Friday, January 31, 2020

Exxon’s Earnings Slump On Poor Petrochemical, Refining Results

An Exxon Mobil refinery in Billings, Mont.

ExxonMobil (NYSE: XOM) reported on Friday fourth-quarter earnings down from a year earlier, as lower natural gas prices and weak chemical and refining margins were not enough to offset cash flow from asset sales in the quarter.  

Exxon’s Q4 earnings slipped by 5 percent on the year to $5.69 billion, while earnings per common share assuming dilution dropped by 6 percent to $1.33.

Adjusted earnings per share came in at $0.41, lower than Wall Street expectations of $0.43.

In Q4, earnings included favorable identified items of about $3.9 billion, mainly a $3.7 billion gain from the sale of Exxon’s upstream assets in Norway. 

Exxon’s full-year earnings in 2019 also dropped, by 31 percent.

“Our operations performed well, while short-term supply length in the downstream and chemicals businesses impacted margins and financial results,” Exxon’s chairman and chief executive officer Darren W. Woods said in a statement.

Exxon’s oil-equivalent production in Q4 2019 was flat on Q4 2018, at 4 million barrels per day, the supermajor said, but noted the ramp-up of development in the Permian shale play, where production rose by 54 percent from the fourth quarter of last year.

While the upstream and the cash from the sale of the Norway upstream business helped Exxon weather the weaker crude oil and natural gas prices, the chemicals and the downstream businesses didn’t perform well in Q4.

“Industry fuels margins were significantly lower than third quarter, reflecting seasonally lower demand and increased supply from reduced industry maintenance,” Exxon said, while it also flagged further weakening of chemicals margins from already depressed levels.

The weaker Q4 performance didn’t come as a surprise amid the low commodity prices and weak profit margins in the chemicals and refining businesses at the end of last year. Yesterday, Shell also attributed its profit slump in Q4 to weak prices and margins.

After the results release, Exxon’s shares were down 2.6 percent in pre-market trade in New York.  
By Tsvetana Paraskova for

Thursday, January 30, 2020

Tankers Leave Libya Empty as Hopes Fade for End to Blockade

Fighters loyal to the Government of National Accord open fire in the al-Sawani area, south of Tripoli, in 2019. 
 Fighters loyal to the Government of National Accord open fire in the al-Sawani area, south of Tripoli, in 2019. Photographer: Mahmud Turkia/AFP via Getty Images
  • At least four tankers have left ports without loading cargoes
  • Production could fall to almost nothing, NOC chairman warns
Tankers have begun to leave Libyan ports without cargoes after waiting for days for the end of a blockade of the country’s export terminals by forces loyal to Libyan commander Khalifa Haftar.

The blockade has virtually halted crude exports from the North African country, which had been running at about 1 million barrels a days in recent months. More than half of those shipments went to buyers in the Mediterranean, with Italy, Spain and France among the biggest buyers. China has also emerged as a significant market for Libyan crude, with about a fifth of export volumes heading to the world’s biggest oil importer.

Haftar’s forces closed export ports in the Gulf of Sirte in Central Libya and the Hariga terminal in the east of country on Jan. 17. The Mellitah and Zawiya terminals in the west of the country were forced to halt shipments two days later, after flows from the fields that supply them were also stopped. As a result of the port closures, the National Oil Corp. declared force majeure on supplies, which can allow Libya -- home to Africa’s largest-proven oil reserves -- to legally suspend delivery contracts.

At least four tankers, capable of hauling more than three million barrels of crude, have left Libyan ports in the last 24 hours without taking on cargoes, according to tanker tracking data monitored by Bloomberg. More are preparing to leave, according to port agent reports.

The country has almost no storage capacity that could allow onshore fields to continue pumping even though exports are curtailed. Several storage tanks at the Ras Lanuf terminal were destroyed in 2018, reducing the number of operational tanks to three from 13. Only Libya’s two offshore projects -- Bouri and Al Jurf -- are still able to operate normally; they typically each pump about 30,000 barrels a day.

