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Oil prices pulled back after touching multi-year highs on Monday, trading mixed as U.S. industrial output for September fell, tempering early enthusiasm about demand.

Production at U.S. factories fell by the most in seven months in September as an ongoing global shortage of semiconductors depressed motor vehicle output, further evidence that supply constraints were hampering economic growth.

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“The oil market started off with a lot of exuberance, but weak data on U.S. industrial production caused people to lose confidence in demand, and China released data that intensified those worries,” said Phil Flynn, senior analyst at Price Futures Group in New York.

Brent crude oil futures settled down 53 cents or 0.6per cent at US$84.33 a barrel after hitting US$86.04, their highest since October 2018.

U.S. West Texas Intermediate (WTI) crude settled 16 cents higher, or 0.19per cent, at US$82.44 a barrel, after hitting US$83.87, their highest since October 2014.

Both contracts rose by at least 3per cent last week.

Weaker industrial data was compounded by rising production expectations on Monday, further weighing on market sentiment.

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U.S. production from shale basins is expected to rise in November, according to a monthly U.S. report on Monday. [EIA/RIG]

Oil output from the Permian basin of Texas and New Mexico was expected to rise 62,000 barrels per day (bpd) to 4.8 million bpd next month, the Energy Information Administration said in its drilling productivity report. Total oil output from seven major shale formations was expected to rise 76,000 bpd to 8.29 million bpd in the month.

The early push higher on Monday came as market participants looked to easing restrictions after the COVID-19 pandemic and a colder winter in the northern hemisphere to boost demand.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ Bank said in a note, adding gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

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“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell to its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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Global trade has swiftly recovered from pandemic lows, Bank of America commodity strategist Warren Russell said in a note. Trade levels are up 13per cent year to date, and 4per cent higher than 2019 levels. The trade indicates rising crude demand as economies recover from the pandemic, the analysts said.

“Financial assets like oil should perform strongly into 2021,” the analysts said.

By channelnewsasia, October 7, 2021

As hydrocarbon exploration ramps up in many resource-rich basins across Africa, countries are turning to downstream developments in order to increase domestic production capacity, reduce refined product imports, and maximize the benefits of Africa’s significant oil and gas resources. Through the development of large-scale oil refineries across the continent, Africa continues to position itself as a global refined product exporter, increasing domestic capacity while boosting socio-economic growth through energy independence.

Skikda Refinery – 356,500 Barrels per day

The largest oil refinery in Africa is the Skikda refinery, located along Algeria’s northern coastline, with a nameplate capacity of 356,500 bpd. Owned and operated by the country’s state-owned oil company, Sonatrach, the refinery is supplied with crude oil from the Hassi Messaoud oilfields. 

Port Harcourt Refinery – 210,000 Barrels per day

Nigeria’s Port Harcourt refinery, a 210,000-bpd refinery complex, comprises two refineries located at Alesa-Eleme, RiversState. Operated by the Port Harcourt Refining Company – a subsidiary of the Nigerian National Petroleum Corporation – the refinery is currently the country’s largest operating refinery. 

SAPREF Refinery – 180,000 Barrels per day

South Africa’s SAPREF refinery, a 50:50 joint venture between BP and Shell, is the largest crude oil refinery in southern Africa, boasting 180,000 bpd capacity. Located in the city of Durban, the refinery accounts for approximately 35% of the country’s entire refining capacity. 

Alexandria MIDOR Refinery – 160,000 Barrels per day

The Middle East Oil Refinery (MIDOR), owned by a consortium comprising the Egyptian General Petroleum Corporation, ENPPI, PETROJET, and Suez Canal Bank, is located in Alexandria, Egypt. The project is currently undergoing an expansion which will bring its existing 100,000 bpd capacity up by 60%, to 160,000 bpd, making it the fifth largest in Africa and largest in Africa. 

Cairo Mostorod Refinery – 142,000 Barrels per day

Egypt’s current largest oil refinery, the Cairo Mostorod refinery, is located in Mostorod, Qalyubia Governate and operated by the Egyptian Refining Company. Officially inaugurated in September 2020, the $4.3 billion refinery is the sixth largest in Africa by capacity. 

