Headlines
March 15, 2010
Investment Bank: Most Analysts Overlooking Unconventional
Oil Growth
It would be safe to say that most global investment banks have a bullish view of where oil prices are headed in the next 18 months. The notable exception is Deutsche Bank, and that company this weekend provided one more reason to be suspicious of $80-$100/bbl crude prophesies by peers such as Goldman Sachs, JP Morgan and Barclays.
One clear reason for Deutsche Bank's more cautious outlook: its researchers believe that other analysts are not paying sufficient attention to the growth in unconventional oil.
And the bank is not referring to oil from shale, or coal gasification technologies, or gas-to-liquids projects. It specifically suggests that brisk growth in biofuels' production is overlooked in the unconventional category.
"The contribution to oil supply growth this year from unconventional oils is greater than any of the individual countries often cited as being the likely sources of non-OPEC growth for 2010," Deutsche Bank's latest commodity report notes. Those countries include Azerbaijan, Canada, Kazakhstan and Russia.
Coverage of the contribution for unconventional oil is noticeably absent from monthly reports issued by the Energy Information Administration (EIA) and the OPEC Secretariat.
A year ago, falling prices, high feedstock costs, and the credit crisis all undermined the viability of unconventional oil projects, including biofuels.
This year, the total contribution of unconventional oil is expected to be
2.391 million b/d, up some 1.071 million b/d from five years ago. Biofuels account for 1.859 million b/d of the unconventional number, an increase of 472,000 b/d from last year, and up some 1.25 million b/d from 2005.
Deutsche Bank kept its forecast levels for petroleum intact. It projects a 2010 average WTI value of $65/bbl, or some $15/bbl or more below NYMEX prices for the remainder of the year. Bank researchers see an $80/bbl average price for 2011, and an $85/bbl level for 2012.
The projections for refined products are as much as 35cts/gal below some current numbers. For example, Deutsche Bank sees RBOB averaging $1.82/gal this year, with heating oil projected to average $1.88/gal.
March 10, 2010
OPEC Tweaks Demand, But Warns About Potential Oversupply
OPEC researchers have slightly raised expectations for global demand in 2010, but are not looking at oil prices through rose-colored glasses. In its latest Oil Market Report, issued today, the cartel warned that even a smaller- than-normal first-to-second quarter slide in world demand could pressure crude oil prices over the near term.
For the year, OPEC sees world demand growth of 900,000 b/d, and that represents a 100,000-b/d upward revision from its previous forecast. The demand projection is based on global economic growth of 3.4% in 2010, and the majority of that growth comes from China and other non-OECD (Organization for Economic Co-operation and Development) countries.
If global demand does indeed rise by 900,000 b/d this year, it would compare with a loss of 1.4 million b/d last year. Demand in OECD countries is expected to drop by 150,000 b/d, but emerging economies, including China and Mideast countries, will need an additional 1 million b/d or so of petroleum.
A 400,000-b/d increase in output is projected for non-OPEC countries, and that number reflects a 100,000-b/d upgrade from the previous cartel forecast.
OPEC raised estimates for demand for its own crude by 200,000 b/d to 28.9 million b/d in 2010. But by any measure, demand this year will be off more than 2 million b/d from 2008 levels.
Special attention was given in the report to the soft demand in the shoulder period between winter and summer. OPEC cites five years of data that sports an average seasonal decline (between the first and second quarters) of
1.8 million b/d. Cartel researchers believe that the drop this year will be a less considerable 800,000 b/d, but that still puts the projected demand for OPEC crude around 1.5 million b/d short of actual OPEC production.
A note of caution was sounded for member countries, and OPEC stressed that "the present quarter calls for continued caution and close monitoring."
March 1, 2010
Funds Add Long Positions on NYMEX; Bet on Higher Prices
The funds were very active on the NYMEX last week, adding long positions across the board in the energy complex, according to bank analysts.
The addition of more long positions on NYMEX could extend the rising price trend for crude, gasoline and heating oil.
"This means that the money managers are betting on higher prices this week and in the near term," a banker said.
He noted that crude and products prices were higher at the end of last week as more long positions were adopted two weeks ago.
