Last week’s fear and uncertainty in oil markets appears to have turned a bit more upbeat this week as oil producers tried to avoid a complete tailspin. Iran seems to have found a common language with UK authorities and the release of the 2 detained tankers now seems finally feasible. The US Trade representative infused market watchers with a bit of optimism in terms of global trade prospects by eliminating several items from the list of goods to be sanctioned by a 10 percent tariff whilst delaying the tariff-slapping on an array of products until December 15 to win precious time. But despite the positive shifts, crude prices collapsed on Wednesday after China reported an unexpected drop in industrial production growth, which was perceived as a harbinger of weakening crude demand.
It remains to be seen how crude markets will react to European economies slowing down, with both the United Kingdom and Germany plunging into negative territory in Q2 2019 and EU zone economic growth zeroing out.
1. Indian Oil Demand Has Stalled
- For the third month in a row, India’s crude demand has been hovering around the 4.05mbpd with no evident sign that further crude demand is to be expected in the upcoming months.
- This year’s June-August crude demand average is 8 percent lower than that of Jun-Aug 2018 and roughly on par with summer demand volumes seen in 2017.
- Indian domestic crude production has been gradually declining over…
Last week’s fear and uncertainty in oil markets appears to have turned a bit more upbeat this week as oil producers tried to avoid a complete tailspin. Iran seems to have found a common language with UK authorities and the release of the 2 detained tankers now seems finally feasible. The US Trade representative infused market watchers with a bit of optimism in terms of global trade prospects by eliminating several items from the list of goods to be sanctioned by a 10 percent tariff whilst delaying the tariff-slapping on an array of products until December 15 to win precious time. But despite the positive shifts, crude prices collapsed on Wednesday after China reported an unexpected drop in industrial production growth, which was perceived as a harbinger of weakening crude demand.

It remains to be seen how crude markets will react to European economies slowing down, with both the United Kingdom and Germany plunging into negative territory in Q2 2019 and EU zone economic growth zeroing out.
1. Indian Oil Demand Has Stalled

- For the third month in a row, India’s crude demand has been hovering around the 4.05mbpd with no evident sign that further crude demand is to be expected in the upcoming months.
- This year’s June-August crude demand average is 8 percent lower than that of Jun-Aug 2018 and roughly on par with summer demand volumes seen in 2017.
- Indian domestic crude production has been gradually declining over the years, having peaked in 2011, averaging 686kbpd this year so far, down 5 percent year-on-year.
- If the current trend continues, 2019 might be the first year since 1974 which sees negative year-to-year growth – in 2008-2018, demand grew by an average 5 percent per year.
- Pointing to the possibility of a structural slowdown, India’s coal and LNG imports dropped in the past couple of months, too (against the background of falling prices).
- Thus, the initial explanation, on the back of May 2019 demand of 3.91mbpd marking the lowest level since August 2017, that India has been experiencing structural issues of finding new import sources in the post-Iran era grew untenable.
2. Iraq Adds Nuance to Saudi Arabia’s Price Cuts



- The Iraqi state oil marketer SOMO has cut its September-loading official selling prices to Asian customers, whilst drastically hiking European prices, stringing along Saudi Aramco.
- The price reductions are smaller than Saudi Aramco’s though, as Basrah Light was dropped 40 cents per barrel m-o-m to a $1.35 USD per barrel premium against Oman/Dubai, whilst Arab Medium’s September OSP grew 50 cents m-o-m.
- The Basrah Light-Arab Medium spread swung back to a 10 cent per barrel premium after the August OSP saw them even.
- SOMO also raised European prices by $1.75-2.05 per barrel, with Basrah Light witnessing the most tangible hike, dropping to a $2 per barrel discount against the Oman/Dubai average.
- Europe-bound Kirkuk OSPs rose to their highest in 7 years, as SOMO hiked its September-loading OSP to a $0.65 discount against Dated Brent.
- SOMO and Saudi Aramco have reacted to the recent strengthening of European rival grade Urals, despite NW Europe Urals bouncing back below Dated Brent (Urals Med is still at a $1-1.25 USD per barrel premium).
- Mirroring Saudi Aramco, SOMO has simply rolled over its August prices into September for all its marketed grades.
3. Saharan Blend Prices Drop to One-Year Low

- The Algerian state oil company Sonatrach cut its retroactive official formula price for August-loading cargoes by 61 cents month-on-month, to a $0.6 USD per barrel discount to Dated Brent.
- Thus, Algeria’s flagship Saharan Blend crude is now at its lowest since September 2018, reflecting the Urals price drop in the first half of July.
- The likelihood is that Sonatrach’s September-loading prices will see an uptick as Sonatrach has traded recently at Brent Dated flat (cargoes sold out already, only equity takers have September volumes left).
- Saharan Blend has benefited from strengthening Urals as well as the difficulties endured by Libya’s primary crude stream, Esharara.
- The timeframe between July 18 and August 02 saw three Saharan Blend cargoes sail towards Gujarat, India, a significant uptick following a rather meagre May-June.
4. Colombia Courts Chinese Buyers…Or the Other Way Round?

