Thursday, August 31, 2017

U.S. releases 500,000 barrels of oil from strategic reserve

The U.S. Energy Department said on Thursday it would release 500,000 barrels of crude oil from the Strategic Petroleum Reserve as Tropical Storm Harvey’s disruption of the petroleum industry has spiked motor fuel prices. 

The oil will be delivered to the Phillips 66 (PSX.N) refinery in Lake Charles, Louisiana, according to a department statement. That plant has not been affected by the storm, which has hammered the Gulf Coast for several days.

Wednesday, August 30, 2017

'No way to prevent' potential chemical plant explosion near Houston, Arkema CEO says

Arkema's CEO said Wednesday that there is "no way to prevent" a possible explosion at the company's Crosby, Texas, facility, which has been heavily flooded as a result of Hurricane Harvey. 

“We have an unprecedented 6 feet of water at the plant,” Arkema President and CEO Rich Rowe said in comments made Wednesday. “We have lost primary power and two sources of emergency backup power. 

"As a result, we have lost critical refrigeration of the materials on site that could now explode and cause a subsequent intense fire. The high water and lack of power leave us with no way to prevent it," he said. 

Rowe added: "We have evacuated our personnel for their own safety. The federal, state and local authorities were contacted a few days ago, and we are working very closely with them to manage this matter. They have ordered the surrounding community to be evacuated, too." 

Residents within a 1.5-mile radius of the facility, which is near Houston, have been told to leave, according to the Harris County Fire Marshal's Office. 

Rep. Ted Poe, R-Texas, who represents the district that includes the chemical plant, called the situation "very dangerous." 

"The worst-case scenario is that this chemical plant could explode," he told ABC News. 

The site has experienced torrential rains from Harvey, "receiving approximately 40 inches by Monday afternoon," the company said in a statement Tuesday evening.
PHOTO: Trucks make their way through flood waters on a main road leading to the Arkema Inc. chemical plant that was in crisis during the aftermath of Hurricane Harvey, Aug. 30, 2017, in Crosby, Texas.Brendan Smialowski/AFP/Getty Images
Trucks make their way through flood waters on a main road leading to the Arkema Inc. chemical plant that was in crisis during the aftermath of Hurricane Harvey, Aug. 30, 2017, in Crosby, Texas
On Tuesday, the company said it didn't believe there was any "imminent danger" but stressed that "the potential for a chemical reaction leading to a fire and/or explosion within the site confines is real." 

The Environmental Protection Agency is supporting local agencies in dealing with the situation. 

"We are aware of the situation and are working with TCEQ, who is the lead in this situation, to support them and other state and local officials to mitigate risk to human health or the environment," an EPA spokesperson said in a statement. 

The U.S. Chemical Safety Board -- the federal agency that investigates and helps clean up chemical accidents -- also said it was aware of the situation. 

"The CSB is aware of the situation through news reports. We don’t have any other information other than what we are gathering from news reports. We are prepared to deploy to any incident that might result from Hurricane Harvey." 

ABC News' Anna Maria Gibson, Clayton Sandell and Lauren Pearle contributed to this report.

Gasoline jumps, crude down; Harvey shuts 23 percent of U.S. refining

FILE PHOTO: The Exxon Mobil Beaumont Polyethylene Plant is seen during tropical storm Harvey in Beaumont, Texas, U.S. August 28, 2017. REUTERS/Jonathan Bachman/File Photo 

The Exxon Mobil Beaumont Polyethylene Plant is seen during tropical storm Harvey in Beaumont, Texas, U.S. August 28, 2017. REUTERS/Jonathan Bachman/File Photo

Gasoline futures surged on Wednesday to another two-year high and crude oil fell, as flooding and damage from Tropical Storm Harvey shut nearly a quarter of U.S. refinery capacity, curbing demand for crude while raising the risk of fuel shortages. 

Refineries with output of 4.2 million barrels per day (bpd) were offline on Tuesday, representing nearly 23 percent of U.S. production, according to Reuters estimates and company reports. Restarting plants even under the best conditions can take a week or more. 

“It will be a while before operations can return to normal and the U.S. refining industry is bracing itself for an extended shutdown,” Stephen Brennock of oil broker PVM said. 

U.S. gasoline futures RBc1 were up 6.5 percent at $1.8993 a gallon, having hit $1.9140, highest since July 2015. Diesel futures HOc1 advanced by 1.7 percent to $1.6945 a gallon, having touched their highest since January at $1.7161. 

Brent oil LCOc1, the international crude benchmark, was down 48 cents at $51.52 a barrel at 10:54 a.m. EDT. U.S. crude CLc1 fell 39 cents to $46.05. 

The spread between Brent and U.S. crude hit its widest in more than two years, and was lately at $5.39 a barrel. 

“Certainly the spread widening out between WTI/Brent is Harvey-driven. You’ve pretty much sapped a major chunk of Gulf Coast refining demand,” said Anthony Scott, managing director of analytics at BTU Analytics in Denver. 

Gains intensified for refined products after sources on Wednesday said Total’s Port Arthur, Texas, refinery had been shut by a power outage resulting from the storm. 

Gasoline margins RBc1-Clc1 jumped, as the gasoline crack spread jumped 12.5 percent to $23.45 a barrel, highest on a seasonal basis since 2012. 

“Crude is always easier to replace than products,” said Olivier Jakob, analyst at Petromatrix. “If the refineries stay shut for more than a week or 10 days, it’s going to be very problematic.” 

Harvey made landfall on Friday as the most powerful hurricane to hit Texas in more than 50 years, resulting in the death of at least 17 people. 

