Written by rjs, MarketWatch 666
Here are some more selected news articles about the oil and gas industry from the week ended 14 July 2018. Go here for Part 1.
This is a feature at Global Economic Intersection every Monday evening.
Please share this article – Go to very top of page, right hand side, for social media buttons.
3 Reasons the Deadly Lac-Mégantic Oil Train Disaster Could Happen Again — In the five years since the oil train disaster in Lac-Mégantic, Quebec, claimed 47 lives, the world has learned much about the risks that hauling oil by rail poses. One of the clearest lessons is how little has been done to address those risks, which means that deadly event could easily happen again. [Read this explainer for background on what unfolded during the fiery early morning hours of July 6, 2013 in Lac-Mégantic.] Here are three main reasons history may yet repeat itself.
- Reason #1: Inadequate Safety Regulations. The Bakken shale oil carried on the runaway train that decimated the small Quebec town of Lac-Mégantic is a very light and highly volatilecrude oil that ignites easily. Despite many calls for regulations in the U.S. to make that oil safer via a process known as stabilization – including from Obama’s Secretary of Transportation Anthony Foxx, the issue of stabilizing oil volatility on trains remains unaddressed on either side of the border.Another apparent safety gap in regulations involves the outdated brake systems on oil trains, which is the case in both the U.S. and Canada. Rail experts have testified repeatedly that modern electronically controlled pneumatic (ECP) brakes would be a huge improvement over the current air braking system that was considered revolutionary in the 19th century. When the U.S. Department of Transportation released an overhaul of rules governing oil trains in 2015, ECP brakes were among the requirements. However, that measure was repealed in late 2017 due to intense industry pressure.
- Reason #2: Oil Trains Derail More Often. Another lesson revealed in the wake of Lac-Mégantic is that oil trains derail more often than similar trains carrying ethanol, another hazardous material. The reason is likely because oil trains tend to be longer andheavier and may be subject to more sloshing forces from the liquid moving inside the not-entirely-full tank cars. Unlike tanker trucks or other types of trains, oil trains don’t have to be weighed, and some evidence indicates rail companies may be overfilling oil train cars beyond the current weight limits. And no regulations exist dictating the train lengths safe for transporting flammable materials like oil. Of course, longer and heavier trains make more money for railroads. A recent article in the Wall Street Journal notes that one of the reasons the rail industry is shifting to ever-longer trains is due to pressure from “activist investors.”
- Reason #3: The Rail Barons Are in Charge. Brian Stevens, National Rail Director for Unifor, Canada’s largest private sector union, previously spent 16 years as an air-brake mechanic working on trains. Stevens summed up the problem: “Nothing has changed. The railway barons are still there. And stronger than ever.” And while this statement was made by a Canadian at a conference in Canada about an accident in Canada, the rail barons are on both sides of the Canadian-American border.
Vowing to Continue ‘Fierce Opposition,’ Protesters End 35-Hour Aerial Blockade of Trans Mountain Oil Tanker –Twelve protesters who spent nearly two days suspended from a bridge in British Columbia,blocking the path of an oil tanker, vowed Thursday to continue fighting Canada’s plans to buy Kinder Morgan’s Trans Mountain pipeline, after police forced them to end their demonstration.“I will remain the fierce opposition. It is in my blood to protect the water. Our Indigenous rights are being completely ignored, the safety of our water is being ignored, and most of all my son’s future is at stake. I will do whatever it takes to protect the water and my family and your family,” Will George, an Indigenous Coast Salish member, said in a statement after the protest ended.George was among the Greenpeace members – from all over Canada as well as the U.S., Mexico, and the U.K. – who rappelled from the Iron Workers Memorial Bridge for 35 hours to form a blockade preventing a Trans Mountain oil tanker from leaving Vancouver with tar sands oil.Canadian Prime Minister Justin Trudeau plans to purchase the existing Trans Mountain pipeline and Kinder Morgan’s expansion project, which carries crude and refined oil from Alberta to Canada’s western coast, costing taxpayers $4.5 billion. More than 200 people have been arrested in British Columbia for protesting the plan, which opponents say will put coastal communities at grave risk of oil spills and will threaten the area’s dwindling orca population with extinction. The plan also violates the U.N. Declaration of the Rights of Indigenous Peoples.
How Fracking Companies Use Facebook Surveillance to Ban Protest – There’s a struggle going on between companies that want to drill for shale gas in the UK countryside and campaigners trying to stop them. Now, the struggle is waging online.Revelations about how Facebook data has been used to target individuals for political ends continue to emerge. But after the Cambridge Analytica scandal of earlier this year, the story has taken an unexpected twist: Facebook is being used by oil and gas companies to clamp-down on protest. Three companies are currently seeking injunctions against protesters: British chemical giant INEOS, which has the largest number of shale gas drilling licenses in the UK; and small UK outfits UK Oil and Gas (UKOG), and Europa Oil and Gas.Among the thousands of pages of documents submitted to British courts by these companies are hundreds of Facebook and Twitter posts from anti-fracking protesters and campaign groups, uncovered by Motherboard in partnership with investigative journalists at DeSmog UK. They show how fracking companies are using social media surveillance carried out by a private firm to strengthen their cases in court by discrediting activists using personal information to justify banning their protests.The material was submitted to support the companies’ case that campaigners intended to illegally disrupt their activities or trespass on their land. The companies all stress they do not seek to restrict lawful forms of protest, but argue that activists should not be allowed to unduly disrupt their lawful business activity.Anti-fracking campaigners have described the use of injunctions to stop protest around potential fracking sites as “an unprecedented restriction on our fundamental rights.” They say the injunctions against “persons unknown” are “draconian” and “anti-democratic.”
Decision to extend fracking licence a shambles, Labour says — The Scottish Government has been criticised for extending a fracking licence owned by petrochemical giant Ineos.Ministers have decided to extend Petroleum Exploration and Development Licence (PEDL) 162 for a year until June 2019 despite an effective ban on the controversial gas extraction technique.The licence, jointly owned by Ineos and Reach Oil and Gas, covers an area of 400 km2 to the south west of Falkirk in the central belt.Friends of the Earth Scotland said the move added to “confusion” surrounding the government’s position on fracking while Scottish Labour branded it a “shambles”.Last month Ineos and Reach lost a legal challenge seeking a review of the government’s decision to effectively ban fracking development in Scotland, which they argued was unlawful.Refusing the challenge at the Court of Session, Lord Pentland found that while while ministers had described the position as a ban, there was in fact no legally enforceable prohibition.Friends of the Earth Scotland’s head of campaigns Mary Church said the decision to extend the licence was “disappointing”. She said: “Extending this licence risks adding to the confusion caused by Ineos’s recent legal challenge and only increases the pressure on the Scottish Government to move forward with its decision-making process, legislate to ban fracking and draw a line under this issue for good.
Natural gas drillers are fighting for their lives- The natural gas industry is on a mission to prove it can keep up with the green energy industry, whose price reductions are starting to become a competitive threat to fossil fuels.Gas and oil producers have slashed overheads by a third since 2014 and are finding deeper reductions harder to come by, according to energy consultants Wood Mackenzie. That’s spurring them to rewrite supply contracts, build mobile liquefied natural gas terminals and take more prosaic steps like fixing leaky pipes. “This is about getting affordable energy out,” said Jens Okland, executive vice president of marketing, midstream and processing at Equinor ASA, Norway’s biggest energy company. “A lot of these LNG projects are huge. You need to make them cheaper, quite simply.” Keeping gas affordable is a crucial ingredient of the world’s effort to shift toward less-polluting forms of energy, since it’s gas-fired power generators that can start and stop quickly, helping smooth fluctuations in supply coming from wind and solar farms. Its costs have to fall as cheaper wind turbines and solar panels make utilities scale back their most-expensive traditional power plants. And gas has plenty of competition even before the rise of renewables. For example, to compete with coal in Asia, gas imports need to land there at about $4 to $6 per million British thermal units. That’s about half the cost of reported contracts, according to the International Gas Union trade lobby. In Germany, solar and onshore wind power are already comparable to gas based on the value of electricity the assets generate over their lifetime, Bloomberg New Energy Finance data show. Expectations about costs are already influencing energy policy as governments decide how to balance supply needs against what voters are willing to pay for. Britain’s climate change adviser said last month the nation may need a fivefold increase in gas-fired plants by 2050 to guarantee power capacity — a forecast that suggests a need for more investment at a time politicians are pressing for utilities to cut their bills to consumers.
Beyond Nord Stream 2: A Look at Russia’s Turk Stream project — Since 2015, Nord Stream 2 has been at the centre of all European discussions concerning the EU-Russia relations. But as endless political discussions in Europe are being held on this pipeline project, the pipes of another similar Russian pipeline project – Turk Stream – are already being laid by Gazprom at the bottom of the Black Sea. This piece looks at these developments, analysing their strategic impacts on Europe. Launched by Russia president Vladimir Putin in December 2014 during a state visit to Turkey, Turk Stream is a pipeline projected to deliver 31.5 Bcm/y of gas to Turkey and Europe. As in the case of Nord Stream 2, also this project is not aimed at carrying additional volumes of gas, but just to partially replace flows that currently reach Turkey and Europe through Ukraine.Turk Stream comprises two lines, each with a capacity of 15.75 Bcm/y. Line 1 is designed solely to supply Turkey, while Line 2 is intended to deliver gas to Europe.After a year of works, construction of the offshore part of Line 1 was completed on April 30th 2018; the onshore parts remain under works. With the construction of Line 2 also progressing, both lines of Turk Stream are expected to be finalised by the end of 2019.However, due to EU anti-monopoly rules Gazprom, as a supplier, is prohibited from operating gas pipelines inside the EU. The Russian company is thus currently exploring potential alternative options with European gas grid operators for bringing the 15.75 Bcm/y capacity of Turk Stream’s Line 2 to European markets. The first option would be to link Turkey and Austria with a pipeline running through Bulgaria, Serbia and Hungary. This pipeline has been dubbed ‘South Stream Lite’, as it would roughly follow the path of the proposed South Stream pipeline, which was scrapped by Russia in 2014 following opposition from the European Commission. The second option would be to link Turkey and Italy with a pipeline running through Greece. The feasibility study for such a pipeline was conducted in 2003 by Greece’s public gas supply company DEPA and Italy’s energy company Edison. The development of the project – named Poseidon – was then covered by an intergovernmental agreement signed in 2005 between Greece and Italy.
Trump lashes Germany over gas pipeline deal, calls it Russia’s ‘captive’ (Reuters) – U.S. President Donald Trump launched a sharp public attack on Germany on Wednesday for supporting a Baltic Sea gas pipeline deal with Russia, saying Berlin had become “a captive to Russia” and he criticized it for failing to raise defense spending more. Trump, meeting reporters with NATO Secretary-General Jens Stoltenberg, before a NATO summit in Brussels, said it was “very inappropriate” that the United States was paying for European defense against Russia while Germany, the biggest European economy, was supporting gas deals with Moscow. Trump was due to meet German Chancellor Angela Merkel at the summit later in the day and will meet Russian President Vladimir Putin in Helsinki on Monday. Berlin has given political support to the building of a new, $11-billion pipeline to bring Russian gas across the Baltic Sea called Nord Stream 2, despite qualms among other EU states. However, Merkel insists the project is a private commercial venture and is not funded by German taxpayers. “When Germany makes a massive oil and gas deal with Russia,” Trump said to Stoltenberg. “We’re supposed to be guarding against Russia and Germany goes out and pays billions and billions of dollars a year to Russia. “We’re protecting Germany, we’re protecting France, we’re protecting all of these countries. And then numerous of the countries go out and make a pipeline deal with Russia where they’re paying billions of dollars into the coffers of Russia.
