GS Caltex's rare buy & tankers in English Bay

It is great to be back in Vancouver, Canada for Christmas. Of course, no trip some 4,700 miles westward goes without the Oilholic taking his customary walk from the City’s Waterfront facing Vancouver Harbour to Beach Avenue facing English Bay, and watching both waterways interspersed with oil tankers of all description heading in and out of the Burrard Inlet to Port Moody. 

Business is ticking along even in trying times, if this blogger's unscientific assessment of traffic volume is anything to go by. At the moment, the Western Canadian Select (WCS) is seeing its weakest price since the first quarter of 2014, and hit sub $30 per barrel levels at one point this month with regional inventories at a record high. 

Kinda feels like the marginal oil price recovery of 2017 didn’t really hit these shores customarily used to trading their benchmark at a steep discount to the WTI (roughly $5-7 per barrel in the old days, typically $12-15 and currently well above $20). But such a pricing level brings in fresh interest too, and of course arbitrage opportunities depending on what’s afoot elsewhere. 

According to a Reuters report, South Korean refiner GS Caltex recently picked up a rare cargo of heavy Canadian crude from Vancouver.

It seems 300,000 barrels of Cold Lake heavy sour crude were loaded onto the Panamax Selecao on 13 December. The consignment may not be the last; the Cold Lake heavy sour is quite close to pricier Middle Eastern heavy crudes. 

Sources here also suggest other Asian refiners might want to go down GS Caltex’s path, including its domestic rival Hyundai Oilbank. If that were to materialise, as opposed to what is quite frankly a small trial consignment taken by GS Caltex, the crude world could see meaningful cargo dispatches from Canada to South Korea for the first time since 1995, and well more tankers on the English Bay horizon. 

Away from here, the latest rig counts from Baker-Hughes point to a decline in the number of Canadian rigs by 28 to 210, while the US rig count was broadly unchanged at 931, up one on the week before. Finally, here's the Oilholic's latest Forbes post on the 'OPEC put' versus direction of the oil market in 2018.

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

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© Gaurav Sharma 2017. Photo: Oil tankers at sunset on Vancouver's English Bay, British Columbia, Canada © Gaurav Sharma 2017. 

Medium term oil forecast unaltered by OPEC & non-OPEC action

One week on from OPEC and non-OPEC producers' decision, to roll over their ongoing oil production cuts of 1.8 million barrels per day (bpd) to the end of 2018, there's no bullish frenzy in the crude futures market.

In the Oilholic's humble opinion, that was never their intention in the first place anyway. The primary purpose was to keep the OPEC put in place, and protect the oil price floor in 2018 at $50 per barrel, using Brent as a benchmark.

Given that the global proxy benchmark is currently well clear of $60, and lurking near 2-year highs; most analysts would say it's a case of job done for now. 

That said, the current range is the new normal, and there's little on the horizon to suggest otherwise. For instance, following the OPEC meeting, ratings agency Moody's said it would keep its medium-term oil price estimates at $40-$60 per barrel. 

"Recent higher oil prices have been supported by global economic growth forecasts, production restraints and increased geopolitical risk," said Terry Marshall, a Moody's Senior Vice President. "But risks to prices persist, including reduced consumption due to higher prices, as well as increased supply."

It's a view this blogger shares, and few analysts in the City of London would suggest otherwise. Of course, as expected, the number of US rigs has risen too with Brent prices firming up above $60 and WTI fast approaching the mark. There maybe an upside in the wake of OPEC's decision, but the US shale drag is well and truly alive and kicking. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Oil extraction site © Lukoil.

OPEC, non-OPEC producers extend crude cuts

It's official - OPEC and non-OPEC producers have extended their joint 1.8 million barrels per day of oil production cuts until December 2018, following the conclusion of their ministerial meeting here in Vienna, Austria.

There were some doubts that the Russians will not play ball, but in the end they did. Energy Minister Alexander Novak and his Saudi counterpart Khalid Al-Falih subsequently turned up portraying an air of harmony. It's been a long crude day, with plenty of words to punch on a keyboard, plus radio, TV and OPEC webcasts to contend with for the Oilholic who is well and truly knackered. Hence, apologies for not providing some instant and more meaningful commentary here. 

To make up for it, here's a spot report for IBTimes UK with some market analysts' quote.

And here is yours truly's customary OPEC take for Forbes.

Some more composed thoughts to follow once this blogger has had some sleep after a long hectic day; but in the interim that's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: (L to R) Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid Al-Falih announce the extension of OPEC and non-OPEC production cuts at the conclusion of the 173rd OPEC ministers' meeting in Vienna, Austria on 30 November, 2017 © Gaurav Sharma.

'R-OPEC' or OPEC? All about Russia at Helferstorferstrasse 17

The Oilholic has negotiated some serious snowfall to arrive at Helferstorferstrasse 17, OPEC's secretariat in Vienna, Austria for the 173rd OPEC Ministers' meeting. 

