Thursday, March 10, 2016
Contango plays could eventually arise in the VLCC tanker market says shipbroker
Traders continue to keep a watchful eye to take advantage of any
opportunities to exploit contango play, but (so far) the synergies
required to make this happen remain elusive. Even short term contango
employment is hard to square as all of the dynamics required for this to
happen need to move together. For the time being, floating storage
demands will continue to rely upon to logistical problems. However, the
issue is not going away, it’s just got parked in another place. The
recent announcement by a handful of OPEC members and Russia not to
increase production has done nothing to ease the current oil glut which translates into doing little to stem the
downward pressure on the oil price other than a temporary uplift.
According to Gibson, “for contango based floating storage play to
take place, the discount in oil prices for prompt delivery has to deepen
relative to forward assessments, a drop in timecharter rates would also
help. The last significant floating storage took place 2009-10 when we
witnessed a very different scenario from what we are seeing today. Back
then the world had just entered into the economic slump following the
banking collapse in the autumn of 2008. As a result, OPEC was
continually revising oil demand as the crisis took hold. On the supply
side 2009-10 saw 113 VLCCs delivered as a result of the glut of ordering
through the tanker market boom years 2005-08 when we believed that the
BRIC economies would drive forward crude demand. Following the banking
collapse, floating storage cushioned the impact of the tonnage surplus,
providing owners with an additinal income stream ahead of the recovery
albeit at ‘more challenging’ time charter rates. Back in 2009/10 the
average 1 year VLCC timecharter rate was around $37,500/ day”, said the
shipbroker.
Gibson notes that “today’s picture is very different. Crude
production is at record levels, with no indication of a slow down. While
US production is slowing, crude stocks levels in the US are at their
highest since records began. Back in 2010 (Jan-Apr), most floating
storage took place in the Gulf of Mexico, not surprisingly, today there
is none. Today, floating storage is mostly for operational reasons (not
contango based) or in the long term fuel oil storage hub in the
Singapore/Malaysian region. Also there is some limited storage in the
Middle East Gulf, in addition to the Iranian NITC positions. On the
supply side, we have witnessed only moderate fleet growth over the past
year or so which has notably lifted timecharter rates. Of course, the
strength of the tanker market since the oil price shock commenced in
June 2014 has led to more brisk investment which will result in a spurt
in fleet growth starting in the second part of this year”.
According to the shipbroker, “naturally owners are keen for the
return of this phenomeon, particularly if the crude tanker spot market
continues to soften, with the resulting influence on timecharter rates.
Owners will continue to pursue storage options in their charterparties,
as they did in January 2015. Very few of these options actually ended up
loading cargo to store. However, if overproduction persists and the
delivery profile impacts on spot rates, we could witness an increase in
demand for floating storage in the second half of this year – but will
it be contango based play? Either way, whether contango floating storage
materialises or not, whilst prompt oil prices remain below the forward
assessments, this sets the floor to short term VLCC rates”, Gibson
concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
Brent sinks on stockpile fears, output freeze doubt
Oil prices fell on Thursday, with U.S. crude
retreating from three-month highs as refinery maintenance threatened to
raise record inventories of crude and sources said an OPEC production
freeze meeting was unlikely without Iran's participation.
An initial rally in the dollar
after the European Central Bank cut its key lending rate to zero also
pressured oil, although crude prices recovered from their lows as the euro rebounded on ECB comments that more cuts were unlikely.
Brent crude futures
were down $1.32 at $39.75 a barrel by 11:30 a.m. ET (1630 GMT), having
earlier this week peaked at $41.48, the highest level since Dec. 9.
U.S. crude fell $1.07 to $37.22 per barrel, having hit $38.51 on Tuesday, also its highest since Dec. 9.
But some analysts said on Thursday last week's
gasoline stock build, which was triple expectations, could be partly due
to the market transitioning from winter-grade to summer-grade motor
fuel. They also said the U.S. refinery maintenance season could push
crude stockpiles to even bigger highs.
Global demand for crude oil typically dips when refineries around the world enter seasonal maintenance in spring, ahead of peak summer demand.
Prices rose as much as 5 percent on Wednesday, after a big gasoline inventory drawdown in the United States overshadowed record-high crude stockpiles. But analysts warned that a global crude production overhang of more than 1 million barrels per day (bpd) showed few signs of abating.
"It looks like the market is still ignoring crude inventories," said Scott Shelton, energy broker at ICAP in Durham, North Carolina.
The focus lies on a potential agreement to rein in output between producers from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and non-OPEC exporters including Russia.
A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter say, as OPEC member Iran is yet to say whether it would participate in such a deal.
"The idea that meeting may not happen at all is definitely weighing on the market," said Tariq Zahir, who mostly trades in U.S. crude oil spreads at Tyche Capital Advisors in New York.
Global demand for crude oil typically dips when refineries around the world enter seasonal maintenance in spring, ahead of peak summer demand.
