Oil Jumps to Highest since 2008 Crisis, $100 Eyed

by Barbara Lewis and Jonathan Leff, Reuters, New York/London, December 23, 2010 Thu 4:35 PM EST

Oil surged above $91 a barrel to its highest price in more than two years on Thursday, as OPEC member Libya's apparent lack of concern over prices prompted some analysts to call for a new year's run at $100.

With crude reaching back-to-back 26-month highs, ultra-cold weather stoking demand and depleting U.S. stockpiles at the fastest pace in 12 years, traders are now looking for the Organization of the Petroleum Exporting Countries to signal when it might begin pumping more crude.

But Libya's top oil official, one of OPEC's most hawkish members toward oil prices, appeared unconcerned by the gains, which have lifted prices more than 20 percent in three months as fundamentals turn more positive and investors factor in an improving economic outlook for next year.

"It's fair to say it (the price) is about right, but still I think that it needs to improve a little bit more. About $100 would be a fair price for the time being," Libya's National Oil Corp Chairman Shokri Ghanem told Reuters in Cairo ahead of a meeting of Arab oil exporting countries. ...

U.S. crude for February rose $1.03 to settle at $91.51 a barrel, the highest price since October 7, 2008 when oil prices were crashing from their $147 record as the world's financial industry reeled and investors fled risky assets. Prices hit an intraday peak of $91.63 a barrel. [Last electronic quote for NYMEX Light Crude for February delivery was $91.41 a barrel -- See the oil price dashboard on my blog - D.R.]

ICE Brent crude settled at $94.25, up 60 cents from Wednesday after a midsession burst of gains triggered by buy-stops and as the dollar fell.

Although some said low trading volume on the last day before Christmas likely exaggerated gains, few expected to see a correction as traders looked forward to a fresh infusion of institutional investment in the booming commodities sector. U.S. crude traded about 220,000 contracts, one-third the norm. ...

So far economic news is supporting the gains too. Data on Thursday showed new U.S. claims for jobless benefits dipped last week and consumer spending increased in November for a fifth straight month, reinforcing views of a solid economic growth pace in the fourth quarter.

And while gasoline prices now back above $3 a gallon could begin to erode spending in the still fragile U.S. economy, the fact that they remain far below their $4 peak two years ago suggests they will not pack the same psychological punch.

NOT THE SAME MARKET AS 2008

Nearly three years after oil first traded at $100, demand is again rising swiftly, but one key factor has changed significantly. Unlike the start of 2008, when OPEC was already pumping flat out, the group now has a sizable amount of idle capacity it could use to douse the rally -- if it chooses.

A series of comments in recent months suggest the cartel is now ready to tolerate a price higher than the $70-to-$80 band it has publicly supported for the past two years, and analysts say that means it may wait too long before pumping more oil. ...

Oil traders will be looking for comments this weekend from other core Gulf OPEC ministers to see if they are more concerned than they were two weeks ago when the group decided at its meeting in Quito, Ecuador, to maintain supply quotas. [See OPEC meeting, in this blog, here - D.R.]

The meeting of the Organization of Arab Petroleum Exporting Countries (OAPEC) in Cairo will not set policy, and OPEC's next formal meeting is not scheduled until June. ...

FASTEST DRAW IN THE WEST

Unusually cold weather in the United States and Europe has helped to spur the latest leg of a more than 30 percent rally from this year's low struck in May. More

Iraq Achieves Oil Production of 2.5 million b/d: Minister

Platts, December 22, 2010
Iraq's newly appointed oil minister, Abdul Karim al-Luaibi, said Wednesday that oil output had risen to an average 2.5 million b/d from just under 2.4 million as a result of a production increase from the giant Zubair and Rumaila oilfields being developed by foreign consortia in joint ventures with state-run Iraqi oil companies. ...

BP and China's CNPC are developing the super giant Rumaila oil field, Iraq's biggest producing field, in partnership with the State Oil Marketing Organization (SOMO). BP and CNPC offered to raise production from Rumaila in southern Iraq to a plateau of 2.85 million b/d from 1 million b/d within seven years. At plateau production, Rumaila would be the world's second largest oil field after Saudi Arabia's Ghawar.

A consortium of Eni, Kogas [i.e. Korea Gas Corp.] and Occidental are developing Zubair, ...

