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.