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Climate Change Fight Is Bad News For Refineries

 

International government efforts to slow down the rate of climate change would have a dramatic impact on the world’s oil refining industry, a new report from Carbon Tracker has suggested. This dramatic impact will come down to a quarter of refineries closing shop by 2035.

Under a scenario that envisages limiting the rate of global warming to 2 degrees Celsius by 2035, oil demand, says Carbon Tracker, will peak by 2020 and will start declining by 1.3 percent every year after 2020. This means that over a 15-year period, oil demand could fall by 23 percent.

Based on historical data, Carbon Tracker says, when there is lower oil demand, there are also lower refining margins. These margins, which Carbon Tracker estimates need to fall by US$3.50 a barrel by 2035, will squeeze smaller refiners out of the market, with only three-quarters of refineries remaining up and running.

How likely is this scenario? Very, it seems, as the report’s authors note the margin decline rate among global refiners last year was a composite US$5 per barrel. BP’s refining margin decline rate has hovered around US$5 per barrel as well since 1990, the report also notes. What’s more, when demand for oil and fuels weakens, the margin decline rate increases – all bad news for refiners.

And Carbon Tracker has more bad news. Based on earnings analysis of 94 percent of global refining capacity as of 2015, Carbon Tracker has found that the combined earnings before interest, tax, depreciation, and amortization could fall by more than half by 2035.

 

Related: Oil Prices Fly Higher On EIA Report

Who will survive under this scenario, when all governments push in the same direction against global warming? The largest refineries with complex operations, which currently sport the highest profit margins. Simpler operations could “become worthless.”

What’s more, new refineries that are currently being built are turning into excess capacity, the report suggests. The current amount of refining capacity is sufficient to meet global demand for oil products. Yet growing demand in Asia, for instance, is motivating an increase in refining capacity locally. This would necessitate more capacity closures in other markets, the report said.

 

 

- Irina Slav, Oilprice.com – 02 November 2017

Huge Crude Draw Pushes Oil Prices Even Higher

 

The American Petroleum Institute (API) reported a huge draw of 5.087 million barrels in United States crude oil inventories, largely in line with an S&P Platts’ survey of analysts that expected inventories would draw down by 1.4 million barrels for the week ending October 27—continuing the extended drawdown in recent weeks.

Gasoline inventories, according to the API, saw a major draw of 7.697 million barrels for the week ending October 27, against an expectation of a much more modest draw of 1.7 million barrels.  Other analysts, according to Market Watch, estimated a draw of 2.5 millionbarrels.

Both WTI and Brent benchmarks were up on the week and are now up at nearly two-year highs on renewed faith in OPEC’s ability to rebalance the oil market, aided by the notion that OPEC is likely to extend the current production cut deal until the end of 2018. Further support came from supply disruptions in Iraq post-Kurdish referendum.

The fears of some that the goal of rebalancing is but a pipedream are offset by a few analysts who are seeing a possible swing in the opposite direction, with one Reutersanalyst cautioning that “The fear of oversupply could easily turn to a fear of undersupply if inventories keep declining like they have been and demand continues to grow.”

Crude oil inventories have drawn down a total of 35.1 million barrels since the start of 2017, according to API data.

The WTI benchmark was up .09 percent on the day to $54.20 at 12:59pm EST—almost $2.00 per barrel over last week’s levels. Brent was trading up 0.28 percent on the day at $60.76.  Both benchmarks continued to creep up as the data release drew near.

Gasoline was trading up 0.84 percent at $1.728—almost 10 cents above last week.

 

Related: Are Coal-Fired Power Plants Set For A Boost?

Distillate inventories also saw a sharp decline this week, down 3.106 million barrels. Analysts had expected a drop of 2.5 million barrels.

Inventories at the Cushing, Oklahoma, site decreased by a small 263,000 barrels this week.

The U.S. Energy Information Administration report on oil inventories is due to be released on Wednesday at 10:30 a.m. EDT.

 

- Julianne Geiger, Oilprice.com – 31 October 2017

Oil Prices Up After API Reports Huge Gasoline Draw

The American Petroleum Institute (API) reported a small build of 519,000 barrels in United States crude oil inventories, while an S&P Platts’ survey of analysts expected inventories would draw down by 425,000 barrels for the week ending October 20.

Gasoline inventories, according to the API, saw a huge draw of 5.753 million barrels for the week ending October 20, against a smaller expected draw of 2.3 million barrels.

