Energy Prospectus

WTI up another $1.00/bbl this morning.

Reuters reported OPEC oil supply sank to a four-year low in March as top exporter Saudi Arabia over-delivered on the group's supply cut pact while Venezuelan output posted a further drop due to sanctions and power outages. The 14-member OPEC cartel pumped 30.4 million barrels per day last month, the survey showed, down 280,000 b/d from February and the lowest OPEC total since 2015. The survey suggests that Saudi Arabia and its Gulf allies are pressing ahead with even larger supply cuts than called for by OPEC's latest deal, shrugging off pressure from U.S. President Donald Trump to increase supply. On Thursday, Trump again called for OPEC to pump more oil to lower prices. < Trump's Tweets will fall on deaf ears until Brent is $80/bbl.

On March 29 Reuters reported U.S. crude oil production edged lower in January to 11.87 million b/d from a revised record 11.96 million b/d in December, the EIA said in a monthly report on Friday. Production in Texas fell by 64,000 b/d in the month and in North Dakota output rose by 9,000 b/d. Meanwhile, production in the federal waters of the Gulf of Mexico was largely unchanged, according to the report. The decline in Texas, home to the Permian basin, the biggest oil patch in the United States, was the first in about a year, the data showed. Independent producers are slowing exploration and cutting staff and budgets amid investor pressure to control spending and boost returns.

On April 2 Reuters reported three of eight importers granted waivers by Washington to buy oil from Iran have now cut their shipments to zero, a U.S. official said on Tuesday, adding that improved global oil market conditions would help reduce Iranian crude exports further. "In November, we granted eight oil waivers to avoid a spike in the price of oil. I can confirm today three of those importers are now at zero," Brian Hook, the special U.S. envoy for Iran, told reporters. Hook did not identify the three.

On April 4 Reuters reported Germany's leading economic institutes slashed their forecasts for 2019 growth by more than half and warned that the economy - Europe's largest - could slow much more if Britain quits the European Union without an agreement. Industrial orders in Germany fell by the biggest margin in more than two years in February, slumping 4.2 percent, highlighting the extent of the slowdown amid global trade disputes and the risk of a no-deal Brexit, which could happen at the end of next week.

On April 1 Reuters reported factory activity in China unexpectedly grew for the first time in four months in March, an official survey showed on Sunday, suggesting government stimulus measures may be starting to take hold in the world’s second largest economy. If sustained, the improvement in business conditions could indicate that manufacturing is on a path to recovery, easing fears that China could slip into a sharper economic downturn. But analysts remained cautious, citing seasonal distortions due to the long lunar New Year break in February. They said real investment and consumer demand remained soft and pushed up inventories, potentially adding pressure to the sector. The official Purchasing Managers’ Index (PMI) rose to 50.5 in March from February’s three-year low of 49.2, marking the first expansion in four months.

On April 1 Reuters reported Saudi Aramco's Ghawar field, the largest oilfield in the world, had 58 billion barrels of oil equivalent in combined reserves at the end of 2018, and 48.3 billion in liquid reserves, the company said in its bond prospectus on Monday.

From Reuters

Venezuelan state-owned oil company PDVSA expects its crucial crude upgraders to operate well below capacity this month, according to industry sources and documents seen by Reuters, as U.S. sanctions and energy blackouts hit the OPEC nation’s oil industry.

Venezuela depends on the upgraders, which are mostly operated by joint ventures with foreign companies, to convert the extra-heavy crude oil produced in the Orinoco Belt into exportable grades usable in overseas refineries. Together, they have a capacity of some 700,000 barrels per day.

Prolonged power outages have been adding to problems blending and exporting crude, as PDVSA’s main oil port, Jose, in northeastern Venezuela remained paralyzed.

The Petropiar and Petromonagas upgraders, part-owned by U.S. oil major Chevron and Russian giant Rosneft respectively, have not fully restarted since a March 7 blackout.

Petrocedeno, part-owned by France’s Total and Norway’s Equinor, stopped working after a second blackout on March 25, as did PDVSA’s fully-owned Petrosanfelix.

“The upgraders are still halted,” oil workers’ union leader Jose Bodas said.

According to an internal PDVSA document seen by Reuters this week, Petropiar and Petrocedeno are “in the process of restarting.”

Petromonagas is expected to undergo “cleaning and repair” this month after maintenance workers found two of its furnaces were obstructed by waste products, while a maintenance process at Petrosanfelix was halted, according to the document.

“The upgraders are not expected to increase processing,” an internal PDVSA document detailing planning for the month of April reads.

It said Petrosanfelix was unlikely to restart, while the remaining three would likely process crude at reduced rates.

One industry source, speaking on the condition of anonymity because of a lack of authorization to speak publicly, said the blockages of Petromonagas’ furnaces was likely to keep the upgrader out of commission for 20 days.