Prices rose as much as 5 percent on Wednesday, after a big gasoline inventory drawdown in the United States overshadowed record-high crude stockpiles. But analysts warned that a global crude production overhang of more than 1 million barrels per day (bpd) showed few signs of abating.
"It looks like the market is still ignoring crude inventories," said Scott Shelton, energy broker at ICAP in Durham, North Carolina.
The focus lies on a potential agreement to rein in output between producers from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and non-OPEC exporters including Russia.
A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter say, as OPEC member Iran is yet to say whether it would participate in such a deal.
"The idea that meeting may not happen at all is definitely weighing on the market," said Tariq Zahir, who mostly trades in U.S. crude oil spreads at Tyche Capital Advisors in New York.
Most analysts expect the oil glut to last into 2017 or even 2018, resulting in low prices.
Only by 2020 is there a consensus for prices to rise towards $70 a barrel, based on low investment in production.
The European Central Bank cut all
three of its interest rates and expanded its asset-buying programme on
Thursday, delivering a bigger-than-expected cocktail of actions to boost
the economy and stop ultra low inflation becoming entrenched.
Surprising markets, it cut its main refinancing rate to zero from 0.05 percent.
NNPC NNPC to be Split Up
As part of the Nigerian government’s bid to transform its state-run
oil and gas firm, Nigerian National Petroleum Corp. (NNPC), the firm is
to be broken up into 30-revenue generating companies. Speaking at the 25th
Oloibiri Lecture Series and Energy Forum in Abuja, Minister of State
for Petroleum Resources and Group Managing Director of NNPC, Dr. Ibe
Kachikwu, said that the companies would have separate managing
directors.
“For the first time, we are unbundling the subset of
the NNPC to 30 independent companies with their own Managing Directors.
Titles like Group Executive Directors are going to disappear and in
their place you are going to have Chief Executive Officers and they are
going to take responsibilities for their titles. At the end of the day,
the CEO of an upstream company must deliver an upstream result,”
Kachikwu stated.
He went on to say that the state-run firm had
made up some of its losses, moving a little bit nearer the red, going
from N160 billion to N3 billion in January. Kachikwu added that by the
end of the year NNPC should start seeing a profit.
Wednesday, March 9, 2016
Old-School Ways Beating Oil Rout in Birthplace of Petroleum Age
- Charlie Fairbank pumps crude where the Petroleum Era began
- Low costs, established infrastructure keeps wells churning
Charlie
Fairbank, the great grandson of one of the world’s first oilmen, has
turned to a century-old technology to keep his 350 Ontario oil wells
competitive in a world of $35 crude.
Charlie Fairbank
Source: Fairbank Oil Fields
Using a single engine and wooden jerkers -- rods that connect to multiple pumps -- Fairbank is producing the same 65 barrels a day his family has been extracting since the 19th century in Oil Springs, birthplace of the Petroleum Age. It’s there that asphalt seller James Miller Williams struck oil in 1858, a year before Edwin Drake drilled his famous well in Titusville, Pennsylvania.
“If
careful, we got another 100 years,” Fairbank, 74, said in a phone
interview from Oil Springs, about 145 kilometers (90 miles) from
Detroit. “We use old wooden jerkers that bring down maintenance costs
considerably.”
While Ontario
fortunes as a world oil center have long faded, small producers such as
Fairbank are demonstrating a rare resilience amid the lowest prices in a
decade. Crude production in Canada’s most-populous province will rise
about 14 percent this year, albeit to just 1,214 barrels a
day, according to the National Energy Board. That’s expected to be the biggest increase of any province as wells are shuttered from Alberta to Saskatchewan.
Lake Erie
Oil
and gas in Ontario is pumped from about 2,500 wells dotted along the
coast of Lake Erie, many producing less than a barrel a day, Frank Kuri,
president of Ontario Petroleum Institute,
said. Some wells have been producing for more than a century and oil
can be pulled from the ground for as little as $10 a barrel, he said.
Fairbank’s pumpjack and jerker line system
Source: Fairbank Oil Fields
While
many Ontario producers are small private companies such as Fairbank Oil
Fields, there’s a few publicly listed firms producing there, including
Toronto-based Dundee Energy Ltd, Simcoe-based Metalore Resources Ltd.
and the Abu Dhabi National Energy Co.’s TAQA North.
Close-to-the-surface
crude, low royalty rates and well-developed infrastructure helps keep
costs in the province low, according to Kuri. Royalty rates are about 13
percent versus as high as 40 percent in Alberta, and unlike in other
parts of Canada, a large portion of onshore mineral rights are privately
held.
As Alberta producers
struggle to get pipelines built to deliver their crude to markets,
Ontario oil companies are close to major fuel markets. Producers ship
most of their crude by truck to the nearby Imperial Oil Ltd. refinery in
Sarnia with some going to the American Refining Group Inc.’s plant in
Bradford, Pennsylvania, Kuri said.
