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

1 minute ago, ceo_energemsier said:

Oh wow, the big , bad B word again......... BLENDING!

IS Trafigura according to your "proven" thoughts is BIG GARBAGE peddler?

This blend testing by SK and Trafigura also shows a topic of this discussion, replacement of potential lost Iranian barrels as well.

______________________________

 

April 29, 2019 / 12:07 AM / a day ago

Trafigura ships its first-ever West Texas Light cargo: source


Trafigura ships first cargo of West Texas Light. Trafigura shipped the first-ever cargo of West Texas Light (WTL), a new blend that is differentiated from West Texas Intermediate (WTI). WTL is a blend of light and ultralight oil, and it is an outgrowth of the booming supply of ultralight oil in the Permian. South Korea took the first shipment as it looks to replace condensate imports from Iran. 

NEW YORK (Reuters) - Trafigura exported its first-ever cargo of U.S. West Texas Light (WTL) oil last month, according to a source familiar with the matter, sending the shipment to South Korea, which has been testing this oil as a replacement for Iranian barrels.

Reuters reported earlier this month that South Korea has been testing WTL, a super-light oil, as a possible substitute for Iranian condensate as it seeks alternatives for those shipments after Washington reimposed sanctions on the Middle Eastern nation.

Trafigura, one of the largest exporters of U.S. crude, sold the cargo in March, the source said last week, asking not to be named. The company declined to comment.

South Korean refiners SK Energy and Hyundai Oilbank earlier this year turned away two cargoes of condensate produced in the Eagle Ford shale region due to quality concerns.

 

Both refiners declined to comment on whether they had purchased the Trafigura shipment.

WTL is a relatively new stream of oil produced in the western Permian basin with an API gravity - a measure of oil density - of about 44-50 degrees. That is similar to condensate, an extremely light oil which mostly occurs as a byproduct of natural gas production.

The grade has only become available for export over the past three months after pipeline companies required shippers to segregate WTL within the lines, market sources said.

The size of Trafigura’s shipment was unclear.

 

South Korea’s refiners are big users of Iranian condensate for producing petrochemicals. The U.S. decision to not renew exemptions to sanctions, granted last year to buyers of Iranian oil, has South Korea scrambling to source that feedstock.

The country is one of the largest importers of U.S. oil, averaging nearly 167,000 barrels per day (bpd) in 2018, according to Reuters calculations based on data from state-run Korean National Oil Corp. Its first-quarter U.S. oil imports averaged roughly 323,090 bpd, nearly five times higher than about 64,960 bpd from a year earlier.

I shall make one last attempt to broaden your perspective enough to get us on the same page. I know and understand blending. I built a significant blending, shipping and trading business for residual fuel. High sulfur, low sulfur or in-between. I know the advantages and I know the limitations. If we wished to compare notes, I suggest that my actual years of engineering, trading, planning and operations in companies, large and small, trading futures with my own money, etc. are sufficient for my credibility to be seriously considered. But there is little point in pursuing such a comparison. If my discussions reveal that the other party is deficient in understanding basic principles, I first try to point out those deficiencies. If the helpful suggestions are rejected, either from arrogance or lack of the ability to understand, then my only reasonable option is to withdraw from the discussion. I think that that is where I find myself in our dialog.

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1 minute ago, William Edwards said:

I shall make one last attempt to broaden your perspective enough to get us on the same page. I know and understand blending. I built a significant blending, shipping and trading business for residual fuel. High sulfur, low sulfur or in-between. I know the advantages and I know the limitations. If we wished to compare notes, I suggest that my actual years of engineering, trading, planning and operations in companies, large and small, trading futures with my own money, etc. are sufficient for my credibility to be seriously considered. But there is little point in pursuing such a comparison. If my discussions reveal that the other party is deficient in understanding basic principles, I first try to point out those deficiencies. If the helpful suggestions are rejected, either from arrogance or lack of the ability to understand, then my only reasonable option is to withdraw from the discussion. I think that that is where I find myself in our dialog.

Once again, what is your problem solving initiative besides the shut in of sour crude streams?

I have invested a lot of my own $$$ into crude and refined products upgrading and willing to look @ and invest in more techs that are viable and maybe synergistic to my current and future investments and acquired techs.

 

Thanks for the lively , neuron firing discussions!

