Friday, April 29, 2016

Crude oil rally knows no limit

 From @UPI -- Strong recovery for U.S. consumer wages balanced against a slowdown in the European economy, but it was enough for a soft rally Friday for crude oil prices. The U.S. Commerce Department reported personal income and disposable personal income both increased for Americans in March by about 0.4%. That's a rebound from the 0.1% increase reported for both indices in February. The economy slowed during the first quarter, increasing at an annual rate of 0.5% in the United States, down from the 1.4% growth rate in the fourth quarter. The Commerce Department said Friday, however, that wages and salaries in March increased $29.2 billion, against a February contraction of $4.6 billion. Crude oil prices, which have increased steadily during the month of April, again saw gains at the start of trading Friday in New York. The price for Brent crude oil moved up 0.3% to $48.31 per barrel. West Texas Intermediate, the U.S. benchmark price for crude oil, gained 0.8% to $46.44 per barrel. Friday's start could face pressure once Baker Hughes releases its weekly tally for rig counts. Any decline would mark the sixth consecutive decline in exploration and production activity in a North American energy sector reporting dwindling output. In Europe, meanwhile, a flash estimate of first quarter gross domestic production showed 0.6% growth for the member states that use the euro currency, down from the 1.6% growth recorded in the first quarter of 2015. The slowdown was more apparent in reported figures on inflation, which turned negative by 0.2% in April, against a flat rate in March. Russia's Central Bank, meanwhile, said it washolding the line by keeping its key rate unchanged at 11%. In a rationale statement, the bank pointed to inflationary pressures and potential risks that oil prices could turn lower in the foreseeable future.

Wood Mac sees major supply shortfall by 2035 if exploration results don't improve

EDINBURGH -- The global oil market could face a supply shortfall of 4.5 MMbpd by 2035 if exploration success doesn't improve, according to a new study by Wood Mackenzie. Wood Mackenzie says discoveries in recent years have been disappointing, with the volume of liquids discovered per annum more than halving over the period 2008 to 2015.

The oil price environment has caused exploration budgets to be slashed and Wood Mackenzie forecasts that in 2016 the industry will invest half of the levels seen in previous years. Wood Mackenzie says that although significant discoveries made during the 2000s are key in securing medium-term oil supply, unless exploration results improve continued supply growth in the longer term will become unsustainable.

"We have conducted a comprehensive study of the impact of exploration rates on global oil supply using our proprietary database and analyzing all conventional fields discovered since 2000,” Patrick Gibson, director of global oil supply research at Wood Mackenzie, said, Over 7,000 conventional fields have been discovered in the last 15 years and although these developments will play a critical role in securing future oil supply in the medium term, modelling a continuation of poor exploration results shows that the market could see a 4.5 MMbopd shortfall by 2035."

Dr. Andrew Latham, V.P. of exploration research at Wood Mackenzie, explained, "In the last four years the industry has seen disappointing—largely gas prone—exploration results, with the volume of liquids discovered annually falling from around 19 Bbbl between 2008-2011 to 8 Bbbl between 2012-2015. The price downturn has resulted in large reductions in exploration spend and activity levels have been significantly impacted—just 2.9 Bbbl of liquids were discovered globally in 2015.  We currently expect the industry to invest $40 billion per year in exploration and appraisal over 2016 to 2018—less than half its investment during 2012 to 2014."

"A number of sizable discoveries were made during the 2000s, when budgets and exploration activity peaked. Substantial volumes of oil from these finds are still to be produced—around 90% of the liquids discovered—which should ensure supply growth in the medium term. Conventional exploration success during the 2000s could add 18 MMbpd by 2025, in addition to increasing tight oil recovery. However, the shift in the industry's focus towards exploring smaller near field opportunities with lower cost bases and shorter lead times, now means that fewer large, high risk frontier finds are likely to be made in the near term," Dr. Latham added.

Wood Mackenzie estimates that over 10% of global liquids supply by 2035 will be sourced from conventional volumes that are yet to be discovered—Africa, Latin America and North America will account for around 60% of those volumes.

"Existing discoveries do of course have a key role to play in future global oil supply, but unless exploration results start to improve significantly, continued supply growth will become unsustainable,” Gibson summarized. “We forecast that by 2030, production from fields discovered since 2000 will be in decline, and we could see a shortfall of 4.5 MMbpd by 2035, if the current annual average (8 Bbbl) of discovered liquids continues. This is why the size and nature of the next tranche of discoveries is crucial for maintaining long term global oil supply growth."


Top oil service firms mull North America retreat as losses mount

HOUSTON (Bloomberg) -- Two of the three largest oil rig operators and fracers are considering pulling back from the North American market as losses mount.

Schlumberger—after posting its first North American operating loss since at least the turn of the century, according to Barclays Plc—is evaluating whether it’s worth temporarily shuttering its business in the region. Baker Hughes said Wednesday it has decided to limit its exposure to unprofitable onshore fracing work in North America because of the "unsustainable pricing."

It’s the first time in at least a decade that those companies and Halliburton, the big 3 in oil services, all lost money in the region during the first three months of the year, according to Bloomberg Intelligence.

"Activity is coming down to basically critical-mass type of levels," Schlumberger Chairman and CEO Paal Kibsgaard told analysts and investors Friday on a conference call. "What’s the benefit of taking the losses versus shutting down and then making the investments later on to start back up again?"

Even FMC Technologies, the largest provider of subsea equipment to the industry, said Wednesday the amount of lost work in the region was surprising.

Job Cuts

The oil service and equipment companies were the first to feel the pain since crude prices began falling in 2014, and they’ve contributed the largest share of the more than 250,000 jobs cut during the downturn.

"It’s a pretty dire situation right now in the oil services market," J. David Anderson, an analyst at Barclays in New York, said Wednesday in a phone interview. "The next step here is literally shutting down operations."

As companies report first-quarter results, laments about the "unsustainable" business in North America is a common refrain among service providers.

"We’ve been hearing one version or another of that word for some time now, and I think a lot of people just dismissed it," Barclays’ Anderson said. "Companies are forced to take these losses right now. Otherwise, when this eventual recovery happens, they’re not going to be able to respond. That’s what they have to weigh."

‘Unsustainable Market’

Jeff Miller, president of Halliburton, was one executive using the word this past week to describe operations. "My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now,” he said Friday in a statement in which the Houston-based company reported an operating loss margin of 2.2%.

The market for hydraulic fracturing is seen as a proxy for oilfield service activity in North America.

More than half of U.S. fracing equipment, measured at a total of 17.5 million horsepower, is unused, according to consultancy IHS Inc. Prices charged for fracing are estimated to have fallen as much as 40% since the downturn began in the third quarter of 2014, Caldwell Bailey, senior consultant at IHS in Houston, said Wednesday in a phone interview.

"They can’t cut costs any more," Anderson said. "You’re at the muscle and the bone. If I cut from here, I’m impairing myself on the upside."

Thursday, April 28, 2016

WTI climbs above $45 amid U.S. crude output drop, Fed statement From @Bloomberg -- Oil closed above $45/bbl in New York for the first time since November after U.S. crude output dropped and Federal Reserve policy makers signaled they’re open to raising interest rates in June. Crude production fell to 8.94 MMbpd last week, the least since October 2014, Energy Information Administration data show. Futures fell on the initial release of the report because it showed crude inventories rose. Oil extended gains after the Federal Open Market Committee omitted previous language that “global economic and financial developments continue to pose risks,” instead saying officials will “closely monitor” such developments. "We are focused on U.S. production, which was down again," said Cavan Yie, senior equity analyst at Manulife Asset Management. "Production is down about 650,000 barrels from the peak, and it’s going to keep dropping because nobody is spending any money to drill new wells." Oil has rebounded since slumping to the lowest level since 2003 in February, amid signs the global surplus will ease as US production declines. The World Bank boosted its forecast for oil prices this year, projecting that US output cuts will steepen in the second half of 2016. Markets may rebalance by the end of the year, BP CEO Bob Dudley said Tuesday as the company reported a surprise first-quarter profit. "The market seems to be focused on the change in Fed language about global risk," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "They are no longer warning of possible risks, which is being taken as a positive sign." The Fed left its benchmark interest rate unchanged. Policy makers are weighing when to raise rates again after the first increase in almost a decade in December. Central-bank optimism about economic growth and inflation may renew policy divergence between a tightening Fed and central banks overseas.

