Friday, March 29, 2019

Oil supply cuts to outweigh U.S. shale boom, economic woes

The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France March 28, 2019.

REUTERS/Christian Hartmann 

By Harshith Aranya and Arijit Bose

(Reuters) - Analysts have turned cautiously optimistic on crude oil prices this year, predicting that production cuts by OPEC and its allies along with U.S. sanctions on Iran and Venezuela will defy headwinds from robust U.S. output and a dampening global economy, a Reuters poll showed on Friday. 
A monthly survey of 32 economists and analysts forecast Brent crude would average $67.12 a barrel in 2019, about 1 percent higher than the previous poll's $66.44. 

While this is the first time in five months that analysts have lifted their outlook, the 2019 price view is still below the $67.32 projected in January. Brent has averaged about $63.70 so far this year. [O/R]
"With slower global economic growth, oil demand will not be very dynamic this year," said Frank Schallenberger, head of commodity research at LBBW. 

"But if OPEC sticks to its production cuts and the U.S. doesn't loosen sanctions against key producers Iran and Venezuela, higher prices are here to stay as we will head to a supply deficit in the second half of 2019." 

Major producers, led by the Organization of the Petroleum Exporting Countries and Russia, will meet on June 25-26 in Vienna to review their supply cuts. Top exporter Saudi Arabia has advocated an extension of the curbs until the year-end.

OPEC compliance with the agreed cuts stood at 94 percent, while non-OPEC was at 51 percent in February, the International Energy Agency (IEA) said. The reductions have pushed prices up more than 25 percent this year.

Analysts expect growth in global oil demand to be steady, at 1.2–1.5 million barrels per day (bpd) in 2019.

The IEA, in its March outlook, kept its demand growth forecast unchanged at 1.4 million bpd this year.

Brent is expected to rise to $68.85 in the third quarter from $67.55 the previous quarter, the poll showed, before higher U.S. output and economic woes bring prices down to $68.40 in the final quarter.

"The end of 2019 is likely to see oil prices come under pressure as the U.S. exports greater volumes of its light shale oil supply to international markets and the global economy, in our view, experiences a synchronized slowdown," said Harry Tchilinguirian, strategist at BNP Paribas.

The 2019 average forecast for U.S. light crude was raised to $58.92 per barrel from February's $58.18 outlook.

Part of the U.S. growth will be due to new pipelines in the Permian Basin that come online in the second half of 2019, said Adrià Morron Salmeron, economist at CaixaBank Research.

The spread between Brent and West Texas Intermediate (WTI) crude is seen at $8.65 in the second quarter of 2019, narrowing to $8.04 and $6.85 over the next two quarters respectively. 

"By the end of 2019, we expect the price differential between WTI and Brent to narrow substantially as growing U.S. exports of light oil come to compete in Atlantic Basin and Asian markets," Tchilinguirian said.

(Reporting by Harshith Aranya and Arijit Bose in Bengaluru; editing by Arpan Varghese, Noah Browning and Dale Hudson)

Thursday, March 28, 2019

Trump says it's 'very important that OPEC increase the flow of oil' because prices are too high

U.S. President Donald Trump, speaks with Mohammed bin Salman, the Kingdom of Saudi Arabia's deputy crown prince and minister of defense, left, in the Oval Office of the White House in Washington, D.C., U.S., on Tuesday, March 14, 2017.
U.S. President Donald Trump, speaks with Mohammed bin Salman, the Kingdom of Saudi Arabia's deputy crown prince and minister of defense, left, in the Oval Office of the White House in Washington, D.C., U.S., on Tuesday, March 14, 2017.
  • President Trump issues his second warning to OPEC this year as oil prices rise.
  • The Twitter message comes as OPEC and its allies are cutting production to drain oversupply from the market and boost prices.
  • OPEC has so far shrugged off requests from Trump to scale back or reverse its output curbs.

President Donald Trump told OPEC on Thursday that its members should start pumping more oil, marking his second warning to the producer group this year as crude prices continue to rise.

Trump's latest tweet comes as OPEC and a group of allies led by Russia are cutting production following a collapse in oil prices in the final months of 2018. The output curbs have played a major part in the rebound in the oil market this year.

Oil prices briefly extended losses after Trump's tweet, but crude futures bounced off session lows and climbed toward's the day's highs by mid-morning.

Analysts say pressure from the Trump administration last year — punctuated by a series of Twitter attacks on OPEC — contributed to the producer group's decision to lift production limits in June. But in recent months, OPEC members have mostly shrugged off Trump's social media demands.

The so-called OPEC+ alliance agreed to a fresh round of production cuts in December, despite Trump calling on the group to keep pumping at high levels. Since January, the group has aimed to keep 1.2 million barrels a day off the market in order to drain oversupply.

After Trump asked OPEC last month to "please relax and take it easy," Saudi Energy Minister Khalid al-Falih told CNBC "We are taking it easy." He added that he is leaning toward extending the six-month production cuts into the second half of 2019.

Last week, OPEC+ canceled an April meeting meant to review the output pact, leaving the production curbs in place until at least June.

OPEC ministers have expressed frustration with the Trump administration for allowing several of Iran's biggest oil buyers to continue purchasing limited amounts of the Islamic Republic's crude, despite U.S. sanctions on the country.

For months leading up to the renewal of U.S. sanctions on Iran in November, the Trump administration said it would enforce the penalties severely. Oil producers hiked production heading into November in order to make up for an anticipated plunge in Iranian exports, but ended up flooding the market.

The sanctions waivers expire in just over a month, and the Trump administration must once again decide how much Iranian crude it will allow importers to purchase. Earlier this month, OPEC Secretary General Mohammed Barkindo told CNBC the uncertainty around the waivers is making OPEC's effort to balance the oil market more difficult.

