Iran’s Oil Minister Bijan Namdar Zanganeh will join an informal meeting of OPEC members next month in Algiers, a state news service reported, ending uncertainty about whether OPEC’s third-biggest producer would participate.
Producers from the Organization of Petroleum Exporting Countries will meet on the sidelines of an energy policy group in the Algerian capital next month to consider conditions in the oil market, OPEC’s president, Qatar’s minister Mohammed Al Sada, said on Aug. 8. Saudi Arabia, the world’s largest exporter, is working “to restore balance between supply and demand to support oil prices,” and OPEC and non-members will discuss potential steps in Algiers to stabilize markets, Saudi Energy Minister Khalid Al-Falih said on Aug. 13.
“I will participate in this meeting,” Iran’s Zanganeh was cited as saying by the oil ministry’s news service Shana. Zanganeh had not previously committed to attending the meeting, and he didn’t comment on the position Iran will take at the talks. Zanganeh also said he will meet with OPEC Secretary General Mohammed Barkindo “in the near future.”
Price Gains
Crude oil has gained about 11 percent since OPEC said it would meet informally to discuss prices and supply, on speculation that the group could agree to freeze output levels. Benchmark Brent crude was trading near $49 a barrel on Thursday in London.
A meeting of OPEC and other producing countries in April ended without agreement in Doha when Saudi Arabia demanded that Iran be part of the any deal to limit output. Iran had ruled out a ceiling on its production until it recovered the output levels it had before the U.S. and European Union tightened international sanctions on its oil industry in 2012.
Iran’s production has risen to 3.85 million barrels a day since sanctions were eased in January, Zanganeh said this month, still less than its target for the end of this year of 4 million barrels a day. OPEC as a whole has boosted output to record levels since adopting a Saudi-led decision in 2014 to protect the group’s global market share by forcing out higher-cost producers.
The International Energy Forum, comprising 73 countries that account for about 90 percent of the global supply and demand for oil and natural gas, will meet in Algiers on Sept. 26-28.
Mexico’s energy regulator said on Wednesday that 26 companies had qualified to participate in the country’s deep-water oil tender in December, the jewel in the crown of a landmark energy sector opening.
Of the 26 companies that have qualified for the so-called Round 1.4 tender, 16 are operators, including state-owned oil giant Pemex, and 10 are financial partners, the National Hydrocarbons Commission (CNH) said on Twitter.
Any consortia that form will be revealed on Nov. 28, the CNH said.
Below is the list of companies that have qualified:
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Atlantic Rim Mexico, S. de R.L. de C.V.
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BHP Billiton Petroleo Operaciones de Mexico, S. de R.L. de C.V.
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BP Exploration Mexico, S.A. de C.V.
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Chevron Energia de Mexico S. de R.L. de C.V.
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China Offshore Oil Corporation E&P Mexico, S.A.P.I. de C.V.
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Eni Mexico, S. de R.L. de C.V.
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ExxonMobil Exploracion y Produccion México S. de R.L. de C.V.
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Galp Energia E&P BBV.
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Hess Mexico Oil and Gas, S. de R.L. de C.V.
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Inpex Corporation
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Lukoil International Upstream Holding B.V.
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Mitsubishi Corporation
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Mitsui & Co. Ltd
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Murphy Sur S. de R.L. de C.V.
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NBL Mexico, INC
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ONGC Videsh Limited
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PC Carigali Mexico Operations, S.A. de C.V.
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Petro-Canada (International) Holdings B.V.
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Petroleo Brasileiro Mexico, S. de R.L. de C.V.
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Petroleos Mexicanos
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Repsol Exploracion Mexico, S.A. de C.V.
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Ophir Mexico Holdings Limited
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Shell Exploracion y Extraccion de Mexico, S.A. de C.V.
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Sierra O&G Exploracion y Produccion, S. de R.L. de C.V.
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Statoil E&P Mexico, S.A. de C.V.
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Total E&P Mexico, S.A. de C.V.
