newbase 645 special 12 july 2015

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,

or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this

publication. However, no warranty is given to the accuracy of its content.

NewBase 12 July 2015 - Issue No. 645 Senior Editor Eng. Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE

Kuwait: Petrofac awarded US$780 million project Source: Petrofac

Petrofac, the international oil and gas services provider, has received an award notification for Kuwait Oil Company’s (KOC) manifold group trunkline (MGT)

system in the north of Kuwait.

The lump-sum engineering, procurement and construction (EPC) project, valued at

approximately US$780 million, is integral to KOC’s plans to increase and maintain crude production over the next five years. Three new gathering centres (GCs), which

form part of the broader project, are already under construction with Petrofac executing the EPC contract for GC 29.

/l.mkujnyDue for completion towards the end of 2017, the MGT system will provide the feedstock to each of the GCs via three independent networks of intermediate

manifolds and pipelines. Each of the three GCs will be capable of producing around 100,000 barrels of oil per day together with associated water and gas.

Marwan Chedid, Chief Executive of Petrofac's Engineering, Construction,

Operations and Maintenance division,

said: 'We have a long track record in Kuwait which extends over the last 15

years and the MGT award represents our twelfth project in the country.

Kuwait is, and will continue to be, one of our core markets and is of strategic

importance to Petrofac’s ambitions in the Middle East. We look forward to

working with KOC to deliver this project safely and on schedule.'




Saudi crude exports to remain around 7 million bpd in 2015 © Arab News 2015 + NewBase+Zaway Saudi crude consumption is expected to reach 3 million bpd in the third quarter of this year as domestic demand peaks due to the summer months, according to a report from Jadwa Investment. "In the last three years, quarter-on-quarter growth in Q3 has averaged 250,000 barrels per day (bpd), and we expect to see a similar quarterly rise in total crude consumption this year as well," said the Jadwa economists.

Jadwa Investment's Quarterly Oil Market Update stated that Brent prices were up 13 percent, quarter-on-quarter, in Q2 2015, to $61 per barrel. It said a general improvement in oil demand and slowdown in the rate of growth in US shale oil output combined to push prices up. "Previously, we expected a pick up in global oil demand in H2 2015 to move global oil balances into a deficit by Q4 2015. Although we still expect a pick-up in global economic activity, year-on-year increases from OPEC and non-OPEC sources, such as Russia, will result in global oil balances

remaining in surplus throughout 2015," added the Jadwa research team. "Furthermore, since commercial crude stocks are still relatively high, even an increase in forecasted global oil demand or a reduction in supply would not immediately put upward pressure on oil prices. As a result we maintain our full year Brent crude oil forecast to $61 per barrel," they said.

The report said that preliminary data shows that Saudi crude production was up 6 percent in Q2 2015, year-on-year, at 10.3m bpd. This elevated level of production is due to increasing domestic demand and a desire to hold market share. Maintaining market share is even more of a priority now for Saudi Arabia than when prices began to fall in the second half 2014. Global oil markets are more competitive and the Kingdom faces competition from both within OPEC and outside it. A potential agreement with Iran and the P5+1 paves the way for gradual increases in output in H2 2015. Iraq is also pumping near record exports. Added to this is the increase in competition from Russia, where exports are up year-on-year. Lower oil prices have put intense fiscal pressure on a number of OPEC and non-OPEC producers, although the risks for Saudi Arabia are lower, due to ample foreign reserves and low debt levels. "As a result we see limited year-on-year change in Saudi crude exports, which will remain around 7 million bpd in 2015. This combined with rising domestic consumption will see full Saudi production at 9.8 million bpd in 2015, although we do see an upside risk to our forecast, as a result of more intensive competition for market share," said the researchers. "We do not view the recent high level meetings between Saudi Arabia and Russia paving the way




