Hawaii’s crude reality: Being a petrohead costs!

In a break from the ‘crude’ norm for visits to the USA, the Oilholic packed his bags from California and headed deep out to the Pacific and say ‘Aloha’ to newest and 50th United State of Hawaii. It’s good to be here in the Kona district of the Big Island and realise that Tokyo is a lot closer than London.

It is interesting to note that Hawaii is the only US state still retaining the Union Jack in its flag and insignia. The whole flag itself is a deliberate hybrid symbol of British and American historic ties to Hawaii and traces its origins to Captain John Vancouver – the British Naval officer after whom the US and Canadian cities of Vancouver and Alaska’s Mount Vancouver are named.

What’s not good being here is realising that a 1.3 million plus residents of these northernmost isles in Polynesia pay the most for their energy and electricity needs from amongst their fellow citizens in the US. It is easy to see why, as part dictated by location constraints Hawaii presently generates over 75% of its electricity by burning Petroleum.

Giving the geography and physical challenges, most of the crude oil is shipped either from Alaska and California or overseas. Furthermore, the Islands have no pipelines as building these is not possible owing to volcanic and seismic activity. Here’s a view of one active crater – the Halema’uma’u in Kilauea Caldera (see above right). You can actually smell the sulphur dioxide while there as the Oilholic was earlier today. In fact the entire archipelago was created courtesy of volcanic eruptions millions of years ago. The Big Island’s landmass of five plates is created out of Mauna Kea (dormant) and Mauna Loa (partly active) and the island is technically growing at moment as Kilaueu still spews lava which cools and forms land.

So both crude and distillates have to be moved by oil tankers between the islands or tanker lorries on an intra-island basis. The latter  creates regional pricing disparities. For instance in Hilo, the commercial heart of the Big Island and where the tanker docking stations are, gasoline is cheaper than Kona by almost 40-50 cents per gallon. The latter receives its distillates by road once tankers have docked at Hilo.

The state has two refineries both at Kapolei on the island of O‘ahu 20 miles west of capital Honolulu – one apiece owned by Tesoro and Chevron. The bigger of the two has a 93,700 barrels per day (bpd) and is owned by Tesoro; the recent buyer of BP’s Carson facility. However in January Tesoro put its Hawaiian asset up for sale.

Tesoro, which bought the refinery for US$275 million from BHP Petroleum Americas in 1998, said it no longer fitted with its strategic focus on the US Midcontinent and West Cost. The company expects the sale to be completed by the end of the year. Its Hawaiian retail operations, which include 32 gas stations, will also be part of the deal. Chevron operates Kapolei’s other refinery with a 54,000 bpd capacity. Between the two, there is enough capacity to meet Hawaii’s guzzling needs and the pressures imposed by US forces operations in the area.

In this serene paradise with volcanic activity and ample tidal movement, power generation from tidal and geothermal is not inconceivable and facilities do exist. In fact, for the remaining 25% of its energy mix, the state is one of eight US states with geothermal power generation and ranks third among them. Additionally, solar photovoltaic (PV) capacity increased by 150% in 2011, making Hawaii the 11th biggest US state for PV capacity. However, it is not nearly enough.

One simple solution that is being attempted is natural gas – something which local officials confirmed to the Oilholic. The EIA has also noted Hawaii’s moves in this direction. Oddly enough, while Hawaii hardly uses much natural gas, it is one of a handful of US states which actually produces synthetic natural gas. Switching from petroleum-based power generation to natural gas for much of Hawaii’s power generation could lower the state’s power bills considerably as the massive disconnect between US natural gas and crude oil prices looks set to continue.

Strong ‘gassy’ moves are afoot and anecdotal evidence here suggests feelers are being sent out to Canada, among others. In August, Hawaii Gas applied for a permit with the Federal Government to ship LNG to Hawaii from the West Coast. While the deliveries will commence later this year, arriving volumes of LNG would be small in the first phase of the project, according to Hawaii Gas. At least it is a start and the State House Bill 1464 now requires public utilities to provide 25% of net electricity sales from renewable sources by December 31, 2020 and 40% of net electricity sales from renewables by December 31, 2030.

That’s all for the moment folks as the Oilholic needs to explore the Big Island further via the old fashioned way which requires no crude or distillates – its the trusty old bicycle! Going back to history, it was Captain James Cook and not Vancouver who located these isles for the Western World in 1778. Regrettably, he got cooked following fracas with the locals in 1779 and peace was not made between Brits and locals until Vancouver returned years later.

