Ho hum moves for fewer oil drums

In case you have been on another planet and haven’t heard, after weeks of chatter about coordinated oil output cuts by OPEC and non-OPEC producers, we finally had some movement. The Oilholic deploys the word 'movement' here rather cagily.

Three OPEC members led by heavyweight Saudi Arabia, with Qatar and Venezuela in tow, joined hands with the Russians, to announce a production ‘freeze’ at January’s output levels  on Tuesday, provided ‘others’ agree to do likewise. 

The most important others happen to be Iraq and Iran who haven’t exactly come out in support of the said freeze just yet. Even if they do agree, or in fact all OPEC members agree, the freeze would come at production levels deemed to be historical highs for both the Russians and OPEC. In case of the latter, industry surveys and data from aggregators as diverse as Platts and Bloomberg points to all 12 exporting OPEC nations collectively pumping above 32 million barrels per day.

Predictably, the oil futures market treated the news of the 'freeze' with the sort of disdain it deserved. The price remains stuck in the range where it has been and short-term volatility is likely to last; so much of what transpired was, well, exceedingly boring from a market standpoint, excepting that it was the first instance of OPEC and non-OPEC coordinated action in 15 years. 

If OPEC really wants to support prices, an uptick in the region of $7-10 per barrel would require the cartel to introduce a real terms cut of 1.5 million bpd. Even then, the gains would short-term, and the only people benefitting would be North American players. Some of them are the very wildcatters, whose tenacity for surviving when oil is staying ‘lower for longer’, OPEC has so far failed to work out with any strategic coherence. Expect more of the same in a market that's still awash with crude oil. 

Finally, just before one takes your leave, it seems Moody's has placed on review for downgrade the Aa3 ratings of China National Petroleum Corporation (CNPC), Sinopec Group, Sinopec Corp, China National Offshore Oil Corporation (CNOOC Group) and CNOOC Limited.

The ratings agency has also placed on review for downgrade the ratings of the Chinese national oil companies' rated subsidiaries, including Kunlun Energy Company Limited, CNPC Finance (HK) Limited, CNPC Captive Insurance Company Limited, CNOOC Finance Corporation Ltd, and Sinopec Century Bright Capital Investment Limited.

In a statement, Moody’s said global rating actions on many energy companies, reflect its efforts to "recalibrate the ratings in the energy portfolio to align with the fundamental shift in the credit conditions of the global energy sector." Can’t argue with that! That’s all for the moment folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo: Oil exploration site in Russia © LukOil

China’s thirst: A few 'crude' notes from Shanghai

The Oilholic finds himself in Shanghai, the financial capital of China. Home to some 24 million people, this bustling metropolis, and what makes it tick, explains away the country’s consumption pattern of hydrocarbons, colossal state-owned oil & gas companies and a progressive lurch forward in the world of finance.

China uses more energy per GDP unit than any other country in the world, and factored in that equation is Shanghai which burns more hydrocarbons that any other major Chinese metropolitan area. While savouring the glitzy lights of the Shanghai waterfront, should the haze and weather permit, most visitors either fail to notice or attach importance to oil tankers frequently passing up and down the Huangpu River (see above left, in the darkness below the Oriental Pearl TV & Radio Tower).

China is the world’s largest net importer of crude oil, and its financial gateway is also its gateway for imported crude to be processed and moved. The city’s Pudong district alone has 240,000 barrels per day (bpd) of refining capacity. According to a distillates market commentator, plans are being spearheaded by Sinopec to take old creaking facilities offline and replace them with a new cleaner low carbon refinery with a whopping 400,000 bpd processing capacity at Caojing Industrial Park, some 50 km south of downtown Shanghai.

The capacity would have to be whopping, catering to Shanghai's Yangshang Port which overtook Rotterdam in 2004 to become the world’s busiest container port by volume and cargoes. Of the city's two main airports – Pudong International – is the world’s third-biggest mover of air cargo. Then with an area of 6,340.5 sq km, Shanghai is the world’s largest city and China’s most populous. 

Its growing, and growing fast. In 2001, the Oilholic remembered watching a BBC report on the city’s construction drive. Much of it was focussed on Pudong’s financial district which resembled something of an urban metallic mess. As yours truly came out of the Lujiazui Metro Station on Friday afternoon to see for himself, the said urban mess has in fact progressed to a sprawling skyscrapered representation of Chinese economic prowess in less than a decade.

