New base 1031 special 18 may 2017 energy news

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,
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NewBase May 18 - 2017 - Issue No. 1031 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
ADNOC signs agreement with Penthol for Group III Base Oil
Sales into US
(WAM) -- The Abu Dhabi National Oil Company, ADNOC, today announced that it has signed an
exclusive agreement with Penthol, a global organisation in the supply and distribution of oil
products and petrochemicals, appointing them as exclusive seller of ADNOC’s Group III base oil
in the United States of America.
In line with its strategy to maximise value from its refining and petrochemical business, ADNOC
produces up to 500,000 metric tonnes per year of high quality Group III base oil through the Abu
Dhabi Oil Refining Company, Takreer, an ADNOC Group Company. Group III base oils are
typically used to manufacture top tier, high performance, engine oils.
Abdulla Salem Al Dhaheri, Marketing, Sales and Trading Director at ADNOC, said, "We are
focused on achieving the best commercial value from our crude and petroleum products, through
innovative and competitive marketing strategies and the expansion of our client base. Our Group
III base oil uses Murban, Abu Dhabi’s light, sweet crude oil, as feedstock, setting new standards
for quality and consistency."

"Tighter emissions regulations are driving the use of high performance lubricants in transportation.
This is in turn driving up the demand for Group III base oils, which deliver improved performance
and increased fuel economy."
"We aim to capitalise on ADNOC’s long-established reputation for high quality products to market
ADNOC base oil to leading lubricant makers in the USA, and worldwide. The USA is one of the
world’s largest importing markets of Group III base oils and we are therefore excited to work with
Penthol to deliver our high-quality product into an important global market," added Al Dhaheri.
Faruk Erkoc, Chairman at Penthol, said, "Penthol was proud to lift the very first cargo from the
new ADNOC plant in June 2016, and we have been exceptionally pleased with the quality and
consistency of the product we have received since. We look forward to expanding our relationship
with ADNOC and to delivering greater volumes of Group III base oil to customers in the USA."
ADNOC’s Group III base oil has a high Viscosity Index, which means it will thicken less as it gets
cold and will thin out less at higher temperatures, providing better lubricant performance at both
temperature extremes. It also has Low Volatility and a low Cold Cranking Simulator viscosity.
Group III base oils are greater than 90 percent saturates, less than 0.03 percent sulfur and have a
viscosity index above 120. These oils are refined more than Group II base oils, the most widely
used base oils for engine lubricants, and generally are severely hydrocracked, using higher
pressures and heat. This longer process achieves a purer base oil.
ADNOC has already completed API approval, GF-5, and 0w20 for full synthetic motor oils, and is
actively working with additive companies to achieve Original Equipment Manufacturers formulation
approvals.

PDO on course to eliminating gas flaring
Oman Observer Conrad Prabhu
Petroleum Development Oman (PDO), which accounts for a dominant share of the nation’s oil
output as well as almost all of gas production, says it is on course to achieving the elimination of
routine flaring well ahead of the 2030 target set by the World Bank.
Helping aid this objective are a number of flaring reduction and mitigation initiatives that have
already contributed to a dramatic decline in flared volumes, as well as the intensity of flaring, the
majority government-owned company said in its Sustainability Report 2016.
“PDO has also endorsed the World Bank Zero Flaring Initiative, to encourage governments,
companies and development organisations to work closely together to end continuous flaring by
2030.
As part of this approach, PDO will continue to strive towards implementation of economically
viable solutions to eliminate routine flaring as soon as possible and ahead of the World Bank
target date,” said Raoul Restucci, PDO Managing Director, in the report.
Gas flaring, which typically functions as a “safety valve” in oilfield operations, also contributes to
the emission of greenhouse gases associated with global warming and climate change. However,
if captured and processed, it can serve as a valuable energy resource for, say, electricity
generation.
Flaring reduction continues to be a key part of PDO’s gas conservation strategy, which is evident
from the 38 per cent reduction in flaring intensity recorded over the 2015-2016 timeframe. Flaring
intensity slumped to 12.86 tonnes flared per 1,000 tonnes of production in 2016, down from 20.85
tonnes flared in 2015.
Flared volumes are expected to further decline once a key initiative by PDO, currently being
trialled at a field in the south of its concession, is successfully operationalised.

It centres on the use of micro-turbines to convert gas into electricity for possible deployment in
locations where gas output is not hooked up to the network either because the volumes are too
small or the location is far too remote.
Commenting on the potential behind this technology, the PDO report said: “PDO has implemented
several new technology trials such as the use of micro-turbines. These represent an emerging
new technology, gaining worldwide acceptance in flare gas recovery. They are seen as very
promising for generating power directly from low and atmospheric pressure (AP) flare gas, which
is otherwise wasted.”
At Anzauz, where micro-turbine technology is undergoing trials, the pilot successfully converts
around 1,000 m3/day of gas to generate 180 — 195 kilowatts. Although gas utilization amounts to
just 5 per cent of Anzauz’s flared volumes, the technology — if and when fully deployed — has the
potential to recover around 500,000 m3/day of flared gas across PDO’s vast concession.
In another trial under way at Zauliyah, a liquid-gas pump called an ‘eductor’ is being used to
recover atmospheric pressure gas typically flared at stations where the volumes are too small for
commercial recovery.
Commissioned last November, the eductor project has reduced flaring by 1,200m3/day and has
also contributed to the recovery of 18 barrels of oil per day (bpd).

