The diplomatic breakthrough on the Korean Peninsula

Volf
FRO 28.04.2018 kl 09:46 1595

Friday, April 27th 2018

The diplomatic breakthrough on the Korean Peninsula is taking away one source of geopolitical risk, at least for now, with oil prices dipping in early trading on Friday.

Libya oil exports resume at Es Sider. After a brief outage, Libya’s Es Sider export terminal resumed shipments. A pipeline suffered damage from an explosion last Saturday, leading to a temporary outage of 80,000 bpd, but the pipeline has since been repaired. Separately, Libya’s eastern military leader, Khalifa Haftar, returned to the country after a hiatus in France for medical treatment. His absence fueled speculation about a return to instability, which threatened new oil supply disruptions.

China’s refinery maintenance. At least six state-owned and private oil refineries will shut down in May and June for maintenance. The pause could result in a 10 percent decline in refinery runs, or about 1.09 million barrels per day, which could temporarily hit China’s demand for crude oil imports.

Oil majors post strongest quarterly earnings in four years. First quarter earnings began coming out this week from the oil majors, most of whom are posting the largest profits in years. Statoil (NYSE: STO), Royal Dutch Shell (NYSE: RDS.A), Total SA (NYSE: TOT) and ExxonMobil (NYSE: XOM) all reported their strongest figures since before the oil market downturn began in 2014. All are making more money with oil at $65 to $70 today than they were in the pre-2014 environment in which oil topped $100 per barrel.

Shell greenlights Vito Gulf of Mexico project. Royal Dutch Shell (NYSE: RDS.A) announced the final investment decision for the Vito project, a deep-water offshore development in the Gulf of Mexico. The Anglo-Dutch oil major said the project has a breakeven price of about $35 per barrel and will produce 100,000 bpd at its peak. The project is expected to begin producing in 2021.

Trump squeezed between Big Corn and Big Oil. The Trump administration has repeatedly found itself caught in the fight between the oil refining and the corn ethanol industries, industries that are battling over the renewable fuels standard (RFS) and how much ethanol refiners are required to blend into their fuel mixes. Refiners are demanding changes to the rule that requires 10 percent ethanol, asking for a rollback. The ethanol industry is digging in its heels. The EPA has granted exemptions to a growing number of refiners, which is giving more urgency to the debate because it is undermining the ethanol market. Trump is caught between the two sides and has tried to avoid making a decision over fears of alienating one of these constituencies.

Chevron evacuates staff from Venezuela. Chevron (NYSE: CVX) has come under fire in Venezuela after two of its workers were detained by Venezuelan authorities. That prompted an evacuation of high level company officials from the country this week, raising questions about the longevity of the oil major’s operations there. The matter is of utmost important as Chevron and other joint venture partners have been critical in keeping Venezuela’s oil production from falling faster than it already has. But the attack by the Venezuelan government on Chevron threatens to make a bad situation much worse.

PDVSA ordered to pay ConocoPhillips $2 billion. An international arbitration court ruled that Venezuela’s PDVSA must reimburse ConocoPhillips (NYSE: COP) $2 billion related to the early dissolution of their joint venture in 2007. The government of the late Hugo Chavez expropriated Conoco’s oil assets in the country, leading to Conoco’s withdrawal from the country. The arbitration decision would seem to bind PDVSA to paying Conoco, but there is no way to enforce the decision. Conoco had been seeking $22 billion in damages.

Japan begins purchasing U.S. LNG. As Dominion Energy’s (NYSE: D) Cove Point LNG export terminal comes online, LNG shipments are beginning to head to Japan, which will be “the first of many,” according to the U.S. Embassy in Tokyo.

Macron wraps up U.S. trip, but survival of Iran deal in doubt. French President Emmanuel Macron made an aggressive pitch to President Trump to stick with the Iran deal. Despite the bromance and despite comments about some sort of “new deal” with Iran, Macron admitted to the press that he thinks Trump will still abandon the accord ahead of the May 12 deadline. The decision has enormous implications for Iranian oil supply, and thus, the trajectory of oil prices for the rest of this year and beyond. Iran, for its part, said there is no “Plan B” to the existing accord, and that “it’s either all or nothing.” Meanwhile, Bloomberg reports that some oil traders are already steering clear of Iranian oil contracts valid after May 12. Estimates from FGE and Gunvor SA say that 500,000 bpd of Iranian oil could be at risk this year because of U.S. sanctions.

