As OPEC starts to make its production cuts work, the true impact of its actions is perhaps most in evidence in an obscure part of the physical oil market.

While Brent futures, a benchmark based on North Sea supply, are trading $4 a barrel higher than in June, the price of cheaper Middle East crude is rising faster still. The gap between the two varieties -- now the smallest in 15 months -- reveals where buyers are experiencing the greatest supply restrictions. It also has the potential to influence where oil flows.

Saudi Arabia and its neighboring countries mostly pump lower quality oil, known in the industry as heavy crude. So when production from Organization of Petroleum Exporting Countries drops, the price difference -- or spread -- between those grades and higher quality light crude such as Brent and West Texas Intermediate typically gets smaller.

“Heavier crudes have always been the first to get cut so that looks like the spread to watch,” said Warren Patterson, a commodity strategist at ING Bank NV.

The best sign of how prices are converging is in the so-called Brent-Dubai exchange of futures for swaps, which lets refiners better manage their exposure to the relatively illiquid heavy crude market by allowing them to use the larger liquidity of the Brent market for hedging. The Brent-Dubai EFS spread fell to an 15-month low of $1.70 a barrel this week, down from $3.75 a barrel in June, according to data from brokerage PVM Oil Associates.

Out of Sight

Although oil traders such as Vitol Group and some specialized hedge funds actively trade light-heavy crude spreads, the market is relatively out of sight for mainstream oil investors, who focus on Brent and WTI. As such, the light-heavy spread usually reflects demand from refiners and physical buyers and sellers affected by OPEC cuts, rather than speculative trades.

“The physical market pricing in OPEC cuts is probably the main driver at the moment,” Giovanni Staunovo, commodity analyst at UBS Group AG in Zurich, said. “If OPEC target the higher cost barrels, that will remove heavier crude from the market.”

Prior Cuts

In 2009, the previous time OPEC cut output, Dubai traded intermittently at a premium to Brent, despite the fact the Middle East crude is normally viewed as being lower quality. At its peak, Dubai traded at a premium of 71 cents to Brent. In 2011, it traded at a discount of almost $8 a barrel.

OPEC pumped 33.1 million barrels a day last month, down 310,000 barrels a day from November, according to a Bloomberg News survey of analysts, oil companies and monitoring of ship-tracking data.

The decline comes as OPEC, which controls around 40 percent of global oil supply, is planning to curb output in a bid to boost prices. The organization reached a historic deal last month with Russia and other non-members to cut global production by about 1.8 million barrels a day for six months starting January.

Saudi Arabia, Kuwait and the United Arab Emirates, whose supplies are dominated by heavy grades, will shoulder the bulk of the cuts. At the same time, supply of lighter crude oil grades, such as those produced in Libya, is increasing as the country was exempted from the OPEC deal. North Sea and U.S. output, which traditionally tends to be lighter than OPEC’s, is also increasing.

Cargo Flows

The global nature of the oil market means that refiners often source crude depending on prices of individual grades. Relatively cheap Brent or West Texas Intermediate crude could potentially serve as an incentive to buy more of the grades and others produced in the Atlantic Basin.

Oil traders and analysts anticipate that heavy-light crude differentials are likely to narrow further this year, although the full extent of the tightening wouldn’t occur until late spring in the Northern Hemisphere, when refinery processing picks up after seasonal maintenance.

“Clearly, light-heavy differentials will have to do a lot of work to entice refiners to buy light grades, although there are limits to how much of this can be done,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.

https://www.bloomberg.com/news/articles/2017-01-05/the-oil-trade-that-shows-where-opec-s-cuts-are-starting-to-bite

China's Iranian crude oil imports may rise to a record this year as state-owned oil firms lift more crude through their upstream investments while extending their current supply contracts, senior industry and trading sources said.

Chinese firms were expected to lift between 3 million to 4 million barrels more Iranian oil each quarter in 2017 than last year, four sources with knowledge of the matter estimated. That would be about 5 percent to 7 percent higher than the 620,000 barrels per day (bpd) of Iranian crude the country has imported during the first 11 months of 2016, according to the customs data.

Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), won an exemption from the group's production cuts agreed to on Nov. 30 and may raise output slightly.

China's demand for foreign crude could touch new highs as state-run refiners start up new plants and as Beijing allows more independent refiners to import crude, with the country forecast to remain a key driver of 2017 demand growth.

State refiner Sinopec Corp and state-run oil trader Zhuhai Zhenrong Corp, the two biggest Chinese lifters of Iran's oil, are set to roll over annual supply agreements with National Iranian Oil Co (NIOC), with combined volumes of about 505,000 bpd, two sources with knowledge of the agreements said.

Additionally, China National Petroleum Corp (CNPC) and Sinopec expect to lift more oil this year from two oilfields they operate under service contracts, the sources said.

A press official with Sinopec said the company does not comment on operational matters. CNPC and NIOC did not immediately respond to requests for comment.

Sinopec signed a development deal for the Yadavaran field in late 2007 with CNPC signing a deal for the North Azadegan field in 2009, after Japanese and European companies pulled out of the projects, both in the southwestern Iranian province of Khuzestan, due to sanctions over Iran's nuclear program.

Both fields started pumping oil in early 2016, with North Azadegan reaching full production in the third quarter and Yadavaran in the fourth quarter, and they are currently pumping at around 160,000 bpd.

"The terms of return on investment are still being finalised ...but it's safe to say Sinopec is going to lift more from Yadavaran this year than last," said a Beijing-based oil executive familiar with Sinopec's operations on Yadavaran.

A separate senior trading source estimated that Sinopec could lift about 4 million barrels of Yadavaran crude, considered a heavy grade with an API gravity rating of about 25, every quarter this year. The person did not give an earlier comparison.

After first shipments last October, CNPC is expected to lift an average of about 3 million barrels from North Azadegan each quarter, said a second senior trader with knowledge of CNPC's Iranian production.

http://www.reuters.com/article/us-china-iran-oil-idUSKBN14P15W

Saudi Arabia cut oil output in January by at least 486,000 barrels per day (bpd) to 10.058 million bpd, fully implementing OPEC's agreement to reduce output, according to a Gulf source familiar with Saudi oil policy.

The Organization of the Petroleum Exporting Countries in late November agreed to cuts that take effect in the first half of 2017 to curb a global supply glut and prop up prices.

Under the deal, Saudi Arabia agreed to cut output by 486,000 bpd, or 4.61 percent of its October production of 10.544 million bpd.

OPEC agreed to output cuts as of Jan. 1 that would bring production to 32.50 million bpd, in the first such decision since 2008. In December, no production target was in effect.

http://www.reuters.com/article/saudi-oil-output-idUSL1N1EV1GM

A Saudi Aramco employee sits in the area of its stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, September 27, 2016. REUTERS/Hamad I Mohammed

Saudi Aramco has started talks with customers globally to discuss possible cuts of 3 percent to 7 percent in February crude loadings to comply with OPEC production cuts, four sources with knowledge of the matter said on Thursday.

The Organization of the Petroleum Exporting Countries (OPEC) agreed in late November to cut production in the first half of 2017 to reduce global oversupply and prop up prices.

Under the deal, Saudi Arabia, the world's biggest oil exporter, agreed to cut output by 486,000 barrels per day (bpd), or 4.61 percent of its October output of 10.544 million bpd.

"Aramco is approaching all its customers for possible cuts from February and discussing likely (supply) scenarios," one of the sources said.

"Nothing is confirmed yet," he said, adding that the scenarios were for 3 percent to 7 percent cuts.

State oil giant Saudi Aramco will be receiving nominations for February crude supplies from its customers and is assessing which grades it could cut, a second source said.

Saudi oil buyers will be notified by Jan. 10 of their respective crude allocations for February.

http://www.reuters.com/article/us-saudi-oil-opec-int-idUSKBN14P18X

Royal Dutch Shell Plc shut the Trans Niger oil pipeline after a fire, threatening to worsen a drop in Nigerian output due to unplanned disruptions.