In addition to shutting oil refineries, about 1.4 million bpd of U.S. crude production has been disrupted, equivalent to 15 percent of total output, Goldman Sachs said. 

Effects of the damages and shutdowns are expected to ripple for weeks. Explorer shut two main lines carrying fuel to the Chicago market Tuesday, and the main Colonial Pipeline to the U.S. East Coast was running at reduced rates. 

The market shrugged off weekly inventory figures from the U.S. Energy Department, which reflect stocks prior to the storm. Crude inventories USOILC=ECI fell by 5.4 million barrels in the latest week, far more than the decrease of 1.9 million barrels analysts had expected. Refining capacity utilization rose to 96.6 percent, highest since 2005, a figure that will fall sharply due to massive shutins on the Gulf. 

Additional reporting by Alex Lawler and Henning Gloystein; Editing by Dale Hudson and David Gregorio

Monday, August 28, 2017

Hurricane Harvey Impacts on US Gulf Coast Oil Industry

Oil and gas companies on the Texas Gulf Coast were dealing Saturday with the impact of Hurricane Harvey, which made landfall near Corpus Christi, Texas, and was expected to produce torrential rains and flooding over the next few days.

As of 1 PM CDT (1700 GMT), Harvey, now listed as a tropical storm, was about 45 miles west-northwest of Victoria, Texas, with maximum sustained winds of 70 mph, according to the US National Hurricane Center. The current path shows Harvey impacting primarily the Corpus Christi area, weakening to a tropical depression by Monday, and moving to the northwest of Houston.

Refiners shut nearly 900,000 b/d of capacity, primarily in the Corpus Christi area, while area ports and terminals were closed to vessel traffic.

Some offshore oil and gas operators evacuated platforms and rigs, while onshore operators were shutting in what may amount to hundreds of wells in the Eagle Ford Shale in South Texas.
Ports and Terminals

* Corpus Christi area ports remained closed Saturday, and so far there are no reported oil spills or damages to storage tanks. The port of Brownsville, located further south on the Texas/Mexico border, reopened.

* All ports in the Galveston Bay port complex will remain closed for the next 24 to 48 hours, but initial steps are being worked out to open some parts of the upper Houston Ship Channel with Hurricane Harvey showing signs of a slowdown, the Greater Houston Port Bureau said Saturday.

* The US Coast Guard set Zulu condition Friday for four major ports in the Houston-Galveston area complex, closing ports to all inbound and outbound traffic, including crude oil tankers, at the Port of Houston, Port of Texas City, Port of Galveston and Port of Freeport.

* Further north along the Texas coast, pilots on the Sabine Pass and at Port Neches had normal traffic flows. Lake Charles, Louisiana, also had normal traffic flows Friday morning, but service was expected to be interrupted at some point Friday as the weather worsened, a port report said.

* Phillips 66 suspended operations at its Freeport, Texas, terminal after Port Freeport was closed, which will impact LPG exports and crude imports at the facility. The Freeport Liquefied Petroleum Gas Export Terminal started operations in December and can export 150,000 b/d of LPG to Europe, Latin America and Asia. The LPG export project was an expansion of the existing marine terminal in Freeport which also serves Phillips 66's nearby 247,000 b/d Sweeny, Texas, refinery. The refinery is said to be still operating, but crude imports will be curtailed because of the port closure.

* NuStar Energy said it had completed fully shutting down its crude and refined products terminal in Corpus Christi. NuStar's North Beach Terminal at Corpus Christi includes a 1.6 million-barrel crude facility, and 10 storage tanks with a combined capacity of 327,000 barrels for gasoline, distillates, xylene and toluene, and a 72-mile, 15,000 b/d pipeline that carries refined products and chemicals.

* Magellan suspended operations at its crude terminal and condensate splitter in Corpus Christi. The midstream player operates a 3.5 million-barrel crude and condensate storage storage and a 50,000 b/d condensate splitter at the facility. The company's refined products and crude oil pipelines in the Houston Ship Channel area are operating normally.

* Buckeye Texas Partners has suspended all marine terminal operations in Corpus Christi and also initiated a full shutdown of its crude, condensate, fuel oil and naphtha storage facilities in the area, a company official said. The company's facilities at Corpus Christi include 2.3 million barrels of storage for crude, condensate, fuel oil and naphtha and three deepwater docks of a maximum draft of 45 feet that can load Aframax vessels.

Friday, August 25, 2017

China continues to influence tanker demand

Early this month, Reuters data proved that China was the world’s largest importer of crude oil ahead of the US. 
Figures showed that for the first time, China averaged 8.55 mill barrels per day of crude oil imports in the first half of 2017, compared with 8.12 mill barrels per day imported by the US. 
This trend looks set to continue as China develops its refining industry and builds strategic petroleum reserves. However, other factors play a role, Gibson Shipbrokers said in a report.
First, one of the biggest differences between China and the US is domestic oil production. China’s crude production has been in gradual decline. According to data provided by Reuters, domestic production fell by 5.1% in the first six months of 2017, averaging 3.89 mill barrels per. 
This is in contrast to growing US production on the back of the revitalised shale industry in recent months and highlights a growing trend in China of increased crude imports to replace declining domestic production.
Perhaps more significantly, another factor driving imports has been the continuing effort to build strategic petroleum reserves (SPR). Finding accurate data on SPR levels increase can be difficult. However, by adding crude imports to domestic production, minus refinery throughput, an idea of surplus oil used to build SPR can be identified. 
According to data from Reuters, when comparing the first half of 2016 to 2017, the increase between available crude and refinery throughput was 510,000 barrels per day. Not all of this would necessarily go into filling the SPR, however, a large percentage of overall crude import growth can potentially be attributed to the SPR build, Gibson said. 
Data released for July, shows refinery throughput was the lowest since September, 2016. This slowdown, coupled with rising oil demand further highlights the role of SPR builds in crude demand and invariably raises the question of how long can this continue. 
It is assumed that China will continue to build tits SPR for years. The IEA has highlighted 2020 as a tentative completion date, with 182 mill barrels of storage space yet to be commissioned - according to the latest reports. However, unless further investment is made into building new storage facilities it is possible to assume that this artificial source of import demand will gradually decline.
According to a recent Sinopec presentation, China plans to add 2.5 mill barrels per day of refining capacity by 2020, supporting growth in Chinese oil imports into the future. In recent years, China’s refining capacity expansion has pressured regional refining margins, as the country’s refined product exports rise. 
Politics may impact this in the future, but expanding capacity does look set to place China in a more dominant position within the refined products market.
Evidently, China will continue to have an ever greater role in the global oil market and continue to cement its position as the world’s largest crude importer. Due to declining domestic production and refinery expansions, this should prove positive to tanker demand in years to come, Gibson concluded.