Why Germany Can’t Buy Natural Gas From the US – True to form, President Trump, kicked off Wednesday’s NATO summit by tossing a grenade. This one was in German Chancellor Angela Merkel’s direction and aimed at the country’s dependency on natural gas imports from Russia.It’s not clear whether Trump’s goal in targeting Merkel this morning was to shame Germany into putting more money into NATO or to encourage the Germans to buy more natural gas from the United States. But if it’s the second, that will be very difficult to achieve. Germany currently receives about a third of its current 80 billion cubic meters of annual natural gas supply from Russia, nearly all transported by pipelines running through Eastern Europe. Europe as a whole consumed about 425 billion cubic meters of natural gas last year, of which about 150 billion cubic meters came from Russia.Russia’s state-controlled gas producer, Gazprom, next year is completing a new pipeline dubbed the Nord Stream 2 that detours around Eastern Europe by following a route under the Baltic Sea before reaching the German coast at the city of Lubmin, where construction of a new receiving terminal was begun in May. Once the new pipeline is in operation, it will deliver about 55 billion cubic meters of Russian natural gas annually to Germany, which would then distribute the gas to the rest of Europe. Critics argue that the Nord Stream 2 is unnecessary and is a politically inspired move by Russia to avoid paying transit fees to Poland, the Baltic states and, most important, Ukraine for the right to transport natural gas through these countries on its way to Europe. Over half the gas Russia sends to Europe annually travels through Ukraine. For the U.S. natural gas to reach Europe, it must first be converted to liquefied natural gas (LNG), loaded on a special tanker and sailed from the U.S. Gulf Coast to a receiving terminal where it is reconverted into gas. Naturally this costs more than simply putting natural gas in a pipeline and sending it off. In addition, Qatar, Australia and other countries are way ahead of the United States in developing liquefaction facilities. In time the United States could sell more natural gas to Europe, but the sales probably will be limited to countries like Spain, Portugal and Turkey that have never received a lot of their supply from Russia. It is exceedingly doubtful that U.S. LNG will ever be a major source of supply to Germany.
China is a key destination for increasing U.S. energy exports — In recent years, as its domestic energy consumption has grown, China has become a more significant destination for U.S. energy exports. In particular, China has been among the largest importers of U.S. exports of crude oil, propane, and liquefied natural gas. In 2017, more U.S. crude oil was sent to China than any other destination except Canada. China received more U.S. crude oil in 2017 than the third- and fourth-largest importers, the United Kingdom and Netherlands, combined. China has been the world’s largest net importer of total petroleum and other liquid fuels since 2013 and surpassed the United States as the world’s largest gross crude oil importer in 2017. Based on data through April, China’s imports of U.S. crude oil have continued to increase, averaging 330 thousand barrels per day (b/d) in 2018. In February 2018, China received more U.S. crude oil than any other destination. Nearly all of these crude oil exports were sent from the U.S. Gulf Coast region. China was the third-largest destination for U.S. propane exports in 2017, behind only Japan and Mexico. Overall, about half of U.S. propane exports went to Asian countries in 2017, displacing supplies from Middle Eastern countries and some regional production of propane. Propane is used in many Asian countries as a feedstock for producing ethylene and propylene, building blocks for chemical and plastic manufacturing. So far in 2018, China has remained the third-largest destination for U.S. propane exports, receiving 92 thousand barrels per day through April, or 31% less than U.S. propane exports to China in the first four months of 2017. As U.S. liquefaction export facilities have come online, the United States has exported greater volumes of liquefied natural gas (LNG), averaging 1.9 billion cubic feet per day in 2017. Of that amount, 15% went to China, making it the third-largest importer of U.S. LNG exports behind Mexico and South Korea. The next-largest importer, Japan, received about half as much U.S. LNG in 2017 as China. In 2017, China surpassed South Korea to become the second-largest importer of LNG in the world. Based on data through April 2018, China’s imports of U.S. LNG have averaged 0.4 billion cubic feet per day, behind only South Korea and Mexico. The next-largest importer of U.S. LNG, India, has received less than half as much U.S. LNG as China so far in 2018.
China’s new air quality plan could increase LNG imports – Early this month, China’s State Council released a three-year “blue sky” action plan to curb air pollution by 2020 – a plan that could have implications for the U.S. oil and gas industry. The latest plan extends to cities in the Fenwei plain in Shanxi, Shaanxi and Henan provinces, where air pollution is worsening. The target area for air pollution control and prevention now includes 28 cities – 11 in Fenwei plain and provinces in the Yangtze River Delta. As air pollution in China spreads to more cities and inland provinces, he said the affected area is home to 37 percent of the country’s population and 41 percent of its gross domestic product. “The recently announced ‘blue sky action plan’ offers tougher limits and proposes a quicker shift to cleaner fuels such as LNG and electricity, and high-grade iron ore, coal and metals.” He noted that many of these commodities are not produced locally or at competitive prices. Therefore, Sharma believes they will need to be imported. “Additionally, a large portion of existing capacity will now require stricter supervision and environmental compliance,” he said. “As a result, we expect domestic costs to rise and production curbs to increase. “A ban on trucking to move raw materials from port to plant could be a game changer as it creates more competition between domestic supply and imports and strengthens the arbitrage relationship,” Sharma added. “China’s slow transition means uncertainty for commodity prices will continue” He stressed that China is on a track to tighten its fuel specification and vehicle emission standards. Under the current plan beginning Jan. 1 next year, a unified fuel specification standard will be enforced for road diesel, off-road diesel and bunker diesel. “Most giant refineries are geared to meet this challenge of supplying a uniform standard fuel from next year, but some small independent players may struggle,” Sharma said. “The current plan will impose more stringent supervision on fuel blending, which will further compress the marketplace for independent refiners and fuel blenders.” Sharma noted that China intends to develop a “green transport system” with higher fuel efficiency and lower emissions intensity. This would be achieved by increasing the share of railways and waterways and drastically reducing road transport.
Analysis: China’s expanding underground gas storage may reduce LNG winter price volatility – The expansion of underground gas storage in northeast China could alleviate distribution network bottlenecks in the country’s key winter demand centers, and help stabilize seasonal demand and price fluctuations in the wider Asian LNG markets. China’s growing LNG consumption, driven by coal-to-gas conversion policies, GDP expansion and industrial recovery, have tightened Asian LNG fundamentals, with the Platts JKM averaging $9/MMBtu in first-half 2018, up from $6.30/MMBtu in H1 2017, after peaking at $11.70/MMBtu on January 15 — its highest level since late 2014, S&P Global Platts data showed. The country’s biggest underground gas storage is currently being built by Liaohe Oil Field Company, a subsidiary of state-owned CNPC, on the bank of the Bohai Bay, a strategic location and home to a natural gas pipeline network that connects China’s heavily industrialized neighboring regions of Beijing, Tianjin and Hebei province, local media reported Wednesday. The underground gas storage being built at the Liaohe oil field will have total storage capacity of 20 Bcm, the equivalent of 14.5 million mt of LNG, in a space of just under 10,000 sq km. That is nearly half of China’s existing gas storage capacity of 41.5 Bcm across around 25 locations.
Chinese Refiner Halts US Oil Purchases, May Use Iran Oil Instead – With the US and China contemplating their next moves in what is now officially a trade war, a parallel narrative is developing in the world of energy where Asian oil refiners are racing to secure crude supplies in anticipation of an escalating trade war between the US and China, even as Trump demands all US allies cut Iran oil exports to zero by November 4 following sanctions aimed at shutting the country out of oil markets.Concerned that the situation will deteriorate before it gets better, Asian refiners are moving swiftly to secure supplies with South Korea leading the way. Meanwhile, Chinese state media has unleashed a full-on propaganda blitzkrieg, slamming Trump’s government as a “gang of hoodlums”, with officials vowing retaliation, while the chairman of Sinochem just become China’s official leader of the anti-Trump resistance, quoting Michelle Obama’s famous slogan “when they go low, we go high.” Standing in the line of fire are U.S. crude supplies to China, which have surged from virtually zero before 2017 to 400,000 barrels per day (bpd) in July. Representing a modest 5% of China’s overall crude imports, these supplies are worth $1 billion a month at current prices – a figure that seems certain to fall should a duty be implemented. While U.S. crude oil is not on the list of 545 products the Chinese government has said it would immediately retaliate with in response to American duties, China has threatened a 25% duty on imports of U.S. crude which is listed as a U.S. product that will receive an import tariff at an unspecified later date. And amid an escalating tit-for-tat war between Trump and Xi in which neither leader is even remotely close to crying uncle, industry participants expect the tariff to be levied, a move which would make future purchases of US oil uneconomical for Chinese importers. According to Japan Times, in a harbinger of what’s to come, an executive from China’s Dongming Petrochemical Group, an independent refiner from Shandong province, said his refinery had already cancelled U.S. crude orders. “We expect the Chinese government to impose tariffs on (U.S.) crude,” the unnamed executive said. “We will switch to either Middle East or West African supplies,” he said.
U.S. oil exports to India soar ahead of sanctions on Iran (Reuters) – U.S. crude oil exports to India hit a record in June and so far this year are almost double last year’s total as the Asian nation’s refiners move to replace supplies from Iran and Venezuela in a win for the Trump administration. U.S. President Donald Trump’s administration has been pressuring its allies to cut imports of Iranian goods to zero by November and India’s shift advances the U.S. administration efforts to use energy to further its political goals. The United States has become a major crude exporter, sending 1.76 million barrels per day (bpd) abroad in April, according to the latest government figures. All told, producers and traders in the United States will send more than 15 million barrels of U.S. crude to India this year through July, compared with 8 million barrels in all of 2017. The exports to India could go higher if China imposes levies on its U.S. oil imports over the latest round of U.S. tariffs, which could damp Chinese purchases and lead U.S. crude prices lower. A. K. Sharma, head of finance at Indian Oil Corp (IOC.NS), the country’s top refiner, said U.S. crude is gaining appeal because of its lower cost, and could expand further if China cuts its imports of U.S. energy. “If China levies a tariff on U.S. oil then U.S. imports to India will probably rise,” he said. “We are looking for a mini-term deal to buy three to four cargoes of U.S. oil over a period of three to six months instead of buying single cargoes.”
BANK OF AMERICA: Oil is now a ‘game of chicken’ and completely cutting off Iran could send it soaring to $120 a barrel – Crude oil could surge to more than $120 a barrel, according to Bank of America Merill Lynch analysts, if the Trump administration were to order a complete cutoff of Iranian barrels before the end of the year. “Oil is now a game of chicken,” the analysts wrote in a note Thursday. They said zero-tolerance sanctions on Iran – the fourth-largest oil producer – could add $50 per barrel to crude prices, which are up more than 25% this year. Brent, the international benchmark, is currently trading at around $77 a barrel. The State Department said this week that certain countries, including India and South Korea, will be allowed reduced flows of Iranian oil. And Saudi Arabia recently agreed to increase production by two million barrels per day, according to a White House statement.But analysts are skeptical Saudi Arabia will be able to keep up. The unofficial leader of the Organization of Petroleum Exporting countries has never pumped more than 10.6 million barrels per day on average over a single month, according to BAML.”It appears the oil market has little confidence that Iran volumes can be easily replaced,” the analysts wrote.The move is part of Trump’s withdrawal from the Iran nuclear deal, which previously eased economic penalties on the country as long as it curbed its nuclear weapons program.The oil sanctions come after OPEC and other supply-cutting countries agreed at a summit in June to reduce compliance from more than 150% in May to about 100% starting this month. The cartel had previously been practicing over-compliance in efforts to tackle a global oil glut.But it is unclear if the new agreement will be able to balance supply as multiple producers – Venezuela, Libya, Angola, Mexico, or Nigeria – face major output disruptions. “Unlike in trade wars, oil price shocks have winners,” the analysts wrote. “But these do not include the US, China, Europe, Japan.”
