Oil supply to swamp demand, squeeze OPEC in 2020, IEA says

Category : News

By Grant Smith on 6/14/2019

LONDON (Bloomberg) — Global oil supplies will increase far more than demand next year with the start of a host of new projects, putting further pressure on the OPEC cartel, the International Energy Agency said.

Even though growth in world oil demand will accelerate to 1.4 MMbpd in 2020, it will be eclipsed by a 2.3-MMbpd surge in output, as the ongoing boom in U.S. shale is augmented by new fields in Brazil, Norway and Canada.

As a result, the world will need significantly less crude from the Organization of Petroleum Exporting Countries, the IEA, which advises most major economies, predicted in its monthly report on Friday. Though Saudi Arabia and its allies have been deliberately cutting supply this year, and political crises have crushed exports from Venezuela and Iran, OPEC is pumping much more oil than will be required in 2020.

“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock,” said the Paris-based IEA. “This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices.”

Oil in New York moved into a bear market last week and Brent sunk below $60/bbl in London for the first time since January on concern that a slowdown in the global economy — exacerbated by the ongoing trade war between the U.S. and China — will hurt fuel consumption around the world. OPEC will meet in the coming weeks to decide its response.

The IEA report showed that the fears about demand are coming to fruition.

Global oil demand grew by 300,000 bpd during the first quarter, the weakest since 2011, as developing nations only just offset a drop in developed economies. The agency lowered growth estimates for 2019 as a whole for a second consecutive month, by 100,000 bpd.

For the rest of this year and into 2020, however, the IEA expects that demand will pick up markedly, averaging 1.2% in 2019 as a whole and 1.4% next year. That rebound assumes some progress in the trade stand-off between the U.S. and China, it said.

Even with its optimistic outlook for the economy, the agency sees growth in oil consumption being drowned by new supplies next year.

Fracing boom

About half of the supply expansion will be provided by the U.S., which has been transformed by the fracing boom in Texas and North Dakota into the world’s biggest crude producer. But unlike in previous years, growth in America is being supplemented by significant gains elsewhere, such as in Norway and Brazil.

That may make for painful reading for the Saudis and other OPEC nations, who together pump 40% of the world’s oil.

The demand for their crude will slump for a third consecutive year, to 29.3 MMbpd. That’s about 650,000 bpd less than the 14 OPEC nations pumped last month, when their supply was already significantly reduced as a result of a pact to restrain output, as well as by U.S. sanctions on Venezuela and Iran. Iran’s production fell to 2.4 MMbpd, the lowest since the 1980s.

The organization and its allies are due to meet in the next few weeks to decide whether to keep going with their agreement to reduce output. Saudi Arabia, OPEC’s biggest member, has recommended persevering.

If OPEC reduces output next year to the levels the IEA considers necessary, production would be the lowest since 2003 — suggesting that its strategy to support oil markets has backfired.

Persian Gulf on edge as conflicting accounts of tanker attacks swirl

Category : News

By Margaret Talev, Stephen Stapczynski and Golnar Motevalli on 6/14/2019

WASHINGTON D.C., SINGAPORE and TEHRAN (Bloomberg) –The U.S. political and military standoff with Iran hardened as conflicting narratives about a pair of attacks on tankers near the Persian Gulf stoked regional tensions and raised the risk of a miscalculation.

With U.S.-Iranian relations already at a low point, American officials released images they said showed that Iran was involved in a mine blast that forced the evacuation of a tanker near the entrance to the Gulf on Thursday. Tehran denied involvement, and the owner of the ship refuted the U.S. assertion that the blast came from a mine, adding to the confusion over what happened and who was responsible.

While both sides have said they’re not looking for war, events have taken on a momentum of their own with U.S. and Iranian forces bolstering their military presence. Even so, investors took the risk in their stride. Brent oil futures in London traded slightly lower on Friday at $61.15/bbl, set for a weekly decline as concern about faltering demand outweighed those of Middle East tensions.

“I don’t think there’s any conclusive evidence that Iran was to blame,” Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London, said on Bloomberg Television. “Clearly political tensions are ratcheting higher,” she said, while cautioning that other groups in the region could also have carried out the attacks. “We just don’t have enough proof right now,” said Sen.

In a press statement on Thursday, Secretary of State Mike Pompeo ran through a list of recent incidents the U.S. has pinned on Iran, from previous tanker blasts to missiles fired at a Saudi airport to a car bomb in Afghanistan.

“This is only the latest in a series of attacks instigated by the Islamic Republic of Iran and its surrogates against American and allied interests,” Pompeo said. He referred to an Iranian threat in April to interrupt the flow of oil through the Strait of Hormuz, the only sea passage from the Persian Gulf to open ocean and one of the world’s most important energy-transit chokepoints, and said that Iran was “now executing on that promise.”

Senior Trump administration officials said earlier Thursday that the U.S. was considering a number of responses, including the possibility of providing naval escorts to commercial ships traveling through the Strait of Hormuz. An American military response hasn’t been ruled out, they said, and all options are on the table.

Pompeo also said that U.S. efforts backed by President Donald Trump to get Iran to negotiate have been rebuffed by Iran’s leadership. Japanese Prime Minister Shinzo Abe was on an “historic” trip to convince Iran to de-escalate and enter into talks, but was rejected by Iran’s supreme leader, who said he had no response to Trump.

Iran’s President Hassan Rouhani threw blame for the increased tensions at the U.S., saying Trump was using America’s “economic, financial and military capabilities as tools” in order to “destroy international rules and structures,” according to the state-run Islamic Republic News Agency on Friday.

