Showing posts with label Fatih Birol. Show all posts
Showing posts with label Fatih Birol. Show all posts

Monday, March 11, 2019

IEA's take sets tone for CERAWeek 2019

The Oilholic is back in Houston Town for CERAWeek 2019 with talk of Saudi Arabia extending its oil export cuts to April, an OPEC summit due on April 17, and of course oil benchmarks still remaining largely range-bound.

The tone of the first day for IHS Markit's industry jamboree was set by the International Energy Agency's annual five-year market assessment. The agency's Executive Director Dr Fatih Birol, said here in Houston that there should be no doubt that a second wave of the US shale revolution was coming, with American production tipped to cap that of the Russians and the Saudis by 2024.

Later, speaking to the Oilholic, Birol said the agency's take does factor in rates of decline. Here's a full report for Forbes. There were loads of other catchy soundbites yours truly tweeted regularly from Day I of CERAWeek (welcome to follow here), but really Birol's words set the tone.

As for oil benchmarks; both Brent and WTI were down last week, and are up this week but haven't spiked in the strictest sense. For the Oilholic, Brent futures sentiment still isn't decisively bullish.

One reckons $64.50 per barrel support level is key over the coming weeks. If breached meaningfully, a drop to $60-62 likely; if held decisively an uptick to $70 might be on the horizon. But for all the kerfuffle oil futures are largely where they were 12 months ago stuck in a range-bound market. Here is one's pre-CERAWeek analysis in an interview with Victoria Scholar of IG Markets TV:



More from Houston soon! Keep reading, keep it crude!

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© Gaurav Sharma 2019. Photo: Dr Fatih Birol, Executive Director of International Energy Agency speaks at IHS Markit's CERAWeek 2019 conference.© Gaurav Sharma 2019. 

Wednesday, July 12, 2017

Oilholic’s photo clicks @ the 22nd WPC host city

The Oilholic is by no means a photojournalist, but akin to the last congress in Moscow, and in keeping with a tradition dating back to WPC 20 in Doha, there is no harm in pretending to be one, this time armed with a BlackBerry DTEK here in Istanbul!

The 22nd World Petroleum Congress also marked this blogger's return to Turkey and the vibrant city of Istanbul after a gap of three years. 

The massive Istanbul Congress Center (left) happens to be the Turkish venue for the Congress from July 9-13, 2017. Hope you enjoy the virtual views of the venue as well as Istanbul, as the Oilholic is enjoying them here on the ground. (Click on images to enlarge). 

© Gaurav Sharma 2017. Photos from the 22nd World Petroleum Congress, Istanbul, Turkey © Gaurav Sharma, July 2017, as captioned.

US Secretary of State Rex Tillerson at WPC




Decorations in the ICC front garden
Crooners entertain diners on opening night
IEA's Fatih Birol (centre) speaks at WPC
BP stand at WPC Exhibition
Oil supply chain model at WPC Exhibition
Istanbul 
Istanbul Modern
The Bosphorus, Istanbul
Oil tanker in the Bosphorus
Traditional dancers at WPC's Turkish night



Tuesday, March 07, 2017

Back in Houston town for CERAWeek

The Oilholic is back in Houston, Texas for the 2017 instalment of IHS CERAWeek; one of the world’s largest gatherings of oil and gas policymakers, executives, movers and shakers alike.

An early start to an empty lobby (see left) and a late finish (as yet to follow) are all but guaranteed, and it’s only day one! 

The morning began with the International Energy Agency’s Executive Director Fatih Birol telling us another supply glut courtesy of rising US shale production was around the corner (report here). 

Then Indian Petroleum Minister Dharmendra Pradhan told scribes it was an oil buyers’ market as far as he was concerned, and that he is not averse to the idea of India buying crude from the US, now that Washington permit unrefined exports. Take that Opec! (More here).

By the way, a rather large Russian delegation appears to be in town, led by none other than energy minister Alexander Novak himself. When put on the spot by IHS CERA Vice Chairman Daniel Yergin, the Kremlin’s top man at CERAWeek said Russia will achieve a 300,000 barrels per day (bpd) production cut by the end of April. 