El Nasr Refinery – 132,000 Barrels per day

With a nameplate capacity of 132,000 bpd, Egypt’s El Nasr refinery is owned and operated by Nasr Oil. The refinery is the second largest in Egypt and contributes significantly to the country’s targeted energy independence, further positioning Egypt as a leading refining market.

Warri Refinery – 125,000 Barrels per day

The Warri refinery, located in Warri, Nigeria, is the country’s first Nigerian government wholly owned refinery. With an initial capacity of 100,000 bpd, later debottlenecked to produce 125,000 bpd of crude oil, the Warri refinery is the eight largest in Africa, and has positioned Nigeria as a West African downstream leader. 

Zawiyah Refinery – 120,000 Barrels per day

The Zawiyah refinery is Libya’s second largest crude oil refinery, located approximately 40km west of the capital city, Tripoli. Operated by the Zawia Oil Refining Company, the refinery has a distillation capacity of 6,000 tons per year and production of 120,000 bpd, consolidating its position as the ninth largest in Africa by capacity. 

Alexandria El Mex Refinery – 117,000 Barrels per day

Egypt’s Alexandria El Mex facility is a crude oil refinery wholly owned by the Egyptian General Petroleum Corporation. With a maximum refining capacity of 117,000 bpd, the refinery was built to meet domestic needs, while exporting approximately 20% of its production. 

Astron Energy Cape Town Refinery – 100,000 Barrels per day

Located in Milnerton, Cape Town, the Astron Energy owned and operated Cape Town refinery has a nameplate refining capacity of 100,000 bpd. It is currently the third-largest refinery in South Africa, however with the upcoming closure and conversion of Engen’s 125,000 bpd refinery, will become the second largest in the country and the tenth in Africa. 

Honorary Mentions

In addition to the existing crude oil refineries across the continent, many countries have launched new large-scale refinery projects to accelerate production and create viable, competitive downstream markets. The following are just some of the largest, by capacity:

Dangote Refinery – 650,000 Barrels per day

Located near Lagos in Nigeria, the Dangote refinery will be Africa’s largest oil refinery with an incredible capacity of 650,000 barrels per day (bpd). Forming part of petrochemical complex, the Dangote refinery will significantly reduce fuel imports, supplying the West African region with refined products. Scheduled for commissioning next year, the $19-billion refinery will be transformative for both the region and Africa. 

Lobito Refinery – 200,000 Barrels per day

Angola has launched a call for tenders for the construction of a 200,000-bpd refinery, dubbed the Lobito oil refinery. Forming part of the country’s National Development Plan 2018, the Lobito refinery will significantly increase the country’s domestic production capacity, while creating over 8,000 jobs. 

Energycapitalpower by Charné Hundermark, October 4, 2021

Measuring carbon intensity is about to become a big business, the Big Four accounting firms have announced huge expansions of staff and investment to cater to this new business opportunity.

Perhaps we’re paranoid, but we view this as a necessary predecessor to a carbon tax. The more accurately pollution is measured, the more accurately it can be taxed, at least in theory.

And on top of that, the carbon offset business, recently in the news when forests planted out west to offset carbon emissions burned down.

The carbon offset trade has set up a high level study of means to standardize and trade offsets, while disputing claims that offsets are nothing but licenses to pollute. Without offsets, big corporations will have to really reduce their emissions. Those carbon neutral pledges will go up in smoke, so to speak.

For now, though, we want to examine carbon intensity and risk. Carbon intensity is just one part of ESG investing— that is, considering the environmental aspects of any business, whether it meets social responsibility requirements and whether the company is governed up to standards.

ESG investing is not a goody-goody cottage industry. Funds supposedly following these standards have over $900 billion under management. We are not sure how well managed, though. DWS, a major German investment manager is now under investigation by US and German authorities for issuing misleading statements about the extent of the firm’s ESG investing.