The winter wonderland that the Austrian capital has transformed into overnight should make the Russians feel right at home. That's because all the soundbites here are about the Russians, and what they may or may not agree to this time around. 

The collective OPEC and non-OPEC production cut, pegged at 1.8 million barrels per day (bpd) in May, is valid until March 2018. So the question is a simple one where from here? The Gulf exporters led by Saudi Arabia want a nine month extension beyond that to cover most of 2018. However, Russian oil minister Alexander Novak is not so keen on the idea, questioning why OPEC wants to extend a deal that is yet to expire.  

Here's some overnight analysis for Forbes. Sooner or later Russia will part company with OPEC and the many in the market are cognizant of that.

And here's the first report from OPEC for IBTimes UK. Plenty more from here soon, but that's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017. Photo: View of snowfall on Westbahnhof / Europaplatz, Vienna, Austria, November 30, 2017. 

Feeling the crude temperature ahead of OPEC 173

The Oilholic has arrived in Vienna, Austria to gauge the crude temperature ahead of the 173rd meeting of OPEC ministers.

Going by the events of the last 24 hours, looks like the Russians, in town leading the 10 non-OPEC producers, seem to be giving the most briefings, and mostly to Russian journalists and analysts.

You could be forgiven for thinking they'd joined OPEC; but the Kremlin's message to analysts and scribes alike seems to be a simple one - the current production cut agreement reached in concert with OPEC producers for taking out 1.8 million barrels per day (bpd) out of the market is valid until March 2018, so why tamper with it now? 

On the other hand the few odd soundbites coming out of OPEC seem to "express hope" the cut agreement, of which the cartel has a lion's share of 1.3 million bpd, is rolled over for a further nine months. With both parties not appearing to be on the same page, oil futures are sliding. 

At 7:45pm GMT, Brent is down 0.53% or 34 cents to $63.27 per barrel, while WTI is down 1.09% or 63 cents to $57.36 per barrel, making it a second successive session of intraday declines extending from European hours to US trading hours.

Expect more of the same, though OPEC's problem is the lack of an exit strategy, which is why some in its ranks want to kick the can down the road even if the Russians aren't keen. Meanwhile, since its been over 10 years of covering OPEC by the Oilholic, here's a look back at the last ten years for IBTimes UK. A whole lot memories, episodes and experiences to narrate. 

Finally, here is one's take on what to expect on IG Markets TV and Core Finance TV. 

And that's all from Vienna, for the moment folks! Plenty more to follow. In the meantime, keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: OPEC signage outside its secretariat in Vienna, Austria © Gaurav Sharma. 

Automation, AI and Robotics: On scare stories and opportunities

Automation, artificial intelligence and robotics keep cropping up in discussions, conferences and speaking engagements the Oilholic least expects them to these days – from trading seminars to oil and gas congresses, economics forums to academic debates. 

The energy industry talks of connected plants, exploration and production firms talk of advanced robotics, refineries and downstream companies send drones out to monitor facilities and traders fret over algorithms replacing them. 

So is this ‘Robocalypse’ or ‘Robotopia’? This blogger’s close industry colleague, friend and renowned economist Jason Schenker says mankind is somewhere in between, and has attempted to address the information gap via his book Jobs for robots: Between Robocalypse and Robotopia; a most impressive narrative summing up the tremendous opportunities as well as significant threats the future holds with a healthy infusion of pragmatism, analysis, wit and humour. 

The tone of this book, of just under 200 pages split by nine engaging chapters, is neither alarmist nor utopian about the fourth industrial revolution that's underpinned by technology or 'Industry 4.0' as some prefer to call it.

What the author is attempting to do is review the way forward – that is unquestionably fraught with challenges – and see how we can prepare ourselves, bridge the gap, especially the skills gap, between the rapidly evolving present and the imminent future.  

In parts, the narrative is blunt because it needs to be. Some jobs that exist today, will most likely disappear tomorrow. This isn’t something new, as the author points out. Past industrial revolutions led to millions of jobs disappearing, but also led to the creation of newer ones. Industry 4.0, Schenker stresses, will be no different with downsides and upsides. 

It’s how we embrace the upside and mitigate the downside via education, reforms and re-skilling so that individuals and society can reap the benefits from the upcoming age is what it’s all about. My overriding impression upon reading the book is that its for everyone. Afterall, it is discussing the future and how we should gear up for it – and that’s something that concerns everyone.

What is so brilliant about Schenker’s work is that its part analysis, part historical perspective, part futuristic, part career advice and part financial planner. And the sum of all parts makes it among the most informative and engaging works on future planning out there in the market, written in free-flowing simple language that would appeal to as diverse a readership base the Oilholic can possibly imagine.

This blogger immensely enjoyed Schenker’s book and is happy to recommend it to fellow beings eyeing what the future holds for us, and how we need to embrace and prepare for it. 

