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Market Ignores Surge In US Oil Output

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Bullish Wall Streets banks see supply deficits in 2022, while OPEC, the IEA and the DoE are forecasting surpluses.
Standard Chartered says a surge in U.S. oil output in Q4-2021 has gone largely unnoticed.
The U.S. added over 900kb/d to supply in H2-2021, with only Saudi Arabia adding more.
The energy sector’s bull run shows no signs of slowing down, with the sector closing comfortably at the top of Tuesday’s S&P sector standings, even as crude oil prices barely budged.
Brent blend for April delivery, the current front-month contract, settled at USD 89.26 per barrel (bbl) on 31 January, a w/w gain of USD 3.83/bbl. March Brent expired at USD 91.21/bbl on 31 January, a seven-year high front-month settlement, and reached a seven-year intraday high of USD 91.70/bbl on 28 January. Brent blend for delivery five years out has not settled above USD 70/bbl since 22 July 2015 but is now within range of that mark, having gained USD 0.87/bbl w/w to settle at USD 69.13/bbl on 31 January.
The energy sector’s favorite benchmark, Energy Select Sector SPDR ETF (NYSEARCA:XLE), is now up 23.0% year-to-date vs. -4.6% return by the S&P 500. Oil prices have continued their early-year strength, with front-month Brent recording five days of higher intra-day lows and three days of higher intra-day highs over the past week.
U.S. natural gas prices have been driven sharply higher by the cold snap on the East Coast, with the February Henry Hub contract gaining USD 0.999 per million British thermal units (mmBtu) w/w to settle at USD 4.874/mmBtu. The January contract expired on 27 January, reaching a 13-year high of USD 7.46/mmBtu intra-day before expiring at USD 6.265/mmBtu.
Weather in U.S. gas-consuming areas has been colder than normal for the past two weeks; the American Gas Association (AGA) estimates that there were 248 gas consumption-weighted degree days in the week ending 29 January, 27 more than usual. The cumulative number of degree-days since the start of October stands at 2,396, 344 less than normal.
The OPEC joint technical committee met on Tuesday, ahead of the ministerial meeting on Wednesday, to discuss oil-market fundamentals. The group has predicted an oil surplus in 2022 to clock in at 1.3mb/d on average, versus its prior forecast of 1.4mb/d, according to the Reuters.
Sources close to the group indicate that OPEC+ is likely to stick to its 400kb/d monthly production hike, while Goldman Sachs expects the cartel to announce a ramp in production quotas by 800kb/d in Wednesday’s meeting. The OPEC+ production target has been raised by 400kb/d seven times at monthly meetings since the current agreement was reached in July 2021.
Interestingly, Wall Street punters Goldman Sachs, JPMorgan, and Morgan Stanley see deficits in 2022 while OPEC, the International Energy Agency (IEA) and the U.S. Department of Energy (DoE) have all forecast substantial oil surpluses.
And yet another oil and commodity expert has thrown a cautionary note that a surplus could be building in the oil markets at a faster-than-expected clip.
Flying under the radar
In its latest commodity update dated Feb. 1, Standard Chartered says a surge in U.S. oil output in Q4-2021 has gone largely unnoticed by the oil market and oil analysts.
StanChart notes that in October 2021, the U.S. Energy Information Administration (EIA) forecast that U.S. oil liquids supply (excluding refinery processing gains) would be 17.86 million barrels per day (mb/d) the following month. However, the analysts estimate (using revised data published in the EIA Petroleum Supply Monthly’ PSM’ on 31 January) that U.S. oil supply actually averaged 18.795mb/d in November, a m/m increase of 352 thousand barrels per day (kb/d). That’s a good 935kb/d higher than the above EIA forecast and just 375kb/d (1.96%) below January 2020’s all-time high.
The U.S. added over 900kb/d to supply in H2-2021, with only Saudi Arabia adding more.
StanChart says the surge in U.S. production is evident in the latest set of earnings reports by oil companies, with 2.018mb/d of Q4 oil liquids output having been reported so far, a q/q increase of 98kb/d (5.1%). Company guidance suggests that the surge is likely to continue, in particular by Big Oil with ExxonMobil (NYSE:XOM) saying its target is to increase its Permian output by 25% while Chevron (NYSE:CVX) has projected full-year growth of 10% for its Permian output for a similar period.
The surge in U.S. supply runs counter to the market narrative by investment bank proponents of an oil super-cycle. Growth in U.S. supply was predicted to be limited in 2021 because of investor pressure for dividends rather than growth. However, StanChart analysts say that many analysts missed the fact that at current prices, oil and gas companies can significantly increase both dividends and capex.
Indeed, the analysts have predicted that we will see substantial upward revisions to 2022 U.S oil supply growth are likely from agencies, consultants and Wall Street analysts. If U.S. supply merely stays at its November 2021 level throughout 2022, annual average growth would still surpass 1mb/d, more than the current U.S. supply growth forecasts by the International Energy Agency (IEA) and the OPEC Secretariat.
StanChart says it expects U.S. oil supply to continue to surprise on the upside in 2022, and that this surge will not remain under the market radar for much longer.
Capital discipline
Luckily for the bulls, the banker says U.S. production growth will not continue indefinitely, and independent producers will be forced to stick to capital discipline.
The commodity experts have forecast that growth will slow in 2023 and beyond, with production growth from independent publicly-listed companies becoming crimped even at higher price levels weighed down by ESG mandates, shareholder demands for capex discipline and pressure to return capital, rising service costs and underinvestment affecting the drilling of new wells.
Further, the key factor for supply growth in several regions is whether drilling will ramp up fast enough to offset any reduction in the completion of DUCs. Without extra drilling, growth is likely to slow, and for now, there are no signs in the Bakken and Niobrara in particular of any upswing in activity going by the latest Baker-Hughes data.

