Category Archives: Oil

(CNBC) Oil buyers must cut all Iranian crude imports by November, State Dept says

(CNBC)

  • Companies that buy Iranian crude oil must completely cut those exports by the start of November, a senior State Department official told CNBC.
  • That indicates the Trump administration will not allow countries to gradually phase out Iranian crude exports over many months, as the Obama White House allowed.
  • Oil prices spiked following the announcement, which comes at a time when oil markets are finely balanced and crude futures have recently hit 3½-year highs.

Oil buyers have to cut Iranian crude imports by November, a U.S. State official says  

Companies that buy Iranian crude oil must completely cut those exports by the start of November or else they will face powerful U.S. sanctions, a senior State Department official told reporters on Tuesday.

The State Department has conveyed that message to European diplomats in recent talks, the official said. The Trump administration has not yet held talks with China, India or Turkey about their purchases of Iranian crude, but it intends to pressure them to entirely cut their imports under threat of sanctions, the official added.

Oil prices spiked following the announcement, which indicates that President Donald Trump will not follow the Obama administration model of allowing countries to gradually phase out Iranian crude exports over many months. The hardline approach comes at a time when oil markets are finely balanced and crude prices have recently hit 3½-year highs.

Iran, OPEC’s third biggest oil producer, exports more than 2 million barrels a day. OPEC and other oil producers including Russia agreed last week to ease production caps that have been in place for 18 months in order to prevent prices from spiking as Venezuela’s output continues to sink and the U.S. sanctions on Iran’s exports loom.

President Donald Trump withdrew the United States from the Iran nuclear deal in May to pursue a maximum pressure campaign. At the time, his administration gave foreign companies either 90 or 180 days to wind down their business with Iranian counterparts, depending on the type of commercial activity.

A crucial question was whether the Trump administration would follow the model President Barack Obama put in place. His administration asked buyers to cut their imports of Iranian crude by 20 percent every 180 days when it ramped up its pressure campaign against Iran.

Oil hits 1-month high on Iran sanctions

Oil hits 1-month high on Iran sanctions  

If Trump followed the same model, that could have pushed the impact into the first half of 2019, according to RBC Capital Markets. But the State Department confirmed on Tuesday that Iranian crude buyers should be reducing purchases now, with the goal of zeroing out their purchases by Nov. 4, the 180-day mark from Trump’s nuclear deal pullout and the renewal of U.S. sanctions.

“That is why we’ve offered this window since May 8, as sort of a drawdown period,” the senior State Department official said.

The United States was able to quickly cut Iran’s shipments under Obama, largely because it had the support of its European allies. European countries imposed their own sanctions on Iranian crude exports, which wiped out the Continent’s purchases in about six months.

In contrast, Britain, France, Germany and the wider European Union have voiced strong opposition to Trump’s pullout and put in place measures designed to protect their companies from so-called secondary sanctions. Those secondary sanctions punish companies that engaged in sanctioned business with Iranian entities, threatening to lock them out of the massive U.S. market and isolate them from the international financial system.

The State Department official said diplomats have been in Europe garnering support for the U.S. position among the EU3, isolating streams of Iranian funding and highlighting “the totality of Iran’s malign behavior across the region.”

“On the diplomatic front, we have had secondary sanctions in place in Iran since 1996,” the official said. “These are discussions we are extremely used to having. We have a lot of diplomatic muscle memory” for urging partners to cut Iranian oil purchases.

To be sure, the United States has had secondary sanctions on the book for more than 20 years, but Presidents Bill Clinton and George W. Bush chose not to enforce them for fear of sparking a diplomatic crisis and trade war with Europe.

The 2015 Iran nuclear deal lifted sanctions on Iran in exchanged for its leaders in Tehran accepting limits on its nuclear program and allowing inspectors into its atomic facilities. The Trump administration left the deal after failing to reach an agreement with European partners over expanding the conditions to include limiting Iran’s ballistic missile program, addressing its role in Middle East conflicts and extending key parts of the accord that begin to expire in 2025.

The administration does not expect to grant any waivers to companies that purchase Iranian oil or invest in its energy industry, the official said.

(BBG) Oil-Sands Outage Upends Global Oil Market, Overshadowing OPEC

(BBG) The shutdown of a key oil-sands facility in Canada is flipping the global oil market on its head and slamming shares of producers that depend on the plant.

Just as OPEC and allied producers agreed to pour more oil into global markets, a transformer blast first reported by Bloomberg News last week cut power to Alberta’s giant Syncrude plant, which turns heavy crude into synthetic light oil for U.S. markets.

As less oil flows from up north, traders are paying a record premium for crude at America’s biggest distribution hub in Cushing, Oklahoma. Globally, the gap between Brent crude and West Texas Intermediate is narrowing rapidly after widening for months. Goldman Sachs Group Inc. called the shutdown the most dramatic event in the oil market last week, as opposed to OPEC’s meeting in Vienna. Shares of Suncor Energy Inc., which controls the plant, plunged the most in more than two years.

“Syncrude is very important. It’s one of the longest-standing and longest-lifespan systems going,” said Tim Pickering, founder and chief investment officer at Auspice Capital Advisors. “So having those barrels off, which are considered base barrels for the system, is fairly impactful.’’

The 350,000-barrel-a-day facility, one of the biggest of its kind in the world, is going to be out of commission until the end of July, the company said.

The expected shortfall in supplies follows five straight weeks of shrinking inventories at Cushing, the delivery point for WTI contracts. The price for the U.S. benchmark for immediate delivery at the hub, which is typically equal to futures on the New York Mercantile Exchange or just a few cents different, surged to an unprecedented $5.75 a barrel more on Monday.

The disruption is helping set the U.S. apart from the rest of the world and intensifying a U-turn in the dynamics of the global market.

While Saudi Arabia’s push to make sure OPEC boosts supplies by close to 1 million barrels a day is strongly weighing down on Brent crude futures in London, the shortage in Canada is supporting U.S. prices. That’s helping narrow the gap between the two benchmarks, reversing months of widening when the focus was on record production from shale fields. It has global implications because the premium helps buyers around the world decide whether to ship crude from the U.S. or elsewhere.

Brent traded at less than $8 dollars above WTI on Monday, compared with almost $12 just two weeks ago.

In Canada, the outage is pummeling shares of Suncor, which owns a 59 percent stake in the operation. Having the facility down through July could cut Suncor’s third-quarter production to about 770,000 barrels a day, short of the 812,000-barrel analyst consensus, Tudor Pickering Holt analysts said in a note.

Suncor slid as much as 4.6 percent to C$50.88 in Toronto, the biggest intraday decline since February 2016. Imperial Oil Ltd., which owns 25 percent of Syncrude, slid as much as 1.5 percent. The remainder of the operation is owned by China Petroleum & Chemical Corp., which holds 9 percent, and CNOOC Ltd.’s Nexen, which owns about 7 percent.

Last week’s outage is just the latest mishap at Canada’s second-oldest oil-sands mine, which started operation in the mid-1970s and has faced reliability issues in recent years. The plant last month underwent scheduled maintenance that took longer than expected.

“If you consider how vast these operations are, you’re going to have these things happen from time to time,” Pickering said. “It just shows you how on-the-margin the system is.’’

(BBG) Iran Can Block OPEC Agreement, Yet Saudi Arabia Can Bypass Veto

(BBG) Bloomberg’s Annemarie Hordern reports on OPEC’s upcoming meeting.

Even with Iran threatening to block an increase in OPEC’s oil production, Saudi Arabia still has options.

Tehran says it has Iraqi and Venezuelan support to veto any proposal for more output, a position taken by both Saudi Arabia and Russia. “If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity,” Hossein Kazempour Ardebili, Iran’s OPEC representative, said on Sunday, before the group meets in Vienna on Friday.

The statute of the Organization of Petroleum Exporting Countries does indeed give any member the right to block any deal, under Article 11 C:

“Each Full Member Country shall have one vote. All decisions of

the Conference, other than on procedural matters, shall require

the unanimous agreement of all Full Members.”

Yet Saudi Arabia can still bypass a veto. First, it can block any formal OPEC-wide communique. Then, it can gather a coalition of supporters within the group and publish its own statement, which could outline a new production policy.

That’s exactly what happened 18 years ago, when Iran rejected a Saudi-backed plan to boost output. Back then, eight countries joined the Saudis, resulting in an OPEC-9 communique that excluded Iran and Iraq.

Saudi Arabia may not choose that option this time. Unless it has backing from beyond its core supporters within OPEC, traditionally Kuwait and the United Arab Emirates, it risks appearing isolated.

