Category: Nieuws

The warning signals are starting to flash for the profit margins of oil refiners in Asia with high crude prices threatening demand just as many of the region’s economies start to emerge from the coronavirus pandemic.

The profit from turning a barrel of Dubai crude into products at a Singapore refinery , the regional benchmark, dropped to $6.36 on Feb. 18.

The measure has fallen 24% from the recent peak of $8.37 a barrel on Feb. 14, which was the highest since the $8.44 recorded in late October last year.

The relationship between refinery margins in Singapore and the price of Brent crude futures , the global oil benchmark, isn’t always consistent and depends largely on the factors that drive the price of crude up or down.

Brent ended at $93.54 a barrel on Feb. 18, suffering a loss of nearly 1% from the prior week, the first such weekly decline since mid-December.

However, Brent has rallied 22% this year and is currently near a seven-year high, as the market frets over tensions between major producer Russia and its neighbour Ukraine, as well as the seeming inability of the OPEC+ group to actually increase output by its agreed monthly amounts.

When the crude oil price is gaining on strong demand, refining margins tend to move in the same direction, and conversely when oil falls on weak demand, so do refining profits.

However, when crude increases on the back of supply constraints, such as the current output restrictions put in place by the Organization of the Petroleum Exporting Countries and its allies, including Russia, in the group known as OPEC+, then refinery margins tend to weaken.

The potential issue for Asia’s refiners is that the current bout of crude oil strength is being driven by both demand and supply factors.

Up until now it would seem that the recovery in oil demand in Asia has helped drive margins higher.

Asia’s crude oil imports are estimated at 25.66 million barrels per day (bpd) in February by Refinitiv Oil Research, up from January’s 24.47 million bpd and December’s 23.71 million bpd.

It’s also likely that February’s imports will be the highest on a barrels per day basis since before the coronavirus pandemic started at the beginning of 2020.

DEMAND DESTRUCTION COMING?

However, with crude oil prices reaching close to $100 a barrel, leading to record or near-record high retail fuel prices in many Asia countries, including India, Japan and Australia, the risk of demand destruction is growing.

It’s also worth noting that physical crude oil is generally bought at least six to eight weeks ahead of delivery, meaning cargoes arriving in Asia now were arranged when crude was substantially cheaper than the current price.

This means the expensive crude being bought currently will only arrive at Asia’s refiners in late March or April.

It would seem that the high crude price is switching from being driven by a recovery in demand to being spurred by lack of sufficient supplies from major exporters.

In the fourth quarter of 2019 Brent crude futures rallied strongly as the market expected, and then got, a deep output cut from OPEC+. However, Asia’s refining margins collapsed at the same time, with the Singapore benchmark falling to a loss of $1.29 a barrel by Dec. 19, 2019.

If there are signs that demand growth in Asia is faltering amid high retail prices in coming months, and crude prices are still elevated on supply constraints, refining margins are likely to come under further pressure.

Reuters by Sam Holmes, February 21, 2022

Amid an increase in global demand and concerns over key supplies, global oil prices are approaching $100 per barrel for the first time since 2014. But, with prices rising, what does this mean for the renewable energy transition, especially in Gulf countries?

After opening the year at around $78 per barrel, Brent crude prices rose sharply over the first six weeks of 2022 to surpass $94 as of February 14, the highest price in more than seven years.

Driven primarily by a lack of supply and a recent post-lockdown spike in global demand, the increase caps off a dramatic recovery of prices, which had fallen to less than $20 a barrel in April 2020.

Given the low oil price environment of the last couple of years, the recent increase has prompted discussion about the implications for investment in renewable energy, particularly for oil-exporting countries in the Gulf.

Although investment in oil and gas has fallen by about 30% since the outbreak of the pandemic, there are signs that the increased demand and rise in prices could lead to a reversal of that trend.

Carbon Tracker, a London-based climate change-focused think tank, noted last month that higher oil prices might encourage energy companies to invest in new exploration and production projects.

Indeed, on February 1 energy giant ExxonMobil announced a 45% increase in its budget for drilling and other activities this year, while a day later members of the Organisation of the Petroleum Exporting Countries and other leading oil-producing nations – an alliance known as OPEC+ – agreed to stick with their pre-planned target of increasing oil production by 400,000 barrels per day.

