New base energy news issue 887 dated 18 july 2016

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NewBase Energy News 18 July 2016 - Issue No. 887 Edited & Produced by: Khaled Al Awadi

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Saudi Arabia Plans Shipbuilding Complex to Support Oil Exports Bloomberg - Wael Mahdi WaelMahdi

Saudi Arabia will build a maritime complex on its east coast, with shipbuilding capability, to provide sufficient capacity for exporting oil, Energy Minister Khalid Al-Falih said Sunday.

The country, the world’s largest oil-producing nation, eventually will have a shipping fleet that will match its oil capabilities, Al-Falih said in Riyadh. Saudi Arabian Oil Co., or Aramco, will need more tankers to meet global demand, he told reporters.

Oil prices have rebounded more than 70 percent from the 12-year low reached earlier this year as a Saudi Arabian-led OPEC strategy to pressure rivals with lower prices slowly eliminates a surplus in global supply. Al-Falih told the Houston Chronicle newspaper in June that the glut was over, an assessment shared by the International Energy Agency, which said on June 14 that the crude market will be balanced in the second half of 2016.




The Organization of Petroleum Exporting Countries expects demand for its oil will rise to about 33 million barrels a day next year, 142,000 a day more than in June, the group said in its monthly report published July 12. Saudi Arabia is producing at close to a record, according to the report. Production outside OPEC is expected to fall by 900,000 barrels a day this year, the largest decline since 1992, according to the IEA.

Crude oil will rise to a range of $50 to $60 a barrel until at least 2018 as demand rises, Kuwait’s acting oil minister Anas Al-Saleh said last week.

Saudi Arabia, along with the United Arab Emirates and Kuwait, is expanding its energy industry, driving investments in the region to $900 billion over the next five years, Apicorp said on April 12.

APICORP:

Arab Petroleum Investment Corp., a multilateral energy-finance lender based in Dammam, Saudi Arabia, and National Shipping Co. of Saudi Arabia plan to buy as many as 15 oil tankers via a new $1.5 billion fund. Apicorp, as the lender is known, will own 85 percent of the fund and National Shipping the rest. Investments will be allocated in $500 million increments, National Shipping said Sunday in a statement to Saudi Arabia’s stock market.

Apicorp plans to issue Islamic bonds to diversify its portfolio, which is mainly in petrochemicals. The lender has set up funds to focus on renewable energy projects and on transportation and shipping.

Saudi Aramco and Hyundai Heavy Industries Sign MoU to Collaborate on New Business Opportunities




Malaysia: Sabah Energy to Set up First Micro LNG Plant Natural gas Asia + NewBase

State-owned Sabah Energy Corporation (SEC) is close to setting up a joint venture for construction of Malaysia’s first micro LNG plant in Kota Kinabalu Industrial Park (KKIP) in the state of Sabah, reported Borneo Post, a local newspaper.

The plant will be owned by a subsidiary company of SEC through a joint venture which will be finalised soon. All necessary approvals have been given by shareholders and the signing ceremony would be held once the joint venture terms are finalised accordingly.

The company believes it will be able to supply gas to wider set of customers in the form of LNG. The plant is expected to produce 35 tonnes of liquefied gas a day and would enable SEC to deliver natural gas to those areas which were previously inaccessible through its existing supply of compressed natural gas (CNG) and underground pipeline, Borneo Post reported.

Hari Raya Aidilfitri, the CEO of SEC, said CNG could only be supplied to customers who live within 70 kilometres from the CNG mother station in KKIP.

“We also plan to approach customers in Kota Kinabalu, who cannot be supplied with CNG (which requires large storage area), to be supplied with liquefied gas. With liquefied gas, we can reach customers in Kudat, Keningau, Beaufort, Ranau and so on,” he said.




Turkmenstan : Caspian Overview, Japan Invited into TAPI Natural gas Europe Ilham Shaban

Turkmenistan’s president, Gurbanguly Berdymuhamedov, has proposed that Japanese companies consider investing in large-scale industrial projects that will develop the country’s economy, as well as in the construction of Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.

