Oil price rally stalls as OPEC+ plans to restore crude production

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Category : News , Oil Prices

By Low De Wei and Alex Longley on 7/13/2020

SINGAPORE (Bloomberg) –Oil edged lower ahead of an OPEC+ meeting this week at which the group may announce plans to start tapering historic production cuts even as the coronavirus surges unabated in many parts of the world.

Futures in New York fell below $40 a barrel. The producer bloc will review the state of the market at an online meeting on Wednesday amid expectations it will soon begin unwinding the output curbs that have helped haul oil back from its plunge in April. Russia’s top oil companies are preparing to increase output next month in the absence of other guidance from the Energy Ministry, according to two people from the industry who spoke on condition of anonymity.

The increase in supply would come as the U.S. struggles to control the coronavirus outbreak, clouding the demand outlook. Similarly, in India, the world’s fastest growing energy consumer, more than 50,000 new cases were reported over the weekend.

“It seems like OPEC+ will stick with the plan of a bit more production in August,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “With record high inventories it is understandable that the market is not all that positive about an additional 2 million barrels a day or so of supply.”

Prices:

  • West Texas Intermediate for August delivery fell 1.9% to $39.79 a barrel as of 10:23 a.m. in London
  • Brent for September settlement dropped 1.6% to $42.55

The Joint Ministerial Monitoring Committee, the panel that reviews OPEC+’s progress, will consider whether the alliance should keep 9.6 million barrels of daily output off the market for another month, or taper the cutback to 7.7 million barrels as originally planned. Members are leaning toward the latter option, according to several national delegates who asked not to be identified.

Saudi Arabia, meanwhile, gave at least five Asian customers less August-loading crude than they had sought, said people with knowledge of the companies’ procurement. Six other Asian buyers received full allocations, while at least two Indian customers that sought fewer supplies than contracted got roughly what they asked for.

“The speed of recovery of oil prices will be a function of how fast the global pandemic situation can be under control and how long OPEC+ will sustain production cuts,” Bank of China International analysts including Xiao Fu wrote in a note to clients.

Other oil-market news

  • Shuttered output is edging back in some parts of America, with the Bakken region in North Dakota adding 45,000 barrels a day in a two week period.
  • Libya’s oil industry was thrown into deeper confusion with military commander Khalifa Haftar, a key player in the nation’s civil war, warning he would continue to blockade ports and fields, barely a day after the state energy company said exports could resume.
  • Saudi Arabian air defenses have intercepted and shot down four ballistic missiles and seven drones laden with explosives launched by the Shiite Houthi rebels in Yemen, state-run SPA reported.

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Saudi energy minister phones Iraqi counterpart, commends OPEC+ compliance

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Category : News , Oil Prices

By James Herron on 7/13/2020

LONDON (Bloomberg) –Saudi Arabia commended Iraq for implementing almost all of its oil production cuts last month, another sign that the disputes over cheating that dominated recent meetings are being resolved.

Saudi Energy Minister Prince Abdulaziz Bin Salman spoke by phone with his Iraqi counterpart Ihsan Abdul Jabbar Ismail, according to state-run Saudi Press Agency. Both men reaffirmed their commitment to the OPEC+ deal and the prince expressed satisfaction with Baghdad’s improved compliance with its output target.

Iraq implemented almost 90% of its pledged supply curbs in June and would reach full compliance at the beginning of August, according to the statement published by SPA.

Ministers from the Organization of Petroleum Exporting Countries and its allies will hold a video conference later this week to review the deal, with delegates suggesting that they will proceed with the plan to begin tapering the historic output reductions in August.

Iraq and several other members of the group have promised additional production curbs from July to September to make up failing to hit their targets in May. The figures in Monday’s statement suggest that Baghdad will have to deepen those reductions to compensate for also falling short in June and July.

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Exxon resumes drilling offshore Guyana amid travel bans and political drama

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Category : Drilling , News

By Peter Millard and Kevin Crowley on 7/13/2020

RIO DE JANEIRO (Bloomberg) –Exxon Mobil resumed drilling in Guyana last month, underscoring its dedication to the offshore hotspot despite the oil price crash and a messy turn in local politics.

Two of Exxon’s four drillships went back to work, according to data published Friday by Baker Hughes Co. The company later confirmed that the Stena Carron and Noble Tom Madden vessels returned to full operations last month. The rigs had been shut when the country of less than a million closed its borders after the pandemic hit South America.

Guyana is one of the major exploration successes for a company that has come under criticism for how it manages capital. Its oil and natural gas unit took a hit of as much as $3.1 billion in the second quarter due to the pandemic-induced price collapse, it said July 2.

“Travel restrictions have impacted our ability to move workers into Guyana and will impact our ability to maintain normal operations offshore,” Exxon said in an emailed statement late Friday.

The oil major “will also adjust the pace of our development projects and exploration activities” given the plunge in oil prices, but still plans to pursue “key exploration opportunities,” it said.