U.S. Allies Starved of Iran Oil Even Before Trump’s Deadline – Iranian oil shipments to some U.S. allies are being threatened even before America’s Nov. 4 deadline for buyers to curb imports and comply with renewed sanctions on the OPEC member. September-loading cargoes are set to be the last to head for Japan if the Asian nation doesn’t receive an exemption from the U.S., people with knowledge of the matter said. South Korea, meanwhile, is said to be facing problems with July shipments because of tanker-insurance and chartering issues, with buyers already shunning a form of oil known as condensate from the Persian Gulf state. A Taiwanese refiner is mulling ending purchases. The risk of disruptions sooner than early November signals how diplomatic allegiances are affecting the oil market after Donald Trump’s decision in May to reimpose restrictions on the Islamic Republic over its nuclear program. Close American allies such as South Korea and Japan are grappling with how to sustain their ties with the U.S. without jeopardizing their energy industry as well as their relationship with long-time crude supplier Iran. “We are in a knotty situation as we have to listen to the U.S., but at the same time Iran is an important supplier of crude and condensate,” said Kim Jae Kyung, a research fellow at Korea Energy Economics Institute. “It’s the Trump administration that we are dealing with, and that unpredictability is stoking concern among refiners and petrochemical companies in Asia, making them voluntarily cut their shipments from Iran before the deadline.” Japan, Iran’s third-biggest customer, imported 140,000 barrels a day of oil from the Middle Eastern nation in the first six months of this year, 32 percent more than for 2015, according to data from industry consultant FGE. South Korea, meanwhile, has cut shipments from Iran by 30 percent in the period to 81,000 barrels a day, while Taiwan has boosted purchases to 11,000 barrels daily this year from zero three years ago. A decision on what to do about imports from Iran by China and India, who together bought about 1.4 million barrels a day of Iranian crude over the past three months, will probably have a larger impact on the broader oil market.
Iran Sanctions Are Different This Time — The Trump administration is trying to replicate the Obama-era strategy of shutting in Iranian oil exports as a way to pressure the regime into making a series of concessions. But there are several reasons why Trump may not succeed. It isn’t that Trump’s sanctions won’t be as effective, despite the refusal of the rest of the international coalition to go along with Washington’s isolation campaign. In fact, even though the EU, in particular, is hoping to shield Iran from the wrath of the U.S. Treasury, international companies are packing up and leaving Iran and refiners around the globe are starting to cut their oil imports from Iran. So, yes, there is every reason to believe that the sanctions will have real bite. The main problem that could frustrate the Trump administration is the oil market, which is in a very different place than it was in 2012-2015. The oil market is tighter than it has been in years, which could ultimately force the U.S. to go easier on Iran than it would like. A cursory glance at oil prices for the period in which the Obama administration pushed sanctions on Iran shows elevated prices, which would lead one into thinking that the Obama administration also had to contend with a tight oil market. Brent crude routinely topped $100 per barrel during a time in which Iran saw around 1 million barrels per day of exports disrupted. Brent is now significantly lower than that, so Trump should have no problem cutting Iranian supply off once again, right? Not so fast. President Obama had the fortune of an exploding U.S. shale sector. It probably wasn’t obvious to the Obama administration what was unfolding in North Dakota and Texas when sanctions on Iran really started to hurt in 2012. U.S. oil production skyrocketed between 2012 and 2014, rising by over 3 mb/d, which more than compensated for the 1 mb/d of lost Iranian supply. To be sure, the Trump administration is also presiding over a shale boom. U.S. production is up about 1.6 mb/d since Trump took office, and output in 2018 has increased by around 400,000 bpd year-to-date. However, the problem for Trump is that Permian bottlenecks could mean that additional growth slows to a crawl, at least for the next year or so.
Could Saudi Arabia replace all the barrels lost from Iran sanctions? Kemp (Reuters) – The United States wants to eliminate all Iran’s crude oil exports from November, and is relying on Saudi Arabia and other OPEC and non-OPEC members to fill the gap in supplies. “Our goal is to increase pressure on the Iranian regime by reducing to zero its revenue from crude oil sales,” a senior State Department official told a news briefing this month. ” But if the United States succeeds in reducing Iran’s crude exports close to zero from November, in line with its stated policy, Saudi Arabia would have to raise its production to unprecedented levels to cover the loss. And it would leave the global market tighter than at any time since the oil shocks of 1973/74 and 1979/80, with resulting upward pressure on prices. The administration has not been clear about whether sanctions will apply just to crude or will include condensates. But assuming sanctions apply only to crude, the global market would still need to replace more than 2 million barrels per day (bpd) of Iranian exports from the start of November. According to the latest information from the Joint Organisations Data Initiative (JODI), Iran exported between 2.1 million and 2.2 million bpd of crude between January and April. The question is where will the replacement barrels come from? The International Energy Agency estimates OPEC members held 3.4 million bpd of spare capacity at the end of May, while their non-OPEC allies had no more than 330,000 bpd (“Oil Market Report”, IEA, June 2018). Saudi Arabia accounted for almost two-thirds of the reported OPEC spare capacity (2.02 million bpd), with smaller volumes held by Iraq (330,000 bpd), United Arab Emirates (330,000 bpd) and Kuwait (220,000 bpd). Russia accounted for most of the non-OPEC spare capacity (roughly 250,000 bpd) with little or no available spare capacity in the other non-OPEC allies. Other agencies and market analysts put the spare capacity figures for OPEC and non-OPEC members significantly lower than the IEA, which implies the market is even tighter. But using the IEA’s figures, it is clear Saudi Arabia would have to replace most of the Iranian barrels lost as a result of sanctions. The kingdom would need to increase production and exports by at least 1 million bpd to cover the total loss of Iranian barrels. The required increase would be even higher if other OPEC and non-OPEC countries struggle to raise their output or more production is lost as a result of problems in Venezuela and Libya.
Do not blame OPEC, oil producer group says of Trump criticism (Reuters) – The president of OPEC defended the oil producer group on Monday against U.S. President Donald Trump’s recent demands for higher oil output, saying OPEC does not shoulder the blame. OPEC alone cannot be blamed for all the problems that are happening in the oil industry, but at the same time we were responsive in terms of the measures we took in our latest meeting in June,” Organization of the Petroleum Exporting Countries President Suhail al-Mazrouei told Reuters in an interview in Calgary, Alberta. “I feel OPEC is doing its part.” Trump has accused OPEC in recent weeks of driving gasoline prices higher and stepped up pressure on U.S. ally Saudi Arabia to raise supplies to compensate for lower exports from Iran. Washington has warned that it will impose sanctions on foreign companies that do business with Iran, in an effort to cut Iran’s exports of crude oil and condensates to zero from over 2 million barrels per day. Mazrouei said OPEC was willing to listen to major oil-producing countries, including the United States. OPEC agreed in June on a modest increase in oil production starting in July after its leader, Saudi Arabia, persuaded arch-rival Iran to cooperate, following calls from major consumers to curb rising fuel costs. Global oil prices LCOc1 have climbed steadily this year, helped by rising demand, and topped $80 per barrel in May for the first time in 3-1/2 years.
European Powers Prepare To Ditch Dollar In Trade With Iran – While the White House’s frenzied anti-Iran campaign has entailed unprecedented attempts to twist the arms of the United States’ traditional European allies, the pressure may be backfiring – a reality made all the more clear by Russian Foreign Minister Sergei Lavrov’s claims that Europe’s three major powers plan to continue trade ties with Iran without the use of the U.S. dollar. The move would be a clear sign that the foremost European hegemons – France, Germany, and the United Kingdom – plan to protect the interests of companies hoping to do business with Iran, a significant regional power with a market of around 80 million people.Lavrov’s statement came as Trump insisted that European companies would “absolutely” face sanctions in the aftermath of Washington’s widely-derided sabotage of the six-party Joint Comprehensive Plan of Action (JCPOA). On May 8, the former host of NBC’s “The Apprentice” blasted the agreement and said that the U.S. would reinstate nuclear sanctions on Iran and “the highest level” of economic bans on the Islamic Republic.Speaking in Vienna at the ministerial meeting of the JCPOA, Lavrov blasted the U.S. move as “a major violation of the agreed-upon terms which actually made it possible to significantly alleviate tensions from the point of view of the military and political situation in the region and upholding the non-proliferation regime.” He added that “Iran was meticulously fulfilling its obligations” at the time that Trump destroyed the U.S.’ end of the agreement. Continuing, Lavrov explained:The Joint Commission… will be constantly reviewing options which will make it possible, regardless of the US decision, to continue to adhere to all commitments undertaken within the JCPOA framework and provide methods for conducting trade and economic relations with Iran which will not depend on Washington’s whims. What they can do is to elaborate collectively and individually such forms of trade and settlements with Iran that will not depend on the dollar and will be accepted by those companies that see trade with Iran more profitable than with the US. Such companies certainly exist – small, medium and large.” Lavrov noted that the move wasn’t so much meant to “stand up for Iran” but to ensure the economic interests and political credibility of the European signatories to the accord.
Bernstein: Oil May Jump Past $150 On Chronic Underinvestment – A supply shortfall is lurking should major oil companies continue to underinvest in exploring for new oil reserves, and this “chronic underinvestment” is setting the stage for the next super-cycle that could see oil prices soar to $150 a barrel or more, analysts at Sanford C. Bernstein & Co said on Friday.Investors clamoring for cash returns on their investments in lieu of increased capital expenditures may soon backfire, as new oil reserves may be unable to keep up with demand, according to Bernstein analysts.“Investors who had egged on management teams to reign in capex and return cash will lament the underinvestment in the industry,” the analysts said in a note, as carried by Bloomberg.“Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $150 a barrel spike witnessed in 2008.”“If oil demand continues to grow to 2030 and beyond, the strategy of returning cash to shareholders and underinvesting in reserves will only turn out to sow the seeds of the next super-cycle,” said Bernstein.“Companies which have barrels in the ground to produce, or the services to extract them, will be the ones to own and those who do not will be left behind.”After the oil price crash of 2014, oil companies slashed exploration capital expenditure. Now that oil prices have recovered, those companies are looking to reward shareholders with dividends and share buybacks to show that they have successfully come out of the price slump. The lowered capex in exploration, however, is depleting the oil industry’s reserves and reserves replacement ratios. According to Bernstein, the reinvestment ratio in the industry is the lowest in a generation, which is setting the stage for a super-spike in oil prices; prices may even beat the record of $147 a barrel from 2008.
Hedge funds target WTI, leaving other oil contracts becalmed (Reuters) – Hedge fund managers have continued to boost their bullish exposure to U.S. crude futures and options, following a longer-than-expected disruption of pipeline deliveries from Canada. Position-building in U.S. crude, also known as WTI, accounted for almost all changes in the petroleum complex in the week to July 3. Hedge funds and other money managers raised their net long position in the six most important petroleum futures and options contracts by 47 million barrels. Portfolio managers raised net their long position in U.S. crude (+41 million barrels) with minor increases in Brent (+4 million), U.S. gasoline (+4 million) and U.S. heating oil (+2 million). Net length in European gasoil was cut by 3 million barrels, according to an analysis of regulatory and exchange data (https://tmsnrt.rs/2NFcNWQ ). WTI position-building is being driven by the draw down in inventories around Cushing and disruption of pipeline deliveries to the U.S. Midwest as a result of the stoppage in production at Canada’s Syncrude plant. But the rest of the petroleum complex, including the international benchmark Brent, has shown no significant changes in recent weeks. Funds’ net long position in WTI has surged by 116 million barrels in the two most recent weeks, while net length in Brent has been unchanged. Net length in WTI has closed the gap with Brent for the first time since June 2015, with managers holding a net long position of 457 million barrels in both benchmarks. Portfolio managers hold the most lopsided position in WTI since June 2014, when Islamic State fighters were racing across northern Iraq and threatening the country’s oilfields. Hedge fund long positions outnumber short positions in WTI by a ratio of almost 13:1, up from less than 6:1 two weeks ago. But away from WTI, there were no significant position changes.
Oil prices finish higher, with Brent up sharply as traders weigh global supply disruptions – Crude-oil benchmarks finished higher Monday, with Brent crude posting a sizable gain as traders fretted over production disruptions in Libya and Venezuela and expectations for big declines in Iranian exports. August West Texas Intermediate crude, the U.S. benchmark, climbed by a nickel, or less than 0.1%, to settle at $73.85 a barrel on the New York Mercantile Exchange, after trading as low as $72.99. WTI prices lost 0.5% last week. September Brent crude added 96 cents, or 1.2%, to $78.07 a barrel on the ICE Futures Europe exchange, after closing on Friday with a weekly retreat of 2.7%. Longstanding, and expected, outages to supplies in Libya, Venezuela and Iran have helped lift crude prices, which had been on an uptrend amid efforts by the Organization of the Petroleum Exporting Countries and its allies to balance supply and demand. During a meeting last month, OPEC agreed to lift output globally by 1 million barrels a day to help counteract lost barrels from Venezuela and Iran, where the U.S. has pulled out of a nuclear agreement and threatened to reimpose sanctions targeting Tehran’s oil exports. Some countries, however, have voiced support for the Iran nuclear deal, easing concerns over the potential for lower exports from Iran. Top diplomats from Germany, Britain, France, Russia and China reaffirmed their commitment to the 2015 nuclear pact, according to a report from the Associated Press, citing comments from the European Union foreign policy chief.
