BusinessDay 28 Mar 2018

Wednesday 28 March 2018
marketinsight
Oil prices find support in trade
talks and Mideast tensions
Crude oil futures
steadied with
support by a
rebound in
stock markets
and escalating Saudi-Iran
tensions.
Global stocks came
off six-week lows on optimism
that the United
States and China are set
to begin trade talks, easing
Energy major Shell
has upgraded the
targets for its oil
refinery Armin
fears about a trade war between
the world’s two largest
economies.
The possibility of a
full-blown trade war had
weighed on the energy
complex on fears that it
could harm oil demand.
Brent crude futures
were up 9 cents at $70.54 a
barrel while US West Texas
Intermediate (WTI) crude
the medium term and
underlined the important
role that its refining, trading,
marketing and chem-
futures eased 5 cents to
$65.83.
US President Donald
Trump last week signed a
memorandum that could
impose tariffs on up to
$60 billion of imports from
China.
The market also found
support from rising Middle
East tensions. Saudi air
defences shot down sev-
en ballistic missiles fired
by Yemen’s Iran-aligned
Houthi militia, some of
which targeted Saudi capital
Riyadh.
Beyond trade concerns,
crude was pressured by a
rise in the number of active
US oil rigs to a threeyear
high of 804, implying
further rises in production.
In Asia, Shanghai crude
oil futures made a strong
debut in terms of volume
as investors and commodity
merchants bought into
the world’s newest financial
oil trading instrument.
Hedge funds and other
money managers raised
their net long US crude
futures and options positions
in the week to March
20 after two weeks of cutting
bullish bets, the US
Commodity Futures Trading
Commission (CFTC)
said.
Shell sees strong growth in downstream oil beyond 2020
icals business will play in
the coming decades.
The Anglo-Dutch company
plans to invest $7-9
billion a year across its
downstream, and to deliver
a return on average
capital employed above
15 percent as it looks to
transform its business to
meet what it described as
the global shift to a lowercarbon
energy system.
Shell said it is aiming
to generate strong free
cash flows while boosting
Shell’s resilience in the
longer term.
“We are making products
from today’s technologies
as good as they
can be, with better fuels
and lubricants. We are
also helping to deliver
tomorrow’s products, services
and technologies.
From battery-electric
vehicle charging to nextgeneration
biofuels; LNG
for transport to hydrogen;
and smartphone apps
that enable more efficient
driving,” said Shell downstream
director John Abbott.
Shell reiterated its expectation
of $6-7 billion
annual organic free cash
flow from downstream
by 2020, at $60/b and
mid-cycle downstream
conditions, with $9-12
billion expected by 2025.
The 2020 guidance is in
line with the numbers at
Shell’s November presentation,
while the 2025
figures suggest further
growth into the next decade.
Shell’s downstream
business has been pivotal
during the oil industry’s
downturn since 2014,
providing a significant
revenue stream as the
price of crude collapsed
to below $30/b.
C002D5556
OPEC Flakes
Compliance with
a global deal to
cut oil supply
hit a new high in
February and an inventory
glut is shrinking fast,
a joint OPEC and non-
OPEC committee said,
bringing producers close
to the pact’s original aim.
OPEC and its allies
achieved 138 percent of
pledged output reductions
last month, OPEC
said, up from 133 percent
in January and the highest
since the deal aimed
at clearing a glut began in
January 2017.
The Organization of
the Petroleum Exporting
Countries, Russia and
other non-OPEC producers
have extended
the pact until the end of
2018, even though OPEC
sources say the market is
now expected to balance
between the second and
third quarters.
A rapidly shrinking
glut will fuel debate over
how long the curbs need
BUSINESS DAY
OPEC supply cut
compliance hits record
07
WEST AFRICA
ENERGY intelligence
OPEC, Russia
and the other
participants in
a production
cut agreement should
stop talking about any
expiration dates for the
deal, so that they can
maintain flexibility on
when to exit it, Vagit Alekperov,
Lukoil CEO said.
“I believe no timeframes
are needed,”
Alekperov said at the
company’s Investor Day
in London, adding that
“the deal’s participants
need to see how the marto
be in place, although
top exporter Saudi Arabia
has said it is too early
to discuss an exit strategy.
A ministerial panel
meets to review the deal
in April.
“The committee
stressed that all participating
countries should
strive to achieve or exceed
full conformity with
their voluntary production
adjustments,” the
OPEC statement said.
“February continued
the accelerated rebalancing
path witnessed in recent
months.”
‘OPEC coalition’s production cut deal
should have no time frames’
ket will react, to see firstly
on stocks and how the
market will react on the
demand increase and
then react flexibly, to increase
or cut output.”
The deal calls on
OPEC and 10 non-OPEC
producers led by Russia
to cut a combined 1.8
million b/d in output to
support oil prices and
rebalance the market.
The agreement went into
force in January 2017 and
was extended at the last
OPEC meeting through
the end of 2018.
OPEC officials are
currently drafting a document
that would institutionalize
their market
engagement with Russia
and the other deal participants,
though they
have offered no specifics
on what such a pact
would entail.