OPEC will stick to its policy of unfettered oil production after members failed to agree on a new output ceiling. Crude extended its decline in London.

The meeting didn’t produce a supply accord but did reach consensus on appointing Nigeria’s candidate as new secretary-general, Sudirman Said, Indonesia’s energy minister, said in Vienna. The Organization of Petroleum Exporting Countries’ de facto leader, Saudi Arabia, had previously discussed restoring a production target scrapped in December, according to delegates familiar with the matter.

Oil has rallied about 80 percent from the 12-year low reached in January as depressed prices take their toll on supplies. That suggests the Saudi-led decision in 2014 to maintain output amid a global glut is finally paying off, with higher-cost producers cutting back. While Saudi Arabia had shown willingness to mend divisions Thursday with cash-strapped members demanding a new group ceiling, Iran said it would only support individual country quotas that would be difficult to agree in a single meeting.

Iran has rejected any cap on production as it restores output following the removal of sanctions in January. The country’s refusal to participate in a production freeze proposed earlier this year prompted Saudi Arabia to block a deal between OPEC and Russia in April.

Although OPEC regularly ignores its own output targets and there was no suggestion anyone would cut production, even a token gesture could have showed renewed unity and boosted prices. 

Nigeria’s Mohammed Barkindo will assume the role of secretary-general, succeeding Abdalla El-Badri, who has been in the job for nine years. Barkindo was acting head of OPEC in 2006 and previously ran Nigerian National Petroleum Corp.

His appointment demonstrates that OPEC has at least overcome squabbles that scuppered consensus on the top job at previous summits. El-Badri, a 76-year-old Libyan, was originally due to step down in 2012 after serving the maximum two terms, but members weren’t able to agree on a replacement and his tenure was extended at successive meetings.

Barkindo, whose rival nominees for the job included Indonesia’s Mahendra Siregar, spent more than 23 years at NNPC, where he served in various capacities including deputy managing director of Nigeria LNG and head of the international trading unit. He also served for 15 years as Nigeria’s national representative to OPEC.

http://www.bloomberg.com/news/articles/2016-06-02/opec-said-to-keep-status-quo-after-failing-to-agree-output-limit

The sharp upsurge in Saudi Arabia's crude exports to Japan to 10-year highs in April clearly signals one thing -- that the Middle East supplier is intensifying efforts to grab any incremental demand opportunity that comes from its key customers.

And it seems to be in no mood to deviate from its aggressive policy of doing all it can to boost market share, industry sources and analysts said, adding that its strategy was unlikely to change over the course of the year.

"The Saudi response [for incremental supplies] has improved in recent months," a Japanese refiner source said. "We feel that they are actively responding to requests for incremental supplies in a prompt manner."

Japan's crude imports from Saudi Arabia averaged 1.42 million b/d in April, the highest for the month since it imported 1.5 million b/d in April 2006, according to preliminary data released Tuesday by the Ministry of Economy, Trade and Industry.

Saudi Arabia's crude supplies to Japan in April surged 37.2% from 1.037 million b/d a year earlier, according to S&P Global Platts calculations based on METI data.

It includes 50% of imports from the Partitioned Neutral Zone, which lies between Saudi Arabia and Kuwait. METI lists it as a separate supply source.

Saudi Arabia's market share rose to 41% of Japan's total crude imports of 3.47 million b/d in April, from 31% a year ago.

Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corporation said that Saudi Arabia's increased crude sales to Japan in April was not a coincidence at this level and was based on its market share strategy.

"Based on its market share strategy, the Saudis are trying to increase their share by selling larger volumes to secure their income," Nogami said. "They are expected to maintain this policy this year."

Saudi Arabia's oil policy is being closely watched as the kingdom recently appointed Khalid al-Falih as energy minister to replace the long-serving Ali al-Naimi.

Samer AlAshgar, president of Saudi Arabia's independent King Abdullah Petroleum Studies and Research Center said at an energy seminar in Tokyo on May 13 that he did not expect the kingdom to change its market share policy any time soon.