Crude futures settle higher on supply concerns – Crude futures settled higher Monday, supported by recent supply disruptions, both real and anticipated. ICE September Brent settled 96 cents higher at $78.07/b, while NYMEX August WTI settled 5 cents higher at $73.85/b. NYMEX crude was stronger further out on the curve, with the September contract settling 41 cents higher at $71.98/b and the October contract jumping 71 cents to close at $69.75/b. Production losses out of Libya, Venezuela and Canada have been supportive for the oil complex. According to Commerzbank commodities analysts, unscheduled outages in Libya and Canada will offset most of the announced increase in crude oil production, meaning that the oil market will remain tight in the short term. Moreover, “if shortfalls in Iranian oil supply due to US sanctions then compound the situation in the autumn, there is a risk of the market tightening further,” Commerzbank analysts wrote in a daily note. “Brent should rise further toward the $80[/b] mark in the coming days,” they added. US sanctions targeting Iranian oil exports will go into effect again in November, with some analysts saying more than 1 million b/d of Iranian crude production could be shut in. Tight takeaway capacity looks to be taking a toll on Permian Basin drilling activity and production. The Permian currently produces 3.5 million b/d of crude, and should stay fairly flat for the rest of 2018, according to S&P Global Platts Analytics. The 350,000 b/d Syncrude oil sands facility in Canada is expected to reach full production by early to mid-September, majority-owner Suncor said Monday.
Barclays raises oil price view on tighter supply outlook – (Reuters) – British bank Barclays on Tuesday raised its outlook for oil prices for this year and next amid expectations of lower supply from Libya and Iran. “Due to new outages and a quicker Iran supply reduction, we see Brent and WTI prices averaging $71 per barrel and $65 per barrel next year,” the bank said. Barclays had previously forecast Brent to average $65 per barrel in 2019. The bank also raised its outlook for Brent prices to average $73 per barrel in the second half of the year from $70 earlier. Libya’s national oil production fell to 527,000 barrels per day (bpd) from a high of 1.28 million bpd in February following recent oil port closures, the head of the National Oil Corporation (NOC) said on Monday. The United States says it wants to reduce oil exports from Iran, the world’s fifth-biggest producer, to zero by November, which would oblige other big producers to pump more. Elsewhere, in Canada an outage at the 360,000-barrel per day (bpd) Syncrude oil sands facility had reduced flows into Cushing, Oklahoma where inventories hit a three-and-a-half-year low last week. While the WTI-Brent spread has narrowed since May due to the outage at Syncrude, it could widen again toward the end of the year to $7.50 in Q4, Barclays said. The bank also said the likelihood of Saudi Arabia increasing exports to the United States in the coming months could likely weaken the strong WTI backwardation. Oil prices have gained for most of 2018 on tightening supply and strong demand but investors fear a decision by the Organization of the Petroleum Exporting Countries to increase production may dampen price gains and offset production losses in countries including Libya. [O/R] “Indeed, OPEC’s decision and disruptions elsewhere will deplete the market’s spare capacity cushion, raising prices,”
Bullish Sentiment Soars As Oil Outages Mount – Oil prices jumped in early trading on Tuesday on fresh concerns about supply outages. Strikes in Norway and Gabon knocked off more supply, Canada’s outage looks set to last longer than previously expected and the U.S. has reiterated its hardline stance on Iran. Brent jumped by more than 1 percent on Tuesday, putting it within reach of $80 per barrel. Hundreds of workers in Norway have gone on strike after rejecting a proposed wage deal, disrupting production at least one offshore oil project – Royal Dutch Shell’s Knarr field. The disruption adds to the series of outages around the world and helped push up prices on Tuesday. “As a result of the strike, Knarr is closing its production in the Norwegian North Sea,” said Shell spokeswoman Kitty Eide. Oil workers in Gabon began a 15-day workers strike at the facilities of Total due to wage demands. Gabon produces about 200,000 bpd. OPEC’s president deflected blame over the recent surge in oil prices. “OPEC alone cannot be blamed for all the problems that are happening in the oil industry, but at the same time we were responsive in terms of the measures we took in our latest meeting in June,” OPEC president Suhail al-Mazrouei told Reuters. “I feel OPEC is doing its part.” The defense came in response to a series of accusations from U.S. President Donald Trump that OPEC has been manipulating oil prices.. U.S. sanctions are already starting to impact Iran’s oil exports as Asian refiners cutback ahead of the November deadline. South Korea is aiming to eliminate purchases in August, while Japan could cut off imports after September. “It’s the Trump administration that we are dealing with, and that unpredictability is stoking concern among refiners and petrochemical companies in Asia, making them voluntarily cut their shipments from Iran before the deadline,” Kim Jae Kyung, a research fellow at Korea Energy Economics Institute, told Bloomberg. Syncrude Canada’s 350,000-bpd outage at its oil sands facility was expected to last through July, but restoration could take longer than expected. The facility could be brought back online in phases, and full output might not be achieved until September or October. “Today, production is 527,000 barrels a day, tomorrow it will be lower, and after tomorrow it will be even lower and everyday it will keep falling,” Mustafa Sanalla, chairman of the Tripoli-based National Oil Corp., said in a video statement posted on the company’s Facebook page. Several key oil export terminals remain offline as the army commander that took them over has decided to put them under control of a rival NOC based in the east.
WTI Extends Gains After Big Crude Draw While Brent popped on Norway disruptions today, WTI has traded in a narrow range for two weeks as US crude production has flatlined for three weeks amid Permian pipeline bottlenecks. API
- Crude -6.7mm
- Cushing +1.952mm (-1.3mm exp)
- Gasoline -1.59mm
- Distillates -1.925mm
A major crude draw was offset by a surprise build at Cushing… EIA raised its U.S. crude output forecast to 11.8m b/d in 2019 compared 11.76m b/d estimate in June report. Oil Prices have traded in a narrow range for the last two weeks with WTI hovering around $74 today ahead of the API data and extended the gains after the big crude draw… Geopolitical risks, shrinking spare-production capacity, and wariness that OPEC may renege on pledges to raise output are creating a “perfect storm” in crude markets, said Ehsan Khoman, an analyst at MUFG Bank Ltd.
Crude Oil Prices Settle Higher Despite Prospect of Iran Sanction Waivers – – Crude oil prices settled higher Tuesday despite falling sharply from session highs on concerns that the loss of Iranian crude from the global market may not be as severe as many had anticipated. In the New York Mercantile Exchange crude futures for August delivery rose 26 cents to settle at $74.11 a barrel, while on London’s Intercontinental Exchange, Brent climbed 84 cents to trade at $78.91 a barrel. Oil prices retreated sharply as U.S. Secretary of State Mike Pompeo said the White House would consider extending sanctions relief to some oil buyers of Iranian crude beyond the previously announced November deadline. Pompeo remarks were in sharp contrast to comments from the U.S. State Department just two weeks ago, warning countries to cut their imports of Iranian crude to zero by Nov. 4, or face sanctions. Investor fears that the loss of Iranian crude could be less than initially anticipated, reducing the prospect of a meaningful global supply shortage, overshadowed reports about a fresh supply outage. Shell’s Knarr field in Norway was taken offline – which produces around 23,000 barrels of oil per day – after 669 oil rig workers in Norway went on strike Tuesday as wage talks failed. The disruptions in Norway exacerbated unplanned outages in Libya and Canada, which had already trimmed global inventories. Libya’s national oil output has dropped to 527,000 barrels per day (bpd) from a high of 1.28 million bpd in February, the head of the National Oil Corporation said on Monday. WTI crude oil prices were also weighed down by expectations for a continued uptick in U.S. production. The U.S. Energy Information Administration raised its 2019 estimate on U.S. crude-oil production, according to the agency’s July short-term Energy Outlook report released Tuesday.
Saudi Oil Production Surges By Over 400,000 Barrels In June: OPEC – The energy community was looking with particular interest to the latest, just released July OPEC monthly report, for signs of the promised – if only by Saudi Arabia – boost in oil output, and it got what it was looking for, if to a lesser extent than some had expected: in June, OPEC’s collective oil production rose by 173Kb/d to 32.327MM, according to secondary sources. While the total production rose to the highest level in months, it was well below both year end 2016 and 2017 production, both of which were above 32.6MM as a result of production declines and stoppages among some key OPEC members. In June, Crude output was boosted mostly in Saudi Arabia, where it increased by over 400K to 10.420mmb/d, with Iraq, Nigeria, Kuwait and UAE also increasing their monthly production. On a self-reported basis, Saudi said it had boosted output by 459kb/d, bringing the total to 10,489mmb/d. Meanwhile, production declined in Angola as well as the two more troubled nations Libya, which has recently seen a sharp drop in output due to political infighting, and Venezuela, where the nation is grinding to a halt due to the ongoing economic collapse. That said, Libya may soon be returning to peak production with the NOC announcing overnight it had regained control of Eastern oil ports, with operations set to resume to normal levels “in a few hours. Elsewhere in the report, OPEC’s 2018 global oil demand growth forecast remained unchanged, forecast to increase by around 1.65mln bpd to average 98.85mln bpd. In 2019, initial projections indicate a global increase of around 1.45mln bpd, with annual average global consumption anticipated to surpass the 100mln bpd threshold. Non-OPEC oil supply (now excluding the Republic of the Congo) in 2018 was revised up from the previous MOMR by 140k bpd to average 59.54mln bpd; an increase of 2mln bpd Y/Y. OPEC also cautioned that U.S. refinery runs may drop from near-record level in coming month amid strong gasoline inventories, something we have seen in practice in recent weeks. “High gasoline inventories and weak refining margins, despite positive performances in the bottom of the barrel, are most likely going to pressure refinery runs from the current high levels in the coming month.”
OPEC’s oil output jumps in June as Saudi Arabia opens the taps – Saudi Arabia hiked its oil output in June to the highest level since the end of 2016, as it aims to cool the market after crude prices recently rose to 3½-year highs. The jump in Saudi supplies shows the world’s top crude exporter is making good on its recent vows to tame oil prices. The kingdom has faced pressure from big crude importers like China and India, as well as President Donald Trump, who worry about negative economic impacts from rising fuel costs. The increase also comes as OPEC forecast global oil demand will surpass 100 million barrels per day (bpd) next year. Saudi Arabia reported that it pumped nearly 10.5 million bpd last month, up from just more than 10 million bpd in May.
International Energy Agency – Oil Market Report – Highlights:
- Demand got off to a strong start this year with global 1Q18 growth at over 2 mb/d, helped by cold weather in the northern hemisphere. Recent data, however, point to a slowdown, with rising prices a factor. In 2Q18, growth slowed to 0.9 mb/d. In 1H18, growth will average 1.5 mb/d, falling to 1.3 mb/d in the second half of the year.
- In 1H19, the comparison with a strong 1H18 will see growth of close to 1.2 mb/d, accelerating to 1.6 mb/d in the second half. We expect growth of 1.4 mb/d in world oil demand in both 2018 and 2019, unchanged from last month’s Report.
- Global oil supply rose by 370 kb/d in June mainly due to higher Saudi Arabian and Russian output as parties to the Vienna Agreement decided to achieve 100% compliance. OPEC crude production in June reached a four-month high of 31.87 mb/d. A surge from Saudi Arabia offset losses in Angola, Libya, and Venezuela.
- Non-OPEC output is set to expand by 2 mb/d in 2018 and by 1.8 mb/d next year led by the United States, but there are temporary disruptions in Canada, Brazil, Kazakhstan and the North Sea.
- OECD commercial stocks rose 13.9 mb in May to 2 840 mb, only the third monthly increase since July 2017. However, stocks gained only half as much as normal. At end-month, OECD inventories were 23 mb below the five-year average. Preliminary data show stocks falling in June.
- Crude oil prices fell in June but since the Vienna Agreement meetings values for ICE Brent and NYMEX WTI have increased by 7% and 13%, respectively, on news of supply disruptions. In product markets, increased refinery output and signs of slowing demand put pressure on gasoline, diesel and jet fuel cracks.
