New base energy news 22 june 2020 issue no. 1349 compressed

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NewBase Energy News 22 June 2020 - Issue No. 1349 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
UAE: Mohamed bin Zayed commends progress at ADNOC’s
Ruwais refining, petrochemical and derivatives sites
WAM/Hassan Bashir
His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme
Commander of the UAE Armed Forces, has reinforced the UAE’s commitment, under the wise leadership of the
UAE President, H.H. Sheikh Khalifa bin Zayed Al Nahyan, in further developing downstream capabilities and
supporting long-term economic growth in Ruwais.
His Highness was speaking during a visit to ADNOC’s refining and petrochemicals facilities in Ruwais, where he
was briefed on progress in delivering ADNOC’s downstream strategy as well as the company’s plans to create
value and to drive profitability in the sector During the tour.
H.H. commended Emirati talent in attendance for their commitment to business continuity during these
unprecedented times as well as their exceptional efforts in supporting critical operations that contribute to the
economic growth and prosperity of our nation.
H.H. Sheikh Mohamed said: "We were delighted to see young Emirati talent at ADNOC’s facilities in Ruwais and
we appreciate their exceptional efforts during this challenging period to ensure the continuity of the UAE’s oil and
gas production, as well as their work to develop and expand the Ruwais Industrial Complex, further solidifying the
UAE’s position in the refining, petrochemical and derivatives industry.
This is a very important sector that will contribute to the overall industrial development in the UAE and drive the
growth of ADNOC’s ICV program, attract foreign direct investment, diversify our national economy and accelerate
commercial development in the UAE."
His Highness commended the effective cooperation between government agencies and ADNOC in responding to
the COVID-19 pandemic, citing business continuity throughout the value chain as well as ADNOC’s critical role in
harnessing the UAE’s natural resources to drive long-term prosperity.
His Highness also commended the Ruwais community for their efforts and cooperation during this period, noting
their commitment to following the government and ADNOC’s guidelines to ensure excellence in health and safety.
www.linkedin.com/in/khaled-al-awadi-38b995b

His Highness was accompanied by H.H. Sheikh Nahyan bin Zayed Al Nahyan, Chairman of the Board of Trustees
of Zayed bin Sultan Al Nahyan Charitable and Humanitarian Foundation, H.H. Sheikh Theyab bin Mohamed bin
Zayed Al Nahyan, Chairman of Abu Dhabi Crown Prince's Court and Member of the Abu Dhabi Executive Council,
Sheikh Sultan bin Hamdan Al Nahyan, President's Advisor, Sheikh Mohamed bin Hamad bin Tahnoun Al Nahyan,
Chairman of the Abu Dhabi Airports Company, Dr. Sultan bin Ahmad Sultan Al Jaber, Minister of State and
ADNOC Group CEO, and Mohammed Mubarak Al Mazrouei, Under-secretary of the Abu Dhabi Crown Prince's
Court.
His Highness began his visit at ADNOC Refining, where he was briefed on the development and expansion of the
Ruwais Industrial Complex, as the company plans to create more value in refining and petrochemicals and attract
foreign direct investment to the UAE.
His Highness was also briefed on the progress of projects aimed at unlocking critical feedstock production capacity
for anchor projects and supporting the investor value proposition for the planned Derivatives Park in Ruwais.
His Highness and the accompanying visitors received updates on the progress of the Crude Flexibility Project
(CFP), aimed at accelerating delivery of ADNOC’s downstream strategy. CFP will enable Ruwais to process sour
crude types and in turn, free higher-priced Murban crude for export sales to global oil markets.
Upon completion, the project will significantly enhance ADNOC’s ability to stretch the value of every barrel of oil
produced and achieve greater returns for the UAE from its existing domestic oil resources Dr Sultan Ahmed Al
Jaber, UAE Minister of State and ADNOC Group CEO, said:
"We are honoured by His Highness Sheikh Mohamed bin Zayed Al Nahyan’s visit to ADNOC downstream assets
in Ruwais. His Highness’ attendance demonstrates the support and encouragement of the UAE’s wise leadership
in the continued development of the oil and gas sector and efforts to maintain ADNOC’s position as a significant
driver of economic growth and development in the UAE."