However, Novak said Russia will not decide on extending its production cut deal with Opec and 10 other non-Opec producers until the middle of 2017.

Late afternoon, ExxonMobil’s relatively new boss Darren Woods put in a refined performance unveiling a $20 billion downstream investment plan, which is sure to delight President Donald Trump. (More here)

That’s all from CERAWeek for the moment folks. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2017. Photo: Entrance to IHS CERAWeek 2017 in Houston, Texas, USA © Gaurav Sharma.

Thursday, December 25, 2014

Crude year that was & oil price forecasts for 2015

As 2014 comes to a close, it’s time to look back at what the Oilholic was up to and how the oil and gas sector performed in general. The only place to start would be the oil price where those in the business of charting it had a year of two halves.

First six months of the year saw Brent, considered a global proxy benchmark, comfortably over $100 per barrel only to see a dramatic decline over the second half of the year that accelerated rapidly in the face of a global supply glut.

The US went in general retreat from the global oil markets in meaningful volumes, not needing to import as much given rising domestic shale and tight oil production. Global demand didn’t stack-up like it did in 2013, but producers were unrelenting with output rising from Canada to Russia and OPEC’s production quota staying where it was at 30 million barrels per day (bpd).

In fact, make it 30.7 million bpd if you believe in market consensus. End result was (and still is) a buyers’ market with China leading the way, but not importing as much as it used owing to stunted economic activity. From $115 per barrel in the summer, Brent is barely managing to resist a $60 price floor having already breached it once in December. WTI is also plummeted in tandem and is currently trading below $60.

Both OPEC Ministers’ meets for 2014 couldn’t have been held in more divergent circumstances. In June, the quota was held where it was because most in the cartel were happy with a $100-plus Brent price. In November, the quota stayed where it was because the Saudis refused to budge from their position of not wanting a production cut fearing a loss of market share. While Iran and Venezuela did not share their view, the Saudis prevailed as usual for a cut without their backing would have been meaningless.

Quite frankly, by not calling an extraordinary meeting when oil hit $85, OPEC missed a trick. Nonetheless, given the existing glut one doubts whether an OPEC cut in November would have had any tangible medium term impact anyway. Saudi Oil Minister Ali Al-Naimi probably thought the same. But where does the price go from here? One has to admit that for the first time since this blog appeared on cyberspace in 2009; price averages for both Brent and WTI fell below the Oilholic’s median 2014 forecast.

Being a supply-side analyst one has long bemoaned the high oil price right from the days it became manifestly apparent that the US was no longer importing like it used to. And yet net long bets persisted well into the summer of this year courtesy hedge funds and other speculators, until physical traders of the crude stuff refused to buy in to a false spike injected by Iraqi disturbances.

Instead of contango, backwardation set in and price hasn’t recovered since with good reason. However, it wasn’t until October that the decline really took hold with OPEC’s decision not to cut production really accelerating the drop over the fourth quarter. The Oilholic would say the market is undergoing profound change of the sort that only comes around once in 20 years or so.

Given there so much oil out there and importers aren’t importing as much, risk premium has turned to risk fatigue, while a sellers’ market in the most lukewarm of times has become a buyers’ market in uncertain times. Nonetheless, supply correction is inevitable as unprofitable, especially unconventional exploration, takes a hit and non-OECD demand picks up. The Oilholic is fairly certain that come December 2015, we would once again be around the $80 level for Brent.

For the moment, barring a financial tsunami knocking non-OECD economic activity, the Oilholic's prediction is for a Brent price in the range of $75 to $85 and WTI price range of $65 to $75 for 2015. Weight on Brent should be to the upside, while weight on WTI should be to the downside of the aforementioned range. This blogger also does not believe legislative impediments over the US exporting oil are going away anytime soon as the 2016 presidential election draws ever closer.

