Category: Nieuws

Market levels are expected to remain at current levels, with medium sour grades seeing support from the heightened pace of buying. Crude oil eased early in the week as traders weighed the potential near-term oil demand impacts of rising coronavirus cases around the world amid concerns about the effectiveness of vaccines against its omicron variant that weighed on market sentiment.

The World Health Organization said omicron poses a very high global risk. A strengthening in the US dollar also weighed on oil prices. Pfizer and BioNTech pharmaceutical companies said preliminary laboratory studies demonstrate that three doses of the Pfizer-BioNTech COVID-19 vaccine neutralize the omicron variant while two doses show indications of a significant increase in protection.

Crude oil prices averaged about 2 percent higher, despite persistent market volatility and an uncertain demand outlook amid concerns about omicron. Going forward, the market structure will depend heavily on the demand part of the equation, while a weaker oil market structure will probably weigh on market sentiment in the near term.

China’s announcement that it would cap overall emissions rather than restrict energy consumption to meet its climate goals could be a positive boost to the oil market.

However, oil prices came under further pressure after the International Energy Agency showed lower global oil demand growth forecasts for 2021 and 2022. Crude oil prices settled slightly higher, reversing earlier losses after the EIA’s weekly data showed the largest US crude draw last week since September, exceeding market expectation. Oil prices were supported with higher equity markets, as investors weighed the US Fed’s decision to tighten monetary policy to slow rising inflation.

While crude production growth outside of the OPEC+ remained just 90,000 barrels per day, industry reports suggest the figure to rise to 1.5 million bpd in 2022 and 0.9 million bpd in 2023. The reports said most growth will come from the US and its Strategic Petroleum Reserve release could add an additional 400,000 bpd to the global oil supply pool.

The IEA’s latest market outlook had a more bearish outlook for global oil balances in the first half of 2022. It now sees a surplus of 1.7 million bpd materializing in the first quarter of 2022 and a surplus of 2 million bpd in the second quarter of 2022.

December and January balances could tighten further as a major pipeline outage in Ecuador has forced crude production shut-ins which we estimate will take about 120,000 bpd of supply off the market on average in December and could potentially negatively impact January output too. Moreover, Russia’s crude and condensate production growth has slowed down recently because the country is running out of spare production capacity.

However, from January 2022, global crude balances are expected to be in surplus.

On the other hand, global prices of liquefied natural gas are trading at record highs. Prices will only fall from spring if Nord Stream 2 is commissioned but the world must get ready for another bumpy year ahead.

ArabNews by Mohammed Al-Shatti, December 20, 2021

France’s TotalEnergies (TTEF.PA), Royal Dutch Shell (RDSa.L), Malaysia’s Petronas and Qatar Energy on Friday scooped up big offshore fields in Brazil together with state-owned Petrobras, paying nearly $2 billion to its cash-strapped government.

While TotalEnergies (28%), Qatar Energy (21%) and Petronas (21%) made the top offer for Sepia field, Petrobras, formally Petroleo Brasileiro SA (PETR4.SA), later entered the consortium by exercising preference rights to take a 30% stake.

Petrobras (52.5%), Shell (25%) and Total (22.5%) secured the nearby Atapu field.

Officials, who had been keen to attract major foreign players, deemed the auction a success, and analysts said the offers agreed to were relatively rich.

The selloff was widely seen as a test of Brazil’s investment climate and of large oil producers’ willingness to keep spending big on traditional oil assets, despite increasing pressure over climate change and toward energy transition.

TotalEnergies, which snapped up a stake in both blocks, said the investment will bring output with “costs well below $20 per barrel of oil equivalent” and with carbon emissions rates below industry levels.

“These are unique opportunities to access giant low-cost and low emissions oil reserves,” CEO Patrick Pouyanné said in a statement.

Signing bonuses were fixed in reais at the equivalent of $1.3 billion for Sepia and $740,000 for Atapu. Companies bid for a percentage of the production they were willing to share with the government, winning the highest: 37.43% for Sepia and 31.68% for Atapu.

Petrobras, TotalEergies and Shell shares fell on Friday, following a 2.60% decrease in Brent prices.

Brazil attempted to auction both fields in 2019, but neither received offers, even from Petrobras. At the time, complex legal issues and rich signing bonuses kept oil majors away.

This time, the bidding terms were considered more attractive, several industry sources told Reuters, largely due to big cuts in both signing bonuses and minimum profit oil.

Government moves to streamline rules and lower fees “drew bids well above the minimums for both assets,” said Andre Fangundes, vice president of consultancy Welligence.