Tuesday, April 26, 2016

Exxon Mobil loses top credit rating it held since Great Depression

IRVING, Texas (Bloomberg) -- Exxon Mobil Corp. was demoted from the top credit rating by Standard & Poor’s for the first time since the Great Depression as the collapse of the biggest oil-market rally in history strangled cash flows.

The global crude explorer with sales that dwarf the economies of most nations sought to retain the AAA rating when S&P placed it on notice in February. Citing concern that credit measures would remain weak through 2018, S&P warned Exxon that it was in danger of losing the top grade first bestowed on the oil giant in 1930 and shared with just two other U.S. corporations. The rating was lowered to AA+, S&P said in a statement on Tuesday.

"The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow," Standard & Poor’s wrote in the note.

S&P questioned Exxon’s decision to spend $54 billion on stock buybacks since 2012 even as its debt load was doubling. Exxon’s preference for returning cash to shareholders may be hurting its ability to stockpile cash and pay down debt, the credit rating company said.

Exxon also is facing challenges in finding enough new discoveries to replace the crude it’s pumping from the ground, S&P said on Tuesday. The company only found enough new oil last year to replace 67% of its production.

"In our view, the company’s greatest business challenge is replacing its ongoing production," S&P said.

The oil-market crash that began in late 2014 has choked crude-producing nations like Nigeria and Venezuela of cash, thrown hundreds of thousands of employees out of work, stalled drilling and pipeline investments around the world and even reverberated into ancillary industries, such as steel-making and railroads. Exxon was one of the last holdouts against the wave of credit downgrades that engulfed oil drillers with diminishing prospects of paying debts, dividends and rig fees.

The downgrade will not only raise Exxon’s cost to borrow money but may also erode its status among oil-rich governments as a premier partner with which to do business. As Exxon V.P. of Investor Relations Jeffrey Woodbury said in February, the company’s AAA rating was a key selling point when competing for drilling licenses.


Exxon Mobil Loses Top Credit Rating It Held Since Depression
From @bloomberg -- Exxon Mobil was demoted from the top credit rating by Standard & Poor’s for the first time since the Great Depression as the collapse of the biggest oil-market rally in history strangled cash flows.

The global crude explorer with sales that dwarf the economies of most nations sought to retain the AAA rating when S&P placed it on notice in February. Citing concern that credit measures would remain weak through 2018, S&P warned Exxon that it was in danger of losing the top grade first bestowed on the oil giant in 1930 and shared with just two other U.S. corporations. The rating was lowered to AA+, S&P said in a statement on Tuesday. "The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow," Standard & Poor’s wrote in the note.

S&P questioned Exxon’s decision to spend $54 billion on stock buybacks since 2012 even as its debt load was doubling. Exxon’s preference for returning cash to shareholders may be hurting it’s ability to stockpile cash and pay down debt, the credit rating company said.

Exxon also is facing challenges in finding enough new discoveries to replace the crude it’s pumping from the ground, S&P said on Tuesday. The company only found enough new oil last year to replace 67 percent of its production. "In our view, the company’s greatest business challenge is replacing its ongoing production," S&P said.

The oil-market crash that began in late 2014 has choked crude-producing nations like Nigeria and Venezuela of cash, thrown hundreds of thousands of employees out of work, stalled drilling and pipeline investments around the world and even reverberated into ancillary industries such as steel-making and railroads. Exxon was one of the last holdouts against the wave of credit downgrades that engulfed oil drillers with diminishing prospects of paying debts, dividends and rig fees.

Russia sees no moves to cap oil output before June OPEC meeting

MOSCOW (Bloomberg) -- Russia doesn’t anticipate any new initiatives to freeze oil production before an OPEC meeting scheduled for June, according to Energy Minister Alexander Novak. “I don’t expect anything,” Novak told reporters in Moscow on Tuesday. “Over the past week no one has contacted us" to continue talks on the issue, he said.
Russia’s attempt to broker an international agreement to freeze oil output at January levels failed earlier this month at talks in Doha. That leaves producing nations free to pump at will even as a global glut keeps prices 60% below their 2014 high. Novak last week denied a suggestion from Iraq’s Deputy Oil Minister Fayyad Al-Nima that producers could meet again in Moscow in May.

Saudi Arabia quashed expectations of a freeze agreement in Doha despite proposing such an accord in February with Qatar, Russia and Venezuela. The world’s biggest crude exporter said it couldn’t sign up to a deal without the participation of Iran, which has pledged to boost its own oil output to pre-sanctions levels before considering a cap.

Novak’s ministry plans to meet with Russian oil producers soon to discuss the results of the Qatar meeting, he said.

The Organization of Petroleum Exporting Countries is scheduled to hold its next bi-annual summit on June 2.

Monday, April 25, 2016

GE seen becoming third largest oilfield service provider

STAVANGER, Norway -- GE may become the third largest oilfield service provider in 2016 if the company buys the planned divestments by Halliburton and Baker Hughes, according to the latest estimate by Rystad Energy.

In addition, GE is more sheltered amid the downturn in oil prices due to exposure to equipment and more resilient product lines.

Overall, GE’s upstream revenue is expected to gain by 6% this year from 2014’s level, while its competitors are expected to lose market share.


Apache awards Subsea 7 contract offshore UK

ABERDEEN, Scotland -- Apache North Sea has awarded Subsea 7 a sizeable engineering, procurement, installation and commissioning (EPIC) contract for the Callater field development, located 335 km northeast of Aberdeen, Scotland.

The contract work scope covers the project management, engineering, procurement, construction and installation of a 4 km, 45 in. pipeline bundle system consisting of production lines, and power and supply services. It also includes the installation of a 13 km electro-control umbilical, associated structures, field testing and pre-commissioning works.

Project management and engineering work will commence immediately from Subsea 7's offices in Aberdeen, with offshore activities planned for first-quarter 2017.


Sunday, April 24, 2016

Turning the tanker: A daunting challenge faces the new boss of Mexico’s oil giant


 From @theeconomist -- The radio in the office of José Antonio González is tuned to American classical-music stations. The sounds may be relaxing, but the firm González has led since February—Pemex, Mexico’s state-owned oil company—is in crisis. On April 13th the Mexican government was forced to respond to the firm’s troubled finances with a 73.5 billion peso ($4.2 billion) aid package and a 50 billion peso tax cut. This week González headed to New York to soothe the fears of banks and rating agencies. They will take some persuading. Pemex’s crude production fell last year to 2.3m barrels a day, down from a peak of 3.4m in 2004. Next year, that will probably fall to 2m. After taxes and royalties the company made a loss of 522 billion pesos last year. In March Moody’s cut Pemex’s credit rating by two notches to its lowest investment grade. A low oil price hurts, of course. But Pemex is also suffering because of years of inadequate investment, unproductive working procedures, over-generous pension promises. A lack of specialisation and massive tax bills have added to the woes. Grim as that sounds, a strong leader, ready to make waves, could turn things around. Mexico’s recent energy reform and the appointment of González give Pemex a faint glimmer of hope. Analysts like the new boss. One calls him the best possible pilot of the worst possible aircraft. González is not an oil man, but spent 3 years on the board of Pemex when in a previous job at the finance ministry. As an engineer he is fond of detail. He has run huge operations before: in a 3 year stint as leader of Mexico’s social security agency, which has around 450,000 staff, he knocked it into better shape. He has started cutting costs at Pemex. Government officials want the firm to lower its budget by 100 billion pesos in 2016. The plan to make 2/3 of the savings by deferring investments will raise some eyebrows. The government’s recent aid package is a reminder that officials cannot let a firm that currently generates 1/3 of all government revenues falter through a lack of investment.

