Price correction, Saudis hurt Canada & Russia!

Finally, we have a price correction which saw both global oil benchmarks reflect the wider macroeconomic climate accompanied by a dip in stock markets and a downgrade of 15 of the world’s largest banks by Moody’s. NYMEX WTI forward month futures contract fell below US$80 per barrel on Thursday for the first time since October 2011 while Brent is just about resisting the US$90-level trading at US$90.77 when last checked.

The benchmarks have shown bearish trends for almost three months but they were still not reflecting the wider macroeconomic climate; until yesterday that is. The ‘only way is up’ logic based on a linear supply-demand permutation oversimplifies the argument as the current situation demonstrates. Factors such as the absence of QE3 by the US Federal Reserve, a stronger US Dollar, and weaker Chinese, Indian and European data finally influenced market sentiment – not to provide the perfect storm but to provide the perfect reality! A decline in German business confidence levels reinforces bearish trends which will last for a while yet.

Despite negative sentiments and the possibility of Brent trading below US$100 per barrel for prolonged periods between now and Q1 2013, OPEC did not cut its quota last week. Saudi Arabia, which is so dominant within the cartel, actually wanted to send the price lower as it can contend with Brent falling to US$85 per barrel.

From a geopolitical standpoint, Saudis not only kicked a sanction hit Iran (maybe gleefully) but delivered bad news for Russia (perhaps intentionally) and Canada (almost certainly unwittingly). Saudi rivalry with Iran has more than a ‘crude’ dimension, but one with Russia almost certainly revolves around market dominance. The Oilholic’s hypothesis is that this intensified when Russian production first overtook Saudi production in 2009.

As the world’s leading producer for over two years, Moscow was causing Riyadh some discomfort. So the Saudis raised their game with the Libyan conflict and Iranian sanctions giving them ample excuses to do so. Constantly flouting OPEC production quotas, this February Saudi Arabia regained its top spot from Russia. Now with prices in reverse, it is the Russians who are sweating having rather bizarrely balanced their budget by factoring in an oil price in the circa of US$110 to US$120 per barrel.

Several independents, ratings agencies (for example S&P) and even former finance minister Alexei Kudrin repeatedly warned Russia about overreliance on oil. The sector accounts for nearly 70% of Russian exports and Vladimir Putin has done little to alter that dynamic both as prime minister and president in successive tenures.

Realising the Russian position was not going to change over the short term and with a near 10% (or above) dip in production at some of their major fields; the Saudis ramped up their production. A masterstroke or precisely a deft calculated hand played by Minister Ali Al-Naimi planked on the belief that amid bearish trends the Russians simply do not have the prowess, or in fact the incentive, to pump and dump more crude on the market has worked.

A Russian production rise to 10 million bpd is possible in theory, but very difficult to achieve in practice in this macroeconomic climate. So the markets (and the Saudis) expect Russia to fall back on their US$500 billion in reserves to balance the books over the short to medium term rather than ramp-up production. Furthermore, unless the Russians invest, the Saudis’ hand will only be strengthened and their status as ‘crude’ stimulus providers enhanced.

Canada’s oil sands business while not a direct Saudi target is indeed an accidental victim. The impact of a fall in the price of crude will also be very different as Canada’s economy is far more diversified than Russia’s. Instead of a decline in production, the ongoing oil sands and shale prospection points to a potential rise.

Canadian prospection remains positive for Canadian consumers and exporters alike; provincial and federal governments want it, justice wants it, PM wants it and the public certainly want it. However, developing the Athabasca oil sands and Canadian shale plays (as well as US’ Bakken play) is capital and labour intensive.

For the oil sands – holding the world’s second largest proven oil resource after Saudi Arabia’s Dhahran region – to be profitable, crude price should not plummet below US$60 per barrel. Three visits by the Oilholic to Calgary and interaction with colleagues at CAPP, advisory, legal and energy firms in Alberta between 2008 and 2011 threw up a few points worth reiterating amidst this current crude price correction phase. First of all, anecdotal evidence suggests that while it would rather not, Alberta’s provincial administration can even handle a price dip to US$35 to 40 per barrel.