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© Gaurav Sharma 2017. Photo: Front Cover - Jobs for robots: Between Robocalypse and Robotopia by Jason Schenker © Prestige Professional Pulishing

Those loud political bangs in Riyadh

Riyadh, capital of the world’s most prolific of crude oil producing nation – Saudi Arabia – has been rocked by both physical and political bangs this weekend, the Oilholic notes. Overnight, state TV confirmed the Saudis had intercepted a ballistic missile aimed at Riyadh's King Khaled Airport fired by Yemen’s Houthi rebels.

Witnesses reported loud bangs and parts of the destroyed missile were found in the airport’s car park. The Saudis are leading a campaign to defeat the Houthis, as part of an international air coalition that has bombed the rebel group since 2015. Who else, but Iran, purportedly backs the rebels. 

Following the physical bang, came the political bang later in the day in the form of surprise dismissals and arrests of dozens of Saudi ministers, royals, officials and senior military officers by the country’s Crown Prince Mohammed bin Salman. 

Even by secretive Saudi standards, the move is unprecedented. It points to an audacious attempt by the Prince to consolidate his power base and move closer to his ultimate objective of ascending to the country’s throne.

His father King Salman has been doing his bit too. Under convention, Prince Mohammed bin Nayef, a seasoned royal, was first in line to the throne to succeed Salman. But the King ousted him from the line of succession and stripped him of his role as interior minister.

Earlier in his reign, King Salman had removed his half-brother Prince Muqrin from the line of succession. By April 2015, the king had appointed Prince Mohammed bin Salman as second-in-line to the throne, giving him the title of deputy crown prince, a move that surprised many senior members of the ruling Saud family.

Now through what on paper appears to be an anti-corruption purge, the father-son duo have all but made sure of Mohammed bin Salman’s safe passage to the throne. However, in highly tribal Saudi Arabia, reports suggest the move has not gone down well. 

How it all plays out in terms of geopolitical risk and the impact all of this could have on the oil price remains to be seen. For now at least, it’s just a few crude bangs, albeit at a time the oil price is back above July 2015 levels. That’s all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Oil extraction facility in the Middle East © Shell.

Oil bulls being cautious in Zurich

The Oilholic finds himself in the financial hub of Zurich, Switzerland for a splash and dash trip and afterhours ‘crude’ banter here suggests oil bulls are being cautious ahead of the 30 November OPEC and non-OPEC oil ministers’ meeting.

Market anticipation that the ongoing 1.8 million barrels per day (bpd) production cuts would be rolled over beyond March 2018 has sent the Brent front month contract well north of the $60 per barrel mark. As yours truly was boarding his flight out of London, Brent was trading at $60.73 per barrel and heading higher, notching its highest level since July 2015 and marking a rise of more than 36% from the lows seen in June. Some are quite excited.

Take Paul Mumford, fund manager at Cavendish Asset Management, for instance. He notes: “With each dollar trickling straight through to the bottom line, if prices remain at these levels we’d see a rapid increase in oil firms’ cash flows – something that could mean a significant shake up. Asset values would increase sharply in line with projected earnings, banks would be more relaxed about borrowings and farm-out agreements would become easier and more lucrative.

“The lives of mature fields may be extended deferring steep decommissioning costs, exploration would become increasingly viable, and project financing should be easier to obtain. Higher prices could also be an incentive for consolidation in the industry. The downside however might be that we see an increase in drilling costs, but this would benefit the oil service companies. There is every reason to have confidence in the oil market – $50 a barrel and below is a struggle, $55 is good and $60 and above means cigars for everyone!"

Be that as it may, oil market observers in Zurich, and the few who kindly made their way from Geneva to speak to the Oilholic, say the situation warrants caution.

Spot Brent lags a good $3-plus per barrel. And while it’s all good to go long based on the daily newsflow in the run-up to the OPEC meeting, the absence of an exit strategy by those partaking in the production remains a big question-mark.

If the cuts are rolled over – as is appearing increasingly likely – folks here in Zurich opine, and the Oilholic concurs, that the bears would only be going into hibernation for a limited time. The cuts have to end at some point.

Away, from the oil price, MarketLine’s latest industry assessment released last week, suggests the global oil & gas market shrank by 13.6% in 2016 as low crude oil prices pushed down revenues. Overall, the global oil & gas market saw its value fall from $1,395.7 billion in 2015 to $1,205.6 billion in 2016.

The research outfit’s latest forecasts predict a market value of $1,624.7 billion over the period 2016 – 2021; coming to a Compound Annual Growth Rate (CAGR) of 6.1%. Volume growth during the same period is forecast at 1.6% reaching a total consumption of 52,619.8 million barrels of oil equivalent.

The MarketLine report also highlights that the US oil & gas market is the largest domestic oil & gas market in the world, with a total value of $286 billion in 2016. This means that the US market alone accounts for almost 24% of the global oil & gas market.