Libyan oil production had fallen to 271,204 barrels a day, the NOC said yesterday in a statement on its Facebook page. The company’s Chairman Mustafa Sanalla told Bloomberg Television on Monday that output could fall as low as 72,000 barrels within days if the situation doesn’t improve.

”It is not exactly clear what Haftar seeks in return for an end to the blockade,” Tim Eaton, senior research fellow at the Chatham House think tank in London, said by email. “There don’t appear to be advanced negotiations in place to bring this to an end,” he added, “The indications are that this blockade has some distance to run.” The departing tankers suggest that buyers are no more optimistic that the blockade will be lifted any time soon.

— With assistance by Prejula Prem, Salma El Wardany, and Grant Smith

Wednesday, January 29, 2020

OPEC’s waning influence laid bare as coronavirus outbreak hammers oil prices, analysts say
Saudi Minister of Energy Prince Abdulaziz bin Salman al-Saud attends the Future Sustainability Summit at Abu Dhabi National Exhibition Centre (ADNEC) on January 14, 2020.
KARIM SAHIB | AFP via Getty Images
  • China’s National Health Commission confirmed Wednesday that the coronavirus had infected 5,974 people, with 132 deaths and 103 cured.
  • Financial markets have been spooked by the spread of a deadly pneumonia-like virus, with energy market participants trying to assess the potential economic fallout.
  • “I have to say this delicately, but OPEC, I think, is starting to realize that even though they cut back, try to balance output and stabilize prices, they have less influence,” John Driscoll, chief strategist at JTD Energy Securities, told CNBC.
OPEC’s battle to support oil prices as China’s coronavirus spreads internationally shows the producer group is struggling to wield the same influence over global crude markets, energy analysts have told CNBC.

It comes amid speculation that OPEC and non-OPEC producers, sometimes referred to as OPEC+, could extend production cuts if the intensifying outbreak of the coronavirus hampers oil demand growth.

International benchmark Brent crude traded at $59.85 a barrel Wednesday afternoon, up over 0.6%, while U.S. West Texas Intermediate (WTI) stood at $53.59, around 0.2% higher.

Both crude benchmarks have pared some of their recent losses, after slumping to multi-month lows earlier in the week.

“Will deeper OPEC supply curbs provide the panacea for the current oil market malaise? Probably not,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note published Wednesday.

OPEC starting to realize they have ‘less influence’

China’s National Health Commission confirmed Wednesday that the coronavirus had infected 5,974 people, with 132 deaths and 103 cured.

The virus, which was first discovered in the Chinese city of Wuhan, has spread to other major cities such as Beijing, Shanghai, Macao and Hong Kong.

Financial markets have been spooked by the spread of a deadly pneumonia-like virus, with energy market participants trying to assess the potential economic fallout.

Brennock said the timing of the next OPEC+ meeting carried “added importance,” given the early March gathering will mark two months since the coronavirus was first detected.

“That’s a similar timeframe in which the SARS outbreak in 2003 peaked. Oil demand jitters could therefore be at their most intense,” Brennock said.

“Set against this backdrop, the producer alliance will be under even greater pressure to send a strong and positive message for the oil market,” he added.

OPEC President Mohamed Arkab has previously said he believes the virus outbreak will have little impact on the global oil market in the near-term, but suggested the Middle East-dominated producer group is ready to act to any further developments.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman has also insisted that OPEC+ has the capability to steady the oil market if necessary.

The group has been limiting supply to prop up crude futures and recently increased its agreed output reduction by 500,000 barrels per day (b/d) to 1.7 million b/d through March.

John Driscoll, chief strategist at JTD Energy Securities, told CNBC’s “Capital Connection” on Tuesday that he didn’t foresee “any fundamental strength” in the oil market to support crude futures.

“I have to say this delicately, but OPEC, I think, is starting to realize that even though they cut back, try to balance output and stabilize prices, they have less influence.”