Dr. Al Jaber explained that the vision and directives of His Highness Sheikh Mohamed bin Zayed Al Nahyan in
implementing ADNOC’s transformation strategy over the past four years, has helped to solidify ADNOC's position
globally and enabled the company to better respond to changing market dynamics. We are confident that we will
navigate this period and come through stronger and more flexible, thanks to the support of the wise leadership,
the cooperation with the relevant government agencies and the commitment and dedication of our people at
ADNOC."
He said: "ADNOC is going ahead with the implementation of its ambitious plans to invest responsibly, enhance
operational efficiency and further stretch the dollar from every barrel of oil it produces to increase profitability and
create value for the UAE.
ADNOC is working on the development of the Ruwais Derivatives and Conversion Parks to form an integrated
industrial ecosystem that will enhance in-county value, attract foreign direct investment, improve the transfer of
knowledge and technology and create specialized employment opportunities for UAE nationals".
Ruwais’ appeal as a unique feedstock engine, capable of producing the full range of essential building blocks
along the petrochemical value chain will see the Ruwais Derivatives and Conversion Parks become a global
destination of choice for investors and manufacturers wishing to establish a strategic presence in the UAE.
Furthermore, ADNOC investments in Ruwais strategy will also create numerous specialized employment and
career opportunities, and significantly boosting ADNOC’s in-country value creation initiatives.

Oman: BP to output Khazzan gas field to 1.5 bcf by end-2020
Reuters + NewBase
BP plans to produce an additional 500 million cubic feet of gas from Oman’s Khazzan field, known
as Ghazir, by the end of 2020, the state news agency quoted the company’s Oman boss as saying
on Saturday.
BP Oman has announced that it plans to start producing 500 million cubic feet per day of natural
gas from its Ghazeer development in Block 61 before the end of this year, effectively ramping up
output from the block to 1.5 billion cubic feet (bcf) per day.
Yousuf al Ojaili, Country Oman President, said construction work on the Ghazeer development
– representing the second phase of the energy major’s investment in Block
61 – will be about 99 percent complete by year’s end.
In a statement to Oman News Agency (ONA), Al Ojaili said the Block is
currently producing 1 bcf/day of natural gas and around 35,000 barrels per
day (BPD) of condensate. Production of condensate is expected to double
when Ghazeer is fully operational, he noted.
Drilling of production wells is ongoing with 126 of a total of 300 wells
planned over the 15-year life of the project having been drilled to date as
part of the Phase 1 Khazzan and Phase 2 Ghazeer developments.
Investments made thus far in harnessing the tight gas potential of the
Khazzan and Ghazeer fields aggregate $9.3 billion out of a total commitment of $16 billion planned
during the life of the project.
BP Oman has plans to develop about 10.5 trillion cubic feet (TCF) of gas reserves from the Block,
which will contribute to meeting domestic demand. BP is the operator of Block 61 with a 60 percent
stake, while the remainder is held by OQ (30 per cent) and Petronas (10 percent).

“Gas production from Khazzan project is currently up to one billion cubic feet (bcf) and it will
increase to 1.5 bcf per day, in addition to around 35,000 barrels per day of gas condensate (light
oil),” Mohammed Al Ojaili told the news agency.
Investment in the Ghazir project as of the end of the first quarter of the year stood at about $9.3
billion out of a total estimated at $16 billion. BP resumed gas production at the Khazzan field in early
April following a three-week planned shutdown.
The British company in 2013 signed a 30-year deal to develop the Khazzan tight gas project, one
of the largest upstream projects in the small Gulf state.
About Khazzan:
Khazzan gas field
 BP is the Operator of Block 61, which contains the Khazzan field, holding a 60% interest.
The Oman Oil Company for Exploration and Production holds a 40% interest
 The production sharing agreement (PSA) for Block 61 was first signed in 2007, amended
in 2013 and extended in 2016. Appraisal over 2007-2013 confirmed the existence of
significant tight gas resources that could be developed through the application of BP’s
extensive unconventional gas experience and technology. The first phase of
development of the field was sanctioned in December 2013.
 The original Block 61 PSA covered an area of 2,800km2 in central Oman, approximately
350km southwest of Muscat. The Block 61 extension agreed in 2016 added a further
1,150km2 to the south and west of the original block and enabled a second phase,
Ghazeer.
 Drilling efficiency has increased significantly during the development of the Phase One
project. The average time to drill and complete a vertical well was reduced by 27% and
a record time of 60 days was achieved for completion of one well.
 Many local Omani businesses have contributed to the Khazzan project. Approximately
38% of the total contract spend to date has been awarded to local oil and gas services
companies.
 With its national oil company partners, BP is currently helping to develop more than 5.5
million barrels per day of oil and gas production throughout the Middle East.
 Khazzan Phase One was one of the seven major upstream projects that BP succeeded
to bring into production in 2017.

