Articles on Oil

[Pitcher]

https://oilprice.com/Energy/Crude-Oil/Hedge-Funds-Clueless-About-Oils-Next-Move.html
 

Hedge Funds Clueless About Oil’s Next Move

By Tsvetana Paraskova - Aug 28, 2019, 4:00 PM CDT

Amid a summer lull and heightened uncertainty about global economic and geopolitical events, money managers remain conflicted about where oil prices will be heading next.

Hedge funds barely changed their overall net long position—the difference between bullish and bearish bets—in the six most important oil-linked futures contracts in the latest reporting week to August 20.

Portfolio managers increased their net long position in the petroleum complex by the equivalent of 8 million barrels to 551 million barrels in the week to August 20, according to exchange and regulatory data compiled by Reuters market analyst John Kemp.

The rise in the net long position was mostly the result of short covering and liquidation of longs, not an increase in bullish bets on oil, suggesting that money managers continue to be indecisive about the next direction of oil prices.  

Hedge funds and other portfolio managers increased their combined net long position in Brent Crude and WTI Crude by 11 million barrels, driven by a cut in short positions and a smaller decline in longs, Kemp’s detailed analysis shows. The net long position in Brent was cut by 7 million barrels, while the WTI Crude net long position increased by 18 million barrels—the result of a cut in short positions by 29 million barrels.

According to data from exchanges compiled by Bloomberg, hedge funds managers slashed their bearish bets on WTI by 25 percent in the week to August 20, only to be blindsided later last week by the trade war escalation, which triggered another decline in oil prices. 

After the Chinese announcement of measures to retaliate for the planned U.S. tariffs on Chinese imports, WTI Crude erased on Friday its gains for the week to August 23 as the renewed escalation in the trade spat again worried investors and traders about the future of the global economy and global oil demand growth.

Money managers got the direction of oil price wrong in seven out of the past nine weeks, Bloomberg data shows, highlighting the fact that the oil market has become even more unpredictable than it was at the start of the summer. Related: US Looks To Catch Up In Crucial Energy Tech Race

Before the summer began, up until the last week of June, hedge funds were also wrong seven times about oil prices, but in a time span of a whole six months.

Since the start of the summer, hedge funds have diverged over where oil prices are going next, as concerns about faltering demand have been countering the hopes of the bulls that Saudi Arabia would really ‘do whatever it takes’ to end the glut and stop the recent price slides, which were driven by fears that the U.S.-China trade war will take a toll on the global economy and consequently, on global oil demand growth.  

This week, the trade war developments became more confusing than before, with conflicting signals from U.S. President Donald Trump about possible de-escalation of the trade spat with China.

“Confusion reigns on the progress of trade talks between the US and China, with China still not aware of any contact between the two countries. Instead, the market’s focus returned to the oil market itself, with supply-side issues taking prominence,” Daniel Hynes, Senior Commodity Strategist at ANZ, wrote on Tuesday.

Some analysts don’t see the market becoming optimistic unless a trade deal is made.

“Any market optimism will only prevail when the ink has dried on a new U.S.-China trade agreement,” Tamas Varga, analyst at oil broker PVM, told Reuters on Tuesday. 

Despite the weekly fluctuations, money managers’ overall positioning on oil has remained broadly the same since the middle of June, precariously balanced and primed for going in either direction, once hedge funds have a clearer picture of the global economic and geopolitical factors determining the direction of oil prices.

Right now, it’s an unpredictable market, with unpredictable trade developments, often tweeted out by an unpredictable U.S. president.

[Pitcher]

https://oilprice.com/Energy/Energy-General/US-Looks-To-Catch-Up-In-Crucial-Energy-Tech-Race.html
 

US Looks To Catch Up In Crucial Energy Tech Race

By Haley Zaremba - Aug 28, 2019, 2:00 PM CDT

The need for a flourishing energy technology sector, both in the United States and worldwide, is now more pertinent than it has ever been before. As populations around the globe continue to grow and the middle classes of such massive societies as China and India are booming and, therefore, so too their ever-expanding energy demand, the demand for traditional fossil fuels and thereby the stress on our increasingly delicate environment is also greater than ever. 

