Brent crude oil fell below $59 a barrel on Wednesday (17 December), near 5-1/2-year lows, as major oil producers signalled that they would maintain output despite a supply glut and faltering demand in Russia and Europe. Core Gulf OPEC members have said they are prepared to wait as long as a year for the market to stabilise, undercutting hopes they will step in to stem crude price losses. Oil prices have almost halved over the last six months as increasing volumes of light, high-quality crude from North American shale have overwhelmed demand. "Every day now you have some Gulf OPEC member actively trying to talk the market down," said Olivier Jakob, oil analyst at Petromatrix. "OPEC is trying to choke US oil producers." Brent for February was down by $1.20 to $58.81 a barrel at 1238 GMT. The January Brent contract, which expired in the prior session, hit a low of $58.50 on Tuesday, its weakest since May 2009. US crude dropped by $1.70 to $54.23 a barrel, after touching its lowest since May 2009 at $53.60 on Tuesday (16 December). On Wednesday, Iraqi Kurdistan government officials said Iraqi crude oil exports to the Turkish port of Ceyhan could reach 800,000 bpd next year, higher than previously announced. Oil shipments from Angola, Africa's second-largest exporter, are also set to increase in February to 1.86 million barrels per day. Russian Energy Minister Alexander Novak has said Moscow will not cut output in 2015, even if pressure on its finances rises with the economy showing signs of severe stress. The rouble has been hit hard, prompting Russia's central bank to begin selling part of its foreign-currency holdings worth $7 billion in an effort to halt a collapse in the currency. European shares opened lower as the market reacted to fears over the crisis in Russia, which has sparked further concerns about energy demand growth. "The weak demand increases the amount of supply that must be removed from the market," said Carsten Fritsch, an analyst with Commerzbank. In the United States, crude inventories rose by 1.9 million barrels last week, compared with analysts' expectations for a decrease of 2.4 million barrels, data from the American Petroleum Institute showed on Tuesday. Analysts said stock data from the US Energy Information Administration due on Wednesday could also weigh on market sentiment. "Unless we see a huge drop in US stocks ... it will be bearish," Fritsch said. (Reuters)
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India's Oil and Natural Gas Corp and Venezuela's state oil company PDVSA are seeking around $1 billion in credit to stem an output decline at their San Cristobal joint venture, two sources close to the negotiations said. Indian banks are poised to lend the money to the joint venture, the sources said, though ONGC would provide the guarantee and the breakdown of the loan's repayment has not yet been decided. The deal is expected to ensure state-owned ONGC receives between $400 million and $500 million of unpaid dividends that have accrued over five years. "This could come together next year," one of the sources said of the deal, which seeks to stem San Cristobal's production fall from a peak of over 40,000 barrels per day to around 30,000 bpd. It is also likely to involve creation of an offshore account, probably in Asia, to receive the export income, guaranteeing ONGC will receive money. With oil prices tumbling, the likely deal underscores a broader shift toward pragmatism in financially-strapped PDVSA under new boss Eulogio Del Pino. The sides have negotiated for more than a year and are close to a deal to overhaul wells, machinery and other items over three to four years to shore up output and change the terms of sales. Crude would be sold to a handful of buyers, likely Indian and Asian, under 10-year agreements, one source said. The offshore account "will be a like a waterfall mechanism, whereby the revenue from the project ... will then be distributed among partners," said the second source. Venezuela awarded ONGC its stake in the field in 2008. Under the venture's original terms, India's largest oil and gas explorer is due to receive dividends, though it does not control the crude's marketing or receive revenue from sales. Both sources declined to be identified because of sensitivity of the issue. ONGC Videsh Managing Director N.K. Verma declined to comment. PDVSA did not respond to a request for comment. Joint Venture PainsAs of the close of 2013, PDVSA says, it owed around $2.5 billion dollars in dividends to joint venture partners. The company has sought creative solutions to the dividends issue, and has paid back some debts to contractors, according to industry sources. Fresh investment could help Venezuela, home of the world's largest crude reserves, shore up flailing oil production. For years, the country has been pressuring some 20 joint ventures between PDVSA and foreign partners to find extra funding. The socialist government has threatened to cancel the ventures' permits if they fail to reach higher goals. Financing deals estimated to be worth $9.25 billion have been taken out for investment in the JVs in the last two years or so. A major agreement with Chevron secured $2 billion in financing to boost production at the Petroboscan JV. The China Development Bank approved a $4 billion credit for the Petrosinovensa JV with China National Petroleum Company. Deals have also been reached with Russian and other JV partners. ONGC Videsh, ONGC's overseas investment arm, has a 40 percent stake in the San Cristobal oilfield. PDVSA subsidiary CVP has the rest. (Reuters)