The financial press speculates that more firms may run into trouble. Meanwhile, a think tank claimed that big fund managers had ESG portfolios not only misaligned with the goals of the Paris Accord but also owning oil and gas stocks.

A fund manager explained that the holdings represented “tilting strategies” that reduced the carbon footprint of the fund while still obtaining a benchmark return.

Sounds like “leaning in” to carbon mitigation without actually taking the full plunge. In other words, yes, these ESG oriented portfolios still own oil and gas stocks. Just less of them, that is, below their respective benchmark’s weighting. George Soros, the veteran fund manager, wants Congress to enact laws that require funds to invest only in companies that meet the governance (G) standard of ESG. What if the politicians add in the S and G standards? 

Keep in mind that there is a big difference between a lot of vague corporate discussions regarding deep and meaningful CO2 emissions reductions at some indefinite point between now and 2050 and what the corporation says in documents filed with the Securities and Exchange Commission (SEC).

The former says to us the corporation and its board see no urgent need to address this issue and may do so leisurely, perhaps in their 2045-2050 planning horizon. (In this vein we read recently that PacifiCorp, owned by Warren Buffett’s Berkshire Hathaway, announced the closure of its last Wyoming coal plant in 2039. Buffett is 91.) But misrepresenting actual investment policy in a securities prospectus is another matter entirely.

In fact it is a violation of SEC regulations and a federal crime.

You might think that separating out “bad” carbon emitters from the rest of a stock or bond portfolio is a simple matter. So called “ethical investors” refrain from owning securities in alcohol, tobacco and firearms firms.

Similarly investors should be able to eliminate oil, gas and coal stocks from their portfolios. For instance, N.Y. State’s main pension fund, with assets of $268 billion, is considering for disposal the less than $1 billion invested in shale and oil sands projects.

This is a fairly simple, straightforward decision, in or out, and it won’t make much difference to overall performance given the fund’s size. So what is the big deal?

A recent article by four fund managers and a finance professor (“Decarbonizing Everything”, Financial Analysts Journal, vol. 77, no.3) attempted to quantify carbon intensity.

The authors came up with three ways to evaluate the direct carbon emissions of a company. First they measured the total direct corporate carbon output of the company.

Second, they took the previous measurement and added the CO2 footprint of its suppliers and the users of the product it produces. Finally, a third measure was created based on Wall Street analysts’ opinions.

Imagine the difficulty of putting together these disparate measures on a consistent basis. It is not surprising to learn these three evaluative criteria did not produce consistent results.

The authors concluded that “significant progress needs to be made in the measurement and disclosure of … emissions…” This portends a lot of confusion before the standards settle down.

So, what are we getting at? First, the fossil fuel industry broadly, and this includes utilities as well, needs to recognize that measurement of carbon emissions will become a big business, akin to the bond ratings business of Moody’s or S&P.

Second, these measurements, we believe, are likely to extend beyond the fossil fuel business. This means users of fossil fuels as well as producers may soon find themselves under more financial pressure to rapidly cut emissions or pay higher pollution related taxes.

We already see the outline here with increasing public pressure on corporate polluters and an increasing receptivity of politicians to take action.

Eventually public pressure is likely to mount such that fewer and fewer business leaders will want to appear on the environmental activists’ equivalent of the FBI’s most wanted list.

Institutional investors with fiduciary responsibilities will not want to belatedly explain their reluctance to part with energy investments despite it being obvious (in hindsight) those investments were in peril.

Once this becomes a social movement, economics will become less important in decision making.

In short, investors have slowly begun a serious examination of carbon emissions. This quest, if pursued consistently, will take them beyond the fossil fuel and utilities industry.

And in doing so this will likely involve more industries that can change their spots so to speak and become “green”. Something which the fossil fuel industries cannot do easily if at all.

Ultimately what will a higher carbon emissions score mean for business, however it may be calculated? With an increasing realization regarding the environmental harm caused by various emissions, polluters will likely pay a higher cost of capital.

The growing threat of environmentalist lawsuits or onerous government regulation serve to elevate underlying business risk. All things being equal (which they seldom are) elevated business risk requires as an offset with the reduction in financial risk, i.e. debt levels to maintain the same overall risk profile.