Seadrill Limited has received a notice of termination from Pemex Exploracion y Servicios for the West Pegasus (UDW semisub) drilling contract, effective Aug. 16. Seadrill has disputed the grounds for termination and is reviewing its legal options.
During the second quarter of 2015 Seadrill signed a provisional commitment for a two year extension to the contract with Pemex for the West Pegasus. In conjunction with the extension, the day rate for the remaining term of the initial contract was reduced. The extension of the contract was finalized during the first quarter of 2016.
As part of this agreement, Seadrill and Seamex Limited, Seadrill’s 50 percent owned joint venture with Fintech, agreed to reduce the day rate on five jack-ups for a period of 365 days. The agreement to reduce the day rates of the existing contracts was contingent upon final confirmation of the two year extension of the West Pegasus by Pemex management.
In the event of termination, Seadrill and Seamex are entitled to recover the day rate concessions as well as the demobilization for the West Pegasus. In addition, Seadrill has stated that it will seek reimbursement of certain costs incurred in anticipation of the extension.
OPEC has done it again.
Talk of a potential deal to freeze output helped push oil close to $50 a barrel and prompted money managers to cut bets on falling prices by the most ever. West Texas Intermediate, the U.S. benchmark, went from a bear to a bull market in less than three weeks.
OPEC is on course to agree to a production freeze because its biggest members are pumping flat-out, said Chakib Khelil, the group’s former president. Saudi Energy Minister Khalid Al-Falih said that the talks may lead to action to stabilize the market.
“This is all courtesy of some very well-timed comments from the Saudi oil minister,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “They’ve been successful over the last year in jawboning the market, and this is the latest example.”
Hedge funds trimmed their short position in WTI by 56,907 futures and options during the week ended Aug. 16, the most in data going back to 2006, according to the Commodity Futures Trading Commission. Futures rose 8.9 percent to $46.58 a barrel in the report week and closed at $48.52 a barrel on Aug. 19. WTI is up more than 20 percent from its Aug. 2 low, meeting the common definition of a bull market.
“This was a very short market so we were bound to get some covering,” said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “You probably won’t hear a lot from OPEC with prices up here, but if we get down to where we were a few weeks ago we can expect to hear more.”
Informal Talks
The Organization of Petroleum Exporting Countries plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Russian Energy Minister Alexander Novak said that the nation was open to discussing a freeze.
Talks to implement a production freeze collapsed in April when Saudi Arabia said it wouldn’t take part without Iranian participation. Iran was restoring exports after sanctions over its nuclear program were lifted in January.
Saudi Arabia, Iran, Iraq and non-member Russia are producing at, or close to, maximum capacity, Khelil said in a Bloomberg Television interview on Aug. 17. Saudi Arabia told OPEC that its production rose to an all-time high of 10.67 million barrels a day in July, according to a report from the group.
Ample Stockpiles
Declining crude and gasoline stockpiles in the U.S. also bolstered the market last week. Crude supplies dropped by 2.51 million barrels as of Aug. 12, Energy Information Administration data show. Gasoline inventories slipped 2.72 million barrels during the period. Stockpiles of both crude and gasoline remain at the highest seasonal levels in decades even after the declines.
“There’s a high level of uncertainty right now, so fairly small news can move the market a lot,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It still remains the case that we have a huge surplus of supply and aren’t going to see it disappear anytime soon.”
Money managers’ short position in WTI dropped to 163,232 futures and options. Longs, or bets on rising prices, increased 0.1 percent, while net longs advanced 56 percent, the most since July 2010.
In other markets, net-bearish bets on gasoline climbed 54 percent to 1,970 contracts. Gasoline futures rose 5.7 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel increased more than fivefold to 10,835 contracts. Futures advanced 9.8 percent.
Mexico started quietly buying contracts to lock in 2017 oil prices when futures were near their peak in June, signaling the start of what has in prior years been the world’s largest sovereign petroleum hedge, according to people familiar with the deal.