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Oil fell below $59 a barrel for the first time since May 2009 on Tuesday (15 December), extending a six-month selloff as slowing Chinese factory activity and weakening emerging-market currencies added to concerns about demand. International benchmark Brent crude has almost halved since reaching a 2014 high of $115 a barrel in June on ample supply and slowing demand, and a switch in strategy by exporter group OPEC to defending market share rather than prices. A report showing Chinese industrial activity shrank for the first time in seven months in December added to concern about oil demand. China is the second-largest oil consumer after the United States. Brent crude fell as low as $58.50, its weakest since May 2009. As of 1221 GMT it was down $2.12 at $58.94 while US crude was down $1.73 at $54.18 per barrel. "The trend remains down," said Robin Bieber, technical analyst and director at London-based oil broker PVM Oil Associates. "It is not advised to be long." The Organization of the Petroleum Exporting Countries declined to cut production at a November 27 meeting and, despite slumping prices, major Gulf OPEC members have since shown no sign of reversing course, seeing no need for an emergency OPEC meeting. Russia's energy minister also said on Tuesday his country will not cut production. Before OPEC's meeting Russia, not an OPEC member, had hinted it could cut supply if OPEC did the same. Weakening emerging-market currencies and economies, the drivers of growth in global oil demand, also weighed on prices, analysts said. In Russia, one of the world's largest oil producers, the central bank hiked its key interest rate by 6.5 percentage points to 17 per cent on Tuesday in an attempt to halt a collapse in the rouble. In India, the Reserve Bank has been intervening in support of the struggling rupee, triggered by a worsening trade deficit, and in Indonesia the rupiah dropped to its lowest in 16 years against the US dollar. "The sharp decline in nearly all commodity prices and the weakening in commodity currencies creates headwinds for oil demand in the commodity-producing emerging markets in Latin America and the Middle East," Goldman Sachs said in a report. "Historically these regions didn't contribute much to oil demand, today they do."
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China has completed its ambitious $80 billion "South-to-North Water Diversion Project" with world's longest canal and pipelines spanning 1,400 km, transferring water to its arid northern regions including the capital, amid concerns over its adverse environmental impact. The project took eight-years to be completed and involves two 4,000-meter-long tunnels under the riverbed of the Yellow River, China's second largest river. The project will transfer water from the Yangtze river, China's largest river, to the arid northern regions. In 2003, its project cost was estimated to be around $59 billion which spiralled to $80 billion by the end of its completion. The project evoked interest in India as it closely resembles NDA government's 2003 River-Inter-linking project. The then Chairman of the Task Force on the Inter-Linking of Rivers and current Minster of Railways, Suresh Prabhu during his visit to Beijing has said India will study the project to understand how the Chinese planned to go about it. The project was conceived by late Chinese leader Mao Zedong in 1952 but delayed over its likely impact on the environment as well as resettlement of people. The project was approved by the State Council in December 2002, after nearly half-a-century of debate. But the new waterway presents fresh challenges as well, such as the protection of water quality from unforeseen natural risks in the future, state-run China Daily reported. Work still needs to be done to ensure the livelihoods of the 400,000 people displaced by the project, including 345,000 people whose hometown submerged in the Danjiangkou reservoir. It is the second biggest water project undertaken by China after the Three Gorges dam regarded as the world's biggest hydro-power dam. The first-stage of the project, the eastern route, went into operation last year, sending water to Shandong province. By 2050, as many as 440 million people could benefit from the diversion of 44.8 billion cubic meters of water each year. The middle route begins at Danjiangkou reservoir, in Hubei province, and runs for 1,432 km. It will supply 9.5 billion cubic meters of water per year to 100 million people in the northern regions, including the cities of Beijing and Tianjin. President Xi Jinping congratulated workers "who made contributions" to the middle route project, calling the achievement a "major event" in the modernisation drive. The South-North Water Diversion project is another feat of Chinese engineering, in the style of the Beijing-Hangzhou Grand Canal, the world's longest man-made river, constructed in the 13th century to transport grain between the south and north, the report said. Premier Li Keqiang said the project will benefit both the current and future generations of the country. (PTI)