for any coordinated cut in oil supply from either country," they said. The Jadwa report also said than non-OECD oil demand growth continues to be the main component of global oil demand growth. According to OPEC data, around 95 percent of the total Q2 2015 year-on-year global demand growth, of 1.2 million barrels per day (bpd), was supported by non-OECD countries. Negative oil demand growth persists in the EU and Japan, which has partially canceled out healthy year-on-year rises from the US. Flat demand growth in OECD countries is expected to continue into the third quarter of 2015 and the rest of the year. Non-OECD demand is forecast to grow by 1.1 mbpd in 2015, year-on-year, with the largest rises coming from China (up 3 percent, year-on-year), India (up 2.9 percent, year-on-year) and the Middle East (up 2.7 percent, year-on-year). In the US, lower gasoline prices and a pickup in economic activity is spurring oil demand. As the US benchmark crude West Texas Intermediate (WTI) has fallen, year-on-year, so too have US retail gasoline prices, leading to increased consumption. Rising US oil demand will not, however, support international oil prices, primarily because ample supply of crude and record commercial crude stocks will limit crude imports, added the report. Total oil output from OPEC was estimated to be up by 3 percent in Q2 2015, year-on-year, as a result of large increases from Saudi Arabia, Angola, Libya and UAE. Iranian oil output was down,

year- on-year. "We see competition both among OPEC members and with non-OPEC producers for market share resulting in OPEC output levels showing stronger year-on-year growth in Q3 & Q4 2015," added the Jadwa researchers. Oil demand was flat in Europe in Q2 2015, year-on-year, and is likely to show only modest growth in Q3 2015. The region's long term oil demand trend has

been downward due to continuing improvements in fuel economy standards and weak economic growth. Oil demand is expected to decline in 2015, year-on-year. Furthermore, the inability of Greece to reach an agreement with its creditors could negatively impact the European economy, which would add downside risks to the region's current oil demand growth forecasts. Preliminary Q2 2015 data shows that crude oil imports in Japan were down by 260 tbpd or 7.4 percent, year-on-year, as result of continued fragility in the economy and the increased use of Liquefied Natural Gas (LNG) in the energy mix. In May 2015, Japan's Nuclear Regulation Authority (NRA) stated that two reactors had passed their final safety tests before being restarted. The NRA has scheduled one restart in late July 2015, and another in September 2015. "We expect to see a sharper fall in year-on-year Japanese oil demand in Q3 2015 and Q4 2014, as nuclear energy substitutes some crude oil in electricity generation," said the researchers.




Iraq: Gulf Keystone - update on Shaikan field production Source: Gulf Keystone

Ahead of the Company's Annual General Meeting today (Thursday), Gulf Keystone, the operator

of the world class Shaikan field in the Kurdistan Region of Iraq, has provided an operational

update.

The Company continues to produce at stable rates from both Shaikan production facilities (PF-1 and PF-2). Following debottlenecking work performed on both facilities, well and plant capacity exists for production rates in excess of 43,000 barrels of oil per day ('bopd'). However, production guidance below has been adjusted to take into account potential offtake and market constraints.

The rolling production average from the Shaikan field for the past two months has been 38,000 bopd and a new daily production record of 44,600 bopd was established on 21 June 2015. Cumulative production from the field has now surpassed 13 million barrels of oil.

It is the Directors' current expectation that production will remain within the range of 36,000-40,000 bopd between now and the year end, subject to offtake.

Due to the previously announced five week suspension of production operations at the end of Q1 2015, caused by adverse market conditions, the daily production average for the year is expected to be between 30,000 and 34,000 bopd.

The Company continues to make progress towards a regular payment cycle for its current production. In line with the recently announced new contract with the domestic buyer and further to the first payment of US$4.9 million gross (US$3.9 million net to Gulf Keystone) received last week, an additional payment of US$6.7 million gross (US$5.4 million net to Gulf Keystone) has now been received by the Company for crude oil exported in June 2015 by truck to the Turkish coast, bringing total payments under this contract to date to US$11.6 million gross (US$9.3 million net to Gulf Keystone).




In addition and in line with the stated diversified marketing strategy, the Company expects in the near future to commence trucking Shaikan crude 120 km to Fyshkhabour on the Turkish border where it will be injected into the export pipeline to Ceyhan. Once injection into the pipeline at Fyshkhabour commences and a payment mechanism for this production is established with the Kurdistan Regional Government's Ministry of Natural Resources ('MNR'), Shaikan crude will be sold as part of the internationally traded blend and higher netback prices should result.