Moving away from history, yours truly leaves you with a peaceful view of Punaluʻu or the Black Sand beach (see above left)! It is what nature magnificently created when fast flowing molten lava rapidly cooled and reached the Pacific Ocean. According to a US Park Ranger, the beach’s black sand is made of basalt with a high carbon content. It is a sight to behold and the Oilholic is truly beholden! On a visit there, you have a 99.99% chance of spotting the endangered Hawksbill and Green turtles lounging on the black sand. For once, yours truly is glad there are no bloody pipelines in the area blotting the landscape. More from Hawaii later - keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Halema’uma’u, Kilauea Caldera. Photo 2: Punaluʻu - the Black Sand beach, Hawaii, USA © Gaurav Sharma 2012.

Speculators, production & San Diego’s views

It is good to be in the ‘unified’ port of San Diego, California for a few days to get some crude views, especially those of the trading types who have a pad on the city’s Ocean Beach waterfront looking out to the Pacific. While the view from one of their living room windows is a testament to the current serenity of the Pacific Ocean (an example on the left), markets are anything but serene with politicians blaming paper traders for the current volatility.

Instead of shrugging and quipping ‘typical’, most admit candidly that the ratio of paper (or virtual) barrels versus physical barrels will continue to rise. Some can and quite literally do sit on the beach and trade with no intention of queuing at the end of pipeline in Cushing, Oklahoma to collect their crude cargo.

Anecdotal evidence suggests the ratio of paper versus physically traded barrels has risen from 8:1 at the turn of millennium to as high as 33:1 in 2012. Furthermore, one chap reminds the Oilholic not to forget the spread betting public. “They actually don’t even enter the equation but have a flutter on the general direction of crude benchmarks and in some cases – for instance you Brits – all winnings are tax free,” he added.

Nonetheless, on his latest visit to the USA, yours truly sees the supply and demand dynamic stateside undergoing a slow but sure change. In fact old merchant navy hands in San Diego, which is a unified port because the air and sea ports are next to each other, would tell you that American crude import and export dispatch patterns are changing. Simply put, with shale oil (principally in Eagle Ford) and rising conventional production in Texas and North Dakota in the frame and the economy not growing as fast as it should – the US is importing less and less of the crude stuff from overseas.

The IEA projects a fall of 2.6 million barrels per day (bpd) in imports by US refiners and reckons the global oil trading map and direction of oil consignments would be redrawn by 2017. Not only the US, but many nations with new projects coming onstream would find internal use for their product. India’s prospection drive and Saudi Arabia’s relatively new oilfield of Manifa are noteworthy examples.

So a dip in Middle Eastern crude exports by 2017 won’t all be down to an American production rise but a rise in domestic consumption of other producer nations as well. Overall, the IEA reckons 32.9 million bpd will trade between different regions around the globe; a dip of 1.6 million bpd over last year. With some believing that much of this maybe attributed to dipping volumes of light sweet crude demanded by the US; the thought probably adds weight to Eastward forays of oil traders like Vitol, Glencore and Gunvor. Such sentiments are also already having an impact on widening Brent’s premium to the WTI with the latter not necessarily reflecting global market patterns.

Elsewhere, while the Oilholic has been away, it seems BP has been at play. In a statement to the London Stock Exchange on Monday, BP said it had agreed 'heads of terms' to sell its 50% stake in Russian subsidiary TNK-BP to Rosneft for US$28 billion via a mixture of US$17.1 billion cash and shares representing 12.84% (of Rosneft). BP added that it intends to use US$4.8 billion of the cash payment to purchase a further 5.66% of Rosneft from the Russian government.

BP Chairman Carl-Henric Svanberg said, “TNK-BP has been a good investment and we are now laying a new foundation for our work in Russia. Rosneft is set to be a major player in the global oil industry. This material holding in Rosneft will, we believe, give BP solid returns.”

With BP’s oligarch partners at AAR already having signed a MoU with Rosneft, the market is in a state of fervour over the whole of TNK-BP being bought out by the Russian state energy company. Were this to happen, Rosneft would have a massive crude oil production capacity of 3.15 million bpd and pass a sizeable chunk of Russian production from private hands to state control. It would also pile on more debt on an already indebted company. Its net debt is nearing twice its EBITA and a swoop for the stake of both partners in TNK-BP would need some clever financing.

Continuing with the corporate front, the Canadian government has rejected Petronas' US$5.4 billion bid for Progress Energy Resources. The latter said on Sunday that it was "disappointed" with Ottawa’s decision. The company added that it would attempt to find a possible solution for the deal. Industry Minister Christian Paradis said in a statement on Friday that he had sent a letter to Petronas indicating he was "not satisfied that the proposed investment is likely to be of net benefit to Canada."

