New base 1061 special 12 august 2017 energy news

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NewBase August 12 2017 - Issue No. 1061 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Saudi, Iraq Oil Ministers Agree to Stronger Oil-Cuts Commitment
Blomberg - Bruce Stanley and Abbas Al Lawati
OPEC’s two biggest producers agreed to strengthen their commitment to production cuts and
maintain balance in world crude markets, Saudi Energy Minister Khalid Al-Falih said after talks
with his Iraqi counterpart Jabbar al-Luaibi, according to the kingdom’s state news agency SPA.
The two ministers also agreed to ensure coordination of their nations’ oil policies, Saudi Press
Agency reported Thursday, citing comments by Al-Falih after their meeting in the Red Sea city of
Jeddah.
Saudi Arabia, the largest member of the Organization of Petroleum Exporting Countries, has borne the
brunt of output cuts aimed at ending a global oversupply weighing on prices. Compliance by Iraq, OPEC’s
second-biggest producer, slumped to 29 percent in June, its lowest since the output limits took effect in
January, according to data from the International Energy Agency. OPEC and allied suppliers agreed to
extend their cuts through next March.
Al-Falih’s remarks came a day after OPEC said that Iraq, the United Arab Emirates and Kazakhstan --
which have all lagged in making the output reductions they promised -- affirmed that they would adhere to
the cuts accord. That meeting, in Abu Dhabi, was led by Kuwait and Russia and was scheduled after
several oil-supplying nations faltered in their pledges to curb output.
Saudi Crown Prince Mohammed bin Salman also met with Iraq’s al-Luaibi in Jeddah and discussed
coordinating oil policies and the two countries’ commitment to their pledged cuts until global markets come
into balance, SPA reported earlier.

Egypt: Mitsubishi Hitachi Power Systems wins power station deal
TOKYO, 14 hours, 44 minutes ago
Mitsubishi Hitachi Power Systems (MHPS) has signed a contract with Cairo Electricity Production
Company (CEPC), a subsidiary of the Egyptian Electricity Holding Company (EEHC), for the
upgrade of Cairo North Combined Cycle Power Station Module l.
The natural gas-fired gas turbine combined cycle
(GTCC) power station has a rated output of 750 MW
and uses two M701F gas turbines as the core
component. The upgrade will increase output,
improve energy generation efficiency and reduce
downtime losses through extension of the inspection
intervals, thereby contributing to a more stable
energy supply. Delivery and commencement of
operations is scheduled for the second half of 2018.
Cairo North Combined Cycle Power Station is
located around 20 km north of the Egyptian capital,
and has been operated by CEPC since 2005. It currently uses gas turbines provided by Mitsubishi
Heavy Industries (MHI), as well as steam turbines provided by Hitachi. With the integration of the
two companies' thermal power generation divisions into MHPS in 2014, MHPS has since taken
over after-sales services for the power station.
CEPC and EEHC have developed a high level of trust in MHPS as a result of its outstanding after-
sales service, leading to its decision to place the order with MHPS's Egyptian subsidiary, a
statement said.
MHPS will supply upgraded parts for the M701F gas turbines, spare rotors, upgraded control
system and parts for the steam turbine and generators, required to increase the efficiency of the
equipment. It will also dispatch technical advisors to support the installation and commissioning
phase. The parts for gas turbines' generators will be manufactured by Mitsubishi Electric
Corporation (Melco). Funding for the project will be provided by the Japanese Official
Development Assistance (ODA) through the Japan International Cooperation Agency (Jica).
"We are delighted to continue in our longstanding role supporting the development and upgrade of
Cairo North Combined Cycle Power Station Module l, working in close partnership with EEHC and
CEPC, with support from Jica," said Satoshi Uchida, executive vice president of MHPS. "Our
dedicated local team will deliver high-tech solutions and technical expertise to support the
country's energy needs going forward."
The Egyptian economy grew at an average annual rate of 4.4 per cent from 2004-2014, and peak
electricity demand grew at an even higher rate of six per cent during that period, resulting in a tight
supply of electricity. In order to ensure a stable supply of power, it is necessary to further increase
the capacity of power generation facilities while also increasing the efficiency and reliability of
power generation, transmission, and distribution facilities.
MHPS is working not only on the development of new thermal power generation systems, but also
on upgrades and continuous innovations for existing power generation facilities, to enhance
performance and therefore support more stable and efficient power generation globally. -
TradeArabia News Service