Profitable Oil
Low oil
prices may even help stimulate interest as companies look toward regions
where oil can be produced profitably, even at lower volumes, said Hugh
Moran, executive director of OPI.
“When prices started to drop, I
got calls from industry folks indicating that this could be good for
Ontario,” Moran said in a phone interview. “When you look at the Bakken,
the costs are immensely higher than here,” he said, in reference to the
large producing region in North Dakota and Saskatchewan, where
break-even prices range from $30 to $65 a barrel.
While $30 may
not be high enough to stimulate exploration, $45 is adequate, Moran
said. Kuri estimated that crude output could be boosted back to 5,000
barrels a day, the peak reached in 1995. The Utica shale, which extends
under parts of Ontario, is untested but may prove lucrative further into
the future, he said.
Four Days
Brent crude has advanced
more than 40 percent since slumping to a 12-year low in January. The
global benchmark closed above $40 a barrel for the first time since
December on Monday, capping the longest run of gains in three months,
and settled at $39.65 on the London-based ICE Futures Europe exchange on
Tuesday.
Drillers would have to be hungry. The province has
established and potential oil reserves of only about 40 million barrels,
according to data from the Ontario Oil, Gas & Salt Resources
Library. That’s roughly equal to four days of Saudi production and
compares with as much as 166 billion barrels of reserves in Alberta’s
oil sands, government data show.
Fairbank is ever optimistic. “I
do believe there is a lot of oil to be discovered in Ontario,” he said.
But making money isn’t all that matters, he said. “We are very ancient
and historic,” he said. “We are trying to pay homage to what has gone
before and created this industry.”
Tuesday, March 8, 2016
Refinery Demand Cuts Drive St. James Crude Stocks to Record High
Dylan White and Amanda Fairfax Dirkes, Oil Analysts
Crude stocks in St. James, LA,
climbed 1.9mn bbls to a record high the week ending February 26,
2016 and could continue to increase if crude demand falls further at U.S. Midcontinent refineries that source crude from the U.S. Gulf Coast.
The week ending February 26, 2016, stocks in St. James were about 1.0mn bbls higher than the previous record-high set November 20, 2015, according to Genscape.
A refined products glut in the Midcontinent has led to decreased
refinery run rates there and in part caused tanks at St. James to fill.
For example, Valero Energy cut production at the Memphis refinery in
early February to combat relatively weak profits, according to market
sources. Sources at the time estimated the refinery may decrease crude processing by 25 percent.
The St. James storage build week ending February 26, 2016 coincided
with decreased outgoing crude pipeline volumes. Flow rates declined
88,000 bpd to 225,000 bpd on the Marathon-operated 1.2mn bpd St.
James-to-Patoka, IL, Capline Pipeline, which feeds Valero’s Memphis
refinery. The refinery consumes up to 195,000 bpd of light sweet crude
from and outputs exclusively light products.
A Valero spokesperson declined to comment on refinery operations.
Capline weekly average flow rates for the week ending February 26,
2016 marked the lowest utilization since October 30, 2015, supporting
decreased run rates at the Memphis refinery.
The storage build at St. James was also likely influenced by a weaker
Louisiana Light Sweet differential. The return of a major seller to the
Louisiana crude market caused the differential for Gulf Coast benchmark
LLS to decrease slightly over the week ending February 26, 2016, as it
was heard to trade at WTI plus $2.40/bbl last on February 28, 2016. The
prior week, LLS was assessed at WTI plus $2.55/bbl.
Genscape's St. James Supply Hub Report
provides a comprehensive look at the factors driving the state of play
in this key hub every Tuesday at 10am ET. Get unrivaled insight into
highly accurate crude oil storage levels at St. James. Click here to request a free trial.
Additionally, Genscape's North American Refinery Intelligence Service gives subscribers a comprehensive view of refinery utilization by product class around the U.S. and Canada. To learn more or request a free trial of the service, click here.
Monday, March 7, 2016
NNPC to be Split Up
As part of the Nigerian government’s bid to transform its state-run
oil and gas firm, Nigerian National Petroleum Corp. (NNPC), the firm is
to be broken up into 30-revenue generating companies. Speaking at the 25th
Oloibiri Lecture Series and Energy Forum in Abuja, Minister of State
for Petroleum Resources and Group Managing Director of NNPC, Dr. Ibe
Kachikwu, said that the companies would have separate managing
directors.
“For the first time, we are unbundling the subset of
the NNPC to 30 independent companies with their own Managing Directors.
Titles like Group Executive Directors are going to disappear and in
their place you are going to have Chief Executive Officers and they are
going to take responsibilities for their titles. At the end of the day,
the CEO of an upstream company must deliver an upstream result,”
Kachikwu stated.
He went on to say that the state-run firm had
made up some of its losses, moving a little bit nearer the red, going
from N160 billion to N3 billion in January. Kachikwu added that by the
end of the year NNPC should start seeing a profit.
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