Top stories listed below

OPEC+ Meeting Yielded No Positive Result for Trump: Iran

OPEC Can’t Replace Iran’s Oil in Time for Sanctions: Kazempour

Saudi Arabia plans Q4 output boost to meet mounting demand: oil minister – Platts

Iran and New Mega-Refineries Set Asia’s Oil Market on Fire

Unipec Puts Plan to Boost U.S. Oil Imports for Own Use on Hold

Indian Oil Refiners May Cut Inventories on Crude Prices, Rupee

Japan’s Cosmo Oil replaces Iran oil with other Mideast supplies – Reuters News

North Sea Benchmark Crudes to Asia Reach 9m Bbl in Sept

Iran warns U.S., Israel of revenge after parade attack – Reuters News

Oil could rise to $100 by 2019 as global markets tighten, merchants warn – Reuters News

Iran oil exports to be lower than expected after sanctions, boosting prices -Trafigura – Reuters News

APPEC analysis: Asia may find Middle East crude supply remaining tight in 2019 – Platts

BofAML Lifts Forecasts, Sees Oil Reaching $95 a Barrel in 2019

China says U.S. trying to force it to submit on trade as new tariffs kick in – Reuters News

Brent Benchmark Set for Major Revamp With Oil From Around World

Permian Output to Be Constrained Through 2020: Pioneer Natural

OPEC forecasts flatlining demand for its oil ahead of US shale peak – Platts

IMO 2020 to cause one-off oil demand surge before market adjusts: OPEC – Platts

Saudi Aramco Trading aims for 50 pct rise in oil trade volume in 2020 – Reuters News

U.S. oil refiners’ weekly capacity seen down 474,000 bpd -IIR – Reuters News

 

Vol Change this morning

WTI Vol	24-Sep	Change		BRT Vol	24-Sep	Change
X8	26.03	1.17		Z8	25.40	1.09
Z8	25.13	0.52		F9	24.56	0.51
F9	25.36	0.3		G8	25.21	0.32
G8	24.44	0.09		H9	24.43	0.03
H9	24.34	-0.01		J9	24.21	-0.27
M9	23.93	-0.19		M9	24.27	-0.24

 

 

OPEC+ Meeting Yielded No Positive Result for Trump: Iran

“What was achieved yesterday was that no one gave a positive response to Mr. Trump’s words, and OPEC and non-OPEC said there’s no need to lift production now,” Oil Minister Bijan Namdar Zanganeh tells reporters in Tehran.

“If we don’t call it a heavy defeat, it certainly didn’t bear any result for Mr. Trump"

Iran’s oil is “definitely not” replaceable in the medium or long term

“In the short term, Americans have something in mind, even for as long as a month, but this dream will not be fulfilled”

“Some countries have reduced imports but no one has stopped buying. However, South Korea has completely stopped imports in the last three months”

 

OPEC Can’t Replace Iran’s Oil in Time for Sanctions: Kazempour

Other producers in OPEC can’t easily replace Iran’s oil exports of 2.3m b/d by November, when U.S. reimposes sanctions on country’s crude sales, Iran’s OPEC Governor Hossein Kazempour Ardebili says, according to official IRNA news agency.

Other OPEC members would have to tap their reserves to make up for Iran’s missing barrels, and this would be only a short-term solution that would lead to costlier crude

“The continuation of U.S. sanctions against Iran will lead to a steep price increase”

U.S. President Donald Trump will be forced as a result to ease up on efforts to cut Iran’s exports to zero and instead let it sell 1m-1.2m b/d

“This is what also happened in the past” in 2014-2016, under earlier round of intl sanctions on Iran

 

Saudi Arabia plans Q4 output boost to meet mounting demand: oil minister – Platts

Saudi Arabia intends to raise crude production in the coming months to meet mounting customer demand, energy minister Khalid al-Falih said Sunday, rejecting criticism from US President Donald Trump that OPEC was conspiring to keep prices elevated.  September output from the kingdom is already higher than August’s level of about 10.4 million b/d, Falih said at a meeting of an OPEC/non-OPEC monitoring committee, though he did not provide a specific figure.  "October will be even higher," he told reporters. But he stressed that Saudi Arabia’s production levels were dictated by customer demand, not to influence prices.  "We have seen higher demand in October," Falih said.  Saudi Arabia in June had signaled its intent to pump as high as 10.8 million or even 11 million b/d, under OPEC’s agreement with Russia and nine other non-OPEC producers to raise collective output by 1 million b/d.  The plan came amid pressure from the US president, who tweeted at OPEC to do more to cool what was then a rising market.  "Oil prices are too high, OPEC is at it again. Not good!" Trump tweeted June 13, 10 days before the OPEC/non-OPEC coalition met in Vienna to finalize the output boost.  But kingdom officials have said they were confronted with tepid demand after the meeting, forcing them to scale back their plans.  Saudi Arabia reported production of 10.29 million b/d in July, rising to 10.42 million b/d in August.  Now, with customers apparently clamoring for more crude, Saudi Arabia stands ready to supply them, Falih said.  The country holds some 1.5 million b/d of spare capacity that it can tap if needed, he added.  "Our plan is to respond to demand," he said. "If demand [for Saudi crude] is 10.9 million b/d you can certainly take it to the bank that we will meet it. But the demand is 10.5 million b/d or 10.6 million b/d. I think October will be more than this."  Falih also acknowledged that some of Saudi Aramco’s crude customers had already started asking for more barrels on top of their term requirements.  "Some of them have started requesting more than their contractual entitlement and Aramco has met those requirements," he said.