India's JSW Energy to invest up to $623 mln in electric cars
Reuters Staff ( images by NewBase)
JSW Energy will invest up to 40 billion rupees ($623 million) to build electric cars, batteries and
charging infrastructure, part of the power company's diversification plans to drive future growth, its
chief executive said.
JSW plans to roll out its first electric car by 2020, which will make it the first non-automotive
company in India to enter electric car business, as well as making batteries and supporting
charging infrastructure, Prashant Jain, chief executive of JSW Energy said on Friday.
India has proposed a 15-year roadmap for rolling out electric vehicles and is also auctioning solar
power capacity as part of a push to triple renewable energy generation by 2022 and to cut
greenhouse gas emissions.
Jain, speaking after JSW reported first-quarter results, said energy storage was the right focus for
the company, which has limited growth opportunities in the power sector and surplus cash. JSW,
part of the JSW Group, which also includes JSW Steel, plans to build electric storage batteries for
vehicles, telecom towers, household
use and renewable power, he said.
The company, with robust finances
and a strong track record in efficiency,
is scouting for manufacturing locations
and technology partners for electric
vehicles and will sell the car under
JSW brand name.
Jain did not elaborate how the
company plans to make profits for
shareholders from a venture which
does not have a proven business
model, but said it is betting big on the
falling costs of electric vehicles and
incentives offered by the government.
He said in just three years time the cost of a conventional car in India will be equal to an electric
car. But analysts are skeptical that JSW can meet the 2020 deadline for launching the car. "It is
indeed a stiff deadline," Abdul Majeed, automotive lead, PwC India, said.
"Existing OEMs (original equipment manufacturers) are struggling as battery costs are still three
times the cost of conventional car battery, plus (charging) infrastructure is completely missing in
the country," Majeed said. He said a complete ecosystem for electric vehicles was at least seven
to 10 years away.
India's Mahindra & Mahindra in May had said that the company would invest in building long-
range electric vehicles by mid-2019. It had entered the electric vehicle business in 2010 by
acquiring Bengaluru-based Reva Electric Car Co.
JSW Energy reported consolidated net profit of 2.17 billion rupees for the quarter ended June
2017 versus 3.67 billion rupees during the same period last year. Analysts expected the company
to post net profit of 2.70 billion rupees, according to Thomson Reuters data. ($1 = 64.1650 Indian
rupees)

German Glencore sees shiny future from electric vehicles
AFP ( images by NewBase )
Mining and commodities giant Glencore said on Thursday it had bounced back into profit in the
first half of the year and the long-term outlook was good as the widespread adoption of electric
vehicles would boost demand for raw materials.
Net profit at the Switzerland-based company came in at $2 .4 billion (two billion euros) compared
to a loss of $369 million in the first half of last year on the back of a rebound in commodity prices
and efforts by the firm to clean up its balance sheet.
When commodity prices nosedived in 2015, investors turned on Glencore amid concerns that the
company’s towering debt, which had hit $30 billion, could prove unsustainable with the value of its
assets in decline.
The company’s losses hit a staggering $5 billion that year.
Chief executive Ivan Glasenberg, seen as a maverick in the mining world, acted boldly to get debt
under control. He scrapped dividends, sold assets and reined in production in a campaign that has
now trimmed debt to $13.9 billion.
“Our extensive efforts to reposition our balance sheet and drive further industrial asset portfolio
improvements over the last 24 months, are reflected in our strong first-half financial performance,”
Glasenberg said in a statement.
Not only net profit improved, but its measure of operating profits also jumped by over two-thirds to
$6.7 billion. Glasenberg said the shift towards electric vehicles would be good for Glencore.
“As we look forward, the potential large-scale roll out of electric vehicles and energy storage
systems looks set to unlock material new sources of demand for enabling underlying commodities,
including copper, cobalt, zinc and nickel,” said Glasenberg.