That leaves the option of no communique at all. That happened in 2011 when then-Saudi Oil Minister Ali Al-Naimi walked out, saying the group had “one of the worst meetings we have ever had”. Within hours, the Saudis set their own policy unilaterally.

Another option for the Saudis is to accept defeat on a formal production increase, but start cheating on output quotas. While that would also be in line with OPEC tradition, it would be a first for Saudi Oil Minister Khalid Al-Falih, who has stuck scrupulously to the agreements.

Iran acknowledged that both Saudi Arabia and Russia, which is part of the wider OPEC+ agreement, can bypass a veto, but warned that any such move would lead to the disintegration of the 2016 deal that has helped oil prices to more than double.

“If the two want to act alone, that’s a breach of the cooperation agreement,” Kazempour Ardebili said. “The market is well-supplied, and OPEC should abide by its decision up to the end of the year.”

(CNBC) Oil prices are unlikely to increase as ‘sharply’ from now on, IEA says

(CNBC) The International Energy Agency (IEA) believes a recent spike in the oil price could soon start to ease, helping to alleviate concerns that surging prices could hurt demand and global economic growth.

“Prices are unlikely to increase as sharply as they did from mid-2017 onwards and thus the dampening effect on demand will be reduced,” the Paris–based organization said in its latest monthly report published Wednesday.

Rising oil prices have created question marks over the strength of demand, but the IEA left its oil demand growth forecast for 2019 largely unchanged, at 1.4 million barrels a day (mb/d), similar to this year’s level.

However, it cautioned that there are possible downside risks to the demand outlook, including “the possibility of higher prices, a weakening of economic confidence, trade protectionism and a potential further strengthening of the U.S. dollar.”

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In terms of supply, the IEA revised upwards its estimate for 2018 non-OPEC production growth to 2 mb/d and said 2019 would also see what it called “bumper growth” of 1.7 mb/d. Most of that non-OPEC supply growth would come from the U.S., it said.

The IEA’s latest report comes amid uncertainty over the amount of oil production we can expect to see from major producers in coming months.

OPEC and non-OPEC producers including Russia are continuing with a deal to curb their supply, but the strategy is seen to have been effective with Brent and West Texas Intermediate (WTI) now trading around $75 and $66, respectively.

The OPEC and non-OPEC producers agreed back in November 2016 to curb supply in order to boost then-low oil prices. There are now fears that prices could rise steeply if supplies are disrupted from OPEC members Venezuela and Iran. The former is experiencing economic turmoil and the latter is facing a re-imposition of sanctions after the U.S. withdrawal from Iran’s nuclear deal.

What’s next for oil?

What’s next for oil?  

OPEC and non-OPEC producers are meeting in Vienna on June 22 to discuss the supply situation. The encounter could be fractious with arguments expected between producers over whether to increase production or maintain supply as it is — given rising prices and potential supply disruptions. There is also the specter of competition from U.S. shale oil producers and a reluctance to cede more market share to them.

Saudi Arabia and Russia are reportedly ready to increase oil output, while others like Iran and Iraq are against such a move.

The IEA said that, for its part, it had looked at a scenario (not a forecast, it emphasized) that by the end of next year output from these two countries could be 1.5 mb/d lower than it is today.

It said Middle East OPEC producers could make up for the loss and increase production by about 1.1 mb/d. “And there could be more output from Russia on top of the increase already built into our 2019 non-OPEC supply numbers,” it added.

(Reuters) Portugal environment body OKs oil well off Alentejo coast

(Reuters) Portugal’s Environmental Agency gave its tacit approval on Wednesday to a consortium of Galp Energia and Italy’s ENI to drill an oil exploration well off the Alentejo region’s coast, a project that environmental activists are trying to block.

It would mark the resumption of drilling in Portugal after a long hiatus, with opponents arguing the risks outweigh the chances of finding any significant quantities of oil.

The agency said it had not identified any potentially significant negative effects on the environment from the planned deep-sea well, and would not order a specific study, which opponents of the project have been demanding.

Various local municipalities, politicians and activists have filed lawsuits and petitions to try and block oil exploration off the so-called Vicentine coast in Alentejo, which boasts beautiful beaches and a large natural park.

Several oil companies spudded a few dozen exploration wells in Portugal in the 20th century, but all were either dry or showed just traces of hydrocarbons. Drilling activity petered out in the early 2000s, although seismic studies have continued.

Portugal’s Galp and its partner at the time, Brazil’s Petrobras, won an exploration licence in 2007 for three blocks in the Alentejo basin. ENI bought Petrobras’ share in the blocks in 2014.

The consortium hopes to drill the well in the last quarter of 2018 after the government last January extended the exploration period for a year.

The Expresso newspaper said last month an internal study by the consortium pointed to potential oil reserves of up to 1.5 billion barrels in the area, but the companies would not publicly confirm such estimates, saying only they expected to find hydrocarbons based on seismic studies.

Climate Action Network (CAN) Europe last month named Portugal the winner of its 2018 European Fossil Fuel Subsidies anti-award for handing out the drilling licence near its protected biodiversity area and a tourism hotspot and wasting taxpayers’ money on supporting dirty energy.

P.O. (BBG) Japan Ship Takes ‘P.O. First of Many’ U.S. Gas Loads in Nod to Trump

P.O.
The US is now a net exporter of fossil fuels…
I forecasted this 4 years ago, and had a major argument with the Research Department of a Global Bank.
They would not agree with me.
I simply ignored them…
I was told a few months ago that none of them works in that bank anymore, nor in the industry for that matter…

FCMP

(BBG) The giant Japanese gas tanker LNG Sakura is doing its share to appease President Donald Trump’s frustration over trade with Asia.

The vessel with the largest spherical tanks in the liquefied natural gas industry is taking the first shipment from Dominion Energy Inc.’s Cove Point terminal in Maryland to the Asian nation. With a name that means cherry blossom, the ship can serve “as a symbol of friendship and goodwill between Japan and the United States,” according to co-owner Nippon Yusen KK.

The shipment is the “the first of many” as “US LNG will power millions of Japanese homes and businesses,” according to a post on Twitter from the U.S. embassy in Tokyo.

It’s an easy win for both countries.

For the Trump administration, which has been pushing for Asian purchases of America’s abundant shale gas supplies to reduce a trade imbalance, it suggests the pressure may be working. Japan, the largest buyer of LNG in the world, needs the fuel to meet power demand at its highest level since the 2011 Fukushima nuclear disaster. Most importantly, keeping good relations with the U.S., the largest buyer of its exports after China, is vital for Japan’s economy.

“There’s definitely been concern in the Japanese government about the Trump administration’s focus on trade deficits, so this may be a effort to demonstrate that Japan is working that issue,” said Jason Feer, global head of business intelligence at Poten & Partners. “It’s interesting the first Japanese-owned cargo from that facility is actually going to” that country.

Just a few weeks after the second U.S. gas export terminal started commercial service, LNG Sakura left the facility on April 22 and is headed for Japan, Hiromi Sato, a spokeswoman at the U.S. embassy in Tokyo, said in an email late on Tuesday.

Although Asian nations are signing multiple long-term contracts with U.S. LNG exporters, there is uncertainty over how much they would actually import themselves rather than sell to the global market’s highest bidder. The latter case wouldn’t help reduce deficits with the U.S., so confirmation that LNG Sakura’s load is a Japanese import comes as a good sign of cooperation to avoid a pending trade war.

During Japanese Prime Minister Shinzo Abe’s visit to the White House this month, he and Trump announced a new trade dialogue.

Shale gas sent from U.S. fields is expected to rival Australia and Qatar for worldwide dominance in the next five years as three more export terminals may open on the Gulf Coast by 2019.

Japan is already the fifth largest importer of U.S. LNG, having bought 20 cargoes as of April 18 from Cheniere’s Sabine Pass since it started liquefying the fuel in 2016. Dominion’s Cove Point has agreements to sell gas to a joint venture of Sumitomo Corp. and Tokyo Gas Co., but those cargoes could be resold in transit.

Kansai Electric Power Co. is the beneficial owner of Sakura, with 70 percent. NYK owns the remaining stake in the vessel.

+++ V.I. (BBG) OPEC Can Live With Tweets So Long as Venezuela Worsens: Gadfly

(BBG) Pushing oil prices higher is risky when the cartel no longer holds all the cards.

