Market Update: Oil & Gas - September 2017 | KPMG | BH

Market Update: Oil & Gas - September 2017

Market Update: Oil & Gas - September 2017

A closer look at the sanctions against North Korea, Russia as a leading oil supplier and the impact of Hurricane Harvey on retail fuel prices.

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Russia is still China's leading oil supplier

Russia is expected to continue as the leading exporter of crude oil to China in 2017 since it has overtaken Saudi Arabia's position in 2016. It was estimated in 2017 that, of the 382.6 million metric tons of crude oil and oil products imported into China, approximately 14.8% originated from Russia and the CIS.1

The cooperation between the two world states in the energy sector has been enhanced with the purchase of a 14 percent stake in Rosneft by the CEFC China Energy Company Limited. In doing so, Russian has managed to cement its position as one of the leading suppliers to the Asian markets over a relatively short 10-year period. This move diversifies Russia away from slowly eroding European energy demand, which during the same 10 year period has experienced a fall of 10.9% in consumption of refined oil products.

– Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia

Latest set of sanctions against North Korea

With more than sixty percent of Asia Pacific's refining capacity located within its neighboring countries (of China, Japan and South Korea), North Korea's recent efforts to expand its military and nuclear capabilities has underscored the uncertainty for the North East Asian oil trade flows. The latest set of sanctions were approved by the UN Security Council will limit oil and refined product imports into and textile exports out of North Korea. The sanctions bans oil condensates and natural gas liquids, and imposes a cap of 8.5 million barrels per year of refined products and crude (equivalent to a 30% cut).

North Korea's recent launch of an unarmed ICBM in late August and thermonuclear weapon test in early September has injected uncertainty in the Asian oil markets. With the US, UN, Japan and South Korea pushing for a de-escalation, the potential for disruption to oil flows within the region has been estimated as being equivalent to a third of global seaborne crude oil trade.

– Oliver Hsieh, Director, Commodity & Energy Risk Management, KPMG in Singapore

Trump administration issues waivers to mitigate Hurricane Harvey impact on retail fuel prices

The impacts of Hurricane Harvey have been less than had initially been feared, with no major damage to offshore production infrastructure, and refinery restarts which have proceeded at a faster pace than after Hurricane Rita in 2005. As of 12 September, only 734,000 bpd of Gulf Coast refining capacity remains fully shut down, 4% of the US total. Nevertheless, the two weeks of refinery outages and reduced demand have had major impacts on both crude oil and petroleum products markets. The Brent-WTI spread has widened to around $6 per barrel, and retail gasoline and diesel prices remain elevated, including in Florida as a result of the disruptions to transportation associated with the later Hurricane Irma. While the abnormal WTI discount to Brent will arbitrage out in the next couple of months, in part due to US crude oil exports, the Trump administration has taken several narrowly targeted actions to help speed the normalization of products supply. A very small swap from the Strategic Petroleum Reserve (SPR) was authorized to help maintain full utilization at the Phillips 66 Lake Charles Refinery. The Environmental Protection Agency (EPA) also issued several narrow exemptions from normal fuel standards, most importantly a waiver which allowed the commingling of winter gasoline in the Colonial Pipeline prior to the normal date when it switches over. This helped the pipeline resume flows faster and at a higher volume than would have otherwise been the case. The Department of Homeland Security (DHS) also has issues a waiver of the Jones Act allowing the use of non-US vessels for shipments of petroleum products to Florida from other US ports in the aftermath of Hurricane Irma.

– Greg Priddy, Director, O&G, Eurasia Group*

 

* Guest contributor to September edition

Analyst estimates: oil

  2017 2018 2019 2020
Min 51.1 49.3 53.0 57.5
Average 53.2 55.6 60.2 66.3
Median 52.8 54.2 58.2 66.0
Max 56.0 65.0 70.0 80.0

 

  2017 2018 2019 2020
July Avg 53.8 57.4 61.7 66.8
August Avg 53.2 55.6 60.2 66.3
July Median 53.7 57.5 62.5 67.5
August Median 52.8 54.2 58.2 66.0

Analysts estimate: gas

  2017 2018 2019 2020
Min 2.9 2.9 2.9 2.9
Average 3.1 3.1 3.2 3.3
Median 3.1 3.0 3.2 3.3
Max 3.3 3.7 3.5 3.5

 

  2017 2018 2019 2020
July Avg 3.1
3.1 3.2 3.3
August Avg 3.1 3.1 3.2 3.3
July Median 3.1 3.0 3.2 3.3
August Median 3.1 3.0 3.2 3.3

Note: The forecasts/analyst estimates identified are an indication based on third party sources and information. They do not represent the views of KPMG.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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