Posts

Russia’s Attitude about the (non)extension of OPEC supply Cuts

,

If OPEC and non-OPEC countries decide not to extend a supply cut deal beyond June the 30th, Russia has an option. It could climb Russian oil output To the highest pace in 30 years.

For now, OPEC and non-OPEC countries made a deal Along with Russia. It was to cut 1.8 million bpd in output in the 1H17.

Among producer countries there are many who agree that OPEC should prolong the output cuts even in the 2H17. Kuwait and Saudi Arabia last week gave a signal that they are also ready to prolong the cuts.

 

Position of Russia

Firstly, Russia is now left to define its attitude about whether it wants cuts to last after June. Russian contribution to the cuts was 300000 bpd. Moscow was monitoring the discussion panel on Friday. Where they were discussing the matter.

Secondly, Russian officials implied that local oil producers are really ready to push the output higher. After once the pact runs out.

– “According to investment programs of (Russian) companies, it is possible Russian oil production will increase once the deal expires,” Deputy Prime Minister Arkady Dvorkovich said, adding firms had been held back while the deal was in place.

“If there are no restrictions, they will decide not to hold back.” He stated some news at the weekend on an economic conference in the East Siberian city of Krasnoyarsk.

He was not stating the exact numbers, but a few months ago he told that the output could come to 548-551 million tons in 2H17. Equivalent to 11.01 million-11.07 million bpd, the highest average since 1987. (Reuters)

Russia produced about 547.5 million tons in 2016, or an average of 10.96 million bpd. [O/RUS1]

Russia was to cut production to 10.947 million bpd from 11.247 million bpd, under the deal with OPEC. The level Russia has achieved in October 2016, was the highest oil output in the post-Soviet era.

 

New Oilfields

“Russia has the new oilfields,” said Minister Aleksandar Novak.

Novak will meet Russian oil companies this month to discuss the subject. He also reminded they would discuss an extension formally with OPEC on May 24. Without the extension, Raiffeisen bank analyst said forecast for Russian output are: rising about 2 percent in the second half of 2017 to a peak of about 11 million bpd.

Russian Oil producers have lots of projects going on in the country, so it is not strange at all that they are ready to boost outputs after the deal with OPEC is done.

 

The biggest Oil Companies in the Country

Rosneft, the county’s biggest oil producer, has said it plans to boost output this year referring to newly acquired oil fields. Including Kondaneft group of fields in Western Siberia, which are crucial for Russian production.

The company had targeted 2 percent annual output growth in 2015-2017. Without any acquisitions, that would push 2017 production to more than 214 million tons, or 4.3 million bpd.

The Russia’s second-largest producer, LUKOIL  sees its oil output rising slightly if the global deal is not extended
and could restore production to its pre – deal level in three to four months.

Finally, mid-sized producer Tatneft expects to increase 2017 output by 0.5 million tons a year, or about 10,000 bpd, if the global production pact runs-out.

 

 

Important news Today:

  • United States CB Consumer Confidence exceeded the forecasts. It is on actual 125.6 (forecast:114)
  • US New Home Sales on actual 592K (forecast: 565K)

 

 

/0 Comments/by

Africa’s Potential in growing production: Gabon Oil Market

Gabon is Africa’s fourth largest oil producer. (in Sub-Saharan Africa.) With an output of around 220,000 barrels per day, dominated by international oil majors Total and Shell.

 

Gabon Trade Last Previous Highest Lowest Unit
Balance of Trade 3711.95 3572.48 3964.22 439.20 FCFA Million
Exports 6168.03 5829.90 6168.03 1125.40 FCFA Million
Imports 2456.08 2257.42 2456.08 560.60 FCFA Million
Current Account 341.00 439.00 1516.50 236.30 FCFA Million
Current Account to GDP -8.10 6.70 22.88 -31.07 Percent
Gold Reserves 0.40 0.40 0.40 0.40 Tonnes
Crude Oil Production 210.00 210.00 374.00 205.00 BBL/D/1K

 

 

Production

Firstly, crude Oil Production in Gabon averaged 273.97 BBL/D/1K from 1994 until 2016. Reaching an all time high of 374 BBL/D/1K in August of 1995. And a record low of 205 BBL/D/1K in April of 2015. Secondly, crude Oil Production in Gabon remained unchanged. At 210 BBL/D/1K in March from 210 BBL/D/1K in February of 2016.

Also, production in Gabon comes from a portfolio of over 20 non-operated onshore and offshore fields.

As a result of near term cash flow optimization and decisions by the field operators. Due to the low oil price, reduced activity will continue across Tullow’s non-operated West Africa portfolio. Rather, there is flexibility. To increase capital investment in the medium term. To offset production decline in these mature assets, as market conditions improve.