Trump's 2019 OPEC tweets have been more diplomatic than last year's Twitter barbs. However, he is issuing them earlier in the year and before oil prices reach levels that prompted his attacks in 2018.

Brent was trading near $74 a barrel and WTI was hovering around $68 when Trump sent his first tweet at OPEC last April. Brent's high this year is $68.69 and WTI peaked at $60.39 last week.

Tuesday, March 26, 2019

Map: The Countries With the Most Oil Reserves

Map: The Countries With the Most Oil Reserves

Oil rises to $68 as supply cuts outweigh economic worry

A pumpjack in Midland, home to yet another oil boom recently.  
 A pumpjack in Midland, home to yet another oil boom recently.

Oil rose to around $68 a barrel on Tuesday as OPEC supply cuts and expectations of lower U.S. inventories outweighed concern about weaker demand due to an economic slowdown. 

The price of global benchmark Brent crude has risen by more than 25 percent in 2019, supported by supply curbs by the Organization of the Petroleum Exporting Countries plus allies, and losses due to U.S. sanctions on Iran and Venezuela. 

Brent was up 92 cents at $68.13 a barrel at 1334 GMT, not far from its 2019 high of $68.69 reached on March 21. U.S. crude added $1.28 to $60.10. 

“It appears that concerns about demand have taken something of a back seat,” Commerzbank analyst Carsten Fritsch said. “Instead, market participants are focusing on the tight supply situation again.” 

Expectations of a further drop in U.S. inventories also supported prices, suggesting the OPEC-led curbs were helping to avert a buildup of excess supplies.

The first of this week’s supply reports, from the American Petroleum Institute, is due at 2030 GMT. U.S. crude inventories are forecast to have fallen by 2.4 million barrels in what would be a third straight weekly decline. [EIA/S] 

Further price support came from another power cut in Venezuela, the second to hit the OPEC nation this month, raising concern about the country’s oil exports. 

Worries about demand have limited oil’s rally as manufacturing data from Asia, Europe and the United States pointed to an economic slowdown, although bullish bets by some investors are rising. 

“So far, demand concerns have not proven too much of a headwind,” analysts at JBC Energy wrote. 

Investor concern over the global economy had intensified on Friday after disappointing German and U.S. factory data led to an inversion of the U.S. Treasury yield curve, which some see as a leading indicator of recession.

“Recession risks have risen to the highest since 2008,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Monday, March 25, 2019

Planned U.S. Oil Storage Boom Faces New Scrutiny After Tank-Farm Fire

Residents look on at the plume of smoke rising from a fire at the Intercontinental Terminals petrochemical storage site in Deer Park, Texas on March 19. 
Residents look on at the plume of smoke rising from a fire at the Intercontinental Terminals petrochemical storage site in Deer Park, Texas on March 19.Photographer: Scott Dalton/Bloomberg

A three-day petrochemical fire that spread a cancer-causing chemical and thick smoke over Houston suburbs this week has spurred calls for tougher safety regulations that could affect a nearly dozen crude-export terminals proposed for the U.S. Gulf Coast.

Federal, state and local officials have begun investigating whether Mitsui & Co’s Intercontinental Terminals Co (ITC) met safety and environmental regulations after the fire in Deer Park, Texas, spread quickly among rows of giant tanks that hold up to 3.3 million gallons of fuel each.

The blaze released toxic benzene which led five school systems with more than 108,000 students to shut for two days, and prompted two cities to tell residents to stay indoors.

It burned for three days and destroyed 11 tanks holding fuels used to make gasoline and plastics that sat along the nation’s busiest petrochemical port and among nine oil refineries.

On Friday, a leak from a containment dike at the facility prompted new travel restrictions in the immediate vicinity of the plant.

Results from those reviews could affect proposed terminals that would add millions of barrels of oil storage capacity, to cater to a shale boom that has made the United States the world’s top oil producer with more than 12 million barrels pumped each day.

There are already some 90 million barrels of oil storage capacity in above-ground tanks near Houston, estimates data provider Genscape.

Harris County, which oversees the ITC tank farm, plans to review the investigations and may propose changes to state regulations, said the county’s chief executive, Lina Hidalgo.

Environmental groups said the fire and lack of notice to residents exposed Texas’s weak oversight of energy and chemical storage sites.

I would like to think there will be a huge push and elected officials would do their due diligence,” said Elena Craft, senior director for climate and health at the Environmental Defense Fund. “We want accountability,” said Bryan Parras, a spokesman for environmental group Sierra Club.

ITC, which had 242 storage tanks holding about 13 million barrels of fuels, is not required to comply with county fire codes because it was built before the county adopted codes in late 2014, said Rachel Moreno, a spokeswoman for the county Fire Marshal.

ITC adheres to fire-prevention guidelines set by industry group the National Fire Prevention Association and the American Petroleum Institute, said ITC spokeswoman Alice Richardson. A temporary loss of water pressure on the first day of the blaze contributed to its spread.

However, critics say the NFPA guidelines set minimum standards and the use of advanced fire-protection systems could have more quickly extinguished the fire before it spread and released millions of tons of carbon monoxide, and thousands of pounds of nitrogen oxides, sulfur dioxide and other pollutants.

The fire prevention group expects the investigations into the ITC fire could prompt changes to its guidelines, said Guy Colonna, NFPA’s senior director of engineering. Its existing recommendation for petrochemical tanks, called NFPA 30, does not require fixed fire suppressants, Colonna said.

State and local governments “need to amend the minimum requirements to hold companies like ITC more accountable for building terminals in areas where the severity of the fire is going to cause a bigger disaster,” said Marcelo D’Amico, a principal at Orcus Fire and Risk Inc, which designs fire-prevention systems for tank farms.

