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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

Oil rebounds, finds support after sliding below $47 per barrel

Oil prices edged up on Tuesday, finding technical support after sliding below $47 a barrel on pressure from a diplomatic rift in the Middle East and sustained high crude inventories in the United States.

U.S. West Texas Intermediate crude CLc1 settled up 79 cents at $48.19. It fell in early trade, then bounced off technical support between $48.75 and $46.95 and edged upward.

Benchmark Brent crude oil LCOc1 rose 65 cents a barrel to $50.12.

The price band that had been providing technical resistance for WTI has shifted to support, according to Fawad Razaqzada, a market analyst at Forex.com. “If this area were to break down in the next few days then this would end any bullish hopes in the short-term,” he said.

Oil prices remain about 8 percent lower than before OPEC and its non-OPEC allies said they were extending output cuts until March 2018. The initial six-month deal to curb output had been due to run till the end of this month.

Leading Arab powers including Saudi Arabia, Egypt and the United Arab Emirates cut ties with Qatar on Monday, accusing it of supporting Islamist militants and Iran. Ships coming from or going to Qatar were barred from docking at Fujairah, in the UAE.

Surplus oil in many parts of the world and developments with Qatar had traders nervous, even after Kuwait Oil Minister Essam al-Marzouq said Qatar remained committed to restricting crude output under an agreement between OPEC and several non-OPEC suppliers.

Greg McKenna, chief market strategist at futures brokerage AxiTrader, said he believed there was “a real chance” OPEC solidarity surrounding production cuts might fracture.

Focus is likely to shift to U.S. inventories ahead of government data Wednesday.

“If we get another drop in U.S. inventory levels, we might begin to see the emergence of some confidence that 1.8 million barrel cuts will tighten inventories,” said Gene McGillian, manager of market research at Tradition Energy.

Some investors fear tension within the cartel could weaken Qatar’s commitment to hold back production to prop up prices. But several analysts said these fears were exaggerated.

“The OPEC agreement stands and is highly unlikely to change because of tension with Qatar,” said Oystein Berentsen, managing director for oil trading company Strong Petroleum.

Reuters.com
Jun 7, 2017

Rising Middle East tensions, tightening supplies push up oil prices

Oil markets rose more than 1 percent on Monday, pushed up by tensions in the Middle East where top crude exporter Saudi Arabia and other Arab states cut off ties with Qatar, and as signs of falling OPEC supplies tightened the market.

Saudi Arabia as well as the United Arab Emirates, Egypt, and Bahrain cut ties with top liquefied natural gas (LNG) and condensate shipper Qatar on Monday, accusing it of supporting extremism and undermining regional stability.

Brent crude oil futures CLc1 rose 70 cents, or 1.4 percent, to $50.65 per barrel by 0345 GMT.

U.S. West Texas Intermediate futures CLc1 were at $48.34 a barrel, up 68 cents, or 1.4 percent.

Traders said that prices had also received support from a tightening physical crude market.

Saudi Aramco raised July prices for its Arab Light grade to all major regions of Asia, Northwest Europe, and the United States on Sunday.

The price signal reflected other signs that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production by almost 1.8 million barrels per day (bpd) was starting to impact actual supplies.

Shipping data in Thomson Reuters Eikon shows that OPEC tanker supplies to customers around the world were at 24.3 million bpd in May, down from 24.8 million bpd in April and compared with an average of 25.1 million bpd in the first five months of the year.

OPEC shipped an average of 26.4 million bpd in the last three months of 2016.

Despite this, Brent futures are still nearly 8 percent below their level on May 25, when OPEC announced it would extend its production cut into 2018.

That’s because crude production in the United States nL1N1IY0O5, which is not participating in the cuts, has jumped by over 10 percent since mid-2016 to 9.34 million bpd, close to levels by top producers Saudi Arabia and Russia.

“Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising U.S. oil production,” ANZ bank said on Monday.

The rise in U.S. production has been driven by a record 20th straight rise in oil drilling for new production, with the rig count rising by 11 in the week to June 2, to 733, the most since April 2015.

Reuters.com
Jun 5, 2017

Oil prices drop amid glut concerns, U.S. withdrawal from climate deal

Oil prices tumbled below $50 on Friday amid worries that U.S. President Donald Trump’s decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply.

Global benchmark Brent crude futures LCOc1 was down 1.7 percent, or 80 cents, at $49.75 a barrel, as of 0725 GMT.