US to become a net exporter of natural gas this year
Source: U.S. Energy Information Administration, Short-Term Energy Outlook
EIA’s latest Short-Term Energy Outlook projects that the United States will export more natural
gas than it imports in 2017. The United States has been a net exporter for three of the past four
months and is expected to continue to export more natural gas than it imports for the rest of 2017
and throughout 2018.
The United States’ status as a net exporter is expected to continue past 2018 because of growing
U.S. natural gas exports to Mexico, declining pipeline imports from Canada, and increasing
exports of liquefied natural gas (LNG).
The United States is currently the world's largest natural gas producer, having surpassed Russia
in 2009. Natural gas production in the United States increased from 55 billion cubic feet per day
(Bcf/d) in 2008 to 72.5 Bcf/d in 2016. Most of this natural gas—about 96% in 2016—is consumed
domestically. Abundant natural gas resources and large production increases have created
opportunities for U.S. natural gas exports.
With a near doubling of U.S. export pipeline capacity to Mexico by 2019, EIA expects U.S. natural
gas exports to increase, though they should remain well below the available pipeline capacity.
Mexico’s national energy ministry (SENER) expects to increase its natural gas use for electric
power generation by almost 50% between 2016 and 2020. Mexico's domestic natural gas pipeline
network is undergoing a major expansion, primarily to accommodate new natural gas pipeline
imports from the United States.

In addition, supplies of natural gas out of Appalachia into the Midwestern states are likely to
gradually displace some pipeline imports from Canada as well as increase U.S. pipeline exports to
Canada from both Michigan and New York.
Several new pipeline projects, including the Rover and Nexus Gas Transmission pipelines, are
also being developed to increase takeaway capacity from the Marcellus and Utica supply regions
that span parts of New York, Ohio, Pennsylvania, and West Virginia into the U.S. Gulf coast,
Midwestern states, and eastern Canada.
EIA expects exports of liquefied natural gas (LNG) to increase. U.S. liquefaction capacity
continues to expand as five new projects currently under construction—Cove Point, Cameron,
Elba Island, Freeport, and Corpus Christi—come online in the next three years, increasing total
U.S. liquefaction capacity from 1.4 Bcf/d at the end of 2016 to 9.5 Bcf/d by the end of 2019.
Source: U.S. Energy Information Administration, compiled from trade press
Three liquefaction trains at Sabine Pass, Louisiana, are currently the only operational liquefaction
facilities in the United States. A fourth train at Sabine Pass is undergoing commissioning and a
fifth train is expected to come online in 2019. Another liquefaction project at Cove Point, in
Maryland’s Chesapeake Bay, is scheduled to come online later this year.
Based on construction plans, EIA expects that by 2020 the United States will have the third-
largest LNG export capacity in the world after Australia and Qatar. The latest Short-Term Energy

Outlook forecasts that U.S. LNG exports will reach 4.6 Bcf/d by December 2018 as new
liquefaction trains at Cameron, Freeport, and Elba Island come online. However, actual use of
U.S. LNG export terminals will be affected by the rate of global LNG demand growth and
competition from other global LNG suppliers.
The United States exported more natural gas than it imported in February, April, and May of 2017
according to the latest EIA’s Natural Gas Monthly. The United States has been a net natural gas
importer (on an average annual basis) for nearly 60 years.
Declining net pipeline imports from Canada, growing natural gas pipeline exports to Mexico, and
increasing exports of liquefied natural gas (LNG) are all contributing to the nation’s ongoing shift
toward being a net exporter.
Source: U.S. Energy Information Administration, Natural Gas Monthly
The United States began importing more natural gas than it exported in 1958, when total natural
gas trade volumes were much smaller. In October of that year, the TransCanada pipeline was
completed, allowing Western Canadian natural gas to enter northeastern U.S. markets. Net U.S.
natural gas imports from Canada peaked in 2007, averaging over 10 billion cubic feet per day
(Bcf/d).
More recently these volumes have been declining as domestic natural gas production from shale
gas and tight oil formations has increased and displaced Canadian natural gas. Border crossings
in Idaho and Montana make up the largest portions of natural gas entering the United States from
Canada by pipeline, making up about 25% and 20%, respectively, in 2016.

