Oil giants return to profitability in first quarter on higher oil prices
After a string of losses, ExxonMobil and Chevron on Friday both reported a return to profitability in the first quarter, bolstered by a significant jump in oil prices. The results, which come amid a similar round of profits by Royal Dutch Shell, Total and other European petroleum giants, point to a much-improved demand outlook compared with last year, when oil prices tumbled midway through the first quarter as the coronavirus crisis shuttered large parts of the economy. “Earnings strengthened primarily due to higher oil prices as the economy recovers,” said Chevron Chief Executive Mike Wirth. Yet larger petroleum companies still face major challenges, including campaigns from activist shareholders at annual meetings next month over their response to climate change. Both US oil firms also face weakness in their downstream business amid tepid demand for petroleum products, especially jet fuel. ExxonMobil, which reported losses in all four quarters in 2020, reported profits of $2.7 billion in the first quarter. Revenues rose 5.3 percent to $59.1 billion. The company said its average price for crude oil sold rose 42 percent compared with the fourth quarter, while natural gas prices rose by 33 percent. Conditions in the downstream business improved from the fourth quarter, “but remained below 10-year lows driven by market oversupply and high product inventory levels,” ExxonMobil said. But the company saw heady conditions in its chemical business, where profits surged due to “continued strong demand, global shipping constraints and ongoing supply disruptions, particularly in North America.” At Chevron, which reported losses the last three quarter, earnings came in at $1.4 billion, down 61.7 percent from the year-ago period, due in part to a steep drop in downstream profits. Revenues rose 1.7 percent to $32 billion. Chevron also benefited from higher oil prices compared with the 2020 period, although international natural gas prices fell in the most recent quarter compared with the year-ago period. – Climate showdown ahead – With companies like Total and BP undertaking renewable energy investment and committing to net-zero emissions targets, the US oil giants are under increased pressure to address climate change. ExxonMobil said it made progress on its “energy transition strategy,” which would see it develop large-scale projects for carbon capture and storage (CCS). ExxonMobil Chief Executive Darren Woods rejected using solar and wind investment as a “litmus test” for a company’s commitment to climate change, saying on an analyst conference call that the oil giant is “at the early stages of a new business” with CCS. However, for the business to take off, there will be need to be government policies to incentivize carbon reductions as well as new frameworks for storing carbon dioxide and installing pipelines and facilities, Woods said. At its annual meeting next month, the oil giant faces a challenge from activist investor group Engine No. 1, which has nominated competing directors to more forcefully shift the company’s response to climate change. In a presentation earlier this week, Engine No. 1 dismissed CCS and ExxonMobil’s other climate-related efforts as ideals that “have mostly generated advertising.” “ExxonMobil paints an unrealistic picture of the likelihood that carbon capture will obviate the need for change,” the group said. Chevron also faces a number of climate-related proposals at its annual meeting in May, including a vote directing the company to analyze how its business would cope if an International Energy Agency scenario of “net zero” emissions by 2050 is realized. Chevron is urging shareholders to reject the proposal in the wake of ongoing company efforts towards the energy transition, arguing the report is “unnecessary.” Shares of ExxonMobil fell 2.9 percent to $57.24, while Chevron dropped 3.6 percent to $103.07. However, both companies are up by more than 23 percent so far in 2021.
Norway regulator to investigate Equinor oil spill
Norway’s petroleum safety watchdog said on Monday there had been an oil spill from Equinor’s Gullfaks C platform in the North Sea on April 26, and that the incident will be investigated. “This discharge is understood to have occurred in connection with starting up production from the Tordis field, which is tied back to Gullfaks C,” the Petroleum Safety Authority (PSA) said in a statement. “Oil was observed on the sea after production had got under way. Gullfaks operator Equinor has estimated the size of the spill at 17.5 cubic metres (110.1 barrels) of oil,” it added.
