Wednesday, April 29, 2015

Crude Oil Price Jumps on Lower Crude Inventory Build

Oil Storage
The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 1.9 million barrels last week, maintaining a total U.S. commercial crude inventory of 490.9 million barrels, the 15th consecutive week of a higher total than at any time in at least 80 years.
Tuesday evening the American Petroleum Institute (API) reported that crude inventories rose by 4.3 million barrels in the week ending April 24. For the same period, analysts had estimated an increase of 2.8 million barrels in crude inventories, a rise of 300,000 barrels in gasoline stockpiles and a rise of 800,000 barrels in distillate supplies.
Total gasoline inventories increased by 1.7 million barrels last week according to the EIA, and remain above the upper limit of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 8.9 million barrels a day for the past four weeks, up by 2.6% compared with the same period a year ago.
Late Tuesday, a U.S. Navy destroyer sailed to the Strait of Hormuz after reports that Iranian gunboats had fired shots at a Marshall Islands-flagged cargo ship. The Iranians made threatening moves on a U.S.-flagged cargo ship last week and tensions are running high in the Persian Gulf, especially around the Strait, the choke point through which about a sixth of the world’s crude oil travels every day.
Other news from the Middle East Tuesday leads with new Saudi king, Salman bin Abdulaziz, replacing his younger half-brother and designated heir with his nephew, Mohammed bin Nayef, as crown prince and foreign minister. The king also reshuffled other top level officers, among them his son Mohammed bin Salman, who was named deputy crown prince (second in line for the throne) and was already the country’s defense minister. The Saudis also revealed that they had arrested 93 people in the country who are suspected of working with the Islamic State terrorists.
Finally, and again on Tuesday, the Saudi oil minister reiterated his country’s commitment to meeting rising Chinese demand for crude. The statement sent Brent prices down slightly as it was widely interpreted to imply that the Saudis are prepared to continue battling on market share with little concern for the price.
Before the EIA report, West Texas Intermediate (WTI) crude for June delivery was trading up about 0.6% at around $57.40 a barrel. The WTI price bounced higher to around $57.80 (up about 1.3% for the day) immediately after the report was released. The 52-week range on WTI futures is $45.93 to $98.22.
Distillate inventories decreased by 100,000 barrels last week and remain in the middle of the average range for this time of year. Distillate product supplied averaged about 4 million barrels a day over the past four weeks, up by 0.2% when compared with the same period last year. Distillate production averaged over 4.8 million barrels a day last week, up slightly compared with the prior week’s production.
For the past week, crude imports averaged over 7.4 million barrels a day, down by 319,000 barrels a day compared with the previous week. Refineries were running at 91.3% of capacity, with daily input of about 16.1 million barrels, about 118,000 barrels a day above the previous week’s average.
According to AAA, the current national average pump price per gallon of regular gasoline is $2.563, up from $2.479 a week ago and from $2.422 a month ago. Last year a gallon of regular cost $3.693 on average in the United States.
Here is a look at how share prices for two exchange traded funds reacted to the latest report.
The United States Oil ETF (NYSEMKT: USO) traded up about 1.8% at $19.96 in a 52-week range of $15.61 to $39.44.
The Market Vectors Oil Services ETF (NYSEMKT: OIH) traded up about 0.7% at $37.82 in a 52-week range of $31.51 to $58.01.

Tuesday, April 28, 2015

Should oil pipelines be better regulated instead of flat out opposed?

If you haven’t heard of “pigging,” whereby oil and gas companies shove what amounts to a highly engineered spitball down a pipeline in order to clean and inspect it, you would not be alone. But the process became a kind of obsession for Jonathan Waldman, the author of Rust, a recently published book on corrosion’s effects on America’s industries and government.
His curiosity about rust’s effect on oil and gas infrastructure led him to the Trans Alaska Pipeline, which stretches across Alaska and transports 500,000 barrels of oil a day. It’s also one of the most tightly regulated and inspected pipelines. In his book, Waldman describes the lengths the pipeline’s managers go to ensure that it's properly pigged, or inspected.

