‘Missing barrels’ don't explain oil rally, says Morgan Stanley

NEW YORK (Bloomberg) -- The 800,000 bpd of crude production unaccounted for in the International Energy Agency’s estimates of oil supply and demand for last year are a “poor explanation” for the recent rally in prices, according to Morgan Stanley.

The “missing barrels”—which result from the difference between the IEA’s estimate of oil supply and demand—are probably present in stockpiles outside the 34 members of the Organization for Economic Cooperation and Development, Morgan Stanley said in a note Monday. The proportion of global inventories in developing countries, such as China, which aren’t directly monitored by the agency, should be growing, the bank said.

“Missing barrels are one of many oil-market myths cited by bulls,” Morgan Stanley analysts including Adam Longson said in the note. “The theory is that oil demand is understated because OECD inventories do not capture the full imbalance. However, just because you can’t see them, doesn’t mean they are not there.”

Brent crude, the international oil benchmark, has risen about 50% since hitting a 12-year low of $27.10 on Jan. 20. For Morgan Stanley, the rally is the result of macroeconomic trends—notably the weakening dollar—and other events such as the potential for a production freeze when OPEC and non-OPEC producers meet on April 17.

In its monthly oil-market report, the Paris-based IEA includes a “miscellaneous to balance” section that lists the barrels its analysts haven’t been able to locate after taking account of supply, demand and the amount of oil placed into storage. That number was 800,000 bopd for 2015, “well within the normal range considering the vagaries of oil data,” the agency said in its March 11 report.

Chinese Tanks

“Part of these missing barrels ended in Chinese SPR tanks,” said Giovanni Staunovo, an analyst at UBS Group AG, referring to the nation’s strategic petroleum reserves. Tracking only OECD storage data was useful in the past when developed economies’ oil demand was larger than emerging markets, but that trend has since reversed, he said.

About 77 MMbbl of SPR is in the process of being filled in China, with another 93 MMbbl of capacity expected to be completed by 2020, according to BMI research.

The IEA can’t escape errors in data collection, Morgan Stanley said. “History shows supply and demand tend to be revised as data improves, with no clear pattern. Both have generally been revised up in recent years,” the bank said.

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Drillers can't replace lost output as $100 oil inheritance spent

HOUSTON (Bloomberg) -- For oil companies, the legacy of $100 crude is starting to run dry.

A wave of projects approved at the start of the decade, when oil traded near $100/bbl, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that the production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones.

About 3 MMbopd will come from new projects this year, compared with 3.3 MMbopd lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will outstrip new output by 1.2 MMbpd as investment cuts made during the oil rout start to take effect. That trend is expected to worsen.

“There will be some effect in 2018 and a very strong effect in 2020,” said Per Magnus Nysveen, Rystad’s head of analysis, adding that the market will re-balance this year. “Global demand and supply will balance very quickly because we’re seeing extended decline from producing fields.”

A lot of the new production is from deepwater fields that oil majors chose not to abandon after making initial investments, Nysveen said in a phone interview.

Royal Dutch Shell Plc is scheduled to start the Stones project in the Gulf of Mexico’s deepest oil field this year after approving it in May 2013. Benchmark Brent crude averaged $103/bbl that month compared with about $41 on Monday. Stones will add about 50,000 bopd to Gulf of Mexico output at a peak rate, according to Shell.

Two other deepwater projects, run by Noble Energy Inc. and Freeport-McMoran Inc., are due to commence this year, the U.S. Energy Information Administration said in a Feb. 18 report. Anadarko Petroleum Corp. started Heidelberg field in January.

That will help boost production in the Gulf of Mexico by 8.4% this year to a record annual average of 1.67 MMbopd, according to the U.S. Energy Information Administration.

Eni SpA, Italy’s largest oil company, started Goliat field in the Arctic this month and Shell began producing from a new area of the BC-10 project in Brazil on March 14. British driller Tullow Oil Plc plans to begin output from Tweneboa-Enyenra-Ntomme field offshore Ghana in July or August.

“There is a wide range of upstream projects coming online in 2016, and that is a function of the high levels of investment deployed back when we were in a $100/bbl world,” said Angus Rodger, a Singapore-based analyst at energy consulting firm Wood Mackenzie Ltd. “In the short term, they will generate far lower returns than originally envisaged.”

Yet, these developments won’t be enough to counter the natural decline in oil fields that are starting to suffer from lower investment. A little more than a year after Shell approved the Stones project in 2013, oil prices began their slump, with Brent dropping to a 12-year low below $28/bbl in January.

That has squeezed budgets of oil producers and project approvals have dwindled. From 2007 to 2013, companies took final investment decisions on an average 40 mid- to large-sized oil and gas projects a year, Wood Mackenzie’s Rodger said. That fell to below 15 in 2014 and to less than 10 last year. Neither Rodger nor Rystad’s Nysveen expect an upturn this year.