Furthermore, yet more skyscrapers keep springing up. A trader correctly pointed out that the Oilholic has arrived to witness the party a bit late. Guilty as charged, more so as flat macroeconomic data has taken some (but not all) of the fizz out of late. Nonetheless, the inexorable eastward movement of importers’ petrodollars is manifestly apparent, more so as Chinese imports (and refining capacity) rises, while US imports decline and conditions for OECD refiners remain challenging.

To provide some context, Wood McKenzie notes that by 2020, US crude oil imports would have fallen below 7 million bpd thanks to shale and lower demand, while China’s would have risen above 9 million bpd. Bearing the wider market dynamic in mind, Chinese regulators are trying to bolster Shanghai’s clout in the wider commodities and financial markets.

For instance, three reliable financial sector sources expressed confidence that the domestic market regulator will introduce options trading over the fourth quarter of this year. A spokesperson for Shanghai’s International Energy Exchange says it will commence the trading of crude oil futures this year. It must also be noted that Shanghai’s commodities exchanges are backed-up by those in Dalian and Zhengzhou.

As for corporate deal flow, propped up by state-owned enterprises, it’s a case of more said the better. A Reuters report suggests spending by state-controlled oil & gas majors is likely to rise over the coming months, led by Sinopec and PetroChina, as the industry recovers from a government probe into industry graft allegations.

Some market commentators here in Shanghai are forecasting an overall annualised jump of over 45% in the total value of mergers and acquisitions (M&A) by Chinese companies, with oil & gas majors leading the way. It can’t be said for sure whether that’s a fair assessment or an overoptimistic take by local commentators, but it is in line with empirical evidence from elsewhere. 

For instance, Mergermarket recently noted that China was, perhaps unsurprisingly, the biggest market for M&A deals in the region, with deals worth US$128.4 billion over the first half of the year. Recent studies by EY, PwC and Deloitte have also noted the Chinese clout in terms energy sector M&A deals.

There’s potential for foreign direct investment as well. For instance, a stake, possibly as high as 30%, is up for grabs at Sinopec Sales, the company’s retail and marketing unit, which could be worth Yuan 100 billion (£10.04 billion, $16.29 billion) in terms of market valuation. It has attracted 37 bidders, including international participants and joint consortiums, according to local media.

Rather unusually, Sinopec Chairman Fu Chengyu also told media outlets that new stakeholders could be offered seats on its board. As with everything in China, it’s not done till it’s done. However, should such a level of holistic reform at regulatory and corporate levels go through to fruition, this blogger can see two major Asian commodities and financial markets – i.e. Hong Kong and Singapore – really feeling the heat.

Yet, there are stumbling blocks in Shanghai’s march forward. Red tape is a big one, for everything is described by spokespeople as “imminent” but with no verifiable timeline for execution or a firm date. While one can sense the positive intent for reforms, that alone won’t lead to end-delivery.

Another is pollution in the city, which is making residents restless about new refinery capacity, and rightly so. Shanghai’s horrendous traffic jams pose another problem though a fantastic metro, mass rail transit systems and not to mention the world’s first commercial magnetic levitation railway line do make residents and visitors’ lives a significantly easier.

Finally, the biggest stumbling block is the Yuan, which isn’t a fully convertible currency. The Oilholic thinks it’s probably why Shanghai's Free Trade Area (FTA), due to celebrate the first anniversary of its establishment this month, has largely turned out to be a dud so far. The 28.78 sq km zone in where else but Pudong was supposedly modelled on a mini Hong Kong.

The FTA found promises of attracting a wider range businesses and looser custom intervention easy to deliver along with swanky logistics and construction work. However, a full convertible Yuan and a market-based interest rate mechanism have proved to be anything but deliverable.

While the authorities have permitted companies in the FTA open “special accounts” facilitating cross-border capital flows, transactions between these and overseas accounts can hardly be described as “free transfers” in a British or American business sense. It’s also difficult to envisage how the creation of 8 spot trading platforms for commodities ranging from iron ore to cotton would work in the FTA, as is being planned, without a convertible currency.

All in all, and to be quite honest, FTA fans expecting a fully convertible Yuan were perhaps being overoptimistic. The Chinese will find their currency pathway at their convenience and in their own time. Nonetheless, crude reality is that the Chinese juggernaut will roll on, and in the context of the commodities market, dominate the discourse for some time yet.