Mine, for what it’s worth, would have something to do with the fact that gasoline is already north of $3 a gallon in Washington, D.C., and the sun only just came out on the East Coast after a winter worthy of Game of Thrones. The prospect of an even more expensive summer driving season, leading into mid-term elections Republicans dread already, merits one or two angry tweets at least.

And while there are, of course, hundreds of thousands of Americans employed in producing oil and gas, their ranks pale somewhat against more than 212 million licensed drivers, most of whom can also vote.

In any case, the president is right in one respect: Oil prices are artificially high. That’s what restrictive commodity agreements are for. Indeed, one almost has to admire the chutzpah of OPEC ministers pushing back on the president’s assertion on Friday … on the sidelines of a meeting where they decided to continue holding barrels off the market to support prices.

OPEC, and in particular its de facto leader Saudi Arabia, is playing a risky game here by pushing for even higher oil prices (see this). And that’s partly because the Middle East no longer holds all of the wild cards in the global oil game. Washington’s unpredictability is a bigger factor than it used to be.

The president isn’t likely to tweet about this, of course, but uncertainty about what will happen with the Iran nuclear agreement, for example, is one factor pushing up prices. Another is Venezuela.

It is shocking how much of OPEC’s success in clearing the glut of oil inventories is owed to the misery of one of its founding members. In March, compliance among the original 11 members who signed up for cuts in November 2016 was very high, at 170 percent. Within that, though, Venezuela’s was more than 600 percent.

The real story lies in the cumulative numbers.

In theory, these 11 countries should have collectively withheld about 530 million barrels from the market from January 2017 through the end of last month, of which Venezuela should have accounted for about 8 percent. According to OPEC’s figures, however, they actually withheld 599 million barrels; and Venezuela was responsible for more than 17 percent of that bigger amount.

The past six months or so clearly marked a tipping point, coinciding with the rally in oil prices.

In absolute terms, Saudi Arabia has cut more barrels than any other member versus its baseline output — as you would expect of the largest producer by far. What is really striking, however, is the comparison of absolute outperformance; that is, how many extra barrels OPEC members have withheld over and above their targets. On that measure, Venezuela has actually moved into the, er, number one slot:

Despite Venezuela’s production having dropped by almost 550,000 barrels a day since the end of 2016, it could easily keep going down.

And one big catalyst for that could be, you guessed it, tougher sanctions from Washington. These look likely given the extreme unlikelihood of fair elections in Venezuela next month. It’s not clear what form sanctions might take. But the elevation of hawks such as John Bolton and Mike Pompeo in the Trump administration suggests harsher options, such as banning U.S. imports of Venezuelan crude oil altogether, could be on the table.

As ClearView Energy Partners rightly pointed out in a recent report, such a ban might simply shift those barrels elsewhere rather than take them off the market completely — albeit likely at a discount. Still, further revenue reductions would exacerbate Venezuela’s economic pain, serving to undermine the prospects for oil production, too.

As for the president’s tweet, there’s no telling how that factors into what happens. It might betray discomfort with the idea of doing anything to push pump prices even higher over the summer. Equally, it could just be preemptive finger-pointing to direct drivers’ anger elsewhere. And, equally, it may not add up to anything substantive at all.

What is clear is that supply squeezes, both planned and unplanned, are now an essential element of the oil rally. That’s why OPEC can’t bring itself to end its cuts, and also why it risks alienating consumers everywhere, not just on Pennsylvania Avenue.

+++ (BBG) Bahrain Shale Find Should Put Oil Market on Notice: Robin Mills

(BBG) Bahrain discovered the first oil on the Arab side of the Gulf in 1932. It took a long time for the small island to find anything of similar significance, but its recent announcement of an enormous shale oil resource under its shallow waters should not be underestimated: Commercial offshore shale oil production would be a first for the worldwide industry.

Perhaps more significant is that this discovery has the potential to boost Middle East output, while raising the odds that shale oil production outside the U.S. and Canada finally takes off. The Middle East has the advantages of good geology, existing petroleum infrastructure, and a lack of environmental or community opposition. To be sure, local producers will have to offer attractive terms to international investors to compensate for the higher costs and technical risks than their conventional fields, source fresh-water or use other hydraulic fracturing technologies, and develop or bring in service companies skilled in unconventional resources. But given that U.S. shale specialists have tended to stay at home, the Bahrain find offers interesting possibilities for large international oil companies as partners.

Given their proximity, the newfound resources probably stretch into Saudi and perhaps Qatari waters. Saudi Arabia, with its own first find the Dammam field, lies just 25 kilometers (15.5 miles) to the west of Bahrain, the countries linked by the King Fahd Causeway. Some 20 kilometers to the southeast is Qatar. Though a holder of the world’s third-largest gas reserves, Doha’s mature oil production is slowly declining. Shale production could give it a boost if it’s able to sidestep the obstacles posed by an embargo imposed by Bahrain, Saudi Arabia and the U.A.E. since June.

Halliburton said the resources found by Bahrain were on the “edge of the conventional-unconventional type of plays,” and it sounds somewhat like the famous Bakken of North Dakota. The mid-case estimate is for 81.5 billion barrels of oil and 13.7 trillion cubic feet of gas. Based on U.S. production numbers, five to 10 percent of the oil might be recoverable. Good flow-rates will be needed to compensate for the higher cost of offshore wells, although it might be possible to reach at least some of the resources by horizontal drilling from onshore sites, or artificially-dredged islands.

The main Middle East producers, such as Saudi Arabia, Iran, Iraq and Abu Dhabi, will not turn immediately to shale oil because of their giant, low-cost conventional resources. But several of them need new gas supplies. And shale oil is of great interest for the region’s more mature conventional producers — Oman, Qatar and Egypt — as well as for non-producing Jordan. If the current OPEC/non-OPEC pact endures, shale oil will dim the prospects for the smaller Middle East producers’ continuing adherence.

Saudi Arabia has been seeking to develop shale gas for some time, with production starting in its remote northwest. Saudi Aramco’s general manager of unconventional resources, Khalid Al Abdulqader, said in March that the Jurassic source rocks in the Jafurah Basin, which lies between the world’s biggest oil field Ghawar to the west, the Gulf to the east and Bahrain to the north, were similar in quantity and quality to Texas’s famous Eagle Ford shale, which is estimated to hold 12 billion barrels of recoverable oil and 122 trillion cubic feet of recoverable gas.

Kuwait has already begun pilot projects in its northern Jurassic resources, containing light, tight oil and sour gas. Oman’s liquefied natural gas (LNG) export facilities have been running at full capacity this year for the first time since 2007 due to BP’s development of its Khazzan tight gas field. LNG exporters, including U.S. ones, hoping to tap the Middle East’s growing energy appetite have to contend with growing competition.

Bahrain intends first to appraise the discovery with the help of service companies including Schlumberger and Halliburton, which will drill two wells this year, and then to look for international partners. Shell has assisted with studies of LNG imports and is advising Kuwait on its unconventional Jurassic reservoirs. ENI, which has enjoyed recent success in deepwater Egyptian gas, held talks in Manama in May. Total, ExxonMobil and BP, all with large gas projects in the wider region, could also be candidates, as could Apache and Anadarko, which are experienced in North Africa.

+++ V.I. (BBG) Shell Says Saving Planet Probably Means Sucking CO2 From the Air

(Bloomberg) — Cutting emissions won’t be enough to keep
the planet from warming by more than 2 degrees Celsius: to
achieve that goal, according to Royal Dutch Shell Plc, will
require sucking carbon dioxide out of the atmosphere.
A scenario report from the Anglo-Dutch oil major describes
a world woefully unprepared to meet the goals set out in the
Paris Climate Agreement. Shell says that by 2060, carbon capture
and storage must exceed global emissions as the company sets a
course for pre-industrial pollution levels. For decades after,
such facilities would need to work at breakneck pace to inhale
the carbon dioxide spewed by previous generations.
That jars with the current reality where carbon capture and
storage technology is a commercial failure, with fewer than 50
active projects compared with the 10,000 needed under one of
Shell’s scenarios for attaining climate safety.
While Shell says the report isn’t a call to arms, but
merely analysis of what’s required to meet climate goals, it’s
still a robust statement for a company that depends on fossil
fuels. The oil major may hope that such aggressive scenario
modeling demonstrates the urgent need for a carbon price.
Along with its peers, Shell has proposed charging for
carbon emissions as a way to foster the type of progress modeled
in its report. Financial penalties for pollution would also
improve the economics of carbon capture and storage projects.
With many carbon capture projects reliant on injecting the
fluid into the ground, it’s a natural line of business for a
company with expertise in drilling and geology, and Shell
already has such facilities in at least three countries.

