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In line with its agreement with OPEC to reverse part of the cuts, Russia is boosting its crude oil production, pumping as much as 11.193 million bpd in the first four days of July, up from 11.06 million bpd in June, Reuters reported on Thursday, quoting a source familiar with the data.

Last month, Russia and OPEC’s largest producer and de facto leader Saudi Arabia managed to get OPEC and their Moscow-led non-OPEC allies to agree to boost production by unspecified quotas for individual countries part of the pact, to ‘ease market and consumer anxiety’ over the high oil prices. According to Russian Energy Minister Alexander Novak, Russia’s share of the 1-million-bpd total OPEC/non-OPEC increase could be around 200,000 bpd.

Before the decision to reverse some of the cuts—or as OPEC and allies put it, to stick to 100-percent compliance rates—Russia’s pledge in the pact was to cut 300,000 bpd of its oil production from the October 2016 level, which was the country’s highest monthly production in almost 30 years—11.247 million bpd.

Even before the OPEC and friends meeting, Russia had already started boosting its oil production, and had pumped as much as 11.09 million bpd in the first week of June—143,000 bpd above the country’s then-quota under the OPEC+ production cut deal.

Just before the meeting, all signs were pointing to Russia gearing up for a jump in its oil production, with plans for exports and refinery runs in the coming months indicating that Moscow was preparing to increase its oil production as early as this month.

Earlier this week, Russia’s Novak and his Saudi counterpart Khalid al-Falih discussed the latest developments on the oil market and exchanged information about their countries’ plans for production to meet summer demand, Russia’s energy ministry said in a statement. The decision to ease the combined OPEC/non-OPEC compliance rate from 147 percent in May 2018 to 100 percent starting July 1 equates to adding around 1 million bpd on the market, the statement said.

Oil Demand Growth Could Start To Soften Soon

June 18, 2018

Oil Demand Growth Could Start To Soften Soon

OPEC may tout the production cuts pact as the key driver of oil market rebalancing, but if it weren’t for the strong global oil demand growth of the past three years, we wouldn’t have seen international agencies calling the end of the oil glut.

Demand was strong because the lower-for-longer oil prices between 2015 and 2017 stimulated consumption growth in both mature OECD economies like the United States and most of Western Europe, and in emerging non-OECD markets—China and India in particular.

All oil importing nations benefited from the lower oil prices, but while demand growth in India and China is largely driven by economic expansion and industrial activity, in OECD economies demand is more closely linked with large and sustained changes in oil prices. The 70-percent rally in oil prices since the middle of last year is expected to moderate growth in the more price-sensitive OECD economies, Reuters market analyst John Kemp argues.

Oil demand will continue to increase, largely driven by non-OECD markets like China and India, but the higher oil prices could slacken the pace of the OECD demand growth that could curb global oil demand growth.

Last year, oil demand grew by 1.7 million bpd—similar to the 2016 growth and well above the 10-year average of some 1.1 million bpd, BP said in its BP Statistical Review of World Energy 2018 published this week.

“Not surprisingly, oil demand in 2017 continued to be driven by oil importers benefitting from the windfall of low prices, with both Europe (0.3 Mb/d) and the US (0.2 Mb/d) posting notable increases, compared with average declines over the previous 10 years,” BP noted.

Growth in non-OECD China—500,000 bpd—was closer to its 10-year average, according to the review.

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Europe Is Awash With Oil Stored On Ships

June 14, 2018

Europe Is Awash With Oil Stored On Ships

While many analysts and agencies have already called the end of the global oil glut, oil held in floating storage in Europe is at an at least 18-month-high, also due to the booming U.S. oil exports that have displaced some of the traditional crude oil routes in the world.

Oil in ships around European shores was 12.9 million barrels on average in May, accounting for 26 percent of all global floating storage, and more than Asia-Pacific’s 9.7 million barrels of oil stored, according to estimates by oil analytics company Vortexa, as carried by Reuters.

