Oil Markets and The Kerfuffle About Additional Iraqi Barrels

31 May 2015 | Author: | No comments yet »

OPEC under siege as ISIS threatens world’s oil lifeline.

Thick black smoke rising from the Baiji oil refinery could be seen as a dirty smudge on the horizon as far away as Baghdad after fighters from the Islamic State of Iraq and the Levant (Isil) set fire to the enormous processing plant just over 100 miles north of the capital last week.

The Sunday Telegraph: Iraq, Saudi Arabia, the Gulf states and Iraq which together account for two thirds of the cartel’s production are all now affected by the inexorable march of the Isil jihadists but appear powerless to prevent it due to the widening sectarian schism between the Sunni and Shia Muslims across the region in the wake of the Arab spring uprisings five years ago.Saudi Arabia’s rapid transition into one of the world’s largest Crude Oil refiners adds an extra dimension to the exporter’s role as the driver of OPEC policy.

The decision to torch the refinery, which once produced around a third of Iraq’s domestic fuel supplies, was made as the insurgents prepared to pull out of Baiji, which they captured last June in a victory that sent shock waves across world oil markets. The Observer: British overseas tax havens play a key role in what US authorities have called “rampant, systemic and deep-rooted” corruption in the world of football. When it attends OPEC’s next meeting in June, it does so with major new state-of-the-art Crude Oil refineries that can profit from cheaper Crude and reviving world fuel demand, exactly as international Oil firms have over the past 6 months. A year on from the start of the siege and a shaky alliance of the Middle East’s major Arab powers, with the limited support of the reluctant US government, has failed to contain the expansion of Isil. The Sunday Telegraph: Property investors in Qatar could be “burnt twice in less than a decade” if the country was to lose the right to host the 2022 World Cup as the Fifa scandal unfolds, experts have warned.

The Kingdom now has stakes in more than 5-M BPD of refining capacity, at home and abroad, landing it a place among the global leaders in making petroleum products. The problem for the US and the rest of the industrialised world is that the Middle East controls 60pc of proven oil reserves and with it the keys to the global economy.

Should Isil capture a major oil field in Iraq, or overwhelming the government, the consequences for energy markets and the financial system would be potentially catastrophic. Mail on Sunday: Economic growth has sped up in the past three months, allaying recent fears that the UK’s recovery is stalling, according to the Confederation of British Industry. Its Crude Oil trading arm, Aramco Trading, could soon find at least 67% of its trading focused on products such as diesel, gasoline and heating oil rather than Crude, Mr.

Many of the countries most threatened by the onslaught of the extremist group, which has grown out of the chaos of Syria but was initially dismissed as a wider threat to regional stability, will gather at the end of this week in Vienna for the meetings of the Organisation of the Petroleum Exporting Countries (Opec). The Observer: Ryanair, the famously abrasive budget airline has made a concerted effort to soften its approach – and has been rewarded with some impressive annual results. Oil ministers gathering to decide on production levels at Opec’s secretariat building in Vienna will normally stay clear of wider geopolitical issues during their deliberations in the Austrian capital.

But as OPEC members fight for market share, Aramco’s refineries also give it a natural outlet for its 10-M BPD of Crude Oil production. “In contrast with the Crude market which is shrinking, the product market is becoming more global,” said Antoine Halff, chief Oil analyst with the International Energy Agency (IEA). While Crude Oil producers who lack a developed refinery sector, such as Nigeria effectively leave this money on the table for refiners, Aramco and others in the Gulf can now cash in. “The Crude is so cheap it’s pretty much free for them,” said Amrita Sen of Energy Aspects. “The margins are going to be massive. The Independent on Sunday: The tobacco industry has been accused of “appalling hypocrisy”, amid claims that it is fuelling the illicit trade in cigarette smuggling to bolster its arguments against tax increases and other anti-smoking measures. But their refineries worldwide, hovering near 1-M BPD each, are only a fraction of what Aramco has built in just a few years. “The Saudis have a much wider market there because they are competing globally,” Mr.