Secondly, between Q2 2007 and Q1 2008 when the price of crude reached dizzy heights, oilfield services companies and engineering firms hired talent at top dollar only to fire six months later when the price actually did plummet to US$37 per barrel in wake of the financial crisis. Following a wave of redundancies, by 2010 Calgary and Fort McMurray were yet again witnessing a hiring frenzy. The cyclical nature of the industry means this is how things would be. Canadians remain committed to the oil & gas sector and in this blogger’s humble opinion can handle cyclical ups and downs better than the Russians.

Finally, Canada neither has a National Oil Company nor is it a member of any industry cartel; but for the sake of pure economics it too needs a price of about US$80 a barrel. On an even keel, when the price plummets or the Saudis indulge in tactical production manoeuvres, as is the case at present, you’d rather be a Canadian than a Russian.

The Oilholic has long suspected that the Saudis look upon the Canadians as fellow insurers working to prevent ‘oil demand destruction’ and vying for a slice of the American market; for them the Iranians and Russians are just market miscreants. That the market itself is mischievous and Canadians might join the 'miscreants' list if proposed North American pipelines come onstream is another matter! That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo 1: Russian pump jacks © Lukoil. Photo 2: Red Square, Moscow, Russia © Gaurav Sharma 2004. Photo 3: Downtown Calgary, Alberta, Canada © Gaurav Sharma 2011.

“Stability, stability, stability,” says El-Badri

So the press briefing room has emptied and the OPEC ministers have left the building for first time after failing to cut the cartel’s official output in face of crude price corrections exceeding 10% over a fiscal quarter. Thanks largely to Saudi Arabia, OPEC output stayed right where it was at 30 million bpd. Given the Eurozone crisis and a US, Indian and Chinese slowdown – OPEC members will invariably see Brent trading below US$100 per barrel for extended periods of time over the medium term.

It is doubtful if the Saudis would be too perturbed before the price of Brent slips below US$85 per barrel. As the Oilholic noted last year, studies suggest that is the price they may have budgeted for. Putting things into perspective analysts polled by the Oilholic here in Vienna suggest Iran would need a Brent price of US$110-plus to come anywhere balancing its budget.

However, with all bar the Saudis sweating already, outgoing OPEC Secretary General Abdalla Salem El-Badri, whose successor is yet to be decided, probably provided the signature quote of 161st meeting of ministers. Given the long term nature of the oil & gas business and a need for clarity and predictability, the Secretary General demanded ‘stability, stability, stability’.

“Stability for investments and expansion to flourish; Stability for economies around the world to grow; And stability for producers that allows them a fair return from the exploitation of their exhaustible natural resources,” he said in a speech at the OPEC seminar ahead of the meeting.

Problem is the Saudis have taken the message a little bit too literally; oil minister Ali Al-Naimi likened his country’s high production level and its insistence that OPEC’s official quota stays right where it is to a kind of an economic ‘stimulus’ which the world needs right now.

Of course on the macro picture, everyone at OPEC would have nodded in approval when El-Badri noted that fossil fuels – which currently account for 87% of the world's energy supply – will still contribute 82% by 2035.

“Oil will retain the largest share (of the energy supply) for most of the period to 2035, although its overall share falls from 34% to 28%. It will remain central to growth in many areas of the global economy, especially the transportation sector. Coal's share remains similar to today, at around 29%, whereas gas increases from 23% to 25%,” he added.

In terms of non-fossil fuels, renewable energy would grow fast according to OPEC. But as it starts from a low base, its share will still be only 3% by 2035. Hydropower will increase only a little – to 3% by 2035. Nuclear power will also witness some expansion, although prospects have been affected by events in Fukushima. However, it is seen as having only a 6% share in 2035.

For oil, conventional as well as non-conventional resources are ‘sufficient’ for the foreseeable future according to El-Badri. The cartel expects significant increases in conventional oil supply from Brazil, the Caspian, and of course from amongst its own members, as well as steady increases in non-conventional oil and natural gas liquids (e.g. Canada and US).

