Good morning.  OPEC monthly just out (full report attached) showing 2018 world oil demand growing by 1.62m b/d (slightly lower vs last month’s report).  Total oil demand for ’18 is now estimated at 98.82m b/d.  In 2019, OPEC has world oil demand growing by 1.41m b/d to 100.23m b/d.  Non-OPEC supply in ’18 is expected to grow by 2.02m b/d (-64k b/d revision m/m).  The US, Canada, Kazakhstan the UK, and Brazil remain to be the main drivers for growth, while Mexico and Norway are projected to show the largest declines. Total non-OPEC supply for 2018 is now estimated at 59.56 mb/d.  Non-OPEC supply is now forecast to average 61.71 mb/d for the year.  OPEC sees 2019 non-OPEC oil supply growth at 2.15m b/d for 2019 (+20k b/d from their last report).  OPEC crude oil production increased by 278k b/d in August to average 32.56 mb/d, according to secondary sources.  In 2018, demand for OPEC crude is expected at 32.9 b/d, which is 0.5 mb/d lower than in the previous year. In 2019, demand for OPEC crude is forecast at 32.1 mb/d, around 0.9 mb/d lower than a year earlier.  OPEC said that OECD oil inventories increased in July and stood at 43m b/d below the 5 yr avg.  API data released last night showed a total crude draw of 8.6m bbls with Cushing drawing 1.2m bbls.  Gasoline stocks built 2.1m bbls while Distillate stocks built 5.8m bbls.  Crude runs were higher by 134k b/d w/w while imports were sharply lower by 731k b/d to 7.5m b/d (more in line w/ the DOE figures).  The breakdown of the crude stock draw shows Padd 2 drawing 2.2 while Padd 3 drew 4.7m bbls.  Padd 3 imports fell by 302k b/d.  Yesterday the EIA released their short term energy outlook showing bal 18 and cal 19 US oil production growing at a slower rate than previously forecast.  U.S. crude production is expected to rise by 840,000 b/d to 11.5 million bpd next year, lower than a previous expectation for it to rise 1.02 million bpd to 11.7 million.  Oil demand growth in 2019 is expected to rise by 250,000 bpd, a decrease from EIA’s previous projection for an increase of 290,000 bpd.  U.S. crude oil production in 2018 is expected to grow 1.31 million barrels per day (bpd) to 10.66 million bpd, little changed from EIA’s previous forecast. Demand in 2018 is likely to grow by 470,000 bpd, also unchanged.

Last night, Russian energy minister Novak said that Russia has the capacity to set a new oil-production record, but won’t decide whether the market needs those additional supplies before a meeting later this month with its OPEC allies.  Russia could boost output by as much as 300,000 barrels a day in the medium-term, which would beat the post-Soviet record set in October 2016.  “Regardless of whether we coordinate production volumes and whether we once again install these voluntary limitations upon ourselves or not, the mechanism has shown its efficiency,” Novak said. “That is why we believe that we would need to continue cooperation in any case.”  Novak will meet U.S. Energy Secretary Rick Perry in Moscow on Thursday and discuss the state of oil and gas markets and companies in both countries.  In Libya, while there has been no official NOC update, sources say that production remains stable at just over 1m b/d with the ISIS attack on the NOC headquarters no impacting oil operations.  Middle east crude prices continue to rise as Oman cash is now trading at a premium of over $2 to swaps on the back of increased Chinese demand and worries about Iranian crude supply disruptions.  Dubai Cash was little changed today at +1.47 over swaps.  According to Reuters, Chinese independent refiners are snapping up cargoes as they ramp up output on improved margins and peak winter demand while they use up as much of their import quotas as possible before the end of the year to secure renewals next year.  6 Nov Dubai partials traded in the window with Shell, Petro-Diamond, and Vitol buying from Reliance, Totsa, Unipec and Mercuria.  Sep/Oct Dubai is trading at 83c back while Oct/Nov Dubai is trading at 66c backward.  Iranian supply for Oct continue to be a hot topic as many are still in the dark about pulling bbls as US sanctions approach.  Indian Oil Corp, the biggest Indian customer of Iranian crude has booked its monthly quota of about 5.86m bbls for delivery in oct.  Mangalore Refinery & Petrochemicals will also book its Iranian volumes for next month, co. official says.  Iranian ship underwriters Kish P&I Club and Qeshm International Trust Alliance P&I Club permitted to cover foreign ships arriving at Indian ports until Feb 2020.  In the North Sea, Nexen was forced to delay the restart of buzzard due to bad weather but as of this morning it is reported that the restart has begun.  ARA crude stocks continue to fall with inventories moving below their 5 yr avg.  US crude spreads continue to rally as I’ve heard comments that energy aspects were out with a very bullish projection for Q4 Cushing stocks.  Front end upside calls remain seen as wingy call skew was well bid yesterday and the x8 75 and z8 70 calls have been very active so far this morning.  Yesterday’s block highlights and updated skew as of the close are below.  In Brent this morning there was good interest seen in April ’19 going through the screen.  The 70 puts were bought (1200x) and then the 77.5/83.5 call spread was sold (1500x).  M9 brt ratio put spreads are active again this morning (60/55 1×2 traded 500x so far) with producers continuing to look to hedge at these levels.  Various WTI APO structures we were trading on blocks as well yesterday.    

 

WTI Nov 15d Risk Reversal (call prem)

      

 

Top stories out this morning

U.S. crude oil inventories slumped, falling 8.6 mln bbls in week –API

Russia warns of ‘fragile’ oil market due to geopolitics, but says it can raise output – Reuters News

Russia starts biggest war games since Soviet fall near China – Reuters News

EU must grasp world role as U.S. retreats, Juncker says – Reuters News

China is "one of the bigger risks" to global economy – BoE’s Carney – Reuters News

Iran has 3,000-4,000 working centrifuges – parliament speaker – Reuters News

Middle East Crude-Oman premium rises above $2/bbl – Reuters News

Brent CFD curve moves into backwardation amid bullish crude oil outlook – Platts

UK’s North Sea Buzzard oilfield restart delayed due to weather – Reuters News

Libya Oil Production Said to Be Stable at More Than 1M B/D

Islamic State Says Libya Oil Fields Are a `Legitimate Target’

Iran’s oil output falls to 3.52 million b/d in August as US sanctions loom: EIA – Platts

Iran Resorts to Floating Storage for Its Oil as Buyers Retreat

Iran Oil-Tanker Insurers Get India Cover Permit Until Feb. 2020

Indian Oil Books Iranian Oil for Oct. Supply, MRPL Will Buy Too

Indian refiners in limbo over Iran crude – Argus

Crude Stockpiles in ARA Fall Below 5-Year Average: Genscape

U.S. oil exports to Japan, S. Korea soar as refiners reap steep discounts – Reuters News

Pemex Reports Blockade of Minatitlan Dispatch, Storage Terminal

Permian Constraints Push U.S. to Cut Oil Output Estimates

U.S. Cash Crude-Coastal grades extend gains as WTI/Brent spread hits $10 – Reuters News

