Oil prices could plunge to $60 if OPEC does not cut output

[amoy]

Now Malaysia As-salamu alaykum - See more at: Ringgit in longest decline this year on weak oil | Money | Malay Mail Online

KUALA LUMPUR, Nov 21 — Malaysia's ringgit was set for a sixth week of declines, the longest losing streak this year, as a slump in crude oil prices threatens to crimp government revenue in a nation that's a net exporter of the fuel.

The ringgit is Southeast Asia's worst-performing currency in the second half as Brent crude lost 28 per cent since the end of June. Oil-related industries account for 30 per cent of government revenue. While a weaker exchange rate helps lower export prices it makes imports more expensive. A report today may show inflation quickened to three per cent in October from a year earlier, from 2.6 per cent the previous month, according to the median forecast of economists in a Bloomberg survey.

"The drop in commodity prices, especially crude oil, is to be blamed for the ringgit weakness," said Wong Chee Seng, a foreign-exchange strategist at AmBank Group in Kuala Lumpur. "The fact that the ringgit is a high-beta currency also didn't help," he said, referring to a measure of volatility.

The ringgit depreciated 0.2 per cent to 3.3537 per dollar from Nov. 14 as of 10.20am in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.3681 yesterday, the weakest level since March 2010 and has lost 4.3 per cent since June 30.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options and a gauge of risk, increased 31 basis points, or 0.31 percentage point, to 7.29 per cent this week.

 

[nmb]

Russia's ruble suffers as crude oil prices continue to slide

PressTV - Russia's ruble suffers as crude oil prices continue to slide

 

[pmaitra]

Low Oil Prices Won't Last Long

Cheap Saudi crude is targeting US oil production, not Russia.

Liam Halligan (The Telegraph) [SOURCE]

Halligan is one of the smartest people writing about Russia.

This article isn't strictly about Russia, but his insight here is interesting because of his long experience investing in major Russian oil companies.

He's especially good when talking about the economy, and no doubt takes a keen interest in the oil story because of this.

This article originally appeared in The Telegraph.

Attempting to forecast the oil price is a mug's game. But that hasn't stopped me in the past (ahem!)

The reality is that crude is so important to modern life, and the path of the global economy, that for all the pitfalls of prediction, any serious economist needs to have a view on the future cost of the black stuff.

Pivotal not just in terms of energy and transport, but also the manufacture of vital inputs from polymers to fertilisers, the dollar oil price is perhaps the world's single most important economic variable.

My view is that the current price dip is temporary, partly illusory and that oil is now heavily over-sold, having fallen way below its fundamental value. As such, I'd venture that, in the absence of a 2008-style systemic meltdown on global markets, $100-a-barrel (£64) oil will return by the middle of 2015.

I'd also say – and I know this won't be popular but here goes – that against the temporary boost which cheaper oil provides crude importers such as America and the UK, must be set a significant future cost.

While cheaper oil feels good, acting like a tax cut for producers (and consumers if lower costs are passed on), it seriously curtails investment in future crude production.

In other words, a period of low oil prices can create the conditions for a pretty sharp upswing. That's especially true today, given that a relatively high share of the recent increase in global oil supply has come from relatively expensive "non-conventional" sources such as tar sands, ultra-deep water and tight "shale" oil.

From late 2010 until August this year, Brent crude traded within a relatively narrow range, averaging close to $110 per barrel. In each of the three years from 2011 to 2013 inclusive, the average crude price has been in triple-digit dollars. It won't be far short in 2014 either, seeing as oil stayed well above $100 during the first eight months of this year and was just shy on average during September.

Over the last couple of months, though, crude prices have fallen by well over 30pc. From a high of $115, oil dipped below $72 last week, a four-year low, after the Opec exporters' cartel – in particular Saudi Arabia – decided not to bolster prices by cutting their production quota from 30m barrels daily. Prices fell 5pc on Thursday alone, the day Opec announced that decision at the end of its annual Vienna summit.