Last year the Intergovernmental Panel on Climate Change released a damning study that showed that in order to comply with the goals set by the Paris agreement (by keeping global temperatures from rising more than 1.5 degrees Celsius over pre-industrial averages this century), we will have to cut worldwide carbon emissions down by 45 percent by 2030 and all the way down to zero by the middle of the century. 

With energy demand growing and the pressing need to stop the flow of carbon dioxide into the atmosphere dovetailing into a particularly dire predicament for the planet, energy tech innovation is more needed than ever. Unfortunately, in the United States, Department of Energy regulations have sometimes hindered energy tech research and development instead of helping the sector to grow and diversify.

Until now, however, the United States Department of Energy has prohibited researchers from sharing early-stage tests of energy tech research with the private sector to bolster interest and investment in early, critical stages of research and development. As of this week, however, that is finally going to change. 

The United States Department of Energy’s technology transfer program “is designed as a bridge between government and industry research—an opportunity for the agency to work on bleeding-edge technologies that can be transitioned to the private sector, creating economies and allowing those innovations to blossom” as explained by Nextgov, but it’s not until now that they are making this crucial policy change to bring the private sector into energy tech development at an earlier junction. Related: Trump Scrambles To Win Back Angry Farmers

This is being accomplished, at long last, via the Department of Energy Research and Innovation Act. Although the act was instated in September of last year, this newest development is the result of a Tuesday regulation change “that will allow the agency to use technology transfer funds to perform these demos.” Before this week’s addendum, the act only allowed its funding to be used for three specific initiatives:

1. Obtaining, maintaining, licensing and assigning intellectual property rights.
2. Increasing the potential for the transfer of technology.
3. Providing widespread notice of technology transfer opportunities.

With the new regulation change introduced this week, a fourth funding category will be added to this list, which will read: “Early stage and precommercial technology demonstration to remove barriers that limit private sector interest and demonstrate potential commercial applications of any research and technologies arising from laboratory activities.”

As explained by Nextgov, “Using that authority, the department will be able to use tech transfer funds to hold demo days where it can showcase some of the innovations the national laboratories are working on in the hopes of whetting the private sector’s appetite to take them further. [...] The department is not required to leave the rule open for public comment prior to it being enacted. However, the public notice does ask for feedback on the kinds of “early stage and precommercial technology demonstration activities” private sector partners would like to see.”

This additional opportunity for funding will allow for more flexibility in the energy tech industry that will then, if all goes accordingly, allow for and encourage more robust research and development into new, innovative approaches to the energy industry that the world so sorely needs in order to more effectively wean ourselves off of emissions-heavy fossil fuels.

[Pitcher]

https://oilprice.com/Energy/Energy-General/The-Fight-For-The-Worlds-Hottest-Crude-Market.html
 

The Fight For The World’s Hottest Crude Market

By Editorial Dept - Aug 28, 2019, 1:00 PM CDT

Last week we have looked into the rise of US crude exports to Europe, an upsurge characterized by seasonal upswings, a rather non-uniform spread of demand on the back of an overwhelmingly market-based setup. Things are a little bit different when it comes to US crudes conquering Asia, a prime contributor to ever-growing crude demand, as politics steps into the spotlight. Wide trade surpluses, troubled relationships between regional powers, refineries configurated to run Iranian and Venezuelan crudes, states playing a more tangible role in seemingly business-based decisions, Asia has all of this and more. Yet despite the boundless potential for cooperation, the fate of the US-China trade war will regulate the influx of US crudes more than anything else.

There are Asian nations upon which US exporters could rely on. For instance, South Korea expressed its readiness on multiple occasions to bring in more American crude – which it did, already taking in by the end of August 20 million barrels more than it did throughout the entire year of 2018 (importing some 360kbpd in January-August 2019). South Korea also widened its US buying list by becoming one of the most active refiners of Alaskan North Slope. Japan increased its intake by 20 percent year-on-year, however still relies primarily on Middle Eastern crudes with its US imports averaging 75kbpd YTD 2019.