"I do not see any change from the current strategy that they have now," AlAshgar told the energy seminar hosted by the Institute of Energy Economics, Japan. "The policy has been working and is now being effective."

Despite this year being a leap year, Saudi Arabia's crude supplies to Japan showed a hefty increase during the first four months, when overall Japanese imports slid 2% year on year to an average 3.47 million b/d, according to Platts calculations based on METI data.

Saudi Arabia's crude supplies to Japan averaged 1.27 million b/d in January-April, accounting for 36% of the total imports in the four-month period.

Compared with the same period last year, that was 7.6% higher from the 1.18 million b/d levels and accounted for 33% of the 3.54 million b/d total imports.

Saudi Arabia's crude supplies to Japan spiked in April at a time when Japanese refiners had to make up for an expected shortfall in their procurements from Iran and the UAE, coupled with competitive Saudi official selling prices for March loading programs, industry sources said. Japan's crude imports from Iran dropped 71.9% year on year to 19,161 b/d in April.

http://www.platts.com/latest-news/oil/tokyo/analysis-saudi-arabia-reinforces-strategy-with-27599422

When it comes to the North Sea, there is no such thing as an easy sale, even for oil giants Royal Dutch Shell and BP.

More than any other region in the world, the North Sea has suffered greatly over the past two years as a 60 percent drop in oil prices, high operating costs, dwindling reserves and a tough tax regime has hit operators hard.

As a result, producers ranging from Shell and France's Total to smaller regional players such as Enquest and Tullow Oil have put dozens of assets in the region on the block to boost their balance sheets.

But deals have been few and far apart. Buyers and sellers have found it hard to agree on the value of assets and how to share the costs of dismantling and cleaning up of obsolete fields, known as decommissioning.

With around 30 percent of fields operating at a loss in 2016 and others seeing razor thin margins, "almost all UK North Sea assets are up for sale," said Fiona Legate, senior UK upstream oil and gas analyst at consultancy WoodMackenzie.

"There is however a limited pool of buyers," she added.

BP has struggled to sell a stake in its Forties pipeline system, one of the region's oldest and the main source for the eponymous crude used to price the global Brent crude benchmark.

Talks with Swiss-based chemical giant Ineos recently collapsed after the sides could not agree on how to price the asset, sources close to the negotiations said.

The Forties pipeline has a capacity to deliver over 1 million barrels per day and serves over 50 offshore oil and gas fields in the central North Sea, according to BP's website.

But declining output has meant the pipeline operated at less than 40 percent of its capacity last year, WoodMackenzie says.

Ineos wanted BP and other producers using the pipeline to commit to a fixed capacity fee that would guarantee revenue even if output continued to decline, industry sources close to the talks told Reuters.

BP however sought to pay on a per-barrel basis, they said. "Buyers want something to protect them against a drop in throughput," one source said. The pipeline system remains on the market.

Shell is starting an ambitious three-year $30 billion global asset sale programme to pay for its $54 billion acquisition of smaller British rival BG Group in February.

In the North Sea, the company is planning to bundle several assets in packages that will include mature fields along with more attractive assets such as the Buzzard field and pipelines, banking sources said.

The Anglo-Dutch company held talks in recent months with Neptune, a North Sea-focused investment company headed by former Centrica boss Sam Laidlow and backed by private equity funds Caryle Group and CVC Partners.

Shell Chief Financial Officer Simon Henry remains confident it can meet its target within around three years. Shell will focus at first on selling infrastructure, refining and retail businesses that are less exposed to oil price fluctuations over production, or upstream assets, he said.

"If the oil price stays at $48 a barrel maybe (the sale programme) will take us a little bit longer. We are not chasing sales of upstream assets at $48."

Operating in the North Sea remains challenging even after Shell cut costs sharply in recent years, Henry said, adding that within the region, some areas are more profitable than others.

"We've taken our costs down hugely and improved our reliability and availability. So the performance today is much better than it was two years ago but it is still not good," Henry told reporters on May 24.