LOOP Begins Dedicated Storage Cavern for WTI Midland Crude Oil

EPA Approves Emergency Fuel Waiver for N.C., S.C. Ahead of Storm

U.S. Cash Products-Midwest gasoline rises to 10-month high on refiner buying – Reuters News

U.S. oil refiners’ weekly capacity seen down 195,000 bpd -IIR – Reuters News

Petrobras says alkylation unit fire put out at Pasadena, Texas, refinery – Reuters News

Husky Lima Refinery Shuts Unit After Upset Monday: Hotline

Arbitrage European gasoline cargoes booked for East of Suez soars – Platts

Trafigura loses last big Angolan oil deal as new president shakes up sector – Reuters News

Iraq to Boost Oil-Refining Capacity to 1m B/D by End-2019: Nima

Fuel Flows Inland From ARA to Rise Further on Refinery Woes: PJK

 

 

 

Implied Vol					Realized Vol
WTI Vol	11-Sep	Change	Breakeven		10d	30d	50d
V8	24.56	0.07	1.07		21.69	22.29	25.07
X8	24.95	0.63	1.09		20.80	21.75	24.88
Z8	25.25	0.2	1.1		20.23	21.45	24.76
F9	25.77	0.03	1.12		19.82	21.25	24.63
G8	25.29	-0.08	1.1		19.42	20.99	24.43
H9	25.3	-0.14	1.1		19.08	20.71	24.14
M9	25.12	-0.21	1.08		18.17	19.90	23.07
U9	24.82	-0.15	1.05		17.08	19.02	22.07
Z9	24.44	-0.27	1.03		16.09	18.09	21.00

 

 

Implied Vol					Realized Vol
BRT Vol	11-Sep	Change	Breakeven		10d	30d	50d
X8	25.3	0.48	1.26		16.53	19.75	26.70
Z8	25.22	0.19	1.25		16.54	19.54	26.10
F9	24.98	0	1.23		16.60	19.36	25.54
G8	25.71	-0.09	1.26		16.29	19.02	24.98
H9	25.2	-0.2	1.24		16.05	18.73	24.44
M9	25.31	-0.19	1.23		14.89	17.99	23.04
U9	25.42	-0.07	1.22		14.07	17.31	22.06
Z9	25.17	-0.13	1.19		13.55	16.71	21.38

 

 

 

WTI Most Actively Traded Options

 

Brent Most Actively Traded Options

 

 

ICE/CME Mixed Clearing Recap

WTI Z18 67.50 Straddle vs BRT Z18 77.50 Straddle TRADES 21 600x

WTI Z18 68 Call x67.60 vs BRT Z18 78 Call x77.50 TRADES 16 2,000x 50d/50d

WTI/BRT M19 ATM Call Roll x66.50/75.50 TRADES 54 800x 60d/60d

WTI/BRT M19 ATM Call Roll x66.50/76.00 TRADES 56 300x 60d/60d

 

ICE Trade Recap

BRT X18 73/68 1×2 Put Spread x77.75 TRADES 16 500x 7d

BRT Z18 80 Call TRADES 175 750x; TRADES 176 200x

WTI Z18 65/60 1×1.5 Put Spread x68.60 TRADES 76 1200x 12d

BRT Z18 76.50 Put x78.50 TRADES 184 500x 36d

BRT F19 80/95 Call Spread vs 65 Put x77.85 TRADES 205 800x 44d

BRT G19 77/68 1×1.5 Put Spread x76.85 TRADES 249 2,000x 21d

WTI G19 80/85 Call Spread x76.72 TRADES 140 1,428x 16d

BRT H19 70/76/82 Iron Fly TRADES 447 700x; TRADES 474 800x

BRT M19 70/80 Fence x75.90 TRADES 57 500x 73d

BRT M19 90/100 1×2 Call Spread TRADES 30 650x

WTI Z20 75 Call x61.85 TRADES 318 300x 23d

 

CME Trade Recap

WTI V18 70/70.50 Call Spread x68.40 TRADES 10 2,040x 6d

WTI X18 69/72 1×2 Call Spread TRADES 15 500x

WTI Z18 68 Put x68.85 TRADES 248 500x 43d

WTI 4Q18 68.50/69.00/70 American Call Fly Strip TRADES 20x 850x

WTI G19 58/77 1.25×1 Fence x67.20 TRADES 33 1,000x

WTI Z19 80 Call TRADES 210 250x

WTI Z20 50/55 Put Spread x63.95 TRADES 145 700x 5d

 

CSO/ARB/APO Trade Recap

ARB Z18 -5.00/-12.00 Fence TRADES 18 100x

WTI APO 3Q19 50/60 Put Spread x66.25 TRADES 249 100x; TRADES 250 20x15d

WTI APO 4Q19 55.15 Put x65.25 TRADES 315 170x

WTI APO Cal19 50/80 Fence x67.10 TRADES 51 40x 30d

WTI APO Cal19 ATM Call x66.00 TRADEs 565 20x 60d

WTI APO 1Q20 50/60 Put Spread x64.30 TRADES 305 100x 15d

WTI APO 1H20 60/67 Fence TRADES 25 2x

 

 

Hurricane Florence

 

U.S. crude oil inventories slumped, falling 8.6 mln bbls in week –API

U.S. crude stocks fell sharply last week, while gasoline and distillate inventories built, industry group the American Petroleum Institute said on Tuesday.  Crude inventories fell by 8.6 million barrels in the week to Sept. 7 to 395.9 million, compared with analysts’ expectations for a decrease of 805,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.2 million barrels, API said.  Refinery crude runs rose by 134,000 barrels per day, API data showed.  Gasoline stocks rose by 2.1 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel gain.  Distillate fuels stockpiles, which include diesel and heating oil, rose by 5.8 million barrels, compared with expectations for a 1.4 million-barrel gain, the API data showed.  U.S. crude imports fell last week by 731,000 barrels per day to 7.5 million bpd.

Russia warns of ‘fragile’ oil market due to geopolitics, but says it can raise output – Reuters News

Global oil markets remain "fragile" due to geopolitics and production declines in several regions, Russia’s energy minister said on Wednesday, but added his country could raise output if needed.  The comments come amid oil prices eyeing $80 per barrel, up from little over $60 in February, amid supply disruptions and expected U.S. sanctions against Iran.  Today, the situation is quite fragile, of course, and it is related to the fact that not all the countries have managed to restore their market and production," Russian Energy Minister Alexander Novak said at an economic conference in the Russian far eastern city of Vladivostok.  "We observe such situation in Mexico, where the decline more than halved from the forecasts on 2018. In Venezuela production is falling quite strongly, by 50,000 barrels per day. This means that the market is still not balanced in long-term perspective."  Venezuelan oil exports have halved over the past year to little more than 1 million barrels per day (bpd) as the South American country grapples with a political and economic crisis.  Novak also warned of the impact on markets of looming U.S. sanctions against Iran’s oil exports, which will be implemented from November.  "This is huge uncertainty on the market – how the countries, which buy almost 2 million barrels per day of Iranian oil will act. Those are Europe, Asia Pacific region … There is a lot of uncertainty. The situation should be closely watched, the right decisions should be taken."  Washington has put pressure on other countries to also stop importing Iranian oil. Despite some opposition from governments in Europe and Asia, many oil firms have already started dialling back purchases in anticipation of U.S. sanctions.