Yemeni attacks on Saudi oil assets increasing. In response to the heavy bombardment from Saudi air strikes, Yemeni rebels have stepped up missile attacks on Saudi oil assets, although without much success to date. On Monday, Houthi rebels fired missiles at a Saudi oil port near the Yemen border. The missiles were intercepted, but the increased attacks raise the prospect of some sort of damage to Saudi oil infrastructure. For now, this is having no effect on supply, but a successful attack would add a significant risk premium to oil prices. “Yemen is one part of the resurgent fear factor in the market,” said Helima Croft, head of global commodity strategy for RBC Capital Markets, according to the WSJ.

Canadian oil producers could get some relief from rail. Canadian oil producers, slammed by the lack of pipeline capacity, could make concessions to the rail industry to gain more access to Canadian railways. Rail companies typically demand long-term contracts, a practice oil producers find too restrictive. But, because the pipeline problem has grown more acute without any prospect of relief in the short run, producers are warming up to the idea of moving more oil by rail. Deals signed this year could have a longer duration than previous agreements and they could contain obligations for oil companies to pay for rail capacity even if it goes unused, according to Cenovus Energy (NYSE: CVE). “I’m really confident that as we move into the second half of the year and into the first half of 2019, we’re going to be seeing very material volumes of oil moving by rail,” Alex Pourbaix, CEO of Cenovus Energy, said on a call with analysts Wednesday.
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Volf
28.04.2018 kl 09:48 1584

Global Energy Advisory – 27th April 2018
WTI could jump to $75 a barrel if President Trump reimposes sanctions on Iran on May 12. That’s the deadline for a sanction waiver that Trump has said he will not extend unless the United States’ partners in the Iran nuclear deal from Western Europe come up with a better deal.

Judging by price movements over the last week, it seems the market is leaning towards new sanctions and generally fails to recognize Trump’s penchant for bringing things to a fever pitch and then letting the air out. Despite a surprise build of 2.2 million barrels in U.S. crude oil inventories in the week to April 20, prices did not lose any of their earlier gains made on the back of rising tension between the U.S. and Iran. They also remained largely unresponsive towards yet another record-breaking week in production: the EIA said U.S. drillers produced 10.586 million barrels of oil daily last week.

However, if we are to believe French President Emmanuel Macron, Trump might get his new deal: his European partners are currently working on a revision of the original 2015 deal that seeks to address Trump’s concerns, Macron said.

Should Trump approve the revised deal, prices might fall as this would be the less expected outcome of the situation. By how much they would fall, however, remains unclear. If trump rejects the revised deal, WTI at $75 is a possibility, especially since Iran has indicated it will not leave such a blow unanswered. Tehran has not gone into any details as to what its retaliation to new sanctions would be but any further flare-up of conflicts in the Middle East is invariably positive for prices and this will be no exception.

Deals, Mergers & Acquisitions

• Brazil’s Petrobras is mulling over the sale of its 60% interest in four refineries, retaining a minority stake in each. The refineries are divided into two downstream blocks, one in the Northeast and one in the Southeast, and will reduce Petrobras’ share in Brazil’s refining industry to 75%. The state-owned giant will keep its majority holdings in its nine other refineries.

• Petrobras separately said that it has received three binding offers for its 90% stake in gas pipeline network operator TAG. The bidders are French utility Engie, UAE’s sovereign wealth fund Mubadala Development Co., and a consortium led by Australian Macquarie Group. At least one of the offers could be worth $7 billion, according to sources close to the tender.

• Norway’s offshore oilfield services provider Subsea 7 has offered $2 billion for sector player McDermott. Shareholders in the U.S. company are due to vote on another offer next week and the board has rejected the Norwegian company’s bid but Subsea 7 has signaled it is ready to raise the offer if the target company suggests any additional benefits from the deal as it is now. McDermott’s board has recommended the rival bid, by Chicago Bridge & Iron.

