Oil in the $90s, Reimagining BP without Looney & more

What a difference a fortnight makes - for this blogger was musing end-August on how oil benchmarks were pretty much staying rangebound in the absence of drivers and looking for direction. That driver arrived in the shape of an extension of Saudi-Russian output cuts till the end of 2023 merely a few weeks later. 

Whatever their motivation might be, Riyadh and Moscow have decided that they will not let the market go into surplus mode as the Northern Hemisphere's winter approaches. End result - even the WTI front-month futures contract is finding support above $90 per barrel, and for its part Brent is flirting with $94/95 levels. 

Should we therefore conclude that a return of $100 oil prices is imminent for the first time since July 2022 despite a high interest rate climate, tepid economic activity in China and wider consumer anxiety? The short answer is - yes (barring an unforeseen macroeconomic upheaval), and particularly so, for global proxy benchmark Brent.

In fact, the question right now shouldn't be whether oil will get to $100 levels, but rather whether it would stay there? Of that, one is not too sure. Current price levels of futures contracts six month out point to a different story, and different a demand (and supply) dynamic for Q2 2024. Here are the Oilholic's thoughts on market direction via Forbes. 

Away from the direction of the oil price, the market for blue chip energy stocks got a shock after BP's social media loving CEO Bernard Looney suddenly resigned late on Sept 12 over his failure to fully disclose details of "past relationships" with colleagues! What might follow next for BP could be pivotal - will it continue down the path set by Looney or mark a return in focus to core oil and gas operations? (More here.)

Finally, this blogger also found the chance for two exclusive Forbes interviews earlier this month with Jim Johnson, CEO of engineering group Hunting Plc, and Christopher Hudson, President of dmg events. Click on the hyperlinks above should you wish to read these. But that’s all for now, for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2023. Photo: Kristina Kasputienė from Pixabay2

Last contango in Harris (County)

The crude trading week that was gave the market a day that will live in infamy. For on Monday, April 20, 2020, the soon-to-expire WTI May contract – lost all its value, slid to zero and then went into negative prices for the first time in trading history eventually settling at -$37.63 per barrel down over 300%. 

Blame a supply glut that Harris County, Texas, US – home to America's oil and gas capital of Houston – is only too aware of, or blame the dire demand declines caused by the coronavirus/Covid-19 lockdowns around the world, or blame money managers holding paper barrel or e-barrels desperately looking to dump their holdings at the last minute with very few takers – whatever the reason might be, outrageously sensational the development most certainly was! 

Expiring crude futures contracts often have a run on them in a climate of depressed demand that we happen to be in but April 20 was something the Oilholic never imagined he would ever blog about. Yet here we are! The very next day – April 21 – the contract did return to positive turf after all the headlines had been written. So is it a 'switch the lights out' moment for the industry? Not quite. Is it an unmitigated disaster for Harris County and wider industry sentiment in North America – most certainly so. 

That's because near-term demand is not looking pretty, and the Oilholic sees no prospect of a return to normalcy at least until the end of July. That too might be contingent upon the global community getting some sort of a handle on the global pandemic. Implications in barrel terms could likely be a Q2 2020 demand slump of at least 20 million barrels per day (bpd) and might well be as much as 30-35 million bpd.

For upcoming and established US exploration and production plays gradually discovering lucrative East Asian markets of light, sweet crude and national headline production levels of 12.75 million bpd – the current situation is a crushing but inevitable blow. 

Chats with Wall Street and City of London forecasters – virtual ones of course (via Skype, WhatsApp, did anyone mention Zoom) – and with several industry contacts from Harris County, Texas to Denver, Colorado suggest come 2021 US production is likely to fall to ~11 million bpd. But a long-term market has been established for competitively priced light, sweet barrels currently available at a rather cheap price provided you can find a place to stack or store the barrels. 

In fact, the lowest spot price the Oilholic has encountered is just south of $2 per barrel as shutdowns and idle rigs become the order of the day. Only problem is storage – which contrary to popular belief, and as verified by satellite imagery – hasn't quite run out US onshore but is on the verge of being leased and spoken for. 

And it is costing dear on a floating basis too, something that is unlikely to change as traders gear up for contango plays! Simple formula - get your hands on crude cargo from anywhere between $2 to $18, ride out the coronavirus downturn, pin hopes on a Q4 2020 to Q1 2021 recovery and make a tidy profit!