 

Building global storage

Falih also said the world’s largest crude exporter was building up its crude inventories around the world to better address customer anxieties over supply shortfalls.  He said the kingdom has put crude into storage in Okinawa, Japan; Sidi Kerir, Egypt; and Rotterdam, as well as in domestic tanks.  "This is just ensure that going forward as customers require more oil we need to be close to them, and these [efforts] have been successful to ease anxiety that started appearing in the second quarter of this year," he said.  The increase in storage of Saudi barrels coincides with greater demand for its heavy crude in Europe and North Asia as Iranian crude exports slump ahead of the start of US sanctions.  Europe, South Korea and Japan have already reduced their imports of Iranian crude, and refiners have been eyeing alternative Saudi crudes.  The kingdom’s crude inventories have been falling sharply in the past year, especially its domestic crude stocks, which slid to a nine-year low in July, according to figures from the Joint Organizations Data Initiative.  The Saudi stock draw averaged 178,000 b/d in July, a significant rise from a 15,000 b/d draw in June and a 30,000 b/d build in May, according to JODI data.  Outright, Saudi Arabia drew 5.51 million barrels of crude from storage in July — its most in eight months — taking its crude stocks to 229 million barrels, the lowest since October 2009.

Iran and New Mega-Refineries Set Asia’s Oil Market on Fire

When the Navarin, an oil supertanker carrying 2 million barrels of Middle East crude, docks at the Malaysian port of Pengerang on Monday, the arrival will signal the start of a torrid time for Asia’s oil market.  The ship is delivering the first cargo to a new mega-refinery, one of three scheduled to come on line in the region in the next few months. They’ll add a total of 1.1 million barrels a day of processing capacity, enough to swallow the entire output of OPEC member Libya. The extra demand comes just as physical oil supplies are made scarcer by U.S. sanctions on Iran.  "Refiners will have to buy whatever crude they can get their hands on," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.  Supplying the new refineries, and their impact on the wider oil market, will be one of the topics of conversation at the annual Asia Pacific Petroleum Conference in Singapore, where hundreds of oil traders from across the region will gather to strike deals this week.  The first plant to to start up is the 300,000 barrel-a-day Refinery and Petrochemicals Integrated Development, or Rapid, a venture between the state-owned companies of Saudi Arabia and Malaysia in Pengerang, less than 15 miles from Singapore.

 

Navarin’s Voyage

The Navarin’s voyage started nearly a month ago at the Ju’aymah terminal, where it took on a cargo of Saudi crude, before topping up at the Basra terminal with a second load of Iraqi crude. If all goes as planned, the refinery will start slowly turning on units over the next few weeks, and reach full output early next year.  Rapid will be followed by two giant 400,000 barrel-a-day projects in China: Rongsheng Petro Chemical Co.’s plant in Zhejiang, and the Hengli Petrochemical Co.’s refinery in Dalian. The two refineries will come online between the first and second quarters of next year.  All three refineries have started buying crude, both under long-term contracts and on the spot market, traders familiar with the matter said, asking not to be named because the information isn’t public. In the process, they’re helping to send premiums for low-quality, highly sulfurous oil — known as heavy, sour crude — in Asia sharply higher. It’s exactly the type of oil Iran had supplied in abundance.  "Oil markets are facing mounting supply uncertainty as Iran sanctions bite," said Roger Diwan, oil analyst at consultant IHS Markit Ltd. in Washington, forecasting Brent in the $75 to $90 range from now until mid-2019.  On top of the new refiners, the Asian market is already contending with a plant that just came on-stream over the last few weeks after several delays: the 200,000 barrel-a-day Nghi Son Refinery and Petrochemical facility in Vietnam. The refinery is consuming a diet of mostly Kuwaiti crude.  As oil refiners from India to South Korea scramble to find alternative supplies to Iranian crude, they are pushing up the prices of crudes that can substitute for lost shipments. For many in the physical trade in Asia, the regional market is on fire.  Oman crude has recently traded at more than $2 a barrel over the Dubai benchmark, the highest in eight years, according to Bloomberg data. ESPO Blend, a Russian crude that arrives into China via pipeline from Siberia, is selling at its highest premium to its benchmark in four years, traders said.

 

Nuclear Program

Iranian oil exports into Asia fell to 880,000 barrels a day in the first half of September, down from 1.6 million barrels a day in April, before U.S. President Donald Trump ripped up the diplomatic deal that curtailed Tehran’s nuclear program.  The Rapid plant is set to import most of its crude from Saudi Arabia and, to a lesser extent, Iraq. The Rongsheng plant was meant to buy a mix of crude from Brazil, Saudi Arabia and Iran, but with U.S. sanctions on Tehran, it’s so far replacing Iranian with Omani and Iraqi supplies. The Hengli refinery is designed to process mostly Saudi crude, with a bit of Qatari oil on top.  In total, the three new refineries will probably import at least 600,000 barrels a day of Saudi crude when they reach full capacity by the middle of next year, a significant boost for the kingdom, which usually exports 7 million to 7.5 million barrels a day of crude. With Riyadh already pumping near a record to offset the loss of Iranian barrels, the requirements of the new plants could push Saudi oil production into uncharted territory.  "Iran is increasingly becoming the preoccupation of the crude market," industry consultants JBC Energy told clients. "The shortfall has been a major catalyst for a broad tightening in physical crude markets recently."

 

Unipec Puts Plan to Boost U.S. Oil Imports for Own Use on Hold 

Unipec, the trading unit of top Chinese refiner Sinopec, has put a plan to boost U.S. crude imports on hold as it assesses the impact of the Asian nation’s trade war with America, co. President Chen Bo says.