In the two preceding months, March and April, the share of oil in floating storage in Europe accounted for 10 percent of the global storage, compared to 40 percent stored in the Asia-Pacific region. But in May, the volumes of oil held in Europe—including in the Mediterranean—exceeded the oil held off the Asia Pacific coasts for the first time since at least early 2015, according to Vortexa.

Consultant Kpler has estimated that there are some 17 million barrels of oil stored on ships in northwest Europe—the highest since at least the beginning of 2016.

Soaring U.S. exports have upended some traditional buying patterns, as China, India, and Indonesia have purchased more U.S. crude at the expense of African crude grades from OPEC members Nigeria and Angola, and of some Middle Eastern crudes.

On the other hand, U.S. crude oil exports to Europe have also been rising lately, as U.S. oil is increasing in popularity with European refiners, often at the expense of oil cargoes from OPEC nations and Russia.

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Canada Bets On Trans Mountain Expansion To Sell Oil In Asia

June 11, 2018

Canada Bets On Trans Mountain Expansion To Sell Oil In Asia

Canada may be the fourth largest producer and third largest exporter of oil in the world, but it has one sole customer of its oil—the United States.

At the end of last month, Canada took a step toward ensuring that its oil would have an export outlet to the world’s fastest-growing energy market, Asia.

Analysts believe that the federal government stepping in to save the Trans Mountain expansion project has boosted the chances that the pipeline will be built and give Canada an export outlet from the Pacific Coast to the Asian markets. The industry is cautiously optimistic, but some companies say that Canada must do more to level the playing field for its oil.

Last year, Canada’s crude oil exports increased by 6.5 percent annually to 3.3 million bpd. Of those, exports to destinations other than the U.S. accounted for just 0.8 percent of all, according to data by the National Energy Board (NEB).

Due to congested takeaway capacity and lack of enough pipelines to either the Pacific or the Atlantic Coasts, Canada’s oil is currently priced at a huge discount to the U.S. benchmark. The discount at which Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—trades relative to West Texas Intermediate (WTI) has been US$20, and at times US$30 a barrel this year.

Fierce opposition in British Columbia has forced Kinder Morgan to reconsider its commitment to expand the Trans Mountain pipeline that would increase the daily capacity of the pipeline to 890,000 bpd from 300,000 bpd. So the Government of Canada reached an agreement with Kinder Morgan last month to buy the Trans Mountain Expansion Project and related pipeline and terminal assets for US$3.5 billion (C$4.5 billion).

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OPEC And Russia Prepare For Long-Term Control Over Oil Market

June 3, 2018

OPEC And Russia Prepare For Long-Term Control Over Oil Market

In a tight oil market reacting with price gains to concerns about supply shortages, the leaders of the OPEC and non-OPEC nations part of the production cut deal—Saudi Arabia and Russia—hinted last week that easing the cuts was an option that they had discussed and that would be up for talks at the OPEC and allies’ meeting in less than a month.

Oil prices plunged from three-and-a-half-year highs on reports that the Saudis and Russia may add as much as 1 million bpd of supply to offset crumbling Venezuelan production and possible loss of Iranian oil exports with the return of the U.S. sanctions.

Many analysts don’t think the group would add the reported 1 million bpd of supply, but the oil market lapped up the news and concerns about a return to oversupply have dominated the OPEC chatter news flow for nearly a week. As the June 22 meeting is drawing closer, oil prices will likely react to any new hint, comment, or report about OPEC’s efforts to “address consumer anxiety over security of oil supplies.”

The latest of those reports says that OPEC and non-OPEC are set to stick to the production cuts through the end of 2018, but will be ready to “adjust” supply to address possible shortages.

The group of producers part of the pact “is not ready yet to fully lift controls,” a Gulf source familiar with the Saudi thinking has told Reuters, adding that “it is going to be a long-term cooperation for the sake of a stable oil market.”

“However, if any shortage takes place, the producers will coordinate closely and promptly take necessary actions. The OPEC and non-OPEC agreement will remain in place. But the level of the cut may be adjusted if a physical shortage arises,” the source told Reuters.