“That is simply because the balance of power has shifted,” Driscoll said, citing “massive new fields” in Norway, Brazil and Guyana.

“And, of course, the U.S. being the biggest non-OPEC producer. (With) all of this excess supply, if OPEC cuts back, they might lose market share and that gap could be filled by a non-OPEC producer,” Driscoll said.

Tactical supply cuts are OPEC’s ‘strongest card’

In contrast, Bjarne Schieldrop, chief commodities analyst at SEB, said in a research note published Tuesday that “tactical cuts are OPEC’s strongest card.”

The group “will most likely step in and reduce supply for a month or two in order to prevent an inventory build-up which the market would have to struggle with for an extended period,” Schieldrop said.

“Inventories are already high, and the group does not want to see it higher if it can avoid it,” he added.

Tuesday, January 28, 2020

Gold eases off 3-week peak as equities sell-off pauses
Getty Images

Gold prices edged down on Tuesday from the previous session’s near three-week high as equities regained some ground, but concerns the coronavirus outbreak could impact the global economy cushioned safe-haven bullion’s losses.

Spot gold was down 0.7% to $1,570.64 per ounce, having touched its highest since Jan. 8 on Monday. U.S. gold futures were down 0.46% to $1,570.1.

“The flight to safety is not continuing today. Equity markets have stabilized, European equities are broadly flat, so the wave of risk aversion that swept across the financial markets seems to be off,” said Julius Baer analyst Carsten Menke.

European markets steadied after the previous day’s thumping, while the U.S. dollar rose to a near two-month high.

However, concerns the coronavirus outbreak could hinder the global economy persist, Menke said, adding reactions to the spreading virus had been very different across markets and the decline in oil prices suggested a slowdown of economic activity in China.

Gold is seen as an alternative investment during times of economic and political uncertainties.

The death toll from the virus reached 106 in China and some health experts questioned whether Beijing can contain the virus which has spread from the city of Wuhan to more than 10 countries.

The outbreak has prompted authorities to impose travel restrictions and extend the Lunar New Year holidays, which helped bullion to rise for the past four sessions.

“Fears over the Wuhan virus have driven the rally (in gold), but it appears that investors much prefer the safety of high-grade government bonds to the yellow metal,” Jeffrey Halley, senior market analyst, OANDA, said in a note.

Benchmark U.S. 10-year Treasury yields fell to their lowest since Oct. 10.

Government bonds are also considered a safe-haven asset during times of economic and political uncertainty.

Also on investors’ radar was the U.S. Federal Reserve’s first policy meeting of the year, scheduled to start later in the day. Fed Fund futures show traders expect the U.S. central bank to keep interest rates unchanged.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

Elsewhere, palladium jumped 1.1% to $2,293.34 an ounce, having declined about 7% in the previous session.

Silver fell 0.3% to $18.04, while platinum rose 0.4% to $986.98.

Monday, January 27, 2020

Oil tumbles into bear market, hits more than 3-month low on fears coronavirus will slow global growth

GP: Coronavirus Macau
A staff member checks the temperature of a guest entering the casino of the New Orient Landmark hotel in Macau on January 22, 2020, after the former Portuguese colony reported its first case of the new SARS-like virus that originated from Wuhan in China.
Anthony Wallace | Getty Images

Oil dropped to its lowest level since October on Monday, as fears over a potential slowdown in crude demand, sparked by the coronavirus outbreak, continued to pressure prices.

U.S. West Texas Intermediate crude fell 1.9%, or $1.05, to settle at $53.14 per barrel, for the fifth straight session of losses, and the lowest closing price since Oct. 15. At its low, WTI dipped more than 3% to hit $52.13, a price not seen since Oct. 10. The contract is coming off its third straight week of losses and worst week since July, and is now trading in bear market territory after falling more than 20% from its recent April high of $66.60.

International benchmark Brent crude fell 2.5%, or $1.53, to $59.16. It’s also coming off its third straight week of losses, and its worst week since Dec. 2018.