Egypt: Cheiron announces first oil achieved from the GNN
discovery in the Southern Gulf of Suez,
Source: Cheiron
Cheiron has announced that the GNN-4 well, which was drilled to appraise the recent GNN oil
discovery, has been completed and successfully tested at initial rates of over 2,000 bopd. The well
was drilled as a high angle wellbore from the existing Geisum D platform and has been placed on
long term production using the existing field infrastructure.
The discovery, which contains an estimated 260 MMbbls of oil in place, is located on the Geisum
and Tawila West Concession in which Cheiron (through its PICO GoS affiliate) holds a 60%
participating interest and operatorship and Kufpec a 40% participating interest.
The Concession is managed by a Joint
Operating Company owned by the Egyptian
General Petroleum Company, Cheiron and
Kufpec and called PetroGulf Misr ('PGM')
which is technically supervised by South
Valley Egyptian Petroleum Holding
Company. The Concession contains the
mature Geisum oil field (with 32 active
wells, extensive offshore infrastructure and
onshore plant at Zeit Bay) which has been
on production since the 1980s.
GNN was discovered in July 2019 by the
GNN-3 exploration well which was drilled in
a separate fault block located to the north
east of the main Geisum field. The
discovery well encountered almost 500 feet
of good quality net oil pay in the Nukhul
formation and, given the very encouraging
well results, a 3 well early production and
reservoir appraisal drilling program is
underway.
The GNN-4 well will be followed by two
further wells to be drilled from the D platform
in the southern area of the
discovery. Subsequently, the development
focus will shift to the northern area of the
discovery where additional drilling is
planned, along with the tie-back of the
GNN-3 well for early production. The full
field development will leverage the existing Geisum facilities to accelerate production and minimize
costs and will also involve the installation of new platform and pipeline infrastructure.
The discovery is the first to be made in the Nukhul formation in the Geisum area and will open up
further exploration potential, both within the Concession and in the neighboring acreage. It comes
after the implementation of an extensive, multi-year exploration and development campaign by
PICO GoS and its Partners, designed to maximise the economic reserves recovery from the
Concession. From a more regional perspective, the oil find has again demonstrated that, whilst the

Gulf of Suez is a relatively mature hydrocarbon province, the region still has significant remaining
exploration potential.
Cheiron and its affiliates have been operating in Egypt for almost 30 years and it currently produces
around 50 kboepd (approx. 80% of which is from Egypt). The company operates a broad portfolio
of producing and development assets in Egypt, in the Gulf of Suez, Western Desert and Nile Delta,
and holds international assets Mexico and Romania.
Cheiron operates a significant asset base with WI 3P reserves of over 246.2 million barrels of oil
equivalent across three countries.

Jordan: Apicorp takes key state in Tafila wind project
Apicorp + NewBase
The Arab Petroleum Investments Corporation (Apicorp), a multilateral development bank, has
announced its first direct equity investment in a wind energy venture, the Tafila Wind Project in
Jordan.
Apicorp will take a 20% equity stake in the project, being developed by the Jordan Wind Project
Company (JWPC). This also mars Apicorp’s first equity investment in the country.
Dr Ahmed Ali Attiga, Chief Executive Officer of Apicorp commented: “We are proud to partner in the
Jordan Wind Project Company, one of the Mena region’s pioneering energy companies. This equity
investment affirms Apicorp’s position as a trusted partner to the region’s energy sector and
underscores the strategic drive to enhance access to sustainable power, an area in which Jordan
continues to be a regional leader.
“With the Arab world’s abundant wind resources, we see wind power as a viable component and
key technology in the region’s future power generation mix, offering a sustainable, cost-effective
energy source that will enable wider access to modern electricity to millions of people and spur
employment and economic growth.”
JWPC’s mandate is in line with Jordan’s ambitious target to have clean energy account for 20% of
the country’s overall power generation by 2021, thereby developing new and sustainable energy
sources as part of the country’s energy mix.
The $287 million 117-megawatt wind farm connected to the national grid accounts for 12% of
Jordan’s total operating renewable energy generation, generating around 350GWh of clean energy
annually which can power 83,000 homes.
Tafila Wind Farm is owned and operated by the Jordan Wind Project Company PSC (JWPC), in
which Abu Dhabi’s renewable energy firm Masdar owns a 50% stake.