Moving away from pricing, 2014 also saw the oil and gas world mourn the sad death of Total CEO and Chairman Christophe de Margerie in a plane crash in Moscow. Here is the Oilholic's tribute to one of the industry’s most colourful characters. Wider human tragedies overlapping the crude world including Russia’s bid to influence events in Ukraine and the spectre of ISIS over Iraq loomed large.

The oil price began hurting Russia by the end of the year with the rouble taking a plastering. Meanwhile in Iraq, given that ISIS controlled areas were far removed from the port of Basra and major Iraqi oil production facilities, risk premium from the unfolding events did not have a lasting impact on oil price barring a momentary spike in June.

Nigeria and Libya's troubles continued. In case of the latter, the country now has two oil ministers, two prime ministers but thankfully only one National Oil Company. Yet, geopolitical flare-ups aren't likely to have much of an impact over the first half of 2015 given the amount of oil there is in the market.

Away from it all and on a more personal footing, yours truly started writing for Forbes as well as commentating on Tip TV on a regular basis over 2014, alongside various other ‘crude’ engagements. Going on the road (or air) in pursuit of ‘crude’ intel, saw the Oilholic visit Rotterdam, Istanbul, San Francisco, Zagreb, Tokyo, Hong Kong and Shanghai.

The 21st World Petroleum Congress meant a return to the host city of Moscow after a gap of 10 years. Invariably, the Ukrainian stand-off cast a shadow over an event dubbed the Olympics of the oil and gas business.

One also got a chance to interview ex-Enron whistleblower turned academic Dr Vincent Kaminski in Houston and IEA Chief Economist Dr Fatih Birol more closer to home. Among several senior executives one got a chance to interact with were C-suite executives from EDF, Tethys Petroleum, Frontier Resources, Primagaz and Rompetrol to name but a few.

Many fellow analysts, commentators, traders, academics, legal and financial experts shared their insight and valuable time on on-record while others preferred an off-record chat. Both sets have the Oilholic’s heartfelt thanks. Rather unusually, this blogger found political satirist and comedian Jon Stewart’s take on the farce that’s become of the Keystone XL project bang on the money. Finally, the Oilholic also reviewed some ‘crude’ books to help you decide whether they are for you or not.

It's been a jolly crude year and one that wouldn't have been half as spiffing without the support of you all - the dear readers of this blog. Here goes the look back at Crude Year 2014. As the Oilholic Synonymous Report embarks upon its sixth year on the Worldwide Web and the eighth year of its virtual existence – here's wishing you a very Happy New Year! That’s all for 2014 folks! Keep reading, keep it ‘crude’!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2014. Photo: Oil pipeline, India © Cairn India

Thursday, July 24, 2014

Hedge Funds have been ‘contangoed’

Recent events may have pushed the Brent front month futures contract back towards US$108 per barrel; but there's no denying some have been 'contangoed'! Ukrainian tensions and lower Libyan production are hard to ignore, even if the latter is a bit of a given.

Nonetheless, for a change, the direction of both benchmark prices this month indicates that July did belong to the physical traders with papers traders, most notably Hedge Funds, taking a beating.

It's astonishing (or perhaps not) that many paper traders went long on Brent banking on the premise of "the only way is up" as the Iraqi insurgency escalated last month. The only problem was that Iraqi oil was still getting dispatched from its southern oil hub of Basra despite internal chaos. Furthermore, areas under ISIS control hardly included any major Iraqi oil production zone.

After spiking above $115, the Brent price soon plummeted to under $105 as the reality of the physical market began to bite. It seems European refiners were holding back from buying the expensive crude stuff faced with declining margins. In fact, North Sea shipments, which Brent is largely synced with, were at monthly lows. Let alone bothering to pull out a map of Iraqi oilfields, many paper traders didn't even bother with the ancillary warning signs.

As Fitch Ratings noted earlier this month, the European refining margins are likely to remain weak for at least the next one to two years due to overcapacity, demand and supply imbalances, and competition from overseas. Over the first half of 2014, the northwest European refining margin averaged $3.3 per barrel, down from $4 per barrel in 2013 and $6.8 barrel in 2012.