Saturday, April 23, 2016

Oil majors' $100 hangover hurts profit as cost cuts fall short LONDON (Bloomberg) -- The world’s biggest oil companies, set to report their worst quarterly earnings in more than a decade, are finding their cost-cutting efforts haven’t matched the decline in crude prices over the past two years. While producers have been deferring projects, eliminating jobs and freezing salaries, the process will take three years to complete, according to Barclays Plc’s Lydia Rainforth. In the meantime, profits are being hammered. “A lot of work still needs to be done on costs,” Rainforth, a London-based oil sector analyst, said by phone. “It’s a reflection of how much costs had piled up and how long a process this is.” For producers from Royal Dutch Shell Plc to Chevron Corp., reeling under the threat of credit-rating downgrades, slashing costs is the surest way of protecting balance sheets. Still, reversing course is proving painful after $100 oil persuaded companies to pump money into expensive areas in search of new deposits, hire more people and rent rigs and services at record rates. Productivity suffered. Shell, Europe’s biggest oil company, had operating costs of $14.70/bbl last year when Brent crude averaged $53.60, Barclays said in a report last month. That’s more than double the $6/bbl cost in 2005, the last time oil averaged in the $50s, according to the report. BP Plc’s operating expense was $10.40 last year compared with $3.60 in 2005, according to Barclays. The operating costs don’t include capital spending, taxes and royalties paid by producers. Earnings outlook After rising every year from 2010 to 2014, Shell’s costs fell 15% last year, according to Barclays. BP’s dropped 19%. That’s not been enough to counter the rout in oil prices. BP is expected to post an adjusted loss for the first time since the Gulf of Mexico oil spill in 2010, when it reports first-quarter results on April 26, according to analyst estimates compiled by Bloomberg. Shell, reporting on May 4, is likely to post its weakest adjusted profit in more than a decade. Exxon Mobil Corp., the world’s biggest oil company, will report the lowest quarterly profit in more than two decades on April 29, according to analysts estimates. Chevron is estimated to report a second consecutive loss the same day. Total SA’s first-quarter adjusted net income is predicted to be the lowest since 2001. The extent of the work facing oil-major CEOs can be seen at BP. While the British producer’s boss Bob Dudley was one of the first to prepare for the downturn, it still took BP most of 2014 and 2015 to identify where costs could be cut, with full implementation only coming this year, Rainforth said. The London-based company said in February it had reduced annual cash costs by $3.4 billion compared with 2014 and expected them to be about $7 billion lower in 2017. A BP spokesman declined to comment further. Shell plans to reduce operating expenditure by $3 billion in 2016 after cutting it by $4 billion last year. The company declined to comment beyond reiterating that it has options to further reduce spending should conditions warrant it. Exxon and Chevron declined to comment. Total is targeting spending on operating its exploration and production business of $6.50/bbl of oil equivalent this year, after cutting that to $7.40 last year from $9.90 in 2014, according to a company presentation in February. Total dividend Total CEO Patrick Pouyanne told reporters in Paris Thursday that action taken to reduce costs would allow the company to fully fund its dividend from cash flow at an oil price of $60/bbl. Companies are doing whatever it takes. Total is reducing the speed of its service boats in Angola to save gasoline, renegotiating maintenance contracts in Congo, using fewer transportation vessels in Brunei and has stopped using a storage tank in Indonesia to save the French company about $5 million, Chief Financial Officer Patrick de la Chevardiere told analysts in July last year. “The companies need to do more of the same over an extended period,” said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd., which owns Shell and BP shares. “Companies are sharing helicopters and tug boats in the North Sea. It shows how far down the track they had gone in over-spending and over-engineering projects.” Brent crude averaged $35.21/bbl in the first quarter, the lowest in almost 12 years. It traded at $44.32 on the ICE Futures Europe exchange in London at 11:01 a.m. Friday. The impact of weaker prices is being compounded by lower profits from refining, a business that has been bailing out oil majors over the past couple of years. Global refining margins dropped to $10.50 a barrel in the first quarter, 31% lower than a year earlier and 20% lower than the preceding quarter, according to BP’s data. Oil prices rose for 10 of the 11 years until 2012 and averaged above $80/bbl every year from 2010 to 2014. In those years, the companies were flush with cash and they expanded, even as productivity languished. Shell, BP and Total’s oil and natural gas output per employee in its upstream division dropped in many of those years as costs blew up, according to a Morgan Stanley report this month. “Oil companies haven’t usually been good at controlling costs and allowed them to bloat out in the years of high oil prices,” said Philipp Chladek, a London-based analyst with Bloomberg Intelligence. “It feels like many oil companies haven’t really bought in to the lower for longer, at least by actions. Most people still seem to believe that oil will rebound to $60 or above before long.”

Halliburton reports $2.1 billion charge on job cuts, assets

HOUSTON (Bloomberg) -- Halliburton Co. said it’s booking a $2.1-billion expense in the first quarter for cutting jobs and writing off assets, giving some results early and delaying the full earnings release as it strives to wrap up a takeover of rival Baker Hughes Inc.

The world’s largest provider of fracing services is postponing its full earnings report to May 3 from April 25 because of the deadline to complete the deal with Baker Hughes by the end of this month, the company said Friday in a statement.

Halliburton, which announced the takeover in November 2014 in a deal now worth about $25 billion to better compete against industry leader Schlumberger Ltd., is facing a Justice Department lawsuit to stop the merger on concern it will harm competition.

Oilfield service providers were the first to feel the pain when crude prices began falling in the middle of 2014. Of the more than 250,000 jobs cut globally in the energy industry during the downturn, service providers continue to be the most heavily impacted after customers slashed more than $100 billion in spending last year, with promises of more cuts to come.

The industry is going through an unprecedented downturn with a “full-scale cash crisis,” Schlumberger CEO Paal Kibsgaard said Thursday.

Shares of Halliburton were little changed in after-hours trading after closing 1.3% higher at $40.84.


Schlumberger cuts more jobs as CEO sees industry cash crisis

HOUSTON (Bloomberg) -- Schlumberger Ltd. cut another 2,000 jobs in the first quarter as the world’s largest provider of oilfield services sees the industry in a full-scale crisis.

The global headcount dropped to 93,000 at the end of the first quarter with the reduction, Joao Felix, a spokesman for the company, said by email. More than a quarter of Schlumberger’s workforce, or roughly 36,000, has now been cleaved off since the worst crude-market crash in a generation began in late 2014.

“The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis,” Chairman and CEO Paal Kibsgaard said in an earnings report Thursday. "This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity."

The oilfield service providers were the first to feel the pain when crude prices began falling in the middle of 2014. Of the more than 250,000 jobs cut globally in the energy industry during the downturn, the service providers continue to be the most heavily impacted after customers slashed more than $100 billion in spending last year, with promises of more cuts to come.

Tight Margins

Schlumberger first-quarter profit fell as the company adjusts to shrinking margins in North America as customers scale back work. Customers are slashing spending by as much as 50% in the U.S. and Canada.

First-quarter profit declined to $501 million, or 40 cents a share, from $975 million, or 76 cents, a year earlier, the Houston- and Paris-based company said in a statement Thursday. The profit was 1 cent more than the 39-cent average of 37 analysts’ estimates compiled by Bloomberg.

"It’s a weak beat mainly because they guided estimates down," Rob Desai, an analyst at Edward Jones in St. Louis, who rates the shares a buy and owns none, said in a phone interview. "North America came in weaker than we expected."

Challenges from the collapse in crude prices can be seen in the world’s largest hydraulic fracturing market, North America, where Schlumberger reported a loss of $10 million, before taxes. Elsewhere, the company announced earlier this month plans to cut back activity in Venezuela, holder of the biggest oil reserves of any country, due to unpaid bills.