U.S. West Texas Intermediate crude CLc1 futures dropped 87 cents, or 1.81 percent, to $47.46 per barrel.

Commodity markets were absorbing news the United States would withdraw from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from U.S. allies.

“This could lead to a drilling free-for-all in the U.S. and also see other signatories waver in their commitments,” said Jeffrey Halley, senior market analyst, OANDA.

“This outcome could increase the supply-side equation from the United States and complicate OPEC’s forward projections. A scenario that would not be favorable to oil prices.”

Surging U.S. production has put a strain on OPEC members’ efforts to curb production to drain a global crude supply overhang.

A week ago, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC members met in Vienna to roll over an output cut deal to reduce 1.8 million barrels per day (bpd) until the end of next March.

Russian Deputy Prime Minister Arkady Dvorkovich said on Friday he did not think that the global output cut agreement would be altered should prices go lower.

Russia’s Rosneft CEO Igor Sechin also said the market cannot stabilize unless all producers cut output.

Oil prices are down some 7.5 percent since OPEC’s May 25 decision to extend the cuts.

Faced with lingering glut woes, the oil cartel also discussed last week reducing output by a further 1 to 1.5 percent, and could revisit the proposal should inventories remain high, according to sources.

But oil markets were offered some support by official data that showed crude inventories in the United States, the world’s top oil consumer, fell sharply last week as refining and exports surged to record highs.

Crude stockpiles were down by 6.4 million barrels in the week to May 26, beating analyst expectations for a decrease of 2.5 million barrels.

However, U.S. crude production rose to 9.34 million bpd last week, up nearly 500,000 bpd from a year ago.

“We may or may not see more huge draws. But crude production is slowly but surely going to neutralize the (OPEC-led)production cut,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Rising output from Nigeria and Libya, which are exempted from the deal, is also undercutting oil producers’ attempt to limit production.

Reuters.com
Jun 2, 2017

Oil prices dive 3 percent to three-week low; OPEC crude output up

Oil prices sank 3 percent to a three-week low on Wednesday as an increase in Libyan output helped boost monthly OPEC crude production for the first time this year.

Brent notched its fifth straight monthly decline in a row despite OPEC-led output cuts and forecasts that U.S. crude inventories would fall for an eighth straight week since hitting a record at the end of March.

Post-settlement, prices pared some losses as data from the American Petroleum Institute (API) showed crude inventories fell by 8.7 million barrels in the week to May 26 to 513.2 million, compared with analysts’ expectations for a decrease of 2.5 million barrels. [API/S]

U.S. Energy Information Administration (EIA) report is due at 11:00 a.m. EDT (1500 GMT) on Thursday, delayed a day because of the Memorial Day holiday on Monday.

Brent crude futures for July LCOc1 fell $1.53, or 3.0 percent, to settle at $50.31 a barrel on their last day as the front-month. It was Brent’s lowest close since May 10.

U.S. West Texas Intermediate crude CLc1 fell $1.34, or 2.7 percent, to settle at $48.32 per barrel, its lowest close since May 12.

Brent’s premium over the same U.S. month WTCLc1-LCOc1 narrowed to its lowest in almost five weeks.

For the month of May, Brent fell almost 3 percent, its fifth straight monthly loss. WTI had its third straight monthly decline, ending May down more than 2 percent.

Output from the Organization of the Petroleum Exporting Countries (OPEC) rose in May, the first monthly increase this year, a Reuters survey found. Higher supply from Nigeria and Libya, OPEC members exempt from a production-cutting deal, offset improved compliance by others.

“Even if Libyan output levels from here for a few weeks, current relative strength provides an additional challenge to OPEC given the fact that the elevated Libyan production is not only eating into other OPEC members market share but is also forcing renewed weakening in Brent structure,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

Libya’s oil production has risen to 827,000 bpd, above a three-year peak of 800,000 bpd reached earlier in May, the National Oil Corporation said.

OPEC and other producers, including Russia, agreed last week to extend a deal to cut production about 1.8 million barrels per day (bpd) until the end of March 2018.

Compliance with output cuts remained high among OPEC members and industry sources said Russian figures for May showed output in line with its pledge.

Saudi Arabia and Russia said OPEC and non-OPEC producers were committed to bringing global oil inventories down to the industry’s five-year average.

Reuters.com
June 1, 2017