However companies in the midst of major transitions are often voracious consumers of debt as they try to borrow and spend their way to a more prosperous future. In the interim, though, this strategy could result in lower stock prices and shareholder discontent.

OilPrice by Leonard Hyman, September 30, 2021

Sugar Land refiner CVR Energy proclaimed in May that it was shifting from crude refining to the growing demand for renewable fuels.

CVR planned to convert its Wynnewood, Okla., refinery to produce renewable diesel. Just three months later, severe February weather and a summer drought sent agricultural feedstock prices soaring and forced the company to postpone its $100 million conversion project.

“We have reached a point where we are ready to bring the hydrocracker down to complete the final steps of the conversion process,” CVR CEO Dave Lamp told analysts during a conference call in August. “However, renewable diesel feedstock prices have increased considerably, particularly for refined bleached and deodorized soybean oil to a level where the economics do not make sense for us to complete the conversion at this time.”

CVR’s setback underscores the challenges refiners face as the oil industry moves from petroleum to lower-carbon fuel sources to reduce carbon emissions and avert the worst consequences of climate change. Refiners face a conundrum: Continue to refine petroleum and risk climate change fallout, or rely on agricultural products at the mercy of Mother Nature and a warming planet.

“Over the last decade we’ve seen more extreme events,” said Patricia Luis-Manso, head of agriculture and biofuels analytics for S&P Global Platts. “Supply risks are increasing with climate change.”

They also face criticism for helping to boost the price of agricultural products at a time when the world’s growing population needs more and cheaper food.

These supply and climate change risks will have profound implications for refiners along the Gulf Coast, many of which are making the leap to renewable fuels amid growing public and investor concerns about climate change. The Houston area has the nation’s largest concentration of refineries, employing more than 4,800 workers, according to the Bureau of Labor Statistics.

The industry appears to be moving aggressively from petroleum and toward renewables. Houston refiner Phillips 66 is looking to convert its San Francisco Refinery in Contra Costa County, Calif., to a renewable fuels facility capable of producing 800 million gallons per year of a lower carbon fuel made from waste fats, greases and vegetable oils. The Rodeo Renewed project, supported by Southwest Airlines, is expected to be complete in early 2024.

San Antonio-based Valero and partner Darling Ingredients will expand capacity at its renewable diesel refinery Diamond Green Diesel in Norco, La., by 400 million gallons per year. The plant, which will process recycled animal fats, used cooking oil and inedible corn oil into diesel fuel, is on track to be completed in the middle of the fourth quarter of 2021. Valero also is expanding its renewable diesel production capacity at its Port Arthur facility by 470 million gallons per year by the first half of 2023.

Exxon Mobil last month said it plans to produce renewable diesel at its Strathcona refinery in Edmonton, Canada. The refinery, expected to produce about 20,000 barrels per day of renewable diesel, will use locally grown plant-based feedstock.

Chevron this month said it will invest $600 million in a soybean joint venture with Bunge, the world’s largest oilseed processor, to develop lower carbon intensity feedstocks. Marathon Petroleum, the Ohio-based spin-off of Houston company Marathon Oil, is converting an oil refinery in Martinez, Calif., to a biofuel refinery featuring renewable fuels from such biobased feedstocks as animal fat, soybean oil and corn oil.

Royal Dutch Shell and BP also are investing in biofuels, and TotalEnergies last year began producing aviation biofuels. Chevron intends to produce aviation biofuel for Delta Air Lines and track the emissions via Google Cloud.

Pros and cons

Refiners are interested in transforming agricultural products, also called energy crops, into biofuels because they burn cleaner than fossil fuels, releasing fewer pollutants and greenhouse gases such as carbon dioxide.

As countries around the world become more focused on decarbonization policies, setting up low-carbon targets or mandates to adopt low-carbon alternatives to reduce emissions, more refiners have turned to agricultural biofuels. Corn is turned into ethanol, sugarcane is used to produce bioethanol and soybeans are used to make biodiesel.