Morocco: Sound Energy announces arrival of rig to re-enter
and test Sidi Moktar wells …. Source: Sound Energy
Sound Energy, the African and European focused upstream gas company, is pleased to
announce that the SAIPEM rig has now arrived at the Company's Sidi Moktar asset, onshore
Morocco ahead of the re-entry and testing of the Lower and Middle Jurassic in two existing wells
on the Kechoula discovery.
The Sidi Moktar licences cover 2,700 sq kms in the Essaouira basin, central Morocco and contain
an existing gas discovery in the Lower Liassic ('Kechoula') and significant pre-salt potential. Sidi
Moktar is close to existing infrastructure and gas demand, including the large scale Moroccan
state owned OCP Phosphate plant.
The two wells to be re-entered and tested by the Company, Koba-1 and Kamar-1, have already
been drilled at Kechoula by previous operators and have been estimated to have an unrisked mid
case original gas in place ("GOIP") in the Lower Liassic reservoir of 293 Bscf (gross). The
Company notes the quantitive assesment prepared by a previous operator in 1998 which referred
to exploration potential of the Sidi Moktar licences of up to 9 Tcf unrisked GOIP (gross) in the
TAGI and Paleozoic. The Company will require the reprocessing of existing 2D seismic,
acquisition of new 2D seismic and drilling results before forming its own volume estimates for the
exploration potential of the Sidi Moktar licences.
In the near term, the Company plans to
complete a 2 stage workover of the two
wells, which will include:
Completion, perforation and testing of
the Lower Liassic in Koba-1, with
possible additional testing of the
Argovian - all expected to commence
before the end of May 2017
Completion, perforation and testing of
the Lower Liassic in Kamar-1, with a
possible additional testing of the Dogger
- all expected to start mid-June 2017
Should the wells deliver a commercial
flow rate, the Company will complete an
Extended Well Test and assuming a successful test, target first commercial gas to the domestic
market, around the end of 2017.
James Parsons, the Company's Chief Executive, commented:
'Sidi Moktar represents one of many exciting opportunities for operational success to add material
value to our business in the near future.
The Sidi Moktar licences are estimated to have significant pre-Jurassic exploration potential from
the TAGI and Paleozoic, similar to our Tendrara licence in Eastern Morocco, reinforcing our
strategy of identifying opportunities that can bring near term benefit to Sound Energy and can be
progressed quickly from an infrastructural perspective.
We continue to believe that Morocco is an exciting hydrocarbon province with significant upside
for Sound, and look forward to updating the market on progress in due course.'

Kenya: Tullow Oil announces Emekuya-1 oil discovery on shore
Source: Tullow Oil
Tullow Oil has announced that the Emekuya-1 well in Block 13T, Northern Kenya has
encountered around 75 metres of net oil pay in two zones.
Emekuya-1 is located 2.5 km north of Etom-2 and had the objective of drilling a fault block on the
flank of the Greater Etom structure. The well was drilled by the PR Marriott Rig-46 to a total
measured depth of 1,356 metres and penetrated reservoir quality Miocene sandstones which
correlate to those seen in the successful Etom-2 well.
Downhole pressure measurements and fluid samples suggest that the main oil reservoir is on the
same static pressure gradient as the Etom-2 well which demonstrates that a major part of the
Greater Etom structure is oil-filled. The reservoir sands encountered also appear to be extensive
which further de-risks the northern play area and bodes well for future exploration in the region.
The rig will be moved to drill an up-dip appraisal well on the Greater Etom structure. Tullow
operates Blocks 13T and 10BB with 50% equity and is partnered by Africa Oil
Corporation and Maersk Oil both with 25%.
Angus McCoss, Exploration Director, commented today:
'The Emekuya-1 exploratory appraisal well has made an important discovery in the northern part
of the South Lokichar Basin. This well has proven oil charge across a significant part of the
Greater Etom structure and we are very encouraged by the quality and particularly the regional
extent of the reservoir. We now look forward to the remainder of the Kenya exploration and
appraisal campaign in support of the ongoing work to prepare this important asset for Full Field
Development.'