U.S. shale output poised to keep rising despite investor concerns
Shale production in the largest U.S. oilfield should rise by as much as 300,000 barrels per day by
December, according to updated forecasts following the industry's latest quarterly results.
The higher outlooks, amid worries the recent breakneck pace of gains may not be sustained,
come on the heels of one high-profile Permian Basin producer's oil output miss last quarter and
decisions by several other energy companies to trim annual budgets.
Oil production from the Permian Basin of West Texas and New Mexico is closely watched
because its low costs and rapid growth have pressured efforts by the Organization of the
Petroleum Exporting Countries to drain a global crude supply glut.
Consultancy Wood Mackenzie sees another 300,000 barrels per day (bpd) coming from Permian
projects by the end of the year, raising its year-end forecast by 200,000 bpd.
Rystad Energy, meanwhile, projects output from the Permian will rise by 300,000 bpd in the six
months from June to December. Both expect oil production in the Permian next year will
approach or surpass the 2.7 million bpd mark.
"The Permian continues to surprise us to the upside," said Alex Beeker, an analyst at Wood
Mackenzie. With U.S. benchmark crude continuing to trade below $50 a barrel, drilling rig
additions will slow, but "we also see production continuing to rise," he added.
The robust volume outlooks come as investors sold off shares in a range of Permian shale
producers after Pioneer Natural Resources Co earlier this month disclosed an unexpected drop in
second-quarter oil production and higher costs on some Permian wells.
A number of oil companies cut their capital spending plans for this year, citing the sub-$50 a barrel
prices or greater production efficiencies. The number of active U.S. drilling rigs also has slid in the
past three weeks, prompting concerns that overall production growth could stall.

Pioneer executives said that greater-than-expected natural gas volumes compensated for the
lower-than-forecast oil production last quarter. Gas is produced alongside oil in wells. The older a
well gets, the greater the percentage of gas it produces. But in Pioneer's case, the high
concentration of gas came from brand-new wells, a situation that is not common.
Pioneer insisted it had fixed the problem and would hit future oil targets, but its stock is down
about 16 percent since posting quarterly results. Its swoon dragged down shares of other
producers, leaving the S&P Energy index off more than 3 percent for the month.
Crude oil has a higher value to energy companies than natural gas, and Wall Street has typically
rewarded companies who pump higher percentages of crude.
Parsley Energy Inc, another large Permian producer, also boosted its forecast for the percentage
of gas it expected to pump this year. The company said it still expects strong oil production even if
it pumps more gas.
"Look at the absolute oil volumes per well that are being produced," Matt Gallagher, Parsley's
president, said in an interview. "There's nothing from a geological basis that should change our oil
forecast to the negative."
Analysts said Pioneer's oil target miss was not indicative of a wider problem and the increasing
gas production also benefits the energy industry.
"From the entire (Permian) basin perspective, this will be offset by stronger output from several
other players," said Artem Abramov, vice president of analysis at Rystad Energy. Dan Katzenberg,
an oil industry analyst at R.W. Baird & Co, said rising natural gas production is good for
producers.

NewBase August 12 2017 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices post weekly decline at $48.82 & $52 oil glut persists
Reuters
Oil prices ticked higher on Friday but posted another weekly decline after the International Energy
Agency said market rebalancing was taking time due to weak OPEC compliance with output cuts.
Brent crude, the global benchmark, was up 10 cents at $52 per barrel by 2:37 p.m. ET (1837
GMT). On Thursday, the contract touched an 11-week high at $53.64. U.S. West Texas
Intermediate (WTI) crude ended Friday's trade up 23 cents at $48.82 a barrel, after falling to a 2½
week low of $48.01 earlier in the session.
The contract fell 1.5 percent this week, its second straight weekly decline, as doubts remain that
the world will consume enough crude to end a global glut.
"There would be more confidence that re-balancing is here to stay if some producers party to the
output agreements were not, just as they are gaining the upper hand, showing signs of weakening
their resolve," the IEA said in its monthly report.
The IEA said OPEC's compliance with the cuts in July had fallen to 75 percent, the lowest since
the cuts began in January. It cited weak compliance by Algeria, Iraq and the United Arab
Emirates.
Faced with lingering global glut woes, OPEC and some non-OPEC members including Russia in
May extended a deal to cut oil production.
Oil price special
coverage

