Good morning.  Oil prices are higher to start the day with Gasoline underperforming crude as Hurricane Florence is set to make landfall in the Carolina’s.  Asian equites finished the day higher while European stocks and US index futures are all in the green as well so far.  The dollar is trading roughly unchanged at 94.5 (sitting on the 100 day moving avg).  Middle east crude grades were weaker today with Cash Dubai trading down 11c to +1.38 over swaps.  DME Oman’s premium to swaps fell to +1.89.  11 Nov Dubai partials traded in the window will Shell buying from Reliance, Chinaoil and Glencore.  Sep/Oct and Oct/Nov Dubai spreads continue to trade at 80c and 66c backward respectively.  Qatar Petroleum has sold November-loading al-Shaheen crude at an average premium of $1.55 a barrel above Dubai quotes in a tender, the highest premium in more than two years, trade sources said.  The premium has jumped more than $1 from the 27 cents a barrel average seen for October-loading cargoes sold last month.  Fuji oil is expected to buy Murban crude in a tender today and Reliance has sold 2 million barrels of Basra Light crude for October loading at 70-80 cents a barrel above its OSP.  India continues to be a large focus as we approach the early Nov sanctions deadline for Iran.  According to Reuters, Indian refiners will cut their monthly crude loadings from Iran for September and October by nearly half from earlier this year as New Delhi works to win waivers on the oil export sanctions Washington plans to reimpose on Tehran in November.  India’s loadings from Iran for this month and next will drop to less than 12 million barrels each, after purchases over April-August had been boosted in anticipation of the reductions.  India lifted about 658,000 barrel of oil per day (bpd) from Iran in April-August, according to data obtained from trade sources by Reuters, and the cuts projected for September and October would drop the daily average over those two months by about 45 percent to 360,000-370,000 bpd.  Indian data out last night shows Aug oil demand gaining 0.8% y/y to 16.6m tons.  Diesel demand and Gasoline demand both increased month over month.  Chinese data released last night showed Aug crude oil output increasing by .2%y/y to 3.77m b/d making it the first y/y increase since Oct 2015.  YTD output is down 1.8% from a year earlier at 3.78m b/d.  China refined 11.85 million barrels per day, up 5.6 from a year ago. The pace of processing fell from 11.95 million bpd in July and compared with a record-high of 12.13 million bpd in March.  For the first eight months, crude runs were up 8.7 percent at 12.03 million b/d.

 

Outside of V8 WTI which expires on Monday (full option OI chart below), vols were higher across the curve with good interest seen to buy ’19 Brent vol via calls and put spreads across the cal.  F9 and G9 81 calls were active as well as X8 upside structures seen on blocks.  U9 Brent ratio put spreads were also active with the 74/65 1×2 trading.  Front end WTI risk reversals were bid the puts with wingy put skew higher by 1% vs atm.  Brent skew was little changed.  This morning vols are weaker across the curve with front end WTI calls being offered on the screen.   

 

Top stories out this morning

Middle East Crude-Benchmarks ease; al-Shaheen premium hits multi-yr high – Reuters News

India’s Iran oil purchases to fade ahead of U.S. sanctions – Reuters News

BP Snaps Up West African Crude Oil as New Swaps Market Emerges

Iran starts to store barrels at sea as sanctions bite – Platts

US keeps pressing Iran’s oil customers to halt imports by November 5 – Platts

BPCL Buys Light Louisiana Crude for Nov.; Books Trial Maya Cargo

India’s Oil Demand Expands 0.8% Y/y to 16.6M Tons in August

Japan buyer loads last Iranian oil cargoes as US sanctions deadline nears – Platts

China Aug refinery runs lowest since Dec, oil output up for 1st time in years – Reuters News

SUPERTANKER TRACKER: Ships Signaling Iran Drop; China Steady

U.K. Union Calls Off Sept. 17 North Sea Oil Strike After Talks

ICE launches West African crude oil swaps – Reuters News

Arab States to Add 2.1M B/D in Refining Capacity by 2022: OAPEC

Canada crude discount rises to near 5-year high – Reuters News

U.S. Cash Crude-Coastal grades firm as WTI/Brent steadies – Reuters News

U.S. Cash Products-Chicago ULSD slumps after supply floods market – Reuters News

Asia Distillates-Gasoil margins dip to month-low; cash premiums up – Reuters News

Front-month Singapore jet fuel timespread falls to 59-week low on weak fundamentals – Platts

 

Front Rolling WTI

 

Implied Vol					Realized Vol
WTI Vol	13-Sep	Change	Breakeven		10d	30d	50d
V8	22.11	-1.02	0.96		25.47	22.99	25.96
X8	25.56	0.59	1.11		25.00	22.48	25.79
Z8	25.78	0.61	1.12		24.59	22.14	25.66
F9	26.17	0.53	1.13		24.23	21.82	25.49
G8	25.54	0.48	1.1		23.71	21.42	25.24
H9	25.56	0.43	1.1		23.23	21.07	24.92
M9	25.21	0.43	1.08		22.12	20.14	23.78
U9	24.86	0.32	1.05		21.00	19.21	22.73
Z9	24.44	0.21	1.02		19.87	18.31	21.62