The proposal was put forward during the meeting with senior representatives of Japan’s Mitsui Engineering & Shipbuilding and of Sojitz Corporation. The $10bn TAPI project is aimed to carry 33bn m³/yr of gas to the participant countries by 2021. Ashgabat has an 85% stake in the challenging project, which equates to one third of the country's total yearly budget. However, the latest official statistics indicate that since December 2015, when Turkmenistan started the construction of its 214-km section, only about 10 km have been completed so far.

During the meeting, the businessmen expressed their companies’ readiness to join the business partnership, the Turkmenistan government reported. TAPI Pipeline Co has been created to build and commission the pipeline. It is owned by the state-owned gas companies of the participating countries. Negotiations continue with other potential participants. Earlier, representatives of the Asian Development Bank, the European Bank for Reconstruction and

Development, the Islamic Development Bank and the Saudi Fund for Development expressed interest in participating in TAPI. The project enjoys strong support from Washington. The US ambassador to Turkmenistan, Allan Mustard, in an interview with news site «Arzuw news» June 29, stressed the special importance of the project in the preservation of stability and the development of integration processes in the region. The total length of the pipeline will be 1,814 km, of which 774 km cross Afghanistan, 826 km cross Pakistan. These countries’ sections will be built following international tenders. In April this year the shareholders TAPI Pipeline Co signed an investment agreement with an initial budget of over $200mn to finance the next phase of the project. This includes funding for a detailed engineering survey of the route, studies on the environmental and social impacts on the environment in Afghanistan.




In June, Berdimuhamedov signed a decree allocating more than $45mn to finance the initial phase of construction of the TAPI gas pipeline in Afghanistan and Pakistan. Turkmenistan’s neighbour Kazakhstan is also continuing development of energy projects. National Bank of Kazakhstan announced June 11 that despite the low oil prices, the oil and gas projects shared majority in attracting the foreign investments in the first quarter of this year. "Direct foreign investments in the oil and gas production in Kazakhstan reached about $960mn in first quarter and the figure for geological exploration and survey projects amounted at about $1.5bn." In total, some $4.3bn were invested in Kazakhstan’s economy in that quarter, only $70mn less than in the same period of the previous year. Kazakhstan and the Chevron-led consortium Tengiz Chevroil (TCO) also approved on July 5 a $36.8bn plan to expand the giant Tengiz field. Despite the field being onshore, the capital expenditure is high because the reserves are 3,800-5,000 metres deep and are very sulphurous. For comparison, the capex for the offshore Azeri-Chirag-Guneshli block (2,400 m depth) stood at $41bn. The country has extracted 2.9bn barrels of oil (391mn mt) between 1997 and 2015. The total output of Tengiz would increase by over a third, from the current 27mn mt/yr to 38-39mn mt/yr in 2021. Kazakhstan's cumulative oil production from Tengiz from 1993 to 2015 stood at 2.6bn barrels. In Uzbekistan, China National Petroleum Corporation and the national holding company Uzbekneftegaz postponed construction of the fourth branch of the Central Asia-China gas pipeline until the end of 2016. Uzbekistan had planned to start building the fourth line in late 2015. The length of the Uzbek section of the fourth branch of the gas pipeline will be about 210 km, while the minimal cost - $800 million. Gazprom International, an affiliate of Russia’s state-controlled company Gazprom, asked the Tajik government July 12 for consent to drill a second well at the Sariqamish gas field. The first well in the Shahrinav district was a duster, according to the government, which puts field reserves at a possible 18bn m³ of gas and 17mn mt of oil.




Russia’s Artic oil Rush Production could top 400,000 BPD 2020. Julian Lee in London at [email protected]

High in the Arctic circle, three oil terminals on Russia's northern coast are already exporting as much crude oil as Libya -- and that flow could double in the next five years.

It's a sign the development of remote deposits in the country's harsh and fragile north will play an increasingly important role as conventional production in the historic West Siberian oil heartland

continues to slide.

Two of the terminals provide outlets for crude from onshore fields in northern Russia that aren’t connected to the huge state-controlled pipeline system. The third sits atop Russia's first offshore oil development in its Arctic waters.

