Gauging crude sentiments in Houston Town

The Oilholic is back in Houston, Texas for a plethora of events and another round of crude meetings. The weather in the oil and gas capital of the world at the moment seems to be mirroring what’s afoot in the wider industry, for there's rain, clouds, thunderstorms and the occasional ray of sunshine.

The industry’s mood hasn’t progressively darkened though; in fact it’s a bit better compared to when yours truly was last here exactly 12 months ago. Dire forecasts of $20 per barrel have not materialised, and forecasts of shale players in mature viable plays surviving at $35+ per barrel are appearing to be true. Additionally, the oil price is sticking in the $40-50 range.

That’s not to say another round of hedging will save everyone; bankruptcies within the sector continue to rise stateside. On the plus side US oil exports are now permitted and the speed with which President Barack Obama did away with a decades old embargo came as a pleasant surprise to much of the industry both within and beyond Houston. 

Finally, the US Energy Information Administration's recently released International Energy Outlook 2016 (IEO2016) projects that world energy consumption will grow by 48% between 2012 and 2040.

Most of this growth will come from countries that are not in the Organization for Economic Cooperation and Development (OECD), including countries where demand is driven by strong economic growth, particularly in Asia, says the Department of Energy’s statistics arm. Non-OECD Asia, including China and India, account for more than half of the world's total increase in energy consumption over the projection period. 

Plenty of exporting potential for US oil then! That’s all for the moment from Houston folks; keep reading, keep it crude!

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© Gaurav Sharma 2016. Photo: Downtown Houston, Texas, US © Gaurav Sharma.

OPEC vibes, a Libyan matter & market chatter

As OPEC prepares to meet for the first time this year, oil ministers of the 12 member nations should feel reasonably content. The hawks always like the oil price to be in three figures and doves usually like a support level above the region of US$85 per barrel using Brent as a benchmark. Needless to say, both camps are sitting comfortably at the moment and will continue to do so for a while.

Macroeconomic permutations and risk froth is keeping the oil price where OPEC wants it, so the Oilholic would be mighty surprised if the ministers decide to budge from the present official quota cap of 30 million barrels per day. Those going long on Brent have already bet on OPEC keeping its output right where it is.

Over the week to May 27, bets on a rising price rose to their highest level since September 2013. ICE's Commitment of Traders report for the week saw all concerned, including hedge funds, increase their net long position in Brent crude by 6% (or 4,692) to 213,364 positions, marking a third successive week of increases. Going the other way, the number of short positions fell by 7,796 to 42,096.

Wires might be saying that "all eyes" are on OPEC, but not many eyes would roll at Helferstorferstrasse 17 once the announcement is made. Futures actually slipped by around 0.5% as dullness and a minor bout of profit taking set in last week at one point. While the quota level is a done deal, what ministers would most likely discuss, when those pesky scribes (and er...bloggers) have been ejected out for the closed door meeting, is how much China would be importing or not.

Several independent forecasters, including the US EIA have predicted that China is likely to become the largest net importer of oil in 2014. By some measures it already is, and OPEC ministers would like to ponder over how much of that Chinese demand would be met by them as US imports continue to decline.

Other matters of course pertain to the appointment of a successor to Secretary General Abdalla Salem El-Badri, and where OPEC stands on the issue of production in his home country of Libya, which is nowhere near the level recorded prior to the civil war.

In order to pick-up the Libyan pulse a little better ahead of the OPEC meet, yours truly headed to IRN/Oliver Kinross 3rd New Libya Conference late last month. The great and good concerned with Libya were all there – IOCs, Libyan NOC, politicians, diplomats and civil servants from UK and Libya alike.

A diverse range of stakeholders agreed that the race to reversing Libyan production back to health would be a long slow marathon rather than a short sprint. Anyone who says otherwise is being naively optimistic.