"In general it is high cost region in which you have to keep spending to stay in business and have significant decommissioning and restoration costs."

An extended period of low oil prices also leads to an earlier decommissioning of fields, he said.

WoodMackenzie estimates 142 fields will cease production over the next five years. Total UK North Sea decommissioning are expected to reach 55 billion pounds.

http://www.reuters.com/article/oil-ma-northsea-idUSL8N18S4NY

Israel's government on Thursday approved the development of the controversial Leviathan natural gas field that will give Israel a second source of gas supply while potentially turning it into a gas exporter.

Leviathan, one of the largest offshore discoveries of the past decade, was found off Israel's Mediterranean coast in 2010. It has an estimated 622 cubic meters of natural gas (BCM) of reserves and is expected to become operational in 2019.

Texas-based Noble Energy, which holds a 40 percent stake in Leviathan, said the field would initially start production at 1.2 billion cubic feet a day and expand to 2.1 bcf.

"Leviathan is expected to provide a second source of supply and entry point into Israel's domestic natural gas transport system, while also delivering exports to regional countries," Noble said in a statement.

The site, however, will cost at least $5 billion to develop and it was not yet clear how the project will be financed.

"Strong momentum on the regulatory and marketing fronts represents major steps in advancing the Leviathan project towards final investment decision," said J. Keith Elliot, Noble's senior vice president for the Eastern Mediterranean.

Earlier this week, Leviathan signed a deal to supply up to 473 bcf to a new private power plant, IPM Be'er Tuvia, for 18 years. Noble estimated gross revenue from the deal at $2.5 billion.

In January Leviathan signed a $1.3 billion gas supply contract with Edeltech, Israel's largest private power producer.

Last week Israel's government approved a revised deal aimed at fast-tracking development of Leviathan, which has been mostly earmarked for exports.

The Leviathan project hit a major obstacle in March when Israel's Supreme Court blocked a previous agreement between the field's shareholders and the Israeli state, the terms of which would have stayed unchanged for 10 years.

It had been opposed by opposition parties and public advocacy groups on grounds that Noble and its partner Delek Group - which also own the adjacent Tamar field - would control too much of Israel's natural gas supply.

Tamar began production in 2013 and provides Israel with its current natural gas needs.

http://www.reuters.com/article/israel-natgas-leviathan-idUSL8N18U3Y9

Exxon Mobil Corp. may invest more than $10 billion in Argentina’s Vaca Muerta shale formation in the next decades, Chairman and Chief Executive Officer Rex Tillerson said Thursday.

The oil giant has so far invested $200 million in the world’s second largest shale gas deposit, Tillerson said after meeting with Argentine President Mauricio Macri in Buenos Aires. Exxon has received approval to invest $250 million more for a pilot project in the coming months.

If the pilot project is successful, the company will start full development during a period of 20 to 30 years that could involve additional investment “that would be well in excess of $10 billion,” he said.

For Tillerson, Argentina’s vast Vaca Muerta shale region represents an opportunity to reverse production losses and add reserves after a $35 billion wrong-way bet on U.S. natural gas and a Russian exploration venture that was derailed by international sanctions. Exxon, the world’s largest oil explorer by market value, has designated Vaca Muerta as one of nine “key activity” areas in the Western Hemisphere and one of just four in South America, according to company data.

Macri has been courting international corporations from Total SA to Dow Chemical Co. to Coca-Cola Co. to invest in Argentina since taking office in December. Exxon, whose annual sales dwarf the economic output of all but about 45 of the world’s nations, is building a plant to strip impurities out of natural gas as well as a pipeline network to handle the output from its Vaca Muerta wells.

“I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Tillerson said, according to a statement from the Argentine government.

Exxon’s worldwide oil and gas output is lower than it was when Tillerson began his tenure as CEO a decade ago.

Last year, the company that traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust failed to replace all the crude and gas it pumped with new discoveries for the first time in 22 years. In April, S&P Global Ratings stripped Exxon of the gold-plated credit rating it had held since the Great Depression.

