Balancing Act---Sanctions, Venezuela, Trade War and Demand

2 hours ago, William Edwards said:

Our ideas differ markedly and will remain so. I may have sold more cars, houses, oil futures and oil than you, although I don't know your numbers. I am confident that I have observed more data and given the subject more hours of deliberation than you. I am confident that I have spent more time in personal discussions with Saudi Oil Ministers, OPEC Secretaries General, etc., than you. Of course, I can still be off-base, as can anyone.

That's nice William.  There is someone who suggested the following:

"Lofty positions in the industry tell me nothing of the competence level or degree of understanding of the occupant of the position..."  I note that any sale is a transaction between buyer and seller, that is a fact.

There are a number of acts that take place in a sale, you seem to believe the buyer has control as they accept an offered price, in many cases price is set by negotiation between parties and both buyer and seller are in control, if a price that satisfies both buyer and seller is reached then papers are signed to complete the sale.  Only if agreement on price can be reached between buyer and seller will a sale be completed.  Perhaps you have sold either cars, houses, or oil where you set a price that was not negotiable, this is an unusual way to do business.

Are large contracts between supplier and buyer in the oil industry not negotiated?  That would seem absurd.

 

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2 minutes ago, D Coyne said:

That's nice William.  There is someone who suggested the following:

"Lofty positions in the industry tell me nothing of the competence level or degree of understanding of the occupant of the position..."  I note that any sale is a transaction between buyer and seller, that is a fact.

There are a number of acts that take place in a sale, you seem to believe the buyer has control as they accept an offered price, in many cases price is set by negotiation between parties and both buyer and seller are in control, if a price that satisfies both buyer and seller is reached then papers are signed to complete the sale.  Only if agreement on price can be reached between buyer and seller will a sale be completed.  Perhaps you have sold either cars, houses, or oil where you set a price that was not negotiable, this is an unusual way to do business.

Are large contracts between supplier and buyer in the oil industry not negotiated?  That would seem absurd.

 

I suspect that my experience in my fuel buying activity for my personal car mirrors yous. No negotiation. The service station system posts his price and I either pay and pump or drive away. Most consumers follow this practice. I suggest that millions of times more transactions occur without negotiation than do with such activity.

Regarding large oil sales, how many times have you  negotiated Aramco to give you a special, negotiated price for a cargo versus paying their stated price?

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The Cuban government has ordered its state-run power system to further reduce electricity generation in the latest sign that a cash crunch exacerbated by new U.S. sanctions is taking an economic and human toll, a newspaper reported on Sunday.

Ciego de Avila's provincial Communist Party newspaper, Invasor, reported that local generation would be cut 10 percent to save fuel as part of a nation-wide reduction ordered on April 18.

The report said cuts in fuel allocation for power generation begun in 2016 had so far spared the residential sector and essential services from blackouts but warned that could change.

More than 95 percent of the country's electricity is generated by oil-fired plants.

Most business and infrastructure are state owned.

“We are at a critical point, according to the electric union, and if at certain times of the day the fuel allocated for the day runs out, we will have to shut down some circuits,” the paper said, adding that for now no programmed blackouts were planned.

Last month the United States began sanctioning ships and companies carrying Venezuelan fuel to Cuba. Cuba barters medical and other assistance for the oil and will be hard pressed to find an alternative given the cash crunch.

Communist Party leader Raul Castro and President Miguel Diaz-Canel have both told the National Assembly that the country should prepare for hard times, but a more diversified economy meant it would not be as harsh as the 1990s.

Cubans suffered through years of daily blackouts in the 1990s after the fall of former benefactor the Soviet Union.

Cuba's foreign exchange earnings used to purchase abroad more than 50 percent of the fuel it consumes, food, animal feed and much more, have steadily fallen since 2015 when strategic ally and oil supplier Venezuela began to implode.

Declines in key exports nickel and sugar, and cancellation of a health services for cash deal with Brazil, have worsened matters.

Foreign trade fell 25 percent from 2013 through 2017, with imports dropping to $11.3 billion from $15.6 billion.

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Mexico is unlikely to replace Venezuelan, Iranian heavy crude barrels: analysts

04 26 2019

The future of Mexico's heavy crude exports is uncertain as major consumers like India and the US seek alternative supply sources for heavy oil amid sanctions introduced by US President Donald Trump on Iran and Venezuela, analysts said.

Concerns about Pemex's capabilities to raise production and about ambitious government-set refining level goals are factors relevant to refiners considering Mexico as an alternative supply source of heavy oil, Arturo Carranza, an energy analyst with consultancy group Mercury in Mexico City, told S&P Global Platts.

"There is much uncertainty surrounding Mexico's crude balance, I have some skepticism in general terms that heavy crude exports could be increased considering a short period and Pemex's limited resources and efficiency," Carranza said. "It is more likely that Saudi Arabia or Russia will be a supply alternative for India and other Asian countries than Mexico."

Mexico has produced 1.7 million b/d of heavy oil in April, half of the historic peak production reached in 2003, government data showed. This decrease has been the result of Pemex's inability to replace production from the aging Cantarell complex.