Saudi Arabia expected to cut June crude prices for Asia – survey
Top oil exporter Saudi Arabia is expected to cut its official selling prices (OSPs) for Asia in June, tracking weakness in Middle East benchmark Dubai and demand uncertainty amid a new wave of regional COVID-19 outbreaks, a Reuters survey showed. Sources at five Asian refiners expected the June OSP for flagship Arab Light crude to decrease by an average of 28 cents a barrel, which would become the producer’s first price reduction since December last year. Their forecasts tracked a loss in benchmark Cash Dubai’s premiums to Dubai swaps, which weakened notably over the second half of April and ended the month at its lowest since Feb. 24. A resurgence in COVID-19 infections in India has hit local fuel demand and dampened market sentiment, causing refineries there to reduce run rates and slow crude purchases in the spot market, two of the survey respondents said. “(What’s) more important (is) how first week sales for May will pan out. Basis that call will be taken for (crude) nomination,” one of them added. In April, Indian state refiners’ local fuel sales declined due to state-level restrictions aimed at stemming a rampant second wave of coronavirus infections, preliminary data showed. Meanwhile, the June Saudi OSPs will have to compete with the prices released by Abu Dhabi National Oil Co (ADNOC) on Sunday, another respondent said. For the first time, ADNOC set the OSP for its flagship Murban crude based on the monthly average of the newly launched Murban futures contract on the ICE Futures Abu Dhabi (IFAD) oil exchange, and released its June OSPs ahead of Saudi Aramco. Asia’s refining margins for gasoline, gasoil, jet fuel and 0.5 per cent very low-sulphur fuel oil (VLSFO) strengthened in April, while the naphtha crack weakened. Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia. State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices. Saudi Aramco officials as a matter of policy do not comment on the kingdom’s monthly OSPs.
OPINION: The oil markets – On the way to recovery
It is safe to say that the oil markets are on the way to recovery, despite still-widespread Covid-19 infections, notably in India, Europe and the US, after suffering what has been its worst year ever. Prices, after all, have largely recovered to pre-pandemic levels, comfortably sitting above $60/bbl, currently with the front-month Brent Futures contract at $66-67/bbl, a far cry from post-pandemic lows seen about a year ago when it fell to 20-year lows of under $20/bbl, while its US counterpart, WTI Futures, fell into negative territory for the first time ever. The recovery is largely led by two factors – recovering demand, particularly among the main crude importers in Asia, such as China, India, South Korea and Japan; amid controlled supply, managed by the OPEC+ group, led by Saudi Arabia and Russia. Supply – Cautiously Managed The OPEC+ group, which slashed their collective output from last May and has managed their production since, with oil kingpin Saudi Arabia leading the way, even making voluntary cuts on top of what the grouping has already committed. By March, the group’s collective output stood at 34.24 million barrels-per-day (bpd), comprising 21.04 million bpd from participating members of the OPEC alliance and 13.2 million bpd from other major non-OPEC producers such as Russia, Kazakhstan and Azerbaijan, well below the pre-pandemic Q1 2020 average of 40.5 million bpd. Output across the 11 months since the cuts have been imposed averaged at 34.17 million bpd, hitting a low of 32.11 million bpd in June and rebounded above 34 million bpd from last August. OPINION: The oil markets – On the way to recoveryCompliance with the output cuts have been high across the alliance, averaging at 96.2% throughout the 11-month period, with Saudi Arabia, the United Arab Emirates, Nigeria, Angola and Azerbaijan all showing above 100% adherence. The Saudis, in particular, have been a prime mover of the output-cut regime, volunteering additional cuts of 1 million bpd for a 3-month period, February-April, bringing their average production for the first two months of the period to 8.19 million bpd, down from an average of around 9 million bpd since August and from the pre-pandemic Q1 average of 9.77 million bpd. The least compliant are Iraq, Kuwait and Russia, at 85-90% adherence. The Russians, in particular, raised output dramatically in March, to a post-pandemic high of 9.5 million bpd, up from the May-February average of 9.06 million bpd, though still well under their Q1 average of 10.56 million bpd. OPINION: The oil markets – On the way to recoveryIn view of the higher-price environment, the OPEC+ has agreed to reduce the production cuts gradually from May to July. Saudi Arabia will restore the 1 million bpd that it had cut during the 3-month period, while the rest of the alliance will increase their collective output by another 1.1 million bpd, bringing the group’s total target production to 35.2 million