Thursday, August 24, 2017

BP Oil Spill - Landing & Latching of Capping Stack (edited)

Scientists get first look at seabed near B.P. oil spill site

Harvey Strengthens Into Hurricane Before Hitting Texas Friday
  • Anadarko has removed nonessential staff from energy platforms
  • Would be first major hurricane to hit U.S. since Wilma

Harvey, which has already shut energy platforms in the Gulf of Mexico, scattered tankers and disrupted pipeline operations, strengthened into a hurricane on a path that’ll have it slamming into Texas’s coast Friday.

Harvey’s top winds reached 80 miles (129 kilometers) per hour as it bears down on the Texas coast about 340 miles southeast of Corpus Christi, Texas, according to an update from the National Hurricane Center. It is on track to become a Category 3 storm, the first major hurricane to hit the U.S. since Wilma in 2005.

“The primary impacts will be from widespread and potentially catastrophic flooding, with total rainfall amounts over the next week exceeding a foot in a large area from Corpus Christi to the Louisiana coast and then up to 100 miles inland from there,” said Todd Crawford, chief meteorologist at The Weather Company in Andover, Massachusetts. “Many locations in those areas may exceed two feet. Clearly Houston is at risk for historic rainfall amounts over the next week.”

Texas Governor Greg Abbott declared a state of disaster for 30 Texas counties. In addition to the potential loss of life, flooding can close roads and knock out power to homes, businesses and refineries. The five refineries in the Corpus Christi area can process about 868,000 barrels a day, or 4.2 percent of total U.S. capacity, according to Lipow Oil Associates. A further 11 refineries in Houston, Texas City and Baytown have a capacity of about 2.7 million barrels a day.

“Biggest impact of this storm will be a significant reduction of crude oil imports into the Texas Gulf Coast, resulting in refineries cutting crude rates,” Andy Lipow, president of Lipow Oil Associates in Houston, said by email Wednesday. “There will also be a significant impact on petroleum product exports impacting supplies into Mexico.”
Workers prepare sandbags ahead of Tropical Storm Harvey in Brownsville, Texas, on Tuesday, Aug. 22, 2017.
Photographer: Miguel Roberts/The Brownsville Herald via AP
Corpus Christi ship pilots suspended incoming boardings, according to the port. All foreign ships, except for one, are leaving the port to steer clear of the storm, the U.S. Coast Guard said. Magellan Midstream suspended operations at its Corpus Christi marine terminal and condensate splitter early Thursday.

The storm will bring heavy rains. The U.S. Weather Prediction Center is calling for more than 20 inches (51 centimeters) of rain from Corpus Christi to Houston in the next seven days.

“It is rapidly intensifying mainly due to the fact the Gulf is so warm,” said Shunondo Basu, a meteorologist and natural gas analyst at Bloomberg New Energy Finance. “It is definitely going to be an issue for the ship channels in the Gulf.”

While oil supplies could be disrupted, natural gas demand could fall, said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland. When hurricane Ike hit Texas in 2008, power outages cut electricity demand, reducing the need for gas and depressing prices.

Ike, a Category 2 storm when it struck near the mouth of the Houston Ship Channel, killed 103 people across the Caribbean and the U.S., including at least 21 in Texas, Louisiana and Arkansas. It caused about $29.5 billion in damage, according to a 2009 National Hurricane Center report.

Anadarko Petroleum Corp. shut in production and evacuated its Boomvang, Gunnison, Lucius and Nansen oil and gas production platforms in Gulf of Mexico ahead of Harvey, according to statement on the company website Wednesday. Noble Corp Plc. evacuated its Noble Paul Romano rig, Jeff Chastain, a company spokesman, said Thursday by email.

Kinder Morgan Inc.’s Tennessee gas pipeline declared force majeure for stations in south Texas on Friday and also plans to evacuate some staff.

Storm Surge

Exxon Mobil Corp. had said it’s cutting output at its Hoover production platform in the Gulf of Mexico ahead of the storm. The company’s also working on plans to evacuate staff in stages from offshore facilities, Suann Guthrie, a spokeswoman, said by email Wednesday. Royal Dutch Shell Plc shut production at its Perdido platform and evacuated the facility.

Along the coastline, seas could rise 5 to 7 feet (1.5 to 2.1 meters) above ground level.

American Airlines Group Inc. is allowing people traveling through Houston and nine other cities on certain dates to re-book their flights without a fee because of the storm. United Continental Holdings Inc. is offering the same in eight cities, while Delta Air Lines Inc. is offering a similar waiver for Houston flights.