OUTPUT RISE?

Should markets overheat and prices spike, Novak said there was potential for some countries to raise output.  "Russia has potential to raise production by 300,000 barrels (per day) mid-term, in addition to the level of October 2016."  October 2016 was a baseline for the accord to withhold output from 2017.  For that month, Russia produced 11.247 million barrels per day, a post-Soviet record high.  Novak said a September meeting between the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) and a group of other non-OPEC producers, including Russia, will discuss the market situation in Algeria.  He said the meeting would discuss further oil market cooperation, taking into account supply and demand forecasts for the third and fourth quarters of 2018 and the first half of 2019.  Novak also said that Russia plans to obtain a 20 percent share of the global liquefied natural gas (LNG) market thanks to abundant gas reserves.  "I am sure we will reach this goal," he said.

Russia starts biggest war games since Soviet fall near China – Reuters News

Russia began its biggest war games since the fall of the Soviet Union on Tuesday close to its border with China, mobilizing 300,000 troops in a show of force that will include joint exercises with the Chinese army.  China and Russia have staged joint drills before but not on such a large scale, and the Vostok-2018 (East-2018) exercise signals closer military ties as well as sending an unspoken reminder to Beijing that Moscow is able and ready to defend its sparsely populated far east.  Vostok-2018 is taking place at a time of heightened tension between the West and Russia, and NATO has said it will monitor the exercise closely, as will the United States which has a strong military presence in the Asia-Pacific region.  Russia’s Ministry of Defense broadcast images on Tuesday of columns of tanks, armored vehicles and warships on the move, and combat helicopters and fighter aircraft taking off.  In one clip, marines from Russia’s Northern Fleet and a motorized Arctic brigade were shown disembarking from a large landing ship on a barren shore opposite Alaska.  This activity was part of the first stage of the exercise, which runs until Sept. 17, the ministry said in a statement. It involved deploying additional forces to Russia’s far east and a naval build-up involving its Northern and Pacific fleets.  The main aim was to check the military’s readiness to move troops large distances, to test how closely infantry and naval forces cooperated, and to perfect command and control procedures. Later stages will involve rehearsals of both defensive and offensive scenarios.  Russia also staged a major naval exercise in the eastern Mediterranean this month and its jets resumed bombing the Syrian region of Idlib, the last major enclave of rebels fighting its ally President Bashar al-Assad.

CLOSER CHINA-RUSSIA TIES

The location of the main training range for Vostok-2018 5,000 km (3,000 miles) east of Moscow means it is likely to be watched closely by Japan, North and South Korea as well as by China and Mongolia, both of whose armies will take part in the manoeuvres later this week.  Analysts say Moscow had to invite the Chinese and Mongolian militaries given the proximity of the war games to their borders and because the scale meant the neighbouring countries would probably have seen them as a threat had they been excluded.  The exercise – which will involve more than 1,000 military aircraft, two Russian naval fleets, up to 36,000 tanks and armoured vehicles and all Russian airborne units – began as President Vladimir Putin held talks with Chinese President Xi Jinping in the Russian port city of Vladivostok.  Relations between Moscow and Beijing have long been marked by mutual wariness with Russian nationalists warning of encroaching Chinese influence in the country’s mineral-rich far east.  But Russia pivoted east towards China after the West sanctioned Moscow over its annexation of Ukraine’s Crimea region in 2014 and trade links between the two, who share a land border over 4,200 km long, have blossomed since.  Russia broadcast footage of some of 24 helicopters and six jets belonging to the Chinese air force landing at Russian air bases for the exercise. Beijing has said 3,200 members of the People’s Liberation Army will join in.  China’s official People’s Liberation Army Daily said on Wednesday that the drill was aimed at maintaining regional peace, was not aimed at any third party and did not "have anything to do with the regional situation".  "The Chinese officers and soldiers participating in the drills will demonstrate the determination and ability to maintain regional peace and stability with practical actions," it said.  Some experts see the war games as a message to Washington, with which both Moscow and Beijing have strained ties.  "With its Vostok 2018 exercise Russia sends a message that it regards the U.S. as a potential enemy and China as a potential ally," wrote Dmitri Trenin, a former Russian army colonel and director of the Carnegie Moscow Center think tank.  "China, by sending a PLA element to train with the Russians, is signalling that U.S. pressure is pushing it towards much closer military cooperation with Moscow."  When asked if he was concerned about a potential military alliance between Russia and China in the future, U.S. Defence Secretary Jim Mattis said he did not see the two countries aligned in the long-term.  "I think that nations act out of their interest. I see little in the long-term that aligns Russia and China," Mattis told reporters in Washington.  Putin, who is armed forces commander-in-chief, is expected to observe the exercises this week alongside Defence Minister Sergei Shoigu, who is overseeing them.  Shoigu has said they are the biggest since a Soviet military exercise, Zapad-81 (West-81) in 1981.

EU must grasp world role as U.S. retreats, Juncker says – Reuters News

The European Union must flex its muscles as a world power, EU chief executive Jean-Claude Juncker said on Wednesday, as he spoke critically of U.S. President Donald Trump’s retreat from international engagement.  In his annual State of the Union address to the European Parliament in Strasbourg, Juncker, who is entering his final year as president of the European Commission, urged EU states to rein in angry divisions over budgets, immigration and other issues in order to capitalize on a chance to shape the world.  "Whenever Europe speaks as one, we can impose our position on others," Juncker said, arguing that a deal he struck in July with Trump to stall a transatlantic tariff war and which won plaudits for the Commission should have come as no surprise.  "The geopolitical situation makes this Europe’s hour: the time for European sovereignty has come," he said.  Juncker made no direct comment on Trump or U.S. policy but aides said the geopolitical situation he spoke of was a U.S. retreat into what Juncker described elsewhere in the speech as "selfish unilateralism". He also saw new opportunities to work with China, Japan and others to develop "multilateral" rules.  Some proposals to strengthen the EU’s effectiveness face an uphill battle against member state opposition, notably scrapping national vetoes in some foreign policy areas, such as where economic pressure from the likes of Russia or China on certain EU countries has blocked EU sanctions to defend human rights.  In repeating his support for deeper economic integration, he also pushed the idea that the euro should challenge the dollar as the world’s leading currency, calling it "absurd" that the EU pays for most of its energy in the U.S. currency despite buying it mainly from the likes of Russia and the Gulf states. He said airlines should also buy planes priced in euros not dollars.  Juncker renewed calls for states to push ahead in developing an EU defense capability independent of the U.S.-led NATO alliance and to embrace Africa through investment and a sweeping new free trade area — part of a strategy to curb the flow of poor African migrants which has set EU governments at each other’s throats and fuelled a sharp rise in anti-EU nationalism.