The Organization of the Petroleum Exporting Countries reported on Thursday another increase in
the oil cartel's production, even though it raised outlook for oil demand in 2018. OPEC said its oil
output rose by 173,000 barrels-per-day (bpd) in July to 32.87 million bpd.
Rising output from Nigeria and Libya is undermining the oil producers' attempt to limit oil
production. Nigeria and Libya are exempted from curbing output as they seek to restore supplies
hurt by internal conflicts.
Meanwhile, Russian oil producer Gazprom Neft is considering resuming production in mature
fields after the OPEC-led production cut agreement, a representative of the company said on
Thursday.
Saudi Arabian Energy Minister Khalid al-Falih said the kingdom did not rule out additional oil
production cuts, the Saudi-owned Al Sharq Al Awsat newspaper reported on Friday. "Crude oil
prices failed to hold recent gains, with a nervous market starting to doubt recent falls in
inventories," ANZ bank said in a note. "Supply-side issues also weighed on prices."
Official data showed crude inventories in the United States, the world's top oil consumer, fell
sharply by 6.5 million barrels in the week ending to Aug. 4, as refiners ramped up run rates to the
highest in 12 years due to strong demand.
On Friday, energy services company Baker Hughes reported drillers last week added three rigs in
the United States, bringing the total oil drilling rig count to 768. Last week, data showed U.S.
energy companies cut oil rigs for a second week in three, slowing the pace of a 15-month drilling
recovery.
Meanwhile, U.S. President Donald Trump stepped up his rhetoric against North Korea again on
Thursday, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack
may not have been tough enough.
"I think the issue that is affecting the market is the general risk sentiment of saber-rattling between
Washington and Pyongyang," said Michael McCarthy, chief market strategist at CMC Markets.
Oil Slides Near $48 as IEA Cuts Demand Estimates for OPEC Crude
Oil headed for a second weekly loss after the International Energy Agency reduced demand
estimates for OPEC crude and said the group’s commitment to drain a global glut is fading.
Futures declined 0.3 percent in New York. Neither a pledge by the two biggest Organization of
Petroleum Exporting Countries producers to strengthen their commitment to output curbs nor
shrinking U.S. crude stockpiles is managing to lift prices. The IEA reduced estimates for the
amount of crude needed from OPEC this year and next by 400,000 barrels a day after revising
historical data on emerging-market consumption.

While U.S. crude inventories dropped to the lowest since October, gasoline stockpiles last week
expanded for the first time since early June, indicating that consumption may be waning as the
summer driving season draws to a close. OPEC’s rate of compliance with production cuts slipped
last month to 75 percent, the lowest since the accord started in January, the IEA said Friday in its
monthly report. OPEC said Thursday its output is increasing on supplies from Libya, which is
exempt from the deal.
“Concerns about the persisting supply glut resurfaced after petro-nations reported growing oil
output,” said Norbert Ruecker, head of commodities research at Julius Baer Group Ltd. in Zurich.
“We maintain a neutral view and see oil prices trading sideways as growing shale output and
stagnant western-world oil demand undermine the Middle East’s supply deal.”
West Texas Intermediate for September delivery lost 14 cents to $48.45 a barrel on the New York
Mercantile Exchange at 8:51 a.m. local time. Total volume traded was about 19 percent above the
100-day average. Prices are down 2.2 percent this week.
See also: OPEC Finally Catches a Break as Oil Curves Show Cuts Biting
Brent for October settlement fell 11 cents to $51.79 a barrel on the London-based ICE Futures
Europe exchange. Prices on Thursday dropped 80 cents, or 1.5 percent, to $51.90. The global
benchmark is down 1.2 percent this week and traded at a premium of $3.23 to October WTI.

Oil held gains above $49 a barrel as U.S. production eased and crude inventories extended
declines, trimming a glut.
Output slid for the second time in three weeks, according to Energy Information Administration
data, while stockpiles dropped by 6.45 million barrels, almost triple the median forecast in a
Bloomberg survey. Gasoline inventories unexpectedly rose for the first time since early June.
Oil has fluctuated below $50 a barrel for more than a week as investors weigh rising global supply
against output cuts by members of the Organization of Petroleum Exporting Countries and its
allies including Russia. While U.S. crude stockpiles have declined during a period of strong
seasonal demand, they remain almost 90 million barrels above the five-year average.
“Everything seems to be pointing to a tightening in the U.S. market, which is a positive, but it’s
obviously moving at a relatively slow pace,” said Daniel Hynes, an analyst at Australia & New
Zealand Banking Group Ltd. in Sydney. “Oil is heading in the right direction for slightly higher
prices, but it’s moving at glacial speeds.”
West Texas Intermediate for September delivery was at $49.74 a barrel on the New York
Mercantile Exchange, up 18 cents, at 7:55 a.m. in London. Total volume traded was about 7
percent below the 100-day average. Prices rose 39 cents to $49.56 on Wednesday, the first gain
in three sessions.
Brent for October settlement rose 24 cents to $52.94 a barrel on the London-based ICE Futures
Europe exchange. The contract rose 56 cents, or 1.1 percent, to $52.70 on Wednesday. The
global benchmark crude traded at a premium of $3.04 to October WTI.
U.S. crude production dropped by 7,000 barrels a day to 9.42 million barrels a day last week, the
EIA reported Wednesday. Gasoline inventories expanded by 3.42 million barrels, the biggest
weekly advance since January.