Those shale players haven’t gone away. If higher prices benefit OPEC, US independents prosper too. Question here in Zurich and beyond is what happens when more barrels – both OPEC and non-OPEC – start hitting the market? Fondue for thought indeed, but that’s all from Switzerland folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2017. Photo: Zurich, Switzerland © Gaurav Sharma 2017.

A 'Crude' view from Tokyo: Japan’s delight at oil & gas buyers’ market

The Oilholic is delighted to be back in Tokyo, some 6,000 miles east of London. However, this one’s a splash and dash trip barely days after Prime Minister Shinzo Abe’s thumping election victory in a snap election the incumbent called. 

Though Abe is not universally popular by any means – as this blogger observed upon interaction with members of the voting public on behalf of IBTimes UK – the incumbent still coasted to an election victory offering a safe pair of hands and an economy that is tagging along nicely. 

It has been unquestionably helped in no small part by an oil and gas buyers’ market that corporate Japan and the country’s policymakers are pleased with. 

More so, as demand in Asia’s most advanced economy is on the decline courtesy of energy efficiencies that are miles ahead of many others in the industrialised world.

In fact, Japan’s oil demand has been in a structural decline for a number of years with the rise of cars with better mileage, usage of alternative fuels, very visible electric vehicles and last but not the least an ageing population. 

According to contacts within the analyst community in Tokyo, Japan’s average crude demand currently stands at 3.5 million barrels per day (bpd), down from its peak of 5.9 million bpd noted back in 2005. India has indeed overtaken Japan to become the world’s third-largest importer of crude oil with an average demand of 4.2 million bpd.

Nonetheless, whatever Japanese importers take is increasingly coming on their terms in a buyers’ market. In fact, the Oilholic’s sources in trading circles suggest spot Brent is at least $1.90 cheaper  per barrel compared to forward delivery toward the end of first quarter of 2018.

The natural gas market, though tied into the long-term contracts, is also spoilt for choice with Qatar, Australia and US consignments jostling for attention, and buyers awash with gas are looking for legislative changes to offload some of their surplus holding to near Asia. 

Most local commentators feel the decoupling of gas prices with the Japan Customs-cleared Crude (JCC), or the Japanese Crude Cocktail, if you would, is nearly complete. But then again, the JCC itself is not as high as it was a mere five years ago, and the days of $12-15 mmbtu gas prices and $10 premiums to the US Henry hub are a thing of the past. 

Unsurprisingly, Japan’s anti-monopoly regulator ended LNG re-sale restrictions over the course of the summer. The decision to end destination restriction clauses is 100% likely to lead to more trading of LNG cargoes by buyers in Japan, who can become sellers of their surplus holdings. And if Japan can do it, the wider region is bound to follow. 

In the fiscal year 2016-17, ended March, Japan imported 85 million tonnes of LNG worth about $30 billion, according to official data. So to say the country is in a strong position to renegotiate supply terms without destination restriction clauses would be an understatement. As the world’s biggest importer of LNG – it is in a commanding position to renegotiate with Qatar and Malaysia its two biggest suppliers. 

Away from crude matters, here is a link to one’s IBTimes UK exclusive on the ongoing Kobe Steel scandal, based on the comments of a whistleblower, who gave his take to your truly on the state of affairs and how a culture of fear led to the ongoing fiasco.

And on that note, it’s time to say goodbye to Tokyo. It was a brief three-day visit, but always a pleasure to be in this vibrant global capital of commerce. 

However, before one takes your leave, here’s a glimpse of some midnight petroheads – driving a convoy of what appears to be go-carts – in the small hours of the night, whom the Oilholic spotted while on pleasant evening walk back from Roppongi Hills to his hotel in Shiba Park. Only in Japan!

That’s all from the land of the rising sun. It time for BA006 back to London Heathrow. More soon. Keep reading, keep it ‘crude’. 

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© Gaurav Sharma 2017. Photo 1: Tokyo skyline, Japan. Photo 2: Midnight go kart racers in Roppongi Hills, Tokyo, Japan © Gaurav Sharma 2017. 

Rig count falls and crude oil bulls rise!

Another Baker Hughes weekly rig count gives the oil bulls crumbs of comfort. Perish the thought, if you are thinking the Oilholic is understating the recent price rises. 

The current climate does offer the bulls a position of relative strength compared to how the quarter before was panning out. 

The latest count shows the biggest one-week rig drop in US Permian Basin in 19 months, with the headline count down by 15 to 913 operational oil and gas rigs stateside. 

Last week, Brent was up 1.22% week-over-week to $57.87 per barrel and nudging up to $60, while the West Texas Intermediate front-month contract was up 1.97% to $52.03. OPEC’s basket of crude oils also appears to have perked up, notching a gain of 1.98% to $55.52. (See chart above, click to enlarge)

More so, because the Russian and Saudi heads of state do seem to be contemplating an extension of the OPEC and non-OPEC production cut agreement ahead of the 30 November meeting of oil ministers in Vienna. Add all of it up and you’ll find the mildly bullish sentiment is not misplaced. 