President Joe Biden in April pledged to reduce U.S. greenhouse gas emissions by at least 50 percent by 2030, in a push by the administration to aggressively combat climate change.

The Renewable Fuel Standard, a federal program that requires transportation fuel sold in the U.S. to contain a minimum volume of renewable fuels, requires that a portion of transportation fuels come from biofuels.

But bad weather is highlighting the volatility of using edible products as bio-based fuels.

In Brazil, the worst drought in almost a century followed by severe frost has reduced the sugarcane crop to the lowest in a decade, causing biofuels output to plunge to a four-year low at 7 billion gallons and sending prices to an all time-high at around $745 per cubic meter.

A severe drought in the Midwest and wildfires in Canada have also depleted food supplies, driving prices to new highs. The U.S. Department of Agriculture predicts the price of soyabean oil will average 65 cents a pound this year, more than double the price of two years ago.

Although new technologies are being developed to help reduce risk, including a variety of seeds that are more resistant to the elements, severe weather events and a finite supply of agricultural products emphasize the need for diversification of emission-reducing efforts.

Some companies are turning to advanced biofuels made from non-food-based feedstocks, including from agricultural and forestry residues, such as corn stalks and husks, and bagasse, grasses, algae and industrial waste.

In Brazil, a recent study from the Roundtable on Sustainable Biomaterials identified that potentially more than 125 percent of the country’s sustainable aviation fuel demand could be produced from bio-residues that are readily available, such as bagasse (the residue left over after processing sugar cane), wood chips and tallow.

But advanced biofuels haven’t reached the affordability and scale that traditional corn ethanol and soybean-based biodiesel have achieved.

In addition, traditional biofuels made from food crops emit only slightly less emissions than petroleum-based fuels once fertilizers, transportation and processing are accounted for, according to Daniel Cohan, associate professor in the Department of Civil and Environmental Engineering at Rice University.

“It will be important to transition to biofuels that are made more efficiently from agricultural and forestry wastes or algae,” Cohan said.

Competing with food

Several U.S. refiners, including CVR, are taking the leap from traditional petroleum-based fuel to biofuels. But, in addition to bad weather and the higher cost of advanced biofuels, the transition also raises the broader question of whether society should be using food to produce fuel.

Demand for biofuels made with agriculture crops as a lower carbon replacement for oil in the energy transition reduces potential food supplies in a world with a growing population. Using corn, soybean and other agricultural products as a replacement for oil comes as the world is expected to add 2 billion people that will need more food, according to S&P Global Platts.

“The more that we rely on food crops for fuel, the more vulnerable we will be to having food or fuel shortages when extreme weather disrupts crop production,” Cohan said. “The hope has always been that we would start making more of our biofuels from other biomass materials rather than from food.”

Yet, petroleum refineries have proven to be an increasingly risky investment amid the global pandemic and as more electric vehicles are hitting highways around the world.

The pandemic, which brought a substantial decrease in demand for motor fuels and refined petroleum products, also contributed to the plight of refiners, with several plants closing last year. As a result, refinery capacity in the U.S. decreased by 4.5 percent to a total of 18.1 million barrels per calendar day at the start of 2021, according to the Energy Department.

Some companies are selling off refineries, including Phillips 66, which in August began seeking a buyer for its Alliance refinery in Belle Chasse, La.

Refiners also are facing the expansion of the electric vehicle landscape, decreasing the need for biofuels. Electric cars and trucks use an electric motor powered by electricity from batteries or a fuel cell.

The shift would have major economic ramifications for the state’s oil and gas industry. Transportation accounts for about a quarter of total U.S. energy consumption and is currently dominated by petroleum products such as gasoline and diesel.

The International Energy Agency has estimated that electric vehicles displaced nearly 600,000 barrels of oil products per day in 2019. That figure is expected to grow to 2.5 million barrels per day by 2030.

“To address climate change, it won’t be enough to merely replace petroleum-based fuels with food-based ones, but instead we’ll need to transition to cleaner options like advanced biofuels, electricity, or cleanly produced hydrogen,” Cohan said.