The up-close look at oil inspections convinced Waldman that environmentalists should think twice about taking a stand against pipelines. In a New York Times op-ed, Waldman argued that pipelines like Keystone shouldn’t be opposed, but strongly regulated instead. He spoke with HCN about why he thinks regulation works.
High Country News: Will you describe the Trans Alaska pipeline? I think most people kind of think of it as a relatively placid thing, traversing the landscape.
Jonathan Waldman: The pipeline up (in Alaska) is on stilts because it's on permafrost. So you can't bury it. The pipeline pretty much parallels what's called the Haul Road for 200 or 300 miles up the North Slope of Alaska. The North Slope is sort of a gentle slope like Kansas but it goes from sea level up to 5,000 feet in 150 miles. So you've got the oil a mile high and it wants to run down the hill. When the pig is there to inspect the pipeline, ideally it'd be going nice and slow and smoothly. But as it crests the hill and starts going downhill, it can get going pretty fast and the sensors can break or the wires can snap or the whole thing can heat up and melt. Then as the pipeline keeps going there are more pump stations pushing it up and over the Alaska Range and over the Chugach range.
HCN: How steep is that drop on the other side?
JW: The steepest drop is down the Chugach Range, as it nears the final descent to Valdez and the port where the oil is put on boats and shipped to California and Washington. That part of the pipeline was the hardest to build. They were raising and lowering bulldozers using huge cables. It's very steep and much of that rock is pretty crumbly, so they buried it and encased it in concrete.
HCN: In the book, you say "the pipeline needs the oil as much as the oil needs the pipeline." Will you explain that?
JW: Since the peak day in 1988, the Alaskan oil fields have been producing about 5 percent less every year. Technology is getting better at sucking oil out of the ground but there's less oil to suck out. The problem is this: because there is less oil, as it flows across the state, it now cools. As it cools, it deposits wax on the side of pipeline wall, which makes inspecting hard. The water that's naturally in the oil drops out of solution and forms a little river on the bottom of the pipeline, which makes corrosion problems even greater than before. Below a certain level, things are going to be critical. The pipeline has come pretty close at least once to turning into what they call a giant popsicle (when the oil cools and gels). If that ever happens, it's the end of the pipeline that cost 2 billion dollars to build and many more hundreds of millions to maintain and repair it. It all comes down to oil production, which is why they want to drill offshore in Alaska and why the (Arctic National Wildlife Refuge) and petroleum reserves are so contentious. It's not like oil companies are hellbent on getting Alaskan oil; it's extremely difficult oil to get. But if there's a pipeline to get that oil out, now is the time to get that oil. Without the pipeline, there's no other way to get it.
HCN: Do you think creating sustainable oil and gas infrastructure makes extraction inevitable?
JW: That's like saying aluminum cans encourage soda drinking. The cans don't encourage it. Our thirst encourages it. Whether you like it or not, the world is still thirsty for fossil fuel. Alternative energy is still not capable of replacing all of the fossil fuel energy that the world wants or needs. I wish it were otherwise.
KS: What is the range of pipeline infrastructure in the United States? If Trans Alaska is one of the most progressively regulated and maintained pipeline, what does the bottom look like?
JW: The bottom is probably terrifying. There are a couple million miles of pipelines. You can't inspect every little line that goes under the street in Paonia (Colorado) or here in Boulder. Some of them run across states. A lot of them run from Texas all the way up to New York and Philadelphia. Some of them just cross the state of Texas. Some of them stay entirely within New Mexico and are operated by little mom and pop companies.
A Trans-Alaska pig, displayed in a cutaway pipeline. This is a scraper pig, designed to remove the waxy build-up from the side of the pipeline.
KS: I came away from your op-ed in the New York Times still wondering whether it was possible to regulate and inspect pipelines enough to make sure they're safe, especially given the political climate and the existing infrastructure.
JW: It's definitely mechanically possible. Politically, the one thing pipeline operators hate more than opposition to pipelines is regulating pipelines. All the liberal politicians out there are behind laws built to increase the regulation and inspection of pipelines that don't end up going anywhere in Congress. They're not politically tenable right now. I think they could be. I think it could if the environmental movement got behind it and said, "Instead of opposing something, we could stand for improving something.”
HCN: So do you think there's enough urgency among regulators to make sure these pipelines are safe?
JW: Well, it doesn't quite work like that. Regulators don't go to their boss and say, "We need to toughen up the laws." They don't lobby their congressman. We're the ones who lobby our representatives. It doesn't work from within the system. It has to come from outside the system. Every time there's an accident, we have a six-month window of opportunity. Industry knows this and they resist it. There's an accident, we all go crazy and then nothing happens. Then time passes and it happens again and again and again.
Kate Schimel is an editorial intern at High Country News. 

Gold surges: World's 'biggest pawnbroker' makes deal

Source: World Gold Council
Gold surged above $1,200 an ounce Monday in its best day since January, amid market intrigue surrounding a deal between Venezuela and Citigroup to swap $1 billion in cash for part of the country's gold reserves.
The swap, reported last week, provides cash to President Nicolas Maduro's socialist government as the country reels from a steep drop in oil revenue. Reuters reported Friday that the Venezuelan central bank was expected to have provided 1.4 million ounces of gold in exchange for the cash, and the country would have to pay interest on the funds.
"He had to pawn their gold. That's what they've done. They can buy it back. They have rights of first refusal," said Dennis Gartman, publisher of The Gartman Letter. "They went to the biggest pawnbroker of gold—Citibank."
The deal was cited as one of several things that helped drive gold futures to the highest level in two weeks. Futures for June jumped 2.4 percent to 1,203.20 an ounce. Gold stocks also rallied, with Freeport-McMoran up 5 percent and Newmont Mining up almost 3 percent.

"That was a huge potential seller taken out of the market. It's not an overhang anymore," Gartman said of the Venezuela deal. GLD, the Spdr Gold Trust ETF, was up 2 percent, its best day since late January.

Kevin Grady, president of Phoenix Futures and Options, said while there was talk about the big gold swap, he said the bigger factor driving prices was the expiration of May options Monday and short covering.

"If we didn't have the options positions rolling off again, I don't think we would have had the market going to $1,200," Grady said. On Tuesday, the April futures contract expires. There also was an increase of 13,000 shorts in the market, a positive since those traders could be forced to buy gold when they cover, he said.

"I'm bearish until gold settles at $1,230 ... every time you get up there, there's a major wall of selling that comes into the market. Even this rally today—as impressive as it is—$30 on the day. We're stuck in this range," Grady said. He said gold rallied to the middle of the range, which is between $1,177 and $1,220.

Even so, George Gero of RBC said he believes the Venezuela deal juiced the market. "I think that has a lot to do with raising awareness of institutions. Where they are in the second quarter, in the second week—how they haven't allocated to gold. ... This was like a wake-up call," he said.

Read MoreVenezuela may have missed $24 billion in oil revenues

Gero said the market may now be able to hold $1,200. Gartman agrees. "It's important, yes it will hold," he said.