+++ (BBG) Oil Loses Steam as Fear Over U.S. Supply Returns to Haunt Prices

..In the cards…

(Bloomberg) — Oil held losses below $62 a barrel on
concerns that it may be facing a double whammy of rebounding
American stockpiles and booming U.S. production.
Futures were little changed, after dropping 1.1 percent on
Monday. The U.S. government expects major shale regions to boost
output by 131,000 barrels a day in April, spurring fears that
surging supplies will undermine OPEC’s efforts to clear a glut.
Sentiment is being soured further as U.S. inventories are
forecast to have risen for a third week.
Oil has struggled to recover losses from last month’s
broader market slump after climbing over $66 a barrel in
January. While there’s renewed confidence over demand on a
brighter economic outlook following a better-than-expected jobs
report in the U.S., expanding American production continues to
remain a challenge to the Organization of Petroleum Exporting
Countries and its allies including Russia that are trying to
prop up prices via output curbs.
“Currently, there’s downward pressure on oil prices with
concerns remaining over surging U.S. crude production,” Kim
Kwangrae, a commodities analyst at Samsung Futures Inc., said by
phone in Seoul. “Increasing output alone is a problem but, at
the same time, we have American stockpiles rebounding, which may
continue to challenge crude from recovering.”
West Texas Intermediate for April delivery traded at $61.24
a barrel on the New York Mercantile Exchange, down 12 cents at
4:39 p.m. in Seoul. The contract declined 68 cents to $61.36 on
Monday. Total volume traded was about 53 percent below the 100-
day average.
Brent for May settlement slipped 9 cents to $64.86 a barrel
on the London-based ICE Futures Europe exchange. The contract
dropped 54 cents, or 0.8 percent, to $64.95 on Monday. The
global benchmark traded at a $3.65 premium to May WTI.
See also: U.S. Oil Export Surge Means OPEC’s Output Cuts
May Be Doomed
Production from shale regions will reach 6.95 million
barrels a day next month, the U.S. Energy Information
Administration said in its monthly drilling productivity report.
The Permian Basin is seen leading the way with an 80,000-barrel
increase. Total American output has passed 10 million barrels a
day, beating a record set in 1970.
U.S. crude inventories probably expanded by 1.9 million
barrels in the week through March 9, according to a Bloomberg
survey before Energy Information Administration data on
Wednesday. Meanwhile, stockpiles at Cushing, Oklahoma, the
delivery point for WTI futures, are forecast to have been little
changed after 11 straight weeks of declines.
Oil-market news:
* Workers at Libya’s Zawiya oil export terminal started a strike
on Monday over delayed salary payments, according to people with
knowledge of the matter, who asked not to be identified because
they are not authorized to speak to media.
* Gasoline futures in New York are down 0.2 percent at $1.8894 a
gallon.

(BBG) One of the oldest oil fortunes weighs fossil fuel exit

(Bloomberg) — The guardian of one of the world’s first oil fortunes, made by striking exploration deals across the Middle East a century ago, said it’s holding talks about the sale of its investments in fossil fuels.

The Lisbon-based Calouste Gulbenkian Foundation said it received an offer for its Partex Oil & Gas unit. While the fortune is a shadow of its value in the 1950s-to-1970s — the heyday of Middle East oil exploration — the Partex assets were still worth $720 million at the end of December 2016, according to the unit’s accounts.

The talks come after Rockefeller family funds, whose wealth derives from the father of the U.S. oil industry and founder of what’s today ExxonMobil and Chevron Corp, sold their hydrocarbon investments in 2016.

The foundation guards the remains of a fortune made by Calouste Sarkis Gulbenkian, who brokered deals in the Middle East between oil companies and governments, and helped to write the so-called “Red Line Agreement” of 1928 that divided some of the region’s petroleum riches. Taking small stakes in the deals he helped to organize and with a holding in the Turkish Petroleum Co., which at the time controlled Iraqi oil, Gulbenkian was known as “Mr. Five Percent” and became one of the world’s richest men.

The potential sale of its investments in fossil fuels takes “into account a new energy matrix and its objectives in terms of sustainability, in line with the international move that other foundations are following,” the foundation said in an emailed statement on Friday. Fossil fuel investments represented about 18% of the foundation’s assets in 2017.

Oil interests

Partex holds stakes in concessions in Abu Dhabi and Oman, as well as in blocks in Brazil. The Gulbenkian Foundation didn’t name the parties it was talking to. Local newspaper Publico reported on Friday that CEFC of China is in talks with the foundation.

Calouste Gulbenkian, who was of Armenian origin, was born in the Ottoman Empire in 1869 and became a philanthropist and art collector before dying in Lisbon in 1955. The foundation hosts its own orchestra in the Portuguese capital and the founder’s art collection, which ranges from Egyptian antiquities to paintings by Rembrandt and Monet, according to its website.

 

(BBG) The Dark Side of America’s Rise to Oil Superpower

(BBG)  The last time U.S. drillers pumped 10 million barrels of crude a day, Richard Nixon was in the White House. The first oil crisis hadn’t yet scared Americans into buying Toyotas, and fracking was an experimental technique a handful of engineers were trying, with meager success, to popularize. It was 1970, and oil sold for $1.80 a barrel.

Almost five decades later, with oil hovering near $65 a barrel, daily U.S. crude output is about to hit the eight-digit mark again. It’s a significant milestone on the way to fulfilling a dream that a generation ago seemed far-fetched: By the end of the year, the U.S. may well be the world’s biggest oil producer. With that, America takes a big step toward energy independence.

The U.S. crowing from the top of a hill long occupied by Saudi Arabia or Russia would scramble geopolitics. A new world energy order could emerge. That shuffling will be good for America but not so much for the planet.

For one, the influence of one of the most powerful forces of the past half-century, the modern petrostate, would be diminished. No longer would “America First” diplomats need to tiptoe around oil-supplying nations such as Saudi Arabia. The Organization of Petroleum Exporting Countries would find it tougher to agree on production guidelines, and lower prices could result, reopening old wounds in the cartel. That would take some muscle out of Vladimir Putin’s foreign policy, while Russia’s oligarchs would find it more difficult to maintain the lifestyles to which they’ve become accustomed.

President Donald Trump, sensing an opportunity, is looking past independence to what he calls energy dominance. His administration plans to open vast ocean acreage to offshore exploration and for the first time in 40 years allow drilling in the Arctic National Wildlife Refuge. It may take years to tap, but the Alaska payoff alone is eye-popping—an estimated 11.8 billion barrels of technically recoverable crude.

It sounds good, but be careful what you wish for. The last three years have been the hottest since recordkeeping began in the 19th century, and there’s little room in Trump’s plan for energy sources that treat the planet kindly. Governors of coastal states have already pointed out that an offshore spill could devastate tourism—another trillion-dollar industry—not to mention wreck fragile littoral environments. Florida has already applied for a waiver from such drilling. More supply could lower prices, in turn discouraging investments in renewables such as solar and wind. Those tend to spike when oil prices rise, so enthusiasm for nonpolluting, nonwarming energies of the future could wane.

For now, though, the petroleum train is chugging. And you can thank the resilience of the U.S. shale industry for it.

Shale’s triumph seemed impossible a few years ago. In late 2014, Saudi Arabia targeted rivals, including American drillers. Rather than cutting production to keep prices high, Saudi Arabia persuaded OPEC to open the taps, sending prices lower than $40 a barrel in December, down from more than $100 a barrel just four months previous. The Saudis were hoping to starve the shale revolution. At first, they seemed poised to succeed, like they had in the past. U.S. production fell from a peak of 9.6 million barrels a day to 8.5 million barrels a day. Bankruptcies riddled shale patches from Texas’ Permian Basin to the Bakken Formation in North Dakota, and tens of thousands of workers lost their jobs.

Rather than declare defeat, shale companies dug in, slashing costs and borrowing like crazy to keep drilling. By late 2016 the Saudis blinked. They persuaded OPEC and the Russians to cut output. Slowly, steadily, West Texas Intermediate, the oil benchmark traded in New York, rose from $26 a barrel in February 2016 to where it lingers today.

What didn’t kill shale drillers made them stronger. The survivors have transformed themselves into leaner, faster versions that can thrive even at lower oil prices. Shale isn’t any longer just about grit, sweat, and luck. Technology is key. Geologists use smartphones to direct drilling, and companies are putting in longer and longer wells. At current prices, drillers can walk and chew gum at the same time—lifting production and profits simultaneously.