That’s all for the moment from China folks as its time to bid a sad goodbye to Shanghai! It was great being here to get a first hand feel of the Chinese oil & gas sphere rather than commentating on it from the comfort of a desk in London. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2014. Photo 1: Shanghai Huangpu River Waterfront. Photo 2: Pudong Financial District. Photo 3: Flag of the Peoples Republic of China. Photo 4: East Nanjing Road. Photo 5: Traffic Jam, Shanghai, China © Gaurav Sharma, September, 2014.

End of Q1 2013 trade @ CBOT & hot air on shale

As trading came to a close for Q1 2013 at the Chicago Board of Trade (CBOT) on Thursday afternoon, the Oilholic saw crude oil futures rise during the last session of the first quarter aided undoubtedly by a weaker dollar supporting the prices. However, yours truly also saw something particularly telling – fidgeting with the nearest available data terminal would tell you that Brent crude futures slipped nearly 1 percent over Q1 2013. This extended a near-1 percent dip seen in Q4 2012. Overall, Brent averaged just around the US$112 per barrel level for much of 2012 and the Brent-WTI premium narrowed to its lowest level in eight months on March 28. That said, it must be acknowledged that US$112 is still the highest ever average annual price for the benchmark as far as the Oilholic can remember.

In its quarter ending oil market report, the CME/CBOT said improved sentiment towards Cyprus was seen as a supportive force helping to lift risk taking sentiment in the final few days before Easter. On the other hand, concerns over ample near term supply weighed on nearby calendar spreads, in particular the Brent May contract.

In fact, the May versus June Brent crude oil spread narrowed to its slimmest margin since July 2012. Some traders here indicated that an unwinding of the spread was in part due to an active North Sea loading schedule for April and prospects for further declines in Cushing, Oaklahoma supply.

Away from price issues, news arrived here that ratings agency Moody’s reckons an escalation in the cost of complying with US federal renewable fuel requirements poses a headwind for the American refining and marketing industry over the next two years (and potentially beyond if yours truly read the small print right).

Moody’s said prices were spiking for renewable identification numbers (RIN) which the US Environmental Protection Agency (EPA) uses to track whether fuel refiners, blenders and importers are meeting their renewable-fuel volume obligations.

Senior analyst Saulat Sultan said, "US refining companies either amass RINs through their blending efforts or buy them on the secondary market in order to meet their annual renewable-fuel obligations. It isn't yet clear whether recent price increases reflect a potential shortfall in RIN availability in 2014, or more structural and permanent changes for the refining industry."

The impact of higher RIN prices will depend on a company's ability to meet its RIN requirements internally, as well as the amount of RINs it can carry over to 2014 and gasoline export opportunities, Sultan says. Refiners carried over about 2.6 billion excess RINs to 2013 from 2012, but the EPA expects a lower quantity to be carried over to 2014.

"RIN purchasing costs can be sizable, even while refiners are generally enjoying a period of strong profitability, such as they are now. Integrated refining and marketing companies including Phillips 66, Marathon Petroleum and Northern Tier Energy LLC are likely to be better positioned than sellers that do not blend most of their gasoline, such as Valero Energy, CVR Refining LLC and PBF Energy, or refiners with limited export capabilities, such as HollyFrontier," Sultan added.

Concurrently, increasing ethanol blending, which is used to generate enough RINs to comply with federal regulations, raises potential legal issues for refiners. This is because gasoline demand is flat or declining and exceeding the 10% threshold (the "blend wall") could attract lawsuits from consumers whose vehicle warranties prohibit using fuel with a higher percentage. However, Moody's does not believe that companies will raise the ethanol content without some protection from the federal government. 

Meanwhile, all the hot air about the ‘domestic dangers’ and ‘negative implications’ of the US exporting gas is getting hotter. A group – America’s Energy Advantage – has hit the airwaves, newspapers and wires here claiming that "exporting LNG carries with it the potential threat of damaging jobs and investment in the US manufacturing sector as rising exports will drive up the price of gas to the detriment of domestic industries."

So who are these guys? Well the group is backed by several prominent US industrial brands including Alcoa, Huntsman chemicals and Dow Chemical. Continuing with the subject, even though only one US terminal – Sabine Pass – has been permitted to export the fruits of the shale revolution, chatter in forex circles is already turning to shale oil and gas improving the fortunes of the US Dollar!