Forget geopolitics, several commentators were quick to point out that Libya has had no private sector presence in the oil & gas sector. Instead, until recently, it has had 40 years of a controlling Gaddafi fiefdom. Legislative challenges also persist, as one commentator noted: "The road map to a petroleum regime starts first with a constitution."

That's something newly-elected Prime Minister Ahmed Maiteg must ponder over as he tries to bring a fractured country together. Then there is the investment case scenario. Foreign stake-holding in Libyan concerns is only permitted up to 49% despite a risky climate; the Libyan partner must be the majority owner. The oil & gas business has always operated under risk versus reward considerations. But a heightened sense of risk is something not all investors can cope with as noted by Sir Dominic Asquith, former UK ambassador to Iraq, Egypt and Libya, who was among the delegates.

"There is a long term potential with a bright Libyan horizon on the cards. However, getting to it would be a difficult journey, and particularly so for small and medium companies with a lesser propensity to take risk on their balance sheets than major companies," he added.

Meanwhile, a UK Foreign & Commonwealth office spokesperson said the British Government was not changing travel advice to Libya for its citizens any time soon. "We advise against all but essential travel to the country and Benghazi remains off limits. In case of companies wishing to do business in Libya, we strongly urge them to professionally review their own security arrangements."

Combine all of these latent challenges with the ongoing shenanigans and its not hard to figure out why the nation has become one of the smallest producers among its 12 OPEC counterparts and it may be a while yet before investors warm up to it. However, amid the pessimism, there is some optimism too.

Ahmed Ben Halim, CEO of Libya Holdings Group noted that sooner rather than later, the Libyans will sort their affairs out, even though the journey would be pretty volatile. Fares Law Group's Yannil Belbachir pointed out that despite everything all financial institutions were functions normally. That's always a good starting point.

Some uber-optimists also expressed hope of making Libya a "solar power" by tapping sunlight to produce electricity, introduce it back into the grid and send it via subsea cable from Tripoli to Sicily. Noble cause indeed! Being more realistic and looking at the medium term, with onshore prospection and production getting disrupted, offshore Sirte exploration, first realised by Hess Corporation, could provide a minor boost. Everyone from BP to the Libyan NOC is giving it a jolly good try!

Just one footnote, before the Oilholic takes your leave and that's to let you all know that one has also decided to provide insight to Forbes as a contributor on 'crude' matters which can be accessed here; look forward to your continued support on both avenues. That's all from London for the moment folks; more shortly from sunny Vienna at the 165th meeting of OPEC ministers . Keep reading, keep it 'crude'!

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© Gaurav Sharma, 2014. Photo 1: OPEC HQ, Vienna, Austria. © Gaurav Sharma, 2014.

Banality of forecasts predicated on short-termism

Oh dear! Oh dear! Oh dear! So the Brent crude price sank to a weekly loss last week; the first such instance in roughly a month. Is the Oilholic surprised? Not one jot. What yours truly is surprised about is that people are surprised! One sparrow does not make spring nor should we say one set of relatively positive Chinese data, released earlier this month, implies bullish trends are on a firm footing.

The Chinese news was used as a pretext by some to go long on the Brent forward month futures contract for March as it neared its closure (within touching distance of US$120 per barrel). And here we are a few days later with the Brent April contract dipping to a February 15 intraday price of US$116.83 on the back of poor industrial data from the US.

 

The briefest of spikes of the week before was accompanied by widespread commentary on business news channels that the price would breach and stay above the US$120 mark, possibly even rise above US$125. Now with the dip of the past week with us, the TV networks are awash with commentary about a realistic possibility that Brent may plummet to US$80 per barrel. You cannot but help laughing when spike n’ dips, as seen over the past few weeks, trigger a topsy-turvy muddle of commentators’ quotes.

 

Sometimes the Oilholic thinks many in the analyst community only cater to the spread betters! Look at the here, the now and have a flutter! Don’t put faith in the wider real economy, don’t examine the macroeconomic environment, just give a running commentary on price based on the news of the day! Nothing wrong with that, absolutely nothing – except don’t try to pass it off as some sort of a science! This blogger has consistently harped on – even at times sounding like a broken record to those who read his thoughts often – that the risk premium provided by the Iranian nuclear standoff is broadly neutral.