Some commentators of a conspiratorial disposition suggest that the Saudis are colluding with America, keeping oil prices low in a joint bid to damage their respective enemies, Russia and Iran.

I would politely suggest that this is hokum.

Yes, cheaper oil suits America because, despite all the hype surrounding increased domestic production, the US remains the world's biggest energy importer by far, still reliant on other countries for a net 9m barrels a day – amounting to over 10pc of total global production. And there's certainly no love lost these days between the US and Russia.

It should be remembered, though, that the relations between Riyadh and Washington are also extremely strained. This is not least due to American overtures to cooperate with Iran in the battle against Islamic State and US support for Qatar – a key backer of the Muslim Brotherhood, whom the Saudis detest. Once a key feature of post-War geopolitics, the US-Saudi axis is now seriously bent out of shape.

Remember, too, that while the Saudis are powerful within Opec, the likes of Venezuela and Iran are also influential. Clearly, the Saudis have managed to convince recalcitrant members to bite their tongues and accept that the 30m quota remains in tact. But it's absurd to think that Riyadh could persuade other, far poorer members to keep prices low in order to please America, even if the Saudis wanted to, which they don't.

Opec agreed what it agreed in Vienna for one reason only; to suppress prices in order to squeeze US shale producers, many of whom have high production costs and are shouldering lots of debt.

The Saudis won the argument that the US shale boom must be countered by undermining the profitability of North American producers, curtailing current US production and future investment. At $70 for a barrel of oil, an awful lot of shale producers – particularly relatively small outfits that have driven much of the increase in US production from 7.5m barrels daily to 10m over the past four years – won't be able to operate.

Many of them will default on their borrowings, potentially dealing a serious blow to America's "shale revolution".

Opec Secretary General Abdullah al-Badri basically admitted in Vienna that his members were now engaged in a battle to defend their current one-third share of global oil markets. Asked at a press conference how Opec would respond to rising US oil output, he said: "We answered. We kept the same level of production. That is our answer".

The main reason that the dollar price of oil has fallen so sharply in recent months has nothing to do with US-Saudi conspiring and an awful lot to do with Janet Yellen. At the end of October, the chairman of the Federal Reserve announced that the US is to end its latest bond-buying programme, otherwise known as quantitative easing.

Since then the dollar has rallied on the strength of less virtual money-printing.

The passing of the QE baton back to Japan, with the eurozone soon to follow, has also helped drive the greenback to a near seven-year high against the yen and the single currency to an 18-month dollar low.

Oil is priced in dollars. All the major Opec producers peg their currencies to the dollar. Given that, when the dollar rises, all other things being equal, the price of oil falls. This is an axiomatic truth.

Having said that, I accept that we've recently seen higher Libyan production and also rising oil output from Iraq – both of which have contributed to lower prices. Also important is the fact that, earlier this autumn, the International Energy Agency cut its oil demand forecast for 2015.

Why, then, do I think that oil prices will bounce back next year and remain relatively elevated in the medium-to-long term? One reason is that more than two thirds of the 12m-barrel rise in daily global oil production over the past decade has come from "unconventional" sources.

While conventional crude costs up to $60 per barrel to produce, unconventional production generally absorbs $80-$100. So lower prices make some current production uneconomic and deter investment in future capacity, sowing the seeds of an forthcoming price rise.

At the same time, the fundamental trends still point to expensive energy. The big populous emerging markets, while they've slowed down in recent months, are still consuming more than half of total crude output. They're the reason why oil consumption has outstripped production for years; by more than 4m barrels a day last year, and 3.7m the year before, with the shortfall coming from reserves.

Note, also, that the IEA didn't "cut" its demand forecast for next year, as many newspaper headlines suggested. It actually said oil demand would merely rise more slowly in 2015 than previously forecast, with total consumption growing by 1.1m to 92.4m barrels daily next year, rather than to 92.7m. That still amounts to a 20pc increase in oil demand in not much more than a decade. The global crude industry meanwhile struggles to keep up, as it's increasingly forced to tap more and more expensive unconventional oil.