On the investment front, for the five-year period from 2012 to 2016, OPEC's member countries currently have 116 upstream projects in their portfolio, some of which would be project or equity financed but majority won’t. Quite frankly do some of the Middle Eastern members really need to approach the debt markets after all? Moi thinks not; at best only limited recourse financing maybe sought. If all projects are realised, it could translate into an investment figure of close to US$280 billion at current prices.

“Taking into account all OPEC liquids, the net increase is estimated to be close to 7 million bpd above 2012 levels, although investment decisions and plans will obviously be influenced by various factors, such as the global economic situation, policies and the price of oil,” El-Badri concluded.

That’s all from Austria folks where the Oilholic is surrounded by news from the G20, rising cost of borrow for Spain and Italy, European Commission President Jose Manuel Barroso ranting, Fitch downgrading India’s outlook, an impending US Federal Reserve decision and the Greek elections! Phew!

Since it’s time to say Auf Wiedersehen and check-in for the last Austrian Airlines flight out of this Eurozone oasis of ‘relative’ calm to a soggy London, yours truly leaves you with a sunny view of the Church of St. Charles Borromeo (Karlskirche) near Vienna’s Karlsplatz area (see above right, click to enlarge). It was commissioned by Charles VI – penultimate sovereign of the Habsburg monarchy – in 1713. Johann Bernhard Fischer von Erlach, one of Austro-Hungarian Empire’s most renowned architects, came up with the original design with construction beginning in 1716.

However, following Fischer’s death in 1727, it was left to his son Joseph Emanuel to finish the project adding his own concepts and special touches along the way. This place exudes calmness, one which the markets, the crude world and certainly Mr. Barroso could do well with. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Empty OPEC briefing room podium following the end of the 161st meeting of ministers, Vienna, Austria. Photo 2: Church of St. Charles Borromeo (Karlskirche), Vienna, Austria © Gaurav Sharma 2012.

OPEC 'holds' production at 30 mbpd as expected

OPEC decided to maintain production at 30 million barrels per day (bpd) in line with market expectations following the conclusion of its 161st meeting here in Vienna. Frustrated at unilateral increases in production by Saudi Arabia, the cartel merely noted in a statement that member countries “should adhere to the production ceiling.”

How on earth OPEC will monitor whether (or not) members flout their quota is open to question as individual quotas were shunned last year. All it can do is hope the Saudis, who are currently dovish on the price of crude, decide to cut back.

The Oilholic is reliably informed that five other OPEC members, excluding the usual suspect Iran, urged the Saudis to respect the ceiling and cut back production. At least three oil ministers left OPEC HQ whinging that members ought to respect the production ceiling and that an oil price below US$100 per barrel was unacceptable. Unsurprisingly they hailed from Iran, Algeria and Venezuela. Apparently even the UAE is unhappy but no one from their delegation openly criticised the Saudis at the end of the meeting.

On supply-demand permutations, OPEC noted that although world oil demand is projected to increase slightly during the year, this rise is expected to be mostly offset by the projected increase in non-OPEC supply.

In addition, comfortable OECD stock levels – which presently are below the historical average in terms of absolute volumes but well above the historical norm in terms of days of forward cover – indicate that there has been a “contra-seasonal stock” build in the first quarter 2012 and this overhang is predicted to continue throughout 2012 according to the cartel. Stocks outside the OECD region have also increased. Taking these developments into account, the second half of the year could see a further easing in fundamentals, despite seasonally-higher demand, it said.

OPEC also said it reviewed recent oil market developments, as well as the outlook for the second half of 2012, noting that the heightened price volatility witnessed earlier this year was a reflection of geopolitical tensions and increased levels of speculation in the commodities markets, rather than “solely a consequence of supply/demand fundamentals.”

Furthermore, the cartel observed heightened Eurozone sovereign debts concerns and the consequent weakening economic outlook, with its concomitant lower demand expectation, continue to mount. “These ongoing challenges to world economic recovery, coupled with the presence of ample supply of crude in the market, have led to the marked and steady fall in oil prices over the preceding two months,” it concluded.