As of 8 July 2015, the Company's cash position was US$72.1 million with further payments anticipated as a result of the ongoing contract with the domestic buyer and continuing dialogue with the MNR.

The Company's half year results for the period ended 30 June 2015 will be announced on Thursday 27 August 2015.

Commenting , Jón Ferrier, Chief Executive Officer of Gulf Keystone said:

'As we work towards our primary objective of establishing a regular payment cycle for crude oil sales from the Shaikan field, today's confirmation of a further payment of US$6.7 million gross represents another important development for Gulf Keystone's financial position.

'The Shaikan field is performing well, with current production at stable rates and an average daily offtake of 38,000 bopd achieved in June. Taking into account the suspension of production operations earlier in the year due to external market factors, today's performance allows us to exit the year at an average rate of between 30,000 and 34,000 bopd, subject to future market factors.'




Norway: Statoil Installed Gina Krog jacket in the North Sea \ Source: Statoil / energy-pedia

Statoil reports that during the last weekend in June the Gina Krog jacket was installed in the North Sea and the top floors of the living quarters were lifted into position at Stord – two major operations carried out as planned and without any incidents.

142 meter tall Gina Krog jacket in place

During the summer the jacket will be properly piled into the seabed and the predrilling module installed, and theMaersk Integrator drilling rig will arrive. It is a completely new drilling rig, delivered from Singapore earlier this year. 'Arriving at the field around the middle of July, the rig will prepare for drilling of the first production well at theGina Krog field. This year is very exciting to Gina Krog, and the activity is so high that we are spending NOK 1 million per hour, day and night, during the whole year,' said Jan Einar Malmin, vice president of Gina Krog field development.

Gina Krog Gina Krog is located about 30 kms northwest of Sleipner. The discovery will be developed to the Sleipner field. Gina Krog (previously Dagny), which was originally a minor gas discovery just north of Sleipner, is a field that has been considered for development on a number of occasions since it was discovered in 1974.

When oil and gas were proven in the neighbouring structure Gina Krog Øst (previously Dagny) in 2007, the Gina Krog landscape was reviewed again. Further delineation during the period 2008 to 2011 determined a contact between Gina Krog and Gina Krog Øst and confirmed substantial volumes of oil under the entire structure.

The development of Gina Krog, which will be among Statoil's major new developments with an estimated 225 million barrels of oil and gas, illustrates the importance of exploring and developing in mature areas with established infrastructure. Now we can extend the lifetime and exploit the available capacity on Sleipner for many years to come.




UK Chevron installs Alder field topsides in UK Central North Sea Source: Chevron Chevron Upstream Europe has announced that the sail-away and installation of the Alder Project’s topsides module has been safely and successfully completed, marking a major

project milestone.

The 800-metric-ton topsides structure was built in a Newcastle shipyard and travelled via transport barge 110 miles (175 km) to the Firth of Forth. The module was transferred to the Oleg Strashnov Heavy Lift Vessel, which set sail for the Central North Sea. After arriving on location on 29 June, the module was safely and successfully installed onto the Britannia Bridge Linked Platform (BLP), where Alder produced fluids will be

processed following the offshore hook up and commissioning campaign.

'This is a significant achievement and milestone for the Alder team. It is the culmination of years of planning and collaborative execution by Chevron, our co-venturer and our various contractors. Progress on Alder is an important driver of Chevron’s future growth plans in the U.K.,' said Craig May, managing director, Chevron Upstream Europe.

'There's a lot of work in this type of operation and I would like to thank everybody involved for ensuring the safe and incident free installation of the Alder module. It took collaboration and focus to gets it done safely, the right way, the first time - a great accomplishment,' added Robert Visser, Alder project manager.

The Alder field will be developed via a single subsea well tied back to the existing Britannia Platform via a 28 km pipeline. The Alder well is expected to be drilled in 2015 with the Blackford Dolphin, which is contracted to Chevron from mid-2015 for a multi-well programme.

Some 75 percent of the development work for Alder is being executed in the U.K. Over the next 6 months, work will continue at a number of U.K. locations, including Aberdeen, Invergordon, Leeds and Newcastle, on the key elements that will ultimately be brought together in the field to bring Alder’s hydrocarbons to production, some 40 years after its discovery.