“Companies were more aggressive than we expected,” said Marcelo de Assis, head of Latin America upstream research at Wood Mackenzie.

Eleven companies signed up for the chance to bid on Friday. Exxon Mobil Corp (XOM.N)made final arrangements to bid together with Petrobras and a subsidiary of Portugal’s Galp Energia SGPS SA (GALP.LS), people close to the negotiations said, but never presented a final offer.

Oil majors will be able to add production to their portfolios in the short term. Petrobras is ramping up production at Sepia to 180,000 bpd and has reached the 160,000 bpd maximum capacity at Atapu. A second platform is planned for each field.

Cementing Brazil’s status as Latin Americas biggest oil producer, the two fields could boost the country’s production by 12% over the next six years, adding 700,000 bpd, and bringing in almost $40 billion in investment, its energy ministry said after the auction. Petrobras is set to receive $6.2 billion for past investments in the two fields.

Reuters by Gram Slattery, December 20, 2021

Oil supermajor Shell is facing some big changes in its future as stakeholders approve the long-talked-about move from the Netherlands to the U.K. This follows months of controversy over its scheduled North Sea Cambo oilfield project, resulting in Shell’s withdrawal from the development, and its huge drive to invest in renewables over the next decade. These are just a few of the major shifts in Shell’s energy strategy that suggest the company will undergo a substantial transition in the coming years. 

Last week, 99.8 percent of Royal Dutch Shell stakeholders approved the company’s move to London, which it hopes will help simplify its dual tax structure and make it more competitive. This could lead to a transformation like that seen by Total’s name change to TotalEnergies earlier this year, as Shell drops the ‘Royal Dutch’ to become Shell PLC.

The move is likely linked to a legal case loss earlier in 2021 when a Dutch court ruled that Shell must decrease its carbon emissions by 45 percent by 2030, in line with national aims to decarbonize the economy. Shell has already announced a net-zero carbon emissions target for 2050 and aims to reduce its emissions by 45 percent by 2035, five years behind the ruling. 

But Shell insists that the move will merely simplify its complicated dual-class share system, currently incorporated in the U.K. but with Dutch tax residence. Nick Stansbury, head of climate solutions at Legal and General Investment Management, a major Shell shareholder, explains, “We think this is actually a relatively routine bit of corporate simplification, a kind of corporate tidying up exercise to deal with a complex bit of historical legacy that is simply no longer needed in the world that Shell now lives and operates in.”

Shell stocks have dropped slightly since the announcement, from $44.14 on Friday 10th December to $42.83 the following Wednesday. However, uncertainty around the latest wave of Covid-19 infections and the worldwide implementation of greater restrictions have hit several oil and gas stocks hard in recent weeks. Shell believes the move will ultimately be positive for its stakeholders, as well as for its planned projects in both fossil fuels and renewables. 

Shell’s Chair, Sir Andrew Mackenzie stated of the proposal last month, “The simplification will normalize our share structure under the tax and legal jurisdictions of a single country and make us more competitive. As a result, Shell will be better positioned to seize opportunities and play a leading role in the energy transition.”

The company has already promised major changes to its portfolio following the dip in oil and gas demand during the pandemic, as well as in response to international pressure to decarbonize operations. Much like other oil majors, Shell is doubling down on its investments in renewables, earmarking between $5 and $6 billion a year for green energy. Representatives have previously stated that oil production most likely peaked in 2019 and now is the time to get ahead of the game when it comes to alternative energy development. 

Its objective is to sell around 560 terawatt-hours annually by 2030, twice its current electricity sales. Building upon its current hydrogen operations, Shell hopes to develop integrated hydrogen hubs to serve both industry and heavy-duty transportation, expecting to achieve a double-digit share of the world’s clean energy sales. 

In the mid-term, Shell announced a $565 million investment for renewable energy projects in Brazil through 2025, earlier this year. Developments include largescale solar fields and a natural gas-fired thermal plant, which could start generating energy as early as 2022. 

However, the oil major was repeatedly criticized this year for its ongoing interest in the development of the Cambo oilfield in the North Sea, particularly following the COP26 climate summit that took place in Glasgow this November. Until this December, Shell was pursuing the further exploration and development of Cambo, seemingly contradicting its pledge to move away from fossil fuels and decarbonize operations. But following mounting public pressure, Shell ultimately withdrew from the Cambo oilfield development last week, forcing Siccar Point Energy to put the project on hold. 

Siccar Point’s CEO, Jonathan Roger, expressed disappointment in Shell’s decision to exit the project. He still believes that “Cambo is a robust project that can play an important part of the UK’s energy security, providing homegrown energy supply and reducing carbon-intensive imports, whilst supporting a just transition.”