Policyholder-owned State Farm Mutual Automobile Insurance Co. has the largest share in the market for home coverage in Texas, followed by Allstate Corp., Farmers Insurance and United Services Automobile Association, according to data compiled by A.M. Best Co.

— With assistance by Amy Stillman, Sheela Tobben, Marvin G Perez, Naureen S Malik, Barbara J Powell, Mary Schlangenstein, Sonali Basak, Ryan Collins, Laura Blewitt, Jim Polson, Sebastian Tong, Alex Tribou, Alex Longley, Melissa Cheok, and David Wethe

Wednesday, August 23, 2017

Oil Halts Slide Near $47 as U.S. Stockpiles Seen Extending Drop

Oil pared gains after the American Petroleum Institute unexpectedly reported higher inventories of U.S. gasoline and diesel last week, even as crude supplies declined.

The API estimated Tuesday that stockpiles of gasoline rose 1.4 million barrels last week and diesel expanded 2.05 million, according to people familiar with the data, which is only disclosed to members. That would be a third straight increase for gasoline at a time when supplies typically shrink because of summer demand. Analysts surveyed by Bloomberg before the government’s weekly tally on Wednesday estimated a decline of 1.3 million barrels.

“Typically, the builds start in September,” James Williams, an economist at London, Arkansas-based energy researcher WTRG Economics, said by telephone. Yet, the gasoline increase is “not that unusual, particularly because refineries have been running pretty much full out,” but if the government confirms it, oil prices could face downward pressure.
Oil in New York has floundered below $50 a barrel this month as the Organization of Petroleum Exporting Countries and its allies work to curb a worldwide surplus fed largely by American shale. Even as U.S. drillers withdraw rigs from fields, output from shale regions are forecast to reach a record next month. A committee set up to monitor OPEC-led cuts saw compliance with the agreement at 94 percent in July, down from 98 percent in June.

West Texas Intermediate for October delivery traded at $47.64 a barrel at 4:40 p.m. after settling at $47.83 a barrel on the New York Mercantile Exchange. WTI for September delivery expired Tuesday at $47.64 a barrel.

Brent for October settlement added 21 cents to settle at $51.87 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.04 to October WTI.

Waiting for Clarity

A ministerial committee that reviews cuts by OPEC and its allies has a proposal to meet on Sept. 22 in Vienna, according to delegates familiar with the matter. Another panel, composed of technical experts, plans to meet to review compliance with the agreed cuts two days earlier, the delegates said.
The market needs clarity on whether OPEC will extend its production-cut agreement further into 2018 before moving substantially higher, Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone.

Oil-market news:
  • A pipeline linking Libya’s Sharara field to the Zawiya port has reopened Tuesday after an earlier shutdown.
  • The Energy Department is accepting bids for 14 million barrels of sour crude oil from the U.S. oil reserve until Aug. 30, according to a notice of sale posted Tuesday.
  • WTI will continue to trade at a discount to Brent but its relative weakness to the global benchmark will abate in the coming months, according to BNP Paribas SA.
— With assistance by Ben Sharples, Grant Smith, Lucia Kassai, and Salma El Wardany

Tuesday, August 22, 2017

U.S. gasoline prices more or less steady as summer fades

U.S. gas prices are slightly lower than last week because of factors like lower oil prices, though the national scene masks regional volatility, AAA reported.

The motor club reports a national average retail price for a gallon of gas at $2.34 for Tuesday, a fraction of a percent higher than the previous day, but about a half percent lower than last week. The price at the pump mirrors crude oil prices, which have been trading in a relatively narrow range near the $50 per barrel mark.

The official summer driving season draws to a close in September, though AAA said in its weekly retail market report that markets may get tighter "as demand continues full steam ahead."

Summer demand pressures usually push gasoline prices higher, though the market is balanced somewhat by strong U.S. gasoline and crude oil production. A report from S&P Global Platts, which provides information and benchmark prices for the energy market, said crude oil and gasoline inventories from last week are both expected to show declines, however.

By region, the West Coast is the most expensive market in the country and prices at the pump were likely skewed higher by the demand pressures from tourists hitting the area to move into the path of totality for Monday's solar eclipse. Oregon prices jumped 10 cents per gallon and the regional market overall was strained by a decline in gasoline inventory levels for the third week in a row.

The Great Lakes market is the most volatile in the nation, with Indiana leading the pack with a 10 cent decline in retail gasoline prices. That trend could reverse, however, because AAA said inventory levels usually follow gasoline prices lower. The drain on regional gasoline inventory levels last week was the largest in the country.

A federal market report said the national average price for gas is about 2 cents less per gallon than the forecast for the summer driving season. The full-year average price is expected to be $2.33 per gallon for both 2017 and 2018.

Crude oil prices spiked Friday on signs of a slowdown in U.S. exploration and production activity, though forward-looking seasonal issues suggest prices could moderate and bring relief to drivers.

Monday, August 21, 2017

Hong Kong palm oil spill 'an environmental disaster'

VLCC rates to remain lackluster on tonnage glut

Freight rates for very large crude carriers (VLCCs) on Asian routes will remain under pressure for at least the next month, facing strong headwinds from a glut of tonnage, brokers said.

“There are around 80 to 90 ships available for charter in the first 10 days in September – that’s about three ships for every cargo,” a Singapore-based supertanker broker said on Friday.

“That’s a bit of a car crash.”

“There are about six or seven VLCCs free for charter now, but the earliest they’ll see any cargo is early September,” he said.That came as owners were attempting to resist moves by Chinese oil trading house Unipec to push rates lower on its latest charter.

Brokers said Unipec was aiming to fix at below 40 on the Worldscale measure for its fixtures on Friday, but owners were trying to hold a line at W43.