US: Fracking Crew Shortage May Push Oil's Biggest Bubble Into 2018
by Joe Carroll and David Wethe
Shale explorers pushing to expand oil production are struggling to find enough fracking crews
after thousands of workers were dismissed during the crude rout.
Independent U.S. drillers underspent their first-quarter budgets by as much as $2.5 billion
collectively, largely because they couldn’t find enough fracking crews to handle all the planned
work, according to Infill Thinking LLC, a research and consulting firm focused on oilfield services
and exploration.
If the scarcity holds, output increases planned for this summer may get pushed into 2018,
creating an unanticipated production bulge with “scary” implications for oil prices, said Joseph
Triepke, Infill’s founder.
In some cases, active crews are walking away from jobs they signed up for months ago -- and
paying early-termination penalties -- to take higher-paying assignments with other explorers.
Workers earn anywhere from $29,000 to $72,000 a year before overtime, depending on the
company and the region.
The tight fracking market “means U.S. oil production growth this year will be back-half weighted,
and we may not understand the full extent of U.S. production growth until early 2018,” said
Triepke, who previously was an analyst at Citadel LLC’s Surveyor Capital unit. “This point is
particularly scary if you are a rooting for higher oil prices.”
Oilfield-service companies contributed the largest chunk of more than 441,000 jobs slashed
globally as prices plunged from more than $100 a barrel over the last three years, according to
Houston-based industry consultant Graves & Co.

Now, with the price of oil settling at around $50 a barrel, shale drillers are once again gearing up
in areas such as the Permian Basin, where break-even costs are as low as $30 a barrel.
The result: rising competition for workers and equipment, which means higher costs. Fracking
companies are now charging 60 percent to 70 percent more than a year ago as explorers
engaged in bidding wars to lock up crews, according to Infill data.
In response, servicers are scrambling to re-hire hands and retrieve gear from storage, said
Andrew Cosgrove, an analyst at Bloomberg Intelligence.
Typical Crew
A crew typically consists of 25 to 30 workers who operate a huge array of powerful truck-mounted
pumps, storage tanks for fluids and sand, hoses, gauges and safety gear. Fracking, which
involves pumping tons of water, sand and chemicals into a well to smash open the surrounding
oil- and gas-soaked rock, is the most expensive part of drilling a well, usually accounting for about
70 percent of the total cost.
So far, independent shale drillers are confident they’ll find ample fracking capacity and are leaving
their ambitious double-digit output growth targets intact. West Texas Intermediate crude, the U.S.
benchmark, has climbed 7 percent in a week as U.S. stockpiles decline while Saudi Arabia and
Russia indicated a willingness to extend price-boosting production cuts.
Those efforts could be dashed in coming months, however, if shale explorers deliver a larger-
than-expected bubble of supply.
“Every single pressure pumper is saying their order books are full through the third quarter and
some as far ahead as the first quarter of ’18,” Cosgrove said.
Walkaways
EQT Corp. was left short of fracking crews during the first quarter when some pumping companies
walked away for higher-paying contracts. Still, the Pittsburgh-based shale driller expects to attract
enough fracking capacity by the beginning of June to stay on track and hit its full-year growth
forecast.
“A couple of our frack contractors decided to pay us the penalties to take their frack crews to jobs
that were more profitable,” EQT Chief Executive Officer Steven Schlotterbeck said during an April
27 conference call with analysts. “So we will get some penalty fees but that obviously is far less
than the value of having the wells fracked on the schedule that we would have liked.”
The last time the shale patch boomed, Parsley Energy Inc. CEO Bryan Sheffield remembers
personally delivering breakfast and giving away World Series tickets to get into good graces with
fracking companies.
Better-Paying Gigs
That was late 2011, when booming demand for fracking capacity meant service companies could
fire clients to take better-paying gigs, Sheffield said in an interview. The 39-year-old Parsley

founder was relatively unknown at the time, trying to get to the top of frack companies’
cancellation lists, so he could get a chance to hire them and get his oil flowing.
After the last boom that saw oilfield truck drivers commanding more than $200,000 a year in the
Bakken of North Dakota, companies are again hunting for more truckers -- this time in the
Permian Basin of Texas and New Mexico for hauling water, sand and oil. Fracking equipment
prices began rising late last year, Sheffield said.
“This is exactly what we saw in 2011 and 2012,” Sheffield said. “The bottleneck moves down the
chain.”
A growing number of private energy services companies have been sitting on the sidelines,
waiting for the industry to recover before venturing toward an exit.
Oil prices inching toward $50 a barrel and the highest U.S. rig count in two years have proved
enough to spur the shaky revival. While prices pale in comparison to past highs, recovering oil and
gas production has increased confidence among companies that provide services for the industry.
“The recovery in drill count has translated into more demand, which means more revenue growth,”
Park said. That means companies that serve the oil and gas industry can also increase their
prices, he said.
Solaris Oilfield Infrastructure Inc. is the latest to come to market, pricing shares at $12 last week to
raise $121.2 million -- albeit in a downsized offer below the marketed range. BJ Services Co., a
fracking company created by Baker Hughes Inc., a fund managed by Goldman Sachs and private

