Market Movers
- The International Maritime Organization’s new fuel rules begin on January 1 and reduce the limit on sulfur in fuel oil from 3.5% to 0.5% - a figure that could have a major impact on markets, even if ships only constitute between 5% and 7% of global transport oil demand. This will spark significant competition for low-sulfur fuel that refineries aren’t set up to produce. For investors, it could be a lucrative new game of hedging the right bets. Analysts cited by WSJ predict that the $350-per-metric ton gap between prices of very-low-sulfur fuel and high-sulfur fuel could wide to $1,000 in 2020. That means shipping costs could skyrocket before everyone has a chance to adjust. We can already see the market responding as prices of Abu Dhabi’s Murban crude grade dropped over the past week as refiners sought out lower-sulfur marine fuel. On Thursday last week, Murban was trading at a discount of $0.15 to its OSP, compared to a premium of $0.25 to the OSP just days earlier.
Discovery & Development
- On December 20th, Guyana officially produced its first-ever oil, courtesy of ExxonMobil in the offshore Stabroek Block. Output in the first phase of production is set to reach 120,000 bpd, with first cargo to be sold in a couple of weeks. By 2025, production is expected to hit 750,00 bpd.
- Saudi Arabia and Kuwait have signed a deal on their Neutral Zone to end a five-year dispute and reopen oil fields that have the potential…
Market Movers
- The International Maritime Organization’s new fuel rules begin on January 1 and reduce the limit on sulfur in fuel oil from 3.5% to 0.5% - a figure that could have a major impact on markets, even if ships only constitute between 5% and 7% of global transport oil demand. This will spark significant competition for low-sulfur fuel that refineries aren’t set up to produce. For investors, it could be a lucrative new game of hedging the right bets. Analysts cited by WSJ predict that the $350-per-metric ton gap between prices of very-low-sulfur fuel and high-sulfur fuel could wide to $1,000 in 2020. That means shipping costs could skyrocket before everyone has a chance to adjust. We can already see the market responding as prices of Abu Dhabi’s Murban crude grade dropped over the past week as refiners sought out lower-sulfur marine fuel. On Thursday last week, Murban was trading at a discount of $0.15 to its OSP, compared to a premium of $0.25 to the OSP just days earlier.
Discovery & Development
- On December 20th, Guyana officially produced its first-ever oil, courtesy of ExxonMobil in the offshore Stabroek Block. Output in the first phase of production is set to reach 120,000 bpd, with first cargo to be sold in a couple of weeks. By 2025, production is expected to hit 750,00 bpd.
- Saudi Arabia and Kuwait have signed a deal on their Neutral Zone to end a five-year dispute and reopen oil fields that have the potential to produce what would amount to 0.5% of the world’s oil supply. The field--Khafji--is expected to produce 320,000 bpd by the end of 2020 already.
- Norway’s North Sea Johan Sverdrup oilfield, which now produces 300,000 bpd, operated by Equinor, is now planning for a ramp-up in production to 440,000 bpd by summer 2020 and then to 660,000 bpd after 2022, despite increasing pressure from environmentalists to halt production altogether. That means that by 2020, Sverdrup could actually account for 0.4% of total world oil production.
Deals, Mergers & Acquisitions
- Now we know what Apache’s vague Q3 earnings call and stifling silence over its landmark Suriname drill was all about. Earlier this week, Apache announced a 50% JV deal with French Total SA to explore Block 58 offshore Suriname. Apache will operate the first three exploration wells, including the first drill, Maka Central-1. After this, it will transfer operatorship to Total. Apache will get $5 billion of cash carry on its first $7.5-billion of appraisal and development capital. It will also get 25% cash carry after that, as well as reimbursement of 50Q% of all costs to date, along with some other considerations. After being left in the dark over scant details on Apache’s first drill here, and equally vague details surrounding the resignation of its key geologist, shareholders punished Apache stock. Now they’re back with this Total deal.
- Egypt’s on a holiday roll with respect to new oil deals, with parliament approving nine new deals, four of which have already been signed and four pending. The four signed are for exploration and are said to be worth $155 million and focus on drilling 30 wells in the Western Desert, the Gulf of Suez and the Nile Valley.
Politics, Geopolitics & Conflict
- Libya just moved multiple steps forward on its path to becoming a regional war. Turkey is wildly hedging its bets on military confrontation in Libya, with Erdogan now pledging to send ground troops to fight Haftar in Tripoli. Greek officials have met with General Haftar, further provoking Turkey. While Turkish military forces are preparing for a ground operation in Tripoli, it must also be understood that they have not been given orders, and that Erdogan has simply stated that he will present a ground troop bill to parliament on January 7th, where he expects it to be passed by the 9th. Turkey is also said to be paying Syrian rebels (Free Syrian Army) to fight in Libya. This entire maneuver is about Turkey squeezing out Greece and Cyprus from the Levant Basin oil and gas riches (see above).
- Protests in Iraq continue with Iranian influence still a dominant theme. Earlier this week, the Iraqi president refused to back a pro-Iranian candidate for prime minister, saying it would only further fan the flames of protest. The president also offered to quit over the move.