Zubair was among ... oil fields awarded by Iraq's oil ministry at two separate auctions in 2009 with the aim of raising the country's oil production capacity to over 12 million b/d from around 2.5 million b/d currently.

OPEC member Iraq in October raised its oil reserves estimate from 115 billion barrels to 143 billion barrels, mostly due to increases in reserves for the West Qurna and Zubair fields. [See also my concluding remarks in this blog, here - D.R.]

Luaibi said the oil ministry would now focus on improving energy infrastructure to absorb the additional crude oil with a particular emphasis on upgrading export facilities in the south to allow for an expansion of export capacity to 4.5 million b/d in line with anticipated production increases. Current exports are running at just over 1.9 million b/d. ...

Luaibi, who has led negotiations with the Kurdistan Regional Government to try to resolve an impasse over the resumption of oil exports from the semi-autonomous province, also said in his statement that dialog "with our Kurdish brothers will continue in order to reach a resolution that is in the general interest."

(Iraq's parliament approved deputy oil minister Abdul Kareem Luaibi as oil minister after confirming previous Oil Minister Hussain al-Shahristani as the new deputy prime minister for energy. - D.R.)

Transneft Finishes Crude Trial Runs on ESPO Pipe Spur to China

Platts, December 21, 2010
Russian pipeline operator Transneft's new 300,000 b/d pipeline spur for ESPO crude shipments to China is ready to begin commercial shipments on January 1 following the completion of trial runs Sunday, it said in a statement said late Monday.

Transneft pumped the first trial shipment of crude on November 1, shipping a total of 250,000 mt (61,000 b/d) in November and 300,000 mt in December, the statement said.

The spur travels from Skovorodino, currently the end point of the East Siberia-Pacific Ocean (ESPO) pipeline, to Daqing in China. [See the map below, provided by Reuters - My addition, D.R.]

The main ESPO route was launched in December 2009, and consists of a 600,000 b/d pipeline from oil fields near Taishet in East Siberia to Skovorodino in Russia's Far East, near the border with China.

From there, around 300,000 b/d is currently shipped by rail from Skovorodino to an export terminal at Kozmino on the Pacific coast.

Starting January 1 [2011], Russia's largest oil producer Rosneft is to start to supply China with 15 million mt/year (300,000 b/d) of ESPO crude. The exports are in line with a contract signed in 2009 to supply 300,000 b/d of oil over 20 years to China [i.e., cash-for-oil or loan-for-oil deal -- D.R.]. [Full story]

--Jake Rudnitsky, jake_rudnitsky@platts.com

Similar stories appear in Oilgram News. See more information at http://bit.ly/OilgramNews

For related news, please see Platts Russian Crude Oil Exports feature at http://www.platts.com/newsfeature/2010/espo/index

                                                            

  Сlick on map to enlarge                                                             

     Source: UK. Reuters, RPT-UPDATE 3-Russia Prepares to Open Oil Pipeline to China, Sep 27, 2010 

(The second phase of the pipeline will involve the construction of a 2,046 km (1,271 miles) section from Skovorodino to the Pacific Ocean terminal at Kozmino, and will replace the rail line -- see map above. It would be commissioned by 2013 or 2014. The first phase of ESPO, running some 2,700 km from Taishet to Skovorodino, was completed in late 2009. See also Takeo Kumagai article in my blog , here. Update 1: In early November 2012, Transneft announced that ESPO-2 has been filled with technological oil and start-up works have started. The filling of the 2,046-km ESPO-2 with oil took about 4 months. The company plans to launch the oil line by the end of the year---please see here. Also, please see another map of the 4,700 km or 2,900 miles ESPO pipeline, the combined ESPO-1 and ESPO-2, here. Update 2: On December 25, 2012, Transneft JSC put into operation the second line of the East Siberia – Pacific Ocean pipeline (ESPO-2) [ ... ]. According to N. Tokarev, the Head of Transneft, “the American market gets about 35 per cent of oil through Koz’mino port, the final destination point of ESPO; Japan gets about 30 per cent; China gets 25-28 per cent. And the rest part goes to Singapore, Malaysia and South Korea”. “I believe such proportions shall be preserved”, he noted. [...]. During the second stage of the project, an oil pipeline sector from Skovorodino to Koz’mino port was built and the capacity of the marine terminal was increased. ESPO-2’s putting into operation will allow increase of the volume of oil dispatched from Koz’mino twice, up to 30 million tons per year [ i.e., 600,000 b/d -- D.R.]. The volume of oil exported from Koz’mino port may reach 15.6-16 million tons [i.e., 312,000-320,000 b/d -- D.R.] in the year 2012, and 21 million tons [i.e., 420,000 b/d -- D.R.] in the year 2013. Considering the route to China (15 million tons of oil per year or 300,000 b/d), 36 million tons [720,000 b/d -- D.R.]  are to be pumped in 2013. Handling through Koz’mino may amount 24-25 million tons [i.e., 480,000-500,000 b/d -- D.R.] in 2014, and 30 million tons [i.e., 600,000 b/d -- D.R.] in 2015. N. Tokarev reported that oil delivery to Koz’mino by railway still remain in the near term and shall amount about 3-4 million tons [i.e., 60,000-80,000 b/d --D.R.] per year. [ ... ] Also, N. Tokarev informed that Khabarovsky oil processing plant [i.e., refinery] would get oil from the ESPO system in the year 2014, and Komsomol’sk [-on-Amur] oil processing plant – in the year 2015---please read Transneft website, Dec 25, 2012 (in English).  -- D.R.)

