Oil prices rise sharply, time running out for oil-rich countries

Petroleum-rich countries, seeking to end the reliance of their economies on oil trade through investments in new domains as they prepare for the diminished role of fossil fuels in the new era, currently have a golden opportunity to boost output and make the most of elevated oil prices, especially if other producers remain disciplined in accordance with OPEC rules.

The UAE, a pertinent case, have invested heavily over the past decade in facilities boosting output, the objective being to maximize oil-export revenues for the financing of the country’s economic transition.

However, OPEC will first need to accept this increased production ability before the UAE can implement it. This is a tricky issue as if OPEC accepts the UAE plan, the cartel will then also face similar-minded requests by other members, which would hammer oil prices to low levels.

The UAE seem adamant on their national plan, considering it a matter of existential significance. Saudi Arabia and Russia face a difficult mission as the two countries will need to quell the UAE intention without instigating its withdrawal from OPEC.

In general, oil producers are now striving to sell as much oil as they can, for as long as they can, taking into account that the global decarbonization effort is gaining momentum.

Fuel price plunge pressuring refineries, opportunities seen

The plunge of international crude oil prices is impacting Greek refineries and local fuel trade, while, worse still, market forecasts are impossible to make, even for the short term.

Hellenic Petroleum (ELPE) and Motor Oil, Greece’s two refinery groups, are being tested by the fall of Brent prices to levels of around 30 dollars per barrel. Highlighting this challenge, unleaded 95 octane fuel prices have dropped to less than 1,000 euros per cubic meter (including surcharges before VAT) for the first time in many years.

This represents a drop of more than 100 euros compared to prices on March 9, dubbed “Black Monday” as it was the worst day in markets since the financial crisis, a result of the outbreak of the oil price and output level war between Russia and Saudi Arabia, along with the coronavirus spread’s impact on demand.

The drop in prices is seen continuing. Domestic fuel demand is falling as a result of the Greek government’s broadened enforcement of restrictive measures aiming to contain the coronavirus spread. Local transportation needs have subsequently dropped dramatically, while the only other viable option left for Greek refineries, exports, has been canceled out by plunging fuel demand internationally. Borders have closed and airlines are limiting flights.

The cost of fuel stocks, purchased at far higher prices, is a big concern for both ELPE and Motor Oil. This cost, however, can be partially offset by opportunities currently available for lower-cost production.

On a more positive note, both refineries reduced their loan servicing costs prior to the crisis. This is particularly so for ELPE as the petroleum group was pressured by high borrowing costs. Motor Oil has traditionally pursued a more conservative borrowing policy.

Both refineries will need to take extremely cautious steps amid these highly unpredictable market conditions, analysts agree.

Lower-cost oil, gas an obstacle for RES growth, electric cars

Lower-cost oil and gas, as well as solar module supply chain irregularities caused by the coronovarirus spread in China, the world’s dominant supplier of solar energy systems, have emerged as obstacles for RES sector growth and investments.

Numerous solar energy projects around the world are being delayed or postponed as a result of the solar module supply problems in China.

The recent plunge of oil and gas prices, prompted by the impact of the coronavirus spread on economies and a simultaneous oil-price war between Russia and Saudi Arabia, has suddenly made RES investments less competitive against conventional technologies in terms of electricity generation, energy efficiency or electrification of sectors such as transportation or shipping.

The duration of lower oil prices remains unknown.

Natural gas prices have fallen as a result of idle LNG shipments in China and forecasts for weaker demand worldwide.

Under the current conditions, market forces will turn against green energy technologies, which had just begun establishing themselves as competitive options against conventional technologies.

Questions are also being raised about the growth prospects of the electric vehicle market, still at an embryonic stage.

 

Lower-cost gas may save PPC an estimated €100m this year

The sharp drop in energy product prices, pressured by the coronavirus outbreak and an oil price war between Russia and Saudi Arabia, promises major and unexpected financial relief for power utility PPC.

The plunge of gas prices, alone, should benefit the Greek power utility by an estimated 100 million euros this year – assuming this drop is not ephemeral.