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Reuters: OPEC Production Falls To 13-Month Low

June 1, 2018

Reuters: OPEC Production Falls To 13-Month Low

OPEC’s oil production dropped in May by 70,000 bpd to 32.00 million bpd on the back of outages in Nigeria and a continuous decline in Venezuela that dragged the cartel’s total production to the lowest level since April 2017, according to the monthly Reuters survey.

The largest fall in production was registered in Nigeria, according to the survey based on shipping data from external sources, Thomson Reuters flows data, and information provided by sources at OPEC and oil and consulting firms.

Nigeria’s production dropped to 1.85 million bpd in May from 1.94 million bpd in April, the Reuters survey found. Nigeria has been struggling with unplanned shutdowns of pipeline flows this month, and loading of the Forcados grade is being delayed.

The second-largest fall in May came from Venezuela, whose production declined to 1.45 million bpd from 1.50 million bpd, compared to the implied target of 1.972 million bpd, which means that Venezuela’s involuntary “cut” in May was 617,000 bpd—more than the cut pledged and achieved by OPEC’s biggest producer Saudi Arabia.

Saudi Arabia, for its part, as well as the second-largest producer in the cartel, Iraq, slightly raised their production in May over April. Saudi Arabia stayed within its quota and its production inched up to 10.00 million bpd because more crude oil was consumed domestically by power plants, according to sources in the Reuters survey.

Iraq produced more because it increased exports from its southern ports, following a drop last month.

According to the latest available figures by OPEC’s secondary sources—the ones that OPEC uses to measure quotas and compliance with the deal, OPEC’s production in April increased by 12,000 bpd over March, to average 31.93 million bpd, as Saudi Arabia boosted its production by 46,500 bpd.

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Farmers Reeling From High Oil Prices

May 22, 2018

Farmers Reeling From High Oil Prices

As the summer driving season approaches, drivers are already paying more for gasoline due to the oil price rally in recent months.

But higher oil prices affect not only the gasoline bills of retail consumers. The higher price of oil is also pushing up diesel fuel prices as the harvesting and planting seasons for various crops are already in full swing.

Farmers in the United States and around the world see their diesel fuel expenses jumping and eating into their profits that have been already constrained by depressed prices of some crops.

Ultra-low sulfur diesel is used for farming equipment and for transportation of crops, and the May price of that diesel is the highest it’s been since 2014, just before the collapse of crude oil prices.

“You just kind of all of a sudden realize, ‘Wow, it’s pretty high,’” farmer Glenn Brunkow from Wamego, Kansas, tells Reuters.

For next year, Brunkow is considering locking in diesel prices for the first time ever to save on future rises in diesel fuel prices.

This year, farmers are struggling with higher fuel costs as a result of the advance in crude oil prices in recent months.

In the U.S., where America’s farms output contributed US$136.7 billion—or about 1 percent of GDP—to the economy in 2016, total production expenses this year are expected to be flat on 2017, but spending on fuel and oils is expected to jump 10.2 percent, forecasts by the United States Department of Agriculture (USDA) show.

Spending on fuels and oils, which accounts for nearly 5 percent of cash expenses, is expected to increase by 10.2 percent, or by US$1.4 billion, on top of a 13.9-percent, or US$1.7 billion, increase for 2017.

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Erdogan: Cyprus Oil Drilling Is A Security Threat To East Mediterranean

May 15, 2018

Erdogan: Cyprus Oil Drilling Is A Security Threat To East Mediterranean

The Eastern Mediterranean will face a security threat should Cyprus continue its unilateral operations of offshore oil and gas exploration in the region, Turkey’s President Recep Tayyip Erdo?an said in a speech at think tank Chatham House in London on Monday.

Turkey, which recognizes the northern Turkish Cypriot government and doesn’t have diplomatic relations with the internationally recognized government of Cyprus, claims that part of the Cyprus offshore area is under the jurisdiction of Turkish Cypriots or Turkey.