 

So much so, that the reason the Brent price has not fallen below US$100 is because the floor is actually being provided by the Iranian situation on a near constant basis. But that’s where it ends unless the country is attacked by Israel; the likelihood of which has receded of late. Syria’s trouble has implications in terms of its civil war starting a broader regional melee, but its production is near negligible in terms of crude supply-side arguments.

 

Taking all factors into account, as the Oilholic did last month, it is realistic to expect a Brent price in the range of US$105 to US$115. To cite a balanced quote, Han Pin Hsi, the global head of commodities research at Standard Chartered bank, said that oil should be trading at US$100 per barrel at the present moment in time were supply-demand fundamentals the only considering factors.

 

In recent research, Hsi has also noted that relatively lower economic growth as well as the current level of tension in the Middle East has already been “priced in” to the Brent price by the wider market. Unless either alters significantly, he sees an average price of US$111 per barrel for 2013.

 

Additionally, analysts at Société Générale note that along with the usual suspects – sorry bullish factors – now priced in, Brent could see some retracement on profit-taking, though “momentum and sentiment are still bullish”. The French bank’s analyst, Mike Wittner, notes that just as the Saudis have (currently) cut production, concerns over prices being “too high” will cause them to increase production. “In short, our view is that Brent has already priced in all the positive news, and it looks and feels toppy to us,” he wrote in an investment note. “Toppy” – like the expression (slang for markets reaching unstable highs whereupon a decline can be expected if not imminent)!

 

On a related note, in its short-term energy outlook released on February 12, the EIA estimates the spread between WTI and Brent spot price could be reduced by around 50% by 2014. The US agency estimates that the WTI will average US$93 and US$92 in 2013 and 2014 respectively, down from US$94 in 2012. It expects Brent to trade at US$109 in 2013 and edge lower to US$101 in 2014, down from the 2012 average of US$112.

 

Elsewhere in the report, the EIA estimates that the total US crude oil production averaged 6.4 million barrels per day (bpd) in 2012, an increase of 0.8 million bpd over 2011. The agency’s projection for domestic crude oil production was revised to 7.3 million bpd in 2013 and 7.8 million bpd in 2014.

 

Meanwhile, money managers have raised bullish positions on Brent crude to their highest level in two years for a third successive week. The charge, as usual, is lead by hedge funds, according to data published by ICE Futures Europe for the week ended February 5.

 

Net-long positions, in futures and options combined, outnumbered net-short positions by 192,195 lots versus a figure of 179,235 the week before; a rise of 6.9% according to ICE’s latest Commitment of Traders report. It brings net-long positions to the highest level since January 2011, the month the current data series began.

 

On the other hand, net-short positions by producers, merchants, processors and users of the crude stuff outnumbered bullish positions by 249,350, compared with 235,348 a week earlier. It is the eighth successive weekly increase in their net-short position, ICE Futures Europe said.

 

Moving away from pricing matters, a few corporate snippets worth flagging up - starting with Gazprom. In a call to investors and analysts earlier this month, the Russian state energy giant finally appeared to be facing-up to greater competition in the European gas market as spot prices and more flexible pricing strategies from Norway’s Statoil and the Qataris put Gazprom’s defence of its conventional oil-indexation pricing policy to the test.

 

Gazprom ceded market share in defence of prices last year, although it did offer rebates to selected customers. However, it appears to be taking a slightly different line this year and aims to cede more ground on prices in a push to bag a higher market share and prop up its overall gas exports by volume.

 

Gazprom revealed that it had paid out US$2.7 billion in 2012 in refunds to customers in Europe, with the company planning another US$4.7 billion in potential price cuts this year in order to make its pipeline gas prices competitive with spot prices and incentivise European customers to make more voluminous gas purchases.