‘New Up’

The company was expected to generate a North America operating profit margin at break-even, according to Capital One Southcoast. That’s better than smaller competitors reporting margins as low as negative 30%.

"Break-even is the new up," Luke Lemoine, an analyst at Capital One in New Orleans who rates the shares the equivalent of a buy and owns none, said in a phone interview before the results were released. "In this environment, it’s hard to defend the 5% margins in North America they had talked about."

The second quarter is expected to get worse for Schlumberger, with North American margins dipping as much as 4% into the red, Lemoine said.

"A lot of it is carrying excess costs," he said. "Service companies have cut personnel and facilities, but they’re unwilling to cut to the bone. So, they are maintaining some slack in capacity."

The earnings statement was released after the close of regular trading in New York. The shares, which have 35 buy ratings from analysts, 5 holds and 3 sells, fell 0.1% to $80.19 at 4:56 p.m. in New York.


Friday, April 22, 2016

Cheap oil is taking shipping routes back to the 1800s

From @bbcfuture_official -- The plummeting price of oil on international markets has had many effects – one of which is that it may be cheaper for ships to travel right around Africa than go through the Suez Canal.

The Suez Canal was one of the most significant engineering projects of the 19th Century. It was a gargantuan task that took nearly 20 years to build and an estimated 1.5 million workers took part – with many thousands dying in the process. But when it finally opened in 1869, ships could travel from the Red Sea – between Africa and Asia – to the Mediterranean, cutting weeks off a journey. It was a revolution for trade.

Ever since, passage through the canal has been considered more or less vital to global business. Shipping firms pay what amounts to several billion dollars every year to the Suez Canal Authority, an Egyptian state-owned entity, for the privilege of travelling via the canal.

To take an example, it cuts a modern journey from Singapore to Rotterdam in the Netherlands by nearly 3,500 nautical miles (6,480km) – saving vessel owners lots of time and lots of money.

However, more and more some ships are deciding not to take the Suez route. Instead, they are travelling around the Cape of Good Hope, right at the southern tip of Africa. Over 100 ships did this between late October 2015 and the end of the year. “I’ve been covering shipping for the last eight years,” says Michelle Wiese Bockmann, from oil industry analysis firm OPIS Tanker Tracker. “It is very rare to see this volume going round the Cape.” Right now, she’s keeping tabs on half a dozen diesel and jet fuel-carrying ships on this very route.

One of the big factors here, explains Bockmann, is the low price of oil. This means that “bunker fuel” – the thick, heavy fuel the ships themselves run on – is currently very cheap. Indeed, Singapore prices for such fuel have fallen from around $400 (£286) per metric ton in May 2015 to around $150 (£107) today.

As a result, sea journeys aren’t as costly as they have been in recent years. But is there any sense in taking longer than you need to?

Thursday, April 21, 2016



Otto Energy announces Gulf of Mexico discovery
WEST PERTH -- Otto Energy Ltd has announced that it has been advised by Operator Byron Energy, that the SM-71 #1 well, located at the South Marsh Island Block 71, has completed drilling to the final target measured depth of 6,843 ft (2,086 m) or 6,477 ft (1,974 m) TVD.
During drilling a number of discrete hydrocarbon bearing sands have been intersected and preliminary evaluation completed using Logging While Drilling (LWD) tools. The following hydrocarbon indications have been observed to date:
I3 Sand - a hydrocarbon saturated gross sand thickness of approximately 20 ft (6 m)
J Sand - a hydrocarbon saturated gross sand thickness of approximately 30 ft (9 m)
D5 sand - a hydrocarbon saturated gross sand thickness of approximately 100 ft (3 m)
Indications of oil were seen on cuttings from the D5 sand interval and all hydrocarbon bearing zones demonstrated elevated wet gas readings.
Based on preliminary interpretation of these results it appears that a significant proportion of these hydrocarbon bearing sands will result in net hydrocarbon pay, however net pay counts cannot be determined until a porosity log is run and may be determined to be less than the gross sand amounts reported here.
The D5 Sand, which was the primary target of this well, exhibits excellent quality, is within the range of predrill expectations, and confirms the RTM technology used to delineate the prospect. The J Sand, which was a secondary target, was found within predrill expectations and was intersected 220 ft (67 m) up-dip of the highest productive well in the J Sand interval. The I3 sand interval does not appear to have been produced in offset wells on SM 71.
Current operation is to run in to the hole with a bit to address excess wall-cake build up and verify the hole's condition prior to running porosity logs. Whilst drilling to total depth below the D5 Sand, a pressure transition was intersected which required an increase in mud weight to control the well. The higher mud weight suppressed gas ingress, but will require additional conditioning of the wellbore.
The preliminary results from these three discrete hydrocarbon intervals are considered of commercial value to warrant the completion and ultimate production of the well. This will be done by running a 7 5/8' production liner and suspension of the well for future production. The joint venture will now move forward with development planning and has already initiated discussions with an offset operator to cost effectively produce the hydrocarbons from this well.
The preliminary results from these three discrete hydrocarbon intervals are considered of commercial value to warrant the completion and ultimate production of the well. This will be done by running a 7 5/8' production liner and suspension of the well for future production. The joint venture will now move forward with development planning and has already initiated discussions with an offset operator to cost effectively produce the hydrocarbons from this well.

Wednesday, April 20, 2016

Aker Solutions wins engineering framework agreement from Lundin Norway

LONDON -- Aker Solutions secured a framework agreement from Lundin Norway to provide engineering services for offshore developments in Norway.

The agreement covers early-phase studies, pre-engineering (FEED) work, verifications and follow-on engineering for Lundin Norway. It encompasses engineering work from Aker Solutions' three business areas--engineering, subsea and maintenance, modifications and operations--as well as the company's integrated study house, Front End Spectrum. The contract has a fixed period of three years and may be extended by as many as two years.

The first delivery will be a study for a floating production, storage and offloading (FPSO) unit for the Alta and Gohta oil development in the Barents Sea. The contract is part of the first-quarter order intake. "We are pleased to have this opportunity to work long term with Lundin," said Per Harald Kongelf, head of Aker Solutions' Norwegian operations. "The company's focus on the southern Barents Sea fits well with our technology and engineering expertise for even the most challenging conditions." Aker Solutions has previously provided engineering work for Lundin's Edvard Grieg development as well as the subsea production system for the Brynhild field. The new agreement gives Lundin access to Aker Solutions' technical expertise and lifecycle knowledge from the full range of field developments.

OPEC’s talks on curbing oil production come to nothing

From @theeconomist -- Goodbye to $40 oil? Bets that Brent crude would continue to rally were at their highest level since 2011, according to Deutsche Bank, when news came on April 17th of the collapse of talks in Qatar aimed at freezing output. The can-do prognoses that had preceded the meeting had beguiled speculators, who were caught out when it became clear that Saudi Arabia, Russia and others could not in fact agree on measures to curb supply, prompting the Brent price to slide to below $42 a barrel on April 18th. The scramble to unwind loss-making derivative trades may only exacerbate the fall in the coming days. But a lot has changed since January, when oil prices fell below $30 a barrel. It’s unlikely that oil will shed all of its recent gains.

The debacle in Doha highlights the deep splits in OPEC—which are nothing new—and how much harder it has become to rig markets through output quotas—which is. It is testament to the cartel’s desperation that it even tried. Weeks ago Saudi Arabia expressed its reservations about freezing output without Iran, its main strategic rival and a fellow member of OPEC, being party to an agreement. That is the main reason the meeting in Doha broke down. But the Saudis may also have had reservations about striking a deal involving Russia, which rivals it as the world’s biggest producer, and with which it has been tussling for market share in Europe, India and elsewhere. The fact that both countries have been producing at or near record levels in recent months suggested that neither was prepared to cede ground.

