Peru top court bans some oil exploration workReuters - USAThe oil concession in question is located in lot 103 in northern Peru, in San Martin province. The companies ordered to halt exploration work are Brazil's ...See all stories on this topic
Investing in BrazilMotley Fool - USAThis is the company that put Brazil on the investment map. For the past year, I've been watching them and they've found billions of barrels of oil offshore ...See all stories on this topic
Brazil, Russia, India and China no longer unified trading concept ...MarketWatch - USAOil prices peaked last July around $147 a barrel, but are now trading below $50. In contrast to Russia, Brazil is in much better shape, even though it too ...See all stories on this topic
LATIN AMERICAN MARKETS: Brazil Unable To Hold To Gains; Mexican ...CNNMoney.com - USABrazil's equity benchmark slipped Thursday, unable to cling to gains as oil prices surged, while, Mexico's currency spiraled to a record low against the US ...See all stories on this topic
Repsol Swings to Loss on Falling OilWall Street Journal - USAAmong investment considered strategic is the drilling of five wells off the coast of Brazil this year. Mr. Brufau also said that an attempt by Russian oil ...See all stories on this topic
El Paso reports quarterly loss after asset writedownHouston Chronicle - United StatesIts oil, condensate and natural gas liquids sold for $51.19 a barrel, a decline of 34 percent. El Paso produces gas and oil in the US, Mexico, Brazil and ...See all stories on this topic
New York Times36 Hours in Salvador, BrazilNew York Times - United StatesThen send a friend to wait in line at the stands where women in traditional Bahian dress make acarajé, frying balls of dough in dendê oil until crispy, ...See all stories on this topic
Oil PSUs scrap Brazil ethanol production planHindu - Chennai,India... and Indian Oil Corporation, have given up plans to invest in ethanol fuel production in Brazil due to the international financial crisis, ...See all stories on this topic
Ecuador Pipeline May Resume in 5 Days After Oil SpillBloomberg - USAOCP’s shareholders include Brazil’s Petroleo Brasileiro SA, Spain’s Repsol YPF SA, Chinese group Andes Petroleum and Perenco Corp.See all stories on this topic
Friday, February 27, 2009
Thursday, February 26, 2009
Dont panic
For those that are concerned about the delayed announcement form ERH in regards to flow testing Paca2. Click the link below to find out what the problem is
?????????????????????
Nothing to worry about, just turn 25 days into 30 odd days to complete testing
?????????????????????
Nothing to worry about, just turn 25 days into 30 odd days to complete testing
Paca2 price estimate
Just a quick heads up.
The PEG ratio model i use for valuations has a 30% risk factor built in. Plus i use a fully diluted market cap and i don't incorporate the $47 odd million into the valuation. If anyone is interested in getting my spread sheets leave your email in the post reply section and i will send it to you.
The PEG ratio model i use for valuations has a 30% risk factor built in. Plus i use a fully diluted market cap and i don't incorporate the $47 odd million into the valuation. If anyone is interested in getting my spread sheets leave your email in the post reply section and i will send it to you.
Brazil oil news 26/02
LATIN AMERICAN MARKETS: Brazil Finishes Lower After Two-session ...CNNMoney.com - USAAmong volume leaders, shares of Brazilian oil giant Petrobras (PBR) gained 3.2%, tracking a 6% jump in crude-oil prices to $42.50 a barrel on the New York ...See all stories on this topic
El Paso Corporation Reports Fourth Quarter and Full-Year Financial ...CNNMoney.com - USA... ceiling test charges in the company's domestic and Brazilian full cost pools, which was based on the December 31, 2008 spot natural gas and oil prices, ...See all stories on this topic
Brazil stocks drop on US market slump, real steadyReuters - USAState-run oil company Petrobras (PETR4.SA: Quote, Profile, Research) rose 1.98 percent to 26.29 reais as crude oil prices CLc1 climbed more than 6 percent ...See all stories on this topic
Repsol Earnings Drop 11% on Lower Oil Price, OutputBloomberg - USAThere were also two further finds offshore Brazil. Earlier this month, the company announced the deepwater oil discovery at the Buckskin prospect in the ...See all stories on this topic
Brazil Real Rises as New US Financial Aid Fuels Recovery BetsBloomberg - USANearly two-thirds of Brazilian exports are commodity products. Crude oil, one of Brazil’s biggest exports, gained to near the highest in a month. ...See all stories on this topic
Biofuels Industries Form Global Renewable Fuels AllianceMSNBC - USAThe ethanol industry is credited with providing more than 200000 jobs in the United States and half a million direct jobs in Brazil alone. ...See all stories on this topic
Ecuador's OCP Pipeline Suspends Operations Early WednesdayCNNMoney.com - USAHowever, OCP spokesman Pedro Lopez told Dow Jones Newswires that the company has enough crude oil in stock to cover February's exports commitments. ...See all stories on this topic
The crude facts on oil and gas pricesGlobe and Mail - CanadaCanada's oil sands development has slowed considerably, and there will be delays and cancelled projects in Venezuela, Brazil, Angola and Mexico as well. ...See all stories on this topic
Eletropaulo, Embraer, Redecard, Tenaris: Latin Equity PreviewBloomberg - USAIn Brazil, preferred shares usually are the most- traded class of stock. Tenaris SA (TS AR): The world’s biggest maker of seamless pipes used to extract oil ...See all stories on this topic
El Paso Corporation Reports Fourth Quarter and Full-Year Financial ...CNNMoney.com - USA... ceiling test charges in the company's domestic and Brazilian full cost pools, which was based on the December 31, 2008 spot natural gas and oil prices, ...See all stories on this topic
Brazil stocks drop on US market slump, real steadyReuters - USAState-run oil company Petrobras (PETR4.SA: Quote, Profile, Research) rose 1.98 percent to 26.29 reais as crude oil prices CLc1 climbed more than 6 percent ...See all stories on this topic
Repsol Earnings Drop 11% on Lower Oil Price, OutputBloomberg - USAThere were also two further finds offshore Brazil. Earlier this month, the company announced the deepwater oil discovery at the Buckskin prospect in the ...See all stories on this topic
Brazil Real Rises as New US Financial Aid Fuels Recovery BetsBloomberg - USANearly two-thirds of Brazilian exports are commodity products. Crude oil, one of Brazil’s biggest exports, gained to near the highest in a month. ...See all stories on this topic
Biofuels Industries Form Global Renewable Fuels AllianceMSNBC - USAThe ethanol industry is credited with providing more than 200000 jobs in the United States and half a million direct jobs in Brazil alone. ...See all stories on this topic
Ecuador's OCP Pipeline Suspends Operations Early WednesdayCNNMoney.com - USAHowever, OCP spokesman Pedro Lopez told Dow Jones Newswires that the company has enough crude oil in stock to cover February's exports commitments. ...See all stories on this topic
The crude facts on oil and gas pricesGlobe and Mail - CanadaCanada's oil sands development has slowed considerably, and there will be delays and cancelled projects in Venezuela, Brazil, Angola and Mexico as well. ...See all stories on this topic
Eletropaulo, Embraer, Redecard, Tenaris: Latin Equity PreviewBloomberg - USAIn Brazil, preferred shares usually are the most- traded class of stock. Tenaris SA (TS AR): The world’s biggest maker of seamless pipes used to extract oil ...See all stories on this topic
Whats pushing the oil price???
We have seen 2 consecutive nights of rising oil prices.
Here's whats happening
Oil prices rise 6.4pc as petrol stockpiles fall
UAE cuts oil supplies
Here's whats happening
Oil prices rise 6.4pc as petrol stockpiles fall
UAE cuts oil supplies
Wednesday, February 25, 2009
Upstream Also Feeling the Squeeze
Report from the IEA February
For the full report click the link below
The latest free issue of the full OMR
Unlike headline‐grabbing changes on the demand side, which have curbed the 2009 global forecast by 3 mb/d since last summer, the impact of lower prices and the credit squeeze on supply has been less easy to discern. Nonetheless, stripping out downward revisions to the 2008 baseline, forecast 2009 oil supply capacity has been cut by around 1 mb/d in the same period. The concern among market watchers is that the current lower price environment may curb investment and leave inadequate new capacity available when demand growth eventually recovers. That could sow the seed of a sudden reversion to much higher prices,
and further intense price volatility, with all the adverse impacts on economic growth that this would imply. 46% of the net change in our own supply forecast for 2009 has derived from OPEC gas liquids and condensates, with recent OPEC crude cutbacks affecting associated gas supplies and the gas liquids normally stripped out from that gas. Indeed much of the revision for NGLs makes itself felt in adjustments applied this month, notably for Saudi Arabia and the UAE. New projects have also slipped in those two countries and in Qatar, further cutting into hitherto‐expected record growth, although still leaving OPEC NGLs growing from 4.9 mb/d to 5.2 mb/d between 2008 and 2009. 28% of the downward revision for 2009 comes from OPEC crude capacity (here including ex‐member Indonesia), now seen averaging 36 mb/d for the year as a whole, compared with 36.4 mb/d last summer.
There may well be more slippage to come in terms of OPEC capacity with, for example, Saudi Arabia and Abu Dhabi reportedly looking to shave 10‐15% off contractor costs for the longer‐term Manifa and Sahil/Asab/Shah (SAS) projects respectively. Recent comments from OPEC Ministers have also tended to support the expectation that previous capacity expansion targets are now unlikely to be met on the original schedule. That said, our projections for OPEC capacity seem to have borne up relatively well (acknowledging that publicly available data on actual installed capacity are scarce). This is partly because the projections made last year
already factored in project slippage and relatively aggressive decline rate assumptions for most OPEC countries.
This leaves 270 kb/d that has been cut from the 2009 non‐OPEC forecast since last July, net of 2008 baseline changes. Some envisage more downward adjustments to come, with oil company spending tending to flatline or be cut in 2009 compared with 2008. Spending surveys by Barclays Capital and IHS Herold point to a 10‐15% cut in upstream capex for 2009, the first drop in several years. Much of the reduction is concentrated in North America and Russia, where spending looks to be down by 20% or more. In contrast, some NOCs, such as
Pemex, CNOOC and Petrobras seem to be sustaining high levels of spending. Part of the fall in investment is costdriven, since costs for raw materials like steel and cement have already fallen sharply. However, labour and equipment costs have stayed relatively strong.
Indeed industry insiders see typically a 12‐18 month lag between falling crude prices and falling overall project costs. Moreover, while the cyclical component of this
decade’s cost increases is likely to recede, the structural driver for higher overall costs (complex projects in hostile, technologically challenging and therefore capital intensive environments) is likely to persist. A classic example of this structural shift is the Canadian oil sands in Alberta. The list of oil sands project deferrals grows by the week, with up to 1 mb/d cut from industry forecasts of 2015 output.
However, the immediate impact of reduced 2009 spending is likely to derive less from new project deferrals this year and in 2010 (a factor for production levels in 2012 and beyond, given project lead times) and more because of reduced spending on areas like pressure maintenance, fracturing, infill drilling and enhanced oil recovery. Companies take these measures all the time to curb decline in existing, mature fields. Work by the OMR and World Energy Outlook (WEO) oil teams implies net decline for global baseline production around 5% per year. The MTOMR saw that as equivalent to losing 3.5 mb/d of global production capacity every year. This is managed decline, however, requiring heavy levels of spending. If spending is being curbed, even for the short term, decline could accelerate further. An additional 0.5‐1% decline for baseline non‐OPEC supply in 2009 would cut 300‐500 kb/d of supply, effectively eclipsing current expected non‐OPEC growth altogether.
Then there is the question of likely production shut‐ins if oil prices were to fall substantially lower. Although the major resource‐holders in the Middle East enjoy cash production costs for baseload output substantially below $10/bbl, for much of the rest of the world, cash operating costs can lie as high as $15‐20/bbl (although again, a cyclical component of these costs is now likely falling). Estimates for higher cost output such as the Canadian oil sands and US stripper well output (which both account for around 1 mb/d of present output) generally have operating costs in a $25‐35/bbl range. Not much output may be shut‐in because of current field economics, but further sharp falls in prices would begin to undermine even our own relatively modest expectations for 2009 non‐OPEC growth. Detailed production data for the last part of
2008 and the early months of 2009 will be highly instructive in helping to gauge the immediate short‐term impact of lower prices on supply. We will be examining the trends in more detail as that data becomes available in the months to come.
For the full report click the link below
The latest free issue of the full OMR
Unlike headline‐grabbing changes on the demand side, which have curbed the 2009 global forecast by 3 mb/d since last summer, the impact of lower prices and the credit squeeze on supply has been less easy to discern. Nonetheless, stripping out downward revisions to the 2008 baseline, forecast 2009 oil supply capacity has been cut by around 1 mb/d in the same period. The concern among market watchers is that the current lower price environment may curb investment and leave inadequate new capacity available when demand growth eventually recovers. That could sow the seed of a sudden reversion to much higher prices,
and further intense price volatility, with all the adverse impacts on economic growth that this would imply. 46% of the net change in our own supply forecast for 2009 has derived from OPEC gas liquids and condensates, with recent OPEC crude cutbacks affecting associated gas supplies and the gas liquids normally stripped out from that gas. Indeed much of the revision for NGLs makes itself felt in adjustments applied this month, notably for Saudi Arabia and the UAE. New projects have also slipped in those two countries and in Qatar, further cutting into hitherto‐expected record growth, although still leaving OPEC NGLs growing from 4.9 mb/d to 5.2 mb/d between 2008 and 2009. 28% of the downward revision for 2009 comes from OPEC crude capacity (here including ex‐member Indonesia), now seen averaging 36 mb/d for the year as a whole, compared with 36.4 mb/d last summer.
There may well be more slippage to come in terms of OPEC capacity with, for example, Saudi Arabia and Abu Dhabi reportedly looking to shave 10‐15% off contractor costs for the longer‐term Manifa and Sahil/Asab/Shah (SAS) projects respectively. Recent comments from OPEC Ministers have also tended to support the expectation that previous capacity expansion targets are now unlikely to be met on the original schedule. That said, our projections for OPEC capacity seem to have borne up relatively well (acknowledging that publicly available data on actual installed capacity are scarce). This is partly because the projections made last year
already factored in project slippage and relatively aggressive decline rate assumptions for most OPEC countries.
This leaves 270 kb/d that has been cut from the 2009 non‐OPEC forecast since last July, net of 2008 baseline changes. Some envisage more downward adjustments to come, with oil company spending tending to flatline or be cut in 2009 compared with 2008. Spending surveys by Barclays Capital and IHS Herold point to a 10‐15% cut in upstream capex for 2009, the first drop in several years. Much of the reduction is concentrated in North America and Russia, where spending looks to be down by 20% or more. In contrast, some NOCs, such as
Pemex, CNOOC and Petrobras seem to be sustaining high levels of spending. Part of the fall in investment is costdriven, since costs for raw materials like steel and cement have already fallen sharply. However, labour and equipment costs have stayed relatively strong.
Indeed industry insiders see typically a 12‐18 month lag between falling crude prices and falling overall project costs. Moreover, while the cyclical component of this
decade’s cost increases is likely to recede, the structural driver for higher overall costs (complex projects in hostile, technologically challenging and therefore capital intensive environments) is likely to persist. A classic example of this structural shift is the Canadian oil sands in Alberta. The list of oil sands project deferrals grows by the week, with up to 1 mb/d cut from industry forecasts of 2015 output.
However, the immediate impact of reduced 2009 spending is likely to derive less from new project deferrals this year and in 2010 (a factor for production levels in 2012 and beyond, given project lead times) and more because of reduced spending on areas like pressure maintenance, fracturing, infill drilling and enhanced oil recovery. Companies take these measures all the time to curb decline in existing, mature fields. Work by the OMR and World Energy Outlook (WEO) oil teams implies net decline for global baseline production around 5% per year. The MTOMR saw that as equivalent to losing 3.5 mb/d of global production capacity every year. This is managed decline, however, requiring heavy levels of spending. If spending is being curbed, even for the short term, decline could accelerate further. An additional 0.5‐1% decline for baseline non‐OPEC supply in 2009 would cut 300‐500 kb/d of supply, effectively eclipsing current expected non‐OPEC growth altogether.
Then there is the question of likely production shut‐ins if oil prices were to fall substantially lower. Although the major resource‐holders in the Middle East enjoy cash production costs for baseload output substantially below $10/bbl, for much of the rest of the world, cash operating costs can lie as high as $15‐20/bbl (although again, a cyclical component of these costs is now likely falling). Estimates for higher cost output such as the Canadian oil sands and US stripper well output (which both account for around 1 mb/d of present output) generally have operating costs in a $25‐35/bbl range. Not much output may be shut‐in because of current field economics, but further sharp falls in prices would begin to undermine even our own relatively modest expectations for 2009 non‐OPEC growth. Detailed production data for the last part of
2008 and the early months of 2009 will be highly instructive in helping to gauge the immediate short‐term impact of lower prices on supply. We will be examining the trends in more detail as that data becomes available in the months to come.
Brazil oil news
Vale Shares Slump in US as Petrobras Advances During CarnivalBloomberg - USAPetroleo Brasileiro SA, the state-controlled oil producer, rose on crude’s rebound from a two-day slump. Brazil’s benchmark stock index has lost 9.5 percent ...See all stories on this topic
Indian Refiners Drop Plans to Invest in Brazil Ethanol PlantsBloomberg - USAStudies by companies including Indian Oil Corp., the nation’s largest refiner, showed it was viable to acquire sugarcane acreages in Brazil and start ...See all stories on this topic
How to avoid oil prices' harmful extremesDallas Morning News - Dallas,TX,USALast week, China made big deals with Russia and Brazil that guarantee large volumes of oil on long-term contracts in exchange for billions of dollars in ...See all stories on this topic
Whole Foods Market Commits to Sustainable Palm OilNatural Products Marketplace - Phoenix,Arizona,USA... Indonesia, Malaysia, Papua New Guinea and Brazil. Whole Foods Market joins 37 other food, cosmetic and consumer goods companies and two organic palm oil ...See all stories on this topic
(Adds Egina field, details)guardian.co.uk - UKBy Randy Fabi ABUJA, Feb 24 (Reuters) - Brazil's state-run oil firm Petrobras expects to invest $2 billion in oil exploration and production in Nigeria over ...See all stories on this topic
Investing in Crude Oil: The Best Way to Play Oil’s Imminent ReboundJutia Group - Baltimore,MD,USAThe object of Soros buying is none other than Brazil’s state-controlled oil company, Petrobras (NYSE: PBR). It’sa wise investment in my opinion. ...See all stories on this topic
Indian Refiners Drop Plans to Invest in Brazil Ethanol PlantsBloomberg - USAStudies by companies including Indian Oil Corp., the nation’s largest refiner, showed it was viable to acquire sugarcane acreages in Brazil and start ...See all stories on this topic
How to avoid oil prices' harmful extremesDallas Morning News - Dallas,TX,USALast week, China made big deals with Russia and Brazil that guarantee large volumes of oil on long-term contracts in exchange for billions of dollars in ...See all stories on this topic
Whole Foods Market Commits to Sustainable Palm OilNatural Products Marketplace - Phoenix,Arizona,USA... Indonesia, Malaysia, Papua New Guinea and Brazil. Whole Foods Market joins 37 other food, cosmetic and consumer goods companies and two organic palm oil ...See all stories on this topic
(Adds Egina field, details)guardian.co.uk - UKBy Randy Fabi ABUJA, Feb 24 (Reuters) - Brazil's state-run oil firm Petrobras expects to invest $2 billion in oil exploration and production in Nigeria over ...See all stories on this topic
Investing in Crude Oil: The Best Way to Play Oil’s Imminent ReboundJutia Group - Baltimore,MD,USAThe object of Soros buying is none other than Brazil’s state-controlled oil company, Petrobras (NYSE: PBR). It’sa wise investment in my opinion. ...See all stories on this topic
Paca2 testing, flow rate and share price estimates
With the testing under way at Paca2 in the next fews days I thought this could be a good time to look at some of the other fields in the Sergipe-Alagoas Basin that are producing from the members and formations that are about to be tested.
At the start of 2007 Sergipe-Alagoas Basin was producing around 50,000 B/D of oil. In the second quarter of 2007 a new field came on line that is now producing around another 15000 barrels a day but details of this field are very sketchy and the only details that I have is that the JV is between ANP/Silver Marlin.