• Co.’s Jan.-Aug. U.S. oil imports were at avg 300k b/d
• Previously, Unipec had planned to raise U.S. crude-import volumes to 500k b/d in 2019
• Earlier this year, Unipec had shunned U.S. crude purchases due to the threat of oil being included in tariffs list by China
• It later resumed purchases after crude was removed from goods that will incur tariffs
• Unipec will lift U.S. oil for third-party trading in Sept.-Oct., Chen says Monday on sidelines of Asia Pacific Petroleum Conference (APPEC) in Singapore

 

Indian Oil Refiners May Cut Inventories on Crude Prices, Rupee

Indian oil refiners may reduce their crude inventories by five days in an effort to curb crude oil imports amid high prices and steep declines in rupee, Bharat Petroleum Director Refineries R. Ramachandran says in interview on Monday after a meeting earlier this month with other Indian processors.

Indian state and private refiners met Sept. 15 to discuss impact of high crude oil prices, its economic impact on the country and efforts needed to curb oil imports

“First time Indian industry including private refiners met together and we have all taken an unilateral approach,” Ramachandran says. “There will be a coordinated effort to reduce crude inventories”

Discussions include various options such as improving refinery efficiency, alternate energy avenues and biofuels

The initiative to cut inventories won’t affect India’s fuel supplies

Refiners will adopt stronger operational discipline amid reduced inventory levels

 

Japan’s Cosmo Oil replaces Iran oil with other Mideast supplies – Reuters News

Japanese refiner Cosmo Oil has replaced its Iranian crude oil imports with supplies from other Middle Eastern producers ahead of U.S. sanctions on Iran in November, top company executives said.

Refiners in Japan, the world’s fourth largest crude oil importer, halted oil imports from Iran in mid-September, the country’s refinery association said last week, allowing time for payments before sanctions are imposed.  "Japan will not import any crude from Iran in November because of the U.S. sanctions," Cosmo Oil President Shunichi Tanaka told Reuters ahead of the Asia Pacific Petroleum Conference (APPEC).  Saudi Arabia, the United Arab Emirates and Kuwait are supplying more crude to Cosmo Oil to replace its 10,000 barrels per day (bpd) shortfall from Iran, or 5 percent of the refiner’s imports, he said.  Some of these producers have visited Japan and "told us if you need more crude oil, we can supply," said Cosmo Oil’s director of supply Masashi Nakayama.  The Organization of the Petroleum Exporting Countries (OPEC) and other oil producers are considering raising output by 500,000 bpd to counter falling supply from Iran.  "Saudi Arabia has room to produce more oil to cover. They can’t cover everything but they can cover something so the impact on the whole market is not that big," Nakayama said.  Under previous U.S. sanctions, some buyers received waivers as long as they reduced imports but the current administration aims to cut Iran’s oil exports down to zero to force Tehran to negotiate a nuclear treaty.  Still, Japanese trade officials will visit Washington again in late September in a bid to negotiate sanction waivers, the executives said.

 

JAPAN

Cosmo Oil, a unit of Japan’s Cosmo Energy Holdings 5021.T, is the country’s third-largest oil refiner by sales.  The refiner will start supplying fuel to local wholesaler Kygnus Sekiyu K.K. from 2020, which is expected to increase Cosmo’s market share in Japan from 11 percent to 15 percent, Tanaka said. Cosmo bought a 20 percent stake in Kygnus in 2017.  In the coming winter, Japan could see a rise in kerosene oil imports after natural disasters disrupted local refiners’ operations in the third quarter, the executives said.  Typhoon Jebi led to flooding in western Japan while an earthquake has shut the only refinery in Hokkaido, owned by Idemitsu Kosan, since Sept. 6.  "The recent typhoon and earthquake in Japan have had a big impact on Japanese refineries as some had to shut down or reduce run rates," Tanaka said, adding that Cosmo Oil is working to secure supplies of kerosene, which is vital for northern Japan in winter.  Ahead of IMO 2020 when ships have to switch to fuels with much lower sulphur content, Cosmo Oil will stop production of high-sulphur fuel oil once it expands its delayed coker at the Sakai refinery by end-2019.  The refiner said it will also install scrubbers on half of the six Very Large Crude Carriers that it charters on a long-term basis.

 

North Sea Benchmark Crudes to Asia Reach 9m Bbl in Sept

A supertanker carrying ~2m bbl of Forties crude and a Suezmax laden with ~1m bbl of Ekofisk grade departed today for China, according to ship-tracking and port data compiled by Bloomberg.

Departures mean 9m bbl of benchmark crudes have set sail for Asia so far in Sept.

VLCC New Renown departed Hound Point signaling Ningbo as next destination, with an ETA of Nov. 12, according to ship-tracking data

Tanker was chartered by Total, according to fixtures

Suezmax Dilong Spirit departed Ekofisk terminal Teesport today, signaling “for orders”

The tanker, which was chartered by Glencore to sail to Ningbo, is traveling to an “unknown port in China”, according to port data

 

Iran warns U.S., Israel of revenge after parade attack – Reuters News

The deputy head of Iran’s Revolutionary Guards warned U.S. and Israeli leaders on Monday to expect a "devastating" response from Tehran, accusing them of involvement in an attack on a military parade in the city of Ahvaz.  "You have seen our revenge before … You will see that our response will be crushing and devastating and you will regret what you have done," Hossein Salami said in a speech before the funeral of the victims broadcast live on the state television.  Thousands of people packed the streets of the southwestern Iranian city of Ahvaz to mourn the victims of Saturday’s assault that killed 25 people, including 12 members of the elite Revolutionary Guards.  Many chanted "death to Israel and America".   The coffins, wrapped in the flag of the Islamic Republic, were carried by the mourners. Many held pictures of a four year old boy killed in the attack, one of the worst against the most powerful military force of the Islamic Republic.  Four assailants fired on a viewing stand in Ahvaz where Iranian officials had gathered to watch an annual event marking the start of the Islamic Republic’s 1980-88 war with Iraq.  Soldiers crawled on the street to avoid bullets. Women and children fled for their lives.