 

CLZ8 Implied Vs Realized Vol

 

 

COZ8 Implied Vs Realized Vol

 

Implied Vol					Realized Vol
BRT Vol	13-Sep	Change	Breakeven		10d	30d	50d
X8	25.07	0.3	1.24		20.32	20.63	27.07
Z8	25.66	0.45	1.26		20.31	20.45	26.51
F9	25.19	0.26	1.23		20.28	20.27	25.97
G8	26.1	0.45	1.27		19.98	19.94	25.42
H9	25.51	0.34	1.24		19.68	19.64	24.89
M9	25.46	0.3	1.23		18.58	18.89	23.51
U9	25.44	0.26	1.21		17.72	18.18	22.54
Z9	25.15	0.16	1.18		17.18	17.56	21.87

 

 

WTI Most Actively Traded Options

 

Brent Most Actively Traded Options

 

ICE/CME Mixed Clearing Recap

WTI/BRT M19 ATM Call Roll x68.00/77.00 TRADES 54 350x 54d/54d

WTI X18 69.50 Call x69.35 vs BRT Z18 79 Call x78.70 TRADES 52 750x 50d/50d

 

ICE Trade Recap

BRT Z18 80 Call x78.80 TRADES 221 1,000x 44d

BRT H19 76 Put x77.65 TRADES 399 500x 38d

BRT G19 77/87 Fence x78.00 TRADES 244 1,000x 62d

BRT H19 ATM Call x77.50 TRADES 475 500x 54d

BRT F19 81 Call x77.50 TRADES 210 2,000x 38d

BRT G19 81 Call x77.40 TRADES 265 1,000x 39d; TRADES 267 400x 39d

BRT X-Z18 78/81 American Call Spread vs 75 American Put LIVE TRADES 25 300x

 

CME Trade Recap

BRT Z18 73/85 Fence x78.60 TRADES 6 500x 36d

WTI M19 63 Put x68.10 TRADES 345 500x 26d

BRT X18 85 Call TRADES 14 1,000x

WTI V18 64.50/75 Fence x69.40 TRADES 1 600x 1d

BRT X18 75 Put TRADES 24 5,000x

WTI V18 69 Straddle x69.60 TRADES 142 900x; TRADES 156 150x30d

WTI H19 85/90 Call Spread TRADES 22 1,000x

WTI Z/F18 65 Put Roll TRADES 68 1,000x

WTI J19 80/90 Call Spread TRADES 76500x

WTI 1Q19 70/75 Call Spread vs 61 Put TRADES 8 225x

 

CSO/ARB/APO Trade Recap

WTI CSO 4Q18 0.35 Put (7A) TRADES 28 150x

WTI CSO X/Z18 0.50 Call (WA) TRADES 4 250x

WTI CSO V/X18 0.25 Put (WA) TRADES 11 500x

WTI CSO X/Z18 0.50 Call (WA) TRADES 4 250x

WTI CSO 4Q18 Flat Put (WA) TRADES 8 150x

WTI CSO X/Z18 Flat Put (WA) TRADES 11 400x

WTI CSO 1Q19 -0.25 Put TRADES 4 500x

WTI CSO 1Q19 0.50 Call (WA) TRAES 11 600x

ARB Z18 -5.00/-7.00 Call Spread TRADES 6 1,500x

 

 

 

Middle East Crude-Benchmarks ease; al-Shaheen premium hits multi-yr high – Reuters News

Middle East crude benchmarks eased slightly on Friday, taking a breather after climbing throughout the week while Qatari al-Shaheen crude was sold at a multi-year high premium on robust demand in Asia. 

QATAR: Qatar Petroleum (QP) has sold November-loading al-Shaheen crude at an average premium of $1.55 a barrel above Dubai quotes in a tender, the highest premium in more than two years, trade sources said.  The premium has jumped more than $1 from the 27 cents a barrel average seen for October-loading cargoes sold last month.  The producer offered four cargoes in a tender for loading on Nov. 3 to 4, Nov. 22 to 23, Nov. 26 to 27, Nov. 28 to 29. Each cargo is 500,000-600,000 barrels.  Buyers include Chinaoil, one of the sources said.  Separately, P66 has sold two Qatar Land crude cargoes to Fuji Oil at 60 cents a barrel above its official selling price (OSP), traders said.  For condensate, QP did not award any deodorised field condensate (DFC) in its tender. It has sold low-sulphur condensate (LSC) at $2.50-$2.90 a barrel above Dubai quotes, a trader said.

UAE: Fuji Oil is expected to buy Murban crude via a tender on Friday which could provide more price guidance for the grade. Murban was last sold by Total to Thai refiner IRPC via PTT’s tender at a premium of more than 40 cents a barrel to its OSP.