The Coqueiro Seco Formation / Penedo formation are not as wide spread discoveries as the Barra de Itiuba Formation but the Coqueiro Seco Formation / Penedo formation appear to be good producers when a discovery is made on them. But due to the shallow depths of paca2 it’s hard to make a comparison with other fields in the area and try to predict what the flow rates at Paca2 may be.
But with some of the info that has been released on Paca1 we can start to draw some estimates.
Paca1 is producing from a 15meter pay zone (production area) in the Coqueiro Seco Formation (Morro do Chaves Member). We know that part of this pay zone at paca1 is either damage or has been concreted over during the reentry vase of the drilling program in March 2008. The damaged and concreted over parts are believe to be Aproxamently 6meters, leaving only 9 meters of the pay zone suitable for production. So effectively speaking we are only seeing about 60% of what the flow rates might look like at Paca1. If Paca1 was operating at 100% of capacity, using only percentages we should be seeing a production rate of about 100 b/d.
At Paca2 the Coqueiro Seco Formation (Morro do Chaves Member) is twice the sizes of Paca1 and lies between 306m and 336m making it a pay zone of 30meters. So for the Coqueiro Seco Formation (Morro do Chaves Member) I am just going to use simply maths and double it and make an estimate of 200 b/d from this formation alone.
Based on the info released on the Penedo Formation and the Barra de Itiuba Formation an the fact that these 2 formations are Sandstone reservoir quality and with oil saturation and porosity being higher than expected and the porosity in this area already being described as vuggy, my best guess is that we will see flow rates of around 600 b/d all up over the 3 sections.
Using these best estimates I get a fair value share price using a PEG ratio of $1.12 with a EPS $0.045 using a oil price average of $60 a barrel based on 330 production alone.
Spozzie what do you get mate??????????
At the start of 2007 Sergipe-Alagoas Basin was producing around 50,000 B/D of oil. In the second quarter of 2007 a new field came on line that is now producing around another 15000 barrels a day but details of this field are very sketchy and the only details that I have is that the JV is between ANP/Silver Marlin.
The Coqueiro Seco Formation / Penedo formation are not as wide spread discoveries as the Barra de Itiuba Formation but the Coqueiro Seco Formation / Penedo formation appear to be good producers when a discovery is made on them. But due to the shallow depths of paca2 it’s hard to make a comparison with other fields in the area and try to predict what the flow rates at Paca2 may be.
But with some of the info that has been released on Paca1 we can start to draw some estimates.
Paca1 is producing from a 15meter pay zone (production area) in the Coqueiro Seco Formation (Morro do Chaves Member). We know that part of this pay zone at paca1 is either damage or has been concreted over during the reentry vase of the drilling program in March 2008. The damaged and concreted over parts are believe to be Aproxamently 6meters, leaving only 9 meters of the pay zone suitable for production. So effectively speaking we are only seeing about 60% of what the flow rates might look like at Paca1. If Paca1 was operating at 100% of capacity, using only percentages we should be seeing a production rate of about 100 b/d.
At Paca2 the Coqueiro Seco Formation (Morro do Chaves Member) is twice the sizes of Paca1 and lies between 306m and 336m making it a pay zone of 30meters. So for the Coqueiro Seco Formation (Morro do Chaves Member) I am just going to use simply maths and double it and make an estimate of 200 b/d from this formation alone.
Based on the info released on the Penedo Formation and the Barra de Itiuba Formation an the fact that these 2 formations are Sandstone reservoir quality and with oil saturation and porosity being higher than expected and the porosity in this area already being described as vuggy, my best guess is that we will see flow rates of around 600 b/d all up over the 3 sections.
Using these best estimates I get a fair value share price using a PEG ratio of $1.12 with a EPS $0.045 using a oil price average of $60 a barrel based on 330 production alone.
Spozzie what do you get mate??????????
Tuesday, February 24, 2009
Brazil oil news 24/02
China Moves On Brazil And RussiaFN Arena News - Sydney,AustraliaLast week China entered a deal with Brazil's oil giant Petrobras to supply 100000-160000 barrels of oil a day to an oil and chemical subsidiary of China's ...See all stories on this topic
Sector Snap: Oil services sector falls with oilForbes - NY,USABrazil's state-run oil company Petrobras and Mexico's Pemex both plan to increase spending and boost oil output in the coming years. ...See all stories on this topic
Will China Strike Black Gold in Brazil?Motley Fool - USAAnd so it appears to be ideal that, on the one hand, amid a worldwide decline in spending by oil companies, Brazil intends to increase its energy spending ...See all stories on this topic
Petrobras ADRs Fall as Commodity Prices, Profits DropBloomberg - USAThe American depositary receipts of Brazil’s state- controlled oil company slumped 6 percent to $24.97, the lowest since Jan. 27. Brazilian markets are ...See all stories on this topic
Rio, in sexy strut, puts Carnival ahead of crisisAFPPetrobras, Brazil's state-run oil group, cut back on the five million dollars it gave to the 12 Rio samba schools last year. Unilever, the consumer products ...See all stories on this topic
IOC, HPCL, BPCL drop investment plans in BrazilFinancial Express - Bombay,IndiaNew Delhi: State-run Indian Oil, Hindustan Petroleum and Bharat Petroleum have shelved plans to invest in sugarcane farms in Brazil for producing ethanol ...See all stories on this topic
China's Sinopec to import 5 mln tons of Brazilian crude oilTrading Markets (press release) - Los Angeles,CA,USA... SEHK:0386), Asia's largest refiner by output, announced Friday it has signed a contract with Brazil's state-owned oil and gas giant PETROBRAS to import ...See all stories on this topic
Sector Snap: Oil services sector falls with oilForbes - NY,USABrazil's state-run oil company Petrobras and Mexico's Pemex both plan to increase spending and boost oil output in the coming years. ...See all stories on this topic
Will China Strike Black Gold in Brazil?Motley Fool - USAAnd so it appears to be ideal that, on the one hand, amid a worldwide decline in spending by oil companies, Brazil intends to increase its energy spending ...See all stories on this topic
Petrobras ADRs Fall as Commodity Prices, Profits DropBloomberg - USAThe American depositary receipts of Brazil’s state- controlled oil company slumped 6 percent to $24.97, the lowest since Jan. 27. Brazilian markets are ...See all stories on this topic
Rio, in sexy strut, puts Carnival ahead of crisisAFPPetrobras, Brazil's state-run oil group, cut back on the five million dollars it gave to the 12 Rio samba schools last year. Unilever, the consumer products ...See all stories on this topic
IOC, HPCL, BPCL drop investment plans in BrazilFinancial Express - Bombay,IndiaNew Delhi: State-run Indian Oil, Hindustan Petroleum and Bharat Petroleum have shelved plans to invest in sugarcane farms in Brazil for producing ethanol ...See all stories on this topic
China's Sinopec to import 5 mln tons of Brazilian crude oilTrading Markets (press release) - Los Angeles,CA,USA... SEHK:0386), Asia's largest refiner by output, announced Friday it has signed a contract with Brazil's state-owned oil and gas giant PETROBRAS to import ...See all stories on this topic
Monday, February 23, 2009
Oilex
Oilex
List has OEX on the ASX
Official Listing Date 24 October, 2003
Web site http://www.oilex.com.au/
Undiluted market cap = 151,348,885 shares
Market cap Value of = $ 37,837,221.25 based on a .25c share price
Also trades under the following on the ASX
-
OEX only has unlisted options
3,000,000 $1.50 $4,500,000.00 31/12/2009
4,250,000 $0.80 $3,400,000.00 14/12/2009
4,500,000 $0.50 $2,250,000.00 31/03/2010
775,000 $0.50 $387,500.00 31/07/2009
500,000 $1.50 $750,000.00 31/10/2009
500,000 $1.75 $875,000.00 31/10/2009
500,000 $2.00 $1,000,000.00 31/10/2010
500,000 $1.40 $700,000.00 31/01/2010
450,000 $2.00 $900,000.00 31/01/2010
450,000 $2.50 $1,125,000.00 31/01/2011
2,500,000 $2.00 $5,000,000.00 31/03/2011
300,000 $1.75 $525,000.00 31/03/2010
300,000 $2.25 $675,000.00 31/03/2011
300,000 $2.75 $825,000.00 31/03/2012
500,000 $1.57 $785,000.00 30/09/2011
350,000 $1.60 $560,000.00 30/04/2010
350,000 $2.10 $735,000.00 30/04/2010
350,000 $2.70 $945,000.00 30/04/2011
3,900,000 $2.00 $7,800,000.00 1/7/2011
3,900,000 $2.50 $9,750,000.00 1/7/2011
900,000 $1.75 $1,575,000.00 30/06/2011
900,000 $2.25 $2,025,000.00 30/06/2011
900,000 $2.75 $2,475,000.00 30/06/2012
Total options= 31,375,000
Value= $50,062,500.00
Fully diluted market cap= 183,903,885 shares
Proceeds from a fully diluted market cap= $50,062,500.00
Based on a fully diluted market cap and proceeds from the dilution has cash backing of .35c per share AUD
Also listed on the London Stock Exchange's Code OEX
Current cash on hand
= $ 14,709,000.00 AUD
Debt Long and short term = $0.00
Quarterly admin expenses = An average of $ 1,012,500.00 AUD
Total production profits YTD = ???
Company Overview
Oilex is primarily focused on oil and gas exploration with projects in Australia, Oman, India and Indonesia.
Management overview
Please see http://www.oilex.com.au/index.cfm?objectid=51965D36-C09F-1F3C-C8D16CBCE28110A6
Oilex Projects overview
INDIA
CAMBAY FIELD, GUJARAT
(OILEX OPERATOR - 45%)
Highlights
• Oil production from Miocene Basal Sand (MBS) commenced during the quarter with two
wells brought on production.
• Two additional development wells are planned for second quarter 2009 with potential to add
800-1,000 bpd of oil production.
• Flow continued from Cambay-19Z and Cambay-73 EPIII/EPIV fracture stimulated zones
providing critical data to assist with planning for the potential development of gas resources
in these intervals.
• Planning for two additional MBS appraisal/production wells has advanced with drilling
currently scheduled for May 2009.
CAMBAY-74
Cambay-74 was drilled in October 2008 and was located to test the deeper Basal EP IV primary
objective which had tested oil in Cambay-19Z. Oil was confirmed in the Miocene secondary objective and the well was completed without drilling the deeper targets. It commenced production from the MBS
on 5 December 2008. For the period to end December the well had produced 7,453 bbls of oil. The well is currently is producing from the MBS at a rate of approximately 270 bopd with 0-5% water and a 640 psi FTHP. The gas/oil ratio (GOR) has remained relatively constant at ~430 scf/bbl. The oil is being
transported to a nearby refinery and sold along with the crude oil produced from Cambay-64. The well remains choked back and production rates have fluctuated due to issues associated with limited tank storage capacity at the refinery and constraints on transporting larger volumes of oil by road. Oilex is currently working with the refineries to acquire additional storage capacity to rectify the bottlenecks.
CAMBAY – 64
Cambay-64 is an old well that was re-entered to test the possibility of the presence of a by-passed oil zone at the level of the MBS. The test was successful and the well commenced production from the MBS on 17 October 2008. For the period to end December the well has produced 9,374 bbls of oil. The well is currently producing from the MBS in a choked back condition (choke size 12/64 to 16/64”) to preserve reservoir energy and due to delivery point constraints as described above. Constrained rates have varied from 30 – 90 bopd with a FTHP fluctuating between 450 – 800 psi and remedial work which
was anticipated in October is planned for early 2009 to improve the oil flow potential while additional tank storage capacity is acquired.
INDONESIA
WEST KAMPAR PSC, CENTRAL SUMATRA
(OILEX – 45 %)
Oilex is continuing to pursue the early development of the Pendalian field and the ongoing work
program to maximise the value of the West Kampar asset.
The Pendalian-3 phase 1 development plan or “Put on Production” (POP) proposal was completed and
submitted to the relevant authorities on 5 November 2008. The development plan which is a precursor
to full field development involves a single well completion from the Sihapas C5 (1155) Zone in the Pendalian -3 well. Analysis of well test data and analogous nearby fields predicts sustained rates from first year of over 600 bopd from this zone, with the potential for significant additional production from the shallower Sihapas D6 Zone. The POP development plan involves leased production facilities on site with the oil trucked approximately 50 km to the Kasikan Field which is connected by pipeline to the Central Sumatran Oil Gathering System. Planning also progressed for Pendalian-4 appraisal/development well scheduled for Q1/Q2 2009 which, if successful, is also planned to be brought on stream using the Pendalian-3 production infrastructure.
The planned 250 km 2D seismic survey in West Kampar block to delineate prospects for the planned 3 well exploration program in mid to late 2009 is now due to commence in Q2 2009 subject to confirmation of the availability of the seismic contractor. A number of attractive leads will be delineated by this survey. A 50km2 3D acquisition programmed over the Pendalian Field is scheduled to follow the 2D acquisition.
Subsequent to end of December 2008, Oilex Ltd announced on 8 January that its wholly owned
subsidiary Oilex (West Kampar) Limited has elected to terminate the agreement to acquire an additional 15% participating interest in the West Kampar Production Sharing Contract onshore Sumatra, Indonesia from PT Sumatera Persada Energi (SPE). Oilex retains a 45% Working Interest in the PSC. This is consistent with Oilex’s plans to adjust its interests in the West Kampar PSC as noted in the Operations Update accompanying the earlier announcement made on 22 December 2008.
Under the terms of this agreement, Oilex had the right to terminate the agreement if Government approval to the assignment had not been received by 7 January 2009. SPE is required to reimburse the funds advanced by Oilex to date under the terms of the agreement and Oilex holds security for such reimbursement.
The participating interests in the West Kampar PSC are currently:
OMAN
BLOCK 56, SOUTH OMAN
(OILEX OPERATOR – 25%)
The second phase drilling program in Block 56, Oman comprising four wells has been completed
successfully with encouraging results from 3 wells including the Al Jumd-1 well for which a testing program is being planned and the Umq-1 well in the central part of the block which had oil and gas shows over more than 500 metres of section. After the December quarter end, the Abraj 204 rig was released from the Umq-1 well location, the final well in the second phase of drilling on Block 56, on 11 January.
The well results have confirmed the oil potential of the Eastern Flank Salt Basin in Block 56 and
extended the prospective area into the extensive Central Terrace area where no previous drilling had been carried out. The program included the drilling of the Sarha-2 appraisal/exploration well and the Lathab-1, Al Jumd-1 and Umq-1 exploration wells. The well results are summarised below in sequence of drilling.
Sarha-2 Appraisal Well
• Sarha -2 appraisal well spudded on 5 September 2008 and confirmed the presence of the
oil column in the Al Khlata reservoir interval that was intersected in the Sarha-1 discovery
well located approximately 600 metres to the south east of Sarha-2.
• The well was drilled on a horizontal trajectory into the primary reservoir objective and
intersected up to 275 metres gross interval of oil bearing sands, of which approximately 200
metres is calculated to be productive net pay. The horizontal section was re-drilled due to
downhole problems that precluded the running of the completion tubing.
• The well initially produced 150-200 barrels of oil per day (bopd) on pump test following
installation of screens to prevent sand production. The oil is heavier than that tested at
Sarha-1 and flow rates declined during the test.
• Currently reviewing technical data to determine optimum flow potential and future development strategy prior to long term production test. The well is suspended as a potential production well.
Lathab-1 Exploration Well
• Lathab-1 spudded on 9 November and was located on an independent structural prospect to
the north of Sarha Field on the eastern flank of the main salt basin.
• Oil shows were encountered through the Al Khlata, Haima and Huqf Formation reservoir
intervals and thin oil pay was calculated from wireline logs. Pay interval considered to be
insufficient to warrant testing and the well was abandoned.
Al Jumd-1 Exploration Well
• Al Jumd-1 was the northern most location to be drilled and the well spudded on 1 December
2008. The well discovered oil in the Al Khlata over the interval 1163 – 1328 metres with no
oil-water contact identified, interpreting 27 metres of net pay from wireline logs.
• The structure is in the northwest area of Block 56 and is geologically similar to the Sarha oil
field.
• The well was suspended pending a testing program which is currently being planned and is
scheduled for March 2009.
Block 56 Oman showing well locations
Umq-1 Exploration Well
• The well spudded on 22 December 2008 and the rig was released on 11 January 2009. Oil
shows and associated high gas readings were intersected in the Huqf primary objective over
a gross interval of over 500 metres from 1,316 metres (Top Huqf Formation) to 1,840 metres
(total depth of the well).
• No significant porous reservoir intervals were penetrated in the Huqf section drilled.
Operational difficulties including significant mud losses prevented the further deepening of
the well to intersect sandstone intervals predicted beneath the Huqf carbonate.
• This result significantly enhances the large untested potential of the Central Terrace area
which was identified as one of the main exploration objectives by the Joint Venture when it
applied for Block 56.
Oilex is currently reviewing technical and commercial options for follow up appraisal, testing and
possible development for this project for consideration by the Joint Venture in view of the lower oil price environment.
Conclusion
I am not a share holder of this company and I have spent the last few days crawling through reports to get my head around it.
I will start with the India project at Cambay.
Cambay started producing last quarter and has produced a total of 16,860 bbls, sounds good right, well…………..
If I was a share holder I would be pissed to say the least. Oilex picked up this project back in March 2006 how management couldn’t see that there was going to be infrastructure issues and take the appropriate to steps alleviate the problems during the development stage has got be stumped. I have no issue at taken shots at management in this company since they pay themselves so handsomely over a million dollars a quarter and on a wicket like that I would expect that they would have the foresight to deal with infrastructure before it becomes an issue. What appears to of happened is that there is not enough storage for the oil they are producing on sight or at the nearby refinery and also there is large volume transport constraints i.e. the roads are crap. Once they finished follow testing how in the hell did they not foresee this and take the steps to increase onsite storage??????????
They have said that some oil was sold but have not indicated in the December quarterly how much or the cash they made from the sale so my guess is that its bugger all.
This is the wrong market to be making these silly kinds of mistakes, god knows that the poor old OEX share holder has already been punished enough from highs of $1.80 in November 07 to closing at .20c today.
I could keep going over the other projects but the story remains the same, Oman seems like a pipe dream and Indonesia well that’s anyone guess what’s happen there as it seems not to progressed at all and even if it did there is a 85% tax rate so bugger all cash to be made.
The company has also seen a cash burn of around $60 million since December 07 and found themselves needing to do some cap rising in the last quarter for $10m at .23c a share and now have $14m on hand. But I can’t help but feel that they will be back to the share holders sooner rather than later with their hat out looking for more cash since according to their last 5B they are looking at a spend of $5million this current quarter on exploration and development plus the 1 million admin.
Hartleys have been talking these guys up since they were $1.80 and as given them raving reviews all the way down to .20c (should be no surprises there). But not for me I like results, real bankable results and companies that live within their means. A cash burn of 15m a quarter in the current market when you have no income is just a joke. The one thing you can say about the current market is that the pretenders are get found out and punished for it.
But in saying all that if they are for real and can pony up with the goods then the Cambay project alone is a cracker with an estimated 48m recoverable barrels. They need to put some stuff on hold and focus on one project and start getting a return coming back in the door instead of the massive cash burn they currently have. So keep half an eye on them but for me they are at the bottom end of my watch list and I don’t hold out a lot of hope.
My money is on, ONGC, Indians largely government-owned oil company picking them up very cheaply.
List has OEX on the ASX
Official Listing Date 24 October, 2003
Web site http://www.oilex.com.au/
Undiluted market cap = 151,348,885 shares
Market cap Value of = $ 37,837,221.25 based on a .25c share price
Also trades under the following on the ASX
-
OEX only has unlisted options
3,000,000 $1.50 $4,500,000.00 31/12/2009
4,250,000 $0.80 $3,400,000.00 14/12/2009
4,500,000 $0.50 $2,250,000.00 31/03/2010
775,000 $0.50 $387,500.00 31/07/2009
500,000 $1.50 $750,000.00 31/10/2009
500,000 $1.75 $875,000.00 31/10/2009
500,000 $2.00 $1,000,000.00 31/10/2010
500,000 $1.40 $700,000.00 31/01/2010
450,000 $2.00 $900,000.00 31/01/2010
450,000 $2.50 $1,125,000.00 31/01/2011
2,500,000 $2.00 $5,000,000.00 31/03/2011
300,000 $1.75 $525,000.00 31/03/2010
300,000 $2.25 $675,000.00 31/03/2011
300,000 $2.75 $825,000.00 31/03/2012
500,000 $1.57 $785,000.00 30/09/2011
350,000 $1.60 $560,000.00 30/04/2010
350,000 $2.10 $735,000.00 30/04/2010
350,000 $2.70 $945,000.00 30/04/2011
3,900,000 $2.00 $7,800,000.00 1/7/2011
3,900,000 $2.50 $9,750,000.00 1/7/2011
900,000 $1.75 $1,575,000.00 30/06/2011
900,000 $2.25 $2,025,000.00 30/06/2011
900,000 $2.75 $2,475,000.00 30/06/2012
Total options= 31,375,000
Value= $50,062,500.00
Fully diluted market cap= 183,903,885 shares
Proceeds from a fully diluted market cap= $50,062,500.00
Based on a fully diluted market cap and proceeds from the dilution has cash backing of .35c per share AUD
Also listed on the London Stock Exchange's Code OEX
Current cash on hand
= $ 14,709,000.00 AUD
Debt Long and short term = $0.00
Quarterly admin expenses = An average of $ 1,012,500.00 AUD
Total production profits YTD = ???
