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Another record-setting crude export out of the Louisiana Offshore Oil Port (LOOP) sailed Wednesday afternoon and is headed to the Caribbean after spending about four days loading, according to Platts vessel-tracking software.
The Anne, a VLCC with a capacity of 2.02 million barrels of crude, is due on the Dutch Antilles island of St. Eustatius, on Tuesday and was north of Puerto Rico on Monday, according to cFlow, Platts trade flow software.
A representative from LOOP did not return a request for comment Monday.
LOOP loaded the tanker about two days faster than its previous best, which sailed only two weeks previously. Platts cFlow showed Anne arriving at LOOP on July 1 and the tanker departed on July 4. That compares with seven days at LOOP for Shaden and 10 days for Nave Photon and with six days for Eagle Vancouver, which were the first, second and third VLCCs to load at LOOP earlier this year, respectively.
Four days is much faster than other VLCC load-times in the US Gulf Coast, which must either be partially or fully loaded using reverse lightering. Typically, US Gulf Coast VLCC loadings take on average 10 days to complete, according to a recent presentation by an Occidental Petroleum representative. However, as export terminals increase their capacities and fine tune their loading procedures, those load times are shortening.
By comparison, the FPMC C MELODY, another VLCC was recently partially loaded in the US Gulf Coast at Enterprise Products’ Texas City dock on the Houston Ship Channel. That vessel arrived for loading in Texas City on June 21 and then moved to the Offshore Galveston Lightering Zone, where the remainder of the cargo was loaded via ship-to-ship transfer. FPMC C MELODY set sail on June 28 and is expected to arrive in Sikka, India, on August 9. FPMC C MELODY also made a one-day stop in St. Eustatius, where there are a number of blending and storage facilities.
It is not known what grade of oil was loaded on to Anne. However, previously-loaded VLCCs at LOOP were believed to have been cargoes of Mars, a US Gulf of Mexico medium sour produced by Shell and BP.
The post Fourth-ever crude export sails from LOOP after record-setting load time appeared first on The Barrel Blog.
Azerbaijan has long been seen as a strategic gateway to vast oil and gas resources in the Caspian region and a source of energy security for Europe but has yet to live up to its promise as a bulwark against the influence of Russia and OPEC in the region.
Oil companies and politicians coined the term “contract of the century” to describe the 1994 deal to develop the giant oil complex Azeri-Chirag-Offshore Gunashli, which led to the construction of the BTC pipeline to the Mediterranean.
Azeri crude, produced by a BP-led consortium, has lately offset Libyan shortfalls. But the BTC pipeline operates at just two-thirds of capacity as expected volumes from across the Caspian have failed to materialize.
And this month’s launch of gas supplies from Azerbaijan’s Shah Deniz field to Europe via the audacious-sounding Southern Corridor may fall short of expectations.
The route offers an alternative for at least one country that relies on Russia for gas: Bulgaria. But opinion varies on whether southern Europe needs extra gas; and the volume involved, at 10 Bcm/year, is barely 2% of current EU gas demand.
That may disappoint those like former US diplomat Matthew Bryza who see the Southern Corridor as a tool for pressuring the EU’s largest supplier. Providing competition for Russia’s Gazprom is “to me the greatest goal of all of energy security in this part of the world,” Bryza, who served on the National Security Council and as US ambassador to Baku, said recently in Baku.
He explained Azerbaijan’s significance as “a successful example of a Muslim-majority country, a tolerant society, a secular society, succeeding at a very difficult piece of real estate: the only country that borders both Russia and Iran.”
But the pronouncements of post-Cold War politicians have since been tempered by the more pragmatic approach taken by oil companies, who have favored alternative routes to ship their crude, bypassing the BTC pipeline.
In terms of providing energy security, Kazakhstan’s Kashagan field is now producing over 300,000 b/d after early problems, its Chevron-led Tengiz field has reached 660,000 b/d and the giant Karachaganak field is producing around 250,000 b/d. But Azerbaijan may not benefit much.
For years executives claimed the BTC pipeline would carry not only Azeri crude but be a route for Kazakh supplies. But non-Azeri volumes have been modest; Tengiz crude hasn’t been shipped through the pipeline in more than two years.
BTC’s presence has instead spurred Russia to develop the rival CPC pipeline from Kazakhstan to the Black Sea. CPC has become the route of choice, and Chevron has discussed an expansion beyond its capacity of 67 million mt/year (nearly 1.5 million b/d).
Some still believe Kazakh crude will one day be transported through Azerbaijan in significant volumes.