The Latin American country bought put options, which give it the right to sell crude at a predetermined price, in June and July, earlier than the usual period of late August to late September, said the people, who asked not to be identified because the process is private.
Brent crude, the global benchmark, peaked at nearly $53 a barrel in early June. Since then, prices have declined about $10 a barrel as the outlook for the global economy soured and OPEC countries boosted production. The people didn’t say how much Mexico was able to hedge before prices fell back.
In response to a list of e-mailed questions, the Mexican Finance Ministry’s press office declined to comment on the status or progress of Mexico’s oil hedge negotiations.
The Latin American country has spent an average of almost $1 billion a year over the past decade buying put options through deals with banks that in the past have included Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, BNP Paribas SA, Barclays Plc and HSBC Holdings Plc, according to government documents. Mexico’s annual hedge is the largest undertaken by a national government and often roils the market.
Mexico and its bankers try to keep the hedge under wraps as long as possible, to avoid others front-running the trade and making the insurance more expensive. In the past two years, however, some details of the hedge emerged because of new regulations introduced in the U.S. with the Dodd-Frank Act.
Dodd-Frank
The rules forced U.S. banks to report some details of the deal through public swap data repositories. But this year not a single deal bearing the marks of the Mexican hedge has emerged, and two of the people familiar with the program said Mexico and its bankers were using non-U.S. branches of the banks to bypass the reporting rules.
The move to hedge 2017 oil prices comes as Mexico stands to take in about $3 billion from this year’s hedge, which was put on from June to August 2015, if prices remain around current levels. That follows last year’s record payout of $6.4 billion.
Despite Mexico’s hedging success — it received $5 billion in 2009 after oil prices plunged — few other commodity-rich countries have followed suit. Ecuador hedged oil sales in 1993, but losses triggered a political storm and the nation never tried again. More recently, oil importers Morocco, Jamaica and Uruguay have bought protection against rising energy prices.
Oil prices hit five-week highs on Monday, gaining about 10 per cent in a three-day rally as speculation intensified over potential producer action to support prices amid a crude glut.
Data from market intelligence firm Genscape estimating a draw of more than 350,000 barrels at the Cushing, Oklahoma delivery point for US crude futures last week added to the bullish sentiment, said traders who saw the data.
Brent crude rose $1.08, or 2.3 per cent, to $48.05 a barrel by 11:07 a.m. EDT (1507 GMT), after rising to $48.10 earlier, its highest since July 7. Brent has gained about 10 per cent cumulatively in the past three sessions, its most in such a stretch since May. Since the start of August, it is up 12 per cent.
US West Texas Intermediate (WTI) crude gained $1.06, or 2.4 per cent, to $45.55, after rallying earlier to $45.61, a peak since July 21. WTI has gained nearly 10 per cent on the month.
Members of the Organization of the Petroleum Exporting Countries are to meet on the sidelines of the International Energy Forum, which groups producers and consumers, in Algeria from Sept. 26-28.
Russian Energy Minister Alexander Novak bolstered hopes on Monday that oil producing nations could take action to stabilise prices, telling a Saudi newspaper that his country was consulting with Saudi Arabia and other producers to achieve market stability.
“With Russia joining the chorus, an array of bullish oil ETFs saw a sizeable influx of capital that lifted crude values by more than $5 a barrel off recent lows,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
“While we see very little possibility of an actualization of curtailed OPEC output, there will likely be enough chatter during the next five to six weeks to deter selling in allowing WTI to gravitate at around the $45 area, at least through the second half of this month,” he added.
But other analysts were sceptical that the rally would continue.
“In our view a renewed price correction cannot be ruled out if market participants start focusing on the supply side again, for the latest drilling activity figures in the US cast doubts that the oversupply is really being eroded,” Commerzbank analyst Carsten Fritsch said in a note.
There are also doubts that Saudi Arabia and other major OPEC members such as Iran will put aside a market share battle in order to prop up prices.
On the demand side, the world’s three biggest economies – the United States, China and Japan – all published downbeat economic data between Friday and Monday that could signal an erosion soon in oil demand.