"Pemex has just been able to stabilize its decreasing production over the last months, increasing it is going to be a challenge," Carranza added.

pemex-production.jpg

The uncertainty surrounding the future of Mexico's heavy crude oil production should clear over the coming months, Luis Miguel Labardini-Deveaux, a partner with energy consultancy firm Marcos y Asociados in Mexico City, said.

"The next year will be critical to define the ability from the new administration [of President Andres Manuel Lopez Obrador] to increase exploration and production activity," Labardini-Devaux said.

MEXICO'S GOAL: PRODUCING 1.9 MILLION B/D BY END-2019

Currently, the Mexican government is investing capital into Pemex and introducing a new fiscal regime to incentivize an increase in upstream production, Labardini-Devaux added.

Lopez Obrador has an aggressive program to increase production to over 1.9 million b/d by the end of the year, according to Carranza. "This seems like a very ambitious goal," he said.

To achieve this increase in production, Pemex is currently developing 20 onshore and offshore fields this year. Thus far, the National Hydrocarbons Commission (CNH) has approved the development of four of these fields: Xikin, Esah, Cheek and Chocol.

However, despite the development of these fields, the expected new production will be primarily light oil with a 33 API on average, Pemex has said.

In addition to the 20 fields, the state-owned company has a significant potential to increase production from mature fields through enhanced oil recovery, known as EOR, Labardini-Devaux said. A fiscal regime change that would allow Pemex to deduct 60% of its upstream expenses versus 12% would be a major incentive for the company to invest in EOR, he added.

"Pemex has an ample portfolio of opportunities, what the company lacks is more capital injections," Labardini-Devaux said. The company currently has an upstream capital budget of over $10 billion, half of the amount the company needs to reach its full potential, he added.

If Pemex had enough resources, the company could increase heavy oil production at Pit, Ayatzil-Tekel-Utzil and Ek-Balam, shallow water projects, as well as extend the life of the giant Ku-Maloob-Zaap offshore complex, which is entering into its terminal production phase.

Another uncertainty is the ambitious refining goal set by Lopez Obrador of increasing crude processing levels by over 1 million b/d by the end of the year, Carranza said. According to data from the Mexican government, Pemex processed 650,000 b/d of heavy crude during the second week of April.

Three of Pemex's six domestic refineries have a single configuration, preventing them from efficiently processing Mexican heavy crude. These facilities are the 330,000 b/d Salina Cruz, 315,000 b/d Tula and 220,000 b/d Salamanca refineries.

Despite these technical limitations, Mexico's Energy Secretary Rocio Nahle has said Pemex would not import light crude under Lopez Obrador's presidency and it will instead seek to refine its crude oil production domestically.

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Venezuela's oil producion in a nosedive, PDVSA imports crude

 

 

04 24 2019

Oil production in Venezuela has dipped so low that the owner of the world's largest reserves is importing crude for the first time in five years.

The nation's output fell below 1 million barrels a day to a 16-year low in March, amid rolling blackouts and U.S. sanctions. As the power disruption shut oil fields, pipelines and ports, bringing oil infrastructure to a halt, state-owned Petroleos de Venezuela SA bought a cargo of crude from fellow OPEC member Nigeria, marking the first oil import since 2014.

Almost 1 million barrels of light, sweet Agbami crude is discharging Tuesday, after loading in early April, and may help to offset falling domestic production. PDVSA can also use the lighter oil as a diluent to thin Venezuela's sludgy crude so it can be more easily extracted from underground reservoirs.

pdvsa_oil_production-685.jpg

The streams that are blended with light oil are marketed as Merey 16, the country's top exported oil and a grade used to calculate the OPEC oil basket price. The cargo of Agbami will likely be used to make Merey as the production of domestic of light oils has been falling over the years. According to the latest official data available, production fell by half between 2006 and 2016 to 313,000 barrels daily.

The last time Venezuela imported crude, in 2014 , it purchased Algerian crude to mix with extra-heavy oil for a grade that became known as Blend 16 . PDVSA discontinued the blend amid disagreements with Algeria's state oil company Sonatrach and complaints from U.S. refiners, then the company's biggest buyers.

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Venezuela struggling to restore thermal power units

 

04 26 2019

Venezuela´s state-owned utility Corpoelec and state-owned oil company PdV are struggling to restart thermal generating units in the wake of successive catastrophic blackouts triggered by a breakdown of the Opec country's main hydroelectric complex.

Barely 6GW of Corpoelec's 34GW of total installed thermal and hydroelectric generation capacity was operational as of mid-April, according to an internal electricity ministry grid assessment commissioned by new electricity minister and Corpoelec chief executive Igor Gavidia after his 1 April appointment.

Venezuela's grid will be "unstable and vulnerable to major failures and resulting national blackouts for several years until necessary repairs and modernization are completed," the grim report indicates, estimating that up to $15bn of generation and transmission investments are required to restore the grid.

Since the first of the blackouts swept Venezuela on 7 March, most of the country remains with sporadic if any power supply and related municipal water service. Western Venezuela is particularly hard hit.

The April grid assessment reviewed by Argus states that Venezuela needs at least 13GW of electricity to meet current estimated national demand without resorting to supply restrictions.