So, the jury is out on how dedicated Shell is to reducing its carbon emissions by 45 percent by 2030, as ruled in the Netherlands earlier this year, especially following its recent decision to move to the U.K. However, its recent withdrawal from Cambo, as well as a significant increase in its renewable energy investments over the last year, suggest that Shell is open to diversifying its portfolio, as it aims to get ahead of the competition in several green energy areas.

OilPrice by Felicity Bradstock, December 17, 2021

Brent prices and particularly calendar spreads are being hammered by the rising number of confirmed coronavirus cases around the world, which is threatening tougher international travel restrictions and renewed domestic lockdowns.

Brent spreads have slumped since the start of November, roughly two weeks after the seven-day average new case count started rising in the middle of October, according to global statistics compiled by Our World in Data.

There has been an inverse correlation between the two since the start of the year, as the ebb and flow of infections produces a relaxation and tightening of quarantines and other restrictions impacting oil consumption.

Brent’s calendar spread between futures contracts for February and March 2022 has slumped to a backwardation of just over 20 cents per barrel, down from a peak of more than $1.20 at the start of November.

The seven-day average number of new confirmed cases around the world has climbed to almost 620,000 per day from just 400,000 in the middle of October.

The new wave of infections is likely being driven by a combination of seasonal factors (respiratory diseases spread more rapidly in the northern hemisphere winter) and the emergence of the more transmissible Omicron variant.

The seasonal increase was widely anticipated by policymakers and traders, but the scale and suddenness was not, prompting an abrupt tightening of quarantines and social-distancing controls.

TIDE OF ANXIETY

Previous waves of new coronavirus infections in February-April and June-August also produced a softening of Brent calendar spreads.

But the most recent wave has coincided with growing concerns about rising inflation, the health of the global economy and the outlook for oil consumption in 2022.

And the earlier oil price rise between August and October has triggered a belated release of emergency reserves, led by the United States, adding to supply in the next few months.

The result has been a huge swing in spreads, accelerated and amplified by liquidation of a large number of hedge fund positions, most of them concentrated in nearby futures contracts.

If coronavirus behaves like other respiratory infections, the number of new cases is likely to continue rising for at least another month, though social distancing, health regulations and vaccinations may blunt the increase.

While new cases are accelerating, pressure for greater restrictions on the number of social contacts and cross-border movements will continue to weigh on forecasts for oil consumption.

Brent prices and calendar spreads are therefore likely to remain under pressure until there are clearer signs the new wave is being brought under control by some combination of controls, the arrival of spring weather, or growing acquired immunity in the first quarter of next year.

Reuters by David Evans, December 17, 2021

Recovering economies this year have resulted in a robust rebound in oil demand, disproving some projections from the onset of the pandemic in 2020 that the world had already seen peak oil demand.

Despite scares of new variants, such as Delta and lately, Omicron, global oil demand is on track to reach pre-pandemic levels within months and to further rise in coming years. Peak oil demand is not in the cards in the near future, analysts say.  

Oil investors surveyed by Bloomberg Intelligence in November have also significantly recalibrated their expectations of peak oil demand over the past two years.  

Two and a half years ago, a fifth of oil investor clients polled by Bloomberg Intelligence said that oil demand would peak by February 2021, BloombergNEF’s Chief Content Officer Nathaniel Bullard notes. In June 2019, another one-third of oil investors thought we would see global oil demand peak by 2025. In previous surveys, most investors expected peak oil demand by 2030. 

But the latest survey from last month showed a stark difference in the general timeline to peak oil demand compared to the previous four polls.

Currently, just 2 percent of oil investors believe peak oil demand will occur by 2025, and fewer than 40 percent see that peak before 2030. One-third of investors expect oil demand to peak between 2025 and 2030, but another one-third think that peak would be after 2030, at some point between 2030 and 2035.  

Mid-2030s is currently OPEC’s timeline for peak oil demand. Global oil demand is expected to continue to grow into the mid-2030s to 108 million barrels per day (bpd), after which it is set to plateau until 2045, OPEC said in its 2021 World Oil Outlook (WOO) earlier this year. OPEC sees oil demand growing “strongly” in the short- and medium-term before demand plateaus in the long term. 

Despite expected plateauing demand in the long run, oil will continue to be the fuel with the single largest share of the global energy mix by 2045, meeting 28 percent of energy demand then, OPEC Secretary General Mohammad Barkindo said last month, stressing the need for investments in oil supply to meet consumption. 