For instance, Ashok Shah, investment director at London & Capital, feels this seismic shift could improve growth prospects, reduce inflation and diminish the US current account deficit, with significant ramifications for long-term investors.

"For the past decade we have seen the US Dollar in decline, on a trade weighted basis. I believe the emergence of shale oil as a viable energy source looks set to have a considerable impact on the US dollar, and on the global economy as a whole," Shah said.

"Furthermore, a lower oil price will drive lower global headline inflation benefiting the US in particular - and a lower relative inflation rate will be a positive USD driver, improving the long-term purchasing power of the currency," he added.

The Russians are stirring up too. Last week, Gazprom and CNPC signed a 30-year memorandum to supply 38 billion cubic meters (bcm) to 60 bcm of natural gas from Eastern Siberian fields to China from 2018. The negotiations haven’t concluded yet. A legally binding agreement must be signed by June and final documents by the end of the year, covering pricing and prepayment terms. Let us see the small print before making a call on this one. On a related note, ratings agency Fitch says Gazprom is unlikely to offer any meaningful gas price concessions to another one of its customers – Naftogaz of Ukraine – in the short term owing to high spot prices for natural gas in Europe, currently being driven by the continued cold weather.

Sticking with the Russian front, Rosneft, which recently completed the acquisition of TNK-BP, has negotiated an increase in its oil shipments to China from the current 15mtpa to as much as 31mtpa in exchange for a pre-payment, and has agreed on a number of joint projects in exploration, refining and chemicals production with CNPC and Sinopec.

This is it for this post; it is time to bid goodbye to Chicago and Lake Michigan’s shoreline and hop 436 miles across the Great Lakes to say hello to Lake Ontario’s shoreline and Toronto. The Oilholic leaves you with a view of the waterfront and the city’s iconic buildings; the Willis Tower (once Sears Tower is on the left of the frame above).

It’s been a memorable adventure to Illinois, not least getting to visit  CBOT – the world’s oldest options and futures exchange. Leaving is always hard, but to quote Robert Frost – “I have promises to keep, and miles before I go to sleep.” That’s all from the Windy City folks! Keep reading, keep it ‘crude’!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Exterior of the Chicago Board of Trade. Photo 2: Chicago's Skyline and Lake Michigan, Illinois, USA © Gaurav Sharma.

Why CNOOC’s move matters beyond Canada?

China’s CNOOC has made yet another Canadian acquisition; only its latest one announced earlier this week has global implications in the shape of Nexen. On July 23rd Nexen’s board approved CNOOC’s offer to pay US$27.50 per share valuing their company at US$15.1 billion; a near 60% appreciation on valuation at the close of trading on July 20th.

So why does this acquisition matter? After all, it isn’t the first time the Chinese state-owned firm has acquired a Canadian asset. Only last November, CNOOC bought Canadian oil sands firm Opti Canada for C$2.1 billion. In 2005, it acquired a 16.7% share of MEG Energy, another Canadian oil firm.

A CNOOC communiqué suggests it is operating as any oil company would, i.e. by strategically expanding its reserve base. It says the acquisition, which is yet to be cleared by the Canadian government, would boost its oil reserves by 30%.

In a rather 'crude' world, if this Chinese takeover is approved by the Canadians, CNOOC would take control of the UK's largest producing oil field - Buzzard. This would be on top of the Golden Eagle prospection zone about 43 miles offshore from Aberdeen. Unlike oil sands upstarts, Nexen is a major established global operator and has a significant presence in the North Sea. 

Now if you count Sinopec 49% stake in Talisman's business in the British sector of the North Sea together with hypothetical CNOOC access via a takeover of Nexen; it would in theory give the Chinese control of just under 10% of British oil and gas production in the North Sea!

Understandably, there have been murmurings in the Oilholic’s part of the world. However, there are no loud noises as they would run contrary to the British government’s pro-investment stance and in any case they can’t do much about it. By law, the Canadians can block any foreign investments in the country’s firms exceeding C$330 million if the government believes they are not in Canada's best interests. In 2010, the Canadian government prevented BHP Billiton's US$39 billion hostile takeover of fertiliser firm Potash Corp. The LSE-TSX shenanigans of last year are also well documented.

Chinese firms have not felt as welcome in the US, but in Canada their investment is not considered a taboo subject. So how the Harper government responds in this case, which has far reaching implications beyond Canada, remains to be seen.