Both WTI and Brent benchmarks were up on lingering concerns that the US/Iran standoffcould disrupt oil supplies, along with disruptions to oil production in Iraq as the referendum continues to pit Turkey, Iran, and Iraq governments against the Iraqi Kurds—a volatile situation that has the potential to spark a civil war.

But prices started to slip on Tuesday as reality set in as robust supply capacity from OPEC and US shale loomed large in skittish investor minds.

The WTI benchmark was up 1.04 percent on the day to $52.44 at 12:10 pm EST, while Brent was trading up 1.13 percent on the day at $57.92.  While WTI was up week on week, Brent was down slightly from last week.  Gasoline was trading up 0.99 percent on Tuesday at $1.62.

For the US, the total drawdown of crude oil in 2017 now stands at 30.1 million barrels, according to API data, although prices for now are still stuck in the low 50s.

Related: Syrian Kurds Cut Secret Gas Deal With Russian Forces

Distillate inventories also saw a sharp decline this week, down 4.949 million barrels. Analysts had expected a drop of 2.05 million barrels.

Inventories at the Cushing, Oklahoma, site decreased by a small 55,000 barrels this week.

The U.S. Energy Information Administration report on oil inventories is due to be released on Wednesday at 10:30 a.m. EDT.

 

- Julianne Geiger, Oilprice.com, 2017 October 24

Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions

Despite renewed geopolitical risk on the oil market hailing from the Middle East, oil prices were down on Friday morning and set for a weekly loss as profit-taking weighed more on the price of oil than the Iraq-Kurdistan standoff and increased U.S.-Iran tensions.

At 9:55 a.m. EDT on Friday, WTI Crude was down 0.31 percent at $51.35, while Brent Crude was trading down 0.09 percent at $57.18.  Both benchmarks rallied somewhat around noon EST, to $51.59 for WTI and $57.48 for Brent.

“There’s a little bit of profit-taking…The market has really been treading a small range all of this week without any true momentum,” Olivier Jakob, chief strategist at consultancy Petromatrix, told Reuters on Friday.

At the beginning of this week, Iraq moved to take control of oil fields in oil-rich Kirkuk from Kurdish forces, while the market was still digesting last Friday’s decision of U.S. President Donald Trump to officially withdraw his certification of Iranian compliance with the nuclear deal and kick the deal back to Congress for a decision.

On Tuesday, Iraqi government forces seized control of all oil fields that Iraqi state-held North Oil Company operates in the Kirkuk region from Kurdish forces. Geopolitical riskfrom the Middle East returned to the oil market, but oil prices did not surge as they would have done in previous years, in a sign that the market is still not feeling an imminent shortage of supply.

On Wednesday, the EIA pushed oil prices higher, reporting a major inventory decline of 5.7 million barrels for the week to October 13. At 456.5 million barrels, the authority said, crude oil inventories were within the upper limit of the seasonal average.

Related: A New Oil Crisis Is Developing In The Middle East

But also on Wednesday, reports started coming in that the flow of crude oil through the Kurdistan pipeline from Kirkuk to the Turkish port of Ceyhan had plummeted to some 225,000 bpd, from a typical flow of around 600,000 bpd.

On Thursday, Shell lifted the force majeure on Nigeria’s Bonny Light crude oil exports.

Even though oil prices dropped on Thursday and early on Friday, U.S. investment bank Jefferies thinks that “the oil market has moved into modest undersupply and we expect this will persist at least through the end of the year.”

- Tsvetana Paraskova, Oilprice.com, October 20, 2017

UK Oil And Gas Costs To Rise 100% If Brexit Fails

The UK’s embattled oil industry might have to tackle a twofold increase in trade costs if its separation from the European Union takes place under a no-deal scenario, an industry group has warned.

The warning comes just as the region’s oil and gas companies start to boost investments in the UK’s continental shelf, thanks to generous government incentives.

The UK government is attempting to negotiate a trade deal with the European Union, but optimism is fading as talks struggle to get off the ground. As Bloomberg noted earlier this week, after the end of yet another round of disappointing discussions, no government in Europe is willing to make concessions to London, as they have enough to deal with at home with populism on the rise and public opinion unlikely to hail any concessions to the British separatists.

EU leaders chose to begin trade deal negotiations with London in December, despite the latter’s insistence the talks begin this week. If the talks end unfavorably for the UK, Oil & Gas U.K. warned this week, the investment rush currently underway in the UK’s section of the North Sea would slow down to a trickle as the cost of labor and equipment jumps. This, the group said, will inevitably happen if the UK reverts to World Trade Organization rules in the absence of a trade agreement with the EU.