bpd by July. Other major oil producers that are not a party to the output-cut agreement, such as the US, Canada, Brazil, Mexico and Norway, also voluntarily reduced their production, though not quite as drastic as the OPEC+ members. Output for the group averaged at 21.11 million bpd from May 2020 to February 2021, holding steady at these levels thru the 11-month period, down from their pre-pandemic Q1 average of 23.87 million bpd.OPINION: The oil markets – On the way to recoveryOutput from the US, the world’s largest producer, has remained fairly steady at an average of 10.89 million bpd over the same period, despite hurricanes last August and a deep freeze in Texas in February that forced capacity shutdowns and drove production to under 10 million bpd, but still well below the Q1 average of 13 million bpd, then an all-time high. Output from Canada, the second-largest producer in the group, rose above pre-pandemic levels of 4.39 million bpd seen in Q1, averaging at 4.48 million bpd December-January, with Norwegian production also following suit, averaging at 1.8 million bpd December-February, above the Q1 average of 1.71 million bpd. We believe the higher-price environment has already encouraged more output from the non-OPEC+ producers, notably Canada and Norway, though US production has remained fairly steady throughout the post-pandemic period at 10.5-11 million bpd, despite rising rig count, which has steadily increased since July to a post-pandemic high of 344 by Apr 16, up from a low of 172 last August, but still well-below pre-pandemic levels of above 600. Demand – On the Rise in Asia, but Fragile The higher-price environment is also driven by improving demand in key buyers in Asia, particularly China, India, South Korea and Japan, with their collective imports of crude hitting a post-pandemic high of 21 million bpd in February, higher than even pre-pandemic levels seen in 2019 at 20.4 million bpd and well-above the 2020 average of 19.95 million bpd. The rebound in demand is led by China, the world’s largest importer, which has recovered from Covid-19 since May 2020, and its crude imports have hit above 2019-average levels of 10.12 million bpd in 8 of the 10 months since, up till March this year, including hitting record-high levels twice last May and June, respectively at 11.3 million bpd and 12.94 million bpd. OPINION: The oil markets – On the way to recoveryThe record-breaking Chinese imports were led by collapsing prices in April, when price benchmarks hit rock-bottom due to the pandemic and exacerbated by a brief price war between Saudi Arabia and Russia before the two major producers returned to the negotiating table and agreed on the output cuts with their allies. Chinese exports for 2021 are expected to average higher than 2020’s record-high year-average of 10.78 million bpd mainly due to additional refining capacities coming online, led by private refiners Zhejiang Rongsheng’s 400,000-bpd of new capacity to its exisitng 400,000-bpd plant and Shenghong’s new 400,000-bpd refinery. This also reflected by record-high Tranche 1 import quotas given to its private refiners, at 122.59 million mt, well above 2020’s level of 103.83 million mt.
LNG cargoes diverted from India as COVID crisis dampens demand -sources
Liquefied natural gas (LNG) cargoes are being diverted away from ports in India as surging coronavirus cases there hamper domestic gas demand, trade and shipping sources said on Monday. Six LNG tankers diverted away from India since April 20, changing the destination to northeast Asia, Europe and Kuwait instead, said Rebecca Chia, an analyst with data intelligence firm Kpler. Further diversions and reduction in shipments to India are expected this week, trade sources told Reuters, although one source said that companies are adopting a wait-and-see approach to see how extensive the lockdowns will be. Gas demand has taken a hit from some sectors due to lockdowns imposed in several parts of the country, they added. India on Monday reported more than 300,000 new coronavirus cases for a twelfth straight day to take its overall caseload to just shy of 20 million, as scientists predicted a peak in infections in the coming days. At least 11 states and union territories have imposed some form of restrictions to try and stem infections, but Prime Minister Narendra Modi’s government is reluctant to impose a national lockdown, concerned about the economic impact. “Gas demand from city-gas distribution such as transport and commercial sectors is down, and gas-based power demand is not much as spot prices have not come down to acceptable levels,” a source based in India said. India’s LNG imports dropped to about 1.86 to 2 million tonnes in April, down 11 to 14% from March’s 2.16 to 2.21 million tonnes, according to shiptracking data from Refinitiv Eikon and Kpler. This is still well above the 1.43 to 1.48 million tonnes of LNG imports seen into the country in April, last year after India’s gas demand was hit by a nationwide lockdown.