Many European refineries have been loss-making or only slightly profitable, depending on their complexity, location and efficiency. They are hardly the sort of buyers to purchase consignments by the tanker-load during a mini bull run. The weaker margin scenario itself is nothing new, resulting from factors including a stagnating economy and the bias of domestic consumption towards diesel due to EU energy regulations

"This means that surplus gasoline is exported and the diesel fuel deficit is filled by imports, prompting competition with Middle Eastern, Russian and US refineries, which have access to cheaper feedstock and lower energy costs on average. Mediterranean refiners are additionally hurt by the interruption of oil supplies from Libya, but this situation may improve with the resumption of eastern port exports," explains Fitch analyst Dmitry Marinchenko.

Of course tell that to Hedge Funds managers who still went long in June collectively holding just short of 600 million paper barrels on their books banking on backwardation. But thanks to smart, strategic buying by physical traders eyeing cargoes without firm buyers, contango set in hitting the hedge funds with massive losses.

When supply remains adequate (or shall we say perceived to be adequate) and key buyers are not in a mood to buy in the volumes they normally do down to operational constraints, you know you've been 'contangoed' as forward month delivery will come at a sharp discount to later contracts!

Now the retreat is clear as ICE's latest Commitments of Traders report for the week to July 15 saw Hedge Funds and other speculators cut their long bets by around 25%, reducing their net long futures and options positions in Brent to 151,981 from 201,568. If the window of scrutiny is extended to the last week of June, the Oilholic would say that's a reduction of nearly 40%.

As for the European refiners, competition from overseas is likely to remain high, although Fitch reckons margins may start to recover in the medium term as economic growth gradually improves and overall refining capacity in Europe decreases. For instance, a recent Bloomberg survey indicated that of the 104 refining facilities region wide, 10 will shut permanently by 2020 from France to Italy to the Czech Republic. No surprises there as both OPEC and the IEA see European fuel demand as being largely flat.

Speaking of the IEA, the Oilholic got a chance earlier this month to chat with its Chief Economist Dr Fatih Birol. Despite the latest tension, he sees Russian oil & gas as a key component of the global energy mix (Read all about it in The Oilholic's Forbes post.)

Meanwhile, Moody's sees new US sanctions on Russia as credit negative for Rosneft and Novatek. The latest round of curbs will effectively prohibit Rosneft, Novatek, and other sanctioned entities, including several Russian banks and defence companies, from procuring financing and new debt from US investors, companies and banks.

Rosneft and Novatek will in effect be barred from obtaining future loans with a maturity of more than 90 days or new equity, cutting them off from long-term US capital markets. As both companies' trade activities currently remain unaffected, Moody's is not taking ratings action yet. However, the agency says the sanctions will significantly limit both companies' financing options and could put pressure on development projects, such as Novatek's Yamal LNG.

No one is sure what the aftermath of the MH17 tragedy would be, how the Ukrainian crisis would be resolved, and what implications it has for Russian energy companies and their Western partners. All we can do is wait and see. That's all for the moment folks. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: Oil pipeline © Cairn Energy

Saturday, November 17, 2012

‘Oh Frack’ for OPEC, ‘Yeah Frack’ for IEA?

In a space of a fortnight this month, both the IEA and OPEC raised “fracks” and figures. Not only that, a newly elected President Barack Obama declared his intentions to rid the USA of “foreign oil” and the media was awash with stories about American energy security permutations in wake of the shale bonanza. Alas, the whole lot forgot to raise one important point; more on that later.
 
Starting with OPEC, its year-end calendar publication – The World Oil Outlook – saw the oil exporters’ bloc acknowledge for the first time on November 8 that fracking and shale oil & gas prospection on a global scale would significantly alter the energy landscape as we know it. OPEC also cut its medium and long term global oil demand estimates and assumed an average crude oil price of US$100 per barrel over the medium term.
 
“Given recent significant increases in North American shale oil and shale gas production, it is now clear that these resources might play an increasingly important role in non-OPEC medium and long term supply prospects,” its report said.
 