In fact, the probability of the ‘on-paper’ cut of 1.8 million barrels per day (bpd), of which OPEC’s share is 1.3 million bpd, being rolled over beyond March is pretty high. The Oilholic would say 80%. Of course, these are bizarre times in the crude market, as the recent appeal by OPEC Secretary General Mohammed Barkindo to US shale players to also cut production suggests. 

Right now, signatories to the OPEC / non-OPEC agreement appear to have little choice but to roll over the cuts as there is a clear absence of an exit strategy. However, the cap has to end someday, and that’ll be a field day for the bears (at some point in 2018) with Saudi Arabia, US and Russia all tipped to have production levels above 10 million bpd next year. 

That presents little prospect of the so-called ‘elevated’ oil price to escape its current range, as yours truly noted in a recent Forbes post. Have a read, alternative viewpoints are most welcome – just ping an email across. 

For the moment, it’s about playing the longs week-on-week in the run up to the OPEC meeting based on the newsflow. However, 12 months out, the oil price would struggle to stay above $65 per barrel using the West Texas as a benchmark, as more non-OPEC oil is bound to come on to the market the moment it caps the $60-mark. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Graph: Oil benchmarks closing prices on Friday from January 2017 to date  © Gaurav Sharma 2017.

Is $50 an optimum crude price for GCC countries?

Before the Oilholic begins the journey back to London, there is the little matter of gauging the ‘crude’ opinion of known industry contacts seated comfortably in the Disneyland for adults, sorry Dubai!

Quite like the consensus among delegates at the recently concluded Gulf Intelligence Energy Market Forum, most think the United Arab Emirates and its fellow Gulf Cooperation Council (GCC) members would indeed be comfortable at $50 per barrel. To quote one physical trader, a $50+ price level is the modest middle ground that both Gulf producers and US shale players can work with.

The regional broadsheets – Khaleej Times, Gulf News and The National – as well as several internet forums seem to be leading their respective crude narrative this morning with the Iraqi minister’s quip at EMF2017. For OPEC, which quite frankly appears to have no exit strategy for its current round of cuts totalling 1.3 million barrels per day (bpd), there could a renewed impetus on deepening the cuts. 

The cartel’s compliance committee meets on Friday with the exempt duo of Nigeria and Libya – whose production has been steadily rising – in sharp focus. Production for both is up; in Libya’s case the data is erratic and in Nigeria’s case often over-reported.

Analysts from JBC energy say the average revision was around 100,000 bpd for the months from January to July 2017 for Nigeria. “We would expect a similar revision for August and hence expect the final crude figure to come in at 1.65 million bpd,” they add.

At 1.65 million bpd, perhaps the time is indeed right for Nigeria to be invited to cut on 30 November. But who knows how this will go in the complicated world of OPEC shenanigans. 

In theory the cartel could cut further and fan the so-called ongoing ‘rally’ more – but it should not for one moment assume that US producers would not benefit. More American oil is in any case imminent; more so should OPEC introduce even deeper cuts on paper. If anything, the move would accelerate the US’ march to 10 million bpd much sooner in 2018 than later. Let’s see where it all goes.

Just one final matter before, the Oilholic takes your leave – remember the ADNOC fuel distribution unit IPO back in July, that sent equity analysts pulses racing? Well, this blogger thought there would be more excitement in the UAE about it than one has encountered over the past few days.

While there is reasonable amount of chatter about fast-tracking it and other IPOs before Saudi Aramco’s so-called mother of all IPOs, there is very little concrete information on the timeline and the road ahead. That’s kinda disappointing but that’s all for the moment from the UAE folks as its time for the ride home to London. Keep reading, keep it crude!

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Back in Fujairah for EMF 2017

The Oilholic was delighted to be back in Fujairah, UAE once again to moderate sessions and participate in the deliberations at Gulf Intelligence’s Energy Markets Forum 2017 on 18-19 September. 

This year’s event was enhanced further with the introduction of the New Silk Road CEOs of the year awards in four key energy categories. Eelco Hoekstra, CEO of Royal Vopak - the largest international oil storage terminal operator in China, Singapore and Fujairah – won the award in the ‘storage’ category, while Ibrahim Al-Buanain, CEO of the wholly-owned trading unit of Saudi Aramco was recognised in the field of ‘Trading’.

Bakheet Al-Rashidi, CEO of Kuwait Petroleum International, received the accolade for ‘Refining’, and Capt. Mousa Morad, General Manager of the Port of Fujairah, bagged the award for the advancement of ‘Ports’ on the New Silk Road.

On the morning of the forum, after the gala evening before, Iraqi Oil Minister Jabbar Al Luiebi sent headline writers into overdrive by opining that perhaps an OPEC production cut extension could be on the cards when the cartel next meets on 30 November, and that the cuts might well be deepened. He also dismissed criticism that Iraq was the ‘bad boy’ of OPEC that's constantly overproducing crude oil. Here’s the Oilholic’s more detailed take on the Minister's stance for Forbes.