The source said the company had canceled all its shipments of upgraded crude for April.

Neither PDVSA nor Venezuela’s oil ministry responded to a request for comment. Total declined to comment, while Chevron referred questions to Petropiar, which like all oil joint ventures in Venezuela is controlled by PDVSA. Rosneft and Equinor did not respond to requests for comment.

EXPORTS TUMBLED IN FEBRUARY

The blackouts have presented an additional obstacle for President Nicolas Maduro’s efforts to halt a years-long drop in oil output, Venezuela’s main source of government revenue. The decline in production is expected to accelerate after the United States sanctioned PDVSA in late January, as part of its bid to oust Maduro from power.

Exports fell about 40 percent in February in the immediate aftermath of the sanctions, but remained stable in March at slightly below 1 million barrels per day (bpd).

To keep exports stable with limited upgrading capacity, PDVSA will need to import diluents – light crude or heavy naphtha – that can be blended directly with extra heavy oil from the Orinoco belt to make exportable grades.

But the sanctions blocked U.S. companies, previously the main suppliers of diluents to Venezuela, from selling the products to PDVSA.

The Petrosinovensa blending facility, a joint venture of PDVSA and China’s CNPC that produces Merey crude, was producing about 60 percent of the 132,000 bpd of upgraded crude it planned to produce, the PDVSA document showed.

To avoid a further drop in exports, the country has recently turned to Rosneft for supply of diluents, according to the industry source and Refinitiv Eikon data.

One tanker, the Torm Hilde carrying 780,000 barrels of naphtha, has set sail for Venezuela, while a second one with 500,000 barrels was expected to set sail soon.

Investing.com - Libya has re-entered the oil market lexicon, with a worsening military conflict in the OPEC member giving hedge funds excuse to push U.S. crude toward $65 per barrel, even as Saudi Arabia signals Russian impatience to end output cuts that have already jacked the market up 40% this year.

New York-traded West Texas Intermediate crude was up $1.10, or 1.7%, at $64.21 per barrel by 11:30 AM ET (15:30 GMT) after hitting $64.39 earlier, its highest since November.

London-traded Brent crude, the global benchmark for oil, continued its ascent in $70 territory, trading 60 cents, or 0.9%, up at $70.94 per barrel after a five-month high at $71.16.

Hedge funds long on oil will count on OPEC to tell another intimidating tale of tightening supply in its monthly report slated for Wednesday that could extend the year-to-date rally of 40% in WTI and 31% in Brent.

"The new uncertainty on Libya adds to the uncertainty of the waivers on Iran and to the supply destruction in Venezuela," said Olivier Jakob, managing director at Petromatrix, an oil market consultancy in Zug, Switzerland.

"In an environment where crude oil is moving into backwardation and where the U.S. president is calling for a drop of interest rates, it will be difficult for financial investors to be short crude oil unless Saudi Arabia signals a change of direction," Jakob said, referring to President Donald Trump's pressure on the Federal Reserve to change its stance from a pause on rate hikes to easing.

About 40% of the 1 million barrels per day of oil production in the African state has fallen under the control of Libyan National Army chief Khalifa Haftar, who’s leading a rebellion to unseat the UN-recognized administration in Tripoli.

Libyan oil stockpiles likely fell by 830,000 barrels in the week to April 1, Orbital Insight, a Californian firm that tracks oil tank rooftops using satellites, reported to its clients this week.

Frankfurt-based Commerzbank (DE:CBKG) said if Libyan crude exports were disrupted, it would “noticeably increase the pressure on Saudi Arabia to open up the oil tap again, as it did in the autumn”.

Saudi Energy Minister Khalid al-Falih said on Monday oil inventories remained higher than average but the market was on its way toward rebalancing.

While the 14-member OPEC and its ten other producer allies led by Russia were expected to vote for extended production cuts at an upcoming meeting in June, Falih indicated that a decision might be taken at a lower-key technical grouping in May and it may not necessarily be an extension.

The Saudi energy minister's comments seemed to reflect the thinking of his Russian counterpart Alexander Novak who, according to those familiar with Moscow's energy policy, was "under too much pressure internally to end the cuts".

"I don't think we will need (to do more) ... the market is on its way toward balance," Falih said, referring to the possibility of Saudi Arabia cutting output further below its target under the global deal.

Petromatrix's Jakob said the Saudis seemed to be grandstanding even as they were slowly acceding to Trump's demands that OPEC turn on the spigots again.

"Saudi Arabia will continue to claim that it does not listen to Trump but we take the small change of tone that can be taken as a first sign of appeasement," Jakob said, adding that Riyadh last week increased most of its overseas selling price, or OSP, for crude particularly to Europe.