By: Alex Kimani
Kimani reports for Oilprice.com

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Illegal Bunkering: NSCDC Returns Diverted 50,000 Litres PMS

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The Nigeria Security and Civil Defence Corps (NCDC) says it has returned the 50,000 litres of premium motor spirits hitherto diverted to neighbouring Imo State, back to the original intended destination.
Recall that NSCDC in Rivers State last week announced the arrest of two suspects over attempted diversion of petroleum products to neighbouring states without appropriate licence.
Preliminary investigation, according to NSCDC, showed that the product’s waybill, which was loaded at Conoil Depot in Port Harcourt, stated that the product should be delivered at Omo Wealth in Ikwerre Local Government, but the suspects claimed the waybill was written in error, hence the diversion of the product to Imo State.
Speaking, Rivers State Commandant of NSCDC, Abu Abdu Tambuwal, said the Corps has returned the product to Omo Wealth Filling Station at Ikwerre Local Government Area of the State, as indicated in the waybill when the product was apprehended while being diverted.
Tambuwal stated that the overall cooperation of every stakeholder was very pertinent if illegal oil bunkering activities would be put to a stop.
“The diverted 50,000 litres of Premium Motor Spirit impounded by the anti-vandal border patrol team has been returned to Omo Wealth Filling Station, at Ikwerre Local Government Area of Rivers State as indicated on the Waybill at the point of arrest.
“The community dwellers expressed their joy as such pragmatic step taken would prevent long queue of vehicles at the filing stations as it is being experienced currently in some States of the Federation”, he said.
Tambuwal also stated that the Command’s anti-vandal squad has been further directed to increase its operational efficiency by arresting those dealing illegally in petroleum products on waterways, border areas and illegal refineries.
“The Anti-vandal Squad has been ordered to carry out massive arrests and dismantle oil bunkering dump sites across the State and this we will do without compromise or prejudice.
“Therefore, my candid advice is that all perpetrators of illegal dealings in petroleum products must engage themselves in legitimate businesses or risk being arrested and prosecuted according to the provisions of the laws of the federation”, he concluded.

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Schneider Electric Plans Managed Power Services

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Schneider Electric has identified Managed Power Services as the next big thing in the power sector.
This is coming at a time when the leader in energy management automation encouraged its partners, professionals and end users to take advantage of the next wave of growth opportunity in the power sector.
Speaking at a recent media parley, Oluwaseun Oloyede, Secure Power Leader for Anglophone West Africa, APC by Schneider Electric, emphasised the need for its partners and IT professionals to be well positioned in order to take advantage of this growth opportunity.
He added that it was normal to see innovations in the sector because “if a business isn’t growing, its likely on its way to extinction”, he said, adding that IT solution providers require continuous investment in new technology and service opportunities to stay on a growth path.
“Moreso, research has shown that edge computing delivers a robust opportunity for IT solution providers with projected spending to reach $250.6 billion by 2024.
“With IT professionals looking for help on monitoring and management of these sites, there are only 27% of Managed Service Providers (MSPs) who offer managed power services today. As such, now is the time for solution providers to expand their portfolio,” Oluwaseun stated.
He added that seasoned MSPs know that adding a new service practice requires thoughtful planning, execution, and reliable vendor partnerships. Between implementing platforms and tools, training staff, and identifying clients for the services, building a new practice takes as many as 3,500 non-revenue-generating staff hours.
MPS represent a new opportunity for service providers and partners to address asset management of UPS’s and physical infrastructure, such as monitoring of alarms and resolving potential faults increases reliability across the asset’s life cycle.
“Based on our calculations, the addition of Managed Power Services adds 1.5-times additional revenue over the lifecycle of the asset compared to traditional hardware.

