Weekly Oil Price ReviewViewBoth crude contracts initially fell Monday in response to Eurozone bank stress tests results and a $15 slash in 2015 oil price forecasts by Goldman Sachs; the December Nymex WTI crude contract lost only a penny, although had an intraday low of $79.44/bbl, while December Brent futures lost $0.30/bbl. These movements lowered the premium of Brent over WTI to $4.83/bbl, which analysts argue is an inaccurate representation of the differences between the two in terms of quality and transportation costs and could therefore encourage greater US East Coast crude imports, as poor pipeline accessibility and expensive crude-by-rail shipments dampen WTI shipments the region could exploit this narrowed spread. Tuesday saw little activity as traders were waiting for data released later in the week, however the US dollar index, which values the dollar against a basket of foreign currencies, slide to 85.40 from a high of 86.60 at the beginning of October; many view a weakening US dollar providing support for crude prices. On Wednesday, support was provided by the EIA reporting a lower than expected two million barrel increase in crude stocks, inciting WTI to gain $0.78/bbl, and an encouraging statement of market fundamentals from the OPEC Secretary-General which partially pushed Brent up $1.09/bbl. However, these gains were reversed on Thursday with Brent losing $0.88/bbl and WTI losing $1.08/bbl as the US dollar strengthened on the back of the Federal Reserve announcing the end of its six-year-long quantitative easing program. Overall, the opening and closing positions from Monday to Thursday were little changed; Brent gained $0.11/bbl to close at $86.24/bbl while WTI also gained $0.11/bbl to close at $81.12/bbl.
Saudi Arabian Yasref refinery to start shipments in DecemberViewThe 400,000 bpd Yasref Saudi Arabian-Chinese refinery will begin shipments of off-specification high sulphur gasoil in December, according to an industry source. The Yasref refinery underwent trial runs in September and originally planned to begin shipments in November, however, due to some commissioning issues commonly faced by new refineries, the refinery’s first exports have been delayed until December. Initially, the refinery will export some naphtha as it works to stabilize its gasoline-making units and will eventually look to Europe and East Africa for diesel shipments currently targeted to start in the first quarter of 2015.
Fall in Russian coastal terminal export volumesViewTransneft, the Russian oil pipeline monopoly, has reported lower crude oil shipments in November from the country’s key export terminals on the Pacific coast and the Baltic and Black Seas. Exports from the East Siberia-Pacific Ocean (ESPO) pipeline from the Pacific port of Kozmino will drop by 79,000 bpd to 489,000 bpd this November, exports at Kozmino were higher than usual in September and October as Russian producers received extra allocations on the pipeline due to the spare capacity provided by a temporary halt of a refinery. The Black sea port of Novorossiysk will fall by 44,000 bpd to 562,000 bpd next month, while shipments from the Baltic sea ports of Primorsk and Ust-Luga will decline by a total of 57,000 bpd to 1.32 million bpd, with Primorsk falling 45,000 bpd to 806,000 bpd. This fall in Primorsk shipments is in line with Transneft’s plan to lighten the burden on the Primorsk outlet and use other premium outlets where there is unused capacity.
China’s soybean crush margin recoveredViewThe US soybean export season this year started earlier this month and now the export pace is believed to be approaching to the peak level. According to USDA, US exported 1.9 million tonnes of soybean in the middle week of this month. On the other hand, Reuters reported that Chinese buyers have been booking in excess of 2 million tonnes of soybeans in each of the past two weeks. One major reason behind the current strong purchasing pattern is the recovery of the soybean crush margin in China. This margin has been remaining below zero during most time of this year, however in the second half of this month it finally turned back to positive. This contributes to the recovery of the Panamax spot market.
Rising Iraqi and Kurdish outputViewDespite the ISIS conflict, exports from Iraq’s southern terminals are slightly up this month averaging at 2.55 million bpd compared to September and are fast approaching May’s average of 2.58 million bpd, the highest level since at least 2003. Iraq’s northern terminals have been closed since March, however Iraq’s northwestern Kurdistan region exported an average of 180,000 bpd in September independently of Baghdad via Turkey’s Ceyhan port. Following current upgrade work on the Kurdish pipeline to Ceyhan, the capacity will be raised from the current 280,000 bpd to 400,000 bpd by the end of 2014 and further upgrade work should eventually boost total capacity of the pipeline to 700,000 bpd. Baghdad vehemently argues that independent Kurdish shipments are not allowed under the Iraqi constitution, but, according to Turkish officials, so far a total of 19.2 million bpd have been exported via Ceyhan with approximately $400 million subsequently deposited with Turkish state lender Halkbank.