 

Commenting on the move, analysts at IHS CERA noted, “Increasing gas sales volumes by retaining the oil-indexation pricing strategy and then retroactively offering price discounts may be a difficult proposition, however, particularly if Ukraine, Gazprom’s largest gas export customer, continues to reduce its Russian gas purchases in response to Gazprom’s refusal to cut prices.”

 

“Rather than continuing to react to changing market conditions by offering lower prices to customers, Gazprom may need to take a more proactive approach to reducing its gas export prices in order to incentivise customers to buy more gas from the Russian gas firm this year,” they concluded.

 

Finally, TAQA, the Abu Dhabi National Energy Company, said in a statement over the weekend that a new oilfield has been discovered in the North Sea. It reported that two columns of oil have been found since drilling began in November at the Darwin field, about 80 miles north-east of the Shetlands.

 

The field is a joint venture between the Abu Dhabi state-owned company and Fairfield Energy. TAQA acquired some of BP’s North Sea assets for US$1.1 billion in November 2012. That’s all for the moment folks! Keep reading, keep it ‘crude’!

 

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© Gaurav Sharma 2013. Photo: Andrew Rig, North Sea © BP.  Graph: World crude oil benchmarks © Société Générale Cross Asset Research February 14, 2013.

Market chatter, luck of the Irish & East Timor

Rather than a daily assessment, the Oilholic often looks at how the forward month price of leading crude oil benchmarks fluctuates on a weekly basis. Such an exercise regularly provides interesting tangents for a discussion at the beginning of the week. Last Monday all three benchmarks – Brent, WTI and OPEC’s basket of crude – were in the red in week over week terms. This Monday, all three are in the green rising roughly between 2% and 3%. There is a clear reason for the upside momentum with Brent holding firm above US$114 per barrel and the WTI above US$90.

 

Better than expected Chinese economic data is largely behind the current market sentiment (see graphic above, click to enlarge). But as yours truly fast loses count of how many ‘critical’ EU summits we have recently had, another one is due towards the end of the week. So market caution will prevail either side of the pond. For Sucden Financial analyst Myrto Sokou, the two-day summit (this Thursday and Friday) and the regional Spanish elections (Galicia and Basque) will be the main focus for the week.

 

“We are not expecting any decision yet on Spain’s issues, with Reuters again suggesting that bundling multiple bailouts in one package is preferable, especially for Bundestag approval. Again the usual flow of Greek rumours, with some suggesting that the country needs two more years to implement reforms,” she added.

 

US EIA data released last Friday noted that American crude oil stocks built by 1.7 million barrels driven by a 193,000 barrels per day (bpd) increase in supply. This came from an import rise of 115,000 bpd and a domestic output rise of 78,000 bpd (to 6.598 million bpd). Concurrently, US refinery runs declined by 97,000 bpd, in line with the maintenance season and Cushing, Oklahoma stocks slightly gained by 0.3 million barrels (and are still comfortably above five year highs).

 

Société Générale analyst Mike Wittner felt the report indicated a typical pattern for a refinery maintenance season. “We see a very bullish backdrop for products and a bearish trend for crude…However, all products' fundamentals were very weak - both supply and demand. Recent positive US macroeconomic data might improve demand and add an upward pressure on prices,” he concluded.

 

Moving away from the price of the crude stuff, confirmation finally came that the Irish are about to hit black gold in meaningful quantities after many false dawns. This may largely be attributed to Providence Resources, a Dublin and London AiM dual-listed company, which first caught the Oilholic’s eye back in May.

 

The company’s chief executive Tony O’Reilly confirmed last week that its Barryroe site, 30 miles off the Cork coast, could potentially yield 280 million barrels of oil. He told the BBC that with Brent crude above US$100 per barrel at moment, the prospection offered a “lot of value” and would mark the beginning of the Irish oil industry.