At the same time, there are concerns that higher oil prices could incentivise the consumption of coal, which reached an all-time high in 2021 and is on track to reach even higher levels this year, according to the International Energy Agency.

In addition to its lower price, coal use is being driven by rising energy demand – led by China and India – and insufficient levels of investment in renewables.

A boon for renewables?

Although high oil prices have the potential to incentivise new investment in oil and gas projects, renewables could ultimately benefit from the current situation.

Rather than directly challenging renewables and slowing the energy transition, many energy industry analysts believe that the current high prices – and the associated financial windfall – could lead governments and oil majors to play the long game and further increase their investments in renewable energy.

For example, in September last year French energy giant Total said it would take advantage of high oil prices to buy back $1.5bn in shares to boost investment in renewable energy, while earlier this month BP – upon announcing its highest annual profit in eight years, at $12.8bn – stated it would increase spending on low-carbon energy to 40% of total spending by 2025 and 50% by 2030.

Gulf pushing ahead with renewables

A prime example of an oil-producing region that has recently reaffirmed its commitment to renewables is the Gulf.

Indeed, many Middle Eastern countries have identified the development of renewable energy as key to their long-term economic diversification plans. 

For example, Saudi Arabia aims to generate 50% of its electricity from renewables by 2030 and has set a net-zero target of 2060.

To help achieve these goals, in December the government announced that it would invest SR380bn ($101.3bn) in renewable energy production by the end of the decade, while in April last year it inaugurated the Sakaka solar power plant, the country’s first utility-scale renewables project.

Meanwhile, in October the UAE pledged to invest Dh600bn ($163.4bn) in renewables by 2050, at which point it hopes to achieve net-zero emissions.

The announcement came just a few weeks after the inauguration of the first stage of the Mohammed bin Rashid Al Maktoum Solar Park in Dubai. The park is expected to have a capacity of 5 GW by 2030.

Elsewhere in the region, in late January Oman inaugurated the 500-MW Ibri 2 solar field, the country’s largest utility-scale renewables project, while Qatar, one of the world’s largest exporters of natural gas, has also increased its focus on renewables.

In October last year Qatar Petroleum, the national energy company, changed its name to Qatar Energy, in order to better reflect the company’s renewables-focused strategy.

Major projects include the 800-MW Al Kharsaah Solar plant, located approximately 80 km west of the capital Doha.

Once fully completed, the project will be the country’s largest renewable energy development. It is set to be inaugurated in the first half of this year.

While there is some scepticism as to exactly how much of the financial windfall associated with high oil prices will go towards the energy transition, and whether net-zero ambitions can be achieved if funds continue to be channelled into new exploration and production projects, it is clear that renewables are playing an increasingly important role in the long-term energy plans of companies and governments alike.

OilPrice by Oxford Business Group, February 21, 2022

The US supermajor and Global Clean Energy have an agreement to produce 4 million barrels of renewable diesel.

ExxonMobil is investing $125 million in Global Clean Energy to advance its renewable diesel production, with an option to acquire up to a 25% equity stake in the company.

Global Clean Energy is a leading producer of camelina, a non-food oilseed crop that doesn’t affect primary crops. The investment will help the company accelerate its expansion from the US into Europe and South America.

“We are investing in a number of technologies and initiatives that can reduce greenhouse gas emissions from vital sectors of the global economy, and are progressing lower-emission fuels to help industries like heavy transportation, marine and aviation,” said Ian Carr, president of ExxonMobil Fuels and Lubricants Company.

“Our agreement with GCE is an example of how we are leveraging our significant resources, technology and capabilities to deliver more renewable fuels to help customers reduce their emissions.”

Renewable diesel made from non-petroleum feedstocks can reduce lifecycle greenhouse gas emissions of diesel by 40% to 80%, according to the California Air Resources board.

ExxonMobil and Global Clean Energy had previously agreed to a produce more than 4 million barrels of drop-in renewable diesel from Global Clean Energy’s biorefinery in California. The companies expect to begin production later this year.