Corpoelec reported 3GW of operational thermal capacity nationally in early April, with the other 3GW consisting of hydropower generated in Bolivar state by the 10GW Simon Bolivar (Guri) complex and the 2GW Caruachi and 2GW Macagua complexes located downriver from Guri. Hydro assets in the Andean states of Táchira and Mérida are off line, the report adds.

The assessment cautions that with only 16pc of Corpoelec's thermal assets of 19GW currently in service, Venezuela cannot offset new breakdowns of its hydro generation and transmission assets. Corpoelec's decades-old 765kV transmission system linking Guri to the rest of Venezuela has collapsed some 30 times since 2016.

The assessment also warns that Venezuela is at imminent risk of more blackouts that could leave most of the country in the dark for over a month if the only operational transformer feeding the critical 765kV Guri substation breaks down.

Two of the Guri substation's three large-capacity auto-transformers have been out of service since the first blackout on 7 March left 21 of 23 states without electricity for over a week.

"A failure of the Guri substation's only operational auto-transformer could cause a blackout nationally that could last up to 40 days until new transformers are imported and installed," the report adds.

The western state of Zulia, which hosts PdV's oldest fields, is dark for up to 20 hours a day because "only 300MW or 12pc" of its local installed thermal capacity of 2.5GW was operational as of mid-April.

Zulia´s thermal assets include the 1.4GW Termozulia complex near Maracaibo, which is capable of generating only 300MW at best. Idle thermal units in Zulia, including 660MW Ramón Laguna, 266MW Rafael Urdaneta, 61.6MW Casigua, 36MW Santa Barbara, 32MW Concepción and 40MW San Lorenzo, are out of service for lack of parts and feedstock, mainly diesel and natural gas.

Electricity supply for PdV's core operations including its export terminals at the 940,000 b/d CRP refining complex in Falcón and the Jose processing and terminal complex in Anzoátegui state have depended on Corpoelec's fragile grid for nearly a decade as the oil company´s own generation capacity broke down from lack of maintenance.

Since successive blackouts last month disrupted PdV's operations, the company has redoubled efforts to repair and recommission dedicated generation assets in its operational areas, an oil ministry official told Argus . The company has managed to resume tanker loadings at Jose this month, but little progress has been made elsewhere because of the combined impact of structural gas and diesel supply deficits, US sanctions, financial duress and a scarcity of skilled electrical engineers and workers.

PdV owns and operates 31 thermal units with total capacity of nearly 2.9GW, of which 20 units with a combined capacity of 1.7GW are out of service and a remaining 11 with capacity of 1.2GW currently generate only 770MW.

Corpoelec is prioritizing supplies for PdV, but at the expense of supply to urban and rural areas in the interior of the country, and non-oil manufacturing and commercial activities, the electricity ministry said.

Venezuela´s president Nicolas Maduro blames the blackouts on sabotage coordinated from abroad, and several Corpoelec officials have been arrested.

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(edited)

Russian oil giant Rosneft has lashed out at Reuters, calling the agency's claims the company helped Venezuela avoid US sanctions “informational sabotage” and promising to work towards banning it in its home country.

In its exclusive piece on Thursday, which was solely based on undisclosed “documents and sources,” Reuters accused Rosneft of cashing in checks for the restricted Venezuela's state oil firm, PDVSA. It said the Russian company was allegedly getting Venezuelan oil with a discount, paying for it immediately in bypass of the usual 30-to-90 day transaction timeframe and then getting the full amount from the final buyers.

Rosneft blasted the report as “a blatant lie” and “a provocation” against the company in its response on Friday.

“Reuters have ceased its operations as a news agency and a media outlet. This enterprise systematically engages in forging and spreading deliberate misinformation, legalization of rumors in the interests of its sponsors; invents news opportunities with the aim of damaging Russian economy, Russian companies and the Russian state,” the statement read.

Those actions by the international news organization constitute “informational sabotage,” it said.

Rosneft insisted that it had no other choice but to “address the law enforcement agencies in order to curb the activities of this bogus agency [Reuters] on the territory of Russia.”

The US has put Venezuela under harsh sanctions which target its main source of income – the oil exports – and other areas of its economy. Washington has also directed foreign companies not to deal with PDVSA or face punishment themselves, according to reports.

American restrictions represent a heavy burden for the Latin American nation, which suffers from hyperinflation and is unable to import even the most essential food and medical supplies. However, the pressure still hasn't been enough to fulfill the Trump administration's goal of replacing socialist President Nicolas Maduro with US-backed opposition leader, Juan Guaido.

04 19 2019

President Nicolas Maduro is funneling cash flow from Venezuelan oil sales through Russian state energy giant Rosneft as he seeks to evade U.S. sanctions designed to oust him from power, according to sources and documents reviewed by Reuters.

The sales are the latest sign of the growing dependence of Venezuela's cash-strapped government on Russia as the United States tightens a financial noose around Maduro, who it describes as a dictator.

With its economy reeling from years of recession and a sharp decline in oil production, Venezuela was already struggling to finance imports and government spending before Washington imposed tough restrictions on state oil company PDVSA in January.

Oil accounts for more than 90 percent of exports from the OPEC nation and the lion's share of government revenues. Maduro has accused U.S. President Donald Trump of waging economic war against Venezuela.

