"The Saudis are preparing for Iran’s return," said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry, as they sharply cut the prices they charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program.

Saudis have slashed prices with the biggest discount to Europe sionce Feb 2009...



Which has sent crude prices lower...


 

As The Wall Street Journal reports,

Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.

Saudi Arabian Oil Co., or Saudi Aramco, the kingdom’s state-owned oil company, didn’t mention the conflict in its news release about the price cuts.

Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery.

Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.

http://www.zerohedge.com/news/2016-01-05/oil-tumbles-after-saudis-slash-prices-europe

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OPEC oil output fell in December, a Reuters survey found on Tuesday, led by lower supply from Iraq following a record-breaking month in November and smaller declines elsewhere in the producer group.

The Organization of the Petroleum Exporting Countries is still pumping close to record amounts as Saudi Arabia and other big producers focus on market share, weighing on any recovery in oil prices from near 11-year lows.

OPEC supply fell in December to 31.62 million barrels per day (bpd) from a revised 31.79 million in November, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants.

Oil prices have more than halved in 18 months and hit an 11-year low in the wake of OPEC's Dec. 4 decision to keep its year-old policy of no output restraint. The current crisis between Saudi Arabia and Iran - expected to pump more oil as sanctions are lifted - makes cooperation over supply even less likely, analysts say.

"There is certainly no chance of Saudi Arabia scaling back its oil supply to make space for Iranian oil," said Carsten Fritsch, analyst at Commerzbank, adding the tensions still justify a risk premium on prices because they could escalate.

"In other words, the existing oversupply may actually grow further in the short term."

OPEC has boosted production by almost 1.40 million bpd since its November 2014 refusal to cut supply and prop up prices. Output is not far below July's 31.88 million bpd, the highest since Reuters records began in 1997.

The biggest monthly decline in output came from Iraq, the world's fastest growing source of supply growth last year.

Exports from Iraq's main outlet, its southern terminals, have slipped from November's record level which had been boosted by delayed October cargoes, but are likely to reach new highs in the coming months, industry sources said.

Shipments from Iraq's north by the Kurdistan Regional Government via Ceyhan in Turkey have edged lower, while those by Iraq's State Oil Marketing Organisation have remained at zero for a third month, the survey found.

Top exporter Saudi Arabia has kept output steady to slightly lower, sources in the survey said, due to less demand from outside the country and largely steady domestic use.

"Directionally supply is down a little bit," said a source who tracks Saudi output. Saudi production reached a record high of 10.56 million bpd in June.

Nigerian output declined by 50,000 bpd due to disruptions to exports from the Brass River and Bonny production streams, sources in the survey said.

Output in Iran, eager to reclaim its spot as OPEC's second-largest producer when sanctions over its nuclear program are lifted, is edging up, the survey found. Kuwait and Qatar also posted small supply rises.

Indonesia, which rejoined OPEC on Dec. 4 bringing the membership to 13, will be included in the January survey.

http://www.reuters.com/article/us-opec-oil-idUSKBN0UJ1GF20160105

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China has more than doubled its first round oil product export quotas to 20.93 million mt from a year ago to 27 refineries in 2016, industry sources told Platts Tuesday.

It contrasted to the 9.75 million mt released for the same period last year.

In addition to the traditional quota winners, the state-owned oil majors, five new qualified refineries also get their first batch of a total 430,000 mt quota for oil products exports.

This volume comprised of 250,000 mt of gasoline and 180,000 mt of gasoil. A total of 330,000 mt of quotas were given to four independent teapot refineries -- Lijin Petrochemical, Yatong Petrochemical, Sinochem Hongrun and Dongming Petrochemical -- in eastern Shandong province.

The remaining 100,000 mt of the quota for the new players goes to Huajin refinery in northeastern Liaoning province which is a subsidiary of state-owned Norinco.

These refineries all had been given both import quotas and import licenses last year.

In mid-November, they were allowed by China's Ministry of Commerce to apply for quotas to export oil products from 2016.

Dongming Petrochemical, which exported its first 10,000 mt cargo of gasoline from Rizhao port of Shandong, this time was allotted a total quota of 120,000 mt, including 90,000 mt for gasoline and 30,000 mt for gasoil.

The quotas, issued late last week, also cover 11 refineries with Sinopec, nine with China National Petroleum Corp., China National Offshore Oil Corp's Huizhou refinery, and Sinochem's Quanzhou refinery.

State-owned oil companies, as well as independent refineries which joined the fleet recently, normally seek export quotas for some oil products from the government based on their requirements and can also request to have unused volumes from the quota of a particular oil product switched to another one.

Quotas are given out roughly every quarter and unused volumes can be rolled over to the following quarter.

The latest quotas were approved by the Ministry of Commerce and General Administration of Customs late last week, according to sources.

Last year, China issued a total of 29.8 million mt of oil products quotas in five rounds, up 52.8% from 2014.

http://www.platts.com/latest-news/oil/singapore/china-issues-2093-mil-mt-product-export-quota-27111570

For Qatar, the world’s largest exporter of liquefied natural gas, preparing for a looming glut of the fuel isn’t about being the biggest seller. It’s about being the most efficient.