A renewed slide in oil prices will rekindle concerns about the global economy. Budgets in oil-producing countries such as Angola, Brazil, Nigeria and Venezuela are severely strained. Oil and gas firms, with $2.5 trillion of debt, are also fragile. Last week’s bankruptcy filing in Houston by Energy XXI, an explorer with $4 billion of debt, added to concerns about the oil exposure of American banks—though only 5% of the debts of the world’s energy industry sits on the balance-sheet of the three biggest, JPMorgan Chase, Bank of America and Wells Fargo.

Tuesday, April 19, 2016

Saudi's other warning makes oil traders sweat after Doha failure

LONDON (Bloomberg) -- After his comments thwarted supply negotiations in Doha, oil traders are weighing another implied warning from the Saudi deputy crown prince: the threat of an intensifying clash with Iran over market share.

It was Mohammed Bin Salman’s repeated assertions that the kingdom wouldn’t join an output freeze without Iran that derailed talks between 16 producing countries on April 17. In interviews with Bloomberg News, the prince cautioned that if other producers increased output, Saudi Arabia could respond in kind. Iran is restoring exports after international sanctions over its nuclear program were lifted in January.

“It was an indication to Iranians that, look guys, if you’re not joining the table we have enough power to crank up production,” Abhishek Deshpande, an analyst at Natixis SA in London, said in a Bloomberg Television interview Monday. “You can question how much more they can crank it up by, but the chances are that, now there’s no freeze, the Saudis will go ahead and increase their production as they were planning.”

Oil prices dropped on Monday after Saudi Arabia resolved that an oil-supply freeze was possible only with the support of all OPEC members, including Iran, causing talks in the Qatari capital to unravel. Tensions between the two regional antagonists have flared as they take opposite sides in bloody conflicts in Yemen and Syria.

In an interview published on April 1, Prince Mohammed said that while Saudi Arabia was ready to cap production in concert with other countries, "if there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.”

The world’s largest oil exporter could increase output by more than 1 MMbpd, or about 10%, to 11.5 MMbpd if there was demand for it, the prince, chairman of the Supreme Council of Saudi Arabian Oil Co., said on April 14. It could increase further to 12.5 MMbopd in six to nine months, he added. The country pumped 10.2 MMbopd last month, according to data compiled by Bloomberg.

“This just shows how central the tensions and the rivalry in the region between Iran and Saudi Arabia are,” Dan Yergin, vice chairman at IHS Inc. said in a Bloomberg Television interview. “There’s zero trust between these two countries right now.”

Iranian Output

Iran plans to boost output to 4 MMbpd in the Iranian year through March 2017, Oil Minister Bijan Namdar Zanganeh said April 6. That would be an increase of about 800,000 bpd from March production. Its crude shipments have risen by more than 600,000 bpd this month, according to shipping data compiled by Bloomberg.

Oil’s collapse to a 12-year low amid a global glut drew the Organization of Petroleum Exporting Countries close to its first agreement with Russia in 15 years. The slump strained OPEC-member budgets and pushed Russia into a second year of recession. Having struck a tentative accord Feb. 16, the producers tried to complete the pact over the past weekend.
Still, it’s “premature” to expect that Saudi Arabia will retaliate against Iran’s comeback, according to Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London.

Saudi Ability

Prince Mohammed’s comments about Saudi capacity are “a statement of their ability rather than their intent” to activate reserves, said Mike Wittner, head of oil market research at Societe Generale SA. The kingdom’s output will increase slightly anyway this summer as it meets higher local demand for air conditioning, the two banks said.

"You’re going to get more Saudi crude seasonally in the summer and people could interpret that as countering extra supplies from other producers,” said Tchilinguirian. “But there’s no strong suggestion from Saudi Arabia that it will engage in a tit-for-tat strategy with Iran.”

Saudi Arabia’s intransigence on April 17 reaffirms that the country “is really out for market share,” said Ed Morse, head of commodities research at Citigroup Inc. The absence of an agreement will focus the market on where disrupted supply can be restored, such as in the Neutral Zone shared by the kingdom and Kuwait, he said. About 500,000 bopd has been halted there by a dispute between the two countries.

Downside Risk

“The potential downside risk comes from sources of supply that could be brought into the market,” Morse said in an interview.

Brent crude futures slumped as much as 7% on Monday before settling down 19 cents to $42.91/bbl in London. Saudi Arabia’s decision to abandon the proposed freeze fits in with the kingdom’s long-term strategy to balance oversupplied markets by pressuring rivals with lower prices, according to Commerzbank AG.

“Saudi Arabia’s refusal to sign the agreement just proves that they would not mind if prices stay lower for longer,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by email. “I would not even be surprised if they hike production further as a ‘revenge’ to Iran’s reaction. They can withstand lower oil prices longer than most of the other producers.”


The global oil deal that never came to be

From @Reuters -- It was supposed to be the easiest deal ever reached among key oil market players, a mere formality.

Eighteen countries were gathering in the Qatari capital of Doha to rubber-stamp the first joint agreement between major OPEC and non-OPEC nations in 15 years, tackling a huge global glut after flooding the market for two years.

The text was agreed and the timeframe was clear. Oil prices were rising. Traders were calling the event boring.

Then, clouds began to appear.

Thousands of kilometers away from Doha, at a summit in Istanbul, Saudi King Salman bin Abdulaziz and Iranian President Hassan Rouhani gave each other the cold shoulder in front of cameras after the group accused Iran of supporting terrorism.

The frosty tone was noted and became a talking point among some delegates and OPEC watchers in Doha.

None of the OPEC and oil industry sources linked the subsequent collapse of the oil meeting in Doha to the events in Istanbul, but said it was indicative of the deep mistrust between the Sunni Muslim kingdom and the Shi'ite Islamic republic, which compete for influence in the Middle East and are currently fighting proxy wars in Syria and Yemen.

From Friday onwards, things went downhill.

Only a few days before the Sunday meeting, Saudi Arabia surprised Qatar by demanding that it cancel Iran's invitation to the talks, arguing that only those countries which were ready to freeze output should attend.

Iran has long said it wanted to regain market share following the lifting of sanctions in January and assumed that Venezuela and Russia - the two proponents of the freeze deal - had managed to persuade the Saudis the plan was worth signing even without Tehran's involvement.

The sources said the Saudis told Qatar that if Iran showed up at the meeting without agreeing to the output freeze, there could be no deal.

Qatar's Emir, Sheikh Tamim bin Hamad al-Thani, was a main proponent of the deal, and even made a January visit to Moscow specifically aimed at talking about the idea with Russian President Vladimir Putin.

Monday, April 18, 2016

Grand oil bargain is victim of Saudi Arabia's Iran fixation

DOHA, Qatar (Bloomberg) -- In the end, the outcome of Sunday’s summit of 16 oil ministers at Qatar’s Sheraton hotel turned on one country that wasn’t there.

Iran’s decision, on the eve of the meeting, not to attend signaled things wouldn’t go well. When ministers assembled the next day, Saudi Arabia stunned some of them by insisting every OPEC member, including Iran, must subscribe to the deal to freeze oil production. Scheduled to end with an early afternoon press conference, proceedings dragged into the evening. When the meeting finally broke up without a deal just after 9 p.m. local time, it fell to the host minister, Qatar’s Mohammed Al Sada, to announce the result at a press conference for the dozens of reporters who’d flown in to cover the talks.

“The inclusion of all OPEC members would definitely help in reaching an agreement,” he said, promising more consultation before the group’s June meeting.

The freeze deal, mooted in February as the first coordinated action between OPEC and non-OPEC producers for 15 years, had fallen victim to tensions between Saudi Arabia and its main regional rival Iran, a relationship soured by proxy conflicts from Syria to Yemen.

Taken Control

Mohammed bin Salman, the young Saudi deputy crown prince who’s taken control of economic policy in the world’s top oil producer, had publicly warned twice that no deal was possible without Iran’s participation. In turn, Iran insisted on its right to boost crude production to the level it pumped before it became subject to international sanctions.

Iran had no intention of voluntarily sanctioning itself, the nation’s deputy oil minister said on Saturday.