- In the first presidential visit to China in 7 years, Colombia’s President Iván Duque travelled to Beijing in order to boost the Latin American country’s Asian export potential.
- Colombian crude exports to China have palpably grown from the 39kbpd average of 2017 to 110kbpd witnessed so far this year.
- Petrochina and UNIPEC routinely take 2-3 VLCC cargoes a month of Castilla and Vasconia to Shandong and Zhejiang provinces.
- In Q4 2018 when Venezuelan crude was still available to USGC refiners China overtook the United States as the prime export outlet for Colombian crude, however due to strong US demand in 2019 the export matrix switched back to the usual routine.
- The talks shed light on little progress being made in terms of commodity trade as China wants to expand the bilateral trade basket to include agriculture and technology.
- Colombia resisted calls to join the Chinese Road and Belt Initiative despite China going for a goodwill sign of donating 3,000 solar panels to Colombian households.
5. Rosneft Drills in the Arctic Again

- Following a prolonged five-year drilling hiatus, Russia’s national oil company Rosneft intends to spud an exploration well at the Vostochno-Prinovozemelsky block next year.
- Since Russia has two operational drilling rigs suitable for Arctic conditions and both belong to Gazprom, Rosneft will use the Chinese jack-up rig Oriental Dragon for the purpose.
- Rosneft is already 2 years in delay (the project was initially promised to take place in 2017-2018) yet this time it might be the real deal as conditions compel it to produce results.
- Arctic drilling remains under US sanctions, hence Rosneft will have to carry out all the spudding by itself (ExxonMobil dropped out) in the ice-free period of July-October 2020.
- Rosneft has been lobbying intensely for tax cuts worth 36 billion in order to facilitate Arctic drilling, only to see their hopes cut short by a President Putin-dictated moratorium on any relaxation of taxing rules until the end of the year.
- Rosneft so far drilled only one well in the Kara Sea, discovering the 0.75 BBbbl Pobeda field in 2014.
- Rosneft’s estimates claim that the NOCs Arctic licences hold up to 150 billion barrels of oil equivalent, with two-thirds of them located in the Kara Sea.
6. Tullow Oil Reports First non-Stabroek Offshore Discovery in Guyana

- Bringing about the first discovery in Guyana’s territorial waters outside of the Exxon-operated Stabroek Block, Tullow Oil announced that its Jethro-1 exploration well found commercial volumes of hydrocarbons.
- Drilled to a total depth of 4.4km in 1.35km of water just several miles from the Stabroek block, the Jethro well discovered a net pay of 55 meters.
- Jethro’s recoverable reserves are estimated to be in excess of 100 MMbbl.
- Tullow operates the Orinduik block, with junior partners Total and Eco Atlantic (15 percent each) and Qatar Petroleum (10 percent).
- Tullow will drill its second exploration well offshore Guyana this month, this time targeting oil prospects to the west of Jethro with its Joe-1 well.
- This year’s drilling season will be clinched by Repsol by spudding the Carapa-1 well, the first within the Kanuku block, to the south of Exxon’s Hammerhead discovery.
- Tullow shares soared 18 percent in one day after the announcement, ending a stock depreciation that saw TLW drop to its lowest this year on August 07.
7. Chinese to Take Over Guinea Bissau Exploration, Spud First Deepwater Well

- CNOOC, one of China’s three main state-owned oil companies, has tangibly consolidated its interest in Guinea Bissau’s offshore after buying two 55.55 percent stakes in the Esperanca and Sinapa blocks from Swedish oil firm Svenska Petroleum.
- Svenska will keep a 23.03 percent stake in the licenses and will remain operator of the project for the time being – CNOOC has the option to take over the operatorship once the first two exploration wells are spudded.
- The license stakeholders will drill Guinea Bissau’s first-ever deepwater exploration well in the Greater Atum prospect (westernmost part of Block 2) in Q1 2020, aiming to confirm an estimate resource of 471 MMbbl.
- Previous assessments in the Sinapa block have wielded a light (35-37 degree API) crude.
- As Greater Atum lies to the south of Senegal’s SNE block, CNOOC would like to follow in the footsteps of BP, Kosmos Energy and Woodside whose projects have energized the Senegal-Mauretania exploration drive.