Away from the Iraqi crude envoy's quip, delegates at the forum were largely in agreement that the oil price would average in the $50s per barrel range bracket in 2018. The EMF 2017 spot survey of 250 energy professionals revealed 61% felt the $50s range was about par.

The relatively bullish sentiment is of course supported by the International Energy Agency’s (IEA) forecast that global oil demand growth in 2018 will average 1.4 million barrels per day (bpd).

More so, 71% of survey respondents polled felt that OPEC should continue its supply cut agreement when it expires at the end of the first quarter of 2018, although doubts were expressed in several quarters about OPEC’s exit strategy, since a stronger oil price also benefits US shale players.

The Oilholic was also delighted to moderate two satellite sessions at EMF 2017. The first panel discussion centred on petrochemicals and what would be the top five strategies for the Gulf to align with Asia’s competitive appetite.

Among the panellists were the inimitable Dr. Sun Xiansheng, Secretary General of International Energy Forum, a regular on ‘crude’ speaking circuits, flanked by Ernest Rubondo, Executive Director of the Petroleum Authority of Uganda and Hetain Mistry, Managing Analyst (petrochemicals) at S&P Global Platts.

The second panel discussion involved a lively discussion on the Fourth Industrial Revolution or Industry 4.0 and what disruptive technologies the energy industry, particularly downstream, needs to take note of. 

The star cast of panelists for the session included Irina Heaver, Partner at Fichte & Co, Rabih Bou Rashid, CEO of Falcon Eye Drones and Salman Yousef, Managing Director of Takeleap.

Both sessions made for a fascinating afternoon of crude thoughts – with the dominant theme of the former panel discussion being China’s appetite for being the harbinger of things to come in the petrochemical landscape, and the dominant theme of the latter panel being divergent views on the actual pace of digitisation in the global energy industry in general and the Middle East in particular.

All in all, another fantastic few days of deliberations at an event that continues to grow bigger by the year, thanks to the efforts of the wonderful team at Gulf Intelligence. And that’s all from Fujairah folks! Next stop Dubai, before the journey back home to London. Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photos (clockwise from top): Dyala Sabbagh of Gulf Intelligence interviews Iraqi Oil Minister Jabbar Al Luiebi; Gaurav Sharma moderates EMF session on petrochemicals; EMF session on the 4th Industrial Revolution, Fujairah, UAE © Gulf Intelligence 2017.

Kazakhstan’s crude output: A view from Almaty

The Oilholic is roughly 4,200 miles east of London, on his first flying visit to Almaty, Kazakhstan – Central Asia’s lovely oil and gas capital surrounded by serene mountains, cable cars, gourmet restaurants and sprawling university campuses. Here’s a view of its iconic TV tower and adjoining hills.

The occasion happened to be Confidence Capital’s Kazakhstan Oil and Gas Trading and Transportation Conference. Earlier today, this blogger provided an overview of the global oil and gas markets – forecasts on market balancing, crude oil demand and the production of the key players.

Also on the panel were Ruslan Bakenov, Director General of the Oil and Gas Information and Analytics Centre, Ministry of Energy of Kazakhstan,  Kuanysh Kudaybergenov, Director for Oil Industry Development Department of the country’s Ministry of Energy, and of course, Andrew Rudenko, Director of Confidence Capital, and the host of ceremonies. 

Some slides of one’s presentation are flagged below, but the Oilholic’s take was a familiar one. It is doubtful, the oil price would escape the $45-55 per barrel range anytime soon, that the US would join Russia and Saudi Arabia in the 10 million barrels per day (bpd) club in 2018, and demand would continue to be driven by China and India. 

Specifically in the case of Kazakhstan, this blogger believes its participation in the OPEC and non-OPEC headline cut – however lacklustre it might be – is not serving any purpose, as OPEC lacks an exit strategy. 

If anything, Kazakhstan’s production is by all accounts expected to surpass 1.9 million bpd in 2018 from its current range of 1.8 million bpd with Kashagan at full speed.

The country has to find ways to cope with the era of ‘lower for longer’ oil prices. Multilaterals, independent observers and indeed the ratings agencies think it can cope with the help of banking, structural and constitutional reforms that are already underway. Slides are below (click to enlarge); but that’s all from Almaty folks! It was an immense pleasure to be here. Keep reading, keep it crude.  

Powerpoint slides: Confidence Capital’s Kazakhstan Oil and Gas Trading & Transportation Conference, Almaty, Sep 14-15, 2017

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© Gaurav Sharma 2017. Photo: Almaty's TV tower and adjoining hills, Kazakhstan. Powerpoint slides: Confidence Capital’s Kazakhstan Oil and Gas Trading & Transportation Conference, Almaty, Sep 14-15, 2017 © Gaurav Sharma 2017.