Alder is a high pressure high temperature gas condensate field is located in Block 15/29a, in a water depth of 150 meters, approx. 160 kms from the Scottish coastline, and 60 kms from the U.K./Norway median line. The project has a planned design capacity of 110 million cubic feet of natural gas and 14,000 barrels of condensate per day. First production is expected in 2016 and gas will be exported to the Scottish Area Gas Evacuation (SAGE) terminal at St Fergus. Chevron North Sea operates the project and has a 73.684 percent interest, with co-venturer ConocoPhillips (U.K.) (26.316 percent).

Alder topsides module heavy lift onto Britannia platform




India: BG announces first oil from Mukta-B platform, offshore Source: BG Group

BG India achieved first oil production from the Mukta-B (MB), a 4 legged Wellhead Unmanned Platform in the offshore Bombay basin, on 1 July. BGhas a 30% interest in the Panna-Mukta oil and gas fields alongside our partners, ONGC and Reliance Industries.

The MB and MA pipelines have also been successfully completed as part of the project, enabling a restart of production from the MA platform, which had been shut-in due to pipeline integrity issues for the last 2.5 years.

The project clocked more than 2 million 'LTI free' man-hours and has several firsts to its credit, including the use of green technology involving hybrid solar panels and wind turbines for self-sufficient power, remote monitoring facilities for process optimisation and VOIP protocol for better communication.

Shaleen Sharma, President & Managing Director, BG India said, 'This is a significant milestone for BG India and the culmination of an integrated team effort by all functions and contract parties.'

Incremental development of the existing fields via well intervention and infill drilling campaigns, as well as evaluating new projects and further development opportunities, is being planned.

BG India has upstream interests in three offshore producing fields, two exploration licences and has contracted long-term LNG sales into the fast growing Indian gas market.




Russia's efforts to bypass Ukraine gas route stall as Saipem deal aborted Source: Reuters + NewBase

Russia's plans to drop Ukraine eventually as a route for piping its natural gas to Europe have hit a snag after Russian gas exporter Gazprom called off a deal with Italy's Saipem to build a subsea link to Turkey.

Russia has long sought to circumnavigate Ukraine to pipe its gas to Europe because of pricing disagreements, which have led to disruptions in supplies to the European Union. Moscow has already reduced gas shipments to the EU via Ukraine to around 40 percent of its total exports,

from around 75 percent a few years ago. It has threatened to halt the flows completely after 2019, when a 10-year transit deal expires - though it softened its stance recently.

The now-terminated Saipem contract - worth 2.4 billion euros ($2.7 billion) - is the latest in a string of failed attempts by Gazprom to diminish Ukraine's role in its gas exports. The cancellation also puts a question mark over Gazprom's goal of building gas pipelines to Turkey and further to southern Europe via the Black Sea with a total capacity of 63 billion cubic metres (bcm) a year, in what would be the world's largest undersea gas infrastructure.




An industry source told Reuters on Wednesday that Gazprom had told pipeline makers to suspend deliveries of pipes for expanding Russia's network so it could be connected to the so-called TurkStream project. Russia and Turkey are yet to agree on terms of the link.

'The decision was dictated by the inability to reach agreement on works and commercial matters,' Gazprom said in a statement about the contract's termination. Shares in Saipem at one stage fell

more than 6 percent on Thursday, making it the biggest loser on Milan's bourse. The stock was down 4 percent at 8.42 euros by 1223 GMT.

Saipem said it had been notified of the contract termination as one of its vessels was mooring in Russian waters to start laying pipes. Any compensation will be determined in accordance with the contract's terms, it said.




TurkStream was brought forward in December, when Russia dropped plans to build the undersea South Stream gas pipeline to Bulgaria due to EU constraints. Gazprom already has direct underwater gas pipelines to Europe via the Baltic Sea in a project called Nord Stream. However, it has not utilised its full annual 55 bcm capacity due to restrictions in the EU concerning the pipeline's ownership.