Tillerson will reach Exxon’s mandatory retirement age of 65 in March. In a May 25 meeting with reporters after the company’s annual meeting in Dallas, he declined to say whether he would seek an extension of his tenure from the board.

Vaca Muerta, Spanish for Dead Cow, is one of the world’s top shale plays, covering an area the size of Belgium and considered key to restoring energy self-sufficiency in Argentina.

http://www.bloomberg.com/news/articles/2016-06-03/exxon-ceo-says-argentina-shale-investment-may-exceed-10-billion

BP Plc said it agreed to pay $175 million to settle claims by U.S. investors that its managers lied about the size of the 2010 Gulf of Mexico oil spill to prop up its stock price,
removing the company’s last major overhang from the disaster.

The investors, who blamed BP for massive losses when the true scope of the spill was revealed, had sought as much as $2.5 billion. The settlement averts a trial that was set for July in Houston federal court.

The settlement announcement Thursday came shortly after a ruling by U.S. District Judge Keith Ellison to narrow the evidence that could have been presented to a jury. The decision, which would have benefited BP at trial, limited the management statements that investors could claim affected the stock price.

BP shares plunged by more than 40 percent in the weeks after the April 2010 disaster, as it became clear the company couldn’t immediately contain the spill. More than 4 million barrels of oil escaped into the Gulf of Mexico during the 87 days London-based BP took to control the well.

The investors’ lawsuit, led by the public employee pension funds of New York and Ohio, revolved around statements made shortly after the Deepwater Horizon drilling rig blew up in April 2010. Those statements also were central to BP’s agreement in 2012 to pay $525 million to resolve claims by the Securities and Exchange Commission that the London-based company underestimated the size of the spill to bolster stock prices. BP also pleaded guilty to a felony count of obstruction of Congress related to spill estimates.

“Investors saw their stock prices plummet after the Deepwater Horizon explosion,” said Jennifer Freeman, a spokeswoman for the New York Comptroller’s Office. “This settlement helps compensate investors for their losses."

http://www.bloomberg.com/news/articles/2016-06-02/bp-to-pay-175-million-to-settle-claims-it-hid-spill-costs

                                               Last Week     Week before   Last Year

Domestic Production '000......... 8,735               8,767           9,586

http://ir.eia.gov/wpsr/overview.pdf

U.S. crude oil refinery inputs averaged 16.2 million barrels per day during the week ending May 27, 2016, 73,000 barrels per day less than the previous week’s average. Refineries operated at 89.8% of their operable capacity last week. Gasoline production increased last week, averaging over 9.9 million barrels per day. Distillate fuel production increased last week, averaging about 4.8 million barrels per day.

U.S. crude oil imports averaged over 7.8 million barrels per day last week, up by 524,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.6 million barrels per day, 8.3% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 921,000 barrels per day. Distillate fuel imports averaged 69,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.4 million barrels from the previous week. At 535.7 million barrels, U.S. crude oil inventories are at historically high levels for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, but are well above the upper limit of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.3 million barrels last week but are well above the upper limit of the average range for this time of year. Propane/propylene inventories rose 1.3 million barrels last week and are near the upper limit of the average range. Total commercial petroleum inventories decreased by 2.7 million barrels last week.

Total products supplied over the last four-week period averaged 20.4 million barrels per day, up by 2.2% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged about 9.7 million barrels per day, up by 4.0% from the same period last year. Distillate fuel product supplied averaged about 4.1 million barrels per day over the last four weeks, up by 0.6% from the same period last year. Jet fuel product supplied is up 1.6% compared to the same four-week period last year.

Cushing drops 700,000 bbls

http://ir.eia.gov/wpsr/wpsrsummary.pdf

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U.S. diesel futures have soared about 40 percent in the last two months, prompting independent refiners to pounce, selling future output on the view that resurgent domestic demand and higher exports may turn out to provide only a brief boost.