Getting a glimpse of the Tifosi at Monza

After a gap of nearly seven years, the Oilholic belatedly headed to a Formula 1 race-track in Monza, Italy, on September 2-3, to witness firsthand the changes that are afoot in the world of motor racing’s premier rung. 

But first, a word on Monza itself – that place of pilgrimage for F1 racing enthusiasts, the home grand of Ferrari and of course their exuberant ‘tifosi’ or the fans.

Inaugurated in 1922, the race track is the oldest in F1 and ranks alongside Monaco and Silverstone, UK as the three must-see races on the annual calendar for purists. 

Of course, it has undergone several modifications in its nearly 100-year history. The current circuit’s length is around 3.6 miles, with the race being 53 laps.

So in this historic setting, the Oilholic saw a rain-soaked qualifying on Saturday, and gloriously sunny race on Sunday. 

Regrettably for the neutral and indeed this blogger, a Ferrari did not win as four-time World Champion Sebastian Vettel could only manage a third-placed finish. Rather, the Mercedes driven by Lewis Hamilton carried the day. 

Of course, that didn’t stop the tifosi from partying like there’s no tomorrow and rushing on to the track post-finish as they usually do year in, year out. As for the cars themselves, this blogger won’t be the first to catalogue this but they no longer sound like the old ones. 

Back in 2010 – last time yours truly was in the stands – the circuit ran the 2.4-litre V8 cars – the sort of engine you could hear miles away from the race tracks. But in the 2014 season, under in a bid to appear environmentally friends, F1 went with the smaller less polluting 1.6-litre turbo hybrid V6 engine. 

It’s noise level just isn’t that great, if that’s your thing – rather decidedly underwhelming. So it’s best to forget the V10s and V12s; the Oilholic doubts they are come back. That’s all from Monza folks! Forza Ferrari! Keep reading, keep it crude!

Addendum 17.09.2017: For a more detailed report on the ever changing world of F1, here is the Oilholic’s take in a column for Forbes. 

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© Gaurav Sharma 2017. Photo 1: Lewis Hamilton of Mercedes wins the Italian Grand Prix, Monza, Italy. Photo 2: Ferrari's Sebastian Vettel finishes third. Photo 3: The tifosi unfurl huge Ferrari banner at the conclusion of the Grand Prix.

Why oil isn't escaping $45-55/bbl range

For much of August, the oil market has shown signs of breaking the $45-55 per barrel range – in which it has been stuck of late – toward the upside. Yet, the moment it hits the upper end of the range, a sell-off ensues.

It can be explained away by merely focussing on the supply side of the argument, i.e. global inventory rebalancing not proceeding at pace, and OPEC’s own compliance faltering. However, that is only part of the explanation. 

Two other variables – China’s demand growth and market perception on what would happen when the current OPEC arrangement ends [in March 2018] – are also influencing trading patterns. 

Admittedly, the Brent forward curve has moved from contango into backwardation, i.e. where prices for immediate delivery are higher than those for later delivery. Conventionally, that is considered a bullish sign for prices since it is indicative of demand outpacing supply in the world of "here and now."

However, the Oilholic is not convinced, as what we are witnessing is a not a conventional market. This blogger remains net short and here are one’s reasons for it via a Forbes post (click here). Have a read, alternative viewpoints are most welcome – just ping an email across. But that's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Rig workers © Cairn Energy.

Platts July survey notes 32.82m bpd OPEC output

It seems S&P Global Platt's latest survey of OPEC production is suggesting the cartel's headline output came in at 32.82 million barrels per day (bpd) last month; the highest level so far into 2017.

As expected, its the two members exempt from its cuts of 1.8 million bpd - instituted on paper with 10 other non-OPEC crude producers - who have contributed to rise in production, Libya and Nigeria.

Libya's continued recovery saw the civil unrest ridden OPEC member produce 990,000 bpd in July, up 180,000 bpd from June. Nigeria averaged 1.81 million bpd, up 30,000 bpd on June.

The two exempt countries, along with increased output from Saudi Arabia, with its peak summer air conditioning season in full swing, have sent OPEC's collective output 920,000 bpd above its nominal ceiling of around 31.9 million bpd, when new member Equatorial Guinea is added in and suspended member Indonesia is subtracted. 

Saudi Arabia itself produced 10.05 million bpd in July, according to the survey. Overall, S&P Global Platt's notes that while collective compliance with the cut agreement is strong, "results among individual countries are still uneven."

For instance, OPEC's second largest member Iraq grew production slightly to 4.48 million bpd in July, remaining the "least compliant country" in terms of output above its quota, which is 4.35 million bpd.

Iran, OPEC's third largest producer, also had a slight increase in output to 3.82 million bpd, just above its quota of 3.80 million bpd under the deal, as its barrels in floating storage rose, according to the survey.