For Gartman, the decision by the Peoples Bank of China to buy regional and national securities was a big factor for the market. "The Peoples Bank of China has gone full in for QE," he said. "Finally, you've got the PBOC, which is a monstrous bank making an implied bet on inflation."

Strategists also said the market was positioning ahead of Wednesday's Federal Reserve statement.

"I think there's some short covering prior to the Fed meeting," said Gero, adding traders think the U.S. central bank will promote a dovish mood.

Howard Wen, precious metals analyst at HSBC, also said the market was moving on speculation about what the Fed would say after its meeting Wednesday..

"We have the FOMC meeting ahead and from a historical perspective, prices tend to be more volatile ahead of FOMC meetings," said Wen. He said the market also will be watching the coming data including Tuesday's consumer confidence and Wednesday's first-quarter GDP, both potentially dollar-moving data points.

"It seems like the $1,200 level hasn't been that significant lately. It's kind of been trading in a range so far in April, in and out of $1,200. That might be the middle point between the upper and lower bound," he said.

If the Fed sounds in any way hawkish, gold could decline and the dollar would rise, he said.

Monday, April 27, 2015

Nigeria’s Buhari to Investigate $20bn ‘Missing’ Oil Money

A man works at an illegal oil refinery site near river Nun in Nigeria's oil state of Bayelsa November 27, 2012 Akintunde Akinleye/REUTERS
Nigerian presidential-elect Muhammadu Buhari yesterday revealed that he is to investigate an alleged $20bn hole in the finances of the Nigerian National Petroleum Corporation (NNPC) when he is sworn in next month.
In a meeting with a delegation from the All Progressive’s Congress (APC) party’s Adamawa State chapter at his headquarters in the capital, Abuja, the former military ruler announced that he would investigate the claim of the former governor of the Nigerian Central Bank, Lamido Sanusi - now the emir of the northern city of Kano - that $20bn (£13.13bn) could not be accounted for.
Sanusi was suspended by president Goodluck Jonathan for “financial recklessness and misconduct” last year after he exposed the alleged shortfall in oil revenues in 2012 and 2013. At the time, the NNPC denied that any money was “missing” but Buhari, who will be sworn in on May 29, has now criticised the decision to sack Sanusi instead of investigating his claims.
"This issue is not over yet. Once we assume office, we will order a fresh probe into the matter,” the former oil minister confirmed in his address. “We will not allow people to steal money meant for Nigerians to buy shares and stash away in foreign lands."
"Imagine a situation where the former CBN (Central Bank of Nigeria) governor, who by God's grace, is now the emir of Kano, raised an issue of missing billions of money, not in naira but in dollars, $20 billion,” Buhari continued.
"What happened, instead of investigating whether it was true, they simply found a reason to remove him. So, these are the issues we are talking about,” he added. "I heard that some people have started returning money; I will not believe it until I see it by myself.
At the same time as the announcement, Nigeria’s Petroleum Resources minister Diezani Alison-Madueke announced that an unremitted payment of $1.4bn would be refunded to state coffers on recommendation of an audit carried out by Jonathan, Africa-focused outlet Sahara Reporters reported.
His confirmation of the oil probe comes as little surprise, says Manji Cheto, vice-president of risk consultancy Teneo Intelligence, with the incoming leader looking to assert his authority and build his credibility and he has long spoken of the oil ministry with suspicion.
“It was always quite obvious that he was going to go for the oil sector. It is a low-hanging fruit,” says Cheto. “The oil industry is an industry he understands. He knows exactly where money should be going and how the allocation should be.”
“If they can tackle a major corruption case, it gives them the credibility boost that they need to make bigger structural changes that they need going forward,” she adds. “They need to win public support first of all, they need people to believe from the onset that they are a credible government and that they mean business. It’s clearly a strategy designed to give them a bit of breathing room.”
Last month, Buhari sealed a historic election victory, defeating outgoing president Goodluck Jonathan in what is the country's first ever democratic change of power to an opposition party. A Reuters tally confirmed that his APC party secured 15.4 million votes to People’s Democratic Party (PDP) leader Jonathan’s 13.3 million in the country’s 36 states.
Before this win, Buhari, 72, had failed on three occasions (2003, 2007 and 2011) in his bid to return as Nigerian president since the country moved from a series of military rulers to a democratic system in 1999. He survived a Boko Haram assassination attempt last July when a suicide bomber aligned to the radical Islamist group targeted his car in the northern city of Kaduna.