Project Approvals

Morgan Stanley estimates nine projects are in contention to get the green light this year, including BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Zohr gas field in Egypt. These are among 232 projects, excluding U.S. shale, awaiting approval following deferrals over the past two years, according to a Jan. 29 report.

Companies cut capital expenditure on oil and gas fields by 24% last year and will reduce that by another 17% in 2016, according to the International Energy Agency. That’s the first time since 1986 that spending will fall in two consecutive years, the agency said Feb. 22.

“We see oil investments are declining substantially,” IEA Executive Director Fatih Birol said in Berlin on March 17. “That we’ve never seen in the history of oil.”

Even after reducing costs for conventional projects by an average of about 15% last year, many still aren’t competitive, Wood Mackenzie’s Rodger said. Shell approved the Appomattox oil field in the Gulf of Mexico last year at a break-even oil price of $55/bbl, still above current market rates of $41.49/bbl at 6:19 a.m. in New York Tuesday.

“The industry has had a real reset, with costs coming down and break-even prices for projects falling,” said Brendan Warn, a managing director at BMO Capital Markets in London, said by phone. “But costs will have to come down further.”

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Why the global oil glut might not fill swimming pools after all

From @Bloomberg -- One of the warning lights that there’s too much oil around is no longer flashing, adding to signs that global crude markets are finally on the mend.

Just a month ago, oil traders were weighing up whether to park unwanted crude aboard tankers while BP CEO Bob Dudley joked that swimming pools might be needed to hold the excess. Yet instead of offering bumper profits, as in previous market gluts, stockpiling barrels on ships would result in a financial loss, just as it has done for the past six months, in a sign the current surplus may not be as big as feared.

Declining US oil production coupled with disruptions in OPEC members Iraq and Nigeria have helped revive crude to $40, leading the IEA to conclude that the worst of the rout is over. Contrary to expectations that tankers would be needed, onshore storage hasn’t been exhausted.

A crude trader would lose about $7.6 million if they wanted to park 2 MMbbl at sea for 6 months, more than double the loss they would have swallowed in February, according to data compiled by Bloomberg.

The losses from storage partly reflect that hiring a tanker has become more expensive amid robust demand for crude. Day rates on the industry’s benchmark route—to Japan from Saudi Arabia—advanced to $66,641. That’s about 30% more than a month earlier. In dollars-per-barrel terms, the cost of using the ships to store for 6 months advanced to $6.80 from $6.16 over the month.

Yet the economics also give an insight into the oil market itself. Storing crude at sea becomes profitable when the spread between the current price and longer-term ones, known as contango, is wide enough to cover the cost of hiring a tanker.

The gap between first and seven-month futures narrowed to $2.66/bbl on Monday, from $5.07/bbl on Jan. 29, not enough to cover the cost.

It’s a distinct shift from the market conditions prevalent a month ago. The biggest change is oil supply that’s been unexpectedly curbed. A pipeline linking the northern Iraq to the Mediterranean Sea halted in mid-February, while another from Nigeria was hit by sabotage.

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Total, CNPC sign strategic cooperation agreement in Beijing

BEIJING -- Patrick Pouyanné, chairman and CEO of Total, and Wang Yilin, chairman of China National Petroleum Company (CNPC), have signed a strategic cooperation agreement to extend existing collaboration between their respective companies.

In the past ten years, Total and CNPC have formed a number of partnerships involving major projects, such as Sulige gas field in Inner Mongolia, China, Halfaya in Iraq, Yamal LNG in Russia, Kashagan in Kazakhstan and Libra in Brazil. “This strategic cooperation agreement reflects our respective commitment to strengthening our partnership and jointly developing new projects,” Pouyanné said at the signing ceremony in Beijing. “In particular, Total will share with CNPC its expertise in the areas of safety and environment, human resources and social responsibility. The agreement further strengthens the existing partnership to support the international strategy of CNPC’s affiliate PetroChina.”

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Petrobras posts record loss on writedowns, slumping oil prices

 Brazil's state-controlled oil company Petróleo Brasileiro SA posted a record loss in the fourth quarter after booking a large writedown for oil fields and other assets as oil prices slumped.

Petrobras, as the company at the epicenter of Brazil's massive corruption scandal is commonly known, had a consolidated net loss of 36.9 billion reais ($10.2 billion) in the quarter, according to a securities filing.

The bigger-than-expected shortfall was 48 percent larger than the 26.6 billion-real loss a year earlier, the previous record.

The largest fourth-quarter loss expected in a Reuters survey of analysts was for a 9.7 billion reais.

Fourth-quarter writedowns were 46.4 billion reais, the filing said. A year earlier, writedowns were also the cause of Petrobras losses, although they were largely related to the giant price-fixing and bribery scandal that has roiled the company.

