Saudi Arabia shuts down offshore Khafji fieldViewCiting “environmental reasons”, Saudi Arabia has shut down production at their offshore site at the shared Neutral Zone according to several Kuwaiti officials. Saudi Arabia will bring production down to nil from recent levels of over 200,000 bpd at the offshore Khafji field; Kuwait and Saudi Arabia share the Neutral Zone which, with inclusion of potential output of almost 300,000 bpd from the Khafji field, can produce up to 500,000 bpd. The two countries have been in disagreement over how to proceed with the next phase of the offshore development. The shutdown of the Khafji field will leave only the onshore portion producing and will thus lower output from the Neutral Zone to approximately 200,000 bpd until the disagreement is resolved.
Continued power struggles heighten Libyan oil industry uncertaintyViewIn response to the rival self-proclaimed Tripoli-based government issuing their own oil policies last week, Libyan Prime Minister Abdullah al-Thinni insisted on Friday that his internationally recognised government retains control of the country’s oil revenues which stem from a current national oil output of more than 800,000 bpd. In August, the Dawn of Libya, an umbrella organisation of armed groups from the western city of Misrata, ousted al-Thinni’s government from Tripoli and have since established their own rival parliament and government which effectively controls areas of western and central Libya and has taken control of a number of ministries. This development, in conjunction with the rival government installing their own oil minister and controlling the website of the National Oil Corp., has brought renewed concern over the stability of the country’s oil industry and volatile production levels.
Dip in Iranian crude exports to South KoreaViewIranian crude oil exports to South Korea declined 7% in the first nine months of 2014, averaging at 128,876 bpd. The Joint Plan of Action permits Iran to export between 1 million and 1.1 million bpd of crude oil provided that they suspend their higher-grade uranium enrichment program. South Korea is a very significant importer of Iranian crude as Asia’s fourth largest economy, yet in September Iran exported approximately 136,000 bpd of oil to South Korea while last year that figure stood at almost 140,000 bpd.
India’s coal inventory lowest in 25 yearsViewWhile China’s coal demand outlook in the current quarter looks bleak due to the recent domestic regulations and import tax, India’s coal demand in the coming months has shown decent potentials. According to India’s Central Electricity Authority (CEA), the coal inventories at India’s 103 coal-based utilities have dropped to merely 7.2 million tonnes, which is the lowest level in 25 years. Among the 103 power plants, 61 see their coal stocks less than 7 days of consumption. Given that this year’s monsoon season is already over, some local players blame Coal India and the weather conditions. Coal India has again been unable to meet its production target during this year. On the other hand, Cyclone Hudhud made its landfall in East Coast India (Visakhapatnam) last weekend and it has caused massive destruction. It is a matter of time for this cyclone to come to an end, and then India’s coal demand will likely be fully released into the market.
Closure of Kurnell refinery boosts Australian demandViewThe 135,000 bpd Kurnell refinery in south-western Australia has been shut down this week and has been converted into the country’s largest fuel import terminal able to store 4.72 million bpd. This closure brings Australia’s total refining capacity down to 549,000 bpd, however this figure will drop again with the expected mid-2015 closure of BP’s 102,000 bpd Bulwer Island refinery, located next to the closed Kurnell refinery. The closure of the Kurnell refinery is estimated to lift Australian demand for jet imports by 15,000 bpd and demand for gasoil imports by 50,000 bpd.
Jump in Chinese crude importsViewCrude imports to China rose by 13.1% from 5.96 million bpd in August to 6.74 million bpd in September. There are doubts, however, as to whether Chinese refining throughput can absorb this significant increase in crude imports as in September there was an estimated 460,000 bpd of Chinese refinery capacity off line for turnaround, some of which had remained off line from August turnarounds. Nonetheless, this past month’s surge in Chinese crude imports reflects a 7.4% increase year-on-year, with Chinese crude imports up 8.3% for the first nine months of 2014 compared to last year.