For WTI crude, the increase in aggregate net length was 21,000 lots mainly through addition of new length, and short liquidation amounting to about only half the addition of length.
For RBOB, longs added 14,000 lots, while shorts liquidated 2,500.
In heating oil, the increase was the largest since the end of last year at 12,000 lots, which was achieved by an addition of 7,500 longs and liquidation of
4,500 lots.
Bankers noted that these additions to net length had been more due to the speculative flows rather than underlying fundamentals.
The latest move is similar to the fund increase that the market saw in October and December of last year.
At noon, NYMEX front-month crude was up 22cts to $79.88/bbl, and April heating oil was up 1.58cts to $2.0511/gal.
April RBOB was up 67pts to $2.1946/gal.
February 24, 2010
Saudi Aramco Eyes Start-Up of Third-Party Oil Trading Operations
Saudi Arabia's state-owned national oil company, Saudi Aramco, is expected to launch its new third-party physical oil trading operations soon, pending approval from the company's board of directors, industry sources in Asia told OPIS
on Wednesday.
Third-party trading is defined as trading barrels that you do not already own.
Currently, Saudi Aramco, one of the largest crude producers in the world, is engaged only in marketing and distribution of its crude and products. If the trading plan is approved, Saudi Aramco will begin third-party trading or directional trading for the first time ever.
The trading headquarters is expected to be located in Dhahran, Saudi Arabia. Saudi Aramco does have an office in Houston and in other key petroleum markets around the world.
In the U.S., it relies solely on Shell Trading to market all products from Motiva, which is a 50-50 refining joint-venture between Shell and Saudi Aramco.
Motiva operates and owns three refineries on the U.S. Gulf Coast, with a total refining capacity of about 740,000 b/d.
Saudi Aramco has another 1.5 million b/d refining capacity at its disposal in
Saudi Arabia.
The company's plan is to trade across the barrel as well as crude in all regional markets around the world, and the plan has already been submitted to the board. It is unclear how long it takes to approve the plan.
Neville Romme, a company spokesman, declined to comment on the plan
when contacted by OPIS via email, as he regarded that company
information proprietary.
Sources expect Saudi Arabia to begin its trading operation on a small scale due to its conservative business model.
"It means that there will be another player in the market, and that also means more liquidity," a trader said, adding that the entrance of a major oil company such as Saudi Aramco may not change the market dynamics significantly in the near term.
In the past year, major international oil companies such as India's Reliance, Brazil's Petrobras and China's PetroChina have been actively expanding their physical oil trading activities across the globe.
Despite physical trading being a high-risk and capital intensive investment, some companies do see it as a high-growth area that could contribute substantially to their overall profitability.
February 16, 2010
Sunoco Debt Downgraded to One Step Above Junk Status
Sunoco may need a quicker turnaround in currently depressed refining margins than most other processors. On Friday, Moody's Investors Service downgraded Sunoco's long-term debt rating to "Baa3" from "Baa2."
That still keeps Sunoco's debt in the investment grade category, but just barely. Another downgrade would put the refiner's debt into junk status.
Moody's said that the ratings outlook on Sunoco remains negative and added that the recent downgrade reflects "weak refined product demand and margin conditions in Sunoco's core refining and supply business."
Sunoco does have cash on the balance sheet, but poor margins could conceivably make the refiner dip into that cash to make up for deficits rather than reduce debt.
Sun chairman and CEO Lynn Elsenhans talked about using that $377 million in cash (as of end-2009) as a "buffer to ride through the refining down cycle."She also indicated that the company has targeted a cost structure where $4- $5/bbl would represent break-even margins.
Year-to-date margins compiled by OPIS suggest that the company's Toledo, Ohio, refinery may be hard pressed to get anywhere near that target. The Ohio plant is a victim, or beneficiary, of Chicago-style economics. So far in 2010, unleaded regular in that region has fetched a price just $4/bbl above sweet crude, and ULSD has commanded about $5.88/bbl above WTI. The Philadelphia refining complex has fared slightly better: OPIS data on a year-to-date basis shows northeastern spot regular gasoline averaging $7.24/bbl above sweet crude, with ULSD at a spread of $8.69/bbl.
