Welcome to The Oil Big Five for July 2014, where we list the big issues that are keeping our Platts oil experts busy around the globe. You can find our last posting here, which had the problem of not posting comments for a short time when it first went up. We really appreciate everyone who commented on the blog once it was fixed, though, as well as those who sent us feedback on Twitter. The latest round-up of reader comments can be found here, and be sure to comment again for the follow-up to this post.
Here are the biggest oil issues or trends that our editors and experts nominated to be a part of the post this month.
1. Iraq’s political unrest and its energy implications
This is almost a gimme, because it’s on everyone’s minds. This isn’t just one issue, though, because there are so many ways the political problems can and are spilling over into the oil industry. What we’re left with now are a lot of questions and a lot of things to keep an eye on. What impact will the ISIS insurgency have on the country’s oil production and exports, including from the Kurdistan region? What are the implications of possible refinery takeovers? And how will that impact other countries and their possible imports and exports? Which leads us to our second topic …
2. US oil exports
Our Singapore office saw Asian refiners go into a brief tizzy over a misconception that the US was dropping its decades-old crude export ban. Instead, the US Commerce Department clarified a rule about condensates and processing, concluding that reducing the volatility and stabilizing vapor pressure of the condensate would count as processing, as well as the more involved steps of turning it into refined products such as naphtha and gasoline. Once the dust settled and it became clear that nothing had really changed in terms of US rules and regulations, especially those on crude exports, hopeful Asian refiners and condensate splitter operators (with three new plants set to join the club soon) were vigorously nodding assent to suggestions of major new US condensate flows starting to make their way into the region. They’re excited about another opportunity to diversify feedstock, but have they got their hopes up too much too soon? How much will really change in terms of US exports?
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3. Negative refining margins in Singapore
A refinery running Dubai crude based in Singapore was losing 47 cents/barrel as of June 17, according to Platts data, and that marked the 10th day in a row of negative margins. Many Asian refiners were strongly considering cutting their processing runs as negative margins ate away at incentives to produce fuels, and South Korean and Singaporean refineries are considered the most vulnerable to falling margins since they are the most dependent on exporting fuels. Sources said refiners were cutting back on buying crude, and only purchasing grades that would yield better margins. What will July bring for Asian refiners? This also leads us into our next issue, which is …
4. Downward crude differentials
Poor refining margins prompted sudden downward moves in European, Russian and West African crude differentials. Abundant supply amid weak Asian and regional demand has seen numerous key grades in Africa, the Mediterranean, the North Sea and Russia hit multi-year lows. What do you think it will take to reverse the trend?
5. Enbridge’s Northern Gateway plan
The first development was the Canadian government granting approval to Enbridge’s proposed Northern Gateway pipeline from Hardisty, Alberta, to the deepwater Pacific coast of Kitimat, British Columbia. This project, if accomplished, would open a direct and relatively short route for about 525,000 b/d of Canadian oil sands to consumers in North Asia. The news prompted refiners in China, Japan and South Korea to start counting their freight savings from a voyage of just 10-14 days, compared with the longer hauls from the Middle East and Africa. But the hardest part of turning this dream into reality lies ahead, as Enbridge prepares to spend the next year or more meeting the 209 conditions set by the National Energy Board, working with the BC government to gain approval for the pipeline to traverse the province, and engaging with the several Aboriginal groups along the pipeline route. Presumably Enbridge will start on its task list quickly. How will things shake out as they attempt to move forward?