Even so, VLCC earnings from the Middle East to Asia fell to around $8,800 this week, a similar level to operating expenses but less than half of average daily break even costs of $22,000.

Rates from the Middle East to Asia are now lower than the low point last year. New York-based ship broker McQuilling Services forecast charter rates this year for a VLCC voyage from the Middle East to Japan would average $26,300 a day in a report on Wednesday.

That compared with $40,700 per day in 2016 and $66,700 in 2015.

“Apart for 2015 and last year it’s been a miserable decade so far for tanker owners,” said Ashok Sharma, managing director of ship broker BRS Baxi Far East in Singapore.

Sharma said average earnings are $24,000 per day so far this year for VLCCs from the Middle East to Asia.

While oil and tonne-mile demand have risen, tanker markets have been hit by a raft of new vessel deliveries.

The International Energy Agency forecast oil demand would rise to 1.5 million barrels per day (bpd) this year, up from an earlier forecast of 1.4 million bpd.

VLCC tonne-mile demand has also risen by 2.5 percent this year compared with last year, McQuilling said.

But the number of VLCCs actively trading is expected to rise 6 percent to 707 ships, McQuilling said.

“There is a huge mismatch between the supply of ships and cargo demand that the market can’t take. This situation is going to repeat itself next year with around 50 newbuildings which is actually quite alarming,” Sharma said.

“The only positive sign is demolition prices which have risen to $400 per light tonne, which would put the price of a vintage VLCC close to $17 million,” Sharma added.

“But there needs to be a great deal of ships sold for demolition – 25 to 30 ships – before vessel scraping makes an impact on charter rates and the tanker market,” Sharma added.

VLCC rates on the Middle East-to-Japan route dropped to W41.50 on Thursday from W42.50 last week.

Rates on the West Africa-to-China route fell to W48.50 on Thursday from W50 last week.

Charter rates for an 80,000-deadweight tonnes Aframax tanker from Southeast Asia to East Coast Australia was at W84.25 on Thursday, compared with around W84.75 last week.

Friday, August 18, 2017

Why OPEC's Success Hinges on a Change of Seasons

Global oil consumption ebbs and flows from one season to the next. So the current months of higher demand will be scrutinized closely for signs of whether production cuts from the Organization of Petroleum Exporting Countries and its allies are bearing fruit. The group is struggling to clear the glut that’s kept prices close to $50 a barrel -- half the level three years ago. The annual rhythms of refiners, U.S. motorists and the weather will play a big part in determining whether the cartel’s effort to boost prices is successful.

1. Why are the next few months so important?

Demand for oil tends to increase during the summer as U.S. households hit the road for their vacations. Consumption tails off in September as the driving season ends and refineries halt for maintenance, before rising again at the start of winter as people burn oil for heating. Periods of higher demand offer OPEC an opportunity to make a significant dent in swollen crude stockpiles, while the lulls carry the risk that the surplus will grow again.

2. Shouldn’t OPEC’s cuts have eliminated the glut already?

OPEC and allies including Russia agreed to curb output by as much as 1.8 million barrels a day for six months starting in January. Initial confidence from Saudi Arabia -- OPEC’s de-facto leader -- that this would do the job quickly turned into the realization that a longer reduction was required. The extension was deemed necessary because a rally in the price of oil revived investment in the U.S. shale industry, causing production there to boom again.

3. What are analysts watching for?

Data showing how many miles were driven by U.S. vacationers will be released over the next few months, but there are already signs that summer demand is helping OPEC achieve its goals. The nation’s refiners were gulping down a record 17.6 million barrels a day earlier in August, well above the summer averages for the last two years. Crude inventories have dropped almost every week since the start of April and now stand at their lowest since January 2016.

4. What are the wild cards?

Weather plays a big part. Hurricanes could disrupt oil production in the Gulf of Mexico as well as the operations of coastal refineries. An unusually cold Northern Hemisphere winter could cause boost demand and increase prices. The pace of the recovery in U.S. shale production -- which caught OPEC by surprise this year -- remains hard to predict.

5. Will the global surplus of fuel stockpiles finally disappear?

That’s still a matter of considerable debate. OPEC and Russia have already extended their cuts for nine months longer than originally expected and now plan to wrap them up next spring. Even that may prove to be inadequate, with data from the International Energy Agency showing inventories in industrialized nations could remain oversupplied even after the end of 2018. Without deeper supply reductions -- which so far haven’t found enough support within OPEC -- it could take years for the surplus to be eliminated.

6. What does this mean for OPEC’s effort to boost prices?

OPEC’s goal of rebalancing the oil market, ending three years of oversupply, keeps slipping out of reach. In the first half its efforts were undermined by recovering output from Libya and Nigeria -- members exempt from the deal -- and increases in U.S. shale production. The situation should improve in the second half, when both Goldman Sachs Group Inc. and the International Energy Agency expect demand to significantly exceed production.

7. What could spoil OPEC’s plan?

There are three main risks. Disappointing global economic growth could damp demand. OPEC members could backtrack on their promises and exceed their quotas. Or U.S. shale could continue to grow faster than expected. By the group’s next meeting on Nov. 30, it will have September stockpile data that will show whether the summer demand bump put inventories on track to fall back in line with the five-year average. If inventories haven’t fallen enough, the cartel may need to consider cutting output even further beyond spring 2018. With compliance with the curbs already weakening, that may not be an easy agreement.