Since January, Maduro's administration has been in talks with allies in Moscow about ways to circumvent a ban on clients paying PDVSA in dollars, the sources said. Russia has publicly said the U.S. sanctions are illegal and it would work with Venezuela to weather them.

Under the scheme uncovered by Reuters, Venezuelan state oil company PDVSA has started passing invoices from its oil sales to Rosneft.

The Russian energy giant pays PDVSA immediately at a discount to the sale price – avoiding the usual 30-to-90 day timeframe for completing oil transactions – and collects the full amount later from the buyer, according to the documents and sources.

Major energy companies such as India's Reliance Industries Ltd - PDVSA's largest cash-paying client - have been asked to participate in the scheme by paying Rosneft for Venezuelan oil, the documents show.

Rosneft, which has heavily invested in Venezuela under President Vladimir Putin, did not immediately respond to a request for comment.

Venezuela's oil ministry, its information ministry - which handles media for the government - and PDVSA did not respond to questions.

Russia has loaned Venezuela almost $16 billion since 2006, which is being repaid in oil shipments, and has also taken significant stakes in petroleum projects, meaning it already controls a large slice of the South American country's production.

PDVSA's unusual payment agreement with Rosneft is part of a series of schemes by Maduro's government to gain access to cash, including selling Central Bank gold reserves. The schemes have frustrated Washington officials, who have in recent days questioned why sanctions have not had a more dramatic impact on Venezuela's finances.

“PDVSA is delivering its accounts receivable to Rosneft,” said a source at the Venezuelan state firm with knowledge of the deals, who spoke on condition of anonymity for fear of retaliation.

“The cash ends up in Russian banks or is used for settling pending payments such as marine services or freight so that oil exports are not interrupted.”

The sources said some of the money was flowing via Russian-Venezuelan bank Evrofinance Mosnarbank, which was placed under U.S. sanctions last month. A spokesperson for Evrofinance denied such transactions had passed through the bank.

RELIANCE

It was not immediately clear exactly how much of Venezuela's oil exports of around 900,000 barrels per day was being paid for using the sale of PDVSA's accounts receivable, because deals are being arranged on a case-by-case basis, sources said.

An internal PDVSA document reviewed by Reuters, however, indicated shipments in April to Reliance - owner of the world's biggest refining complex – would be settled via Rosneft.

Reliance imported 390,500 barrels per day of Venezuelan crude in March, equivalent to almost 40 percent of Venezuela's exports that month, according to shipping data compiled by Reuters.

The internal document showed that PDVSA and Reliance would pay a fee equivalent to around 3 percent of the sale price, split between them. Rosneft's fees are negotiated on a case by case basis, the sources said.

Industry sources familiar with the matter said the Reliance transactions were going ahead but some banks were reluctant to provide financing for the purchases as the invoices stated that the oil came from Venezuela.

Srikanth Venkatachari, Reliance's joint chief financial officer, told reporters on Thursday it was buying Venezuelan oil via Russian and also Chinese companies. He did not provide further details.

“We are in active dialogue with the U.S. Department of State on our dealings on Venezuelan oil to remain compliant with U.S. sanctions,” he said.

A Reliance spokesman said the payments to Russian and Chinese companies were then deducted from the money owed to those countries by Venezuela.

CRISIS

While most Western countries have joined Washington in recognizing opposition leader Juan Guaido as Venezuela's legitimate president, Russia - together with China and Cuba - has stood by Maduro, defending him at the United Nations and providing military assistance, angering Washington.

Even before January's sanctions, Venezuela's oil exports had halved from 2.8 million bpd when the late President Hugo Chavez, Maduro's predecessor, launched his Socialist revolution two decades ago.

Rosneft, run by close Putin ally Igor Sechin, has capitalized on the crisis to take an ever-bigger share of the oil industry in Venezuela, which sits on the world's largest crude reserves.

In February, Rosneft estimated the book value of stakes in Venezuelan projects at $2.11 billion.

Now Rosneft is providing the cash to help keep PDVSA operational, using its large trading division to give it flexibility to collect payment for Venezuelan oil from clients.

In one transaction, an executive from Rosneft's Geneva unit offered to take a PDVSA invoice owed by trading firm BB Energy for the purchase of 525,000-barrels of fuel oil in January, according to an offer letter reviewed by Reuters.

Rosneft paid a portion of the $26-million bill directly to PDVSA and started talks with BB Energy to collect payment in cash or by receiving an oil cargo, according to the letter and a PDVSA source.

A spokesman for BB Energy said that under guidance from legal counsel the company had not yet made any payment for the cargo. He declined to provide further details.

Some within PDVSA are concerned Rosneft's trading arm now has been given too significant a role in decisions over cargo destinations in order to facilitate payment to the Russian company, according to one source.

They are also frustrated that Venezuela is paying a heavy premium to Rosneft for imported fuel - needed because of the poor condition of domestic refineries - because only a handful of sellers were willing to skirt U.S. sanctions.

“Rosneft is buying our oil for cheap and selling us very expensive fuel in exchange,” the source said. “We always owe them money.”

04 16 2019

The United States on Friday announced more sanctions on shipping companies transporting oil from Venezuela, blacklisting four shipping companies and nine vessels, some of which the U.S. Treasury Department said carried oil to Cuba.