- Global refining throughput will grow by 2 mb/d from 2Q18 to 3Q18, with more than half of the increase in the Atlantic Basin. Runs are forecast to reach 82.8 mb/d, 0.7 mb/d higher than the previous record level in 4Q17. This could result in large crude stock draws, exceeding 1.4 mb/d. Refined product stocks will seasonally increase by 0.6 mb/d.
OPEC/non-OPEC producer group achieved 100% cut compliance in June: IEA –Russia and Saudi Arabia raised their oil production by a combined 500,000 b/d, and OPEC crude output hit a four-month high of 31.87 million b/d in June, reflecting agreement on easing output cuts, the IEA said Thursday. In its monthly oil market report, the IEA also said Saudi Arabia had broken its output quota under the 2016 output pact among OPEC and non-OPEC countries, increasing its crude output by 430,000 b/d to 10.46 million b/d. It said the OPEC/non-OPEC group had achieved 100% compliance with the 2016 agreement, rather than the over-compliance of previous months. For OPEC members, compliance averaged 120% in June, while for non-OPEC members it was just 66%, it said. The IEA also raised its estimate of production growth by non-OPEC producers in 2019 to 1.8 million b/d, from 1.7 million b/d in its previous report, citing mainly US production prospects.
WTI Jumps After Biggest Crude Draw Since 2016 – WTI was trading lower overnight after the bounce on API’s big crude draw was eviscerated by escalating trade wars. However, when DOE reported a massive 12.63mm crude draw – the most since Sept 2016 – WTI prices spiked (after kneejerking lower first).Bloomberg’s Michael Jeffers notes that American oil stocks are now at the lowest level since February of 2015, flying in the face of bumper production. The refineries are in overdrive for this time of year, even as utilization fell slightly. Exports are still over 2 million barrels a day. DOE:
- Crude -12.63mm (-3.79mm exp) – biggest draw since Sept 2016
- Cushing -2.062mm (-1.3mm exp)
- Gasoline -694k (-1mm exp)
- Distillates +4.125mm – biggest build since Jan 2018
Following last week’s surprise crude build (from DOE), API reported a much bigger than expected crude drawBloomberg Intelligence Energy Analyst Fernando Valle notes that exports of refined products need to rise if crack spreads are to recover from recent lows. Rising crude prices have dampened demand growth just as red-hot refinery utilization has flooded domestic markets, pushing down margins.All eyes remain on US crude production which has now flatlined for 4 straight weeks…
Crude Oil Prices Settle 5% Lower as Libya Resumes Exports, OPEC Output Jumps – – WTI crude oil prices settled sharply lower Wednesday, shrugging off a larger-than-expected draw in U.S. crude stockpiles as raising OPEC output, and the reopening of terminals in Libya dented investor expectations for a global supply shortage. On the New York Mercantile Exchange crude futures for July delivery fell 5% to settle at $70.38 a barrel, while on London’s Intercontinental Exchange, Brent fell 6.7% to trade at $73.56 a barrel. Inventories of U.S. crude fell by 12.633 million barrels for the week ended July 6, confounding expectations for a draw of 4.489 million barrels, according to data from the Energy Information Administration (EIA). The large draw in crude supplies came as imports fell by 1.315 million barrels a day (bpd), and output remained roughly flat at 10.9 million bpd, the EIA said. The production shutdown at Canada’s Syncrude – which has capacity to produce 350,000 bpd of oil – continued to weigh on North American crude supplies. Gasoline inventories – one of the products that crude is refined into – fell by 0.649 million barrels, missing expectations for a draw of 0.750 million barrels, while supplies of distillate – the class of fuels that includes diesel and heating oil – unexpectedly rose by 4.125 million barrels, against expectations for a build of 1.200 million barrels. The mostly bullish inventory report failed to lift sentiment amid investor concerns about an increase in global supplies as OPEC output increased last month, while Libya resumed export activities, which could see as much as 0.7 million bpd return to the market. OPEC output rose above 32.3 million bpd in June, up 173,000 bpd from the previous month, according to OPEC’s monthly report. The increase was led by a rise in Saudi output to levels not seen since the output-cut agreement in 2016. Saudi Arabia reported that it pumped nearly 10.5 million bpd last month, up from about 10 million bpd in May. OPEC, in its monthly report, said it expects the pace of oil demand growth to slow, but still increase by 1.45 million bpd in 2019. The oil-cartel also said it expects non-OPEC production to rise by 2.1 million barrels in 2019, led by a surge in U.S. output.
Brent stumbles as market resets after year-long rally: Kemp (Reuters) – Brent crude prices registered their largest one-day fall in more than two years on Wednesday, in what was probably an indication hedge fund managers and other traders are realising profits after a year-long rally. Front-month futures slumped by $5.46 per barrel, or just under 7 percent, a daily price move more than three standard deviations away from the mean, and the largest one-day decline since February 2016. The market has suffered a larger percentage decline on only 44 days since the start of 1990, and it comes after a long period in which price volatility has been very low by historical standards. Traders and analysts have blamed the sudden drop on a cocktail of factors, including the reopening of oil export terminals in Libya and the worsening trade dispute between the United States and China. There have also been hints the United States will grant at least some waivers for countries to continue importing Iranian crude, easing fears of an extreme supply crunch after sanctions are reimposed in November. Saudi Arabia also sharply increased exports in June and is expected to raise them further in July, helping relieve fears about future shortages. The most likely explanation is a combination of all these factors, coupled with stretched market positioning and a lack of liquidity. Brent has shown signs of topping out for some time, even as prices remain close to their highest since 2014 (https://tmsnrt.rs/2LbhIwR).
Oil’s Perfect Storm Lays At Trump’s Feet – It’s becoming painfully clear that the way forward for global oil markets is going to be bumpy, very bumpy, particularly as we head into next year. Much of this uncertainty, even blame, is being increasingly leveled at a person that has surprised, flabbergasted and even shocked political opponents, allies and adversaries alike since he took office – President Donald Trump.A growing line of thought surmises that while Trump uses the presidential bully pulpit, in this case Twitter, to put pressure on long-time ally and de facto OPEC leader Saudi Arabia to get ready to pump more oil to keep (both oil and gas) prices from spiraling out of control, much of the blame for higher prices actually belong to Trump.The argument makes perfect sense. If Trump would ease back on both his heated rhetoric toward Iran, though that case could be made over much of Trump’s dealings with China, the EU, Canada and others, and if Trump would revisit his decision on re-imposing sanctions on Iran, then oil markets would benefit. Why? A softer line on Iran would reduce the worry or even fear that a loss of some 2.7 million barrels per day (bpd) of Iranian crude would roil oil markets so much that the Saudis would have to pump an unprecedented amount of oil, perhaps as much as 12.5 million bpd, eating up all of its spare capacity. The Saudi’s have never pumped more than around 10.7 million bpd of oil, a level reached in June, and has for more than 50 years kept at least 1.5-2 million bpd of spare capacity for oil market management.
Libyan Supply Keeps Oil Prices Down – Oil prices held steady after Wednesday’s steep selloff, with the return of Libyan supply keeping prices in check despite reports of a tight global market. The IEA said on Thursday that the oil market was tightening significantly and that even though higher production from OPEC was “very welcome,” it would cut into limited spare capacity, which could become “stretched to the limit.” Outages around the world are piling up and “we see no sign of higher production from elsewhere that might ease fears of market tightness,” the IEA wrote. Oil prices have climbed over the last few weeks in large part because nearly 700,000 bpd was shut down in Libya. However, that changed this week when the National Oil Corp. moved to lift force majeure on several export terminals, and said that it would begin restoring the disrupted supply. Oil prices fell sharply on the news, declining by more than 6 percent on Wednesday. If the oil market needs more oil, the OPEC+ coalition will provide it, according to Russia. “I can’t rule out that if there is a need for more than 1 million barrels we will be able to quickly discuss it all together and make all necessary decisions,” Russian energy minister Alexander Novak told reporters in Moscow on Friday. OPEC+ has “all needed tools,” if necessary, he said. The chairman of Indian Oil Corp., the country’s largest refiner, warned that long-term demand is highly price sensitive. “Demand cannot be seen in isolation to prices, especially for a price sensitive market like India,” Sanjiv Singh said, according Bloomberg. “You may not see an impact on demand in the short term, but in the long term, definitely it will have implications.” India is one of the largest buyers of Iranian oil and the U.S. government has been urging India to cut back. India is starting to replace Iranian oil with crude from the United States. U.S. oil exports to India are expected to hit 15 million barrels year-to-date in July, up from 8 million barrels for the full year in 2017. Meanwhile, India’s imports of Iranian oil fell by 15.9 percent in June compared to a month earlier. After a few weeks of very tough rhetoric about Iran sanctions, U.S. Secretary of State Mike Pompeo signaled a softer line this week, noting that a lot of countries could request waivers. “We’ll consider it,” he said. High gasoline prices are likely putting pressure on the U.S. government to slow down on its campaign to shut in all of Iran’s oil exports.
Iran says U.S.-caused oil spike will slow growth, add to tariff impact (Reuters) – A rise in oil prices caused by the United States’ sanctions policies will hurt economic growth in China, Europe and other consumers, much like President Donald Trump’s trade measures, a top Iranian official said on Thursday. Iran’s OPEC governor also told Reuters the rise in oil output by OPEC and its allies, after pressure by Trump to do so, was only 170,000 barrels per day (bpd) in June and would not grow much in 2019, also weighing on economic growth. While Trump has accused the Organization of the Petroleum Exporting Countries of driving up oil prices, Iran, OPEC’s third-largest producer, says the United States has caused this by imposing sanctions on Iran and fellow OPEC member Venezuela. “The higher oil prices Trump is causing are leading to a higher energy bill in the EU, Japan, China and India, impacting their economic growth just like the tariffs imposed upon them, also enabling Saudi Arabia and the UAE to pay their arms bill to the U.S.,” Iran’s Hossein Kazempour Ardebili said. The comments underline the still-simmering tensions after OPEC’s meeting last month, when the group agreed to return to full compliance with earlier agreed oil output cuts, after months of underproduction by OPEC countries including Venezuela. Saudi Arabia said the deal allowed countries able to produce more, such as itself, to go ahead and do so, to make up for shortfalls elsewhere. Iran strongly disagreed and criticized Saudi plans to boost output. Kazempour said Trump may be disappointed by the scale of the production increase so far and voiced scepticism Saudi Arabia and Russia could add much more oil in 2019. “These days Saudi Arabia are supplying out of stocks not additional production,” he said. “Russia is also unable to do much not even 200,000 barrels per day – all are talking few barrels next year and the world economy will shrink and all indexes will be down.” “The June versus May increase in OPEC and non-OPEC production was only 170,000 bpd. Does this surprise you, Mr President?” The International Energy Agency, in a report on Thursday, put the combined month-on-month increase at 230,000 bpd.
Crude Oil Prices Settle Lower as Traders Weigh Libyan Output Restart – WTI crude oil prices settled lower Thursday, as traders weighed the impact of increased supply from Libya against expectations that major oil producers may struggle to avert a global supply shortage. On the New York Mercantile Exchange crude futures for August delivery fell 5 cents to settle at $70.33 a barrel, while on London’s Intercontinental Exchange, Brent rose 1.53% to trade at $74.52 a barrel. Oil prices were on the back foot for most of the session as Libya’s National Oil Corp (NOC) said it would reopen four oil export terminals, denting some the supply-risk premium which had underpinned the recent run-up in oil prices. The International Energy Agency, however, raised expectations for a global shortage in crude supplies as the energy watchdog warned of a potential capacity crunch amid a rise in output from Middle East Gulf countries and Russia. “Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit,” the Paris-based agency said in its monthly report. Saudi Arabia increased production by 430,000 barrels a day in June, the IEA said. That, however, was offset somewhat by falling Iranian exports, as European traders trimmed their imports ahead of U.S. sanctions on Tehran, which come into effect in November. “In June, Iran’s crude exports fell back by about 230,000 barrels a day, albeit from a relatively high level in May, as European purchases dropped by nearly 50%,” the agency said. Also stemming losses in oil prices were reports of ongoing declines in inventories at the Cushing, Okla. delivery hub. Inventories at the Cushing, Okla. delivery hub had fallen 929,399 bpd from July 6 to July 10, Reuters reported, citing traders. This comes on a day after data showed inventories of U.S. crude fell by 12.633 million barrels for the week ended July 6, confounding expectations for a draw of 4.489 million barrels.
