Category: Nieuws

Global crude oil prices fell sharply on Tuesday, building on several days of losses, in the face of a stalled U.S. recovery in gasoline demand, Saudi Arabia’s move to cut prices of its oil sales contracts even as Opec+ increases output, and a looming slowdown in Chinese imports of crude oil.

“Today’s oil price move is a clear sign that the market now seriously worries about the future of oil demand,” said Paola Rodriguez-Masiu, an analyst at consultancy Rystad Energy. It is no longer just “a bearish-bullish daily trading game that sends prices swinging.”

Oil prices had seemed frozen for several weeks, trading inside a tight $2-3 per barrel range, but a gentle decline that began at the end of last week has now accelerated. U.S. crude oil benchmark West Texas Intermediate (WTI) fell 7% to around $37 per barrel by shortly before mid-afternoon in the U.S., while European benchmark Brent had fallen 5% to just above $40 per barrel.

After it was decimated in March amid widespread travel and stay-at-home restrictions, U.S. gasoline consumption had recovered by the end of June to around 90% of last year’s levels. Since then, however, it has largely stayed put. Even the lowest Labor Day gasoline prices in 16 years—$2.22 per gallon, according to the Energy Information Administration (EIA)—were not enough to get Americans back out on the roads in sufficient numbers to clear the over-supply. As the summer driving season in the U.S. comes to an end, the stalled gasoline demand recovery has raised concerns that the new normal of post-pandemic life could translate into less fuel consumption than before.

For oil bulls, more bad news came over the weekend (September 5-6), when oil trade publications, including S&P Global Platts, began reporting that Saudi Arabia’s state-owned oil company, Saudi Aramco, had lowered its “official selling prices” (OSPs) for October sales of its crude oil—a sign that it is seeking to bolster demand for its products. Aramco lowered the price of its cargoes sailing to Asia in particular by large margins.

“This is the first time since June that the Saudis have set [the Asia OSP for a key oil grade] at a discount to the Oman/Dubai benchmark,” wrote ING analysts Warren Patterson and Wenyu Yao in a note. “Clearly this suggests that the market is not tightening as quickly as many had anticipated, with supply edging higher, and with demand clearly faltering.”

Aramco is one of several state oil companies that sets the price of its crude oil in relation to international benchmark prices, in its case to the Dubai/Oman benchmark, which are calculated by oil pricing agencies, such as S&P Platts, based on recent trades in the market. In the latest pricing update, Aramco set the price of its one of its most popular types of crude oil, called Arab Light, at a price of 50¢ per barrel below the Oman/Dubai benchmark price for buyers located in Asia. This means that, if the Oman/Dubai benchmark price were $40 per barrel, an Asian buyer could buy a barrel of Arab Light crude at $39.50. Such price “differentials” against the benchmark may seem small, but since a standard oil shipment consists of 1-2 million barrels aboard massive oil tankers, even a 50¢ per barrel price decrease results in a discount of $500,000 to $1 million: a big buying incentive.

Saudi Arabia’s move to goose demand for its crude comes even as the group of oil-producing nations known as Opec, plus ally Russia, is gradually easing up on output cuts first instituted after the Covid-19 pandemic resulted in a huge market over-supply. After collectively cutting output by 9.7 million barrels per day (b/d) or around 10% of total global oil production beginning in May, Opec and Russia agreed on July 15 that they would start easing back those cuts to 7.7 million b/d in August.

“Economies around the world are opening up, although this is a cautious and gradual process,” said Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, at the time.

Meanwhile reports began circulating early this week that China’s imports of crude oil, while still robust, had retreated somewhat in August from the record number of barrels imported in June. Markets likely flinched at the news not because China’s 11 million-some barrels per day of crude imports in August were meager, but because China’s economic engine has been one of the world’s few resilient drivers of oil demand. Any signs that its prodigious appetite for oil is weakening would have big implications for oil demand in coming months.

Reduced imports could also signal that Chinese crude imports from previous months were driven in large part by stockpiling, as its state oil companies took advantage of oil prices that were at one point limping along at around $20 per barrel.

Forbes.com, Editor: Scott Carpenter, September 8

Talk of a talent shortage when the oil industry is laying off workers en masse may sound counterintuitive. However, a few years from now, the industry will recover, if its past cyclical boom-and-bust nature is any guide.

And when that happens, the oil industry will have to hire again. But it may not find enough talent to fill in the gap.

U.S. Layoffs Reach 100,000 and Counting

Some of the more than 100,000 workers laid off in the U.S. oil and gas industry in the past few months alone are likely to consider changing their career path – permanently. Tesla, for example, has plans to hire as many as 65,000 workers by the end of this year, and people are scrambling for any open spot in the attractive company.

Others who have been let go in the oil industry have simply retired.

This means that a whole new kind of talent will need to be tapped.