While Exxon is overcoming operational difficulties in the South American country, a political standoff is delaying approval of a $6 billion expansion. The 220,000 barrel-a-day Payara project was slated to start production in 2023, and Exxon and its partner Hess Corp. have already said it could be delayed by up to a year.

Guyana President David Granger is challenging a March 2 election that handed the opposition a narrow victory, even after a recount and international pressure to step aside. A prolonged legal battle is in store after he dismissed on Wednesday a Caribbean Court of Justice decision that favors the opposition.

“Having to sit on their hands because of political developments is a problem,” said Schreiner Parker, the vice president for Latin America at Rystad Energy, a consultancy. “This is a headache and it is causing delays, and will push sanctioning to the right.”

Apart from drilling interruption, repairs to Exxon’s first production vessel in Guyana constrained output in the second quarter and forced it to flare natural gas, postponing plans to reach the unit’s peak production of 120,000 barrels a day. Repairs were delayed because specialist technicians were held up by Covid-19 travel restrictions, Exxon said.

Prolonged political uncertainty has drawn even more attention to a region where failed-state Venezuela is a growing geopolitical disaster, and neighboring Trinidad and Tobago is suffering from the downturn in oil and natural gas prices. In Guyana, Granger lost a vote of no confidence in 2018 but managed to delay an election until this year.

“The dispute in Guyana is clearly over who controls the oil money,” said Jed Baily, a director at consultancy Energy Narrative. “It’s classic resource curse type material.”

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As the U.S. drilling decline continues, Canada’s offshore industry puts Ottawa on the spot

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Category : News , Oil Prices

7/12/2020

World Oil Editor-in-Chief Kurt Abraham and Digital Editor Cameron Wallace review new drilling rig count numbers that look like they need to get a little worse before they get better; take a look at now Canada’s offshore Newfoundland & Labrador trade association, Noia, is offering a textbook example of how to push for government support; review the latest OPEC+ compliance work, and what could add new risk to oil prices; and discuss how the Marcellus shale recovery could meet the same fate as the Bakken, thanks once again to issues with pipelines.

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OPEC+ preps for next challenge – how and when to restore oil output

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Category : News , Oil Prices

By Grant Smith and Javier Blas on 7/12/2020

LONDON (Bloomberg) –Saudi Oil Minister Prince Abdulaziz bin Salman likes the idea of OPEC+ acting as the central bank of oil. And he expresses admiration for Alan Greenspan, former chairman of the U.S. Federal Reserve.

The challenge now confronting the oil producers’ club is one that’s all too familiar to the Fed: how to avoid a “taper tantrum,” the market panic that ensued when the institution proposed tightening monetary policy in 2013.

Having successfully doubled crude prices over the past few months through unprecedented output cuts, the OPEC+ alliance led by the Saudis and Russia is poised to begin unwinding these stimulus measures. As fuel demand recovers with the lifting of coronavirus lockdowns, the producers are about to open the taps a little.

But as Greenspan’s successors discovered seven years ago, taking away the punch bowl carries its own risks.

A second wave of the pandemic threatens another slump in oil consumption, while the billion-barrel mountain of inventories that piled up during the first outbreak still looms. If OPEC+ increases supply just as the market falters then prices could crash once again.

“When they look at prices over the quarter, when they look at green shoots of demand pick-up, I think they feel good,” said Helima Croft, head of commodity strategy at RBC Capital Markets LLC. “I do think they are cognizant though of some of the potential clouds on the horizon.”

It’s a balancing act that Prince Abdulaziz and his counterparts must weigh on July 15, when they hold an online meeting of the Joint Ministerial Monitoring Committee, the panel that reviews OPEC+’s progress.

Easing the Cuts

The JMMC will consider whether the 23-nation alliance should keep 9.6 million barrels of daily output off the market for another month, or restore some supplies as originally planned, tapering the cutback to 7.7 million barrels.

As the demand recovery gains traction, members are leaning toward the latter option, according to several national delegates who asked not to be identified. Shipping schedules for August are already being set, so the course is more or less locked in, one said.

In Russia, the most influential non-OPEC member of the alliance, major oil companies are preparing to increase production next month in the absence of other guidance from the Energy Ministry, according to two people from the industry who spoke on condition of anonymity.

Russian Energy Minister Alexander Novak said on July 2 that no position on an extension had been taken yet, but stressed that it’s better if OPEC+ sticks to its previous decisions.

OPEC+ can go ahead with the designated increase without inundating the market, said Bob McNally, founder of consultant Rapidan Energy Group and a former White House official. Global demand will rebound by 18% this quarter to 95.7 million barrels a day as economic activity resumes, he predicts. That will whittle away inventories at a brisk clip of 5.6 million barrels a day.

“Our balances show hefty deficits in the third and fourth quarters, even with a tapering,” McNally said. “I think the market will handle it pretty well.”

Fragile Market

Yet the strategy is not without risks.

While oil prices have recovered to $43 a barrel in London, from a two-decade low of $15.98 in late April, sentiment in the market remains fragile.