IRAQ: Reliance has sold 2 million barrels of Basra Light crude for October loading at 70-80 cents a barrel above its OSP, a trader said. The deal could not be independently verified and some traders said this deal may have been concluded last month.

WINDOW: Cash Dubai’s premium to swaps fell 11 cents to $1.38 a barrel despite Shell’s purchase of 11 November partials.

BP Snaps Up West African Crude Oil as New Swaps Market Emerges

Two of the world’s biggest oil companies are stepping up buying and selling of West African crude at the same time as a new regional swaps market has emerged, as merchants seek new ways to eke out profits in a tough trading environment.  Over the past week, BP bought 7.6 million barrels of Nigerian crude from Vitol Group on a pricing window run by S&P Global Platts, doubling the entire activity of the past seven years, according to data compiled by Bloomberg. An associated swaps market has taken hold over the past two months, with as many as 8 million barrels transacted, people familiar with the derivatives say.  The sudden spurt in activity has surprised many participants in a West African market where cargoes are typically transacted privately. It comes at a time when oil traders are struggling to make money in challenging markets. BP made a rare and unusual loss in oil trading in the second quarter as it was wrong-footed by wild gyrations in U.S. markets.

Hedging Bets

The cash-settled swaps have attracted interest from oil majors and trading houses, with contracts equivalent to 5 to 8 million barrels changing hands since trading began two months ago, according to estimates from people involved in that market. As many as eight companies bought and sold the derivatives, they said.  BP and Vitol both declined to comment.  The swaps, used to hedge or speculate on prices, are based on a basket of four Nigerian grades: Qua Iboe, Bonny Light, Forcados and Bonga, which are among the largest export grades from the West African country. The derivatives allow a buyer to exchange a fixed price for a floating one published by Platts. That means a bidder might profit if Platts assesses that the West African market has strengthened.

 

Normal Flows

When Nigeria isn’t riven by unrest, shipments of the four grades normally flow at a rate of about 700,000 to 1 million barrels a day, according to loading programs compiled by Bloomberg. They’re also the crudes that BP has been purchasing from Vitol on the Platts window since earlier this month.  While over-the-counter, or paper, trading plays a vital role in setting physical prices in many regional oil markets, especially the North Sea, the West African market doesn’t have its own benchmark, with spot cargoes priced against Dated Brent. Nigerian term cargoes are mostly allocated on the basis of the country’s official selling prices.

 

Hard Sell

The jump in trading activity comes at a time when Nigerian barrels are being squeezed by the rise of U.S. shale. Most Nigerian crudes are light and low in sulfur, and have therefore been hit hard by surging output of U.S. crudes with similar geological properties. Not only has the U.S. cut imports from Nigeria, but some traditional buyers, such as Taiwan’s CPC Corp., have also turned to American grades.  Over the past six sessions, BP bought eight cargoes, including four Qua Iboe for loading from mid-October to early-November. There will be a total of nine shipments of Qua Iboe in October.  Sales of Nigerian cargoes have been slow this year. About 25 out of 60 Nigerian cargoes scheduled for October export remain unsold, while trading will switch to November shipments next week when new programs are released. BP, itself a huge refiner of crude, could try to resell the barrels it’s bought, or process them in its own plants.  While an enduring swaps market could increase liquidity, it wouldn’t help to find new buyers for Nigerian barrels, according to a survey of 5 crude traders involved in the market.

Date Seller Buyer Grades Volume Prices vs Dated Loading Sept. 6 Vitol BP Qua Iboe 950k bbl $1.70 Oct. 1-10 Sept. 6 Vitol BP Bonny 950k bbl $1.70 Oct. 12-16 Sept. 7 Vitol BP Bonga 950k bbl $1.75 Oct. 28-29 Sept. 7 Vitol BP Qua Iboe 950k bbl $1.63 Oct. 12-13 Sept. 10 Vitol BP Qua Iboe 950k bbl $1.65 Oct. 17-18 Sept. 11 Vitol BP Qua Iboe 950k bbl $1.75 Oct. 29-Nov. 5 Sept. 11 Vitol BP Bonny 950k bbl $1.55 Oct. 16-17 Sept. 13 Vitol BP Forcados 950k bbl $1.53 Oct. 11-12   Sources: Traders monitoring Platts window