New storage regulations would face opposition in Texas. A state lawmaker recently filed a bill that would speed air-quality permit reviews for energy projects before environmental regulator Texas Commission on Environment Quality, one of the groups now investigating ITC.

Ryan Sitton, commissioner of Texas energy regulator, the Railroad Commission, said more fire-suppression equipment on ITC tanks could have led to greater releases of benzene, not less.

The big fire was burning off the benzene,” Sitton said. “If I start mandating things to put out fires, it could run the risk” of releasing more chemicals into the atmosphere.

Saturday, March 23, 2019

From Black Plume to Benzene Fumes, Houston's Plight Drags On

From Black Plume to Benzene Fumes, Houston's Plight Drags On

(Bloomberg) -- Now that the four-day fire is out at a Houston-area chemical storage complex, the real danger has emerged.

Cancer-causing benzene wafted across suburbs of the fourth-largest U.S. city Thursday, shutting roads, schools and industrial plants, and disrupting normal life for half a day. A major oil refinery in the heart of North America’s most important fuel-producing region told workers to stay home and the Texas National Guard deployed troops to assist with air monitoring. The benzene probably arose from charred chemical tanks as overnight winds stirred remnants of their contents, owner Intercontinental Terminals Co. said.

Even after the working-class suburb of Deer Park rescinded an order telling everyone to shut their windows and stay inside around lunchtime, the reprieve may be temporary, scientists warned. Warm temperatures that are swirling the air and dispersing toxic fumes will disappear after sunset, potentially allowing benzene to settle at ground level, said Jeff Evans, the meteorologist in charge of the National Weather Service’s Houston office.

“The air is mixing vertically now but what you need to watch for is tonight” when those conditions cease, Evans said.

The U.S. Chemical Safety Board announced late Thursday it will be investigating the blaze.

Toxic fumes detected hours before dawn panicked Houstonians normally accustomed to orange, fiery flares from the warren of refinery and chemical plant smokestacks that stretches to the eastern horizon. Even when the chemical fire erupted Sunday and sent a black anvil of smoke a mile above the city, many residents were nonchalant.

No Longer Alight

But with the fire at Intercontinental’s storage complex extinguished, the situation is actually more treacherous because the pools of naphtha and other crude-oil byproducts at the site are no longer burning off -- and are free to evaporate at ground level.

“It’s making the dangers worse for the communities near the site,” said Daniel Cohan, associate professor of civil and environmental engineering at Rice University. “The fires that had been burning had been burning off many of these air toxins and wafting them into a plume higher into the sky, where it was able to spread and disperse into broader regions.”

Police began dismantling barricades erected before sunrise in Deer Park, 18 miles (29 kilometers) east of downtown Houston when the shelter-in-place order was issued. Fire crews continued to douse several destroyed storage tanks with water and foam at Intercontinental’s facility to cool the smoldering remnants.

Royal Dutch Shell Plc told workers at its nearby 275,000-barrel-a-day Deer Park refinery to stay at home or remain inside if they’d already arrived at work. The refinery’s operations are normal, said Ray Fisher, a Shell spokesman.

“This is a real risk to human health, not theoretical,” said Elena Craft, senior director for climate and health at the Environmental Defense Fund. “Benzene is a known carcinogen, and no amount is safe to breathe. We urge everyone, especially pregnant women, to be vigilant.”

The benzene release was likely caused by a shifting of foam in one of the tanks, ITC spokeswoman Alice Richardson said at a press conference Thursday. She later said the tank was holding pygas, a byproduct of oil refining, and remains about half full.

Efforts to move the substance are ongoing, but heat left over from the 4-day blaze is delaying that process.

“It’s still very warm from the fires,” she said. “We are sending a drone over to see the temperatures right now, so everything is evolving. But this was a fire, and it takes a little bit of time.”

Before the fire, Intercontinental’s tank farm could hold as much as 13 million barrels of oil products and chemicals along the Houston Ship Channel. The black smoke plume that towered over Houston posed no risk to residents, local official said.

When ignited, benzene “just burns into carbon dioxide and water, just like anything else,” Dr. Stephen Harding, assistant professor of emergency medicine at Baylor College of Medicine in Houston. “Once you’ve controlled the fire, you’ve now got damaged tanks containing the benzene which may be leaching into the air, now that it’s no longer being burned off.”

Part of State Highway 225, which many workers use to get to work at nearby refineries and terminals, was shut until Deer Park lifted its order. The highway closure affected an 8-mile stretch through the heart of refining and chemical country, snarling traffic all over the east side of Houston.

--With assistance from Barbara Powell, Mario Parker, Ben Foldy, Kevin Crowley and Jack Kaskey.

To contact the reporters on this story: Joe Carroll in Houston at;David Wethe in Houston at;Rachel Adams-Heard in Houston at

To contact the editors responsible for this story: David Marino at, Joe Carroll, Simon Casey

Friday, March 22, 2019

Replacing Iranian barrels

OPEC crude production fell by 240,000 barrels per day in February to 30.68 mill barrels, the lowest level in four years.
February numbers show a significant cut over compliance, with Saudi Arabia leading the way with a 153% compliance rate, already some 170,000 barrels per day below the overall target. Iraq and Saudi Arabia contributed 170,000 barrels in additional cuts between them in February alone, Gibson Shipbrokers said in a report.

However, having already cut production close to their original 2019 target, they may now be missing the opportunity to capture market share in the face of rising demand.

The impact of sanctions on crude supply may soon increase. Although Iran is exempt from OPEC’s cuts, in seven weeks waivers for Iranian crude are set to expire.

Some of Iran’s biggest customers - China, India, Japan and South Korea - are all partially exempt from the current US oil sanctions on Iran, however this may soon change.

Last week, IEA data showed Iranian crude production had fallen to 2.85 mill barrels per day in February, its lowest level since the first quarter of 2015, when Iran was under previous sanctions.