Earlier this year, Oil & Gas U.K. conducted a study of the potential effects of an unfavorable Brexit scenario on the oil and gas industry and found that it could see its cost of trade swell from the current $791 million (600 million pounds) to $1.45 billion (1.1 billion pounds). This is the cost on $97 billion (73 billion pounds) worth of annual trade in goods and services related to the oil industry.

Related: How OPEC Continues To Cheat On Its Own Deal

For Oil & Gas U.K., this would be the worst-case scenario. While, theoretically, costs equaling one-tenth of turnover isn’t insurmountable for an industry, UK oil and gas is working in one of the highest-cost oil basins in the world. Operators there also face hundreds of millions in decommissioning costs and field depletion.

On the other hand, a recent Wood Mackenzie report found that the UK North Sea section has become the second hottest spot for deal making, after U.S. shale. Some oil majors have reduced their presence there, selling assets to independents who are eager to make the most of what oil remains in the North Sea, which isn’t an insubstantial amount. Others, namely French Total, have expanded their footprint through acquisitions.

There’s an ongoing cost-cutting drive among North Sea operators and it’s already paying off. In its Economic Report 2017, the UK’s Oil & Gas Authority said that operation costs per unit in the North Sea have fallen the most across all oil basins in the world. While this doesn’t mean that North Sea field operators can pump crude at Aramco’s production costs, it’s attractive enough to motivate further investment.

BP, for instance, has cut its production costs from $30 a barrel to about $15, and plans to further reduce this to less than $12 by 2020. Shell and other producers have managed to cut costs by as much as 60 percent.

So, there could be a silver lining in the threat of trade costs doubling for UK’s oil and gas players. It would motivate finding new ways to reduce costs and likely lead to faster adoption of the digital oilfield—it’s been hailed as a great cost-saver, after all.

-Irina Slav, Oilprice.com, Oct 18, 2017

Oil prices ease, but near eight-week highs on lower U.S stocks

SINGAPORE (Reuters) – Oil prices dipped on Thursday after three days of gains, but were sitting just below 8-week highs on hopes that a steeper-than-expected decline in U.S. crude oil inventories will reduce a global oversupply.

Brent crude futures were down 15 cents or 0.3 percent at $50.82 a barrel at 0150 GMT, after rising about 1.5 percent in the previous session.

U.S. West Texas Intermediate futures were down 14 cents or 0.3 percent to $48.61 a barrel.

U.S. crude stocks fell sharply last week as refineries increased output and imports declined, while gasoline stocks decreased and distillate inventories fell, the Energy Information Administration said on Wednesday.

The 7.2 million barrel decline in crude inventories in the week ending July 21 was well above the 2.6 million barrel forecast.

“This marks the fourth consecutive week that total hydrocarbon inventories have fallen during a time of year when they normally increase,” said PIRA Energy oil analyst Jenna Delaney.

Optimism that the long-oversupplied market is moving toward balance was also supported by news earlier in the week that Saudi Arabia plans to limit its crude exports to 6.6 million barrels per day (bpd) in August, about 1 million bpd below its export levels a year earlier.

Fellow members of the Organisation of Petroleum Exporting Countries (OPEC) Kuwait and UAE have also promised export cuts.

“The narrowing of the global glut is still on track,” OCBC said.

But analysts say oil prices may have little head room as the recent gains could encourage more production, particularly from U.S. shale producers.

“The market will likely be paying even more attention to drilling activity in the U.S. in the coming weeks, particularly after suggestions from certain industry players that the rig count in the U.S. is slowing,”

ING said in a research note on Wednesday.

reuters.com
JULY 27, 2017

Oil rises slightly, but growing global supply a worry

Oil prices rose modestly on Monday, but increased drilling activity in the United States and uncertainty over Libyan and Nigerian production cuts clouded the future supply outlook.

U.S. crude futures settled up 17 cents or 0.4 percent to $44.40 a barrel, while Brent crude futures also rose 17 cents or 0.36 percent to $46.88 a barrel.

Despite the modest rally on the day, Brent crude prices were 17 percent below their 2017 opening level.

With lingering questions surrounding production cuts, the market is “iffy on what OPEC is going to do,” said James Williams, president of energy consultant WTRG Economics in London, Arkansas.