The flu-like coronavirus, first identified on Dec. 31 in the Chinese city of Wuhan, has now killed 82 people, according to Chinese officials, with at least 2,900 confirmed cases worldwide. The virus has spread to 10 additional countries, including South Korea, Japan and the United States, where the fifth case was confirmed on Sunday.

A slowdown in China’s economy would hit oil demand since the nation is the world’s largest crude oil importer —importing a record 10.12 million barrels per day in 2019 — and the world’s second-largest oil consumer, according to data from the General Administration of Customs.

“Supply risk has been tested in acute fashion over recent months, but the coronavirus presents the first major severe test to demand in years,” RBC analyst Michael Tran said in a note to clients Monday. “Concerns surrounding the virus and the negative impact on demand have taken the oil market hostage and have sent oil prices on a five-day losing streak.”

On Sunday Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said that OPEC+ would step in to bolster prices if needed, while noting that the sell-off was “primarily driven by psychological factors and extremely negative market expectations adopted by some market participants despite (the virus’) very limited impact on global oil demand,” according to a report from Reuters.

But his comments did little to assuage fears as prices continued to move lower Monday.

“The recent price plunge, due to demand concerns emanating from the coronavirus outbreak, has Saudi Arabia and Russia in full scramble mode,” Again Capital’s John Kilduff said to CNBC. “With winter in the Northern Hemisphere winding down, producers were already staring down a slack demand period, ahead of the summer driving season. It has to be concerning to them that their attempts at jaw-boning the market, over the weekend, have fallen flat,” he added.

“It [OPEC] might need to take action if oil prices fall below a certain threshold,” S&P Global Platts’ Claudio Galimberti said Monday on CNBC’s “The Exchange.” “And probably they are already at about that threshold.”

When attempting to quantify the potential impact on oil demand, some Street analysts have used the 2002 outbreak of SARS as a reference case. On Thursday JPMorgan said that if the virus becomes a “SARS style epidemic,” it could shave $5 per barrel from oil prices.

One key difference for the oil market this time around, however, is that since the early 2000s air travel has increased in China, and jet fuel demand has been a key driver of global growth.

But RBC said that while jet fuel demand has already softened, it’s not yet a “global demand story,” and that estimating “the impact on what a SARS-like event would have on oil price” is an “exercise in futility.”

That said, the virus is sending traders scrambling and several bullish events last week, including a halt in Libya’s production as well as a surprise decline in U.S. inventory, weren’t enough to prop up prices.

“The corona virus has quickly morphed from being a curiosity to a potentially more ominous threat to the global economic and oil demand outlook for 2020,” Simmons Energy analyst Bill Herbert said Sunday.

- CNBC’s Michael Bloom and Sam Meredith contributed to this report.

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)

Thursday, January 16, 2020

Gibson tanker report "talk about closing Strait of Hormuz"

Strait of Hormuz

One of the most talked about scenarios remains the possibility that the Strait of Hormuz could be closed, says broker Gibsons in its weekly tanker market report

"Any closure no matter how temporary would impact approximately 17.2million b/d of crude oil and 2.4million b/d of refined product flows," Gibsons says.

"If this was to materialise, the impact on the oil price would be extreme, with major economic ramifications. 

Gibsons weekly tanker Report

Wednesday, January 15, 2020

U.S. Gas Giant Downgraded To Junk Status

Operational Footprint Section Photo
EQT Operational Footprint

The largest natural gas driller in the United States just announced a massive write-down for its assets, offering more evidence that the shale sector faces fundamental problems with profitability. 

