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BusinessDay 14 Feb 2018

Wednesday

Wednesday 14 February 2018 marketinsight Oil hits seven-week low on expectations of higher US, Iran output Oil prices fell to their lowest in seven weeks amid fears of rising global supplies after Iran announced plans to increase production and US crude output hit record highs. China will launch its first crude oil futures contract on the Shanghai International Energy Exchange on March 26, the China Securities Regulatory Commission announced, a move that is expected to help Asia’s biggest oil consumer to manage its price risks better. The launch of the contract, which was initially proposed several years ago, has been delayed several times as Beijing wanted to ensure that all rules are strictly in place for the contract to operate smoothly. INE’s parent company, Shanghai Futures Exchange, has been developing the medium sour crude futures contract since 2009. Approval from the Brent futures fell 70 cents, or 1.1 percent, to settle at $64.81 a barrel, their lowest close since December 20. US West Texas Intermediate (WTI) crude , meanwhile, was down 64 cents, or 1 percent, to settle at $61.15, its lowest close since January State Council was the final hurdle for the launch of the medium sour crude futures contract. Officials from the exchange and CSRC said the State Council recently approved the launch, clearing the way for kicking it off. The launch is planned to ensure that trading of the contracts start only after China’s most important annual political events that fall in early to mid-March, the National People’s Congress and the Chinese People’s Political Consultative Conference. The exchange would gradually release details of the deliverable crude grades, differentials of the deliverable grades against the standard contract and the delivery venue in the coming weeks. The Chinese yuan- 2. Both benchmarks fell for the fifth straight day, the longest losing streak for Brent since November 2017 and for WTI since April 2017. Brent futures have lost as much as 15 percent since hitting a four-year high above $71 in late January. The US Energy Information Administration (EIA) said crude production last week rose to a record high of 10.25 million barrels per day (bpd). At that level, US production would overtake the current output in Saudi Arabia, the biggest producer in the Organization of the Petroleum Exporting Countries. OPEC and other producers, including Russia, have cut production since January 2017 to force down global inventories, but these cuts have been somewhat offset by rising US oil production. Oil prices were also pressured by an announcement from Iran that it is looking to boost production over the next four years. Traders also noted the restart of the Forties pipeline in the North Sea, added to losses in crude prices. The pipeline, which carries around a quarter of all North Sea crude output and roughly a third of Britain’s offshore natural gas production, had shut for the second time in two months after a valve closure at a Scottish facility. Earlier, the EIA projected US production would rise to a record high annual average of 10.6 million bpd in 2018 and 11.2 million bpd in 2019, up from 9.3 million bpd in 2017. China to launch first crude oil futures contract on March 26 denominated contract, which will also be the first contract allowing international participation, has drawn a lot of attention not only from domestic players, but also from foreign market participants. Beijing aims to make this an international benchmark. China’s crude oil import volumes averaged at 8.42 million b/d in 2017, and hit a historical high of 9.61 million b/d in January 2018. C002D5556 OPEC Flakes Surging output of US shale oil would not be a “huge distorter” of efforts by global crude producers to clear a glut, according to OPEC’s president, United Arab Emirates Energy Minister Suhail Al Mazrouei. Al Mazrouei said that the market should rebalance this year, given robust demand and producers’ compliance with their pledges to curtail supply. His Kuwaiti counterpart, Bakheet Al-Rashidi, said he sees world oil consumption growing by 1.6 million barrels a day in 2018 and absorbing additional output from US shale deposits. “Shale is coming and the expectation is that it will come stronger than in 2017, and this is something that we have to watch,” Al Mazrouei said. “But considering all factors, I do not think it will Many OPEC members are now feeling confident enough in its recovery to begin touting their output expansion plans, even as they insist they will comply with their quotas under their production cut agreement. In recent weeks, Kuwaiti oil minister Bakheet al-Rashidi has declared that his country will boost its production capacity to 3.225 million b/d by the end of March, up from its current 3 million b/d, while Iranian oil minister Bijan Zanganeh has said his country could raise its output by 100,000 b/d within days if the deal were to be terminated. Iraqi oil minister BUSINESS DAY 07 ENERGY intelligence OPEC President says shale surge won’t thwart plan to clear glut be a huge distorter of the market.” Oil is rebounding from its biggest weekly decline in two years, though gains are limited due to concerns over a resurgence in US shale. The US oil rig count rose last week by 26, the most in a year, to 791, Baker Hughes data showed. American weekly crude output topped 10 million barrels a day for the first time on record, and the US government forecasts it will balloon to 11 million later this year. OPEC readies to turn on the taps WEST AFRICA Jabbar al-Luaibi at a conference in London trumpeted the record 4.6 million b/d in export capacity now built in the southern port of Basra and proclaimed that it would reach 5 million b/d by year’s end. The UAE also has ambitions of hiking its production capabilities to 3.5 million b/d from around 3 million b/d later this year. While all of them have insisted that these capacity gains will not be unleashed while the production cut deal is in force, their declarations provide perhaps a warning that, for all the talk of an orderly exit from the agreement, countries may be champing at the bit to pump more and earn more.