equity firm CSL Capital Management, is preparing an IPO that could raise as much as $300
million, people familiar with the matter said in March.
After 21 months without a listing, Mammoth Energy Services Inc. ended the drought in October
with a $116 million IPO. Fracking company Keane Group Inc. followed with a $585 million offering
in January, kicking off the five deals that have priced in 2017.
While activity is up, results have been mixed. Keane and ProPetro Holding Corp., which raised
$350 million in March, are trading below their listing prices. Select Energy Services Inc., Solaris
and NCS Multistage Holdings Inc. are trading above.
Keane and ProPetro are facing more short-term competition from its larger peers like Halliburton
Co. and Weatherford International Plc, as bigger companies bring back capacity quicker than
expected, Bloomberg Intelligence analyst Andrew Cosgrove wrote in a note.
The scattered reception may also be a harbinger that investors are becoming more selective
about oilfield services companies, a catch-all term that covers everything from fracking and well
completion to pressure pumping and water supply, according to Rob Thummel, a portfolio
manager at Tortoise Capital Advisors, which oversees $17 billion in energy assets.
Stock buyers’ appetite could be limited to the best companies in any given sub-sector, Thummel
said, which may restrict enthusiasm for the rest of the pipeline.
“Oilfield services is one of the most competitive sectors along the energy value chain,” Thummel
said. IPO-bound companies are “going to have to tell the story and differentiate themselves.”

NewBase 18 May 2017 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices dip as supply remains ample despite output cuts
Reuter+NewBase
Oil prices dipped on Thursday, weighed down by plentiful supply despite ongoing efforts led by
OPEC to tighten the market by cutting production. Brent crude LCOc1 was down 18 cents, or 0.3
percent, from its last close at $52.03 per barrel at 0244 GMT.
U.S. West Texas Intermediate (WTI) crude CLc1 was down 16 cents, or 0.3 percent, at $48.91.
The downward correction eroded gains from the previous session when prices rose on the back of
a drawdown in U.S. crude inventories and a slight dip in American production.
The U.S. Energy Information Administration said on Wednesday that crude inventories
USOILC=ECI fell 1.8 million barrels for the week to May 12, to 520.8 million barrels. However, the
drawdown was smaller than expected, and many traders say there is still more oil in the system
than the market can absorb.
"The fall in stockpiles undershot the expectation of a 2.36-million draw," said Greg McKenna, chief
market strategist at futures brokerage AxiTrader. "OECD stocks were up 24.1 million barrels (in
Q1 2017) due to a large build in January," BMI Research said.
"This leaves OECD stocks 307 million barrels above their five-year average going into Q217."
In order to achieve the target of reducing these stocks to their five-year average over an extended
nine-month period of supply cuts, BMI said that inventory drawdowns would have to average 25.6
million barrels per month in the three last quarters of the year.
Oil price special
coverage

Overall oil supplies remain ample, with large amounts of crude from the United States and other
producers being shipped to the big consumer regions in northern Asia, undermining the OPEC-led
efforts to tighten the market.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including
Russia have pledged to cut production by almost 1.8 million barrels per day (bpd) during the first
half of 2016, a deal likely to be extended until the end of March 2018.
Shipping data in Thomson Reuters Eikon shows that U.S. oil exports to Asia have soared from
just a handful of tankers per quarter throughout 2015 and 2016, to 10 tankers in the first quarter of
this year, a figure expected to rise.
North Sea oil shipments to Asia have also been at record highs this year, with 19 tankers
delivering in Q1, and a similar amount expected to go to Asia in the second quarter.
U.S. Supply Decline
Crude markets are getting some encouragement from the U.S. as supplies fell for a sixth week --
a sign that OPEC-led production curbs are starting to be felt in the world’s biggest oil-consuming
nation.
Inventories fell 1.75 million barrels last week to 520.8 million, the Energy Information
Administration reported Wednesday -- less than the 2.67 million-barrel decline forecast by
analysts surveyed by Bloomberg. Russia and Saudi Arabia said on Monday that they’re in favor of
extending output cuts for nine months to give global stockpiles more time to reach the level
targeted by OPEC and its allies.
"OPEC still has work to do," Craig Bethune, a fund manager at Manulife Asset Management Ltd.
in Toronto who focuses on energy and natural resources investments, said by telephone. "They

ultimately want the production cuts to pull inventories down. These numbers show that slow
progress is continuing."
Russia and Saudi Arabia are the largest of the 24 producers that agreed to reduce output for six
months starting in January. Ministers from the countries are scheduled to gather in Vienna on May
25 to discuss extending the curbs. Prices have slipped since reaching a 19-month high in
February on speculation that surging U.S. production will undercut OPEC’s efforts.
West Texas Intermediate for June delivery increased 41 cents, or 0.8 percent, to settle at $49.07 a
barrel on the New York Mercantile Exchange. Total volume traded was about 26 percent above
the 100-day average.
Brent for July settlement rose 56 cents, or 1.1 percent, to $52.21 a barrel on the London-based
ICE Futures Europe exchange. The global benchmark crude closed at a $2.80 premium to July
WTI.
U.S. supplies of crude are still near records and more than 100 million barrels higher than the five-
year average for this time of the year, data compiled from the EIA show. Crude production fell for
the first time in 13 weeks, ending the longest stretch of gains since 2012.
"It’s the first time in 13 weeks that domestic production has been lower," Bob Yawger, director of
the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "That, plus
draws across the board, should help support the market. This is a good report for the Saudis."
Gasoline supplies slipped 413,000 barrels, while inventories of distillate fuel, a category that
includes diesel and heating oil, dropped 1.94 million barrels to 146.8 million, the lowest since
November 2015.