“Don’t ask me when, but it will happen someday,” Eni’s Central Asia executive vice president Luca Vignati told S&P Global Platts in May. “Very deep” discussions have been underway between Azerbaijan and Kazakhstan on the topic, he said.
In theory, BTC is attractive as it avoids the Black Sea and Bosporus and the need for value-reducing shipments through China or Russia. But without a pipeline across the Caspian, regular larger-scale shipments from Kazakhstan through Azerbaijan may not materialize.
Some port construction is underway, but the largest vessels Baku can handle can only carry 13,000 mt of crude (180,000 barrels). And the oil majors may be wary of spills in the highly sensitive enclosed sea.
“I don’t see any incentive for BP to beat the bushes looking for additional volumes to put through BTC,” one regional source said.
Hopes have been lifted by plans for a first-ever treaty between all five Caspian states on the sea’s status, to be signed probably in August. This might enable construction of a gas pipeline from Turkmenistan to supplement Shah Deniz volumes. But three decades after the Soviet collapse the agreement is still unlikely to delineate the Caspian, and prospects for an oil pipeline remain remote.
Azerbaijan, then, is proving less efficient than some hoped. And despite an economic transformation, security in the region remains a worry.
A bloody conflict with Armenia over Azerbaijan’s autonomous territory of Karabakh that was unleashed by the Soviet collapse remains unresolved; Azerbaijan claims to have mounted an offensive in the Nakhchivan region in April, two years after some 200 people were killed in renewed fighting.
And at the centenary of the first Azerbaijan Democratic Republic, political uncertainty also persists. The ability of countries in the region to smoothly hand power from one leader to the next remains in doubt; the suppression of dissent under President Ilham Aliyev, who inherited his post from his father in 2003, may be storing up trouble.
Baku’s seafront now hosts Formula 1 motor racing each spring; a far cry from the early post-Soviet years. But behind t Continue reading “Caspian oil and gas: High hopes for a tough neighborhood”
China retaliated against US tariffs on July 6, with its own 25% tariffs on imports of US food products, agricultural commodities and motor cars. It has drawn up a second list that targets $16 billion of US energy commodities, chemicals and medical equipment.
No date for the additional tariffs has been set, but it could happen as early as two weeks’ time. But not all commodities are traded equally, and some tariffs will hurt a lot more than others.
The chart shows the value and annual export growth of US commodities that will be subject to Beijing’s tariffs. By way of comparison it also shows LNG, which is off the table for now. The size of the bubble in the chart represents the value of the commodity exported from the US to China last year in billion dollar terms.
The cash cow is soybeans. Last year, US shipments to China were worth nearly three times the value of crude oil. They were even worth more than the value of motor vehicle exports. Despite all the hype, LNG exports were worth just 3% of soybean exports to China. But like all cash cows, soybeans have seen little growth. In fact, the value of soybean exports actually declined in 2017 due to lower prices.
The rising star is of course crude oil, which grew over 1000% in 2017 from the previous year.
This is partly due to higher prices, but mainly due to rising export volumes as a result of increased shale production. Other energy commodities like LNG and LPG are, to mix metaphors, riding on the coattails of the shale bandwagon, but the growth rate and absolute value of these products is dwarfed by the value of US crude oil exported to China.
But how does crude compare with soybeans?
China took just under 20% of US of crude oil exports last year. This pales in comparison to soybeans, where China accounted for 57% of all exports last year.
John Paul Getty’s famous adage that “if you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem” could equally apply to the US-China soybean trade. It’s so huge that China will have little option than to continue to import US soybeans, albeit in smaller quantities.
The soybean tariffs will not only be a problem for the US, but also for China.
The post Cash cows and rising stars: sizing up the commodities in the US-China trade war appeared first on The Barrel Blog.
Oil above $75 a barrel is good for Middle East economies but a challenge for the region’s energy reformers and consumers.
Slumping prices had triggered a wave of new policies over the last four years to slash subsidies on petrol and electricity, while boosting investment into renewables. Maintaining the momentum behind energy market liberalization is essential for future prosperity.
Previously, the region’s consumers were insulated from higher oil prices by generous state subsidies, which were costly to maintain and encouraged waste.
The UAE opened the flood gates three years ago by introducing a new pricing model for gasoline and diesel in August 2015, when a barrel of Brent crude was trading at $54. Since then a fuel committee has set gasoline prices based on a monthly review of global averages and operating costs instead of historically unsustainable subsidies.
At the time, a liter of 98 octane petrol bought at a filling station on Sheikh Zayed Road would cost Dh1.83. Today, the same quantity of fuel will cost motorists Dh2.63, up 44 per cent from the subsidized rate.