The Organization of the Petroleum Exporting Countries and some non-OPEC members agreed in May to curtail production until March 2018, but the move has failed to eliminate a global glut of crude.

Several key OPEC ministers will meet non-OPEC country Russia on July 24 in St Petersburg, Russia, to discuss oil markets.

Kuwait said on Sunday that Nigeria and Libya had been invited to the meeting and their production could be capped earlier than November, when OPEC is scheduled to hold formal talks, according to Bloomberg.

However, Nigeria’s oil minister was unable to attend the OPEC meeting because of a previous commitment, the Kuwait Oil Minister Essam al-Marzouq told reporters on Monday.

Libya said on Monday it was ready for talks but added that its political, economic and humanitarian situation should be taken into account in talks on caps.

Meanwhile on Monday the CEO of Saudi Aramco Amin Nasser told a conference in Istanbul he thought the world was headed for a global supply shortage.

“The volume of conventional oil discovered around the world over the past four years has more than halved compared with the previous four,” Nasser said.

Yet U.S. oil production continues to grow, rising more than 10 percent since mid-2016.

U.S. energy firms added seven oil drilling rigs last week, marking a 24th week of increases out of the last 25 and bringing the count to 763, the most since April 2015, energy services company Baker Hughes said.

BNP Paribas joined a growing list of investment banks and analysts that have cut their crude oil price forecasts for the coming year.

“We thus have made deep cuts to our crude oil price forecasts. We now see the price of WTI averaging $49/bbl in 2017 (-$8/bbl revision) and that of Brent $51/bbl (-$9/bbl revision),” the bank said in a note.

reuters.com
Jul 11, 2017

Oil slides as OPEC exports rise, prices end eight days of gains

Oil prices tumbled about 4 percent on Wednesday, ending their longest string of daily gains in more than five years, as climbing OPEC exports and a stronger dollar spurred selling.

Brent crude futures settled down $1.82, or 3.7 percent, at $47.79 a barrel. Prices had climbed for eight straight sessions to Monday.

U.S. West Texas Intermediate crude fell $1.94, or 4.12 percent, to settle at $45.13 a barrel.

“It’s a transition from being overbought for a while,” said Tyche Capital Advisors senior research analyst John Macaluso.

“I really don’t think it’s too much fundamentals driving the move today – seems more like a reversal of the trend. Eventually someone comes out of the market and everyone follows and you have to take profits.”

Prices pared losses in post-settlement trade after data from industry group the American Petroleum Institute showed U.S. crude inventories fell 5.8 million barrels in the week to June 30 to 503.7 million barrels, exceeding forecasts for a draw of 2.3 million barrels. The API data, normally released Tuesday, was delayed by the U.S. Fourth of July holiday.

Official data from the U.S. Department of Energy is due on Wednesday at 11:00 a.m. EDT, also delayed a day.

Oil traders hope vacationing motorists heading for the beach in July will help U.S. gasoline demand heat up along with sweltering summer temperatures, helping drain crude inventories.

Oil exports by the Organization of the Petroleum Exporting Countries climbed for a second month in June, Thomson Reuters Oil Research data showed.

OPEC exported 25.92 million barrels per day (bpd) in June, up 450,000 bpd from May and 1.9 million bpd more than a year earlier.

The rise came despite OPEC’s vow to rein in production until March 2018 and came on the heels of Reuters’ monthly OPEC production survey which found output jumped to a 2017 high last month as Nigeria and Libya continued to pump more. Both OPEC members are exempt from the output cut deal.

Russia, which led other non-OPEC producers to join the deal, would oppose any proposal for deeper cuts at OPEC ministerial meeting later this month, Bloomberg reported, citing four Russian government officials.

“The air is getting thin for oil prices. The price increase just ran out of steam, which is not very surprising, given the news flow of rising OPEC supplies,” said Carsten Fritsch, senior commodity analyst at Commerzbank.

Another analyst said the strong dollar provided less incentive to invest in greenback-denominated commodities such as crude oil. The dollar pared some early gains but remained near a one-week high.

The head of the International Energy Agency told Reuters that rising output from key oil producers could hamper expectations that the oil market would rebalance in the second half of the year.

Saxo Bank cut its year-end Brent crude price forecast to $53 a barrel from $58. Yet traders and analysts pointed to some technical signs that could lead to a recovery.

“The longer term moving average systems need stronger moves over $51.50 in Brent and $49 to $49.50 in WTI which is where the 100-day and 200-day moving averages are,” said Scott Shelton, broker at ICAP in Durham, North Carolina.

