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30 May 2015

Press review 30-05-2015 - Entering the dolldrums

Commodities markets were generally down this week and petroleum was no exception. The Brent index was particularly hit in the first days of the week but would eventually recover throughout Friday, pretty much to where it started the week. The month of May goes by leaving the index hardly unchanged at 65 $/b.

In terms of relevant news this was in general a quiet week, perhaps reflecting the stagnation in prices. There is some buzz rising above the background noise around a decline of crude inventories in the US. Some claim it is refining picking up ahead of the "driving season", others say the it is "shale oil" extraction giving in to low prices. In reality these are relatively small movements that square well with a nearly flat futures curve. The hard data that will eventually tell who is wrong and who is right in this debate will only be available by year's end.

Finantial Post
Oil deficit coming? World may be consuming more than it pumps by year end, analysts warn
Aaron Clark, 27-05-2015

The global crude market will shift into a deepening deficit in the fourth quarter amid a draw-down in U.S. stockpiles, according to Standard Chartered Plc. While Qatar’s former oil minister says there’s currently a surplus of 2 million barrels a day, Sanford C. Bernstein Ltd. sees demand outpacing supply by 1.5 million a day by the fourth quarter.

Oil has recovered more than 40 per cent since January on signs that a slowdown in U.S. drilling will alleviate the glut that drove prices to the lowest in six years. U.S. crude inventories probably shrank for a fourth week through May 22 after surging to the highest in 85 years, a Bloomberg survey showed.

“By the second half of this year we will go from being oversupplied to being undersupplied,” Neil Beveridge, Bernstein’s Hong Kong-based analyst, said by phone Wednesday. “Once we see U.S. production growth come to an end, with demand growth running at about 1.5 million barrels a day, we’ll see a significant tightening in the market.”
Arthur Berman presents the opposite thesis, claiming low prices are here to stay. In previous posts Arthur explained how his analysis points to a limited impact on "shale oil" extraction from low prices.
The Petroleum Truth Report
Hope Fades: U.S. Storage Withdrawals About Price, Not Supply & Rig Count Drop Stalls
Arthur Berman, 23-05-2015

Storage withdrawals and falling rig count have been the main sources of hope that U.S. tight oil production will fall and that oil prices will rebound. That hope is fading as it is now clear that recent withdrawals from U.S. crude oil storage are because of price, not falling supply, and that the drop in rig count has stalled.

Figure 1 below shows the relationship between U.S. crude oil storage inventory and WTI price. The thinking around recent withdrawals from storage is that this reflects depleting supply. The data, however, reflects that traders were storing crude oil during the price collapse in order to realize higher prices later. With rising prices over the last month, traders are selling their stored volumes. The recent inventory build correlates almost perfectly with the fall in oil prices and the withdrawals from storage over that last 3 weeks correlate with the 35% increase in oil prices since late March.

Phantom petroleum reserves are about to disappear in the US. This is but one more consequence of the "shale oil" bubble pop. 5.4 Gb is not really that large of a volume at the macroscopic scale, it is equivalent to the world petroleum consumption over a period of 10 weeks. However, for US financial markets this figure is far more relevant.
Bloomberg
Millions of Barrels of Oil Are About to Vanish
Asjylyn Loder, 22-05-2015

Millions of barrels of untapped oil that U.S. shale drillers discovered during the boom years are about to disappear from their inventories.

Six years ago, the industry pushed the Securities and Exchange Commission to make it easier for companies to claim proved reserves for wells that wouldn’t be drilled for years. Some prospects considered sure-things when crude was $95 a barrel are money losers at today’s $60. When crude crashed in 2008, 44 U.S. companies wiped 630 million barrels from their books.

Now the stakes are higher. Of all the proved reserves of oil and natural gas liquids found by the 44 companies since 2008, more than half -- 5.4 billion barrels out of the 9.7 billion -- is attributed to wells that don’t exist yet, according to data compiled by Bloomberg.
One more bit of the war in Libya directly related to petroleum infrastructure. In related news this week reluctance transpired from some European leaders regarding direct military intervention. This laissez faire approach guarantees the long term continuation of the war.
International Business Times
Libyan Government Warplanes Attack Oil Tanker Docked At Sirte
24-05-2015

Warplanes from Libya's official government attacked an oil tanker docked outside the city of Sirte on Sunday, wounding three people and setting the ship on fire, officials said.

It was the third confirmed strike by the internationally recognized government on oil tankers, part of a conflict between competing administrations and parliaments allied to armed factions fighting for control of the country four years after the ousting of Moammar Gadhafi.

The recognized premier Abdullah al-Thinni has been working out of the east since losing the capital Tripoli in August last year to a rival faction. Both sides have been attacking each other with warplanes and thanks to loose alliances with former anti-Gadhafi rebels have also been fighting on several fronts on the land.
To counter the now normal petroleum divestment news is an agreement between Rosneft and PDVSA for a 14 G$ investment programme in the battered bolivarian economy. While the target of these investments was not disclosed it is more than likely the heavy petroleum of the Orinoco basin. It is doubtful this kind of resource can turn a profit at 65 $/b, but financial profit might not be the real reason for this agreement.
Les Echos
Le Venezuela annonce un accord pétrolier de $14 mds avec Rosneft
28-05-2015

Le Venezuela et la compagnie pétrolière russe Rosneft ont conclu un accord sur un investissement de plus de 14 milliards de dollars (12,82 milliards d'euros) dans le secteur des hydrocarbures dans ce pays, a annoncé mercredi soir Nicolas Maduro.