Despite concerns voiced by the region’s consumers, the UAE’s example was quickly followed by many Arabian Gulf neighbors. Oman’s Ministry of Finance revealed plans to follow later in the same year. Saudi Arabia – the region’s largest economy and biggest producer of crude – followed a few months later by raising the price of petrol by 66 per cent as part of a program of economic reforms to rein in its budget deficit.
Although consumers in the region still benefit from low tax rates, these price increases have been about in line with the international wholesale market. S&P Global Platts’ data show the FOB Singapore 95 RON Middle East petrol price hit a low of almost $37 per barrel in February 2016, before steadily climbing to close to $80 per barrel in June 2018, in synch with the rise in Brent crude prices.
Transport fuel is also just a small part of the story. Subsidies have been removed, or are in the process of being reduced, on electricity and desalinated water supply across the region.
Meanwhile, investment into renewable sources of energy has never been higher, or needed to be before the slump in oil prices hit government coffers. Up to $40 billion of investment will be required for the Middle East as a whole to meet its renewable energy targets by 2035.
However, transforming the retail petrol and diesel market has caused the most pain in a region where motorists had grown accustomed to the cheap cost of filling up. The net economic benefit of these reforms – despite their sensitivities – is profound. In 2014, the International Monetary Fund (IMF) estimated that pre-tax subsidies were costing the Middle East and North Africa region $237 billion annually, equivalent to almost a quarter of all government revenues at the time.
Instead of doling out handouts, the IMF argues “transparent and simple formulas to adjust prices have shown to be more conducive to successful and sustainable reform,” adding that “automatic price mechanisms can help depoliticize the reform process, help avoid reform reversal, and facilitate the transition to a fully liberalized pricing system.”
However, with oil prices recovering, the pressure to push through faster energy reforms could ease. In Saudi Arabia, domestic petrol prices will now reach parity with international levels gradually through to 2025 – compared to the previous target of 2020, according to last year’s budget statement. The kingdom has increasingly dragged its feet on further reforms despite its desire to reduce its economic dependence on oil as part of the Vision 2030 plan.
Prior to fuel price reforms, the Middle East was one of the world’s fastest-growing and most wasteful markets. Domestic consumption of crude in the region rose by almost 50 per cent to 8.7 million barrels per day in the decade leading up to 2014 and the start of the oil market slowdown. However, demand growth has since slowed down in line with the introduction of policies, which are also designed to encourage be more prudent.
“Low energy prices encourage wasteful and excessive consumption, and they inhibit energy efficiency. Keeping energy prices low also discourages investment in the energy sector, locking in inefficient technologies and affecting energy production,” said the IMF.
The worst thing for the IMF would be if the Middle East’s OPEC governments were to ease back on subsidy reforms after winning their battle to rebalance oil markets. Now is not the time for turning.
This piece first appeared on The National.
The Louisiana Offshore Oil Port delivered more than 1.1 million barrels of the blended crude LOOP Sour ex-cavern in June, more than double the amount it delivered in May, the oil terminal said Monday.
LOOP Sour is comprised of the US Gulf of Mexico grades Mars and Poseidon and a crude blend called Segregation 17, into which the Middle Eastern grades Arab Medium, Basrah Light and Kuwait Export Crude can be delivered.
Last month, about 37,000 b/d of LOOP Sour were exported from the cavern. That compares with both a 2018 and the 12-month average of 49,000 b/d. It also represents a sharp rebound from May, when about 500,000 barrels of LOOP Sour were delivered from the cavern. That was the lowest monthly total since one year earlier, when no LOOP Sour was exported from the cavern.
The record-high was April, when more than 3.2 million barrels, or 107,000 b/d, were delivered ex-cavern.
In related news, LOOP and Matrix Markets will host Tuesday their monthly storage futures auction for LOOP Sour capacity allocation contracts, Matrix Markets said last week. The companies will auction 11,900 CACs worth the equivalent of 11.9 million barrels of storage. The front-month of August will see 2,250 CACs put up for sale while the most for any contract will be in Q4 2018, where 4,800 CACs will be auctioned.
The 11,900 CACs to be auctioned represent the largest amount to be offered in one auction since April 2015, which was just the second storage futures auction held by the companies. Over the past year, LOOP has typically offered just shy of 9,000 CACs. The value of those CACs has traded between 5-8
cents/b since December 2017, when the minimum bid was lowered to 5 cents/b.