The government in Tehran had decided there was no point in turning up to Doha on Friday after Qatari officials contacted Iran to say only countries intending to sign up to the freeze should attend, according to a person with direct knowledge of the deliberations. Unable to meet those terms, Iran took that as a withdrawal of Qatar’s invitation and decided to stay away.
Still, ministers gathered on Saturday evening in a positive mood. There was no indication Saudi Arabia had any problems with a draft text committing attendees to keep production at January levels, according to one of the participants. Russian Energy Minister Alexander Novak, who’d spoken to his Saudi counterpart by phone earlier in the week, told reporters he was “optimistic” about a deal.

Meeting Delayed

The trouble started on Sunday morning.

Saudi Arabia’s Ali Al-Naimi, an octogenarian who’s been in the post for more than 20 years, insisted the draft agreement must include language that made the deal dependent on Iran’s eventual participation, participants said. The start of the meeting was delayed several hours while officials sought to agree the text.

“Discussions are at a very high level between the Saudis, Russians and Gulf countries,” over Iran’s output, Wilson Pastor, Ecuador’s governor to OPEC, said in a Bloomberg Television interview in Doha before the start of formal talks. “The general agreement is in place,” but there were some disagreements on the wording, he said.

Once the meeting proper got underway, the haggling continued. In the hotel’s gaudy gold-leafed ballroom, ministers huddled round a PC taking it in turns to try and find the key sentence everyone could agree upon, according a person inside the room, who asked to not identified because the deliberations were confidential.

No Deal

After hours of talks, the ministers couldn’t agree on a text that would satisfy Al-Naimi and the meeting broke up without a deal, hours before crude-oil futures started trading in Asia.

In an apparent reference to Saudi Arabia, Russia’s Novak said at a press conference after the talks that some countries changed their position right before the meeting after agreeing to an earlier draft.

“I thought countries that came here, came to agree and not to discuss the need of joining in of those countries that were not participating,” he said. “We had been disputing today a lot, and that was because some countries from OPEC changed their positions in the morning.”

Crude oil has rallied since the freeze was first proposed in February, with Brent crude up more than 45% since falling to a 12-year low in January. The global benchmark lost as much as 7% when markets opened Monday.

When OPEC’s November 2014 meeting in Vienna ended without an agreement to cut production to support falling prices, the decision was based on the economics of the oil market and was led by Al-Naimi, said Olivier Jakob, managing director of Zug, Switzerland-based consultant Petromatrix GmbH.

“The failure of the April 2016 Doha meeting was apparently more about politics and led by Mohammed bin Salman,” Jakob said. “The Saudi regime has become very unpredictable but that can be taken both as a bearish or a bullish risk factor.”

The deal’s demise will probably do little to alter supply-demand fundamentals as producers committed to a freeze including Russia and Iraq were already producing at record levels. But it’s left a coordinated response to the slump in ruins, and that will send an important message to the market: it’s every country for itself again.


Kuwait oil-worker strike curbing crude output for second day

DUBAI (Bloomberg) -- Kuwait was seeking to restore crude production as thousands of oil workers stayed off their jobs for a second day in a strike that’s slashed the OPEC member’s output by about 1.7 MMbopd, an amount exceeding the current global surplus.

Oil production plunged 60% to 1.1 MMbpd when the strike began on Sunday, while the state refining company slowed operations at its three oil-processing plants to less than 60% of their combined capacity. Kuwait Petroleum Corp.’s oil-production and refining units are working to restart units and raise fuel-processing rates to full capacity, officials said Monday.

The efforts came a day after more than a dozen of the world’s major oil producers failed to reach an agreement to freeze output to halt a price rout of more than 30% over the past year amid a global glut. Kuwait pumped 2.81 MMbpd last month, making it OPEC’s fourth-largest producer, while worldwide supply surpassed demand by 1.6 MMbbl in the first quarter, according to the International Energy Agency.

“If the Kuwaiti strike persists, it re-balances the market,” Robin Mills, CEO at consultant Qamar Energy in Dubai, said by phone. “So far it looks like Kuwait is meeting demand and supplying their commitments out of storage.”

Price fell

Brent crude fell as much as $3, or 7%, to $40.10/bbl Monday after the oil producers couldn’t reach an agreement for an output freeze during their meeting in the Qatari capital Doha. Saudi Arabia said it won’t restrain its production without commitments from other major producers including Iran, which has ruled out a freeze until it can recoup sales it lost while constrained by sanctions.

Oil workers in Kuwait are striking to protest cuts in pay and benefits as Middle Eastern crude exporters, reeling from lower oil income, cut subsidies and government handouts. The walkout is the first by oil workers in Kuwait since at least 1996, according to Middle East Economic Digest.

The strike may last 10 to 15 days, because the government set up a joint committee to negotiate with the union over 10 days, said Virendra Chauhan, a London-based oil analyst at Energy Aspects Ltd. “Assume a bit of time to return to work and ramp up,” he said. “Basically we are not expecting months of delay.”

Workers’ walkout

KPC, the main national oil company, is able to meet its supply commitments to clients in spite of the walkout, the official Kuwait News Agency reported Monday, citing the oil industry’s spokesman, Sheikh Talal Al-Khaled Al-Sabah. Refiner Kuwait National Petroleum Co. was processing about 520,000 bpd, the same amount as Sunday, and all three of its plants were operating, Khaled Al-Asousi, the company’s spokesman, said by phone. Union officials didn’t respond to calls or text messages.

Kuwait Oil Co., KPC’s production arm, is dealing with “the crisis,” working to activate two facilities after it restarted another unit in the country’s north, Kuna reported Monday, citing Sheikh Talal. Oil companies are using skilled workers from the Ministry of Electricity & Water to help run their plants, he said. KNPC will resume processing crude at full capacity after a few days, Al Arabiya television reported, citing Al-Asousi.

‘Shocking’ decline

The plunge in Kuwait’s output “is just shocking,” Edward Bell, a commodities analyst at Dubai-based bank Emirates NBD PJSC, said Sunday by phone. “That would take care of the surplus right there.”

The government told KPC to find workers to keep the operations running and asked authorities to take legal action against anyone causing suspension of activities at vital facilities or harming national interests, Kuna reported, citing the cabinet.

Such a wide-ranging strike that affects vital industries is rare in the Gulf, said Bell. “This is not the sort of thing you’d expect to see in this part of the world.”

Omani labor unions called off a strike in November after talks with the government and oil companies about potential layoffs. Kuwaiti port workers stayed off their jobs in 2011 and 2012 in stoppages that didn’t ultimately affect oil shipments.


Oil-freeze talks end in failure amid Saudi demands over Iran

DOHA (Bloomberg) -- Negotiations between 16 #oilproducers in Doha ended without any agreement on limiting supplies, a diplomatic failure that threatens to renew the rout in prices.

The summit in the Qatari capital, which dragged on for more than ten hours beyond its initially scheduled conclusion, finished with no final accord, Nigeria’s Petroleum Minister Emmanuel Kachikwu told reporters.

Discussions stumbled over whether the agreement should extend to other producers such as #Iran, which wasn’t present, according to a person familiar with the matter. The inability to reach consensus will lead to a “severe” drop in prices, Citigroup Inc. predicted before the meeting.

#Brent crude, which sank to a 12-year low in January, has climbed almost 30% in the past two months as Saudi Arabia and Russia worked on the plan to cap crude production. While analysts doubted that any accord would have a significant impact on the global oil surplus, the inability to agree on a limit undermines any prospect of coordinated action to solve the #oilcrisis. “The #Doha meeting was an opportunity for #OPEC to polish its tarnished image,” Miswin Mahesh, an analyst at Barclays Plc in London, said on April 15. “After the failure of OPEC’s December meeting, the market was uneasy about its cohesion and Doha was a chance for the group to reassert its relevance and build a circle of trust.”