The recent fall in the oil price is spectacular and, if we're lucky, motorists may even see a decent drop in petrol prices. But, unfortunately, it's likely to be short-lived.

 

[pmaitra]

Debunking Popular Oil Price Myths

Conspiracy theorists attribute the current oil price slump to an American plot against Russia and Iran or Saudi attempts to thwart the US shale gas industry, but the reality is far less sensational.

Alexander Mercouris [SOURCE]

The recent fall in oil prices has attracted a great deal of attention. There has been speculation about possible collusion between the Saudis and the Americans to bring it about.

There has been wild talk of this being a conspiracy by the Saudis and Americans directed against countries like Russia and Iran that are frequently considered their enemies. Alternatively, lower oil prices are said to be a Saudi plot to throttle the US shale oil and gas industries.

The history of oil prices over the last century shows that the recent fall in oil prices almost certainly has nothing to do with such theories, but is the product of more impersonal factors.

Oil prices are driven primarily by two factors: (1) international supply and demand for oil, which remains the lifeblood of the modern industrial economy, and (2) the value of the dollar, the currency in which oil is priced.

Since dollars buy oil, if the value of the dollar is high against other currencies, then fewer dollars buy more oil even if the cost of oil priced in other currencies remains unchanged. Conversely, if the dollar's value depreciates, then more dollars are needed to buy the same amount of oil. Oil price fluctuations therefore may not always reflect its cost when priced in other currencies.

However, since oil is paid for in dollars, it has traditionally been an inflation hedge for international investors holding large amounts of dollars, especially when the currency is depreciating.

This tends to make the price of oil rise even more in periods of dollar weakness.

Accordingly, these same investors also tend to be the first to sell oil whenever the dollar strengthens against other currencies (as is happening now). This, of course, adds to the downward pressure on the price of oil.

Beyond that there are always speculators, whose actions invariably tend to overdramatize changes when price volatility is high. Speculators are, for understandable reasons, unpopular. However, they are a fact of life and their effect in any given situation tends to be short-lived. When stability returns (as it invariably does) it becomes clear that they will have achieved no lasting change on the fundamentals that determine the price.

The result is that when the dollar is strong, the oil price tends to be low. The opposite also holds true. When the dollar is weak, the oil price tends to be high.

The other factor that determines price is the balance of supply and demand. When there is (as is the case today) a situation of over-supply, the oil price tends to be low. When there is excess demand, the oil price tends to be high.

It is the interaction between these two factors, namely the balance of supply and demand, and the prevailing position of the dollar, that determines the oil price.

These factors alone suffice in explaining the recent fall in the oil price without having to introduce complicated and unnecessary theories about conspiracies between the Saudis and the Americans, or of a Saudi plot to undermine the US's shale industry.

A brief review of recent history shows that it is the interaction between these two factors that determines the oil price.

In the first decades after the World War II the dollar (whose value at that time was fixed to gold) was very strong. There was also an abundant supply of oil caused by the recent opening up of oil fields in the Arabian Gulf and in Venezuela. As a result, oil prices during this period were low and stable.

This phase of low oil prices had catalyzed the rapid growth of western economies during this period. Those who believe it was low oil prices in the 1980s that brought about the USSR's collapse should remember that it was during this same period of low oil prices that the USSR's economy achieved its longest period of rapid, sustained growth.

Over time rapid economic growth in the west, caused in part by low oil prices, increasingly led demand to outstrip supply. Concurrently, heavy spending in the US to finance the space program, a massive build up of the US's nuclear forces, Lyndon Johnson's Great Society program and the Vietnam war, combined with a loose monetary policy by the US Federal Reserve, had caused the internationally traded value of the dollar to depreciate.

By the late 1960s, European countries began to insist that the US settle payments in gold and in 1971 the US government was forced to sever the dollar's link to gold and allow the currency to float freely.

