Onto blockchains and barrels in Houston Town

Greetings dear readers, the Oilholic is back in Houston, the oil and gas capital of the world, with OPEC soundbites from far afield having ensured Brent is back above $50 and on track to end the week higher than where it began. 

Meanwhile here, upstream innovations helping the US oil patch in this era of ‘lower for longer’ oil prices are the talk of the town, but among the digitisation platforms the crude world has started taking to with increased ferocity – the subject of blockchains – keeps propping up.

Don’t worry, yours truly was bit foxed too at the start, wondering what on earth is a blockchain, let alone its platform deployment in an industry thatm let’s face it, lags others in digitisation. 

So in simple terms, a blockchain is akin to a digitally distributed ledger that can be replicated and spread across many nodes in a peer-to-peer network, thereby minimising the need for oversight and governance of a single ledger. 

Each transaction on the ledger is recorded and added to the previous one. These additions result in a growing 'chain' of information. 

At the 2017 Baker & McKenzie Oil & Gas Institute, it was a much discussed subject, albeit included in the wider discussion on digitisation in the sector.

Here’s the Oilholic’s full report on the deliberations for IBTimes UK, which is well worth reading. While nothing is foolproof, there is growing consensus within the industry that blockchain ledgers can help fight fraud and corruption. 

As if that wasn’t enough for you on the subject of ‘crude’ digitisation, Shell’s top lawyer David Brinley also told institute delegates the oil major’s technology hub in Bangalore, India has never been more integral to its business than it is now.

"From automation to 3D printing of project prototypes, to an app on how to locate your car in a car park – Shell would like to be at the forefront of inexorable technological changes we are seeing in the 21st century." 

Away from crude chatter, the Oilholic leaves you with a glimpse of a refreshing pint at The Richmond Arms pub, which tasted even better after yours truly cheered on Manchester United to the UEFA Europa League final. 

If you happen to be in Houston, and need to watch English Premier League clubs in play, or European football (er...called socccer here) there’s no better place to watch in The Galleria area for starters, and in the whole city in some ways too.  

That’s all for the moment from Houston folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2017. Photo 1: Chevron Towers, Downtown Houston. Photo 2: Pint at the Richmond Arms Pub, Houston. Texas, USA. © Gaurav Sharma 2017.

Of soundbites and buffer crude producers

If sounbites were the sole influencers of the oil market direction, Brent ought to be near $60 per barrel. (see chart on the left, click to enlarge) 

The fact that it isn’t, and couldn’t be any further from that promised level despite OPEC cuts tells you that verbal quips from oil producers matter little when the market is trying to readjust to a new normal; i.e. the impact of a buffer producer in the shape of the US of A.  

When OPEC and 11 non-OPEC producers came together last December to announce a headline production cut of 1.8 million barrels per day (bpd), it was done in the knowledge that inevitably US shale producers would benefit from higher prices too. 

However, the economic paradox of that was additional US barrels replacing barrels taken out by the OPEC and non-OPEC agreement. In March, Saudi Energy Minister Khalid Al-Falih ensured that the OPEC put unravelled by quipping that his country would not subsidise non-OPEC margin plays by supporting an extension of the OPEC and non-OPEC agreement, due to expire in June. 

The result was a near instantaneous drop in both benchmarks as the market factored in the possibility of more OPEC barrels. Soon thereafter, on witnessing the ensuing oil price slide, ministers of several OPEC member nations, including Al-Falih himself, issued soundbites claiming an extension to the cut was in fact possible. However, in the Oilholic’s humble opinion, the damage had already been done by that time. 

This blogger's interaction with the wider market – whether we are talking spot or futures traders – leads one to believe that sentiment is in favour of higher US production, with each OPEC and non-OPEC barrel taken out of the market subsidising an American barrel. Of course, it’s not as linear or simple but the market’s reasoning isn’t flawed.  

All OPEC soundbites in favour of extending the cartel’s cut further are fuelling such sentiment further. Should OPEC extend its cut, the artificial support to the oil price would again be short-lived, as US barrels will continue to flood into the market. 

Finally, the Oilholic believes the market is showing signs of rebalancing unless it is artificially tampered with, and there could be some semblance of normalcy by September-end. So as such neither is an OPEC cut needed nor are the soundbites in its favour. Perhaps the cartel might consider keeping mum for a change! That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017. Graph: Oil benchmark prices year to date © Gaurav Sharma 2017.

Two Forbes posts on very different matters

Dear readers, it has been an exceptionally busy month of April courtesy travel, speaking engagements and IBTimes UK affairs that have kept the Oilholic severely occupied to the near blasphemous point of ignoring this blog! Sincere apologies! However, one did pen thoughts down on two key matters via regular posts on Forbes. 

Earlier this month, petrochemical giant Ineos bought the UK's North Sea Forties pipeline system from BP. Obviously, its huge for Ineos which would have control of 40% of UK's oil and gas output, but the development is also indicative of a strategic shift of oil majors away from mature prospects to emerging ones. (Read more here). 

The second key matter is US President Donald Trump’s recent airstrikes on Syria, Afghanistan and his dispatching of an aircraft carrier group to the Korean Peninsula to square up to a belligerent North Korea and in defense of the South. As safe-haven asset prices soared, Brent has also marched back up to $55 and WTI back above $50. Go long if you want to, but the rally won't last - there's still too much oil in the system. (Read more here). 

That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017.

CERAWeek 2017 ends & so does the 'OPEC put'!

It’s a wrap from CERAWeek 2017, with Canadian Prime Minister Justin Trudeau telling his high net worth Houstonian audience assembled by IHS Markit, that no country would leave 173bn barrels of oil - as Canada has – in theground.

The Oilholic wonders if his ‘crude’ words would have been quite as forthcoming if he was surrounded by tree huggers in British Columbia. 

Nonetheless, as Trudeau says, it is all about tapping the tar sands ethically and responsibly, now that US President Donald Trump has approved the long-delayed Keystone XL pipeline. Away from all the public relations mumbo-jumbo of the Canadian Prime Minister, it looks like the OPEC put, OPEC & non-OPEC price floor of $50, call it what you will is now over.

That’s after Saudi Energy Minister Khalid Al-Falih warned the oil market not to take Riyadh’s support for granted. Here are The Oilholic’s thoughts in a detailed post for Forbes. Despite long bets by money managers, such calls appeared bereft of clear thinking, and were solely predicated on Opec rolling over its cuts beyond June, despite US producers cashing in on it.

Since Al-Falih’s quip included “we will not bear the burden of free riders” the market took notice, and WTI fell the most among benchmarks, breaching the $50 floor for the first time in 2017 as the number of operational US rigs continues to rise.

Away from the oil price, yours truly had a fascinating conversation on behalf of the International Business Times UK with Vimpar Kapur, President of Honeywell Process Solution (the multinational conglomerate’s automation unit). 

Kapur opined that process efficiencies in the oil and gas business are likely togather further momentum over the next 12-18 months as the crude world gets used to a $50s oil price. And that’s all from Houston folks! It’s been a fascinating week, but it’s time for that parting selfie, and a brief trip to Canada before the flight home to London. Keep reading, keep it ‘crude’!

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