EU DIVISIONS

Without naming Hungarian Prime Minister Viktor Orban — whose government faced an unprecedented vote later on Wednesday to launch suspension proceedings from the EU — Juncker blasted EU leaders who sought to undermine democracy and the rule of law and rejected complaints from lawmakers that the Commission has been lenient toward Hungary, Poland and other eastern states.  At the same time, the Commission put forward a plan to get even tougher on illegal economic migrants whose arrival has so angered Orban and others.  However, the idea of a fully federal European Border and Coast Guard, with its own 10,000-strong uniformed force run from Brussels may hit national resistance.  With an eye on elections next May to the European Parliament, Juncker proposed new vigilance, and penalties, for attempts to manipulate voters. As the centenary nears of the end of World War One, he recalled how Europeans were taken totally by surprise by its outbreak and urged more respect for the EU as a force for peace against nationalistic "poison and deceit".  He spoke of regret at Britain’s impending withdrawal from the bloc which will mark his five-year mandate and warned Prime Minister Theresa May that the EU would not compromise its single market to let London pick and choose which rules to obey.  But as negotiators struggle to overcome problems about the future of the land border on the island of Ireland, Juncker also pledged that Britain would remain a very close partner.  In the parliamentary debate which followed his hour-long address, Nigel Farage, of the UK Independence Party, accused him of failing to acknowledge the arrival of eurosceptics in government in Italy and of a "populist revolt" across Europe that would resist Juncker’s aim to centralise more power.

China is "one of the bigger risks" to global economy – BoE’s Carney – Reuters News

China’s financial system poses one of the bigger risks to global financial stability, Bank of England Governor Mark Carney said in an interview with the BBC to mark the 10th anniversary of the global financial crisis.  Carney also cited domestic risks to Britain from Brexit, a further significant rise in household debt and cyber-attacks on the banking system, risks the BoE has previously highlighted in regular reports on Britain’s financial stability.  In its last report in June, the BoE hit back at European Union concerns that banks operating in Britain were poorly prepared for the risk that the country leaves the EU in March next year without any kind of transition deal.  "One of the bigger risks for the global economy are developments in China," Carney said in an extract of the interview released on Wednesday on the BBC’s website.  "China is a great source of growth in the global economy, an economic miracle — lots of positives. At the same time their financial sector has developed very rapidly, and it has many of the same assumptions that were made in the run-up to the last financial crisis," he added.  A new financial crisis on the scale of that which started in the United States a decade ago could not be ruled out if bankers and regulators grew complacent, Carney warned.  "Could something like this happen again?" he said. "Could there be a trigger for a crisis — if we’re complacent, of course it could."  However, British banks were now required to hold significantly more capital to protect themselves and the public against downturns than was the case 10 years ago, he added.

 

Iran has 3,000-4,000 working centrifuges – parliament speaker – Reuters News

Iran has between 3,000 and 4,000 active centrifuges, Parliament Speaker Ali Larijani said Wednesday, according to the Tasnim news agency – still within the limit allowed under its troubled nuclear deal with world powers.  The rare announcement of specific data on the nuclear program came days after Iran’s nuclear chief said it had completed a facility to build advanced centrifuges – Tehran has said it will increase its capacity to enrich uranium if the nuclear pact collapses following Washington’s withdrawal in May.  Under the terms of the 2015 deal, Iran agreed to curb its nuclear program in exchange for sanctions relief.  The deal allows the Islamic Republic to operate up to 5,060 first-generation centrifuges for 10 years at its Natanz plant and 1,044 first-generation centrifuges at its underground Fordow enrichment plant.  Before the deal, Iran had 20,000 centrifuges installed at Natanz and Fordow, according to the International Atomic Energy Agency (IAEA).  The remaining signatories to the deal – Russia, China, Germany France and Britain – are trying to salvage the accord.  "America and Israel have a program against Iran and they scrapped a deal they requested," Larijani said, according to Tasnim.  "After America withdrew, European leaders asked that Iran not give a quick reply to this action and they asked for time, which is passing now," he added.  The remaining powers say the deal is the best hope of preventing Iran from developing a nuclear bomb. Iran says its atomic programme is for electricity generation and other peaceful purposes.

Middle East Crude-Oman premium rises above $2/bbl – Reuters News

Middle East crude benchmark Oman rose above $2 a barrel on Wednesday, the highest premium in years, underpinned by robust demand in China and fears about disruption in Iranian supply as U.S. sanctions draw near.  Chinese independent refiners are snapping up cargoes as they ramp up output on improved margins and peak winter demand while they use up as much of their import quotas as possible before the end of the year to secure renewals next year, traders said.  Spot trades remained muted after Upper Zakum cargoes were sold on Monday at premiums of more than 40 cents to its OSP.  Traders are looking to ONGC and PTT tenders for price direction for light sour grades.  ONGC will award its November-loading Sokol cargo on Thursday while PTT will be buying some sour crude.

WINDOW: Cash Dubai’s premium to swaps was little changed at $1.47 a barrel. Unipec will deliver an Upper Zakum cargo to Shell after completing the sale of 20 November partials.

 

Brent CFD curve moves into backwardation amid bullish crude oil outlook – Platts

The Brent CFD swaps market has moved into a complete backwardation this week as crude oil prices have rallied ahead of the reintroduction of sanctions against Iran and the expected landfall of Hurricane Florence in the United States.  Indications in the brokered market Wednesday morning showed an uninterrupted backwardation of 39 cents/barrel between the September 17-21 and October 22-26 CFD pricing weeks.  Wednesday’s early indications are significantly stronger than Tuesday’s 16:30 London close when the curve was assessed in an essentially flat structure between the September 17-21 and October 1-5 pricing week, with backwardation of 8 cents/b between October 1-5 and October 15-19.  Market sources said that a number of bullish factors have converged on the markets all at once, which has caused a sharp increase in not only the ICE Brent futures markets — in early European trading Wednesday they were holding just shy of $80/b — but other derivatives markets as well.  "Gasoline prices are driving a bit of it with Hurricane Florence," a trading source said. "But on top of that, we also have the Iran sanctions looming."  Since Monday morning, the CFD curve has strengthened significantly.  In Monday morning European trade, a contango of 23 cents/b was reported between the September 17-21 and October 1-5 CFD contracts, with a 14 cent/b backwardation between October 1-5 and October 15-19.

UK’s North Sea Buzzard oilfield restart delayed due to weather – Reuters News

• The expected resumption in production at the UK’s North Sea Buzzard oilfield did not take place on Tuesday evening due to adverse weather conditions, a trade source familiar with the matter said
• The field was initially due to restart over the weekend after planned maintenance that began in early September
• The source said workers were hoping to restart Wednesday evening
• Buzzard normally pumps about 150,000 barrels of oil per day and is the largest contributor to Forties, one of the five North Sea crudes that set the Brent global benchmark
• Field operator Nexen did not respond to an emailed request for immediate comment

Libya Oil Production Said to Be Stable at More Than 1M B/D

Country’s production is said to be stable at more than 1m b/d and unaffected by Islamic State militants’ attack on National Oil Corp. headquarters on Monday, according to a person with knowledge of situation who asked not to be identified for lack of authority to speak to media.