 

GULF TENSIONS

Top Iranian leaders also blamed the United State’s Gulf Arab allies for the bloodshed that struck a blow at the heart of its security establishment.  The accusation will almost certainly antagonise Iran’s regional foe Saudi Arabia. The oil superpowers are waging a war for influence across the Middle East, backing opposite sides in Syria, Yemen, Iraq and Lebanon.  The United Arab Emirates, a close ally of Saudi Arabia and Washington, rejected Iranian allegations alluding to its involvement in the violence.  Speaking at the funeral ceremony, Defence Minister Amir Hatami warned the “terrorists” to expect the revenge of the Iranian nation.  Iran has been relatively stable compared to Arab neighbours still grappling with political and economic upheaval triggered by 2011 uprisings.  The intelligence minister, Mahmoud Alavi, said a large network of suspects had already been arrested in connection with the attack, the judiciary’s news agency Mizan reported. (Full Story). He did not elaborate.  Islamic State’s Amaq agency posted a video of three men in a vehicle who it said were on their way to carry out the attack.  A man wearing a baseball cap emblazoned with what appears to be a Revolutionary Guard logo discussed the impending attack in Farsi in the video.  "We are Muslims, they are kafirs (non-believers)," the man says. He adds: "We will destroy them with a strong and guerrilla-style attack, inshallah (God willing)."  The Islamic Revolutionary Guards Corps (IRGC) was set up after the 1979 Islamic Revolution to protect the Shi’ite clerical ruling system and revolutionary values.  It answers to Supreme Leader Ayatollah Ali Khamenei. The IRGC has an estimated 125,000-strong military with army, navy and air units.  The violence has led to a boost in support for the Guards, according to analysts, which they will likely use to silence their critics, who include pragmatic President Hassan Rouhani.  He engineered Iran’s 2015 nuclear deal with world powers that ushered in a cautious detente with Washington before tensions flared anew with President Donald Trump’s decision in May to pull out of the accord and reimpose sanctions on Tehran.  Ahvaz National Resistance, an Iranian ethnic Arab opposition movement which seeks a separate state in oil-rich Khuzestan province, also claimed responsibility.  Senior commanders of the IRGC have said the Ahvaz attack was carried out by militants trained by Gulf states and Israel, and backed by America.  But it is unlikely the IRGC will strike any of these foes directly.  The Guards could put on a show of strength by firing missiles at opposition groups operating in Iraq or Syria that may be linked to the militants who staged the attack.  Iran’s Ground Force General Nozar Nemati was quoted as saying by Mizan news agency that "the agents behind this attack are identified and will be published at the appropriate time."

 

Oil could rise to $100 by 2019 as global markets tighten, merchants warn – Reuters News

Oil prices could rise towards $100 per barrel towards the end of the year or by early 2019 as sanctions against Iran bite, commodity merchants Trafigura and Mercuria said on Monday at the Asia Pacific Petroleum Conference (APPEC) in Singapore.  Almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the U.S. sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible.  "We’re on the verge of some significant volatility in Q4 2018 because depending on the severity and duration of the Iranian sanctions, the market simply does not have an adequade supply response for a 2 million barrel a day disappearance of oil from the markets," Jaeggi said.  Washington has already implemented financial sanctions against Iran and it plans to target the country’s oil exports from November 4, putting pressure on other countries to also cut Iranian crude imports.  Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.

 

TIGHTENING MARKET

Oil prices have been rising since early 2017, when the Organization of the Petroleum Exporting Countries (OPEC) together with other suppliers including Russia started withholding output to lift crude values.  Unplanned disruptions from Venezuela to Libya and Nigeria have further tightened the market just as global demand approaches 100 million bpd for the first time.  The threats of disruption as well as the early supply cuts have helped to lift Brent crude futures to nearly $80 a barrel this month, a level not seen since 2014.  With U.S. sanctions against Iran, the third-largest producer in OPEC, looming, U.S. investment bank J.P. Morgan said in its latest market outlook that "a spike to $90 per barrel is likely" for oil prices in the coming months.  OPEC and other oil producers are considering raising output by 500,000 bpd to counter falling supply from Iran.

 

Iran oil exports to be lower than expected after sanctions, boosting prices -Trafigura – Reuters News

Iran will export significantly less oil than was initially expected when the United States first announced it would reimpose sanctions on Tehran, and that should boost prices, a senior executive at commodities trader Trafigura said on Monday.  "I think when the sanctions were first announced a number of months ago, people were estimating the cut may be 300,000 to 700,000 (barrels-per-day)," Ben Luckock, co-head of oil trading at Trafigura, told reporters.  "I think the consensus has moved to it’s going to be well beyond 1 million bpd that’s cut, and maybe 1.5 million bpd."  Buyers across Asia have come under U.S. pressure to reduce their Iranian oil imports as Washington aims to cut exports from OPEC’s third-largest exporter to zero to force Tehran to renegotiate a nuclear treaty.  Still, Luckock says Chinese companies will likely continue to import Iranian oil, while other traditional customers may cut volumes but not reduce imports to zero.  "Export (of Iranian oil) is not going to be zero but it is going to be significantly less than it was. And probably lower than most people expected when sanctions were announced, and hence the higher (oil) prices," he said on the sidelines of the Asia Pacific Petroleum Conference (APPEC) in Singapore.  Iraqi and Mexican oil have been favoured by buyers as alternatives to Iranian crude, he said.  Also, to counter falling supply from Iran, the Organization of the Petroleum Exporting Countries (OPEC) and other producers are considering raising output by 500,000 bpd.  Luckock said earlier during the conference that he expects oil prices could rise to $90 per barrel by Christmas and $100 per barrel by the New Year, from nearly $80 a barrel now for Brent crude due to robust global oil demand.  Production decline from Venezuela and firm global oil demand are also likely to boost oil prices, said Luckock, who was promoted in July from his previous role as co-head of risk.  New refining capacity being added in Asia will also likely provide incremental demand for crude oil, he said.  "These are exciting times with a bunch of new refineries coming online and a bunch of dislocation in the crude oil market around the world, so we really should have incremental volatility going forward," he said.  Luckock also said that while this year has been challenging for the industry, next year is looking more bullish.

