World's Biggest Oil Market Is Too Tied To Mideast To End Addiction -- March 31, 2016

Bloomberg is reporting:

Mideast:

• producers have cut official selling prices; defend against other suppliers taking their markets
• Saudi Arabia is selling Arab Light in Asia for 75 cents below benchmark Middle East prices (compare with $2.75 premium in early 2014)
• Iran offering its oil at a deeper discount than Saudi Arabia for first time in a decade 
• strategy working; but IEA has warned there is an increased possibility of oil-security surprises in the "not-too-distant" future
• with non-OPEC supplies falling, Asian refiners have no choice but to buy Middle Eastern oil: cheaper and available in large volumes

Asia likes Mideast oil:

• shorter shipping times
• attractive prices
• type of crude oil the refineries were optimized for

South Korea:

• imports from the Middle East climbed last year to the highest level since at least 1980
• wants to diversity purchases to guard against geopolitical risks tied to some of the world's biggest suppliers 
• imported 845 million bbls in 2015; high since 1980 when that country started compiling the data

India:

• refiners are shunning shipments from distant ports, taking more cargoes from Persian Gulf
• wants to diversity purchases to guard against geopolitical risks tied to some of the world's biggest suppliers
• but, India's Reliance Industries, owner of the worlds biggest refining complex is shifting from crudes tied to Brent to grades priced against Dubai, the Middle East marker

China:

• Saudi Arabia and Oman have boosted supplies to China this year as volumes from Venezuela and Colombia have shrunk
• more than half of the top 10 suppliers were from the Middle East last year

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• deliveries begin "next year"
• EPA mileage: 215 miles on a single charge
• $35,000; base model comes with most "options"
• single sheet of glass overhead, front to rear
• relatively short presentation; 15 minutes?

Connecting The Dots: Shell, Brent, And Saudi Aramco -- March 31, 2016

Updates

April 19, 2016: Saudi Aramco picks JPMorgan and banker Klein for IPO. 

April 1, 2016: Saudi Arabia plans $2 trillion megafund for post-oil era. Will begin with Saudi Aramco going public. Sort of. Five percent of Saudi Aramco will be "available" for investors.

Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets.

Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision for the Public Investment Fund, which will eventually control more than $2 trillion and help wean the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate. The initial public offering could happen as soon as next year, with the country currently planning to sell less than 5 percent.

The sale of Aramco, or Saudi Arabian Oil Co., is planned for 2018 or even a year earlier, according to the prince. The fund will then play a major role in the economy, investing at home and abroad. It would be big enough to buy Apple Inc., Google parent Alphabet Inc., Microsoft Corp. and Berkshire Hathaway Inc. -- the world’s four largest publicly traded companies.

Original Post

 

It's being reported that Shell wants to sell some/all of oil producing assets in the North Sea, including it's Brent field. The story is here.

There are very few comments but this one is interesting:

Saudi Aramco should buy all of Shell. Then turn around and sell the global reserves (Saudi doesn't need more oil that's harder to produce than its own). The proceeds from the oil will equal or exceed the costs of the whole Shell company, which means Saudi Aramco gets Shell's refineries, petchem plants and other downstream physical assets at no costs. 

At least one other comment suggested Saudi Aramco was a player.

With Shell and Saudi Aramco recently splitting up their midstream/downstream assets in the US, presumably to make it easier for Saudi Aramco to monetize its assets, one wonders if the comment above "holds water."

I find it all very interesting.

Also, note that in an earlier post (the same link as above):

After the split, Saudi Aramco wants to buy more US refineries. Reuters is reporting:

Saudi Arabia's national oil company wants to buy more U.S. refining and chemical plants to expand its footprint in the world's largest energy market once the break-up of its joint venture with Royal Dutch Shell Plc is complete.

Ending an often rocky nearly 20-year relationship, Shell and Saudi Aramco announced on Wednesday plans to break up Motiva Enterprises LLC after almost two decades, dividing its assets and leaving Aramco with one plant, the nation's largest crude oil refinery, in Port Arthur, Texas.

Officials from Saudi Refining, the downstream arm of Aramco, told employees following the announcement that the state-owned firm was intent on buying more assets once the Motiva break-up is finished.

I find it "hyperbole" to suggest Saudi Aramco would buy Shell, but at least "everyone" is on the same page when it comes to talking about Saudi Aramco acquiring more refining and chemical plants around the world.

Stay tuned.

For the record and for comparison, enterprise value (in round numbers):

• XOM: $400 billion
• Shell: $200 billion
• COP: $75 billion

New Post-Boom Low For Active Rigs In North Dakota: 29 -- March 31, 2016

From the WSJ:

U.S. gasoline demand hit record levels in March. Government estimates released Wednesday show consumption averaged more than 9.4 million barrels a day in the four weeks that ended Friday. That is a level usually found only during peak summer driving season, and it compares with roughly 8.8 million barrels a day in March of both 2014 and 2015.

Drivers’ rising fuel consumption wasn’t enough to halt a retreat when oil prices dropped by more than 7% from a recent peak on March 22. And gasoline demand alone is unlikely to be enough to spark another oil rally. Gasoline matters less for market sentiment than news about crude supply, said investors, some of whom already have factored strong gasoline demand into their oil forecasts.