The line can transport about 180,000 barrels a day to the Bonny Export Terminal in the Niger Delta was halted Tuesday due to a blaze at Kpor in Ogoniland, Precious Okolobo, a company spokesman in Lagos, said Thursday by phone. Shell declined to comment on the impact on production.

Nigeria’s daily output dropped by 200,000 barrels to 1.45 million in December, ending three months of gains as the African nation struggled to restore capacity after a year of militant attacks on oil infrastructure. Production fell to 1.39 million barrels in August, the lowest level since 1988, according to data compiled by Bloomberg.

https://www.bloomberg.com/news/articles/2017-01-05/shell-pipeline-fire-threatens-to-deepen-nigerian-oil-output-drop

Turkey's state pipeline operator Botas will cut supply to gas-fired power plants by 50 percent as of Friday due to increased household demand in cold weather, energy industry sources said on Thursday, in a bid to free up more gas for households.

Three industrial sources said private gas-fired power plants were informed of Botas' measures, before a cold wave, expected to cause heavy snow, hits Turkey over the weekend.

http://www.reuters.com/article/turkey-energy-gas-idUSA4N1D102W

China's apparent oil demand surged more than 4% year on year in November, the fastest pace of growth in 15 months, buoyed by a sharp expansion in manufacturing activity, which helped to drive the country's appetite for gasoil to a year's high and LPG consumption to record levels.

The surprise acceleration in manufacturing to hit the highest level in a year lifted demand for goods transport, pushing up gasoil consumption. LPG demand was driven by consumption by propane dehydrogenation plants. Together, it more than offset a 5% year-on-year drop in apparent demand for gasoline.

"The positive growth momentum should continue on the back of fiscal support. With the economy having just emerged out of deflation, and with the recovery still looking quite uneven, policy support should remain in place until the recovery becomes more broad-based," HSBC said in a research note.

The 4.1% year-on-year growth in total apparent oil demand to 11.44 million b/d in November was the second consecutive monthly increase since October when demand rose 1.1%, data compiled by S&P Global Platts using official numbers showed.

November demand was also up 2.8% from October, and higher than the average of 11.07 million b/d over the first 11 months.

Manufacturing investment grew at the fastest pace in a year at 8.4% in November, with broad-based recovery becoming increasingly visible in heavy industries, machinery and auto, data from the National Bureau of Statistics showed.

Industrial production grew 6.2% year on year in November, compared with 6.1% in October. PMI also climbed to 51.7 in November from 51.2 in October. All this improved the outlook for oil demand.

A slight decline in oil product stocks also supported actual demand. Total oil product stocks -- gasoline, gasoil and jet fuel/kerosene -- edged down 0.07% month on month at the end of November, data from state-owned news agency Xinhua showed.

Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly throughput at Chinese refineries and net product imports. But the official data fails to reflect some of the crude throughput increases from the new crude oil consumers, the independent refineries. 

GALLOPING GASOIL DEMAND

November apparent demand for gasoil rose to a 12-month high to 3.43 million b/d, up 0.9% from October, although it fell 2% year on year. Gasoil accounts for around 30% of the country's overall oil products demand.

Transportation accounts for nearly 70% of gasoil demand, while agriculture and construction sectors account for the rest.

Gasoil demand recovery was also supported by a draw in stocks for the fourth consecutive month. Gasoil stocks at the end of November were 3.9% lower month on month, following decreases of 2.88%, 12.81% and 16.81% in the previous three months, respectively, data from Xinhua showed.

The high apparent demand was also a result of lower supply from the blending pool, which pushed up production at refineries to make up for the loss.

Blended barrels, with imported light cycle oil and domestic kerosene as the main components, are not included in gasoil apparent demand calculations because of the absence of official data.

China's imports of light cycle oil remained relatively low at 384,549 mt in November, compared with an average of 445,906 mt over July-September. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil, which is mainly used in the construction and fishing sectors. 

GASOLINE CONSUMPTION FALLS

Apparent demand for gasoline fell 4.7% year on year in November after a 5.2% increase in October. It was 3.3% lower from the previous month. Gasoline stocks at the end of November edged up for the second consecutive month by 0.87% from October.

