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Moody’s Pegs Venezuela in “Deeper Phase” Of Financial Insolvency

Moody’s Pegs Venezuela in “Deeper Phase” Of Financial Insolvency

Venezuela

Venezuela is now in a “deeper phase of economic stress,” Moody’s Investor Service said on Wednesday, according to The Oil and Gas Journal.

Falling oil production and tough economic sanctions have increased pressures on the nation’s financial capacity. Mismanagement and underinvestment in the country’s oil and gas industry is causing defunct facilities to produce low quality oil that does not meet the requirements of its usual buyers.

Moody’s sees “a negative feedback loop between declining production across all economic sectors, accelerating scarcity of hard currency, and an economic policy mix defined by price controls and forced discounting that exacerbate supply shortages and hyperinflation.”

Venezuela’s production is falling faster that high barrel prices can fill the revenue gap, the credit rating agency added.

“The fall in production will only exacerbate cash-flow stress,” Moody’s research note reads. “While oil prices have rallied in recent months, the decline in oil production will more than offset the would-be increase in dollar inflows from oil exports. This has negative implications for both debt repayment capacity and Venezuela’s already grim economic outlook.”

Hyperinflation will continue at the 4000 percent level through 2018 due to the financial deterioration.

President Nicolas Maduro is still intent on milking the digital currency fad to help alleviate the cash shortage and circumvent U.S. sanctions. After proposing an oil-backed national cryptocurrency called the petro, Maduro is now calling for an OPEC-wide one that would also include other large producers.

Speaking to media in Caracas after a meeting with OPEC’s secretary-general Mohammed Barkindo, Maduro said earlier this week, “I will make an official proposal to all OPEC members and non-OPEC states to work out a joint cryptocurrency mechanism backed by oil.”

Some 5 billion barrels of crude have been set aside to back the petro, which would be priced at $60 a piece, Russian Sputnik reports, adding that the first batch of petros to be sold will be of 100 million coins. The price per coin is tied to the price of Venezuelan crude.

Russia To Discuss Possible Exit From OPEC Deal

Russia To Discuss Possible Exit From OPEC Deal

Russia

Russia may be on its way out of the OPEC output reduction deal, according to the country’s Energy Minister, Alexander Novak.

Reuters reports that Novak might discuss the country’s potential exit from the pact in Oman next week. Russia had vowed to cut output by 300,000 barrels per day under the agreement as part of a group of non-OPEC producers who elected to coordinate the bloc’s market stabilization initiative.

“We see that the market is becoming balanced. We see that the market surplus is decreasing, but the market is not completely balanced yet and, of course, we need to continue monitoring the situation,” Novak said.  Russian oil majors have been complaining about the deal and how it is creating stumbling blocks on the road towards the industry’s expansion plans.

Brent barrel prices are currently approaching $70 a barrel, suggesting crude markets are rebalancing as we approach June, when the deal is set for “review” – a process with little description in the full text of the OPEC deal’s renewal, which was agreed upon in November.

As far as OPEC members are concerned, the deal could carry on beyond the end of 2018. Speaking to CNBC, the United Arab Emirates’ energy minister, Suhail al-Mazrouei said: “I am expecting that this group of countries that stood and have become responsible for helping the market to correct, (that) there is a very good chance that they could stick together and put a shape around that alliance.”

His statement comes amid a variety of scenarios on how the deal might come to an end, featuring civil unrest in Venezuela and Iran that may lead to supply disruptions; Russia pulling out of the pact in June; OPEC members and other parties to the deal starting—or continuing—to cheat; and oil prices rising too high.

Is The EIA Overestimating The U.S. Shale Boom?

Is The EIA Overestimating The U.S. Shale Boom?

Permian

The American shale boom may be overstated by the U.S. Energy Department, according to a new MIT study that suggests the agency may be over-attributing a rise in shale drilling to technological advances.

“The EIA is assuming that productivity of individual wells will continue to rise as a result of improvements in technology,” MIT researcher Justin B. Montgomery told World Oil. “This compounds year after year, like interest, so the further out in the future the wells are drilled, the more that they are being overestimated.”

Instead, lukewarm oil prices have forced oil majors to drill only in easy-to-access areas, located mostly in the Eagle Ford and Permian basins in Texas, and the Bakken formation in North Dakota. This has led to an exaggerated increase in the number of active wells, and a hyperbolized narrative of growth in the shale industry, the study says.