What happens when there is an oil spill at sea?
Clean-up crews worked on Wednesday to contain an oil spill in the Yellow Sea near the Chinese port city of Qingdao, a day after a tanker carrying around a million barrels of bitumen mix collided with a bulk vessel. While a preliminary study by Chinese maritime officials estimated about 500 tonnes (3,420 barrels) of oil had been spilled, it was still unclear as to the how much had been emptied into the sea. Here are some facts about oil spills and their impact on the environment. TYPES OF OIL SPILLS Spills typically involve two forms of oils, non-persistent and persistent. Non-persistent oils, which include gasoline, light diesel oil and kerosene, will dissipate rapidly through evaporation although in high concentrations there is potential for acute toxicity to marine organisms, according to a report by ITOPF, a non-profit organisation focused on providing response to oil spills by ships. Persistent oil, which includes crude oils, fuel oils, lubricating oils and heavier grades of marine diesel oil, break up and dissipate more slowly in the marine environment and usually require a clean-up operation, ITOPF said. “Heavier oils and crude generally don’t evaporate much and instead of dispersing they form emulsions with the sea water, are much more persistent, spread further and will sink and become mixed with sediments or on coastlines will smother the beaches, rocks,” said Sian Prior, lead advisor with the Clean Arctic Alliance coalition, which has sought to ban the use of heavy fuel oil by ships in the sensitive Arctic region. “Bacteria will work to degrade these oils too but it takes longer. These types of oil spills lead to much greater volumes of oiled material being retrieved as they coat anything.” In terms of toxicity, specialists say bitumen heavy oils usually contain higher loads of many toxic components of oil than other grades. WILDLIFE IMPACT Zhou Wei, a Beijing-based oceans campaigner with Greenpeace, said Tuesday’s collision took place close to the Qingdao and Chaolian islands and the coastal area of Qingdao city. “That area is an important area for feeding and spawning for a variety of sea life, including fish and shrimp. In recent years, whales and dolphins have also been observed in that area.” A 2020 study found there were dense underwater kelp forests near Chaolian Island. The extent of an oil spill’s impact at sea will also depend on how far it spreads and the effects of wind, temperature and current. David Santillo, a U.K.-based scientist with Greenpeace, said much of the impact would depend on the grade of bitumen the tanker was carrying, but part of it was expected to sink to the sea floor. “At the surface, this type of oil can be easier to contain and recover than some lighter oils, depending on conditions and if responses are immediate. But once subject to spreading and wave action, and when it washes up on shores, it can become as difficult as any oil spill,” he said. “And once it is beneath the surface, whether at depth in the water or spread over the seabed, it makes recovery even more difficult, if not impossible.”