“This strategic investment by ExxonMobil is transformational for GCE and will enable the rapid expansion of our proprietary camelina business. It also demonstrates the long-term commitment of both organisations to develop ultra-low carbon, nonfood-based feedstocks and advanced biofuels,” said Richard Palmer, chief executive of Global Clean Energy.

“Throughout our four years working together, ExxonMobil has actively supported our feedstock deployment efforts in multiple US growth regions.”

Upstream by Naomi Klinge, February 15, 2022

The Russia-Ukraine crisis has put the energy market on high alert for possible disruptions of Russian energy supplies to Europe. While most of the talk and headlines focus on a potential disruption of Russian pipeline gas exports to Europe, a significant decline in Russian crude and oil product exports westwards to Europe would also have a devastating effect on the energy supply in Europe, which is already grappling with a gas and power crisis.

A plunge in Russian oil exports to Europe would also be a very bullish factor for oil prices, which could hit and exceed $100 in case of a conflict in Ukraine, analysts say.  

Still, a major disruption of oil flows from Russia to Europe is highly unlikely at this stage because such a probability would deal a devastating blow on both sides, according to experts. Any strict sanctions on Russian oil exports to Europe would deprive the continent of its single largest oil supplier at a time when governments are struggling with soaring energy prices that are also stoking high inflation and slow activities in energy-intensive industries.   

At this point, it’s unlikely that oil and gas supplies from Russia to Europe will be cut significantly since it would be mutually destructive for both Moscow and the European countries. Russia exports half of its crude to Europe and relies on those oil revenues, which make up a large share of its government revenues. Europe, for its part, imports from Russia more than one-third of the natural gas and more than one-quarter of the crude oil it consumes.

The West-Russia standoff over Ukraine showed once again Europe’s high dependence on Russian energy supplies. As it stands, there isn’t an immediate alternative to those supplies, despite the efforts of the United States and the EU, which are scouring the world for additional LNG supplies that could be sent to Europe in case the crisis escalates into a conflict. 

A look at the crude export reality for Russia and Europe shows how one needs the other in the oil trade in this corner of the world. 

Russia, the world’s second-largest oil exporter after Saudi Arabia, exports around 5 million barrels per day (bpd) of crude oil. Nearly half of it, or 48 percent, went to European countries in 2020, according to data from the U.S. Energy Information Administration (EIA). Europe, particularly refineries in Germany, the Netherlands, and Poland, take 48 percent of all Russian crude oil exports. 

So, Europe is Russia’s main market for its oil and natural gas exports, and by extension, Europe is its main source of revenue. 

Crude oil and natural gas revenue accounted for 43 percent, on average, of the Russian government’s total annual revenue between 2011 and 2020, according to data compiled by the EIA. 

On the other hand, Russia is the single largest external supplier of crude, natural gas, and solid fuel to the European Union. 

Russia accounted for 26.9 percent of European Union crude oil imports and 41.1 percent of the natural gas imports in 2019, the last pre-pandemic year, Eurostat data shows. Russia is the single largest supplier of oil, the fuel most used in the EU’s final energy consumption. Petroleum products, such as heating oil, gasoline, and diesel fuel, represent 41 percent of final energy consumption in the EU, according to Eurostat. 

In 2021, Russia remained the largest supplier of natural gas and petroleum oils to the EU.

The mutual dependence of Europe and Russia on oil and gas suggests that any escalation of the Ukraine crisis and a subsequent significant drop in Russian energy supply would come at a very high cost for both the EU and Moscow. This makes analysts think that a major disruption of Russian oil and gas flows to Europe is unlikely, at least at this point.

OilPrice by Tsvetana Paraskova, February 15, 2022

Exxon Mobil (XOM.N) is injecting new cash into oil trading in Europe after a retreat on its ambitious expansion plans last year, three people with knowledge of the matter said.

Exxon slashed funding for its trading division in 2020 as part of wider cuts, leaving traders without the capital they needed to take full advantage of the volatile oil market during peak COVID-19 lockdowns.

The company’s cautious strategy during the pandemic sparked the exodus of some senior-level recruits from the previous couple of years, along with Exxon veterans, after they were restricted to routine hedging and deals.

Among the senior departures Reuters reported last year, Paul Butcher was due to leave in September but then stayed after Exxon decided to allocate more financing, the sources said, without providing further detail.