In the first half of 2019, PPC’s total purchasing cost for natural gas reached 222.5 million euros, a 57.1 percent increase.

In the liquid fuels category, PPC’s purchase expenses were also elevated, reaching 319.7 million euros, as a result of higher prices paid for mazut and diesel used by the utility at power stations on non-interconnected islands. To the delight of PPC, mazut and diesel prices are also tumbling.

Electricity tariff hikes made by PPC last September as well as a revised payback plan offering consumers greater incentive to service electricity-bill arrears through monthly installments are both producing favorable results.

A series of memorandums of cooperation, such as an agreement signed this week with Germany’s RWE, all promising dynamic penetration into Greece’s renewable energy market, offer further potential for PPC.

However, the power utility still faces an uphill struggle along its road to recovery. PPC’s financial results for 2019 will be announced in April.

 

Natural gas, LNG, CO2 right, wholesale power prices down

Besides lower oil prices in international markets over the past few days as a result of the coronavirus spread and price war between Saudi Arabia and Russia, energy commodities across the board are under great pressure, which has led to price reductions for natural gas, CO2 emission rights and electricity.

Lower oil and gas prices are offering relief for the economy and enterprises. However, there are two sides to this story, positive and negative. On the one hand, the price drops are creating opportunities for suppliers and consumers, while, on the other, natural gas futures indicate a decline until the end of the third quarter this year, meaning markets anticipate a downward trajectory in Chinese consumption and no sign of an economic rebound until at least September.

Prices at the Dutch trading platform TTF, a key index for LNG, slid to a three-month low on Monday, registering 8.627 dollars per MMBTU, before edging up to 8.993 dollars per MMBTU yesterday. This index has fallen 39.4 percent since the end of December’s three-month peak of 14.2 dollars per MMBTU.

Besides shaping LNG prices, according to new pricing formulas adopted at Gazprom, the TTF also greatly influences the rise of Russian pipeline gas.

CO2 emission right prices have fallen by 13.6 percent between December and early February, from 26.74 euros per ton to 23.11 euros per ton. A slight rise has been registered this week, to 23.25 euros per ton on Monday and 24.07 euros per ton on Tuesday. Lower prices on this front are favorable for lignite-fired power stations as well as energy-intensive industries.

Prices have also fallen in Greece’s wholesale electricity market. In the day-ahead market, the System Marginal Price (SMP) fell from 49.2 euros per MWh on Friday to 41.42 euros per MWh on Monday before edging up to 43.12 euros per MWh yesterday. A rise to 50.44 euros per MWh is expected today.

 

Bioethanol, Iran tension lift gasoline prices by four cents per liter

Motorists, in recent days, have faced the prospect of gasoline price hikes of as much as three to four cents per liter, compared to December 31 levels, escalating tension in the Middle East following the assassination of Iranian military commander Qasem Soleimani in a US drone attack ordered by President Donald Trump and the event’s impact on the international oil market being a key factor.

Another – less publicized and possibly more important – factor also leading to fuel price rises concerns an EU law requiring greater use of bioethanol, produced from a renewable source. Over the past year, a new EU law for cleaner energy has obligated refineries to include biofuels in their fuel mix.

As a result, the percentage of bioethanol included in conventional gasoline mixes has increased as of January 1, increasing gasoline production costs.

Subsequently, the price of gasoline at local refineries has risen from 1,173.59 euros per cubic meter on December 31 to 1,198.59 euros in prices registered January 1 and 2. This represents an overnight price increase of 25 euros per cubic meter or 2.5 cents per liter. The price rise will begin taking effect at petrol stations today, the end of the extended festive season in Greece.

The rising concerns in the Middle East combined with the cleaner auto fuel initiative will result in a retail price increase of approximately four cents per liter.

Worse still, a retaliatory attack by Iran on Saudi facilities, or an effort by Tehran to block the Strait of Hormuz, a corridor through which 20 percent of global oil is transported, would prompt far sharper price hikes. The latter scenario would lift oil prices to over 150 dollars a barrel, according to a report by research company Capital Economics.