In 2018, Iran exports averaged almost 2.5 mill barrels per day, with over 1 mill  going to China and India. The US Administration has not yet revealed whether any of these waivers will be extended, leaving those countries potentially having to replace over 1 mill barrels per day from elsewhere.

However, this may not be as easy as it sounds. Obvious sources, such as Venezuela and Iraq, are already under sanctions or participating in OPEC cuts. This may now leave OPEC wondering whether deeper cuts are appropriate considering many refineries in the region are optimised for heavier crudes.

The tightness in the heavy crude market is also exacerbated by greater US appetite to replace Venezuelan barrels with heavy grades already in short supply. Incremental supplies from Canada are also limited, owing to government enforced production cuts.

Recent reports from Reuters said that the US aims to cut Iran’s exports by a further 20% to below 1 mill barrels per day, saying that they were unwilling to cut anymore over price hike fears, backtracking on previous statements to cut their exports to as close to zero as possible.

However, analysts have indicated that India could be willing to cut all Venezuelan crude imports to satisfy US sanctions in return for further waivers on importing Iranian crude.

This would potentially starve Venezuela of its last major‘cash’ buyer although simultaneously, it would cause a headache for some Indian refiners that prefer Venezuelan grades. However, the situation in Venezuela looks like it will get worse before it gets better.

The heavy crude market is already incredibly tight and production cuts come at a time when demand for heavy grades is rising.This is significant, as greater demand for heavy grade crudes will have to be sourced from elsewhere, especially when we start to exit the Asia/Pacific maintenance season and new refineries come online.

With production cuts coming from the main heavy grade producing regions, refiners may have to look West to replace their missing barrels thus supporting tonne/mile demand from West to the East.
With US production posting strong growth this year, OPEC cuts are to be largely offset, perhaps justifying the organisation’s current stance even if there’s a mismatch of grades.

Meanwhile, Reuters has reported that the Maritime Authority of Panama (AMP) has removed 59 Iranian-linked ships from its registry, quoting ShareAmerica, the US State Department-run platform.

The move came after Juan Carlos Varela, Panamanian President, issued a presidential decree last month, allowing the AMP to de-register the vessels.

Out of these, at least 21 Iranian-owned tankers have had their registration revoked, Reuters reported.

In 2016, Iran and Panama agreed to add Iranian tankers to the Panamanian flag, which has now been dissolved due to the sanctions.

Thursday, March 21, 2019

Reliance sends fuel from India, Europe to Venezuela to sidestep U.S. sanctions

mukesh ambani
Mukesh Dhirubhai Ambani

NEW DELHI/MEXICO CITY (Reuters) - India's Reliance Industries is selling fuels to Venezuela from India and Europe to sidestep sanctions that bar U.S.-based companies from dealing with state-run PDVSA, according to trading sources and Refinitiv Eikon data.

Reliance had been supplying alkylate, diluent naphtha and other fuel to Venezuela through its U.S.-based subsidiary before Washington in late January imposed sanctions aimed at curbing the OPEC member's oil exports and ousting Socialist President Nicolas Maduro.

At least three vessels chartered by the Indian conglomerate supplied refined products to Venezuela in recent weeks, and another vessel carrying gasoil is expected to set sail to the South American nation as well, according to the sources and data.

A Reliance spokesman wrote to Reuters in an email and said: "Reliance is and will remain in compliance with the sanctions and shall work with the concerned authorities."

He also said "the volume of products supplied to and crude oil imported from Venezuela have not increased."

Reliance, an Indian conglomerate controlled by billionaire Mukesh Ambani, has significant exposure to the financial system of the United States, where it operates subsidiaries linked to its oil and telecom businesses, among others.

The Indian market is crucial for Venezuela's economy because it has historically been the second-largest cash-paying customer for the OPEC country's crude, behind the United States.

Additional sanctions against Venezuela are possible in the future, as U.S. President Donald Trump's administration has not yet tried to prevent companies based outside the United States from buying Venezuelan oil, a strategy known as "secondary sanctions."

Refinitiv Eikon trade data shows that Reliance shipped alkylate, a component for motor gasoline, to Venezuela on vessels Torm Mary and Torm Anabel in recent weeks. Those originated in India and passed through the Suez Canal.

It also shipped a gasoline cargo using tanker Torm Troilus to Venezuela and is preparing to send 35,000 tonnes of gasoil in a vessel called Vukovar to the South American nation.

"Reliance is also supplying some products from its Rotterdam storage," a source familiar with Reliance's operation said.

PDVSA did not reply to a request for comment.

In a statement last week, Reliance said its U.S. unit has completely stopped all business with PDVSA. Reliance also halted all supply of diluents including heavy naphtha to Venezuela and does not plan to resume such sales until sanctions are lifted, according to the release.

Venezuela has overall imported some 160,000 barrels per day of fuel and diluents for its extra heavy oil output since the U.S. measures were imposed, according to PDVSA and Refinitiv data, below levels prior to the sanctions but still enough to supply gas stations and power plants.

Reliance is among the biggest buyers of Venezuelan oil, although the company has recently said it has not increased crude purchases from Venezuela. In 2012, Reliance signed a 15-year deal to buy between 300,000 to 400,000 bpd of heavy crude from PDVSA.

Ship tracking data obtained by Reuters showed that Reliance's average purchases from Venezuela were less than 300,000 bpd in 2018 and in the first two months of this year.

Venezuela continues to supply at least some oil to India. A very large crude carrier (VLCC) is anchored off Venezuela's Jose port waiting to load oil bound for India, and at least six other vessels of the same size are underway to India's Sikka and Vadinar ports, according to the Refinitiv data.

PDVSA's second-largest customer in India is Nayara Energy, partially owned by Russian energy firm Rosneft, one of PDVSA's primary allies.