Lukoil's Varandey terminal, on the coast of the Barents Sea, started exporting crude in 2008 and has the capacity to handle 12 million tonnes of oil a year, equivalent to about 240,000 barrels a day. That figures has never been reached as production from the Yuzhno-Khylchuyu oilfield, developed by Lukoil and Conoco, failed to deliver the volumes expected.

Oil production began at Gazprom Neft's offshore Prirazlomnoye field in December 2013, with year-round exports starting in 2015. Output of the medium gravity, high sulfur crude now totals about 35,000 barrels a day, but should reach a peak of 110,000 barrels before 2020.

The newest of the three terminals, also owned by Gazprom Neft, is Arctic Gate, which was formally inaugurated by President Putin in May. Capable of handling as much as 170,000 barrels a day, the terminal is linked to the company's Novoportovskoye field, where production of medium gravity, low sulfur crude is expected to rise to about 125,000 barrels a day by 2019 from 25,000 barrels today.




Combined, the three terminals handled a combined 230,000 barrels a day in the second quarter of 2016 and the flow has almost doubled from 130,000 barrels as recently as January last year.

By comparison, loadings from Libyan ports averaged about 240,000 barrels a day over the period, monthly ship tracking shows.

Russia's Arctic cargoes are shipped as individual grades, preserving the unique qualities of each field's oil, rather than being blended into one of Russia's uniform export streams.

For Lukoil, this is an advantage. Most of the expected growth in exports will come from Trebs and Titov, two fields it's developing with Bashneft. Their output is well suited to producing high-value transport fuels, so is likely to command a premium over Russia's Urals Blend crude in the Atlantic Basin market, or ESPO crude in the Pacific.

The Trebs and Titov development is now producing about 45,000 barrels a day of light, sweet crude, with output expected to reach a peak of around 200,000 barrels a day by 2020.

The new oil fields feeding Russia's Arctic terminals could be contributing as much as 425,000 barrels a day to Russian oil output by 2020. Other fields in the far north of the country are also expected to begin producing this year, but these will be tied into the country's pipeline system.Although this is only 4 percent of Russia's total

production of almost 11 million barrels a day, it will be vital to maintaining that level of output. Production from Russia's giant fields in West Siberia, most of which were developed in the Soviet era, is firmly in decline and unlikely to reverse that trend.

As long as Russia is hampered by sanctions from exploring and developing the shale oil resources thought to lie beneath the West Siberian oil province, the fields it is developing in the Arctic will play a crucial role in its hydrocarbons future.




Energy Veteran Betting on LNG Bounce Sees Future Floating at Sea Bloomberg - Dan Murtaugh danmurtaugh

Turmoil in the oil market gave Fred Jones his start in the energy business four decades ago. Now he’ll be hoping turmoil in the gas market doesn’t sour his new venture.

Jones, who in 1974 helped found the trading firm that became Glencore Plc, is now chief executive officer of Delfin LNG LLC, which has applied to build the first modern floating natural gas liquefaction plant in the U.S. He’s doing so at a time when new export projects are primed to flood the market, slashing spot prices and making buyers less interested in signing long-term contracts that underpin ventures like his.

“History suggests that when the tide turns in a commodity market, it turns much harder and faster than everyone expects,” Jones said in an interview in Singapore. “We are already seeing the seeds of this rebalance sown with potential supply projects abandoning their development plans and new demand centers being created amidst today’s low-price environment.”

Jones expects the rebalance to occur in the early 2020s, when his new venture, Delfin, would come online. Jones plans to build four floating liquefaction vessels, known as FLNGs, and moor them about 50 miles south of Louisiana, where they will receive shale gas piped from the shore. The company expects approval early next year for a deepwater port license from the U.S. Coast Guard and Maritime Administration, he said.

Marc Rich

Jones, a native of New Zealand, moved to London in the early 1970s and started chartering ships for commodities trading powerhouse Phillip Brothers. At the time, Marc Rich was leading the firm into crude trading after the Arab oil embargo caused prices to soar and left U.S. refineries searching for supplies.