 

Islamic State Says Libya Oil Fields Are a `Legitimate Target’

Islamic State claimed responsibility for an attack on the headquarters of Libya’s main oil company in Tripoli and said oil fields in the North Africa nation are a “legitimate target” for its militants.  Three militants carried out the attack on the National Oil Corp. headquarters in Tripoli on Monday, according to a statement released on a Telegram account linked to the group.  Libya’s NOC said Monday it will carry out operations as usual across the country after security forces quashed the attack. Two employees were killed and 10 injured, the company said.

Iran’s oil output falls to 3.52 million b/d in August as US sanctions loom: EIA – Platts

Iranian crude production fell 200,000 b/d from July to 3.52 million b/d in August as US sanctions loom, and apparent hedging activity indicates some traders are preparing for a potential price spike above $80/b as a result of further declines in Tehran’s exports, the Energy Information Administration said Tuesday.  Iran’s production has dropped 310,000 b/d since April, EIA said. In May, President Donald Trump announced the US would withdraw from the Iran nuclear deal and reimpose sanctions on Iran’s oil buyers.  S&P Global Platts Analytics expects 1.44 million b/d of Iranian crude and condensate to leave the market when the US secondary sanctions snap back November 5, compared with April levels.  EIA said apparent hedging activity in the crude options market suggest some traders have lined up financial protection, anticipating higher prices as the US sanctions remove more Iranian barrels.  "Call options for the December 2018 Brent crude oil futures contract with a strike price of $80/b have been one of the most actively traded out-of-the-money contracts in recent months," EIA said in the Short-Term Energy Outlook.  A call option is "out-of-the-money" when the strike price of the option is higher than the price the futures contract is currently trading.  OPEC crude production increased 230,000 b/d from July to 32.56 million b/d in August, EIA said.  EIA expects OPEC output to average 32.35 million b/d in 2018, steady with last month’s outlook, and 32.20 million b/d in 2019, up 110,000 b/d from last month’s report.  Top OPEC producer Saudi Arabia trimmed output to 10.42 million b/d in August, from 10.48 million b/d a month earlier, EIA said.  EIA said Venezuelan production sank to 1.26 million b/d, continuing its freefall as a result of the country’s economic collapse.  Libyan crude production jumped 290,000 b/d from July to 950,000 b/d in August, EIA said.  Iraqi crude production rose 70,000 b/d from July to 4.67 million b/d in August, while Nigerian output rose by the same amount to 1.54 million b/d.

Iran Resorts to Floating Storage for Its Oil as Buyers Retreat

Iran is starting to store oil on its fleet of supertankers again as impending U.S. sanctions force the Persian Gulf country to revive a strategy it deployed under previous curbs.  The build-up of crude in floating storage offshore Iran signals the effectiveness of the new sanctions imposed by U.S. President Donald Trump on the Persian Gulf country’s oil. The measures are due to start in early November, but buyers including France, South Korea and others have already started to cut back sharply.  “We can expect floating storage to increase under the growing impact of U.S. sanctions in the coming months,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA, said from London.  So far, most of the ships in question — all of which are Iranian owned — have only been holding crude at sea for a few weeks, rather than for months at a time as they did during 2012-2016 sanctions, tanker tracking compiled by Bloomberg show. Almost all Iran’s main customers purchased fewer Iranian barrels in August than they did in April, the month before Trump said sanctions were being reimposed.  At least five full crude tankers have anchored off the Iranian coast over the past two-and-a-half weeks. Two holding condensate, a light oil produced at Iran’s natural gas fields, have been idling for weeks off Dubai.  Trump is trying to cut off Iran’s oil exports to deprive the third-biggest member of the Organization of Petroleum Exporting Countries of income. In May, he pulled out of a 2015 pact that eased sanctions in return for Iran slowing its nuclear program, describing the deal as “rotten to its core” and failing to address the country’s ballistic missile testing or funding of terror groups. Buyers who defy the U.S. sanctions risk having their banks frozen out of the American financial system.

Vessel	Class	Date loaded	Cargo	Volume (barrels)	Location
Felicity	VLCC	6-Aug	Condensate	2,000,000	Jebel Ali
Salina	Suez	16-Aug	Condensate	1,000,000	Jebel Ali
Navarz	VLCC	24-Aug	Crude	2,000,000	Kharg
Happiness I	VLCC	1-Sep	Crude	2,000,000	Kharg
Humanity	VLCC	3-Sep	Crude	1,000,000	Soroosh
Hedy	VLCC	3-Sep	Crude	2,000,000	Kharg
Halti	VLCC	6-Sep	Crude	2,000,000	Kharg

The Middle East country is not storing as much crude at sea as it did during previous sanctions, when tens of millions of barrels were held for months at a time. Nor have exports yet fallen by as much. Still, the buildup of floating storage underscores the challenges the country is facing to find buyers: customers like South Korea have completely halted imports from the country, while Europe’s refiners are scaling back.  Iran’s pumped about 3.7 million barrels a day on average since sanctions eased at the start of 2016, more than 1 million barrels a day above what it was producing when sanctions were at their toughest.  The tankers being used to store are owned by the state-run National Iranian Tanker Co. Tying up the country’s own vessels as floating storage could crimp its ability to export, since international tanker operators have found it increasingly difficult to get insurance for shipping Iranian cargoes. That’s made Iran more dependent on its own fleet.  “Iranian exports are falling fast,” Amrita Sen, chief oil analyst at Energy Aspects Ltd., said in a note to clients. Shipments are “set to average as little as 1.5 million barrels a day in September according to the preliminary loading program, compared to around 2.8 million barrels a day of oil exports in April and May,” she said.

Iran Oil-Tanker Insurers Get India Cover Permit Until Feb. 2020

Iranian ship underwriters Kish P&I Club and Qeshm International Trust Alliance P&I Club permitted to cover foreign ships arriving at Indian ports, according to the website of India’s Directorate-General of Shipping.  Approval to Iranian ship insurers effective until Feb. 20, 2020

 

Indian Oil Books Iranian Oil for Oct. Supply, MRPL Will Buy Too

Indian Oil Corp., the biggest Indian customer of Iranian crude, has booked its monthly quota of about 0.8m tons of Iranian oil for delivery in October, according to co. official, asking not to be identified citing co. policy.

