The Fatih & Mohammed show enlivens CERA Week 2018

The Oilholic is back in Houston town, for IHS CERA Week, one of the oil and gas industry’s premier event, and so far its all about the tussle between US shale producers and OPEC/non-OPEC ‘supergroup’. 

Before the things gained traction on the first day of the week-long event, the International Energy Agency (IEA) emphatically declared the US would dominate oil production over the next five years, and is well on its way to becoming the world’s number one oil producer ahead of Russia and Saudi Arabia. (Here’s the Oilholic’s Forbes report). 

The IEA’s inimitable Executive Director Dr Fatih Birol also pointed out that describing the think-tank as an ‘oil consumers’ club’ is becoming clichéd these days as four of its members – the US, Canada, Brazil and Norway, were accounting for much of the world’s oil production growth.

Meanwhile, OPEC Secretary Mohammed Sanusi Barkindo, who is also in town, made it known that the OPEC/non-OPEC production cut underpinned by Saudi Arabia and Russia has been a success, and making a tangible impact in rebalancing the market.

So post-luncheon, both men took to the stage with Daniel Yergin, Vice Chairman of IHS Markit, for  a delightful, somewhat testy but good natured, exchange. 

Barkindo declared the OPEC and non-OPEC production cut has been “efficient”, “surpassed expectations” and “brought optimism to the market.”

Birol said that optimism was most apparent in the US, with shale producers, well...producing at a canter, and positioning themselves to cater to robust oil demand from India and China. Providing an undercurrent to his stance, was the news that India was taking it first US natural gas consignment, a mere nine months after inking an agreement to import American crude. 

Of course, Birol warned that oil and gas investment was lagging, with 2018 investment valuation projected to rise by only 6% on an annualised basis. 

Barkindo declared that was “not in the interest of the global economy.”

Via production cuts, the 24 OPEC and non-OPEC producers were providing “insurance and stability” to the global market; a move that was open to “all producers,” he added. 

Of course, US producers driven by the spirit of private enterprise, are not really queuing up to join anytime soon. So what should they do? “Enjoy”, quipped Birol, to peals of laughter in the room. 

And so it went, but the Oilholic suspects you get the gist. Elsewhere on day one, Total CEO Patrick Pouyanné said in the crude industry size does matter, and that a lower price environment gives bigger players opportunities to make strategic acquisitions. 

“It’s good to be a large integrated oil and gas company. Key to success is stable investment, regardless of oil price,” he added. 

Plenty more to come from CERA Week, but that’s all from Houston for the moment folk. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: (Left to right) IEA Executive Director Fatih Birol, OPEC Secretary General Mohammed Sanusi Barkindo and IHS Markit Vice Chairman Daniel Yergin speak at CERA Week 2018 © Gaurav Sharma 2018. 

Crude musings at Platts LOF & IPWeek

A plethora of ongoing events meant the Oilholic ditched the comforts of suburbia last week and camped out at London’s Park Lane, with its row of hotels playing host to some crude events. 

For starters S&P Global Platts’ London Oil Forum 2018 made for an interesting Monday (19 Feb). Talk of the forum was, of course, the eastward direction of crude cargoes, as more and more oil tankers from the US head to Asian shores. There was tacit agreement among delegates at the Platts event that North American crude production will continue to grow, dominated by shale, leading to a relative surge in US exports.

Chris Midgley, Global Director of Analytics at Platts, noted: "Lot more US crude will move into Asia, primarily lighter crude for independent Asian refiners with less complex kit."

Platts' own observation, in tandem with those of rival data aggregators, also suggests that global production is growing a lot lighter. That's because the OPEC and non-OPEC production quota cut took heavy and medium crude exports to Asia into a net decline in 2017.

Additionally, Platts expects 2020 to be hugely disruptive from a crude cracking standpoint as nearly 3 million barrels per day (bpd) of fuel oil will have to "produced differently."

Right after the Platts LOF came the International Petroleum Week 2018, Tuesday through to Thursday, where yours truly also donned an event speaker’s hat. More on that later.  