Rich and fellow trader Pincus Green left Phibro over a pay dispute in 1973. Jones said he called Rich to tell him he was interested in whatever his next venture would be, and Rich invited him to join on the spot. Rich, Green, Jones and two secretaries started March Rich + Co. in 1974. The




firm became Glencore Plc in 1994, several years after Jones had already left. Two former colleagues confirmed Jones’s account. Glencore declined to comment.

Funding and Floating

Enbridge Inc. has purchased a 5 percent interest in Delfin, and the Korean Development Bank recently agreed to provide $1.5 billion in financing to the project. Jones said lenders are more comfortable funding floating liquefaction plants like his project because they can be moved if market conditions change and liquefaction at the original location is no longer profitable.

With the market over-supplied, only projects at the low end of the cost curve with well-funded partnerships that can handle price risk will move forward, Sanford C. Bernstein & Co. analysts including Neil Beveridge said in a July 8 research report.

Many investors don’t see FLNGs as a proven technology, according to Rafael McDonald, the Cambridge, Massachusetts-based global director of gas and LNG for IHS Inc. The first modern FLNG left a South Korean shipyard in May and is expected to begin producing from offshore Malaysia for Petroliam Nasional Bhd later this year. Many lenders want to see FLNGs perform for a few years before they’ll feel comfortable, he said.

“I have not heard of a great level of comfort emanating from the broader financing community,” McDonald said by e-mail. “The flip side, of course, is that for project developers, you don’t need all financiers to be comfortable with the concept. You only need enough to fund your project.”




NewBase 18 July 2016 Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE

Brent Holds Below $48 as Oil Shipments Bloomberg Ramsey Al-Rikabi + NewBase

Brent crude held below the highs reached following a failed coup in Turkey last week as shipments continued through the vital conduit for oil from Russia and Iraq to the Mediterranean Sea.

Futures in London were 0.5 percent higher but remained below levels touched on Friday as the coup raised concern about potential disruptions. Oil tankers are loading and unloading cargoes at Turkey’s ports and supplies are arriving in ships and pipelines from neighboring countries, an Energy Ministry official said Sunday, declining to be identified in line with ministry rules regarding comments to news media. President Recep Tayyip Erdogan ordered reprisals for the failed attempt to oust him.

“There are obviously concerns about the situation,” Ric Spooner, a chief market strategist at CMC Markets, said by phone from Sydney. “As it usually does in these circumstances, the market is looking through anything that doesn’t look like a clear and present threat for disruptions.”

Brent for September settlement gained as much as 34 cents to $47.95 a barrel on the London-based ICE Futures Europe exchange and was at $47.86 at 12:19 p.m. Hong Kong time. Prices climbed as high as $48.25 on Friday in the aftermath of the coup. The global benchmark crude traded at a $1.12 premium to the equivalent contract for West Texas Intermediate.

Major Chokepoint

WTI crude for August delivery increased 7 cents to $46.02 a barrel on the New York Mercantile Exchange. The contract closed 0.6 percent higher at $45.95 a barrel on Friday. Prices are up about 24 percent this year.

Oil price special

coverage




The Turkish Straits, including the Bosphorus and Dardanelles, are one of the world’s major chokepoints for seaborne crude, with about 2.9 million barrels of oil passing through daily in 2013, the latest year of available data from the U.S. Energy Information Administration. No cargoes have been halted since large tankers were barred for security reasons from sailing in the Bosphorus waterway near Istanbul for several hours on Saturday, a port agent said.

Turkey is also home to pipelines that transport crude and condensate from nations including Iraq and Azerbaijan to the port of Ceyhan, on the Mediterranean Sea in southern Turkey. BP Plc, operator of the Baku-Tbilisi-Ceyhan pipeline from Azerbaijan via Georgia, confirmed that oil was flowing uninterrupted.

“Even though it looks like Turkey has successfully put down the coup, what happens next is still an open question and is causing a bit of concern,” Angus Nicholson, a markets analyst at IG Ltd. in Melbourne, said by phone. “Global markets are also rallying and that’s a positive for oil prices.”