World oil demand growth in 2017 stands at 1.37 mb/d: OPEC report
World oil demand growth in 2017 now stands at 1.37 mb/d following an upward revision of 100
tb/d due to the better-than-expected performance from the OECD region in the 2Q17, according to
the OPEC Monthly Oil Market Report.
Demand for OPEC crude in 2017 is estimated to stand at 32.4 mb/d, some 0.4 mb/d higher than
the 2016 level. In 2018, demand for OPEC crude is forecast at 32.4 mb/d, at the same level as in
2017.
"The total oil demand is now pegged at 96.5 mb/d. In 2018, world oil demand is projected to grow
by 1.28 mb/d from 2017 levels, marginally higher than last month’s reports. This means that the
total oil consumption is anticipated to hit a new record high of 97.8 mb/d in 2018," the report
stated.
"The outlook for the oil
demand of the Middle
East remains positive
with risks generally
skewed to the upside.
Some factors that may
curb oil demand in the
region during 2017 are
domestic petroleum
product retail prices,
fuel substitution, as
well as the economic
development in the
region’s main oil
consumers. For 2017,
the Middle East oil
demand is forecast to
grow by 110 tb/d,
while the oil demand in
2018 is projected to increase by 100 tb/d," the report noted.
A strong oil demand has been observed in Iraq in the first six months of 2017. The demand for all
the main petroleum product categories was solid, notably for crude direct use, gasoline, diesel oil,
jet/kerosene and residual fuel oil.
Based on the latest available data, the oil demand growth in the OECD region in 2017 has been
revised higher by 77 tb/d. The better-than-expected data for the 2Q in all OECD regions, but
primarily OECD America, is the major reason for this upward revision.
The OECD America oil demand data showed firm development during May with gains above 0.8
mb/d year-over-year supporting the upward revision of 200 tb/d in the 2Q17. Transportation fuels
were the key products for the region’s growth, with gasoline and jet fuel rising considerably.
This development has also raised expectations for the 3Q17 as transportation fuels are expected
to gain further upside momentum during the summer season. This has led to an upward revision
of 50 tb/d in the 3Q17,

NewBase Special Coverage
News Agencies News Release August 12 2017
OPEC Can Use a Good (But Not Great) Week
By Liam Denning
OPEC is having a reasonably good week. Brent crude oil edged above $53 a barrel on Thursday
for the first time since late May, in part because the organization raised demand projections in its
latest monthly report. The day before, U.S. oil inventories data showed another big drop (for crude
oil anyway), and that came after a
week in which second-quarter
results betrayed some signs of
strain among those pesky
Permian types.
Hovering over this late-summer
cheer, however, is a troubling
question for OPEC: Can it expect
anything more than "reasonably
good" in the near term?
Another price-marker that has
edged up this week
is Bloomberg's fair value for
crude-oil swaps in 2018,
essentially an indication of where
future barrels are trading hands
for the next calendar year. This
has now traded above $50 a barrel for five sessions in a row; also the first time that's happened
since late May.
This is important because U.S. shale producers rely to a significant degree on hedging future
production. Locking in prices locks in some certainty on cash flow, which keeps bankers onside
and drilling budgets on-track, a consideration that has become especially important since oil
crashed, beginning in late 2014.
Indeed, if you look at the level of hedging activity by E&P companies, a pattern emerges. This
chart shows the net short position of swap dealers in Nymex crude-oil futures and options, a proxy
for hedging activity (E&P firms generally use swaps dealers). The lower the number, the more oil
sold short, or hedged.
Planting Season
E&P firms have rediscovered their appetite for hedging as forward oil prices have recovered
somewhat from the crash

That chart is the mirror image of this one showing the rolling average for the next 12 months of oil
futures prices:
Fifty Sense
Since oil prices bottomed out in early 2016, U.S. E&P firms have tended to hedge more barrels
when forward prices rise above $50 a barrel
This tension around the $50 mark is OPEC's biggest headache. As I noted here back in March,
the magic number for U.S. E&P firms likely lies somewhere between $50 and $65 a barrel. In that
range, many of them can fund production growth without trashing their balance sheets.