Vietnam had its first-ever US cargo in March 2019 when BP supplied the Dung Quat Refinery with 1MMbbls of WTI. Vietnam pledged to bring in further 2-3 Suezmax cargoes in the second half of 2019, partially due to the slowdown of its own domestic production (the Bach Ho grade remains the staple diet of the Southeast Asian country’s refineries) but also as a result of President Trump’s foreign policy. The 45th President of the United States has been quite vocal about the inadmissibility of Asian nations enjoying hefty trade surpluses vis-à-vis the United States and crude imports might be a way for Vietnam to placate American worries without getting embroiled into the US-China trade war.

A very similar story has been unfolding in Indonesia, too. Indonesia’s production rates have led it to become an OPEC member, yet declining output has eliminated both the erstwhile resource abundance and the Asian nation’s OPEC membership (it opted out of the club in late 2016 as it became increasingly strenuous to sit at the same table with Middle Eastern producers, all the while being a net crude importer). Its NOC Pertamina bought its first-ever US cargo in April 2019, an Aframax vessel laden with WTI Midland that arrived on June 04, 2019. The deal was much more secretive than the Vietnamese purchase (the seller remains to be named) and Pertamina has so far kept quiet about the prospects of further US crude purchases.

The United States’ love-hate relationship seemed to have weathered all previous storms in late June this year when the reopening of trade talks between American and Chinese negotiators seemed to have augured a period of relative normalcy. It had been challenging before that – just look at the export lull from August 2018 to April 2019 – yet somehow the idea that the burgeoning trade the two countries had before would eventually prevail over other issues. Unfortunately for both sides, this idea did not materialize – whilst the troubled 2018 averaged 192kbpd of US exports to China, this year stands so far at a mere 103kbpd and might go even lower if the tariff-slapping frenzy does not come to a negotiated end.

It will be interesting to see how the Chinese tariffs would affect cargoes that are already fixed but would load only in September. Currently, there are at least 4 of those, all VLCCs. MT Hojo is fixed for a first-decade loader in September, to carry 2MMbbls of WTI to Ningbo. MT Phoenix Jamnagar will load WTI in the US Gulf lightering zones, loading around September 06-07. MT Yuan Qju Hu is expected to load Bakken towards the end of September’s second decade and MT Amundsen will load 2MMbbls of WTI around September 15. All the above vessels would arrive to China in October, making October the second-most prolific month of 2019 after May when a total of 8.2 MMbbl of American crude reached Chinese ports.

If the Chinese authorities decide to apply the 5-percent tariff rate to cargoes purchase before the September 01deadline, trading companies can still resort to direct sales or swaps on the given volumes. Rumour has it that Unipec has already resold one of the cargoes to a South Korean buyer. In essence, the Chinese market’s initial reaction seemed to boil down to a complete cessation of US imports from September 01 onwards, wary that any malfeasance vis-à-vis the State Council’s general policy line might be costly. Chinese companies have little to no equity barrels produced in the United States, therefore technically it would be quite easy to accomplish. Hypothetically, they could ask for a tariff exemption yet given how cautious state companies were in the relatively calm period of June-August 2019, it would be quite unrealistic to see them adopting a more aggressive approach in the upcoming months.

India’s balancing act is also quite subtle and requires a lot of first-class diplomacy not to trigger an irate American reaction. First, it also boasts a significant trade surplus vis-à-vis the United States and has been under palpable pressure to recently to narrow it down to volumes more palatable for the US political establishment. New Delhi is trying to move in that direction, cutting its surplus by $4 billion in the financial year ended March 31, 2019, to some $17 billion. The progress made notwithstanding, $17 billion is still a lot. Second, India’s downstream segment tilts towards the complex and sophisticated site, bringing about a natural preference for heavier and sourer crudes, of which the United States can supply little to none.