HoustonChronicle by Marcy de Luna, September 29, 2021

The UK government has decided to temporarily suspend competition rules for the country’s downstream oil sector in an attempt to alleviate supply-chain issues at fuel service stations.

The measure — known as the Downstream Oil Protocol — will exempt the industry from competition legislation so information can be shared and fuel supply optimised. “While there has always been and continues to be plenty of fuel at refineries and terminals, we are aware that there have been some issues with supply chains,” business secretary Kwasi Kwarteng said. “This is why we will enact the Downstream Oil Protocol to ensure industry can share vital information and work together more effectively to ensure disruption is minimised.”

The government has implemented the long-standing contingency plans after a sustained period of panic buying by motorists over the past few days forced many UK fuel service stations to close, with others running short of at least one grade of gasoline or diesel. The rush on service stations began late last week when it emerged that a shortage of qualified heavy goods vehicle (HGV) drivers had disrupted fuel supply to some forecourts. BP, which operates the largest number of filling stations in the UK, said at the time that 50-100 of its more than 1,200-strong network were running out of at least one grade of fuel and that a handful had been forced to close temporarily.

The supply chain problems have since been exacerbated by unusually high demand from motorists concerned about a looming fuel shortage, with long queues forming at service stations over the weekend. The exact number of filling stations affected is unclear. ExxonMobil and Shell, which operate the second- and third-largest number of fuel service stations in the UK, both declined to say how many of their forecourts had run out of fuel. But ExxonMobil stressed that fuel supply to its distribution terminals is normal and urged drivers to stick to their usual buying patterns, and Shell said it is working hard to ensure supplies for motorists. “Since Friday [24 September] we have been seeing higher-than-normal demand across our network which is resulting in some sites running low on some grades. We are replenishing these quickly, usually within 24 hours,” Shell said.

The Petrol Retailers Association (PRA) — representing independent fuel retailers, which now account for 65pc of the UK’s more than 8,000 forecourts — said it is impossible to ascertain how many of its members’ service stations have been affected. But it said its chairman, Brian Madderson, has spoken to a number of members who between them run around 200 sites and they reported 50-90pc are dry.

The PRA said it does not know how long the disruption will last. “However, our assessment is that if most vehicles are now full, this gives some respite to replenish the tanks,” executive director Gordon Balmer told Argus.

The UK Petroleum Industry Association (UKPIA) — a trade body representing refiners, renewable fuel producers, terminal operators and filling stations — has reassured the public that there are no reported issues with the production, storage or import of fuels.

Temporary visas

Supply chain delays caused by the shortage of HGV drivers are not unique to the UK’s downstream oil sector. They are being seen across the country’s economy, notably in the food industry. Freight industry group Logistics UK estimates that the country needs around 90,000 more HGV drivers. The UK’s Road Haulage Association published a report on the shortage in July, in which it identified Brexit, Covid-19, an ageing workforce, tax changes and unsatisfactory pay as being among the key factors.

The government announced a package of measures to tackle the shortage on 25 September, including a plan to give temporary visas to 5,000 HGV drivers for three months in the run-up to Christmas and deploying ministry of defence examiners to increase driver testing capacity. The government acknowledged that fuel tanker drivers need additional safety qualifications, and said it will work with industry to ensure people can access these as quickly as possible.

Argus by James Keates, September 29, 2021

The COVID pandemic has wreaked considerable damage on the economies of South America’s smaller fiscally fragile countries, with the former Dutch colony of Suriname hit especially hard.

During 2020 the impoverished South American nation’s gross domestic product shrank by 13.5%, the continent’s worst performance after Venezuela. A deeply impoverished Suriname now finds itself mired in a severe economic crisis that is threatening an already fragile state that only emerged from an intense political impasse during July 2020.

The depth of Suriname’s economic problem is reflected by the former Dutch colony defaulting on scheduled debt service payments for $675 million of sovereign debt during 2020. Since then, Paramaribo has been negotiating with creditors to cure the default. That resulted in international credit agencies Fitch Ratings and S&P Global Ratings downgrading Suriname’s credit rating.

