Gauging Wall Street's 'crude' mood

The Oilholic has just about rounded up a near week-long power markets trip to New York, including a visit to understand the energy supply dynamic of the City’s landmark Rockefeller Center courtesy of industry colleagues at ABB, and a weekend of Formula E racing. 

But when in New York City old habits die hard, and this blogger rarely misses opportunities to discuss the oil market direction with fellow analysts and crude traders. The latest visit was no exception. Even New York's weather of the past week chimed with what we've seen in the crude market. On Thursday (July 11) the Oilholic arrived to a rain drenched Wall Street (above left) full of soggy bears with both oil benchmarks on the rise and WTI futures even touching $60 per barrel at one point (Brent - $66.52/bbl & WTI $60.20/bbl). 

Yet by the time yours truly packed it in a week later, New York and its Wall Street oil market bears were again basking in the sunshine (Brent at $61.93/bbl & WTI $55.30/bbl) even if Iran's grab of a UK-flagged Swedish-owned oil tanker Stena Impero in the Strait of Hormuz added another dollar or two per barrel. And for all the kerfuffle, the inescapable truth is that both benchmarks have stayed range-bound. 

The Oilholic has assigned the reasons as - the abundance of US light crude (especially copious amounts being exported to Asia), deep concerns over global demand (and a possible negative quarter if not a full blown recession for the US economy on the horizon), and supply dynamic largely outweighing OPEC cuts over the near-term.

One has also said it on record that if the oil market bears are to be tamed, the key bullish factor on the horizon is not the Iranian shenanigans in the Persian Gulf (short of an unlikely all out war), but the easing of US-China trade tensions. 

Putting these thoughts to a select group of Wall Street analysts this blogger has known for over 10 years, came up with unsurprisingly similar conclusions. Ok, discussing market direction with a beer in the Fraunces Tavern in the company of seven industry acquaintances is hardly a scientific poll, and more of an indicative opinion – but whichever way you look at it, few put forward an obvious bullish breakout factor that would pull the oil price from its current range. 

Many see a $70 level as a near-term possibility for Brent, as does the Oilholic, but few reckon the level would be meaningfully capped given clouds on the 2020 horizon. 

More so, many agree that OPEC’s market credibility is now tied to how much and how far the Russians go along with its – or should we their own – agenda, as the Oilholic recently wrote for Rigzone. 

Away from the near-term, most expect the US production to provide a meaningful buffer for a minimum of five years. In that time, the supply-demand dynamic is bound to face profound changes and resulting scenarios could be materially different from where we currently are. To sum it up, the Oilholic has a $65-70 per barrel 2019 average price for Brent, and $55-60 per barrel for WTI; with both leaning towards the lower end of the range, bar a full-blown conflict in the Persian Gulf. 

As one wrote for Forbes, right after OPEC’s twice-delayed oil ministers’ summit; 2020 could get even more bearish. Many known contacts on Wall Street share that opinion, and the time they spared at such short notice this week is truly appreciated. And on that note, its time to say goodbye to NY Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photo 1: New York Stock Exchange, NewYork, USA. Photo 2: Wall Street, Lower Manhattan, New York, USA © Gaurav Sharma, July 2019. 

Sustainable 'vroom' at NY Formula E circuit

The Oilholic has spent the last two days watching frantic motorsport action of a different kind here in the Big Apple accompanied by background vroom that's milder, greener, zero-emission and most certainly less audible compared to petrohead outings. 

Welcome to Formula E – the world's first fully electric global motor racing series – with several ex-Formula 1 converts both in and outside the drivers' cockpit. The 2.37km racetrack with 14 turns in Brooklyn's Red Hook neighbourhood, adjacent to the cruise ship terminal, saw twenty-two cars compete for 45 mins plus a final lap in the championship's concluding race in Sunday.

After all the racing, crashing, jostling and competing was done and dusted, Dutchman Robin Frijns claimed the race victory, while Briton Alexander Sims, and Swiss driver Sebastien Buemi finished in second and third respectively.

Of course, the day in the New York sunshine belonged to Frenchman Jean-Eric Vergne of Team DS Techeetah, who became the first double Formula E champion at the season's finale. 

Going into Sunday's (July 14) race, Mitch Evans and Lucas Di Grassi were championship contenders, and both needed at least a race win to claim the title. However, Di Grassi's attempt to overtake Evans ran them both into the wall, handing their rival the advantage. The action certainly delighted the competition's backers. 

Not least, Swiss electrification and robotics giant ABB; the headline sponsor of the Formula E circuit. The company feels the sport is a joy for motoring purists. Consider this - the 2019 championship had eight different winners in the first eight races, although Vergne ultimately surged ahead with a second victory of the season in Monaco.

From ABB's perspective, the obvious brand equity and exposure aside, the company is using its track connections and participation as a "fertile testing ground" for global mobility's inexorable march to a low carbon, zero-emission future. 

Frank Muehlon, Managing Director, EV Charging Infrastructure at ABB, told the Oilholic that the company's association with the sport is not just a routine sponsorship but a vital partnership. "From the circuit safety cars to all the teams, our charging infrastructure is at the heart of it all."