Although it is unlikely that the same number of additional jobs will be needed again in the future, considering the increased automation in the industry, oil and gas companies will have to hire employees among the younger generations to fill the gap.

The young generations, however, are not particularly attracted to work in the fossil fuel industry because they see it as misaligned with their values of working for a social and environmental-conscious employer. Other employers and sectors – like Tesla, for example – don’t have the same problem.

Avoiding the Talent Gap

The current crisis and the tens of thousands of layoffs every month since March are setting the stage for a massive talent shortage in just a few short years – but oil companies are not sitting idling by. Despite cutting jobs en masse, Big Oil is not giving up on internships as it looks to avoid repeating the mistakes it made during the previous downturns when it had to pay retirees to train the new recruits once prices and markets recovered.

Supermajors such as Chevron and BP are keeping their internships and university graduate recruitment efforts even though they are slashing around 15 percent of their respective workforce, HR executives told The Wall Street Journal.

“We don’t want to repeat history,” Chevron’s Chief Human Resources Officer Rhonda Morris told the Journal.

Extraction, Oilfield Services Jobs Hardest Hit

The current crisis will go down as the steepest crash in oil demand and prices in history, which forced production curtailments in the U.S., and resulted in thousands of employees in the sector losing their jobs. The hardest-hit sector? Extraction and oilfield services.

An estimated 118,000 fossil fuel workers lost their jobs between March and July – a 15.5-percent drop in employment, according to research firm BW Research Partnership. Oil lost the most workers of the fossil fuels, shedding 69,400 jobs or 17 percent of pre-crisis employment, with most job losses in extraction activities, BW Research said. Texas leads the number of layoffs, followed by Louisiana and Oklahoma.

The situation in the oilfield services sector is even more dramatic. Employment in the oilfield services and equipment sector fell by more than 9,300 jobs in July, which brings total job losses due to pandemic-related demand destruction to 99,253, the Petroleum Equipment and Services Association (PESA) said in its monthly report in August. Year over year, oilfield services employment dropped by 15.1 percent – from 785,106 jobs in June 2019 to 664,936 in 2020.

When the industry enters the next boom cycle, it may not need all these jobs – some of them could be eliminated due to greater efficiency and automation. But while it might not need all those employees, it will need many.

The question is, will there be enough people interested in working in the industry from which it can choose?

Some who have lost their jobs are considering completely different career paths and are planning never to return to the boom-and-bust job insecurity in the oil and gas sector, even though it can be quite lucrative.

Others, like oil workers in Scotland, for example, are looking to be retrained to use their skillsets in the renewables sector, as actions to tackle climate change could impact careers in oil.

For new hires, oil and gas companies have the tough task of convincing young generations that work in the industry is not necessarily the image of a roughneck spending days on a rig, toiling at a wellhead while polluting the world with dirty oil.

The Conundrum that is Generation Z

While salary is often the biggest draw for working in the industry, many young people would choose other industries with similar pay because of their perception that oil and gas is an industry of the past.

Petroleum Engineering is by far the highest-earning Bachelor’s degree major with median earnings of $120,000, the University of Georgetown said in a 2018 report ‘The Economic Value of College Majors.’

Millennials and Generation Z rank salary as the top motivator in a job, according to a 2017 survey by EY.

But money isn’t everything.

The survey also found that 62 percent of Generation Z respondents consider a career in oil and gas unappealing, and 39 percent rank it as “very unappealing,” compared with just 4 percent of respondents who see it as “very appealing.”

Two out of three teens believe the oil and gas industry causes problems rather than solves them, the survey showed.

It will be very difficult for oil and gas to change these perceptions among Generation Z amid growing calls from investors and the general public for the industry to start tackling climate change and stop greenwashing the problem.

Still, there is one strong sales pitch that the oil and gas can use to reach out to younger generations – the digital transformation.

Increased automation and ubiquitous use of the latest technologies, including machine learning and AI, can be a major attraction for young talent to the industry with roles such as data scientists or software engineers for the digital natives who would rather work with the latest tech than settle for a role in a company of any sector using substandard technology.

By Tsvetana Paraskova for Oilprice.com, September 6 2020

European banks have grown wary of financing commodity traders, raising borrowing costs and endangering smaller firms in the market for raw materials.

ABN Amro Bank NV is pulling out of trade and commodity finance altogether. ING Groep NV will likely enforce stricter monitoring and control over commodity deals it finances to reduce risks, said a person familiar with the matter. BNP Paribas SA, formerly a powerhouse in commodity-trade finance, is scaling back, a person familiar with the company said.

Banks are responding to the rout in oil prices, a spate of alleged frauds, a drift into riskier forms of lending and investor pressure over climate change. Their retreat is likely to concentrate the business of transporting oil, metal and grain in the hands of large traders that still have access to cheap funding.