India’s Iran oil purchases to fade ahead of U.S. sanctions – Reuters News

Indian refiners will cut their monthly crude loadings from Iran for September and October by nearly half from earlier this year as New Delhi works to win waivers on the oil export sanctions Washington plans to reimpose on Tehran in November.  India’s loadings from Iran for this month and next will drop to less than 12 million barrels each, after purchases over April-August had been boosted in anticipation of the reductions.  The United States is renewing sanctions on Iran after withdrawing from a nuclear deal forged in 2015 between Tehran and world powers. Washington reimposed some of the financial sanctions from Aug. 6, while those affecting Iran’s petroleum sector will come into force from Nov. 4.  India, Iran’s No.2 oil client behind top buyer China, does not recognize the reimposed U.S. sanctions, but winning a waiver from the restrictions is a must for New Delhi to protect its wider exposure to the U.S. financial system.  India’s oil ministry in June told refiners to prepare for a "drastic reduction or zero" imports from Iran from November.  "Some refiners have either already exhausted or front-loaded their term contract to a large extent, which allows them the flexibility to go to zero if required, or until clarity on the waivers emerge," Amrita Sen, chief oil analyst at Energy Aspect, told Reuters.  Washington will consider waivers for Iranian oil buyers such as India but they must eventually halt crude imports from Tehran, U.S. Secretary of State Mike Pompeo said last week in New Delhi after a meeting of high level officials.  The Indian government, already facing a backlash over a falling rupee and record high fuel prices, does not want to halt the oil imports from Iran as the Islamic republic offers a discount on oil sales to India.  Government sources said India made this point clear in last week’s meetings with U.S. officials and remains engaged with Washington to work out waivers on its oil purchases from Iran.  "We have a special relationship with both the U.S. and with Iran, and we are seeing how to balance this all, and also to balance out the interest of the refiners and end-consumers," said one of the government officials.  But if Washington adopts a tough line, India would have no other choice than to end imports from Iran, they said.

CUTTING IMPORTS NEARLY IN HALF

India lifted about 658,000 barrel of oil per day (bpd) from Iran in April-August, according to data obtained from trade sources by Reuters, and the cuts projected for September and October would drop the daily average over those two months by about 45 percent to 360,000-370,000 bpd.  Indian oil refiners have already given the October loading plans to the National Iranian Oil Co (NIOC), sources familiar with the loading schedule said.  Top refiner Indian Oil Corp wants to lift 6 million barrels each in September and October, while Mangalore Refinery and Petrochemicals would load 3 million barrels each for those two months, the sources said.  IOC would also lift 1 million barrel for its subsidiary Chennai Petroleum Corp in October, they said.  Bharat Petroleum Corp would lift 1 million barrels in September and skip purchases in October, a company source said on Tuesday.  Bharat Petroleum has already drawn more than its fixed volumes – the amount it is obligated to purchase – that were contracted for 2018/19, its chairman said on Tuesday.  Nayara Energy, part owned by Russian oil giant Rosneft, plans to lift 1 million barrels each in September and October, the sources said. But the refiner began reducing its oil imports from Iran in June and aims to completely halt purchases from November.  Hindustan Petroleum, Reliance Industries and HPCL Mittal Energy (HMEL) have no plans to buy from Iran in September and October, they said.  India refiners – excluding Reliance and HMEL, which do not have term contracts with Iran – will together lift about 73 percent of their fixed contract volumes from Iran by end-October, the loading data showed.  IOC, Nayara and MRPL did not respond to Reuters’ emails seeking comments.

Iran starts to store barrels at sea as sanctions bite – Platts

Iran is already resorting to storing unsold barrels on tankers as its crude oil exports are expected to slump to 1.4 million-1.5 million b/d in September ahead of the US sanctions, according to trading sources and tanker data.  Shipping data showed that at least eight VLCCs and one Suezmax totaling around 15 million-17 million barrels of crude and condensate have been building off Iran’s main crude oil terminals – Kharg Island and Soroosh and also off the coast of the United Arab Emirates.  The VLCC Navarz carrying 2 million barrels of crude has been anchored off Kharg Island for over 24 days, according to S&P Global Platts trade flow software cFlow.  cFlow data identified the other VLCCs, which can hold up to 2 million barrels of crude and condensate each, as the Sea Cliff, which has been at anchor since September 6, Happiness I (August 29), MT Hedy (September 1), Halti (September 4), Dover (September 10) and Destiny (September 10).  Two tankers, the Suezmax Salina and the VLCC Felicity, have been holding condensate off Jebel Ali since August 12 and August 7 respectively, cFlow data showed.  All these tankers are owned by the state-run National Iranian Tanker Company, which operated the world’s second largest fleet of VLCCs.  With some European countries expected to further halt the import of Iranian crude and many Asian countries also reducing their crude oil purchases from the Islamic Republic, state-owned NIOC is resorting to storing unsold barrels on tankers.  Representatives at both NIOC and NITC were unavailable for comment.

 

FLOATING STORAGE TO GROW FURTHER

Shipping and trading sources also said Iran may have underestimated how much exports would be affected even before the sanctions came into place.  They added that the OPEC member had also started building inland storage due to the fall in exports but with exports expected to drop further in the coming months, floating storage is already beginning to build.  "I’ve been hearing that older NITC vessels are storing [barrels already], also that Chinese tonnage is slowly disengaging from loading Kharg Island," said a shipbroker.  "Tonnage was locked into Kharg-China voyages, meaning that they may infringe on the rest of the spot market in time, but NITC have been storing condensate and crude for quite some time so I don’t know whether these are additional storage units or not." Crude oil exports in August fell by almost 250,000-300,000 b/d from July to around 1.7 million b/d, according to cFlow data, in the first concrete sign that the looming re-imposition of US sanctions in November is having an impact on buyers’ behavior.  Analysts expect the US sanctions to eventually shut in around 1 million b/d or more of Iranian exports.  Platts Analytics forecasts 1.4 million b/d of Iranian oil exports to leave the market by November, compared with April levels.  Iranian production has already begun to suffer in advance of the sanctions, falling to 3.6 million b/d in August, the lowest in more than two years, according to the recent Platts OPEC survey.