Meanwhile civil strife is in full swing in Kuwait according to the BBC World Service as police used tear gas and stun grenades to disperse large numbers of people demonstrating against the dissolution of parliament by Emir Sheikh Sabah al-Ahmad al-Sabah whose family have ruled the country for over 200 years.

In June, a Kuwaiti court declared elections for its 50-seat parliament in February, which saw significant gains for the Islamist-led opposition, invalid and reinstated a more pro-government assembly. There has been trouble at the mill ever since. Just a coincidental footnote to the Kuwaiti unrest – the IEA’s projected figure of 2.6 million bpd fall in crude imports of US refiners by 2017, cited above in this blog post, is nearly the current daily output of Kuwait (just to put things into context) ! That’s all from San Diego folks! It’s nearly time to say ‘Aloha’ to Hawaii. But before that the Oilholic leaves you with a view of USS Midway (above right), once an aircraft carrier involved in Vietnam and Gulf War I and currently firmly docked in San Diego harbour as a museum. In its heydays, the USS Midway housed over 4,000 naval personnel and over 130 aircraft.

According to a spokesperson, the USS Midway, which wasn’t nuclear-powered, had a total tank capacity of 2.5 million gallons of diesel to power it and held 1.5 million gallons of jet fuel for the aircraft. It consumed 250,000 gallons of diesel per day, while jet fuel consumption during operations came in at 150,000 gallons per day during flying missions. Now that’s gas guzzling to protect and serve before we had nuclear powered carriers. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo 1: Ocean Beach, San Diego. Photo 2: USS Midway, California, USA © Gaurav Sharma 2012.

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

On another BP sale, another Chavez term & more

A not so surprising news flash arrived this week that BP has finally announced the sale of its Texas City refinery and allied assets to Marathon Petroleum for US$2.5 billion. A spokesperson revealed that the deal included US$600 million in cash, US$1.2 billion for distillate inventories and another US$700 million depending on future production and refining margins.

 

Following the Carson oil refinery sale in California, the latest deal ratchets BP’s asset divestment programme up to US$35 billion with a target of US$38 billion within reach. It is time for the Oilholic to sound like a broken record and state yet again that – Macondo or no Macondo – the oil major would have still divested some of its refining and marketing assets regardless.

 

However, for fans of the integrated model – of which there are quite a few including ratings agencies who generally rate integrated players above R&M only companies – the head of BP's global R&M business Iain Conn said, "Together with the sale of our Carson, California refinery, announced in August, the Texas City divestment will allow us to focus BP's US fuel investments on our three northern refineries."

 

Things have also picked-up pace on the TNK-BP front. On Tuesday, Reuters reported that BP’s Russian partners in the venture Alfa Access Renova (AAR) would rather sell their stake than end-up in a ‘devalued’ partnership with Kremlin-backed rival Rosneft. On Wednesday, the Russian press cited sources claiming a sale of BP’s stake to Rosneft has the full backing of none other than Russian President Vladimir Putin himself. Now that is crucial.

On a visit to Moscow and Novosibirsk back in 2004, the Oilholic made a quick realisation based on interaction with those in the know locally – that when it comes to natural resources assets the Kremlin likes to be in control. So if BP and the Russian government have reached some sort of an understanding behind the scene, AAR would be best advised not to scream too loudly.

 

Another hypothesis gaining traction, in wake of AAR’s intention to sell, is that instead of being the seller of its stake in TNK-BP, the British oil major could now turn buyer. BP could then re-attempt a fresh partnership with Rosneft; something which it attempted last year only for it to be scuppered by AAR.

 

There can be any amount of speculation or any number of theories but here again a nod from the Kremlin is crucial. Away from ‘British Petroleum’ (as Sarah Palin and President Obama lovingly refer to it in times of political need) to the British Government which reiterated its support for shale exploration earlier this week.

 

On Monday, Minister Edward Davey of UK's Department of Energy and Climate Change (DECC) expressed hopes of lifting a suspension on new shale gas exploration. It was imposed in 2011 following environmental concerns about fracking and a series of minor earthquakes in Lancashire triggered by trial fracking which spooked the nation. In near sync with Davey, Chancellor of the Exchequer George Osborne told the Conservative Party conference in Birmingham that he was considering a 'generous new tax regime' to encourage investment in shale gas.