Friday, April 24, 2015

Derailments Put Safety Record of Crude Oil Trains in Question

Explosion: A train derailment early Friday morning in Aliceville, Alabama resulted in the explosion of three oil tankers, which spread to damage nine cars total and leak oil into a nearby slough
Dozens of trains carrying volatile crude oil are rolling through the Chicago area each week while placing countless residents, buildings and schools in potential evacuation zones in case of spills or derailments.
NBC 5 Investigates obtained state records that show how often railway companies are sending trains carrying the highly flammable cargo through the state of Illinois. For example, approximately 40 crude oil trains cross Kane, DuPage and Cook counties each week before interchanging in Chicago or continuing to the eastern half of the United States.
"A potential derailment would be unthinkable if it happened in a neighborhood like Pilsen, and other cities face the same threat,” said Shannon Breymaier, a spokesperson for the City of Chicago.
Aurora mayor Tom Weisner said an average of four crude oil "unit trains" travel through Aurora each day.
"We have a city of 200,000 population with trains running tanker cars right through the downtown,” Weisner said. "It makes me nervous."
Federal guidelines recommend an evacuation radius of one-half mile in case of a train derailment or accident involving crude oil.
"We are as prepared as we can be, but I don’t think anyone can guarantee the public that there’s no hazard or that things will be taken care of," Weisner said.
The safety record of crude oil trains is in question after a string of derailments in recent years, including a deadly crash in Quebec in 2013 that killed 47 people. That was followed by crude oil train derailments in Virginia in 2013 and West Virginia in 2014 in which tank cars ruptured and burned.
A train carrying crude oil derailed in a wooded area near Galena, Illinois in March and shot a fireball toward the sky. The fire burned for several days. No one was hurt, but first responders suggested nearby residents evacuate the area.
"We didn’t have the resources available at that time to combat it," said Jo Daviess County Sheriff Kevin Turner. "We had an LP tank that was on where the accident actually happened and we were worried about that exploding."
John Schultz lives near the Galena derailment site and said he chose to remain in his house because a large hill separated his home from the burning tank cars. However, he said the burning crude oil "sounded like a jet engine taking off."
The cause of the derailment in Galena remained under investigation as of Thursday, according to the US Department of Transportation. The rail company, BNSF, would not confirm if the train was heading toward Chicago.
An increase in the amount of crude oil produced in the Bakken region of North Dakota, which federal regulators have said may be more flammable than other heavy crude, has resulted in more of the product being shipped by rail across the country. According to the Association of American Railroads, crude oil shipments totaled 9,500 carloads in 2008 and increased to 493,126 carloads in 2014.
Association of American Railroads spokesperson Ed Greenberg said safety is a priority for the freight industry.
"We recognize that more has to be done as part of shared responsibility with shippers and with other stakeholders to further advance the safe movement of this project," Greenberg said.
A BNSF spokesperson said the company is implementing safety changes in the wake of the Galena derailment, including reducing train speeds in certain areas and increasing rail and wheel inspections.
Greenberg also said railway companies are sharing safety plans with first responders and supporting a push for stronger tank cars. The National Transportation Safety Board has issued a series of recommendations calling for retrofits to fuel-hauling tank cars.
Federal law requires all railroads operating trains carrying more than one million gallons of oil (or approximately 35 tank cars) being transported from the Bakken region to notify each state’s emergency management agency about the operation of these trains through their states.
The Illinois Emergency Management Agency (IEMA), however, redacted route details in the information it provided to NBC 5 Investigates regarding crude oil rail shipments throughout the state.
"It is a security issue for our industry," Greenberg said.
Diamond-shaped placards are a hint that a train is carrying hazardous materials. For example, a sign numbered "1267" signifies highly-flammable crude oil is being transported.
Emergency management officials said the Galena accident highlights the importance for neighboring communities to work together for mutual aid and for residents to have a safety plan.
"Training is a very good thing," said Jo Daviess County emergency manager Charles Pederson.
Breymaier said the City of Chicago has emergency operations in place to address all conceivable events and issues.
"We will take the necessary steps to respond and mitigate the impact of any incident in order to ensure the safety of our residents and communities," Breymaier said.
Suburban mayors, including Weisner, are calling for more aggressive rail safeguards and for improved train braking systems. Weisner also said oil producers should do more to improve safety standards.
The American Petroleum Institute's (API) website addresses the topic of crude oil by rail.
"While rail moves 99.99 percent of hazardous materials without incident, our goal is zero incidents," the API website reads. "The API is working jointly with regulators and other stakeholders to remove the last elements of risk in the system through a comprehensive safety approach that addresses accident prevention, mitigation and response."
But Schulz, whose property lies just a few yards from the Galena derailment site, had another idea.
"I’d like to see it go in a pipeline, which would reduce the number of cars," Schultz said. "I realize there’s a problem with pipelines but normally a pipeline doesn’t catch on fire."
According to the Association of American Railroads, billions of private dollars are spent each year on maintaining and modernizing the freight rail system. Companies have spent $575 billion since 1980 and are projected to spend $29 billion in 2015.

Tuesday, April 21, 2015

Oil down as Saudis end Yemen bombing; traders eye crude build

Oilfield workers collect a crude oil sample at an oil well operated by Venezuela's state oil company PDVSA, in the oil rich Orinoco belt, near Morichal at the state of Monagas April 16, 2015. REUTERS/Carlos Garcia Rawlins
NEW YORK (Reuters) - Oil prices fell on Tuesday after Saudi Arabia announced the end of its military campaign in Yemen, easing tensions in the Middle East, and traders expected another weekly build in U.S. crude stockpiles.