DeepOcean Ghana wins three-year contract with Tullow

AMSTERDAM, Netherlands -- DeepOcean Ghana has been awarded a three-year contract with options for two additional years, to provide a light construction vessel to Tullow Ghana.

In this regard, #DeepOcean Ghana mobilized the DP2 ROV/construction #vessel #DinaStar, with two DeepOcean Ghana-owned 220 HP Constructor ROV systems, and commenced offshore activities in March 2016. The scope of work includes inspection, maintenance and repair (IMR), surveys, and subsea construction on the Tullow Ghana-operated Jubilee and TEN fields #offshore Ghana.

DeepOcean Ghana, an indigenous Ghanaian company in which Deep Ocean B.V. holds a 49% shareholding, commenced its working relationship with Tullow #Ghana in February 2015 when it mobilized the Rem Forza to undertake multi-purpose construction activities on Jubilee.

The Rem Forza has now been replaced by the Dina Star, allowing the Rem Forza to continue working with #TullowGhana to provide accommodation and construction support on the TEN project from March 2016.

Sunday, April 17, 2016

Doha Oil-Freeze Talks Delayed to Address Saudi-Iran Differences
From @bloomberg -- Talks in Doha between some of the world’s biggest oil producers on freezing production have been delayed until later Sunday amid changes to the wording of the agreement, in part to address differences between Saudi Arabia and Iran. “The general agreement is in place,” Wilson Pastor, Ecuador’s governor to OPEC, said in an interview in Doha. “Now there is some disagreement on the wording and maybe this afternoon we are going to finish,” he said, adding that details on the monitoring of the agreement and a follow-up meeting were also to be finalized.

16 nations representing about half the world’s oil output have gathered in the Qatari capital in a bid to stabilize the global market. On April 14, Saudi Arabia’s Deputy Crown Prince said the nation wouldn’t agree to restrain its production unless other producers, including Iran, agree to freeze. Iran, which isn’t attending the meeting, has ruled out joining the accord for now.

Crude oil has rallied since the freeze was first mooted in February. If the group were to fail to reach an agreement it would lead to a “severe” drop in prices, Citigroup predicted before the meeting.

Iran is restoring exports after sanctions over its nuclear program were lifted in January. It plans to boost output to 4 mbd in the Iranian year through March 2017, Oil Minister Bijan Namdar Zanganeh said April 6. That would be an increase of about 0.8 mbd from March production. Iran’s crude shipments have risen by more than 0.6 mbd this month.

Ministers held informal closed-door talks earlier Sunday, according to two officials with knowledge of the meeting. Delegates visited the palace of the Emir of Qatar and begin talks when they return, said another person with knowledge of the situation.

Everybody is “optimistic,” Kuwait’s Acting Oil Minister Anas al-Saleh said before the meeting, adding that a deal would “hopefully happen.” Saudi Arabia and Russia have approved the proposal to freeze crude output at January levels until Oct. 1 and other producers are expected to do so, Omani Oil Minister Mohammed Al Rumhy said prior to the meeting.

Friday, April 15, 2016

  • Qatar's oil-freeze letter to Norway reveals Doha deal logic

    From @Bloomberg -- The preliminary agreement by Russia, Saudi Arabia, Venezuela and Qatar to freeze output has already put a floor under crude prices and a deal this weekend to include other producers would extend the recovery, according to Qatar’s Energy Ministry.

    Analysts and traders have puzzled over exactly why oil producers have devoted so much diplomatic energy to the meeting in Doha on April 17, when the consensus is that the freeze would have little immediate impact on crude production. The letter—an invitation to the Doha meeting that Norway declined—gives some answers.

    Qatar, which is hosting talks between at least 15 countries to finalize the accord, told Norway’s Ministry of Petroleum and Energy that the plan to cap output at January levels has already “changed the sentiment of the oil market,” according to a letter from Energy Minister Mohammed Al Sada obtained by Bloomberg through a freedom-of-information request. If more producers like Norway join in, it will temper the global oil surplus and “build up on this” price recovery, Qatar reasoned.

    Oil prices, which sank to 12-year lows in January amid a global surplus, have climbed more than 30% in the past two months amid speculation producers would make the first significant attempt at coordinating oil output between OPEC and producers outside the group in 15 years. Oil market watchers see a 50-50 chance that producers will strike a deal, but either way they don’t anticipate any impact on crude supply because most of the countries are already pumping flat out.

    Price Floor

    Talks on capping supply have “triggered a broad and intensive dialog between all oil producers out of the conviction that current oil prices are untenable,” Qatar wrote. “It has put a floor under the oil price and it is proposed to build up on this, by expanding the production freeze to more producers, thereby reducing the extent of the global oversupply and help accelerate the market balance.” While the initiative is supporting prices, any agreement that only limits supply rather than implements output cuts will do little to tackle the global glut, the IEA said.

Thursday, April 14, 2016

Schlumberger to pare Venezuela services on lack of payments

From @Bloomberg -- Schlumberger will reduce activity in Venezuela after the world’s largest oil services provider failed to collect enough payments from the national oil company.

The reduction will take place this month in close coordination with all customers in Venezuela to continue servicing those with available cash flow, the contractor said in a statement. Venezuela, which holds the biggest oil reserves of any country, has been battered by the collapse of prices as most of the government’s revenue comes from petrodollars.

In October, Schlumberger was said to be shifting some of its workers from Brazil to Venezuela, reinforcing the contractor’s commitment at the time as others in the industry pulled back. By late January, Schlumberger said it had entered into a deal with @PetroleosDeVenezuela during the fourth quarter to receive certain fixed assets in lieu of payment of about $200 million of accounts receivable. "Schlumberger appreciates the efforts of its main customer in the country to find alternative payment solutions and remains fully committed to supporting the Venezuelan exploration and production industry," the company said in the statement. "However, Schlumberger is unable to increase its accounts receivable balances beyond their current level." Currency Controls

Venezuelan authorities have struggled to make the country’s currency controls work for foreign oil partners. Venezuelan Energy Minister Eulogio Del Pino said earlier this month that partners of PDVSA, as the state-owned producer is known, would be allowed to use a new floating rate that last sold dollars for 312 bolivars. On the black market, however, one US dollar can buy almost four times as much. With triple-digit inflation, spending in bolivars can look very expensive when transacted at the official rate of 10 bolivars per dollar or the newer floating rate.

Still, the Venezuelan oil giant denied it’s struggling to pay its bills. In a statement, PDVSA rejected the cutbacks, labeling them a “manipulation” by the media and said it would continue to make payments in “various forms” to the service provider.

Qatar's oil-freeze letter to Norway reveals Doha deal logic

OSLO, Norway (Bloomberg) -- The preliminary agreement by Russia, Saudi Arabia, Venezuela and Qatar to freeze output has already put a floor under crude prices and a deal this weekend to include other producers would extend the recovery, according to Qatar’s Energy Ministry.

Analysts and traders have puzzled over exactly why oil producers have devoted so much diplomatic energy to the meeting in Doha on April 17, when the consensus is that the freeze would have little immediate impact on crude production. The letter—an invitation to the Doha meeting that Norway declined—gives some answers.

Qatar, which is hosting talks between at least 15 countries to finalize the accord, told Norway’s Ministry of Petroleum and Energy that the plan to cap output at January levels has already “changed the sentiment of the oil market,” according to a letter from Energy Minister Mohammed Al Sada obtained by Bloomberg through a freedom-of-information request. If more producers like Norway join in, it will temper the global oil surplus and “build up on this” price recovery, Qatar reasoned.

Oil prices, which sank to 12-year lows in January amid a global surplus, have climbed more than 30% in the past two months amid speculation producers would make the first significant attempt at coordinating oil output between the Organization of Petroleum Exporting Countries and producers outside the group in 15 years. Oil market watchers see a 50-50 chance that producers will strike a deal, but either way they don’t anticipate any impact on crude supply because most of the countries are already pumping flat out.