But gasoline demand may be the most stable contributor to oil prices. A preliminary deal among Saudi Arabia, Russia and other major oil-producing nations to cap output was the biggest catalyst for crude’s recent surge, many analysts said.

Yet, that production freeze has yet to materialize, and Kuwait’s announcement this week that it could restart production at another oil field cast further doubt that a deal can come together.

Even if it does, Iran’s plans to increase production by 500,000 barrels a day could mean global supply increases. Moreover, U.S. producers have spent seven months holding output steady at about nine million barrels a day, defying the conventional wisdom that low prices will force domestic producers to throttle back substantially.

Gasoline demand, meanwhile, is proving a reliable contributor to the supply-demand equation for oil.

Bloomberg reports that the US is a big importer of oil ... again:

In the three months since the U.S. lifted its 40-year ban on crude oil exports, a curious thing has happened. Rather than flooding global markets, U.S. crude shipments to foreign buyers have stalled. At the same time, imports into the U.S. jumped to a three-year high in what looks to be a reversal of a yearslong decline in the amount of foreign crude brought into the American market.As of March 25, the four-week average of imports was running at 7.9 million barrels a day, 9.8 percent higher than the year before. “That’s not a one-week blip,” says Tim Evans, an energy analyst at Citi Futures. “We’re seeing a consistent pattern.”

During the early years of the U.S. shale boom, the millions of barrels of light, sweet crude had one big problem: no affordable access to refiners on the coasts of Texas and Louisiana. To tap into the cheaper oil pooling in Oklahoma, pipelines that used to bring imported oil up from the Gulf were reversed to take shale oil down to the coast. Refiners in Philadelphia and New Jersey also began buying North Dakota crude instead of foreign oil, moving it by train across the country. By October 2014, U.S. imports had fallen by about 40 percent from a high in 2006.

Analysts say that West Texas Intermediate crude has to be $3 to $5 cheaper than imported oil to pay for those pipeline and transportation costs. From 2011 to 2014, U.S. oil was on average $12.61 cheaper than equivalent foreign oil. The discount slowly narrowed as pipeline projects were completed and U.S. crude began to flow more freely from the middle of the country down to the Gulf Coast. A week before the Senate approved lifting the export ban on Dec. 18, WTI traded around $3 below Brent. Over the next month, the discount disappeared, and, for the first time in six years, WTI traded at a premium to Brent for a few days in January. WTI is now less than a dollar cheaper than foreign barrels available on the Gulf Coast.

So refineries along the coasts are choosing to buy imports instead of WTI. One of the biggest winners is Nigeria, which is regaining lost market share. Imports from Nigeria surged to 559,000 barrels a day in mid-March, compared with an average of 52,000 for all of 2015. Refiners are also taking more heavy oil from Mexico and Venezuela. Not only is it about $9 a barrel cheaper than WTI, it’s also what U.S. refineries prefer to handle.

The irony of the shale boom, and all the light crude it unlocked, is that it came just as U.S. refiners were spending billions to process heavy oil.  

And, of course, the writer of that article conveniently forgets to mention why the US did not have a North American source of heavy oil.

 **********************************

Back To The Bakken

Active rigs:

	3/31/2016	03/31/2015	03/31/2014	03/31/2013	03/31/2012
Active Rigs	29	99	194	188	206

The drop in the number of active rigs between now and the next six may or may not be due to spring thaw / "road restrictions." If due to "road restrictions," the number of active rigs could drop more than expected, but for a relatively short period of time. 

Four wells coming off confidential list Friday:

• 30969, SI/NC, EOG, Van Hook 47-3626H, Parshall, no production data,
• 31628, SI/NC, XTO, Ames Federla 31X-13B, Grinnell, no production data,
• 31699, SI/NC, Statoil, Shorty 4-9F 4TFH, Stony Creek, no production data,
• 31849, SI/NC, MRO, Ronald 34-33TFH-2B, Reunion Bay, no production data,

Four (4) new permits:

• Operator: BR (3), EOG
• Fields: Camel Butte (McKenzie), Parshall (Mountrail)
• Comments:

Six (6) permits renewed:

• BR (3), one Gudcadia and two Gudmunson permits, all three in McKenzie County
• Whiting (2), one Skunk Creek and one Two Shields Butte permit, both in Dunn County
• Sinclair, a Nelson permit in Mountrail County
• Twelve (12) oil and gas wells were transferred from North Plains Energy, LLC, to North Plains Energy II, LLC.

More Solar Energy Approved For Minnesota -- March 31, 2016

From The StarTribune:

Two new solar projects have been approved for the state of Minnesota.

Minnesota regulators on Thursday approved a solar power project near Marshall, MN, that will be the second-largest in the state.

NextEra Energy Resources was cleared to build a 62-megawatt solar generator on 515 acres of farmland three miles east of Marshall. One megawatt is 1 million watts of electricity.

The Minnesota Public Utilities Commission unanimously voted to approve the project, rejecting concerns that it violated state policy against building energy projects on prime farmland.

The other large solar farm, approved in January, is the $180 million, 100-megawatt North Star Solar project on 800 acres southeast of North Branch in Chisago County. 

Both solar projects are expected to be built this year.

The state is on its way to meeting its citizens' mandate:

By 2020, 1.5 percent of the electricity sold by the state's major utilities — Xcel Energy, Minnesota Power and Otter Tail Power — must come from solar generation.