On the very first day of IPWeek, UAE oil minister Suhail Al Mazrouei, said plans for an OPEC and non-OPEC producers’ ‘super-group’ were well and truly underway, and that the producers, while satisfied with the reduction in global inventories, had not quite reached their end-goal of achieving the kind of market balance they were aspiring for yet.

Elsewhere, BP Boss Bob Dudley told delegates the energy industry was in a race to lower carbon emissions, "not in a race to renewables"; which was one of the standout quotes of the event. 

Trump versus Iran, and India's crude oil demand were other burning topics. Platts also unveiled an agreement to track UAE oil inventories using blockchain. And the event ended with a lively debate organised by Gulf Intelligence, with the motion being ‘US Oil & Gas will steal market share from Gulf producers in Asia.’

The Oilholic joined Dr Carole Nakhle, CEO of Crystol Energy, in arguing against the motion, with Amrita Sen, Energy Aspects’ Chief Oil Analyst and David Sheppard, Energy Markets Editor of the Financial Times, supporting the motion.  

In a nutshell, Dr Nakhle and this blogger’s argument against the motion was a simple one – as the demand mix evolves, and much of the incremental demand comes from Asia, there is in fact room for everyone, and the impact of US exports should not be exaggerated or oversimplified. 

At the beginning, the audience was 61% in favour of the motion and 39% against. However, in a final vote upon the conclusion of the debate, the Nakhle-Sharma duo managed to sway audience opinion to 65% against the motion, with those in favour of it down to 35%! 

Overall, a fun end to a crude week. That’s all for the moment folks! Next stop, Houston, Texas for IHS CERAWeek! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo1: Chris Midgley, S&P Global Platts’ ‎Director of Analytics, speaks at the data aggregator’s London Oil Forum. Photo 2: UAE Oil Minister Suhail Al Mazrouei  (left) talks to CNBC’s Steve Sedgwick at the International Petroleum Week, London, UK © Gaurav Sharma 2018. Photo 3: IPWeek Debate Participants at Middle East Energy Summit © Gulf Intelligence 2018.

Crude price fluctuation versus ‘Big Oil’ dividends

It has been another crazy fortnight in the crude markets, with Brent not only having retreated from $70 per barrel, but trading below $65, as the Oilholic pens his thoughts.

In any case, having a $70-plus six-month price target is increasingly odd, given the current set of circumstances, let alone a projection by Goldman Sachs of $82.5 per barrel, as one recently wrote on Forbes.

That said, a possible Saudi-Russian, or should we call it a R-OPEC, reaffirmation of keeping oil production down, accompanied by constantly rising Indian oil imports and stabilising OECD inventories, should give the bulls plenty of comfort. Let’s also not forget the global economy is growing at a steady pace across all regions for the first time since the global financial crisis.

The aforementioned do count as unquestionable upsides for the oil price. But here’s the thing – should you believe in average global demand growth projections in the optimistic range of 1.5 to 1.7 million barrels per day (bpd); such growth levels could be comfortably met by growth in non-OPEC production alone.

For the moment, there’s little afoot to convince the Oilholic to change his view of a $65 per barrel average Brent price, and $60 per barrel average WTI price for 2018. So what impact would this have on ‘Big Oil’.

Interestingly enough, Morgan Stanley flagged up the 'curious case' of Big Oil dividend growth in a recent note to clients, pointing out that despite recent share price declines influenced by crude market volatility, unexpected dividend growth is still being achieved by European oil majors thanks to rapidly improving financial performance.

According to the global investment bank, in 2017, Royal Dutch Shell, BP, Total and Statoil generated $29.6 billion in organic free cash flow; the highest level since 2009. Return on average capital employed is also improving and balance sheet gearing is falling as well.

“Several management teams were willing to translate stronger cash generation in dividend increases", Morgan Stanley added.

The investment bank opined that Statoil’s cash flow and dividend growth remain impressive, so do BP’s, but noted that the latter will not be able keep up with Total and, ultimately, Shell on dividend growth.

Hard to keep up with Shell in any case; the Anglo-Dutch giant has a sterling record of regularly and dutifully paying dividends dating all the way back to the Second World War. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Photo: Oil well in Oman © Royal Dutch Shell.