Bank of America Merrill Lynch said in a note that Gazprom should reject plans to lay costly undersea gas pipelines and engage with Ukraine instead. 'We believe that a better solution for Gazprom would be to join forces with the EU and Ukraine to upgrade Ukraine's existing infrastructure,' it said. 'While such a solution would be commercially preferable, we realise that, under current geopolitical tendencies, it could be hard to achieve.' Relations between Russia and Ukraine, as well as between Moscow and Brussels, are strained because of the Ukraine

conflict. The West accuses Russia of sponsoring pro-Russian rebels there, charges Moscow denies, and has slapped economic sanctions on Russian companies and individuals. Russian Energy Minister Alexander Novak said Russia was continuing work on TurkStream, despite the cancellation of the Saipem deal.




Eni Oil-Pipeline Explosion in Nigeria Kills 12, Injures 3 Bloomerg + NewBase Twelve people died and three were injured in an explosion during repair work at an Eni SpA crude oil pipeline in Nigeria.

The victims worked on a maintenance team for a local service company, Rome-based Eni said in a statement Friday. The Tebidaba-Clough Creek pipeline in the Niger delta was previously “damaged by acts of sabotage.” The company said it is still investigating the cause of Thursday’s blast.

Accidents are common in Nigeria, where pipelines are often breached in attempts to pilfer crude. The incidents interrupt oil and gas flows, affecting Nigeria’s energy exports and revenue for companies including Eni, Royal Dutch Shell Plc and Chevron Corp. Thursday’s incident was the worst since January 2012, when an explosion at Chevron’s Funiwa gas field killed two workers, according to a spokesman for a local environmental group.

“The dead were unidentifiable,” said Alagoa Morris of Environmental Rights Action, the Nigerian affiliate of Friends of the Earth. “Two people that were seriously wounded were rushed to Port Harcourt last night for medical attention. They were badly burnt but they were still alive.”

Eni had 13 incidents related to pipelines and oil wells in Nigeria in May including theft, pipelines being cut using a hacksaw and equipment failure, according to the company’s website. Seventeen were reported in April and 14 in March.

Hundreds have been killed in Nigerian pipeline accidents in the past decade. An explosion at a vandalized oil pipeline in Lagos, Nigeria’s largest city, started a fire that killed at least 200 people and burned many more in December 2006. In May that year, about 200 people were killed when another oil pipeline exploded near Lagos.

Nigeria, Africa’s biggest oil producer, loses an estimated 300,000 barrels a day to criminal gangs that tap crude from pipelines that criss-cross the southern, oil-rich delta for local refining or sale to tankers waiting offshore, according to state-owned Nigerian National Petroleum Corp.




Oil Price Drop Special Coverage

Oil ends steady on small U.S. rig rise; eyes on Greece, Iran Reuters + NewBase

Crude futures settled little changed on Friday after data showed the U.S. oil rig count barely rose this week, allaying fears of an acceleration in drilling that could bring on a surfeit of new supply to the market.

U.S. crude futures CLc1 settled down 4 cents at $52.74 a barrel. It rose more than $1 at its height and fell nearly 80 cents at its low. Brent crude LCOc1, the more important global benchmark, settled up 12 cents, or 0.2 percent, at $58.573 a barrel. Brent jumped 3 percent on Thursday, rebounding from three-month lows.

Gasoline futures RBc1, which have led U.S. crude for weeks on bets of runaway fuel demand for the peak summer driving season, fell 1.4 percent on profit-taking after three straight days of gains.

In Tehran, Ali Akbar Velayati, top adviser to Iran's Supreme Leader Ayatollah Ali Khamenei, said his country had no intention to abandon nuclear talks with the United States and other world powers aimed at lifting sanctions on its crude exports. The negotiations expired on Friday without a deal.

"The prospects on a Greece bailout is encouraging but we're down on anticipation that an Iran deal may also get done," said David Thompson, executive vice president at Powerhouse, an energy-specialized commodities broker in Washington.

Greece put a cash-for-reforms proposal in front of creditors, raising the possibility that a deal could be reached this weekend.

China, the world's No. 2 oil consumer, saw the second day of a stock market surge with equity prices rising more than 5 percent after a barrage of government support measures.

International energy watchdog IEA said it expected global demand growth to slow next year to 1.2 million barrels per day from 1.4 million this year.




Why has the oil price dropped again? Reuters +TheNational+ Newbase

Brent futures prices tumbled more than 6 per cent on Monday, an unusual move that has raised questions about whether shifting fundamentals will send the market even lower over the coming months.