In Nigeria, Exxon Mobil Corp. declared a force majeure on Qua Iboe crude after “a system anomaly observed during a routine check of its loading facility,” the company said in an e-mailed statement Friday. Qua Iboe is the third Nigerian crude grade to be declared under force majeure currently, joining Brass River in May and Forcados in February, according to information from companies compiled by Bloomberg.

Oil Prices

Crude has declined more than 10 percent since hitting a 2016 peak in early June, stoking fears of another second-half slump. It was July that broke the back of last year’s bull-run, with oil plummeting 21 percent. The prospect of a repeat has drillers doing everything they can to raise cash, from selling stocks and bonds to adding fresh hedges.

“The producers have sold the hell out of this rally,” said Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania. “The companies that did survive, they’ve been hedging into this rally. And they’re counting their blessings.”




Hedging has become a critical cash lifeline for companies that have so far survived a bust that has claimed dozens of their competitors. Since the start of 2015, 85 North American oil and gas producers have gone bankrupt, according to law firm Haynes and Boone.

Producers increased bets on falling prices for a third consecutive week in the seven days ended July 12, according to data from the Commodity Futures Trading Commission. Short wagers rose by 8,566 futures and options combined, or 1.6 percent.

Drillers are also taking advantage of the rally to tap the capital markets. U.S. oil and gas producers have been selling shares at record speed, using the cash to repay debt or buy oil and gas prospects, bolstering the asset side of the balance sheet. So far this year, companies have raised more than $16 billion in equity, according to data compiled by Bloomberg.

U.S. weekly rig count climbs

The rigs are on the rise. Baker Hughes reported an increase in U.S. weekly rig count on Friday, both offshore and onshore. Canadian numbers are up as well. Worth noting, the numbers are down when compared to the same period last year.

BHI Rig Count: U.S. +7 to 447 rigs

U.S. Rig Count is up 7 rigs from last week to 447, with oil rigs up 6 to 357, gas rigs up 1 to 89, and miscellaneous rigs unchanged at 1.

U.S. Rig Count is down 410 rigs from last year’s count of 857, with oil rigs down 281, gas rigs down 129, and miscellaneous rigs unchanged at 1.

The U.S. Offshore Rig Count is 22, up 3 rigs from last week, and down 9 rigs year over year. BHI Rig Count: Canada +14 to 95 rigs

Canadian Rig Count is up 14 rigs from last week to 95, with oil rigs up 7 to 44, gas rigs up 7 to 50, and miscellaneous rigs unchanged at 1. Canadian Rig Count is down 97 rigs from last year’s count of 192, with oil rigs down 54, gas rigs down 44, and miscellaneous rigs up 1.




Oil Must Go to $40 and Stay There to Buy Russia Reforms at Last Bloomberg - Anna Andrianova

At an oil price of $40 or below, Russian President Vladimir Putin introduced a flat income tax, built a sovereign wealth fund and delivered speeches to the Bundestag in German.

When it was over $100, he fought two wars with neighbors and splashed over $40 billion on a Winter Olympics.

Brent crude at $40 is the key threshold for Russia, so low that institutional reforms become unavoidable but high enough to prevent a financial meltdown, according to a Bloomberg survey of economists. While more than a decade of booming revenue brought a $2.1 trillion energy windfall -- and with it prosperity the like of which Russia has never seen -- the economy hasn’t grown faster than 5 percent in eight years and has spent the last two in recession. The latest crisis, after oil prices crashed, set the stage for a long-overdue overhaul -- or almost did.

“When oil was at $30, there was some commotion, and when it’s near $50, those people who are making decisions calm down,” said Evgeny Gontmakher, chief economist at the Institute of Contemporary Development, whose board of trustees is headed by Prime Minister Dmitry Medvedev. “Starting real reforms is a risky business.”

While oil has partly recovered from the crash earlier this year, it’s traded between about $44 and $51 a barrel since early May. Analysts including BNP Paribas SA and JBC Energy GmbH warned prices may sink toward $40, due in part to seasonal demand weakness. Russia, which based this year’s budget on the price of $50 a barrel, needs oil at $82 to balance its budget, according to Finance Minister Anton Siluanov.