The result was that oil prices suddenly quadrupled in dollar terms, though not against the gold price, against which they simply recovered to their previous level. The event that exacerbated the rise in the dollar price of oil, but which did not cause it, was the oil embargo imposed briefly by the Arab states during the 1973 Arab-Israeli War.

Oil prices remained high in dollar terms throughout the 1970s, a period when supply was tight and the dollar was weak. The high oil price caused economic growth to fall across the industrialized world, at the same time encouraging high investment in new oil fields in places like western Siberia and the North Sea. It also galvanized, especially in Europe, nations to reduce oil dependency by increasing energy efficiency and conservation.

All this eventually led in the 1980s to an oversupply of oil at the very same time that the US central bank, the Federal Reserve, under its chairman, Paul Volcker, suddenly tightened monetary policy in order to choke off domestic inflation (the so-called "Volcker Shock") causing the dollar to strengthen. The combination of oil oversupply and a strengthening dollar caused oil prices in the mid-1980s to collapse.

It is this mid-1980s oil price collapse that is popularly believed to have been the result of a plot between the Saudis and the Reagan administration to bring down the USSR. The reality is that the oil price fall had only a marginal effect on the mounting problems the USSR experienced in the late 1980s, whose causes are to be found not in the oil price fall, but in the sharpening political conflicts that were transpiring domestically, and in the poor economic decisions made at that time by the country's leadership. Nor was the oil price fall the result of some sort of anti-Soviet plot on the part of the Reagan administration and the Saudis. The Saudis' ability to control oil prices is, as we shall see, always overstated, whilst the tight monetary policy introduced by the US Federal Reserve under Paul Volcker, which caused the value of the dollar to rise and the price of oil to fall, was far from being welcomed by the Reagan administration, which bitterly opposed it.

US monetary policy became looser in the 1980s and early 1990s under Volcker's successor, Alan Greenspan, causing the dollar to weaken. Oil prices as a result became firmer. There was, however, no surge comparable to the one that had happened in the 1970s, in part because production in Russia ensured that oil remained oversupplied.

Oil prices, nevertheless, experienced a second collapse in 1997 when Greenspan briefly reversed his policy, tightening monetary policy by raising interest rates, causing the value of the dollar to rise. The rise in the dollar in conditions of global oversupply of oil caused another collapse in the oil price in 1997. This in turn led to the Asian Financial Crisis and the collapse of the ruble and Russia's default the following year.

Subsequently, Greenspan reversed course again. US monetary policy thereafter and under his successor at the Federal Reserve Board, Ben Bernanke, remained extremely loose. At the same time the George W. Bush administration went on a spending spree in part to finance its various wars. As in the 1960s, the flood of dollars caused the dollar to weaken, which it went on doing right up to and beyond the financial crash of 2008.

In the meantime the low oil prices of the late 1980s and 1990s underpinned another period of rapid economic growth, especially in Asia, whilst concurrently causing investment in new oil production to fall. The result was that the balance between supply and demand began to shift from one of oversupply to one of excess demand.

The by now familiar combination of oil scarcity and a weak dollar led to another great surge in oil prices. After 2000 oil prices took off, rising to stratospheric levels on the eve of the financial crash of 2008.

The financial crisis of 2008 briefly caused the dollar to strengthen (as it came to be seen as a safe haven) and demand for oil to fall as economic activity around the world diminished. The result was another collapse in oil prices. The reason they recovered so quickly this time was because the response by the US Federal Reserve to the 2008 financial crash was to loosen monetary policy even more through a combination of near zero interest rates and the so-called "quantitative easing program".

The result was that the brief period of dollar strength that followed the 2008 crash quickly reversed, succeeded by a more prolonged period of dollar weakness. Nonetheless, because of continued economic problems in Europe and the US caused by the aftereffects of the financial crash, oil prices have never recovered to their 2008 level.

This year the wheel has finally turned full circle. The US Federal Reserve Board has tightened monetary policy by belatedly ending its quantitative easing program causing the value of the dollar to rise. High oil prices after 2000 have led to major investment in new oil production particularly in the US, with heavy investment in shale oil and gas production.

