Oil drops as Wall Street slumps, North Sea pipeline ramps up

An oil pump jack at sunset near Strasbourg, France. US futures fell through $60 a barrel for the first time since December. (Reuters)
Updated 09 February 2018
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Oil drops as Wall Street slumps, North Sea pipeline ramps up

NEW YORK: Oil prices slid more than 3 percent on Friday, following beleaguered equity markets lower, as US futures fell through $60 a barrel for the first time since December on renewed concerns about rising crude supplies.
Futures were on track for a sixth straight day of losses, wiping away the year’s gains in a string of high-volume trading sessions, pressured by stronger-than-expected supply figures and a surprising ramp-up of the North Sea Forties Pipeline, which shut earlier in the week.
Oil services company Baker Hughes said total US onshore rigs rose by 26 to 791, highest since January 2017. Drillers have added rigs as oil prices rallied through mid-January to levels not seen in three years.
US West Texas Intermediate (WTI) crude was down $2.28, or 3.7 percent, at $58.89 as of 1:23 p.m. EST (1823 GMT), lowest since Dec. 26.
Brent futures fell $2.28 a barrel, or 3.5 percent to $62.53 a barrel, its lowest since Dec. 14.
“Oil futures really came under pressure especially when they crossed $60; it really seemed like traders started to liquidate,” said Philip Streible, futures broker at RJO Futures in Chicago.
The market has been increasingly pressured by the weak stock market. Also, oil is inversely correlated with the dollar, which has strengthened as equity markets slid. The S&P 500 stock index fell to its lowest level since Oct. 5.
US and Brent crude futures have slid more than 11 percent from this year’s peak in late January. Brent was heading for a weekly loss of nearly 9 percent; US crude was on track for a 10 percent weekly drop. Both would be the biggest weekly declines since January 2016.
Crude volumes in the North Sea Forties pipeline continued to ramp up faster than expected following a restart, a trade source told Reuters.
The news that the line will reach full rates over the weekend intensified oversupply worries, said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut.
“The idea that it is back up and running normally, combined with the data that show US production is rising, contributes to the overall idea that US production could offset cuts by OPEC,” said McGillian.
Investors were already worried that rising US production will overwhelm efforts by OPEC and other producing nations to cut supply. US output rose to 10.25 million bpd in the most recent weekly figures, which if confirmed would represent a record. The Baker Hughes figures should mean still more supply in coming months.
On Thursday, OPEC member Iran announced plans to boost production within the next four years by at least 700,000 barrels a day.
“We think that surging supply and slowing demand growth will tip the market back into a surplus this year,” analysts at Capital Economics said in a note.


UAE sovereign wealth fund Mubadala pays $271m for stake in Gazprom oil subsidiary

Updated 24 May 2018
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UAE sovereign wealth fund Mubadala pays $271m for stake in Gazprom oil subsidiary

  • Abu Dhabi’s state-owned Mubadala Investment Company (MIC) has agreed to pay $271 million for a 44 percent stake
  • Move underpins a strengthening alliance between Moscow and Opec’s Middle East countries

LONDON: Abu Dhabi’s state-owned Mubadala Investment Company (MIC) has agreed to pay $271 million for a 44 percent stake in an oil subsidiary of Russian gas giant Gazprom. 

The move underpins a strengthening alliance between Moscow and Opec’s Middle East countries, which joined forces to agree a supply-cut deal 18 months ago to stabilize the oil market after the price crashed in late 2014.

“This cements the link between GCC countries and Russia,” Giorgos Beleris, a Dubai-based oil analyst for Thomson Reuters, told Arab News.

Richard Mallinson, co-founder of London research consultancy Energy Aspects and a research associate with the Oxford Institute of Energy Studies, told Arab News that the GCC, and particularly the Saudis, had been talking “about aligning their goals in discussions about whether to extend a cap on crude production beyond 2018.” 

“They are after long-term cooperation, not just a short deal,” Mallinson said.