Mexico’s oil regulator on Wednesday said state-owned oil company Pemex must take a minimum 45 percent stake in its first-ever proposed joint venture with would-be private partners to develop oil reserves in the Gulf of Mexico’s deep waters.
Global oil majors are widely expected to bid in the December auction to help develop the Trion light oil field in the Perdido Fold Belt just south of Mexico’s maritime border with the United States.
Companies such as Royal Dutch Shell and Exxon Mobil operate lucrative developments in nearby U.S. waters while Mexico has yet to achieve commercial production on its side of oil-rich Perdido due to a lack of technical expertise to tap such fields.
The call for bids to partner with cash-strapped Pemex on Trion follows the constitutional energy reform enacted in 2013 which promised to reverse a decade-long slump in crude production by luring new players to explore for and produce oil.
The regulator said the Trion joint venture will be bid out in the form of a license contract, which is similar to a concession, and will include two operators, one of which must have between a 30 to 45 percent stake in the project.
Interested bidders have until Sept. 15 to pre-qualify for the auction by meeting both financial and technical minimum requirements, while the final version of the contract and bid terms will be published on Sept. 30.
The license contract to partner with Pemex on the project will be awarded on Dec. 5. Mexico will also auction 10 separate deep water fields, including four that surround Trion, in December.
Under the terms of the energy reform, Pemex can partner with companies in exploration and production projects, but rather than being allowed to pick its partners, they will instead be selected by an auction run by the oil regulator, known as the National Hydrocarbons Commission.
The partnership will allow Pemex to share the investment needed to successfully develop the field, the company’s first major deep water oil project.
The Trion field holds some 480 million barrels and will require about $11 billion worth of investment.
The field covers about 483 square miles (1,250 square km) and is located under more than 8,202 feet (2,500 meters) of water.
Offshore safety across oil and gas operations on the UK Continental Shelf (UKCS) continued to improve in 2015, according to the 2016 Oil & Gas UK Health & Safety Report published August 1.
There were no reported fatalities and reportable injury rates were lower than other industries such as manufacturing, construction, retail and education. The lost time injury frequency rate on the UKCS was also below the European average and lower than Norway, Denmark and Ireland.
The category of dangerous occurrences – which captures oil and gas releases, fires or explosions, dropped objects and weather damage – was down overall too, with an almost 30 percent fall between 2013 and 2015. Within that category, the total number of oil and gas releases rose slightly by 9 percent, with the majority of these classified as minor, while major releases remained the same.
A rise in minor releases could partially reflect that more and more operators are using technology that helps detect the smallest of escapes. New reporting criteria also came into place in the second half of 2015 and now includes releases that were not deemed reportable under previous legislation.
In March 2015 the Forties Echo platform in the North Sea was shut after being hit by a supply vessel, which resulted in 15 workers being transferred to the nearby Forties Bravo platform. In July 2015, oil and gas industry skills organization OPITO reported a 250 percent rise in the number of North Sea energy firms investing in systems which assess and develop workforce competence and safety.
“I am pleased to say there were no reported fatalities on the UK Continental Shelf in 2015. Health and Safety Executive statistics in our report show that the industry non-fatal injury rate and the over-seven-day and specified injuries rates also decreased,” said Mick Borwell, health, safety and environment policy director at Oil & Gas UK.
“That picture of personal safety improvement was echoed in the smaller annual benchmarking exercise that we carry out ourselves. We looked at 28 production operators and found a continuing downward trend in the average frequency of reportable injuries and dangerous occurrences,” he added.
“This is a testing time for the industry and our commitment to safety has, at times, been questioned. However, our report demonstrates that safe operations continue to be intrinsic to how we go about our activities on the UK Continental Shelf, regardless of the oil price. It shows that the UK sector is focusing in the right areas and overall is heading in the right direction. The report is also a reminder that there is no place for compromise or complacency and that safety must remain at the top of our agenda,” Borwell concluded.
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