Apicorp and Tamasuk Holding, the infrastructure and development arm of Al Blagha Holding for
Investments Co., partnered to acquire the remaining 50% stake, owning 20% and 30% beneficial
stakes, respectively.
Officially inaugurated in December 2015, Tafila Wind Farm displaces nearly 235,000 tons of CO2
emissions per year.
It also undertook a comprehensive Environmental and Social Impact Assessment (ESIA) during its
development period to identify environmental and social impacts the project may have in the
surrounding areas, and continues to implement a strict social and environmental regime in
accordance with lenders’ requirements, Jordanian environmental guidelines and international best
practices.
Mohammed Al Balwi, Chairman of Tamasuk Holding Company added: “The Jordan Wind Project
Company is a strategic investment evidences Tamasuk Holding’s commitment to sustainable
infrastructure and we are immensely proud of our partnership with leading institutions like Masdar
and Apicorp.
With this investment, we have established a presence in the Kingdom of Jordan and look forward
to growing our asset base in sustainable infrastructure investments such as Tafila Wind Farm.”
Mohamed Jameel Al Ramahi, Chief Executive Officer of Masdar, said: “Masdar is pleased to
welcome Apicorp and Tamasuk Holding as partners in the Jordan Wind Project Company and the
Tafila Wind Farm, the first utility-scale commercial wind project in the Middle East.
The involvement of these prestigious entities signals the confidence of the regional investment
community in the potential of renewable energy to become a large-scale and reliable provider of the
Middle East & North Africa’s power needs. It further illustrates the success of the Hashemite
Kingdom of Jordan in diversifying its energy mix, using both wind and solar power.”
According to Apicorp’s recently issued Mena Energy Investment Outlook 2020-2024 report, the
Mena region will need to invest $144 billion in the power sector to meet energy needs. The GWEC
report forecasts that 10.7 gigawatts of wind energy capacity will be installed in the Mena region
during the same period, a 167% increase from the current 6 gigawatts currently installed.

Iraq: Gulf Keystone, operational and corporate update
Source: Gulf Keystone
Gulf Keystone Petroleum, a leading independent operator and producer in the Kurdistan
Region of Iraq, has provided an operational and corporate update in advance of its Annual General
Meeting.
Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:
'In response to the unprecedented COVID-19 pandemic and macroeconomic conditions,
we took decisive actions to preserve liquidity and safeguard the long-term health of
the business. We are now well placed to weather the current environment and are able
to move quickly back to growth at the right time.
Our cost reduction initiatives have been thorough, and I am grateful to our staff and
contractors for their commitment and support. Whilst uncertainty around the timing
of the end of the crisis persists, the partial oil price recovery gives us some grounds for
optimism about the future and our return to delivering the significant untapped value
in Shaikan.
Operational
 Maintaining strong focus on safety with zero LTIs recorded in 2020.
 In order to protect all personnel, the Company continues to actively manage its working
practices in light of the COVID-19 pandemic observing all of the appropriate protection
measures.
 Despite the challenges presented by COVID-19, production operations continue at c.36,000
bopd (gross). Average gross production for the year to date is 37,232 bopd.