At some point the security issues will start to come back into the price of oil.” Up to this point, oil markets have shrugged off the risk of a major supply disruption caused by the worsening security situation. Halff said. “They diversify vertically by capturing different parts of the value chain and it becomes a hedge and it gives them a lot more market access.” Aramco has added more than 1-M BPD in capacity through a controlling stake in Korea’s S-Oil as well as its 2 big refineries at home, Yanbu and Yasref, both with 400,000 BPD in throughput. Traders have remained focused on the market fundamentals that almost 2m barrels per day (bpd) of excess oil capacity will be more than enough to absorb any supply-driven shock. Just over six months ago when Opec’s 12 oil ministers last met in Vienna the cartel decided to continue pumping oil at a level of around 30m bpd, which effectively fired the first shots in an oil price war against shale drillers in North America, and Russia.

After almost a decade of oil prices ticking along at above $100 per barrel during which the group ignored the shale revolution taking place in the US, Opec decided to act last November. The shift could also enable it to funnel more Crude Oil into its own plants, meaning the 9 yr high of 7.89-M BPD it exported in March could be the high mark. Fesharaki said. “But it shows the transformation in the next five years in which the companies become more of product players and will have automatically less of an influence on the Crude market.” Within a month, oil prices had fallen to multi-year lows below $50 per barrel, sharply lower than the $115 year-high achieved last June when concern over the civil war in Syria caused a spike in prices. According to Baker Hughes, rig numbers have fallen for 24 straight weeks to 659 rigs as of last week compared with a record 1,609 rigs operating last October.

In high-cost production areas such as the North Sea the impact of Opec’s decision to allow oil prices to fall naturally has shaken the industry to its core. Iraq is poised to lift its exports by as much as 800,000 bpd to around 3.75m bpd next month as the government in Baghdad desperately tries to increase its revenues, which have been crippled by falling prices. Although most of Iraq’s major oil fields are located in the south of the country, which are Shia Muslim heartlands, the failure of the Iraqi army to deal with the threat of Isil is a sign of their vulnerability to isolated attacks. To add to the problems facing Saudi Arabia’s new ruler, King Salman bin Abdulaziz al-Saud, his kingdom is also facing insurgency from the so-called Al Qaeda in the Arabian Peninsula terrorist group which is intent on destabilising the regime.

Against this cataclysmic backdrop of bombs falling in Sana’a and with Isil literally at the gates of the major Iraqi city of Ramadi, many US energy and security experts were shocked to hear President Barack Obama ignore the danger in a recent keynote speech in which he pinpointed global warming as an equally big risk for Americans. “Climate change constitutes a serious threat to global security, an immediate risk to our national security,” warned Mr Obama in a speech that many have criticised as symptomatic of the administration’s desire to disengage from the region which still provides a significant share of its oil. Despite the growing focus on climate change and the campaign to limit fossil fuel production, Isil will be a bigger concern for the majority of oil ministers around Opec’s table next week. It was this commitment that drew America into the first Gulf War in 1991 and again in 2003 when it decided to bring down the curtain on Saddam Hussein’s regime. Washington’s determination to pursue a nuclear deal with Iran has arguably destabilised the region by placing Riyadh and Tehran on a collision course. Saudis are dismayed that Iranian military advisers are aiding the assault to recapture Ramadi, a city in Iraq’s Anbar Province which US forces fought so hard to secure 10 years ago.

Iran opposed Saudi Arabia last November when the kingdom’s oil minister, Ali al-Naimi, insisted that the group should stand on the side lines and allow market forces to drive down the oil price in order to render high-cost oil such as US shale unprofitable. With vast foreign currency reserves Riyadh and its Arab allies in the Persian Gulf can weather the storm better than Iran, while the continuation of lower oil prices will limit Tehran’s ability to support Saudi’s enemies in Yemen.

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