Demand is set to grow, as the world still runs on fossil fuels which account for around 85 percent of total global energy demand. 

The most meaningful dent to oil demand is likely to come from electric vehicles (EVs), which, in some countries, have started to eat away at oil demand for road transportation. 

Nevertheless, it will take years to see road fuel demand globally severely impacted by electrification in transportation. 

According to BloombergNEF’s Electric Vehicle Outlook 2021, EVs of all types are already displacing well over 1 million barrels of oil demand per day. In its Economic Transition Scenario, BloombergNEF sees oil demand from road transport overall peaking in 2027 and then declines steadily from there.  

EVs have the potential to displace some oil demand, but the world as a whole is not there yet, other analysts say. 

“When the impact of the pandemic on world oil markets was at its height, there was talk that we had already passed the point of “peak demand”, and consumption would never again be higher than it was in 2019. Wood Mackenzie analysts did not believe it at the time, and their scepticism is being vindicated,” Ed Crooks, Vice-Chair, Americas at Wood Mackenzie, wrote in October. 

“Peak demand will come only through long-term structural changes, most immediately in light road transport, and those take time. There are signs that the surge in EV sales in Europe may be starting to chip away at road fuel demand there, but most of the world is not there yet. As the impact of the pandemic continues to fade, that is likely to become increasingly apparent,” Crooks noted. 

OilPrice by Tsvetana Paraskova, December 15, 2021

Mexican energy sector regulator CRE has implemented a sweep of inspections in the retail fuel sales market, leading to new actions against Valero and Bulkmatic de México. 

US officials have complained about inspections that have involved the national guard.

Private firms have been subject to inspections for months, aimed at squeezing them out of the local fuel sales market and quashing the rollout of private gasoline stations that began with the implementation of the 2013-2014 energy reforms.

Former CRE commissioner Montserrat Ramiro told BNamericas CRE’s strategy “is negative for the development of the country” and “bad news” for consumers.

“Not only is it placing an excessive burden on the Mexican state and public finances, it’s hanging up a sign to show the world just how unwelcome private investment is in Mexico,” she added. 

According to daily Reforma, CRE seized 480,000b, or 73.6Ml, of fuel planned to be sold at ExxonMobil and Marathon service stations. The fuel was stored at a hydrocarbons facility owned by logistics firm Bulkmatic. 

If the fuel is not released, some Exxon and Marathon stations would run dry during the week, Bulkmatic México president Alejandro Doria said in a statement. 

Ramiro said the restricted supply will lead to rising prices. “The role of the regulator is to protect consumers and citizens and that is not happening now.”

CRE inspected various private fuel import terminals Friday and Saturday, also closing Valero’s rail terminal and storage facility in Nuevo León state, according to local outlet Oil & Gas Magazine.

The site is a key distribution center for fuel arriving to the Monterrey area and critical for Valero’s US$1bn plan to boost its fuel distribution and sales network.

These two incidents follow similar ones in August and September with CRE shutting down privately owned hydrocarbons storage terminals in Tuxpan, Veracruz, in Puebla state, and in Hermosillo, Sonora state. 

Investments in those storage terminals are estimated at US$1.5bn, as reported by energy news outlet Energía a Debate.

CRACKDOWN RATIONALE

Government officials have framed the crackdown as part of efforts to halt the illegal fuel market trade. 

However, it comes after 18 months of slowed permitting for sales, transportation, distribution, and storage fuel retailers. Also, legislation, albeit mostly challenged in the courts, is looming that would make it more difficult to compete with national oil company Pemex and its stations.

Consultancy eServices estimated that 1,000 such permits remain pending CRE approval, of which 50% correspond to gas stations, adding that the lack of permitting has cost the industry roughly US$100mn.

Critics are already framing the latest moves as a broad effort to use the regulators, who arrived at sites backed by national guard troops, to generally undermine private sector participation, given President Andrés Manuel López Obrador’s (AMLO) statist vision. 

CONSEQUENCES

In response to the closure of the Bulkmatic terminal in Salinas Victoria, Doria told Reforma that litigation is underway. “Right now, while the search is in progress, nothing is moving, because it is exhaustive, they’re checking under the rug.”

Bulkmatic’s Salina Victoria 2, also located in Nuevo León state, typically stores 87 and 92 octane gasoline and diesels.

Reforma quoted IHS data service OPIS as reporting that the CRE audits are coming just as Mexico is implementing actions to reduce illegal fuel imports and Pemex is losing market share.  