 

US keeps pressing Iran’s oil customers to halt imports by November 5 – Platts

The US continues to press Iran’s oil customers, including China and India, to halt their crude and condensate imports before sanctions resume November 5, a top State Department official told Congress on Thursday.  Manisha Singh, assistant secretary for the Bureau of Economic and Business Affairs, said the US is prepared to take the "strongest actions possible" against countries that flout the sanctions.  "We are working with all countries including China to get them to zero," Singh testified to the House Foreign Affairs Committee.  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 by November, compared with April levels of 2.91 million b/d.

BPCL Buys Light Louisiana Crude for Nov.; Books Trial Maya Cargo

Bharat Petroleum has boosted purchases of U.S. crude in recent months and will continue to import more cargoes in Oct.-Nov., says co. official who asked not to be identified because of internal policy.

• Almost 60% of co.’s spot procurement in April-Nov. was U.S. oil at 8.3m bbls
  • Co. purchased Mars, Eagle Ford grades from U.S. earlier
• The widening gap between WTI and Brent is making U.S. crude attractive as WTI’s discount helps make up for higher freight costs
• BPCL recently registered with Pemex; booked trial cargo of Mexican Maya crude to process at Kochi refinery
  • Awaiting arrangement for co-loading Maya cargo

India’s Oil Demand Expands 0.8% Y/y to 16.6M Tons in August

India’s total consumption of hydrocarbon fuels expands to 16.6m tons in August from 16.5m tons a year ago, according to data from oil ministry’s Petroleum Planning and Analysis Cell.

• Diesel demand in the month rose 4.2% y/y to 6.2m tons
  • Gasoline usage gained 7.8% to 2.4m tons
  • Consumption of LPG expanded 2.9% to 2.1m tons
  • Petcoke demand decreased 19.2% to 2.1m tons
  • Naphtha demand rose 1.1% to 1.1m tons

 

Japan buyer loads last Iranian oil cargoes as US sanctions deadline nears – Platts

A Japanese buyer has loaded what appears to be the last Iranian oil cargoes for arrival in early October, ahead of US sanctions, as local importers step up procurements from alternative sources, market sources say.  VLCC Yufusan is scheduled to arrive Japan on October 3 after loading oil at Assaluyeh and Kharg Island in Iran and Mina Al Ahmadi in Kuwait, according to S&P Global Platts trade flow software cFlow.  A Shipping source said that the VLCC is arriving Japan in early October after having loaded Iranian oil.   Japan’s imports of Iranian oil in October will come at the time when the government is still pressing the US to allow Japan continue to import Iranian oil, while leaving refiners to make their own decisions over their imports as US sanctions loom on the horizon.   Japanese refiners are expected to settle all of Iranian oil transactions by the end of November 2 (Japanese time) because US sanctions snap back on November 5, a source familiar with the matter said.  US President Donald Trump said on May 8 the US would withdraw from the Iran nuclear deal and re-impose sanctions that have been frozen since January 2016 as part of the Joint Comprehensive Plan of Action.

 

ALTERNATIVE SUPPLY

With the approach of US sanctions, Japanese refiners have stepped up alternative crude imports from the Middle East and elsewhere.  Some Japanese refiners have covered shortfalls in Iranian oil supplies from Qatar, a source with knowledge of the matter said.  A Japanese buyer of Iranian Oil is looking at Abu Dhabi’s Upper Zakum crude, Bahrain’s Banoco Arab Medium and US Mars crude as among alternative supplies to Iran’s Medium and Heavy grades, a market source said.  The buyer has also bought one Upper Zakum crude cargo for loading in November, the source said.  Another Japanese buyer of Iranian oil said Saudi Arabia, Kuwait and Iraq were among other possible alternative suppliers to Iran.

 

INCREASED IRAN OIL IMPORTS AHEAD OF SANCTIONS

Japan’s Iranian oil imports increased year on year for the third consecutive month in July as refiners rush to take cargoes before US sanctions come into effect in November.  The surge in Iran exports during May, June and July cut Japan’s year-to-date decrease in Iranian oil imports to just 1% from a year earlier, compared with a cumulative 13% drop over January-April.