Le président vénézuélien a dit avoir participé dans la journée à une rencontre avec Igor Setchine, directeur général de Rosneft, avec Eulogio del Pino, patron de la compagnie publique vénézuélienne PDVSA, et avec le président de l'Assemblée nationale et numéro deux du Parti socialiste au pouvoir, Diosdado Cabello.

"La réunion a été formidable et nous sommes convenus d'un investissement de plus de 14 milliards de dollars", a dit Nicolas Maduro lors d'un discours retransmis par la télévision nationale, en affirmant que cet argent servirait à doubler la production pétrolière du Venezuela.
One more piece of the puzzle coming into place in India's electricity market. An heat wave brought back the brownouts of last year, but this time coal inventories are clearly in comfortable territory. It becomes ever more apparent than utilities are struggling to maintain affordable electricity prices.
Bloomberg
Mounting Coal Piles Add to Doubts on India Growth Passing China
Rajesh Kumar Singh and Debjit Chakraborty, 28-05-2015

[...] Plants monitored by the power ministry had an average stock of 20 days as of May 24, compared with 12 days last year. Gross domestic product expanded 7.3 percent in January to March, slightly down from the prior quarter but faster than China’s 7 percent growth, according to the median of 28 economist estimates in a Bloomberg News survey.

[...] While India produced more coal and added 22.6 gigawatts of additional power capacity in the past year, it hasn’t yet reached the end user. Generation in April dropped 1.2 percent from a year ago, indicating a fall in plant utilization.

Part of the power problem is that state electricity distributors are so burdened with debt that they’re unable to pay for as much electricity as their customers need.

That explains how a state like Uttar Pradesh, India’s most populous, has a power deficit of 11.5 percent even as coal piles up, according to power ministry data. The province witnesses outages of up to 6-8 hours daily during summer months.
Another stepping stone towards the Liberal vision of electricity markets in Europe. Perhaps an interesting development to what centralised electricity production is concerned. But something is clearly amiss if scalable electricity generation technologies eventually win against governments.
Bloomberg
Eight Years in the Making: Power Without Borders in Europe
Rachel Morison and Weixin Zha, 20-05-2015

After almost two years of delays, Germany, France and their neighbors in central-western Europe connected their electricity markets on Wednesday under a system that lets prices dictate where power flows between countries.

Flow-based market coupling matches supply and demand across borders, sending electricity to where prices are highest. Average day-ahead rates are expected to rise in Germany, and decline in Belgium and the Netherlands, according to data compiled by Energy Brainpool GmbH, a Berlin-based consultant.

Eight years ago, a group of 29 energy ministers, regulators, exchanges and grid operators from Germany, France, Belgium and the Netherlands first agreed to improve their cross-border flows. The project, originally scheduled to start in 2013, better manages the way power networks are used, which means that on a breezy day in northern Germany, power from a wind turbine can reach a hospital in France.
Five and half cents per kilo-Watt-hour - 0.055 €/kWh. That is the price the Jordanian government will be paying for the electricity generated by the latest PV system adjudicated in the country. This is the reason why anti-PV campaigners now claim it generates CO2.
Clean Technica
Jordan Closes 200 MW Solar Tender With Record-low Tariffs
Mridul Chadha, 22-05-2015

Project developers eager to set up solar PV power projects in Jordan took a shot at the lowest-ever tariff in the second round tender under the country’s solar power program.

Jordan allocated 200 MW of solar PV power projects in the second round auction, after a total of 33 companies had submitted technical proposals to set up power projects. However, only 24 of them submitted financial bids eventually. Four developers submitting the lowest bids would be selected to develop 50 MW capacity each. The lowest tariff bid has been submitted by a Greek company, SUNRISE Photovoltaic Systems, which placed a bid of just US¢6.13 per kWh.
Ending a note on a technology that while not directly related to energy can eventually have a relevant impact on consumption. Google is but one of various companies developing self-driving automotive technologies targeting the wider public. What is perhaps most important in their vision is the clear aim of shifting urban mobility towards a service, away from private ownership. Instead of owning a large and heavy piece of metal with an ICE, dwellers can pretty much go about their lives as usual using a shared, self-driven, full electrical mobility service. If such vision ever comes true the impact on energy consumption (particularly petroleum products) can be dramatic.
Google
Green lights for our self-driving vehicle prototypes
15-05-2015

When we started designing the world’s first fully self-driving vehicle, our goal was a vehicle that could shoulder the entire burden of driving. Vehicles that can take anyone from A to B at the push of a button could transform mobility for millions of people, whether by reducing the 94 percent of accidents caused by human error (PDF), reclaiming the billions of hours wasted in traffic, or bringing everyday destinations and new opportunities within reach of those who might otherwise be excluded by their inability to drive a car.

Now we’re announcing the next step for our project: this summer, a few of the prototype vehicles we’ve created will leave the test track and hit the familiar roads of Mountain View, Calif., with our safety drivers aboard.
That is it for this week. The wars in Syria and Iraq are possibly the only foreseeable events capable of rocking the boat the next few weeks. Have a good weekend.