Front-month prices have dropped 17 per cent over the past month, breaking out of the very narrow range that had prevailed since the middle of April. Reasons for the drop are not hard to find. The Financial Times on Tuesday set out the six bearish factors that have come together to produce a perfect storm on the oil market.

These include China’s stock market tumble, turmoil in Greece, prospects for a nuclear deal with Iran, rising oil output from Opec, an increase in rigs drilling for oil in the United States for the first time in more than six months and bearishness among commodity-focused hedge funds and banks.

But the significance of the big move on Monday and the wider decline in oil prices over the past month is much harder to assess because large moves in the price of oil and other commodities do not correlate with new information about supply and demand.

Of the six factors identified by the FT, we can discount three (Greece, Iran and Opec) as explanations for the big move this week and over the past month because they have long been known and should already have been incorporated into prices.

That leaves China, US rigs and increased bearishness among hedge funds and commodity banks as new information to explain the sudden plunge in prices.

None of them offers a particularly convincing explanation for such a large price shift in such a short time.

China shares




China’s equity market has lost almost a third of its value since the middle of last month and so far has resisted all attempts by the authorities to stabilise share prices.

There are fears that the slump will worsen the country’s economic slowdown and translate into slower demand growth for a broad range of commodities from crude and coal to iron ore and copper.

There is certainly some risk to the economy of the world’s largest oil importer, but the link between the stock market and commodity consumption remains tenuous.

“Political risks associated with the current fall (in share prices) are far greater than the economic

risks,” said Michal Meidan of the consultancy China Matters on Wednesday.

“There is a clear disconnect between economic fundamentals and the stock market – this disconnect was just as palpable when the market was making dramatic gains as it is in the current bearish sentiment.”

Ms Meidan argues the “stock market crash will have limited impact on the domestic economy and oil-demand growth”.

US rigs rise

The other new information in recent days was the jump in rigs drilling for oil in the US last week.

The number of rigs increased by 12, the first rise since December 5 after 29 consecutive weeks in which the oil rig count declined.

It has been clear for some time that the downturn in drilling was bottoming out, but the increase in active rigs was a surprise.

It comes after some shale companies had begun to talk about the prospect of ramping up their drilling programmes and production in the next 18 months if prices continued to rise.

For bearish commentators, the climb served as confirmation that oil prices had risen too far, too fast and were not consistent with the need for a further slowdown or even fall in shale production.

“Not only did US$60 per barrel oil, strong high yield and equity energy markets create an increase in US drilling last week, but the market structure of the new oil order has generated incentives for low-cost producers such as core Opec and Russia to ramp up current and future production,” Goldman Sachs wrote.

“We reiterate our fundamentally driven forecast for




lower oil prices,” Goldman concluded. But there are reasons to be cautious. The increase in rigs was very small – just 12, or 0.2 per cent, after the rig count had fallen by 981, or 61 per cent, over the previous eight months.

Rigs counts show considerable variability (the standard deviation of the weekly change is 13 rigs), so the statistic is noisy and last week’s increase was not in itself significant. Moreover, the rise in rigs drilling for oil was almost matched by a drop in the number of rigs drilling for natural gas. The nine-rig decline was the largest in 13 weeks.

It is possible that some rigs are being redirected from gas-rich to oil-rich formations or simply that drilling targets are being reclassified from gas to oil. Some stabilisation or even increase in the number of rigs drilling for oil has long been anticipated – the decline could not continue indefinitely and the industry needs to replace declining production from existing wells.

But can such a marginal increase in the number of rigs drilling for oil explain a fall of 6 per cent in oil prices on a single day or 17 per cent over the last month?

Fundamental fears

Whatever the explanation, the decline in the front-month Brent futures contract on Monday was unusually large. In the quarter-century since the start of 1990, prices have fallen by a greater percentage on only 54 days out of almost 6,500.

Large falls have sometimes coincided with fundamental news about supply and demand, such as when Opec decided in November last year not to cut its production despite the slide in prices. However, large falls have also occurred in the absence of significant news about supply or demand, as happened during the flash crash in May 2011.

