Total books VLCC with storage option as crude oil falls below $100

http://www.platts.com/latest-news/shipping/singapore/total-books-vlcc-with-storage-option-as-crude-26876574


Oil traders are aggressively looking to hire VLCCs for storage purpose due to weak demand and falling prices, with French oil major Total reportedly fixing a VLCC with a storage option in the Persian Gulf, participants tracking the supertanker segment said Tuesday.

The company has taken the Xin Yong Yang at 43 Worldscale points for September 25 loading on the Persian Gulf to East route, basis 270,000 mt, with a 10-to-30 days storage option at $37,500/day, owners, brokers and charterers said.

"We heard that the storage will be at Fujairah," said a VLCC broker in Tokyo. Charterers think crude price will be higher later, the broker said.

Total executives could not be immediately reached for comment.


Another broker in Singapore said, "There is plenty of crude floating around but this is done more in smaller ships."

ICE Brent crude futures traded below $100/b Tuesday due to oversupply as Libyan exports and the upcoming maintenance runs by some refineries weighed on prices.

Weak crude demand has also brought down the number of VLCC fixtures.

One of the reasons driving demand for ships for storage is that there have been fewer loadings this month from the Persian Gulf and the Red Sea, the same Singapore-based broker said.

So far, 79 VLCC fixtures for Persian Gulf and Red Sea loading are estimated done for September, including 67 for the East, four for the West and eight for optional voyages, according to brokers.

Overall fixtures are estimated at 123 for August, including 17 for destinations in the West and 106 for the East.

Though there are still outstanding cargoes for loading in the third decade of September that are yet to be covered with tonnage, market participants expect fixtures to be lower than August.

Weaker demand has dragged down crude prices, leaving suppliers with no option but to hold back their inventories and hope for higher rates in the short term.

Storage of crude in landed tanks is not always available at a preferable location and for exactly the duration a company wants to hold the volume.

In contrast, chartering of ships for storage is relatively flexible in terms of location and duration.

"One possibility is that they [Total] will sell this cargo if they get the price [they are aiming at] and then top up the ship with another cargo," one of the brokers said.

Recently, an ultra large crude carrier, the 442,000 dwt, 2002 built TI Europe, was taken on a six-month time charter by Unipec at a daily rate of $25,600.

There is an option to extend the time charter period by another six months at $28,600/day.

Such options impart flexibility in the trade of floating crude.

Shipowners are also hoping that the trend of holding crude in floating storage will pick up.

"If the price of crude continues to fall, there will be more opportunities for ships being taken for storage," said a Singapore-based source with a VLCC owner.

Owners said that a short-term storage deal can be compared with a round-voyage from Persian Gulf to China, which will take almost two months.

If the daily earnings are attractive, owners will give the ship for storage for the same duration, they said.

Nevertheless, the current forward structure of crude prices is not really an attractive storage opportunity because the contango is not deep enough for storage economics to work well, said an analyst with a North Asian refiner.

"This push into storage is not because there is a contango. [Instead] it is because there is [less] demand, which has led to a contango," he said.

The spread between the front-month and three-month forward Brent crude has declined below $10/mt from $12/mt nearly a month earlier.

Time charter rates for VLCCs are also on the rise in anticipation of more demand, though not necessarily for storage.

Earlier this year, the 2010-built, 321,000 dwt Blue Topaz was taken for a 12-month time charter by Koch at a daily rate of $22,000, according to brokers.

Market participants said time charter rates for the same duration would now be above $25,000/day, perhaps even close to $28,000/day.

--Sameer C. Mohindru, sameer.mohindru@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com

Brent Trades Near Week-High as Libyan Field Halts

http://www.bloomberg.com/news/2014-09-16/wti-trades-near-2-week-high-amid-speculation-opec-may-cut-target.html

By Grant Smith

Brent crude trade near its highest closing level in a week after Libya said it halted its Sharara oil field after a rocket attack on the connected Zawiya refinery. West Texas Intermediate was little changed.