 

In case you haven’t heard by now, Hugo Chavez is back as president of Venezuela for another six year stint. This means it will be another rendezvous in Vienna for the Oilholic at the OPEC meeting of ministers in December with Rafael Ramirez, the crude Chavista likely to be hawkish Venezuela’s man at the table. Opposition leader Henrique Capriles believed in change, but sadly for the Venezuelan economy grappling with mismanagement of its ‘crude’ resources and 20% inflation, he fell short.

 

On January 10, 2012 when Chavez will be inaugurated for another term as Venezuela's president, he will be acutely aware that oil accounts for 50% of his government’s revenue and increasingly one dimensional economy. Bloomberg puts Chinese lending to Venezuela between 2006 and 2011 at US$42.5 billion. In a staggering bout of frankness, Ramirez admitted in September that of the 640,000 barrels per day (bpd) that Venezuela exported to China, 200,000 bpd went towards servicing government debt to Beijing.

 

The country's oil production is hardly rising. Just as Chavez’s health took a toll from cancer, national oil company PDVSA has not been in good health either. Its cancer is mismanagement and underinvestment. Most would point to an explosion in August when 42 people perished at the Amuay refinery – Venezuela’s largest distillate processing facility as an example. However, PDVSA has rarely been in good health since 2003 when it fired 40% of its workforce in the aftermath of a general strike aimed at forcing Chavez from power.

 

Staying with Latin America, the US Supreme Court has said it will not block a February 2011 judgement from an Ecuadorean court that Chevron must pay US$19 billion in damages for allegedly polluting the Amazonian landscape of the Lago Agrio region. The court’s announcement is the latest salvo in a decade-long legal tussle between Texaco, acquired by Chevron in 2001, and the people of the Lago Agrio.

 

The Ecuadorians and Daryl Hannah (who is not Ecuadorian) wont rejoice as Chevron it is not quite done yet. Far from it, the oil major has always branded the Ecuadorian court’s judgement as fraudulent and not enforceable under New York law. It has also challenged it under an international trade agreement between the US and Ecuador.

 

The latter case will be heard next month – so expect some more ‘crude’ exchanges and perhaps some stunts from Ms. Hannah. That’s unless she is under arrest for protesting about Keystone XL! That’s all for the moment folks! Keep reading, keep it ‘crude’ or Elle Driver might come after you!

 

© Gaurav Sharma 2012. Photo: East Plant of the Texas City Refinery, Texas, USA © BP Plc

Non-OPEC supply, volatility & other matters

One of the big beasts of the non-OPEC supply jungle – Russia – held its latest high level meeting with OPEC earlier this week. Along with the customary niceties came the expected soundbites when Alexander Novak, Minister of Energy of the Russian Federation and Abdalla Salem El-Badri, OPEC Secretary General, met in Vienna on Tuesday.

 

Both men accompanied by “high-level” delegations exchanged views on the current oil market situation and “underscored the importance of stable and predictable markets for the long term health of the industry and investments, and above all, the wellbeing of the global economy.”

 

OPEC is also eyeing Russia’s Presidency of the G-20 in 2013 where the cartel has only one representative on the table in the shape of Saudi Arabia, which quite frankly represents itself rather than the block. However, non-OPEC suppliers are aplenty – Canada, Brazil, Mexico and USA to name the major ones alongside the Russians. The Brits and Aussies have a fair few hydrocarbons to share too.

 

Perhaps in light of that, OPEC and Russia have proposed to broaden their cooperation and discuss the possible establishment of a joint working group focused on information exchange and analysis of the petroleum industry. The two parties will next meet in the second quarter of 2013 by which time, unless there is a geopolitical flare-up or a massive turnaround in the global economy, most believe healthy non-OPEC supply growth would have actually been offset by OPEC cuts.

 

So the Oilholic thinks there’s quite possibly more to the meeting on September 25 than meets the eye…er…press communiqué. Besides, whom are we kidding regarding non-OPEC participants? Market conjecture is that non-OPEC supply growth itself is likely to be moderate at best given the wider macroeconomic climate.

 

Mike Wittner, global head of oil research at Société Générale, notes that non-OPEC supply growth is led by rapid gains in North America: tight oil from shale in the US and oil sands and bitumen in Canada. North American supply is forecast to grow by 1.04 million barrels per day (bpd) in 2012 and 0.75 million bpd in 2013. The reason for the overall higher level of non-OPEC growth next year, compared to 2012, is that this year’s contraction in Syria, Yemen, and South Sudan has  already taken place and will not be repeated.