Depressed economic conditions in Europe and slowing growth in Asia (particularly in Japan and China) have caused demand to fall. The result is another period of simultaneous dollar strength and oil oversupply. The wholly predictable and natural result of this is the fall in the oil price we have seen this autumn.

What of OPEC's role in all this? The answer is: practically none. On any objective assessment OPEC's actual role in deciding the level of oil prices is insignificant. OPEC can, in theory, prevent a fall in oil prices by agreeing to production cuts. As a cartel that in theory is what it is supposed to do. In reality it never has. On the contrary, the invariable response of OPEC's weaker members to a fall in oil prices is to step up production in order to compensate as far as possible for falling oil prices by realizing greater oil sales. Since other OPEC producers scarcely ever comply with their quotas in conditions of an oil price fall, there is no possibility of the Saudis doing so.

As it happens it would make no sense for OPEC to cut back production now to support prices. The only effect of such higher oil prices would be to strengthen the surge in shale oil production in the US, which is not a member of OPEC and which would never agree to production cuts.

Since the benefit of any OPEC production cut would go not to the members of OPEC, but to US shale producers, who are seen as largely responsible for the present problem of oversupply, OPEC has nothing to gain from it, which is the true reason they have refused to carry one out.

In fact, looked at objectively, OPEC's role is symbolic rather than real: it gives oil producers the sense that they have some control over the price of their product, even though in reality they do not, whilst giving western commentators and governments a convenient scapegoat to criticize when oil prices are high. When oil prices are low, western commentators can congratulate each other, as they did in the 1960s, the 1990s and as they are doing now, that OPEC has lost its relevance and its power over the oil market, even though on any objective reading it never had any.

Where does this leave Russia?

Firstly, the fact that the recent fall in oil prices is an event that has simple economic causes and which is not the product of some sort of sinister anti-Russian plot hatched by the Americans and the Saudis, should be clearly restated.

Relations between Russia and Saudi Arabia are actually strong. Whilst Saudi Arabia and Russia have taken opposing sides in the Syrian conflict, they are allies in Egypt — a far more important country to Saudi Arabia than Syria is — where both Russia and Saudi Arabia are strong supporters of the military government of General Sisi. Both also share similar perspectives on the threat posed by the Islamic State.

Moreover, personal relations between President Putin of Russia and King Abdullah of Saudi Arabia are known to be very good, whilst personal relations between King Abdullah of Saudi Arabia and President Obama of the US are said to be rather bad. Saudi Arabia has no obvious reason for wanting to weaken Russia and it is very unlikely to say the least that the Saudis would agree to harm themselves by waging an economic war against Russia simply because Obama and the US wanted them to.

The reality is that Russia can undoubtedly ride out a period of lower oil prices. In fact, such a period is likely to be beneficial in the end.

Russia is not in the same position that it was in 1998, when (unlike in the 1980s) an oil price collapse really did cause an economic crisis. Russia's economy today is by several orders of magnitude larger and richer. In contrast to the situation in 1998, Russia has gone from being a debtor to a creditor.

It has amassed large financial reserves and its economy is far more flexible and far better managed than it was then.

Russia's position is also much stronger than in 2008, the time of the last oil shock. Russian companies are in a much better financial position than was the case then. In contrast to the position in 1998 and 2008, Russia has provided itself with the additional cushion of a freely floating currency. The value of the Ruble since the summer has closely tracked the fall in oil prices.

The result is that the dollar price of oil today buys roughly the same number of Rubles as it did a year ago. There is little risk therefore of the fall in the oil price causing catastrophic problems for the government's budget, or for the trade balance as was true in 1998 and in 2008.