UAE oil production likewise rose in July to 2.89 million bpd, above its quota of 2.87 million bpd. Of course, the so-called OPEC/non-OPEC monitoring committee, composed of ministers from Kuwait, Russia, Algeria, Venezuela and Oman, which met in St Petersburg on July 25, has said it plans to enforce compliance much more tightly going forward.

Seeing is believing of course in these 'crude' times.That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: OPEC logo on building's exterior © Gaurav Sharma 2015.

Of long calls and more Colombian barrels

Despite an awful lot of bearishness in the market, and global inventories showing no tangible signs of rebalancing, the Oilholic finds the number of long plays in the market to be astounding.

In fact, US shale producers are in their element, and producing comfortably at the current oil price range. 

As the International Energy Agency noted at the recently concluded 22nd World Petroleum Congress - "the only oil producing region that has actually seen a rise in investment has been American shale, where compared to 2016, investments are up 53%."

Here are yours truly's thoughts in greater detail via a Forbes op-ed. Away from the oil price, given  a sequence of the OPEC meeting, a trip to New York and the World Petroleum Congress, a report on Colombian oil production - published by GlobalData earlier in the month - escaped this blogger's attention. 

It is well worth a crude read, for the research and analysis outfit suggests Colombia is well on track to reinvigorate its upstream sector after the oil price shock. 

"Improvements already made to the country's royalty framework will benefit licenses currently held in the exploration phase, which may provide some stimulus in the short to medium term, and more flexible licensing procedures are likely to lead to greater uptake of available exploration acreage. However, based on recent life-cycles from exploration to production any newly awarded areas over the next two years will be unlikely to add significant production before 2025," GlobalData notes. 

This could change; and as for offshore development, Colombia represents one of the most competitive regimes in Latin America and interest in its Caribbean exploration has been steadily growing over recent years. 

The fiscal regime, according to GlobalData, is currently geared to foster investment with a regionally and internationally low fiscal take. The government is reportedly planning to include areas in the Caribbean Sea as part of the open areas to be made available in 2018, and a recent large gas discovery in the area by Anadarko highlights the potential of this underexplored region.

Colombia's Agencia Nacional de Hidrocarburos (ANH) is set to open onshore areas in the North and Northwest of the country in the Sinú-San Jacinto, Llanos Orientales and Medio Valle del Magdalena basins on an open basis and adding areas in the Caguan-Putamayo basin in 2018, with the number of areas available for exploration potentially rising from 20 to 40. 

The country's current production level is in the region of 706,000 barrels per day (bpd). While that is considerably below its 2015 peak of 1.005 million bpd, more barrels are imminent over the medium term. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: Oil tankers in the Persian Gulf off Musandam Peninsula, Oman © Gaurav Sharma 2013.

A bearish view from Istanbul

The 22nd World Petroleum Congress circus has left Istanbul, Turkey in a distinctly bearish mood, at least that’s the Oilholic’s verdict! 

'Big Oil' boss after boss pointed out to the congress that IOCs were gearing up for a short-term breakeven of $50 per barrel, and working towards a $30 per barrel breakeven by the turn of the decade. Few, if any expect an uptick to a three figure oil price anytime soon. 

The International Energy Agency expects a flood of US shale barrels, so much so that its Executive Director Dr Fatih Birol noted that describing his outfit as being representative of energy consumers was sounding clichéd these days.

Afterall, IEA members US, Canada and United Kingdom, were also energy exporters. At the same time, global oil inventories remain stubbornly above 3 billion barrels, and not anywhere near the 2.7 billion five-year average OPEC is hoping to achieve via its cut. 

Tied in to all of this are two important considerations in light of what's on the horizon. Firstly, OPEC’s production cut in concert with 10 non-OPEC producers only lasts until March 2018 on paper. What happens after that? Surely more oil is coming our way. Secondly, most at the WPC, including the IEA, predicted US production to climb to 10 million barrels per day (bpd) and for some even as high as 10.3 million bpd. 

So what is there to be bullish about? Agreed - as many readers of this blog have pointed out - inventory rebalancing will gather steam towards the fourth quarter of this year, but not to the extent some are predicting. 

For arguments sake, if that is seen as being supportive of the oil price and that sustains oil futures above $55 for a period, more US and non-OPEC oil is bound to come on to the market. Draw your own conclusions where the ‘crude’ world would be heading to thereafter. In short, this blogger finds little evidence that the oil price would escape its current $45-55 per barrel range using Brent as a benchmark. 

Just a couple of things to flag up before yours truly takes your leave. Here is one’s IBT report from the WPC on how spooked the industry is about not being able to attract enough young recruits and qualified female professionals. Additionally, here is the Oilholic’s foray into the emergence of ‘crude’ robots, that could be coming to an oil and gas field near you. That’s all for the moment folks. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2017. Photo: An oil tanker in the Bosphorus, Istanbul, Turkey © Gaurav Sharma, July 2017.