Meanwhile, contrary to AAR and tycoon Mikhail Fridman’s assertion that there were no takers for BP’s stake in Russia’s TNK-BP, Russian state giant Rosneft has said it is considering buying the stake. A Roseneft statement earlier this week suggested it was interested in a ‘potential acquisition’.

TNK-BP is jointly owned by AAR and BP. Already troubled relations between the two became further fraught after BP sought to form a separate partnership with Rosneft last year.

As AAR has preferred bidder status, this gives it around 90 days during which BP can talk to – but not sign an agreement with – other parties interested in its stake. BP put up its half of the TNK-BP business up for sale in June. AAR has itself declared an interest in buying BP's share.

Finally, the Oilholic is getting in to the Olympics spirit as well! The Chinese, Russians, Americans, Canadians and athletes of some 200-odd countries are now in London town. The Tower Bridge has got its own fancy Olympics rings (see above) and the Olympic Torch passed from the street in front of this blogger’s humble abode on Thursday (see below)!

For those wondering how the torch was being kept powered-up in some really wretched British weather – there is a liquid fuel canister located about halfway up the torch connected via tiny pipe to the top. Through it, the fuel travels up before it is released out at the top of the torch where the pressure in it decreases and this converts the liquid into gas ignited by a spark. Despite exhaustive enquiries, no one would reveal the flow rate which is special to each Olympic torch.

This has been the case since 1972 and London 2012 is no exception to this rule. Quite a few London 2012 Olympic Torches are up for sale on eBay should any of you wish to get your own now that Olympics opening ceremony is done and the cauldron has been lit in the stadium. That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo 1: North Sea oil rig © Shell. Photo 2: Tower Bridge London with Olympic rings. Photo 3: London 2012 Olympic Torch passes through London Borough of Barnet, UK.  © Gaurav Sharma 2012.

Brent & the ‘crude’ fortnight to Friday the 13th!

Despite crude economic headwinds, the Brent forward month futures price spiked back well above US$100 per barrel on July 3. No one was convinced it’d stay there and so it proved to be barely a week later. Since then it has lurked around the US$100 mark. Our crude friends in the trading community always like to flag up supply shocks – some real some and some perceived along with some profit taking thrown in the mix.

The Norwegian oil industry strike which began on June 24 was a very real threat to supply. When oil industry workers down tools in a country which is the world’s fifth largest exporter of the crude stuff, then alarm bells ought to ring and so they did. Being a waterborne crude benchmark, Brent was always likely to be susceptible to one of its main production sources. The Louisiana Light’s fluctuation over the hurricane season stateside would be a fair analogy for the way Brent responded to the news of the strike.

Quite frankly, forget the benchmark; the strike saw Norwegian oil production dip by 13% and its gas output by 4% over the 16 days that it lasted. So when a Reuters report came in that Norway's government had used emergency powers to step in and force offshore oil and gas workers back to work, more than the bulls eased off.

The dispute, which is by no means over, concerns offshore workers' demand for the right to retire early, at 62, with a full pension. The row revolves around the elimination of a pension add-on introduced in 1998 for workers who retire (at 62), five years ahead of Norway's official retirement age and three years ahead of the general age for oil workers.

Accompanying a very real supply shock in the shape of the Norwegian strike were empty threats from Iran to close the Strait of Hormuz in wake of the EU sanctions squeeze. Traders put two and two together and perhaps came-up with 22 out of a sense of mischief.

First of all, the Iranians would be mighty silly if they decided to close the Strait of Hormuz with the US Fifth fleet lurking around. It just would not work and Iran would hurt itself more for the sake of what would at best be a temporary disruption. Secondly, City estimates, for instance the latest one being put out by Capital Economics, suggest that the US and EU sanctions could ultimately reduce oil exports from Iran by as much as 1.5 million barrels per day (bpd).

While it is serious stuff for Iran, the figure is less than 2% of global supply. As such hardly anyone in the City expects the implementation of sanctions on Iran to be a game-changer from a pricing standpoint.

“We maintain our view that the imminent tightening of Western sanctions on Iran is unlikely to have anywhere near as large an impact on global oil prices as many had feared. Demand is weakening and other suppliers are both able and willing to meet any shortfall. Admittedly, much could still depend on how the Iranian regime chooses to respond,” said Julian Jessop of Capital Economics.

Causative effect of such a market sentiment predictably sees Brent back in US$90s to lower US$100 range. In fact Capital Economics, Société Générale, Moody’s and many other forecasters have a US$70-100 per barrel forecast for Brent for the remainder of the year.