Tensions in the area flared up earlier this year, after Turkish Navy vessels threatened in February to sink a drilling ship that oil major Eni had hired to explore for oil and gas offshore Cyprus—the divided island whose northern part is run by Turkish Cypriots and is recognized only by Turkey.

Weeks before that, Turkey’s Navy had blocked the drilling vessel that Eni had hired. Eni’s chief executive Claudio Descalzi had said that the row is a diplomatic one and out of the company’s control. Descalzi said that Eni would probably move the blocked drilling ship, but would not pull out of its project in Cyprus.

While the internationally recognized Republic of Cyprus said that its “goal is to fully explore Cyprus’s hydrocarbon potential,” Turkey claims that the drilling operations are ‘unilateral’ and claims that part of the exclusive economic zone of Cyprus is under Turkish jurisdiction.

Meanwhile, just last week, Turkish Energy and Natural Resources Minister Berat Albayrak said that Turkey would begin its first solo oil and gas deepwater drilling in the Mediterranean before the end of this summer.

Turkey has strongly opposed what it describes as “unilateral” drilling offshore the internationally recognized Republic of Cyprus, and Turkish Cypriots argue that the offshore oil and gas resources of the island should be exploited jointly to ensure equal rights for both parties.

Skeptic Geologist Warns: Permian’s Best Years Are Behind Us

May 14, 2018

Skeptic Geologist Warns: Permian’s Best Years Are Behind Us

Geologist Arthur Berman, who has been skeptical about the shale boom, warned on Thursday that the Permian’s best years are gone and that the most productive U.S. shale play has just seven years of proven oil reserves left.

“The best years are behind us,” Bloomberg quoted Berman as saying at the Texas Energy Council’s annual gathering in Dallas.

The Eagle Ford is not looking good, either, according to Berman, who is now working as an industry consultant, and whose pessimistic outlook is based on analyses of data about reserves and production from more than a dozen prominent U.S. shale companies.

“The growth is done,” he said at the gathering.

Those who think that the U.S. shale production could add significant crude oil supply to the global market are in for a disappointment, according to Berman.

“The reserves are respectable but they ain’t great and ain’t going to save the world,” Bloomberg quoted Berman as saying.

Yet, Berman has not sold the EOG Resources stock that he has inherited from his father “because they’re a pretty good company.”

The short-term drilling productivity outlook by the EIA estimates that the Permian’s oil production hit 3.110 million bpd in April, and will rise by 73,000 bpd to 3.183 million bpd in May.

Earlier this week, the EIA raised its forecast for total U.S. production this year and next. In the latest Short-Term Energy Outlook (STEO), the EIA said that it expects U.S. crude oil production to average 10.7 million bpd in 2018, up from 9.4 million bpd in 2017, and to average 11.9 million bpd in 2019, which is 400,000 bpd higher than forecast in the April STEO. In the current outlook, the EIA forecasts U.S. crude oil production will end 2019 at more than 12 million bpd.

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Ex-Venezuela Oil Boss: PDVSA Is Collapsing

May 7, 2018

Ex-Venezuela Oil Boss: PDVSA Is Collapsing

The man who ran Venezuela’s state oil company PDVSA for a decade after 2004 says that the country’s oil firm is on the cusp of total collapse and expects oil production to drop by 600,000 bpd each year amid lack of investment.

Rafael Ramirez, who has long been a rival of Venezuela’s incumbent leader Nicolas Maduro within Hugo Chavez’s inner circle, told Bloomberg in a phone interview that “PDVSA may fall into an accelerated spiral downward.”

According to OPEC’s secondary sources, Venezuela’s oil production averaged 2.154 million bpd in 2016 and 1.916 million bpd in 2017. In March 2018, its production plunged to 1.488 million bpd.

Ramirez became oil minister in 2002 and then head of PDVSA in 2004. During his ten-year tenure at the company, Venezuela’s production dropped by 10 percent. Since Ramirez left PDVSA, oil production has lost another 30 percent, with the steepest drops occurring over the past two years amid total economic collapse and lack of investment.

