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.