This is not, of course, to say that the fall in the oil price, or the fall in the ruble it has caused, has not had negative consequences. For Russians who want to buy or invest abroad, it is now more expensive to do so; Russians will probably have to endure higher prices for a short period.
High oil prices have, however, been for Russia a very mixed blessing. They undoubtedly helped the government after the 1998 crash to sort out the country's finances. Yet there is a strong case for saying that for Russia oil prices remained too high for too long, causing the ruble to become overvalued in a way that punished domestic producers and encouraged Russians to borrow and invest excessively abroad.

A lower ruble, by reversing these trends, should over time strengthen the domestic economy by helping it diversify away from oil and become more self-reliant. There will no doubt be a difficult period as the country and the economy adjusts, but this should be over fairly quickly given the strong fundamental conditions (in particular the absence of debt) and fairly quickly the benefits should come through.

The present period of low oil prices is anyway unlikely to last long. Demand for oil from Asia is likely to grow as Asian economies recover from what is probably only a brief period of weakness.

Given the extremely high levels of indebtedness in the US, it is very unlikely the Federal Reserve will be able to sustain monetary tightening for a long time. Most probably the period of dollar strength we are now seeing will be short.

Given the US's declining position in the world economy (it has probably already been overtaken by China) it is debatable for how much longer oil will be priced in dollars anyway. Given the high production costs of many US shale oil producers, it is likely low oil prices will put many of them out of business, causing US oil production to fall, ultimately correcting the present situation of oversupply.

Of course there are many who think the Saudis have deliberately engineered the fall in oil prices to achieve that. Whilst that is certainly wrong, the effect is the same.

Already there is talk of US banks and investors becoming more cautious about funding new shale projects; even with interest rates still almost at zero the cost of borrowing in the US remains low. If the US Federal Reserve raises interest rates next year, as some expect, then the US shale industry could find itself in crisis.

All the conditions for a future rise in oil prices are therefore already in place. In fact, such a rise is all but inevitable and is probably only a few years away. When it comes Russia, with a stronger, more diversified and self-reliant economy should be in a better position to benefit from it than it is now.

 

[sorcerer]

Oil falls again as IMF cuts forecast; Iran hints at $25 oil

(Reuters) - Oil fell as much as 5 percent on Tuesday after the International Monetary Fund cut its 2015 global economic forecast and key producer Iran hinted prices could drop to $25 a barrel without supportive OPEC action.

Genscape, an analytics firm that monitors U.S. oil stocks, reported a 2.6 million-barrel build last week in Cushing, Oklahoma, the delivery point for the U.S. crude futures contract, adding to the market's bearish sentiment, traders said.

Trade group American Petroleum Institute will issue its data on U.S. crude inventories for last week on Wednesday while the government's Energy Information Administration will release its stockpile tally on Thursday, both delayed a day by a holiday on Monday.

Benchmark Brent crude LCOc1 closed down 85 cents, or 1.8 percent, at $47.99 a barrel. It earlier touched a session low of $47.78.

U.S. crude CLc1 settled down $2.30, or 4.7 percent, at $46.39 a barrel, after tumbling to an intraday bottom of $45.89. Traders said activity in U.S. crude was heightened somewhat by the expiry of the February futures contract CLG5 as the front-month.

The premium for Brent over U.S. crude futures CL-LCO1=R widened after Genscape's reported build in Cushing stocks. The arbitrage was at around $1.50 a barrel when U.S. crude settled, after reaching $1.66 earlier.

Oil prices are hovering near six-year lows after a selloff on worries of a glut caused primarily by unexpectedly high production of U.S. shale crude.

An expected slide in the U.S. oil rig count in the first quarter compared with the fourth quarter of last year failed to boost sentiment on Tuesday as traders and investors remain focused on concerns of oil oversupply.

"Because we have record oil production now, the falling rig numbers are not creating an immediate positive impact in bolstering prices," said Phil Flynn, analyst at Price Futures Group in Chicago. "In fact, they may be creating just the opposite impact; reminding us how poor demand is."

U.S. oil services firm Baker Hughes Inc (BHI.N) said in a conference call on Tuesday that the U.S. average rig count was expected to decline 15 percent in the first quarter from the previous quarter, and it expected to lay off some 7,000 staff.