Meanwhile no decision has been taken as yet on who would replace OPEC Secretary General Abdalla Salem al-Badri of Libya with four member countries having proposed candidates – old rivals Saudi Arabia and Iran along with perceived compromise candidates in Iraq and Ecuador. Finally, OPEC will convene for its 162nd meeting in Vienna on December 12, 2012. However, some delegates left suggesting that if economic fundamentals deteriorate further an extraordinary meeting maybe called before December.

On a lighter note, so predictable was the outcome of the 161st meeting, that the Oilholic’s blog post from December 14, 2011 (on the 160th meeting) notched up a quite a few clicks from ‘Googlers’ searching “OPEC outcome” and “30 million bpd” before one could biff out this post. As was the case on December 14, 2011, so it was on June 14, 2012 – the ‘official’ production quota remains capped at 30 million bpd.

This is the first instance since yours truly has been blogging or reporting from OPEC, when the price of the crude stuff has dipped more than 10% over a fiscal quarter and the cartel has not responded with a cut in its output. Given whats going on in the Eurozone, a cooling in India and China and a poor US recovery, Brent is unlikely to find a medium term US$100 price floor. If anyone thought there was a counterweight to the Saudis within OPEC, this outcome is your answer! That’s all for the moment folks. Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: OPEC Logo, Vienna, Austria © Gaurav Sharma 2012.

The tussle for OPEC Secretary General’s post

The pre-meeting press scrum (which many scribes rather disingenuously call the ‘g*ng-b*ng’) is over and the Oilholic can tell you the OPEC quota is not the only thing the Hawks and Doves in the cartel are tussling over; it is the post of the new secretary general as well which is adding to the tension.

To being with, rivals Saudi Arabia and Iran have fielded a candidate of their own. The reason given by delegates from both camps is that apart from having the ‘ideal’ candidate, neither country has held the position in just over three decades. Describing the relations between Riyadh and Tehran as tense and rooted in suspicion would be understating the acrimony. Simply put, both hate each others’ guts based on past histories.

Furthermore, the Saudis have put their money where their mouth is by declaring that they will make up for the absence of Iranian crude if sanctions on the latter intensify. Empirical and anecdotal evidence as well as rising Saudi production proves that this is the case to a certain extent. Then again, time and again, irrespective of ‘formal’ OPEC announcements (the latest of which is expected here at 1700CET), Saudis have done whatever they’ve wanted.

The Oilholic is not alone in his belief that neither a Saudi nor an Iranian will occupy the post of Secretary General; but that a compromise candidate in the shape of Ecuador or Iraq would be found. Of the two, Iraq – a founding member of the cartel – would be a better choice.

Even though internal problems persist, its output is rising and it hopes to raise its profile at OPEC; something many here feel it lost in wake of conflict and under the international sanction-laden rule of Saddam Hussein.

Baghdad's man at the table is Thamir Ghadhban, who was was named adviser to Iraq’s interim oil minister before himself becoming the minister in 2004. Pitted against three other candidates, Ghadhban is not a frontrunner – but we’ve been told there isn’t one among the other three either. Since a unanimous deciscion is requirement for the appointment, making predictions over who would win would be tricky.

Since OPEC was former, only one Iraqi has held the office of secretary general - Abdul Rahman al-Bazzaz (1964-65). Another Iraqi - Fadhil al-Chalabi was only an ‘acting’ secretary general from 1983-88.

On a closing note, well there is one more footnote to all of this. While Iraq is a member of OPEC; it does not have a stated individual oil production quota which was suspended in wake of hostilities and later to facilitate a recovery. Negotiations are likely to take place once Iraqi production increases to at least 4 million bpd; this would be by 2015 based on current industry projections.

It’s hectic here, and apart from giving soundbites to the usual suspects, it was a pleasure speaking to Middle Eastern broadcasters, especially MBC. That’s all for the moment folks as we prepare to say goodbye to outgoing Secretary General Abdalla Salem El-Badri! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: OPEC HQ, Vienna, Austria © Gaurav Sharma 2011.