The acceleration of the pandemic in the U.S., where infections hit a record last week, and its re-emergence in Asia is “casting a shadow over the outlook,” the International Energy Agency warned in a report on Friday. The Paris-based agency advises major economies on energy policy.

There’s also still a price discount on prompt crude futures — known as a contango — in the U.S. and Europe, suggesting the wider market hasn’t yet tightened. Crude inventories in the U.S. and China are near record levels, government and satellite data show.

“The kind of recovery that people would have expected maybe by now has not materialized,” said Mohammad Darwazah, an analyst at Medley Global Advisors. “There’s no doubt the consensus is we will get a tightening of the market, we’re just not quite there yet.”

As a result, Riyadh is expected to insist that if output is restored, countries abide by their mandated limits — and that exporters who haven’t yet made their share of the cutbacks atone for it.

Falling in Line

Iraq, Nigeria, Kazakhstan and Angola are among laggards who have promised “compensation cuts” over the next few months to make up for cheating in May, which equate to about 420,000 barrels a day each month. That should offset some of the group’s scheduled 2 million-barrel surge, and the JMMC could impose further reparations for overproduction in June.

How far the likes of Baghdad and Lagos, which have a poor track record of adhering to OPEC+ agreements, go in their atonement is debatable, but Prince Abdulaziz has scored a victory in pressing them to deliver a surprisingly strong performance last month. He is unlikely to relax his vigilance when the producers gather on Wednesday.

“While relieved and satisfied so far, ministers realize they are not out of the woods yet,” Rapidan’s McNally said. “Compliance is the No. 1 priority.”

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Eni taps Weatherford for four-year downhole safety valve program

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Category : News , Production

7/9/2020

HOUSTON – Weatherford International has been awarded an exclusive four-year contract with Eni S.p.A. to provide a minimum of 30 Non-Umbilical Downhole Deployment Valves (NU-DDV) that will be deployed in Eni’s critical wells, improving their operational safety and reservoir performance.

“This award is the result of two years of R&D collaboration with Eni to launch a downhole casing isolation valve with RFID (Radio Frequency Identification Device),” said Dean Bell, President, Drilling, Evaluation and Intervention for Weatherford. “The goal was to develop an innovative solution capable of providing an independent downhole safety barrier to supplement the conventional barriers already in place, assuring control of unwanted formation influx while tripping.” 

During MPD or UBD applications, the NU-DDV addresses operators’ need to improve process safety by mechanically isolating the surface from the reservoir during tripping, thereby eliminating the need to kill the well. The RFID-enabled valve eliminates external control line and clamping operations, thus providing increased system reliability, decreased installation time and removal of personnel from the red zone. This NU-DDV also eliminates swabbing effects and reduces tripping time for improved operational efficiency.

Bell added, “This contract aligns with both the Weatherford and Eni pursuit of continuous improvement in operational safety and environmental performance across the start-to-finish drilling and completion process.”

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OPEC+ cheating crackdown continues as Angola commits to cuts

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Category : News , Oil Prices

By Grant Smith and Javier Blas on 7/9/2020

LONDON (Bloomberg) – OPEC+ is another step closer to addressing the cheating that has dogged the cartel since its inception.

Three weeks after a crackdown on members of the oil coalition lagging in their delivery of promised oil output cuts, the last main straggler has given assurances that satisfy the group’s leadership.

Angola sent a new letter to OPEC’s president committing to full compliance with its output target, as well as additional cutbacks in compensation for earlier cheating, according to a delegate who asked not to be identified.

While the Organization of Petroleum Exporting Countries and its allies estimate that they made 87% of a record 9.7 million barrels a day output reduction when the deal was launched in May, group leaders Saudi Arabia and Russia are insisting on full compliance. The alliance is tightening supply to offset the demand hit from the coronavirus crisis.

Together, the OPEC+ cheats have agreed to implement 1.26 million barrels a day of compensatory cuts, spread out over the next few months.

Iraq, Nigeria and Kazakhstan — the biggest laggards — promptly provided details following the latest meeting in June. Angola, however, subsequently backtracked on its promise, seeking to defer its compensation cutbacks until October.

In a letter sent last week by Angolan oil minister Diamantino Pedro Azevedo to newly appointed Algerian Energy Minister Abdelmajid Attar — who this year holds OPEC’s rotating presidency — only pledged the country’s “best efforts,” failing to placate OPEC’s leadership.

The follow-up correspondence this week, combined with signs that Luanda has cut loading programs, has assuaged concerns about Angola’s commitment, another delegate said.

The assurances from Angola, plus data showing other lagging countries implemented a larger share of their cuts in June than May, suggest the issue of compliance will be less contentious than recent OPEC+ meetings.

Angola, Iraq and Nigeria collectively pumped 240,000 barrels a day above their targets last month, according to preliminary data used by OPEC, down from an over-production of 853,000 barrels a day in May. The errant nations could be asked to make additional reparations for the excess June output when an OPEC+ monitoring committee meets next week.

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