Fracking—blasting water and sand deep underground to free oil from shale rock—has improved, too. It’s what many call Shale 2.0. And it’s not just the risk-taking pioneers who dominated the first phase of the revolution, such as Trump friend Harold Hamm of Continental Resources Inc., who are benefiting from the surge. Exxon Mobil Corp.Chevron Corp., and other major oil groups are joining the rush. U.S. shale is “seemingly on steroids,” says Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. “The market remains enchanted by the ability of shale producers to adapt to lower prices and to continue to grow.”

The results are historic. In October, American net imports of crude and refined products dropped below 2.5 million barrels a day, the lowest since official data were first collected in 1973. A decade ago, U.S. net oil imports stood at more than 12 million barrels a day. “For the last 40 years, since the Arab oil embargo, we’ve had a mindset of energy scarcity,” says Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University and a former Obama administration official. “As a result of the shale revolution, the U.S. has emerged as an energy superpower.”

For OPEC, the emergent superpower presents an unprecedented challenge. If the cartel cuts production, shale drillers can respond by boosting output, stealing market share from OPEC nations and undermining their effort to manipulate prices. The only solution for OPEC is to prolong the limits, as it’s doing now, and hope for the best. If cooperation between OPEC and Russia breaks down, it’s not impossible that OPEC breaks down, too.

If Shale 2.0 output keeps prices low, Russia would be a big loser. Moscow has used oil revenue to finance aggressive foreign intervention from Ukraine to Syria. The only solution is to continue cooperating with Saudi Arabia on keeping production low—not something the oligarchs relish.

With shale surging, U.S. imports of Saudi oil plunged to a 30-year low last year. The turnabout makes China and Japan far more dependent than the U.S. on the Middle East. It’s now possible for the U.S. to argue that other countries should help shoulder the burden of policing the shipping lanes leading to Middle Eastern and North African oil exporters.

Yet not all traffic lights are green for the U.S. It’s not immune from the ups and downs of the world market. When the price rises because of, say, political upheaval in the Middle East, it doesn’t matter where you are and how much you pump. The price rises in America, too.

There’s another problem: Shale 2.0 could hurt refiners. Shale oil is too good. For years, refiners spent billions of dollars on special equipment to process the dense, high-sulphur, low-quality crudes coming from Mexico, Venezuela, Canada, and Saudi Arabia. The quality of shale oil is so high that it yields little diesel, the fuel that powers manufacturing.

Such limitations may be mere speed bumps. But U.S. dominance is far from a panacea. It won’t reverse climate change. It won’t lessen the political influence of fossil-fuel producers in Washington. Nor will it completely neutralize the political influence of erratic petrostates.

With demand rising despite the emergence of renewables and the development of electric vehicles, shale may struggle to keep pace with global consumption. There’s a chance the world will witness that rarest of market loop-de-loops—high oil prices as well as rising U.S. production.

Saudi Arabia and Russia could then remain formidable obstacles to U.S. energy independence. They would be crowing from the top of the hill even as they keep a wary eye on America’s shale drillers.

These are troubles that would have been an embarrassment of riches for Americans who had to wait in line to fill up in the 1970s, when the U.S. determining its own energy future was just a dream. Any celebration over this accomplishment ignores the evidence that such dependence on fossil fuels is no independence at all.

(BBG) U.S. Demands China Cut Oil to North Korea After New Launch

(BBG) Bloomberg’s Jodi Schneider reports on U.S.’s decision to ask China to cut off all oil exports to North Korea.

The U.S. demanded that China cut off all oil exports to North Korea after the country’s latest intercontinental ballistic missile test, warning that Washington will force action if Beijing fails to do so.

President Donald Trump called China’s President Xi Jinping “and told him that we have come to the point that China must cut off the oil from North Korea,” U.S. Ambassador Nikki Haley said at an emergency session of the United Nations General Assembly on Wednesday. While saying “our hopes are that China will show leadership and follow through,” Haley issued a warning: “China can do this on its own, or we can take the oil situation into our own hands.”

Pyongyang launched an ICBM early Wednesday North Korea time — its third this year. The Security Council meeting was injected with new urgency as experts concurred with North Korea’s boast that the test showed its missiles could now reach anywhere in the U.S.

Haley didn’t specify how the U.S. would stop oil exports to Kim Jong Un’s regime, saying only that the missile launch “brings the world closer to war, not farther from it.” While the U.S. doesn’t seek war with North Korea, Haley said, “If war comes, make no mistake: the North Korean regime will be utterly destroyed.”

Trump indicated on Thursday morning that Beijing’s effort to influence Kim had so far failed. “The Chinese Envoy, who just returned from North Korea, seems to have had no impact on Little Rocket Man,” Trump tweeted, using a mocking name to refer to Kim. “Hard to believe his people, and the military, put up with living in such horrible conditions. Russia and China condemned the launch.”

On Wednesday, Trump said in a tweet that he’d told Xi “additional major sanctions will be imposed on North Korea today.” By the end of the day no new sanctions had been announced, although Haley’s warning may have conveyed the president’s intended message.

Envoys around the Security Council’s horseshoe-shaped table fell into familiar camps, with the U.S., the U.K. and Japan on one side, placing full blame for tensions on North Korea, while China and Russia spread blame more widely.

China and Russia oppose moves that will lead to regime change in North Korea. Beijing in particular wants to avoid a scenario that could potentially destabilize its economy and put U.S. troops directly on its border.

Vassily Nebenzia, Russia’s ambassador, questioned whether the U.S. really wanted a peaceful solution on the Korean peninsula, saying recently announced military drills had squandered hopes for talks during a lull in North Korean activity.

“The United States and allies seem to have tried the patience of Pyongyang with unplanned and undeclared military maneuvers,” Nebenzia said. Such moves raise questions “about the sincerity of Washington” when the U.S. says it wants a peaceful solution, he said.

China’s Proposal

China’s Deputy Ambassador Wu Haitao again offered a proposal that the U.S. has repeatedly rejected: that North Korea freeze its nuclear activity in exchange for the U.S. and South Korea suspending military drills.

“The most important lesson is that when the parties adopted a tough stance and misjudged each other, the chances of peace would pass them by,” Wu said.

China remains North Korea’s top trading partner. It exported 53 tons of liquefied gas to North Korea in October, 72 tons of unspecified liquefied gas and other hydrocarbon gas, and 14 tons of jet kerosene, according to trade data. Haley said North Korea is illegally getting refined petroleum via ship-to-ship transfers at sea.

Additional Sanctions

U.S. Secretary of State Rex Tillerson told reporters at the State Department on Wednesday that “we have a long list of additional potential sanctions, some of which involve additional financial institutions. The Treasury Department will be announcing those when they’re ready to roll those out.”

Interdiction of ships on the high seas “could be a major new pressure point” against North Korea, State Department spokeswoman Heather Nauert told reporters. Heightened inspections of sanctioned ships was part of a draft resolution circulated among Security Council nations earlier this year, but the provision was ultimately dropped.

North Korea’s latest test only underscored Trump’s poor options as Kim approaches his ambition to become a nuclear power with global reach, an outcome the U.S. president has vowed to prevent.

Sanctions against North Korea have had limited impact on the regime’s economy. There have been no direct talks on its nuclear weapons for years. And a military strike is an unpalatable option, given the risk of widespread devastation in the region from all-out conflict.

Chinese Banks

Some Pentagon officials and military analysts have said North Korea may need more time to miniaturize a nuclear warhead to fit atop an intercontinental ballistic missile and to ensure it could withstand the heat of re-entry into the Earth’s atmosphere. But few question that Kim is nearing his goal of a nuclear arsenal that could attack the U.S.

Trump has authorized the Treasury Department to cut off foreign individuals or entities from the U.S. financial system if they interact with Pyongyang. Treasury has punished several companies in China that do business along its porous land border with North Korea.

But some analysts have said more could be done, including imposing secondary sanctions on major Chinese banks and oil companies that do business with North Korea.

“In a way it’s not so much that we need additional sanctions authority, it’s more fully utilizing what we already have,” said Bruce Klingner, a senior research fellow for Northeast Asia at the Heritage Foundation in Washington. “What more could we do? It’s all these Chinese entities that we have not imposed secondary sanctions on.”

(BBG) OPEC Is Said to Agree on Oil-Cuts Extension to End of 2018

(BBG) Sen speaks from Vienna about OPEC’s likely extension of oil supply cuts until the end of 2018.