Company Overview
Oilex is primarily focused on oil and gas exploration with projects in Australia, Oman, India and Indonesia.
Management overview
Please see http://www.oilex.com.au/index.cfm?objectid=51965D36-C09F-1F3C-C8D16CBCE28110A6
Oilex Projects overview
INDIA
CAMBAY FIELD, GUJARAT
(OILEX OPERATOR - 45%)
Highlights
• Oil production from Miocene Basal Sand (MBS) commenced during the quarter with two
wells brought on production.
• Two additional development wells are planned for second quarter 2009 with potential to add
800-1,000 bpd of oil production.
• Flow continued from Cambay-19Z and Cambay-73 EPIII/EPIV fracture stimulated zones
providing critical data to assist with planning for the potential development of gas resources
in these intervals.
• Planning for two additional MBS appraisal/production wells has advanced with drilling
currently scheduled for May 2009.
CAMBAY-74
Cambay-74 was drilled in October 2008 and was located to test the deeper Basal EP IV primary
objective which had tested oil in Cambay-19Z. Oil was confirmed in the Miocene secondary objective and the well was completed without drilling the deeper targets. It commenced production from the MBS
on 5 December 2008. For the period to end December the well had produced 7,453 bbls of oil. The well is currently is producing from the MBS at a rate of approximately 270 bopd with 0-5% water and a 640 psi FTHP. The gas/oil ratio (GOR) has remained relatively constant at ~430 scf/bbl. The oil is being
transported to a nearby refinery and sold along with the crude oil produced from Cambay-64. The well remains choked back and production rates have fluctuated due to issues associated with limited tank storage capacity at the refinery and constraints on transporting larger volumes of oil by road. Oilex is currently working with the refineries to acquire additional storage capacity to rectify the bottlenecks.
CAMBAY – 64
Cambay-64 is an old well that was re-entered to test the possibility of the presence of a by-passed oil zone at the level of the MBS. The test was successful and the well commenced production from the MBS on 17 October 2008. For the period to end December the well has produced 9,374 bbls of oil. The well is currently producing from the MBS in a choked back condition (choke size 12/64 to 16/64”) to preserve reservoir energy and due to delivery point constraints as described above. Constrained rates have varied from 30 – 90 bopd with a FTHP fluctuating between 450 – 800 psi and remedial work which
was anticipated in October is planned for early 2009 to improve the oil flow potential while additional tank storage capacity is acquired.
INDONESIA
WEST KAMPAR PSC, CENTRAL SUMATRA
(OILEX – 45 %)
Oilex is continuing to pursue the early development of the Pendalian field and the ongoing work
program to maximise the value of the West Kampar asset.
The Pendalian-3 phase 1 development plan or “Put on Production” (POP) proposal was completed and
submitted to the relevant authorities on 5 November 2008. The development plan which is a precursor
to full field development involves a single well completion from the Sihapas C5 (1155) Zone in the Pendalian -3 well. Analysis of well test data and analogous nearby fields predicts sustained rates from first year of over 600 bopd from this zone, with the potential for significant additional production from the shallower Sihapas D6 Zone. The POP development plan involves leased production facilities on site with the oil trucked approximately 50 km to the Kasikan Field which is connected by pipeline to the Central Sumatran Oil Gathering System. Planning also progressed for Pendalian-4 appraisal/development well scheduled for Q1/Q2 2009 which, if successful, is also planned to be brought on stream using the Pendalian-3 production infrastructure.
The planned 250 km 2D seismic survey in West Kampar block to delineate prospects for the planned 3 well exploration program in mid to late 2009 is now due to commence in Q2 2009 subject to confirmation of the availability of the seismic contractor. A number of attractive leads will be delineated by this survey. A 50km2 3D acquisition programmed over the Pendalian Field is scheduled to follow the 2D acquisition.
Subsequent to end of December 2008, Oilex Ltd announced on 8 January that its wholly owned
subsidiary Oilex (West Kampar) Limited has elected to terminate the agreement to acquire an additional 15% participating interest in the West Kampar Production Sharing Contract onshore Sumatra, Indonesia from PT Sumatera Persada Energi (SPE). Oilex retains a 45% Working Interest in the PSC. This is consistent with Oilex’s plans to adjust its interests in the West Kampar PSC as noted in the Operations Update accompanying the earlier announcement made on 22 December 2008.
Under the terms of this agreement, Oilex had the right to terminate the agreement if Government approval to the assignment had not been received by 7 January 2009. SPE is required to reimburse the funds advanced by Oilex to date under the terms of the agreement and Oilex holds security for such reimbursement.
The participating interests in the West Kampar PSC are currently:
OMAN
BLOCK 56, SOUTH OMAN
(OILEX OPERATOR – 25%)
The second phase drilling program in Block 56, Oman comprising four wells has been completed
successfully with encouraging results from 3 wells including the Al Jumd-1 well for which a testing program is being planned and the Umq-1 well in the central part of the block which had oil and gas shows over more than 500 metres of section. After the December quarter end, the Abraj 204 rig was released from the Umq-1 well location, the final well in the second phase of drilling on Block 56, on 11 January.
The well results have confirmed the oil potential of the Eastern Flank Salt Basin in Block 56 and
extended the prospective area into the extensive Central Terrace area where no previous drilling had been carried out. The program included the drilling of the Sarha-2 appraisal/exploration well and the Lathab-1, Al Jumd-1 and Umq-1 exploration wells. The well results are summarised below in sequence of drilling.
Sarha-2 Appraisal Well
• Sarha -2 appraisal well spudded on 5 September 2008 and confirmed the presence of the
oil column in the Al Khlata reservoir interval that was intersected in the Sarha-1 discovery
well located approximately 600 metres to the south east of Sarha-2.
• The well was drilled on a horizontal trajectory into the primary reservoir objective and
intersected up to 275 metres gross interval of oil bearing sands, of which approximately 200
metres is calculated to be productive net pay. The horizontal section was re-drilled due to
downhole problems that precluded the running of the completion tubing.
• The well initially produced 150-200 barrels of oil per day (bopd) on pump test following
installation of screens to prevent sand production. The oil is heavier than that tested at
Sarha-1 and flow rates declined during the test.
• Currently reviewing technical data to determine optimum flow potential and future development strategy prior to long term production test. The well is suspended as a potential production well.
Lathab-1 Exploration Well
• Lathab-1 spudded on 9 November and was located on an independent structural prospect to
the north of Sarha Field on the eastern flank of the main salt basin.
• Oil shows were encountered through the Al Khlata, Haima and Huqf Formation reservoir
intervals and thin oil pay was calculated from wireline logs. Pay interval considered to be
insufficient to warrant testing and the well was abandoned.
Al Jumd-1 Exploration Well
• Al Jumd-1 was the northern most location to be drilled and the well spudded on 1 December
2008. The well discovered oil in the Al Khlata over the interval 1163 – 1328 metres with no
oil-water contact identified, interpreting 27 metres of net pay from wireline logs.
• The structure is in the northwest area of Block 56 and is geologically similar to the Sarha oil
field.
• The well was suspended pending a testing program which is currently being planned and is
scheduled for March 2009.
Block 56 Oman showing well locations
Umq-1 Exploration Well
• The well spudded on 22 December 2008 and the rig was released on 11 January 2009. Oil
shows and associated high gas readings were intersected in the Huqf primary objective over
a gross interval of over 500 metres from 1,316 metres (Top Huqf Formation) to 1,840 metres
(total depth of the well).
• No significant porous reservoir intervals were penetrated in the Huqf section drilled.
Operational difficulties including significant mud losses prevented the further deepening of
the well to intersect sandstone intervals predicted beneath the Huqf carbonate.
• This result significantly enhances the large untested potential of the Central Terrace area
which was identified as one of the main exploration objectives by the Joint Venture when it
applied for Block 56.
Oilex is currently reviewing technical and commercial options for follow up appraisal, testing and
possible development for this project for consideration by the Joint Venture in view of the lower oil price environment.
Conclusion
I am not a share holder of this company and I have spent the last few days crawling through reports to get my head around it.
I will start with the India project at Cambay.
Cambay started producing last quarter and has produced a total of 16,860 bbls, sounds good right, well…………..
If I was a share holder I would be pissed to say the least. Oilex picked up this project back in March 2006 how management couldn’t see that there was going to be infrastructure issues and take the appropriate to steps alleviate the problems during the development stage has got be stumped. I have no issue at taken shots at management in this company since they pay themselves so handsomely over a million dollars a quarter and on a wicket like that I would expect that they would have the foresight to deal with infrastructure before it becomes an issue. What appears to of happened is that there is not enough storage for the oil they are producing on sight or at the nearby refinery and also there is large volume transport constraints i.e. the roads are crap. Once they finished follow testing how in the hell did they not foresee this and take the steps to increase onsite storage??????????
They have said that some oil was sold but have not indicated in the December quarterly how much or the cash they made from the sale so my guess is that its bugger all.
This is the wrong market to be making these silly kinds of mistakes, god knows that the poor old OEX share holder has already been punished enough from highs of $1.80 in November 07 to closing at .20c today.
I could keep going over the other projects but the story remains the same, Oman seems like a pipe dream and Indonesia well that’s anyone guess what’s happen there as it seems not to progressed at all and even if it did there is a 85% tax rate so bugger all cash to be made.
The company has also seen a cash burn of around $60 million since December 07 and found themselves needing to do some cap rising in the last quarter for $10m at .23c a share and now have $14m on hand. But I can’t help but feel that they will be back to the share holders sooner rather than later with their hat out looking for more cash since according to their last 5B they are looking at a spend of $5million this current quarter on exploration and development plus the 1 million admin.
Hartleys have been talking these guys up since they were $1.80 and as given them raving reviews all the way down to .20c (should be no surprises there). But not for me I like results, real bankable results and companies that live within their means. A cash burn of 15m a quarter in the current market when you have no income is just a joke. The one thing you can say about the current market is that the pretenders are get found out and punished for it.
But in saying all that if they are for real and can pony up with the goods then the Cambay project alone is a cracker with an estimated 48m recoverable barrels. They need to put some stuff on hold and focus on one project and start getting a return coming back in the door instead of the massive cash burn they currently have. So keep half an eye on them but for me they are at the bottom end of my watch list and I don’t hold out a lot of hope.
My money is on, ONGC, Indians largely government-owned oil company picking them up very cheaply.
OPEC looks like cutting
Oil prices edge higher on Algeria news
Looks like you guys were right OPEC looks like cutting again in march. Anyone willing to take a punt on how much they will cut by?
Brazil oil news
Christian Science MonitorChina's buying spree in global fire saleChristian Science Monitor - Boston,MA,USALast week the Chinese government sank $39 billion of that money in three separate deals to secure future oil supplies from Russia, Brazil, and Venezuela. ...See all stories on this topic
China extends its worldwide economic reachExaminer.com - USAThe China Development Bank will lend the Brazilian oil giant Petrobras $10 billion in exchange for a long-term commitment to send oil to China . ...See all stories on this topic
China Continues Commodities Binge with Brazilian Oil DealSeeking Alpha - New York,NY,USABrazil is necessarily the country that comes to mind when taking inventory of the world’s top oil producers. It currently has about 12 billion barrels of ...See all stories on this topic
Enel’s Endesa Deal Will Focus Growth Strategy on Latin AmericaBloomberg - USAEndesa is Latin America’s largest private power producer, with half of its 23 million customers in Argentina, Chile, Colombia, Peru and Brazil. ...See all stories on this topic
Brazil Telecommunications Report Q1 2009 - companiesandmarkets.com ...PR-Inside.com (Pressemitteilung) - Wien,AustriaThe change will enable Oi’s acquisition of Brasil Telecom to go ahead, after the former bought a majority stake in the company in April. ...See all stories on this topic
China extends its worldwide economic reachExaminer.com - USAThe China Development Bank will lend the Brazilian oil giant Petrobras $10 billion in exchange for a long-term commitment to send oil to China . ...See all stories on this topic
China Continues Commodities Binge with Brazilian Oil DealSeeking Alpha - New York,NY,USABrazil is necessarily the country that comes to mind when taking inventory of the world’s top oil producers. It currently has about 12 billion barrels of ...See all stories on this topic
Enel’s Endesa Deal Will Focus Growth Strategy on Latin AmericaBloomberg - USAEndesa is Latin America’s largest private power producer, with half of its 23 million customers in Argentina, Chile, Colombia, Peru and Brazil. ...See all stories on this topic
Brazil Telecommunications Report Q1 2009 - companiesandmarkets.com ...PR-Inside.com (Pressemitteilung) - Wien,AustriaThe change will enable Oi’s acquisition of Brasil Telecom to go ahead, after the former bought a majority stake in the company in April. ...See all stories on this topic
Friday, February 20, 2009
American oil stockpiles
We seen oil bounce 14% this week after the US stockpile declined for the first time this years by a 138,000 to 350.6 million barrels last week. This is the first evidence that the OPEC cuts are starting to take effect.
Now the big question is will OPEC cut again in March?
Now the big question is will OPEC cut again in March?
Brazil oil news 20/02
Brazil agrees to supply crude oil to ChinaForbes - NY,USAAP , 02.19.09, 03:25 PM EST BRASILIA (AP_ Brazil says it has agreed to supply up to 100 million barrels of crude oil a day to China in a deal that involves ...See all stories on this topic
Sinopec May Benefit Most From Oil-For-Loan AccordsBloomberg - USAChina entered into an oil-for-loans accord with Brazil yesterday -- its third such deal in three days -- tapping the nation’s $1.95 trillion ...See all stories on this topic
Mexico Bond Risk Tops Brazil First Time Since 2001 on Drug WarBloomberg - USAOil is responsible for much of the decline because Mexico is the third-biggest supplier to the US The country’s crude production fell last year at the ...See all stories on this topic
Brazil to supply oil to China for loansFinancial Times - London,England,UKBy Jonathan Wheatley in São Paulo and agencies Brazil and China signed a landmark agreement on Thursday that will ensure long-term supplies of oil to China ...See all stories on this topic
Why the Promise of Biofuels is a LieCounterPunch - Petrolia,CA,USAAnd he has cited Brazil as a model. In an August 2005 column, he conflated the issues of oil and terrorism “we are financing both sides in the war on ...See all stories on this topic
FACTBOX - Wanted: Natural resources; all offers consideredReuters - USAFebruary 18 - China Development Bank finalizes a deal to extend a $10 billion line of credit to Brazilian state-owned oil company Petrobras for future ...See all stories on this topic
China and Venezuela boost linksBBC News - UKBrazil is the next stop for Mr Xi, who has also visited Jamaica, Mexico, and Colombia on his regional tour. Chinese Vice Premier Hui Liangyu is also touring ...See all stories on this topic
Sinopec May Benefit Most From Oil-For-Loan AccordsBloomberg - USAChina entered into an oil-for-loans accord with Brazil yesterday -- its third such deal in three days -- tapping the nation’s $1.95 trillion ...See all stories on this topic
Mexico Bond Risk Tops Brazil First Time Since 2001 on Drug WarBloomberg - USAOil is responsible for much of the decline because Mexico is the third-biggest supplier to the US The country’s crude production fell last year at the ...See all stories on this topic
Brazil to supply oil to China for loansFinancial Times - London,England,UKBy Jonathan Wheatley in São Paulo and agencies Brazil and China signed a landmark agreement on Thursday that will ensure long-term supplies of oil to China ...See all stories on this topic
Why the Promise of Biofuels is a LieCounterPunch - Petrolia,CA,USAAnd he has cited Brazil as a model. In an August 2005 column, he conflated the issues of oil and terrorism “we are financing both sides in the war on ...See all stories on this topic
FACTBOX - Wanted: Natural resources; all offers consideredReuters - USAFebruary 18 - China Development Bank finalizes a deal to extend a $10 billion line of credit to Brazilian state-owned oil company Petrobras for future ...See all stories on this topic
China and Venezuela boost linksBBC News - UKBrazil is the next stop for Mr Xi, who has also visited Jamaica, Mexico, and Colombia on his regional tour. Chinese Vice Premier Hui Liangyu is also touring ...See all stories on this topic
Thursday, February 19, 2009
Brazil oil news 19/02
Latin American Herald TribuneBrazil Oil Giant Touts Record ProductionLatin American Herald Tribune - Caracas,VenezuelaRIO DE JANEIRO – Petrobras' oil output at its Brazilian fields climbed in January to a record average of 1.92 million barrels per day, a 5.3 percent ...See all stories on this topic
US Prelim '08 Crude Imports -3.1%; Least Since '03CNNMoney.com - USA... Delta oil-producing region. Annual crude imports from Iraq were the most since 2004, while Brazil , which jumped into ninth place from 11th a year ago, ...See all stories on this topic
Oil price to limit output rise in the AmericasReuters - USAOnly last year, pricey unconventional resources and Brazil's massive offshore oil finds were trumpeted as bright spots for crude output growth in the ...See all stories on this topic
Brazil stocks, currency hit by recession concernsReuters - USABut the local bourse turned negative as prices of crude oil and other commodities declined. Also weighing on sentiment was uncertainty over the ...See all stories on this topic
Venezuela, China sign 12 cooperation agreementsAFP"We didn't have time to deal with this (military) issue," Chavez told reporters before Xi left for Brazil, "but sure, Venezuela will buy Chinese radar and ...See all stories on this topic
Brazil real best-positioned Latam currency-MerrillReuters - USAMexico's currency is forecast to gain to 13.25 pesos per dollar at the end of 2009 because "the unwinding of the oil revenue FX hedging should provide ...See all stories on this topic
EMERGING MARKETS-LatAm assets fall on growing recession fearsReuters - USALatAm stocks extend Tuesday's slump after bleak US data * Citigroup downgrades Brazil stocks, upgrades Colombia * Most LatAm currencies weaker on increased ...See all stories on this topic
Technip Sees Lower 2009 Sales After Orders DroppedBloomberg - USA“Significant delays” have occurred in unconventional oil production such as the Canadian oil sands, refining in the US and the petrochemical industry, ...See all stories on this topic
US Prelim '08 Crude Imports -3.1%; Least Since '03CNNMoney.com - USA... Delta oil-producing region. Annual crude imports from Iraq were the most since 2004, while Brazil , which jumped into ninth place from 11th a year ago, ...See all stories on this topic
Oil price to limit output rise in the AmericasReuters - USAOnly last year, pricey unconventional resources and Brazil's massive offshore oil finds were trumpeted as bright spots for crude output growth in the ...See all stories on this topic
Brazil stocks, currency hit by recession concernsReuters - USABut the local bourse turned negative as prices of crude oil and other commodities declined. Also weighing on sentiment was uncertainty over the ...See all stories on this topic
Venezuela, China sign 12 cooperation agreementsAFP"We didn't have time to deal with this (military) issue," Chavez told reporters before Xi left for Brazil, "but sure, Venezuela will buy Chinese radar and ...See all stories on this topic
Brazil real best-positioned Latam currency-MerrillReuters - USAMexico's currency is forecast to gain to 13.25 pesos per dollar at the end of 2009 because "the unwinding of the oil revenue FX hedging should provide ...See all stories on this topic
EMERGING MARKETS-LatAm assets fall on growing recession fearsReuters - USALatAm stocks extend Tuesday's slump after bleak US data * Citigroup downgrades Brazil stocks, upgrades Colombia * Most LatAm currencies weaker on increased ...See all stories on this topic
Technip Sees Lower 2009 Sales After Orders DroppedBloomberg - USA“Significant delays” have occurred in unconventional oil production such as the Canadian oil sands, refining in the US and the petrochemical industry, ...See all stories on this topic
Peak oil?