In a regulatory filing on Monday, Pittsburgh-based EQT took a $1.8 billion impairment for the fourth quarter, as the natural gas market continues to sour. EQT said that the write down comes as a result of the “changes to our development strategy and renewed focus on a refined core operating footprint,” which is a jargon-y way of saying that some of its assets are now worth much less.
EQT also slashed spending for 2020 to between $1.25 and $1.35 billion, down by another $50 million compared to the guidance the company provided in the third quarter of last year.
Although not a household name, EQT is the largest gas producer in the country, and is a giant in the Marcellus shale. EQT purchased Rice Energy in 2017, growing into a huge gas producer and pipeline company, but it has posted disappointing results in the last few years. The poor performance led to an internal battle for control of the company. Toby Rice, who co-founded Rice Energy and maintained small ownership stakes in EQT after the tie up, wrestled control from management, convincing the company’s board that he could right the ship. He became CEO last year.

So far, the company’s problems continue. Natural gas prices slid sharply in 2019, and are at rock-bottom levels, particularly for the time of year. According to the FT, while Henry Hub natural gas prices for February delivery trade at $2.24/MMBtu, they are only trading at around $1.83/MMBtu at the Dominion South hub in Pennsylvania. Related: Canada Faces A New Oil Price ‘’Blowout’’

EQT itself admits that it can’t succeed in this environment. “Gas prices are down. It has a big impact, the difference between $2.75 gas and $2.50 gas,” Toby Rice said in December “A lot of this development doesn’t work as well at $2.50 gas.”

EQT hopes to cut $1.5 billion in debt by selling assets and boosting cash flow. However, the cash flow part will be hard to pull off with prices stuck in the doldrums.

Moody’s cut EQT’s credit rating on Monday to Ba1 with a negative outlook, moving it into junk territory after the gas giant said it would issue new bonds to refinance debt. “EQT's significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company's intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade,” Moody’s senior analyst Sreedhar Kona said.

The agency also noted the “volatility associated with the cash flow of pure-play natural gas producers necessitate a higher retained cash flow to debt ratio threshold than EQT can deliver over the medium term even with significant debt reduction.”

“Additionally, EQT's cash flow metrics compare poorly to other Baa3 rated oil producing companies, despite EQT's size and scale,” Moody’s concluded. Related: This Was The Most Successful Energy Niche Last Year

EQT’s share price is down by more than half since last spring, and it is also down by more than 75 percent since 2017.

These problems are obviously much larger than EQT. Range Resources recently slashed its dividend in order to pay off debt, while also taking out another $550 million in new debt in order to pay off maturing debt this year. Meanwhile, Chesapeake Energy, the second largest gas producer, is now trading at pennies on the dollar and faces the prospect of being delisted from the New York Stock Exchange.

EQT’s predicament reflects the broader financial questions that have long plagued the shale industry. Fracking can produce lots of oil and gas, but steep decline rates make profits elusive. If the largest gas producer in the country is struggling, and has a credit rating in junk territory, then something is wrong with the business model.

The problems endemic to the shale gas industry are starting to affect production. The decade-long boom in gas production from Appalachia may have finally come to a halt.

By Nick Cunningham of

Kinder Morgan sells Pembina Pipeline interest for $764 million

Click on Image to See Larger View
Kinder Morgan Asset Map

North American energy infrastructure provider Kinder Morgan has sold all of its approximately 25 million shares in Pembina Pipeline Corporation.

The stock was initially received in connection with Pembina’s acquisition of the outstanding common equity of Kinder Morgan Canada. The sale of the shares is consistent with the company’s intention to convert shares into cash in an ‘opportunistic and non-disruptive manner’.

The shares were sold for after-tax proceeds of $764 million (€687.1 million), consistent with Kinder Morgan’s 2020 budget.

The company previously announced that it intends to use the proceeds to pay down debt, creating balance sheet flexibility in 2020.

Tuesday, January 14, 2020

The World’s Most Precious Metal Leaves Everything Else in the Dust

Periodic table symbol for Rhodium

  • Rhodium extends multiyear surge, jumping 31% so far this month
  • Stricter emissions rules have boosted demand from auto sector
Palladium’s great start to the year pales in comparison to its lesser known, but much more expensive sister metal, rhodium.

Rhodium -- mainly used in autocatalysts and five times more costly than gold -- surged 31% already this month, touching the highest since 2008. Stricter emissions rules have fueled a multiyear rally and there’s speculation that investors are also jumping in, betting that prices will climb toward a record.