• Mangalore Refinery & Petrochemicals will also book its Iranian volumes for next month, co. official says, without giving details
  • MRPL will start taking Iranian oil in Suezmax vessels compared with Aframax earlier, after restarting single-point mooring post-monsoon
• Iranian bookings continue as no direction from Indian govt to halt or cut imports, officials say
  • IOC, MRPL expect some clarity soon on mechanism for Iranian oil payments

Indian refiners in limbo over Iran crude – Argus

Uncertainty over impending US sanctions against Tehran have so far prevented two Indian state-owned refiners from buying Iranian crude for October delivery.  The Indian government has said it is determined to carry on importing Iranian crude. Last week, US secretary of state Mike Pompeo, visiting Delhi, said Washington would consider waivers on the embargo but made clear that these would be time limited, if granted. But an official at an Indian state-run refiner told Argus that the government has issued no advice to refiners as yet.  That leaves refiners IOC and MRPL in a bind. Indian refiners buying from Iran benefit from 60 days credit, terms not available from suppliers of substitute crudes — Saudi Arabia, Kuwait, Iraq, Nigeria and the US. But with sanctions implemented in the first week of November, banks are unwilling to handle payments due after that date. Additionally, Iranian crude is bought on a cif basis and shipped on Iranian tankers and that will not be possible once sanctions kick in because there will be no payment mechanism.  But another big state-owned refiner BPCL has stopped buying Iranian crude for a different reason.  BPCL contracted for around 4mn t (80,000 b/d) of Iranian crude for the 2018-19 fiscal year. That includes 1mn t for the Oman-BPCL joint venture Bina refinery. Of the remaining 3mn t destined for Mumbai and Kochi refineries, 1mn t is firm and 2mn t optional. The refiner has taken all of the firm volumes already, as well as around 1.5mn t of the optional volumes. It has no need of the remaining 500,000 t of optional crude because it has stocks of high sulphur crudes that were to run at Mumbai refinery but are unused because of the fire at the 5,900 t/d hydrocracker unit there. The hydrocracker lies shut. So BPCL has no need for Iranian crudes and so has not booked any cargoes for October. The hydrocracker will restart by December. Otherwise Mumbai refinery working at full capacity.  India’s other state-owned refiner HPCL has not been a significant buyer of Iranian crude.

Crude Stockpiles in ARA Fall Below 5-Year Average: Genscape

*Inventories slid 2.3m bbl in week ended Sept. 7 to 53.9m bbl, lowest since March 30

U.S. oil exports to Japan, S. Korea soar as refiners reap steep discounts – Reuters News

U.S. oil exports to Japan and South Korea will rise to record highs this month as Asian refiners take advantage of the steep discounts American sellers are offering after losing Chinese customers amid the trade dispute between Washington and Beijing.  Ship tracking data in Thomson Reuters Eikon showed that oil exports from the United States to South Korea in September will rise to a record average of at least 230,000 barrels per day (bpd). U.S. shipments to Japan will also rise to a record average of at least 134,000 bpd, the data showed.  Two traders and a brokerage source said South Korean and Japanese refiners have been taking advantage of steep discounts of up to $10 per barrel between the U.S. crude benchmark West Texas Intermediate (WTI) that American producers base their crude sales on and the international Brent crude benchmark.  "They (South Koreans and Japanese refiners) need to find replacements for their drop in Iran imports and a fair amount of that is coming from the States. The steep discount of WTI to Brent is hard to resist," said a Singapore-based ship broker.  The sources declined to be named as they were not allowed to talk about commercial operations in public.  "Our U.S. crude oil purchase is purely because of its price advantage," said Kim Woo-kyung, a spokeswoman at SK Innovation, the owner of South Korea’s top refiner SK Energy.  A spokesman for Japan’s biggest refiner JXTG Nippon Oil & Energy Corp said his firm had not received government orders to halt Iranian oil imports.  He would not comment on commercial operations beyond saying "we will determine optimum crude in our own procurement plan."  Japan and South Korea were among the first major Iranian clients to bow to U.S. pressure and cut orders from Iran, the third-largest producer among the Organization of the Petroleum Exporting Countries, with South Korea importing its last cargoes in July, the trade data showed.  India, typically the second-biggest buyer of Iranian oil after China, has also dialled back Iranian orders while importing more from the United States, the data showed.

DIVERGING TRENDS

With Middle East crude markets tightening because of the start of U.S. sanctions against Iran in November, many Asian refiners have been seeking to make up the shortfall with American supply.  Greg McKenna, chief market strategist at futures brokerage AxiTrader said there has been "a divergence between Brent and WTI."  U.S. prices, including benchmark WTI, are under pressure amid rising production and a decline in Chinese buying interest because of the trade dispute which is forcing U.S. sellers to find new buyers for their crude.  Meanwhile, the Brent benchmark is supported by several supply disruptions including the Iranian sanctions, tumbling exports from Venezuela, and lingering concerns about Libyan production amid clashes between internal groups.  "There are still plenty of battles and other influences to disrupt Brent supply which has kept traders interested," McKenna said, referring to concerns about supplies that tend to be priced off Brent, including from Libya, West Africa and the Middle East.  Whether this price divergence will last is not clear.  There are signs that Saudi Arabia and Russia will increase output to take up Iranian market share, which should ease Brent prices.  Meanwhile, U.S. prices could rise because the surge in demand may exacerbate logistical bottlenecks since the current domestic pipeline, port and storage infrastructure is not geared to handle exports on this scale.  This congestion is already causing offers to rise for U.S. supply for loading towards the end of the year, although no fixed deals have been reported, said a third trader in Singapore.

\

Pemex Reports Blockade of Minatitlan Dispatch, Storage Terminal

Pemex’s fuel storage and dispatch terminal in Minatitlan, Veracruz, has been blocked by protesters, company says in statement on its website.

• Blockade disrupts fuel supply and and dispatch to terminals in Oaxaca, Villahermosa and Puebla
• The statement didn’t specify the demands of the protesters
• Pemex personnel have met with protesters in efforts to end blockade

Permian Constraints Push U.S. to Cut Oil Output Estimates

Bottlenecks in a key U.S. shale play are proving to be an increasing risk to crude production growth, according to the government.  The Energy Information Administration sees domestic oil output averaging 11.5 million barrels a day next year, down from a previous estimate of 11.7 million a day. The agency also lowered its outlook for production this year.  The lowered forecast reflects “more severe constraints in Permian region pipeline takeaway capacity than previously expected, which results in slower expected crude oil production growth in that region,” as well as a reevaluation of projects in the U.S. Gulf of Mexico, according to the agency’s Short-Term Energy Outlook released on Tuesday.  Oil explorers idled rigs last week amid bottlenecks in the Permian Basin of West Texas and New Mexico that have trapped production in the region. As producers face pipeline constraints, companies such as Magellan Midstream Partners LP, Energy Transfer Partners LP, MPLX LP and Delek U.S. Holdings Inc. said this month that they had enough commitments to sanction a new pipeline to carry crude from the Permian Basin to the U.S. Gulf Coast.  Meanwhile, Schlumberger Ltd. Chief Executive Officer Paal Kibsgaard said maxed-out pipelines in the area will force output growth, wellhead prices and investment levels to cool in the coming year.  The EIA sees domestic crude output averaging 10.66 million barrels a day this year, lower than the previous estimate of 10.68 million a day, yet still above the 1970 record of 9.6 million a day, according to the report.  The agency lowered its global crude production forecast for next year to 101.65 million barrels a day from 101.94 million previously. It also sliced its world demand growth estimate for 2019 to 101.57 million barrels a day from 101.66 million.