China allows foreign investors to build own refineriesViewThe Chinese government has announced a scheme to encourage foreign investors to build their own refineries and naphtha crackers in authorized locations across China. The scheme would permit foreign investors to either wholly own or hold controlling stakes in the facilities, whereas until now foreign companies have only been able to participate in Chinese refineries via joint ventures with state-run firms who possess ultimate control. The authorized locations will include important port cities, such as Ningbo, and also along three cross-country crude-oil trunk lines which link China with neighbouring countries Russia, Myanmar and Kazakhstan. Refinery capacity in China grew from 12.66 million bpd last year to 13.46 million bpd this year, the country plans to expand refining capacity to 15.8 million bpd by 2020 and could further increase that figure to 17 million bpd by 2025.
More governmental decisions in China for coalViewIn addition, to last week’s news on Chinese coal import tax, further governmental decisions came on line during the weekend to support the domestic coal industry. The Ministry of Finance in China confirmed that there will be implemented a domestic resource tax on coal between 2% and 10% of the sales value starting from December, 1. Furthermore, the ministry said that the specific tax rates will be set by provincial governments based on proposals of the provincial-level finance departments and that there will be a halt on other mining charges that will all together eventually help miners to cut costs further. The expected cost reduction on domestic coal mined will be around $2-$5. Additionally, more actions are being taken into the country to lower the share of coal in the country’s energy mix, as the National Energy Administration announced that China plans to strictly control the construction of coal-fired power plants in areas with annual utilisation below 4,500 hours. Certainly, there are a lot going on regarding the coal industry in China and we would expect – in the long run - to see some effect on the seaborne coal market that could only partially be offset by the increasing coal demand in other countries.
Weekly Oil Price ReviewViewIt was another week of heavy losses for both crude oil contracts, WTI lost a total of $4.50/bbl with the onset of peak refinery maintenance in the U.S. this week while Brent fell $2.26/bbl as it inched ever closer to the $90 mark. On Monday, however, both crudes gained after the previous week’s steep decline, the spread between the two contracts shrank to $2.45/bbl as a strong U.S. dollar has helped to keep the price of WTI firmer relative to Brent. Prices began to fall on Tuesday with North Sea Brent dropping in response to the IMF lowering its 2015 global economic growth forecast and U.S. crude falling $1.49 in response to the onset of U.S. seasonal refinery maintenance taking refinery capacity offline which will add to already abundant domestic inventory. The EIA further reported Wednesday a 5 million bbl increase in U.S. inventories and a 3.6% decline in last week’s domestic refinery utilization to 89.8%, analysts predict WTI will remain soft for the next several weeks as seasonal refinery maintenance dampens refinery demand. Both crude contracts lost more than $1 on Thursday as oil and gas companies also suffered losses on the stock market. In response to the continued concern of oversupply and slowing global demand in addition to the recent pricing pressure from Middle Eastern nations as they compete for market share in Asia, Brent has lost over 20% of its value since reaching a high of approximately $115/bbl in June, on Thursday in electronic after-hours trading it traded below $90 as analysts continue to attempt to evaluate at what price the global benchmark will bottom out. Overall, from Monday to Thursday WTI dropped from $89.74 to $85.81/bbl and Brent dropped from $92.31 to $90.05/bbl.
US soybean exports pick upViewThe US grain season is currently one of the key demand sectors that we are monitoring. According to US Department of Agriculture (USDA), US soybean exports have started to pick up early this month. The soybean exports out from the US last week reached almost 1 million tonnes, comparing to only 0.4 million tonnes in the middle of September. The crop conditions this year have been much better than historical average levels – which gives USDA high expectations on the harvest volumes during this quarter. However, the current harvest progress of both corn and soybean crops has been delayed recently, partially due to the cool and damp weather conditions. Later today USDA will issue their October reports, which will evaluate the latest situation.