Market participants do not appear interested in paying up to store crude, particularly in a backwardated market. It is worth noting that the backwardation lately has increased.
The post Terminal reports sharp rebound in LOOP Sour cavern exports for June appeared first on The Barrel Blog.
Commodities are ubiquitous in everyday American life. We drive cars built of aluminum, drink coffee each day and wear clothes made of cotton. But when it comes to pricing, they aren’t all created equally—even within the same commodity market. Location affects commodity prices, and those differences in prices based on location are called “differentials.”
When market fundamentals are balanced, such differentials generally maintain a steady ebb and flow. But they can swing to far extremes when dramatic local or regional events upset the equilibrium. From oil to wheat, or gasoline to metals, no commodity is immune to the impacts that regional dynamics can have on local spot pricing.
Recently, we’ve seen the price of metals impacted by geopolitical actions. The S&P Global Platts Midwest Aluminum Transaction Premium is a differential—that is, the cost difference between aluminum sold in the United States and aluminum sold elsewhere in the world.
Like oil benchmarks, this price reflects what buyers and sellers pay for aluminum in the physical market. The differential reflects regionally specific supply-and-demand conditions in the United States, as well as the regional cost of logistics, such as truck freight rates.
Sanctions and tariffs affect regional aluminum markets.
For much of 2018, the aluminum premium has been swept higher by US government tariff actions and trade sanctions.
Following the March 8 announcement to impose a 10% tariff on aluminum imports, the aluminum premium in the US jumped nearly 12% from the day before. This price increase reflected higher costs due to the tariffs.
In other words, the potential supply of aluminum to the US just got at least 10% more expensive for companies looking to import foreign aluminum to the country—and the US is a big net importer of aluminum, recently importing about 90% of its needs.
Soon after the tariff was imposed on March 23, a second shock to aluminum prices worldwide came on April 6. The world’s second-largest aluminum producer, Russia’s Rusal, was subjected to US sanctions, which drove prices even higher in North America.
The premium remains at a lofty perch because some warehouse material in the US is from Rusal. Effectively, this is “phantom supply,” because uncertainty around Rusal deters many potential users who fear running afoul of the US Treasury sanctions.
Similar trends are also apparent in agriculture. China’s announcement of retaliatory actions to the US trade tariffs had an impact on prices, but the more frequent occurrences of weather disruptions to crop conditions and crop quality variances and preferences can alter prices and market views.
If farmers in one region have trouble growing crops, buyers look elsewhere. Starting in mid-May 2018, Asian buyers increasingly turned to Russian milling wheat as the price of Australian Premium White wheat continued to climb—upwards of 15%—because of extended dry weather.
Given dryness across the major Australian wheat belt, growers continued to hold onto existing stocks, in case there is a scarcity of new crop wheat for the 2018-19 harvest year. What’s more, as domestic demand and prices in Australia strengthened, this in turn pushed up prices for milling wheat. The result: Buyers with inelastic demand for Australian wheat are paying a substantial premium.
The dry season in several regions has resulted in rising wheat prices in recent weeks—contributing to global disparity. Example: According to the International Grains Council, US No. 2 wheat has topped $250/mt FOB, EU (France) grade 1 has hovered around $215/mt FOB, Argentina wheat has reached above $260/mt FOB, and Platts recently assessed Russian wheat at $204.50/mt FOB.
Tariffs and sanctions aside, regional price variations are omnipresent in petroleum and petroleum-related markets.
Crude oil markets also witness a divergence in prices, depending on location. Dated Brent is the global crude oil benchmark that industry estimates indicate accounts for 60% of world production. In the US, the West Texas Intermediate (WTI) benchmark reflects the value of crude delivered into landlocked Cushing, Oklahoma—the delivery point for the NYMEX WTI futures contract.
In late May to early June 2018, the spread between the Brent crude futures contract and the WTI futures contract for August topped $10 per barrel—the widest spread between the two contracts since mid-March 2015. The reason: geopolitical and macroeconomic factors (economic sanctions on Iran and Venezuela, for example) pushed Brent prices higher, while underlying physical constraints in the US central and southwest regions kept WTI prices subdued.
Why the disconnect? The Permian Basin is the epicenter of the US shale boom in New Mexico and West Texas. Growing supply there has led to severe pipeline constraints. As production in the Permian grows and no new pipeline capacity is planned until the second half of 2019, supply bottlenecks will intensify.
Many factors affect supply-and-demand fundamentals, which is reflected in price differentials for commodities.