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3 minutes ago, ceo_energemsier said:

People learn from mistakes and failures and improve themselves. If my questioning your intent and purposes of the various comments that I see being just negative on this forum is considered nasty, then I guess I will take that with a shot of Grey Goose!

I ask you to put forth meaningful, viable alternatives and solutions, and you have failed to provide any. But the rant goes on , I have seen your comments to numerous people , very condescending and uncalled for. You reject anything and everything that does not fall in with your own perceived and preconceived notions and biases.

Shutting down of a very productive and useful stream of resources (sour crude) is not a solution. It is akin to sticking your head in the sand, I believe you have used those words elsewhere in this thread. Or, one suffers from seasonal allergies, your solution, stop breathing?

I am open to learning each and everyday... so please do enlighten me with your ideas of meaningful viable solutions? 🍾

 

Your perspective is too limited for me to do the magic of bringing you up to speed. You share that trait with many other successful people. Result confirm, whether from luck or skill. You have not even recognized some of the valuable "what to do" advice contained in my comments. Instead, you have decided to label them as "rants" rather than asking for more explanation. So be it. You seem quite content with your already-achieved status. Enjoy!

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4 minutes ago, William Edwards said:

Your perspective is too limited for me to do the magic of bringing you up to speed. You share that trait with many other successful people. Result confirm, whether from luck or skill. You have not even recognized some of the valuable "what to do" advice contained in my comments. Instead, you have decided to label them as "rants" rather than asking for more explanation. So be it. You seem quite content with your already-achieved status. Enjoy!

Thank you for your kind words.

Once again, can you provide a list of potential technological solutions to the sour crude problem besides shut in?

Here is another snippet from another refining tech presentation for heavy crude oils and one of the solutions is blending to improve feedstock quality:

Technology Options for Heavy & Bituminous Crude Processing
Blending with light crude oil
Light crude required for blending is in short supply
Limited application in processing large volumes of heavy oil
Cannot be applied to bituminous crudes without prior upgrading

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5 minutes ago, ceo_energemsier said:

Thank you for your kind words.

Once again, can you provide a list of potential technological solutions to the sour crude problem besides shut in?

Here is another snippet from another refining tech presentation for heavy crude oils and one of the solutions is blending to improve feedstock quality:

Technology Options for Heavy & Bituminous Crude Processing
Blending with light crude oil
Light crude required for blending is in short supply
Limited application in processing large volumes of heavy oil
Cannot be applied to bituminous crudes without prior upgrading

Regarding your question "Once again, can you provide a list of potential technological solutions to the sour crude problem besides shut in?" I have not been able to come up with a timely, workable alternative. That is why I predict low prices and shut-ins. I am still looking for a workable alternative. Maybe there is a solution that I have missed. I was hoping that you could provide a possible alternative. But so far yours miss on arithmetic and timing. But my ears are still open.

Speaking of technology and unaccepted solutions, I am well versed ion heavy oil upgrading technology: I presented a projected surplus of oil sands quality oil to Cenovus management in 2013, along with a proposal for them to install asphaltene-removal technology to "clean up" their oil. Instead of accepting my recommendation, they bought more heavy reserves. Looking at the situation today, which course would have been smarter? Rejection can be either from an unsound proposal or an unenlightened or unwilling recipient.

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6 hours ago, William Edwards said:

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.

William,

The market changes over time so I don't think 50 years is really needed.  Also the data we have is production and price, we don't have consumption data for the World.  So it is not clear what correlation you would attempt as we don't have a good data set.

You could claim I suppose that I cannot prove the theory without the data, and that would be correct.

One would not expect a correlation between output and price as price attempts to balance supply and demand, but often there is an under or oversupply which will move the price of oil.  I guess your main claim is that the oil price is determined by futures markets which are divorced from production and consumption of oil.  I would claim without proof that eventually the real market will influence the futures market so that eventually something close to a "correct" market clearing price is reached.  

If this were not the case the oil market would constantly be over or undersupplied with oil, I suppose one could point to the fact that the market seems to be out of balance more than it is in balance to make the case that the futures market does a very poor job of balancing the oil market.  Now I seem to have reached conclusions similar to yours, (or my limited understanding of your position.                                                                                                                                                                                                                                                     

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(edited)

48 minutes ago, D Coyne said:

William,

The market changes over time so I don't think 50 years is really needed.  Also the data we have is production and price, we don't have consumption data for the World.  So it is not clear what correlation you would attempt as we don't have a good data set.