Net sales, or sales minus sales taxes, totaled 85.1 billion reais in the quarter and adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, were 17.1 billion reais.

The fourth quarter result pushed the company's full-year 2015 result to a 34.8 billion-real loss.

The losses were driven by a 42 percent drop in the price of crude oil LCOc1.

Petrobras common shares PBR.DG (PBR.N) fell 5.8 percent in after-hours electronic trading in New York.

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Report: $40B more energy debt could default this year

In 2016, oil and gas companies could default on an additional $40 billion in debt, according to Fuel Fix, citing a report by Fitch Ratings.

Approximately $6 billion of energy debt has already fallen into default this year, and Fitch Ratings expects energy companies to fall out of compliance on the terms of $9 billion worth of debt agreements over the next month. After that, an additional $40 billion could come in 2016. Fuel Fix noted that, throughout 2015, $17.5 billion in energy debt was in default.

The past three energy defaults have involved missed interest payments, Fitch said, adding that four more companies are expected to miss payments before the end of April. Those companies are Chaparral Energy, LINN Energy, Energy XXI, and Goodrich Petroleum.

LINN Energy has recently said that the company would miss interest payments on two loans, and that filing for Chapter 11 bankruptcy may be “unavoidable.” LINN has a large cash balance after drawing down its available credit, and the company has $1.8 billion in hedges that will ensure cash flow through 2016.

But the company is facing immediate demands on its cash and decreasing revenue. In addition to overdue interest payments, Linn is also expected to have its borrowing base cut by lenders in the coming months. Analysts from Fitch, Raymond James, and Standard and Poor’s all expect LINN to file for Chapter 11 in the coming months.

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WTI closes above $40 for first time since December

From @Bloomberg -- Oil surged above $40/bbl in New York for the first time since December as central banks from the U.S. to Norway signaled they will continue to provide economic stimulus to support demand.

The Bloomberg Dollar Spot Index fell a second day after the Federal Reserve scaled back expectations for the pace of interest-rate gains. A weaker dollar bolsters investor demand for commodities priced in the currency. U.S. crude output slid to the lowest level since November 2014 and supplies expanded by 1.32 MMbbl, the smallest gain in five weeks, according to an Energy Information Administration report on Wednesday. "It’s primarily a dollar story right now," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion. "The weak dollar is bullish for all commodities, especially oil." WTI has surged 54% from a 12-year low touched last month on speculation a global surplus will ease. American shale output is falling and some of the world’s biggest producers including Saudi Arabia and Russia are pledging not to raise their production.

WTI for April delivery rose $1.74, or 4.5%, to settle at $40.20/bbl on the New York Mercantile Exchange. It’s the highest settlement since Dec. 3. Total volume traded was 19% above the 100-day average at 2:44 p.m.

Brent for May settlement climbed $1.21, or 3%, to $41.54/bbl on the ICE Futures Europe exchange. Futures ended the session at the highest level since Dec. 4. The global benchmark crude closed at a 12-cent discount to May WTI. "Reaching $40 gets a lot of attention because it’s a nice round number," said Rob Haworth, an investment strategist in Seattle at US Bank Wealth Management, which oversees $128 billion of assets. "The $30 and $50 levels are more important in terms of investment decisions." The Fed’s Wednesday decision to set a higher bar for when it may raise rates again also bolstered U.S. equities, which erased their losses for the year. The S&P500 Oil & Gas Exploration and Production Index climbed as much as 2.8%.

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Mexico to proceed with auction round for shale fields

MEXICO CITY (Bloomberg) -- Mexico will hold a private bidding round for the nation’s shale oil fields this year in part to cater to continued interest from U.S. drillers eyeing expansion south of the border, according to Deputy Energy Minister Lourdes Melgar.

The country’s shale auction “will be this year,” Melgar said in an interview at the Foreign Affairs Mexico Energy Future Conference in New York. Mexico temporarily suspended plans for the country’s first-ever auction of its so-called unconventional oil and natural gas fields last year amid falling international crude prices.

“Companies working on the U.S. side of the border have expressed interest in working on other side of the border,” Melgar said. The interested parties are the "usual suspects" that are producing oil and natural gas in U.S. shale fields and are “mostly independent companies that have been very successful in shale development,” she said.

The decision to proceed with the sale of shale oil and gas fields adds an extra layer to Mexico’s auction plans this year, which also include a bidding round for 10 deepwater areas in the Gulf of Mexico scheduled for Dec. 5. The sales of onshore shale and deepwater fields will be the fourth and fifth oil auctions held by Mexico since the 2014 opening of the country to foreign energy investment, breaking Petroleos Mexicanos’ previous government-held crude production monopoly of more than seven decades.