When a commodity’s price jumps, it’s rarely a mystery as to why. It’s clear that commodity prices respond to changes in regional supply-and-demand fundamentals. Geopolitical fears, regional upheaval, curbs of free trade, weather and regional logistics all affect local supply-and-demand dynamics, which are reflected in differentials.
The post Location is everything — especially with commodity pricing appeared first on The Barrel Blog.
In the world of crude oil trading and energy security, some cardinal rules apply — never destabilize your most secure source of supply and never upset a trading relationship with the largest supplier in the market.
Chinese trader Unipec broke both rules at one go and the timing was terrible.
It cut its nominations of sour crude from term supplier Saudi Aramco by 40% for barrels loading in May. A month later, Unipec did it again for June and then for July barrels, effectively cutting 40% of its procurement from the world’s largest exporter.
This raised eyebrows in several oil trading circles for many reasons.
Long-term oil contracts typically allow buyers to vary purchases by 10%-15% in a given month, to account for seasonal demand fluctuations. A 40% cut is unusual and would only be allowed in special circumstances like a refinery outage.
If an oil refiner does successfully negotiate a large cut, it promises to make up for the purchases in subsequent months to preserve long-term business. The last thing a refiner wants to do is to use rival oil producers as a bargaining chip, which is exactly what Unipec did.
In May, and then in early June, Unipec blamed high Saudi crude OSPs and triggered concerns about Saudi market share in Asia. It told market participants it was confident of replacing Saudi barrels with other suppliers, and estimated the shortfall at merely 4 million barrels, S&P Global Platts had reported.
“Cutting nomination is OK through a private talk with the oil giant, but announcing them is too much,” a former Unipec trader said.
The nomination cuts were followed by a series of events, well beyond Unipec’s control, but which have created uncertainty over its supply.
On the morning of June 16, China retaliated to the Trump administration’s tariffs, with its own tariffs on $50 billion of US products. For the first time, it put crude oil and petroleum products on the list.
This put Unipec’s purchase of around 16 million barrels of US crude oil for June loading at risk. This was the biggest monthly volume of US crude ever to be lifted by the company, in line with Sinopec’s aim to raise US crude shipments by 80% in 2018.
Ten days later on June 26, the US State Department said it would give no waivers for Iran’s oil buyers who will be expected to cut their procurement to zero under sanctions. China is the largest importer of Iranian crude oil.
Then late last week, Unipec ran into problems in Libya where NOC East, rival to the internationally recognized state oil company NOC, has consolidated its control of eastern oil ports and ordered the suspension of crude exports.
At least one vessel loading for Unipec, the Amore Mio II, was not allowed to berth and load crude from the 200,000 b/d Zueitina oil terminal. The empty tanker was stationary off the Zueitina terminal till late last week.
Unipec represents China’s largest oil refiner Sinopec and is probably the largest crude purchaser on the spot market, and the world’s largest charterer of VLCCs.
But even for its size, suddenly a lot of options are off the table and its tussle with Saudi Aramco doesn’t seem like such a good move any more.
Unipec was taking around 55% of China’s crude oil imports from Saudi Arabia, which was around 606,000 b/d in Q1, according to customs data.
Japanese refiners, traditionally the most risk averse, will tell you that a long-term supply agreement with Saudi Aramco is considered sacrosanct, and it is fairly difficult to secure a new deal with the Saudis in the first place.
“You have to bend and kiss the ring. And even then, you are at the end of the queue. The term customers like national oil companies get the first priority,” a veteran oil trader said on condition of anonymity.
“You get the table scraps, if there are any table scraps left. You are the Chihuahua at the end of the table. A Saudi contract is like a blood-brother deal,” the trader said.
Market participants also said that business with the Saudis is old school and many deals have been in place for decades.
While Unipec may have been the only player big enough to play hardball with the Saudis in a weak market, they have upset a business relationship that can backfire.
“It is a big challenge for Unipec as everything has come at the same time – the China-US trade tensions, Unipec’s trade tensions with Saudi Aramco and the sanctions on Iran,” a source close to Unipec said.
“Unipec should be very cautious to deal with Saudi Aramco as it is such a key supplier from the long-term point of view,” the former Unipec trader said, adding that the supply shortfall is unlikely to impact physical supply for Sinopec refineries, but it will end up costing them higher for replacement barrels.
Aramco may also want to be prudent in how it manages its relationship with Unipec.
“If the Saudi’s retaliate or play hardball, it creates more incentives for the Chinese to move towards Iran,” John Driscoll, head of consultancy JTD Energy Services, said by phone.
“The Iranians are poised to seize an opportunity, and China is the most logical choice. The Saudis will not want that,” he added.