 DQE's Rig 40 has been stacked on site at zero cost, which will aid the timely resumption of
drilling activities, when appropriate.
 During this period of reduced activity, the Company continues to optimise its plans for a quick
and effective restart of the 55,000 bopd expansion project.
Financial
 As a result of a continued rationalisation of the organisation, expenditures, and
contract renegotiations, the Company remains on track to achieve its previously
announced target of Opex and G&A savings in excess of 20% in 2020 compared to
2019. On a run-rate basis, we are targeting to achieve savings of c.30%.
o The Company is introducing 2020 guidance for Opex of $2.7 to $3.1 per barrel
(vs $3.9 per barrel in 2019).
o The workforce is in the process of being reduced by c.40%, including over 60%
of expatriates, due to the reduction in the work programme.
 Capex for 2020 remains in the range $40 - $48 million (net), a 50% reduction
compared to 2019, of which $30 million (net) had been spent by the end of April 2020.
 Cash balance of $144 million as at 17 June 2020.
 Payments by the Kurdistan Regional Government to GKP are in line with the peer
group, with invoices from March 2020 onwards being settled the following month.
There is an ongoing dialogue relating to the payment of invoices for November 2019 to
February 2020, aggregating $73 million (net).
Corporate
 Garrett Soden is to be welcomed back to the Board of GKP as a Non-Independent Non-
Executive Director representing funds managed by Lansdowne Partners Austria.
 Mr Soden will be formally appointed following completion of the appointment process and will
bring valuable financial and industry experience. Mr Soden was a Non-Executive Director
between 2016 and 2019 and he has undertaken to conform to UK corporate governance
standards in respect of external appointments.
Outlook
 With the Company's ongoing prudent approach to managing its financial position and the
decisive measures taken to reduce its cost structure to preserve liquidity, GKP remains
financially resilient to manage through the current macro environment.
 Despite a partial recovery in oil price, the Company closely monitors market dynamics and
will continue to take the appropriate actions to preserve value in Shaikan.
 GKP looks forward to resuming investment and shareholder distributions when conditions
allow.

U.S: Higher Canada spot prices limit Canadian Nat. gas imports
Source: U.S. Energy Information Administration, based on data from Genscape
U.S. imports of natural gas by pipeline at U.S.-Canada border crossings in the western United States
fell to an estimated average of 6.2 billion cubic feet per day (Bcf/d) in April and 6.3 Bcf/d in May
2020, according to Genscape pipeline flow estimates.
Imports by pipeline into these western states account for most U.S. natural gas imports and tend to
be less seasonal than imports by pipeline in the eastern United States. In recent months, natural
gas spot prices in Alberta, Canada—where nearly all of Canada’s natural gas is produced—have
been higher than spot prices at the U.S. natural gas benchmark Henry Hub.
Natural gas spot prices at the NOVA/AECO-C (AECO) trading hub in Alberta, Canada, have ranged
between $1 per million British thermal units (MMBtu) and $2/MMBtu below Henry Hub spot prices
from mid-2017 until late 2019.
However, from October 2019 through March 2020, there was little difference in spot prices at those
two points. In April and May 2020, AECO natural gas spot prices increased, even as many other
natural gas prices (including Henry Hub) fell.

Price movements at the AECO hub over the past several years reflect regulatory changes to
Western Canada’s pipeline operations. In August 2017, TransCanada (now TC Energy) changed
operations on its NOVA system, prioritizing firm-service customers and stopping deliveries to
interruptible customers—which include storage operators—during maintenance periods.
This change made the AECO natural gas spot price more volatile and reduced injections
into natural gas storage in Alberta.
In late September 2019, the Canadian Energy Regulator approved a temporary service
protocol (TSP) for the NOVA pipeline system, which allowed additional service flexibility during
maintenance periods and, in particular, allowed deliveries to storage facilities during periods when
the system is constrained. Shortly after the TSP approval, the difference between AECO spot prices
and Henry Hub narrowed.
As in the United States, natural gas inventories in Canada typically hit seasonal lows in the spring
because natural gas is withdrawn from storage in the winter months to meet higher demand for
natural gas heating.
In March and April 2020, Alberta’s natural gas inventories were at multiyear lows of slightly more
than 300 billion cubic feet.
These operational changes in Western Canada’s natural gas pipeline system and narrowing
differences in spot prices have resulted in less natural gas being exported to the United States,
especially at border crossings in Montana and North Dakota. Natural gas imports in Montana and
North Dakota in the first five months of 2020 averaged 0.4 Bcf/d and 0.3 Bcf/d less, respectively,
compared with the first five months of 2019.
According to its most recent Short-Term Energy Outlook, the U.S. Energy Information
Administration (EIA) expects gross imports of natural gas by pipeline into the United States—more
than 99% of which come from Canada—to fall from 7.4 Bcf/d in 2019 to 7.0 Bcf/d in 2020 and then
increase to 7.9 Bcf/d in 2021. EIA’s forecast of 7.0 Bcf/d in 2020 would be the lowest level of annual
U.S. natural gas imports by pipeline since the mid-1990s.