You could claim I suppose that I cannot prove the theory without the data, and that would be correct.

One would not expect a correlation between output and price as price attempts to balance supply and demand, but often there is an under or oversupply which will move the price of oil.  I guess your main claim is that the oil price is determined by futures markets which are divorced from production and consumption of oil.  I would claim without proof that eventually the real market will influence the futures market so that eventually something close to a "correct" market clearing price is reached.  

If this were not the case the oil market would constantly be over or undersupplied with oil, I suppose one could point to the fact that the market seems to be out of balance more than it is in balance to make the case that the futures market does a very poor job of balancing the oil market.  Now I seem to have reached conclusions similar to yours, (or my limited understanding of your position.                                                                                                                                                                                                                                                     

It is apparent to me that he is trying to keep the relevance of an old concept, idea and price mechanism alive.

The insistence of using data for 50 years is totally irrelevant in today's age and time.

What was true and relevant for market prices such as geo-politics, local, regional and global populations, local, regional and global demands of crude oil, petroleum products, specifications, regulations, supply both in volume and grade and quality of crude oils produced, number of countries in the production mix, refining advances, transport changes... all these and much more have changed. SO yes scouring over 50 years of data has no true usefulness and purpose today unless you are a historian.

Numerous other things that have been mentioned and put forth by the venerable Mr. Edwards seem to have been forgotten as well and misquoted in terms of historical pricing structures.

Historically speaking, OPEC was selling their crude oils in the 60s to 73 for an average price range of $1.60-2.74/BBL. In 1974 the prices were $11/BBL

After OPEC was formed , they used the price setting formula as was used by the Texas Rail Road Commission which was by limiting production by the US oil produces in the State of TX, as the US and TX was the biggest oil producing region. During the post WW period exporting countries found increased demand for their crude oil but a 30% decline in the purchasing power of a barrel of oil.  In March 1971, the balance of power shifted.  That month the Texas Railroad Commission set proration at 100 percent for the first time.  This meant that Texas producers were no longer limited in the volume of oil that they could produce from their wells.  More important, it meant that the power to control crude oil prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC.  By 1971, there was no spare production capacity in the U.S. and thus no limits to put on the upper production numbers. 

Prior to all that, the oil prices were set by the 7 Sisters most of them based in the US.

So coming back to the issue of real oil prices today, I believe it is more transparent and appropriate compared to what it was 25, 40, 50 years ago, as the prices were controlled by the production limits as set by RRC or OPEC through the years. When RRC became irrelevant OPEC took over. Now , OPEC doesnt have the monopoly of controlling the price and or the production. In the past pricing was static now it is dynamic, whether we like it , or not, understand it or not, it is here to stay , unless a consensus is reached by and between the producers, consumers, traders that there is something else they want. And it is has worked in the recent past and is working now, producers, consumers, traders and everyone associated with the trade is making $$$$.

I believe today, all the major parties to the oil trade have a fair price mechanism, unlike the past when either the 7 Sisters had the power to dictate what they would sell their oil for and how much of it, or the RRC or OPEC alone.
 

 

OPEC's used  pricing system ended in 1985, and they did try  netback pricing but it failed and they , oil-exporting countries adopted a market-linked pricing mechanism, it was  in 1986 by PEMEX, market-linked pricing received wide acceptance and by 1988 became and still is the main method for pricing crude oil in international trade.[The current reference (benchmarks) are Brent, WTI and Dubai among others such as TAPIS and now Eagle Ford among other regional benchmarks based on new crude streams, Brent is also becoming irrelevant as a benchmark for "real" crude oil pricing as its volume is declining.  .BFOE is a forward contract for light-sweet North Sea crude oil that can be satisfied with any of four grades of crude: Brent, Forties, Oseberg, or Ekofisk. The contract was created to add volume to the market for Brent as production from the Brent field has declined. OPEC had also used a price band range mechanism that ended as well in 2005.

 

This is the current OPEC Basket : The OPEC Reference Basket (ORB), also referred to as the OPEC Basket, is a weighted average of prices for petroleum blends produced by OPEC members. It is used as an important benchmark for crude oil prices. OPEC has often attempted to keep the price of the OPEC Basket between upper and lower limits, by increasing and decreasing production. This makes the measure important for market analysts. The OPEC Basket, including a mix of light and heavy crude oil products, is heavier than both Brent crude oil, and West Texas Intermediate crude oil.