An OPEC seminar & an Indian minister

Indian oil minister S. Jaipal Reddy is rather sought after these days. You would be, if you represented one of the biggest consumers of the crude stuff. So it is just about right that OPEC’s 5th international seminar here in Vienna had Reddy speak at a session titled: “Oil and the World Economy.”

In face of growing international pressure to reduce its dependence on Iranian oil and running out of capital market mechanisms to actually pay for the stuff in wake of US/EU sanctions, the Indian minister certainly had a few things to say and wanted to be heard.

India is the world's fourth-largest oil importer with all of its major suppliers being OPEC member nations, viz. - Saudi Arabia, Iraq and Iran. Given what is afoot from a global macroeconomic standpoint, Reddy has called upon oil producing and consuming countries to work together to build trust and share market data to establish demand certainty in international oil markets.

Unsurprisingly, he admitted that in an oil-importing country like India, higher oil prices lead to domestic inflation, increased input costs, an increase in the budget deficit which invariably drives up interest rates and slows down the economic growth.

“There could not be a more direct cause and effect relation than high oil prices retarding economic growth of oil-importing countries,” Reddy said adding that a sustained US$10 per barrel increase in crude prices reduces growth in developing countries by 1.5%.

“We are meeting in difficult times. The Eurozone crisis, the continuing recession in the global economy, rising geopolitical tensions, a sustained phase of high and volatile international oil prices, extraneous factors continuing to influence the price formation of oil – all these pose serious challenges to the health of the global economy and stability of the world’s financial system. The current global financial crisis, which has lasted longer than we thought in 2008, is the greatest threat faced by the global economy since the Great Depression eight decades ago,” he said further.

Reddy revealed that between the Financial Year 2010-11 and 2011-12, India’s annual average cost of imported crude oil increased by US$27 per barrel, making India’s oil import bill rise from US$100 billion to a whopping US$140 billion.

“Furthermore, since we could not pass on the full impact of high international oil prices, we had to shell out subsidies to consumers amounting to US$25 billion dollars...India’s GDP grew at 6.9% during the last financial year down from the 8% plus growth rate experienced in the past few years,” he continued.

India and perhaps many others see themselves distinguishing two schools of thoughts here in Vienna. One school holds that the global economy has built up enough resilience to absorb oil price hikes due to (a) stronger demand from emerging economies and, (b) more enlightened Central Bank policies; the other school is categorical that high oil prices are one of the primary reasons for the weak conditions in the economies of the US and Europe.

“We subscribe to the latter view and hold that very high and volatile oil prices will continue to weaken global efforts for an expeditious recovery from the ongoing global economic recession and financial crisis,” Reddy concluded.

The viewpoint of an importers’ club member is always welcome at an exporting cartel’s event. For good measure, the representatives of Nigeria, Ecuador and Iran provided the exporters’ perspective and IFC’s spokesperson did the balancing act as a sideshow. As for the word “Iran” and the sanctions it faces; the Oilholic has been told in no uncertain terms by quite a few key people that it’s...er...ahem...a taboo subject at this meeting. That's all for the moment folks. Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: Indian Gas Station © Indian Oil Corporation Ltd.

OPEC hawks are back in town (too)!

So the crude games have begun, the camera crews have begun arriving and the Saudis have begun throwing down the gauntlet by first suggesting that OPEC actually raise its output and then indicating that they might well be happy with the current production cap at 30 million bpd. However, hawks demanding a cut in production are also in Vienna in full flow.

With benchmark crude futures dipping below US$100, the Venezuelans say they are “concerned” about fellow members violating the agreed production ceiling. In fact, Venezuelan President Hugo Chavez expressed his sentiments directly over the air-waves rather than leave it to his trusted minister at the OPEC table - Rafael Ramirez.

For his part, on arrival in Vienna, Ramirez said, “We are going to make a very strong call in the meeting that the countries that are over-producing cut. We think we need to keep the ceiling on production of 30 million that was agreed at our last meeting in December."

Iraq's Abdul Kareem Luaibi, told a media scrum that a “surplus in OPEC supplies” exists which has led to “this severe decline in prices in a very short time span.” Grumblings also appear to be coming from the Algerian camp, while the Kuwaitis described the market conditions as “strange.”