 

While rules related to licensing, taxation and local job facilitation would still need to be worked on, what is transpiring at Providence is by all accounts a pivotal moment. "We hope there is a renaissance of interest by international companies who need to come to Ireland and help us to exploit our natural resources. We cannot do it alone," O’Reilly added.

 

ExxonMobil has already obliged by opting to explore a Providence site at Drumquin. Many others would surely follow given number of exploration licences the company currently holds according to its 2011 Annual report (see map of Providence Resources' licences above right, click to enlarge). Crossing over to the other side of the planet, East Timor or Timor Leste has created its domestic Institute of Petroleum and Geology (IPG) by means of its Decree-Law 33/2012 of July 18, 2012.

 

The new institute will be entrusted with archiving, producing, managing, storing and disseminating geological data, including that related to onshore and offshore oil, gas and mineral resources. Miranda Law Firm, which operates in the once strife ravaged jurisdiction, said the data collected and managed by IPG will provide the basis and impetus for domestic prospecting, exploration and production.

 

The problem is not so much of data collection hindering offshore prospection but one of defining East Timor’s maritime boundaries. It only became an independent state in May 2002. The new nation did not accept the Timor Gap Treaty of 1989, which divided the country’s resources between Australia and Indonesia. It was signed over a decade after Indonesia invaded East Timor in 1976 which had formerly been a Portuguese colonial outpost.

 

A new agreement – the Timor Sea Treaty of 2002 – then proposed a Joint Petroleum Development Area (JPDA) with a 90:10 oil & gas revenue share of new finds between East Timor and Australia. Then perhaps much to the chagrin of locals, Greater Sunrise Gas field – considered one of the most promising finds in the region – saw only a fifth of its nautical area within JPDA confines. As a consequence, only 18% of generated revenue currently falls in East Timor's lap according to sources in the Australian media. All the Oilholic can say is that if you need a crude talking point – talk East Timor.

 

Moving on from one post-conflict area to another supposedly post-conflict region – the Niger Delta – where Shell rejected the liability claims by four Nigerian farmers. At a civil court in The Hague, they have accused the Anglo-Dutch oil major of ruining their livelihood and causing damage to their land on account of oil spills. Shell for its part blamed sabotage and criminal theft by locals for the damage.

 

In a statement it said, "The real tragedy of the Niger Delta is the widespread and continual criminal activity, including sabotage, theft and illegal refining, that causes the vast majority of oil spills. It is this criminality which all organisations with an interest in Nigeria's future should focus their efforts on highlighting and addressing."

 

Opinion might well be divided, but this is the first instance of a half-Dutch multinational being taken to a civil court for an alleged offence caused outside the Netherlands. The only local connection is the Dutch arm of environmental group Friends of the Earth which is backing the four Nigerian farmers. While this landmark case is far from reaching its conclusion, if it has piqued your interest then Michael Peel’s brilliant book A Swamp Full of Dollars could give you all the background to the spills, the violence, the destruction and the crude world of Nigerian oil.

 

Finally, from the serious to the farcical – an episode was brought to the Oilholic’s attention by a colleague at industry scouting data and technical information provider Drillinginfo.  It seems Hollywood megastar Matt Damon’s latest foray – The Promised Land – widely touted as an anti-fracking response to US shale exploration is part bankrolled or rather will be brought to our screens “in association with” Image Media Abu Dhabi, a subsidiary of Abu Dhabi Media, according to the preview’s list of credits.

 

The media company is wholly owned by the government of UAE; an OPEC member country and one from which the US is hoping to cut its crude imports from based on the prospects of domestic shale exploration! It is best to leave it to you folks to draw your own conclusions, but that’s all for the moment! Keep reading, keep it ‘crude’!

 

© Gaurav Sharma 2012. Graphic 1: Forward month crude oil price © Sucden Financial, October 2012. Graphic 2: Providence Resources’ existing licences © Providence Resources Plc, December 2011

Crude profit taking & Browne’s Shale hypothesis

Concerns over a conflict in the Middle East involving Iran did ease off last week but apparently not far enough to prevent a further slide in the price of the crude stuff. A relative strengthening of the US dollar was also seen supporting prices to the upside despite Eurozone woes. So Brent resisted a slide below US$107 on Friday while the WTI resisted a slide below US$91 a barrel.