OPEC Reference Basket (ORB)

Introduced on 16 June 2005, is currently made up of the following: Saharan Blend (Algeria), Girassol (Angola), Djeno (Congo), Oriente (Ecuador), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

 

  • As of January 2006: The Weekly, Monthly, Quarterly & Yearly averages are based on daily quotations.
  • As of January 2007: The basket price includes the Angolan crude "Girassol".
  • As of 19 October 2007: The basket price includes the Ecuadorean crude "Oriente".
  • As of January 2009: The basket price excludes the Indonesian crude "Minas".
  • As of January 2009: The Venezuelan crude "BCF-17" was replaced by the crude "Merey".
  • As of January 2016: The basket price includes the Indonesian crude "Minas".
  • As of July 2016: The basket price includes the Gabonese crude "Rabi Light".
  • As of January 2017: The basket price excludes the Indonesian crude "Minas".
  • As of June 2017: The basket price includes the Equatorial Guinean crude "Zafiro".
  • As of June 2018: The basket price includes the Congolese crude "Djeno".
  • As of January 2019: The basket price excludes the Qatari crude "Qatar Marine".

 

Edited by ceo_energemsier

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1 hour ago, ceo_energemsier said:

It is apparent to me that he is trying to keep the relevance of an old concept, idea and price mechanism alive.

The insistence of using data for 50 years is totally irrelevant in today's age and time.

What was true and relevant for market prices such as geo-politics, local, regional and global populations, local, regional and global demands of crude oil, petroleum products, specifications, regulations, supply both in volume and grade and quality of crude oils produced, number of countries in the production mix, refining advances, transport changes... all these and much more have changed. SO yes scouring over 50 years of data has no true usefulness and purpose today unless you are a historian.

Numerous other things that have been mentioned and put forth by the venerable Mr. Edwards seem to have been forgotten as well and misquoted in terms of historical pricing structures.

Historically speaking, OPEC was selling their crude oils in the 60s to 73 for an average price range of $1.60-2.74/BBL. In 1974 the prices were $11/BBL

After OPEC was formed , they used the price setting formula as was used by the Texas Rail Road Commission which was by limiting production by the US oil produces in the State of TX, as the US and TX was the biggest oil producing region. During the post WW period exporting countries found increased demand for their crude oil but a 30% decline in the purchasing power of a barrel of oil.  In March 1971, the balance of power shifted.  That month the Texas Railroad Commission set proration at 100 percent for the first time.  This meant that Texas producers were no longer limited in the volume of oil that they could produce from their wells.  More important, it meant that the power to control crude oil prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC.  By 1971, there was no spare production capacity in the U.S. and thus no limits to put on the upper production numbers. 

Prior to all that, the oil prices were set by the 7 Sisters most of them based in the US.

So coming back to the issue of real oil prices today, I believe it is more transparent and appropriate compared to what it was 25, 40, 50 years ago, as the prices were controlled by the production limits as set by RRC or OPEC through the years. When RRC became irrelevant OPEC took over. Now , OPEC doesnt have the monopoly of controlling the price and or the production. In the past pricing was static now it is dynamic, whether we like it , or not, understand it or not, it is here to stay , unless a consensus is reached by and between the producers, consumers, traders that there is something else they want. And it is has worked in the recent past and is working now, producers, consumers, traders and everyone associated with the trade is making $$$$.

I believe today, all the major parties to the oil trade have a fair price mechanism, unlike the past when either the 7 Sisters had the power to dictate what they would sell their oil for and how much of it, or the RRC or OPEC alone.
 

 

OPEC's used  pricing system ended in 1985, and they did try  netback pricing but it failed and they , oil-exporting countries adopted a market-linked pricing mechanism, it was  in 1986 by PEMEX, market-linked pricing received wide acceptance and by 1988 became and still is the main method for pricing crude oil in international trade.[The current reference (benchmarks) are Brent, WTI and Dubai among others such as TAPIS and now Eagle Ford among other regional benchmarks based on new crude streams, Brent is also becoming irrelevant as a benchmark for "real" crude oil pricing as its volume is declining.  .BFOE is a forward contract for light-sweet North Sea crude oil that can be satisfied with any of four grades of crude: Brent, Forties, Oseberg, or Ekofisk. The contract was created to add volume to the market for Brent as production from the Brent field has declined. OPEC had also used a price band range mechanism that ended as well in 2005.