Price Floor

Talks on capping supply have “triggered a broad and intensive dialog between all oil producers out of the conviction that current oil prices are untenable,” Qatar wrote. “It has put a floor under the oil price and it is proposed to build up on this, by expanding the production freeze to more producers, thereby reducing the extent of the global oversupply and help accelerate the market balance.”

Delegates from OPEC and other oil-producing countries have started arriving in Doha, Qatar’s Energy Ministry said in a separate statement on Thursday, noting a “positive feeling” ahead of the meeting.

While the initiative is supporting prices, any agreement that only limits supply rather than implements output cuts will do little to tackle the global glut, the International Energy Agency said on Thursday.

Norway won’t attend the Doha talks, its Petroleum and Energy Ministry said by email on April 12. Other non-OPEC producers such as Oman, Azerbaijan and Colombia have said they will attend. Several countries planning to boost production this year, notably Iran and Brazil, have said they won’t join the freeze.


Oil can top $50 with production freeze deal, Bank of America says

CHARLOTTE, North Carolina (Bloomberg) -- #Oilprices can climb above $50/bbl if an output freeze deal is struck in #Doha this weekend, according to Bank of America Corp. “A flat output profile for #OPEC (excluding Iran) and Russia would tighten global balances by almost 0.5 MMbpd in the second half relative to our expectations and push the oil market into a deficit in the third quarter,” the U.S. bank wrote in a note on Wednesday. That would “push prices above $50 near term,” it said.

At least 15 countries—including most members of the Organization of Petroleum Exporting Countries, as well as non-members, such as Russia—have agreed to meet in the Qatari capital on the weekend. Brent crude, which sank to a 12-year low in January, has climbed about 30% since Saudi Arabia, Russia, Qatar and Venezuela reached a preliminary agreement to freeze output on Feb. 16.

Both a soft output freeze and a hard output freeze, with “some enforcement mechanism,” would boost prices to above $50/bbl, Bank of America said. Brent traded at $44.20 as of 12:06 p.m. in London.

Whatever the outcome of the meeting, the market is rebalancing, partly due to a drop in U.S. production and rising global demand, the bank said.

Political Risk

U.S. oil production stands at 9.01 MMbpd, down 6.2% from the record high of 9.61 million reached in June last year, according to the U.S. Department of Energy.

Bank of America didn’t exclude the possibility of a failure to reach a freeze agreement, a scenario that would lead to prices dropping below $40/bbl. One risk is that Saudi Arabia could announce an expansion in production in response to Iran’s return to the market following the end of the sanctions on its nuclear agreement in January. In that case, prices could fall as low as $30/bbl, the bank said.

The deputy Crown Prince of Saudi Arabia said earlier this month that the world’s biggest crude exporter would only consider an output freeze if Iran joined in, while Tehran has repeatedly said its aim is to ramp up production to recover market share lost under sanctions.

Wednesday, April 13, 2016

OPEC warns of deeper cuts to oil demand forecast on slowdown

VIENNA, Austria (Bloomberg) -- OPEC said it may deepen cuts to its forecast for global oil demand growth due to slowing economic expansion in emerging markets, warmer weather and the removal of fuel subsidies.

The Organization of Petroleum Exporting Countries trimmed estimates for demand growth in 2016 by 50,000 bopd because of a slowdown in Latin America, projecting worldwide growth of 1.2 MMbopd. Weakness in Brazil’s economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks, the group said.

“Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward,” the organization’s Vienna-based secretariat said in its monthly market report. “Economic developments in Latin America and China are of concern.”

Oil climbed to a four-month high in London on Tuesday as OPEC nations prepare to meet with Russia and other non-members in Doha this weekend to complete an accord on freezing oil production, an effort to tame the global crude surplus. OPEC’s report said that “positive market sentiments continue to arise” from the freeze plan.

The group’s data shows that the 11 OPEC members who are confirmed to attend the Doha talks are pumping 487,000 bopd below January levels, the benchmark proposed for the freeze deal. Libya has said it won’t attend the meeting, and Iran has yet to decide. Saudi Arabia’s output has remained stable since January, the report showed.

All 13 members pumped 32.25 MMbopd in March, up 14,900 bopd from February, according to external estimates compiled by OPEC.

Global oil demand will average 94.18 MMbpd in 2016, according to the report. This year’s growth rate of 1.2 MMbpd is down from 1.54 MMbpd in 2015 amid a slowdown in consumption of industrial fuels and middle distillates in China and Latin America.


Tuesday, April 12, 2016

Oil rises to four-month high as U.S. shale production slides

LONDON (Bloomberg) -- Oil climbed to a four-month high in London as forecasts for lower U.S. shale production signaled the global oversupply will slowly diminish.

Brent advanced 1.6% to the highest since Dec. 4. Output from U.S. shale will drop to 4.84 MMbopd in May, the lowest level in almost two years, according to a report on Monday from the Energy Information Administration. Still, crude inventories probably rose by 1 MMbbl last week, remaining near the highest level since 1930, according to a Bloomberg survey before another report from the EIA on Wednesday.

“There is such overwhelming consensus in this market that we’re grinding higher because the story of supply faltering is starting to play out,” said Seth Kleinman, head of European energy research at Citigroup Inc. in London.

Oil has rebounded after falling to the lowest level in more than 12 years amid signs a global glut will ease as U.S. output declines. Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, said it will agree to an output freeze only if it’s joined by other suppliers including Iran, while Kuwait said a deal can be done without Tehran’s support. OPEC members plan to meet with other major producers, including Russia, to discuss a freeze in the Qatari capital of Doha on April 17.

Brent for June settlement advanced as much as 70 cents to $43.53/bbl on the London-based ICE Futures Europe exchange. The contracts rose 89 cents, or 2.1%, to close at $42.83 Monday. The global benchmark was at a $1.21 premium to WTI for June.

U.S. Output

West Texas Intermediate for May delivery was at $40.83/bbl on the New York Mercantile Exchange, up 47 cents, at 9:26 a.m. London time. The contract climbed 64 cents to $40.36 on Monday. Total volume traded was 19% below the 100-day average.

“We’ve now seen prices that are low enough that we’re starting to see a response on the supply side,” John Watson, chairman and CEO at Chevron Corp., said at a conference in Perth, Australia. “We’re seeing the markets come back into better balance. It may take more time.

Source: worldoil.com

Reports of oil rally's death premature as inventories decline

From @Bloomberg -- Hedge funds betting that oil’s rally was over missed an 11% gain after US crude inventories unexpectedly fell.

Short positions in WTI crude jumped 35% in the week ended April 5, according to the US Commodity Futures Trading Commission. The next day, the government reported a 4.94 MMbbl drop in US oil inventories, the first decline in eight weeks. "Everybody thought there was going to be a build in the inventories" and the actual data proved otherwise, said Carl Larry, director of oil and gas issues in Houston for consultant Frost & Sullivan. "The market’s bouncing back a little." WTI oil for May delivery dropped 6.2% to $35.89 on the NYMEX during the report week, before rebounding to $39.72 April 8.

Expected Increase

The drop in supplies ran counter to analysts’ forecasts for an increase. Production declined to the lowest level since November 2014 while refiners used the most crude in three months, EIA data show.

US output is sliding after $100 billion in spending cuts last year by explorers amid the worst price meltdown in a generation. The number of active oil rigs in the U.S. declined to the lowest level since 2009, Baker Hughes data show.

Most members of OPEC and other major producers including Russia plan to meet April 17 in Doha, Qatar, to consider an oil-production freeze amid a global glut.

Saudi Arabia, the world’s largest crude exporter, has said it will not cap production unless other producers do the same. Iranian officials, who haven’t committed to attend the Doha gathering, have said their nation plans to expand exports following the removal of international sanctions in January. The meeting can produce an agreement even without Iran’s participation, Nawal al-Fezaia, Kuwait’s OPEC governor, has said. "It looks like investors are betting nothing will come out of the meeting," Dan Flynn, a trader at Price Futures Group in Chicago, said. . "I wouldn’t be so sure about that."