The U.S. Treasury identified the firms as Liberia-based Jennifer Navigation Ltd, Lima Shipping Corp and Large Range Ltd, and Italy-based PB Tankers S.P.A.

It blacklisted one tanker belonging to each of the Liberian firms and six owned by the Italian firm.

A Treasury statement said Venezuela's oil sector continued “to provide a lifeline to the illegitimate regime” of Venezuelan President Nicolas Maduro.

“We continue to target companies that transport Venezuelan oil to Cuba, as they are profiting while the Maduro regime pillages natural resources,” Treasury Secretary Steven Mnuchin said in the statement.

“Venezuela's oil belongs to the Venezuelan people, and should not be used as a bargaining tool to prop up dictators and prolong oppression,” he said.

The sanctions prohibit dealings with the firms by U.S. citizens and block the companies' financial interests in the United States.

A week ago, the U.S. Treasury imposed sanctions on 34 vessels owned or operated by Venezuelan state-run oil company Petróleos de Venezuela, S.A, or PDVSA, and also on two companies and a vessel that delivered oil to Cuba in February and March.

PDVSA nevertheless shipped 1 million barrels of oil to Cuba after the last round of sanctions, according to a PDVSA document and tanker tracking data.

Last week's sanctions came on top of a previous round in January targeting PDVSA itself.

The United States and most Western nations have recognized opposition leader Juan Guaido as the rightful president of Venezuela.

Guaido invoked the Venezuelan constitution to assume an interim presidency in January, arguing that Maduro's 2018 re-election was illegitimate.

Maduro argues Guaido is a puppet of the United States attempting to oust him in a coup. Venezuela's Foreign minister Jorge Arreaza this week said the OPEC-member nation plans to “fulfill its commitments” to Cuba.

Venezuela has long sent subsidized crude to Cuba. The United States describes the arrangement as an “oil-for-repression” scheme in which Havana helps socialist Maduro weather an economic crisis and the power struggle with the opposition in exchange for fuel.

Cuba has said it will never abandon its ally even as U.S. President Donald Trump's administration threatened more sanctions.

 

 

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No peak in sight for climbing US jet exports to Latin America

04 16 2019

US jet fuel exports to Latin America soared to record highs in 2018, with Mexico cementing its role as the number one overseas destination for US jet.

And that trend is set to continue, sources say.

"Exports to Mexico are quite heavy because Mexico is depending upon US jet for approximately 60% of their supply right now," said a US Gulf Coast distillates trader.

Jet fuel traveled from the USGC to Mexico at the highest rate ever in 2018. Mexico imported 20.45 million barrels of jet from the US last year, up from 14.87 million barrels in 2017, according to the latest data from the US Energy Information Administration.

Latin American countries not only imported more jet in 2018, they paid more, as well. S&P Global Platts assessed USGC jet fuel at an average of $2.0269/gal in 2018, compared with $1.5584/gal in 2017.

MEXICO TOPS CANADA AGAIN

The 34% year-on-year rise kept Mexico firmly in the top spot of US jet destinations, a position it first secured in 2017.

Canada, traditionally the top overseas recipient of US jet fuel, imported 13.65 million barrels in 2016, compared with Mexico's 12.2 million barrels. But Mexico first edged Canada in 2017, taking in 14.87 million barrels to Canada's 13.99 million barrels.

Mexico's 20.45 million barrels in 2018 easily eclipsed Canada's 18 million barrels.

Mexican imports of jet fuel in 2018 accounted for a higher percentage of the country's demand than ever before, Mexican government data show. Imports accounted for around 64% of the country's domestic jet demand in 2018, up 11 percentage points from 2017. Last year, jet fuel imports averaged around 56,000 b/d, while Mexico's demand for the product averaged 86,000 b/d.

Mexico's reliance on the US for more than half its jet fuel supply is a relatively recent phenomenon. Prior to 2014, Mexican imports averaged less than one jet fuel cargo a month. However, aging refinery infrastructure and a lack of storage have increased the country's dependence on outsourced jet fuel over the last five years.

"They've got real issues," said a USGC jet fuel trader. "Theft, corruption, too few tanks."

OTHER COUNTRIES INCREASE INTAKE

Panama was the second largest jet importer from the US among Latin American nations, bringing in 6.3 million barrels in 2018, slightly less than its 6.37 million barrels in 2017.

Chile was third among the recipients of US jet, taking 2.53 million barrels last year, compared with 2.92 million barrels in 2017.

Other countries saw a year-on-year escalation in their imports. Brazil took 2.45 million barrels of US jet in 2018, up from 1.72 million barrels in 2017, the EIA data showed.

The Dominican Republic jumped to 2.42 million barrels from 2.1 million barrels in 2017.

Costa Rica, Argentina, Guatemala and Honduras also saw significant increases in their jet imports in 2018.

December in particular was a notable month for other Latin American nations, according to the EIA.

Curacao, just north of Venezuela and its troubled refineries, brought in its biggest US jet shipment ever in December at 140,000 barrels. December also saw Trinidad's first full cargo arrive, at 331,000 barrels, just after the country shut its Petrotin refinery.

El Salvador, Antigua and Barbuda, and the Bahamas all had record jet shipments from the US to close out 2018.