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Brent crude oil hit a fresh five-year low close to $60 a barrel on Monday (15 December) after producer group OPEC restated its determination not to cut output despite a global fuel glut, but the North Sea benchmark later rallied to around $63. Market momentum appeared to be downwards, with analysts saying oil could plumb new depths before a sustained recovery. Oil prices have collapsed over the last six months as high-quality, light crude from North America has overwhelmed demand at a time of lacklustre global economic growth. The Organization of the Petroleum Exporting Countries has kept production steady, worried that any reduction in its output would have little impact on price and instead mean surrendering market share. "The decision has been made. Things will be left as is," OPEC Secretary-General Abdullah al-Badri told a conference in Dubai on Sunday. "We agreed that it is important to continue with production (at current levels) for the ... coming period." Brent for January fell to a low of $60.28 a barrel in Asian trade, down $1.57 and its lowest since July 2009. The futures contract then rallied to trade around $62.85 by 1015 GMT, up $1.00. US crude for January was trading at $58.50 a barrel, up 69 cents, after hitting a low of $56.25 earlier in the day - its weakest level since May 2009. Analysts said Monday's bounce was partly speculative buying, and partly a reaction to news that Libya's two biggest oil ports had shut due to fighting between armed factions allied to the country's two rival governments. "The market may just have moved down too far too quickly today," said Tamas Varga, energy analyst at London brokerage PVM Oil Associates. "It was a bit overdone and people may be 'bottom-picking'." Analysts have cut oil price forecasts sharply over the last few weeks. "Oil prices may move below $60 per barrel in the near term," analysts at Barclays Bank said, but added that "this (level) is not sustainable in the long run". Barclays said it expected Brent to average $67 per barrel in the first half of 2015 and $78 in the second half of next year. National Australia Bank said on Monday it cut its Brent forecast to $80 in the fourth quarter of 2014, $75 in the first quarter of 2015 and an average of $80 for all of next year.
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GIC Pte Ltd, Singapore's sovereign wealth fund, formed a joint venture with property developer Vatika Group for two residential projects near New Delhi, the two firms said in a statement on Monday. The projects in Gurgaon, to be developed by Vatika Group, are expected to be completed by financial year 2018-19 and are forecast to generate revenue in excess of 20 billion rupees ($319 million), they said. Other details of the joint venture were not disclosed. GIC has been on a property-buying spree. Its recent investments include an office building in Rio de Janeiro, an office tower in Tokyo, shopping centre in Rome and logistic properties in the United States. (Reuters)
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Oil producers group OPEC can ride out a slump in oil prices and keep output unchanged, its head said on Sunday, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators. Speaking at a conference in Dubai, Abdullah al-Badri defended November's decision by the Organization of the Petroleum Exporting Countries not to cut its output target of 30 million barrels per day (bpd) in the face of a drop in crude prices to multi-year lows. "We agreed that it is important to continue with production (at current levels) for the ... coming period. This decision was made by consensus by all ministers," he said. "The decision has been made. Things will be left as is." OPEC policy remains a crucial factor in global economic prospects after Brent crude settled at below $62 a barrel on Friday, following a steep descent which hammered energy stocks and currencies exposed to crude exports. Kuwait's oil minister Ali al-Omair said on Sunday OPEC's decision to keep output unchanged was intended to retain market share, even if it had a negative impact on prices, state news agency KUNA said. The move left benchmark grades at nearly half levels set earlier this year and doused appetite for riskier assets, pushing investors into the safety of government debt despite strong U.S. consumer sentiment. In a further reaction to slumping oil, stock markets across the