By Nidhi Verma and Marianna Parraga

(Reporting by Nidhi Verma in NEW DELHI and Marianna Parraga in MEXICO CITY; Editing by Henning Gloystein and Tom Hogue)

Wednesday, March 20, 2019

Citigroup Settles Venezuela Gold Swap Transaction

Citigroup Settles Venezuela Gold Swap Transaction

(Bloomberg) -- Citigroup Inc. has settled a Venezuela gold swap transaction and plans to sell the metal it received as collateral while also depositing about $260 million into a U.S. account formerly controlled by President Nicolas Maduro’s central bank, according to four people with direct knowledge of the matter.

After Venezuela’s Central Bank missed a March 11 deadline to buy back gold from Citigroup for nearly $1.1 billion as part of a financing agreement signed in 2015, the difference in price from when the gold was acquired to current levels will be deposited into an account, said the people, who asked not to be named speaking about a private transaction.

The development represents another financial blow to the embattled Maduro regime. It won’t be able to access the cash deposited in the U.S. account and could ultimately see the money be handed over to the parallel government being formed opposition leader Juan Guaido.

While Maduro has managed to maintain a stranglehold on power on the ground -- he still controls the military, the courts and government bureaucracy -- Guaido is leveraging the support he has from dozens of countries to slowly seize Venezuela’s financial assets abroad. Guaido, who’s seeking to topple the autocratic Maduro, has wrested control of Houston-based refiner Citgo Petroleum Corp from Petroleos de Venezuela SA and is also taking over diplomatic real estate. More importantly, he has gained access to cash, which he’s vowing to use to relieve a humanitarian crisis at home.

While no details about the U.S. accounts have been given, Venezuela’s opposition-controlled National Assembly said it identified $3.2 billion of funds being held at 20 bank accounts in the U.S. belonging to Maduro’s government. Earlier this year, the Bank of England refused to give back $1.2 billion worth of gold.

In response to Citigroup’s settlement, the central bank is weighing options including a declaration of force majeure -- a legal status commonly used in the commodities industry protecting it from liability if it can’t fulfill a contract for reasons beyond its control -- arguing U.S. sanctions prevented it from raising the cash it needed to pay for the gold. Another swap comes due next year, one of the people said.

Citigroup spokesman Daniel Diaz declined to comment. A press official for Venezuela’s central bank didn’t respond to requests for comment.

Maduro blew through more than 40 percent of Venezuela’s gold reserves last year, selling to firms in the United Arab Emirates and Turkey in a desperate bid to fund government programs and pay creditors. Pressure from Guaido and the U.S. derailed his administration’s plans to ship more gold to buyers in the UAE last month.

The U.S. sanctioned the state-run gold producer, Minerven, on Tuesday and described the precious metal trading as being essential to Maduro’s ability to keep loyalty from the military. Venezuela’s central bank has $8.7 billion of international reserves remaining, much of which is held in physical gold.

Citigroup, which has been in Venezuela since 1917, serves top multinational companies and affluent clients, according to its website.

--With assistance from Fabiola Zerpa.

To contact the reporters on this story: Patricia Laya in Caracas at;Jenny Surane in New York at

To contact the editors responsible for this story: Daniel Cancel at;David Papadopoulos at

Oil majors rush to dominate U.S. shale as independents scale back

EDDY COUNTY, NEW MEXICO (Reuters) - In New Mexico’s Chihuahuan Desert, Exxon Mobil Corp is building a massive shale oil project that its executives boast will allow it to ride out the industry’s notorious boom-and-bust cycles.

Workers at its Remuda lease near Carlsbad - part of a staff of 5,000 spread across New Mexico and Texas - are drilling wells, operating fleets of hydraulic pumps and digging trenches for pipelines. 

The sprawling site reflects the massive commitment to the Permian Basin by oil majors, who have spent an estimated $10 billion buying acreage in the top U.S. shale field since the beginning of 2017, according to research firm Drillinginfo Inc. 

The rising investment also reflects a recognition that Exxon, Chevron, Royal Dutch Shell and BP Plc largely missed out on the first phase of the Permian shale bonanza while more nimble independent producers, who pioneered shale drilling technology, leased Permian acreage on the cheap. 

Now that the field has made the U.S. the world’s top oil producer, Exxon and other majors are moving aggressively to dominate the Permian and use the oil to feed their sprawling pipeline, trading, logistics, refining and chemicals businesses. The majors have 75 drilling rigs here this month, up from 31 in 2017, according to Drillinginfo. Exxon operates 48 of those rigs and plans to add seven more this year. 

The majors’ expansion comes as smaller independent producers, who profit only from selling the oil, are slowing exploration and cutting staff and budgets amid investor pressure to control spending and boost returns. 

Exxon Chief Executive Darren Woods said on March 6 that Exxon would change “the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian even if oil prices - now above $58 per barrel - crashed to below $35, added Senior Vice President Neil Chapman. 

Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject,” said Staale Gjervik, the head of shale subsidiary XTO Resources, whose headquarters was recently relocated to share space with its logistics and refining businesses. The firm also recently outlined plans to nearly double the capacity of a Gulf Coast refinery to process shale oil.
“It sets us up to take a longer-term view,” Gjervik said.

The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region and solidifies the United States as a powerhouse in global oil markets, said Daniel Yergin, an oil historian and vice chairman of consultancy IHS Markit. 

“A decade ago, capital investment was leaving the U.S.,” he said. “Now it’s coming home in a very big way.” 

The Permian is expected to generate 5.4 million barrels per day (bpd) by 2023 - more than any single member of the Organization of the Petroleum Exporting Countries (OPEC) other than Saudi Arabia, according to IHS Markit. Production this month, at about 4 million bpd, will about double that of two years ago. 