However, market sources said the actual fall in demand would probably not be that sharp if blended barrels were taken into consideration.

No official data reflects the blended gasoline barrels. But sales of imported mixed aromatics, which are used mainly as a blending material for gasoline, provide an indication of demand.

Data from the General Administration of Customs showed that China's imports of mixed aromatics jumped 23.7% month on month to 868,190 million mt, suggesting a rise in blending activity.

The fall in gasoline demand was also capped by a 17% year-on-year rise in gasoline-fueled vehicle sales in November, data from the China Association of Automobile Manufacturers showed. Sales of gasoline-guzzling sport utility vehicles surged 42% year on year. 

LPG, NAPHTHA DEMAND

LPG demand surged to a historical high of 1.8 million b/d in November, up 38.5% year on year and 12.3% month on month. The previous high of 1.66 million b/d recorded in March last year. Over the first 11 months of 2016, demand for LPG averaged 1.55 million b/d.

Market sources attributed the growth to plentiful volumes imported to feed the country's propane dehydrogenation plants, which increased their run rate significantly to meet incremental industrial demand.

Seven major PDH plants in China were estimated to have run at an average of 77% of their capacity in November, up from around 67% in October, a Platts survey showed earlier. In addition, two new PDH plants -- the Hebei Haiwei and Oriental Energy's Ningbo Fuji Petrochemical -- started operations, respectively, in October and November.

As a result, propane imports in November jumped 95% year on year and 30% from October.

Apparent demand for naphtha in November fell 4.9% year on year but it was up 7.6% from October at 980,000 b/d in November. It was higher than the average of 964,000 b/d over the first 11 months.

China's ethylene production from naphtha-fed crackers edged down 1.4% from October and 0.5% year on year to 1.45 million mt in November. 

JET FUEL, FUEL OIL DEMAND

Apparent demand for jet fuel in November rose 29% year on year to 800,000 b/d, the highest in 21 months. Month on month, it rose 8.2%.

Actual consumption in November should be lower because of a month-on-month rise in stocks of 9.89%, data from Xinhua showed.

Latest data from the Civil Aviation Administration of China showed that aviation traffic rose 12.7% year on year in October, although it slowed from the 14% growth in September. In the first 10 months, turnover increased 12.6% year on year.

Apparent demand for fuel oil recovered to a five-month high of 687,000 b/d in November, rising 7.3% from October despite falling 1.2% year on year.

Customs data showed that imports of bitumen blend -- which refers to heavy residual blends such as 380 CST fuel oil, bitumen or heavy gasoil -- surged 286% from October. The grade is used as feedstock by independent refineries.

Consumption of bitumen blend at Shandong, home of most of the independent refineries, rose 55% month on month in November.

Imports of fuel oil in November rose 6.1% month on month because of high demand from the bunkering sector.

http://www.platts.com/latest-news/oil/singapore/analysis-manufacturing-helps-china-oil-demand-27743751

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Attached Files

U.S. oil and gas major ExxonMobil revealed on Thursday a new technology that dehydrates natural gas, which could be deployed at both land-based and offshore natural gas production operations.

The company announced its development of cMIST technology, which dehydrates natural gas using a patented absorption system inside pipes and replaces the need for conventional dehydration tower technology. This “in-line” technology could be deployed at both land-based and offshore natural gas production operations, the company noted.

According to Exxon, the new technology, developed and field-tested by the company, more efficiently removes water vapor present during the production of natural gas. Removing water vapor through the use of dehydration technology, typically accomplished using large and expensive dehydration towers, reduces corrosion and equipment interference helping to ensure the safe and efficient transport of natural gas through the supply infrastructure and ultimately to consumers, the company explained.

Exxon also claimed that cMIST reduces the size, weight and cost of dehydration, resulting in reductions of surface footprint by 70 percent and the overall dehydration system’s weight by half, which has significant added benefits on offshore applications.

“By leveraging our industry-leading experience with upstream applications, our researchers were able to create this advanced natural gas dehydration technology, which represents a step-change in operational efficiency and a significant reduction in footprint,” said Tom Schuessler, president of ExxonMobil Upstream Research Company.