Best practices

Mexico is still working to develop regulation that assures best practices and sustainability during hydraulic fracturing, where sand, water and chemicals may be pumped deep into wells to fracture shale. The regulation, which will be approved in the upcoming months, will also determine which areas have local support and the appropriate infrastructure and economics to accommodate possible shale development, Melgar said.

“Mexico is looking at ways to develop shale in a sustainable manner and take advantage of it as it has been done in the U.S.,” Melgar said. “With the fall in oil prices some of these areas aren’t as competitive right now, so we are taking advantage of the time we have right now to develop the regulation.”

Source: worldoil.com

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Oil investers see $7.4 billion vanish as dividends are targeted

NEW YORK (Bloomberg) -- The check is not in the mail.

Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors.

The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same.

It’s another painful measure--along with tens of thousands of layoffs and more than $100 billion in canceled investments--of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon.

“It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend," said Josh Peters, editor of Morningstar Inc.’s DividendInvestor newsletter. “What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent."

Kinder Morgan Inc.’s 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America’s largest pipeline operator “came as a shock to some people and obviously was deplored by some people," founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting.

The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.

“This is a direct result of investors’ appreciation of the significant efforts we’ve made to live within cash flow and strengthen our balance sheet," spokesman Dave Conover said in an email.

Dividend-slashers including ConocoPhillips ($2.42 billion in annualized cuts) and Anadarko Petroleum Corp. ($447 million) made similar arguments. They followed the lead of Marathon Oil Corp., Eni SpA, Chesapeake Energy Corp. and Transocean Ltd., who cut payouts in 2015 as the industry girded for what’s expected to be a multiyear slump.

Along with a dividend cut, ConocoPhillips also canceled plans to boost production and said it expects to write down the value of some fields by $800 million. “We believe it’s prudent to plan for lower prices for a longer period," CEO Ryan Lance said in a Feb. 4 statement.

European Payouts

In Europe, the downturn forced Repsol SA, Spain’s biggest oil company, to reduce payouts for the first time in seven years after reporting a net loss in the fourth quarter. Norway’s Statoil ASA kept its payout but proposed a scrip dividend last month, allowing shareholders to take their payment in shares instead of cash.

In Canada, Husky Energy Inc., Crescent Point Energy Corp. and Cenovus Energy Inc. also cut dividends. Husky switched from cash to a stock payment last year before completely eliminating the benefit for 2016.

“The Board will continue to review the dividend on a quarterly basis with the objective of restoring a sustainable dividend,” Kim Guttormson, a spokeswoman for Husky, said in an email.

Also paring dividends this year: U.S. drillers Cimarex Energy Co., Devon Energy Corp., Noble Energy Inc. and Range Resources Corp. and UK oil-services provider Amec Foster Wheeler Plc.

Bloomberg News calculated the cost to shareholders based on the number of periods companies will pay at the lower dividend rate in 2016, assuming no further changes. Repsol has only declared one payment so far this year.

Tough Decision

For smaller or newer drillers like a Cimarex or Range Resources, which each halved their dividend, the decision was probably easier, said Brian Youngberg, an Edward Jones & Co. analyst in St. Louis. With better growth pro

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Saudis said to join April’s oil freeze meeting in Doha

DOHA, Qatar (Bloomberg) -- Saudi Arabia will join a meeting of producers from within and outside OPEC in Doha next month, adding weight to the campaign by financially stricken crude exporters to freeze output and overcome the glut that’s weighing on the market.

Qatar’s oil minister said that countries would meet in the nation’s capital, Doha, on April 17, without providing details of who would attend. While the participation of Iran is seen as critical for the deal to be effective, the meeting may go ahead without the Persian Gulf nation, according to two delegates who asked not to be identified because the talks are private. Saudi Arabia will attend, according to a person with direct knowledge of the kingdom’s oil policy.

Prices have rallied more than 30% since a mid-February proposal by Saudi Arabia, Russia, Venezuela and Qatar to cap oil output and reduce a worldwide surplus that had seen prices slump to a 12-year low in January. The summit in April would seek commitments from a wider range of producers both within and outside the Organization of Petroleum Exporting Countries.

Kuwait was the first other OPEC member to confirm it would attend, according to an emailed statement from its oil minister. Russian Energy Minister Alexander Novak, speaking to reporters in Moscow, said that 15 countries have confirmed they’ll participate and that Iran is willing to join in. Novak and Saudi Oil Minister Ali al-Naimi planned to discuss the meeting on Wednesday by phone, one person said. Delegates from four OPEC members said they hadn’t yet received an invitation.

Latest Date

April 17 is the latest and firmest date in a series of suggested times for follow-up talks on the freeze. Nigerian Petroleum Minister Emmanuel Kachikwu said on March 3 that those talks would be held in Russia on March 20. The next day, Russian Energy Minister Novak told state television channel Rossiya 24 that a meeting could take place between March 20 and April 1 in Russia, Doha or Vienna.