NewBase June 22-2020 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil edges up on tighter supply, but demand concerns check gains
Reuters + Bloomberg + NewBase
Oil prices nudged higher on Monday on tighter supplies from major producers, but concerns that a
record rise in global coronavirus cases could curb a recovery in fuel demand checked gains.
Brent crude rose 12 cents, or 0.28%, to $42.31 a barrel by 4:41 GMT, while U.S. crude was at
$39.58 a barrel, down 17 cent.
Both contracts rose about 9% last week and Brent crude futures flipped into backwardation, where
oil for immediate delivery costs more than supply later, usually an indication of tightening supply.
Oil price special
coverage

In the United States and Canada, the number of operating oil and natural gas rigs fell to a record
low even as higher oil prices prompt some producers to start drilling again.
Iraq and Kazakhstan pledged to comply better with oil production cuts during an OPEC+ panel on
Thursday.
However, the OPEC+ group, consisting of Organization of the Petroleum Exporting Countries and
its allies including Russia, has yet to decide whether to extend a record supply cut of 9.7 million
barrels per day (bpd) for a fourth month in August.
Oil prices have also been supported by a recovery in fuel demand globally following a collapse in
April-May during coronavirus shutdowns as countries across the world resume economic activities.
Still, the World Health Organization reported a record jump in global coronavirus cases on Sunday,
with the biggest increase seen in north and south America.
Spikes in coronavirus infections in parts of the world such as Beijing and Australia’s second-most
populous state Victoria have prompted authorities to reimpose movement restrictions to curb the
spread.
“The potential economic damage of a new round of COVID-19 countermeasures will likely contain
any investor enthusiasm,” said Michael McCarthy, chief market strategist at CMC Markets.
Oil Companies Shutting Off Drilling Rigs Across U.S. Shale
Oil exploration shrank for a 14th straight week in U.S. fields amid weak crude prices and skepticism
about a recovery in energy demand.
Drillers idled 10 oil rigs in onshore U.S. fields this week, bringing the total to 189, according to data
released Friday by Baker Hughes Co. Despite this week’s rise in crude prices to a three-month high
around $40 a barrel, they still are more than 35% below the January high.

In the Permian Basin, the oil deposit in West Texas and New Mexico that largely drove the past
decade’s surge in U.S. crude output, drillers shut off five rigs, bringing the total to 132, the lowest
since April 2016.
The rig tally, a widely watched data point that signals future production trends, dropped below 200
last week for the first time in more than a decade. Rather than drill new wells, some companies such
as Continental Resources Inc. plan to restart output that was suspended as crude prices tanked
earlier this year.
Meanwhile, natural gas drilling also slid. Explorers idled three gas rigs this week, pushing the
nationwide total to 75, a record low in data going back to 1987, according to Baker Hughes.

NewBase Special Coverage
The Energy world - Special 01- June -2020
The Big Oil Turnaround: From Negative Prices to a Bull Market
Bloomberg - Javier Blas
Every day, traders in London congregate at 4 p.m. to buy and sell North Sea oil for half an
hour. The window, as it’s known in the industry, is where competition between the most
powerful players in the market sets the price of Brent crude.
Two months ago, every trader wanted to sell cargoes and none were keen to buy. Now the
window has transformed into a bull market, where bids outnumber offers 10 to one and
prices are surging.
“The physical market is strong,” said Ben Luckock, co-head of oil trading at Trafigura Group.
The turnaround reflects the most torrid period in the history of oil.
First, the coronavirus outbreak obliterated demand in China and shattered the oil alliance
between Moscow and Riyadh. Next, the global epidemic and destructive Saudi-Russia price
war pushed the market to the brink of disaster. The collapse brought the rivals back
together for the biggest production cut on record, just as the pandemic ebbed.
Mirror Image

The renewed strength of the “physical market” for crude -- where actual barrels change
hands between producers, refiners and traders -- is driving a surge in the much larger Wall
Street world of oil contracts traded on exchanges in London and New York.
West Texas Intermediate futures rose above $40 a barrel on Friday. That’s a mirror image
of two months earlier, when the U.S. benchmark made an unprecedented plunge into
negative pricing as storage tanks came close to filling.
Beyond the symbolism of that number for the American market, the oil price curve for Brent
-- the range of futures contracts covering the coming months -- shows the international
market has transformed too.
It flipped last week into so-called backwardation, with crude for immediate delivery trading
at a premium to forward contracts. That shape is a telling sign that refiners that saw demand
for their products disappear during the lockdown, are now willing to pay top dollar to
secure supplies for their facilities.
Leaving Lockdown
“You can see demand ramping up every week,” said Marco Dunand, co-founder of major oil
trading house Mercuria Energy Group Ltd.
In China, oil consumption is now back to pre-pandemic levels, according to official data. It’s
still down in countries like Italy and Spain, which were badly affected by the coronavirus,
but rapidly recovering in others, including India, Japan, France and Germany.