TOTAL US EXPORTS CLIMBING HIGHER

The increase in flows to Latin America was indicative of a more widespread rise in US jet exports in 2018. Total US jet exports reached a record 81.2 million barrels, up from the previous high of 67.16 million barrels in 2017.

So far in 2019, total US jet fuel exports have averaged 212,000 b/d, nearly double the 120,000 b/d average for the same period in 2018.

However, the average price per gallon has dipped slightly over the first two months of 2019. Platts assessed USGC jet at an average of $1.8441/gal in January and February, down from $1.9091/gal in the same period in 2018.

As for the US' number one customer, players expect Mexico to get most of its jet fuel from the USGC for the foreseeable future.

"Their jet imports should go up, especially since BP, Repsol, Marathon and Total have entered into agreements to import products and build infrastructure," said the jet trader.

"So, if I was guessing, jet imports should increase by 5% each month, month on month, for rest of 2019. And 2020 will most likely see an immediate 30% increase after more tankage comes online," the source said.

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Edited by ceo_energemsier
to add information

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11 minutes ago, William Edwards said:

I suspect that my experience in my fuel buying activity for my personal car mirrors yous. No negotiation. The service station system posts his price and I either pay and pump or drive away. Most consumers follow this practice. I suggest that millions of times more transactions occur without negotiation than do with such activity.

Regarding large oil sales, how many times have you  negotiated Aramco to give you a special, negotiated price for a cargo versus paying their stated price?

My experience is that a very large purchase is often subject to negotiation, it is correct that when I pay 40 dollars for gasoline for my car there is no haggling and I simply pay the posted price, if I don't like the price I look for a different gas station.

Are you suggesting a company pulls their Supertanker up to the loading terminal and says fill r up?

Pretty sure a major refiner negotiates long term contracts for the oil they receive, my understanding is that most of the oil on the market is traded in that way.  Major refiners in the US may import 100 million barrels of oil per year from Saudi Arabia, my guess is they do not just take the posted price, they would negotiate for a good price and if they could not reach agreement would go elsewhere.

It would be a little different than buying a cup of coffee.

 

 

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It's great to see intelligent discourse being bantered around here, a cordial back and forth of very different viewpoints, with different folks reading, mulling over, and responding in a professional (and sometimes lighthearted) manner.

Well done to spurring those little grey cells into action.

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21 hours ago, John Foote said:

But that certainly doesn't stop the attempts, or the belief it works. 

Yes indeed!

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20 hours ago, D Coyne said:

Osama,

The interaction between consumers and producers sets the price at which a transaction occurs.  While it is true that a producer cannot sell what a consumer is unwilling to buy, likewise it is true that a consumer cannot buy a good that is not produced.

If the producer wants to sell a product that cannot find a buyer at price P, they offer the product at a lower price P'.

Saudi Arabia likes price P and chooses not to produce more oil which would result in a lower price.

Some simple math 10 Mb/d at 65/b vs 9.5 Mb/d at 70/b or 650 million $/d vs 665 million $/d.  I would choose the lower output and higher price if I were running Aramco, it seems they have made the same choice.  As far as weak demand, the IEA forecasts an increase in demand in 2019Q2 of about 1.6 Mb/d over 2018Q2, so we have to consider demand in relation to the price.

https://www.iea.org/media/omrreports/tables/2019-04-11.pdf

But how can we be certain that a certain increase/decrease in price will result in a certain level of production? 

 

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2 minutes ago, Osama said:

But how can we be certain that a certain increase/decrease in price will result in a certain level of production? 

 

Osama,

We can only guess.  So a producer would need to change their price and see what happens to demand.  If they have excess capacity that they would like to utilize they would gradually reduce their price and see how much demand for their oil increases, if they were close to maximum sustainable output they might gradually raise their price to see how much demand falls.

I would think the price is often subject to negotiation for large refining companies and the price might be set for 30 to 90 days and then renegotiated at regular intervals.  Smaller refiners would likely just take the posted price.

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50 minutes ago, Osama said:

But how can we be certain that a certain increase/decrease in price will result in a certain level of production? 

 

We cannot! Therein lies the fallacy of that theory. Sounds good when an economist says it, but does not work in practice. So far our amazing computers are not able to convert production numbers into price numbers. And the invoice must show the price as a dollar number, not an oil flow number. It amazes me how many people can make the jump, only in their minds, of course, from production levels to dollars without a formula for that conversion!

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20 minutes ago, William Edwards said:

We cannot! Therein lies the fallacy of that theory. Sounds good when an economist says it, but does not work in practice. So far our amazing computers are not able to convert production numbers into price numbers. And the invoice must show the price as a dollar number, not an oil flow number. It amazes me how many people can make the jump, only in their minds, of course, from production levels to dollars without a formula for that conversion!

I agree.  You find out quantity that consumers are willing to purchase at price P, by changing the price to P.  Or if you are a price taker you could change output level and see what happens to price, the producer cannot choose price and quantity.  

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1 hour ago, D Coyne said:

Osama,

We can only guess.  So a producer would need to change their price and see what happens to demand.  If they have excess capacity that they would like to utilize they would gradually reduce their price and see how much demand for their oil increases, if they were close to maximum sustainable output they might gradually raise their price to see how much demand falls.