The proposed freeze “put a floor under oil prices,” Qatari Oil Minister Mohammad Al-Sada said in an emailed statement on Wednesday. “To date, around 15 OPEC and non-OPEC producers, accounting for about 73% of global oil output, are supporting this initiative.”

Oil rallied after the Qatari statement, gaining 4.1% Wednesday to settle at $40.33/bbl in London.

Iran Increase

There are reasons to be doubtful that the planned freeze can radically alter an oil market that’s fallen victim to a global fight for market share, causing stockpiles to rise to a record. Most significantly, Iran is seeking to increase production after the end of economic sanctions and has said it won’t participate in any accord until its output has recovered.

Iran boosted output by 187,800 bopd to 3.13 MMbopd in February, the biggest monthly gain since 1997, OPEC said in a report on Monday.

Brazil will also add more than 100,000 barrels of supply this year and has shown little interest in taking part.

“We will now see if OPEC and Russia are able to freeze the bears in the oil market,” said Olivier Jakob, managing director at consultants Petromatrix GmbH. “The significance of the agreement is that it could remove the perception that OPEC is fighting for market share.”

Other forces have driven prices higher in recent weeks. Outages from Iraq and Nigeria have disrupted more than 800,000 bopd of supply and tightened the Brent market, according to Citigroup Inc. And falling drilling activity in the U.S. shale industry has seen analysts raise forecasts for declines in North American production.

One key question is how fast shale production could come back if OPEC and some non-OPEC producers succeed in driving prices higher.

Oil ministers for Argentina, Venezuela and Colombia didn’t immediately respond to questions on whether they would attend. Ecuador’s oil minister said he still plans to gather Latin American producers before the April 17, after a planned meeting earlier this month was postponed.

“It’s not surprising they’d be willing to agree to this because the outlook for a further production increase was quite limited,” Jeff Currie, global head of commodities research at Goldman Sachs Group Inc., said in an interview on Bloomberg Television. “You can’t operate a cartel the way you used to.”

Prices have rallied more than 30% since a mid-February proposal by Saudi Arabia, Russia, Venezuela and Qatar to cap oil output and reduce a worldwide surplus that had seen prices slump to a 12-year low in January. The summit in April would seek commitments from a wider range of producers both within and outside the Organization of Petroleum Exporting Countries.

Kuwait was the first other OPEC member to confirm it would attend, according to an emailed statement from its oil minister. Russian Energy Minister Alexander Novak, speaking to reporters in Moscow, said that 15 countries have confirmed they’ll participate and that Iran is willing to join in. Novak and Saudi Oil Minister Ali al-Naimi planned to discuss the meeting on Wednesday by phone, one person said. Delegates from four OPEC members said they hadn’t yet received an invitation.

LATEST DATE
April 17 is the latest and firmest date in a series of suggested times for follow-up talks on the freeze. Nigerian Petroleum Minister Emmanuel Kachikwu said on March 3 that those talks would be held in Russia on March 20. The next day, Russian Energy Minister Novak told state television channel Rossiya 24 that a meeting could take place between March 20 and April 1 in Russia, Doha or Vienna.

The proposed freeze “put a floor under oil prices,” Qatari Oil Minister Mohammad Al-Sada said in an emailed statement on Wednesday. “To date, around 15 OPEC and non-OPEC producers, accounting for about 73% of global oil output, are supporting this initiative.”

Oil rallied after the Qatari statement, gaining 4.1% Wednesday to settle at $40.33/bbl in London.

IRAN INCREASE
There are reasons to be doubtful that the planned freeze can radically alter an oil market that’s fallen victim to a global fight for market share, causing stockpiles to rise to a record. Most significantly, Iran is seeking to increase production after the end of economic sanctions and has said it won’t participate in any accord until its output has recovered.

Iran boosted output by 187,800 bopd to 3.13 MMbopd in February, the biggest monthly gain since 1997, OPEC said in a report on Monday.

Brazil will also add more than 100,000 barrels of supply this year and has shown little interest in taking part.

“We will now see if OPEC and Russia are able to freeze the bears in the oil market,” said Olivier Jakob, managing director at consultants Petromatrix GmbH. “The significance of the agreement is that it could remove the perception that OPEC is fighting for market share.”

Other forces have driven prices higher in recent weeks. Outages from Iraq and Nigeria have disrupted more than 800,000 bopd of supply and tightened the Brent market, according to Citigroup Inc. And falling drilling activity in the U.S. shale industry has seen analysts raise forecasts for declines in North American production.

One key question is how fast shale production could come back if OPEC and some non-OPEC producers succeed in driving prices higher.

Oil ministers for Argentina, Venezuela and Colombia didn’t immediately respond to questions on whether they would attend. Ecuador’s oil minister said he still plans to gather Latin American producers before the April 17, after a planned meeting earlier this month was postponed.