On Brent at $70/bbl & crude blockchain moves

Crude year 2017 is firmly behind us, and the Oilholic has summed up weekly closing prices for you on the chart adjacent, along with key points of the year which ended on a high for the oil market (see left, click to enlarge). 

That uptick has extended well into January. It can certainly be said that 2018 has started on a frantic, interesting and massively bullish note for the oil market. Brent, the world’s preferred proxy benchmark, finally closed at $70 per barrel on Friday (26 January); a first Friday-close above the said level since 28 November 2014.

However, that doesn’t necessarily mean yours truly has turned bullish. The Oilholic continues to follow his preferred mantra of being net-short over the long term, and long over the short term. The reasons are simple enough – more US oil, even if purely for domestic consumption – is inevitable.

Inventories have rebalanced, and demand is picking up, but relative to that, there is still plenty of oil in the market. Yet, there is a school of thought out there that the International Energy Agency (IEA) has exaggerated the significance of shale. The Saudi Oil Minister Khalid Al-Falih, among other influential voices at OPEC, has endorsed such a thinking. 

However, with US production tipped to cap 10 million barrels per day (bpd) in the first quarter of 2018, and may even touch 10.3 million bpd, one doubts the IEA has exaggerated things. US rig counts have continued to rise in step with the oil price rise. As such, there's little to have faith in a long-term $70 Brent price, especially as OPEC itself will ramp up production at some point. 

To get an outside-in perspective, on 25 January this blogger spent most of his day interacting with physical crude traders in Amsterdam and Rotterdam. Hardly anyone seemed to buy in to the bullish chatter that was coming out of the World Economic Forum 2018 in Davos. So the Oilholic is not alone, if you take him at his word. 

Away from the oil price, many say the biggest contribution of cryptocurrencies has not been Bitcoin and Ethereum, but the creation of blockchain, which 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.

This is now being actively pursued by major energy sector players, and developments at their end have kept the Oilholic busy for better parts of two weeks scribbling stories for Forbes. 

On 18 January, Shell’s trading arm unveiled its investment in a London-based start-up Applied Blockchain. Just days later on 22 January, Total and several energy traders joined TSX Venture Exchange-listed BTL's blockchain drive aimed at facilitating gas trading reconciliation through to settlement and delivery of trades using blockchain.

BP, Statoil and other traders such as Koch Supply & Trading and Gunvor have all recently gone down the blockchain path.

Then on 26 January, Blockchain outfit ConsenSys and field data management firm Amalto announced a joint venture to develop a platform to facilitate the automation of ticket-based order-to-cash processes in the oil and gas industry.

The emerging blockchain infrastructure aims automate all stages of the process associated with field services in upstream, midstream and downstream markets. Many of the processes, like field ticketing or bill of lading, are still largely manual and paper-based and primed for the blockchain revolution.

So from back-office functions to gas trading, blockchain is coming to shake-up the industry. Expect to hear more of the same. But that’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2018. Graph: Oil benchmark Friday closing prices in 2017 © Gaurav Sharma 2017.

US, Canada rig counts jump as Brent hits $70/bbl

The latest Baker Hughes rig count is out with the number of US, Canadian and International rigs all on the up. 

The US rig count is up 15 rigs from last week to 939, with oil rigs up 10 to 752, gas rigs up 5 to 187, and miscellaneous rigs unchanged. 

Compared to last year, US rig count is up 280 rigs from 2017's count over the same week of 659, with oil rigs up 230, gas rigs up 51, and miscellaneous rigs down 1 to 0. 

Canada's rig count is up 102 rigs from last week to 276, with oil rigs up 87 to 185 and gas rigs up 15 to 91. The headline figure is down 39 rigs from last year's count of 315, with oil rigs up 15, gas rigs down 53, and miscellaneous rigs down 1 to 0. 

As for the international rig count, it was up 12 in December, compared to the month before to 954 rigs, and up 25 on the same month in 2016. With the West Texas Intermediate firming up around $65 per barrel, and Brent hitting $70 for the first time since December 2014, the latest data does give the bears some food for thought. Happy Friday folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2018. Photo: Workers examining offshore rig in the distance © Cairn Energy.