OPEC agreed to extend its oil-production cuts to the end of next year as the job of rebalancing the market is not yet done, according to delegates at a ministerial meeting in Vienna.

Talks have now moved on to the mechanism that will be used to review the agreement in mid-2018, the delegates said, asking not to be identified as the closed-door discussion isn’t yet over. Ministers also need to get Russia, their largest non-OPEC ally, on board at a meeting with other partner countries later on Thursday.

The outcome of the day’s initial gathering, comprising just OPEC ministers, reflects a rare consensus between members of the Organization of Petroleum Exporting Countries, with no dissonant voices in the run-up to the meeting. All agreed that the market is moving in the right direction, but is not yet balanced. While Moscow has voiced its support for an extension, it is said to want assurances on how and when the agreement will be phased out.

Follow Thursday’s TOPLive blog of the OPEC meeting in Vienna here.

“OPEC ministers have very clearly said that they’re extremely committed towards getting that inventory overhang down,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London, said in an interview with Bloomberg Television. “The questions that are going to get asked now are about Russia’s involvement, which I also think is going to be very much for the full year.”

Exit Plan

For Russia, reassurance about how the curbs will eventually be wound down seems to be as important as the duration of the extension, according to people involved in negotiations earlier this week. It needs greater clarity than most OPEC members because its economic policy making is more complex, including a floating exchange rate that fluctuates with the oil price.

It’s premature to talk about an exit strategy because OPEC and its allies are relying on oil demand in the third quarter of 2018 to finally eliminate the inventory surplus, Saudi Oil Minister Khalid Al-Falih said Thursday before the meeting. But the kingdom is open to discussions about how the group could wind down the cuts “very gradually” once its goals are achieved, he said.

Benchmark Brent crude traded at $64.01 a barrel at 12:48 p.m. in London, up 1.4 percent.

(BBG) OPEC’s Clash With U.S. Oil Is Nearing Its Day of Reckoning

(BBG) The clash between OPEC and America’s oil industry is reaching a day of reckoning.

The U.S. shale revolution is on course to be the greatest oil and gas boom in history, turning a nation once at the mercy of foreign imports into a global player. That seismic shift shattered the dominance of Saudi Arabia and the OPEC cartel, forcing them into an alliance with long-time rival Russia to keep a grip on world markets.

So far, it’s worked — global oil stockpiles are draining and prices are near two-year highs. But as the Organization of Petroleum Exporting Countries and Russia prepare to meet in Vienna this week to extend production cuts, ministers have little idea how U.S. shale production will respond in 2018.

“The production cuts are effective — it was absolutely the right decision, and the fact of striking a deal with Russia was crucial,” said Paolo Scaroni, vice-chairman of NM Rothschild & Sons and former chief executive officer of Italian oil giant Eni SpA. Nonetheless, “OPEC has not the same power. The U.S. becoming the biggest producer of oil in the world is a dramatic change.”

For OPEC members, the stakes couldn’t be higher. Saudi Arabia’s Crown Prince Mohammed Bin Salman is embarking on a radical economic transformation of the kingdom, including a partial sale of its state oil company that could be the largest public offering in history. Venezuela, reeling from years of recession and a crushing debt burden, is on the brink of political implosion.

Eroding Surplus

The producers’ efforts to clear the oil surplus are starting to pay off. They’ve drained excess inventories in developed nations this year by 183 million barrels, or more than half of the glut, which now stands at about 140 million barrels, according to OPEC data. That has revived London-traded crude futures, which sank below $45 a barrel this summer, to a two-year high of $64.65 on Nov. 7.

Click to read the transcript of a TOPLive Q&A with oil strategist Julian Lee.

That success goes some way to countering accusations that OPEC had lapsed from the dominant market force of the 1970s and 1980s into irrelevance. Although its 14 members still pump 40 percent of the world’s oil, their share has dwindled from the days when OPEC held the global economy in thrall.

“People may have thought that OPEC was dead, but Saudi Minister Khalid Al-Falih has succeeded in building agreements and alliances within OPEC and non-OPEC, such as Russia, to restrain production,” said Luis Giusti, an adviser at the Center for Strategic and International Studies and former CEO of state-run Petroleos de Venezuela SA.

Losing Momentum

There are even signs that OPEC’s opponents, the dozens of drillers tapping shale-oil deposits in Texas and North Dakota, are losing momentum. Companies may have already squeezed costs and maximized productivity as much as possible, and their investors are finally insisting profits are returned to them rather than re-invested in more drilling.

Mark Papa, CEO of Centennial Resource Development Inc. and considered one of the industry’s founders, said in September that shale “is not nearly the Big Bad Wolf that everybody thinks.”

For a QuickTake on OPEC’s challenge, click here.

A year-long ramp-up in drilling by American operators appeared to hit a plateau in July, data from Baker Hughes show, and companies such as Pioneer Natural Resources Co.have lowered their output targets.

The outlook for shale is so clouded that when OPEC officials invited industry experts to brief them on the topic last week, they were disturbed by the diversity of opinions. Veteran crude trader Andy Hall, whose decision to close his main hedge fund this year was partly driven by shale’s unpredictability, told the organization that 2018 growth estimates vary from 500,000 barrels a day to 1.7 million a day.

Yet, the basic paradox confronting OPEC is that the more it succeeds in bolstering prices, the more it emboldens shale explorers and other competitors, said Mike Wittner, head of oil market research at Societe Generale SA in New York.

Increases in U.S. oil production next year will be big enough to cancel much of the sacrifices made by OPEC and Russia, leaving the surplus more or less intact, forecasts from the International Energy Agency show. The recent rebound in prices could energize shale even further.

Instead of being able to declare victory next year and restore the production they’ve halted, OPEC may find itself trapped in an open-ended struggle, Wittner said.

Catch-22

“Now that they’re in it, I don’t see how they get out of it,” said Wittner. “They need to continue supply management for the foreseeable future.”

The need to cooperate indefinitely could strain the Saudi-Russia partnership.

While the Saudi-Russia alliance has allowed them to call a “truce in the battle for market share,” they may end up fighting over customers again when faced with a relentless tide of crude exports from the U.S., said Ed Morse, head of commodities research at Citigroup Inc. in New York.

With U.S. crude exports climbing from close to zero three years ago to now exceeding the combined shipments of OPEC’s smallest members, it increasingly looks as if the face-off between the cartel and what was formerly its biggest customer “has an endgame,” Morse said.

“And the endgame is there’s an awful lot of shale in the world.”

(BBG) U.S. to Dominate Oil Markets After Biggest Boom in World History

(BBG) IEA Executive Director Fatih Birol discusses the U.S. shale surge and its impact on the global oil market.

The U.S. will be a dominant force in global oil and gas markets for many years to come as the shale boom becomes the biggest supply surge in history, the International Energy Agency predicted.

By 2025, the growth in American oil production will equal that achieved by Saudi Arabia at the height of its expansion, and increases in natural gas will surpass those of the former Soviet Union, the agency said in its annual World Energy Outlook. The boom will turn the U.S., still among the biggest oil importers, into a net exporter of fossil fuels.

“The United States will be the undisputed leader of global oil and gas markets for decades to come,” IEA Executive Director Fatih Birol said Tuesday in an interview with Bloomberg television. “There’s big growth coming from shale oil, and as such there’ll be a big difference between the U.S. and other producers.”

The agency raised estimates for the amount of shale oil that can be technically recovered by about 30 percent to 105 billion barrels. Forecasts for shale-oil output in 2025 were bolstered by 34 percent to 9 million barrels a day.

The U.S. industry “has emerged from its trial-by-fire as a leaner and hungrier version of its former self, remarkably resilient and reacting to any sign of higher prices caused by OPEC’s return to active market management,” the IEA said.

While oil prices have recovered to a two-year high above $60 a barrel, they’re still about half the level traded earlier this decade, as the global market struggles to absorb the scale of the U.S. bonanza. It’s taken the Organization of Petroleum Exporting Countries and Russia almost 11 months of production cuts to clear up some of the oversupply.

Price Cut

Reflecting the expected flood of supply, the agency cut its forecasts for oil prices to $83 a barrel for 2025 from $101 previously, and to $111 for 2040 from $125 before.

Lower prices are helping to support oil demand, and the IEA raised its projections for global consumption through to 2035, despite the growing popularity of electric vehicles. The world will use just over 100 million barrels of oil a day by 2025.

That will benefit the U.S. as it turns from imports to exports. The country will “see a reduction of these huge import needs,” Birol said at a press conference in London. That “will bring a lot of dollars to U.S. business.”