“It’s not surprising they’d be willing to agree to this because the outlook for a further production increase was quite limited,” Jeff Currie, global head of commodities research at Goldman Sachs Group Inc., said in an interview on Bloomberg Television. “You can’t operate a cartel the way you used to.”

Source: worldoil.com

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Oil holds gains on less-than-projected U.S. inventory rise

From @Bloomberg -- Oil maintained gains after a government report showed a smaller-than-anticipated U.S. crude inventory increase.

Crude inventories rose 1.32 MMbbl to 523.2 MMbbl last week, according to the Energy Information Administration. That kept supplies at the highest level since 1930. A 3.2 MMbbl supply gain was projected by analysts surveyed by Bloomberg. Supplies of gasoline and distillate fuel, a category that includes diesel and heating oil, slipped.

West Texas Intermediate for April delivery advanced 96 cents, or 2.6%, to $37.30/bbl at 10:34 a.m. on the New York Mercantile Exchange. The contract fell to $36.34 on Tuesday, the lowest settlement since March 4.

Brent for May settlement climbed $1.03, or 2.7%, to $39.77/bbl on the London-based ICE Futures Europe exchange.

Prices climbed earlier as some OPEC members planned to meet with other producers in April to resume talks on capping production. Members of the Organization of Petroleum Exporting Countries and some other producers plan to meet on April 17 in Doha to discuss a proposal to freeze output, according to Qatar’s energy minister.

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Assessment shows Liard basin among largest shale gas resources in the world

CALGARY -- The National Energy Board (NEB), the British Columbia Oil and Gas Commission, the Yukon Geological Survey, the Northwest Territories Geological Survey and the British Columbia Ministry of Natural Gas Development today released the first detailed study estimating the marketable unconventional natural gas resources in the Liard basin.

As changes in technology continue to enable industry to unlock new unconventional gas resources, a collaborative resource assessment reveals that the Liard basin spanning the boundaries of British Columbia, Yukon and Northwest Territories is one of the largest shale gas resources in the world and Canada's second largest known gas resource. There are already existing gas pipelines in the basin in all three jurisdictions because of conventional wells that have been producing for decades.

A resource assessment is an estimate of the amount of oil and/or natural gas found in a given reservoir, and how much can be produced using existing technology. Resource assessments are based on a number of parameters such as the geology of the reservoir and production from existing wells.

Quick Facts:

The Liard basin is expected to contain 219 Tcf of marketable, unconventional natural gas, making it Canada's second largest gas resource behind the Montney formation (449 Tcf) to the southeast in B.C. and Alberta.
Canada's total natural gas usage in 2014 was 3.2 Tcf, making the Liard basin unconventional gas resource equivalent to more than 68 years at Canada's 2014 consumption rate.
Canada has more than 850 Tcf of remaining, marketable gas in areas already served by major pipeline systems. This is the equivalent of 267 years of supply, based on Canada's 2014 consumption rate.

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If oil prices have hit bottom, the top may not be too far away

From @Bloomberg -- The top of the oil market may be closer than you think.

With Brent futures having bounced back to $40/bbl, the International Energy Agency sees “light at the end of the tunnel,” and Goldman Sachs is spotting “green shoots.” Even so, many analysts warn that, like the failed rally last year, this recovery will sputter once prices go high enough to keep US crude flowing. “If prices keep going up, US production from shale producers is extremely responsive,” Jamie Webster, of IHS Energy, said. “Falling U.S. production is the key dynamic you need to get supply to equal demand, and that might not actually happen,” meaning prices could fall again.

Brent futures have recovered about 40% from the 12-year low of $27.1 reached in January. With output outside OPEC set for its biggest slump since 1992, “prices might have bottomed out,” according to the IEA. Yet world crude benchmarks may struggle to push past $50/bbl this year as any further price recovery only delays the production cuts needed to balance the market, according to the median of a Bloomberg survey of 9 analysts.

While US crude production has retreated 5.5% since last summer, the process of depleting bloated inventories is just getting started, according to Goldman Sachs. The bank, which foresaw oil’s plunge into the $20s, predicts prices still need to stay low enough to starve producers of capital, otherwise the output losses necessary to remove the supply surplus won’t happen. “An early rally in prices before a deficit materializes would prove self-defeating,” Jeffrey Currie, head of commodities research at Goldman Sachs said.

The recovery “could throw a lifeline to US producers” that would “limit oil production declines,” said Giovanni Staunovo, an analyst at UBS.

The argument that $50 represents a ceiling for crude is flawed, according to Sanford Bernstein & Co which sees prices returning to $70 in the next year. The industry can’t stay profitable at current price levels, having lost $3 for each barrel produced last year even as companies squeezed costs, it said.