Ok being an oil blog you all knew it was just a matter of time before I would have a crack at this one and give my 2 cents worth. This is a subject that has coursed wide spread debate and now it has come to All Oil and I am looking forward to seeing what sort of comments I get left with.
For me it’s all about fundamentals and breaks them right down to see where oil is heading. Firstly looking at known world reserves
World Proved1 Reserves of Oil and Natural Gas, Most Recent Estimates January 1, 2008 Region (Billion Barrels)
North America . 211.214
Central & South America. 109.857
Europe . 14.268Eurasia 98.886
Middle East . 748.286
Africa . 114.838
Asia & Oceania . 34.350
World Total . 1,331.698
Total world expected oil consumption per day 2009
Africa = 3.2 million barrels a day
Americas =29.7 million barrels a day
Asia/Pacific =25.2 million barrels a day
Europe = 15.6 million barrels a day
FSU = 4.3
Middle East = 7.2
Total world consumption is currently estimate at 85.2million barrels a day for 2009
But because the IEA keeps revising world oil demand down for 2009 let’s look at it as 80 million barrels a day average for now. World reserves= 1,317.447 billion barrels World Oil Consumers per day= 80 million barrels of oil per day1,317.447Billion divided by 80m = 16,468.09 days divided 16,468.09 by 365=45 years of consumption left at the current rate of use.
This is using the presumption that the world supply can produce 80million barrels a day in time to come. As it is common knowledge in the oil industry that once a well starts to run out it can go into a step decline and flow rates can drop away to nothing very quickly.
Mexico would be the prime example of this with its Cantarell field, Cantarell’s production peaked in 2004 at 2.113 million barrels per day. Cantarell, fell from 1.99 million b/d in January 2006 to 1.44 million b/d in December 2006. By December 2008, oil production at Cantarell had fallen to 811,000 barrels per day. Cantarell was the world’s second largest producing well and only one of 5 that was producing over a million barrels a day in 2004.
It’s this step decline that has grabbed the world attention with a whopping drop of 66% in 4 short years and will this set the precedent for things to come as other giant oil fields start to decline?
Well yes, we are seeing this happen elsewhere like Iran for example
In the late 1970’s, Iran produced a peak of six million barrels a day. Its production now
averages around 3.5 to 3.7 million barrels per day. Iran’s offshore production accounts
for over 600,000 barrels per day of its production. The balance of about 3 million
barrels a day comes from a group of old, mature fields, most in the Khuzestan region
near the Iraq border. Many of its key giant fields are now reported to be in serious
states of decline as highlighted by the South Pars gas reinjection programs.
Iran has 41 producing fields. Five or six of fields, including Ahwaz-Bangestan, Agha
Jari, Bibi Hakimeh, Marun and Gachsaran once produced close to one million barrels
per day each. Today, these five fields collectively account for approximately 1.1 million
barrels per day.
Some more examples
Indonesia- they are almost consuming as much as they produce
Russia - who's flow rates have drop according to the IEA by almost a million barrels a day in 2008
UK North Sea fields- The all time high of 2.9 million bpd was reached in 1999. Decline that began in 2000 is caused by resource depletion and exhaustion of reservoir energy. It is no longer possible to bring on new small fields fast enough to compensate for natural decline and the trend that has now existed for 8 years will likely continue down
and the list goes on
To stimulate these wells to try and maintain flow rates costs hundreds of millions and exploration and field development costs billions. Brazil’s per-salt fields the only major oil discovery in 20 years will cost $400 billion to bring on line according to Petrobras.
So is peak oil here?
Who knows as new technologies become available and secondary recovery rates improve maybe we will be able to add another 20 years to our known oil reserves but one thing is for sure and that is that cheap oil has gone forever and we will all have to pay the piper sooner or later.
Research links
Please see
http://www.eia.doe.gov/emeu/international/reserves.html
http://www.iea.org/index.asp
researcher and author
ciggys
For me it’s all about fundamentals and breaks them right down to see where oil is heading. Firstly looking at known world reserves
World Proved1 Reserves of Oil and Natural Gas, Most Recent Estimates January 1, 2008 Region (Billion Barrels)
North America . 211.214
Central & South America. 109.857
Europe . 14.268Eurasia 98.886
Middle East . 748.286
Africa . 114.838
Asia & Oceania . 34.350
World Total . 1,331.698
Total world expected oil consumption per day 2009
Africa = 3.2 million barrels a day
Americas =29.7 million barrels a day
Asia/Pacific =25.2 million barrels a day
Europe = 15.6 million barrels a day
FSU = 4.3
Middle East = 7.2
Total world consumption is currently estimate at 85.2million barrels a day for 2009
But because the IEA keeps revising world oil demand down for 2009 let’s look at it as 80 million barrels a day average for now. World reserves= 1,317.447 billion barrels World Oil Consumers per day= 80 million barrels of oil per day1,317.447Billion divided by 80m = 16,468.09 days divided 16,468.09 by 365=45 years of consumption left at the current rate of use.
This is using the presumption that the world supply can produce 80million barrels a day in time to come. As it is common knowledge in the oil industry that once a well starts to run out it can go into a step decline and flow rates can drop away to nothing very quickly.
Mexico would be the prime example of this with its Cantarell field, Cantarell’s production peaked in 2004 at 2.113 million barrels per day. Cantarell, fell from 1.99 million b/d in January 2006 to 1.44 million b/d in December 2006. By December 2008, oil production at Cantarell had fallen to 811,000 barrels per day. Cantarell was the world’s second largest producing well and only one of 5 that was producing over a million barrels a day in 2004.
It’s this step decline that has grabbed the world attention with a whopping drop of 66% in 4 short years and will this set the precedent for things to come as other giant oil fields start to decline?
Well yes, we are seeing this happen elsewhere like Iran for example
In the late 1970’s, Iran produced a peak of six million barrels a day. Its production now
averages around 3.5 to 3.7 million barrels per day. Iran’s offshore production accounts
for over 600,000 barrels per day of its production. The balance of about 3 million
barrels a day comes from a group of old, mature fields, most in the Khuzestan region
near the Iraq border. Many of its key giant fields are now reported to be in serious
states of decline as highlighted by the South Pars gas reinjection programs.
Iran has 41 producing fields. Five or six of fields, including Ahwaz-Bangestan, Agha
Jari, Bibi Hakimeh, Marun and Gachsaran once produced close to one million barrels
per day each. Today, these five fields collectively account for approximately 1.1 million
barrels per day.
Some more examples
Indonesia- they are almost consuming as much as they produce
Russia - who's flow rates have drop according to the IEA by almost a million barrels a day in 2008
UK North Sea fields- The all time high of 2.9 million bpd was reached in 1999. Decline that began in 2000 is caused by resource depletion and exhaustion of reservoir energy. It is no longer possible to bring on new small fields fast enough to compensate for natural decline and the trend that has now existed for 8 years will likely continue down
and the list goes on
To stimulate these wells to try and maintain flow rates costs hundreds of millions and exploration and field development costs billions. Brazil’s per-salt fields the only major oil discovery in 20 years will cost $400 billion to bring on line according to Petrobras.
So is peak oil here?
Who knows as new technologies become available and secondary recovery rates improve maybe we will be able to add another 20 years to our known oil reserves but one thing is for sure and that is that cheap oil has gone forever and we will all have to pay the piper sooner or later.
Research links
Please see
http://www.eia.doe.gov/emeu/international/reserves.html
http://www.iea.org/index.asp
researcher and author
ciggys
Wednesday, February 18, 2009
Brazil oil news
Brazil oil
Colombia Seeking Partnerships With Brazil's PetrobrasCNNMoney.com - USABRASILIA -(Dow Jones)- Colombia has interest in attracting partnerships and investment from Brazilian state-controlled oil company Petroleo Brasileiro SA, ...See all stories on this topic
Brazil Petrobras produces record oil volumes in JanReuters - USASAO PAULO, Feb 17 (Reuters) - Petrobras' oil production in Brazil reached a monthly record in January, the company said on Tuesday, even as a global ...See all stories on this topic
Brazil stocks sink 3 pct on US recession concernsReuters - USAState-run oil giant Petrobras (PETR4.SA) fell 3.3 percent, leading the market lower as crude oil prices plunged on concerns a steeper US slowdown will cut ...See all stories on this topic
Transocean chief sees steady deepwater demandHouston Chronicle - United StatesWhile the urgency to sign new contracts has declined from the frenzied pace of recent years when oil prices were higher, the state oil companies of Brazil ...See all stories on this topic
Soros Management Fund Increases Stakes in Petrobras, PotashBloomberg - USAThe purchases made Soros the second-biggest shareholder in the US-traded shares of Petrobras, Brazil’s state-controlled oil company. ...See all stories on this topic
Brazil Bovespa Futures Drop as Metals, Oil Fall on Lower DemandBloomberg - USA17 (Bloomberg) -- Brazil’s Bovespa stock-index futures fell on concern demand for the country’s commodity exports will slow as prices of metals and oil ...See all stories on this topic
Woodside May Sell Assets, Seeks Debt to Fund GrowthBloomberg - USA... Sierra Leone and Brazil, it said in the presentation. Woodside increased its proven reserves by 8.2 percent last year to 1.33 billion barrels of oil ...See all stories on this topic
Transocean Net Falls After Oil Slump Cuts Rig ValuesBloomberg - USADeepwater exploration is expanding in the Gulf of Mexico, the east and west coasts of Africa, Southeast Asia and offshore Brazil, home to the Western ...See all stories on this topic
Dimmer Outlook for Anadarko's EarningsBarron's - USAExploration will include four to six wells in the deepwater Gulf, about 20 wells in international regions such as Brazil, China and Mozambique. ...See all stories on this topic
Colombia Seeking Partnerships With Brazil's PetrobrasCNNMoney.com - USABRASILIA -(Dow Jones)- Colombia has interest in attracting partnerships and investment from Brazilian state-controlled oil company Petroleo Brasileiro SA, ...See all stories on this topic
Brazil Petrobras produces record oil volumes in JanReuters - USASAO PAULO, Feb 17 (Reuters) - Petrobras' oil production in Brazil reached a monthly record in January, the company said on Tuesday, even as a global ...See all stories on this topic
Brazil stocks sink 3 pct on US recession concernsReuters - USAState-run oil giant Petrobras (PETR4.SA) fell 3.3 percent, leading the market lower as crude oil prices plunged on concerns a steeper US slowdown will cut ...See all stories on this topic
Transocean chief sees steady deepwater demandHouston Chronicle - United StatesWhile the urgency to sign new contracts has declined from the frenzied pace of recent years when oil prices were higher, the state oil companies of Brazil ...See all stories on this topic
Soros Management Fund Increases Stakes in Petrobras, PotashBloomberg - USAThe purchases made Soros the second-biggest shareholder in the US-traded shares of Petrobras, Brazil’s state-controlled oil company. ...See all stories on this topic
Brazil Bovespa Futures Drop as Metals, Oil Fall on Lower DemandBloomberg - USA17 (Bloomberg) -- Brazil’s Bovespa stock-index futures fell on concern demand for the country’s commodity exports will slow as prices of metals and oil ...See all stories on this topic
Woodside May Sell Assets, Seeks Debt to Fund GrowthBloomberg - USA... Sierra Leone and Brazil, it said in the presentation. Woodside increased its proven reserves by 8.2 percent last year to 1.33 billion barrels of oil ...See all stories on this topic
Transocean Net Falls After Oil Slump Cuts Rig ValuesBloomberg - USADeepwater exploration is expanding in the Gulf of Mexico, the east and west coasts of Africa, Southeast Asia and offshore Brazil, home to the Western ...See all stories on this topic
Dimmer Outlook for Anadarko's EarningsBarron's - USAExploration will include four to six wells in the deepwater Gulf, about 20 wells in international regions such as Brazil, China and Mozambique. ...See all stories on this topic
Monday, February 16, 2009
Highlights of the February IEA OMR
Benchmark spot crude oil prices were steady in a $40-45/bbl range after an early-January surge. Lower OPEC output offset falling demand. Gasoline and naphtha have recovered significantly as refiners trim output to stem losses, thus improving refining margins.
Forecast global oil demand is revised down by 570 kb/d to 84.7 mb/d in 2009 (-1.1% or -1.0 mb/d year-on-year) after the IMF again slashed its GDP growth prognosis to 0.5%. Our 2008 estimate remains largely unchanged at 85.7 mb/d (-0.4% or -0.4 mb/d versus 2007). Two consecutive years of demand decline have not occurred since 1982/83.
Global January oil supply fell by 520 kb/d to 85.2 mb/d, largely on lower OPEC output. 2008 and 2009 non-OPEC supply is revised down by 20 kb/d and 110 kb/d respectively, resulting in 2009 growth of 0.4 mb/d to 50.9 mb/d. OPEC NGL output in 2009 is trimmed by 0.4 mb/d to 5 mb/d on lower gas output and project delays, implying +0.3 mb/d growth year-on-year.
OPEC crude supply in January fell by an estimated 950 kb/d to 29 mb/d (now excluding Indonesia) as output curbs deepened. Effective OPEC spare capacity is 4.4 mb/d. The ‘call on OPEC crude and stock change’ for 2009 now stands at 28.8 mb/d, at least 1.7 mb/d below 2008, but potentially 1.5 mb/d above OPEC-12 output implied by the current target.
OECD industry stocks fell by 20.1 mb to 2,673 mb in December, but 4Q08 still saw a counter-seasonal build of +170 kb/d on low refinery runs. Forward cover was steady at 57 days, 4.5 days higher on the year. Preliminary January data indicate a further 8 mb stockbuild, while short-term floating storage reportedly rose as high as 50-80 mb.
Global 1Q09 refinery crude throughput is revised down 0.3 mb/d to 71.9 mb/d, 2.0 mb/d lower year-on-year, on the back of weaker demand, run cuts by US and Japanese refiners and heavier US maintenance. Non-OECD weakness is concentrated in China and Other Asia, whose collective throughput is 0.8 mb/d below last year.
Forecast global oil demand is revised down by 570 kb/d to 84.7 mb/d in 2009 (-1.1% or -1.0 mb/d year-on-year) after the IMF again slashed its GDP growth prognosis to 0.5%. Our 2008 estimate remains largely unchanged at 85.7 mb/d (-0.4% or -0.4 mb/d versus 2007). Two consecutive years of demand decline have not occurred since 1982/83.
Global January oil supply fell by 520 kb/d to 85.2 mb/d, largely on lower OPEC output. 2008 and 2009 non-OPEC supply is revised down by 20 kb/d and 110 kb/d respectively, resulting in 2009 growth of 0.4 mb/d to 50.9 mb/d. OPEC NGL output in 2009 is trimmed by 0.4 mb/d to 5 mb/d on lower gas output and project delays, implying +0.3 mb/d growth year-on-year.
OPEC crude supply in January fell by an estimated 950 kb/d to 29 mb/d (now excluding Indonesia) as output curbs deepened. Effective OPEC spare capacity is 4.4 mb/d. The ‘call on OPEC crude and stock change’ for 2009 now stands at 28.8 mb/d, at least 1.7 mb/d below 2008, but potentially 1.5 mb/d above OPEC-12 output implied by the current target.
OECD industry stocks fell by 20.1 mb to 2,673 mb in December, but 4Q08 still saw a counter-seasonal build of +170 kb/d on low refinery runs. Forward cover was steady at 57 days, 4.5 days higher on the year. Preliminary January data indicate a further 8 mb stockbuild, while short-term floating storage reportedly rose as high as 50-80 mb.
Global 1Q09 refinery crude throughput is revised down 0.3 mb/d to 71.9 mb/d, 2.0 mb/d lower year-on-year, on the back of weaker demand, run cuts by US and Japanese refiners and heavier US maintenance. Non-OECD weakness is concentrated in China and Other Asia, whose collective throughput is 0.8 mb/d below last year.
Silver Marlin JV
Silver Marlin, Reconcavo Exploration
Quick overview of projects
On 14 February 2007 Eromanga announced a farm-in agreement with Silver Marlin. Silver Marlin was awarded the blocks in the ANP 2005 licensing round.
In total Eromanga had farmed into 5 blocks at 50% participation per block.
Reconcavo 59 Silver Marlin 50%
Reconcavo 79 Silver Marlin 50%
Reconcavo 96 Silver Marlin 50%
Reconcavo 118 Silver Marlin 50%
Reconcavo 138 Silver Marlin 50%
The blocks were awarded to Silver Marlin in Brazil’s 2005 licensing round and cover approximately 140 km2. Under the terms of that licence round, Silver Marlin has 2 years from 12 January 2006 in which it must complete a minimum work programme. To retain any of the blocks for a second exploration period of one year, Silver Marlin must commit to drill one well per block. Eromanga will farm-in to the blocks by paying:
– 100% of the seismic acquisition and processing cost during the first exploration period (to be agreed by the parties); and
– 70% of the cost of the first well in each block where the parties elect to enter the second exploration period; and
– All costs thereafter in proportion to ERH’s participation in the blocks.
Due to the formation structure of 3 of the blocks being rift plays they where relinquished and the JV kept the 2 blocks REC-T-138 and REC-T-59 which were pre-rift plays. The pre-rift plays are proven reservoirs that are widespread throughout the basin, with secondary objectives in the younger, but also proven reservoirs of the Rift play.
Announcement released by Eromanga on the 13/02/09
Blocks 138 and 59
Silver Marlin Joint Venture (ERH 50%, contributing 70%), Reconcavo Basin, Onshore, Brazil Drilling was suspended by the Operator (Silver Marlin) in Block REC-138 at a depth of 820 metres pending the determination by the ANP of a request by the Operator for an extension to the second exploration period for Blocks REC-138 and REC-59. The ANP granted an extension to 2 April 2009. Eromanga has suspended payment of later cash calls until; inter alia the Operator provides evidence that it has:
i) Disbursed approximately BRD 2.5 million contributed by Eromanga directly against expenses associated with the drilling of Blocks REC-138 and REC-59; and
ii) That the Operator has also contributed its 30% share against such costs.
The Operator’s failure to produce this evidence for more than 60 days has resulted in Eromanga today initiating a formal notice of termination under the Participation Agreement to the Operator in respect of Blocks REC-138 and REC-59. Eromanga has taken this action because of the Operator’s breach of its obligations under the Participation Agreements and the Joint Operating Agreements. Eromanga is seeking repayment by the Operator of amounts expended by it in accordance with the Participation Agreements Despite not providing Eromanga with the information it requires, the Operator has proposed revised terms which continue to be commercially unacceptable to Eromanga. Eromanga has just received formal letters of default from the Operator in accordance with the Joint Operating Agreements. These default notices claim drilling costs to date of BRD 2 million (approximately AUD 1.3 million) and costs for both blocks of BRD 5.6 million (approximately AUD 3.8 million). Eromanga strongly disputes these amounts. Eromanga is optimistic that a successful commercial resolution to the above impasse can be negotiated with the Operator.
Quick overview of projects
On 14 February 2007 Eromanga announced a farm-in agreement with Silver Marlin. Silver Marlin was awarded the blocks in the ANP 2005 licensing round.
In total Eromanga had farmed into 5 blocks at 50% participation per block.
Reconcavo 59 Silver Marlin 50%
Reconcavo 79 Silver Marlin 50%
Reconcavo 96 Silver Marlin 50%
Reconcavo 118 Silver Marlin 50%
Reconcavo 138 Silver Marlin 50%
The blocks were awarded to Silver Marlin in Brazil’s 2005 licensing round and cover approximately 140 km2. Under the terms of that licence round, Silver Marlin has 2 years from 12 January 2006 in which it must complete a minimum work programme. To retain any of the blocks for a second exploration period of one year, Silver Marlin must commit to drill one well per block. Eromanga will farm-in to the blocks by paying:
– 100% of the seismic acquisition and processing cost during the first exploration period (to be agreed by the parties); and
– 70% of the cost of the first well in each block where the parties elect to enter the second exploration period; and
– All costs thereafter in proportion to ERH’s participation in the blocks.
Due to the formation structure of 3 of the blocks being rift plays they where relinquished and the JV kept the 2 blocks REC-T-138 and REC-T-59 which were pre-rift plays. The pre-rift plays are proven reservoirs that are widespread throughout the basin, with secondary objectives in the younger, but also proven reservoirs of the Rift play.