I would think the price is often subject to negotiation for large refining companies and the price might be set for 30 to 90 days and then renegotiated at regular intervals.  Smaller refiners would likely just take the posted price.

You say "I would think the price is often subject to negotiation for large refining companies and the price might be set for 30 to 90 days and then renegotiated at regular intervals." Why guess? Let us review the facts of the situation. It may have been the way you supposed forty years ago, Osama, but the producers found a much simpler way to price oil in the eighties. They discovered a method that required neither work nor thought, even though it was terribly flawed. The financial industry convinced the producers that buying and selling contracts for promised future delivery by financial types with no oil knowledge was the same as selling oil loaded onto a tanker by oil experts. Since it required no effort to get a number for the price, the system provided an easy means for a crude price number each day, as long as the industry was happy using a price derived from futures contract trading instead of an oil sale arms-lenth transaction. Sounds the same if you can avoid thinking through the reality of the two entities. And you can be sure that the OPEC member country leaders did not think through that distinction. On top of that, they had the glorious media industry and the even more glorious consulting industry to join the chorus that "oil futures and real oil are that same thing", in spite of the fallacy of that statement. (For example, oil futures have a shelf-life measured in hours, days, weeks and months. Real oil has an indefinite shelf life. Compare selling bananas to selling gold. With gold you can wait.)

What is actually negotiated now between buyer and seller is a DIFFERENTIAL from a futures price quoted for the date of loading, not a $/B price for the oil loaded onto the boat. In reality, neither buyer nor seller, nor even the futures trader, knows ahead of time what the actual price is for the cargo to be purchased. Strange system! 

Edited by William Edwards
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7 minutes ago, D Coyne said:

I agree.  You find out quantity that consumers are willing to purchase at price P, by changing the price to P.  Or if you are a price taker you could change output level and see what happens to price, the producer cannot choose price and quantity.  

We are getting closer to understanding reality versus imagination. You say "you could change output level and see what happens to price", but how, in practice, do you, as the producer, physically change your output level if no customer has been willing to provide a receiving vessel? Do you pump your oil into the sea?

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10 minutes ago, D Coyne said:

I agree.  You find out quantity that consumers are willing to purchase at price P, by changing the price to P.  Or if you are a price taker you could change output level and see what happens to price, the producer cannot choose price and quantity.  

Your system of price first makes sense. The producer should post his price, not post his hoped-for production number. You see, they have it exactly backwards.

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2 minutes ago, William Edwards said:

You say "I would think the price is often subject to negotiation for large refining companies and the price might be set for 30 to 90 days and then renegotiated at regular intervals." Why guess? Let us review the facts of the situation. It may have been the way you supposed forty years ago, Osama, but the producers found a much simpler way to price oil in the eighties. They discovered a method that required neither work nor thought, even though it was terribly flawed. The financial industry convinced the producers that buying and selling contracts for promised future delivery by financial types with no oil knowledge was the same as selling oil loaded onto a tanker by oil experts. Since it required no effort to get a number for the price, the system provided an easy means for a crude price number each day, as long as the industry was happy using a price derived from futures contract trading instead of an oil sale arms-lenth transaction. Sounds the same if you can avoid thinking through the reality of the two entities. And you can be sure that the OPEC member country leaders did not think through that distinction. On top of that, they had the glorious media industry and the even more glorious consulting industry to join the chorus that "oil futures and real oil are that same thing", in spite of the fallacy of that statement. (For example, oil futures have a shelf-life measured in hours, days, weeks and months. Real oil had an indefinite shelf life. Compare selling bananas to selling gold. With gold you can wait.)

What is actually negotiated now between buyer and seller is a DIFFERENTIAL from a futures price quoted for the date of loading, not a $/B price for the oil loaded onto the boat. In reality, neither buyer nor seller, nor even the futures trader, knows ahead of time what the actual price is for the cargo to be purchased. Strange system! 

Thanks William. Indeed a strange system.  Which futures price is used? I would assume the closing price from the previous day as the price moves continuously from open to close.  What are the posted prices that you refer to elsewhere?  Just based on a differential to oil futures as well?

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1 minute ago, D Coyne said:

Thanks William. Indeed a strange system.  Which futures price is used? I would assume the closing price from the previous day as the price moves continuously from open to close.  What are the posted prices that you refer to elsewhere?  Just based on a differential to oil futures as well?

Buyer and seller agree on the reference price, whether the Brent contract, the WTI contract, Dubai, etc. and it is usually the official closing price, posted on all the computer screens around the world. Easy, but not the price of oil until the buyer and seller of real oil agree to substitute the price of one commodity, oil futures, for another commodity, real oil.

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2 minutes ago, William Edwards said:

Your system of price first makes sense. The producer should post his price, not post his hoped-for production number. You see, they have it exactly backwards.

William,

I agree.  It would certainly be more transparent if the price target was named.  In the end by adjusting output price is affected and it seems the system is set up to let "the market" decide price (and I agree using the futures market is a dumb way to do this) and producers try to adjust their output to satisfy consumer demand, often this is not well done because the data on World storage is very poor.  The system is far from perfect, perhaps we might agree on that.  :)

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1 minute ago, William Edwards said:

Buyer and seller agree on the reference price, whether the Brent contract, the WTI contract, Dubai, etc. and it is usually the official closing price, posted on all the computer screens around the world. Easy, but not the price of oil until the buyer and seller of real oil agree to substitute the price of one commodity, oil futures, for another commodity, real oil.