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Producers plan oil freeze meeting in Qatar in mid-April

DOHA, Qatar (Bloomberg) -- #Oilproducers from OPEC and beyond are finalizing a plan to discuss freezing output at a meeting in Qatar in mid-April, the latest move in a campaign by financially-stricken countries to shift the dynamics of an over-supplied crude market.

Qatar’s oil minister said that producers would meet in his capital on April 17. Delegates from three members of the Organization of Petroleum Exporting Countries said they hadn’t yet received an invitation and two people with knowledge of the matter said no date had been finalized. They asked not to be identified because the talks are private.

Saudi Oil Minister Ali al-Naimi and his Russia counterpart Alexander Novak, who represent the world’s largest #oilexporters, will discuss the meeting on Wednesday by phone, one person said.

#SaudiArabia, #Russia, #Venezuela and #Qatar in February proposed an accord to cap oil output and reduce a worldwide surplus. Crude prices extended gains after their initial meeting on Feb. 16 and have climbed about 40% since slumping to a 12-year low in January. Prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode global oversupply, the International Energy Agency said on March.

The proposed freeze “put a floor under the oil under the oil prices,” Qatari Oil Minister Mohammad Al-Sada said in an emailed statement today. “To date, around 15 #OPEC and non-OPEC producers, accounting for about 73% of global oil output, are supporting this initiative.” Oil rallied after the Qatari statement, rising as much 1.5% to $39.33/bbl in London.

Source: worldoil.com

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Western Gas closes Springfield acquisition

Western Gas Partners LP (NYSE: WES) has closed its acquisition of Springfield Pipeline LLC from Anadarko Petroleum Corp.
The $750 million purchase price and certain purchase price adjustments were funded through net proceeds from the issuance of $449 million in aggregate amount of 8.5% perpetual convertible preferred units to First Reserve Advisors LLC and Kayne Anderson Capital Advisors LP; the issuance of 1,253,761 and 835,841 WES common units to Anadarko and Western Gas Equity Partners LP (NYSE: WGP), respectively; and $247.5 million of borrowings on its revolving credit facility.
WGP funded its WES unit purchase by drawing on a secured revolving credit facility which also closed March 14.
Source: OGFJ

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Rosneft commences exploratory drilling offshore Vietnam

MOSCOW -- Rosneft Vietnam B.V., a company of Rosneft Group, has started drilling exploration well PLDD-1X at Block 06.1 located offshore Vietnam.

For the first time Rosneft is operating a drilling project, in International waters confirming the Company's competence and ability to implement technically complex drilling programs offshore.

The design depth of the well will be around 1,380 m, while the sea depth in the area is about 162 m. The expected recoverable reserves of natural gas in the PLDD geological structure are estimated at 12.6 Bcm, and 0.6 mt of gas condensate, which can be developed by subsea completion and tied-back to the existing Lan Tay platform operated by Rosneft in Block 6.1. The drilling will be performed using the HAKURYU-5 drilling rig owned and operated by Japan Drilling Co., Ltd (JDC). Rosneft announced the signing of agreement with JDC at the Eastern Economic Forum-2015.

Following PLDD, the company will drill another exploration well in Block 05.3/11 also in the Nam Con Son basin. Incorporating the two wells into the same program will ensure synergy between the two projects and help reduce the timelines for implementation of the works, thus maximizing the efficiency of exploration projects at the Company’s Vietnamese assets.

Rosneft Vietnam BV also plans to shoot broadband 3D seismic of its existing Block 6.1 operatorship later this year, to enhance ongoing production recovery and explore potential in deeper prospects.

Rosneft Chairman of the Management Board Igor Sechin said, "Rosneft team has already demonstrated their competence in Russia during the successful drilling of the world's northernmost well in the Kara Sea, which resulted in the discovery of a new deposit, the Pobeda field. Today, the Company starts a similar project as a drilling operator in international waters. I am sure that the experience gained in Vietnam will be used by the Company not only in its activity in the southern seas; these competences will find application in planning and implementation of upstream projects in remote areas. I would especially like to emphasize that this project is an example of advanced cooperation with the company's partners in the Asia-Pacific: Petrovietnam and ONGC. We appreciate not only the current progress of joint projects implementation in Vietnam, but also the future prospects for their development."

Source: worldoil.com

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Iran may join oil freeze after boosting output, Russia says

TEHRAN (Bloomberg) -- Iran may join other oil suppliers in freezing production after restoring its own output to levels before sanctions were imposed, Russian Energy Minister Alexander Novak said after meeting with the Persian Gulf nation’s oil minister.

Iran has “reasonable arguments” not to be constrained by the freeze for now, Novak told reporters Monday at the Russian embassy in Tehran. “Iran may join us in the freeze with time,” he said. “This is a normal, constructive position from our Iranian partners.”