APPEC analysis: Asia may find Middle East crude supply remaining tight in 2019 – Platts

Major Middle Eastern crude producers could revive their market share in Asia as the OPEC/non-OPEC output cut agreement officially ends later this year, but Asian refiners may end up paying higher prices as overall Persian Gulf supplies are expected to remain tight because of uncertainties surrounding Iran, industry executives and trade sources said Monday.  The growing need for OPEC and its partners to start raising production and export volumes amid faltering Venezuelan output and pending re-imposition of US sanctions on Tehran emerged as one the key discussion topics in the preliminary sessions at the S&P Global Platts Asia Pacific Petroleum Conference in Singapore.  OPEC and major Middle Eastern producers should take the responsibility to increase production when the market needs more crude, said Ali Nazar Faeq al-Shatari, deputy director of Iraq’s State Oil Marketing Organization, or SOMO.  "There is a big potential for Iraq to increase its exports to Asia going forward," al-Shatari said.  However, many industry executives maintained a cautious stance as OPEC may struggle to fully make up for the potential loss of Iranian barrels in the international market over the coming months, if not years.  Most, if not all, of international crude flows are either directly or indirectly linked to Asian demand these days. Asia should be well supplied by OPEC, Russia and the US going forward but many uncertainties including the US-China trade war and Iranian sanctions could offset the rise in supply, said Tor Martin Anfinnsen, senior vice president of marketing and trading at Equinor.  Meanwhile, Daniel Jaeggi, president and co-founder of Mercuria Energy Trading said international crude oil prices could surpass the $100/b level, indicating that the global oil market does not have an adequate supply response for a potential reduction in Iranian supplies.  Various refinery sources from major Asian crude importers including China, South Korea and Japan have also raised questions whether key OPEC and Middle Eastern producers could ramp up production to the extent that the additional volumes could fully cover the expected cutback in Iranian exports going forward.  Both Dubai physical and paper markets have rallied in recent weeks, with the backwardation structure widening sharply in both cash and swaps timespreads, reflecting Asian end-users’ growing concerns about the Iranian supply cutoff after November.  "Iran is one of the top three Persian Gulf producer … it’s not going to be easy to fill the loss of Iranian supply," a source at a South Korean refiner said on the sidelines of the APPEC conference in Singapore.  OPEC and non-OPEC partners agreed on June 23 to boost output by 1 million b/d by reducing over-compliance with cuts that had been in place since January 2017.  However, S&P Global Platts Analytics expects 1.4 million b/d of Iranian oil supplies to leave the market by November, when the US sanctions go into force, while Mercuria’s Jaeggi said he expects a loss of around 2 million b/d of Iranian crude in the international market.  "Depending on the severity and the duration of the Iranian sanctions, the market simply does not have an adequate supply response for 2 million b/d of oil disappearing from the market. It is conceivable to see oil north of $100 a barrel," Jaeggi said.  Venezuela, which pumped 1.22 million b/d in August, according to the latest Platts survey of OPEC production, could see output fall to 1 million b/d in 2019, Platts Analytics forecasts.  Politically unstable Libya also presents a supply risk, industry participants at APPEC said.

 

DUBAI MARKET STRUCTURE

The physical Dubai crude market saw its backwardation structure widen sharply this month, a clear indication that many industry and trade participants remain wary about the loss of Iran supplies.  The spread between first and second-line Dubai crude swaps was assessed at 71 cents/b for October/November at the 0830 GMT close of Asian trade in Singapore last Friday, marking the strongest backwardation for the prompt timespread since 75 cents/b on July 31, 2015, Platts data showed.  The spread averaged 64 cents/b so far this month, sharply higher than the August average of 35 cents/b.  The physical Dubai crude market structure also strengthened to a multi-year high recently, with the spread between front-month cash Dubai and same-month Dubai swap at $1.44/b on Friday in Singapore, the highest since May 21, 2014 when it stood at $1.53/b.  "The OPEC and the Middle Eastern producers’ actual crude production capability is up … but it’s the disruption in supply and exports [such as the economic sanctions on Iran and Venezuelan economic turmoil] that’s supporting the oil prices," said Chris Midgely, global director of analytics at Platts.  International outright crude prices have also maintained a bullish tone in recent weeks with front-month ICE Brent futures consistently testing the $80/b this month amid growing concern over the loss of Iranian barrels and the lack of spare capacity amongst its OPEC partners outside Saudi Arabia.  Saudi Arabia has already increased its shipments significantly to win more market share at Iran’s expense.

 

BofAML Lifts Forecasts, Sees Oil Reaching $95 a Barrel in 2019

BofAML raises 2019 Brent crude forecast by $5/bbl to $80/bbl, noting that loss of Iranian supply due to U.S. sanctions is likely to be greater than previously expected, analysts including Francisco Blanch write in a report.