 

This is the current OPEC Basket : The OPEC Reference Basket (ORB), also referred to as the OPEC Basket, is a weighted average of prices for petroleum blends produced by OPEC members. It is used as an important benchmark for crude oil prices. OPEC has often attempted to keep the price of the OPEC Basket between upper and lower limits, by increasing and decreasing production. This makes the measure important for market analysts. The OPEC Basket, including a mix of light and heavy crude oil products, is heavier than both Brent crude oil, and West Texas Intermediate crude oil.

OPEC Reference Basket (ORB)

Introduced on 16 June 2005, is currently made up of the following: Saharan Blend (Algeria), Girassol (Angola), Djeno (Congo), Oriente (Ecuador), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

 

  • As of January 2006: The Weekly, Monthly, Quarterly & Yearly averages are based on daily quotations.
  • As of January 2007: The basket price includes the Angolan crude "Girassol".
  • As of 19 October 2007: The basket price includes the Ecuadorean crude "Oriente".
  • As of January 2009: The basket price excludes the Indonesian crude "Minas".
  • As of January 2009: The Venezuelan crude "BCF-17" was replaced by the crude "Merey".
  • As of January 2016: The basket price includes the Indonesian crude "Minas".
  • As of July 2016: The basket price includes the Gabonese crude "Rabi Light".
  • As of January 2017: The basket price excludes the Indonesian crude "Minas".
  • As of June 2017: The basket price includes the Equatorial Guinean crude "Zafiro".
  • As of June 2018: The basket price includes the Congolese crude "Djeno".
  • As of January 2019: The basket price excludes the Qatari crude "Qatar Marine".

 

Lots of interesting info. Some of it correct, based upon my own memory and historical records. Some of it the product of either poor memory or distorted historical accounts. Conceptually, we are miles apart. Let us leave it at that.

Incidentally, as a matter of interest, have you had personal dealings with or professional appreciation of either Louis Austin, William  Fisher or Robert Mabro? 

And my sincere apologies where my overly firm attitude has offended you.

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3 hours ago, D Coyne said:

William,

The market changes over time so I don't think 50 years is really needed.  Also the data we have is production and price, we don't have consumption data for the World.  So it is not clear what correlation you would attempt as we don't have a good data set.

You could claim I suppose that I cannot prove the theory without the data, and that would be correct.

One would not expect a correlation between output and price as price attempts to balance supply and demand, but often there is an under or oversupply which will move the price of oil.  I guess your main claim is that the oil price is determined by futures markets which are divorced from production and consumption of oil.  I would claim without proof that eventually the real market will influence the futures market so that eventually something close to a "correct" market clearing price is reached.  

If this were not the case the oil market would constantly be over or undersupplied with oil, I suppose one could point to the fact that the market seems to be out of balance more than it is in balance to make the case that the futures market does a very poor job of balancing the oil market.  Now I seem to have reached conclusions similar to yours, (or my limited understanding of your position.                                                                                                                                                                                                                                                     

The market changes daily. The fundamental driving forces retain their constant role. Be sure to keep in mind the difference between the two different entities.

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1 hour ago, William Edwards said:

Lots of interesting info. Some of it correct, based upon my own memory and historical records. Some of it the product of either poor memory or distorted historical accounts. Conceptually, we are miles apart. Let us leave it at that.

Incidentally, as a matter of interest, have you had personal dealings with or professional appreciation of either Louis Austin, William  Fisher or Robert Mabro? 

And my sincere apologies where my overly firm attitude has offended you.

Not offended at all. It is  an interesting and lively discussion. And yes.

I have yet to respond to some of the details about real and practical solutions to the IMO 2020 and I will be doing that soon., and some of the steps we have taken and taking in regards to that. The IMO 2020 is not a surprise, it was announced back in 2016 I believe. Some companies took heed and went on to solve the issues, mitigate and try to be proactive others didnt. Looks like Russia will be suffering a bigger negative effect than most.

Thanks again!

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18 minutes ago, ceo_energemsier said:

Not offended at all. It is  an interesting and lively discussion. And yes.