Platts Report: China's November Oil Demand Surges to All-Time High of 9.3 mil b/d

Platts Media Center: Press Releases via Platts, December 20, 2010
China's apparent oil demand* in November surged to an all-time high of 38.09 million metric tons (mt), or an average 9.3 million barrels per day (b/d), according to a just-released Platts analysis of official data from the People’s Republic of China. This analysis is based on a data series of Chinese oil demand which Platts has been reporting since 2005.

Oil demand in November was 13.1% higher than November 2009 and was marginally higher than October's apparent oil demand at 37.88 million mt, or 8.96 million b/d.

China's apparent oil demand from January to November totaled 393.67 million mt, or an average of 8.64 million b/d, which was a 10.7% gain from the same period of 2009. This 2010 figure surpasses the total apparent oil demand last year, Platts data showed.

Crude throughput by Chinese state-owned refiners in November was at 36.65 million mt or an average of 8.96 million b/d, which was an increase of 9.86% above the throughput in November 2009, data released by the National Bureau of Statistics showed.

Most domestic refiners continued to operate at full or near full capacity in November as they tried to optimize output of middle distillates to meet a diesel shortage that has gripped the country since late September.

"Sinopec and PetroChina kept refinery run rates high in November after being told by Beijing to ensure sufficient supplies of diesel," said Calvin Lee, Platts senior writer, China.

"Additionally, Chinese state-controlled companies imported more diesel in November to meet demand, although the volume was less than most industry sources had expected," said Lee.

In November, China's diesel imports rose 50.1% year-on-year to 150,000 mt. Diesel imports in November were also 275% more than imports of 40,000 mt in October.

The imported volume in November was significantly lower than earlier indicative volumes provided by state-owned companies.

Sinopec had announced in November that it would import 200,000 mt of diesel during the month, while PetroChina said that it planned to import 200,000 mt of diesel last month.

Meanwhile, total refined product imports reached 3.52 million mt, which was a gain of 34.3% from the volume imported in November 2009. ...

(*Platts calculates China's apparent or implied oil demand on the basis of crude throughput volumes at the domestic refineries and net oil product imports, as reported by the National Bureau of Statistics and Chinese customs.
China is the world's second largest oil consuming country. U.S. is the number one, while Japan ranks third. - D.R.)

Statoil Reports Oil Discovery Offshore Brazil

Scandinavian Oil-Gas Magazine, December 20, 2010
Statoil and the Petrobras of Brazil have struck oil on the Indra prospect in the Espirito Santo basin off the coast of Brazil. [See also map, here - D.R.]

Petrobras is operator for licence BM-ES-32, where the discovery was made and where Statoil holds a 40% stake.

The exploration well was drilled at a depth of 2,130 metres [6,988 feet] and both oil and reservoir quality is good. ...

The location is situated 140 kilometres [87 miles] from land and some 400 kilometres [245 miles] north of the Peregrino field. More

(The Peregrino field is located in the prolific Campos Basin, which has been Brazil's main production base for years. Peregrino is norwegian Statoil's most important project in Brazil. - D.R.)