Global LNG output is expected to rise by a third to about 330 million metric tons annually by 2018, according to Sanford C. Bernstein & Co. Most of the new fuel will come from the U.S. and Australia, which is poised to topple Qatar as the biggest supplier. Unlike Saudi Arabia, the largest oil shipper, Qatar won’t be fighting for market share at the expense of earnings.

Instead, the sheikhdom will continue as one of the most profitable LNG sellers by taking advantage of the industry’s lowest production costs and a control over supply routes that lets it redirect LNG quickly between continents to exploit opportunities, said Ibrahim Ibrahim, vice chairman of Ras Laffan Liquefied Natural Gas Co., known as RasGas.

“A lot of people have gas, but we have an integrated project,” he said in an interview in Doha. “We are not trying to maintain a leadership role.”

The Persian Gulf nation faces a challenge similar to the one Saudi Arabia has grappled with in oil markets, as competitors take market share and drive down prices, according to a Nov. 13 report by the Arab Gulf States Institute in Washington, a research center. Prices for LNG delivered to Asia have plunged more than 60 percent from a record in 2014.

Buyers such as Tokyo Electric Power Co., South Korea’s Chubu Electric Power Co. and Petronet LNG Ltd., India’s biggest gas importer, are haggling for better terms.

“Most of the long-term prices will expire around 2020,” Chung Yangho, South Korea’s deputy minister of energy and resources policy, said on Nov. 9 in Doha. “If the oversupply continues, we hope to see there will be less rigid market conditions.”

http://www.bloomberg.com/news/articles/2016-01-06/biggest-no-longer-means-best-in-qatar-s-strategy-for-lng-wealth

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Islamic State militants attacked checkpoints near the Libyan oil port of Es Sider for a second day on Tuesday and an oil storage tank in the port was set on fire by a long-range rocket, a spokesman for the security guards said.

Ali Hassi said militants had attacked checkpoints 30-40 km (19-25 miles) from the port, and that two guards were killed and 16 wounded in the fighting. Seven guards were killed and 25 were wounded in Monday's clashes, he said.

The National Oil Corporation (NOC) said the oil tank fire started just as firefighters were close to bringing under control another blaze at an oil tank that was hit during fighting in the nearby port of Ras Lanuf on Monday.

Both fires were still burning on Tuesday afternoon.

Es Sider and Ras Lanuf, Libya's biggest oil ports, have been closed since December 2014. They are located between the city of Sirte, which is controlled by Islamic State, and the eastern city of Benghazi.

Libya descended into chaos after the fall of Muammar Gaddafi in 2011 and rival governments and militias have been competing for the country's oil wealth ever since.

The U.N. is trying to win support for a deal to form a national unity government, but many members of Libya's rival parliaments have not signed up.

The country's crude oil production has dropped to less than a quarter of a 2011 high of 1.6 million barrels per day.

Islamic State militants have taken advantage of a security vacuum to tighten their grip on Sirte, and have been threatening to advance east along the coast. They have not managed to take control of any oil installations yet, as they have in Syria.

On Monday, Islamic State suicide car bombers struck near Es Sider and there were clashes between its fighters and security guards. The tank that was hit in Ras Lanuf, 20 km (13 miles) from Es Sider, was holding about 400,000 barrels of oil.

http://www.reuters.com/article/us-libya-security-idUSKBN0UJ0WE20160105

Sinopec Corp said it struck high-yielding oil and gas in a test well offshore Beibu Bay near China's southwestern coast, marking a rare offshore oil and gas find by the state firm that is largely focused onshore.

The Wei-4 well, some 110 kms (68 miles) southwest of the coastal city of Beihai, tested a daily output of 1,264 tonnes of crude oil and 71,800 cubic metres of natural gas at a first layer, after identifying oil-bearing layers nearly a hundred metres thick.

On the second layer, Sinopec struck 1,184 tonnes of daily oil flow and 76,000 cubic metres of natural gas, the company said in a statement on Wednesday.

The well, drilled in the shallow part of the sea, is 3,783 metres deep. It took 29 days to drill.

"It's a high-flowing offshore test well rarely seen over the last decade," said Sinopec.

China's offshore oil and gas activities have long been dominated by Sinopec's smaller domestic peer CNOOC Ltd .

Before Beibu Bay, Sinopec's limited offshore works were mostly conducted in East China Sea where the firm discovered several natural gas fields.

http://www.reuters.com/article/sinopec-corp-offshore-oil-idUSL3N14Q2F320160106

As crude prices languish below $40 a barrel, American drillers are retreating from domestic oil fields even faster than in the tumultuous 1980s oil bust.

U.S. oil companies are set to curb investments by 24 percent this year to $89.6 billion, meaning that from the beginning of last year to the end of this year, domestic drillers will have cut their annual capital budgets by 51 percent. That’s more than the industry’s 46 percent cut in the mid-1980s, according to Cowen & Co., which began its oil-company spending survey in 1982.