Exxon, Chevron, Shell and BP now hold about 4.5 million acres in the Permian Basin, according to Drillinginfo. Chevron and Exxon are poised to become the biggest producers in the field, leapfrogging independent producers such as Pioneer Natural Resources. 

Pioneer recently dropped a pledge to hit 1 million bpd by 2026 amid pressure from investors to boost returns. It shifted its emphasis to generating cash flow and replaced its chief executive after posting fourth quarter profit that missed Wall Street earnings targets by 36 cents a share. 

Shell, meanwhile, is considering a multi-billion dollar deal to purchase independent producer Endeavor Energy Resources, according to people familiar with the talks. Shell declined to comment and Endeavor did not respond to a request. 

Chevron said it would produce 900,000 bpd by 2023, while Exxon forecast pumping 1 million barrels per day by about 2024. That would give the two companies one-third of Permian production within five years.


At first, the rise of the Permian was driven largely by nimble explorers that pioneered new technology for hydraulic fracturing, or fracking, and horizontal drilling to unlock oil from shale rock, slashing production costs.

The advances by smaller companies initially left the majors behind. Now, those technologies are easily copied and widely available from service firms. 

Surging Permian production has overwhelmed pipelines and forced producers to sell crude at a deep discount, sapping cash and profits of independents who, unlike the majors, don’t own their own pipeline networks. 

Even as the majors have ramped up operations, the total number of drilling rigs at work in the Permian has dropped to 464, from 493 in November, as independent producers have slowed production, according to oilfield services provider Baker Hughes. 

Shell, by contrast, plans to keep expanding even if prices fall further, said Amir Gerges, Shell’s Permian general manager. 

“We have a bit more resilience” than the independents, Gerges said. 

In west Texas, the firm drills four to six wells at a time next to one another, a process called cube development that targets multiple layers of shale as deep as 8,000 feet. 

Cube development is expensive and can take months, making it an option only for the majors and the largest independent producers. Shell has used the tactic to double production in two years, to 145,000 bpd.
The largest oil firms can also take advantage of their volume-buying power even if service companies raise prices for supplies or drilling and fracking crews, said Andrew Dittmar, a Drillinginfo analyst.
“It’s like buying at Costco versus a neighborhood market,” Dittmar said. 

The majors’ rush into the market means smaller companies are going to struggle to compete for service contracts and pay higher prices, said Roy Martin, analyst with energy consultancy Wood Mackenzie.

“When you’re sitting across the negotiating table from the majors, the chips are stacked on their side,” he said.


The revival of interest in the Permian marks a reversal from the late 1990s, when production had been falling for two decades. 

“All the majors and all the companies with names you’ve heard left with their employees,” said Karr Ingham, an oil and gas economist. “Conventional wisdom was this place was going to dry up.” 

Chevron was the only major that stayed in the Permian. It holds 2.3 million acres and owns most of its mineral rights, too, but until recently left drilling to others. 

But this month, Chief Executive Mike Wirth called the Permian its best bet for delivering profits “north of 30 percent at low oil prices.” 

“There’s nothing we can invest in that delivers higher rates of return,” Wirth said this month at its annual investor meeting in New York.


Matt Gallagher, CEO of Parsley Energy Inc, calls the majors’ investments “the best form of flattery” for independents operating here. 

Parsley holds 192,000 Permian acres - most of which was snatched up on the cheap during oil busts - and sees its smaller size as an advantage in shale.

“We’re not finished yet,” Gallagher said. “We can move very quickly.”
The majors have greater infrastructure, but independents continue to innovate and design better wells, said Allen Gilmer, a co-founder of Drillinginfo. 

“Nothing is a bigger motivator than, ‘Am I going to be alive tomorrow?’” Gilmer said. “Hunger and fear is something that every independent oil-and-gas person knows - and that something no major oil-and-gas person has ever felt in their career.”

Tuesday, March 19, 2019

Venezuela may divert U.S.-bound oil to Rosneft, says Jose generator working

Venezuela may divert oil originally bound for the United States to Russian oil company Rosneft or other destinations due to U.S. sanctions, Venezuelan oil minister and president of state-run oil company PDVSA Manuel Quevedo said on Monday. 

Speaking at a gathering of OPEC and other oil ministers in Baku, Azerbaijan, Quevedo added that the generator at Venezuela’s primary Jose oil terminal was now working after a blackout that halted crude exports last week. 

Quevedo said Caracas would decide where to ship its own oil and that its main goal was to strengthen ties with Russia, pledging to abide by oil supply contracts with Moscow. 

Rosneft, a state-owned company which has oil joint ventures with PDVSA in Venezuela, buys crude from PDVSA within the framework of oil-for-loan contracts and redirects the barrels to customers around the world, with Indian refineries key buyers. 

Asked about a Reuters report saying Rosneft believed it was owed hundreds of billions of dollars from the joint ventures because oil output was far lower than projected, Quevedo said Venezuela was “up to date” on its debts to Russia. 

“The contracts are being fulfilled,” he said. “We can send the oil which has been allocated for the United States to Russia or other clients.”

Earlier this year, the United States imposed heavy sanctions on Venezuela’s oil industry, looking to cut off President Nicolas Maduro’s primary source of revenue as part of efforts to oust the socialist leader from power. That cut off Venezuela’s largest export market of around 400,000 barrels per day, Quevedo said. 

Venezuela has responded by trying to boost crude exports to India, another top importer. But the U.S. government has pressed India to stop buying Venezuelan oil. 

“Now they have started persecuting our long-term commercial partners, they are threatening them,” Quevedo told reporters. 

Much of Venezuela, including parts of the capital Caracas, was left without power for several days, leaving people struggling to obtain water and food. That affected the Jose terminal, whose generator was not working at the time.