“Oil prices strengthening to current levels is good news and the question is where we go from here,” Tatiana Lysenko, a senior economist at S&P Global Ratings, said by phone.

Government policy has closely tracked the zigzags of the oil price since the Soviet Union began to rely on oil exports in the early 1970s. The boom years fed assertiveness abroad and at home,




from the invasion of Afghanistan in 1979 to the the arrest of former Yukos Oil Co. chief Mikhail Khodorkovsky almost a quarter century later.

When markets swooned, decision makers embraced domestic overhauls and opted for a mellower approach overseas, culminating in Mikhail Gorbachev’s perestroika of the mid-1980s and market-friendly policies of the 1990s.

“Whenever oil prices have been low, the government has tended to reform,” said Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow. “With oil prices dipping to 2004 lows, we think that the historical perspective might argue for a shift towards more liberal policy.”

The crisis has so far given little momentum to take such a turn. Russia has moved gingerly, tinkering with economic policy while sidelining calls for a broader overhaul. With public finances under pressure from falling oil prices, the central bank shifted to a free-floating exchange rate in 2014, while the Finance Ministry kept a tight rein on spending. The government also restarted privatization this month with its biggest divestment of a state asset in almost three years.

As oil prices rebounded, the Russian currency appreciated almost 14 percent against the dollar this year after a 20 percent loss in 2015, second only to Brazil’s real worldwide.

“A lot of changes have already happened but no steps forward and no proper reforms so far,” said Yevgeny Nadorshin, chief economist at PF Capital in Moscow.

Near Zero




While a parliamentary election looms this fall, followed by a vote in 2018 to select a president, dithering by political leaders may not be an option for much longer. Absent new growth drivers, even Putin now says the economy will stagnate near zero, a far cry from average gains of 7 percent during his first eight years in the Kremlin.

The International Monetary Fund last week called for improving Russia’s institutional and business environment, stressing in a report that “that structural reforms are indispensable to boost potential growth.”

Russia’s property rights, judicial independence and the burden of government regulation were all rated below the 100th spot among 140 nations in the World Economic Forum’s 2015-2016 Global Competitiveness Report.

While the case for giving the economy a facelift is ever stronger, authorities would rather focus on measures with “tangible fiscal results” and probably stop short of changes in key areas such as the legal system, according to BofA’s Osakovskiy. Former Finance Minister Alexei Kudrin, who’s now leading discussions on a new reform plan as an adviser to Putin, has said that boosting growth to 4 percent in the mid-term is only possible by cutting the state’s role in the economy, increasing the pension age and making the judicial and law-enforcement systems more independent.

“In order to conduct reforms, they first need to come to an agreement which way to go and that can take some time,” said Yaroslav Lissovolik, chief economist at the Eurasian Development Bank. “We can’t rule out that some reforms are even possible before 2018, but not painful reforms.”




NewBase Special Coverage

News Agencies News Release 18 July 2016

Highlights of IEA OIL Monthly Report – OMR by IEA

• Global oil supplies rose by 0.6 mb/d in June to 96 mb/d after outages curbed OPEC and non-OPEC supplies in May. World production was 750 kb/d below last year as higher OPEC output only partially offset non-OPEC declines. Non-OPEC supplies are set to drop by 0.9 mb/d in 2016, to 56.5 mb/d, before rising 0.2 mb/d in 2017.

• Robust European demand supported 2Q16 global demand growth at around 1.4 mb/d y-o-y, momentum that will be roughly matched through the year as a whole. A modest deceleration is foreseen in 2017, as growth eases to 1.3 mb/d taking average deliveries up to 97.4 mb/d.

• Crude oil prices eased from an early June peak above $52/bbl, and traded within a $45-$50/bbl range. Growing uncertainty over the global economy and a stronger dollar weighed, but the downside was limited by further declines in US production and inventories.




• OPEC crude output rose by 400 kb/d in June to an eight-year high of 33.21 mb/d, including newly re-joined Gabon. Saudi Arabia ramped up to a near-record rate of 10.45 mb/d and Nigerian flows partially recovered from rebel attacks. Middle East producers sustained record levels, building market share and pushing OPEC's total output 510 kb/d above a year ago.