Shakil Begg, head of oil research for Thomson Reuters in London, said that joint ventures between Russian and Middle Eastern energy companies had become more common.

He added that Russia was still affected by certain sanctions, “so for them, it’s about getting access to technology and expertise.”

“Additional Gazprom production that could come on line is in difficult areas, such as the Arctic,” he said.

A joint statement about the deal from the UAE and Gazprom underlined Begg’s point. 

“For the first time, one of the largest investment funds in the UAE has invested in the Russian assets of Gazprom Neft, based in Western Siberia. The task of beginning cost-effective development of Paleozoic stocks can be more effectively solved within the framework of partnership, combining technological and financial resources,” the statement said.

Importantly, the two companies can make use of each other’s customer base in the Far East where demand, especially from China and India, has been strong.

MP said on its website: “(Our) major projects include exploration, development and production activities in Thailand, Indonesia, Malaysia and Vietnam, where we operate the majority of our assets.

“Southeast Asia continues to be the core region of our operated activities where we have developed an excellent track record of safe and efficient operations,” it added.

In 2017, MP’s average working interest production was about 320,000 barrels per day of oil equivalent.

Begg said: “It appears like this deal is strategic to obtaining a greater share of the light crude market in the Far East.

“The deal involves crude production from several fields operated by Gazprom Neft which feed the ESPO pipeline that supply a number of Chinese refineries and a few in Japan. Given the quality of Russian ESPO is similar to the main crude onshore crudes produced by the UAE (also sold to consumers in the Far East), it is possible that Mubadala are trying to retain/increase its market share in Asia.”

The growing Russian/GCC alliance was underlined recently when Russian energy minister Alexander Novak said a joint organization for cooperation between OPEC and non-OPEC countries may be set up once the current deal on oil output curbs expires at the end of this year.

Saudi Crown Prince Mohammed bin Salman told Reuters in March that Saudi Arabia and Russia were working on a historic long-term pact, possibly 10 to 20 years long, that could extend controls over world crude supplies by major exporters.

Announced at the St. Petersburg Economic Forum, the Russia/UAE agreement is between Gazprom, the Russian Direct Investment Fund RDIF) and MIC offshoot, Mubadala Petroleum (MP).

A statement by RDIF, the sovereign wealth fund of Russia, and MP said that it was creating a joint venture with Gazprom Neft to develop several oil fields in the Tomsk and Omsk regions.

RDIF and Mubadala Petroleum will acquire a 49 percent equity stake in Gazpromneft-Vostok, the operator of the fields. Mubadala Petroleum will hold 44 percent and RDIF 5 percent.

Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), said: “(This deal) brings the experience and expertise of our Middle East partners to the Russian oil and gas sector. (We) see this as the first step in creating a consortium to pursue further significant investments in the sector.”

Dr. Bakheet Al Katheeri, CEO of Mubadala Petroleum, said: “Through this new partnership, we will not only share but also further build on our expertise and capabilities in oil and gas while adding significant oil production to our existing oil and gas portfolio.”

Gazpromneft-Vostok controls seven subsoil licenses in Tomsk and the neighboring Omsk region; these contain both mature and undeveloped oilfields. Its proven and probable reserves stand at 296 million boe (barrels of oil equivalent), of which more than 80 percent is crude oil. According to the Russian energy ministry, the company produced 1.64 million tons (33,000 bpd) of oil in 2017, down 3 percent year on year.

Gazprom is looking to divest stakes in non-core assets to pay for its capital-intensive projects in the Arctic, namely the East-Messoyakhinskoye, Novoportovskoye and Prirazlomnoye oilfields, according to a report by Edinburgh-based website NewsBase.com.

In February, the company reportedly sold the West-Noyabrskoye field in Yamalo-Nenets to an unnamed buyer, and it is also looking to unload stakes in the Neptune oilfield off the coast of Sakhalin and the Chonsky project in Eastern Siberia. Gazprom Neft reported free cash flow of 65 billion rubles ($1.15 billion) at the end of 2017, versus a negative value a year earlier, NewsBase said.