8. Could this -- finally -- be the end of OPEC?

Probably not. OPEC’s obituary has been written again and again, but the group tends to come bouncing back. There’s little question the shale revolution has weakened the cartel’s grip on the global market, at least for now, but it maintains some key advantages. OPEC’s heartland in the Middle East still holds the world’s most profitable fields -- simply put, it costs far less to drill into the Saudi desert than the bottom of the Atlantic Ocean or even the shale fields of Texas. In the long-run, we’re likely to rely more on OPEC’s crude than on expensive barrels drilled in countries outside the group.

The Reference Shelf

Thursday, August 17, 2017

Saudi Arabia crude oil exports fall slightly in June: JODI

Saudi Arabia's crude oil exports in June fell slightly to 6.889 million barrels per day (bpd), 35,000 bpd lower than the May level, official data showed. 

OPEC's biggest producer also pumped 10.070 million bpd in June, up 190,000 bpd from May, according to a posting on the Joint Organizations Data Initiative (JODI) website. 

The kingdom increased direct-burn crude used for power generation in June as demand for electricity increases during the hot summer months. It used 680,000 bpd of crude oil to generate power in June, up 76,000 bpd from May. 

The Muslim fasting month of Ramadan, when the use of electricity surges, ran from May 27 to June 25 this year. 

Saudi demand for oil products rose to 2.634 million bpd in June, up from 2.535 million bpd in May. 

The kingdom also continued to draw crude oil from its inventories, which fell by 2.253 million barrels to 256.55 million barrels in June. Saudi oil stocks peaked in October 2015 at a record 329.430 million barrels. 

Riyadh is leading an effort by the Organization of the Petroleum Exporting Countries (OPEC) and other producers to curb output and drain a global supply glut. OPEC's share of the cuts, which will run to March 2018, amount to about 1.2 million bpd. Non-OPEC producers agreed to cut half as much as that. 

Saudi Arabia's production in June is only 12,000 bpd above its output target - 10.058 million bpd - under the OPEC deal. 

Saudi's local refineries processed 2.577 million bpd in June, up from 2.517 million bpd in May. Its refined products exports rose to 1.362 million bpd in June from 1.279 million bpd in May. 

Monthly figures are provided by Riyadh and other OPEC members to the Joint Organizations Data Initiative (JODI), which published them on its website. 

Reporting by Reem Shamseddine; Editing by Tom Hogue

Wednesday, August 16, 2017

Oil prices settle lower as U.S. output hits 2-year high


EIA data show U.S. crude output topped 9.5 mln bbls a day last week

Oil settled lower Wednesday after the Energy Information Administration report revealed a weekly climb in domestic production to the highest level in over two years. 

The government data also showed the largest weekly decline in U.S. crude supplies since September of last year and they have now fallen seven weeks in a row, but those figures failed to offer any lasting price support for oil during the session. 

September West Texas Intermediate crude CLU7, +0.26%  shed 77 cents, or 1.6%, to settle at $46.78 a barrel on the New York Mercantile Exchange. The decline marked the third-consecutive loss for WTI, which stands at its lowest finish since July 24, according to FactSet data. October Brent crude LCOV7, +0.44%  on London’s ICE Futures fell 53 cents, or 1%, to $50.27 a barrel.

Data from the Energy Information Administration on Wednesday showed a rise of 79,000 barrels a day in total crude-oil production to 9.502 million barrels a day last week. That was the highest output figure since mid-July 2015, according to EIA figures, based on weekly reports.
U.S. production “increased at a pretty good clip,” and demand for gasoline and distillates was also down, said Tariq Zahir, a managing member at Tyche Capital Advisors.

The EIA also said, however, that supplies of crude oil for the week ended Aug. 11 fell by 8.9 million barrels. That was more than double than the decline of 3.6 million barrels expected by analysts polled by S&P Global Platts, but below the 9.2 million-barrel decrease reported by the American Petroleum Institute late Tuesday

“A combination of record refinery runs for the time of year and strong exports have encouraged the largest draw to crude inventories in eleven months,” said Matt Smith, director of commodity research at ClipperData.

Troy Vincent, an oil analyst at ClipperData, said that his outlook for significant supply draws throughout August “points to a continuation of this expanding year-on-year deficit in the coming weeks.”

Gasoline stockpiles were unchanged for the week, while distillate stockpiles lost 700,000 barrels last week, according to the EIA. The S&P Global Platts survey showed expectations for declines of 400,000 barrels for gasoline stockpiles and 700,000 barrels for distillates, which include heating oil.

Looking ahead, “the peak of summer driving season has now passed, and demand for crude will also wane as refinery runs drop,” said Smith. “Gasoline demand will ebb as summer road trips are mostly over and children head back to school.”

On Nymex, gasoline for September RBU7, +0.31%  fell 1.6 cents, or 1%, to $1.564 a gallon, while September heating oil HOU7, +0.19%  ended at $1.574 a gallon, down 2.5 cents, or 1.6%. 

September natural gas NGU17, +0.10%  fell 4.5 cents, or 1.5%, to $2.89 per million British thermal units ahead of its own U.S. supply update due Thursday from the EIA.

In related news, the U.S. Energy Department announced Tuesday that it will put 14 million barrels of crude oil from the Strategic Petroleum Reserve up for sale later this month under the crude-oil sales offer programs announced in 2015 and 2016.

U.S. plans sale from Strategic Petroleum Reserve

The U.S. Department of Energy said it plans to sell some of the oil from the Strategic Petroleum Reserve, the world's largest emergency supply of oil.

The department's Office of Fossil Energy said the sale from the federally-owned stockpile was scheduled for late August. The office aims to draw down and sell 14 million barrels of oil in order to meet the requirements of bipartisan legislation, most recently enshrined in the 21 Century Cures Act.

Under the measure, signed in January, the government aims to sell off 25 million barrels of oil over the next three years, with 9 million on tap for sales next year.