• Petrofac has struck a deal with Shanghai Zhenhua Heavy Industries Co Ltd to sell the Chinese company an offshore construction vessel as part of efforts to slim down its debt load. The deal is valued at $190 million with the buyer throwing in a 10% stake for Petrofac in a special purpose company that will own the vessel after the deal is completed.

• Shell ash sold its downstream business in Argentina for $950 million to Brazilian Raizen Combustiveis, a joint venture of Shell and another Brazilian company, Cosan SA Industria e Comercio. After the acquisition, the buyer will expand its market share in Argentine fuel distribution to 20%.

Tenders, Auctions & Contracts

• Iraq has received more than 90 bids for the construction of a new oil pipeline from the Kirkuk fields to the border with Turkey. The tender should be finalized by the middle of the year, according to Energy Minister Jabar al-Luaibi. The new pipeline will replace a badly damaged section of the Kirkuk-Ceyhan pipeline—the only pipeline carrying northern Iraqi crude to Turkey.

• Algeria’s state energy company Sonatrach is negotiating the development of an oil field in Iraq, Nassiriya, which holds an estimated 4 billion barrels of crude. The field’s development plans also include the construction of a 300,000-bpd refinery. Last month, Iraqi media reported that France’s Total is interested in bidding for the construction of the refinery’s first phase, with a capacity of 150,000 bpd.

• Mexico's National Hydrocarbon Commission (CNH) launched Thursday an auction to farm out seven onshore clusters under Pemex's control in a bid to help the state oil company find financial resources and technical support to halt a sharp drop in production from the areas.

Discovery & Development

• Lukoil has launched production at a natural gas processing plant in Uzbekistan, which will export its output to China. The facility has an annual capacity of 8 billion cubic meters, which also constituted Lukoil’s total gas production in Uzbekistan last year. By 2020, the Russian company plans to double this to 16 billion cubic meters annually. Separately, state-owned Uzbekneftegaz’s chief Alisher Sultanov said the central Asian country had contracts for exporting 6 billion cubic meters of Russian and 10 billion cubic meters of local gas to China annually.

• The Netherlands has become a net importer of natural gas because of the planned phase-out of the largest gas field in Eastern Europe, Groningen. Groningen is scheduled to be completely shut down soon because of earthquakes that have been rising in frequency and whose source has been shown to be gas extraction from Groningen. This is the first time the Netherlands imports more than it exports since the 1950s.

• Nova Scotia’s regulatory authorities have greenlit BP Canada’s plans to drill an offshore well as part of its Scotian Basin Exploration project. The project will involve the drilling of a total seven wells over three years. The province hopes an oil discovery during the project would help its economy, although no details about resources in place have been revealed.

• UK E&P Savannah Petroleum has struck oil in Niger, from the onshore Bushiya-1 exploration well. The company has not yet estimated the reserves contained in the deposit but will continue drilling in the R3/R4 PSC area, located in southeastern Niger. Niger’s total daily production of crude oil is about 10,000 bpd.

Company News

• Hess reported a net loss of $106 million for the first quarter of the year, down from $324 million a year earlier and lower than analysts had expected.

• Schlumberger booked an 88% annual increase in net profit for Q1 2018, at 525 million, with cash flow from operations coming in at $568 million.

• Halliburton reported net income of $46 million for January-March 2018, swinging back into black from a loss of $32 million for the first quarter of 2017.

• Shell booked a 42% annual increase in Q1 profits to $5.32 billion, also beating analyst expectations of $5.28 billion.

• French Total’s net profit for the first quarter came in at $2.9 billion, versus analyst expectations of $2.77 billion thanks to its highest-ever quarterly production, which averaged 2.073 million bpd.

Politics, Geopolitics & Conflict

• Israel’s Defense Minister Avigdor Lieberman has threatened an Israeli strike against Tehran in case Iran attacks Israel. Tensions between the two have flared up in Syria.

• Macron’s draft revision of the Iran nuclear deal will leave the current stipulations in place and add several more to appease an agitated Donald Trump, a German government official has told media without providing any further details.

• The Syrian army has entered a Damascus district held by the Islamic State and, according to reports from rebel groups, has ordered the groups to surrender areas with an IS presence.