ExxonMobil’s cMIST technology relies on a proprietary droplet generator to break up conventional solvent into tiny droplets that become well dispersed in the gas flow thereby increasing the surface area for the absorption of water from the gas. This is followed by an inline separator that coalesces the water-rich glycol droplets and moves them to the outside wall of the pipe for effective separation from the dehydrated natural gas. The water-rich glycol is regenerated using a conventional system and is sent back to the droplet generator to be used again. The droplet generator uses the energy from the flowing natural gas to create droplets of the right size.

New tech licensed to Sulzer

ExxonMobil has licensed cMIST technology to the Chemtech division of Sulzer, a player in separation technologies, to facilitate deployment across the oil and gas industry.

http://www.offshoreenergytoday.com/exxonmobil-reveals-new-technology-to-dehydrate-natural-gas/

U.S. crude oil refinery inputs averaged 16.7 million barrels per day during the week ending December 30, 2016, 132,000 barrels per day more than the previous week’s average. Refineries operated at 92.0% of their operable capacity last week. Gasoline production decreased last week, averaging about 9.5 million barrels per day. Distillate fuel production increased last week, averaging over 5.3 million barrels per day.

U.S. crude oil imports averaged 7.2 million barrels per day last week, down by 984,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, 0.5% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 722,000 barrels per day. Distillate fuel imports averaged 99,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 7.1 million barrels from the previous week. At 479.0 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 8.3 million barrels last week, and are near the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 10.1 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 2.7 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 6.1 million barrels last week.

Total products supplied over the last four-week period averaged 19.6 million barrels per day, down by 0.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 9.0 million barrels per day, down by 0.2% from the same period last year. Distillate fuel product supplied averaged over 3.8 million barrels per day over the last four weeks, up by 8.1% from the same period last year. Jet fuel product supplied is up 4.0% compared to the same four-week period last year

Cushing up 1.1 mln bbls

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

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Attached Files

Crew Energy Inc. is pleased to announce that our Board of Directors has approved a 2017 capital expenditure program of $200 million designed to achieve production growth to over 30,000 boe per day in the fourth quarter of 2017. This growth represents a greater than 40% increase in Montney production, funded through a combination of internally generated funds from operations and draws on our credit facility leading to an exit 2017 debt to trailing fourth quarter 2017 annualized funds from operations ratio of less than 1.5 times.

With over 300,000 net acres of Montney rights and over 110 Tcfe of Total Petroleum Initially in Place (“TPIIP”), Crew has access to a massive resource for development and significant long-term growth potential. To date, the Company has focused on the Upper Montney at our Septimus and West Septimus areas (“Greater Septimus”) and continued development at our Tower light oil area. Our 2017 capital program will be predominantly focused on West Septimus development, including further delineation of the ultra liquids-rich region and includes approximately $40 million of infrastructure investments highlighted by the doubling of our West Septimus facility’s capacity to 120 mmcf per day. Production additions will be back end loaded with the West Septimus plant expansion expected to be completed in the fourth quarter. Further delineation of Upper and Lower Montney stratigraphic intervals at West Septimus and Tower will further support our growth plan designed to achieve production of over 60,000 boe per day by the end of 2019.

Highlights:

Invest $140 million into Montney drilling, completions, equip and tie-in activities, including the planned drilling of 28 (26.3 net) and the completion of 39 (37.3 net) Montney wells through the year;
Direct $40 million of capital into key infrastructure projects including expansion of Crew’s West Septimus facility to 120 mmcf per day of gas processing capacity that in aggregate with Septimus and Tower will provide Crew with 45,000 boe per day of processing capacity for Montney gas and liquids production. Pipeline construction will also begin to provide physical access to the Trans-Canada Pipeline (“TCPL”) system by the second quarter of 2018, further diversifying Crew’s marketing strategy and to support our three year growth plan to over 60,000 boe per day;
Forecast Q4 2017 exit Montney production greater than 26,000 boe per day achieving year-over-year exit growth of over 40%;
Target annual corporate production growth of approximately 15% with volumes averaging between 25,000 and 27,000 boe per day (weighted 72% to natural gas) with a corporate exit rate of greater than 30,000 boe per day;
Continue to focus on cost control with corporate operating costs per boe in 2017 expected to be between $5.50 and $6.00 per boe, transportation costs of $2.25 to $2.50 per boe, and G&A costs of between $1.25 and $1.50 per boe. At our Greater Septimus area, Crew anticipates continued low operating costs of between $3.50 and $4.00 per boe; and
Preserve balance sheet strength and maintain a conservative 2017 year end debt to trailing 2017 funds from operations ratio of approximately two times, and debt to annualized fourth quarter 2017 funds from operations of 1.5 times.