“Notably, we also lift our Brent crude oil target from $90 to $95/bbl by end of 2Q19”

Increases estimate of lost Iranian supply by 500k b/d to 1m b/d, due to “more aggressive U.S. stance”

Leaves demand growth forecasts roughly unchanged

Forecasts 2019 oil market deficit wider at 400k b/d, from 300k previously

Raises 2019 WTI forecast by only $2/bbl to $71/bbl; says U.S. infrastructure constraints won’t be resolved for another 12 months

Likelihood of an oil price spike and crash scenario similar to 2008 has increased; says significant EM oil demand destruction could be seen if Brent eventually tops $120/bbl

 

China says U.S. trying to force it to submit on trade as new tariffs kick in – Reuters News

The United States and China imposed fresh tariffs on each other’s goods on Monday as the world’s biggest economies showed no signs of backing down from an increasingly bitter trade dispute that is expected to knock global economic growth.  Soon after the new duties went into effect, China accused the U.S. of engaging in "trade bullyism" and said it was intimidating other countries to submit to its will, the official Xinhua news agency said, reiterating China’s willingness to fight if necessary.  But Beijing also said it was willing to restart trade negotiations with the United States if the talks are "based on mutual respect and equality," Xinhua said, citing a white paper on the dispute published by China’s State Council.  U.S. tariffs on $200 billion worth of Chinese goods and retaliatory tariffs by Beijing on $60 billion worth of U.S. products took effect at midday Asian time, though the initial level of the duties was not as high as earlier feared.  The U.S. will levy tariffs of 10 percent initially, rising to 25 percent at the end of 2018. Beijing has imposed rates of 5-10 percent and warned it would respond to any rise in U.S. tariffs on Chinese products accordingly.  The two sides had already slapped tariffs on $50 billion worth of each other’s goods.  For U.S. consumers, the new duties could translate into higher prices for Chinese products ranging from vacuum cleaners to technology gear such as home modems and routers, while U.S. goods targeted by Beijing include liquefied natural gas and certain types of aircraft.  President Donald Trump is pressing China to reduce its huge bilateral trade surplus and make sweeping changes to its policies on trade, technology transfers and high-tech industrial subsidies. Beijing has denied that U.S. firms are forced to transfer technology and sees Washington’s demands on rolling back its industrial policies as an attempt to contain China’s economic rise.  The U.S. administration "has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs," Xinhua quoted the State Council’s white paper as saying.

 

"NO END IN SIGHT FOR TRADE WAR"

Several rounds of Sino-U.S. trade talks in recent months have yielded no major breakthroughs and attempts at arranging another meeting in coming weeks have fallen through. A senior White House official said last week the U.S. will continue to engage China, but added there was no date for further talks.  China, which has accused Washington of being insincere in the negotiations, has decided not to send Vice Premier Liu He to Washington this week, The Wall Street Journal reported late last week.  News of Beijing’s decision to skip the talks pushed China’s yuan currency down 0.3 percent on Monday in offshore trade, reinforcing investors’ fears that both sides are digging in for a long fight. Mainland China markets were closed for a holiday.  Economists warn that a protracted dispute will eventually stunt growth across the globe. Companies on both sides of the Pacific are already reporting disruptions to their operations and are reviewing investment plans.  The trade tensions have also cast a pall over broader relations between Beijing and Washington, with the two sides butting heads on a growing number of issues.  China summoned the U.S. ambassador in Beijing and postponed military talks in protest against a U.S. decision to sanction a Chinese military agency and its director for buying Russian fighter jets and a missile system.  Rob Carnell, ING’s chief Asia economist, said in a note to clients that in the absence of any incentives Beijing would likely hold off on any further negotiations for now.  "It would look weak both to the U.S. and at home," he said, adding that there is "sufficient stimulus in the pipeline" to limit the damage of the latest tariffs on China’s economy.  "The U.S.-China trade war has no clear end in sight."  China may also be waiting for U.S. mid-term elections early next month for any hints of changes in Washington’s policy stance, Carnell added.  "With generic polls favouring the Democrats, they may feel that the trade environment will be less hostile after November 6."  Bloomberg reported that the China Daily, Beijing’s official English newspaper, paid for a four-page advertising supplement on Sunday in the Des Moines Register – the largest newspaper in the politically important state of Iowa – that highlighted the impact of the trade war on soybean farmers.  Trump earlier this month accused China of targeting rural voters who support his presidency by hitting agricultural goods. Beijing has repeatedly denied the charge.

 

WASHINGTON READYING MORE MEASURES

Trump on Saturday reiterated a threat to impose further tariffs on Chinese goods should Beijing retaliate, suggesting that Washington may slap tariffs on virtually all imported Chinese goods if the administration does not get its way.  China imports far less from the United States, making a dollar-for-dollar match on any new U.S. tariffs impossible.  Instead, it has warned of "qualitative" measures to retaliate.  Though Beijing has not revealed what such steps might be, business executives and analysts say it could withhold exports of certain products to the U.S. or create more administrative red tape for American companies operating in China.  Some analysts say there is also a risk that China could allow its currency to weaken again to cushion the blow to its exporters.

 

Brent Benchmark Set for Major Revamp With Oil From Around World

Dated Brent could see the biggest overhaul since the North Sea crude became a benchmark more than 30 years ago as S&P Global Platts considers including oil from as far away as Central Asia, West Africa and U.S. shale fields in its price assessment.  The price of Brent is key for the global oil industry as the benchmark underpins more than half the crude traded worldwide in the physical market plus billions of dollars in financial derivatives traded by big Wall Street banks, hedge funds and others.  Platts said in a statement that it’s seeking industry feedback on a proposal to include crude grades such as Statfjord, Gullfaks, CPC Blend, WTI Midland, Qua Iboe and Forcados in a new assessment for Dated Brent, that would be based on the price of cargoes delivered in Rotterdam.  Currently, Platts bases its Brent assessment on the values of five crude grades pumped in the North Sea on a free-on-board basis (FOB), rather than on a delivered, or cost, insurance and freight (CIF) basis. The five grades — Brent, Forties, Oseberg, Ekofisk and Troll — are often known by the BFOE acronyom.  Platts is also seeking an industry consultation to use both the current free-on-board pricing in North Sea terminals and a Rotterdam cost-and-freight price. The move would significantly increase the amount of crude from the North Sea that’s captured in the Brent assessment. 