OPEC Risks Deal Fatigue as Maintaining Oil Curbs Get Tougher
by Grant Smith
OPEC impressed oil traders this year by making almost all the supply cuts it promised. Keeping
output down will only get harder.
The Organization of Petroleum Exporting Countries and its partners are expected to extend output
curbs into early 2018 when they meet next week, in an ongoing bid to clear a global surplus. Yet
the tailwinds that made cutting supply easier in the first half of the year -- from a seasonal lull in
demand to temporary oil-field maintenance -- will be gone just as new obstacles are emerging.
To keep a lid on output this summer, Saudi Arabia will need to sacrifice an even bigger share of
exports as consumption at home rises. Iraq yearns to expand capacity, and has already used the
option of maintenance to keep oil fields idle. Meanwhile Nigeria and Libya, two OPEC nations
exempt from the deal, are restoring lost output.
“They’re going to struggle,” said Michael Barry, director of research at consultants FGE in London.
“This deal has been remarkable in its implementation. As time goes on, discipline is likely to
erode. Almost every country wants their production to go up.”
Brent crude, the global benchmark, was trading 0.7 percent higher at $52.01 a barrel as of 12:46
p.m. in London.
As the world’s fuel-storage tanks remain brimming and prices languish, OPEC and its allies have
conceded that the initial plan for six months of production cuts wasn’t long enough. Yet Saudi
Arabia and Russia’s proposal that their 24-nation coalition, due to meet in Vienna on May 25,
should extend the measures for another nine months may prove an unbearable strain.

“Production curbs for the first quarter of 2017 were comparatively easy to agree to,” said David
Fyfe, chief economist at Geneva-based oil trader Gunvor Group. “They’ll likely agree to extend”
but “the risk is higher they’ll leak extra barrels onto the market.”
OPEC showed an unprecedented level of commitment to this deal, implementing 96 percent of the
cuts it promised during the first four months of the year, according to the International Energy
Agency.
Holding Line
Some are optimistic that OPEC and its partners will maintain their resolve. The stakes are high
enough that the organization will stick to its commitments, and as inventories decline producers
will feel encouraged to stay the course, said Mike Wittner, head of oil market research at Societe
Generale SA in New York.
“They’re going to hold the line,” said Wittner. “If we see stock draws happening soon, which we
believe will be the case, those signs of success will bolster their determination. When you see light
at the end of the tunnel, it’s easier to keep it together.”
Still, strong compliance was often attributable to Saudi Arabia cutting more than it was required,
compensating for laggards like Iraq and the United Arab Emirates.
If the kingdom continues to restrain output, it needs to make another sacrifice. The Saudis
typically boost production during the summer to maintain exports while meeting increased local
demand from air conditioning. Keeping a cap on output would mean foregoing some exports and
the revenues they bring.
Iraqi Question
Iraq, which still hasn’t made its full cut, plans to boost production capacity to 5 million barrels a
day, an increase of about 6 percent, Oil Minister Jabbar al-Luaibi said on May 11. This won’t
conflict with its commitment to freeze output, he said.
“We have question marks around Iraq,” said Harry Tchilinguirian, head of commodity markets
strategy at BNP Paribas SA in London. “They have been reluctant since the very beginning, and
were slow to implement their cuts. Most of the supply restraint in Iraq has come with the help of
field maintenance.”
Maintenance in Iraq, Kuwait and the U.A.E. may have accounted for about 500,000 barrels a day
of the output halted -- almost half the group’s total cut, according to FGE. For Iraq, this enabled
them to avoid compensating foreign companies for unscheduled production shutdowns.
“Several countries basically used maintenance as a way of keeping production down but what
they did was pull it forward from later in the year,” said FGE’s Barry. “Now maintenance is over the
question is what do they do? More maintenance or cut at other fields? The pressure is on.”
OPEC also faces the challenge that the two members exempted from the deal because of
production losses are recovering. Both Libya and Nigeria are showing progress in tackling the
political crises that slashed their output.