President Chan Santokhi, who won the tiny South American country’s top office in the July 2020 election, is battling to resurrect a flailing economy and cast off the corruption as well as the malfeasance of the Bouterse administration. Like in neighboring Guyana, Santokhi’s government plans to exploit what appears to be Suriname’s considerable offshore petroleum wealth to revitalize the economy, bolster government finances and return the former Dutch colony to growth.

Despite Suriname only possessing oil reserves of 89 million barrels, the tiny South American nation possesses enormous oil potential. The impoverished country shares the Guyana Suriname Basin, which the U.S. Geological Survey estimates contains up to 35.6 billion barrels of undiscovered oil resources. Already, neighboring Guyana is experiencing a massive oil boom that saw its GDP expand by an exceptional 43% during 2020.

Exxon’s slew of quality oil discoveries in the Stabroek Block offshore Guyana, with the latest at the Pinktail well, point to even greater petroleum potential. Exxon along with partner Malaysian national oil company Petronas, which is the operator, found the presence of hydrocarbons at the 15,682-foot Sloanea-1 exploration well in offshore Suriname Block 52. The 1.6-million-acre Block 52 and neighboring 1.4-million-acre Block 58 are believed to lie on the same hydrocarbon fairway as the prolific Stabroek Block.

That proposition is supported by the five quality oil discoveries made by Apache and TotalEnergies, the operator, in Block 58 where they both hold a 50% interest.

Investment bank Morgan Stanley in 2020 announced that it had modeled the oil potential for Block 58 and determined that it could contain oil resources of up to 6.5 billion barrels.

Industry consultancy Rystad Energy estimates that the five discoveries made in offshore Suriname up until the end of June 2021 hold recoverable oil resources of up to 1.9 billion barrels of crude oil.

At the June 2021 Suriname Energy, Oil and Gas Summit Apache’s Vice President Global Geoscience and Portfolio Management Eric Vosburgh stated; “What I would say is that the ultimate scale of the resource and production potential is big. I think I need a word bigger than big, but it’s big.”

Apache and partner TotalEnergies are committed to developing Block 58. At the start of 2021, Apache announced that most of its annual $200 million exploration budget will be directed toward drilling in Suriname.

TotalEnergies set a 2021 exploration budget allocated $800 million with the energy supermajor devoting a third of its exploration appraisal activities to Block 58.

While plans to develop the block have yet to be released TotalEnergies and Apache are expected to make their final investment decision during mid-2022 and work toward first oil by 2025. Suriname’s national oil company and industry regulator Staatsolie has the right to farm into Block 58 and take up to a 20% stake, which would see it liable for $1 billion to $1.5 billion in development costs.

Paramaribo is also focused on attracting further energy investment in Suriname recently awarding three shallow-water blocks to foreign energy supermajors. TotalEnergies and partner Qatar Petroleum won Blocks 6 and 8, which are adjacent to Block 58, and Chevron was awarded Block 5.

That region is underexplored and thought to possess considerable petroleum potential. 

The medium and light crude oil found in Block 58 has similar characteristics to the Liza grade crude oil being pumped from the neighboring Stabroek Block. When that is combined with a low estimated breakeven price of around $40 per barrel Brent it is easy to see why offshore Suriname is especially attractive for international energy companies.

As further petroleum discoveries are made, oilfields developed and infrastructure built the breakeven price for offshore Suriname will fall to under $40 per barrel, making the region competitive with neighboring offshore Guyana and Brazil. 

The downgrades to Suriname’s credit rating will make it difficult for Paramaribo to raise urgently needed capital including that required by Staatsolie to exercise its farm in option for Block 58.

International ratings agency Fitch in April 2021 announced it had downgraded Suriname to restricted default (RD) after the government failed to make $49.8 billion of payments on its 2023 and 2026 notes.

That event according to the ratings agency was Suriname’s third default since the pandemic began in March 2020.

Those events highlight why Paramaribo must resolve the negotiations with creditors and the potential for a sovereign debt default if it is to build further momentum for the exploitation of Suriname’s vast offshore petroleum resources.