 

Oil Reserves

In addition, both on land and offshore, Gabon possesses ample oil resources. In terms of authenticate recoverable reserves. While according to the Oil & Gas Journal (OGJ), Gabon had 2 billion barrels of proven oil reserves. Especially relevant, the end of 2012, Gabon was the fifth-largest oil producer in Sub-Saharan Africa. Due to its position behind Nigeria, Angola, Sudan & South Sudan, and Uganda. Most of Gabon’s oil fields are located in the Port-Gentil area and are both onshore and offshore. Therefore, Gabon’s oil production has been reduced by toward one-third from its peak of 370,000 barrels per day (bbl/d) in 1997. To 244,000 bbl/d in 2012.

 

Oil Consumption In Country

 

Averaging around 14,000 bbl/d , over the last decade, oil consumption in country has remained permanently low. Yet, consequently, more than 90 percent of output is exported (around 250,000 bbl/d on average) over the last decade.

Throughout the history, Gabon’s oil production has been concentrated in one large oil field and supported by several smaller fields. As a result, the largest field matured and production declined. In process, the other fields emerged and replaced dwindling production. Furthermore, dominant fields have included Gamba/Ivinga/Totou (1967-1973), Grondin Mandaros Area (1974-1988), and Rabi (1989-2010). Most of all the Rabi oil field, as Gabon’s major success, significantly boosted the country’s total output in the 1990s. It reached 217,000 bbl/d at its peak in 1997. Although Rabi is still one of Gabon’s largest producing fields, it has matured and production has gradually declined to about 23,000 bbl/d in 2010.

Same, since Rabi’s climb-down, a new large field has not yet cropped up, since recent exploration has yield only modest finds.

Therefore, country ranks third largest in sub-Saharan Africa, after Nigeria and Angola.

 

OPEC Membership

 

Hence, Gabon was a member of OPEC from 1975 to 1995.

Seems like it withdrew on the grounds that it was unfair for it to be charged the same membership fee as the larger producers but not to have equivalent voting rights.

These recent years over 90% of Gabon’s oil output has been exported, mainly to the USA.

In conclusion, as years went by, Gabon became OPEC’s member once again in 2016. In the april of 2016, Gabon officially sent the rejoining quest to OPEC. As having a substantial net export of crude, which OPEC rules as a state country needs to have, it became a part of OPEC’s ‘family’ for the 2nd time.

 

/0 Comments/by

OPEC and non-OPEC dedicated to restoring OIL market stability

,

 

Bringing global inventories down

 

Mohammad Barkindo, OPEC secretary-general, saying that all OPEC and non-OPEC oil producers are taking part in a bringing the global stability to the Oil market.

Speaking in the UAE, he said agreement data in March is showing better conformity by the oil producers than in February.

“OPEC and non-OPEC producers agreed in December to cut supplies for six months. Helping lift oil prices to about $55 a barrel after a two-year slump. OPEC will review policy for the second half of this year at a May 25 meeting.”(Reuters)

Any decision taken in this field would be brought up to maintain good interest of all producing and consuming countries. He didn’t say whether the agreement would be extended for another half year. But he promised all the resolutions will help the OIL market stability.

 

Oil market Facts

 

Oil steadied on Wednesday. After OPEC said it was committed to eroding a global supply. Overhang that has dogged markets since 2014, but with U.S. output and inventories rising, analysts said prices looked vulnerable. (Yahoo finance)

The oil price got an early lift from comments by Mohammad Barkindo.

Brent crude futures LCOc1 were up 5 cents at $54.94 a barrel at 0908 GMT, while U.S. West Texas Intermediate (WTI) futures CLc1 were up 3 cents at $52.44 a barrel.

“Is sentiment on the oil market now taking a negative turn again? Looking at the latest price reactions, one might conclude that the only reason for the previous price rise was the expectation of further production cuts on the part of OPEC,” (Commerzbank strategist Carsten Fritch’s comment.) (Reuters)

“After all, the oil price is dismissing reactions to the factors which would normally sustain it. Ever since the Saudi oil minister (Khalid) al-Falih put at least something of a dampener on such expectations.”

OPEC and other producers such as Russia have agreed to cut output by almost 1.8 million bpd during the first half of 2017.

 

 

U.S. Impact on oil supplies

 

Speaking about politics, U.S. President Donald Trump ordered examination of whether the elevation of sanctions against Iran was in the United States’ national security interests.

Most of U.S. sanctions against Iran were lifted in late 2015 under a nuclear deal. Letting Tehran to more than double its crude exports over 2016. This move just added a bit to the global oversupply.

U.S. markets remain heavily oversupplied, as well as the global markets.

Although crude inventories fell by 840,000 barrels in the week to April 14 to 531.6 million barrels. They held near record highs, while gasoline stocks rose by 1.4 million barrels as refinery runs increased by 334,000 bpd.

 

Solving the problem

 

“Unless the (EIA) data shows something drastically different, this report should cause a severe dent in the bullish case (for oil prices),” said Sukrit Vijayakar, director of energy consultancy Trifecta. (Reuters)

Restoring the OIL market inventories and the unlikely trends which are increasing every day would be a serious deal. The enormous supplies of oil from U.S. part, and the prices downward trend in global markets are making a fuss and ruining the stability of this resource.