The relationship between news flow and short-term price moves is comparatively weak and makes linking the two notoriously hard. Sentiment and market positioning often exert a bigger influence on prices in the short term, even if fundamentals are decisive in the medium and long term.

Sentiment and fundamentals need not be mutually exclusive explanations. Sometimes a shift in sentiment can crystallise a long-building reaction to fundamentals. “The fall in oil prices (this week) is a story of fear and fundamentals,” the historian Daniel Yergin wrote. “Fear is the trigger for seeing fundamentals of supply and demand more clearly.”

But sometimes abrupt price shifts reveal nothing more than a crowded market, with too many participants trying to trade in the same direction at the same time.

Oil forecasters are vulnerable to availability bias

Why is there such good data about oil in the United States but such poor data about everywhere else?

Accurate information is essential for good decision-making, so it is remarkable how little reliable and timely data exists about the production and consumption of crude oil and refined fuels outside the United States. The situation in the other economies, especially emerging markets, is mostly guesswork.

The result is that oil analysts cannot even agree on production and consumption yesterday and today, let alone predict what will happen tomorrow. And because the best and most readily




accessible data is for the United States, the market puts excessive emphasis on what happens there and neglects developments elsewhere.

The obsession with weekly rig counts, production estimates and crude inventories in the United States as a sign of wider supply-demand trends in the oil market has been a case in point. But as long as US data is more accurate, detailed and timely than the numbers for other countries, this example of availability bias is set to continue.

Some US data comes from private companies such as Baker Hughes, which inherited the decades-old rig count from the Hughes Tool Company, but most is produced by the federal government.

The US energy information administration, the independent statistical and analysis arm of the Department of Energy, provides by far the best data on oil and other energy markets anywhere in the world.

The problem is that no other country provides anything like the same quality and depth of information about its energy industries. Other advanced economies such as the UK, Germany and Australia provide data that is less comprehensive and far less timely, often on websites that are byzantine in their complexity.

In the case of emerging markets such as China and Saudi Arabia, the data is either missing or considered a state secret. With emerging markets accounting for more than half of the global oil demand for the first time in 2013 and last year, most of the oil market is now opaque.

Inevitably, analysts, traders, investors and journalists tend to focus on the most readily available information and then extrapolate to the rest of the market, a variant on the data availability bias identified by behavioral economists.

Congress’ preoccupation with data in the 1970s explains why there is such rich information about oil in the US. But it has created an enormous distortion. Better data on the rest of the world – especially emerging markets – must be the top priority if policymakers want markets to operate more smoothly.




Oil prices see steady fall on fundamentals ENERGY OUTLOOK Syed Rashid Husain

While the world awaited the outcome of the deliberations in Vienna on Iranian nuclear program, uncertainty ruled the crude markets making it swing - in patches.

As the ongoing nuclear talks between Iran and six world powers appeared dragging beyond the Thursday’s midnight deadline giving the US Congress an extra month to review the deal, oil markets recovered on Thursday from the lows it experienced earlier in the week. In the meantime, the panic selling of equities on the Chinese stock markets earlier in the week generated concerns about the state of the economy of the world's largest crude importer. These included trading suspensions and cheap financing, resulting in a rebound, impacting the crude market sentiments too - rather positively - after the bloodbath witnessed at the beginning of the week.

The picture at the beginning of the week was even grimmer. Oil prices were falling amid concerns about Greece, the upheaval in the Chinese markets and the continued oversupply of crude oil. Chinese stocks took a plunge after the country's securities regulator warned. Investors were in the grip of "panic sentiment" and the market showed signs of freezing up as firms had their shares suspended. Crude markets took the hit. "Investors have justifiable concerns about the outlook for both supply and demand going forward given current events," Reuters reported. "Turmoil in China and Greece may put recent robust demand growth at risk," Morgan Stanley analysts said in a report. Resilience of the US shale output was also seen impacting the crude dynamics. Despite the clamor by some that low oil prices would impact the US shale output considerably, it has proved to be more immune to lower oil prices than many had anticipated. US inventory data showed an unexpected increase in US domestic crude supplies, sinking the US benchmark price of oil to a three-month low. US shale gas production in conjunction with oil coming from traditional sources contributing to a global glut were pushing the energy prices down.