The current economic crisis coupled with the economy shrinking by nearly 14% last year emphasizes why Paramaribo must attract further investment from foreign energy companies so it can experience a massive economic boom like the one underway in neighboring Guyana.

It is French oil supermajor TotalEnergies which is positioned to become a leading player in Suriname’s emerging offshore oil boom.

Oilprice by Matthew Smith, September 22, 2021

WTI oil has recently made several attempts to settle above the $70 level but failed to gain additional upside momentum and pulled back.

However, WTI oil remains close to this psychologically important level and has a good chance to get back to yearly highs in the remaining months of this year.

It is already clear that coronavirus-related concerns have failed to put big pressure on oil as many traders were ready to buy any significant pullback. As a result, WTI oil has quickly rebounded from the $62 level to the $70 level.

While the situation with coronavirus remains a big concern for oil traders, recent data suggests that the number of new daily cases in the world has started to decline. Importantly, the number of daily deaths has began to decline as well.

Watching this grim data may be more important to the analysis of potential coronavirus-related restrictions around the world as governments will likely focus on critical cases and deaths rather than on total caseload as vaccination progresses.

Meanwhile, recent inventory reports indicated that crude inventories continued to decline. According to the latest EIA Weekly Petroleum Status Report, U.S. commercial crude inventories declined by 7.2 million barrels from the previous week. U.S. domestic oil production increased from 11.4 million barrels per day (bpd) to 11.5 million bpd but it will take a hit in the upcoming reports due to the negative impact of Hurricane Ida.

OPEC+ has recently decided to stick to its plan to raise oil production by 0.4 million bpd per month as the organization believed that demand recovery was strong despite challenges presented by the spread of the Delta variant of coronavirus.

In fact, OPEC+ increased its demand growth outlook for 2022 to 4.2 million bpd. The economic rebound continues at a robust pace thanks to the strong support from the world’s central banks and governments, and demand for oil looks strong as well.

The key question for the oil market is whether the world will have to deal with another wave of the virus at the beginning of the flu season in the Northern Hemisphere. More coronavirus-related restrictions may put pressure on demand growth, but governments’ desire for new lockdowns appears limited except for countries like Australia and New Zealand, which are located in the Southern Hemisphere.

In case developed countries manage to get through the beginning of the flu season without new restrictions, oil demand will continue to grow while crude inventories will remain under pressure. In this bullish scenario, WTI oil will have a good chance to test yearly highs near the $77 level.

Let’s start with the weekly chart. WTI oil failed to get to the test of the 50 EMA as it received strong support near the $62 level. The rebound was very strong, and WTI oil has quickly managed to get back above the 20 EMA which is located at $67.60.

Currently, WTI oil is stuck between the support at the 20 EMA and the resistance at the psychologically important $70 level. RSI is in the moderate territory, and there is plenty of room to gain additional upside momentum in case the right catalysts emerge.

In case WTI oil manages to get back above the $70 level, it will head towards the next resistance at the $74 level. A move above this level will open the way to the test of the resistance which is located at yearly highs at the $77 level.

On the support side, a move below the 20 EMA will push WTI oil towards the recent lows near the $62 level. Oil ignored technical levels during the recent moves in the $62 – $67 range, but it remains to be seen whether it will be able to gain strong downside momentum and quickly get to the test of the recent lows near $61.75 as the oil market looks ready to buy strong pullbacks.

As usual, more levels can be found on the daily chart. However, it should be noted that the road to yearly highs still looks rather easy in case oil manages to settle above the resistance at the $70.

Most likely, the market will attract more speculative traders once oil settles above $70, and oil may quickly get to the test of the next resistance at $72.50. A move above this level will push oil towards the above-mentioned resistance at $74.

On the support side, a move below $67.60 will open the way to the test of the support level at $66. In case oil declines below this level, it will head towards the next support at $64. If oil manages to settle below the support at $64, it will move towards the support at the recent lows at $61.75.

S&PGlobal by Surabhi Sahu, September 14, 2021