Wednesday, February 28, 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.

Friday, February 16, 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.


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