Reliance, Saudi Aramco discuss cash and share stake deal: Report
Billionaire Mukesh Ambani’s Reliance Industries is reported to have held talks with Saudi Aramco on a cash and share deal for sale of a 20 per cent stake in its oil refining and petrochemical arm. Ambani had in August 2019 announced talks for the sale of a 20 per cent stake in the oil-to-chemicals (O2C) business, which comprises its twin oil refineries at Jamnagar in Gujarat and petrochemical assets, to the world’s largest oil exporter. The deal was to conclude by March 2020 but has been delayed for reasons not disclosed by either company. Financial Times quoting sources reported that the talks have been revived in recent weeks. Aramco is weighing paying for the stake with its shares initially and then staggered cash payments over several years, it said adding the proportion of shares versus cash was still up for debate and terms had yet to be finalised. An email sent to Reliance Industries for comments was not answered. Saudi Arabia’s Crown Prince Mohammed bin Salman late on Tuesday hinted at talks to sell a minority stake in the Saudi national oil company to a foreign investor. “I don’t want to give any promises but there’s a discussion for the acquisition of 1 per cent,” he said in a television interview. He did not give details of the deal or the parties involved but added that it would be “very important in strengthening Aramco’s sales in the country where this company resides”. Financial Times said talk about the transfer of share ownership could be referring to the Reliance deal but that it was more likely to be related to separate discussions with Chinese and other investors about stake sales in Saudi Aramco. A stake in Reliance’s O2C business would give Aramco an entry into one of the world’s fastest-growing fuel markets. It would also give a ready-made market for 5 lakh barrels per day of its Arabian crude and offering a potentially bigger downstream role in the future. Reliance had in 2019 put USD 75 billion as the value of the O2C business after signing a non-binding letter of intent with Saudi Aramco. “Saudi Aramco remains in discussion with Reliance for potential partnership,” Morgan Stanley had said last month. Aramco has an equity stake in China’s largest O2C project at Zhejiang with a long-term crude supply agreement and a plan to build a network of retail outlets. It also has a fuel retailing joint venture with Sinopec operating 1,000 retail outlets. “A similar footprint possible in India,” Jefferies had said in a separate report last month. “An investment in RIL’s O2C subsidiary could give Aramco a similar footprint – a stake in India’s largest O2C project with a long-term crude supply agreement and a participation in fuel retailing via the RIL-BP joint venture.”
Indian Oil diverting its LNG tankers for transportation of liquid medical oxygen to states
Indian Oil is diverting its Liquefied natural gas (LNG) tankers for transportation of Liquid Medical Oxygen (LMO) to states amid a shortage of medical oxygen in the country due to surging coronavirus cases. The first such tanker is loaded with an LMO supply for Patna. The Union Ministry of Petroleum and Natural Gas informed further that the Indian Oil Corporation Limited (IOCL) will convert 29 unused LNG tankers into medical-grade oxygen carriers within the next week. Further, the ministry informed in a tweet, “Guided by PM Narendra Modi’s call to address issues related to last mile deliveries of medical oxygen, Indian Oil Corporation Limited is diverting brand new LNG Tankers for faster and reliable transportation of LMO to states. The first such LNG Tanker is loaded with LMO supply for Patna, Bihar.” “IOCL is in the process of converting 29 such unused LNG Tankers from its fleet into medical-grade oxygen carriers within the next week to address gaps between production and distribution of oxygen and also ensure smooth supplies. #OxygenForAll #SanjeevaniExpress”, it said in another tweet. Meanwhile, to address the shortage of oxygen tankers in the country, the Union Government today has imported 20 cryogenic tankers of 10 metric tonnes (MT) and 20 MT capacity and allocated them to States.
