Saudi offer to cut if Iran Freezes, page-2

Hi Cosmo, the good news for our SP looks like it will need to come from FAR and not OPEC (no surprise there).

Crude Crashes As Saudis Kill OPEC Meeting Before It Even Started
By Matt Smith - Sep 23, 2016, 12:00 PM CDT
Crude prices are selling off, aided by Saudi comments that a decision will not be forthcoming from next week's OPEC meeting in Algiers. Add to this news that the Federal Reserve is looking to restrict bank involvement in physical commodities...and dollar strength as the cherry on top...and oil is heading lower into the weekend. Hark, here are five things to consider in oil markets today:

1) As OPEC / key producer shenanigans remain front and center, we are potentially seeing a new trend emerging: the current kings of overproduction (Saudi, Iran and Iraq) versus the pretenders to the throne (Libya, Nigeria and Russia).

In a twist not too dissimilar to what happened ahead of the Doha meeting earlier in the year, Saudi has said it is willing to make concessions in terms of its oil production, if Iran is willing to participate too (while knowing all too well that Iran is unlikely to agree). Saudi has actually gone a step further this time, saying it is willing to cut production (as opposed to a freeze) if Iran is willing to hold its production at 3.6mn bpd. It appears Iran has reacted how Saudi had hoped, by politely declining.

It's always fun to revisit the chart below; it is incredible how much export loadings are up year-on-year for Saudi, Iraq and Iran:



(Click to enlarge)

All the while, loadings in recent days at Ras Lanuf is buoying optimism of returning Libyan exports (let's not get too ahead of ourselves here, folks) while an absence of any militant activity in Nigeria could mean an additional 300,000 bpd this month from West Africa's largest oil exporter. Finally, Russia is reaching for the stars with its production rates.

As the chart below illustrates, the potential increase in supply from these three pretenders this month adds up to a gargantuan 800,000 bpd...if they can maintain output at current levels:



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2) Due to a change in methodology this week by EIA, total exports of crude and refined products rose 36 percent to a record 5.74 million barrels per day. EIA reported that propane alone rose 651,000 bpd to 1.075mn bpd.

We here at ClipperData are tracking all LPG cargoes leaving the U.S. Our ClipperData show that even including butane, isobutane, and ethane to propane, total U.S. exports last week were still below that of EIA's estimate, coming in below 1mn bpd. This is despite LPG exports out of the U.S. Gulf being up 43 percent on the prior week. In addition, LPG loadings on the East Coast reached a record, with loadings at Sunoco's Marcus Hook terminal including a VLGC of propane, as well as two ethane cargoes - all heading to Europe.

3) Yesterday we discussed how Saudi Arabia's oil demand has been contracting for much of this year, now down to a six-year low, while IEA expects it to come in lower over the entire year. This drop in demand is being driven by spending cuts and belt-tightening - from both the government and its people.

The economy only grew by 1.5 percent YoY in Q1, while contraction could be on the cards for Q2. The removal of subsidies by the government on such items as water and electricity is taking a bite out of consumer spending, while rising inflation is also exacerbating the situation; it has more thandoubled from last year to 4 percent.

Currently two thirds of Saudi workers are employed by government-related entities. The government is further looking to cut costs, cutting one-fifth of its civil service, while targeting a reduction in public wages to 40 percent of its budget; currently it is 45 percent.



4) The rocky road to recovery in the oil industry is starkly illustrated in the following two examples. While oil major Total just announced that it is increasing its cost cutting by $1 billionby 2018, and by a further $2 billion by 2020, the biggest player in the Permian Basin, Pioneer Natural Resources, expects 100 rigs to be added in the most prolific U.S. shale play over the next year.

Permian rigs have already rebounded strongly from their lows earlier in the year, bouncing 50 percent from their lows, and significantly outpacing the rebound seen from total U.S. oil rigs.



(Click to enlarge)

5) Finally, poor old steelmakers in Blighty are blighted by the high cost of electricity. While China continues to ramp up its steel exports, British steelmakers are unable to be competitive on a global stage given the high input costs involved.



(Click to enlarge)

By Matt Smith

And this as an explanation as to why the Saudis want Iran to freeze & why Iran says no...

The Start Of Something Big? Iran Changes Oil Contracts
By Dave Forest - Sep 23, 2016, 10:08 AM CDT
It’s been an eventful week in oil. With reports from top producer Saudi Arabia showing record August production of 7.622 million barrels per day — weighing on market sentiment. And on the flip side, oil workers in Norway launching a strike involving a full 300 members that could halt production.

But the news was decidedly positive from one critical corner of the oil and gas world.

Iran.

Crude sellers in this emerging producer got a lift from India. When that nation announced it will likely buy 6 million barrels of Iranian crude in order to fill a strategic petroleum reserve.

But the biggest news came from Iran’s parliament. Which said it has finally agreed on a long-awaited new model for foreign petroleum contracts in the country.

The oil and gas world has been eagerly awaiting this new contract model — which Iran’s lawmakers have been promising will offer more attractive terms for international developers in country.

But some last-minute rapids appeared in unveiling the contracts. With reports last month suggesting that parliamentary hardliners were opposing key measures of the contract reform such as ownership of in-ground reserves for foreign operators.

Those issues have apparently been resolved. But not without some discussion, with observers saying that several changes were made that “took into account the concerns of the critics and sympathizers of the establishment”.

That suggests some of the attractive aspects of the new contracts may have been dampened or removed completely. But the upside is that offering of oil and gas opportunities in the country can now proceed — with officials saying that $10 billion worth of contracts have now been readied for signing by March 20, 2017.

Managers with the National Iranian Oil Company said that the process will begin with the tender of three oil and gas fields — although they didn’t mention specific names aside from the South Azadegan field that’s been discussed previously. The tender for those fields is reportedly scheduled for October 14 to 21.

That gives us less than a month until the world will get its first look at the “new” Iran oil patch. Watch for details on who will be bidding, and what the final terms will be for the new contracts.

Here’s to the start of something big.

By Dave Forest