The report added that shale oil will contribute 2 million barrels per day (bpd) towards global oil supply by 2020 and 3 million bpd by 2035. If this materialises, then the projected rate of incremental supply is over the daily output of some OPEC members and compares to the ‘official’ daily output (i.e. minus the illegal siphoning / theft) of Nigeria.
 
OPEC’s first acknowledgement of the impact of shale came attached with a caveat that over the medium term, shale oil would continue to come from North America only with other regions making “modest” contributions over the longer term at best. For the record, the Oilholic agrees with the sentiment and has held this belief for a while now based on detailed investigations in a journalistic capacity (about financing shale projects).
 
OPEC admitted that the global economy, especially the US economy, is expected to be less reliant on its members, who at present pump over a third of the world's oil and have around 80% of planet’s conventional crude reserves. Pay particular attention to the ‘conventional’ bit, yours truly will come back to it.
 
According to the exporters’ bloc, global demand would reach 92.9 million bpd by 2016, down over 1 million from its 2011 report. By 2035, it expects consumption to rise to 107.3 million bpd, over 2 million less than previous estimates. To put things into perspective, global demand in 2011 was 87.8 million bpd.
 
Partly, but not only, down to shale oil, non-OPEC output is expected to rise to 56.6 million bpd by 2016, up 4.2 million bpd from 2011, the report added. So OPEC expects demand for its crude to average 29.70 million bpd in 2016; much less than its current output (ex-Iraq).
 
"This downward revision, together with updated estimates of OPEC production capacity over the medium term, implies that OPEC crude oil spare capacity is expected to rise beyond 5 million bpd as early as 2013-14," OPEC said.
 
"Long term oil demand prospects have not only been affected by the medium term downward revisions, but by higher oil prices too…oil demand growth has a notable downside risk, especially in the first half of 2013. Much of this risk is attributed to not only the OECD, but also China and India," it added.
 
So on top of a medium term crude oil price assumption of US$100 per barrel (by its internal measure and OPEC basket of crudes, which usually follows Brent not WTI), the bloc forecasts the price to rise with inflation to US$120 by 2025 and US$155 by 2035.
 
Barely a week later, IEA Chief Economist Fatih Birol – who at this point in 2009 was discussing 'peak oil' – created ripples when he told a news conference in London that in his opinion the USA would overtake Russia as the biggest gas producer by a significant margin by 2015. Not only that, he told scribes here that by 2017, the USA would become the world's largest oil producer ahead of the Saudis and Russians. 
 
Realising the stirrings in the room, Birol added that he realised how “optimistic” the IEA forecasts were sounding given that the shale oil boom was a new phenomenon in relative terms.
 
"Light, tight oil resources are poorly known....If no new resources are discovered after 2020 and plus, if the prices are not as high as today, then we may see Saudi Arabia coming back and being the first producer again," he cautioned.
 
Earlier in the day, the IEA forecasted that US oil production would rise to 10 million bpd by 2015 and 11.1 million bpd in 2020 before slipping to 9.2 million bpd by 2035. It forecasted Saudi Arabia’s oil output to be 10.9 million bpd by 2015, 10.6 million bpd in 2020 but would rise to 12.3 million bpd by 2035.
 
That would see the world relying increasingly on OPEC after 2020 as, in addition to increases from Saudi Arabia, Iraq will account for 45% the growth in global oil production to 2035 and become the second-largest exporter, overtaking Russia.
 
The report also assumes a huge expansion in the Chinese economy, which the IEA said would overtake the USA in purchasing power parity soon after 2015 (and by 2020 using market exchange rates). It added that the share of coal in primary energy demand will fall only slightly by 2035. Fossil fuels in general will remain dominant in the global energy mix, supported by subsidies that, in 2011, rose by 30% to US$523 billion, due mainly to increases in the Middle East and North Africa.
 
Fresh from his re-election, President Obama promised to “rid America of foreign oil” in his victory speech prior to both the IEA and OPEC reports. An acknowledgement of the US shale bonanza by OPEC and a subsequent endorsement by IEA sent ‘crude’ cheers in US circles.
 