“At the moment, (Jose) is fully functioning,” Quevedo said via an interpreter. 

“It has suffered a lot from the blackout ... the oil industry of Venezuela suffered significantly,” he added.

Monday, March 18, 2019

Shell, HES to Start Low-Sulphur Bunker Fuel Project

HES Wilhemshaven

Shell and bulk-handling company HES International are planning to restart an oil refinery in Germany to produce low-sulphur bunker fuel ahead of new regulations going into force next year, Kallanish Energy learns.

The International Maritime Organization (IMO) approved the ban on high sulphur fuel oil (Hsfo) for vessels beginning in 2020. The International Energy Agency (IEA) expects a shake-up in the industry, as demand for Hsfo will fall from 3.5 million barrels per day (Mmbpd), to 1.4 Mmbpd.

HES is reinstalling the vacuum distillation unit (VDU) at Wilhelmshaven Tank Terminal, in order to produce low-sulphur bunker fuels to distribute as an alternative to Hsfo. Reuters reported they reached an agreement with Shell, under which the oil company provides the feedstock and receives the final product.

The terminal is located on Germany’s North Sea coast and is the largest independent liquid bunker terminal in the country. It has a 45-million-cubic-foot capacity and it holds several products, such as crude oil or liquefied petroleum gas.

Shell and HES said via email they aren’t commenting on the project.

Venezuela to Pay ConocoPhillips $8.7bn for Unlawful Expropriation of Oil Investments

Hugo Chavez and Nicolas Maduro, pictured together in 2006

ConocoPhillips has announced that an international arbitration tribunal constituted under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) has unanimously ordered the government of Venezuela to pay the company the amount of $8.7 billion in compensation for the government’s unlawful expropriation of ConocoPhillips’ investments in Venezuela in 2007, plus interest.

The ICSID tribunal ruled in 2013 that the expropriation of ConocoPhillips’ substantial investments in the Hamaca and Petrozuata heavy crude oil projects and the offshore Corocoro development project violated international law. The current ruling addresses compensation, and the timing and manner of collection remain to be determined.

We welcome the ICSID tribunal’s decision, which upholds the principle that governments cannot unlawfully expropriate private investments without paying compensation,” said Kelly Rose, Senior Vice President, Legal, General Counsel and Corporate Secretary of ConocoPhillips.

In April 2018, in a separate and independent legal action, an international arbitration tribunal constituted under the rules of the International Chamber of Commerce (ICC) awarded ConocoPhillips approximately $2 billion from Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s state-owned oil company, and two of its subsidiaries. The ICC tribunal’s ruling arose out of PDVSA’s failure to uphold its contractual commitments in response to Venezuela’s unlawful expropriation of ConocoPhillips’ investments in the Hamaca and Petrozuata projects. In August 2018, ConocoPhillips announced that it entered into a settlement agreement with PDVSA to recover the full amount owed under that award.

ConocoPhillips also has a pending contractual ICC arbitration against PDVSA related to the Corocoro project.

In the early 1990s, Venezuela created a new fiscal framework to induce foreign investment in its heavy oil projects in the Orinoco Belt and elsewhere. Relying on these terms, ConocoPhillips helped Venezuela develop the Petrozuata, Hamaca and Corocoro projects by providing industry-leading technology and substantial long-term investments to the government of Venezuela. However, in the summer of 2007, the Venezuelan government expropriated ConocoPhillips’ investments in their entirety without compensation.

Friday, March 15, 2019

Another attempt to repeal the Jones Act

Photo of Sen. Mike Lee [R-UT]
US Senator Mike Lee (Republican-Utah)

US Senator Mike Lee (Republican-Utah) has introduced the ‘Open America’s Water Act of 2019’, a bill which would repeal the Jones Act if passed.
In essence, it would allow all qualified vessels to engage in domestic trade between US ports.
“Restricting trade between US ports is a huge loss for American consumers and producers. It is long past time to repeal the Jones Act entirely so that Alaskans, Hawaiians, and Puerto Ricans aren’t forced to pay higher prices for imported goods—and so they rapidly receive the help they need in the wake of natural disasters,” he said.
In 1920, Congress passed the Merchant Marine Act (more widely known as the Jones Act), which requires all goods transported by water between US ports to be carried on a vessel constructed in the US, registered in the US, owned by US citizens, and crewed primarily by US citizens.
US-based Cato Institute estimates that after accounting for the inflated costs of transportation and infrastructure, the forgone wages and output, the lost domestic and foreign business revenue, and the monetised environmental toll, the annual cost of the Jones Act is in the tens of billions of dollars. And that figure doesn’t even include the annual administration and oversight costs of the law.

Thursday, March 14, 2019

U.S. says Iran has lost $10 billion in oil revenue due to sanctions

Iran okays 29 companies for oil and gas projects

Iran has lost $10 billion in revenue since U.S. sanctions in November have removed about 1.5 million barrels per day (bpd) of Iranian crude from global markets, a U.S. State Department official said on Wednesday.

Brian Hook, the State Department’s special representative on Iran, said in remarks at the CERAWeek energy conference that due to a global oil surplus - in part due to record U.S. production - the United States is accelerating its plan of bringing Iranian crude exports to zero. 

U.S. sanctions on Iran and Venezuela, two of the largest oil producers in the Organization of the Petroleum Exporting Countries, and production cuts by OPEC and Russia have boosted global oil prices to near four-month highs.

Iran reached an agreement with world powers in 2015 over its nuclear program which led to the lifting of sanctions in 2016 but U.S. President Donald Trump pulled out of the deal in May last year and reimposed restrictions in November. 

Trump “has made it very clear that we need to have a campaign of maximum economic pressure” on Iran, Hook said, “but he also doesn’t want to shock oil markets, he wants to ensure a stable and well-supplied oil market. That policy has not changed.” 