Output Drop

North Sea production has dropped significantly since its heyday in the 1980s and 1990s, prompting Platts to consider including grades from outside the region to bolster liquidity.  “Delivered crude oil will play an ever more important role in Europe going forward,” Martin Fraenkel, S&P Global Platts president, said Monday in Singapore, where the global oil industry is gathered at the annual Asia Pacific Petroleum Conference (APPEC).  Of the new grades under consideration, CPC Blend comes from Central Asia, WTI Midland from the U.S., and Qua Iboe and Forcados are produced in West Africa.

Permian Output to Be Constrained Through 2020: Pioneer Natural

The oil-pipeline bottleneck in the U.S. Permian basin won’t be resolved until mid-2020, constraining production, Scott Sheffield, Chairman of Pioneer Natural Resources, says at the Asia Pacific Petroleum Conference (APPEC) in Singapore.

Permian will have 7.1m b/d takeaway capacity by summer 2020

U.S. oil exports will reach 5m b/d in the next 3-5 years

Eagle Ford output will grow to 2m b/d in next few years from 1.5m b/d currently

We are reaching the limit of horizontal wells length

Tariffs have raised price of steel 40%, which is a major cost component of pipeline drilling

Average truck driver salary is about $100k-$150k in the Permian and needs to rise to meet demand

Optimism over a tight oil market in next 3 years means U.S. oil producers are doing very little hedging

 

OPEC forecasts flatlining demand for its oil ahead of US shale peak – Platts

Growing tight oil output in the years ahead will cap global demand for OPEC’s crude, the bloc said in a report Sunday, highlighting the impetus for a permanent supply management pact with Russia and other allies if it aims to keep prices stable.  In its World Oil Outlook, OPEC revealed that the world will need much less of its oil than it had forecast last year, indicating that the 15 members of the bloc will need to maintain production discipline in the coming years to avoid a supply glut.  Total non-OPEC oil supply will surge on the back of US shale from 57.5 million b/d in 2017 to 66.7 million b/d in 2025 before leveling off and then tapering to 62.6 million b/d in 2040, the report found.  As a result, the so-called call on OPEC crude will remain relatively steady around 32.6 million b/d for the next few years, before dropping to 32.1 million b/d in 2025 and then rising again to 39.9 million b/d in 2040.  That compares to last year’s outlook forecast of 33.5 million b/d in 2025 and 41.4 million b/d in 2040.  OPEC production in August stood at 32.6 million b/d, the organization said earlier this month.  "Stability today begets stability tomorrow, which is vital given that our industry remains a growth business, with oil continuing to be a fuel of choice for the foreseeable future," OPEC Secretary General Mohammed Barkindo wrote in the foreword of the report.  The fracking revolution in the US and undisciplined pumping by OPEC members caused oil prices to crash in 2014. The market did not begin to recover until August 2016, when OPEC finally agreed in Algiers with 10 non-OPEC producers, including Russia, to draft a "Declaration of Cooperation" committing the group to production cuts starting in 2017.  Now, two years on, OPEC and its partners, who together control about half of global crude production, are back in the Algerian capital aiming to make permanent their partnership before it expires at year’s end, even as they unwind the cuts.  A draft charter was circulated to all members ahead of Sunday’s meeting of the OPEC/non-OPEC Joint Ministerial Monitoring Committee, attended by nearly all of the 25 member delegations. It calls for the coalition to meet at least once a year and to take unspecified measures as necessary to ensure the stability of the market.  "It is clear that the ‘Declaration’ has now become a permanent feature of the global energy scene, establishing a novel framework for producing countries, whilst also taking into account the vital interests of consumer countries, as well as the global economy," Barkindo wrote in the outlook.

EV demand impact

Like all long-term energy outlooks, OPEC sees oil remaining the dominant fuel in the global energy mix in the coming decades, and the organization revised upward its forecast for 2040 oil demand from last year’s report.  Oil’s share of the energy market will still be some 28% by then, as long-term demand will increase by 14.5 million b/d to hit 111.7 million b/d, the report stated, up from 111.1 million b/d forecast in the 2017 World Oil Outlook.  That is an annual growth rate of 630,000 b/d, but the rate is much higher in the early years of the forecast period, averaging 1.2 million b/d from 2017 to 2023.  OPEC will provide 36% of global oil supplies by 2040.  Electric vehicles will make up 13% of the global fleet by 2040, the report stated. But a faster adoption rate in OPEC’s most aggressive forecast for electric vehicle purchases could depress global oil demand by 2.9 million b/d by then, OPEC said.  That is less impactful than it had forecast last year, when it projected a potential 3.1 million b/d hit to oil demand from EVs.  "The long-term picture for electric vehicles remains somewhat uncertain, due to a number of factors such as economics, the cost of electric vehicles relative to conventional vehicles, concerns regarding range and charging infrastructure, as well as the continuity of the governmental support," the report stated.  On the downstream side, OPEC’s analysts expect about 18 million b/d of refinery capacity additions through 2040, mostly in Asia and the Middle East.  As it has warned repeatedly over the last few years, OPEC said the oil industry is in need of significant investment to meet growing demand, to the tune of almost $11 trillion over the next two decades, the report estimated.  The price slump caused by the supply glut forced many companies to drastically slash their capital budgets, with investment only just starting to recover.  "While investments picked up slightly in 2017 compared to the previous two years, and the expectations are for higher levels again in 2018, it is vital that as an industry we ensure there is timely and adequate investment so as not to lead to a supply shortage in the future," Barkindo wrote.  OPEC members, he added, were "fully committed" to the drive for more capital expenditures, a major thrust of their supply management pact that they hope to renew.