A spokesperson for Moody’s told the Oilholic that the agency has lowered its crude price assumptions to US$100/barrel for Brent and US$90/barrel for WTI in 2012, with an additional expected decline to US$95/barrel for Brent and US$85/barrel for WTI in 2013.

Moody's also expects that the spread between benchmark Brent and WTI crude will narrow to about US$5 in 2014. In a report, the agency adds that a drop in oil prices and jitters over economic conditions in Europe, the US and China suggest the global exploration and production sector (E&P) will see its earnings grow more slowly over the next 12 to 18 months.

As such, Moody's expects E&P industry EBITDA to grow in the mid-to-high single digits year on year through mid-2013. Expectations for EBITDA growth in the sector above 10% would suggest a positive outlook, while a retreat of 10% or more would point to a negative outlook. Moody's changed its outlook for the E&P industry to stable from positive on June 27, 2012.

The agency also expects little change in US natural gas prices before the end of 2013 with a normal winter offering the best near-term support for natural gas prices as increased utility and industrial demand will ramp up slowly.

On the corporate front, in an interesting fortnight Origin Energy announced that the Australia Pacific LNG project (APLNG) – in which its stake is at 37.5% after completion of Sinopec's additional equity subscription – has received board approval for Final Investment Decision (FID) for the development of a second LNG train.

The expanded two-train project is expected to cost US$20 billion for a coal seam gas (CSG) to liquefied natural gas (LNG) project in Queensland, Australia. Elsewhere, India’s Essar Energy subsidiary Essar E&P Ltd is to sell a 50% stake in Vietnam's offshore gas exploration block 114 to Italy’s ENI.

Under the terms of the transaction, which is still subject to approval from the Vietnamese government, ENI is also assuming operator status for the block. Yours truly guesses the Indian company finally decided it was time to indulge in a bit of risk diversification.

Continuing with corporate stuff, the Oilholic told you BP’s planned divestment in TNK-BP won’t come about that easily or smoothly. One of its oligarch partners - Mikhail Fridman - has alleged that there are no credible buyers for BP’s 50% stake in the dispute ridden Russian venture.

In an interview with the Wall Street Journal on June 29, Fridman said, "We doubt it has any basis in fact. They are trying to buy time, to reassure investors."

However, BP said it stood by its announcement. It also announced an agreement to sell its interests in the Alba and Britannia fields in the British sector of the North Sea to Mitsui for US$280 million. The sale includes BP’s non-operating 13.3% stake in Alba and 8.97% stake in Britannia. Completion of the deal is anticipated by the end of Q3 2012, subject to UK regulatory approvals.

Net production from the two fields averages around 7,000 barrels of oil equivalent per day. It is yet another example of BP’s smart management of its asset portfolio in wake of Macondo as the company refocuses on pastures and businesses new.

Elsewhere in the North Sea, Dana Petroleum expects to start drilling at two new oil fields off Shetland named - Harris and Barra – by Q2 2013. The first crude consignment from what’s described as the Western Isles project will come onstream in 2015. A spokesperson said field production could run for 15 years.

The region needs all the barrels it can pull as the UK’s budgetary watchdog – the Office for Budget Responsibility (OBR) – has projected that future oil and gas revenues from the North Sea may be much lower than previous forecasts.

OBR sees the Brent prices rise from US$95/barrel in 2016 to US$173/barrel in 2040. “This compares lower with a projection in our assessment last year of a rise from US$107/barrel in 2015, rising to US$206/barrel in 2040," a spokesperson said.

As a result the OBR now projects tax receipts will be about 0.05% of GDP by 2040-41; half the level it projected in last year. It identified lower projected oil and gas prices as the key driver for the reduced figures given this year. The Oilholic won’t be called upon to vote on Scottish independence; but if yours truly was a Scottish Nationalist then there’d be a lot to worry about.

Finally, it looks like UK regulator – the Takeover Panel – has had enough of the protracted battle for the takeover of Cove Energy between Royal Dutch Shell and Thailand's PTTEP. It has given both parties a deadline of July 16 to make their final offers.

The Takeover Panel announced on Friday 13, July 2012 that if no offer is accepted by the said date, the sale of Cove will be decided by an auction on July 17. It could be lucky for neither, if they pay over the odds. That’s all for the moment folks. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: North Sea oil rig © Cairn Energy.