U.S. Cash Crude-Coastal grades extend gains as WTI/Brent spread hits $10 – Reuters News

U.S. coastal grades continued to strengthen on Tuesday as U.S. crude’s discount to Brent widened to more than $10 a barrel, dealers said.  Coastal grades including Light Louisiana Sweet (LLS), Mars and WTI at East Houston, known as MEH, firmed to the highest levels since mid-June.  U.S. crude’s discount to global benchmark Brent widened, ending the session at $10.02 a barrel, the biggest discount since June 19.  Coastal grades typically firm when the spread widens because it makes U.S. crude cheaper compared to Brent, boosting export demand. The spread widened for the seventh consecutive session.  U.S. oil exports to Japan and South Korea will rise to record highs this month as Asian refiners take advantage of the steep discounts American sellers are offering after losing Chinese customers amid the trade dispute between Washington and Beijing.  Inland grades weakened, with WTI Midland trading as weak as $14.40 per barrel below U.S. crude futures.  However, WTI Midland for November traded between $11.25 and $11.50 a barrel below benchmark futures.  Limited pipeline takeaway capacity has weighed on WTI Midland and West Texas Sour (WTS) differentials for months, but signs of moderating growth have helped prices strengthen in recent days.  U.S. crude oil production in 2019 is expected to grow at a slower rate than previously forecast, according to a monthly U.S. government forecast on Tuesday.  Meanwhile, crude inventories fell by 8.6 million barrels in the week to Sept. 7 to 395.9 million, the American Petroleum Institute said, compared with analysts’ expectations for a decrease of 805,000 barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.2 million barrels, API said.

• Light Louisiana Sweet for October delivery rose 20 cents to a midpoint of $8.20 and was seen bid and offered between $8.10 and $8.30 a barrel premium to U.S. crude futures.
• Mars Sour rose 25 cents to a midpoint of $4.5 and traded between $4.25 and $4.75 a barrel premium to U.S. crude futures.
• WTI Midland fell 25 cents to a midpoint of $14.25 a barrel discount and traded between $14.00 and $14.50 a barrel discount to U.S. crude futures.
• West Texas Sour dropped $1.25 to a midpoint of $14.25 a barrel discount and traded between $14.75 and $13.75 a barrel discount to U.S. crude futures.
• WTI at East Houston, also known as MEH, traded at $7.40 and $7.80 a barrel over WTI.

LOOP Begins Dedicated Storage Cavern for WTI Midland Crude Oil

The Louisiana Offshore Oil Port has begun storing WTI Midland crude in a dedicated 8-million-barrel underground cavern at its complex mainly because of request from refiners that use the grade, and growing interest in exporting it, co. spokesman says by phone.

• WTI Midland cavern, known also as Segregation 21, began service Sept. 1
  • Storage formerly known as Segregation 20 held Eagle Ford, Bakken and WTI Midland crude
  • Bakken and Eagle Ford will now be stored in other tanks at LOOP
• No plans to add more storage for WTI Midland despite growing Permian Basin oil production
• LOOP operates 8 underground caverns at Clovelly, La., that have a total storage capacity of ~ 60m bbl: co. website

EPA Approves Emergency Fuel Waiver for N.C., S.C. Ahead of Storm

EPA Acting Administrator Andrew Wheeler, in preparation for Hurricane Florence, approves emergency fuel waiver requests made this afternoon on behalf of North Carolina Gov. Roy Cooper and South Carolina Gov. Henry McMaster, the agency says in emailed statement.

• Wheeler determined that “extreme and unusual fuel supply circumstances exist in portions of North Carolina and South Carolina as a result of the approaching hurricane, and has granted a temporary waiver to help ensure that an adequate supply of gasoline is available in the affected areas until normal supply to the region can be restored,” statement says
• EPA has waived the federal Reid vapor pressure requirements for fuel sold in designated areas in North Carolina and South Carolina to minimize problems with the supply of gasoline
• Waiver will continue through Sept. 15, the end of the summer fuel season in these designated areas
• EPA has also waived the prohibition on the blending of reformulated gasoline blendstock for oxygenated blending with other gasoline blendstock or oxygenate; this waiver of the comingling prohibition is effective through Oct. 1

U.S. Cash Products-Midwest gasoline rises to 10-month high on refiner buying – Reuters News

U.S. Midwest gasoline cash differentials rose to a more than 10-month high on Tuesday as refiners actively bought in the region, traders said.  Group Three gasoline rose 0.75 cent a gallon to trade at 7.00 cents per gallon above the futures benchmark on the New York Mercantile Exchange, market participants said, its highest since Nov. 3.  In Chicago, CBOB gasoline gained a half penny to trade at 6.75 cents per gallon above futures.  On the Gulf Coast, A3 CBOB gasoline slipped a half cent to trade at 2.25 cents per gallon below futures, traders said. Trade for the product began on Colonial Pipeline’s 52nd cycle into New York Harbor.  62-grade ultra-low sulfur diesel fell a quarter of a cent to trade at 4.50 cents per gallon below the heating oil futures benchmark.  In New York Harbor, M2 conventional gasoline rose a penny to trade at 7.00 cents per gallon above futures.  U.S. gasoline stocks rose by 2.1 million barrels, industry group the American Petroleum Institute said on Tuesday, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel gain.  Distillate fuels stockpiles rose by 5.8 million barrels, compared with expectations for a 1.4 million-barrel gain, the API data showed.  Refinery crude runs rose by 134,000 barrels per day, API data showed.  The RBOB futures contract on NYMEX surged 5.5 cents to settle at $2.0142 a gallon on Tuesday, a one-week high. NYMEX ultra-low sulfur diesel futures rose 3.42 cents to settle at $2.2178 a gallon.  Market participants looked toward a hurricane that is making its way toward the U.S. southeast coast. Gas prices in South Carolina have climbed by about 8 cents to $2.585 a gallon from a week earlier, according to motorists’ advocacy group AAA. Early Tuesday, nearly 6 percent of Wilmington, North Carolina stations reported running out of supplies, said retail tracking service GasBuddy.  "East coast consumption is apt to translate to a significant draw in PADD 1 gas stocks in next week’s EIA report as people in the mid-Atlantic region top off their tanks in the process of evacuating," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.  Renewable fuel (D6) credits for 2018 traded at 22.5 cents, 22.75 cents and 23 cents each, up from 22 cents on Monday.  Biomass-based diesel credits (D4) traded between 42.5 cents and 43 cents apiece, compared to 43 cents on Monday.

U.S. oil refiners’ weekly capacity seen down 195,000 bpd -IIR – Reuters News

U.S. oil refiners are estimated to have 471,000 barrels per day (bpd) of capacity offline in the week ending Sept. 14, decreasing available refining capacity by 195,000 bpd from the previous week, data from research company IIR Energy showed on Wednesday.  IIR expects offline capacity to rise to 949,000 bpd in the week to Sept. 21.  The following are IIR weekly figures for offline capacity (in thousands of bpd):

Week ended Friday	Sept. 12	Sept. 10	Sept. 7
9/21/18	949	949	929
9/14/18	471	507	589
9/07/18	276	276	257
8/31/18	663	663	663
8/24/18	673	673	673

Petrobras says alkylation unit fire put out at Pasadena, Texas, refinery – Reuters News

A small fire on an alkylation unit was extinguished at Petrobras’ Pasadena, Texas, refinery, the company said on Tuesday.  The fire started at the Alky-I unit around 6:15 a.m local time on Tuesday, it said.  All other units at the 112,229 barrel per day refinery were operating normally, Petrobras said in an emailed response to Reuters request for a status report.