Spare Capacity: The Biggest Mystery In Oil Markets – With around 2.5 million barrels per day (mb/d) of Iranian supply targeted by the Trump administration, how will the oil market cope with the losses? Is there enough supply capacity to make up for the shortfall?There is a great deal of debate about the true extent of the world’s spare capacity. Or, more precisely, there are a range of guesses over how much surplus is located in Saudi Arabia, the one country that really has the ability to ramp up large volumes of supply on short notice.Saudi Arabia claims it could produce 12.5 mb/d if it really needed to. However, that claim has not been put to the test. Saudi Arabia’s all-time highest level of production was just over 10.7 mb/d in 2016, just before it helped engineer the OPEC+ production cuts.Adding around 2 mb/d of extra supply – as President Trump demands – is a tall order. “More recent history shows Saudi has never produced more than 10.6mn b/d on average over a single month. And even in the recent period, we have observed a steep decline in domestic Saudi oil inventories,” Bank of America Merrill Lynch wrote in a note, arguing that there is plenty of reason to question the notion that Saudi Arabia has around 2 mb/d of idled capacity. “Thus, it appears the oil market has little confidence that Iran volumes can be easily replaced.”The International Energy Agency estimates that there is around 1.1 mb/d of total global spare capacity that can truly be ramped up in a short period of time. A looser definition of spare capacity that encompasses the ability to add supply over several months puts the figure at about 3.4 mb/d, 60 percent of which is located in Saudi Arabia. Smaller additions come from the UAE, Kuwait, Iraq and Russia. The problem is that Saudi Arabia is already ramping up output to replace lost barrels elsewhere. Saudi Arabia added 500,000 bpd in June compared to a month earlier, putting output at 10.5 mb/d. But that increase only offset losses in Libya, Angola and Venezuela. In other words, Saudi Arabia had 2.5 mb/d of spare capacity at the start of June, proceeded to burn through 0.5 mb/d, but because of the losses elsewhere, the oil market saw no net increase in supply.
Trump May Tap Up To 30MM Barrels From Oil Reserve To Halt Rising Gas Price – Having already yelled at OPEC on several prior occasions on Twitter with demands for Saudi Arabia and the rest of the OPEC cartel to boost production in order to push oil – and gasoline – prices lower…. only to realize that the amount of needed incremental output is next to impossible to achieve when considering the amount of Iran exports that will be curbed on November 4 when the Iran sanctions kick in officially, Trump has been left with two choice: ease off the Iran sanctions and implement them more gradually, or release oil from the US Strategic Petroleum Reserve. And now, with oil prices continuing to rise and pushing the price of gasoline to levels not seen in 4 years, at a critical time with November mid-term elections fast approaching, Trump appears to have decided on the latter, and is actively considering tapping into the nation’s emergency crude oil reserve, Bloomberg reported citing two people “familiar with the situation.” While no decision has been made yet to release crude from the 660-million-barrel SPR stockade, options under review range from a 5-million-barrel test sale to a larger release of 30 million barrels. An even larger release could be possible it it were to be coordinated with other nations. For Trump, the magic number appears to be $3 per gallon on the national level; every time regular gasoline nears that round number, Trump has been quick to voice his displeasure. The average national price of unleaded gasoline rose to $2.89 Friday, an increase of 63 cents from where it was a year ago, per AAA data. The U.S. gasoline price average is expected to range between $2.85 per gallon and $3.05 per gallon through Labor Day, according to the group. Even an SPR release may not be sufficient to push prices lower, and analysts remain split on the effect such a release would have and how long it it last. Depending on its size and timing, an oil sale might leave the market unmoved, or have a real, if fleeting, impact on prices.
US, Canadian Rig Count Rises After Tumultuous Week – Baker Hughes reported an increase to the number of active oil and gas rigs in the United States on Friday. Oil and gas rigs increased by 2 rigs, according to the report, with the number of active oil rigs staying at 863 for the week, while the number of gas rigs increased by 2, hitting 189.The oil and gas rig count now stands at 1,054 – up 102 from this time last year, with the number of oil accounting for 98 of that 102.Canada gained 15 oil and gas rigs for the week, 13 of which were oil rigs. Canada’s oil and gas rig count is now up just 6 year over year. Oil rigs are up by 33 year over year in Canada, while the number of gas rigs are down by 27.Oil prices were trading up on Friday afternoon after a rather tumultuous week for the oil industry – a state of being that is quickly becoming the new norm as geopolitical forces, supply disruptions, and big inventory moves all make for a rocky market.In afternoon trading, both benchmarks were up, with WTI trading up $0.57 (+0.81%) at $70.90 at 12:45pm EDT and Brent trading up $0.88 (+1.18%) at $75.33. While both benchmarks are trading up on the day, WTI is trading down almost $3 since Monday. Brent is trading down more than $3 this week. The normal market forces – Libya’s supply disruptions while the two NOCs duke it out over control of its oil, Venezuela’s inability to stop the steadily falling production declines, the escalating trade dispute between China and the United States, and serious inventory draws for crude oil – are all working to lift the price of oil. Likewise, Saudi Arabia’s production increases and OPEC’s prediction that 2019 demand growth may be lower than previously thought seeks to pull oil prices downwards.As for the oil production in the United States, which has been on a tear for all of 2018, seems to have leveled off a few weeks ago at 10.900 million bpd, where it has been for five weeks running. The 11 million bpd mark, should the United States hit this production level soon, will be an important psychological mark to surpass. At 8 minutes after the hour, WTI was trading up 1.08% at $71.09, with Brent trading up 1.26% at $75.39.
Northeast, Haynesville Flat as Natural Gas Drilling Drives Small Uptick in Rig Count – The U.S. rig count inched higher during the week ended Friday, thanks to a small uptick in natural gas-directed drilling, though activity was flat in the largest gas-focused onshore plays, according to data from Baker Hughes Inc. (BHI). Two gas rigs returned to action during the week in the United States, putting the total number at 189, roughly in line with 187 rigs running a year ago. The total number of oil-directed units held at 863, but up from 765 a year ago. The net gains included one directional and one vertical unit. One rig was added on land, along with one in inland waters. BHI’s Gulf of Mexico tally increased by one to 19 for the week. Canada added 15 rigs for the week, 13 oil-directed and two gas-directed, to finish at 197 active units, up from 191 last year. The combined North American rig count finished the week at 1,251 units, versus 1,143 rigs in the year-ago period. Among plays, no major changes were reported for the week. The Permian Basin added a unit to finish at 476 (373 a year ago), while the Granite Wash saw one rig depart to finish at 15 (14 a year ago). One rig was added in the Cana Woodford, and a more detailed breakdown by NGI’s Shale Daily showed that rig is going to work in the STACK, aka the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties. The two domestic gas rigs added for the week did not reflect any changes to activity in the Northeast, as the Marcellus and Utica shales both finished flat at 53 and 23 units, respectively. The Haynesville Shale in Louisiana and Texas also finished flat at 49 rigs. Among states, Texas led gainers as it added two net rigs overall for the week to end at 528, up from 466 units this time last year. Colorado and Louisiana added one rig each. Alaska and Colorado each saw one rig exit the patch, according to BHI.
Oil prices rise, but post sharp weekly loss amid expectations for rising Libyan output – Oil prices climbed on Friday, but posted sharp losses for the week, as traders weighed concerns over resurgent Libyan supply and global trade disputes against indications of tighter crude supply and shrinking spare output capacity. August West Texas Intermediate crude, the U.S. benchmark, tacked on 68 cents, or 1%, to settle at $71.01 a barrel. The contract settled at $70.33 a barrel on the New York Mercantile Exchange Thursday – the lowest since June 25. Prices also briefly hit lows Thursday under $70 a barrel for the first time in over two weeks. It lost 3.8% for the week. September Brent crude, the international benchmark, added 88 cents, or 1.2%, to $75.33 a barrel on the ICE Futures Europe exchange. Its closing low of the week, $73.40 on Wednesday, was the lowest settlement since June 21. Brent closed out the week 2.3% lower. Prices for Brent had dropped by 6.9%, or more than $5 a barrel, on Wednesday alone, “as trade concerns, returning Libyan supply, and a potentially softer U.S. stance on Iranian oil sanctions all combined to chip away at the market’s overall upside risk,” This week, Libya’s state-run National Oil Corp. cleared the way for a potential 700,000 barrels of oil a day flowing back into the global market.Market participants have been concerned by further trade tensions between China and the U.S. Also, Washington raised the possibility that allies could buy Iranian crude despite the reintroduction of sanctions, which would bring more oil into the market. Such worries outweighed a report from the Energy Information Administration, which said weekly U.S. crude supplies dropped by 12.6 million barrels in the week ended July 6 and stand at a bout 4% below the five-year average for this time of year. A report from the International Energy Agency on Thursday suggested that global spare production capacity could be pushed to its limit. “We’re still talking about a market that is potentially dangerously low in terms of spare capacity,” Fraser told MarketWatch.
OPEC Output May Be Stretched to Limit by Supply Crises –OPEC’s Gulf members may need to pump almost as much crude as they can to cover swelling supply losses from Venezuela to Iran and beyond, the International Energy Agency said. Saudi Arabia might have to draw harder than ever before on its spare production capacity as a spiraling economic crisis in Venezuela, renewed U.S. sanctions on Iran and disruptions in Libya strain global markets, the agency predicted. “Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare-capacity cushion, which might be stretched to the limit,” the Paris-based IEA said in its monthly report. “This vulnerability currently underpins oil prices and seems likely to continue doing so.”
Russia seen adding 600,000 b/d of oil output by late 2019: analysts – Russian oil producers may be capable of increasing production by as much as 600,000 b/d within the next nine to 18 months if the country’s agreements with OPEC and its partners allow, according to analysts. Following the decision in June by OPEC and its oil producing partners to boost output by 1 million b/d from levels in May, Russia has pledged to add an additional 200,000 b/d to the market. The return of Russian barrels is a key factor currently weighing on markets. “I think it is realistic to boost output by up to 600,000 b/d within the first half of 2019 — but Russian companies will need to drastically intensify drilling to do so,” said Mikhail Sheybe, an analyst from Sberbank CIB. The Energy Information Administration defines spare capacity as the volume of crude that can come on stream within 30 days and be sustained for at least 90 days. “We estimate that Russia will retain [roughly] 360,000 b/d of swing capacity at the end of 2018, as oil output ramps up by the agreed 200,000 b/d,” a recent report by BofA Merrill Lynch Global Research said. “We expect Russian oil producers to accumulate additional [roughly] 140,000 b/d spare capacity by the end of 2019, bringing the total figure to 500,000 b/d.” Russia’s spare capacity has grown because oil producers continued to prepare major greenfield projects for full-scale development in anticipation of production caps being lifted at some point this year, analysts said. The country can produce more crude if required, Russian energy minister Alexander Novak said last month. His comments came amid concerns that OPEC countries may not be able to cover potential gaps in supply in the fourth quarter, expected as a result of looming US sanctions on Iran, sliding output from Venezuela and the latest slump in Libyan exports. Saudi Arabia and Russia hold the bulk of the world’s current spare capacity. Because Russia has never deliberately reduced its output before, it’s uncertain how quickly oil producers will be able to increase production. Key producers estimated they would need on average of between two to four months to restore barrels, while some sources said these forecasts were conservative. In June, Russia boosted its output by 89,400 b/d to 11.063 million b/d, as oil producers carried out tests to assess how quickly output could be increased.