The Saudi-led coalition bombing Yemen said its three-week operation against Iran-allied Houthi rebels was over and it would focus now on security, counterterrorism, aid and a political solution for Yemen.
"The market's gone up quite a bit lately and was due for a correction, so the Saudi announcement was a step in the right direction in the sense that it diffuses some of the tensions in the Middle East," said Joseph Posillico, senior vice president of energy futures at Jefferies in New York.
On the stockpiles side, a Reuters survey showed that U.S. crude inventories likely rose for the 15th straight week, adding nearly 3 million barrels last week. [EIA/S]
The American Petroleum Institute, an industry group, meanwhile, said its own reading showed a stock build of 5.5 million barrels last week. [API/S]
Official stockpiles data will be issued on Wednesday by the government's Energy Information Administration.
U.S. crude's front-month May contract CLK5, which expired at the close of Tuesday's session, finished down $1.12, or 2 percent, at $55.26 a barrel. The nearby June contract LCM5, which will become the front-month beginning on Wednesday, settled down $1.27 at $56.61.
UK North Sea Brent crude LCOc1, the more widely used global benchmark for oil, fell $1.37, or 2.1 percent, to $62.08.
Both U.S. crude and Brent extended losses in post-settlement trade, after the release of the API data.
Despite those declines, Brent remained up nearly 12 percent for April while U.S. crude was about 16 percent higher after gains over the past two weeks on speculation that the selloff in oil that began last summer was losing steam.
Some analysts disagree that the market is on the cusp of a longer-term recovery.
Commerzbank's Carsten Fritsch sees Brent heading down to the low $50s a barrel last seen in March.
The head of the world's largest oil trading company, Vitol, said oil prices were likely to slip as refineries undergo maintenance work in the second quarter.
"We will probably see another dip in oil prices in Q2", but not below January lows, Ian Taylor told Reuters on the sidelines of an industry conference in Lausanne, Switzerland.

(Additional reporting by Christopher Johnson in London and Jacob Gronholt-Pedersen in Singapore; Editing by Alison Williams, Meredith Mazzilli, Ted Botha and Jonathan Oatis)

Monday, April 20, 2015

Iran oil exports to surge as sanctions are eased

Sanctions ban the import of Iranian crude to Europe and also target Iran's central bank.
Abu Dhabi: Iran’s oil exports are expected to surge once sanctions are lifted in July, with forecasts showing an increase of 200,000 barrels per day by the end of the summer, and another 300,000 barrels per day by the end of the year.
According to Dr Fereidun Fesharaki, chairman of Facts Global Energy, an international energy consultancy, a further boost of 700,000 barrels per day is expected from Iran by June 2016.
Speaking at the 23rd annual Middle East Petroleum and Gas conference, Fesharaki said he expected condensate exports to rise by 200,000 barrels per day.
As for the impact this will have on the Middle East, he said Iran could potentially work on gas pipelines to the UAE, Oman, and Kuwait, and export liquid natural gas to the GCC.
During his speech at the two-day conference, which kicked off on Monday, Fesharaki discussed projections for oil prices, saying that there were two scenarios; the first that will see oil ranging between $50 and $80 over the next 10 years, while the other was between $40 and $60.
“Stability in the oil market is unnatural. If it happens, this means that someone is managing the market. By the end of June, prices may fall $15 and Opec [Organisation of Petroleum Exporting Countries] may meet and announce changes,” he said.
Fesharaki also discussed the emergence of the US as an energy superpower, saying that oil production in the US reached 4.5 million barrels per day in the last four to five years — a level that measures up with the entire Opec’s production.
This puts the US among the top three liquid natural gas exports by 2020, as the largest producer of condensates worldwide, and as an emerging ethane exporter.
Also attending the conference was Hatem Nuseibeh, president and chief representative of Total UAE, who said he expected gas to emerge as the second main energy source as oil maintains its position as the primary energy source.
Asked about the impact of low oil prices on Total, Nuseibeh said the company was able to adapt to lower prices, and that the long term outlook was more important.
“Profits go down with lower oil prices, but what’s important is that projects continue…Lower oil prices push companies to spend less and squeeze service companies, so the cost of energy is going to go down, which is a positive on the long-term,” he said.

Friday, April 17, 2015

Asia VLCC rates at more than 2-month high on supply squeeze, strong demand


Worldscale rates for VLCCs are at the highest in more than two months on tight supply due to delays in Basrah and North Asia and rising demand amid the postponement of refinery maintenance shutdowns, market participants said Friday, April 10.

The number of cargoes is turning out to be much higher than expected in April, providing a sudden uptick in demand, they said.

Until a few days ago the rates were struggling to stay above w50 but have since rebounded sharply.

At least two VLCC fixtures were finalized overnight by Thai Oil for Persian Gulf loading later this month at w65, a level not seen since end January, brokers said.

One of the fixtures for April 17 loading was done on a 15-year-old ship which did not prove a deterrent to garnering a higher rate, they said.

Rates are high at a time of year when they typically slide due to refinery maintenance season, when demand to move crude falls.

Charterers who were earlier holding back on fixtures in anticipation of the seasonal decline in rates rushed to seek tonnage this week.

"Owner sentiment is strong and we expect to see rates approach w70 after the [Persian Gulf cargo] stem nominations for May are out by next week," said a chartering manager with a VLCC owner.

Even charterers who usually do not pay higher rates are doing so now, the manager said, adding it had tried to pull rates below w50 a few times in the last month but they were pushed back again.

Lower crude prices have indirectly contributed to pushing up VLCC rates because refiners are putting off maintenance plans due to higher margins, said a chartering source with a Japanese refiner.

Sources said Indian refiner Essar Oil has deferred the planned full turnaround of its 20 million mt/year (400,000 b/d) refinery at Vadinar to September or October from the initial May-June schedule.

"There seems to be enough demand for third decade loading to maintain the new market level but the challenge for owners is to carry the sentiment into the first decade of May," said a VLCC broker in Singapore.


The number of crude oil fixtures for loading in the Persian Gulf for voyages to both East and West combined were estimated at 126 in March, up from 109 a year earlier, according to broker estimates.

So far close to 100 cargoes for loading in April have been covered with tonnage.

"With the third decade fixing in full swing and a more balanced tonnage list, owners look set to enjoy the upper hand for rest of the week," Morgan Stanley said a daily report.