Hypothetically, if December is the cut-off point for such bets right now, then WTI December contract is around $29 per barrel while WTI June is trading around $17. That gives one of the widest contango structure of $12 and a 70.6% discount to six-month forward contracts for anyone with hands on US light sweet crude; means to hold on to it; and flog it off six months later on margins not seen since 2009. 

It is doubtful the returns are likely to be of the magnitude raked in by Gunvor in the immediate recovery that followed the 2008-09 financial crisis but they could be substantial. Many on Wall Street are calling it the 'super-contango' but the Oilholic prefers something else. Opportunities and differentials like this do not come along often – so yours truly thinks calling it the 'Last contago in Harris' is way more colourful. That's all for the moment folks! Stay safe! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2020. Photo: View of Downtown Houston, Texas, US © Gaurav Sharma, May 2018.

ADIPEC Day I: Oil & Gas 4.0, efficiencies & VIPs

The Oilholic finds himself in the UAE for the 2019 Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC), rounding up day one of the global event with more than a packed agenda to report back.

Dr Sultan Ahmed Al Jaber, CEO of the Abu Dhabi National Oil Company (ANDOC) got things going on Monday noting how Industry 4.0 is creating a "paradigm shift in global growth and energy demand."

"Oil and gas will play, as an essential part of the broader energy mix, in enabling tomorrow’s global economy. We have to admit some realities - our industry is being disrupted by new technologies, new forms of energy, a new geopolitical order. This disruption is only beginning and will gather pace," he added. 

Rubbing shoulders with attendees, expected to number 150,000 over the next few days, were several VIPs both foreign and domestic, and day one included sessions with the OPEC Secretary General Mohammed Barkindo, Indian oil minister Dharmendra Pradhan, BP Boss Bob Dudley, Eni’s Claudio Descalzi, and Total’s Patrick Pouyanné to name a few.

And former US Secretary of State Condoleezza Rice told ADIPEC attendees the post World War II "established" economic model "is under strain [and] threat" from terrorism, cyber threats & global power rivalries. 

My takeaway from @CondoleezzaRice's #ADIPEC2019 keynote: Post World War II's "established" economic model “is under strain [and] threat” from terrorism, cyber threats & global power rivalries. Put that into perspective #oilandgas market participants! #OOTT @ADIPECOfficial pic.twitter.com/xMRTS13Xjd

— Gaurav Sharma (@The_Oilholic) November 11, 2019

Away from the VIPs, quite a bit of "Oil and Gas 4.0" kit was on display alongside hydrogen cars, automation equipment and analytics platforms for integrated asset management, interspersed with nuts, bolts and pipeline joints.

Finally, day one was also timed to coincide with the official launch of the Abu Dhabi oil futures, that sees ADNOC partner with exchange group ICE, major oil companies, refiners and trading house Vitol.

The idea is an ambitious one of establishing Murban – Abu Dhabi's signature crude – as a potential oil benchmark. Here is some background to the development from the Oxford Institute for Energy Studies. (MS Word Download here)

Elsewhere, at the ADIPEC Awards, BP's Dudley, who is due to retire as the oil and gas major's CEO next year, was awarded a lifetime achievement award for his commitment to the energy industry.

That's all for the moment folks, more from here over the coming days. The Oilholic will be moderating and speaking on days two and three as the event gathers further momentum. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2019. Photo I: Exhibition Hall at ADIPEC 2019. Photo II: Drone on display at ADIPEC exhibition © Gaurav Sharma 2019. 

Feeling the crude temperature ahead of OPEC 173

The Oilholic has arrived in Vienna, Austria to gauge the crude temperature ahead of the 173rd meeting of OPEC ministers.

Going by the events of the last 24 hours, looks like the Russians, in town leading the 10 non-OPEC producers, seem to be giving the most briefings, and mostly to Russian journalists and analysts.

You could be forgiven for thinking they'd joined OPEC; but the Kremlin's message to analysts and scribes alike seems to be a simple one - the current production cut agreement reached in concert with OPEC producers for taking out 1.8 million barrels per day (bpd) out of the market is valid until March 2018, so why tamper with it now? 

On the other hand the few odd soundbites coming out of OPEC seem to "express hope" the cut agreement, of which the cartel has a lion's share of 1.3 million bpd, is rolled over for a further nine months. With both parties not appearing to be on the same page, oil futures are sliding. 