Announcement released by Eromanga on the 13/02/09
Blocks 138 and 59
Silver Marlin Joint Venture (ERH 50%, contributing 70%), Reconcavo Basin, Onshore, Brazil Drilling was suspended by the Operator (Silver Marlin) in Block REC-138 at a depth of 820 metres pending the determination by the ANP of a request by the Operator for an extension to the second exploration period for Blocks REC-138 and REC-59. The ANP granted an extension to 2 April 2009. Eromanga has suspended payment of later cash calls until; inter alia the Operator provides evidence that it has:
i) Disbursed approximately BRD 2.5 million contributed by Eromanga directly against expenses associated with the drilling of Blocks REC-138 and REC-59; and
ii) That the Operator has also contributed its 30% share against such costs.
The Operator’s failure to produce this evidence for more than 60 days has resulted in Eromanga today initiating a formal notice of termination under the Participation Agreement to the Operator in respect of Blocks REC-138 and REC-59. Eromanga has taken this action because of the Operator’s breach of its obligations under the Participation Agreements and the Joint Operating Agreements. Eromanga is seeking repayment by the Operator of amounts expended by it in accordance with the Participation Agreements Despite not providing Eromanga with the information it requires, the Operator has proposed revised terms which continue to be commercially unacceptable to Eromanga. Eromanga has just received formal letters of default from the Operator in accordance with the Joint Operating Agreements. These default notices claim drilling costs to date of BRD 2 million (approximately AUD 1.3 million) and costs for both blocks of BRD 5.6 million (approximately AUD 3.8 million). Eromanga strongly disputes these amounts. Eromanga is optimistic that a successful commercial resolution to the above impasse can be negotiated with the Operator.
Block 138
Monday 17 November 2008 Eromanga announced mobilization of a drill rig to Block 138 and then on the 26 November 2008 the company announced that 138 spudded on the 24th of November. On the 4th of December the company announced that the operators had only reached a total depth of 100m due to operational delays. 5 days later on the 9th of December ERH announced the following;
The Operator has today advised that the current well will be plugged and abandoned after various attempts to resume drilling have failed due to a broken conductor pipe preventing further drilling. Drilling has not progressed since the last announcement on Thursday 4 December 2008. The Operator has advised that 13.5 meters of conductor pipe became lodged at a depth of 86 meters. Subsequent fishing operations were only able to recover a 3.5 meter section, the remaining 10 meters of conductor pipe has not been able to be dislodged. The Operator has advised Eromanga that it is preparing extensions for mud flow lines and will move the rig substructure, mast and carrier to setup drilling for a well a few meters from the original location.
17 December 2008 the company announced that they had recommenced drill and where at a total depth of 162meters. On the 24th of December the JV had reach a depth of 820 only 80meter from being half way to total depth of 1800meters.
For me this is where it gets interesting.On the 31st of December ERH announced that it had got to a total depth of 850 meters and had 11 meters of light oil shows at a depth768 to 777 meters. Then on the 7th of January the JV announced that they had stopped drilling at a depth of 850meters due to time frame restrictions based on the minimum work schedule that expired on the 12th of January.
- So in 1 week the operator managed to drill 658meters and if the same pace was maintained, they would have reached the target depth of 1800meters by the 3rd of January. Instead the operator only managed to drill another 30meters within the next 2 weeks. Something else clearly went wrong within this time period.
There has been a concern with Silver Marlin for some of us since the signing of the JV and throughout there has only been a short history with the JV those concerns have only compounded.
Gas and oil insider reported in December 07 that Silver Marlin in this early stage found its self running out of time in its requirements in the minimum work obligations set out by the ANP; here is part of this story
Silver Marlin found itself running out of time to get through the committed work program to advance the leases to a second one year term, with wells to drill in each area. Eromanga came in promising to fund a 2D survey to advance some already-defined leads to drillable status, along with funding 80% of the first well in each block.
For the full story please see link below
http://www.karoongas.com.au/LinkClick.aspx?fileticket=LVKYsp3ktMU%3D&tabid=80&mid=443
Even in this early stage of the JV there where clearly some cash issues with Silver Marlin
• Sometime during the course of last year we also seen Silver Marlins President removed from his position. The former Silver Marlin President Wagner Freire, Wagner had 38 years experience within Brazil's oil industry with some high profile positions including but not limited to CEO for Petrobras between 1985 to 1990 and also having a seat on Brazil's advisory Oil broad during the 1990’s. Reading through some of his press interviews it would have seemed that he was highly admired and respected within the Brazilian oil industry. The post of president has been substituted by Executive Director that will now act with a Board of Directors. Ulisses Andrade, ex-Petrosynergy took over the job as Executive Director. Form this it appears the company board of Directors has taken over the operational running of the company. This would indicate that there have been some major internal issues within the company and boards are not renowned for their ability to deal quickly or efficiently with operational issues
There have been other things that have occur which have also been the course of some anxiety for Eromanga shareholders. For example, the planned timing for the drilling of Block 138 and 59 in the later part of last year which left very little time for dealing with operational problems, this was also during the time when drill rig hire would have been at a premium due to a rush on companies wanting to get rigs secured to meet minimum work obligations. It would also appear that Silver Marlins selection of drill rig was to say the least exorbitant. The drill rig was still on site for some weeks after drilling was suspended, and it still remains unclear whether we were charged hire rates for the drill rig during this down time.
There also appears to be a lack of communication within the JV as it took Silver Marlin a week to report to Eromanga about the conductor pipe mishap in December.
As a conclusion, I would suggest that ERH has found enough oil with the far more reliable Gavea JV to occupy its self during the course of 2009. With the current credit markets in the mess that they are in, I firmly believe that Eromanga would be far better position to focus on blocks 330 and 430 with field development which should be the order of the day and exploration taking a back seat regardless of Silver Marlins cash or business position to date. But with the information provided in this blog update it clearly suggest that Eromanga would be far better off not just walking away from the JV but running.
I can see no advantage of throwing good money after bad with a JV partner that at best, appears to be on the ropes. When 30% cost of exploration funding seems to have been a tall order for Silver Marlin, then the costs of full field development at 50% cash participation rate would seem well out of reach for Silver Marlin and Eromanga is not in a position to go this projects alone with it development commitments at 330 and 430.
Sunday, February 15, 2009
Global oil summary
Have to apologise for my quick cut and paste effort with the OPEC report.
We are still seeing a shrinkage in demand which has pushed us back to around 85m barrels a day and believe it or not but it looks like OPEC is actually doing what they set out to do and all OPEC members except Iraq have cut oil output in January by almost a million barrels a day. According the OPEC report supply now sits at around 84.55mb/d and OPEC cut backs seen it go from producing 29,669,000 barrels a day to producing 28,710,000 a total cut of 959,000 barrels a day. This should leave a short fall of around 520,000 barrels a day based of demand at 85.13mb/d and we should start to reduction in some of the world oil stock piles and hopefully followed closely by an increase of the oil price.
Other things to keep an eye on are the current world oil decline rates.
Russia in steep decline
Mexico in steep decline
Norway in steep decline
North Sea in steep decline
Iran in steep decline
A big eye opener for me was when it was reported in the IEA monthly report that said Australia was called on to increase its production rates to sure up world demand. Australia is famous for lots of things but oil production it’s not famous for.
With the current world oil price and tight credit markets investment in exploration have all but dried up. Here a snippet from the January IEA report; It is still too early to form a definitive view on the extent of cuts in capital expenditure or strategic project slippage due to the combined impact of the financial crisis, a contraction in oil demand and significantly lower oil prices. Many companies have only just started to outline their capex plans for this year and beyond.However, anecdotally the message is fairly stark, even if the impact may be felt more squarely on future, rather than 2009, production. For example, Singapore rig builder Keppel has announced that two orders for new rigs have been cancelled as a result of the credit squeeze. We note elsewhere Saudi Arabia slipping of two of its next generation of capacity expansion projects, and more generally, analysts at Barclays Capital now expect 2009 upstream capex worldwide to contract by 12% after several years of double]digit growth. Lower oil prices and the credit squeeze are likely to have played a greater role than a somewhat lagged reduction in project costs in driving this decrease. We will continue to track these developments in the months ahead.
It’s pretty clear when you start joining the dots that with the declining world oil reserves and the current lack of investment in the oil sector (which won’t get filled quickly as there would be a lot of investors and banks that would have got their fingers burnt during last year’s oil price drop and the credit crunch) that we are heading for another massive spike in the oil price and with some good economic news slowly starting to emerge this could be sooner rather than later.
We are still seeing a shrinkage in demand which has pushed us back to around 85m barrels a day and believe it or not but it looks like OPEC is actually doing what they set out to do and all OPEC members except Iraq have cut oil output in January by almost a million barrels a day. According the OPEC report supply now sits at around 84.55mb/d and OPEC cut backs seen it go from producing 29,669,000 barrels a day to producing 28,710,000 a total cut of 959,000 barrels a day. This should leave a short fall of around 520,000 barrels a day based of demand at 85.13mb/d and we should start to reduction in some of the world oil stock piles and hopefully followed closely by an increase of the oil price.
Other things to keep an eye on are the current world oil decline rates.
Russia in steep decline
Mexico in steep decline
Norway in steep decline
North Sea in steep decline
Iran in steep decline
A big eye opener for me was when it was reported in the IEA monthly report that said Australia was called on to increase its production rates to sure up world demand. Australia is famous for lots of things but oil production it’s not famous for.
With the current world oil price and tight credit markets investment in exploration have all but dried up. Here a snippet from the January IEA report; It is still too early to form a definitive view on the extent of cuts in capital expenditure or strategic project slippage due to the combined impact of the financial crisis, a contraction in oil demand and significantly lower oil prices. Many companies have only just started to outline their capex plans for this year and beyond.However, anecdotally the message is fairly stark, even if the impact may be felt more squarely on future, rather than 2009, production. For example, Singapore rig builder Keppel has announced that two orders for new rigs have been cancelled as a result of the credit squeeze. We note elsewhere Saudi Arabia slipping of two of its next generation of capacity expansion projects, and more generally, analysts at Barclays Capital now expect 2009 upstream capex worldwide to contract by 12% after several years of double]digit growth. Lower oil prices and the credit squeeze are likely to have played a greater role than a somewhat lagged reduction in project costs in driving this decrease. We will continue to track these developments in the months ahead.
It’s pretty clear when you start joining the dots that with the declining world oil reserves and the current lack of investment in the oil sector (which won’t get filled quickly as there would be a lot of investors and banks that would have got their fingers burnt during last year’s oil price drop and the credit crunch) that we are heading for another massive spike in the oil price and with some good economic news slowly starting to emerge this could be sooner rather than later.
Oil Field Glossary
I have made a start albeit a small start on the oil field glossary. I will add to this over the coming weeks and months.
http://www.glossary.oilfield.slb.com/
OIL GLOSSARY
Oil API gravity
The API gravity of oil is basically a measurement of how heavy the oil is. Oil with an API of less than 10 sinks in water and is like a tar like substances. Oil with an API of more than 10 floats on water. The API of the oil at 330a is around 18 and is considered quite heavy. What most will be looking for when ERH release what the API is will be around the 29 - 32 API. But in saying that all oil is good oil. For more info on API please see http://en.wikipedia.org/wiki/API_gravity
Porosity
is a measure of the void spaces in a material. Something that has the porosity of 1 is basically solid like solid granite. Vuggy or vug porosity basically means large holes or even caves. So to put porosity in layman's terms it means how easily a liquid can pass through a material. The higher the porosity the easier it can pass through due to the void space. Anything more than 28% porosity is considered vuggy.For more info on porosity please seehttp://en.wikipedia.org/wiki/Porosity
Stock tank barrels
Standard Volumes vs. Actual Volumes
Epicentre makes a distinction that is often glossed over in the oil industry. That is the distinction between volumes and standard volumes. A volume of (for example) oil could be measured in cubic metres (m3). (Whatever is said about "oil" also holds true for "gas".) Cubic metres is the SI unit of volume. More generally, it can be measured in barrels (bbl), which, in Epicentre, is a customary unit of measure.
But there is another unit of volume: the stock tank barrel (stb). Consider an experiment in which a given amount of oil is cooled (or heated) to 60 degF, and brought to atmospheric pressure. The original volume of oil is altered (usually reduced) to a different volume, due primarily to the removal of dissolved gas. This new volume is called a standard volume. The SI unit for a standard volume (introduced by POSC) is standard cubic metres at 15 degC (scm15C), and the customary unit is the stock tank barrel (stb60).
The initial reaction is to consider the scm15C to be another form of m3. I.e., they are both units of volume, and a distinction should not be made between them. This view fails for two reasons:
1. A given amount of oil can have a volume different from the standard volume.
2. There is no conversion between the volume and the standard volume. The conversion depends on the particular oil sample.
Thus, the standard volume really is a different quantity type, and requires a different unit of measure.
spudding
"spudding" means the very start of drilling on a new well. The American Petroleum Institute offers the following definitions using the word spud:
Spud Contractor Name
The name of the contractor spudding the well.
Spud Date
The day when the drilling bit penetrates the surface utilizing a drilling rig capable of drilling the well to the authorized total depth.
Spud Time
The actual time (hours and minutes) when the drilling bit penetrates the surface utilizing a drilling rig capable of drilling the well to the authorized depth.
Spudding In
The very beginning of drilling operations of a new well.
Permeability
The ability, or measurement of a rock's ability, to transmit fluids, typically measured in darcies or millidarcies. Formations that transmit fluids readily, such as sandstones, are described as permeable and tend to have many large, well-connected pores. Impermeable formations, such as shales and siltstones, tend to be finer grained or of a mixed grain size, with smaller, fewer, or less interconnected pores. Absolute permeability is the measurement of the permeability conducted when a single fluid, or phase, is present in the rock. Effective permeability is the ability to preferentially flow or transmit a particular fluid through a rock when other immiscible fluids are present in the reservoir (for example, effective permeability of gas in a gas-water reservoir). The relative saturations of the fluids as well as the nature of the reservoir affect the effective permeability. Relative permeability is the ratio of effective permeability of a particular fluid at a particular saturation to absolute permeability of that fluid at total saturation. If a single fluid is present in a rock, its relative permeability is 1.0. Calculation of relative permeability allows for comparison of the different abilities of fluids to flow in the presence of each other, since the presence of more than one fluid generally inhibits flow.
http://www.glossary.oilfield.slb.com/
OIL GLOSSARY
Oil API gravity
The API gravity of oil is basically a measurement of how heavy the oil is. Oil with an API of less than 10 sinks in water and is like a tar like substances. Oil with an API of more than 10 floats on water. The API of the oil at 330a is around 18 and is considered quite heavy. What most will be looking for when ERH release what the API is will be around the 29 - 32 API. But in saying that all oil is good oil. For more info on API please see http://en.wikipedia.org/wiki/API_gravity
Porosity
is a measure of the void spaces in a material. Something that has the porosity of 1 is basically solid like solid granite. Vuggy or vug porosity basically means large holes or even caves. So to put porosity in layman's terms it means how easily a liquid can pass through a material. The higher the porosity the easier it can pass through due to the void space. Anything more than 28% porosity is considered vuggy.For more info on porosity please seehttp://en.wikipedia.org/wiki/Porosity
Stock tank barrels
Standard Volumes vs. Actual Volumes
Epicentre makes a distinction that is often glossed over in the oil industry. That is the distinction between volumes and standard volumes. A volume of (for example) oil could be measured in cubic metres (m3). (Whatever is said about "oil" also holds true for "gas".) Cubic metres is the SI unit of volume. More generally, it can be measured in barrels (bbl), which, in Epicentre, is a customary unit of measure.
But there is another unit of volume: the stock tank barrel (stb). Consider an experiment in which a given amount of oil is cooled (or heated) to 60 degF, and brought to atmospheric pressure. The original volume of oil is altered (usually reduced) to a different volume, due primarily to the removal of dissolved gas. This new volume is called a standard volume. The SI unit for a standard volume (introduced by POSC) is standard cubic metres at 15 degC (scm15C), and the customary unit is the stock tank barrel (stb60).
The initial reaction is to consider the scm15C to be another form of m3. I.e., they are both units of volume, and a distinction should not be made between them. This view fails for two reasons:
1. A given amount of oil can have a volume different from the standard volume.
2. There is no conversion between the volume and the standard volume. The conversion depends on the particular oil sample.
Thus, the standard volume really is a different quantity type, and requires a different unit of measure.
spudding
"spudding" means the very start of drilling on a new well. The American Petroleum Institute offers the following definitions using the word spud:
Spud Contractor Name
The name of the contractor spudding the well.
Spud Date
The day when the drilling bit penetrates the surface utilizing a drilling rig capable of drilling the well to the authorized total depth.
Spud Time
The actual time (hours and minutes) when the drilling bit penetrates the surface utilizing a drilling rig capable of drilling the well to the authorized depth.
Spudding In
The very beginning of drilling operations of a new well.
Permeability
The ability, or measurement of a rock's ability, to transmit fluids, typically measured in darcies or millidarcies. Formations that transmit fluids readily, such as sandstones, are described as permeable and tend to have many large, well-connected pores. Impermeable formations, such as shales and siltstones, tend to be finer grained or of a mixed grain size, with smaller, fewer, or less interconnected pores. Absolute permeability is the measurement of the permeability conducted when a single fluid, or phase, is present in the rock. Effective permeability is the ability to preferentially flow or transmit a particular fluid through a rock when other immiscible fluids are present in the reservoir (for example, effective permeability of gas in a gas-water reservoir). The relative saturations of the fluids as well as the nature of the reservoir affect the effective permeability. Relative permeability is the ratio of effective permeability of a particular fluid at a particular saturation to absolute permeability of that fluid at total saturation. If a single fluid is present in a rock, its relative permeability is 1.0. Calculation of relative permeability allows for comparison of the different abilities of fluids to flow in the presence of each other, since the presence of more than one fluid generally inhibits flow.
February OPEC Report high lights
Persistent inventory overhang challenges market
Looking at inventory developments in recent years highlights a few important changes that should be taken into account. These include an increase in days of forward cover, a reduction in inventory requirements in absolute terms and a shift in the longstanding relationship between crude oil inventories and prices.
Another change that has taken place over this period is the break in the long-standing inverse relationship between prices and inventory levels. As Graph 2 shows, the relation between the WTI price and inventories showed a strong correlation between 1995 and 2004 — higher inventories corresponded with lower prices and falling inventories with rising prices. This
relation was broken starting in 2004 when the tight product market balance along with non-fundamental factors began to have a greater influence on prices. During this period, inventory changes did not appear to have a consistent impact on crude oil prices. However, more recent data indicates that this inventory/price relationship might be returning, although it is still too
early to judge.
These changes are reflected in the current overhang in inventories, which has been further accelerated by the deep contango structure in the market. The market’s switch to contango has encouraged traders and others to store excess crude in floating storage to profit from higher forward prices. By the end of January, an estimated 70 to 80 mb oil was being stored offshore in 35 to 40 VLCCs vessels, representing roughly 7 to 8% of the world VLCC fleet. This created an unexpected spike in VLCC freight rates at a time when the market was expecting tanker demand to be lower due to much lower requirements for OPEC oil.
The deep contango and the slowdown in demand in the US have encouraged the accumulation of oil inventories at the key WTI delivery point of Cushing, Oklahoma. As a result, storage has risen sharply and now stands at 34.9 mb, approaching maximum operational capacity. This has led to a distortion in the price of benchmark WTI, which has diverted from broader market fundamentals.
Moreover, governments in the US and China are taking advantage of low prices to fill additional strategic reserves. The US Department of Energy has resumed the filling of SPR with the goal of reaching full capacity of 727 mb. Meanwhile in China, officials have acknowledged that they have been taking advantage of lower crude prices to fill its petroleum reserves.
The high and growing stock levels — particularly for crude oil — are likely to continue to disrupt the overall stability of the market. Their impact will become even more pronounced with the onset of low seasonal demand as well as the upcoming refinery maintenance period. The current state of the market under prevailing supply and demand uncertainties, combined
with the deepening economic crisis worldwide, highlights the necessity and importance of OPEC’s actions to stabilize the market, including most recently the decision taken at Oran. It also demonstrates the need for broad cooperation across the oil industry to meet these challenges.