Nevertheless, U.S. shale output is expected to decline from the middle of the next decade, and with investment cuts taking their toll on other new supplies, the world will become increasingly reliant once again on OPEC, according to the report. The cartel, led by Middle East producers, will see its share of the market grow to 46 percent in 2040 from 43 percent now.

Yet that could still change, the IEA said.

The Next Shale Revolution

As shale has outperformed expectations so far, the IEA added a scenario in which the industry beats current projections. If shale resources turn out to be double current estimates, and the use of electric vehicles erodes demand more than anticipated, prices could stay in a “lower-for-longer” range of $50 to $70 a barrel through to 2040.

“There could be further surprises ahead,” the IEA said.

(FP) China Is Eyeballing a Major Strategic Investment in Saudi Arabia’s Oil

(FP) Washington may have invented the petrodollar system, but Beijing is looking toward the future.

Chinese President Xi Jinping and Saudi Arabia's King Salman in Beijing on March 16. (Lintao Zhang/Pool/Getty Images)

Chinese President Xi Jinping and Saudi Arabia’s King Salman in Beijing on March 16. (Lintao Zhang/Pool/Getty Images)

Since the election of Donald Trump, relations between Saudi Arabia and the United States have seemingly returned to their halcyon days. Saudi officials have been energized by Trump’s desire to roll back Iranian influence and his support for Saudi economic reforms, and they are enthusiastic about the two countries’ newfound unity of purpose.

But Saudi Arabia is not just being courted by the Trump administration. Without the pomp and circumstance of the Riyadh summit, where Trump addressed representatives from across the Muslim world earlier this year, the Chinese government is taking quiet steps to bring Saudi Arabia’s hydrocarbon reserves firmly into its orbit. Through its ambitious Belt and Road Initiative and a reported offer to invest in the kingdom’s state-owned oil company, Saudi Aramco, the Chinese are laying the groundwork for a profound economic shift in the Middle East and the world.

As it has grown over the last three decades, China has slowly become a much more important energy partner to Saudi Arabia and Gulf states. Its emergence as an economic powerhouse has increasingly fueled its ambition to dictate the rules of the energy market: In recent years, it has scaled down its share of energy imports from OPEC members in favor of non-OPEC countries, primarily due to its preference to purchase oil and gas in yuan or the local currency of the exporter, rather than U.S. dollars. China importsapproximately one-quarter of its energy from Saudi Arabia, but Russia recently supplanted the kingdom as China’s top energy producer.

China’s fastidious control over its own currency is the first step toward upending the way oil is traded.

China’s fastidious control over its own currency is the first step toward upending the way oil is traded.

Forged by U.S. President Richard Nixon and Saudi King Faisal bin Abdulaziz Al Saud in 1973, the petrodollar system has wedded the greenback to the world’s most sought-after commodity.In return for conducting energy sales exclusively in dollars, the United States agreed to sell Saudi Arabia advanced military equipment. One obvious reason China wants oil to be traded in yuan is to increase global demand for yuan-denominated assets. This would increase capital inflows and may eventually lead to the yuan being a plausible global alternative to the American dollar. Saudi Arabia is OPEC’s historic swing producer and price arbiter — if it agreed to conduct transactions in currencies other than the dollar, other OPEC producers would be forced to follow suit.

Beijing’s thinking is also influenced by geopolitical calculations. China’s return on investment in Saudi infrastructure could take decades, but Beijing would gain a valuable foothold in the Gulf and possibly persuade one of the world’s leading oil producers to upend the way oil is traded. Moreover, Saudi Arabia and its Gulf allies, especially the United Arab Emirates, provide a valuable hub to Middle Eastern and African markets through their ports, airports, and global networks. This spring and summer, Beijing and Riyadh announced a number of deals in various sectors, including increased energy exports and a reported $20 billion shared investment fund.

The equation is much more difficult for Saudi Arabia and the other oil-producing countries in the Gulf. On one hand, Saudi Arabia’s alliance with the United States, however shaky, is the bedrock of regional security. On the other hand, growth in energy consumption will continue to be centered east of the kingdom, not west.

The Chinese have not given Saudi Arabia much time to consider its options. Chinese state-owned oil companies PetroChina and Sinopec have already expressed interest in a direct purchase of 5 percent of Saudi Aramco. This could prove to be a boon for Crown Prince Mohammed bin Salman, who has been eager to achieve a $2 trillion valuation of Aramco in a highly anticipated initial public offering, which is currently scheduled for 2018.

Considering the depressed state of the oil market, investors may be hesitant to meet the targets for Aramco’s valuation that the Saudi leadership has laid out. A private Chinese placement could solve this dilemma — and allow Riyadh to delay the IPO in the hopes that oil prices will improve. While this investment may not explicitly require that Saudi Arabia agree to trade in yuan, it would give China leverage toward that goal. For Mohammed bin Salman, Chinese investment in Aramco could kick-start a new economic partnership with Beijing.

For Mohammed bin Salman, Chinese investment in Aramco could kick-start a new economic partnership with Beijing.

As part of its economic reform, Saudi Arabia’s ambitious Vision 2030 plan intends to raise foreign direct investment from 3.8 percent of GDP to 5.7 percent, or an additional $12 billion per year.It is a far safer bet that China would be able and willing to inject that type of money into Saudi Arabia than U.S. private equity and hedge funds. The main reason for this is the difference in Chinese and Western time horizons when considering return on investment. While Western governments and companies have historically had appetite for infrastructure projects that offer a return on investment in a maximum of 30 to 40 years, the Chinese are playing a much longer game — in some cases investing in projects that break even in more than 100 years.

Saudi Arabia and China stand to gain from this geoeconomic shift — but what about the United States? For all its talk of remaking the U.S. economy, the Trump administration must heed the changing economic currents. Given the depths of Beijing’s interest in Saudi Aramco, it seems many policymakers in the Gulf and the West do not fully appreciate the geopolitical interests at stake. Aramco, formerly the Arabian-American Oil Company, will not rebrand itself — but it may effectively become “Archco,” the Arabian-Chinese Oil Company.

Asked how he went bankrupt, a character in Ernest Hemingway’s The Sun Also Risesresponded: “Two ways. Gradually and then suddenly.” It’s unlikely the petrodollar system will be fully replaced by an equivalent “petroyuan” system, but the dollar’s monopoly on major oil sales may loosen gradually — and then suddenly. That gradual process may have already begun.

(BBG) OPEC Sees a Future With Fewer Cars

(BBG) The oil cartel doesn’t explain why, but others point to autonomous vehicles and ride sharing.

More cars were expected.

Photographer: Andrew Lichtenstein/Corbis via Getty Images

Among the revelations in OPEC’s just published World Oil Outlook — including, as Gadfly’s Liam Denning has explained, long-term demand for oil and shale production — is a notable change in the cartel’s assumptions about passenger cars. The Organization of Petroleum Exporting Countries expects 137 million fewer of them on the road in 2040 than it did just two years ago.

Admittedly, OPEC still expects a lot of cars – more than two billion of them – but that’s 6 percent less than what it predicted in 2015.

OPEC also lowered its projection for the global electric vehicle fleet in 2040, to 235 million from 266 million — a 12 percent drop. That’s about 300 million fewer electric vehicles than my Bloomberg New Energy Finance colleagues expect in the same year.

OPEC expects smooth and steady electric-vehicle growth of 2.7 percent a year, about the same rate the market has been experiencing. Of course, it’s relatively easy (and safe) to create models that look like an extension of present market behavior; it’s much harder (and riskier) to model change.

That’s not to say smart thinkers cannot imagine a weird and different future. OPEC’s Outlook authors offer no explanation for why they expect fewer passenger cars. But other people’s predictions and observations fill in the picture.

Consider, for example, the role that autonomous vehicles are expected to play. Alphabet subsidiary Waymo is now testing fully autonomous vans on public streets – vans with no humans at the wheel. Such vehicles are bound to have accidents, however rarely. And societies may be tempted to wait for perfection before rolling them out widely. They shouldn’t. Autonomous vehicles will mark the end of the automotive era, in the words of legendary auto industry executive Bob Lutz. And life after driving will change cityscapes and everyone’s daily experiences.

Autonomous vehicles could be a boon to OPEC, or a serious problem. If falling costs for driving mean more miles logged in cars powered by internal combustion engines, then OPEC benefits regardless of the number of cars on the road. If, however, those autonomous vehicles are electric, then added miles driven leaves oil demand the same, or sends it lower.