In an unusual step, U.S. Central Command released video footage of what it said was an Islamic Revolutionary Guard Corps patrol boat removing an unexploded mine from the Kokuka Courageous tanker after another mine had detonated and damaged it. The blurry footage showing a small boat pulling up next to the tanker and crew removing an object from its hull was taken by U.S. aircraft in the region, according to a tweet by the U.S. Navy.

But in remarks to Japanese media, the president of the company that owns the ship said the vessel wasn’t damaged by a mine. “A mine doesn’t damage a ship above sea level,” said Yutaka Katada, president of Kokuka Sangyo, the owner and operator of the vessel. “We aren’t sure exactly what hit, but it was something flying towards the ship,” he said.

“It is the assessment of the U.S. government that Iran is responsible for today’s attacks in the Gulf of Oman….”@StateDept @SecPompeo pic.

The tanker was carrying 225,000 tons of methanol from Saudi Arabia to Asia and was flying a Panama flag. It was attacked twice in incidents three hours apart, forcing the crew to evacuate. It’s unlikely to sink or lose fuel or goods onboard, but the vessel will need to be repaired, Katada said. The U.S. said the ship’s crew was rescued by a Dutch tug and later taken aboard the USS Bainbridge.

The crew of a second damaged tanker, the Norwegian-owned Front Altair, was put aboard a Revolutionary Guards Corp vessel, the U.S. said. That ship was sailing in international waters when it was damaged by an explosion, and that the episode was being treated as a “hostile attack,” its manager said. The ship had loaded a cargo of naphtha in Abu Dhabi and was bound for Taiwan, a company official said.

Iran’s Foreign Minister Mohammad Javad Zarif suggested that Iran’s enemies may have been behind the attacks and reiterated calls for a regional dialogue.

“Suspicious doesn’t begin to describe what likely transpired,” he wrote on Twitter on Thursday. That comment was mocked by Pompeo, who described it as “sardonic” and said that while Zarif might have thought it was funny, no one else in the world did.

Japan’s Abe was in Tehran meeting officials in what was seen as an effort to help ease tensions between the U.S. and Iran. Pompeo said the attack was tantamount to Iran insulting Japan as Abe was trying to seek peace.

The episode came a day after Iran-backed Houthi rebels in Yemen fired a missile at a Saudi airport, wounding 26 people.

The prospects of conflict have heightened since the administration tightened its sanctions on Iranian oil exports in early May, following Trump’s decision a year ago to withdraw from the 2015 Iran nuclear accord.

Schulich buys 5% of MEG Energy despite Canadian energy concerns

Category : News

By Doug Alexander and Michael Bellusci on 6/14/2019

TORONTO (Bloomberg) –Canadian investor Seymour Schulich said he bought about 5% of MEG Energy for the first time “in the last couple of weeks,” underscoring his bullish view on energy despite his concerns that Canada is squandering its resource legacy.

“We’ve got a window here and it’s somewhere between 10 and 25 years,” Schulich, 79, said Thursday in an interview in Toronto. “If we don’t exploit the legacy this country has been given as the third-largest reserves of oil-and-gas in the world and build schools, hospitals, infrastructure — if we don’t do that, we’re going to lose out.”

Shares of MEG Energy climbed 12% to C$5.12 in Toronto Thursday after Schulich disclosed he had initiated a “big new investment” in the Calgary-based company during an interview with BNN Bloomberg TV. That would make his stake worth about C$75 million ($56 million).

Schulich is critical of the leadership under Prime Minister Justin Trudeau, accusing his Liberal Party-led government of “destroying” an industry that amounts to a big chunk of the economy.

“We’ve put up a giant ‘Not open for business’ sign in this country,” Schulich said. “And people are paying attention to it. The Americans have left, the Europeans have left. Even our own companies are leaving and setting up shop in the United States.”

Still Optimistic

Still, Schulich says he’s “optimistic” as an investor despite the political landscape. Canada’s resource legacy is such that all that needs to be done is to build pipelines “to get things moving again” and revive our fortunes within a couple years after that, he said.

“If you saw the movie ‘The Big Short,’ they were optimistic that they were right — they didn’t know when,” he said. “I’m convinced also that I’m right, but I don’t know when.”

The markets are right for investing in oil right now due to the surplus of supply of 1% to 2%, Schulich said.

“It’s not going to take very much to move the price of oil dramatically upward,” he said. “When the differential is so small, something is going to happen to close it and the price is going to go up — and that’s why I’m back buying oil, but I’m not buying gas particularly.”

Schulich, through his foundation and his Nevada Capital, owns about 30% of Western Canadian oil-and-gas driller Pengrowth Energy, according to data compiled by Bloomberg. He’s been in his latest position for “about four years” and has an average cost of about C$1.10 — versus C$3.25 on his initial investment. The stock traded at 49 Canadian cents in Toronto.

He was an investor in the company before, when it was an oil-and-gas trust run under founder James Kinnear, who retired in 2009.

Schulich, co-founder of Franco-Nevada Mining, said he also invests in Royal Dutch Shell and an 8% position in the San Juan Basin Royalty Trust, which he’s held since 1992. He was once a top holder of Birchcliff Energy until he sold down his position in 2017 “primarily because there’s too much gas.”

Outside of energy, Schulich said he’s “bullish” on gold: he holds physical gold as well as a “big position” in Barrick Gold, which was trading at C$18.46.

“I think Barrick will be a C$50 or C$100 stock in due course,” Schulich said.