Middle East fell sharply on Sunday, adding to a plunge in Gulf equity markets which has wiped out roughly $150 billion of value since the end of October. Some say selling may continue as few participants are yet willing to call a bottom for markets. But Badri suggested the crude price fall had been overdone. "The fundamentals should not lead to this dramatic reduction (in price)," he said. He said only a small increase in supply had lead to a sharp drop in prices, adding: "I believe that speculation has entered strongly in deciding these prices." Asked if OPEC planned an emergency meeting before its next scheduled gathering in June, or a meeting with non-OPEC producers, Badri said such meetings would not have an effect on oil prices. No TargetOPEC had no target price for oil, Badri said in a reiteration of policy, and urged Gulf states to continue investing in exploration and production, saying the United States would continue to rely on Middle East crude for many years. Stopping new production projects would bring about a situation in which prices "will go back to $147 a barrel as in 2008. This was a result of a previous such situation," he said, recalling the potential market effect of a dearth in supply brought about by inadequate upstream investment. Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November's decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home. "Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect," he said. However Saudi Arabia's oil minister Ali al-Naimi had told last month's OPEC meeting the organisation must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister. Badri said OPEC members Iran and Iraq, their oil sectors restricted respectively by sanctions and insecurity, both had the potential to raise production, but significant increases were possible only after two or three years. Adding to the effects of OPEC's unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year. (Reuters)
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Top steelmakers ArcelorMittal and Tata Steel are dipping their toes into iron ore derivatives, marking a crucial milestone in developing trade for the world's second-largest commodity after oil. Although the steelmakers continue to say publicly they do not use such products, sources said ArcelorMittal hedged a block of iron ore trades in September while Tata recently decided to use derivatives on a small scale next year. "Arcelor are definitely trading iron ore swaps, they were active in September. But it's not being pushed top-down - they're trying to figure out how to organise themselves," a source with knowledge of the matter said. A separate source said the decision to hedge at Tata had been taken at board level. Both steelmakers declined to comment, but have previously said they oppose iron ore and steel derivatives on the grounds that such instruments can give speculators undue price influence. Iron ore derivative volumes are set to reach some 550 million tonnes this year, having roughly doubled every year since their launch by the Singapore Exchange in 2009. Steelmakers and merchants in China - by far the world's biggest iron ore consumer - embraced the products. Now, with the cautious entry of ArcelorMittal and Tata, a trend could be set in motion whereby smaller rivals follow suit, speculators jump in and volumes soar even further. "The entry of the mills could bring the derivatives market to a tipping point fairly soon," said Steve Randall, managing director of price-setting agency The Steel Index. "I expect next year we'll see over 1 billion tonnes of iron ore derivatives traded. That's getting close to the 1.3 billion tonnes of physical seaborne iron ore traded each year," he added. The popularity of iron ore derivatives coincided with an explosion in spot market volumes around five years ago, when the market moved from annual benchmark pricing to shorter-term contracts based on daily indices. That raised price volatility and the need by industry participants to better manage risk. Prices of iron ore - a key steelmaking input - have been volatile this year, falling 48 per cent. While this should increase hedging needs, some experts say weak prices might temper enthusiasm among smaller steelmakers for hedging. "High-cost iron ore producers have been priced out of the market, so price volatility could ebb next year. Smaller steelmakers could then say iron ore is not that volatile so why hedge," an industry source said. However, most agree the script for iron ore has been set. They note that steelmakers are already under pressure from their clients to use derivatives in order to offer supply contracts that have prices fixed for several years. "We're approaching investors who we want to sell windmills to and if we have a big risk on the steel element it makes us less attractive. One-year contracts are good but we'd like two-to three-year contracts," said Nikolag Ager Hamann, from the procurement department at wind-farm developer Dong Energy. (Reuters)
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