France’s Total halts its gas project in northern Mozambique
The French energy firm Total announced Monday that it has halted all operations on its $20 billion investment in a liquified natural gas project in northern Mozambique as a result of the extremist rebel insurgency there. Total’s declaration of force majeure casts doubt on the future of the gas project, which had been expected to bring large and sustained economic growth to Mozambique’s struggling economy. The announcement comes just over a month after the rebels attacked Palma, just a few kilometers (miles) from Total’s gas project. The rebels’ assault on Palma lasted for five days during which more than 80 people were killed, banks were robbed and buildings destroyed. Some 50,000 people fled Palma, adding to the humanitarian crisis in northern Mozambique. The insurgency had cause Total to suspend work on the gas project in January. Ironically Total had announced on March 24 that the security situation had improved and it could resume work on the project. But just hours later the rebels attacked Palma, forcing Total to abruptly close the project again. On April 2, Total withdrew all of its staff from the project site, a move it formally confirmed with the annoucement of force majeure. “Total confirms the withdrawal of all Mozambique LNG project personnel from the Afungi site,” it said in a terse statement Monday morning. “This situation leads Total, as operator of the Mozambique LNG project, to declare force majeure.” The declaration aims to “mitigate the negative effects” from “contracts and costs in goods and services which cannot be delivered or used during this period in which activities are suspended,” Mozambique’s oil sector regulator, the National Petroleum Institute, said in a press conference in Maputo, the capital, on Monday morning. “With the temporary interruption of its operations, Total will not be able, during this time, to fulfill its contractual obligations and could yet suspend or rescind more contracts with other suppliers or goods and/or services, depending on how long the interruption lasts,” the body’s chairman Carlos Zacarias told journalists. “Declaring force majeure is not done lightly. It’s tantamount to a nuclear option,” Daniel Driscoll, a lawyer specializing in African natural resource developments who has worked on another gas project in Mozambique told the Zitamar news agency. “I interpret Total’s declaration to mean that they don’t see the security situation in Cabo Delgado improving anytime soon.” Total provided no expectation of when it would get back to work – saying only that it “wishes that the actions carried out by the government of Mozambique and its regional and international partners will enable the restoration of security and stability in Cabo Delgado province in a sustained manner.” A task force from the 15-nation Southern African Development Community visited Mozambique last week to assess ways in which member countries, including neighbors South Africa, Zimbabwe, and Tanzania, might be able to help Mozambique combat the insurgency, which has killed at least 2,800 people since it started in Oct. 2017, according to the Armed Conflict Location and Event Data project, ACLED. The U.S. has sent 12 special forces officers to help train Mozambique’s military, and the European Union is considering sending a military training mission to build on a training program provided by Portugal, according to a recent report by Cabo Ligado, a project led by ACLED to research the conflict. A private military contractor, Dyck Advisory Group, provided helicopter air support to Mozambique’s police but its contract expired at the start of April and was not renewed. The Total announcement comes as thousands of people are stuck at Quitunda, a village built by Total just outside the fence of the project for 300 workers and their families. When the rebels attacked Palma in late March hundreds of contract workers and residents flocked to Quitunda in the hope of being protected from the violence and being evacuated to safety. Now an estimated 20,000 people are clustered by the fence of the Total project battling hunger, rains, and disease and hoping to get to safety. Although the government has urged people to return to their homes in Palma, people are too afraid to go back because of recent killings there, reportedly by both the rebels and government forces.
Lockdowns could disrupt supplies, fuel inflation: RBI report
The Reserve Bank of India has said in its ‘State of the Economy’ report that the resurgence in Covid infections, if not contained in time, risks protracted restrictions and disruptions in supply chains and consequent inflationary pressures. The RBI’s warning comes at a time when prospects of regional lockdowns have increased with rising cases of the disease. The central bank has said that it was important to entrench India’s inflation at 4% so that it (RBI) can continue to play its stabilising role. “When inflation goes beyond the comfort zone, the exclusive concern of monetary policy must be to bring it back to the target,” said the report in RBI’s Bulletin. “When inflation is within the comfort zone, authorities can look to other objectives—the objective of control of inflation is not independent of the objective of growth,” the report said. It is not clear how the inflation numbers for April and May will play out, given an uncertain base. “Going forward, the calculation of year-on-year CPI (consumer price index) inflation prints for April and May 2021 is subject to uncertainty, given that April and May CPIs a year ago were not based on actual price data collections but were imputed,” the report said. However, two positive developments were the forecast of a normal monsoon and the easing of crude oil over fears of fall in demand due to a resurgence of the pandemic. Noting that on April 19 the government announced vaccinations for all adults, the report said that economic activity in India is holding up admirably against Covid’s renewed onslaught. “Much attention has been drawn to the wilting of incoming data in the face of the second wave and localised restrictions. Yet, it is important to note that it is the sentiment indicators that have moderated,” the report said.