Analysts pointed out that the loading program was strong even in April last year, with more than 130 VLCC fixtures from the Middle East, but supply is tight this time around.

"The market has started to rise and the main reason for this is tight tonnage," said a chartering source with a South Korean refiner. This is caused by several factors including logistical delays and inclement weather in Basrah, the source said.

At least five ships are tied up at one South Korean terminal because of bad weather, he said.

One of the ships that was scheduled to reach Fujairah in the last decade of April remained stuck in South Korea.

More than 20 VLCCs are lined up to load crude in Basra as Iraq has allocated more cargoes than the country's port infrastructure can handle, said a shipping industry official in Taiwan.

The rally in rates is translating into higher earnings for owners.

At current worldscale rates, daily earnings from some spot charter voyages on the Persian Gulf-North Asia route are close to $60,000, compared with $14,600 a year earlier, brokers said.

Lower bunker prices are also contributing to higher earnings for owners. 380 CST bunker delivered in Singapore was assessed at $323-$324/mt Thursday, down from $590.50-$591.50/mt a year earlier, Platts data showed.

--Sameer C. Mohindru,
--Edited by Wendy Wells,

Thursday, April 16, 2015

Oil prices: OPEC plan to strangle US suppliers working

Demand for oil will strengthen this year, according to OPEC, as the cartel said its strategy of pumping oil into the market to squeeze out US producers was taking effect

OPEC strategy of increasing pumping glut of oil on the market starts to bear fruit, as Blackrock CEO says oil prices are likely to remain between $60 and $80 per barrel for forseeable future

Demand for oil will strengthen this year, according to OPEC, as the cartel said its strategy of pumping oil into the market to squeeze out US producers was taking effect.
The Organisation of the Petroleum Exporting Countries, which pumps a third of the world's oil, believes demand will average 29.27m barrels per day (bpd) in 2015, representing an increase of 80,000 bpd from its previous prediction.
"Higher global refinery runs, driven by increased seasonal demand, along with the improvement in refinery margins, are likely to increase demand for crude oil over the coming months. Given expectations for lower US crude oil production in the second half of the year, these higher refinery needs will be partially met by crude oil stocks, reducing the current overhang in inventories," OPEC said.
The body believes non-OPEC supply will rise by only 680,000 bpd this year, down from its previous forecast of 850,000 bpd. This reflects lower expected output from the United States and other non-member countries.
"US tight oil and Canadian oil sands output are expected to see lower growth following the recent strong declines in rig counts," OPEC said.
The monthly report also confirmed industry estimates of a surge in OPEC production in March, led by higher output in Saudi Arabia and Iraq and a partial recovery in Libyan production.
Brent oil prices have recovered from their January low of $50 a barrel, and are currently trading at $62.50 on Thursday.
Laurence Fink, the CEO of BlackRock, the world's biggest asset manager, said on Thursday that the long-term price of oil would be between $60 and $80.
He told CNBC that excess supply would continue for the forseeable future.

Wednesday, April 15, 2015

US crude oil inventories continue to swell

barrels of oil
US crude oil inventories continue to swell.
Last week, oil inventories rose by 1.3 million barrels from the previous week, according to the Energy Information Administration's weekly data release
However, this was much less than the increase of 10.9 million barrels the prior week.
It brings the total to 483.7 million barrels, maintaining inventories at the highest level for this time of year in at least 80 years.
In its annual energy outlook published Tuesday, the EIA projected that the US will produce 10.6 million barrels per day in 2020 – more than its previous estimates.
A separate EIA report Monday forecasted that drilling in the Bakken and Eagle Ford regions will slow down month-over-month in April.
After the data, crude oil spiked to as high as $55 a barrel, climbing by more than 4% to a four-month high.

Monday, April 13, 2015

Low Crude Oil Prices Leave Thousands of US Wells Uncompleted

Oil well and storage tanks in the Texas Panhandle.
There are roughly 2,500 to 3,500 drilled but uncompleted oil wells in the United States, according to analysts at IHS Inc. (NYSE: IHS). As many as 1,400 of those wells are located in the Eagle Ford shale play in south Texas.
In February EOG Resources Inc. (NYSE: EOG) said it would delay a significant number of well completions and plans to close out 2015 with 285 uncompleted wells, up from 200 at the end of 2014. Continental Resources Inc. (NYSE: CLR), Apache Corp. (NYSE: APA) and Anadarko Petroleum Corp. (NYSE: APC) have also said that they plan to delay well completions until crude oil prices pick up again.
Well-drilling costs include the actual drilling of the hole to the well’s total depth, evaluation of the well’s potential and the casing and cementing of the borehole. Completion services include adding all the equipment that will be used to extract the oil from the well.
In a conventional oil well, the cost of drilling the hole accounts for nearly all the well costs. In an unconventional well that requires fracking to get the oil flowing, completion costs can account for as much as two-thirds of the cost of the well. And total well costs often run more than $6 million for a well in the Bakken and Eagle Ford shale plays. If there are 1,400 wells awaiting completion in the Eagle Ford, a savings of $4 million per well conserves $5.6 billion in cash. Even in the oil business, that is real money.
Holding off on well completions has several advantages. First is the obvious one of not adding to the glut of production at prices below $50 a barrel. Second is the conservation of cash, which the price of oil is not producing in sufficient quantity. Third, if a producer wants to complete a new well to replace one that has reached the end of its useful life, the company is currently in a strong bargaining position with the services outfits that do the completion work. Finally, when prices do rise the uncompleted wells can be completed quickly and get the cash register ringing again.
Combined with falling rig counts and the slowdown in new drilling, the decisions by the larger players to postpone completions do lead to the conclusion that production will slow down later this year and crude oil prices are likely to begin rising again. But given how quickly the shale producers can respond to price movements, the price increases may not be all that big or all that long-lived.