Why The Coming Oil Crunch Will Shock The World – Chris Martenson – Here’s why I’m harping so much on strategy: the US is operating without a viable one.We neither have a compelling Vision of where we want to go, nor any sense of the Resources required to change with the many transitions underway around us. The current ‘strategy’ (if we can be so generous as to call it that), is nothing more than “business-as-usual” (BAU).The US is assuming it is always going to have more cars and trucks on the road this year than last year, more goods sold, a larger economy, more jobs, and the world’s most powerful military. That’s the BAU model. And it has largely worked for the past century. But it can’t work going forward. And the longer we pursue it, the more of our future prosperity we ruin. Why? Because the future of everything is dependent on energy. More specifically: net energy. In total, the US consumes over 7 billion barrels of oil each year. And that represents only 37% of the nearly 100 quadrillion of BTUs of America’s annual energy consumption (the rest coming from natural gas, coal, and other sources). For comparisons sake, the rest of the world consumes another 450 quadrillion BTUs. And world energy demand just keeps on insatiably growing year over year. The (notoriously conservative) EIA predicts it will jump by 28% over the next two decades. The nations of the world have made the truly regrettable decision to build so much of their infrastructure using concrete reinforced with steel (re-bar, mesh, etc.). As I’ve explained in detail in previous articles, because the steel rusts over time, the concrete is busy being destroyed from the inside out — something we can detect easily enough by the cracks and spalling (sheets flaking off) so readily apparent on every bridge that’s more than a couple of decades old.This has created a ticking time bomb. The world’s crumbling concrete buildings, bridges and roadways will have to be entirely replaced in just 40 to 100 years of their original construction dates. Where will all of the energy come from for that?Also, note that China has poured more steel-reinforced concrete over just the past few years than the US did in the entire 20th century(!). All of this, too, will need to be replaced later this century.Given that the sand required for all of the world’s *current* concrete projects is now in very short supply, where all the sand will come from for all that future concrete and cement work? Who ever thought we could run out of sand? But such are the unpleasant surprises that crop up during the late stages when running an exponential economic paradigm (i.e., “Growth forever!”).
800,000 expats have left Saudi Arabia, creating a hiring crisis: ‘Employers say young Saudi men and women are lazy and are not interested in working’ – Hit hard by the oil-price collapse, the kingdom is now experiencing a plunge in foreign investment and high levels of capital outflow as its de facto leader, MBS as he is commonly known, attempts to consolidate power and steer a new economic course. The uncertainty caused by his ambitious, some would say unrealistic, plans to modernise the economy has been further stoked by Saudi Arabia’s apparent struggle to fill private sector jobs vacated by a growing exodus of expats. As of April, more than 800,000 had left the country since late 2016, alarming domestic companies concerned that the foreigners cannot be easily replaced.Their departure is part of MBS’s attempt to wean the country off its dependence on oil through economic diversification, a significant element of which involves trying to persuade Saudis in undemanding state sector jobs – which make up two-thirds of domestic employment – and those out of work to take up the new vacancies. The authorities want to generate 450,000 openings for Saudis in the private sector by 2020.MBS has sought to expedite the exodus of foreign workers, who constitute about a third of the population, by stepping up the process of so-called Saudisation – essentially the creation of a more productive local workforce. He is hiking up levies on companies employing non-Saudis, requiring foreigners to pay fees for dependents, and restricting the sectors in which they can work, with employment in many areas of the retail and service industries now strictly confined to Saudis. The measures are said to be driving the expat exodus, evident in the marked downturn in the rental real estate market and empty shopping malls.While among high-earning Western professionals Saudi Arabia has long been viewed as a hardship posting compensated by their tax-free status, the majority of foreigners in the country are from the Middle East and Asia, many employed in low-paid jobs in the sectors now earmarked for Saudis.But Saudi business owners are having difficulty getting locals, accustomed to undemanding work in the state sector and generous unemployment benefits, to work for them. Reports suggest many Saudis are put off by what they regard as poorly paid, low-status jobs. The recruitment problems have seemingly sparked so much concern that they have been played out on the pages of the Saudi Gazette, the government’s mouthpiece, which normally features anodyne stories about life in the kingdom.
Assault on port of Hodeidah resumes as US escalates Yemen intervention – At least 165 people were reportedly killed over the weekend as fierce fighting resumed south of the port city of Hodeidah, which serves as a lifeline for three-quarters of the population of Yemen, a country that depends upon imports for 90 percent of its food, fuel and medicine.A force consisting of troops of the United Arab Emirates, Sudanese soldiers and Yemeni mercenaries, backed by Saudi air power, began an offensive to take the strategic Red Sea port last month.The UAE announced a pause in the fighting, supposedly to allow for negotiations by UN Special Envoy Martin Griffiths over a plan to turn the port over to UN control as part of a cease-fire agreement. The port and the city of Hodeidah are currently held by the Houthi rebels, who control Yemen’s capital of San’aa as well as the most populated areas of Yemen in the country’s northwest.The UAE, the oil sheikdom that has played a major role in ground fighting since it joined Saudi Arabia in attacking Yemen in March 2015, had initially rejected any agreement outside of an unconditional surrender by the Houthis. The pause in the fighting followed fierce battles in which the UAE-led forces suffered serious losses while gaining little territory. The Houthis inflicted casualties as well as destruction of tanks and armored vehicles of the invading force, including through the use of armed drones and landmines.While the UN envoy Griffiths has held talks with both the Houthis and the UAE and is scheduled to meet today with President Abed Rabbo Mansour Hadi, a stooge of US and S audi Arabia, who lives in self-imposed exile in Riyadh, a full-scale battle for the port city appears to be resuming.
UAE and US guilty of war crimes in Yemen torture centers, Amnesty charges –The United Arab Emirates (UAE) and mercenary forces operating under its command have carried out widespread forced disappearances, torture and murder of Yemenis suspected of opposing the more than three-year-old intervention by the oil-rich Gulf state in alliance with Saudi Arabia and Washington.This is the conclusion drawn by the human rights group Amnesty International after interviewing at least 75 people, including families of the disappeared and detained, survivors of the UAE torture centers, lawyers, journalists and local officials in Yemen.Amnesty concentrated its investigation on 51 cases, typical of the untold hundreds if not thousands who have been swept up into the UAE detention and torture apparatus. Nineteen of these individuals remain missing, their whereabouts unknown to their families amid fears that some of them may have died in captivity.The report outlines the stark political contradictions underlying the UAE’s repressive operations in Yemen. While intervening in the country as part of a Saudi-led coalition whose ostensible aim is the restoration to power of President Abd-Rabbu Mansour Hadi, the Saudi puppet who was overthrown by Houthi rebels in January 2015, the UAE is clearly pursuing its own interests in the region.“The UAE had been bypassing Hadi government officials in dealing with security issues, at times prompting President Hadi and his supporters to criticize the UAE for behaving like an occupier,” the Amnesty report states. This statement was substantiated on Monday when the “interior minister” designated by President Hadi, who remains in self-imposed exile in Riyadh, held a meeting in the southern Yemeni port city of Aden with a top UAE official, calling on Abu Dhabi to shut down or hand over the prisons it runs in southern Yemen. The UAE has been working in collaboration with southern secessionists, who oppose the re-imposition of Hadi’s rule over the region, as well as with a network of militias and mercenaries that it is arming and financing. Its aim is to assert control over a series of bases bordering the strategic waterways linking the Red Sea with the Indian Ocean, most importantly the Bab el-Mandeb Strait, through which much of the Middle East’s oil bound for Asia is shipped.
Israel acknowledges US-Saudi nuclear deal but presents its ‘red lines’: report – Israel has presented its “red lines” to President Donald Trump regarding nuclear reactors that the US is helping Saudi Arabia build, Israel’s Channel 10 reported on Sunday. According to the report, Israeli Prime Minister Benjamin Netanyahu dispatched Energy Minister Yuval Steinitz to the US two weeks ago to meet his American counterpart Rick Perry to discuss Israel’s concerns and “red lines” regarding a multi-billion nuclear deal between the US and Saudi Arabia revealed in March. Among the parameters reportedly presented by Steinitz was a “no surprises policy” that would assure Israel of full transparency, meaning informing it of the specific nuclear equipment Saudi Arabia receives from the US. Israel is also reportedly insisting on knowing the exact locations of Saudi nuclear reactors in addition to receiving assurance that Riyadh will not get the “capability or the legitimacy” to enrich uranium on its soil. The Saudis, however, are expected to ask the US for its permission to enrich uranium, the report said.
Facing Threats at Home and Abroad, Iran’s President Takes a Harder Line – For much of his presidency, Hassan Rouhani has been at loggerheads with Iran’s military and conservative establishment, as he forged diplomatic ties with the West to break his country’s international isolation. But now with his political survival in question, Mr. Rouhani is sounding a lot like Iran’s hard-liners. During a visit to Switzerland last week, Mr. Rouhani responded to U.S. plans to enforce a global freeze on Iranian oil exports by threatening to disrupt the flow of Middle Eastern oil through the Persian Gulf. It was seen as a warning to the world that Iran could block the Strait of Hormuz, a waterway for about one-third of global seaborne oil trade – a threat made before by Iran’s military, but not by this president.Iran’s military leaders, whose powers Mr. Rouhani has tried to curb, were suddenly praising the politically moderate president. “I kiss your hand for expressing such wise and timely comments,” Maj. Gen. Qassem Soleimani, commander of the Revolutionary Guard’s elite Quds Force, said in an open letter to Mr. Rouhani that grabbed state media headlines. Gen. Soleimani, who is one of Iran’s most powerful military figures, added: “I am at your service to implement any policy that serves the Islamic Republic.” Mr. Rouhani’s political pivot comes at a time of crisis for his government. After President Donald Trump’s withdrawal in May from the multinational agreement that checked Iran’s nuclear program in return for lifting sanctions, Mr. Rouhani’s bridge to the West is in danger of collapsing while a flailing economy has triggered protests. Banks and investors are heading for the exits. Mr. Rouhani’s 2013 election had ushered in hope among his supporters of shedding Iran’s status as international pariah. Mr. Rouhani had staved off pressure from political forces opposed to diplomatic outreach – until now. “Rouhani made a huge concession” to hard-liners, said Scott Lucas, an Iran expert and professor at the University of Birmingham. “This is the hardest line he has come out with, aiming at the Americans.” To some who supported Mr. Rouhani’s candidacy, the tough rhetoric is jarring. “We voted for Mr. Rouhani because he promised to open the doors for international relations. Threatening to close the Strait of Hormuz is not reasonable and is not moderate,” “We don’t want to get isolated again.”
The €300 million cash withdrawal – The eyes of the world are on one of history’s largest cash withdrawals ever. Earlier this week, the Central Bank of Iran ordered its European banker, Hamburg-based Europaeisch-Iranische Handelsbank AG, to process a €300 million cash withdrawal. Germany’s central bank, the Bundesbank, is being asked to provide the notes. If the transaction is approved, these euros will be counted up, stacked, and sent via plane back to Iran. German authorities are still reviewing the details of the request. Iran claims that it needs the cash for Iranian citizens who require banknotes while travelling abroad, given their inability to use credit cards, says Bild. Not surprisingly, U.S. authorities are dead set against the €300 million cash transfer and are lobbying German lawmakers to put a stop to it. They claim the funds will be used to fund terrorism.The picture below illustrates $1 billion in U.S. dollars, so you can imagine that €300 million in euro 100 notes would be about a third of that. That’s a lot of paper. The fate of this transaction is important not only for Iran but the rest of the world. It gives us a key data point for answering the following question: just how resistant is the global payments system to U.S. censorship? If a payments system is censorship resistant, third-parties do not have the power to delete a user or prevent them from accessing the system. If the U.S. can unilaterally cut off any nation from making cross border payments, then the global payments system isn’t censorship resistant. We already know that the global payments system is highly susceptible to U.S.-led censorship. From 2010-2015, Barack Obama successfully severed Iran from the world’s banks, driving the nation’s economy into the ground and eventually forcing its leaders to negotiate limits to their nuclear plans.