The US media, as expected, went into overdrive. One story – by ABC news – stood out in particular claiming to have stumbled on a shale oil find with more potential than all of OPEC. Not to mention, the environmentalists also took to the airwaves letting the great American public know about the dangers of fracking and how they shouldn’t lose sight of the environmental impact.
 
Rhetoric is fine, stats are fine and so are verbal jousts. However, one important question has bypassed several key commentators (bar some environmentalists). That being, just how many barrels are being used, to extract one fresh barrel? You bring that into the equation and unconventional prospection – including US and Canadian shale, Canadian oil sands and Brazil’s ultradeepwater exploration – all seem like expensive prepositions.
 
What’s more OPEC’s grip on conventional oil production, which is inherently cheaper than unconventional and is expected to remain so for sometime, suddenly sounds worthy of concern again.
 
Nonetheless “profound” changes are underway as both OPEC and IEA have acknowledged and those changes are very positive for US energy mix. Maybe, as The Economist noted in an editorial for its latest issue: “The biggest bonanza from all this new (US) energy would be if users paid the real cost of consuming oil and gas.”
 
What? Tax gasoline users more in the US of A? Keep dreaming sir! That’s all for the moment folks! Keep reading, keep it crude!
 
© Gaurav Sharma 2012. Oil prospection site, North Dakota, USA © Phil Schermeister / National Geographic.

Friday, June 01, 2012

BP to call time on 9 years of Russian pain & gain?

After market murmurs came the announcement this morning that BP is looking to sell its stake in Russian joint venture TNK-BP; a source of nine years of corporate pain and gain. As the oil major refocuses its priorities elsewhere, finally the pain aspect has made BP call time on the venture as it moves on.

A sale is by no means imminent but a company statement says, it has “received unsolicited indications of interest regarding the potential acquisition of its shareholding in TNK-BP.”

BP has since informed its Russian partners Alfa Access Renova (AAR), a group of Russian billionaire oligarchs fronted by Mikhail Fridman that it intends to pursue the sale in keeping with “its commitment to maximising shareholder value.”

Neither the announcement itself nor that it came over Q2 2012 are a surprise. BP has unquestionably reaped dividends from the partnership which went on to become Russia’s third largest oil producer collating the assets of Fridman and his crew and BP Russia. However, it has also been the source of management debacles, fiascos and politically motivated tiffs as the partners struggled to get along.

Two significant events colour public perception about the venture. When Bob Dudley (current Chief executive of BP) was Chief executive of TNK-BP from 2003-2008, the Russian venture’s output rose 33% to 1.6 million barrels per day. However for all of this, acrimony ensued between BP and AAR which triggered some good old fashioned Russian political interference. In 2008, BP’s technical staff were barred from entering Russia, offices were raided and boardroom arguments with political connotations became the norm.

Then Dudley’s visa to stay in the country was not renewed prompting him to leave in a huff claiming "sustained harassment" from Russian authorities. Fast forward to 2011 and you get the second incident when Fridman and the oligarchs all but scuppered BP’s chances of joining hands with state-owned Rosneft. The Russian state behemoth subsequently lost patience and went along a different route with ExxonMobil leaving stumped faces at BP and perhaps a whole lot of soul searching.

In wake of Macondo, as Dudley and BP refocus on repairing the company’s image in the US and ventures take-off elsewhere from Canada to the Caribbean – it is indeed time to for the partners to apply for a divorce. In truth, BP never really came back from Russia with love and the oligarchs say they have "lost faith in BP as a partner". Fridman has stepped down as TNK-BP chairman and two others Victor Vekselberg and Leonard Blavatnik also seem to have had enough according to a contact in Moscow.

The Oilholic’s Russian friends reliably inform him that holy matrimony in the country can be annulled in a matter of hours. But whether this corporate divorce will be not be messy via a swift stake sale and no political interference remains to be seen. Sadly, it is also a telling indictment of the way foreign direct investment goes in Russia which is seeing a decline in production and badly needs fresh investment and ideas.