In fact, the WTI August contract reached a high of US$92.94 while Brent touched US$108.18 at one point; the highest for both benchmarks since May 22. This meant that the end of last week saw some good old fashioned profit taking with conditions being perfect for it.

However, on this crude Monday afternoon, we see both benchmarks dipping again. When the Oilholic last checked, Brent was resisting a slide below US$102 per barrel while the WTI was resisting a US$88 level. With the Middle East risk premium easing marginally, City traders have turned their attention to Spain.

Last week the country’s government predicted that the Spanish recession may well extend into next year. Additionally, the regional administration of Valencia asked for federal help from Madrid to balance its books. So what have we learnt over the last seven or eight trading sessions and what has changed? Well not much except that oil price forecasting often resembles an inexact task based on fickle market conjecture.

The bullish sentiments of last week were an aberration prompted by the perceived risk of a conflict in the Middle East which the Iranians would be incredibly barmy to trigger. Add the temporary lowering of oil production courtesy a Norwegian strike and you provide the legs to a perfect short term prancing bull!

Existing economic fundamentals and current supply demand scenarios did not merit last week’s pricing levels either side of the pond. The Oilholic agrees with the EIA’s opinion that the Brent price would indeed range between US$97.50 and US$99.50 a barrel up until the end of 2013. Analysts at investment banks and ratings agencies are also responding.

For instance, Société Générale has downgraded Brent price estimates by 10% over 2012-14, from US$117 a barrel to US$105. The French bank views oil market fundamentals as neutral for the rest of the year. Nonetheless, should the Brent price weaken below US$90, like others in the City, Société Générale says a Saudi response is to be expected.

For what it is worth, at least Brent’s premium to the WTI has been constantly taking a knock. By some traders' accounts, it is presently below US$15 a barrel for the September settlement contract having been at US$26.75 at one point over Q4 2011. As a direct consequence of the linkage between waterborne light sweet crudes, the Louisiana Light Sweet’s premium to the WTI is down as well to around US$16 a barrel according to Bloomberg.

Moving away from pricing, Lord Browne – the former boss of BP and a director of fracking firm Cuadrilla – believes shale prospection would rid the US of oil imports. Speaking in Oxford at the Resource 2012 forum on water, food and energy scarcity, Browne said the US will not need to import any crude within two decades.

He quipped that the amount of shale gas in the US was effectively “infinite". On a sombre note, Browne said, “Shale gas has a very bad reputation, as a result of the weak players cutting corners. Regulation tightening would be welcome."

His Lordship is known to be a member of the “All hail shale” brigade. Back in March he told The Independent newspaper that if fracking took off meaning fully in the UK, it could generate 50,000 British jobs. The country could very well need its own shale drive especially as a government watchdog recently warned of declining oil and gas revenues.

A consultation period is currently underway in London. All UK fracking activity ground to a halt last year, when a couple of minor quakes majorly spooked dwellers of Lancashire where Cuadrilla was test fracking. Given the incident and environmental constrictions, the Oilholic suspects that Lord Browne knows it is too early to get excited about shale from a British perspective. However, Americans see no cause for curbing their enthusiasm. That’s all for the moment folks. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil tankers in English Bay, British Columbia, Canada © Gaurav Sharma 2012.

Mr. Gabrielli, an IEA revision & the Kuwaiti situation

This Monday, the crude world bid farewell to Petrobras’ inimitable CEO José Sergio Gabrielli de Azevedo who stepped down from his position having been at the Brazilian major's helm since July 2005. Over his tenure, Petrobras took great strides towards ultradeepwater offshore exploration and made several overseas forays. Rumours had been lurking around since January that Gabrielli was in the twilight of his career at Petrobras following differences with Brazilian President Dilma Rouseff – but both the government and the company strenuously denied it.