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Firm Targets Take Over Of Moribund NNPC Pipelines

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An indigenous Engineering Procurement and Contract (EPC) company, Oilserv Limited, says it plans to bid for all moribund Nigerian National Petroleum Company (NNPC) Limited pipeline distribution systems to ease products distribution chain.
Group Chairman, Oilserv Limited, Mr Emeka Okwuosa told newsmen on the sidelines of the just concluded Offshore Technology Conference (OTC) in Houston, Texas, United States.
He said that Frazimex Engineering Ltd., a subsidiary of Oilserv, had submitted a tender to NNPC in this regard.
Oilserv Group is the company handling the $2.8 billion Ajaokuta-Kaduna-Kano gas pipeline project.
“As we speak today, one of our companies is working closely with NNPC.
“There is a tender going on how to correct the moribund distribution systems for petroleum products distribution. We see them all over Nigeria. They are not functional.
“But we want to buy them over, rebuild them and make energy available, instead of having people transport petrol and diesel from Port Harcourt to Makurdi, for example. Does it make any sense?
“There is a pipeline built many years ago but, really, it is not there anymore because it has been damaged and not maintained. We are also addressing that. We’ve also gone into renewables,” he said.
Okwuosa said that the company was working to build gas networks, built locally, and then operate.
“That means that we are already trying to address the issue of energy availability within our group,” he said.
On agriculture, Okwuosa, said that one of the Oilserv subsidiaries, Ekcel Farms Ltd. was involved in agriculture and products processing.
He said: “We have our primary feeds – cassava and tomato. We are trying to develop cassava at the moment.
“Part of the reasons for this is not to only provide for the teeming population of Nigeria but also provide products or feeds that can be used in pharmaceuticals, in the other food industries.
“What that means is that it helps us to balance our footprints in the energy industry because one of the aspects of our foray into agriculture is to be able to generate power that we use from agriculture by using biomass and biogas, taking the waste and then converting it to energy.
“That again helps us to address our carbon footprints as a country.
“Having said that, if you look at the energy sector around the world, particularly oil and gas, you will see a lot of discussions going on,” he said.
On energy transition strategy, the Oilserv boss said the company has a clear energy transition strategy.
“Apart from developing it, we sensitise people about it and review it regularly.
“We’ve also gone into renewables. We are not, at this point, developed in renewables. But we have a partnership with a German company to address the renewables, solar or whatever.
“We are more concerned about how we can utilise the principle of both green and blue hydrogen.
“We want to be able to generate power without having to damage the environment. So, we are already moving into that sector.
“But going into the new phase of energy delivery takes a lot of time to plan, a lot of investments. And like I said, if you look at Nigeria, we also have some issues,” he said.
Okwuosa said most of the countries in the world that have developed and still developing have frameworks to encourage these developments.
“By way of tax rebate, addressing price issues to make sure that entry points, in terms of costs for these alternatives, will not be too high.
“Unfortunately, we don’t see any articulated situation like that in Nigeria. What that means is that there is really no encouragement for any investor to come into that as a business because he cannot compete today in terms of pricing with fossil fuels.
“But we cannot give up, it’s about engaging the government, it’s about pushing because we have no choice. If we don’t, the train will keep moving and we’ll get to a point where our oil is there but we cannot produce.
“It is our duty as a country to make sure we can refine the crude oil we use. We can do that. Nigeria’s utilisation is high enough to actually absorb about a third of our production “ he said.
Bridging infrastructure deficit, Okwuosa, said that the Federal Government had done quite a lot of things for which it has not been given credit.
“When President Muhammadu Buhari came into power, the AKK pipeline was already under discussion since 2009, it was never moved anywhere.
“But within three months of coming into power, Buhari brought the issue up and said it must be done.
“Buhari government gives us the support to navigate that process, especially the funding. The government has been determined to ensure the Nigeria Gas Master Plan is fully executed because of its impact.
“That is why we are talking about the pipeline to Ajaokuta, which is the last interlink. So, I give them credit for that.
“There are quite a number of programmes the NNPC has initiated, like the seven gas programmes we have. The Train 7 NLNG is ongoing as we speak.
“A lot has happened. That is why I keep saying that gas is the mainstay of our transition. If we get gas right, it would be easier for us to transition into renewables.
“The Nigerian government has done a lot. But, as a developing country, you know we are struggling with so many things for now.
“It is about focusing on what matters the most. The government has done a lot, but there is room for more. It needs to make it possible that there is an enabling environment for investors who are interested in the renewables,” he said.

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