Monday, April 6, 2015

Nigeria Ripe for Change With Buhari’s Victory, Oil in Spotlight

General Muhammadu Buhari, who won Nigeria’s closely watched and very tight presidential election last week, first came to power in a military coup in the 1990s, and was instrumental in introducing what Nigerians call “The War Against Indiscipline,” which required Nigerians to line up in an orderly fashion at bus stops and the like. In a nation where indiscipline of all sorts runs high, that kind of approach was and will be greatly appreciated, said Nigerian novelist and political commentator Okey Ndibe, and although Buhari also imposed strict controls on the press, he is remembered as someone who lived modestly and did not line his own pockets with public funds.
In a country, which is one of the biggest oil producers, but where corruption has always been endemic, that kind of reputation goes a long way, and it certainly puts Muhammadu several notches above ousted president Goodluck Jonathan.
But for Ndibe, Muhammadu will have much more to do than simply targeting and bringing to task corrupt government officials. If real change is to happen in Nigeria, then “we need strong institutions,” he said. “We need an independent judiciary, we need independent police and security services that would be impartial and not partisan. Nigeria’s problems are systemic and structural and in my view, if the entire country is to be restructured, it’s going to take more than a single leader to do that, it has to be a Nigerian Project, an alignment of different interest groups to realize that change is in our own self-interest.”
Nigeria is a $500 billion economy and with a population of close to 180 million, it is a huge market with great potential, and one that foreign investors like Peter Thoms, founder and lead portfolio manager at Africa Capital Group, have a keen interest in.
“Nigeria has been growing very nicely over the past 10 years despite some very fixable inefficiencies,” Thoms said, “and if those inefficiencies can be fixed, it can become an even greater investment destination. That voters came out in full force for the presidential election is a huge positive for Nigerian democracy, but now we need to see a government that is governing for the people and using its wealth and resources to build for the people.”
For both Nigerians and foreign investors, corruption and insecurity are huge issues that have to be dealt with, Thoms said. Buhari got much of his support from the northern part of the country, in particular the northeast, which is still under threat from Islamic fundamentalist group Boko Haram, and ridding the country of Boko Haram is a key task for the new government, he said.
“Nigeria also suffers from a resource curse. It is the second largest oil producer but none of that oil wealth has trickled down to the people,” Thoms said. “They need to cut the fat and the corruption to make sure the oil wealth is more evenly distributed among the population.”
Nigeria also does not have any working refineries, which makes for a tremendously inefficient oil industry, since the oil has to be exported for refining and then brought back into Nigeria. There are plans to build a big refinery near Lagos, which will help, Thoms said, but as much as the oil sector needs to be developed, it’s also key that Nigeria diversify its economy away from oil and build up other sectors, particularly since the price of oil has fallen.
He said that both the agricultural sector and the manufacturing sector have great potential in Nigeria.
“The country is definitely underutilizing its agricultural potential. Nigiera imports a lot of food and there really is no need for that if agriculture is properly developed,” he said.
As for manufacturing, it, too, has great potential, and Thoms said that many more items can be made in Nigeria itself as opposed to being imported. Nigeria has a young population that is eager to work, he says, and there is an entrepreneurial spirit there that can easily be tapped for greater opportunity.
Even with the many challenges it has to contend with, Nigeria will still grow at around 4% or 5%, but for the longer-term, meaningful and lasting reform has to happen. No industry can hope to really take off properly without transparency and the rule of law, Thoms said, adding that as much as the new government has to prove it’s up to the task, in a nation where much of the wealth is concentrated in the hands of a few, Nigerian businessmen also have the potential to make a huge difference if they, too, invest in Nigeria. 