As headline sponsor, the company partners with all racing teams and offers bespoke high power charging equipment to sister races such as Jaguar Land Rover's I-Pace e-trophy, which runs teams of its I-Pace electric SUV model before most, if not all, of the Formula E races. 

"Advanced data gathered at this very race, and others over the course of the season, feed into our research and development efforts run from three global labs (two in Europe and one in China)."

Muehlon added that ABB is automaker "agnostic."

"We are an equal partner to all, and by that I don't imply just the teams you see on track, but anyone in the global automaking world who is getting serous about electric vehicles. Let's face it, that's pretty much every global automaker these days."

At the heart of it all is promoting e-mobility, bringing down charging times and enhancing battery performance. On the latter point at least, Formula E offers a case in point. Not that long ago the drivers needed to change cars midway through the race as the battery could not cope with the rapid drain on it. 

However, with an enhanced battery life and back up charging technology, the current Generation 2 Formula E cars last the length of a 45 minute race plus an additional lap.

Looks like we are in for an 'electrifying' progression ahead when it comes to electric mobility, both on and off-track, ABB is certainly counting on it. That's all from the Brooklyn racetrack folks with no petroheads around.   

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© Gaurav Sharma 2019. Photos 1 & 2: Action from ABB Formula E 2019 race in Red Hook, Brooklyn, New York, USA on July 14, 2019. Photo 3: Race winners address the media. Photos 4: Jaguar I-Pace safety car © Gaurav Sharma, July 14, 2019. 

A Peek at ‘Ice Banks’ under 30 Rock

The Oilholic finds himself back in New York, US for the finale of the ABB Formula E 2019 season. But before watching the FIA-backed electric-mobility powered thrill ride, this blogger paid a visit to the Big Apple's iconic 30 Rockefeller Plaza building known to most locals as 30 Rock, rather than its relatively new christening as the Comcast Building.

Most visitors head to the "Top of the Rock", i.e. the building's observation deck to soak in views of the City's amazing urban sprawl and spectacular skyline. But unlike most, yours truly headed to the bottom to get a glimpse of a fascinating endeavour in energy efficiency.

You won't need to be an engineer to work out that the 30 Rock, and by extension the wider Rockefeller Center – a large complex of 19 buildings covering 22 acres between 48th and 51st Streets – consume copious amounts of power, more so in the summer months with air conditioning on full blast. For a city that consumes close to 11,000MW to 15,000 MW of power per day, keeping things in check is a matter of priority starting right with its Skyscrapers.

It is with this objective that the good folks at 30 Rock set about it using ice! The concept is simple yet brilliant in equal measure – a solution to the summer's searing heat by freezing water at night (when power is cheaper, produced efficiently and loads are lighter) and then using it to cool the building as it melts the next day during peak load periods.

Much of that infrastructure is housed below 30 Rock glanced at by the Oilholic, courtesy of ABB, with the electrification and robotics giant inheriting a legacy service and maintenance contract for 30 Rock from General Electric, following the Swiss company's takeover of its American counterpart's industrial solutions unit GEIS in 2018.

Dubbed "IceBank(s)" by their manufacturer Calmac, the ice freezing and melting units now form the centrepiece of innovation at the heart of 30 Rock's legacy power systems dating back to the 1930s. According to ABB's Senior Manager in-charge of the contract James Payne, the system's thermal energy storage premise lessens stress on the power infrastructure since consumption during the critical peak hours (which for 30 Rock would be between 11-1pm and 4pm-5pm), and shifts the demand dynamic to the night-time.

Away from prying eyes, legacy systems intertwined with state-of-the-art digital systems and a maze of pipes, pumps, tanks, wires and fuses get to work day in / day out for a building that has some pretty demanding tenants – not least broadcaster NBC. 

The ICE system has seen constant improvements since 2012 has proved itself to be pretty reliable. As for the sheer numbers, according to a spokesperson, the Rockefeller Center as a whole is served from its 30 Rock hub by a central chilled water plant containing 14,500 tonnes of steam and electric driven chillers.

The water is distributed around the entire building campus through a "main water loop" which travels around the perimeter of the site. Six primary pumps are located in the main plant, four having 6,000 GPM capacity at 125hp and two having 2,000 GPM capacity at 50hp.  Each individual building has pumps which then draw off of the primary loop and send the main plant's chilled water to heat exchangers located within each building.

There are seventeen "primary chilled water riser pumps" which range in size from 1000 GPM at 40hp up to 3500 GPM at 200hp. The secondary side of the heat exchangers have pumps which serve the air handlers and fan coils which serve the tenant spaces, and individual building pumps draw chilled water to heat exchanges located within each building.

If all that sounds a bit heavy, then simply consider this – power costs have come down by as much as 30% on annualised basis using such thermal storage techniques. The concept is not new and has been around for nearly 15 years, but New York is getting seriously serious about it these days.

Beyond the Rockefeller Center, Goldman Sachs, Morgan Stanley and Bank of America towers have all gone down the thermal storage route, with rising take-up in the last five years. ABB, which has been growing its footprint in New York state, says advanced digitisation can work alongside legacy power systems to create an efficient, serviceable power ecosystem incorporating thermal storage, as more and more buildings opt for sustainable solutions and work towards lowering their carbon footprint.