Wednesday 14 February 2018 08 BUSINESS DAY C002D5556 WEST AFRICA ENERGY intelligence In association with Oil prices may force early review of supply cap deal talking points ISAAC ANYAOGU Oil prices tumbled from a high of $70 per barrel two weeks ago, falling below $60 a barrel last week Friday, the first time this year, and its worst performance in recent weeks, raising concern that OPEC and non-members may review their supply cap deal which saw about 1.8million barrels per day (bpd) excised from global output. US and Brent crude futures have slid more than 11 percent from this year’s peak in late January. Brent fell nearly 9 percent for the week while US crude dropped 10 percent, the steepest weekly declines since January 2016. US West Texas Intermediate (WTI) crude settled down $1.95, or 3.2 percent, to $59.20, the lowest settlement since December 22. The session low for US crude was $58.07. Brent futures fell $2.02 a barrel, or 3.1 percent, to $62.79 a barrel, its lowest settlement since December 13. The slump below $60 on Friday was on account of record US oil production raising inventories. US crude producers pumped out an average 9.3 million barrels a day in 2017 and will average 10.6 million this year, according to a US Energy Information Administration report last week. Time was when the US was a fringe player in the global oil market, now when it coughs, oil markets catch cold. Alexander Dyukov, Gazprom Neft chief executive said on Friday that an adjustment of the global oil production cut deal between OPEC and some non-OPEC members, including Russia, was possible in the second quarter of 2018 according to a Reuters report. Dyukov also said that the global oil market was close to the balancing point and hoped that the countries would rather agree to increase production, not to cut more. Russia has cut its oil production by over 300,000 barrels per day under the deal. Rebalancing of the oil market is good news for producers, especially those whose economies relies heavily on oil income. Libya’s oil production averaged more than 1 million bpd in January, the first time since July 2013, according to data provider Genscape, an oil industry intelligence group. In January, Libya pumped 1.083 million bpd of crude oil, and 1.133 million of total liquids. Analysts at Genscape further said that the African country’s oil production monitoring showed that oil fields in the country appeared to operate relatively consistently in January, without steep, significant dips below the average production levels due to weather or pipeline attacks. This indicates that the country may be turning the corner from many years of civil strife which constrained more than 600,000 bpd from the country’s production before the 2011 uprising which toppled its leader. Libya’s normal production was 1.6 million bpd. After the main fields and oil export terminals in Libya re-opened in 2017, production started to increase, and together with Nigeria’s recovering oil production and US shale resurgence, was offsetting part of the OPEC cuts and depressed oil prices for much of 2017. Libya’s production topped 1 million bpd in July 2017, but the country has struggled to maintain that level consistently for a month Nigeria too is keen to raise badly needed revenue to pay cash call debt arrears with its joint venture partners and complete infrastructure projects. The country is keen to pump more and cannot wait to exit the supply cap. The monthly survey of S&P Global Platts, one of OPEC’s secondary sources, showed this week that Libya’s oil production averaged 980,000 bpd in January, flat compared to December. Libya and Nigeria together exceeded their combined 2.8-million-bpd cap under the OPEC deal, according to a survey by Oil price. The implication of this scenario is that OPEC and its non-members in the pact to impose cuts on production may review the agreement earlier than they had anticipated. The decision from the last meeting in January was to keep cuts till 2018 but the mood of the market may force an early review.

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