Brent advanced as much as 0.6 percent in London, reversing an earlier loss. Libya halted the Sharara field, which had been producing 250,000 barrels a day, as a precaution following the attack two days ago, Mansur Abdallah, director of oil movement at the Zawiya plant, said by phone. Nigerian authorities are in talks to avoid the disruption of oil exports as a strike enters its second day.

“Libya might have been one of the reasons behind the slump before,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “So ongoing insecurity might well lead the price recovery.”

Brent for November settlement added as much as 56 cents to $99.61 a barrel on the ICE Futures Europe exchange and was at $99.24 as of 1:32 p.m. in London. It closed at $99.05 yesterday, the highest since Sept. 9. The European benchmark crude was at a premium of $5.56 to WTI on ICE for the same month. It closed at $5.24 yesterday.

WTI for October delivery was at $94.66 a barrel in electronic trading on the New York Mercantile Exchange, down 22 cents. The volume of all futures traded was about 15 percent more than the 100-day average for the time of day. Prices have decreased 3.8 percent this year.

Libya Losses

A rocket exploded near a crude storage tank at the Zawiya plant on Sept. 15, National Oil Corp. spokesman Mohamed Elharari said yesterday. Libya has been in the process of restoring output after more than a year of unrest that had reduced it to the smallest producer in OPEC.

Sustaining higher production in Libya in the longer term might be difficult “given the absence of strong governance mechanisms,” Miswin Mahesh, an analyst at Barclays Plc in London, said by e-mail.

The Organization of Petroleum Exporting Countries’ output target may fall next year, Secretary-General Abdalla El-Badri said yesterday in Vienna. OPEC’s daily output target may fall by 500,000 barrels to 29.5 million barrels in 2015, El-Badri said.

OPEC Target

“The first official signs that OPEC is starting to feel a little uneasy about the current market environment and the price of oil are emerging,” David Wech, an analyst at consultants JBC Energy GmbH in Vienna, said in a report.

Saudi Arabia cut its crude supply by 408,000 barrels a day in August, the biggest reduction since 2012, a submission made by the country to OPEC shows. Demand for OPEC’s oil will drop to 29.2 million barrels a day in 2015 from 29.5 million this year, the group said in a Sept. 10 report.

Crude output is at risk in Nigeria, Africa’s biggest producer, because of a strike over pensions, according to Babatunde Oke, a Lagos-based union spokesman. State-owned NNPC is optimistic that export terminals won’t be affected, according to Ohi Alegbe, a company spokesman.

In Iraq, the second-biggest producer in OPEC, U.S. personnel will help Iraqi forces with planning, logistics and coordination as part of the campaign against the Islamic State, Army General Martin Dempsey, the chairman of the Joint Chiefs of Staff, told a Senate committee yesterday. Iraqi forces are “doing fine” for now and don’t need help in the field, he said.

U.S. Stockpiles

U.S. crude supplies probably shrank by 1.5 million barrels last week to 357.1 million, according to a Bloomberg News survey before an Energy Information Administration report today. That would be a fifth weekly decline.

Gasoline inventories fell by 125,000 barrels to 212.2 million during the week ended Sept. 12, according to the median estimate of 10 analysts surveyed by Bloomberg. Distillate supplies, which includes heating oil and diesel, rose by 750,000 barrels to 128.2 million, the survey showed.

The industry-funded American Petroleum Institute was said to report U.S. crude stockpiles increased by 3.3 million barrels last week, while gasoline supplies fell by 1.2 million, according to Bain Energy. The API in Washington collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines, while the government requires that reports be filed with the EIA.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Rachel Graham

Nigerian oil workers start strike, oil exports at risk

Photo: Thousands of protesters have demonstrated in Nigeria's commercial capital Lagos. (AFP: Pius Utomi Ekpei)

http://www.platts.com/latest-news/oil/lagos/nigerian-oil-workers-start-strike-oil-exports-26881790

Oil workers in Nigeria started an indefinite strike Tuesday that could disrupt oil production and exports from the OPEC member, said officials of the unions and state-owned Nigerian National Petroleum Corp.