Even the US market is concerned because the crackdown could imply the suspension of operations at US refineries, whose products are sold in key markets such as Monterrey. “Big companies like Exxon and Valero are not going to import fuel illegally or off-spec,” OPIS cited one fuel broker as saying. 

US ANGER

On November 17, Louisiana senator John Neely Kennedy sent a letter to US energy secretary Jennifer Granholm, pressing for action to halt threats to US energy firms’ operations in northern Mexico. 

Kennedy, a ranking member of the US senate appropriations energy and water subcommittee, urged her to address the shutdown of US fuel storage facilities in Mexico.

“Recent reports indicate that AMLO is using a militarized police force to prevent the operation of US businesses … AMLO’s strategy includes undermining other privately-owned, American renewable energy facilities,” the letter said.

“It is obvious what is going on here – AMLO’s shutting down all foreign competition for his state-owned company, Pemex, and so far he’s getting zero resistance from US officials in the Biden Administration,” Kennedy wrote. 

Texas governor Greg Abbott sent a letter to President Joe Biden the same day, saying Mexico’s actions to curtail competition for Pemex have steadily escalated, He cited recent reports that Mexico was using national guard troops to shut down fuel storage assets owned by Texas-based Monterra Energy.

“Other American companies face similar operational threats,” wrote Abbott. “Despite these companies’ continued efforts to work with Mexican regulators, multiple facilities remain closed and under the supervision of the militarized police force, leaving Texas companies and their employees in an untenable situation.” 

Abbott urged Biden to “immediately engage” with Mexico and facilitate the “immediate withdrawal of the Mexican military from US-owned business interests and convey that no further actions to undermine energy development, production, or transmission activities will continue.”

AMLO met Biden and Canada’s Prime Minister Justin Trudeau in Washington DC for a USMCA summit on November 18, but it is not known if the matter was discussed.

By BNAmericas, November 30, 2021

Asian oil refiners are starting to see a recent resurgence in profitability go into reverse, eroding a source of demand strength that helped drive crude prices to a seven-year high last month.

Margins from processing crude across Asia slipped from recent highs this month as the return of some Covid-related travel curbs in China hit jet-fuel consumption, undermining progress made in opening up travel between countries with high vaccination rates. 

At the same time, an early rush for back-up winter heating fuels including diesel has eased as concerns over natural gas and coal shortages abate, and panic over energy crises in China and India ebbs. As the fuel-buying frenzy — backed by anticipated gas-to-oil switching — gives way to a more moderate pace of consumption, Asian refiners are taking a hit to their profits. 

Those dynamics offer another headwind to oil prices that are already faltering because of concerns about governments dropping strategic petroleum reserves into a market in which supplies are soon expected to pick up anyway.

“The market overreacted to the whole gas-to-oil switching, assuming a cold winter and reduced refinery supplies,” said Sri Paravaikkarasu, Asia oil lead at FGE. “Refineries globally are returning from maintenance and a big switch to oil hasn’t happened yet.”

FGE sees profits from converting crude to oil products for complex refiners in Asia at $4.25 a barrel in November, coming off from October when they stood at $5.10. The industry consultancy expects them to dip to $3.20 in December, before sliding further in January and February.

Last month, the region’s margins received a boost from a strong diesel market as China raced to produce and hoard more of the fuel that’s used in heavy vehicles, industries as well as in small-scale power generation sets. Skyrocketing coal and natural gas prices had prompted the rush, amid a near-crisis situation that China eventually averted through a series of initiatives to halt exports, boost imports, raise refinery output and ration pump sales.

Total exports of gasoline, diesel and jet fuel from China in October at about 564,000 barrels a day were a third lower than the average shipments in the previous nine months, according to Vortexa. Outbound diesel shipments saw the biggest decline as the country sought to preserve supplies for winter. The world’s largest oil importer also ordered an aggressive ramp up of coal production, which took more pressure off diesel. 

Chinese fuel-export policy is the wild card, Bloomberg Intelligence analysts Horace Chan and Henik Fung said in a note on Thursday. The Asian refining giant’s presence in regional gasoline and diesel markets has faded since July, but overseas shipments may increase if fuel cracks rise and the country’s domestic power shortage eases, they said.

A cold winter could turn things around for refiners again, said Paravaikkarasu. Asia’s total oil product demand is likely to rise by 5.8% next year, the firm estimates. On top of that, regional fuel margins are likely to find some support since China slashed exports of diesel and gasoline.

“As manufacturing and industrial activity gathers more pace, we expect regional gasoil demand to recover to pre-pandemic levels in the first quarter of 2022,”she said.

Rigzone by Saket Sundria, November 25, 2021