However, the outlook began to change by Thursday, as some stability seemed returning to Chinese markets and the deal with Iran too appeared delayed. Yet the medium to long term crude view continues to be hazy - at best. Markets are nervous. Since hitting the year-high of $69.63 barrels in May this year, oil markets have fallen significantly.

Oil prices are “massively oversupplied,” and may fall further, the Paris-based International Energy Agency said in its Monthly Oil Report, emphasizing the market was unable to absorb the huge volumes of oil now being produced. "The bottom of the market may still be ahead," it said in rather bold letters.

Adding to the gloom was its forecast that the global oil demand growth was to slow down to 1.2 million bpd in 2016 from an average 1.4 million bpd this year.

Others too are betting on an oversupply scenario. "We do think there's risk of oversupply for a long time," Bart Melek, head of commodities strategy at TD Securities was quoted as saying. "Technically on WTI, we've fallen through some technical support levels and, depending on what happens, we could test the low."




Looking at the long-term chart of US oil production going all the way back to the 1920s, Carley Garner, the co-founder of DeCarley Trading, pointed out that the US has doubled its monthly oil output since the lows of 2008 and is nearly back to its peak levels set back in the 1970s. Thus, unless some sort of unforeseen powerful even occurs, she believes that the oil market will be oversupplied for a long time.

Crude markets have been struggling this year with the ramped-up production from OPEC members as they pledged not to back off on their 30 million barrels-per-day production target. Yet OPEC was producing even beyond this. In June, the OPEC output touched 31.3 million barrels a day, Platts reported. The US, meanwhile, has also been producing at about 9.6 million barrels a day, and the Energy Information Administration now projects US average output this year to be 9.47 million barrels a day.

Consequently the markets are oversupplied by 1.5 to 2 million barrels a day.

The strengthening dollar is also adding to the woes of the crude markets. Generally speaking, the US dollar and oil prices tend to move in opposite directions. As the US dollar appreciates, oil prices tend to decline and vice versa. With the prospects of the US dollar gaining in value, for the US Federal Reserve is expected to raise interest rates later this year and the crisis in Europe could compel investors to seek safer currencies - meaning greenback - oil prices are projected to recede even further.

Goldman Sachs analyst thus believe the price of US crude will sink to $45 a barrel by October. “Oil rebalancing remains in its early stages with the current cash flow and funding mix stalling it,” Goldman analysts wrote, referring to the global oil glut that has surpassed worldwide demand for oil. “We believe that as fundamentals reassert themselves and we move past the seasonal peak in demand, oil prices will continue to sequentially decline.”

Goldman thus underlined, big buyers of crude around the world are probably done snapping up oil simply because it’s cheaper, and that combined with higher oil production out of the Organization of Petroleum Exporting Countries will weigh down prices.

Continued growth in global petroleum and other liquids inventories are also holding the crude markets from rising. Oil inventories remain near the highest levels for this time of year in about 80 years, even though they had recently declined for eight straight weeks, a streak that was only broken end June.

In a June note, Morgan Stanley's Adam Longson noted that even with peak summer demand, there weren't enough buyers for all the crude oil out there. Oil tankers were reported to be sitting on the Atlantic, waiting to be bought. When seasonal, summer demand dies down, it would be even harder to get rid of all the stockpiles that should have been sold, Longson underlined. The cost of oil tankers is on rise, too, adding to the hint of approaching glut. Oil tankers have become expensive — a sign drillers are flooding the market once more. Bloomberg report in May that the daily rate of oil supertankers surged to the highest level in seven years on a sudden rise in demand from producers. 'The daily rate for oil supertankers is at its highest level for this time of year since 2008,' the reported emphasized.

Despite some strengthening early last week, gloom seems back in control!




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Khaled Al Awadi is a UAE National with a total of 25 years of experience in the Oil & Gas sector. Currently working as Technical Affairs Specialist for Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy consultation for the GCC area via Hawk Energy Service as a UAE operations base , Most of the experience were spent as the Gas Operations Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility & gas compressor stations . Through the years, he has developed great experiences in the designing & constructing of gas pipelines, gas metering &

regulating stations and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation, operation & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences held in the UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.

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