Major oil producers are likely to meet in April to discuss a proposal to cap output at January levels in a bid to stabilize the market, Novak said, adding that he hopes Iran’s Oil Minister Bijan Zanganeh will participate. Qatar’s capital Doha is one option as a location for the talks, Novak said. “It is decided that a joint meeting of OPEC and non-OPEC producers will convene,” Zanganeh said, according to the Iranian Oil Ministry’s Shana news service, without saying if Iran will attend.

Iran is seeking to boost production by 1 MMbpd by June, the country’s Seda Weekly magazine reported, citing an interview with Amir Hossein Zamaninia, Iran’s deputy oil minister for commerce and international affairs. “The positions of Russia about Iran’s return as well as resumption of stability to the oil market were encouraging and very positive,” Zanganeh said, according to Shana.

Price Forecast

Saudi Arabia, Russia, Venezuela and Qatar in February proposed an accord to cap oil output and reduce a worldwide surplus. Crude prices extended gains after their initial meeting on Feb. 16 and have climbed more than 40% since slumping to a 12-year low in January. Prices may have passed their lowest point as shrinking supplies outside the Organization of Petroleum Exporting Countries and disruptions inside the group erode global oversupply, the International Energy Agency said March 11.

Oil will probably end the year at $45 to $50/bbl, Novak told reporters. Brent crude was trading down 2.6% at $39.35/bbl at 3:17 p.m. on Monday in London.

Iran pumped 3 MMbopd in February, data compiled by Bloomberg show. It plans to boost crude output to 4 MMbpd, the highest level since 2008, Zanganeh said, according to the Iranian Students News Agency on Monday.

Saudi Oil Minister Ali al-Naimi said last month in Houston that the process of devising a freeze agreement would continue with more discussions in March. Nigerian Petroleum Minister Emmanuel Kachikwu said two weeks later that talks would convene in Russia on March 20. Russia’s Novak told state television channel Rossiya 24 on March 4 that a meeting could take place between March 20 and April 1 in Russia, Doha or Vienna, where OPEC has its headquarters.

So far no countries have received invitations or an agenda for a meeting, said four OPEC delegates, who asked not to be identified because the matter isn’t public.

Source: worldoil.com

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The oil rally: life begins at $40

From @theeconomist -- A hint of bullishness has returned. The International Energy Agency said on Friday that crude prices “may have bottomed out”. Brent, the world standard, has breached $40 per barrel and West Texas Intermediate, the American benchmark, is close to it. Today OPEC’s report for February may help too, if it shows that Saudi Arabia and Russia honoured their agreement to freeze output at January’s (record) levels, and Iran’s post-sanctions exports are less aggressive than expected. But the bulls’ case is unconvincing. Other producers are in disarray over when and where to meet to discuss further output curbs. Iran’s first shipment to Europe arrived last week and its officials say exports will rise sharply by May. Global demand remains anaemic and stocks are at record highs. Moreover, the urgency to cut production is less than it was at $30. Expect more turbulence.

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Shell and partners begin oil production from Phase 3 of deepwater Parque das Conchas project

Shell and its joint venture partners have begun #oilproduction from the third phase of the deepwater #ParquedasConchas (BC-10) development in Brazil's #CamposBasin.
Production for this final phase of the project is expected to add up to 20,000 barrels of oil equivalent per day (boe/d), at peak production, from fields that have already produced more than 100 million barrels since 2009.
Operated by @Shell (50%) and owned together with ONGC (27%) and QPI (23%), Parque das Conchas Phase 3 comprises five producing wells in two Campos Basin fields (Massa and O-South) and two water-injection wells. The subsea wells sit in water depths greater than 5,900 feet (1,800 meters) and connect to a floating production, storage, and offloading (FPSO) vessel, the Espirito Santo, located more than 90 miles (150 kilometers) #offshore #Brazil.

Source: OGFJ

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Another False Oil Price Rally: Crossing A Boundary.

From Art Berman at @Forbes -- The oil-price rally that began in mid-February will almost certainly collapse. It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long. WTI prices have increased 47%  over the past 20 days from $26.2 in mid-February to $38.5 last week. A year ago, WTI rose 41% in 35 days from $43 to almost $61. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 in late August. Much lower bottoms would be found after that all the way to $26 at the beginning of the present rally. Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average. Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing. International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are US (1.35 billion barrels of liquids). For 2015, US liquids consumption shows a negative correlation with crude oil storage volumes. During the 2015 false price rally, consumption began to increase in April and May following the lowest WTI oil prices since March 2009–response lags cause often by several months. Q12015 prices averaged $47.54 compared to an average price of more than $99 from November 2010 through September 2014. This coincided with the onset of declining U.S. crude oil production after April 2015. Net withdrawals from storage continued until consumption fell in July in response to higher oil prices that climbed to $60 in June. Production increased because of higher prices from July through November before resuming its decline after prices fell again, this time, far below previous lows. This sequence of responses shows how sensitive the current market is to small changes.

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