Crude Oil Price Movements
Highlights of the World Economy
The latest data on the US economy is still painting a relative bleak picture and as in the other
regions the GDP forecast for 2009 has been revised down from -1.5% to -1.7%. As most
indicators are still on the negative side, some of the business sentiment indicators are improving,
although from very low levels. The ISM-manufacturing index improved from 32.9 to 35.6 and its
counterpart, the ISM-service index, moved up from 40.1 to 42.9. Despite these positive
developments, both indicators are still below 50, which means the economy is still expected to
contract. This improvement in sentiment might come partly from confidence being placed in the
new administration and its plan to recover the economy, as well as from the already relatively low expectations for the economy.
Unemployment is still rising and has now touched 7.6%, which is even higher than the previous
peak level in 1992 when unemployment reached 7.5%. Expectations on unemployment now go as high as 8% and more. In the last 12 months, 3.5m jobs have been lost in the US. The last time a figure was this high was in September 1945, briefly after the end of WWII, when a loss of 3.1m
jobs was recorded. This sharp increase in unemployment certainly does not bode well for an
economy in which nearly 70% of GDP is being generated through consumer spending, much of
which is refinanced through consumer loans. Consequently, consumer credit fell 3.1% m-o-m in
December, after already having touched a 65-year low in November of -5.1% m-o-m, the biggest drop since records began in 1943. These figures were again much higher than the market and what most economists anticipated. Not only did the amount of consumer credit decline, but credit defaults also increased. Charge-offs, which occur when credit card issuers give up trying to collect payments on delinquent accounts, climbed to 7.5% last month, 40% higher than a year earlier. Fitch Ratings estimates that this rate may reach 9% in the second half of this year. To put that into perspective, the total credit card debt in the US at the end of 2008 stood at around $950bn. If this trend holds, that means that over the course of 2009 an estimated $80bn in credit card debt might have to be written off.
Consumer spending, the driving force behind the US economy, continued to suffer in December
and is likely to fall even more in the months ahead. Consumer spending fell by 1% from
November to December, larger than the forecast drop of 0.9%, making 2008 the lowest year since1961. Personal income fell by 0.2% for December, down for the third month in a row, and only increased 1.4% for the entire year, accounting for the smallest yearly gain since 2002. Wages, which represent 55% of personal income, fell 0.1%. This sharp decline in the consumption and the still relatively modest fall in incomes can partly be explained by the lower number of employees as well as by the increase in the US savings rate. Personal savings, which rose in November, saw further gains in December to reach 3.6% of disposable personal income. Savings are now at the highest level since May when they were supported by tax rebates. Theimprovement in the personal savings rate is positive in the long term, but obviously negative forspending in the near term.The modest increase in wages of only 1.4% for 2008 in nominal terms looks better in real terms,which still represents a modest income increase as CPI for 2008 was only 0.1% compared to adecrease of 0.7% in December. This was the smallest calendar year increase since the 0.7%decline in 1954 and compares with a 4.1% increase for the 12 months ended December 2007. Theenergy index declined 8.3% in December. The index for all items excluding food and energy wasvirtually unchanged in December. While inflation is not a threat, there might even be some morepressure on the deflationary side, i.e. declining prices, which is preventing consumers fromspending.Considering the muted data, particularly on the consumer-front, the efforts of the newadministration are even more important. The probability that the US consumer will support GDPgrowth over the short term is relatively unlikely, the planned economic stimulus package is noweven more important to not only support US consumption, but also to enforce governmentspending to achieve a quick recovery in GDP growth. Assuming a successful and swift executionof the plan, a turnaround of the economy might be possible in the second half of 2009, but beforethat more negative developments in the US economy could occur.The $789bn stimulus package agreed on in Congress includes $282bn in tax cuts and taxincentives. There is some question as to how much these tax benefits will support consumptionand therefore the real economy. There is also the possibility that these extra funds might be usedto pay back debt or to increase savings instead of using it for consumption and therefore do littleto increase US GDP. In addition to the stimulus package, the Treasury Secretary unveiled abanking rescue plan to clean up the situation in the banking sector. On the same day this plan wasannounced equity markets fell nearly 5%, one of the biggest declines the stock market has everseen. The plan will use the $350bn still available through the TARP fund for further capitalinjections into the banking system. An additional $250 bn — mainly financed by the Fed — willbe used to buy up toxic assets, support consumer loans and avoid foreclosures in the housingsector.In addition to putting a lot of efforts into tax cuts and government spending, the stimulus packageand the banking rescue plan also focus on supporting the US housing market which continues todeteriorate. For 2008, purchases of new houses fell a record 38% to 482,000, to the lowest levelsince 1982, according to the US Commerce Department. The median price for 2008 fell 7%, themost since 1970, to $230,600. The number of vacant homes reached a record of around 19m atthe end of 2008, according to the US Census Bureau. The supply of new homes at the currentsales rate jumped to a record 12.9 months in December, while sales of previously-owned homesrose 6.3% in December, but from very low levels and prices are still falling.The stabilization of the US housing market remains a key challenge as it was the root cause forthe financial crisis and financial institutions are still burdened by mortgage assets and theirderivatives. A stabilization of US house prices could therefore provide important support to easethe current situation.Certainly, the issues in the financial sector have to be solved before the US economy is able torecover. There is still a great deal of uncertainty in the sector and financials are still avoidinglending to one another, so low interest rates and other measures are not meeting the potentialdemand for cash as supply is not making its way into the economy. The OIS-Libor spread –which can be used as a measure of confidence among banks – that had an historic average ofaround 0.15% to 0.25% before the financial crisis evolved in mid-September and peaked inOctober 2008 after the collapse of Lehman at 3.32%, is still currently trading at a level of 0.97%.That means that to refinance itself in the inter-banking market – once the most important marketfor banks to get liquidity– a bank today has to pay nearly one per cent more than in the past torefinance its operations.
Oil prices, the US dollar and inflation
In January, the dollar appreciated against the euro and pound sterling but fell against the yen and
Swiss franc. The dollar rose 1.4% versus the euro and 3.2% vis-à-vis the pound sterling, while
depreciating by 1% versus the yen and 1.5% against the Swiss franc. Against the modified
Geneva I + US dollar basket, the dollar rose more than 0.8% last month compared to a rise of
2.9% in December. Against the euro, the dollar averaged $1.3232/€ in January compared to
$1.3419/€ in December.
The strength of the dollar versus the euro can be attributed to four factors. Firstly, the S&P has
downgraded three Euro-zone countries – Spain, Portugal and Greece – while putting Ireland on
the watch-list. Secondly, the problems in Eastern Europe have put pressure on the euro as the
Euro-zone countries are the main lenders and trading partners to the Eastern European countries.
Thirdly, the sharp fall in Euro-zone exports has led to a decline in demand for euros relative to
other currencies. Fourthly, there are expectations that the European Central Bank will lower
interest rates at its next Governing Council meeting on 5 March, from 2% currently. Regarding
the yen and the Swiss-franc, those currencies have benefited from the status of safe-haven
currencies in uncertain times.
In January, the OPEC Reference Basket rose $2.92/b or 7.6% to $41.52/b from $38.60/b in
December. In real terms (base June 2001=100), after accounting for inflation and currency
fluctuations, the Basket price increased by more than $2.2/b or 8.8% to $27.71/b from $25.46/b.
The dollar appreciated by 0.84%, as measured against the import-weighted modified
Geneva I+US dollar basket, while inflation turned negative to the tune of 0.3%.*
World Oil Demand
US oil demand is considered the major factor behind the vanishing growth in oil demand in
2008. North America alone shaved 1.2 mb/d from world oil demand last year. For the whole
OECD region, the decline reached 1.6 mb/d. This was more than enough to offset all the oil
demand growth from other regions in the world. Although oil prices eased, world economic
turbulence managed to reduce oil demand growth in the non-OECD by one third or 0.2 mb/d in
the second half of 2008. Despite the cold weather in the OECD last December, declining
industrial production pushed oil demand down a further 0.6 mb/d y-o-y world-wide in the
fourth quarter. OECD accounted for 80% or 0.5 mb/d of the downward revision in the fourth
quarter. Other Asia was hammered badly by decreasing exports. As a result, oil demand in
Taiwan and Singapore showed a massive decline pushing regional oil demand into the red for
the first time since 1998.
Thus, world oil demand was revised down by 0.1 mb/d to show a decline of 0.2 mb/d y-o-y in
2008 to average 85.7 mb/d.
World Oil Demand in 2009
World oil demand continues its steep decline from last year and is expected to follow this strong
negative pattern at least for the first three quarters of the year. Oil demand in OECD is
experiencing a steep decline resulting from the region’s economic depression. Demand in
OECD North America, Europe, and the Pacific declined by 1.2 mb/d y-o-y in January.
However, the positive growth in non-OECD demand reduced the world decline to only
0.7 mb/d. Although the OECD regions in general are colder than average by 10% which led to
more demand in heating oil and kerosene, slowing industrial production has suppressed
consumption of industrial fuel
As a result of the continuing deterioration in the global economic outlook, world oil demand has
been revised down a further 0.4 mb/d to show a total decline of 0.6 mb/d in 2009 to average
85.1 mb/d.
Slowing economic activities in the US have suppressed oil demand more than the extra demand
for winter products due to colder weather. Although the decline in oil demand has shrunk in
comparison to last quarter, US consumption is still experiencing a major decline which started
early last year. Gasoline is a key product in total US oil demand. Given the low oil prices,
gasoline retail prices are at the lowest level since 2004 and the decline in demand has leveled
out from the previous steep fall. January gasoline demand is estimated to have declined 1.5%
versus 2.4% last December. The recent rebound in transport fuel is not anticipated to overcome
the huge decline in industrial fuel. As the prospects for the US economy have been
deteriorating, further downward revisions to North America have been implemented.
Non-OPEC supply is estimated to have averaged 50.34 mb/d in 2008, a decline of 0.15 mb/d
from the previous year and a downward revision of 230 tb/d from last month’s assessment. The decline in non-OPEC production marks the first since 1999. Downward revisions were carried out for supply from the USA, Canada, Sudan and China. There were minor upward revisions to supply in various countries, but these were not sufficient to offset lower growth expectations elsewhere. The downward revisions affected all quarters in 2008 with the second and fourth quarters experiencing the largest drops. On a quarterly basis, non-OPEC supply now stands at 50.71 mb/d, 50.54 mb/d, 49.70 mb/d and 50.41 mb/d respectively.
Developing Countries continue to display the highest supply growth as a group in 2008 with
current estimates indicating an increase of 240 tb/d over the previous year. China and the FSU
showed supply growth in 2008, while the OECD maintained a declining trend. On a regional
basis, Latin America indicated the highest growth in 2008 of 210 tb/d, supported by increases of
130 tb/d in Brazil and 60 tb/d in Colombia. In 2008, Brazil showed the biggest supply growth
among all non-OPEC countries. China came next with an oil production increase of around
80 tb/d, followed by the FSU region where production is anticipated to have risen by 40 tb/d,
supported by supply increases from Kazakhstan and Azerbaijan which have more than offset the
decline in Russia estimated at 80 tb/d. The Africa region also displayed growth of around
40 tb/d supported by a supply increase from the Congo and Egypt. The Other Asia Group
showed a minor increase of 10 tb/d mainly from Indonesia, while Vietnam was estimated to
have declined. OECD countries supply is now estimated to have declined by 530 tb/d in 2008.
OECD North America displayed a drop of 370 tb/d while Mexico and Canada displayed a
decline of 310 tb/d and 70 tb/d respectively. US oil supply indicated minor growth of 20 tb/d in
2008. OECD Western Europe showed a decline of 190 tb/d due to lower supply from Norway,
UK and Denmark. OECD Pacific indicated the only supply growth among OECD regions
which is anticipated to be 30 tb/d, mainly from Australia. The Middle East region displayed a
decrease of around 20 tb/d with the decline from Syria and Yemen offsetting the gains
experienced in Oman.
Revisions to the 2008 estimate
Non-OPEC supply in 2008 experienced a significant downward revision of 230 tb/d to reflect
the most recent data. The downward revisions were spread across all quarters with the second
quarter displaying the largest revision. On quarterly basis, non-OPEC supply experienced
downward revisions of 68 tb/d, 374 tb/d, 176 tb/d, and 290 tb/d respectively. Recently received data for Canadian production was the main factor behind this month’s downward revisions. On an annual basis, Canadian oil supply is now estimated to have dropped by 70 tb/d in 2008. On a quarterly basis, Canadian production now stands at 3.28 mb/d, 3.11 mb/d, 3.30 mb/d, and 3.30 mb/d respectively, indicating quarterly downward revisions of 53 tb/d, 338 tb/d, 125 tb/d and 150 tb/d. Additionally, Sudan oil supply experienced a smaller revision of 40 tb/d on the back of adjustments to recently updated production data. Supply from the US and China also underwent minor downward revisions to adjust for actual figures. In contrast, supply estimates for Denmark and Other Latin America experienced minor upward revisions. In the fourth quarter, Australia experienced minor downward revisions due to cyclone disruptions.
Forecast for 2009
Non-OPEC supply is projected to average 50.89 mb/d in 2009, an increase of 0.55 mb/d over
the estimate for last year and a downward revision of 30 tb/d from the previous assessment. The revisions were mostly due to adjustments carried over from the 2008 figure. On a quarterly
basis, non-OPEC supply is expected to average 51.06 mb/d, 50.72 mb/d, 50.64 mb/d, and
51.15 mb/d respectively.
Total OECD countries’ oil supply is anticipated to average 19.50 mb/d in 2009. This represents a drop of 110 tb/d from the previous year and a downward revision of 182 tb/d from last month. This significant downward revision took place due to adjustments to the 2008 level, while the annual decline estimate remains relatively unchanged. North America and Pacific OECD regions are expected to display supply growth in 2009, supported by increases in the US, Canada,
and Australia. The OECD Western Europe region is expected to continue to decline in
2009. The current forecast will be impacted by major uncertainties, mainly due to oil price
developments and the financial situation; hence, careful monitoring is necessary to better
predict the development of OECD supply. On a quarterly basis, OECD oil supply is
estimated to average 19.77 mb/d, 19.45 mb/d, 19.26 mb/d and 19.53 mb/d respectively.
Preliminary data for January put total OECD output at around 19.89 mb/d.
Oil supply from the US is forecast to reach 7.69 mb/d in 2009, an increase of around 170 tb/d over the current 2008 assessment and a downward revision of 33 tb/d from last month. The revisions were introduced mainly in the third and fourth quarters to reflect changes in project startup and ramp-ups. Among the main developments in 2009, the Thunder Horse project is expected to ramp up to peak production of 250 tb/d during the first half of the year. The project was reported to have reached 200 tb/d by the end of 2008. The Blind Faith project, started up in the fourth quarter of 2008 is also expected to reach a plateau of 65 tb/d in the first half of this year. The Tahiti project is expected to start up production in the fourth quarter. Moreover, the remaining shut-in production in the US Gulf of Mexico due to hurricanes Gustav and Ike — estimated by the US MMS at 11% in mid January — is expected to return to normal operations and add further volume. However, a considerable portion of ethanol production capacity was reported to be idle due to unfavourable economic conditions. Such issues spell significant risk to the forecast and will require close monitoring. On a quarterly basis, US oil supply is estimated at 7.63 mb/d, 7.67 mb/d, 7.66 mb/d and 7.79 mb/d respectively. According to preliminary data, US oil supply in January stood at 7.72 mb/d.
Canada and Mexico
Canadian oil supply is expected to increase 90 tb/d in 2009 to average 3.34 mb/d, following a
downward revision of 130 tb/d from previous forecast, mainly due to changes in the 2008 base
volume. Supply growth is supported by different oil sand projects such as the Long Lake
development. However, Canadian supply in 2009 faces major uncertainties as price developments have forced producers to cut output and slash spending. Additionally, maintenance in the offshore East Coast is expected to have an effect on supply, yet the risk of prolonged maintenance may further shave expected growth. On a quarterly basis, Canada production stands at 3.32 mb/d, 3.28 mb/d, 3.34 mb/d and 3.41 mb/d respectively. According to preliminary data, Canadian oil supply stood at 3.29 mb/d in January.
Oil supply from Mexico is projected to decline in 2009 by 180 tb/d to average 2.99 mb/d, broadly unchanged from the previous assessment. The declining trend is expected to continue with Mexico’s main producing field, Canterell, facing an accelerated decline which new volume from other developments are unable to offset. The Ku-Maloob-Zapp (KMZ) project is anticipated to continue ramping up in 2009. On a quarterly basis, Mexico oil supply is expected to stand at 3.10 mb/d, 2.97 mb/d, 2.98mb/d and 2.91 mb/d respectively.
OECD Western Europe oil supply is projected to drop by around 260 tb/d in 2009 to average
4.78 mb/d, indicating a minor downward revision of 10 tb/d from the previous month. Norway,
UK and Denmark are expected to decrease in 2009 causing the region to have the largest decline among all non-OPEC regions. On a quarterly basis, OECD Western Europe production stands at 5.02 mb/d, 4.83 mb/d, 4.56 mb/d and 4.73 mb/d respectively. Preliminary January data suggest a production level of 5.06 mb/d.
Oil supply from Norway is expected to decline by around 120 tb/d in 2009 to average 2.34 mb/d, relatively unchanged from previous month. A handful of new startups are expected in 2009 such as the Rev and Yttergryta condensate fields that have already added small volumes along with developments such as Tyrihans, Oseberg and YME. However, the new barrels are not expected to be sufficient to stem declines in mature fields. On a quarterly basis, Norway supply stands at 2.47 mb/d, 2.34 mb/d, 2.19 mb/d and 2.35 mb/d respectively. January preliminary data indicate Norway’s supply at 2.45 mb/d, down 110 tb/d from the previous month.
UK oil supply is projected to average 1.43 mb/d in 2009, displaying a fall of around 140 tb/d from the previous year, unchanged from last month’s assessment. The natural decline is anticipated to trim UK supply as the minor supply addition is not expected to offset the majority of the decline. On a quarterly basis, UK oil supply stands at 1.51 mb/d, 1.46 mb/d, 1.38 mb/d and 1.37 mb/d respectively.
Asia Pacific
Oil supply in this group is expected to grow by around 70 tb/d in 2009 from the previous year to reach 0.70 mb/d, indicating a minor downward revision of around 20 tb/d from previous month’s estimate. On a quarterly basis, supply is expected to average 0.69 mb/d, 0.71 mb/d, 0.72 mb/d and 0.68 mb/d respectively.
Oil supply from Australia is expected to average 0.58 mb/d in 2009, representing an increase of
around 50 tb/d and a minor downward revision of 17 tb/d from previous month. The impact of the cyclone season on Australian production, with the majority of the Western Australia output shut down for a number of days as a precaution measure, resulted in a downward revision which was carried mainly on the first quarter. On a quarterly basis, production stands at 0.58 mb/d,
0.59 mb/d, 0.60 mb/d and 0.56 mb/d respectively.
New Zealand’s oil supply forecast remained unchanged while the startup of the Maari project is
expected in the first quarter of 2009.
Brazil to add 180 tb/d in 2009
Latin America is expected to grow by 0.20 mb/d to average 4.29 mb/d in 2009, representing a
downward revision of 23 tb/d. Part of the downward revision comes from changes to Argentina’s
base, as well as minor downward revisions to Brazil. Brazil remains on the top of the list of
countries expected to add volumes to 2009 with supply growth of around 180 tb/d supported by startup and ramp-up of projects like the Roncador, Frade, and Marlim Leste. Additionally,
Colombia is also expected to add 50 tb/d in 2009, while Argentina is estimated to drop around
40 tb/d. On a quarterly basis, Latin America supply stands at 4.18 mb/d, 4.24 mb/d, 4.36 mb/d and4.37 mb/d respectively.
Russia
Oil supply from Russia is forecast to average 9.67 mb/d in 2009, a drop of around 110 tb/d from the 2008 level and relatively unchanged from last month’s assessment. While new volumes in 2009 are seen coming from projects such as Vankor, Uvat, Yuzhno-Khlyuchu, the expected reduction in spending as well as natural declines are expected to offset new barrels. Most major Russian operators announced spending cuts in response to lower oil prices, which will affect short-term as well as nearterm production. However, as the year unfolds, oil price direction will impact the production level. These uncertainties create difficulties in predicting the behavior of Russia supply and require careful monitoring. On a quarterly basis, Russian oil supply is estimated to average 9.74 mb/d, 9.67 mb/d, 9.66 mb/d and 9.63 mb/d respectively. Preliminary data indicate that January production reached 9.80 mb/d.