China Aug refinery runs lowest since Dec, oil output up for 1st time in years – Reuters News

China’s crude processing rate fell in August to its lowest since December, data showed on Friday, as independent refiners prolonged maintenance shutdowns as higher oil prices and a new tax regime ate into margins.  Crude oil output rose for the first time since October 2015.  China refined 50.31 million tonnes of crude oil in August, or 11.85 million barrels per day (bpd), up 5.6 from a year ago. The pace of processing fell from 11.95 million bpd in July and compared with a record-high of 12.13 million bpd in March.  For the first eight months, crude runs were up 8.7 percent at 400.41 million tonnes, or 12.03 million bpd.  Monthly crude oil output hit 16 million tonnes, or 3.77 million bpd, marking the first year-on-year increase in tonnes and barrels per day in years.  Year-to-date output was 125.95 million tonnes, down 1.8 percent from a year earlier. That equates to 3.78 million bpd.  Natural gas production rose 9.7 percent in August over the same year-ago level to 12.9 billion cubic meters (bcm). That was down from 12.96 bcm in July.  Output for the year to date was 104 bcm, up 5.9 percent as producers gear up for peak-demand over winter, with the country continuing its drive to switch households and businesses to gas for heating.

 

SUPERTANKER TRACKER: Ships Signaling Iran Drop; China Steady

Number of crude-hauling supertankers signaling Iran as destination in next three months declines to lowest in about a month, vessel-tracking data compiled by Bloomberg show.

• Iran-bound tankers fell by 3 to 8, lowest since Aug. 17
• U.S.-bound supertankers drop by 3 to 30
• Vessels signaling China unchanged at 86
• Other notable weekly changes:
  • Egypt -5 to 2
  • Angola -5 to 14
  • Iraq +6 to 11
  • Saudi Arabia +2 to 20
  • South Korea +4 to 30
  • Venezuela +2 to 3
  • South Africa +3 to 5

U.K. Union Calls Off Sept. 17 North Sea Oil Strike After Talks

Unite union to postpone Sept. 17 industrial action on three North Sea oil and gas fields after mediation talks with operator Total, union says in statement.

• Unite to carry out consultative ballot to allow members to vote on proposals put forward in September during mediation; members voted against Total’s previous revised pay offer
• Dispute between the two sides is over changes to working hours and pay at the Total-operated Alwyn, Dunbar and Elgin oil and gas fields
• Union members have previously halted production on the fields 5 times since July 23; industrial action is also scheduled for Oct. 1, 15 and 29

ICE launches West African crude oil swaps – Reuters News

The InterContinental Exchange (ICE) on Monday launches its first set of derivatives linked to the West African crude oil market, aimed at an industry that has called for a strengtening of the dated Brent benchmark.  Traders will be able to use the ICE platform from Sept. 17 to trade a derivatives contract linked to Nigeria’s four largest crude oil grades – Bonny Light, Forcados, Qua Iboe and Bonga.  The cash-settled future will be based on a daily assessment by pricing agency S&P Global Platts for a "WAF index" backed by the four grades, each of which will carry a weighting of 25 percent, according to a note on the ICE website.  The contract will be based on the differential of the four crudes to the dated Brent benchmark price and will represent 1,000 barrels of oil.  Dated Brent is currently underpinned by five North Sea crudes – Brent itself, Forties, Oseberg, Ekofisk and Troll. That quintet together accounts for less than 1 percent of the roughly 99 million barrels per day of global oil production.  Leading traders such as Vitol CEO Ian Taylor and Royal Dutch Shell’s former head of crude trading Mike Mueller have been among those to express concern about the long-term decline in North Sea production and its impact on the liquidity of the market that sets the price of dated Brent.  S&P Global Platts, in response to concern from the industry over liquidity, added the Troll grade to the basket in January 2018.  Taylor, who heads of the world’s largest oil trader, has said the Brent benchmark should be broadened to include grades from West Africa, Kazakhstan and Algeria, with the possible inclusion of Russia and even the United States.  "As an industry we have a major problem that we have to solve," he told an IP Week industry conference in 2014.  In 2017 Shell’s Mueller, who has since moved to Vitol to lead the company’s crude trading operations, urged S&P Global Platts to consider including other regional grades, such as Russian Urals, given that dated Brent is the backbone of about two thirds of the world’s daily oil trades.

 

Arab States to Add 2.1M B/D in Refining Capacity by 2022: OAPEC

Members of the Organization of Arab Petroleum Exporting Countries will add ~2.1m b/d in additional refining capacity by 2022, or 31% of the additions to global capacity by that year, Secretary General Abbas Ali Al-Naqi says at conference in Brussels.

