Oil falls below $108 as supply worries ease

Updated 12 August 2013

Oil falls below $108 as supply worries ease

LONDON: Oil fell below $108 per barrel, dropping for a fourth session, as concern eased about supply disruptions and as a report showed US crude inventories declined largely as forecast while products supplies unexpectedly rose.
Crude has dropped this week on progress in resolving supply disruptions in Libya, signs of higher North Sea output and as Iran’s new president signaled a willingness to negotiate with the West over its nuclear work.
Brent crude fell 66 cents to $107.52 a barrel by 1449 GMT.
US oil slipped 36 cents to $104.94, also falling for a fourth consecutive session.
“Supply risks have clearly shifted to the background at the moment,” said Carsten Fritsch, analyst at Commerzbank in Frankfurt.
“This points to a shift in sentiment on the oil market.”
The weekly US Energy Information Administration report released at 1430 GMT said crude inventories declined by 1.32 million barrels — largely in line with the 1.2 million-barrel reduction analysts forecast.
The decline was smaller than the 3.66 million-barrel drop reported on Tuesday by industry group the American Petroleum Institute.
The EIA also reported small rises in gasoline and distillates stocks, in contrast to expected declines.
Oil slipped alongside falling equities on signs the US Federal Reserve might trim its stimulus program as soon as next month.
That stimulus has broadly underpinned oil and other commodities.
Crude also came under pressure on Tuesday from an easing of the Middle East supply risk premium. New Iranian President Hassan Rouhani said he was ready to enter “serious and substantive” negotiations over Tehran’s nuclear program.
Western sanctions over the nuclear work have cut Iranian crude exports by about 1 million barrels per day since early 2012, according to industry estimates.
The loss, and concern of a larger disruption to Middle East supply, have helped keep Brent above $100 for most of 2012 and this year.
“It is a fair bet that progress on the nuclear issue will be made with gestures on sanctions, small at first but probably growing larger,” said David Hufton of oil brokers PVM in London. “It is the oil industry’s version of tapering.”
In the North Sea, supply of the four crudes underpinning Brent futures will rise in September, loading programs showed on Wednesday.
Planned maintenance finished on schedule on the Forties pipeline this week.

Exxon faces setback in Iraq as oil and water mix

Updated 20 April 2018

Exxon faces setback in Iraq as oil and water mix

  • Exxon’s talks with Iraq on water project hit problems
  • Losing the contract could deal a blow to Exxon’s broader Iraqi plans

LONDON: Talks between Exxon Mobil and Iraq on a multibillion-dollar infrastructure contract have reached an impasse, Iraqi officials and two industry sources said, in a potential setback to the oil major’s ambitions to expand in the country.

More than two years of negotiations on awarding the US firm a project to build a water treatment facility and related pipelines needed to boost Iraq’s oil production capacity have hit difficulties because the two sides differ on contract terms and costs, the officials and sources told Reuters.

Unless the differences can be resolved, the project could be awarded to another company in a tender, the officials said, without elaborating on the points of dispute.

Losing the contract could deal a blow to Exxon’s broader Iraqi plans, as it would be handed rights to develop at least two southern oilfields — Nahr Bin Umar and Artawi — as part of the deal.

Exxon declined to comment.

Further delays to the project could also hold back the oil industry in Iraq, OPEC’s second-largest producer; the country needs to inject water into its wells or risk losing pressure and face severe decline rates, especially at its mature oilfields. As freshwater is a scarce resource in Iraq, using treated seawater is one of the best alternatives.

The Common Seawater Supply Project (CSSP), which would supply water to more than six southern oilfields, including Exxon’s existing West Qurna 1 field and BP’s Rumaila, was initially planned to be completed in 2013 but has now been delayed until 2022.

“The CSSP would be expensive and challenging but there’s opportunity here (for Exxon) ... to get access to resources on a very large scale and to achieve something and really make a difference to its own business,” said Ian Thom, principal analyst at consultancy Wood Mackenzie.

Many of the world’s biggest oil companies, such as BP, Total, Royal Dutch Shell and Eni, have operations in Iraq, where a low-return environment and strict contract terms have squeezed returns in recent years.

With total oil production at West Qurna 1 at around 430,000 bpd, Exxon’s presence in Iraq is small compared with dominant player BP whose Rumaila oilfield accounts for around a third of the country’s total production of about 4.4 million bpd.

While the Texas-based firm is looking to grow in Iraq, its geographical focus remains on the Americas, including US shale fields and Brazil, in contrast to rivals such as France’s Total and Italy’s Eni who have been significantly expanding their activities in the Middle East in recent years.

The talks between Iraqi authorities and Exxon are still ongoing, according to the industry sources and officials from the Iraqi oil ministry.

However the state-run Basra Oil Company (BOC), which is overseeing the project, said it could now tender the project this month in a parallel process with the aim of completing a first phase by 2022.

“We have this one approach but we can have another approach as well,” Abdul Mahdi Al-Ameedi, head of the Iraqi oil ministry’s licensing and contracts office, told Reuters.

Iraq chose Exxon to coordinate the initial studies of the CSSP in 2010. At the time, Baghdad aimed to raise its oil production capacity to 12 million barrels per day (bpd) by 2018, rivalling Saudi Arabia. That target has been missed and been cut to 6.5 million bpd by 2022 from around 5 million bpd now.

Negotiations with Exxon fell through in 2012 due to red tape and cost disputes. In 2015, the company re-entered talks with the oil ministry, this time in partnership with China’s CNPC and with the CSSP folded into a much bigger development project known as the Integrated South Project. 

CNPC did not reply to a request for comment.

For Iraq, going down the non-Exxon route raises two major concerns: How to integrate the project between the water treatment facility and the oilfields and how to finance the project, Thom said.

Two Iraqi oil sources told Reuters that taking the non-Exxon path would raise financing concerns for Iraq.

Projected costs of the scheme have not been disclosed, but engineering studies have put the cost of treating 12.5 million bpd of seawater transported to six oilfields at $12 billion.

The capacity has been revised downwards, with the first phase set to have a 5 million bpd of water, and in the second phase an additional 2.5 million bpd of water will be added for additional fields.