Speaking to reporters on Monday, Kuwait’s Oil Minister Hani Hussein said, “Some of OPEC members are concerned about the prices and what’s happening…about what direction prices are taking and production.”

However, Hussein refused to be drawn into a discussion over a proposed OPEC production cut by the hawks.

Meanwhile, one cartel member with most to fear from a dip in the crude price – Iran – has also unsurprisingly called for an adherence to the OPEC production quota. Stunted by US and EU sanctions, it has seen its production drop to 3 million bpd - the lowest in eight quarters. Much to its chagrin, regional geopolitical rival Saudi Arabia has lifted its global supply to make-up the absence of Iranian crude in certain global markets.

At the cartel’s last meeting in December, OPEC members agreed to hold ‘official’ output at 30 million bpd. Yet, extra unofficial production came from Saudi Arabia, Iraq and Kuwait. Say what you will, the Oilholic is firmly in the camp that a reintroduction of individual OPEC quotas to help the cartel control its members’ production is highly unlikely. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Broadcast media assembly point outside OPEC HQ, Vienna, Austria © Gaurav Sharma 2011.

First vibes from OPEC, monthly data & Mr. Al-Naimi

The Oilholic is in Vienna ahead of the 161st meeting of OPEC ministers and the 5th OPEC International seminar; the latter being a forum where the great and good of this crude world interact with OPEC ministers and other invited dignitaries once every two years. However, even before the proceedings have begun, the cartel’s Monthly Market Report has stirred things up.

Back dated figures for April suggest, OPEC’s production for the month came in 32.964 million barrels per day (bpd) up 631,000 bpd from March. The figure for May came in lower at 31.58 million bpd; but still well above the cartel’s production cap of 30 million bpd. Such a high level has not been recorded since 2008 when the price of crude rose to a spectacular high only to fall sharply as the global financial crisis took hold. The data would suggest that together with non-OPEC sources, the market remains well supplied. Furthermore, in the face of economic uncertainty demand could drop as the economies of India and China show signs of medium term cooling.

On the subject of demand, OPEC notes, “The upcoming driving season might be affected by movements in retail gasoline prices and economic developments worldwide; hence, world oil demand would show a further decline and might see a cut of between 0.2 and 0.3 million bpd from the current forecast of the year's total growth (0.9 million)."

With leading benchmarks Brent and WTI falling below US$100 a barrel this week along with the OPEC basket price, some would think the Saudis would be keen to support a cut in the cartel’s production quota. Figures suggest OPEC's largest producer did in fact reduce its output to 9.8 million bpd in May from 10.1 million bpd in April. That is still the highest Saudi production rate on record for the last three years and the country recently reclaimed its top spot from Russia as the world’s largest producer of crude oil.

However, ahead of the OPEC meeting on June 14, the country’s inimitable oil minister Ali al-Naimi has jolted a few by actually calling for an increase in OPEC’s output. In an interview with the Gulf Oil Review (published by Bill Farren-Price’s Petroleum Policy Intelligence), he said, “Our actions have helped the oil price drop from US$128 in March to about $100 today which has acted as a type of stimulus to the European and world economy…Our analysis suggests that we will need a higher ceiling than currently exists."

"Given our large crude oil reserve situation, we certainly want to see a sustained market for crude oil over the long term. This calls for moderation, but on the other hand, with the cost of oil production going up...a reasonable price is required to ensure exploration can continue," he added.

Clearly the Saudis are on a collision course with other cartel members but since his interview al-Naimi has said he is “happy with the way things are”. Read what you will; we’ve been here before and such OPEC chatter is nothing new, except for the ‘stimulus’ hypothesis which has a nice ring to it. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: OPEC Logo on building exterior © Gaurav Sharma 2011.

UK & Norway: A ‘crudely’ special relationship

Unconnected to the current systemic financial malaise in Europe, a recent visit to Oslo by British Prime Minister David Cameron for a meeting with his Norwegian counterpart Jens Stoltenberg went largely unnoticed. However, its ‘crude’ significance cannot be understated and Cameron’s visit was the first by a British Prime Minister since Margaret Thatcher’s in 1986.