Therefore, Indian refiners must be very crafty in creating blends from US crudes and heavier barrels (blending WTI with Mexican crudes seems like one of the most preferred paths) from elsewhere so that the end result is closer to the Iranian and Iraqi crudes have served as the configuration basis for Indian refineries. Understandably, there are certain trends that drive India to buy more American crudes (apart from the thinly veiled political pressurizing) – primary amongst them is Saudi Arabia ramping up prices in the Asian region. This leaves Indian refiners searching for other sources of supply, be it West Africa, the Caspian or the United States. Lest not forget, all this happens against the background of OPEC/OPEC+ supply curtailments that do not allow Iraq to pump more crude.

Interestingly, private refiners Reliance Industries and Nayara Energy form the backbone of US crude buyers in India (not state-owned refiners as one would perhaps expect). They can ramp up imports of US crude swiftly but if need be they can bring them to a halt in an instant – as demonstrated by plummeting US supplies to India in August 2019 when the Brent-WTI spread shrunk to as little as $4 per barrel. Also, Rosneft-owned Nayara Energy happens to be one of the few remaining major buyers of Venezuelan barrels (thanks to Rosneft having invested several billion dollars into the Venezuelan market in advance payments), a fact which the Trump Administration repeatedly highlights. Were President Trump to sanction Nayara or Rosneft in any direct way, Vadinar would be removed from the Indian map of US exports.

One thing that is relatively rarely mentioned in terms of reflecting on India’s fate is just how beneficial Iranian supplies to India were to New Delhi. Instead of the usual 30-day credit terms, the Iranian national oil company NIOC provided 60 days, coupled with free insurance on the cargo (as they were provided by NITC). Since the United States has no national oil company and does not back up private producers on softer issues like pricing or insurance, India might feel tempted to seek a very peculiar path forward, one that would entail the accession of Middle Eastern capital into India’s downstream in return for more favorable pricing terms (i.e. decoupling supplies to India from the general Asian trends). Saudi Aramco’s getting increasingly closer to clinching the deal on the Reliance buy-in carries in it tangible benefits for India, too.

[Pitcher]

https://oilprice.com/Energy/Crude-Oil/China-Helps-Venezuela-Boost-Oil-Production.html
 

China Helps Venezuela Boost Oil Production

By Irina Slav - Aug 28, 2019, 11:00 AM CDT

China has financed the construction of a new oil blending plant in Venezuela that will boost the country’s flagging oil production by 120,000 bpd, IHS Markit reports, citing an investment of US$3 billion, provided by China’s CNPC, PDVSA’s partner in the Sinovensa venture that will operate the new plant.

The news could turn into yet another reason for disgruntlement in Washington with Beijing. As their trade dispute drags on, despite various reports of a new thawing in relations after the latest exchange of tariffs, China has openly continued to provide support to the Maduro government.

Earlier this month, Reuters cited a statement by Venezuelan President Nicolas Maduro about plans to boost the production of Sinovensa by 65,000 bpd. Sinovensa is 49-percent owned by the Chinese state giant and 51-percent owned by PDVSA. It currently produces 100,000 bpd in the Orinoco belt. The crude is a medium grade of the Orinico superheavy that’s then mixed with light crude to make the Merey blend, which, along with other medium grades, are in high demand among Asian refiners, Reuters noted in its report.

Also last month, in response to a warning by National Security Advisor John Bolton for China and Russia to stop helping Maduro, China’s Foreign Ministry spokeswoman said Washington should stop “bullying” Venezuela.

"China urges the US to... let the Venezuelan people decide their own future and immediately stop the bullying actions of suppressing other countries at every turn," Hua Chunying said.

The latest news suggests that China has no intention of changing course with regard to Venezuela no matter what the U.S. decides to do in response. And it seems it is not the only one: India, according to IHS Markit shipping data, still buys Venezuelan oil in defiance of U.S. warnings. The average import rate since June has been about 450,000 bpd. That’s a solid part of Venezuela’s total production, as calculated by OPEC secondary sources. For July, the figure stood at 742,000 bpd.