At 7:45pm GMT, Brent is down 0.53% or 34 cents to $63.27 per barrel, while WTI is down 1.09% or 63 cents to $57.36 per barrel, making it a second successive session of intraday declines extending from European hours to US trading hours.

Expect more of the same, though OPEC's problem is the lack of an exit strategy, which is why some in its ranks want to kick the can down the road even if the Russians aren't keen. Meanwhile, since its been over 10 years of covering OPEC by the Oilholic, here's a look back at the last ten years for IBTimes UK. A whole lot memories, episodes and experiences to narrate. 

Finally, here is one's take on what to expect on IG Markets TV and Core Finance TV. 

And that's all from Vienna, for the moment folks! Plenty more to follow. In the meantime, keep reading, keep it crude!

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© Gaurav Sharma 2017. Photo: OPEC signage outside its secretariat in Vienna, Austria © Gaurav Sharma. 

Is $50 an optimum crude price for GCC countries?

Before the Oilholic begins the journey back to London, there is the little matter of gauging the ‘crude’ opinion of known industry contacts seated comfortably in the Disneyland for adults, sorry Dubai!

Quite like the consensus among delegates at the recently concluded Gulf Intelligence Energy Market Forum, most think the United Arab Emirates and its fellow Gulf Cooperation Council (GCC) members would indeed be comfortable at $50 per barrel. To quote one physical trader, a $50+ price level is the modest middle ground that both Gulf producers and US shale players can work with.

The regional broadsheets – Khaleej Times, Gulf News and The National – as well as several internet forums seem to be leading their respective crude narrative this morning with the Iraqi minister’s quip at EMF2017. For OPEC, which quite frankly appears to have no exit strategy for its current round of cuts totalling 1.3 million barrels per day (bpd), there could a renewed impetus on deepening the cuts. 

The cartel’s compliance committee meets on Friday with the exempt duo of Nigeria and Libya – whose production has been steadily rising – in sharp focus. Production for both is up; in Libya’s case the data is erratic and in Nigeria’s case often over-reported.

Analysts from JBC energy say the average revision was around 100,000 bpd for the months from January to July 2017 for Nigeria. “We would expect a similar revision for August and hence expect the final crude figure to come in at 1.65 million bpd,” they add.

At 1.65 million bpd, perhaps the time is indeed right for Nigeria to be invited to cut on 30 November. But who knows how this will go in the complicated world of OPEC shenanigans. 

In theory the cartel could cut further and fan the so-called ongoing ‘rally’ more – but it should not for one moment assume that US producers would not benefit. More American oil is in any case imminent; more so should OPEC introduce even deeper cuts on paper. If anything, the move would accelerate the US’ march to 10 million bpd much sooner in 2018 than later. Let’s see where it all goes.

Just one final matter before, the Oilholic takes your leave – remember the ADNOC fuel distribution unit IPO back in July, that sent equity analysts pulses racing? Well, this blogger thought there would be more excitement in the UAE about it than one has encountered over the past few days.

While there is reasonable amount of chatter about fast-tracking it and other IPOs before Saudi Aramco’s so-called mother of all IPOs, there is very little concrete information on the timeline and the road ahead. That’s kinda disappointing but that’s all for the moment from the UAE folks as its time for the ride home to London. Keep reading, keep it crude!

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OPEC quips send oil futures $1.50 or 3% higher

Its official OPEC ministers' and Russia's quips in favour of extending oil production cuts beyond June appear to have worked. Oil benchmark prices perked up by a princely $1.50 or just over 3% in week-over-week terms. 

Brent, the global proxy benchmark is well clear of $50 per barrel. If anything else, it's good news for the US oil patch, with independents plugging away, as another weekly uptick in the Baker Hughes rig count suggests. 

Away from it all, US President Donald Trump is perplexing the oil and gas industry in Texas. For a man who claims to be a champion of the 'crude' world, Trump's jibes against NAFTA are causing dismay in the oil and gas capital of the world, where people understand more than most, the cross border nature of the industry. 

Here's the Oilholic's reading of the situation in a detailed analysis and commentary piece for IBTimes UK. In a nutshell, if NAFTA is ripped up and Trump provides little or no clarity on US taxation - the oil and gas business would be hurt disproportionately. 

Most think its unlikely Trump will stir too much on the the NAFTA front. However, Trump being Trump you never know. That's all from Houston folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2017.