“Spending more time up here to get the shorter term moving averages to cross would also generate buying.”

Reuters.com
July 6, 2017

Oil prices dip on further rise in U.S. drilling, demand slowdown

Oil prices dipped on Monday, weighed down by a continuing expansion in U.S. drilling that has helped to maintain high global supplies despite an OPEC-led initiative to cut production to tighten the market.

Signs of faltering demand have also prompted weakening sentiment, dropping prices to levels comparable to when the output cuts were first announced late last year.

Brent crude futures LCOc1 were down 13 cents, or 0.3 percent, at $47.24 per barrel at 0406 GMT.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 15 cents, or 0.3 percent, at $44.59 per barrel.

Prices for both benchmarks are down by around 14 percent since late May, when producers led by the Organization of the Petroleum Exporting Countries (OPEC) extended their pledge to cut production by 1.8 million barrels per day (bpd) by an extra nine months until the end of the first quarter of 2018.

Traders said the main factor driving prices lower was a steady rise in U.S. production undermining the OPEC-led effort.

“The U.S. oil rig count continued to rise, up by 6 last week,” Goldman Sachs said late on Friday.

“That’s 22 weeks in a row that oil rigs have been added, a record run,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

U.S. producers have added 431 oil rigs since a trough on May 27, 2016, Goldman said. If the rig count holds at current levels, the bank added, U.S. oil production would increase by 770,000 bpd between the fourth quarter of last year and the same quarter this year in the Permian, Eagle Ford, Bakken and Niobrara shale oil fields.

Supplies from OPEC and other countries participating in the output cuts, including top producer Russia, also remain high as some countries have not fully complied with their pledges.

There are also indicators that demand growth in Asia, the world’s biggest oil-consuming region, is stalling.

Japan’s customs-cleared crude oil imports fell 13.5 percent in May from the same month a year earlier, to 2.83 million bpd, the Ministry of Finance said on Monday.

India, which recently overtook Japan as Asia’s second-biggest oil importer, took in 4.2 percent less crude oil in May than it did a year ago.

In China, which is challenging the United States as the world’s biggest importer, oil demand growth has been slowing for some time, albeit from record levels, and analysts expect growth to slow further in coming months.

“Reducing the glut of oil will be challenging,” ANZ bank said on Monday.

Reuters.com
Jun 19, 2017

Oil prices fall on OPEC output increase, rising U.S. crude stocks

Oil prices fell on Wednesday after data showed a build in U.S. crude stocks and OPEC reported a rise in its production despite its pledge to cut back on output.

Brent crude futures LCOc1 were at $48.41 per barrel at 0652 GMT, down 31 cents, or 0.6 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $46.10 per barrel, down 36 cents, or 0.8 percent.

Crude prices have fallen by more than 10 percent since late May, pulled down by an supply glut that persists despite a move led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production by almost 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

OPEC’s own compliance with the cuts has been questioned, and the producer group said in a report this week that its output rose by 336,000 bpd in May to 32.14 million bpd.

ANZ bank said in a note to clients that prices were “under pressure earlier in the day after a report from OPEC showed that its production had increased.”

Adding to the supply surplus is rising U.S. production from shale drillers that has pushed U.S. output up by 10 percent over the last year to 9.3 million bpd, not far below levels by top exporter Saudi Arabia. C-OUT-T-EIA

“The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from U.S. shale,” said William O’Loughlin, analyst at Australia’s Rivkin Securities.

Data from the American Petroleum Institute showed on Tuesday that U.S. crude stocks rose by 2.8 million barrels in the week to June 9 to 511.4 million, compared with expectations for a decrease of 2.7 million barrels. [API/S]

With supplies plentiful, strong demand is needed to support the market, but there are signs of a slowdown.

Global energy demand grew by 1 percent in 2016, a rate similar to the previous two years but well below the 10-year average of 1.8 percent, BP (BP.L) said in its benchmark Statistical Review of World Energy on Tuesday.

More specifically for oil, there are signs of a slowdown in China, long the key component of fuel demand growth, as its economy slows. The nation’s refiners have produced too much fuel for it to consume, forcing a drop-off in activity.

“Chinese demand is slow … so we have a build-up of crude in Asia where demand seems to have slowed for now,” said Oystein Berentsen, managing director for oil trading company Strong Petroleum.

Reuters.com
Jun 14, 2017