The unions took the action after failing to resolve a dispute over pensions and other issues.

"Today, we have called our members out to begin an indefinite strike until management addresses our demand for a complete overhaul of the NNPC pension scheme, which in its present form is depriving our members of their full dues," a spokesman for the NNPC branch of Nupeng and Pengassan oil workers' unions told Platts.

NNPC's headquarters in Abuja has been shut to workers and visitors, the union official said.

Platts could not immediately confirm the situation in other NNPC offices, particularly in the oil-producing Niger Delta region.

The union spokesman said that if NNPC management failed to meet workers' demands, "in the shortest time possible, oil export terminals will be shut down."

NNPC has had difficulty meeting its portion of cash call contributions to funding joint venture operations with its foreign oil partners, a source said. For pension contributions, the company has fallen Naira 85 billion ($531 million) short, according to the source.

STRIKE COULD DISRUPT GASOLINE SUPPLY

NNPC spokesman Ohi Alegbe said Tuesday morning the company was prepared to address the workers' pension concerns and to end the strike.

"NNPC is taking steps to avert a looming industrial action by the corporation's arm of the National Union of Petroleum and Natural Gas Workers and the Petroleum and Natural Gas Senior Staff Association of Nigeria," Alegbe said.

"While acknowledging the existence of some funding gaps in the scheme, measures have since been put in place to steadily bridge the funding deficit, which stood at N298 billion in 2010," he said.

NNPC manages the government's interest in joint ventures with foreign firms, including Shell, ExxonMobil, Chevron, Eni and Total. It accounts for about 90% of Nigeria's 2 million b/d of oil production.

NNPC staff monitors and approves crude shipment documents at the terminals in conjunction with industry regulators.

Officials also said Tuesday the NNPC strike could hit gasoline imports and distribution as the corporation accounts for 60% of the Nigeria's gasoline imports.

"Management called on members of the public not to engage in panic buying [of gasoline], assuring further that plans are on top gear to address the situation," Alegbe said.

--Staff, newsdesk@platts.com
--Edited by Meghan Gordon, meghan.gordon@platts.com

Cushing oil hub to expand with new pipeline projects

http://www.tankstoragemag.com/industry_news.php?item_id=8272&utm_source=TSM+Newsletters&utm_campaign=b9febedf2a-TSM_News_17_09_2014&utm_medium=email&utm_term=0_a19947d14a-b9febedf2a-221591897&ct=t(TSM_News_17_09_2014)&mc_cid=b9febedf2a&mc_eid=d7c7dcbd33

The Cushing interchange is currently undergoing an expansion project, which will add pipelines to the existing hub.

One new pipeline is already in operation, with another close to completion and one more major project to be announced later this month.


Tulsa-based NGL Energy Partners have teamed up with Rimrock Midstream to create the Grand Mesa Pipeline.

The Grand Mesa will be open to oil producer commitments shortly and will be a 550-mile system from Weld County, Colorado, to the Cushing hub.

Flanagan South, once operational in the coming weeks, will run 600 miles and carry up to 600,000 barrels per day.

The new pipeline runs along a similar route to Enbridge's existing Spearhead system from the Flanagan, Illinois, terminal to Cushing.