"Revenues from the sale will go to the general fund of the United States Department of the Treasury, to carry out the National Institutes of Health's innovation projects," the department reported.

This would be the second release from the SPR this year and would come at a time when analysts and investors are watching for data indicating the degree to which the market is balanced between supply and demand. Members of the Organization of Petroleum Exporting Countries in late November agreed to trim production to counter a glut of oil brought on in part by the rise in U.S. shale oil production a few years ago. That agreement went into force in January and expires in March.

A report from S&P Global Platts that followed the first SPR release, indicated the volume of crude oil injected into the market from the SPR would be relatively negligible and the long-term impact on the price for oil should be relatively minor. To put it in perspective, total U.S. crude oil production per day is around 9 million barrels.

Phil Flynn, senior market analyst for the PRICE Futures Group in Chicago, told UPI that "based on what we have seen lately, it will only replace two weeks' worth of draws" from U.S. crude oil stockpiles.

OPEC's balancing effort aims to bring inventories down near the five-year average. According to OPEC, commercial oil stocks for the developed countries in the Organization for Economic Cooperation and Development in June were still above the latest-five year average by about 252 million barrels.

The amount of crude oil in the SPR was 678.9 million barrels as of Aug. 4, a decline of 16.2 million barrels from one year ago.

The SPR was designed as an emergency reserve and any release of oil from there usually coincided with international crises like the outbreak of the civil war in Libya in 2011. The International Energy Agency requires member states to hold the equivalent of 90 days of the previous year's imports in reserve.

A budget proposal put forward by U.S. President Donald Trump in March relied in part on additional SPR sales.

Tuesday, August 15, 2017

Venezuela Inches Closer to Dictatorship

Shell launches methane detector pilot at shale sites in Canada
Sherry Vargson ignites the tap water in her kitchen in Granville Summit, Pennsylvania, in 2012. Her family’s farm is in the Marcellus Shale region, where the fracking rigs have contributed to increased methane in the water supply.

Shell has launched a methane detector pilot at one of its shale gas sites in Alberta, Canada.

The pilot test is part of a wider initiative called the Methane Detectors Challenge, a collaboration between the Environmental Defence Fund (EDF), oil and gas companies, US government agencies and technology developers to develop a next generation methane detection system. It is hoped that the initiative will result in earlier detection and repair of methane links, in turn reducing emissions.

“This pilot shows we’re serious about reducing the methane emissions associated with natural gas production to support the overall climate benefit of this fuel,” said Greg Guidry, Executive Vice President Unconventionals, Shell. “Shell is looking at all aspects of its operations, from equipment to processes, to assess and identify emission reduction opportunities.”

34 times more potent as a heat trapping gas than carbon dioxide, methane is a greenhouse gas which proves a costly challenge for the energy industry. It is a common byproduct of shale gas extraction, making detecting the presence of the gas hugely important.

Shell already has leak detection and repair programmes in operation across all of its shale gas sites, however, the Quanta3 sensing system used in the pilot is a new technology that can continuously monitor methane emissions, unlike handheld optical gas imaging (OGI) cameras.

“A new frontier of methane detection is coming, and Shell is helping to give us a glimpse of that future,” said Ben Ratner, Director, EDF. “The ultimate test will be whether the industry scales new tools and approaches to minimize wasteful methane emissions in North America and across the world.”

Depending on the outcome of the pilot, next generation detection technologies could be used to complement OGI cameras and other monitoring tools. These technologies could also have broader applications across the natural gas value chain.

In addition to the Methane Detectors Challenge, Shell is involved in other partnerships, including the Oil and Gas Climate Initiative (OGCI), to understand the gaps in methane data and detection technology to help both companies and policy-makers act more effectively.

Monday, August 14, 2017

OPEC's oil output hits a 2017 high, another setback for its deal to pump less

 Essam Al-Sudani | Reuters
People work at the Halfaya oilfield in Amara, southeast of Baghdad, Iraq.
  • OPEC's oil output rises to the highest level since December, the month before the cartel started cutting output.
  • A production recovery in Libya and Nigeria drives the gains last month.
OPEC raised its collective oil output for a fourth-straight month in July, another sign that it is struggling to stick to a deal to pump less.

OPEC output jumped by 173,000 barrels a day to nearly 32.9 million barrels, according to independent sources cited by the group Thursday in a monthly report. That was the highest level since December, the month before the cartel began enforcing an agreement to limit its output in a bid to rebalance the market after three years of oversupply.

OPEC officials met earlier this week in Abu Dhabi to discuss how to improve compliance with the deal but didn't announce any clear steps.

The producer group has partnered with nonmembers, including Russia, since January to keep 1.8 million barrels a day off the market in order to shrink global crude stockpiles and boost prices. Rising output from U.S. drillers and OPEC members Libya and Nigeria, which are exempt from the deal, has frustrated that effort.
The oproduction recovery in Libya and Nigeria continued in July as the African nations restored output sidelined by civil conflicts.

Libya's daily output rose above 1 million barrels last month, up more than 150,000 barrels a day.

Nigeria hiked daily production by about 34,000 barrels, reaching about 1.75 million barrels a day. Nigerian officials agreed last month to consider production limits once the country hits 1.8 million barrels a day.

Saudi Arabia, the group's top producer and de facto boss, pumped above the limit it agreed to last winter, producing 10.07 million barrels a day. The kingdom has cut production well below its quota throughout much of the year, helping to offset weak compliance from other members. The rise is likely due in part to seasonal factors, as the Saudis burn crude to meet higher electricity demand in the summer.

