As oil markets come to the end of a surprisingly bearish week, we take a look at all the key stories and figures in the markets.
Shaky emerging market developments have been bearish for oil prices lately, with WTI falling to $68 per barrel by the end of the trading week after a $70 per barrel mid-week peak and Brent decreasing to $76.7 from a $79.5 per barrel peak on September 4.
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Source: Bloomberg
Despite Argentina clinching a new IMF deal, the Argentine Peso is still in shambles, while the Turkish lira is yet to reverse the 25 percent crash that it suffered in August against the U.S. dollar. With analysts fearing that energy demand in emerging markets might fall as imports become increasingly expensive for them, sentiment turned bearish.
The volume of oil traded on NYMEX was 9 percent below the hundred-day average, butressed by an increase in U.S. gasoline and distillate fuel stocks.
1. Global Oil Demand Rising Faster than Anticipated
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- Mohammad Barkindo, OPEC’s Secretary General stated that world oil demand is expected to reach 100 mbpd in Q4 this year, much sooner than previously anticipated.
- OPEC is looking into ways of institutionalizing the OPEC/OPEC+ cooperation platform to keep production levels balanced across all leading oil producers.
- All this takes place against the background of a U.S. Congress that is poised to target OPEC with the No Oil Producing and Exporting Cartels Act (NOPEC), amending the antitrust Sherman Act.
- NOPEC is an extremely politicized bill in its current form, placing all enforcement powers in the hands of the U.S. Attorney General, regular citizens cannot make use of the legislation under discussion.
- NOPEC currently seems unlikely. The Trump Administration may be eager to take on OPEC/OPEC+ members through diplomatic channels, but it is likely to steer clear of jeopardizing U.S. investments in these countries.
2. Start of the Saudi Arabia Power Play
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- Saudi Arabia’s oil company, Saudi Aramco, has significantly raised its October 2018 OSP prices for Europe.
- The Saudis want to capitalize on European refiners cutting Iranian crude supplies and opting for alternative grades. Urals, which is a 30-31° API with a 1.5-1.6% Sulphur content is close to its 5-year highs, Saudi Aramco is poised to react.
- Interestingly enough, OSP prices for the United States have barely changed month-per-month for October 2018.
- Saudi Arabia has almost doubled its oil exports to the United States y-o-y, to a little more than 1 mbpd.
- Last October it hit a 21st century lowpoint of 506 kbpd, however, thanks to a manifestly more aggressive pricing policy and some successful diplomatic overtures in reaction to President Trump’s ”twitter diplomacy” it regained ground in the U.S.
- Iraq and Kuwait lost out significantly as Saudi Arabia effectively outbid them.
3. Iran Loopholing Its Way to China
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- Iran is ramping up supply to Petrochina’s Yunnan Refinery via the Myanmar-China pipeline, with two Iranian-flagged VLCCs discharging there in August.
- The first-ever vessel to discharge Iranian crude in Kyaukpyu was Panama-flagged (which could be considered unwise as Panama could be penalized), the ones to follow were NIOC-operated and owned.
- Petrochina’s 260 kbpd Yunnan refinery was built to process specifically Iranian crude, as opposed to the company’s other major refining assets which cannot process crudes with a high (corrosive) metallic content.
- The Myanmar military regime is less susceptible to U.S. foreign policy hand-wringing – being much more dependent on China, it also has a powerful bargaining chip in the form of a potential settling of the plight of the Rohingya people.
- India, on the other hand, has cut Iranian supplies by a third to about 523 kbpd, despite Iran’s NIOC putting forward the largest OSP discount in the last 15 years this month. Keen to maintain the strategic partnership with the United States, Japan will bring its Iran imports to zero in October.
4. Qatar Pushes to Build First-Ever German LNG Terminal
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- The geopolitically embattled Qatari regime is trying to outfoot America’s LNG plans in Europe by initiating talks with German gas giants Uniper and RWE on the construction of Germany’s first-ever LNG terminal.
- Qatar is suggesting it could either partially finance the construction of an LNG terminal or do it all by itself, provided it can secure a long-term supply contract.
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- Brunsbüttel on the North Sea coast is seen as the most likely location, with an estimated throughput capacity of 5 BCm per year.
- Germany’s business community is actively promoting Nord Stream-2 (the aggregate throughput capacity of the two trunk pipelines would exceed Germany’s annual demand by 20 BCm per year), it remains to be seen whether Germany actually needs LNG.
- Average EU LNG terminal utilization rate stands at 25%, so more likely just a political posturing to let potential LNG rivals know Qatar can outbid them if need be.
- Qatar’s LNG production expected to increase by more than 30% by 2024, as the South Pars/North Dome supergiant field is further developed.
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Source: BP, Qatar Petroleum, OilPrice Estimate.
5. Defying Expectations, Mexico Proceeds with New Licensing Auction
- Andres Manuel López Obrador (AMLO), Mexico’s newly elected President who is scheduled to take office December 1 this year, seemingly backtracked on his previous promises to reconsider the results of previous auctions and reverse the 2014 hydrocarbon law changes.
- AMLO stated on September 6 that the Mexican government is betting big on the reversal of falling oil output numbers, allegedly preparing tenders to be launched in early December.
- Interestingly, AMLO pointed out that Mexico would need companies with a lot of experience, ”most of them national companies”.
- Still pushing for higher local content requirements in future contracts, López Obrador will have to walk a very fine line as PEMEX’s production has been falling for almost 15 consecutive years, since 2004.
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- The holding of a February 14, 2019 super-round, comprising of onshore bid rounds 3.2. (onshore Burgos Basin and the Tampico-Misantla-Veracruz Basin) and 3.3. (Mexico’s first-ever shale tender) seems increasingly realistic.
6. Ingolstadt Explosion Rocks Germany’s Product Market
- A powerful blast distorted the work of the 120 kbpd Vohburg plant in Bavaria, Germany, causing chaos for Germany’s oil product supply.
- Leaving behind more than ten injured, the plant will be out for several weeks – just as other Western European refineries go down this September-October for maintenance.
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- The Vohburg refinery is jointly owned by Varo Energy (45%), Rosneft (25%), ENI (20%) and BP (10%), supplying together with the adjacent Neustadt refinery (which was not impacted by the explosion) Munich and other Bavarian economic powerhouses.
- Germany is especially tight when it comes to Diesel supplies following a very hot summer. Very low Rhine water levels further complicate inland products supplies.
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- 10ppm ULSD FOB Rotterdam prices jumped up to 697 USD/ton in the first days of September.
7. Rosneft Quits LNG Project
- Rosneft has sold 49.1% of its stake in Pechora LNG (it previously held a controlling stake of 50.1%), citing a lack of prospects for LNG development.
- The Pechora LNG project presupposed the construction of an LNG plant in the ice-free Indiga estuary in the Northern Nenets Autonomous Area.
- Although it had the required resource base (Korovinskoye and Kumzhinskoye fields with total reserves of 104.5 BCm), Rosneft failed to attain an amendment to the Law on Gas Exports.
- Rosneft’s other long-flaunted LNG initiative, the Far East LNG project, had stalled because U.S. sanctions have made cooperation difficult for its venture partner, ExxonMobil.
- This leaves Rosneft with no viable LNG project whatsoever. Against the background of ever-increasing gas production volumes (by 2020 it intends to produce 100 BCm per annum), it will now most certainly turn to the chemical utilization of natural gas.
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That’s it for this week, we will see you next week with another weekly break down.
By Viktor Katona for Oilprice.com
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