“The same forecasting methods are used in other plays in the U.S., and the same dynamic is likely to be present,” Montgomery added.

Margaret Coleman, the Energy Information Administration’s chief of oil, gas and biofuels exploration and production analysis, said the “study raised valid points” and offered insights for more accurate analysis of domestic fossil fuel forecasting. Part of the blame can be attributed to an information gap in data available to the EIA team, she added.

Many shale wells lack key pieces of data tracked down by the MIT team, meaning EIA projections over-emphasized geological and capital assumptions as well as technological developments to estimate the shale industry’s growth. Of course, there have been some advances in drill head technology, mapping software, and hydraulic fracking, but that is just one part of the puzzle.

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The 10 Most Influential Oil Countries

The 10 Most Influential Oil Countries

Barrels

The world’s top oil exporters are undoubtedly some of the world’s most influential countries. As such, it behooves analysts to always stay abreast of the internal dynamics of these economic power houses. Here’s what’s going on in the countries that have the power to make or break the oil market.

1. Saudi Arabia

As the world’s leading oil exporter, Saudi Arabia shipped 7.5 million barrels per day in 2016, according to data published by the Organization of Petroleum Exporting Countries (OPEC). As far as oil exports go, the Kingdom is top of the pile, despite the OPEC agreement that cut 486,000 barrels per day off its production level of 10.5 million bpd. The Kingdom holds a lot of clout in the oil market, and as such, plays a leading role in the industry cartel, which is currently implementing a 1.2 million-barrel per day production cut to rebalance a three-year supply glut plaguing oil markets.

Despite its reigning supreme in the oil export arena, not all is well in the royal palace. Mohammed bin Salman (MBS), the newly crowned heir to the throne, started the month off with a series of shocking arrests of powerful royals and businessmen in a domestic power consolidation marketed in official outlets as an anti-corruption drive.

The unity of the Saud family has been a hallmark of the nation since the establishment of the Third Saudi State back in 1902. Infighting in the palace could cause the nation to fall back into contentious politics at a time when it needs to chart its course towards economic diversification, as outlined in MBS’s Vision 2030—a plan that may move Saudi Arabia away from oil, unseating it from its top spot on the list.

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U.S. Grid Narrowly Escapes Apocalyptic Attack

U.S. Grid Narrowly Escapes Apocalyptic Attack

Power

The American grid security story grows increasingly grim. Last week, security consulting firm Symantec warned that recent cyberattacks gave hackers direct access to the nation’s power grid on multiple occasions, according to a new report by Wired.

This time, not only the United States was exposed, said Symantec. Europe also experienced similar vulnerabilities, proving the hackers could have induced blackouts on both sides of the Atlantic. Thankfully, this apocalyptic scenario didn’t happen.

In spring and summer 2017, the Dragonfly 2.0 hacker group—a primary culprit featured in cybersecurity reports from many experts lately—launched campaigns against energy companies. They succeeded 20 times, hacking their way into full access to their target companies’ corporate servers and operations controls. This meant they could turn off circuit breakers that control the direct flow of electricity to homes and businesses.

“There’s a difference between being a step away from conducting sabotage and actually being in a position to conduct sabotage… being able to flip the switch on power generation,” Eric Chien, a Symantec security analyst, told Wired. “We’re now talking about on-the-ground technical evidence this could happen in the U.S., and there’s nothing left standing in the way except the motivation of some actor out in the world.” Related: Venezuela Just 24 Hours Away From Formal Declaration Of Default

The Ukrainian grid power blackouts of 2015 and 2016 are generally considered the firstinstances of cyberattacks wreaking havoc on a nation’s power supplies. Analysts believe that the perpetrator of the first attack on Ukraine’s power back in December 2015 was the Sandworm team, a group of hackers who previously targeted Europe and the United States. An updated version of their most lethal software, Blackenergy 3, was at the root of Ukraine’s initial power crisis.

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Are Electric Cars As Clean As They Seem?

Are Electric Cars As Clean As They Seem?

electric car

Tesla’s unveiling of its mass market Model 3 sparked a global interest in making electric vehicles the next big thing in automobile manufacturing. But can the category’s green agenda keep up with its metal and recycling needs?