Disciplinary Issues
Libya is producing at the highest level in more than two years after restarting its largest oil field,
according to state-run National Oil Corp., while Nigeria has fixed a pipeline after a one-year halt
that could boost its output by about 13 percent.
The 11 non-members joining OPEC’s effort have still only implemented about two-thirds of their
promised reduction, according to the IEA, and also face problems in sustaining their curbs.
Cutbacks in Russia came alongside the traditional seasonal stagnation in activity, and prolonging
them would thwart plans by companies to expand output.
“It was easy to mask maintenance in the first half as voluntary cuts, but quite impossible to do it
any further,” said Eugen Weinberg, head of commodities research at Commerzbank AG in
Frankfurt. “There will be lower discipline within OPEC, and lower discipline from non-OPEC.”
OPEC Prolonging Cut Would Achieve Mission to Clear Oil Glut
by Grant Smith
The world’s two biggest oil exporters seem to have finally figured out how to eliminate a global
surplus that’s kept crude prices in check for almost three years.
Saudi Arabia and Russia said in Beijing on Monday they favor prolonging this year’s oil curbs to
the first quarter of 2018. If they convince fellow producers to adopt the strategy when OPEC and
its partners meet next week, it will pare near-record inventories in developed nations by 8 percent
and erase the glut weighing on the market, according to Bloomberg calculations using U.S.
government data.
“They have a very clear goal,” said Mike Wittner, head of oil market research at Societe Generale
SA in New York. “They remain focused on having stocks get down to the five-year average. They
really want to see it work.”

While news of the Saudi-Russia proposal helped send prices to a two-week high on Monday,
crude remains stuck near $50 a barrel, less than half the level traded in 2014. That’s because
output cuts by OPEC and its allies have failed to drain bloated stockpiles as production rises in
places like the U.S. and as demand growth slowed. Brent crude was 0.4 percent higher at $52.04
a barrel as of 11:53 a.m. in London.
Inventories in the 35 of the world’s most industrialized nations -- the Organization for Economic
Cooperation and Development -- were just above 3 billion barrels in April, or about 307 million
above their five-year average, data from the U.S. Energy Information Administration shows.
If OPEC and Russia complete the nine-month extension, stocks will fall to about 10 million barrels
below that average next March, according to Bloomberg calculations using the EIA’s numbers.
The calculations assume OPEC keeps its output at April levels of 31.7 million barrels a day, and
that Russia keeps supply steady at 11.15 million a day from May. Those levels represent the full
cuts they’d agreed to undertake in a deal reached last year.
OPEC’s own data suggest it could take even longer to eliminate the surplus, while figures from the
International Energy Agency indicate it could happen sooner.
While supply cuts by OPEC and its partners would certainly play a significant part in reaching the
five-year average, the producers are also set to receive a helping hand: oil markets have been
oversupplied so long that their historical average is getting higher.

The five-year average for OECD stocks was at 2.71 billion barrels in January, according to the
EIA. Yet, as years of elevated inventories push the average higher, by next January it will jump to
2.79 billion -- making the task of hitting that target a little bit easier.
That still doesn’t mean success is straightforward. Fulfilling the plan, which started in January,
would require OPEC to comply with output targets for 15 months, longer than the group has
typically managed in the past.
Although a longer extension may achieve OPEC’s objective, it risks backfiring by giving extra
support to rivals in the U.S. shale industry, according to Natixis SA. American oil explorers are
using double the number of rigs they deployed a year ago, and the nation’s production is
rebounding. OPEC last week raised its outlook for U.S. output growth this year by 285,000 barrels
a day to 820,000 a day.
“It depends on how much the U.S. adds,” said Abhishek Deshpande, chief energy analyst at
Natixis in London. “The problem is, will OPEC extend it further if oil gets supported and U.S.
producers hedge more and increase oil production more?”

NewBase Special Coverage
News Agencies News Release 18 May 2017
IEA released its latest Market Oil Report
IEA + The Nationa + NewBase
The International Energy Agency says the world oil market appears to be rebalancing, despite
lower-than-expected demand in the first part of the year.
"Rebalancing is essentially here and, in the short term at least, is accelerating," the IEA declared
in its latest monthly oil market report, which comes nine days before the May 25 Opec meeting,
when the member countries and their outside partners will decide what steps they need to take
next to keep that rebalancing on track.
The IEA, a Paris-based energy watchdog for consumer countries, said that Opec and its 11
supporting non-member countries, led by Russia, have been complying fairly well with their deal
but noted that the US oil sector has rebounded strongly, while Libya and Nigeria, exempt from
Opec’s deal, have also shown strong improvement.
The agency said it is sticking with its forecast for demand to grow by 1.3 million barrels per day, to
97.9 million bpd, over the whole year, despite lower-than-expected demand so far this year. It
warns, however, that even with better demand and continued supply restraint, absorbing the
enormous glut of oil will be slow going.
"The IEA gave a pretty cautious endorsement of the effectiveness of Opec’s production cuts,
anticipating that global inventories would start to see draws from the second quarter onward," said
Ed Bell, the head of commodities research at Emirates NBD bank in Dubai. "But getting
inventories close to their five-year average is doubtful with the current scale of Opec’s limited
output."
Demand in the US was particularly disappointing early this year, according to the report, with
February demand down 500,000 bpd on the previous year at 19.2 million bpd.