OPEC crude oil production
Total OPEC crude oil production averaged 28.71 mb/d in January, according to secondary
sources, down 959 tb/d from the previous month. All Member Countries saw a decline in crude
oil production, except Iraq, with Saudi Arabia indicating the largest drop followed by Angola
and Iran. OPEC, not including Iraq production, stood at 26.33 mb/d, down 965 tb/d from
December.
World Oil Supply
Preliminary figures indicate that global oil supply fell 0.39 mb/d in January to average
84.55 mb/d. Non-OPEC supply experienced an increase of around 0.57 mb/d while OPEC crude
declined. The share of OPEC crude oil in global production declined slightly to 33.9% in
January. The estimate is based on preliminary data for non-OPEC supply, estimates for OPEC
NGLs and OPEC crude production from secondary sources.
Balance of Supply and Demand
Demand for OPEC crude is estimated to average 30.9 mb/d, indicating a decline of 440 tb/d. This represents a slight revision from last month due to a downward revision in non-OPEC supply. On a quarterly basis, demand for OPEC crude is estimated at 31.7 mb/d 30.4 mb/d 30.8 mb/d and 30.8 mb/d respectively.
Demand for OPEC crude has been revised down by 0.2 mb/d to reflect lower than expected growth in world oil demand. Required OPEC crude in now forecast at 29.2 mb/d, a decline of 1.7 mb/d from the estimated 2008 figure. In quarterly terms, demand for OPEC crude is now expected at 29.7 mb/d, 28.7mb/d, 28.8 mb/d and 29.6 mb/d respectively. Demand for OPEC crude in the first three quarters is estimated to show a strong decline of around 2.0 mb/d compared to the same period last year while the fourth quarter is expected to decline by around 1.2 mb/d.
OPEC spot fixtures increased 20% in January over the previous month to reach 13.02 mb/d, according to preliminary data. The increase is mainly due to a very low spot fixtures level in the base month. OPEC fixtures from the Middle East increased by 35% in January, while those from outside the Middle East increased by 6%. Within the Middle East, spot fixtures towards the East displayed the highest monthly increase, while those towards the West were almost
steady. The Middle East/East spot fixtures ended the month at 5.87 mb/d, up from 4.05 mb/d in December, while the Middle East/West route ended the month at 1.12 mb/d, slightly up from 1.1 mb/d. Despite the increase over the previous month, OPEC spot fixtures in January indicated a decline of 9% over the same month last year. Similarly, global spot fixtures increased in January by 23% compared to the previous month to stand at 19.46 mb/d, but were
about 11% lower compared to the same month last year.
Sailings from OPEC were 5% lower in January, at 19.9 mb/d, down from 20.9 mb/d in the previous month, and were also 18% lower than a year ago. Middle East sailings in January were at 14.3 mb/d, about 5% lower than in the previous month and 19% lower than at a year earlier.
Crude oil arrivals in the USA increased by 3% in December over the previous month. Crude oil trade figures indicate that US crude oil imports were higher in January compared to the previous month, supporting the increase in crude arrivals to this country. Crude oil arrivals to North-West Europe, the Mediterranean and Japan were all lower in January compared to the month before.
The crude oil tanker market was under increasing pressure from boosted tonnage availability on many key routes in January as a result of OPEC production cuts and the ongoing global economic crisis. However, the continued contango structure in crude markets in January played a major role in preventing dirty freight rates from incurring deeper declines, especially because
of the impact on the VLCC vessel sector which enjoyed unexpected higher demand due to the increased interest of some market participants to store crude at sea. In January, VLCCs were still being used as storage in the Middle East, the US Gulf Coast, Asia and the North Sea, a process that actually started earlier during 4Q08, but gained more momentum throughout most of the month. Although there were signs towards the end of the month that the contango is easing slightly which might strongly influence spot freight rates during the coming months,
estimates still put the number of VLCCs being tied up in storage in January at about 40 vessels which makes about 8% of the VLCC global fleet. Bad weather and port closures to the west of Suez influenced spot freight rates in January, especially for both Suezmax and Aframax vessels, but the overall effect was relatively less than in the previous month.
Taking the top three vessel categories into consideration and their nine main reported routes, spot freight rates for crude oil tankers were generally lower in January compared to both the previous month and the same month last year. In January, month-to-month freight rate comparisons based on nominal world scale figures do not represent the actual fluctuations in the market, as rates for this month are based on the new flat rates for 2009 which are considerably higher than those for 2008. Comparisons only give valid interpretations when
referring to the same flat rate figures. In general, VLCC new flat rates are about 38% higher in 2009 compared to 2008. Suezmax and Aframax rates are 36% and 34% higher respectively, while flat rates for the three dirty tanker categories are 36% higher on average. A better representative for the fluctuations in freight rates in January 2009 compared to the month before would be to compare the dollar cost per barrel reflected by the two Worldscale figures, each related to its flat-rate base. According to this, the Aframax sector to the west of Suez witnessed the sharpest drop in freight rates in January from the month before. This comes as no
surprise as it was this sector of the market that witnessed the sharpest increase in the previous month, taking advantage of weather-related conditions and many port closures in the region.
Freight rates for the Suezmax sector also dropped in January, while the VLCC sector ended the month with a minor gain. To complete the picture, average dirty freight rates declined by about 21% in January from the previous month.
On average, the VLCC spot freight rates were slightly more than 1% higher in January over the previous month. Extra demand for VLCCs for storage purposes in January and higher crude oil lifting by China to accelerate the process of filling up its Strategic Petroleum Reserves were the factors behind the relative firmness of this sector of vessels compared to other sectors. Spot
freight rates for VLCCs trading on the long haul route from the Middle East to the East, which had already increased by 10% the month before, gained a further 3% in January on a dollarper- barrel basis. Most of the increases in freight rates on this route took place during the second and third weeks of the month, and eased towards the end of the month due to thin activity and tonnage build-up as most of the Eastern charterers left the market for the Lunar New Year. Spot freight rates on this route started the month at around WS48, climbing to WS71 by the end of the third week and then ended the month at WS52. Middle East to West spot freight rates closed the month with a gain of 7% in January over the previous month. It was the highest increase compared to other VLCC routes. Throughout the month, freight rates on this route peaked at the end of the third week at WS49 before ending at WS35 with a monthly average of WS42. On the other hand, VLCC spot freight rates for voyages from West Africa to East were within a range of between WS50 to WS60 throughout the month, ending with an average of WS57 for a decline of roughly 5% from the previous month. Lower West African exports to Asia in January, in addition to weaker Suezmax spot freight rates in this region, were behind the relative weakness of this market.
Looking at inventory developments in recent years highlights a few important changes that should be taken into account. These include an increase in days of forward cover, a reduction in inventory requirements in absolute terms and a shift in the longstanding relationship between crude oil inventories and prices.
Graph 1 shows a steady decline in OECD days of forward cover to 51 days while absolute stock levels have continued to fluctuate around the same level. This was largely due to the widespread adoption of “just-in-time” inventory management which sought efficiencies by reducing stocks and hence the costs of holding inventories. However, since 2005, forward demand cover has begun to increase, to now approach 57 days, despite just-in-time management. In addition, inventory requirements have declined due to the reduced impact of seasonality. This can be seen in seasonal changes in demand which has fallen from an average of 3.9 mb/d over the period 1995-2005 to just 2.5 mb/d in the last three years. As a result, the
seasonal impact on stocks has also declined from around 180 mb to 110 mb. This implies lower inventory requirements during periods of peak consumption.
seasonal impact on stocks has also declined from around 180 mb to 110 mb. This implies lower inventory requirements during periods of peak consumption.
Another change that has taken place over this period is the break in the long-standing inverse relationship between prices and inventory levels. As Graph 2 shows, the relation between the WTI price and inventories showed a strong correlation between 1995 and 2004 — higher inventories corresponded with lower prices and falling inventories with rising prices. This
relation was broken starting in 2004 when the tight product market balance along with non-fundamental factors began to have a greater influence on prices. During this period, inventory changes did not appear to have a consistent impact on crude oil prices. However, more recent data indicates that this inventory/price relationship might be returning, although it is still too
early to judge.
These changes are reflected in the current overhang in inventories, which has been further accelerated by the deep contango structure in the market. The market’s switch to contango has encouraged traders and others to store excess crude in floating storage to profit from higher forward prices. By the end of January, an estimated 70 to 80 mb oil was being stored offshore in 35 to 40 VLCCs vessels, representing roughly 7 to 8% of the world VLCC fleet. This created an unexpected spike in VLCC freight rates at a time when the market was expecting tanker demand to be lower due to much lower requirements for OPEC oil.
The deep contango and the slowdown in demand in the US have encouraged the accumulation of oil inventories at the key WTI delivery point of Cushing, Oklahoma. As a result, storage has risen sharply and now stands at 34.9 mb, approaching maximum operational capacity. This has led to a distortion in the price of benchmark WTI, which has diverted from broader market fundamentals.
Moreover, governments in the US and China are taking advantage of low prices to fill additional strategic reserves. The US Department of Energy has resumed the filling of SPR with the goal of reaching full capacity of 727 mb. Meanwhile in China, officials have acknowledged that they have been taking advantage of lower crude prices to fill its petroleum reserves.
The high and growing stock levels — particularly for crude oil — are likely to continue to disrupt the overall stability of the market. Their impact will become even more pronounced with the onset of low seasonal demand as well as the upcoming refinery maintenance period. The current state of the market under prevailing supply and demand uncertainties, combined
with the deepening economic crisis worldwide, highlights the necessity and importance of OPEC’s actions to stabilize the market, including most recently the decision taken at Oran. It also demonstrates the need for broad cooperation across the oil industry to meet these challenges.
Crude Oil Price Movements
The crude oil market began the year ona bullish note amid a conflict in theMiddle East and a mounting disputeregarding Russian natural gas supplies.With the new calculation excluding Indonesia’s Minas, the OPECReference Basket rose as high as$46.26/b in daily terms. However,bleak economic data continued to pointto weaker demand growth, pushingprices to below $42/b later in the week.The Basket averaged $43.98/b in thefirst week, representing a jump of21%. In the second week, marketsentiment softened amid an announcedresolution to the Russian natural gas dispute. US dollar volatility added to market bearishmomentum, although OPEC supply adjustments and improved refining margins capped thedownward trend. The ORB averaged $3.07 or 7% lower in the second week to settle at $40.91/b.The market continued the downward move in the third week amid a UK bank posting thenation’s largest loss reviving fears of an economic downturn. However, a cold snap and ongoinghealthy refining margins prevented further losses. The strengthening of the US dollar and thegloomy economic outlook capped the upward trend later in the week. The Basket averaged thethird week down 2% or 83¢ to settle at $40.08/b.The upward volatility sustained into thefourth week amid tighter OPEC supply,cold weather in North America and aslip in the US dollar against majorcurrencies. In contrast, the weak economic outlook weighed on marketsentiment. Heightened demand forwinter fuels improved refining marginsin the final week of the month. Effortsto craft a US stimulus plan provided some support. The Basket rose 3.4% or$1.35 in the fourth week to settle at$41.43/b. US dollar fluctuations andfears of an economic downturnoutweighed data showing lower supply.On a monthly basis, the crude oil market emerged in the New Year on a bullish note amid tighter OPEC output, Middle East geopolitical tensions and the disruption in Russian natural gas supplies. As the latter abated, market strength eased. A cold winter in the US and Europe along with the resulting improvement in refining margins kept some market bullishness intact.Nonetheless, the dismal economic outlook was seen to continue denting crude oil demand. US dollar fluctuations and the efforts to put together a US stimulus plan revived market volatility.With the new calculation excluding Indonesia’s Minas, the OPEC Reference Basket rose $2.92or 7.6% to stand at $41.52/b in January. In February, the Basket remained in the lower $40/brange. The stimulus plan along with refinery work in the US and the UK maintained some bullishness which offset poor economic data and declining demand. The Basket stood at$41.79/b on 12 February.
Highlights of the World Economy
The latest data on the US economy is still painting a relative bleak picture and as in the other
regions the GDP forecast for 2009 has been revised down from -1.5% to -1.7%. As most
indicators are still on the negative side, some of the business sentiment indicators are improving,
although from very low levels. The ISM-manufacturing index improved from 32.9 to 35.6 and its
counterpart, the ISM-service index, moved up from 40.1 to 42.9. Despite these positive
developments, both indicators are still below 50, which means the economy is still expected to
contract. This improvement in sentiment might come partly from confidence being placed in the
new administration and its plan to recover the economy, as well as from the already relatively low expectations for the economy.
Unemployment is still rising and has now touched 7.6%, which is even higher than the previous
peak level in 1992 when unemployment reached 7.5%. Expectations on unemployment now go as high as 8% and more. In the last 12 months, 3.5m jobs have been lost in the US. The last time a figure was this high was in September 1945, briefly after the end of WWII, when a loss of 3.1m
jobs was recorded. This sharp increase in unemployment certainly does not bode well for an
economy in which nearly 70% of GDP is being generated through consumer spending, much of
which is refinanced through consumer loans. Consequently, consumer credit fell 3.1% m-o-m in
December, after already having touched a 65-year low in November of -5.1% m-o-m, the biggest drop since records began in 1943. These figures were again much higher than the market and what most economists anticipated. Not only did the amount of consumer credit decline, but credit defaults also increased. Charge-offs, which occur when credit card issuers give up trying to collect payments on delinquent accounts, climbed to 7.5% last month, 40% higher than a year earlier. Fitch Ratings estimates that this rate may reach 9% in the second half of this year. To put that into perspective, the total credit card debt in the US at the end of 2008 stood at around $950bn. If this trend holds, that means that over the course of 2009 an estimated $80bn in credit card debt might have to be written off.
Consumer spending, the driving force behind the US economy, continued to suffer in December
and is likely to fall even more in the months ahead. Consumer spending fell by 1% from
November to December, larger than the forecast drop of 0.9%, making 2008 the lowest year since1961. Personal income fell by 0.2% for December, down for the third month in a row, and only increased 1.4% for the entire year, accounting for the smallest yearly gain since 2002. Wages, which represent 55% of personal income, fell 0.1%. This sharp decline in the consumption and the still relatively modest fall in incomes can partly be explained by the lower number of employees as well as by the increase in the US savings rate. Personal savings, which rose in November, saw further gains in December to reach 3.6% of disposable personal income. Savings are now at the highest level since May when they were supported by tax rebates. Theimprovement in the personal savings rate is positive in the long term, but obviously negative forspending in the near term.The modest increase in wages of only 1.4% for 2008 in nominal terms looks better in real terms,which still represents a modest income increase as CPI for 2008 was only 0.1% compared to adecrease of 0.7% in December. This was the smallest calendar year increase since the 0.7%decline in 1954 and compares with a 4.1% increase for the 12 months ended December 2007. Theenergy index declined 8.3% in December. The index for all items excluding food and energy wasvirtually unchanged in December. While inflation is not a threat, there might even be some morepressure on the deflationary side, i.e. declining prices, which is preventing consumers fromspending.Considering the muted data, particularly on the consumer-front, the efforts of the newadministration are even more important. The probability that the US consumer will support GDPgrowth over the short term is relatively unlikely, the planned economic stimulus package is noweven more important to not only support US consumption, but also to enforce governmentspending to achieve a quick recovery in GDP growth. Assuming a successful and swift executionof the plan, a turnaround of the economy might be possible in the second half of 2009, but beforethat more negative developments in the US economy could occur.The $789bn stimulus package agreed on in Congress includes $282bn in tax cuts and taxincentives. There is some question as to how much these tax benefits will support consumptionand therefore the real economy. There is also the possibility that these extra funds might be usedto pay back debt or to increase savings instead of using it for consumption and therefore do littleto increase US GDP. In addition to the stimulus package, the Treasury Secretary unveiled abanking rescue plan to clean up the situation in the banking sector. On the same day this plan wasannounced equity markets fell nearly 5%, one of the biggest declines the stock market has everseen. The plan will use the $350bn still available through the TARP fund for further capitalinjections into the banking system. An additional $250 bn — mainly financed by the Fed — willbe used to buy up toxic assets, support consumer loans and avoid foreclosures in the housingsector.In addition to putting a lot of efforts into tax cuts and government spending, the stimulus packageand the banking rescue plan also focus on supporting the US housing market which continues todeteriorate. For 2008, purchases of new houses fell a record 38% to 482,000, to the lowest levelsince 1982, according to the US Commerce Department. The median price for 2008 fell 7%, themost since 1970, to $230,600. The number of vacant homes reached a record of around 19m atthe end of 2008, according to the US Census Bureau. The supply of new homes at the currentsales rate jumped to a record 12.9 months in December, while sales of previously-owned homesrose 6.3% in December, but from very low levels and prices are still falling.The stabilization of the US housing market remains a key challenge as it was the root cause forthe financial crisis and financial institutions are still burdened by mortgage assets and theirderivatives. A stabilization of US house prices could therefore provide important support to easethe current situation.Certainly, the issues in the financial sector have to be solved before the US economy is able torecover. There is still a great deal of uncertainty in the sector and financials are still avoidinglending to one another, so low interest rates and other measures are not meeting the potentialdemand for cash as supply is not making its way into the economy. The OIS-Libor spread –which can be used as a measure of confidence among banks – that had an historic average ofaround 0.15% to 0.25% before the financial crisis evolved in mid-September and peaked inOctober 2008 after the collapse of Lehman at 3.32%, is still currently trading at a level of 0.97%.That means that to refinance itself in the inter-banking market – once the most important marketfor banks to get liquidity– a bank today has to pay nearly one per cent more than in the past torefinance its operations.
Oil prices, the US dollar and inflation
In January, the dollar appreciated against the euro and pound sterling but fell against the yen and
Swiss franc. The dollar rose 1.4% versus the euro and 3.2% vis-à-vis the pound sterling, while
depreciating by 1% versus the yen and 1.5% against the Swiss franc. Against the modified
Geneva I + US dollar basket, the dollar rose more than 0.8% last month compared to a rise of
2.9% in December. Against the euro, the dollar averaged $1.3232/€ in January compared to
$1.3419/€ in December.
The strength of the dollar versus the euro can be attributed to four factors. Firstly, the S&P has
downgraded three Euro-zone countries – Spain, Portugal and Greece – while putting Ireland on
the watch-list. Secondly, the problems in Eastern Europe have put pressure on the euro as the
Euro-zone countries are the main lenders and trading partners to the Eastern European countries.
Thirdly, the sharp fall in Euro-zone exports has led to a decline in demand for euros relative to
other currencies. Fourthly, there are expectations that the European Central Bank will lower
interest rates at its next Governing Council meeting on 5 March, from 2% currently. Regarding
the yen and the Swiss-franc, those currencies have benefited from the status of safe-haven
currencies in uncertain times.
In January, the OPEC Reference Basket rose $2.92/b or 7.6% to $41.52/b from $38.60/b in
December. In real terms (base June 2001=100), after accounting for inflation and currency
fluctuations, the Basket price increased by more than $2.2/b or 8.8% to $27.71/b from $25.46/b.
The dollar appreciated by 0.84%, as measured against the import-weighted modified
Geneva I+US dollar basket, while inflation turned negative to the tune of 0.3%.*
World Oil Demand
US oil demand is considered the major factor behind the vanishing growth in oil demand in
2008. North America alone shaved 1.2 mb/d from world oil demand last year. For the whole
OECD region, the decline reached 1.6 mb/d. This was more than enough to offset all the oil
demand growth from other regions in the world. Although oil prices eased, world economic
turbulence managed to reduce oil demand growth in the non-OECD by one third or 0.2 mb/d in
the second half of 2008. Despite the cold weather in the OECD last December, declining
industrial production pushed oil demand down a further 0.6 mb/d y-o-y world-wide in the
fourth quarter. OECD accounted for 80% or 0.5 mb/d of the downward revision in the fourth
quarter. Other Asia was hammered badly by decreasing exports. As a result, oil demand in
Taiwan and Singapore showed a massive decline pushing regional oil demand into the red for
the first time since 1998.
Thus, world oil demand was revised down by 0.1 mb/d to show a decline of 0.2 mb/d y-o-y in
2008 to average 85.7 mb/d.
World Oil Demand in 2009
World oil demand continues its steep decline from last year and is expected to follow this strong
negative pattern at least for the first three quarters of the year. Oil demand in OECD is
experiencing a steep decline resulting from the region’s economic depression. Demand in
OECD North America, Europe, and the Pacific declined by 1.2 mb/d y-o-y in January.