Friday, April 3, 2015

Iraq chartering woes

Oil Fields In Northern Iraq Try To Reach Maximum Production capacity.
A backlog of over 30 oil tankers has built up outside the Iraqi port of Basra.
According to a Reuters report, lengthy delays of up to three weeks are occurring to load oil due to bad weather and possible oil quality issues, shipping industry sources said.
The problems could delay or limit the number of oil export cargoes from Basra in April, potentially pushing down tanker freight rates, two Singapore shipbrokers told Reuters.
More than 30 oil tankers, two-thirds of of which are VLCCs, are currently lying outside Basra, some of being idle since mid-March.
"The bad weather (in February) has caused all these delays," said Sadiq Jaafar, head of marine consultancy firm Sadiq Jaafar & Associates in Baghdad, talking with Reuters.
The strong winds and storms created a backlog into March and April, said two other maritime sources in Iraq.
The usual waiting time is about five days, one broker said, however, Reuters shipping data showed that some tankers have been waiting to load for nearly three weeks at a daily charter rate of around $48,000-$50,000 per day per ship since early March.
The delays could affect the total number of cargoes being chartered from the Middle East, while chartering  hold ups could result in a drop in freight rates.
"By accepting less quantities to be lifted during March and April, this issue may be resolved over the coming 60 days," the source said.
Shipbrokers have seen a drop in cargo numbers being fixed from the Middle East in the first 10 days of April. "We're some 16 fixtures down," said one broker.
VLCC rates from the Middle East to Asia have fallen by around $10,000 per day, or about 14%, since 24th February as the number of ships waiting for charters outpaced cargo volumes, chartering data showed.
The drop-off in cargoes comes after oil exports from Iraq's southern fields rose to an average of 2.66 mill barrels per day in the first 18 days of March, close to last December's 2.76 mill barrels per day record and well up on the 2.29 mill barrels per day seen in February, when bad weather affected loading.
In the charter markets, FSL Trust Management (FSLTM), as trustee-manager of
First Ship Lease Trust (FSL Trust) has entered into a two-year timecharter agreement with a prominent US domestic oil company for the Aframax ‘FSL Hong Kong’.
The new employment is anticipated to generate around $16.8 mill of revenue over the next 24 months, the company said. This represents an increase of 47% on the timecharter rate at which the ‘FSL Shanghai’ was contracted for one year in June, 2014.
Alan Hatton, FSLTM CEO, commented: "We are very pleased to announce that we have extended our commercial relationship with this prominent US domestic oil company. This demonstrates that the Trust will enter into longer-term contracts with strong counterparties, providing stable cash flows, when the right market opportunities arise.”
Other fixtures reported by brokers recently include Shell’s charter of the 2007-built Suezmax ‘SKS Spey’ for 12 months at $28,000 per day, while the same charterer reportedly took the 2006-built Aframax ‘Oklahoma’ for two years at $22,000 per day. 
Koch was dsaid to have fixed the 2013-built LR1 ‘Abbey Road’ for 12 months at $20,750 per day, while BP was believed to have fixed the 2009-built LR1 ‘Gulf Coral’ in direct continuation at $20,250 per day.
In the MR segment, Koch was said to have fixed the 2008-built ‘Atlantic Grace’ for 12 months at $15,750 per day and the 2009-built ‘Prisco Irina’ for the same period at $15,250 per day. Morgan Stanley was said to have chartered the 2007-built ‘Iver Exact’ for 12 months at $14,900 per day.
As for newbuildings, Meiji was thought to have contracted a second VLCC at JMU for 2018 delivery.
MTMM was said to have ordered another four stainless steel chemical tankers in Japan. The company added another two 35,000 dwt vessels at Shin Kurushima for mid-2018 deliveries, taking the total to seven at this yard.
In addition, two 21,000 dwt chemical tankers were ordered at Kitanihon for delivery in the first quarter of 2018.
Sloman Neptune was said to have contracted up to two 16,500 dwt chemical/products tankers at Jiangzhou Union Shipbuilding - one firm contract, plus an option. Delivery of the first vessel is due in June next year.   
In the S&P sector, the 2000-built MR ‘Chemtrans Petri was believed sold to Middle East interests for $12.5 mill and the 2010-built MR ‘Future Prosperity’ was believed sold to unknown interests for $22.5 mill.
Leaving the fleet were the 1992-built Aframax ‘Jawaharlal Nehru’ reported sold to unknown breakers, ‘as is’ Colombo, for $380 per ldt and also sold ‘as is’ Colombo was the 1995-built Handysize ‘Dawn Meerut’ also sold to unknown interests for $360 per ldt, which included 150 tonnes of bunkers ROB. 

Wednesday, April 1, 2015

Oil rallies as Iran nuclear talks drag on, overshadowing supply concerns

Iran Flagge
LONDON (Reuters) - Brent crude oil futures reversed early losses to rally to $55.90 a barrel on Wednesday, as talks over Iran's nuclear programme continued, curbing expectations of an immediate deal that would allow Iranian crude on to the market.

The Iran talks overshadowed a sharp rise in crude oil stocks in the United States, where inventories rose by 4.8 million barrels to 471.4 million barrels in the week to March 27, according to the United States Energy Information Agency (EIA). [EIA/S]
Brent crude for May delivery LCOc1 was up 80 cents at $55.91 a barrel by 1445 GMT, after earlier touching a session low of $54.70.
U.S. crude for May delivery CLc1 was trading 97 cents higher at $48.57 a barrel.
Talks between Iran and six world powers in the Swiss city of Lausanne to settle a dispute around Tehran's nuclear programme extended past a Tuesday deadline into Wednesday.
Talks had appeared to get bogged down due to Russian concerns over the use of a "snapback", an automatic reversal of any proposed easing of U.N. Security Council sanctions if Iran fails to comply with the terms of an agreement.
"A lot of people were expecting the deal to be done overnight and Iran to be pumping a million barrels tomorrow. That's not going to be the case," said Amrita Sen, chief oil analyst at Energy Aspects.
"Everybody's been lowering expectations and I think that's feeding into prices," she said.
German Chancellor Angela Merkel said that while much progress had been made, the talks would only end when agreement was reached on all points. French Foreign Minister Laurent Fabius said the talks were not sufficiently advanced to ensure a quick conclusion.
Iranian senior nuclear negotiator, Abbas Araqchi, said Iran hoped to wrap up talks by Wednesday night.
"We insist on lifting of financial and oil and banking sanctions immediately ... for other sanctions we need to find a framework," he told Iranian state television.
Iran produces about 2.8 million barrels per day (bpd), according to a Reuters survey, although Western sanctions limit exports to 1 million bpd. It keeps about 30 million barrels on its fleet of tankers ready to be sold, if possible.
Higher OPEC supply weighed on oil prices early on, after a Reuters survey showed the oil cartel increased supply in March by 560,000 bpd to its highest since October. Iraq's exports rebounded after bad weather and Saudi Arabia pumped at close to record rates.

(Additional reporting by Jacob Gronholt-Pedersen in Singapore; Editing by David Clarke and David Holmes)