Rhodium rallied 12-fold in the past four years, far outperforming all major commodities, on rising demand from the auto sector. Like palladium, the metal is mined as a byproduct of platinum and nickel, but it is a much smaller market and so is liable to big price moves when supply or demand changes.

“Rhodium is subject to crazy volatility,” said Anton Berlin, head of analysis and market development at Russia’s MMC Norilsk Nickel PJSC, which mines about 10% of all rhodium. Supplies are tight and speculators stepped up buying metal after large industrial users secured volumes late last year, he said.

Price Surge

Rhodium was at $7,925 an ounce by Monday, according to Johnson Matthey Plc. This month’s gain also came after investors turned to precious metals, seeking a haven from Middle East tensions and pushing palladium up about 9%.

“The main driver by the beginning of January was physical demand from Asia, which might be also automotive related,” said Andreas Daniel, a trader at refiner Heraeus Holding GmbH. “Buying triggered more buying and in an unregulated market the effect was massive, with a price move which is only seen maybe every 10 years.”

Demand cooled late last week, according to Daniel. Prices hit $8,200 on Wednesday, before retreating a bit in the following days.

Although pullbacks are possible this year, rhodium could top the record $10,100 set in 2008, according to Afshin Nabavi, head of trading at refiner MKS PAMP Group in Switzerland. Still, those lofty prices a decade ago prompted autocatalyst makers to switch to platinum and palladium, which are also used for cleaning emissions.

It’s much harder to invest in rhodium than in other precious metals. It isn’t traded on exchanges, the market for bars or coins is tiny compared with gold or silver and most deals are between suppliers and industrial users. Global production is equal to little more than a 10th of platinum or palladium output.

Higher rhodium prices are good news for South African producers, which account for more than 80% of global output. Gains in platinum-group metals and a weak rand helped a stock index for the nation’s miners to triple in the past year, reaching the highest since 2011.

But South Africa’s dominance also means production risks hang over the market. Power shortages last year temporarily interrupted some mining operations and there have been long mine strikes in previous years by workers wanting higher pay.

(Updates prices in fifth paragraph)

Monday, January 13, 2020

PDVSA's partners act as traders of Venezuelan oil amid sanctions - documents

PDVSA is the single largest source of income for the Venezuelan government, and oil sales accounting for well over 90 percent of the country’s export revenue. (AVN)

CARACAS/PUNTO FIJO, Venezuela (Reuters) - Venezuela, its oil exports decimated by U.S. sanctions, is testing a new method of getting its crude to market: allocating cargoes to joint-venture partners including Chevron Corp (CVX.N), which in turn market the oil to customers in Asia and Africa.

This would not violate sanctions as long as sale proceeds are used for paying off a venture’s debts, according to three sources from joint ventures. They said this approach could help Venezuela overcome obstacles to producing and exporting oil. 

Venezuela’s oil exports fell 32% last year as the U.S. government blocked imports by American companies and transactions made in U.S. dollars. PDVSA was forced to use intermediaries for crude sales as Washington pressured Venezuela’s Indian and Chinese customers to halt direct purchases. 

The sanctions were designed to oust Venezuelan President Nicolas Maduro after most Western nations branded his 2018 re-election a sham. 

By acting as an intermediary for PDVSA’s oil sales, Russia’s Rosneft (ROSN.MM) in 2019 became the largest receiver of Venezuelan crude, using the sales to amortize billions of dollars in loans granted to Venezuela in the last decade. 

Washington has mostly allowed mechanisms to pay off debt with oil or to swap Venezuelan crude for imported fuel, but Venezuela’s opposition is lobbying the U.S. administration to punish intermediaries. 

PDVSA, the U.S. Treasury Department and the State Department did not answer Reuters’ requests for comment. 