At the end of last year, Venezuela said that it would launch a criminal investigation into Ramirez over alleged corruption in a wider graft probe that ended with dozens of oil executives arrested.

Ramirez is currently in a self-imposed exile in a European city.

Some analysts saw the corruption purge at the end of 2017 as politically motivated with Maduro getting rid of opponents and tightening his grip over the oil industry—Venezuela’s only foreign exchange income source. Maduro also named a National Guard major general—Manuel Quevedo—as the new head of PDVSA and the country’s oil ministry. Quevedo’s lack of any oil industry experience further worried analysts that mismanagement would continue and even increase.

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Eight Geopolitical Risks That Could Send Oil Prices Surging

May 4, 2018

Eight Geopolitical Risks That Could Send Oil Prices Surging

The geopolitical risk premium has taken center stage as one of the key drivers of oil prices in recent months, often trumping fundamentals to send prices soaring on concerns about where the next sudden oil supply disruption would come from.

In recent weeks, a perfect storm of nearly erased global oil glut and simmering—and at times flaring—tensions in the Middle East and the worst production loss without an armed conflict (Venezuela) have supported oil prices and boosted them to levels last seen in November 2014.

In the coming weeks and months, geopolitical risks could further boost oil prices in a market that hasn’t been this tight in years. The main risks to oil supply could come from the Middle East, North Africa, and Venezuela.

S&P Global Platts has summed up the key flashpoints around the world that could lead to oil supply disruptions, potentially further boosting oil prices.

Iran

OPEC’s third-largest producer Iran—which pumps 3.8 million bpd as per OPEC’s secondary sources—could be the most immediate threat to supply.

U.S. President Donald Trump has until May 12 to decide whether to waive the sanctions against Tehran as part of the nuclear deal that global powers signed with Iran. Analysts think that the possibility of President Trump not waiving the sanctions is high, but they diverge wildly as to how a no-waiver would impact Iran’s oil exports and global oil prices. Estimates vary from a zero to one million bpd loss of supply out of Iran, and a premium to oil prices of between $2 and $10. Iran’s top oil customers are China, India, and South Korea.

Yemen

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What Is A ‘Fair’ Price For Oil?

April 24, 2018

What Is A ‘Fair’ Price For Oil?

Last week, oil prices hit their highest level since late 2014 on the back of continued global and U.S. stockpile drawdowns and expectations that oil demand growth will stay strong this year.

Analysts and officials are once again trying to predict what a ‘fair’ price for oil is – a prediction that must take into account the summer driving season, the possibility of new sanctions on Iran, elections in Venezuela and Iraq, continuous OPEC chatter about “mission accomplished or not”, and reports of OPEC kingpin Saudi Arabia aiming for oil prices of $80 to $100 a barrel.

Some analysts and officials believe that oil prices could hit $80 this year, although such a price would probably be due to the geopolitical risk premium rather than market fundamentals.

Even if oil prices were to rise to $80, such an increase would be short-lived, and would be mostly fueled by fears of a supply disruption, especially in the Middle East with possible new sanctions on Iranian oil and with tenser situations in and around Syria and Yemen. Then there’s Venezuela, with its oil production plummeting and elections expected to be held in May—and if the U.S. were to slap further sanctions on Venezuela, such as on its oil industry, it would be yet another wild card for oil prices later this year.

Yet, around $75 oil is as good as it’s going to get in the short term, according to some investment banks and oil officials. No one is predicting oil at $100 yet.

“I think $65 to $75 is more realistic numbers for the rest of the year, but there are so many factors that can change that,” Mohammed bin Hamad Al Rumhi, the oil minister of non-OPEC participant in the production cut deal, Oman, told CNBC.

“In my opinion, where we are is not too bad and we can live with it. That’s $65 to $75, give or take, for the foreseeable future,” said the minister.

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IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

April 15, 2018

IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

OPEC is very close to achieving its mission to draw oil inventories down to their five-year average, but the ongoing U.S.-China trade spat is a risk to oil demand growth expectations this year, the International Energy Agency (IEA) said in its Oil Market Report on Friday.

