Hurricane in Gulf Coast damaging Gasoline & Oil Markets

, ,

Hurricane Harvey

During the weekend a huge hurricane hit U.S. Gulf coast!

It crippled Houston and flooded the Texas area. The port in Houston is damaged really serious and it knocked down the crude production in numerous refineries along the shore.

Gasoline prices hit two-year highs, influenced by massive floods caused by the storm. It forced U.S. Gulf Coast to ship orders from across the sea.


Oil market

Observing crude markets, U.S. futures fell. Later, U.S. refinery shutdowns could cause the reduced demand for American crude.

Brent futures also eased.

The Harvey hurricane killed at least 2 people, and it is the strongest hurricane in last half a century. It caused a Houston port closure, while it shut down numeros refineries.

“The U.S. National Hurricane Center (NHC) said on Monday that Harvey was moving away from the coast but was expected to linger close to the shore through Tuesday.”

“The floods would spread from Texas eastward to Louisiana.”


Oil refining in Texas 

Oil refining in Texas composes of 5.6 million barrels of refining capacity daily. Louisiana has 3.3 million barrels. The storm shut down over 2 million bpd.

“Spot prices for U.S. gasoline futures surged 7 percent to a peak of $1.7799 per gallon, the highest level since late July 2015, before easing to $1.7281 by 0703 GMT.” (Reuters)

To replace the lost outputs, and in order to avoid fuel shortage, U.S. traders were shipping cargoes from North Asia.


West Texas drillers could weaken any OPEC agreement on extending the cuts

, ,

All the Oil producing countries which have a deal with OPEC, along with Russia, can extend their deals. But at the same time this will be a green light for United States oil producers.

If the price oscillates following levels between $50 and $60, these are the great news for the U.S. oil drillers. They will gain profit on way broadly group of drilling sites. OPEC’s new deal could speed up the market rebalance. Rather, the numerous U.S. shale drillers could also release bigger amounts to surpass OPEC’s price gains.

Mainly the market analysts wait for oil price to rise close to $60, or even $60 by the end of the year.  But the prices are not expected to climb much higher.

“Basically U.S. supply is coming on faster than we anticipated. Now you have a higher inventory level to begin with, and a slower decline. That means in our view, prices are likely to be lower on average.” (Francisco Blanch, Bank of America Merrill Lynch.)

“The Brent crude will come to average $54 per barrel this year, from an average $61 per barrel. ”

He doesn’t expect much of an increase neither for 2018. The Brent will probably gain the price of  $56 per barrel, versus his previous forecast of an average $65.


Different opinions

Ed Morse from Citigroup said he thinks it would be a way better if the OPEC agrees on a deeper cuts.

“I think this market will re-balance itself very quickly. The extension alone should result in deeper cuts.”

Deeper cuts would mean an “invitation for cheating” and “a sign of desperation in markets.” He explained that the re-balancing is already happening.

On contrary, Blanch said: “I think it’s pretty risky to deepen the cuts when they’ll be losing market share to shale. It seems to me that Saudi, Russia, and even the U.S., everyone needs oil price leveled at $60. The problem is, that by the laws of nature as well as of the economy, you can’t have both the quantities and the prices.”

Morse: “We don’t think U.S. production is going to stop the re-balancing of the market this year. It’s not enough to counter the cuts that are in place, particularly if they’re being extended.”

“We think next year will be more problematic. The shale drilling will accelerate and U.S. shale alone could meet the new demand in global growth.”


U.S. drillers

IHS Markit expects U.S. shale to grow by 900,000 bpd by the end of 2017. By the end of 2017, or entering the early 2018 the U.S. will be giving the record amounts of oil. Based on some U.S. government reports, their production rose to 9.3 million barrels in previous weeks.

“You can certainly say a lot of shale today will be competitive between $40 and $50 a barrel. The question mark is what’s going to happen with costs. We really think the costs this year in the Permian will go up 15 to 20 percent.”  (Daniel Yergin vice chairman of IHS said. “Rising costs will temper activity somewhat.”

Yergin stated that shale is now at medium cost production.

Permian, West Texas

Permian is currently the most active shale. But drilling could open up Eagle Ford in Texas or Bakken in North Dakota, following the upsurge in prices.

“Other plays still remain on the sidelines in this $50 environment. When we were growing at a million barrels in the U.S., it wasn’t Permian. It was Bakken and Eagle Ford.” (Helima Croft, RBC)

“The other thing about shale is it has a very high decline rate. The shale did come back stronger. Rigs are returning and for now it remains largely a Permian story.”

Analysts have expected the market to get a backup from the summer driving season. So far, U.S. gasoline demand has been softer than expected.  That could definitely impact the market, and it should see higher prices this summer .


Russian exports; Gas and Oil production

, ,

Russia expects balance in Oil market; in case production cut prolongs


Alexander Novak said Global Oil markets will come to a balance soon. If the production cuts extend till the early 2018; or late 2017. Entering the winter of 2018, a supply-demand will find its equilibrium.

“Judging from the current dynamics in the decline of the oil and oil products inventories, the markets will see such decline in inventories by the end of 2017 – early 2018. Which will lead to cuts in inventories to a five-year average.” (Reuters)

Despite currently cutting the production, global inventories are still high. They lead the crude back below $50 per barrel. Those were the oscillations earlier this month and it is constantly putting pressure on OPEC to extend the cuts to the rest of the year.

Russia’s Energy Minister Novak said that OPEC countries and other leading oil producers would discuss extending the deal. Considering the second half of the year or “maybe even further than that”.

Parameters of the agreement should not be changed. In a way that further cuts are very likely.

Novak added that Russia will  retain output cuts of 300,000 barrels per day. From the level of October 2016 as stipulated by the December 2016 deal.

”Russia’s oil output forecast of 549-551 million tonnes for this year remained the same. But it could change depending on the outcome of oil producer nation talks in Vienna later this month.”


Russian Natural Gas Exports to China


Alexei Miller today said Gazprom hopes to agree the main terms of natural gas exports to China from the Russian Far East, in 2H17.

The supplies of natural gas, coming from the Russian Far East should be an extension of an already signed 30-year contract on exporting. 38 billion cubic meters of natural gas going to China, from Siberian deposits.


OPEC losing its pricing power?


According to some CNBC news, Commerzbank said that OPEC is losing its power over market. It has limited impact on Oil prices, since it secured a deal to curb outputs. The global energy market is well shaken, and it is a big question whether OPEC will succeed to rebalance it in 2H17.

“The fairly short-lived effect of production cuts on oil prices shows that OPEC’s market impact via ‘supply control’ is very limited. We have been pointing out for years that OPEC has lost its ‘pricing power.” (Commerzbank)

“Even so, OPEC is unlikely to give away on cut extensions, it will extend the agreement instead.” Weinberg said.

Eugen Weinberg is a head of commodities research at Commerzbank.

“The relentless increase in U.S. shale supply has counterbalanced the production cuts that OPEC and Russia agreed on. And so, there is still a skepticism within supply and demand balance.” (CNBC)





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




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.