 

“We are projecting output in Syria and Yemen flat through 2013, with disruptions continuing; we are forecasting only small increases in South Sudan beginning well into next year, as the recent pipeline agreement with Sudan appears quite tenuous at this point. With non-OPEC supply growth roughly the same as global demand growth next year, OPEC will have to cut crude production to balance the market,” he added.

 

With more than anecdotal evidence of the Saudis already trimming production, Société Générale reckons total non-OPEC supply plus OPEC NGLs production may increase by 0.93 million bpd in 2013, compared to 0.75 million bpd in 2012. Compared to their previous forecast, non-OPEC supply plus OPEC NGLs growth has been revised up by 50,000 bpd in 2012 and down by 60,000 bpd in 2013. That’s moderate alright!

 

The key point, according to Wittner, is that the Saudis did not replace the last increment of Iranian flow reductions, where output fell by 300 kb/d from May to July, due to EU and US sanctions. “The intentional lack of Saudi replacement volumes was – in effect – a Saudi cut; or, if one prefers, it was the Saudis allowing Iran to unintentionally and unwillingly help out the rest of OPEC by cutting production and exports,” he concluded.

 

Let’s see what emerges in Vienna at the December meeting of ministers, but OPEC crude production is unlikely to average above 31.5 million bpd in the third quarter of 2012 and is likely to be cut further as market fundamentals remain decidedly bearish. In fact, were it not for the geopolitical premium provided by Iran’s shenanigans and talk of a Chinese stimulus, the heavy losses on Wednesday would have been heavier still and Brent would not have finished the day remaining above the US$110 per barrel mark.

 

On a related note, at one point Brent's premium to WTI increased to US$20.06 per barrel based on November settlements; the first move above the US$20-mark since August 16. As a footnote on the subject of premiums, Bloomberg reports that Bakken crude weakened to the smallest premium over WTI oil in three weeks as Enbridge apportioned deliveries on pipelines in the region in Tuesday’s trading.

 

The Western Canadian Select, Canada’s most common benchmark, also usually sells at a discount to the WTI. But rather than the “double-discount” (factoring in WTI’s discount to Brent) being something to worry about, National Post columnist Jameson Berkow writes how it can be turned into an advantage!

 

But back to Europe where Myrto Sokou, analyst at Sucden Financial Research, feels that very volatile and nervous trading sessions are set to continue as Eurozone‘s concerns weigh on market sentiment. “The rebound on Thursday morning followed growing discussions of a further stimulus package from China that improved market sentiment and increased risk appetite,” she said.

 

However, Sokou sees the market remaining focussed on Spain as news of its first draft budget for 2013 is factored in. “It is quite a crucial time for the markets, especially following the recent refusal from Germany, Holland and Finland to allow ESM funds to cover legacy assets, so that leaves the Spanish Government to fund their Banks,” she added.

 

On the corporate front, Canadians find themselves grappling with the Nexen question as public sentiment is turning against CNOOC’s offer for the company just as its shareholders approved the deal. Many Members of Parliament have also voiced their concerns against a deal with the Chinese NOC. For its part, if a Dow Jones report is to be believed, CNOOC is raising US$6 billion via a one-year term loan to help fund the possible purchase of Nexen. The Harper administration is yet to give its regulatory approval.

 

Meanwhile, the Indian Government has confirmed that one of its NOCs – ONGC Videsh – has made a bid to acquire stakes in Canadian oil sands assets owned by ConocoPhillips with a total projected market valuation of US$5 billion. ConocoPhillips aims to sell about 50% of its stake in emerging oil sands assets, according to news reports in Canada. Looks like one non-OPEC destination just won’t stop grabbing the headlines!

 

Moving away from Canada, Thailand’s state oil company PTTEP has finalised arrangements for its US$3.1 billion share offer for Mozambique’s Cove Energy. Earlier this year, PTTEP won a protracted takeover battle for Cove over Shell. Concluding on a lighter note, the Oilholic has learned that the Scottish distillery of Tullibardine is to become the first whisky distillery in the world to have its by-products converted into advanced biofuel, capable of powering vehicles fuelled by petrol or diesel.

 

The independent malt whisky producer in Blackford, Perthshire has signed a memorandum of understanding with Celtic Renewables Ltd, an Edinburgh-based company which has developed the technology to produce biobutanol from the by-products of whisky production. Now that’s worth drinking to, but it’s all for the moment folks! Keep reading, keep it ‘crude’!

 

© Gaurav Sharma 2012. Oil Drilling site, North Dakota, USA © Phil Schermeister / National Geographic.