IMO 2020 to cause one-off oil demand surge before market adjusts: OPEC – Platts

Tighter global shipping pollution regulations from 2020 will lead to a temporary surge in oil demand while denting the oil revenues of producers of heavy or high sulfur crudes, OPEC said in its annual long-term oil forecast Sunday.  The International Maritime Organization’s global marine fuels sulfur cap of 0.5% in 2020 will produce a one-off jump in crude demand from the global refining system in order to meet for the need for compliant, non-marine residual fuels, OPEC said.  "In order to produce sufficient volumes of middle distillates, the global refining system is expected to increase runs by around 400,000 b/d in 2020 (additional to the case if no IMO regulations were adopted)," OPEC said in its latest World Oil Outlook.  As a result, global oil demand growth is expected to bounce back to 1.7 million b/d in 2020, from 1.4 million b/d in 2019, OPEC said.  But it acknowledged that "as global supply and demand adapt to the regulations, and energy efficiency trends grow, annual demand increases post-2020 are expected to revert to a lower level, some 900,000 b/d in 2021 and 800,000 b/d in 2022 and 2023."

Crude price impact

OPEC also signaled that the IMO’s regulations will negatively impact the bulk of OPEC members who mainly produce heavy or high sulfur crudes.  Prices for heavy and sour crudes are expected to weaken "potentially severely" from 2020, while light crudes are expected to benefit and command a premium over heavy grades, the report stated.

The report estimates that more than 200,000 b/d of the incremental refining demand in 2020 will be surplus high-sulfur fuel oil that will "create pressure on its price and possibly lead to a heavy discount."  The IMO announced the new global sulfur cap — down from the current limit of 3.5% — in October 2016, but several shipping and bunker industry representatives have questioned whether the organization will be able to enforce the regulation.  OPEC said it expects compliance to increase gradually in the years after 2020 as more ships install scrubbers — equipment that sprays alkaline water into a vessel’s exhaust to remove sulfur and other unwanted chemicals, allowing it to continue burning high sulfur fuel oil while complying with the new regulation.  The report forecast that about 2,000 vessels will have scrubbers installed by 2020, compared with about 500 vessels this year, once the financial incentive in the form of a widening HSFO discount to compliant LSFO and gasoil materialized.

Refining capacity

The global refinery system will see about 1.4 million b/d of throughput capacity closed due to the IMO regulation, OPEC forecast.  Two weeks ago, refining sources told S&P Global Platts that up to 800,000 b/d of refining capacity is at risk in Western Europe alone due to IMO 2020.  But OPEC said the adoption of scrubbers could lead to some shuttered refinery capacity being restarted.  The HOVENSA refinery in the US Virgin Islands is expected to effect a partial restart by end-2019 with a focus on processing heavy crude and producing 0.5% sulfur marine fuel. The Wilhelmshaven refinery, which ceased operations 10 years ago, will also restart soon to take advantage of its feedstock units.

Saudi Aramco Trading aims for 50 pct rise in oil trade volume in 2020 – Reuters News

Saudi’s Aramco Trading Company (ATC) expects to increase its oil trading volume to 6 million barrels per day (bpd) in 2020, 50 percent higher than current levels, the company’s top official said on Monday.  "Currently … we’re at 4 million barrels per day and with expansion I think our target is 6 million barrels per day," President and Chief Executive Ibrahim Al-Buainain said at the Asia Pacific Petroleum Conference (APPEC).  About 50 percent of the 2.5 million bpd of oil products it trades currently are hedged, he said.  The company is also looking at building its capacity in trading liquefied natural gas (LNG), using its Singapore office as a trading hub, Buainain said.  ATC plans to set up its European office in either Geneva or London and also aims to have an office in Fujairah to manage oil storage, he said.  In Singapore, Buainain said he expects the company’s office to grow to 30 to 40 people within the next two years.  ATC also expected to benefit from a switch by ships to cleaner fuels in 2020 as mandated by the International Maritime Organization.  "The second-hand effect of the IMO is the oversupply of high-sulphur fuel oil (HSFO) which in our case is a positive because we are net short on fuel oil and that will help us in meeting our requirements (for HSFO) in power generation," Buainain said.  Buainain has headed the trading arm of Saudi Aramco since 2016.  ATC was set up in 2012 to market refined products, base oils and bulk petrochemicals. It started trading non-Saudi crude oil and refined products from its overseas refineries in the past years as the world’s largest oil exporter seeks to optimize profits. 

 

U.S. oil refiners’ weekly capacity seen down 474,000 bpd -IIR – Reuters News

U.S. oil refiners are estimated to have 1,561,000 barrels per day (bpd) of capacity offline in the week ending Sept. 28, reducing available refining capacity by 474,000 bpd from the previous week, data from research company IIR Energy showed on Monday.  IIR expects offline capacity to fall to 1,529,000 bpd in the week to Oct. 5.  The following are IIR weekly figures for offline capacity (in thousands of bpd):

Week ended Friday	Sept. 24	Sept. 21	Sept. 19
10/05/18	1,529	1,529	–
9/28/18	1,561	1,455	1,455
9/21/18	1,087	1,073	1,073
9/14/18	703	703	703
9/07/18	322	322	322

 

 

Jonathan Wagner

Ion Energy Group

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Wagner.j@ionenergygroup.com