• Key new projects include Kuwait’s Al-Zour refinery, Saudi Arabia’s Jazan; Iraq and Algeria each building 3 new refineries
• Some countries are upgrading their existing refineries, as some older facilities have lower complexity than Western refineries — such as in hydrotreating capacity — to create high-value fuels
• Says new capacity to lower members’ dependence on crude oil exports and improve ability to run different crudes

Canada crude discount rises to near 5-year high – Reuters News

Canadian heavy crude prices traded on Thursday at the biggest discount to North American futures in nearly five years, pressured by downtime at U.S. refineries and tight transport capacity.  Western Canada Select (WCS) oil traded for $34.50 per barrel less than West Texas Intermediate light oil, according to Shorcan Energy Brokers, representing the widest differential since November 2013. It exceeded the nearly five-year milestone of $34.15 that was reached July 31.  The differential reflects transportation costs to U.S. refiners and the additional processing required for heavy crude. Its widening has delayed the recovery for Canadian producers that rebounding prices have otherwise spurred in the United States.  "We didn’t think it would be this bad" in 2018, said Samir Kayande, a director at RS Energy Group, a Calgary research and advisory firm. "It seems as though we run into roving pinch points on various pieces of the pipeline network."  Five or six U.S. Midwest refiners of heavy crude, including BP Plc’s Whiting, Indiana refinery and Flint Hills’ Pine Bend refinery in Rosemount, Minnesota, are down or scheduled for downtime in October to conduct maintenance, limiting demand, said Matt Murphy, analyst at Tudor Pickering Holt & Co.  "It’s a pretty big turnaround season (at a time) where we’re reaching peak supply," Murphy said. Upcoming turnarounds at crude production sites owned by Suncor Energy Inc and Imperial Oil Ltd should ease the Western Canadian oil surplus, he said.  The pace of the growth of rail shipping of Canadian crude also appears to have slowed in September after reaching record volumes in June, Murphy said.  A Canadian court on Aug. 30 overturned approval of the Trans Mountain oil pipeline expansion, likely meaning delays in the addition of capacity that crude producers consider critical to reaching offshore markets.

 

U.S. Cash Crude-Coastal grades firm as WTI/Brent steadies – Reuters News

U.S. coastal grades strengthened on Thursday with West Texas Intermediate at East Houston, rising to the highest in nearly three months as U.S. crude’s discount to Brent widened slightly, dealers said.  Coastal grades including Light Louisiana Sweet (LLS) and Mars also rebounded to near the highest since mid-June.  Grades recovered as U.S. crude’s discount to global benchmark Brent widened back to near $10 a barrel. Coastal grades typically firm when the spread widens because it makes U.S. crude cheaper compared to Brent, boosting export demand.  WTI Midland firmed by about 50 cents to trade at a midpoint of about $13.50 per barrel below U.S. crude futures.  Limited pipeline takeaway capacity out of the Permian basin, the largest oilfield in the U.S., 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.  Oil companies that drill in the Permian Basin of West Texas and New Mexico are turning to a type of hedge geared to protecting them against regional weaknesses.  Permian producers increased their 2020 oil-basis hedge positions by more than fourfold last quarter over the prior quarter with Concho Resources Inc and Energen Corp leading the surge, said consultancy Wood Mackenzie.  Meanwhile, inventories at Cushing Oklahoma, the delivery point for U.S. crude futures, dropped by about 1.6 million barrels between Sept. 7 and Sept. 11, dealers said, citing data from Genscape.  The draws come during seasonal maintenance at refiners, largely catching traders by surprise.  This month, BP is planning to begin an overhaul involving Pipestill 12, which at 240,000 bpd is the largest CDU at its Whiting, Indiana, refinery. It is currently working to restart the 75,000-bpd Pipestill 11A CDU, which was shut on Tuesday for repairs following a malfunction.

• Light Louisiana Sweet for October delivery rose 75 cents to a midpoint of $8 and traded between $7.75 and $8.25 a barrel premium to U.S. crude futures.
• Mars Sour rose 75 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 rose 50 cents to a midpoint of $13.5 a barrel discount and traded between $13.75 and $13.25 a barrel discount to U.S. crude futures.
• West Texas Sour was unchanged at a midpoint of $14.5 a barrel discount to U.S. crude futures. No bids or offers emerged.
• WTI at East Houston traded at $7.60, $7.70 and $7.75 per barrel over WTI.

U.S. Cash Products-Chicago ULSD slumps after supply floods market – Reuters News

Chicago ultra-low sulfur diesel cash differentials fell to a three-month low on Thursday after refiners tried to sell the product in the region, but faced a lack of interest from buyers, market participants said.  Chicago ULSD lost 1.25 cents a gallon to trade at 0.50 cent per gallon below the heating oil futures benchmark on the New York Mercantile Exchange, traders said. The product has not traded that low since June 13, when it traded at 0.75 cent per gallon below futures.  Chicago CBOB gasoline gained three-quarters of a penny to trade at 7.25 cents per gallon above the gasoline futures contract.  BP Plc expects to restart a crude distillation unit early next week at its 413,500 barrel-per-day Whiting, Indiana, refinery, sources familiar with plant operations said on Thursday. The 75,000-bpd Pipestill 11A CDU was shut on Tuesday for repairs following a malfunction.  In New York Harbor, M2 conventional gasoline lost a penny to trade at 6.00 cents per gallon above futures, traders said.  On the Gulf Coast, A3 CBOB gasoline fell three-quarters of a penny to trade at 3.50 cents per gallon below futures, market participants said.  M3 conventional gasoline lost a half penny to trade at 0.75 cent per gallon above futures.  The RBOB futures contract on NYMEX fell 4.19 cents to settle at $1.9929 a gallon on Thursday. NYMEX ultra-low sulfur diesel futures lost 3.42 cents to settle at $2.2235 a gallon.  Renewable fuel (D6) credits for 2018 traded at 21.5 cents each, down slightly from 22.5 cents each on Wednesday, traders said.  Biomass-based diesel credits (D4) fetched 43 cents each, down slightly from 43 cents each on Wednesday, traders said.