The latest tests of the policy come this month. A 1 million-barrel cargo of Venezuelan upgraded crude consigned to Chevron is scheduled to load at PDVSA’s Jose port, according to internal documents from the state-run firm seen by Reuters. 

Chevron has a stake in the Petropiar joint venture with PDVSA to upgrade oil in the OPEC nation’s Orinoco belt, one of the world’s largest oil reserves. Chevron’s license to operate in Venezuela despite sanctions expires on Jan. 22 unless the U.S. Treasury renews it. 

“Proceeds from these marketing activities are paid to our joint venture accounts to cover the cost of maintenance operations, in full compliance with all applicable laws and regulations,” said Chevron spokesperson Ray Fohr. 

In the past, Chevron itself used to refine Venezuelan crude at its U.S facilities, often bought from PDVSA’s joint ventures. 

Another cargo of 670,000 barrels of Tia Juana and Boscan crudes, chartered by Venezuelan oil firm Suelopetrol, set sail at the beginning of January, the documents showed. 

Suelopetrol, a minority stakeholder in joint ventures with PDVSA, said it was recently allocated a Venezuelan crude cargo under contracts signed prior to U.S. sanctions with PDVSA and joint venture Petrocabimas to support investment and development of oilfields. 

“Those contracts include the designation of Suelopetrol as offtaker of crude produced for compensating accounts receivable, due since 2015, for capital contributions, technical assistance, provision of services and accumulated dividends,” it said in response to questions from Reuters. 

By Venezuelan law, state-run PDVSA is required to market all Venezuela’s crude exports, except for upgraded oil, whose output was suspended in 2019 due to accumulation of stocks. Only Petropiar, one of four upgrading projects in the Orinoco, has recently resumed operations. 

To avoid violating Venezuelan law, the joint ventures that are not allowed to market their output for exports first sell the oil to PDVSA, which then allocates the cargoes to its joint venture partners, according to two of sources and documents. 

The private partners take possession of the cargoes at Venezuelan ports and transport them in chartered vessels to refineries around the world, according to the documents and tanker tracking data from Refinitiv Eikon. 

Proceeds from these sales to ultimate buyers are being transferred to the joint venture’s trustees to fund operational expenses as well as paying debt and dividends owed to partners. 

“It is a matter of life or death for joint ventures to achieve this so operations can restart,” said a top executive from one of the joint ventures that accepted the mechanism. 

According to the PDVSA documents and sources, Chevron took two cargoes of Venezuelan Boscan and Merey crudes in the last quarter of 2019, before lifting a cargo of Hamaca crude in January. Suelopetrol’s cargo, on tanker Ace, set sail on Jan. 5.


Several of PDVSA’s more than 40 oil producing joint ventures owe hundreds of millions of dollars to minority partners as PDVSA demanded from 2013 to 2017 they extend funding to the projects. 

Minority stakeholders put the money through credit lines and loans backed by supply contracts so sale proceeds would go to trustees for paying the projects’ costs while amortizing the loans. 

But U.S. sanctions deprived PDVSA and some joint ventures of the supply contracts used to guarantee the loans, leaving the projects without sources of cash and freezing the credit lines. 

The new mechanism is intended to unfreeze cash flow to continue production, the sources said. It could also make it easier to trade Venezuelan oil by using joint-venture partners as buyers or traders while sanctions are in place. 

Very high freight tariffs for transporting Venezuelan oil, the difficulty in finding willing buyers, and problems at oilfields and shipping terminals remain obstacles to implementing the mechanism, the sources added. 

Lawyers consulted by some PDVSA partners interested in lifting Venezuelan crude told them the sales are allowed under sanctions as long as proceeds paying off debts remain out of Maduro’s reach, which is the main intention of the measures, one of the sources said. 

Reporting by Marianna Parraga in Mexico City, Mircely Guanipa in Punto Fijo, Venezuela, and Deisy Buitrago and Luc Cohen in Caracas. Additional reporting by Timothy Gardner in Washington; Editing by Daniel Flynn, Gary McWilliams and David Gregorio