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.