The Paris-based agency kept its global oil demand growth estimate unchanged from last month’s report—at 1.5 million bpd for this year.

“However, there is an element of risk to this outlook from the current tension on trade tariffs between China and the US,” the IEA noted.

The trade dispute is “introducing a downward risk to the forecast,” said the agency which sees oil demand growth possibly dropping by around 690,000 bpd if global economic growth were reduced by 1 percent on the back of widespread increase in trade tariffs.

“Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use,” said the IEA.

On the supply side, the agency continues to expect non-OPEC growth unchanged at 1.8 million bpd, with the U.S. production growth also unchanged from the previous report, at 1.3 million bpd year on year. Yet, there is concern about takeaway bottlenecks in Midland, Texas and in Canada, and those could widen the discounts of local grades to the international benchmarks, according to the IEA.

OECD commercial stocks—OPEC’s current measure of the success of its production cut deal—dropped by 26 million barrels in February and were just 30 million barrels above the five-year average at end-February.

“The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit,” the IEA said.

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Has The World Started To Kick Its Oil Addiction?

April 9, 2018

Has The World Started To Kick Its Oil Addiction?

Until a decade ago, most of the world was a captive customer of oil—consumers would pay any price for gasoline and oil demand was soaring regardless of the surging oil prices.

But recently, many countries around the world have started to show more sensitivity to oil prices—oil demand grows as their economies grow, but oil demand is also more susceptible to oil price swings, with the oil price-consumption correlation behaving more like an everyday product, according to data by Washington-based ClearView Energy Partners and research by Bloomberg Gadfly columnist Liam Denning.

Although it’s at least a decade or more too early to call the end of the world’s oil addiction, the research and data suggest that in a growing number of large oil-consuming economies oil demand now correlates negatively with oil prices. In other words, consumption drops when prices rise and vice versa—a common economic concept applicable to almost every other product on the market.

With oil, this has not always been the case.

ClearView Energy and Denning analyzed data for three 10-year periods ending in 2006, 2011, and 2016, respectively.

During the first 10-year period until 2006, countries comprising four-fifths of oil demand, including the United States, India, China, and Russia, showed a positive correlation between oil demand and their gross domestic product (GDP) and between demand and oil prices. In the decade before the financial crisis in 2007-2008, oil demand soared almost everywhere in the world, despite the fact that oil prices were also rallying. This was the period of Chinese industrialization and construction boom which gobbled up oil at any price. In most of the world, the picture was the same—oil demand rose together with rising economies and with rising oil prices, suggesting that those countries were captive customers of oil.

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Europe’s Biggest Gas Field To Close Over Quake Risk

April 2, 2018

Europe’s Biggest Gas Field To Close Over Quake Risk

Europe’s biggest gas field–Groningen in the north of the Netherlands–has been pumping gas for more than half a century and supplies gas to 98 percent of the Dutch population. But the field has been causing earthquakes that have become a growing concern for residents and authorities.

After years of debates and measures to curb production at the field, the Dutch government decided this week that output at Groningen will be terminated by 2030, with a reduction by two-thirds until 2021-2022 and another cut after that. The authorities have already limited production from the field because of the earthquakes, but now they have decided that the risks and costs are no longer acceptable.

“Safety perception as well as actual safety can only be guaranteed for the near future in Groningen by fully eliminating the source of the earthquake risk. The Dutch Cabinet, therefore, is taking measures for natural gas extraction from this gas field to be reduced to zero, as soon as possible,” the government said, noting that the consequences of natural gas extraction “are no longer socially acceptable.”

“According to Cabinet, ongoing natural gas extraction, combined with massive financial compensation and restoration and reinforcement operations, form an untenable situation,” the Dutch ministers say.

To cope with the new reality of natural gas supply and demand in the country with reduced Groningen gas production and ultimately without Groningen gas at all, the Netherlands is building a nitrogen plant near Zuidbroek that will convert natural gas of a high caloric value into low-calorie natural gas and that will cost US$615 million (500 million euro).

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