The sources said Exxon would keep its trading expansion going. Butcher is now expanding the paper market team in Exxon’s office outside London, which would see Exxon engage in speculative trade beyond hedging their own oil, they said.

Angela Cranmer moved internally to join his team in January this year, according to LinkedIn and two sources. She was previously a senior middle distillates trader, her LinkedIn profile showed. The sources added that Exxon was still looking to expand with internal and external hires.

The company also hired two refined products traders, Jon Hives and James Clements, who joined the team in Brussels in January as part of the expansion, two sources said. According to LinkedIn, Hives joined in January.

“Our active trading program continues to grow, and we’re pleased with the progress we are making,” Julie King, an Exxon spokesperson said, but declined to comment on the specific hires.

Last week, Exxon reported its biggest profit in seven years in the fourth quarter of 2021 on the back of soaring energy prices.

Reuters by Julia Payne, February 11, 2022

OPEC said on Thursday world oil demand might rise even more steeply this year as the global economy posts a strong recovery from the pandemic, a development that would underpin prices already at a seven-year high.

Tight oil supply has also given impetus to booming energy markets, and the report from the Organization of the Petroleum Exporting Countries also showed the group undershot a pledged oil-output rise in January under its pact with allies.

In the report, OPEC said it expected world oil demand to rise by 4.15 million barrels per day (bpd) this year, unchanged from its forecast last month, following a steep rise of 5.7 million bpd in 2021.

“Upside potential to the forecast prevails, based on an ongoing observed strong economic recovery with the GDP already reaching pre-pandemic levels,” the OPEC report said in a commentary on the 2022 demand outlook.

“As most world economies are expected to grow stronger, the near-term prospects for world oil demand are certainly on the bright side,” OPEC said in a separate comment on 2022 demand.

World consumption is expected to surpass the 100 million bpd mark in the third quarter, in line with last month’s forecast. On an annual basis according to OPEC, the world last used more than 100 million bpd of oil in 2019.

OPEC took an early view that the effect of the Omicron coronavirus variant would be mild, and the report said it has not had as negative an economic impact as previous COVID-19 waves.

Oil rose after the report was issued, trading above $92 a barrel. On Monday it hit $94, its highest level since October 2014.

OUTPUT UNDERSHOOTS

The report also showed higher output from OPEC as the group and allied non-members, known as OPEC+, gradually unwind record output cuts put in place in 2020.

OPEC+ has aimed to raise output by 400,000 bpd a month, with about 254,000 bpd of that due from 10 participating OPEC members, but production has increased by less than this as some producers struggle to pump more.

The report showed OPEC output in January rose by just 64,000 bpd to 27.98 million bpd.

Seven of the 13 OPEC members had a drop in output, among them Venezuela, Libya and Iraq.

Top exporter Saudi Arabia boosted output by 54,000 bpd according to the report, but Saudi Arabia told OPEC it made a larger increase of 123,000 bpd that brought its production to 10.145 million bpd.

The growth forecast for overall non-OPEC supply in 2022 was left unchanged, as was that for production of U.S. tight oil, another term for shale.

OPEC said it expects the world to need 28.9 million bpd from its members in 2022, up 100,000 bpd from last month and theoretically allowing further increases in output.

Investing.Com by Alex Lawler, February 11, 2022

The geopolitically critical positioning of the UAE’s Fujairah as an alternative global crude oil storage facility and transit hub to the perennially troublesome Strait of Hormuz route continued last week, with the announcement that deliveries have now begun on the Fujairah Terminal expansion by Abu Dhabi (AD) Ports Group.

According to comments by the company’s commercial director-ports, Julian Skyrme, the AED1 billion (US$272 million) investment in the expansion has added container capacity of 720,000 twenty-foot equivalent units and general cargo capacity of 1.3 million metric tonnes. 

This push from Fujairah comes after the finalisation in July 2021 of Iran’s own game-changing crude oil storage, transport and delivery mechanism, the Jask Oil Terminal and the 42-inch Guriyeh-Jask pipeline.