In the meantime, the ride-hailing business is already altering the flow of city traffic, even as consumer choices force change at its leading companies. Uber hasn’t recovered its market share in San Francisco and New York since a #deleteUber social media campaign was staged earlier this year. But in a fresh effort to play nice with cities and regulators, the company’s new chief executive says, “We do the right thing. Period.” Uber has even open-sourced its own artificial intelligence language, though there’s an element of self-interest in doing so.

Ride-hailing companies may have a bigger role to play as governments consider legalizing marijuana. British Columbia, for one, has received 136 ‘stakeholder submissions’ with concerns or suggested guidance for regulating recreational cannabis, including two – from the BC Trucking Association and the BC Automobile Association – that recommend regulations to ensure safe driving.

Finally, pedestrians in cities are looking to reclaim space from automobiles, turning loud and exhaust-filled streets into walkways and shopping arcades. London, for instance, plans to turn Oxford Street into “the world’s best outdoor shopping experience.”

OPEC doesn’t have a row in its Outlook spreadsheet that predicts when cars will drive themselves, but autonomous vehicles, along with greater use of shared ride-hailing services and expanded pedestrian spaces all help explain why there’s good reason to expect a future with fewer cars on the road.

(P-S) The Changing Geopolitics of Energy – JOSEPH S. NYE

(P-S) In 2008, US policymakers worried that increasing dependence on energy imports, together with rising prices, would severely constrain American geopolitical influence. Instead, the revolution in shale energy has brought about a tectonic shift in international relations, one that promises to boost US global power in the long term.

TOKYO – In 2008, when the United States’ National Intelligence Council (NIC) published its volume Global Trends 2025, a key prediction was tighter energy competition. Chinese demand was growing, and non-OPEC sources like the North Sea were being depleted. After two decades of low and relatively stable prices, oil prices had soared to more than $100 per barrel in 2006. Many experts spoke of “peak oil” – the idea that reserves had “topped off” – and anticipated that production would become concentrated in the low-cost but unstable Middle East, where even Saudi Arabia was thought to be fully explored, with no more giant fields likely to be found.

The US was regarded as increasingly dependent on energy imports, and this, together with rising prices, was seen as a major limit on American geopolitical influence. Power had shifted to the producers.

The NIC analysts did not neglect the possibility of a technological surprise, but they focused on the wrong technology. Emphasizing the potential of renewables such as solar, wind, and hydro, they missed the main act.

The real technological breakthrough was the shale-energy revolution. While horizontal drilling and hydraulic fracturing are not new, their pioneering application to shale rock was. By 2015, more than half of all the natural gas produced in the US came from shale.

The shale boom has propelled the US from being an energy importer to an energy exporter. The US Energy Department estimates that the country has 25 trillion cubic meters of technically recoverable shale gas, which, when combined with other oil and gas resources, could last for two centuries. The International Energy Agency now expects North America to be self-sufficient in energy in the 2020s. Facilities built to receive liquefied natural gas (LNG) imports have been converted to process exports.

World markets have also been transformed. Previously, gas markets were geographically restricted by dependence on pipelines. That gave market power to Russia, which used it to exercise political and economic leverage over its European neighbors. LNG has now added a degree of flexibility to gas markets and reduced Russian leverage. In 2005, only 15 countries imported LNG; today, that number has tripled.

Moreover, the smaller scale of shale wells makes them much more responsive to fluctuations in market prices. It is difficult to turn on and off the billion-dollar multiyear investments in traditional oil and gas fields; but shale wells are smaller, cheaper, and easier to start and stop as prices change. This means that the US has become the so-called swing producer capable of balancing supply and demand in global hydrocarbon markets.

As Harvard’s Meghan O’Sullivan points out in her smart new book Windfall, the shale revolution has a number of implications for US foreign policy. She argues that the new energy abundance increases US power. Shale-energy production boosts the economy and creates more jobs. Reducing imports helps the balance of payments. New tax revenues ease government budgets. Cheaper power strengthens international competitiveness, particularly for energy-intensive industries like petrochemicals, aluminum, steel, and others.

There are also domestic political effects. One is psychological. For some time, many people in the US and abroad have bought into the myth of American decline. Increasing dependence on energy imports was often cited as evidence. The shale revolution has changed that, demonstrating the combination of entrepreneurship, property rights, and capital markets that constitute the country’s underlying strength. In that sense, the shale revolution has also enhanced American soft power.

Skeptics have argued that lower dependence on energy imports will cause the US to disengage from the Middle East. But this misreads the economics of energy. A major disruption such as a war or terrorist attack that stopped the flow of oil and gas through the Strait of Hormuz would drive prices to very high levels in America and among our allies in Europe and Japan. Besides, the US has many interests other than oil in the region, including nonproliferation of nuclear weapons, protection of Israel, human rights, and counterterrorism.

The US may be cautious about overextending itself in the Middle East, but that reflects its experience with the costly invasion of Iraq and the general turmoil of the Arab Spring revolutions, rather than illusions that shale produces political “energy independence.” America’s ability to use oil sanctions to force Iran to negotiate an end to its nuclear-weapons program depended not only on Saudi willingness to make up Iran’s exports of a million barrels per day, but also on the general expectations that the shale revolution created.

Other benefits of shale energy for US foreign policy include the diminishing ability of countries like Venezuela to use oil to purchase votes at the United Nations and in regional organizations of small Caribbean states, and Russia’s reduced ability to coerce its neighbors by threatening to cut off gas supplies. In short, there has been a tectonic shift in the geopolitics of energy.

Although no one can know the future of energy prices, modest world prices may last for some time. Both technology and politics could of course upend this prediction. Technological advances could increase supply and reduce prices; politics is more likely to disrupt supply and cause prices to rise. But the disruptions are unlikely to be sharp or long-lasting in the wake of the shale revolution, which is what makes it a geopolitical revolution as well.

(BBG) OPEC Fights Back—and This Time, It’s Driving Oil Prices Up

(BBG) OPEC’s Barkindo Says Oil Rebalancing Is Finally in Sight

OPEC’s finally getting some credibility back behind its swagger, ahead of the oil group’s meeting later this month in Vienna.

The cartel’s members complied to the tune of 104 percent in October on orders to pull back 1.2 million barrels a day, according to Bloomberg data. Stockpiles are drawing and Brent closed at at two-year high of $64.27/b on Monday.

So what’s changed?

Some say a rise in geopolitical risk has pushed up prices, but other analysts think there’s a more permanent shift underway.

“We do not see the latest rise in prices as speculative,” said Paul Horsnell, global head of commodity strategy at Standard Chartered, in a recent note. “We think the move reflects the start of a widespread re-evalution.”

Traders, he said, are rethinking how much oil will be produced and drawn down from stockpiles, especially in the U.S.

Looking at the U.S. gives several encouraging signs. Stockpiles compared to the five-year average have continually fallen in 2017. U.S. crude and product inventories, including the SPR, have fallen by 93.8 million barrels since since January. Latest weekly data from the EIA show that U.S. crude stockpiles have drawn by a further 2.4 million barrels to 454.9 million barrels. That’s the seventh consecutive weekly draw.

It isn’t just stockpiles, U.S. shale output growth is tapering off. Permian production has grown almost 15 percent to 2.43 million barrels a day in September from 2.13 million barrels a day in January, while the Bakken is relatively unchanged and the Eagle Ford falling to 1.13 million barrels a day from 1.7 million barrels a day, according to BTU Analytics data.

This slowdown has come even as breakevens in key basins have fallen, with costs in both the Midland basin and West Eagle Ford declining by around 45% since January 2014, according to BTU Analytics. And while shale output is likely to get cheaper until mid-2019, according to Ebele Kemery, head of energy investing at JPMorgan in New York, the “greatest leaps forward in lowering costs are now behind us,” said Michael Poulsen, senior oil risk analyst with Global Risk Management.

Meanwhile, OPEC compliance with production cuts agreed last year rose by 23 percent month-on-month to 104 percent in October, according to a Bloomberg survey published on Wednesday. That’s the second-highest level since the organization began curbing output in January. OPEC output fell by 180,000 barrels a day to 32.59 million barrels a day, Bloomberg data show.

While prices are a bit better now, the coming years don’t look so great. OPEC is probably going to need to sustain its cuts for another year. Even if the cuts finish in late 2018, it’s looking at zero growth in demand for its crude until 2025 as shale takes all the new market share.

OPEC’s World Oil Outlook 2017, published today, gives further encouragement. OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.