Still, Saudi Arabia and Russia last month warned they would not tolerate cheating and took a tough line with producers.

Two of the laggards, Iraq and the United Arab Emirates, reduced output in July, but were still pumping above their quotas.

The world's appetite for oil will reach 96.5 million barrels a day this year and 97.8 million barrels a day in 2018, according to OPEC's latest assessment.

OPEC believes interest rates in developed nations will rise gradually from current low levels, supporting borrowing and economic growth in developing countries. The cartel also sees a reduction in geopolitical tensions in some pockets of the world boosting growth.

"Taken together, this will allow the global economy to enter the coming year with a firm basis to support better-than-projected growth in 2018," OPEC said in the report.

Friday, August 11, 2017

Oil prices drop as IEA sees slow market rebalancing

Oil prices fell on Friday after the International Energy Agency said weak OPEC compliance with production cuts was prolonging a rebalancing of the market despite strong demand growth. 

Brent crude LCOc1, the global benchmark, was at $51.83 a barrel at 1220 GMT, down 7 cents, having earlier fallen 50 cents or around 1 percent to its lowest since Aug. 1. 

U.S. West Texas Intermediate crude CLc1 was down 10 cents at $48.49 per barrel, having earlier dropped 1 percent to its lowest since July 26. 

Oil touched 2-1/2-month highs on Thursday but closed down around 1.5 percent, with U.S. prices slipping back below $50 amid oversupply concerns. 

"There would be more confidence that rebalancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve," the IEA said in its monthly report. 

The IEA said OPEC's compliance with the cuts in July had fallen to 75 percent, the lowest since those curbs began in January. It cited weak compliance by Algeria, Iraq and the United Arab Emirates. 

In addition, OPEC member Libya, which is exempt from the cuts, steeply increased output. 

"Crude oil prices failed to hold recent gains, with a nervous market starting to doubt recent falls in inventories," ANZ bank said in a note. "Supply-side issues also weighed on prices." 

The IEA also said it had revised historic demand data for 2015-2016, meaning a lower demand base in 2017-2018 combined with unchanged high supply numbers could lead to lower stock draws than initially anticipated. 

Saudi Arabian Energy Minister Khalid al-Falih said the kingdom did not rule out additional oil production cuts, the Saudi-owned Al Sharq Al Awsat newspaper reported. 

Meanwhile, U.S. President Donald Trump stepped up his rhetoric against North Korea again, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough. 

"I think the issue that is affecting the market is the general risk sentiment of sabre-rattling between Washington and Pyongyang," said Michael McCarthy, chief market strategist at CMC Markets. 

Reporting by Dmitry Zhdannikov; Editing by Dale Hudson and Jason Neely

Thursday, August 10, 2017

Impacts of Intra-Weekly Ethanol Storage Measurements on Ethanol Exports

With storage terminals becoming more and more efficient in loading and unloading operations, a lot can happen within a week. For instance, at Texas International Terminals in Galveston, Texas, the terminal has 20,000 feet of unit train landing track and designed to discharge via rail at 15,000 barrels per hour. The terminal’s loading docks are also capable of loading onto vessels at a rate of 11,500 barrels per hour with potential for expansion.

Genscape began measuring ethanol storage at Texas International Terminals on July 7, 2017. Between the initial and following week’s measurements, total ethanol storage differed by only 6,246 barrels suggesting very little change from one week to the next. Over this same period, daily measurements were collected as well. It was discovered that while weekly measurements indicated a lack of storage movement, there was actually more to the story.  

Ethanol Storage Measurements at Texas International-Galveston
Figure 1: Week-over-week ethanol storage measurements at Texas International-Galveston. Click to enlarge
Daily ethanol storage levels taken at Texas International Terminals
Figure 2: Daily storage levels taken at Texas International Terminals. Click to enlarge
Over the course of the week, roughly 57,000 barrels of ethanol were delivered to the terminal. However, on July 12, there was a withdrawal of 63,000 barrels of ethanol resulting in a net change of only 6,246 barrels from July 7 to July 14.

The Nordic Mari, a chemical oil products tanker, was moored at the time of the withdrawal indicating that roughly 63,000 barrels of ethanol was loaded onto the vessel. This was confirmed by visual imagery and data collected through Genscape Vesseltracker™. Brazil port data at Itaqui later validated that the Nordic Mari delivered roughly 62,000 barrels at the end of the July.

The Nordic Mari arrived at Texas International Terminals
Figure 3: The Nordic Mari arrived at Texas International Terminals on July 12 corresponding to the large ethanol withdrawal from the facility. Click to enlarge
In addition to Texas International Terminals, Genscape is performing the same daily tank level measurements at four other terminals in the Houston and New Orleans area focusing on terminals that store and export ethanol. Genscape flies over these terminals once a week to collect detailed tank level measurements using infrared imagery.

In review of these terminals, it is apparent that daily storage information can provide greater insight into ethanol movement into and out of the Gulf Coast. Major events that occur at storage terminals, such as vessel loading, cannot slip under the radar with this level of granularity.

Beginning next month, Genscape plans to expand on this intra-week storage analysis. By pairing daily tank measurements with vessel monitoring, it can be detected when ethanol is loaded onto vessels. Furthermore, this information can provide timely information and transparency into ethanol exports well ahead of the ITC or EIA.

Using proprietary technology, Genscape delivers weekly ethanol storage measurements a full day ahead of EIA estimates in the PADD 3 region. Genscape’s Gulf Coast Ethanol Inventory Report provides actual measured ethanol inventories as a reference point to gain transparency and help better understand market supply and demand. For more information on Genscape’s Ethanol Inventory reports or upcoming Ethanol Exports Monitor, please click here.