The concept of bunking the traditional engine for a non-gas guzzling counterpart has been here for decades, but creating an ecosystem for battery charging and bringing vehicle costs down was a challenge for decades.

The sheer force of Elon Musk’s vision is building the infrastructure needed to sustain millions of electric cars in the United States, Europe, and elsewhere. Most major manufacturers have joined the enthusiasm to ditch old-school engines to construct the international fleet of tomorrow.

But this new step doesn’t solve all of the world’s environmental pollution issues related to transportation. The extraction of rare earth minerals, the disposal of lithium-ion batteries, and the sourcing of the energy that powers charging stations are all issues that plague the future of the green argument for electric vehicles.

As Wired notes in an article from last year, electric vehicles are most efficient when they’re light. That way, they need minimal energy to transport their valuable cargo. In search for a light material to carry and conduct batteries, scientists discovered the power of lithium—a highly conductive metal that adds little burden to the vehicle’s frame.

Discovered in 1817, this key ingredient is mostly extracted from deposits in the United States, Chile, and Australia. The most cost-effective method for lithium processing involves pumping salt-rich waters into special evaporation ponds that eventually produce lithium chloride. Then, a special plant adds sodium carbonate to turn the former lithium chloride into lithium carbonate, a white powder.

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Iran, Iraq, And Turkey Unite To Block Kurdish Oil Exports

Iran, Iraq, And Turkey Unite To Block Kurdish Oil Exports

Oil

Iraq, Iran, and Turkey are taking a unified stance against Kurdistan’s oil sector after the region elected to seek independence from Baghdad in a referendum in September, according to a new report by Rudaw.

“In the case of northern Iraq, Iran, Iraq and Turkey will form a tripartite mechanism and will decide on shutting down the oil,” Turkish President Recep Tayyip Erdogan said after a meeting with leaders from the other two nations on Thursday.

day before the vote, the Iraqi central government issued a statement calling on “neighboring countries and countries of the world” to stop buying crude oil directly from Kurdistan and only deal with Baghdad.

Turkey’s Ceyhan port provides an outlet for the Kurdish Kirkuk oil to meet international markets without interference from Baghdad. Erdogan, Tehran and other members of the international community had censured Erbil for proceeding with the independence referendum as Iraq recovers from a three-year war against the Islamic State (ISIS). The Turkish leader had previously threatened to cut Kirkuk off from Ceyhan, but did not provide details on how such a measure would be carried out.

Russia’s oil majors side with Kurdistan in its quest for an independent fossil fuel establishment. Rosneft signed off on a $1 billion gas pipeline deal with the Kurdistan Regional Government (KRG) a week prior to the historic vote, signaling Moscow’s approval of a hypothetically separate Kurdistan. Related: The Trillion Dollar Market That Stopped Chasing Profits

Both Iran and Turkey house sizeable Kurdish populations, so the referendum raises fears that Kurds from other nations may seek similar political solutions.

Kurdistan produces around 600,000 bpd of crude oil, or about 15 percent of Iraq’s total output. After the votes were counted, the KRG said that the ‘Yes’ to independence option won at the polls, with 92.73 percent of voters opting to grant Erbil its own regime.

 

Permian Still Holds 60-70 Billion Barrels Of Recoverable Oi

Permian Still Holds 60-70 Billion Barrels Of Recoverable Oil

Midland

The lucrative Permian Basin still holds between 60 and 70 billion barrels of unharvested oil, IHS Markit Ltd said this week.

The recoverable resources in the basin shared by Texas and New Mexico could supply crude to every U.S. refinery for 12 years straight—that’s a total market value of $3.3 trillion at the going rate for West Texas Intermediate (WTI) barrels.

The data comes from a three-year study on 440,000 wells in the basin, which pumps more oil than any field in the continental United States.

“The Permian Basin is America’s super basin in terms of its oil and gas production history and for operators it presents a significant variety of stacked targets that are profitable at today’s oil prices,” IHS Markit researcher Prithiraj Chungkham said in a statement from the London-based organization.

The world’s top shale play, the Permian, has shown remarkable resilience amid the lower-for-longer oil prices. Permian production has grown and should continue its rise into the foreseeable future.