Both BP and Shell, courtesy its frustrations with Sakhalin project back in 2006, cannot attest to Russia being a corporate experience they’ll treasure. The market certainly thinks BP’s announcement is for the better with the company’s shares trading up 2.7% (having reached 4% at one point) when the Oilholic last checked.

From BP to the North Sea, where EnQuest – the largest independent oil producer in the UK sector – will farm out a 35% interest in its Alma and Galia oil field developments to the Kuwait Foreign Petroleum Exploration Company (KUFPEC) subject to regulatory approval. According to sources at law firm Clyde & Co., who are acting as advisers to KUFPEC, the Kuwaitis are to invest a total of approximately US$500 million in cash comprising of up to US$182 million in future contributions for past costs and a development carry for EnQuest, and of KUFPEC's direct share of the development costs.

Away from deals and on to pricing, Brent dropped under US$100 for the first time since October while WTI was also at its lowest since October on the back of less than flattering economic data from the US, India and China along with ongoing bearish sentiments courtesy the Eurozone crisis. In this crudely volatile world, today’s trading makes the thoughts expressed at 2012 Reuters Global Energy & Environment Summit barely two weeks ago seem a shade exaggerated.

At the event, IEA chief economist Fatih Birol said he was worried about high oil prices posing a serious risk putting at stake a potential economic recovery in Europe, US, Japan and China. Some were discussing that oil prices had found a floor in the US$90 to US$95 range. Yet, here we are two weeks later, sliding down with the bears! That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: TNK-BP Saratov Refinery, Russia © TNK-BP

Thursday, January 13, 2011

Crude Year 2011 Begins With a Bang

I must say the New Year has commenced with a flurry of crude news. Traders and oil men had barely resumed work for the first trading day of 2011 that the IEA declared rising oil prices to be a risk to economic recovery. In a publication on Jan 5th, the agency said oil import costs for OECD countries had risen 30% in the past year to US$790 billion which is equal to a loss of income of 0.5% of OECD gross domestic product (GDP).

Speaking to the BBC’s world service, IEA’s Fatih Birol said, "There is definitely a risk of major negative implications for the global economy." I agree and accept this, but truth be told we are some way away from a US$150-plus per barrel high. This morning though, the Brent forward month futures contract was flirting with the US$100 mark. The cold weather we have had either side of the pond does generally tend to support crude prices.

Analysts at SocGen believe the Alaska pipeline shutdown, following a leak, provided only limited support to WTI. Last weekend, a minor leak was discovered at Pump Station 1 on the Trans-Alaska Pipeline System (TAPS) causing a shutdown on the pipeline and prompting Alaska North Slope (ANS) production to be cut from 630,000 bpd to just 37,000 bpd. The pipeline, which carries almost 12% of US crude output, should be restarted "soon", according to its operator Alyeska which is 47% owned by BP, while ConocoPhillips and ExxonMobile have 28% and 20% stakes respectively.

Continuing with forecasts, a new report from ratings agency Moody’s notes that oil prices should stay "moderately high" in 2011, boosting energy companies that produce crude and natural gas liquids, but weak natural gas prices will continue to dog the energy sector this year. More importantly, rather than the volatility of recent years, Moody's expects a continuation of many of the business conditions seen in 2010, despite the Macondo incident.

Steven Wood, managing director of Moody's Oil and Gas/Chemicals group believes that certain business conditions will tighten during the year, and pressures could emerge beyond the near term. Moody's price assumptions – which are not forecasts, but guidelines that the agency uses in its evaluations of credit conditions – call for moderately high crude prices of US$80 per barrel for 2011, along with natural gas prices of US$4.50 per million Btus.

Elsewhere, a US government commission opined in a report that 'bad management' led to BP disaster. Across the pond in London, a parliamentary committee of British MPs raised "serious doubts" about the UK's ability to combat offshore oil spills from deep sea rigs. However, they stopped short of a calling for a moratorium on deep sea drilling noting that it would undermine British energy security.

© Gaurav Sharma 2011. Photo: Veneco Oil Platform, California © Rich Reid / National Geographic