Other poorly performing major oil markets include Germany, Turkey and India, with the latter a big
let-down for oil sellers as their hopes have been pinned on the subcontinent to take over from
China as the biggest single source of oil demand growth over the next few years.
The IEA said the effects are still being felt of India’s demonitisation policy, where the government
bungled its attempt earlier this year to take cash out of the economy – to curb the black market,
among other things – thus hurting demand across a number of sectors, including oil products.
China compensated for most of the weakness in the US in the first quarter and is expected to
continue to be one of the main growth stories this year, with "robust economic activity and
continued expansions in the petrochemical sector [meaning] China [will] account for roughly one-
third of global oil demand growth" this year, the IEA reckons.
Furthermore, it is banking on demand coming back strong in India later this year, so that China
and India together will account for three quarters of world demand growth for the year.
The IEA is also looking for a sharp upturn in refinery crude runs to make up for slower demand
early on this year. "Starting in March, refinery activity is building up and by July global crude
throughputs will have increased by 2.7 million bpd," the IEA predicts.
On the supply side, it noted the continued surprisingly strong performance in the US. After
bottoming out last September, output there increased by nearly 465,000 bpd to the end of
February to more than 9 million bpd, it’s highest in a year. The IEA now expects US output to
increase by 790,000 bpd this year, up by 100,000 bpd from its previous prediction.
Toward the end of the year, even if the producers’ goal of getting inventories toward their five-year
average is achieved, "the market will hardly be in a position where it’s short of oil", says Mr Bell,
who notes that the OECD’s stocks will still be higher than when the oil price slump started three
years ago in terms of days demand cover. "Russia and Saudi Arabia more or less acknowledged
this yesterday when they announced their support for a nine-month extension of the deal," he
says.
There are a number of analysts now seeing the glut lasting well beyond the early part of next year.
"In our current base case, we see 2018 as being strongly oversupplied, to the tune of close to 1.5
million bpd in the broader oil complex on average for the year," says Eugene Lindell, the chief oil
analyst at JBC Energy in Vienna. "The potential extension of the cuts programme to the end of
March would not alter this picture drastically."

Highlights (IEA Oil Market Report May 2017)
• Weakness in a number of previously solid countries - India, US, Germany and Turkey -
curtailed the 1H17 global demand growth estimate by 115 kb/d. Global demand growth is,
however, still forecast at 1.3 mb/d in 2017, with demand at 97.9 mb/d.
• Global oil supply fell by 140 kb/d in April as non-OPEC, and especially Canada, pumped
less. At 96.17 mb/d, output stood 90 kb/d below a year ago, even as non-OPEC returned to
growth. Non-OPEC supply is set to increase 600 kb/d in 2017.
• OPEC crude production rose by 65 kb/d in April to 31.78 mb/d as higher output from
Nigeria and Saudi Arabia more than offset lower flows from Libya and Iran. Crude
production was down 535 kb/d compared to April 2016. Year-to-date compliance with
production cuts remained robust at 96%.
• OECD commercial stocks decreased for a second straight month in March, by 32.9 mb
(1.1 mb/d), to 3 025 mb. Product stocks fell sharply on lower refinery output and increased
exports. For 1Q17 as a whole, OECD stocks were up 24.1 mb (0.3 mb/d) due to a large
build in January. Preliminary data suggests OECD stocks increased in April.
• Benchmark oil prices fell after 11 April and traded close to their late- November level,
before the OPEC output deal. They rose on 15 May after Russia and Saudi Arabia
indicated support for an extension of the production cuts. Sour grades continued to trade
higher than sweet crudes.
• In 2Q17, global refining activity slows down seasonally, lower by 370 kb/d from 1Q17, but is
set to ramp up by 2.4 mb/d by July-August. The OECD leads the way: in non-OECD areas,
maintenance and refinery closures in the Middle East, underperformance in Latin America
and flat growth in India are not offset by growth in China and Russia.
Decision Time
This report is published nine days before OPEC's ministerial meeting and, ahead of the
deliberations, in this Report we show that in 1Q17 the oil market was almost balanced with a
global stock build of 0.1 mb/d. For OECD countries, stocks grew by 0.3 mb/d for 1Q17 as a whole,
nearly offset by observed falls in floating stocks and in other centres. In March, total OECD stocks
did fall by about 1 mb/d.
It has taken some time for stocks to reflect lower supply when volumes produced before output
cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market.
In 1Q17, we might not have seen a resounding return to deficits but this Report confirms our
recent message that re-balancing is essentially here and, in the short term at least, is
accelerating.
Looking at 2Q17, if we assume that April's OPEC crude oil production level of 31.8 mb/d is
maintained, and nothing changes elsewhere in the balance, there is an implied stock draw of
0.7 mb/d. Adopting the same scenario approach for the second half of 2017, the stock draws are
likely to be even greater.
Even if this turns out to be the case, stocks at the end of 2017 might not have fallen to the five-
year average, suggesting that much work remains to be done in the second half of 2017 to drain
them further.