 - See more at: http://www.tankstoragemag.com/industry_news.php?item_id=8272&utm_source=TSM+Newsletters&utm_campaign=b9febedf2a-TSM_News_17_09_2014&utm_medium=email&utm_term=0_a19947d14a-b9febedf2a-221591897&ct=t(TSM_News_17_09_2014)&mc_cid=b9febedf2a&mc_eid=d7c7dcbd33#sthash.vt1TlQc2.dpuf

SPRATLY ISLANDS, PHILIPPINES - AUGUST 06: (CHINA OUT, SOUTH KOREA OUT) The dilapidated Sierra Madre, a former U.S. tank landing ship, in Ayungin Shoal, as the Philippines' outpost against China in Spratly Islands on August 6, 2014 in Spratly Islands, Philippines. China, which has been flexing its military muscle in recent years to expand its maritime presence, is ratcheting up pressure at this particular site. The Philippines occupies nine islets and reefs in the Spratlys. But Ayungin Shoal is the only spot that is constantly exposed to the surveillance activities of Chinese patrol vessels. In 1995, Beijing upped the ante by erecting a structure in Mischief Reef, which is located in the Philippines' exclusive economic zone, calling it a 'shelter for fishing boats.' The Philippine military countered the move by deliberately running the Sierra Madre aground in Ayungin Shoal four years later as an outpost to keep the islands under its control. In South China Sea, Spratly Islands are disputed area, where China, Vietnam, the Philippines and Malaysia have claimed sovereignty. (Photo by The Asahi Shimbun via Getty Images)

http://www.aol.com/article/2014/09/16/china-rig-finds-gas-after-vietnam-sea-standoff/20962939/

By IAN MADER

BEIJING (AP) - The Chinese exploration rig at the center of a tense maritime standoff with Vietnam earlier this year has made its first deep sea gas discovery in the politically volatile South China Sea, state media announced Tuesday.

The discovery by China National Offshore Oil Corp. was made about a month after its rig withdrew in July from Vietnam's exclusive economic zone to far less-contested waters closer to China.

The find by CNOOC's two-year-old, $1 billion deep sea rig is about 150 kilometers south of China's southernmost island of Hainan. It's unclear whether the discovery will become commercially viable, but the announcement represents a significant step in China's ability to seek resources beneath the South China Sea.

Petroleum reserves and fisheries are among the resources at stake in disputes over the sea, which is one of the world's busiest shipping routes and a patchwork of overlapping claims by governments including China, the Philippines, Malaysia, Vietnam and Taiwan. China claims virtually all of the South China Sea.

The find was China's first without the participation of foreign partners that in the past have included companies such as Chevron and BP, said Felix Tan, a Beijing-based analyst for energy and resources consultant Wood MacKenzie.

"This is the first discovery they've done all by themselves," Tan said in an interview. CNOOC has rapidly developed a deep-water exploration capability, he said.

"It's a bit premature to talk about the viability" of the field, however, Tan said. "There are a lot of tests to be done."

The gas field was discovered Aug. 18 at a depth of about 1,500 meters, CNOOC said on its website.

The depth is at the extreme cusp of what the industry considers a deep-water field, or those from 400 to 1,500 meters. Below 1,500 meters would be ultra-deep, where extraordinary pressures make the building of facilities extremely difficult.

Xinhua said the field's viability is still to be proven, but quoted a CNOOC manager, Xie Yuhong, as saying the well could be capable of producing up to 56.5 million cubic feet of gas per day, or about 9,400 barrels.

TRUTH LIES OIL AND SCOTLAND

OPEC heavyweights play down oil price fall

By Margaret McQuaile in London


http://www.platts.com/news-feature/2014/oil/opec-guide/index?wt.mc_id=olla201409we-opec-guide&wt.tsrc=eloqua
     

What a difference three months can make. Oil prices were fairly buoyant when OPEC met on June 11, with its crude basket valued at $106.20/barrel and heading towards the $110.48/b it would reach nine days later.


By September 11, the basket had plunged to $95.35/b.


The extent of the plunge should, in theory, worry OPEC, which has informally embraced $100/b as the optimal oil price level.


But there are no obvious signs of panic emanating from the oil producer group. Indeed, the past few days have seen three OPEC heavyweights -- Saudi Arabia, Kuwait and Iran -- play down the need for action to combat the price slide.