Earlier data from Baker Hughes showed the number of rigs drilling for oil in the United States fell by 55 last week, the second-sharpest weekly drop in 24 years.

The IMF, in its latest World Economic Outlook report, reduced its global economic forecast by 0.3 percentage points for this year and next, projecting a 3.5 percent growth in 2015 and 3.7 percent for 2016.

Iran's Oil Minister Bijan Zanganeh said Tehran saw no signs of a shift within OPEC towards action to support oil prices, and that the industry could ride out a further slump toward $25.

(Additional reporting by Samantha Sunne in New York, Jack Stubbs in London, Henning Gloystein in Singapore and Jake Spring in Beijing; Editing by Marguerita Choy and Christian Plumb)

Oil falls again as IMF cuts forecast; Iran hints at $25 oil | Reuters

 

[amoy]

China: Oil cargoes bought for state reserve Stranded at Port

Qingdao Port
By Reuters 2015-10-27 09:24:58

About four million barrels of crude oil bought by a Chinese state trader for the country's strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said.

The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace.

Ocean Lily and Plata Glory, two very large crude carriers (VLCCs) carrying oil for Sinochem Corp, arrived at Huangdao, Qingdao's main oil terminal, in early September, and both were still at anchor this week, waiting to unload, according to Reuters' shipping data, and trade and port sources.

"They are both for SPR (strategic petroleum reserve), but no tank space is available to take that oil in," said a senior trader familiar with Sinochem's oil trading.

China's crude oil imports rose nearly 9 percent in the first nine months of the year over a year earlier to 6.65 million bpd, driven partly by reserve building.

China said late last year the first phase of the government's emergency stockpile is storing about 90 million barrels of crude oil, with the construction of a second phase due by 2020, partly through private investment.

Huangdao is the site of one of China's first SPR tanks, with space for 20 million barrels of oil and also has plans for a second phase of similar size.

A recent move to increase competition for oil imports by granting quotas to independent refineries has added to congestion at Huangdao, where operations were already hampered following a pipeline accident two years ago.

"Storage and berths were not ready for such a quick market opening," the trader said.

PORT CONGESTION

Huangdao has experienced cargo congestion since a pipeline explosion that killed 66 people two years ago, with tighter security checks and repairs to old and damaged pipelines slowing tanker unloading.

Congestion has worsened following a scramble by a raft of new crude buyers to bring in oil, trading sources have said.

Since July, China has granted a total of nearly one million barrels per day (bpd) of crude import quotas to a dozen independent refineries in an effort to boost competition and private investment.

The pace of the reform has been much quicker than the market expected, with the newly approved quotas making up more than 10 percent of China's current total imports.

Ocean Lily loaded oil from the Omani port of Mina Al Fahal, Reuters' shipping data on Eikon showed. It is unclear what crude Plata Glory is carrying.

The oil was part of a total of at least six million barrels of crude bought by Sinochem for government stockpiles, but destined for a commercial tank farm in the city of Weifang, connected with Huangdao with a pipeline, the trader and port source said.

The tank farm, with total storage of about 25 million barrels, is mainly owned by Shandong Hongrun Petrochemical Co, an independent refinery partly owned by Sinochem.

China's state reserves are split into two categories: strategic petroleum reserves for which the state builds tanks and pays the full cost of storage and oil, and commercial state reserves where the state leases tanks and shares the cost of buying oil with companies.

Sinochem officials did not respond to requests for comment, while a media official with Qingdao Port Group could not immediately comment. Reuters was unable to contact the Ocean Lily.

Broker reports show that Sinochem owns Ocean Lily, while Plata Glory was fixed on a six-month charter at around $37,750 a day in April, with an option to extend for another six months, putting the cost of keeping the two vessels idle at several million dollars.