Smaller traders, in contrast, are finding it increasingly difficult to borrow from banks, prompting some of them to seek out new sources of financing. That could come from their larger rivals or from trade-finance funds. Some will be pushed out of business altogether, according to industry executives, bankers and lawyers.

“The biggest impact will be on smaller players,” said Jarek Kozlowski, chief financial officer at power-and-gas trader TrailStone Group. “They will have difficulty finding funding.”

Banks fund traders through traditional forms of trade finance such as letters of credit—a payment guarantee to suppliers—as well as revolving-credit and borrowing-base facilities. In doing so, they grease the supply chains that ship oil, metal and grain from producers to consumers. Trading houses rely on borrowed money because the cargoes they handle can be worth tens of millions of dollars. Higher funding costs pose a danger because they run on thin margins.

Commodity trading is already dominated by a clutch of global players, including European traders Vitol Group, Trafigura Group Pte. Ltd. and Mercuria Energy Group Ltd., and U.S. agricultural giants Archer Daniels Midland Co., Bunge Ltd. and Cargill Inc. Banks will keep competing to lend to large traders, preventing a large rise in their borrowing costs, said Philip Prowse, a partner who specializes in commodities trade finance at law firm HFW in London.

“The big traders are very resilient and will always be well-supplied by the big banks,” said Mr. Prowse. “There will be very little left for the traders beneath that very large size.”

A drop in competition could help boost margins at the largest traders by enabling them to charge more from oil refiners, copper smelters and other customers while paying less for commodities, said Craig Pirrong, a finance professor at the University of Houston. Doing so could raise prices for end consumers and put more pressure on commodity producers, such as miners and energy companies.

Smaller traders are more exposed. Banks have become more cautious about lending to them since a series of blowups earlier this year, said Marie-Christine Olive, Citigroup’s head of natural resources for Europe, the Middle East and Africa.

“There’s a flight to quality,” said Ms. Olive. “How many [commodity traders] will be left?”

Singapore energy trader Hin Leong Trading Pte. Ltd. was placed under judicial management in April, owing $3.5 billion, mostly to banks. Founder Lim Oon Kuin was charged with abetment of forgery in August.

Other traders to hit financial trouble include GP Global Group, a trading, refining and logistics company in the United Arab Emirates. In July, GP said it would restructure after finding itself “unable to get full support from a few financial institutions” despite constantly seeking credit lines to fund its trading activity. An external restructuring officer at FTI Consulting is hopeful that an agreement with creditors will be reached, a GP spokesperson said.

Several of this year’s implosions—including those of Hontop Energy (Singapore) Pte. Ltd. and ZenRock Commodities Trading Pte. Ltd.—have taken place in Singapore. That has raised concern about the city-state’s oversight of trading firms.

Regulations designed to make the financial system safer after the 2007-2009 crisis have made low-risk, high-volume trade finance less attractive, according to John MacNamara, chief executive of consulting firm Carshalton Commodities Ltd. This prompted banks to take greater risks by lending on an unsecured basis, skimping on due diligence, and insuring a smaller portion of their loans.

“Banks have rather dropped their trousers to get new business in terms of trade finance,” Mr. MacNamara said. “The unintended consequence of Basel III was we took more risks.”

The threat of sanctions has also prompted banks to retreat, said Mr. Prowse. BNP Paribas shrank its business after pleading guilty to crimes of violating U.S. sanctions in 2014.

Commodity-trade finance isn’t the money spinner it once was. Revenue has slid over the past five years, and the coronavirus pandemic dealt another blow. Turnover from commodity-trade finance dropped to $1.7 billion in the first half of 2020, down almost a third from the same period last year, according to Coalition, which tracks data on banks.

Then there is pressure from investors on European banks to reduce the amount they lend to carbon-intensive industries, a particular issue for companies that earn most of their money from coal. Natixis SA, for example, in May said it would withdraw from the thermal-coal sector in members of the European Union and Organization for Economic Cooperation and Development by 2030.

Société Générale SA remains committed to the business of financing natural resources, but it is consolidating in Asia to serve key clients from Hong Kong, said a person familiar with the matter. The move was earlier reported by Bloomberg News.

ING is likely to raise borrowing costs and reconsider lending in the absence of collateral, the person familiar with its planning said. A spokesman said the Dutch lender currently has no plans to exit from the business.

WSJ, Editor: Joe Wallace, September 6, 2020, Photo by Sharon McCutcheon on Unsplash

Poor distillate consumption and margins are weighing on refiners’ demand for crude, in turn hampering efforts by OPEC+ to rebalance the oil market and push crude prices higher

LONDON: Global distillate markets remain heavily oversupplied, sending margins tumbling to multi-decade lows, despite refiners’ efforts to restrain crude processing and switch to maximising gasoline production.