• OECD commercial inventories built by 13.5 mb in May to end the month at a record 3 074 mb. Preliminary information for June suggests that OECD stocks added a further 0.9 mb while floating storage has continued to build, reaching its highest level since 2009.

• May global refinery throughput plunged by almost 1 mb/d from April and stood 1.5 mb/d lower year-on-year, as heavy outages took a toll in many regions. This lowered the 2Q16 estimate for global refinery intake, to 78.5 mb/d - the first y-o-y drop in three years. Our forecast for 3Q16 throughput is more steady at 80.95 mb/d.

Balancing Act ? Could It Tip Over?

After the drama we saw at the beginning of this year when prices were sliding daily, the fact that crude oil has in the past two months moved within a range in the high $40s/bbl should be a relief for some producers. For some time now this Report has signalled a return to balance as being the big picture direction in which the market is heading.

The adjustments to our data this month suggest that little has changed with the market showing an extraordinary transformation from a major surplus in 1Q16 to near-balance in 2Q16. In mid-summer 2016, although market balance is upon us, the existence of very high oil stocks is a threat to the recent stability of oil prices: in 1Q16 refinery runs growth was 60% higher than refined product demand growth.

Despite the regular upwards revisions to demand that we have seen in recent Reports there are signs that momentum is easing; and, although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.

With global refinery runs expected to fall by 0.8 mb/d in 2Q16 before surging by 2.4 mb/d in 3Q16, we may well see crude oil stocks fall back but there is a risk that, unless demand turns out to be stronger than we currently anticipate, products stocks could rise still further and threaten the whole price structure.

In China, for example, data for May suggests that year-on-year demand growth was only 130 kb/d, part of a recent trend of smaller increases. For the United States, estimated gasoline deliveries in April were up just 75 kb/d up on the year earlier and 410 kb/d below our expectations.

Somewhat unexpectedly, the saving grace for oil demand has been Europe where, in 2Q16 y-o-y growth reached a five-quarter high. This is unlikely to last, though, with the ongoing precariousness of the European economies now dealing with added uncertainty following the result of the UK referendum on membership of the European Union.

On the supply side of the balance, our forecasts for non-OPEC production have proved to be accurate so far in 2016. Non-OPEC production remains on course to fall by 0.9 mb/d this year before staging a modest recovery in 2017.

For low-cost Middle Eastern OPEC countries plus other regional producers, including Bahrain and Oman, production has grown steadily in recent years, with notable increases contributed by Iraq in 2015 and Iran in 2016. In the heady days when US shale production was moving upwards very fast it became fashionable to talk of lower reliance on traditional suppliers.

Our chart shows that in fact oil output from the region rose to a record high in June, with production above 31 mb/d for the third month running. As such, the Middle East's market share of global oil supplies rose to 35%, the highest since the late 1970s and an eloquent reminder that




even when US shale production does resume its growth, older producers will remain essential for oil markets.

Investment will also be important, as the IEA has regularly stated. Chevron's announcement that it is moving ahead with a $37 billion expansion of the Tengiz field in Kazakhstan is good news, but the fact that the project will partly utilise existing infrastructure is key to making it viable at today's oil prices.

There is still an ominous investment gap building up in the oil industry that might, depending on how quickly today's record high oil stocks are eroded, create the conditions for sharply higher prices over the medium term.

Our underlying message that the market is heading to balance remains on track, but the modest fall back in oil prices in recent days to closer to $45/bbl is a reminder that the road ahead is far from smooth.

C R E D I T : R E Z A / C O N T R I B U T O R




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Khaled Al Awadi is a UAE National with a total of 25 years of experience in the Oil & Gas sector. Currently working as Technical Affairs Specialist for Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy consultation for the GCC area via Hawk Energy Service as a UAE operations base , Most of the experience were spent as the Gas Operations Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility & gas compressor stations . Through the years, he has developed great

experiences in the designing & constructing of gas pipelines, gas metering & regulating stations and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation, operation & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences held in the UAE and Energy program broadcasted internationally, via GCC leading satellite Channels. NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE

NewBase 18 July 2016 K. Al Awadi