 

[amoy]

Oil price slump turns Saudi surplus into huge deficit, IMF report shows
Fund tells all oil exporters to be braced for prolonged period of disruption as it predicts Gulf state’s deficit will hit 21.6% of GDP this year

The full extent of the impact of slumping crude prices on Saudi Arabia’s public finances has been highlighted by the International Monetary Fund in a new report telling oil exporters to be braced for a prolonged period of disruption to their budgets.

The fund’s half-yearly fiscal monitor report shows that in the past three years a hefty budget surplus in Saudi Arabia has been turned into a deficit of more than 20% of GDP – double the shortfalls seen in the UK and the US during the worst of the global slump of 2008-09.

Other leading oil exporters – Russia, Libya, Venezuela, Kuwait, Qatar, the United Arab Emirates, Oman and Angola – have also suffered marked deteriorations in their public finances as a result of the fall in crude from a peak of almost $130 a barrel in 2012 to just under $53 currently.

“Natural resource-rich countries benefited from an exceptional commodity price boom during the 2000s, with metal and oil prices reaching historic highs,” the report said. “This provided a substantial boon to resource-rich developing countries, which benefited from large increases in fiscal revenues and the opportunity to promote economic transformation and development.”

The IMF report shows how the rapid increase in oil prices from 2003 onwards strengthened the public finances of Saudi Arabia. The world’s biggest crude exporter was running a budget surplus of 12% of gross domestic product in 2012, but this had turned into a deficit of 3.4% of GDP two years later.

Saudi’s budget deficit is expected to peak at 21.6% of GDP this year and fall only slowly to 14% of GDP over the next five years.

Other countries show a similar profile. Kuwait’s budget surplus peaked at 34.7% of GDP in 2012 but it is on course to just about balance the books with a surplus of 0.1% of GDP in 2016.

Angola’s surplus of 8.7% of GDP in 2011 had become a 6.4% deficit three years later. But the sharpest deterioration was in Libya, where the fall in prices has been compounded by production losses caused by conflict. The country, which was running a budget surplus of 11.6% of GDP in 2011, will be running a budget deficit of 79.1% of GDP this year, according to the IMF.

The fund said the recent slide in commodity prices “has driven home the fact that commodity prices are volatile, unpredictable and subject to long-lasting shocks.

“It has also meant that commodity exporters will need to adjust to a – possibly protracted – period of lower export and fiscal revenues.”

Saudi Arabia’s finance minister, Ibrahim Alassaf, announced last month the country would impose spending cuts in response to a drop in the oil price that has caused its budget deficit to balloon to $120bn.

The Middle Eastern kingdom needs an oil price of $100 a barrel to balance the budget but has so far relied on running down its massive reserves to bridge the gap between rising spending and falling tax revenues.

Although the IMF believes Saudi Arabia’s reserves provide “significant protection” for the next five years, the country’s rulers have decided that they cannot continue to use up financial assets at the current rate.

The fund said countries with endowments of natural resources needed to build up war chests when commodity prices were rising in order to be able to withstand periods when prices were falling.

Warning that exhaustible mineral and hydrocarbon wealth can be a “resource curse”, the fund added: “Countries face important trade-offs between how much to consume of their nonrenewable resource wealth and how much to save in the form of financial savings and other assets (for example, public infrastructure).”

 

[amoy]

Gulf oil producers delay field maintenance to maintain output: Reuters

OPEC members Saudi Arabia, United Arab Emirates and Qatar are delaying non-essential field maintenance work scheduled for the fourth quarter of this year to 2016 in an effort to keep production high amid low prices, Reuters reported, citing unnamed industry sources.

Oil companies are trying to benefit from higher margins now as they expect oil prices to drop next year when Iran returns to the market, the sources said, adding that delays also fall in line with Gulf countries’ plans to curb spending.

State oil firms Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) were said to maintain current output levels in the fourth quarter.

In September, Saudi Arabia pumped 10.225 million barrels per day (bpd), while the UAE’s output amounted to three million bpd, according to OPEC data. Qatar's production reached 663,000 bpd during the month.

http://www.argaam.com/en/article/articledetail/id/393911

~Tapa talks: Orange is the new black.~