However, the positive growth in non-OECD demand reduced the world decline to only
0.7 mb/d. Although the OECD regions in general are colder than average by 10% which led to
more demand in heating oil and kerosene, slowing industrial production has suppressed
consumption of industrial fuel
As a result of the continuing deterioration in the global economic outlook, world oil demand has
been revised down a further 0.4 mb/d to show a total decline of 0.6 mb/d in 2009 to average
85.1 mb/d.
Slowing economic activities in the US have suppressed oil demand more than the extra demand
for winter products due to colder weather. Although the decline in oil demand has shrunk in
comparison to last quarter, US consumption is still experiencing a major decline which started
early last year. Gasoline is a key product in total US oil demand. Given the low oil prices,
gasoline retail prices are at the lowest level since 2004 and the decline in demand has leveled
out from the previous steep fall. January gasoline demand is estimated to have declined 1.5%
versus 2.4% last December. The recent rebound in transport fuel is not anticipated to overcome
the huge decline in industrial fuel. As the prospects for the US economy have been
deteriorating, further downward revisions to North America have been implemented.
The weather in North America in January is colder than normal by almost 10% leading toincreased consumption of winter products, which has to some degree reduced the decline indemand. Although US oil demand is forecast to decline this year, the amount of decline will bedependent upon economic behavior and the reaction to government stimulus efforts. Thepetrochemical industry is showing reduced activities as a result of low industrial productionleading to a huge decline in certain fuels and feed stocks. Distillate demand dipped 5% y-o-y inJanuary leading to a total decline of 0.86 mb/d. Although the decline in US oil demand is large,it has rebounded 0.23 mb/d since December. Given the 1.2 mb/d decline in US oil demand lastyear and expected economic improvements in the second half of the year, the decline in oildemand this year is expected to be somewhat less than last year.Furthermore, the new US administration is pushing fuel economy standards extensively withthe aim of raising them from 25 mpg to 35 mpg. This of course would have an impact on futuregasoline demand in the mid-term which poses a big question on whether this will lead to a peakin gasoline demand in North America.US ethanol production has been affected negatively by both economic turbulence and low oilprices. Reduction in production capacity is estimated at 20% so far. The future of this industrywill depend on how much the government is willing to subsidize it and with the bad economicsituation, how long the government can afford to continue to bail it out.Contrary to US oil demand behavior, Mexican oil demand showed a plus last year with the helpof transport fuel, mainly gasoline. Gasoline and diesel demand grew sharply last year by 4.2%and 6.8% y-o-y despite high oil prices in early 2008. Industrial fuel declined sharply as a resultof low exports; however, the growth in transport fuel was more than enough to offset thisdecline leading to total growth of 0.7% in 2008.The decline in North America oil demand is expected to bottom out at around 0.7 mb/d in thesecond quarter of 2009 and then bounce back to a minus 0.4 mb/d in the last quarter. NorthAmerican oil demand is forecast to decline by 0.6 mb/d in 2009 to average 23.8 mb/d.
World Oil Supply
Non-OPEC
Estimate for 2008
Estimate for 2008
Non-OPEC supply is estimated to have averaged 50.34 mb/d in 2008, a decline of 0.15 mb/d
from the previous year and a downward revision of 230 tb/d from last month’s assessment. The decline in non-OPEC production marks the first since 1999. Downward revisions were carried out for supply from the USA, Canada, Sudan and China. There were minor upward revisions to supply in various countries, but these were not sufficient to offset lower growth expectations elsewhere. The downward revisions affected all quarters in 2008 with the second and fourth quarters experiencing the largest drops. On a quarterly basis, non-OPEC supply now stands at 50.71 mb/d, 50.54 mb/d, 49.70 mb/d and 50.41 mb/d respectively.
Developing Countries continue to display the highest supply growth as a group in 2008 with
current estimates indicating an increase of 240 tb/d over the previous year. China and the FSU
showed supply growth in 2008, while the OECD maintained a declining trend. On a regional
basis, Latin America indicated the highest growth in 2008 of 210 tb/d, supported by increases of
130 tb/d in Brazil and 60 tb/d in Colombia. In 2008, Brazil showed the biggest supply growth
among all non-OPEC countries. China came next with an oil production increase of around
80 tb/d, followed by the FSU region where production is anticipated to have risen by 40 tb/d,
supported by supply increases from Kazakhstan and Azerbaijan which have more than offset the
decline in Russia estimated at 80 tb/d. The Africa region also displayed growth of around
40 tb/d supported by a supply increase from the Congo and Egypt. The Other Asia Group
showed a minor increase of 10 tb/d mainly from Indonesia, while Vietnam was estimated to
have declined. OECD countries supply is now estimated to have declined by 530 tb/d in 2008.
OECD North America displayed a drop of 370 tb/d while Mexico and Canada displayed a
decline of 310 tb/d and 70 tb/d respectively. US oil supply indicated minor growth of 20 tb/d in
2008. OECD Western Europe showed a decline of 190 tb/d due to lower supply from Norway,
UK and Denmark. OECD Pacific indicated the only supply growth among OECD regions
which is anticipated to be 30 tb/d, mainly from Australia. The Middle East region displayed a
decrease of around 20 tb/d with the decline from Syria and Yemen offsetting the gains
experienced in Oman.
Revisions to the 2008 estimate
Non-OPEC supply in 2008 experienced a significant downward revision of 230 tb/d to reflect
the most recent data. The downward revisions were spread across all quarters with the second
quarter displaying the largest revision. On quarterly basis, non-OPEC supply experienced
downward revisions of 68 tb/d, 374 tb/d, 176 tb/d, and 290 tb/d respectively. Recently received data for Canadian production was the main factor behind this month’s downward revisions. On an annual basis, Canadian oil supply is now estimated to have dropped by 70 tb/d in 2008. On a quarterly basis, Canadian production now stands at 3.28 mb/d, 3.11 mb/d, 3.30 mb/d, and 3.30 mb/d respectively, indicating quarterly downward revisions of 53 tb/d, 338 tb/d, 125 tb/d and 150 tb/d. Additionally, Sudan oil supply experienced a smaller revision of 40 tb/d on the back of adjustments to recently updated production data. Supply from the US and China also underwent minor downward revisions to adjust for actual figures. In contrast, supply estimates for Denmark and Other Latin America experienced minor upward revisions. In the fourth quarter, Australia experienced minor downward revisions due to cyclone disruptions.
Forecast for 2009
Non-OPEC supply is projected to average 50.89 mb/d in 2009, an increase of 0.55 mb/d over
the estimate for last year and a downward revision of 30 tb/d from the previous assessment. The revisions were mostly due to adjustments carried over from the 2008 figure. On a quarterly
basis, non-OPEC supply is expected to average 51.06 mb/d, 50.72 mb/d, 50.64 mb/d, and
51.15 mb/d respectively.
OECD
Total OECD countries’ oil supply is anticipated to average 19.50 mb/d in 2009. This represents a drop of 110 tb/d from the previous year and a downward revision of 182 tb/d from last month. This significant downward revision took place due to adjustments to the 2008 level, while the annual decline estimate remains relatively unchanged. North America and Pacific OECD regions are expected to display supply growth in 2009, supported by increases in the US, Canada,
and Australia. The OECD Western Europe region is expected to continue to decline in
2009. The current forecast will be impacted by major uncertainties, mainly due to oil price
developments and the financial situation; hence, careful monitoring is necessary to better
predict the development of OECD supply. On a quarterly basis, OECD oil supply is
estimated to average 19.77 mb/d, 19.45 mb/d, 19.26 mb/d and 19.53 mb/d respectively.
Preliminary data for January put total OECD output at around 19.89 mb/d.
USA
Oil supply from the US is forecast to reach 7.69 mb/d in 2009, an increase of around 170 tb/d over the current 2008 assessment and a downward revision of 33 tb/d from last month. The revisions were introduced mainly in the third and fourth quarters to reflect changes in project startup and ramp-ups. Among the main developments in 2009, the Thunder Horse project is expected to ramp up to peak production of 250 tb/d during the first half of the year. The project was reported to have reached 200 tb/d by the end of 2008. The Blind Faith project, started up in the fourth quarter of 2008 is also expected to reach a plateau of 65 tb/d in the first half of this year. The Tahiti project is expected to start up production in the fourth quarter. Moreover, the remaining shut-in production in the US Gulf of Mexico due to hurricanes Gustav and Ike — estimated by the US MMS at 11% in mid January — is expected to return to normal operations and add further volume. However, a considerable portion of ethanol production capacity was reported to be idle due to unfavourable economic conditions. Such issues spell significant risk to the forecast and will require close monitoring. On a quarterly basis, US oil supply is estimated at 7.63 mb/d, 7.67 mb/d, 7.66 mb/d and 7.79 mb/d respectively. According to preliminary data, US oil supply in January stood at 7.72 mb/d.
Canada and Mexico
Canadian oil supply is expected to increase 90 tb/d in 2009 to average 3.34 mb/d, following a
downward revision of 130 tb/d from previous forecast, mainly due to changes in the 2008 base
volume. Supply growth is supported by different oil sand projects such as the Long Lake
development. However, Canadian supply in 2009 faces major uncertainties as price developments have forced producers to cut output and slash spending. Additionally, maintenance in the offshore East Coast is expected to have an effect on supply, yet the risk of prolonged maintenance may further shave expected growth. On a quarterly basis, Canada production stands at 3.32 mb/d, 3.28 mb/d, 3.34 mb/d and 3.41 mb/d respectively. According to preliminary data, Canadian oil supply stood at 3.29 mb/d in January.
Oil supply from Mexico is projected to decline in 2009 by 180 tb/d to average 2.99 mb/d, broadly unchanged from the previous assessment. The declining trend is expected to continue with Mexico’s main producing field, Canterell, facing an accelerated decline which new volume from other developments are unable to offset. The Ku-Maloob-Zapp (KMZ) project is anticipated to continue ramping up in 2009. On a quarterly basis, Mexico oil supply is expected to stand at 3.10 mb/d, 2.97 mb/d, 2.98mb/d and 2.91 mb/d respectively.
OECD Western Europe oil supply is projected to drop by around 260 tb/d in 2009 to average
4.78 mb/d, indicating a minor downward revision of 10 tb/d from the previous month. Norway,
UK and Denmark are expected to decrease in 2009 causing the region to have the largest decline among all non-OPEC regions. On a quarterly basis, OECD Western Europe production stands at 5.02 mb/d, 4.83 mb/d, 4.56 mb/d and 4.73 mb/d respectively. Preliminary January data suggest a production level of 5.06 mb/d.
Oil supply from Norway is expected to decline by around 120 tb/d in 2009 to average 2.34 mb/d, relatively unchanged from previous month. A handful of new startups are expected in 2009 such as the Rev and Yttergryta condensate fields that have already added small volumes along with developments such as Tyrihans, Oseberg and YME. However, the new barrels are not expected to be sufficient to stem declines in mature fields. On a quarterly basis, Norway supply stands at 2.47 mb/d, 2.34 mb/d, 2.19 mb/d and 2.35 mb/d respectively. January preliminary data indicate Norway’s supply at 2.45 mb/d, down 110 tb/d from the previous month.
UK oil supply is projected to average 1.43 mb/d in 2009, displaying a fall of around 140 tb/d from the previous year, unchanged from last month’s assessment. The natural decline is anticipated to trim UK supply as the minor supply addition is not expected to offset the majority of the decline. On a quarterly basis, UK oil supply stands at 1.51 mb/d, 1.46 mb/d, 1.38 mb/d and 1.37 mb/d respectively.
Similarly, natural decline is foreseen to affect Denmark oil supply which will slightly in 2009 from the previous year to average 0.27 mb/d, unchanged from last month’s level.
Asia Pacific
Oil supply in this group is expected to grow by around 70 tb/d in 2009 from the previous year to reach 0.70 mb/d, indicating a minor downward revision of around 20 tb/d from previous month’s estimate. On a quarterly basis, supply is expected to average 0.69 mb/d, 0.71 mb/d, 0.72 mb/d and 0.68 mb/d respectively.
Oil supply from Australia is expected to average 0.58 mb/d in 2009, representing an increase of
around 50 tb/d and a minor downward revision of 17 tb/d from previous month. The impact of the cyclone season on Australian production, with the majority of the Western Australia output shut down for a number of days as a precaution measure, resulted in a downward revision which was carried mainly on the first quarter. On a quarterly basis, production stands at 0.58 mb/d,
0.59 mb/d, 0.60 mb/d and 0.56 mb/d respectively.
New Zealand’s oil supply forecast remained unchanged while the startup of the Maari project is
expected in the first quarter of 2009.
Brazil to add 180 tb/d in 2009
Latin America is expected to grow by 0.20 mb/d to average 4.29 mb/d in 2009, representing a
downward revision of 23 tb/d. Part of the downward revision comes from changes to Argentina’s
base, as well as minor downward revisions to Brazil. Brazil remains on the top of the list of
countries expected to add volumes to 2009 with supply growth of around 180 tb/d supported by startup and ramp-up of projects like the Roncador, Frade, and Marlim Leste. Additionally,
Colombia is also expected to add 50 tb/d in 2009, while Argentina is estimated to drop around
40 tb/d. On a quarterly basis, Latin America supply stands at 4.18 mb/d, 4.24 mb/d, 4.36 mb/d and4.37 mb/d respectively.
Russia
Oil supply from Russia is forecast to average 9.67 mb/d in 2009, a drop of around 110 tb/d from the 2008 level and relatively unchanged from last month’s assessment. While new volumes in 2009 are seen coming from projects such as Vankor, Uvat, Yuzhno-Khlyuchu, the expected reduction in spending as well as natural declines are expected to offset new barrels. Most major Russian operators announced spending cuts in response to lower oil prices, which will affect short-term as well as nearterm production. However, as the year unfolds, oil price direction will impact the production level. These uncertainties create difficulties in predicting the behavior of Russia supply and require careful monitoring. On a quarterly basis, Russian oil supply is estimated to average 9.74 mb/d, 9.67 mb/d, 9.66 mb/d and 9.63 mb/d respectively. Preliminary data indicate that January production reached 9.80 mb/d.
OPEC crude oil production
Total OPEC crude oil production averaged 28.71 mb/d in January, according to secondary
sources, down 959 tb/d from the previous month. All Member Countries saw a decline in crude
oil production, except Iraq, with Saudi Arabia indicating the largest drop followed by Angola
and Iran. OPEC, not including Iraq production, stood at 26.33 mb/d, down 965 tb/d from
December.
World Oil Supply
Preliminary figures indicate that global oil supply fell 0.39 mb/d in January to average
84.55 mb/d. Non-OPEC supply experienced an increase of around 0.57 mb/d while OPEC crude
declined. The share of OPEC crude oil in global production declined slightly to 33.9% in
January. The estimate is based on preliminary data for non-OPEC supply, estimates for OPEC
NGLs and OPEC crude production from secondary sources.
Balance of Supply and Demand
Demand for OPEC crude is estimated to average 30.9 mb/d, indicating a decline of 440 tb/d. This represents a slight revision from last month due to a downward revision in non-OPEC supply. On a quarterly basis, demand for OPEC crude is estimated at 31.7 mb/d 30.4 mb/d 30.8 mb/d and 30.8 mb/d respectively.
Demand for OPEC crude has been revised down by 0.2 mb/d to reflect lower than expected growth in world oil demand. Required OPEC crude in now forecast at 29.2 mb/d, a decline of 1.7 mb/d from the estimated 2008 figure. In quarterly terms, demand for OPEC crude is now expected at 29.7 mb/d, 28.7mb/d, 28.8 mb/d and 29.6 mb/d respectively. Demand for OPEC crude in the first three quarters is estimated to show a strong decline of around 2.0 mb/d compared to the same period last year while the fourth quarter is expected to decline by around 1.2 mb/d.
The Tanker Market
OPEC spot fixtures increased 20% in January over the previous month to reach 13.02 mb/d, according to preliminary data. The increase is mainly due to a very low spot fixtures level in the base month. OPEC fixtures from the Middle East increased by 35% in January, while those from outside the Middle East increased by 6%. Within the Middle East, spot fixtures towards the East displayed the highest monthly increase, while those towards the West were almost
steady. The Middle East/East spot fixtures ended the month at 5.87 mb/d, up from 4.05 mb/d in December, while the Middle East/West route ended the month at 1.12 mb/d, slightly up from 1.1 mb/d. Despite the increase over the previous month, OPEC spot fixtures in January indicated a decline of 9% over the same month last year. Similarly, global spot fixtures increased in January by 23% compared to the previous month to stand at 19.46 mb/d, but were
about 11% lower compared to the same month last year.
Sailings from OPEC were 5% lower in January, at 19.9 mb/d, down from 20.9 mb/d in the previous month, and were also 18% lower than a year ago. Middle East sailings in January were at 14.3 mb/d, about 5% lower than in the previous month and 19% lower than at a year earlier.
Crude oil arrivals in the USA increased by 3% in December over the previous month. Crude oil trade figures indicate that US crude oil imports were higher in January compared to the previous month, supporting the increase in crude arrivals to this country. Crude oil arrivals to North-West Europe, the Mediterranean and Japan were all lower in January compared to the month before.
The crude oil tanker market was under increasing pressure from boosted tonnage availability on many key routes in January as a result of OPEC production cuts and the ongoing global economic crisis. However, the continued contango structure in crude markets in January played a major role in preventing dirty freight rates from incurring deeper declines, especially because
of the impact on the VLCC vessel sector which enjoyed unexpected higher demand due to the increased interest of some market participants to store crude at sea. In January, VLCCs were still being used as storage in the Middle East, the US Gulf Coast, Asia and the North Sea, a process that actually started earlier during 4Q08, but gained more momentum throughout most of the month. Although there were signs towards the end of the month that the contango is easing slightly which might strongly influence spot freight rates during the coming months,
estimates still put the number of VLCCs being tied up in storage in January at about 40 vessels which makes about 8% of the VLCC global fleet. Bad weather and port closures to the west of Suez influenced spot freight rates in January, especially for both Suezmax and Aframax vessels, but the overall effect was relatively less than in the previous month.
Taking the top three vessel categories into consideration and their nine main reported routes, spot freight rates for crude oil tankers were generally lower in January compared to both the previous month and the same month last year. In January, month-to-month freight rate comparisons based on nominal world scale figures do not represent the actual fluctuations in the market, as rates for this month are based on the new flat rates for 2009 which are considerably higher than those for 2008. Comparisons only give valid interpretations when
referring to the same flat rate figures. In general, VLCC new flat rates are about 38% higher in 2009 compared to 2008. Suezmax and Aframax rates are 36% and 34% higher respectively, while flat rates for the three dirty tanker categories are 36% higher on average. A better representative for the fluctuations in freight rates in January 2009 compared to the month before would be to compare the dollar cost per barrel reflected by the two Worldscale figures, each related to its flat-rate base. According to this, the Aframax sector to the west of Suez witnessed the sharpest drop in freight rates in January from the month before. This comes as no
surprise as it was this sector of the market that witnessed the sharpest increase in the previous month, taking advantage of weather-related conditions and many port closures in the region.
Freight rates for the Suezmax sector also dropped in January, while the VLCC sector ended the month with a minor gain. To complete the picture, average dirty freight rates declined by about 21% in January from the previous month.
On average, the VLCC spot freight rates were slightly more than 1% higher in January over the previous month. Extra demand for VLCCs for storage purposes in January and higher crude oil lifting by China to accelerate the process of filling up its Strategic Petroleum Reserves were the factors behind the relative firmness of this sector of vessels compared to other sectors. Spot
freight rates for VLCCs trading on the long haul route from the Middle East to the East, which had already increased by 10% the month before, gained a further 3% in January on a dollarper- barrel basis. Most of the increases in freight rates on this route took place during the second and third weeks of the month, and eased towards the end of the month due to thin activity and tonnage build-up as most of the Eastern charterers left the market for the Lunar New Year. Spot freight rates on this route started the month at around WS48, climbing to WS71 by the end of the third week and then ended the month at WS52. Middle East to West spot freight rates closed the month with a gain of 7% in January over the previous month. It was the highest increase compared to other VLCC routes. Throughout the month, freight rates on this route peaked at the end of the third week at WS49 before ending at WS35 with a monthly average of WS42. On the other hand, VLCC spot freight rates for voyages from West Africa to East were within a range of between WS50 to WS60 throughout the month, ending with an average of WS57 for a decline of roughly 5% from the previous month. Lower West African exports to Asia in January, in addition to weaker Suezmax spot freight rates in this region, were behind the relative weakness of this market.
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