http://boereport.com/2017/01/05/crew-energy-announces-a-2017-capital-budget-of-200-million-targeting-montney-production-growth-of-over-40/

Ladies and gentleman: Start your drill bits! Yesterday Antero Resources, one of the biggest drillers in the Marcellus/Utica, released their road map for what lies ahead in 2017 for the company.

Among the gems: The company plans to do a serious amount of drilling. They will have drilled 170 new wells, bringing them online, by the end of the year, with another 30 drilled but not completed.

Antero will spend $1.3 billion to do it–with another $200 million spent on land deals. Daily production is forecast to average somewhere around 2.1 to 2.2 billion cubic feet (Bcf) per day, up 20-25% over production in 2016.

Observation: Antero will spend about what it spent last year, but still goose production by nearly a quarter more than last year. Talented folks! Antero, as we’ve previously highlighted, has what we consider to be the best hedging in the business.

They announced two-thirds of their production for 2017 is hedged at $3.68/Mcf (thousand cubic feet). In fact, all of their production for this year is hedged, at various price points. The spot price of natural gas today, as this was being written, was $3.27/Mcf.

http://marcellusdrilling.com/2017/01/antero-resources-pulls-curtain-back-on-plans-for-2017/

As we do every month, MDN tracks how many rigs oilfield services company Patterson-UTI Energy reports operating–as a proxy for when/if the drop in rig counts for the Marcellus/Utica will turn around.

Patterson operates a number of rigs in the northeast, as well as other areas of the continental United States (and Canada). Month by month Paterson’s rig count has declined over the past year plus–until June.

June was the first time in over a year that Patterson’s rig count reversed and began to climb once again. Since June the count has steadily risen. The latest count, for December, saw the biggest month over month increase since the trend reversed. In December, Patterson’s rig count hit 71, up 6 from 65 in November. That’s a big 9% jump!…

http://marcellusdrilling.com/2017/01/patterson-uti-dec-rig-count-big-9-jump-up-from-nov/

Painted Pony Petroleum Ltd. is pleased to announce that production volumes, based on field estimates, averaged over 240 MMcfe/d (40,000 boe/d) during the month of December 2016 with liquids making up approximately 9% of total production volumes or more than 3,600 bbls/d.  Exiting 2016 with production volumes at these levels was a significant goal for Painted Pony and one which, in conjunction with the commissioning of the AltaGas Townsend Facility (the “Townsend Facility“), marked a significant milestone for the Corporation.

Mr. Pat Ward, President and CEO of Painted Pony said, “The production growth we achieved during 2015 and 2016 was generated solely through drilling on our industry-leading Montney property.  Between the fourth quarter of 2013 with production of 9,312 boe/d and our fourth quarter exit production volumes in 2016 of more than 40,000 boe/d, we have organically grown our production by 330%.” Mr. Ward continued by saying, “When Painted Pony first introduced the concept of growing to 240 MMcfe/d or 40,000 boe/d in the third year of our initial five-year plan, we believed it to be a very ambitious but achievable goal. However, when you carefully plan the development of a world class asset, and have a great group of dedicated people, you can accomplish exceptional things.”

http://boereport.com/2017/01/05/painted-pony-achieves-2016-exit-production-of-more-than-240-mmcfed-40000-boed-announces-operational-update-and-attendance-at-the-td-securities-london-energy-conference/