Technological advances spurred the rapid rise of the Permian, but as drillers are set to continuously develop the hottest U.S. shale play, they may soon start to test the region’s geological limits.

“The technology vs. geology tug-of-war has the ability to profoundly alter the future production profile of the region, and ultimately oil price. Less Permian supply from 2021 onwards would exacerbate the global supply gap and effectively mean the U.S. cannot deliver what the market believes it can. Other sources of higher cost, conventional production would be needed,” WoodMac’s Robert Clarke noted.

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Could Kurdish Independence Spark An Oil War?

Could Kurdish Independence Spark An Oil War?

Kurdish Flag

As the date of the Kurdish independence referendum approaches, oil industry moguls should be concerned about an oil production war between Iran and headless Iraq.

The Kurds are expected to vote on their political status in late September. A vote in the affirmative would mean that Iraq would lose a chunk of its northern areas, which includes the crucial Kirkuk oilfield and its surrounding reserves.

The latest news from the election committee shows that the Kurdistan Regional Government (KRG) is doing the most it can to increase international participation in the election. On Monday, authorities announced that they had removed a key requirement for diaspora voters participating in the elections. Kurds participating in the e-voting platform will no longer be required to present a ration card to be able to cast their vote through September 25th. Iraqis who have been living abroad for several years, even decades, no longer hold a valid version of the United Nations-conferred identification. The new provision just requires that voters prove their current Iraqi citizenship via relevant documentation.

In roughly one week, the election authority will count votes and announce the political and territorial future of Iraq. It has been a rocky 100 years for the country since the 1916 Sykes-Picot agreement divided Asia Minor on an imperialist paradigm, without regard for cultural variations within the territory.

Believe it or not, soon after Sykes-Picot, Iraq became a kingdom ruled under a Hashemite monarch related to the current king of Jordan. In 1958, the Iraqi army overthrew the monarchy in a development known as the July 14 Revolution, which brought the rebel leader Abd al-Karim Qasim to power and pulled Iraq closer to the Soviet Union.

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OPEC’s No. 2 Faces Civil War Threat

OPEC’s No. 2 Faces Civil War Threat

Iraq

Tribal violence in the southern regions of Iraq is erupting on sectarian lines, threatening safety and security at oil facilities, officials told Kurdistan24.

A majority of Iraq’s law enforcement network has congregated in the northern and western portions of the country to contain the efforts of the Islamic State to restart the reign of its illicit organization, giving Shia and Sunni the leeway to reignite previous rivalries.

“We need larger forces to control rural areas and restrain lawless tribes in the south,” Army Lieutenant Colonel Salah Kareem said. “This is a difficult job for now as most troops are busy with fighting [IS].”

The religious disputes turn legal as members quarrel over farmland, construction contracts, and other land ownership issues, security courses said. The net impact of the disagreements disrupts Baghdad’s efforts to bring new investments to the oil and gas sector in areas affected by three years of domestic strife.

Stable oil output from Basra is key to Baghdad’s wealth, which accounts for 95 percent of the government’s revenues. Recent encroachments on the peace in the area have jeopardized key oil facilities on the northern and westerns sides of the city.

“Tribal feuds have been exacerbating recently, and such a negative development could threaten the operations of the foreign energy companies,” Ali Shaddad, the head of Basra’s oil and gas committee on the provincial council, said.

South Oil Company (SOC), responsible for fossil fuel development in Basra, says foreign companies and workers have begun to refuse working in the area due to the growing violence.

“Tribal fighting near oilfields sites is definitely affecting the energy operations and sending a negative message to foreign oil firms,” Abdullah al-Faris at SOC said. Groups in the area seized heavy weaponry from Saddam Hussein’s army back when the dictator’s regime collapsed in 2003. The presence of these military-grade guns makes any conflict in the area that much more deadly.

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Fitch Predicts Drop In Oil Prices By 2017 As U.S. Shale Output Soars

Fitch Predicts Drop In Oil Prices By 2017 As U.S. Shale Output Soars

Oil Rig

Oil bigwigs should take a step back before becoming too comfortable with the new oil price range according to Fitch Ratings’ newest market analysis.

“The recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting a portion of recent oil price gains,” the credit rating agency’s report released on Monday says. “We therefore expect average oil prices for the year to be below those in January and February.”