As analysed in depth in my new book on the global oil markets, the significance of this new Iranian crude oil export terminal can barely be overstated, as it allows Iran to transport huge quantities of oil and petrochemicals from its major oil fields via Guriyeh in the Shoaybiyeh-ye Gharbi Rural District of Khuzestan Province, 1,100 kilometres to Jask port in Hormozgan province, which is perfectly strategically placed on the Gulf of Oman. 

At the same time, the Guriyeh-Jask pipeline allows Tehran the option of disrupting all other oil supplies that travel through the Strait of Hormuz – around 35 percent of the world’s total.

“Even before U.S. sanctions were re-introduced [in 2018], the Kharg terminal accounted for around 90 percent of all of Iranian oil export loadings, with the remaining loads going through terminals on Lavan and Sirri, which made obvious and easy targets for the U.S. and its proxies to cripple Iran’s oil sector and therefore its economy,” a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com.

“In addition, the extreme narrowness of the Strait of Hormuz means that oil tankers have to travel very slowly through it, so pushing up the transit costs and delaying revenue streams,” he said.

“Conversely, Iran wants to be able to use the threat – or reality – of closing the Strait of Hormuz for political reasons without also completing destroying its own oil exports revenue stream,” he added.

It was precisely such an incident – the 2011/12 Strait of Hormuz Dispute – that the once fanciful notion of Fujairah (one of the UAE’s smallest and lesser known emirates) becoming one of the world’s great oil storage and trading hubs alongside the Far East’s Singapore hub, Europe’s ARA (Amsterdam-Rotterdam-Antwerp), and the U.S.’s Cushing gained real momentum.

This Dispute began in December 2011 when Iran threatened to cut off oil supply through the Strait should economic sanctions limit, or halt, Iranian oil exports, and it included a 10-day military exercise in international waters near the chokepoint. 

Fujairah at that point was recognised as having an extremely strategically advantageous position to deal with such potential supply disruptions, being located both outside the Persian Gulf and a healthy 160 kilometres away from the Strait of Hormuz.

It was also seen as not aligned to any possibly pro-Iranian country, such as Oman, which at that time was considering plans with Iran to co-operate in Tehran’s build-out of a world-class liquefied natural gas (LNG) sector.

An additional advantage that Fujairah offered in that 2011/2012 analysis was that it affords international oil companies the facility to do business in the same generally transparent and non-corrupt legal framework found across the UAE. 

Various stages of Fujairah’s expansion plans were subject to delays prior to the onset of the major downturn in global oil prices in 2020, due to lower forward oil prices making hydrocarbons storage a less attractive option.

However, each element of the project to make Fujairah the pre-eminent Middle Eastern storage hub – termed ‘Black Pearl’ – gradually came into line. The pace of this picked up after the 380 kilometre Abu Dhabi Crude Oil Pipeline from the Habshan onshore field in Abu Dhabi to Fujairah city became operational in June 2012, capable of transporting 1.8 million bpd and allowing for the smooth movement of UAE crude to the global market. 

At that time, Fujairah also expedited the rolling out of a wide range of the corollary services required in a global storage hub. These included facilities for the loading and discharge of partially laden very large crude carriers (VLCCs) for crude oil and refined products, the blending of crude oil, fuel oil and clean products, the storage and supply of bunker fuel, and inter- and intra-tank cargo transfer.

Within a relatively short time, the Fujairah port’s jetties had the capacity to accommodate both small barge vessels – 3000 deadweight tonnage (DWT) – and the larger VLCCs (up to 300,000 DWT).

In 2015, Vopak Horizon Fujairah also announced that it was building five crude oil storage tanks with total capacity of 478,000 cubic metres at the port and intended to expand that number. 

Part of the positive backdrop for the continued expansion of the Fujairah hub was always expected to be the trade flows coming out of the Dubai Multi-Commodities Centre, with more storage capacity allowing traders greater flexibility in their deals, and a very supportive financial infrastructure created by the Fujairah authorities.

This proved to be the case and Fujairah further stands to benefit from the ongoing rise in volumes traded over the recently established Abu Dhabi-based ICE Futures Abu Dhabi (IFAD), with its focus on the trading of futures contracts for the light, sweet Murban crude oil that constituted around half of the UAE’s total near-4 million bpd crude oil production before the outbreak of the COVID-19 pandemic in 2020.

OilPrice by Simon Watkins, February 9, 2022