The reins of Petrobras have now passed on to Maria das Graças Silva Foster (pictured left) a corporate veteran who has worked at Petrobras for 31 years. In addition to occupying various executive level positions in the company, Foster has been CEO of Petroquisa - Petrobras Química, and CEO and CFO of Petrobras Distribuidora. In her career, she was also Secretary of Oil, Natural Gas and Renewable Fuels at the Brazilian Ministry of Mines and Energy from January 2003 to September 2005.

Earlier, Petrobras approved the contract for 21 offline rigs with Sete Brasil, at an average daily rate of US$530,000 and the contract for 5 dual activity rigs with Ocean Rig, at the average day rate of US$548,000, both for a 15-year term. All units, which have local content requirements ranging from 55% to 65%, are to be delivered within 48 to 90 months, according to the schedules established in the contracts.

The project includes the construction of new shipyards in the country and the use of existing infrastructure. Petrobras expects to reduce the average daily rates to US$500,000 for the Sete Brasil contract and to US$535,000 for the Ocean Rig contract. These amounts may suffer further reductions if the parties detect and agree to mechanisms that reduce operating costs.

With these contracts, the plan to contract 28 drilling rigs to be built in Brazil to meet the demands of the long-term drilling program, primarily for use in pre-salt wells has been completed. Based on the conditions submitted by the companies and on the current demand for the development of future projects, Petrobras, in its own words, "chose to take advantage of the negotiated conditions and contract five additional which were not originally planned."

All this is fine and dandy, but since the timelines of construction and delivery are so lengthy, a hike in construction costs is likely – more so because some yards where the rigs are expected to be built, haven’t yet been built themselves. But the Oilholics loathes being too sceptical about what is a reasonably positive agreement.

Meanwhile, the IEA has cut its oil demand forecast again! In an announcement last week, the agency said a weak global economy had prompted its sixth successive monthly revision to forecasts by 250,000 barrels per day (bpd) to 800,000 barrels for 2012. Before the IEA, the US EIA actually made an upward revision of 50,000 barrels to 1.32 million bpd while OPEC cut its forecast by 120,000 bpd to 940,000. All three forecasters are looking towards non-OECD jurisdictions for demand growth.

Elsewhere, the Oilholic would like to highlight two very interesting corporate client notes. In one issued on February 7th, Fitch Ratings observed that following the recent parliamentary elections in Kuwait, marked frictions between an elected Parliament and the appointed government will continue to weigh on the reform agenda and hamper political effectiveness.

The agency feels that difficulties in reaching agreement at the political level will continue to affect economic reforms, including the implementation of a four-year development plan (worth 80% of GDP over 2010-11 and 2013-14), which aims at boosting the country's infrastructure and diversifying the economy away from oil.

Nonetheless, Fitch rates Kuwait as 'AA' with a Stable Outlook. As relatively high oil prices are being forecast, Fitch’s own being at US$100/barrel for 2012, Kuwait’s earnings should continue to ensure double digit current account and fiscal surpluses which lend support to the rating.

Moving on to the second note, on the expected impact of US' QE3 on the commodity market circulated on February 10th, Société Générale analysts Michael Haigh and Jesper Dannesboe opine that an increase of expected inflation during QE3 Stateside coupled with the impact of the EU embargo on Iran could result in the DJ-UBS commodity index rising 20% and Brent prices rising to US$130/barrel.

“Sep12 Brent call spread with strikes at US$117 (long) and US$130 (short). The current net up-front cost: about US$4.6/barrel. This results in a maximum net profit of US$8.4/barrel. If one also sells a Sep12 US$100/barrel put, the overall structure would have zero upfront cost and the maximum net profit would be US$13.7/barrel. We consider a price drop below US$100 to be very unlikely,” they wrote and the Oilholic quotes. That’s all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: Petrobras CEO Maria das Graças Silva Foster © Petrobras Press Office.