 

Asia Distillates-Gasoil margins dip to month-low; cash premiums up – Reuters News

Asian refining margins for 10ppm gasoil slipped to their weakest levels in over a month on Friday as crude prices edged higher, while cash premiums gained due to weaker inventories and steady demand in the region.  The cracks for gasoil with 10ppm sulphur content fell to $15.75 a barrel over Dubai crude during Asian trading hours, from $15.99 on Thursday.  Cash premiums for gasoil with 10ppm sulphur content rose to 58 cents a barrel to Singapore quotes on Friday, up from 51 cents a barrel on Thursday.  "The gasoil fundamentals are supported by weaker stocks and some refinery turnarounds but the arbs to Europe is quite closed as of now, and if that continues for long it might have negative effects on the market," a Singapore-based trader said.  On Thursday, middle distillate inventories in Singapore fell to a three-week low of 9.3 million barrels, about 27 percent lower than levels a year ago, International Enterprise (IE) data showed.  The Asian gasoil price spread between east and west widened marginally on Friday though it was still not profitable to ship cargoes from east to west, traders said.  The exchange of futures for swaps (EFS) LGOAEFSMc1 widened to minus $10.32 a tonne on Friday, from minus $10.02 a tonne from the previous session, Reuters data showed. Arbitrage is usually profitable when the EFS trades at about minus $15 a tonne and below.  Meanwhile, weekly gasoil stocks in independently held storage in the Amsterdam-Rotterdam-Antwerp (ARA) refining hub climbed to the highest levels in more than five months, data from Dutch consultancy PJK International showed.  The rapid rise in global middle distillate stocks since July is surprising, JBC Energy said in a note on Friday, adding the trend may have continued all the way into September with inventories building strongly in the U.S., Japan, and ARA, as well as other hubs.  "While some of the build can be explained by seasonal preparations ahead of planned maintenance and elevated winter consumption, the speed of the build may also hint at a slowdown in demand, either domestically or from the export market," analysts at the Vienna-based consultancy said.  "If it is in part demand related we would expect to see a weakening in middle distillate cracks which so far have been the margin-drivers."  Cash discounts for jet fuel JET-SIN-DIF narrowed to 28 cents a barrel to Singapore quotes on Friday, backed by a stronger deal. The discounts were at 40 cents a barrel on Thursday.  Jet fuel refining margins fell to $15.15 a barrel over Dubai crude, from $15.34 on Thursday.

Front-month Singapore jet fuel timespread falls to 59-week low on weak fundamentals – Platts

Front-month jet fuel timespread spotted a 59-week low, flipping into contango Thursday, tracking the continual weakness in the physical market as buying appetite remain dull approaching the end of peak summer travel season. At the Asian close Thursday, the prompt October/November inter-month spread fell 23 cents/b to minus 15 cents/b, nose-diving to its lowest levels this year, S&P Global Platts data showed.  The last time the forward-month jet fuel timespread was assessed lower was July 27, 2017 when it was at minus 16 cents/b, Platts data showed. The bearishness was also reflected further down the curve with the fourth quarter – first quarter spread dipping 4 cents/b day on day to be assessed at 50 cents/b. On the outright price, the Asia jet fuel swaps fell 39 cents/b day on day to $91.59/b Thursday.  Market participants attributed the weakness to a seasonal change as the peak summer travel season draws to a close. Sources said that cross-regional flows from Asia and the Middle East have slowed down in recent weeks. This came after shipping sources estimated that jet fuel volumes on the North Asia-US West Coast route have hit an annual high of 500,000 mt in August. September volumes were estimated to be around 320,000 mt.   The languid fundamentals have translated to weaker FOB Korea spot jet fuel differentials, falling to a low of minus 40 cents/b to Mean of Platts Singapore jet fuel/kerosene assessment on September 7, from the start of the month when discounts were at minus 30 cents/b.   Buyers for heating oil demand in winter have yet to emerge as it was still too early but they are expected to turn up at the end of October.   The Asian jet fuel spot market usually sees demand peak over November-February when Japanese importers stockpile kerosene for winter heating.  Reflecting the weakness, FOB Singapore jet fuel/kerosene cash differentials have remained in negative territory since August 8.

 

Jonathan Wagner

Ion Energy Group

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Wagner.j@ionenergygroup.com