Venezuela imports Urals crudeViewState-owned Venezuelan PdV has purchased two million barrels of Russian medium sour Urals crude to arrive next month. PdV will also import a further two million barrels of Algerian light sweet Saharan Blend next month, this is in addition to a two million barrel shipment of Algerian light sweet crude just arrived at Jose port in north western Venezuela on the 26th of October. The two cargoes of Urals crude will arrive in November at PdV’s 335,000 bpd Isla refinery on Curacao to help produce lubricants. In place of condensate or naphtha, PdV will use both crude imports as diluents for its extra-heavy Orinoco crude production.
Coal inventories at Chinese power plants continue to riseViewThe coal inventories at China’s coal-fired power plants has been increasing continuously since the second half of August this year. Last week the total stocks at China’s major utilities reached almost 94 million tonnes, which are available for 32 days of consumption. At the beginning of this year the coal inventories were only able to support 20 days of consumption. This year’s abundant supply of hydro power combined with a weak energy consumption season this summer contributed to the surge of the coal stocks. China’s domestic coal prices also dropped sharply during Q3 this year, which squeezed out the profit margin of most local coal miners. Along with the recent supportive policies, we have been seeing a mild recovery of China’s domestic coal prices, and therefore the enlarging of the price gap between FOB and CIF prices. However the current high inventory levels at utilities may reduce the chance for any restocking activity later this year.
Weekly Oil Price ReviewViewBoth crude contracts had a week of ups and downs as the market reacted heavily to both positive and negative reports in the search for a technical floor for the two benchmarks. On the back of a two-day gain for both Brent and WTI, prices fell Monday as the market readjusted to reflect continued concern of the demand-supply imbalance; December Brent futures fell $0.76/bbl while the November Nymex WTI crude fell $0.04/bbl, but the more traded December contract lost $0.15/bbl. On Tuesday November WTI gained $0.10/bbl and Brent gained $0.82/bbl which was possibly motivated by a rise in implied Chinese oil demand in September, although analysts reasoned that the increased Chinese demand is a result of buyers taking advantage of cheap prices for the use of stockpiling. Both analysts and traders contend that the big losses of the past couple of weeks have now made the contracts vulnerable to frequent swings in price. The new front-month December WTI contract lost $1.97/bbl to close just above the $80 mark as the EIA released data on Wednesday that 7.1 million barrels has been added to U.S. crude oil inventories, following an even larger build of 8.9 million barrels for the previous week, this jump in inventories is due to a fall of roughly 480,000 bpd of refinery crude demand as fall refinery maintenance continues and utilization rates stand at just 86.7%. Brent fell $1.51/bbl Wednesday, but climbed $2.12/bbl higher Thursday alongside reports citing a decline in Saudi Arabian crude exports to an average of 6.6 million bpd in August and September compared to an average of 7.7 million bpd in the second half of 2013, this drop in exports, however, is not a result of a loss in production but greater domestic consumption. As the week came to a close, December WTI gained $1.57/bbl as analysts advised that the technical indicators for the two contracts still point to lower prices. Overall, between Monday and Thursday WTI lost $0.77/bbl to close at $82.09/bbl and Brent gained $0.17/bbl to close at $86.33/bbl.
Dim prospects for Russian crude productionViewDespite Moscow’s readiness to provide state support to sanctioned energy firms, there are views that Russian crude output could begin to fall as soon as 2015. A Russian oil industry member has projected that by 2017 crude production could fall between roughly 50,000 – 150,000 bpd, from crude oil and condensate production levels of 10.54 million bpd of last year, as a result of underinvestment and fewer drilled wells. Furthermore, the fall in crude prices is clouding the prospects of shale oil exploration and production in Russia’s vast Bazehenov formations in Western Siberia.
China's crude imports and refining throughput riseViewChina’s September refining crude throughput rose 9.1% compared to this time last year, but this increase did not match the surge in Chinese crude imports for the month. September crude imports jumped by approximately 780,000 bpd from August, while September refining throughput rose 470,000 bpd by comparison reaching 10.26 million bpd. This rise in Chinese refining runs this past month occurred in spite of an estimated 470,000 bpd of refining capacity that began turnarounds in September in addition to a large portion of the 465,000 bpd of refining capacity that began turnarounds in August and remained offline for part of September.