 

 

Last winter’s OPEC production cutback falling short of objectives

It may be too soon to measure the impact on the international crude market of an OPEC decision reached last winter to cut back on output, but current indications suggest the move’s objectives are not been reached.

OPEC, backed by Russia, decided to lower output with the objective of diminishing increased international crude reserves and offering support to oil price levels. The OPEC initiative also had another strategic objective in mind, to maintain long-term control for the cartel, or, more specifically, Saudi Arabia, over the international market, now subject to changing forces.

Several months on, output has been restricted by 1.2 million bpd and oil reserves have been reduced at a slower-than-expected rate, as higher prices ended up prompting the US to reinforce its output.

Two days ago, the Brent index stood slightly above 50 dollars, the level it was at on November 29, 2016, a day before the OPEC agreement was signed. Yesterday, the Brent index fell to just under 50 dollars.

Latest data has shown a rise in the number of oil drilling projects being conducted in the US. This is not good news for Riyadh, especially given the support being provided by the USA’s newly elected Republican administration, already moving to dismantle environmental restrictions as a means of boosting American output.

OPEC members are scheduled to meet next month to decide on whether to extend the cartel’s current output cutback, a six-month agreement. Analysts confidently forecast a renewal of the deal as, otherwise, oil prices could collapse.

From a wider perspective, the overall market conditions of recent times have served Saudi Arabia’s interests well. Low oil prices of the past two years or so have restricted international oil industry investments in new production to historic lows.

Even so, Riyadh cannot draw any conclusions for a few more years. Saudi Arabia needs a further boost amid a changing environment in which the role and impact of OPEC in the international oil market has clearly changed. Long-term prospects suggest the cartel will need to try and salvage whatever it can from a glorious past.

 

 

Saudi Aramco chief sees future oil shortages, higher prices

Though lower international oil prices over the past two years have led to a drop in sector investments, conditions for higher prices in the next few years are gradually ripening, according to Amin Nasser, president and chief executive officer of Saudi Arabian oil company Saudi Aramco.

Highlighting the subdued activity of recent times, Nasser, in comments reported by Bloomberg, noted that investments in the oil sector plummeted by one trillion dollars between 2014 and the present.

New production capacity and investment needed in the future are lagging, Nasser told an event at Columbia University in New York.

“While the short-term market is pointing to a surplus of oil, the supply required in the coming years is falling behind,” he noted.

Nasser forecast that a production level of 20 million barrels per day will be needed to cover increasing oil demand and offset shortages prompted by depleted older reserves.

New investments being made are primarily small-scale, short-term moves and therefore will not cover future production needs, Nasser noted.

The Saudi Aramco head said his company forecasts a continual rise in demand during 2018 and 2019, contrary to the current year, for which the International Energy Agency (IEA) expects a slowdown.

Saudi Arabia output cut aiming to boost earnings, finance future investments

Saudi Arabia, as part of an agreement reached between OPEC members and Russia, has limited its oil production over the past few months, the move’s objective being to support crude prices, reduce international oil reserves and ultimately bolster oil producer revenues.

The national budgets of major oil producing countries, heavily reliant on oil revenues, have been negatively impacted as a result of low oil prices supressed by an oversupply in the market.

It is believed that Saudi Arabia and fellow OPEC members are striving to boost oil prices up to a level of as much as around 60 dollars. If this level is exceeded, US shale production promises to benefit at the cost of OPEC members, whose global oil market share would consequently contract.

Saudi Aramco, the state-owned Saudi Arabian national petroleum and natural gas company, is pushing for an international oil market share of 5 percent by 2018 and earnings of as much as 100 billion dollars.

The country plans to invest its additional earnings in the development of ambitious projects aiming to greatly reduce and eventually eliminate Saudi Arabia’s hydrocarbon dependence.

Saudi Aramco’s market value is currently estimated at close to 2 trillion dollars, equal to that of Google and twice the market value of Apple.