Thanks for the clarification.  I have learned a lot from the exchange and I appreciate it.

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1 minute ago, D Coyne said:

William,

I agree.  It would certainly be more transparent if the price target was named.  In the end by adjusting output price is affected and it seems the system is set up to let "the market" decide price (and I agree using the futures market is a dumb way to do this) and producers try to adjust their output to satisfy consumer demand, often this is not well done because the data on World storage is very poor.  The system is far from perfect, perhaps we might agree on that.  :)

We definitely agree on that. Not only is it not perfect, it is absurd!

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11 minutes ago, William Edwards said:

We are getting closer to understanding reality versus imagination. You say "you could change output level and see what happens to price", but how, in practice, do you, as the producer, physically change your output level if no customer has been willing to provide a receiving vessel? Do you pump your oil into the sea?

William,

I assume output is what comes from the well and it can be placed in a storage facility until a buyer is found.  You might consider only output that is sold to a customer as output, I am not sure of the industry standard terminology.  Generally increased levels of oil in storage (though I understand these numbers for the World are never accurate) will tend to reduce the price of oil and more buyers will be willing to purchase oil at the lower price (though it is also unclear what the change in consumption will be for any given change in oil price).

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5 minutes ago, William Edwards said:

We definitely agree on that. Not only is it not perfect, it is absurd!

Agreed.

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6 minutes ago, D Coyne said:

William,

I assume output is what comes from the well and it can be placed in a storage facility until a buyer is found.  You might consider only output that is sold to a customer as output, I am not sure of the industry standard terminology.  Generally increased levels of oil in storage (though I understand these numbers for the World are never accurate) will tend to reduce the price of oil and more buyers will be willing to purchase oil at the lower price (though it is also unclear what the change in consumption will be for any given change in oil price).

You may note that you are already stumbling over yourself as you try to describe specifically how price is connected to production or inventories. Don't wast your time. There is no specific conversion between those elements and, in fact, no historical correlations that are sufficiently accurate to give you much guidance. You can take my word for it, as I have studied the data, or you can take the word of conventional "wisdom", which has not even tried to think through the issue critically.

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William,

Yes I realize there is no simple correlation between production, inventories, and price.  The world is complex and nothing is simple.

It seems that generally when OECD commercial petroleum storage levels (in days of forward supply) are significantly above the 5 year average (say more than 10%) we see oil prices fall, likewise oil prices tend to rise as oil stocks fall below the 5 year average.

I agree with two criticisms of this theory, first the data is very muddy causing significant lags in oil price reacting correctly to changes in storage levels and the visibility of World storage levels is very poor, the OECD data is fairly good, but probably does not reflect World storage levels.  As the oil market is a World market with significant demand from non-OECD nations this model is a long way from reflecting reality.  My guess is that you would call it useless at best. :)

Or wrong.

What do you think of Art Berman's work?

http://www.artberman.com/tag/comparative-inventory/

I assume you would dismiss it.

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On 4/28/2019 at 1:59 PM, William Edwards said:

The supply glut of crude that will result from the sour crude producers' need for revenue beginning next year will present some stiff competition for natural gas that must bear the expense of liquefaction, which adds about the equivalent of $20/B on a BTU basis. If the price of crude drops below $30/B, that doesn't leave much room for the wellhead price of gas.

I dont see a supply glut of any kind of crude. What will end up happening if any , supply glut occurs, will be transformed into a new product stream and business for many traders and producers... CRUDE OIL BLENDING. Heavy , high sulfur crudes will be blended with lighter sweeter, low sulfur crudes and condensates to achieve the desired feedstock properties to bring about the product slate properties for the low sulfur gasoils and fuels compliant with the IMO 2020.

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5 minutes ago, D Coyne said:

William,

Yes I realize there is no simple correlation between production, inventories, and price.  The world is complex and nothing is simple.

It seems that generally when OECD commercial petroleum storage levels (in days of forward supply) are significantly above the 5 year average (say more than 10%) we see oil prices fall, likewise oil prices tend to rise as oil stocks fall below the 5 year average.

I agree with two criticisms of this theory, first the data is very muddy causing significant lags in oil price reacting correctly to changes in storage levels and the visibility of World storage levels is very poor, the OECD data is fairly good, but probably does not reflect World storage levels.  As the oil market is a World market with significant demand from non-OECD nations this model is a long way from reflecting reality.  My guess is that you would call it useless at best. :)

Or wrong.

What do you think of Art Berman's work?

http://www.artberman.com/tag/comparative-inventory/

I assume you would dismiss it.

You say "My guess is that you would call it useless at best. ". You are correct. How do you use the data on supply, demand, inventories, etc., that will not provide you with actual numbers for months or years, to set this moment's futures price? Absurd!

Regarding Berman, the referenced article requires a sign-up to red and I do not need more clutter in my inbox. So my assessment is from past readings. Simply stated, his understanding is suspect, although he presents a good story for the superficial reader. Hint: Five-year time spans for oil price correlations are pitifully lacking in substance. Try fifty years.

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