It is represented as a huge problem, as well as on global level, mainly for OPEC countries. Whose aim is to control their oligopoly over Oil supplies.

/0 Comments/by

Citigroup Inc. joined Goldman Sachs Inc. believing in better second quarter of 2017

,

“It’s time to have faith in raw materials, and oil will probably recover to the mid-$60s by the end of the year.” Citigroup Inc. who joined Goldman Sachs Group Inc. said.

Even if U.S. shale output may come “booming back” midst of higher crude prices, production control by OPEC and its leaguers should help neutralize that increase over the next six to nine months.

The producers need to widen their deal to cut supplies by the end of the year.

Goldman Sachs has also made similar comments, saying extensive inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.

 

Bank sees commodity investment flows rising in second quarter

 

“With a continuation of the OPEC and non-OPEC producer deal in the second half of 2017 and the expected combined inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year.” (Market analysts wrote.)

Still, bigger supplies from producers in the fourth quarter of 2016 at this moment seem “a dark cloud hanging over the market.” And also a failure to extend the output agreement which would send prices “precipitously lower.”

 

The bank expects U.S. West Texas Intermediate oil to average $62 a barrel. Global benchmark Brent crude is expected to average $65 a barrel in the fourth quarter. WTI was trading 30 cents lower at $52.35 a barrel on the New York Mercantile Exchange at 10:34 a.m. London time on Tuesday. Brent on the ICE Futures Europe exchange was down 35 cents at $55.01 a barrel. (Bloomberg)

The production-cut agreement urged a change in market structure. That change meant traders had less incentive to store oil at sea prompting the flow of supplies floating on ships to onshore sites. That set the stage for boosting U.S. inventories to a record in the first quarter of 2017.

This gain and agitated output by the OPEC in the fourth quarter had an effect that would “ultimately hinder and reverse the very rebalancing they were trying to accelerate,” the analysts said. The bank expects U.S. liquids output to grow y-o-y at 1 million barrels per day or more by December.

U.S. Crude Oil Inventory, Source: Bloomberg

Factors that lead to Declines across commodities

The drop in oil prices during March led declines across commodities, according to Citigroup. It estimates commodity assets under management grew about $45 billion in the first two months of the year but gave up $35 billion during the selloff in raw materials in March. Investment inflows should increase in the second quarter.” (The Citi bank predicted.)

“Do commodities need a bit of a prayer to bounce again in ‘17? Not necessary. Commodities stumbled through the first quarter following what was clearly the healthiest year for the sector since the decade began. There was too much froth in critical sub sectors like oil, copper and iron ore. In conclusion, signs of better performance are increasingly clear, despite major risks.”

/0 Comments/by

Global OIL market nears balance even as stocks go up

 

 

Global OIL Demand

In the beginning, after nearly three years of surplus production, global demand for oil is finaly close to run out. Non counting the growth in the overhang of unused crude oil.

International Energy Agency said that in March, oil stocks in OPEC fell by 17.2 million barrels per day. “Over the first three months of the year, stocks were up by 38.5 million barrels, or 425,000 barrels per day (bpd), after a large increase in January.”

Yet, OECD stocks fell by 8.1 million barrels in February. To 3.055 billion barrels as demand outpaced supply to the tune of around 200,000 bpd between January and March.

Stocks are still 330 million barrels above the five-year average.

Inconsistency Reasons

 

There are several possible explantions for the inconsistency. For example, demand is overstated or the supply is understated in the estimates. On the other hand, explanation lies with “less visible” stocks, inclouding stocks held at sea. That stocks held at the sea can be either in transit or for speculative reasons. And they can also be on land, but outside the OPEC countries.

“Indeed, a look at data from various sources shows stocks drawing in some non-OECD countries over (the first quarter of 2017). Non-OECD stocks are thought to be roughly equal in size to OECD volumes, but there is far less data available about them.” As the IEA info shows.

“The net result is that global stocks might have marginally increased in the first quarter, versus an implied draw of about 0.2 million barrels per day”

We have an interesting second half to come…

 

Global Level

 

Looking at the global level, oil held offshore fell to 58.4 million barrels in March. It started from 82.6 million barrels at the end of 2016. Iranian offshore stocks also fell to 4 million barrels in March. It has started from 28 million barrels when sanctions were lifted in early 2016.

“In other words, the full extent of the production cuts has not hit yet,” Bernstein said.

The price of oil LCOc1 has increased to around $56 a barrel. It went from a 13-year low of $27 hit in January last year, which has encouraged a raft of new supply.

For the second half of 2017, the IEA expects non-OPEC supply to rise by 485,000 bpd, above its previous estimate of 400,000 bpd. The one of main reasons would be led by increases in U.S. production growth.

Indeed, although the oil market will likely tighten throughout the year, overall non-OPEC production, not just in the U.S., will soon be on the rise again.

Oil market is a volatile, very interesting market to work on. Especially when it comes to predicting possible trends based on the geopolitical activities around the world.

/0 Comments/by