Don't Mess with the Big Boys; Saudi Arabia is still King of OPEC

by Kate Dourian, Platts blog - The Barrel, October 24, 2010

When Iraq recently raised its oil reserve estimates by 25% to 143 billion barrels, the initial assessment by analysts was that the Iraqis were drawing battle lines with Iran, their former enemy and the country which had hitherto held second place as holder of the second largest conventional oil reserves after Saudi Arabia.

But the numbers game being played by Iraq and Iran, which shortly afterwards announced its own reserve hike to reclaim the second slot from the Iraqis, albeit with little scientific backing, has raised heckles in another Middle Eastern country.

Enter Saudi Arabia, the undisputed leader of the OPEC pack with its hefty 260 billion barrels of crude oil reserves.

Listening to Saudi Arabian oil minister Ali Naimi speak at a symposium celebrating OPEC's 50th anniversary, the message was clear and it was directed at Baghdad. "Saudi Arabia is a founding member of OPEC and it holds the world's largest crude oil reserves, has the biggest production capacity and is the largest oil exporting nation," Naimi said in a presentation at the start of the ceremony on October 18.

"This is a position that the kingdom will continue to hold for some time," he added, in what appeared to be a veiled message to other OPEC members such as Iraq and Iran not to challenge the oil giant.

Perhaps due to a scheduling problem or by design, none of the other 11 OPEC ministers attended the ceremony in Riyadh, where the organization was represented by its secretary-general, Abdalla el-Badri. This led some observers to note that it was unusual for invitations by the kingdom to be turned down by lesser members of the producers' club.

The seeds of what appears to be an attempt by some to position themselves for a realignment of power within an organization that has long been dominated by Saudi Arabia began last December.

That was when Iraqi oil minister Hussein al-Shahristani appeared to be laying down the gauntlet when he said that Iraq's oil production capacity would exceed 12 million b/d within six to seven years once the 11 oil fields offered up for development under long-term service contracts by foreign oil companies reached plateau production.

That 12 million number matches Saudi Arabia's current production capacity -- excluding the neutral zone shared with Kuwait which would take it up to 12.5 million b/d.

Yet Saudi Arabia, which has often stated as policy a desire to maintain oil market balance, retains some 4.5 million b/d of idle capacity with production running at around 8.1 million b/d, in line with OPEC production quotas from which Iraq is excluded.

Iraq, a founding member of OPEC -- which makes its absence from Riyadh more intriguing -- has been exempt from output restrictions as it rebuilds its energy infrastructure, which was decimated by decades of wars, first against Iran in 1980, the invasion of Kuwait in 1990 and the ensuing sanctions that hindered investment in its energy sector.

Now the sleeping giant awakes and the two largest Arab oil producing states appear to be heading for a showdown. [Read more]

(New estimates at West Qurna-1 and Zubair oil fields helped push the Iraq's total to 143 billion barrels, i.e. 24% upward revision of the country's 115 billion barrels of proved oil reserves. Concerning Saudi Arabia -- EIA estimates that the kingdom produced some 8.5 million barrels of crude per day in September 2010, including lease condensate and about one-half of the production in the Kuwait-Saudi Arabia Neutral Zone. In September 2010, Neutral Zone production by both Kuwait and Saudi Arabia totaled about 538,000 barrels per day - D.R.)

Ghana Oil Begins Pumping for First Time

by BBC News, Africa, December 15, 2010 13:08 GMT

The West African nation of Ghana has begun to pump its first commercial oil after the discovery of the offshore Jubilee Field three years ago.

President John Atta Mills turned on the valve at an offshore platform.

A consortium led by UK-based Tullow Oil [Its partners include U.S.-producer Anadarko Petroleum, U.S.-based Kosmos Energy, Ghana National Petroleum Corp, Sabre Oil and Gas and E.O. Group - D.R.] hopes to produce 55,000 barrels per day, increasing to 120,000 barrels in six months. ...

               Ghana's offshore oil fields are estimated to contain about 3bn barrels

The BBC's David Amanor in the capital, Accra, says there a positive mood about the pumping of the country's first oil - and plenty of advice about how the revenue should be spent. More

(Notice in the picture above, Kwame Nkrumah, the Jubilee Floating Production Storage and Offtake-i.e. FPSO-vessel. The first oil from the field is expected to be exported in January 2011. Ghana has produced oil in the past, but only in very small quantities by industry standards. -- D.R. It is worth stressing that Ghana is already a major producer of cocoa and gold, as pointed out in the article.)