ABB's viewpoint is shared by real estate firm Tishman Speyer, ventilating and cooling systems maker Trane and of course IceBank manufacturer Calmac – all of whom are drivers of thermal storage adoption at 30 Rock. Let's see where the market goes, but the next five years should be interesting. That's all from 30 Rock folks, its time for the Formula E racetrack now! 

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© Gaurav Sharma 2019. Photo 1: 30 Rockefeller Plaza, New York, USA. Photos 2,3,4: 30 Rock Plant control systems incorporating thermal storage © Gaurav Sharma, July 2019. 

A rollover and a poem for OPEC

As widely anticipated, OPEC did indeed rollover its ongoing oil production cuts of 1.2 million barrels per day (bpd), set in place with 10 other non-OPEC producers for another nine months to March 2020.

The announcement was accompanied by a "charter of co-operation", even a poem about that charter (see left, click to enlarge), in-house conjecture that US shale production would eventually decline like the North Sea but not much by way of how the cartel intends to exit from its current output cuts strategy. 

Here is the Oilholic's analysis via Forbes. More to follow via other forums and publications. In a nutshell, one's price outlook for crude remains bearish and 2020 could get even more ugly. There is also little on the horizon to ditch $65-70 per barrel average price range for Brent, and $55-60 per barrel price range for WTI, with both likely to be at the lower range rather than the upper range. That's all for the moment folks! Keep reading, keep it 'crude'! 

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© Gaurav Sharma 2019. Photo: Poem released on OPEC's new charter © OPEC, July 2019.

Giving OPEC 176 a miss, but not Vienna

As far as OPEC meetings go, the Oilholic hasn't missed a single one since 2008. Alas, the run had to come to an end at some point and the 176th OPEC Ministers Meeting on July 1-2 will be that point. 

However, it is not for lack of trying. In farcical circumstances, OPEC postponed the meeting twice, from April to June to finally the stated July date. Other business, family and personal commitments, as well as business meetings already penned in Vienna around OPEC's June dates (of June 25-26) could not be rearranged for a second time running. 

Hence, the Oilholic found himself in the Austrian capital the week before with the rare luxury of not having to spend most of his time camped at OPEC's hub of Helferstorferstrasse 17. Instead, a stroll past Katholische Kirche St. Peter (St. Peter's Catholic Church) nearby admiring its entrance in 35 C sunshine was a nice short distraction from 'crude' matters this week. 

Nevertheless, and not to digress, this blogger does not believe he will be missing anything too dramatic. A rollover of OPEC's ongoing 1.2 million barrels per day (bpd) cuts along with 10 Russia-led non-OPEC producers is more or less guaranteed. Not least because the organization lacks a clear exit strategy for the cuts, as one opined on Rigzone. 

If OPEC ditches the cuts, the result would be bearish for the oil market. If it expands the cuts, the result would be bullish over the short-term, only to boost further non-OPEC production accompanied by a subsequent bearish drag further down the line. 

Fellow industry analysts, academics and researchers the Oilholic interacted with here in Vienna are of a similar mindset; and inventory rebalancing – the official line for instituting the cuts – remains as rocky as ever while OPEC continues to bleed market share as it produces fewer barrels.

Data aggregators say OPEC production is at its lowest since in quite a while. According to a Reuters survey, OPEC pumped 30.17 million bpd in May, down 60,000 bpd from April and the lowest output total on record since 2015. 

The Oilholic expects at least a six-month rollover at the stated cuts level of 1.2 million bpd with Saudi Arabia, as usual, carrying most of the burden. At some point, something has got to give. However, the July 1-2 summit will not be that point.

Away from OPEC chatter, the Oilholic also visited Austrian giant OMV's imposing headquarters in Vienna to discuss market permutations, the evolving global fuel mix and the company's take on the energy landscape.

More on that to follow shortly but in the meantime, here is a conversation on Forbes’ behalf with David Gilmour, boss of BP Ventures, the oil giant's venture capital funding arm that's looking to future proof the FTSE 100 company.

That's all from Vienna folks. Some post-OPEC analysis to follow from London next week! Keep reading, keep it 'crude'!

Addendum I (30.06.19): Upon his arrival in Vienna, well before the OPEC meeting has even begun Saudi Oil Minister Khalid Al-Falih has already said he is in favour of a “6 to 9 month” rollover of the output cut, and preferably "9 months."

Addendum II (30.06.19): Remember that bit about risking market share, well here’s some analysis by Bloomberg, ahead of the ministers’ meeting suggesting that OPEC’s output is on track to slide below 30% of the global market share for the first time in three decades. Q.E.D. 

Addendum III (30.06.19): OPEC members’ compliance rate with oil production cuts stood at 163% in May, according to S&P Global Platts. 

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© Gaurav Sharma 2019. Photo 1: Katholische Kirche St. Peter. Photo 2: Headquarters of OMV, Vienna, Austria © Gaurav Sharma, June 2019.