oil ports in a power play as European and Arab powers and the United States were meeting with his supporters in Berlin to push him to halt a campaign to capture the capital Tripoli. 

Tripoli-based Prime Minister Fayez al-Serraj told Reuters he rejects eastern demands to link a reopening of oil ports to a new distribution of oil revenues among Libyans, saying such income wasin any case meant to benefit the entire country. 

“The situation will be catastrophic should it stay like this,” Serraj said in an interview in Berlin. 

“I hope foreign countries will follow the issue,” he said when asked whether he wanted them to lean on Haftar to lift the blockade of Libya’s Mediterranean oil export terminals. 

Much of Libya’s oil wealth is located in the east of the sprawling North African state but revenues are channeled through Tripoli-based state oil firm NOC, which says it serves the whole country and stays out of its factional conflicts. 

Haftar’s parallel administration has repeatedly sought to export oil while bypassing the NOC but has been thwarted by a United Nations ban, diplomats say. 

The NOC sends oil and gas revenues, Libya’s economic lifeline, to the Tripoli-based central bank, which mainly works with Serraj’s government tough it also funds some public salaries, fuel and other services in the Haftar-controled east. 

A document sent to oil traders and seen by Reuters on Monday said that the NOC had declared force majeure - a waiver on contractual obligations - on crude loadings from the Sharara and El Feel oilfields in Libya’s southwest. 

At least nine oil tankers had been due to load in the coming days from the ports now under force majeure, according to a local shipping source. The NOC had previously declared force majeure for oil ports on Libya’s northeast coast. 

Libya has lacked a stable central authority since strongman Muammar Gaddafi was overthrown by NATO-backed rebels in 2011. For more than five years, it has had two rival governments, in the east and the west, with streets controlled by armed groups.


In the interview, Serraj also said his government would respect the summit’s decision to turn a tentative truce into a permanent ceasefire in Tripoli and open intra-Libyan talks to end conflict as part of a U.N.-led plan. 

But he ruled out meeting Haftar again. In Berlin Serraj and Haftar conferred with world leaders but not meet each other.

“For me it’s clear....We will not sit down again with the other side,” Serraj said, adding that the question of peacemaking should not be limited to a meeting of two leaders. 

Serraj and Haftar, once a senior army general under Gaddafi, last met in Abu Dhabi in February 2019 where they failed to reach a power-sharing agreement, after which Haftar launched his offensive on Tripoli. 

Sunday’s Berlin summit convened the main foreign supporters of Libya’s warring sides. Haftar enjoys the support of the United Arab Emirates, Egypt, Russian mercenaries and some African troops, while Serraj is backed by Turkey. 

The summit yielded a commitment to shore up Libya’s ramshackle truce arrangement but the gathering was overshadowed by Haftar’s oil blockades. 

The European Union’s top diplomat, Josep Borrell, said on Monday the EU would discuss all ways to uphold a formal ceasefire in Libya but any peace settlement will need real support from the bloc to make it stick. 

Under the Berlin deal, a joint committee will be formed, made up of five military men from each side, and convene in Geneva in about a week to discuss the mechanics of a viable ceasefire to pave the way for a resumption of peace diplomacy. 

“Unfortunately the (Haftar-led) attackers have continued to violate a truce and haven’t signed it anyway,” said Serraj, referring to a meeting in Moscow last week where Haftar refused to endorse a ceasefire scheme. Serraj put his signature on it. 

“We look forward to the committee meeting,” Serraj said. 

Fayez Mustafa al-Sarraj, Libya's internationally recognised Prime Minister, is pictured during an interview, in Berlin, Germany January 20, 2020. REUTERS/Michele Tantussi
Many are skeptical about any ceasefire’s prospects due to a lack of mutual trust and a massive deployment of Haftar’s forces into the northwest in their bid to take Tripoli. 

Turkish support for Tripoli’s effort to repel Haftar has seen the fighting, which has displaced more than 150,000 civilians, take on the trappings of a proxy war.

Friday, January 17, 2020

China's U.S. crude buying binge to set off global sweet oil shake-up

File photo of a worker walking past a pump jack on an oil field owned by Bashneft, Bashkortostan

By Shu Zhang and Florence Tan

SINGAPORE (Reuters) - Sharply higher Chinese purchases of U.S. energy products as part of the China-U.S. trade deal will shake up global crude oil trade flows if American supplies squeeze rival crudes out of the top oil import market, trade sources said.

China's pledge to buy at least $52.4 billion worth of U.S. energy products over the next two years can only be met through substantial increases in crude imports from the United States, the top global oil producer, according to traders and analysts.

But to make way for any surge in American shipments Chinese importers are expected to dial back orders of similar or pricier grades from places such as Brazil, Norway and West Africa - potentially triggering a shake-up of the light sweet crude oil market that could span the globe.

"U.S. crude is always a good choice to diversify supplies and press down West African crude prices," said a source with a Chinese state-owned oil company, while adding that freight rates were now very high.

Traders said some African crude grades had characteristics similar to U.S. oil that made them replaceable in refiner mixes.

Most African grades also trade mainly on the spot market, making it easier for importers to switch them out than supplies tied to long-term contracts.

U.S. crude has not been offered to Chinese independent refiners yet, but the value of West Texas Intermediate (WTI) Midland delivered to China was estimated to be 50 cents to $1 a barrel cheaper than Brazil's Lula crude and some West African crudes, making it attractive, several trade sources told Reuters.

China's return as a major U.S. oil buyer could help soak up excess supplies as production in the United States is expected to hit records in the next two years, although a recent surge in freight rates for U.S. oil shipments to Asia has slowed exports.

Big Chinese orders of U.S. oil could put some pressure on other Asian buyers, such as India, South Korea and Taiwan, which all boosted U.S. oil imports in 2019 while China was sidelined, the sources said.

"If China has to fulfill buying huge volumes of U.S. crude, the arbitrage can be closed for most other people because freight could be really high," said a Singapore-based oil trader.

Goldman Sachs analysts estimated in a Jan. 10 report that China may increase its crude imports to 500,000 barrels per day in 2020 and 800,000 bpd in 2021.

China's U.S. crude imports dropped 43% to 138,790 barrels per day (bpd) in the first 11 months of 2019 from a peak of 245,600 bpd in 2018 after Beijing imposed a 5% import tariff on U.S. oil amid as trade tension rose between the world's biggest economies.

"The energy part of the deal is likely to be an easy win," said Lachlan Shaw, head of commodity research at the National Australia Bank, adding that China's crude demand will increase as new refining capacities are added in the next two years.

(Reporting by Florence Tan and Zhang Shu in Singapore; Additional reporting by Xu Muyu in Beijing; Editing by Clarence Fernandez)