In addition to production cuts and steady demand growth, a major contribution to falling crude
stocks in the next few months will be a ramp-up in global crude oil runs. Starting in March, refinery
activity is building up and by July global crude throughputs will have increased by 2.7 mb/d.
Of course, things will change elsewhere in the balance, and today the most closely watched data
point on the supply side is US crude production. In February, it increased again, this time by
nearly 200 kb/d and, at 9.03 mb/d, was the highest since March last year. After bottoming out in
September, output has increased by nearly 465 kb/d.
In line with stronger recent
performance from the US
shale sector we have revised
upwards our expectation
throughout 2017 and we now
expect total US crude
production to exit the year
790 kb/d higher than at the
end of 2016, which is an
upward revision of 100 kb/d
since last month's Report.
Such is the diversity and
dynamism of the US shale
sector that our numbers are
likely to be a moving target as
2017 progresses.
The overall outlook for the
non-OPEC countries, eleven
of which are voluntarily cutting
production to support OPEC,
shows growth in 2017 of
nearly 600 kb/d, an increase
on the 490 kb/d seen in last
month's Report.
While compliance with the agreed production cuts by OPEC and the eleven non-OPEC countries
has generally been strong, we need to keep a close eye on Libya and Nigeria where there are
signs that production might be rising sustainably. According to preliminary data, Libyan production
reached 800 kb/d in May, the highest level since 2014, and any significant increase clearly offsets
cutbacks by other OPEC and non-OPEC countries.
As for demand, we have left unchanged our headline growth number for 2017 at 1.3 mb/d. Growth
was weaker than expected in 1Q17, however, with notable downward revisions seen in the US
(where demand is essentially flat), Germany, Turkey and India (where the effect of the currency
reform lingers on).
In the June edition of this Report, we will publish our first quarterly demand and supply estimates
for 2018, which, amongst other things, will provide insight on the likely call on OPEC crude and
stocks. In the meantime, we wait to see what OPEC decides and to consider the likely implications
for the rest of 2017.

EIA projects increase in OPEC net oil export revenues in 2017
Source: EIA
For 2016, the U.S. Energy Information Administration (EIA) estimates that members of
the Organization of the Petroleum Exporting Countries (OPEC) earned about $433 billion in net oil
export revenues (unadjusted for inflation).
This represents a 15% decline from the $509 billion earned in 2015, mainly as a result of the fall in
average annual crude oil prices during the year, and to a lesser extent to decreases in the level of
OPEC net oil exports. This revenue total was the lowest earnings for OPEC since 2004. The net
oil export revenues reflect OPEC members as of May 2017.
These net export earnings include Iran, which the EIA did not include in reports published
between 2012 and 2015. However, Iran's net export revenues are not adjusted for possible price
discounts the country may have offered its customers between late 2011 and January 2016, when
nuclear-related sanctions targeting Iran's oil sales were in place. Saudi Arabia earned the largest
share of these earnings, $133 billion in 2016, representing approximately one-third of total OPEC
oil revenues.
EIA projects that OPEC net oil export revenues will rise to about $539 billion dollars (unadjusted
for inflation) in 2017, based on projections of global oil prices and OPEC production levels in EIA's
May 2017 Short-Term Energy Outlook (STEO).
On a per capita basis, OPEC net oil export earnings are expected to increase by about 18% from
$912 in 2016 to $1,112 in 2017. The expected increase in OPEC's net export earnings is
attributed to slightly higher forecast annual crude oil prices in 2017 compared with 2016 as well as
slightly higher OPEC output during the year.
For 2018, OPEC revenues are projected to be $595 billion, with an increase in forecast crude oil
prices, coupled with higher OPEC production and exports, contributing to the rise in overall
earnings.
Methodology
For each country, EIA derived net oil exports based on its oil production and consumption
estimates from the May 2017 edition of the STEO. For countries that export several different
varieties of crude oil, EIA assumes that the proportion of total net oil exports represented by each
variety is equal to the proportion of the total domestic production represented by that variety.
For example, if Arab Medium represents 20% of total oil production in Saudi Arabia, the estimate
assumes that Arab Medium also represents 20% of total net oil exports from Saudi Arabia. EIA

assumes that these exports are then sold at prevailing spot prices. Projected revenues are then
estimated using EIA's projections for oil prices from the STEO. These projections incorporate
historical price differentials between spot prices for the different OPEC crude oil types and the
benchmark crude oil prices that are projected in the STEO (Brent, West Texas Intermediate, and
the average imported refiner crude oil acquisition cost).

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
Mobile: +97150-4822502
khdmohd@hawkenergy.net
khdmohd@hotmail.com
Khaled Al Awadi is a UAE National with a total of 25 years of experience in
the Oil & Gas sector. Currently working as Technical Affairs Specialist for
Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy
consultation for the GCC area via Hawk Energy Service as a UAE
operations base , Most of the experience were spent as the Gas Operations
Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility &
gas compressor stations . Through the years, he has developed great
experiences in the designing & constructing of gas pipelines, gas metering &
regulating stations and in the engineering of supply routes. Many years were spent drafting, &
compiling gas transportation, operation & maintenance agreements along with many MOUs for the
local authorities. He has become a reference for many of the Oil & Gas Conferences held in the
UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.
NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE
NewBase May 2017 K. Al Awadi

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