Global demand fell as much as 30% in late March and early April, when governments locked
down entire countries. The scale of the rebound is still hotly debated, but most say
consumption is now 10% to 15% below normal levels.
“Our short-term tracking of demand confirms a healthy recovery from the lows of April,”
said Giovanni Serio, chief economist at Vitol Group, the world’s largest independent oil
trader.
Vitol estimates that oil demand is rising by about 1.4 million barrels a day every week in
June -- that’s roughly equal to adding the whole consumption of the U.K. to the market,
weekly.
Second Wave
The market isn’t out of the woods yet. In many countries, the first wave of the pandemic is
still accelerating, while China had to take drastic measures this week to avoid a second wave
taking hold in Beijing.
The continuing influence of the virus on daily life is visible in the uneven nature of the oil
recovery. Gasoline is leading the rebound as people choose to drive their cars and avoid
public transport. For the first time since the pandemic, the fuel is more expensive for
immediate delivery in the U.S. wholesale market than forward contracts, a sign of demand
strength.
“We see a V-shape recovery for gasoline,” said Chris Midgley, head of analytics at S&P Global
Platts and a former head of oil markets analysis at Royal Dutch Shell Plc.

Yet, diesel, a fuel more closely linked to the business cycle because it powers industries and
freight movements, is lagging as the world’s economy tips into recession. Demand for jet
fuel remains almost as depressed as it was during the peak of the coronavirus crisis.
Historic Cuts
Oil consumption doesn’t have to come back in full as long as Saudi Arabia, Russia and the
rest of the OPEC+ alliance are cutting production sharply. The group has removed about a
10th of supply from the market, while U.S. and Canadian output has also fallen sharply.
The scarcity created by the Organization of Petroleum Exporting Countries and its allies has pushed
prices to unusually high levels even in Europe, a continent only tentatively emerging from lockdown.

Urals, Russia’s flagship export blend, was selling at a $4.60-a-barrel discount to Brent in northwest
Europe in late March. Now, refiners are buying the grade at a $1.55 premium, the highest in almost
10 years. Saudi Arabia’s Arab Light crude will sell at a premium of 30 cents a barrel in the region in
July, up from a discount of $10.25 in April.
Balanced Market
The steep OPEC+ cuts mean that even a weakened global economy is probably consuming roughly
as much crude as it’s producing right now. That’s a massive turnround from the March-to-May
period, when traders put about a billion barrels of unwanted oil into tanks, underground caverns and
even ocean-going tankers.
If OPEC+ manages to make every country stick to its output quotas and demand keeps rising, the
world could soon start consuming more oil than it produces.
“There have been encouraging signs of recovery in demand and a rebalancing of global oil markets,”
Saudi Energy Minister Prince Abdulaziz bin Salman told a gathering of some OPEC+ ministers last
week. “The world economy has embarked on the long journey of easing the lockdowns, but there
will inevitably be setbacks and reversals.”
The shrinking of bloated stockpiles can often be a catalyst for rising prices, but it could be a slow
process. Additional demand could just as easily be met by just-in-time supplies -- a combination of
OPEC+ tapering off its output cuts and U.S. shale output recovering.
Not many traders expect to see $50 a barrel this year. Still, even fewer of them believe that a return
to the ultra-low prices of April, when Brent fell to $15.98 a barrel, is likely.
“The oil market is now, for the first time in several months, finding its stability,” Luckock of Trafigura said in
an interview. “At $40 a barrel, we can trade a few dollars higher and a few lower. But for the first time in a
few months, you can see a range.”

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
The Editor :”Khaled Al Awadi” Your partner in Energy Services
NewBase energy news is produced daily (Sunday to Thursday) and
sponsored by Hawk Energy Service – Dubai, UAE.
For additional free subscription emails please contact Hawk
Energy
Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
www.linkedin.com/in/khaled-al-awadi-38b995b
Mobile: +971504822502
khdmohd@hawkenergy.net or khdmohd@hotmail.com
Khaled Al Awadi is a UAE National with a total of 28 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 2020 K. Al Awadi

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