So as OPEC does its part to drain inventories and reignite a rally, it must ask itself how good is
too good when it comes to oil prices? An increase in cash prices helps OPEC members because
that's how they sell their oil and earn cash to support their struggling petro-economies.
But if forward prices rise along with them, that's where the shale players play, and they will take
the opportunity to hedge -- which helps fund the drilling that eventually takes the wind out of the
market.
Speculative interest -- as indicated by the net positioning of managed money accounts-- has
picked up again of late:
Feeling Groovy
Speculative positioning in oil has become more bullish of late
However, a lot of that move reflects short positions being closed out after a spike in late June.
OPEC can count that squeeze as another victory.
To make it really count, though, it'll require some genuine enthusiasm on the part of speculators.
That's a tough ask, given that the oil bulls just lost one of their most high-profile members
(legendary trader Andy "God" Hall) and the end of summer (and the beginning of refinery
maintenance season) is just around the corner.

And, of course, any rally will face pressure from those hedgers in Texas. For oil prices to break
out of that pattern, the impetus may come, perhaps violently and tragically, from another big oil
producer further south.
OPEC Swings to Panic Stations
OPEC's job of rebalancing the oil market has just got a lot more difficult. Not only is there a lot
more oil in storage than it previously thought, but the group will need to make deeper output cuts
to drain the excess.
A month ago OPEC oil ministers had probably read the International Energy Agency's monthly
report with a sense of quiet confidence. It showed the world would need more oil than the group
was producing for the rest of this year and next. And, as long as producers held their nerve -- and
their discipline -- inventories would continue to fall. That is no longer the case.
Flip Flop
Expectations of solid inventory draws have flipped to continued stock builds through 2018
So the latest report from the Paris-based IEA, published on Friday, is a nasty shock. It has just
found another 230 million barrels of oil in storage that will need to be drained before balance is
restored.

That is a lot of oil. To put it in perspective, it increases the build-up in inventories since the
beginning of 2014 by almost 25 percent. An output cut of 1 million barrels a day would take
another six months to drain it.
To be sure, commercial oil inventories in the OECD -- the only ones we can see with any clarity --
are getting closer to the five-year average level targeted by OPEC.
Mind the Gap
The gap between OECD stockpiles and their five-year average level has narrowed by a third since
February
The overhang narrowed to 84 million barrels in June. But before you get too excited, well over half
of the narrowing of the gap is because the five-year average increased. The actual draw in
inventories has been a much more modest 37 million barrels.
Not What it Seems
An increase in the target has done more than actual inventory draws to reduce the excess
How do you suddenly find 230 million barrels of oil? By realizing that the countries who were
driving demand growth over the past couple of years weren't driving it as fast as you thought.
The IEA also cut its assessment of 2016 demand in non-OECD countries by 420,000 barrels a
day, with China accounting for more than a quarter of that. With no similar reduction in its
assessment of supply, all of the oil that was not consumed, around 157 million barrels, must have
gone into storage. The rest comes from the smaller revisions that the IEA made to its 2015
demand numbers.
The difference this makes to OPEC is hard to over-estimate. The biggest hit is coming right now.

The IEA's revisions cut by 800,000 barrels a day the amount of oil the world may need from the
group in the current quarter. That is almost as much as the combined production of OPEC's three
most recent joiners: Ecuador, Equatorial Guinea and Gabon. Inconveniently, this reduction
coincides with a jump in the group's production by 200,000 barrels a day in July, according to
Bloomberg estimates.
Based on the latest figures, the IEA now expects global stockpiles to rise this quarter -- not fall. A
forecast for a small draw in the final quarter would leave global inventories unchanged over the
second half of 2017.
And next year suddenly looks a lot worse than it did a month ago, too. If OPEC's current
aggregate production level is carried forward for the whole of 2018, global oil inventories would
rise by around 170 million barrels. That's about six times as big as the inventory drawdown for
2017.
Saudi oil minister Khalid Al-Falih may already be preparing the ground for deeper cuts. That
possibility was raised during a joint press conference in Jeddah with his Iraqi counterpart on
Thursday, according to a report in Asharq al-Awsat. Don't be surprised if you hear more along
these lines in the run-up to OPEC's next full ministerial meeting in November.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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 27 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 August 2017 K. Al Awadi

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