Husky Lima Refinery Shuts Unit After Upset Monday: Hotline

Husky Lima refinery in Ohio is working to safely shut a unit after an issue resulted in larger-than-usual flare on Monday, according to message on hotline.

• Earlier, Genscape reported elevated flaring at refinery
• Husky Lima refinery has 177k b/d capacity

Arbitrage European gasoline cargoes booked for East of Suez soars – Platts

At least 637,000 mt, or around 5.41 million barrels, of September-loading gasoline will move from the West of Suez to the Middle East and Asia, up 64% from August, following an uptick in the East/West spread and high demand, market sources said this week.  A flurry of fixtures were seen last week when the East/West spread was in positive terrain. Last week, traders bought 4.59 million barrels of gasoline from Europe for arrival in the Middle East. An additional three Medium Range tankers have the option to discharge in the Middle East, but are likely to go to the US Atlantic Coast or the Mediterranean.  August-loading cargoes from Europe to the Middle East totaled 3.3 million barrels, S&P Global Platts data showed.  Further opportunities to send arbitrage gasoline East across the Suez Canal could be limited as the East/West spread narrowed this week from last week, traders said. East of Suez was also an outlet for excess summer grade gasoline as Europe was in the middle of transitioning to the winter grade, traders said.  Demand from Pakistan has soared following a cut in gasoline prices. Iraq is planning to increase gasoline imports over September-November, and has requested four of its suppliers to almost quadruple supplies during the next three months, Platts reported earlier.  Traders first started booking ships to transport European gasoline to the Middle East to cover the shortfall in production from refinery outages around mid-August.  Only two — Phoenix Dream and the STI Prestige — of the 6-7 LR1 tankers chartered to carry European gasoline to the Middle East after India’s Reliance Industries Ltd. declared a force majeure on oil products from the Jamnagar refinery on August 14, were en route, Platts trade flow software cFlow showed.  Market sources said that some traders had found it more economical to send those cargoes to other places such as West Africa, and it was only when the East/West spread flipped from negative to positive on September 3, that chartering for arbitrage cargoes began in earnest.  "Last week the East/West blew out because EBOB had a mini collapse [following RBOB], and spiked to 70 cents," a trader said.  The spread between the Gasoline 92 RON FOB Singapore October swap and the Gasoline Eurobob 10 ppm FOB ARA Barge October swap ranged between -$1.81/b and -$4.11/b during H2 August, while so far in September, the spread stayed in the positive range between 19 cents/b and $1.70/b until Tuesday, when the spread narrowed to -40 cents/b, showed Platts data.  Brokers indicated the East/West spread at between -$1.75/b and -$2.55/b in H2 August. The spread flipped to positive on September 3 to 55-80 cents/b. The indications have since narrowed to 10-12 cents/b on Wednesday afternoon during Asian hours, Platts data showed.  "The fact is that some of these cargoes in [Europe have] nowhere to go, so even when the arbitrage is closed, they have no choice but to ship them here because refineries in Europe will have new production next month," a gasoline broker said about the fixtures booked prior to the flip in the East/West spread.

Trafigura loses last big Angolan oil deal as new president shakes up sector – Reuters News

Trafigura has lost its last big contract in Angola, once a core market and revenue generator for the trading house, as the country’s new president Joao Lourenco part ways with oil firms that worked with his predecessor Jose Eduardo Dos Santos.  Trafigura, which declined to comment, lost the rights to sell Angolan fuel oil this year, with the contract going to French oil major Total, two trading sources said.  Fuel oil was the last major Angolan contract Trafigura had, with volumes of 1.1 million tonnes in 18 cargoes over 2017 worth some $450 million. Total is now expected to market a similar amount for Angolan state oil company Sonangol in 2019.  "It is part of broader oil industry reforms that were ordered by Lorenco. The fuel oil contract change effectively completes this process on the trading side," a source familiar with how Sonangol sells its oil and products told Reuters.  Sonangol declined to comment on the changes.  Lourenco said shortly after taking office in September 2017 that he was committed to economic reforms and ordered a review of Angola’s oil industry.  He has since pushed out prominent figures from key state roles, including the former president’s daughter Isabel dos Santos, who was head of Sonangol.  Trafigura has long been the main player in Angolan oil, helping Sonangol sell large volumes of crude and fuel oil and also importing gasoline, gasoil and other refined products.  The trading house was also a large lender to Sonangol – with debt guaranteed by future fuel sales, although the sources said the African country had now repaid all loans.  Sonangol also changed the way it imported refined products with Trafigura losing out in March on the right to supply 2 million tonnes a year of gasoil in 21 cargoes to rival Glencore.  In addition it lost the rights to import some 300,000-400,000 tonnes of bunker fuel to Total, which has also won the right to supply 1.2 million tonnes of gasoline to Angola, a contract previously held by Vitol.  Total, one of the biggest foreign operators in Angola, has been steadily expanding production with the launch this summer the offshore Kaombo project and reaching a framework agreement with Sonangol to develop a retail station network.

Iraq to Boost Oil-Refining Capacity to 1m B/D by End-2019: Nima

Capacity increase to include at least 150k b/d at North refinery at Baiji oil complex, Deputy Oil Minister Fayyad Al-Nima says in interview in Baghdad.

• Other additions to include 70k b/d at Baiji when Salahuddin-1 unit re-starts; 70k b/d from expansion of Basra refinery; and an unspecified amount in Iraq’s Kurdish region
• NOTE: Iraq currently has total refining capacity of about 720k b/d, Nima said Sept. 9
• Ministry targets further increase to 2m b/d of refining capacity in 2025, with planned completion or expansion of plants at Missan, Nasiriya, Faw, Karbala and Kirkuk
  • Karbala is under construction, with planned capacity of 140k b/d; to be completed by 2020
  • Work on remaining 4 refineries has yet to start, though ministry has signed agreements with companies to build Missan, Faw, Kirkuk
• Angola’s Sonangol resumed work to pump crude oil at Qayyara and Najma fields a few months ago

Fuel Flows Inland From ARA to Rise Further on Refinery Woes: PJK

Oil product flows inland to Germany, Switzerland from ARA could keep rising in the coming weeks because of refinery outages in Germany, Lars van Wageningen, PJK operations manager, says by phone.

“The market is getting tight”

Inland stockpiles haven’t been replenished over summer because Rhine barges haven’t been able to operate at full capacity

Notes Rhine barge rates remain high even as water levels start to recover; also barge traffic has risen on Main River

Bayernoil Vohburg refinery outage also adding to tightness, with suppliers in that region looking further north for supply than usual

 

Jonathan Wagner

Ion Energy Group

88 Pine Street, Suite 15

New York, NY  10005

Direct: 212-709-2261

Cell: 914-843-6986

Wagner.j@ionenergygroup.com