Saudi oil minister Ali Naimi, in Kuwait for a regular meeting of Gulf Cooperation Energy ministers, couldn't see what the "big fuss" was about.


Oil prices "always go up and down," he said, quoted by AFP, and any measures OPEC might need to take regarding the price drop "should be discussed when OPEC meets" next, in November.


Naimi's OPEC and GCC colleague, Kuwaiti oil minister Ali al-Omair, said prices had not dropped to the extent that OPEC would call an emergency meeting.


In fact, he said, quoted by AFP, "prices are likely to rebound ahead of the winter season."


Iranian oil minister Bijan Zanganeh, whose country is subject to swinging international sanctions that have deprived it of crucial oil revenue by slashing its crude exports, also dismissed the need for OPEC to meet to discuss the price slide.


"Under the current circumstances, holding an urgent meeting is not necessary," he said, quoted by semi-official news agency Mehr, and it was too early to say whether the group would discuss an output cut in November.


Most OPEC countries are producing at or very close to their current limits, in particular those outside the high-reserves Gulf region.


And even within the Gulf camp, only Saudi Arabia has the kind of crude output capacity that can feed or starve markets.


It is largely Saudi Arabia that drives OPEC policy, adjusting supply informally in response to changing market conditions.


No sign of panic


The Saudis, as Naimi's comments show, are not exactly panicking, which is not surprising in view of the extent to which they can cope with lower oil prices.


Saudi investment bank Jadwa said last December that the kingdom would likely need an average oil price of $81/b for Saudi export crude, or about $85/b for Brent, to balance state revenues with government spending.


Brent traded below $97/b on September 11. On September 12, it was trading slightly above $98/b.


That begs the question: how low is Saudi Arabia willing to see oil prices go before taking action?


Analysts are trying to work out whether Saudi Arabia sees market share as a greater priority than outright prices and is prepared to allow the price drift further down in order to maintain that share.


Riyadh has simultaneously given conflicting signals, on the one hand telling OPEC that it cut oil production by 408,000 b/d between July and August, and on the other Saudi Aramco reducing crude prices to all regions for October.


Neil Atkinson, director of research at Lloyds List Intelligence, said it was unclear at this point whether Riyadh's priority was to support oil prices -- as might be interpreted from the 408,000 b/d output cut -- or to maintain its market share -- as the Aramco price reductions might suggest -- in an increasingly well-supplied market.


"In 2014, US oil production is already 1 million b/d more than it was last year. Canadian production is about 400,000 b/d higher than it was last year," he said, adding that year-on-year world oil demand growth was only 1 million b/d and that expectations of demand growth were constantly being revised downward.


With demand growth stagnant globally and oil supply rising, "over time, it's inevitable that prices are going to fall. Unless there's a major change in dynamics, it looks as if we're in a new era for oil prices, which is at a level $10/b lower than we've been used to in the past two or three years," he said.


Rocks and hard places


Saudi Arabia, Atkinson said, "is caught between a rock and a hard place." Lowering prices to preserve market share -- particularly in Asia, where it faces competition from West African producers that have seen their exports to the US drop -- makes sense.


"On the other hand, cutting output to prop up prices creates another quandary. If they cut production, they're losing market share," he said.


The International Energy Agency said September 11 in its latest monthly oil market report that the Saudi supply dip "seems primarily to reflect reduced import demand from US refineries, as well as weaker-than-expected crude demand in Europe and Asia."


Indeed, the IEA said, "Saudi exports as a whole are likely to have run below 7 million b/d for the last four months, their lowest level since September 2011.


Exports to the US led the drop amid rising Saudi domestic demand for crude burn and refinery runs."


Furthermore, the IEA said, "state oil company Saudi Aramco appears to be pricing oil out of the US market by ratcheting up official selling prices to North America, while OSPs to Asia have come off, likely setting the stage for a broad rebalancing of trade flows. This is the global crude market continuing to adjust to the new North American supply reality."