But the oil field exodus eventually will pay off. U.S. crude production surged in recent years but it began to decline last year. Crude traders are watching domestic output data to figure out when the global oil glut might start to shrink. For the oil market, the faster, the better.

“These conditions will ultimately cleanse the oil patch and set the stage for a sustained upcycle,” said James West, an oil field services analyst at Evercore ISI, who has also released an oil company spending survey.

Through the first half of the year, though, it will be rough in the U.S. oil patch. Deep budget cuts are expected to prompt another exodus of drilling rigs from Texas and North Dakota, with the average U.S. land rig count dropping by about 300 this year, Cowen says. Each rig is tied to dozens of oil field jobs, and the Federal Reserve estimates the nation has lost 70,000 U.S. oil and gas jobs already.

Related: Far East trumps Mideast in oil-market influence as prices slide

To make matters worse for Houston’s oil equipment makers, Cowen’s estimate for the 2016 spending reduction may be too conservative because the survey went out in November, when oil was $48 a barrel. U.S. crude has tumbled to about $36 a barrel, and if prices stay that low for much longer, drillers will likely have to shed more capital dollars than they anticipated.

Evercore ISI’s survey indicated a 19 percent drop in spending this year, but with oil prices much lower than they were just two months ago, official budgets may come in 40 percent to 50 percent below initial projections, West said.

The domestic oil industry wasn’t designed to function with $36 oil. Even though some rigs can drill 20 percent more wells and some wells can produce 40 percent more oil, U.S. oil producers’ overall cash flow is expected to come in 35 percent lower this year, the worst haul since 2002, according to Raymond James.

Hidden behind the stark budget cuts is a marked change in the strategy that U.S. oil companies have employed since technological breakthroughs opened up commercial production in dense formations. A record proportion of drillers — 80 percent — are planning to spend within their cash flow this year, according to Evercore ISI.

“This is a record and dwarf’s last year’s 55 percent,” West said.

http://fuelfix.com/blog/2016/01/05/sapped-u-s-shale-budgets-to-come-in-lower-than-1980s-bust/#36696101=0

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Everyone knows that at $35/barrel oil, virtually every US shale company is cash flow negative and is therefore burning through cash and other forms of liquidity such as bank revolvers and term loans, just as everyone knows that should oil remain at these prices, the US shale sector is facing an avalanche of defaults.

What is less known is who will be the next round of companies to default.

One good place to get an answer is to find which companies' bankers are quietly tightening the liquidity noose (because they don't want to be stuck holding worthless assets in bankruptcy or for whatever other reason), by quietly reducing the borrowing base on existing credit facilities.

It is these companies which find themselves inside this toxic feedback loop of declining liquidity, which forces them to utilize assets even faster, thus even further shrinking the borrowing base against which their banks have lent them money, that will be at the forefront of the epic bankruptcy wave that is waiting to be unleashed across the US, leading to tens of billions of defaults junk bonds over the next 12-18 months.

So, without further ado here are 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners.

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Pioneer Natural Resources Company announced that it has priced a public offering of its common stock at $117.00 per share. The size of the offering has been upsized from 10.5 million shares to 12 million shares. Pioneer will receive total gross proceeds (before underwriters’ discounts and commissions and estimated expenses) of approximately $1.4 billion. BofA Merrill Lynch, Citigroup, Credit Suisse and J.P. Morgan are acting as joint book-running managers on the offering. The Company has also granted the underwriters an option for 30 days to purchase up to an additional 1.8 million shares of the Company’s common stock. The offering is expected to close on or about January 11, 2016.

The Company expects to use the net proceeds from this offering for general corporate purposes, including continuing to actively develop its acreage position in the Spraberry/Wolfcamp play in West Texas while maintaining a strong balance sheet during the current period of low commodity prices.

http://www.businesswire.com/news/home/20160105006904/en/Pioneer-Natural-Resources-Company-Announces-Upsizing-Pricing

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Eclipse Resources issued their fourth quarter 2015 operational update yesterday, along with publishing an updated investor’s PowerPoint. Eclipse is a smaller but important Marcellus/Utica driller with its headquarters in State College, PA–although they do almost all of their drilling in Ohio’s Utica Shale.

In November word leaked out that Eclipse is shopping the company. There was no overt or implied reference to that in yesterday’s update.

What the update did say, however, is that save a single well they plan to drill in the first quarter of this year, Eclipse is not planning to do any more drilling until the price of natgas increases. They also said that although previously drilled wells going online have the potential to boost Eclipse’s production in 2016, they plan to reign in the flow rates to keep them at 2015 levels–again, until the price of natgas goes up.

Nobody is predicting an increase in natgas prices any time soon (at least not in 2016), but it appears Eclipse is buckling in for a long ride through low-price valley.

http://marcellusdrilling.com/2016/01/eclipse-resources-drilling-1-well-in-2016-restricting-production/?utm_source=dlvr.it&utm_medium=twitter