Poor distillate consumption and margins are weighing on refiners’ demand for crude, in turn hampering efforts by OPEC+ to rebalance the oil market and push crude prices higher.

Production of distillates, including diesel, jet fuel, gasoil and heating oil, is running head of consumption, mostly because of the downturn in manufacturing and aviation, with a resulting increase in inventories.

In an effort to reverse the oversupply, US refiners have restrained their crude processing, limiting throughput to 13.5 million barrels per day last week, almost 19 per cent below the five-year average.

Refineries have also adjusted the set points on their equipment to maximise production of gasoline at the expense of distillates, pushing the gasoline-distillate ratio to 1.7:1, up from 1.4:1 a year ago.

Even so, US distillate inventories are stuck at 179 million barrels, close to their highest since the early 1980s, and 32 million barrels above the five-year seasonal average.

For the next several months bloated inventories will restrain refiners’ crude processing and buying as they try to reduce distillate stocks to more normal levels.

The problem is not confined to the United States. Distillate stocks are well above normal around the world as the coronavirus pandemic disrupts manufacturing, construction and passenger transportation.

In Northwest Europe, margins for transforming Brent crude into gasoil have tumbled to just $3 per barrel, down from more than $6 a month ago and $16 at the start of the year.

Until there is a clear signal excess distillate inventories are being absorbed, they will continue to limit upward moves in crude prices.

Reuters September 18, 2020

LONDON (Reuters) – Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets, sources told Reuters.

Shell’s new cost-cutting review, known internally as Project Reshape and expected to be completed this year, will affect its three main divisions and any savings will come on top of a $4 billion target set in the wake of the COVID-19 crisis.

Reducing costs is vital for Shell’s plans to move into the power sector and renewables where margins are relatively low. Competition is also likely to intensify with utilities and rival oil firms including BP and Total all battling for market share as economies around the world go green.

“We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,” said a senior Shell source, who declined to be named.

Last year, Shell’s overall operating costs came to $38 billion and capital spending totalled $24 billion.

Shell is exploring ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects, two sources involved with the review told Reuters.

Shell now wants to focus its oil and gas production on a few key hubs, including the Gulf of Mexico, Nigeria and the North Sea, the sources said.

The company’s integrated gas division, which runs Shell’s liquefied natural gas (LNG) operations as well as some gas production, is also looking at deep cuts, the sources said.

For downstream, the review is focusing on cutting costs from Shell’s network of 45,000 service stations – the world’s biggest – which is seen as one its “most high-value activities” and is expected to play a pivotal role in the transition, two more sources involved with the review told Reuters.

“We are undergoing a strategic review of the organisation, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organisation, which is also cost competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated,” a spokeswoman for Shell said in a statement.

Shell’s restructuring drive mirrors moves in recent months by European rivals BP and Eni which both plan to reduce their focus on oil and gas in the coming decade and build new low-carbon businesses.

The review, which company sources say is the largest in Shell’s modern history, is expected to be completed by the end of 2020 when Shell wants to announce a major restructuring. It will hold an investor day in February 2021.

Speaking to analysts on July 30, Shell Chief Executive Ben van Beurden said Shell had launched a programme to “redesign” the Anglo-Dutch company.

LOW-CARBON FUELS

Teams in Shell’s three main divisions are also studying how to reshape the business by cutting thousands of jobs and removing management layers both to save money and create a nimbler company as it prepares to restructure, the sources said.

Shell, which had 83,000 employees at the end of 2019, carried out a major cost-cutting drive after its $54 billion acquisition of BG Group 2016, which has helped boost its cash generation significantly in recent years.

Shell’s operating costs, which include production, manufacturing, sales, distribution, administration and research and development expenses, fell by 15%, or roughly $7 billion, between 2014 and 2017.

But the sharp global economic slowdown in the wake of the COVID-19 epidemic coupled with Shell’s plans to slash its carbon emissions to net zero by 2050 have led to the new push.

Shell cut its 2020 capital expenditure plans by $5 billion to $20 billion in the wake of the collapse in oil and gas prices due to the pandemic amid warnings it could have lasting effects on global energy demand.

Van Beurden said in July that Shell was on track to deliver $3 billion to $4 billion in cost savings by the end of March 2021, including through job cuts and suspending bonuses.

He said travel restrictions during the pandemic had accelerated the digitalisation of Shell while machine learning was being rolled out to minimise outages and shorten maintenance time at refineries, oil and gas platforms and LNG plants.

Besides cutting costs at its downstream retail business, Shell is pressing ahead with plans to reduce the number of its oil refineries to 10 from 17 last year. It has already agreed to sell three.

The review of refining operations also includes finding ways to sharply increase the production of low-carbon fuels such biofuels, chemicals and lubricants. That could be done by using low-carbon raw materials such as cooking oil, one source said.

Reuters, Ron Bousso, September 21