Higher Oil Prices Are In The Pipeline

Things are getting interesting again on the crude market, with Donald Trump relaunching his Twitter attacks on OPEC, albeit in much more diplomatic wording now, amid US-China trade talk prospects brightening after several weeks of market skepticism. Against the background of crude oil prices rising, President Trump also took issue with the OPEC production cuts rendering crude prices too high and threatened the blackout-stricken Venezuela with another round of sanctions. This plethora of geopolitical factors easily prevailed over the American Petroleum Institute and EIA both of which confirmed a crude inventory build.

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Thus, for the first time in almost six months, the global crude benchmark Brent edged very close to 70 USD per barrel, pulling off a solid four consecutive days of growth. On Wednesday afternoon the Western hemisphere benchmark WTI traded at around 62.5-62.8 USD per barrel.

1. Saudi Aramco Publishes Financial Results for First Time Ever

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- Just as Saudi Aramco announced its intent to but 70 percent of Saudi petchem holding Sabic, the Saudi national oil company disclosed its 2018 financial results, for the first time ever.
- The Saudi NOC's revenues exceeded $356 billion last year, still mostly generated by crude sales which accounted for 56.4 percent of the total (down exactly 30 percent from 2016).
- Saudi Aramco reported a ground-breaking $111 billion net income in 2018, surpassing past results of $76 billion in 2017 and $13 billion in 2016.
- Saudi Aramco's crude production averaged 10.3mbpd last year, with total production reaching 13.6mbpd of oil equivalent on an annualized basis.
- Saudi Aramco's proven reserves as of 2017 year-end were assessed at 260 billion barrels of oil equivalent, giving the Gulf nation a 55 years worth of reserve bounty.
- At the same time, Fitch and Moody's have assigned a first-ever credit rating to Saudi Aramco, with the former assessing it as an A+ investment, whilst the latter gave it an A1 grade.

2. ExxonMobil Seeking a Nigeria Exit

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- According to market rumours, ExxonMobil is seeking to sell its upstream assets in Nigeria as part of its promised $15 billion divestment programme.
- This is the second known instance of Exxon's divestment drive, concurrently seeking to sell the totality of its Azerbaijani assets.
- The US firm's Nigerian portfolio is among the most prolific in Africa, yet it is declining for some time already, hitting 0.21mbpd last year from the peak of 0.4mbpd in 2007.
- ExxonMobil would not be the first Western major to decrease its Nigerian exposure after Chevron, Shell and Total, however might be the first to leave the country altogether if it maneges to find a suitable buyer (previously it was NNPC buying majors' shares).
- This does not mean ExxonMobil will not be looking at new projects in Africa - as recently as March the US major was holding top-level talks with the Algerian Sonatrach to enter the Algerian market.

3. Brazilian Buzios Makes Its Way to China

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- As the heat intensifies over those heavy volumes that are still available on the global market, Chinese refiners have been buying up Brazil's latest addition to its export portfolio, Buzios.
- Buzios is very similar in quality to Brazil's flagship export grade Lula (28° API) - it has an API density of 28.4° API and contains 0.3 percent Sulphur.
- Buzios is traded at a 20-30 cent per barrel discount to Lula as its calcium content is higher, requiring refinery pre-treatment.
- Brazil has benefited greatly from China's appetite for heavy barrels, with its exports to China rising 37 percent y-o-y in 2018 to 635kbpd (edging even higher this year, to 966kbpd so far).
- More than half of Brazilian exports to China go to the Shandong province where the overwhelming majority of teapots is currently located.
- Petrobras launched the P-76 platform on February 19 and the P-77 platform on March 18, eventually paving the way for the Buzios field's first-phase peak production capacity of 150kbpd.
- Total Buzios production might even go as far as 750kbpd by 2021, as Petrobras intends to bring in additional four production platforms.

4. Concurrently, US Cargoes to China on the Rise

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- For the first time since September 2018, China's largest refiner Sinopec started buying US crudes for its refining system via its trading subsidiary Unipec.
- We have already covered the Chinese independent refiners' restart of US imports earlier this year, notably that of Shandong-based Hongrun which bought a cargo of Eagle Ford.
- The fact that state-owned companies are now back at it again after a prolonged hiatus marks a significant shift in the Chinese oil market.
- Unipec has chartered the 1.2MMbbl MT Maran Artemis early March already, however only now did the company's involvement become known.
- Unipec is also bringing over a 2MMbbl WTI-laden MT Noble, destined for the port of Zhanjiang.
- According to official Chinese government data, China did not buy any US crude between October 2018 and January 2019, however some Eagle Ford and WTI volumes did reach it indirectly via South Korea.

5. Algeria Lowers April-Loading Saharan Blend OSPs

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- Algerian state oil company Sonatrach has cut its April-loading official selling prices (OSP) for its flagship Saharan Blend crude from a 30 US cent per barrel premium against Brent to parity with it.
- The news comes amid Sonatrach selling out its April volumes and already trading May-loading ones at a Brent Dated parity or a 10 cent per barrel premium to it.
- Before stepping down President Bouteflika revamped the governing cabinet of ministers, with Energy Minister Mustapha Guitouni being reshuffled for Mohamed Arkab, head of the Algerian gas company Sonelgaz.
- Europe is following the Algerian developments very attentively as Algeria is a key natural gas supplier, meeting 10 percent of the continent's demand.
- The mild winter of 2019 has resulted in Sonatrach seeing its oil and gas revenues drop 7.5 percent in January-February, on the back of a 23-percent fall in pipeline gas exports.

6. ADNOC OSPs Witness a Modest Dubai Differential Cut

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- United Arab Emirates' national oil company ADNOC has increased the retroactive official selling prices for all of its four crude grades for March-loading cargoes, at the same time narrowing their differentials against Platts Dubai monthly average.
- ADNOC's flagship grades - Murban, Das and Upper Zakum - have witnessed a 11 cent per barrel, 1 cent per barrel and 6 cent per barrel month-on-month decrease against the Dubai benchmark.
- ADNOC set the retroactive March OSP for Murban at 68.60 USD per barrel, whilst Das was fixed at 68 USD per barrel.
- The only ADNOC crude which saw its Dubai differential increase as compared to February was the recent addition Umm Lulu, whose March OSP was se tat 68.55 USD per barrel.
- Thus, the Umm Lulu premium to Dubai rose 9 cents per barrel month-on-month to 1.62 USD per barrel, also narrowing the gap between Umm Lulu and Murban to just 5 cents.

7. Gabon Licensing Round Runs Off the Rails

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- Last year Gabon promised to wrap up the nation's 12th shallow and deepwater licensing round by the end of June 2019, yet things have not budged an inch since then.
- Apparently the 34 blocks in question ought to be awarded by September (initially set for April, then June), however there is no legal certainty this deadline will not be moved again.
- Availing themselves of President Ali Bongo's illness-induced absence, a host of military officers claimed they have taken over the country in January 2019, yet were quickly quashed by the Gabonese military.
- The subsequent halt on all development projects comes as a blow to Gabon, whose proposed state ownership conditions (15 percent carried interest and a 10-percent stake in fields) seem to be much more favorable than that of African peers.
- The Gabonese government also promised to rewrite the hydrocarbon code, eliminating the 35-percent corporate income tax to lure foreign investors, a promise that is already five months overdue.