The global oil market is looking for signs that Washington may extend sanctions waivers for Iran’s key customers in early May. The United States surprised the market in November last year by allowing eight countries to keep importing Iranian oil - in part causing Brent crude futures, the international benchmark, to fall to near $50 a barrel in late December after surpassing $86 a barrel in October.

The U.S. Energy Information Administration (EIA) has projected that world supply will exceed demand in 2019 by 440,000 bpd, Hook said. 

“When you have a better supplied oil market it enables us to accelerate our path to zero. But we also know that there are a lot of variables that go into a well-supplied and stable oil market,” said Hook, a senior policy adviser to U.S. Secretary of State Mike Pompeo. 

Washington sanctioned Venezuelan oil exports in January in an effort to oust President Nicolas Maduro and a massive power outage since last week halted crude exports from its primary port, essentially crippling the South American country’s principal industry. 

“We are aware that our diplomatic and economic pressure, the timing and the pace of that affects Venezuela’s oil industry,” Hook said.

He said the United States is monitoring global supplies for impact from sanctions. “I’ve met a few times with (Saudi Energy Minister) Khalid al-Falih over the last year when we knew we were taking a lot of oil, we wanted to ensure that we’re doing this in a responsible way,” he said. 

Falih said on Sunday that OPEC’s production-curbing agreement likely would last until at least June. OPEC and its allies agreed late in 2018 to cut output by 1.2 million bpd.

Tuesday, March 12, 2019

Citgo, Valero try to return Venezuelan oil following sanctions: document

FILE PHOTO: Crude oil tankers are docked at Isla Oil Refinery PDVSA terminal in Willemstad on the island of Curacao, February 22, 2019. REUTERS/Henry Romero

The top U.S. buyers of Venezuelan oil are in the unusual position of trying to return millions of barrels of crude they need but cannot accept because of U.S. sanctions on the South American nation and its state-run energy firm PDVSA.

The Houston-based Citgo cut ties with its parent company in compliance with U.S. measures that halted its purchases of PDVSA’s oil, the documents said. 

A U.S. Treasury spokesperson declined to comment on the requests to pay PDVSA for the cargoes. 

As of March 8, the 11 loaded vessels remained anchored off ports in Venezuela. Two other Chevron-chartered cargoes were stuck off the U.S. Gulf Coast and a third was returned to Venezuela’s Amuay terminal, according to Refinitiv Eikon vessel-tracking data. 

PDVSA does not expect Citgo or Valero to accept the cargos and intends to “commercially reallocate the volumes onboard so tankers can be freed,” a Feb. 21 trade and supply document showed. The same document expressed worry over demurrage fees - the daily cost for storing the oil on tankers - which have been accumulating for over a month.


Separately, a days-long blackout across the country has halted exports from Jose port, the nation’s primary crude export terminal. PDVSA on Monday was trying to restart operations.

The Venezuelan company has been forced to redesign its production and export logistics in recent weeks to avoid halting operations, including formulating new crude blends, swapping a large portion of its oil for imported fuel, selling through intermediaries and finding new customers. 

But the efforts have not been enough to avoid an export decline. The OPEC-member country’s oil shipments fell to some 920,000 barrels per day (bpd) in February according to Refinitiv Eikon data. 

PDVSA exports could fall further due to a lack of imported naphtha, a light distillate, needed to dilute its extra heavy oil as the company has been able to secure only two 500,000-barrel cargoes versus 2-3 million barrels per month needed, according to the document. 

If it cannot import enough naphtha to formulate its oil for export, PDVSA plans to start mixing other domestic fuels to ready oil for export. 

Lack of maritime crews to take PDVSA tankers idled due to unpaid shipping fees is also hampering oil deliveries between domestic ports and to the Caribbean, where PDVSA stores and ships much of its export barrels. 

Some shipping firms’ reluctance to work in Venezuela after sanctions have stopped PDVSA from using leased tankers to ease storage bottlenecks at its Orinoco Belt’s joint ventures. The ones willing to work with PDVSA are charging high prices and extra fees, the document added. 

On March 4, PDVSA completely shut output at its Corocoro oilfield, which was producing some 12,000 bpd, due to lack of storage capacity. Its Pedernales oilfield could follow due to similar issues, according to the report. The four Orinoco upgraders were working at minimum on Monday.

Monday, March 11, 2019

Venezuela crisis: No running water, no power, no medicine

ExxonMobil to Build New Polypropylene Unit in Louisiana

Exxon chemical

Oil and gas firm ExxonMobil revealed plans Friday to construct a new 450,000 tn/yr polypropylene production unit at the company’s complex in Baton Rouge, LA. Slated to become operational by 2021, the new facility is expected to create about 65 new permanent jobs.

“Growth in feedstock supply along with the increase in global demand for chemical products continues to drive our strategic investments and expansion along the Gulf Coast,” the president of the ExxonMobil Chemical Company, John Verity, said in a company press release. “We’re well positioned to meet the demand for these high-performance products and investing further in Baton Rouge enhances our facility’s competitiveness.”

Engineering, procurement, and construction (EPC) contracts have been awarded to Jacobs Engineering and Turner Industries for the polypropylene unit in Baton Rouge. The complex in Louisiana houses a 502,000 barrel/day refinery and production plants for lubricants, chemicals, and polyethylene, which are staffed by over 2500 workers. 

ExxonMobil's project come on the heels of the firm’s $20 billion “Growing the Gulf” initiative to improve its manufacturing footprint in the region. The effort includes a new aviation lubricants blending, packaging, and distribution facility in Baton Rouge, expansions of chemical and refining assets at the firm's Baytown and Beaumont plants, a planned 1.8 million mt ethane cracker in Texas, and a LNG export project in Sabine Pass, Texas.