The surprise rally in U.S. diesel futures has put prices on track for their biggest quarterly percentage gain in seven years. Money managers and hedge funds have invested heavily in the fuel as stronger-than-expected demand has helped draw down record inventories.

Diesel typically enjoys strong seasonal demand in these months from farmers fueling tractors and equipment during the spring planting season. But prices this year have gotten an extra boost from robust exports to Europe and Latin America.

Strikes in France have slashed European supplies for almost two weeks, boosting demand for U.S. diesel. But the announcement that one French refinery would restart hit U.S. diesel margins on Thursday. The distillate crack spread had jumped 7 percent, then gave up most of the day's gains.

Refiners such as Valero Energy Corp and Phillips 66 typically look for big price rallies to sell future output. These refiners were presented with a rare opportunity to lock in profits when diesel prices and margins popped in April and May.

Producer short positions in NY Harbor Ultra Low Sulfur Diesel (ULSD) have soared to levels not seen since November 2010, data from the Commodity Futures Trading Commission show.

Refining margins, represented by the U.S. diesel crack spread, have jumped by about 70 percent since early April and are on track for their biggest quarterly percentage gain since 2013. Margins widened to $14.94 on Thursday, their highest since mid-February, but then gave back most of the day's gains on the French refinery announcement.

Locking in $13 to $14 per barrel of profit through the rest of 2016 was better than the single-digit margins earlier this year, a trader at a U.S. East Coast refiner said. But they remain a far cry from the record hit in 2012, which exceeded $45 a barrel.

"Refiners are systematic, because they need to lock in margin," said John Saucer, vice president of research and analysis at Mobius Risk Group. "Anytime there's an uptick in a crack or a margin they're going to capitalize on it."

The rally could fade if hedging gathers pace and speculative buying wanes.

In a further sign of selling into next year, the average for the 12 futures contracts expiring in 2017, called the calendar strip, has not kept pace with gains in this year's prices.

Since early April, the 2017 strip has risen 21 percent to $1.64. Over the same period, the 2016 strip has gained about 29 percent, while the front-month contract has jumped about 40 percent.

The picture for refiners has improved dramatically since the bleak outlook this winter, after margins fell as low as $8 a barrel in late January. Soon after that, many refiners shut capacity due to weak profits because of a big glut in diesel.

But refiners are skeptical that margins will remain strong, because U.S. crude is on track for its biggest quarterly percentage gain since 2009. Fear for tighter margins going forward has encouraged them to hedge.

The heightened activity in diesel is surprising for this time of year, when typically the market buzz surrounds gasoline, heading into the busy summer driving season.

Speculative investors turned bullish on diesel early in May for the first time in about two years, after inventories that had been bloated by a mild winter started to decline.

http://www.reuters.com/article/us-usa-diesel-demand-idUSKCN0YP0CG

Kinder Morgan on Thursday said its units Elba Liquefaction and Southern LNG received approval from the Federal Energy Regulatory Commission for the Elba liquefaction and export project.

In its statement, Kinder Morgan informed its units have also received FERC certificates of public convenience and necessity for the EEC modification project and SNG Zone 3 expansion project, respectively.

The liquefaction project has a price tag of $2 billion and will be constructed and operated at the existing Elba Island LNG terminal near Savannah, Georgia.

The first of 10 liquefaction units is expected to be placed in service in the second quarter of 2018, with the remaining nine units coming online before the end of 2018. The project is supported by a 20-year contract with Shell, Kinder Morgan added.

The other expansion works that include additional compression and related work for north-to-south capacity expansions on Elba Express Pipeline that will supply additional gas to industrials and utilities in Georgia and Florida and to Elba Island for liquefaction.

Facilities for these pipeline projects are expected to be placed in service late in the fourth quarter of 2016.

The liquefaction project is expected to have a total capacity of approximately 2.5 million tons per year of LNG for export, equivalent to approximately 350,000 Mcf per day of natural gas.

http://www.lngworldnews.com/u-s-ferc-approves-elba-island-lng-export-project/

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