In a stable market scenario, Fitch estimates that by the end of this year, oil prices will fall to $52.50, but then rebound to $55 and then $60 in 2018 and 2019, respectively. Long-term prospects for Brent barrels sit at $65 in this model.

A stressed, oversupplied market will mean a $40 barrel through 2019, however.

Since January, a 1.8 million-barrel global production cut led by the Organization of Petroleum Exporting Countries (OPEC) and joined by several other nations has kept prices between the $55-$60 range.

Compliance to the terms of the November deal by members of the bloc has been strong. Last week, new data showed that OPEC’s compliance stood at 94 percent.

Fitch cited the continuous increase of active oil rigs in the United States since May 2016 as key evidence for an impending price collapse. American production is set to top nine million barrels over the course of 2017, the analysts estimate, due to rejuvenated capital expenditure budgets and higher output capacity.

The total number of active oil and gas rigs in the United States is now 756, according to oilfield services provider Baker Hughes, which is 267 rigs above the rig count a year ago.

 

Venezuela Is Down To Its Last $10B As Debt Payments Loom

Venezuela Is Down To Its Last $10B As Debt Payments Loom

Maduro PDVSA

Venezuela’s central bank is down to its last $10.5 billion in foreign reserves, according to the institution’s most recent report on the country’s financials.

Over the remainder of 2017, Caracas needs to fund $7.2 billion in debt payments – an amount that it can only meet if oil prices spike far higher than the ongoing boosts caused by OPEC’s output reduction agreement.

Current reserves stand 66 percent lower than levels in 2011, when the government held $30 billion in foreign currencies to spend on loan repayments and other official business.

“The question is: Where is the floor?” Siobhan Morden, head of Latin America fixed income strategy at Nomura Holdings, told CNN Money. “If oil prices stagnate and foreign reserves reach zero, then the clock is going to start on a default.”

Venezuela’s financial report for 2016 stated that roughly $7.7 billion of the remaining $10.5 billion in foreign reserves had been preserved in gold. Last year, in order to fulfill debt obligations, Caracas began shipping gold to Switzerland.

The drastic fall in oil prices in 2014 and widespread corruption have both caused an economic meltdown in the South American country, where citizens had become accustomed to imported goods paid for by fossil fuel revenues.

President Nicolas Maduro has resorted to opening the country’s border with Colombia to allow Venezuelans to purchase necessary medical and day-to-day supplies.

Venezuelan state-run oil company PDVSA’s default is probable, according to the ratings agency Fitch, which cited the oil giant’s weak liquidity position and high amortization scheduled for 2017 as the causes of the default problem last month.

“Should oil prices remain around current levels, average recovery may lead to additional future defaults to further reduce obligations and allow for necessary transfers to the government,” said Fitch’s senior director Lucas Aristizabal.

The company has projected that its oil production will maintain its 23-year-low in 2017.

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

Tanker

Oil has been called names (“dirty fossil fuel!”). The cartels use it as a weapon to thwart their rivals. ISIS steals it and pimps it out on some sketchy black market. Swaths of it are set on fire and used as a shield. The pipelines through which it travels to and fro are bombed or protested—nearly daily. Sometimes unscrupulous babysitters let it loose to drown in an ocean or float carelessly down the river, never to be recovered. And now, oil, at least that destined for Europe, is homeless and is not being allowed to disembark after shipment.

Oil majors in northwest Europe have booked tankers to store 9 million barrels of oil as the international supply glut grows in size, according to a ship-operator who spoke to Bloomberg.

The companies have resorted to using tankers as storage as signs emerge that onshore storage is filling up on the land-starved continent.

Next month, Northwest Europe, which includes mega-producer Norway as well as the United Kingdom, France, Germany and others, expects to load the highest number of shipments in 4.5 years.

Somewhere in between 14 to 16 medium-sized Aframax tankers have lined the ports, according to Jonathan Lee, the CEO of Tankers International. Lee, whose firm operates the biggest pool of supertankers in the world, confirmed that the lack of land space to store fuel is the likely cause of the tanker buildup.

Reuters reported on Friday that the rate to book an Aframax tanker has almost doubled from the July figure, partially due to the widespread use of ships as floating storage units.

North Sea producers have upped production as the Organization of Petroleum Exporting Countries (OPEC) prepares to finalize the term of an output freeze by the end of this month.

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