Iran’s Revolutionary Guard Says “Awaiting Orders” To Attack Israel Ahead Of Putin-Netanyahu Summit – Though by many accounts the situation in Syria’s south is stabilizing as the government is fast securing the border with Jordan after a major offensive against FSA, al-Qaeda, and ISIS factions in the region, the possibility for further clashes between Israel and Damascus remains high, as we previously warned here. In the past months there’s been widespread reporting on a “secret” deal brokered between Russia, Israel, and Syria, which reportedly involves the Syrian Army agreeing to keep Iranian forces away from the ongoing campaign along the Israeli and Jordanian borders, especially the contested Golan Heights. However, Israeli media has this week highlighted statements by a top Islamic Revolutionary Guard Corps (IRGC) commander that suggests further open hostilities between Israel, Syria, and pro-Iranian forces could break out at any moment as the IRGC has vowed to “break” Israel’s presence, especially along the Golan. Ahead of a summit between Israeli Prime Minister Benjamin Netanyahu and Russian President Vladimir Putin set to be held Wednesday (July 11) in Moscow, Netanyahu reiterated what will likely be a key demand as he meets face to face with Putin: “We will not tolerate the establishment of a military presence by Iran and its proxies anywhere in Syria – not close to the border and not far away from it,” he told reporters over the weekend. In a recent speech, IRGC deputy commander Hossein Salami boasted of the creation of an “Islamic army” near the Israeli-occupied Golan Heights, which he warned threatened to “end” Israel.“Today, an international Islamic army has been formed in Syria, and the voices of the Muslims are heard near the Golan,” Salami said, as quoted by the Times of Israel.“Orders are awaited, s o that…the eradication of the evil [Israeli] regime will land and the life of this regime will be ended for good. The life of the Zionist regime was never in [so much] danger as it is now,” the officer added.
This Is What Modern War Propaganda Looks Like – Caitlin Johnstone – I’ve been noticing videos going viral the last few days, some with millions of views, about Muslim women bravely fighting to free themselves from oppression in the Middle East. The videos, curiously, are being shared enthusiastically by many Republicans and pro-Israel hawks, who aren’t traditionally the sort of crowd you see rallying to support the civil rights of Muslims. What’s up with that? Well, you may want to sit down for this shocker, but it turns out that they happen to be women from a nation that the US war machine is currently escalating operations against. They are Iranian.Whenever you see the sudden emergence of an attractive media campaign that is sympathetic to the plight of civilians in a resource-rich nation unaligned with the western empire, you are seeing propaganda. When that nation is surrounded by other nations with similar human rights transgressions and yet those transgressions are ignored by that same media campaign, you are most certainly seeing propaganda. When that nation just so happens to already be the target of starvation sanctions and escalated covert CIA ops, you can bet the farm that you are seeing propaganda. Back in December a memo was leaked from inside the Trump administration showing how then-Secretary of State, DC neophyte Rex Tillerson, was coached on how the US empire uses human rights as a pretense on which to attack and undermine noncompliant governments. The propaganda machine doesn’t operate any differently from the State Department, since they serve the same establishment. US ally Saudi Arabia is celebrated by the mass media for “liberal reform” in allowing women to drive despite hard evidence that those “reforms” are barely surface-level cosmetics to present a pretty face to the western world, but Iranian women, who have been able to drive for years, are painted as uniquely oppressed. Iran is condemned by establishment war whores for the flaws in its democratic process, while Saudi Arabia, an actual monarchy, goes completely unscrutinized. This is because the US-centralized power establishment, which has never at any point in its history cared about human rights, plans on effecting regime change in Iran by any means necessary. Should those means necessitate a potentially controversial degree of direct military engagement, the empire needs to make sure it retains control of the narrative.
Lebanese tourist sentenced to eight years in prison for Facebook post against Egypt — A Lebanese tourist who was arrested last month for posting a video on Facebook complaining of sexual harassment and conditions in Egypt was sentenced to eight years in prison by a Cairo court on Saturday, her lawyer told Reuters. Mona el-Mazboh was arrested at Cairo airport at the end of her stay in Egypt after a 10-minute video in which she called Egypt a “son of a bitch country” went viral on social media. The 24-year-old Mazboh complains of being sexually harassed by taxi drivers and young men in the street, as well as poor restaurant service during the holy month of Ramadan and an incident in which money was stolen from her during a previous stay. A Cairo court found her guilty of deliberately spreading false rumours that would harm society, attacking religion, and public indecency, judicial sources said. An appeal court will now hear the case on July 29, according to Mazboh’s lawyer, Emad Kamal.
OPCW Issues First Report Of ‘Chemical Weapon Attack’ in Douma –On April 7 2018 Syrian ‘rebels’ claimed that the Syrian government used chlorine gas and Sarin in an attack on the besieged Douma suburb near the Syrian capital Damascus. They published a series of videos which showed the dead bodies of mainly women and children.During the night the incident allegedly happened Douma was hit with artillery and air strikes in retaliation for earlier deadly attacks by some ‘rebels’ splinter groups on Damascus city. Jaish al-Islam, the main ‘rebel’ group in Douma, had already agreed to leave towards Idleb governorate.The claim of the ‘chemical attack’ was made shortly after U.S. President Trump had announced that he wanted U.S. troops to leave Syria. It was designed to “pull him back in” which it indeed did. Moon of Alabama published several pieces on the issue: (linked list)It seemed obvious from the very first claims of the ‘gas attack’ that it did not happen at all. The Syrian government had no motive to use any chemical weapon or an irritant like chlorine in Douma. It had already won. The incident was obviously staged, like others before it, to drag the U.S. into a new attack on Syria. Today the Organisation for the Prohibition of Chemical Weapons (OPCW) published an interim report and some technical results: OPCW designated labs conducted analysis of prioritised samples. The results show that no organophosphorous nerve agents or their degradation products were detected in the environmental samples or in the plasma samples taken from alleged casualties. Along with explosive residues, various chlorinated organic chemicals were found in samples from two sites, for which there is full chain of custody. .The “Sarin” organophosphate use the ‘rebels’ claimed is thereby debunked. No degradation products of such chemicals were found. The “various chlorinated organic chemicals” are unsurprising. Chlorine is widely used for water purification and cleaning and “chlorinated organic chemicals” will be found in any household.
“No Nerve Agents” In Douma: OPCW Report Demolishes White House Sarin Narrative – A preliminary report published Friday by the Organization for the Prohibition of Chemical Weapons (OPCW) found no traces of any nerve agent at the site of a suspected chemical attack in the Syrian city of Douma. The OPCW report states this unambiguously as follows:“No organophosphorous nerve agents or their degradation products were detected in the environmental samples or in the plasma samples taken from alleged casualties.”Compare the newly published official OPCW findings with the 5-page White House assessment released on April 13th, just days after the alleged attack. Now contradicted by the new OPCW findings, the White House asserted that sarin was used at Douma, A significant body of information points to the regime using chlorine in its bombardment of Duma, while some additional information points to the regime also using the nerve agent sarin. Firebrand British MP George Galloway responded as follows moments after the OPCW’s findings were made public: Was that, was that the news? What about Douma? The chemical weapons attack? The nerve agent bombs that rained down on Douma that took us to the brink of World War 3? The OPCW have just reported, well two hours ago… There was no nerve gas attack on Douma. There was no nerve agent deployed on Douma. We were taken to World War 3’s brink on a crock. A crock of vile propaganda. Ring any bells? The April 7th alleged chemical attack, widely blamed by Western countries and the media on Assad’s forces, resulted in massive US-led retaliatory airstrikes mostly concentrated on suspected chemical production facilities in Damascus. Though at the time both UN and OPCW officials urged caution in the rush to blame “animal Assad” for “using nerve agents” as many world headlines breathlessly concluded a mere moments after videos purporting to show scores of chemical attack victims first surfaced (and though CW experts themselves warned that not a single neutral observer was on the ground to verify such claims when it happened), the latest OPCW report flatly contradicts the narrative that quickly solidified in the mainstream.
Mainstream Media Lie About Watchdog Report On The ‘Chemical Attack’ In Douma – Some mainstream media are outright lying about the OPCW report on the alleged ‘chemical attack’ in Douma.The Washington Post writes:[A] global watchdog concluded that chlorine was indeed used in the city of Douma a day before rebel forces surrendered there. ..In an interim report released Friday, the Organization for the Prohibition of Chemical Weapons said its inspectors had discovered traces of “various chlorinated organic chemicals” across two sites it inspected. The OPCW did not conclude at all that “chlorine was indeed used”. It found some chemical compounds which have chlorine, carbon and hydrogen in various configurations as their main elements. There are hundreds if not thousands of “chlorinated organic chemicals”. A plastic pipe made from polyvenylchlorid (PVC = (C2H3Cl)n) is made of the same elements. One could call it a “chlorinated organic chemical”. Burning something made of PVC will releases various compounds many of which will themselves be “chlorinated organic chemicals”. But finding residues of a burned plastic pipe or isolation in a home does not mean that chlorine gas was used in that place. Several of the compounds the OPCW found result from using chlorine to disinfect water. They can be found within the chlorinated water and about anywhere where chlorinated water was used. The BBC made a similar ‘mistake’. It headlined “Syria war: Douma attack was chlorine gas – watchdog”.
German Parliament Report: U.S. Presence in Syria Is Illegal – The Scientific Services of the German Bundestag are the equivalent to the Congressional Research Service in the United States. Members of Parliament can ask the services to give their neutral expert opinions on legal questions and other issues. Opinions by the Scientific Services are held in high regard. Alexander Neu, a Member of Parliament for the Left Party in Germany, requested an opinion on the legality of the military presence and operations by Russia, the United States and Israel in Syria. The result (pdf, in German) is quite clear-cut: Russia was asked by the recognized government of Syria to help. Its presence in Syria is without doubt legal under International Law. U.S. activities in Syria can be seen as two phases:
- Regime Change: The provision of arms to insurgents in Syria by the U.S. (and others) was and is illegal. It is a breach of the Prohibition on the Use of Force in international law specifically of the UN Charter Article 2(4): All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.
- Fight against ISIS: The U.S. argues that its presence in Syria is in (collective) self-defense under Article 51 of the UN Charter because the Islamic State in Syria threatens to attack the United States. That, in itself, would be insufficient as Syria is a sovereign state. The U.S. therefore additionally claims that the Syrian state is “unwilling or unable” to fight against the Islamic State. The Scientific Services says that the claim of “unwilling or unable” was already dubious when the U.S. operation started. The already dubious legal case for the presence of U.S. (and other ‘coalition’ troops in Syria) can thus no longer be made. The U.S. presence in Syria is illegal.
US Blasts China, Russia Over Sneaky Oil Sales To North Korea; Urges UN Action – The United States has petitioned the UN to reprimand Russia and China for allegedly selling oil products to North Korea in violation of caps placed on petroleum sales as part of a larger sanctions package, reports the Wall Street Journal. The U.S. State Department called on Russia and other U.N. members to “strictly implement” sanctions on North Korea while working “more closely together to shut down U.N.-prohibited activities, including ship-to-ship transfers of refined petroleum and the transport of coal from North Korea.” Chinese vessels were “caught red handed” last year by US spy satellites illegally selling oil to North Korea last year in around 30 transactions involving Chinese vessels, while a Hong Kong ship was seized in December after it was seen transferring oil to the Kim regime. The images allegedly showed large Chinese and North Korean ships transacting in oil in a part of the West Sea closer to China than South Korea. The surveillance photographs even showed the names of the ships. Meanwhile, Reuters reported in December that ‘two senior Western European security sources’ confirmed Russian tankers have supplied fuel to North Korea on at least three occasions in recent months by transferring cargoes at sea. Reuters‘ sources said the Russian-flagged tanker Vityaz was one vessel that had transferred fuel to North Korean vessels.
China’s silky charming of Arabia – Under the radar, the eighth ministerial meeting of the China-Arab States Cooperation Forum (CASCF), established in 2004, sailed on in Beijing, hosted by President Xi Jinping. Amid the torrential pledge of loans and aid, China committed to invest right across the Arab world in transportation infrastructure, oil and gas, finance, digital economy and artificial intelligence (AI). Significantly, Beijing will offer $15 million in aid for Palestinian economic development, as well as $91 million distributed among Jordan, Lebanon, Syria and Yemen. Aid and loan package A China-Arab bank consortium will be set up, with a dedicated fund of $3 billion tied up with the financial aid and loan package. Beijing also foresees importing a whopping $8 trillion from Arab states up to 2025. Predictably, once again Xi fully connected the whole Arab world with the expansion of the New Silk Roads, or Belt and Road Initiative (BRI). And careful to navigate the geopolitical minefield, he urged “relevant sides” to respect the international consensus in the Israel-Palestine confrontation, calling for justice. That may indicate a gradual, but sure departure from trademark Chinese passive or reactive policy across the Arab world, focused exclusively on energy and political non-interference.