Beaming before the cameras, Stoltenberg and Cameron announced an "energy partnership" encompassing oil, gas and renewable energy production. As production from established wells has peaked in the Norwegian and British sectors of the North Sea, a lot has changed since 1986. The two principal proponents of exploration in the area are now prospecting in hostile climes of the hitherto unexplored far North – beyond Shetland Islands and in the Barents Sea.

Reading between PR lines, the crux of what emerged from Oslo last week is that both governments want to make it easier for firms to raise money for projects and to develop new technologies bearing potential benefits in terms of energy security. That Cameron is the first British PM to visit Norway in decades also comes as no surprise in wake of media reports that the Norwegian sector of the North Sea is witnessing a second renaissance. So of the growing amount of oil the UK imports since its own production peaked in 1999 – Norway accounts for over 60% of it. The percentage for British gas imports from Norway is nearly the same.

"I hope that my visit to Oslo will help secure affordable energy supplies for decades to come and enhance investment between our two countries. This will mean more collaboration on affordable long-term gas supply, more reciprocal investment in oil, gas and renewable energies and more commercial deals creating thousands of new jobs and adding billions to our economies," Cameron said.

For their part the Norwegians, who export over five times as much energy as they use domestically, told their guest that they see the UK as a reliable energy partner. We hear you sir(s)!

Meanwhile, UK Office for National Statistics’ (ONS) latest production data released this morning shows that extractive industries output fell by 15% on an annualised basis in April with oil & gas production accounting for a sizeable chunk of the decline.

A further break-up of data suggests oil & gas production came in 18.2% lower in April 2012 when compared with the recorded data for April 2011. Statisticians say production would have been higher in April had it not been for the shutdown of Total’s Elgin platform in the North Sea because of a gas leak.

Elsewhere, farcical scenes ensued at the country’s Manchester airport where the airport authority ran out of aviation fuel causing delays and flight cancellations for hours before supplies were restored. Everyone in the UK is asking the same question – how on earth could this happen? Here’s the BBC’s attempt to answer it.

Finally the Oilholic has found time and information to be in a position to re-examine the feisty tussle for Cove Energy. After Shell’s rather mundane attempt to match Thai company PTTEP’s offer for Cove, the Thais upped the stakes late last month with a £1.22 billion takeover offer for the Mozambique-focused oil & gas offshore company.

PTTEP’s 240 pence/share offer improves upon its last offer of 220 pence or £1.12 billion in valuation which Shell had matched to nods of approval from Cove’s board and the Government of Mozambique. The tussle has been going on since February when Shell first came up with a 195 pence/share offer which PTTEP then bettered.

Yours truly believes Cove’s recommendation to shareholders in favour of PTTEP’s latest offer does not guarantee that the tussle is over. After all, Cove recommended Shell’s last offer too which even had a break clause attached. Chris Searle, corporate finance partner at accountants BDO, feels the tussle for control may end up with someone overpaying.

“I’m not surprised that PTTEP have come back in for Cove since the latter’s gas assets are so attractive. Of course the danger is that we now get into a really competitive auction that in the end will lead to one of the bidders overpaying. It will be interesting to see how far this goes and who blinks first,” he concludes.

Cove’s main asset is an 8.5% stake in the Rovuma Offshore Area 1 off the coast of Mozambique where Anadarko projects recoverable reserves of 30 tcf of natural gas. Someone just might end-up overpaying.

On the pricing front, instead of the Spanish rescue calming the markets, a fresh round of volatility has taken hold. One colleague in the City wonders whether it had actually ever left as confusion prevails over what messages to take from the new development. Instead of the positivity lasting, Spain's benchmark 10-year bond yields rose to 6.65% and Italy's 10-year bond yield rose to 6.19%, not seen since May and January respectively.

Last time yours truly checked, Brent forward month futures contract was resisting US$97 while WTI was resisting US$82. That’s all for the moment folks! The Oilholic is off to Vienna for the 161st OPEC meeting of ministers. More from Austria soon; keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil Rig in the North Sea © Royal Dutch Shell.