I have yet to respond to some of the details about real and practical solutions to the IMO 2020 and I will be doing that soon., and some of the steps we have taken and taking in regards to that. The IMO 2020 is not a surprise, it was announced back in 2016 I believe. Some companies took heed and went on to solve the issues, mitigate and try to be proactive others didnt. Looks like Russia will be suffering a bigger negative effect than most.

Thanks again!

In spite of our strong differences I am still attracted to the possibility that we might have some worthwhile meeting of the minds. I do not have much information on you, other than what I have gleaned from your own postings, but your implied resume appears significant. The reason for the question regarding Austin, Fisher and Mabro is that, in each instance, they and I spent several hours each in individual sessions allowing them  to validate my pricing mechanism model, in depth, along with supporting data. Bill conducted the review at the request of the chairman of the Texas RRC. At his own request, Louis sat with his chief economist and me for about six hours to arrive at his decision to engage my services. I spent an entire day with Robert, resulting in his conclusion that I had assessed accurately. He promised to advise the OPEC Secretariat of the validity of my model, but some time later he acquired cold feet. Why I do not know. But the point is that, upon intensive examination of the data and my logic, my assessment has been confirmed repeatedly by people with advanced capabilities. But it requires time and concentrated brainwork.

We might pursue a similar path if we both considered it worth the time and effort, and logistics allowed. I am tempted to respond, point by point, to your last posting, but doing so through Oilprice.com is too tedious. I have no objection to providing you with my communication data, if that is desirable so that we might use personal email notes, which are more efficient for extensive communication.

As a starting point, or possibly just as an example of my thinking, I am including an article of mine that MEES published several years back. I explained why installing the Keystone XL pipeline and opening a free flow of oil sands crude would be detrimental to OPEC' price because of competing high sulfur supplies. Please note that the pipeline is not the key, but the free flow of Canadian oil to the water. This free flow can also occur from opening or reversing other pipelines or by Canadian production being shut in. The MEES paper was based upon the then current expectation of 2025 for the bunker sulfur reduction. Moving that date up to 2020 will have the same pipeline-sparing impact as Keystone XL, by reducing oil sands exports.

I welcome your comments.

Will Keystone XL Undermine OPEC?.pdf

Will Keystone XL Undermine OPEC?.pdf

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8 hours ago, William Edwards said:

In spite of our strong differences I am still attracted to the possibility that we might have some worthwhile meeting of the minds. I do not have much information on you, other than what I have gleaned from your own postings, but your implied resume appears significant. The reason for the question regarding Austin, Fisher and Mabro is that, in each instance, they and I spent several hours each in individual sessions allowing them  to validate my pricing mechanism model, in depth, along with supporting data. Bill conducted the review at the request of the chairman of the Texas RRC. At his own request, Louis sat with his chief economist and me for about six hours to arrive at his decision to engage my services. I spent an entire day with Robert, resulting in his conclusion that I had assessed accurately. He promised to advise the OPEC Secretariat of the validity of my model, but some time later he acquired cold feet. Why I do not know. But the point is that, upon intensive examination of the data and my logic, my assessment has been confirmed repeatedly by people with advanced capabilities. But it requires time and concentrated brainwork.

We might pursue a similar path if we both considered it worth the time and effort, and logistics allowed. I am tempted to respond, point by point, to your last posting, but doing so through Oilprice.com is too tedious. I have no objection to providing you with my communication data, if that is desirable so that we might use personal email notes, which are more efficient for extensive communication.

As a starting point, or possibly just as an example of my thinking, I am including an article of mine that MEES published several years back. I explained why installing the Keystone XL pipeline and opening a free flow of oil sands crude would be detrimental to OPEC' price because of competing high sulfur supplies. Please note that the pipeline is not the key, but the free flow of Canadian oil to the water. This free flow can also occur from opening or reversing other pipelines or by Canadian production being shut in. The MEES paper was based upon the then current expectation of 2025 for the bunker sulfur reduction. Moving that date up to 2020 will have the same pipeline-sparing impact as Keystone XL, by reducing oil sands exports.

I welcome your comments.

Will Keystone XL Undermine OPEC?.pdf

Will Keystone XL Undermine OPEC?.pdf

William,

It seems that until Venezuela solves current political problems, that the problem in your comment goes away, as it would seem the Canadian output could substitute for Venezuelan extra heavy oil.  As far as $20/b extra heavy oil, it seems this price would only apply to extra heavy oil, not to medium crude grades.

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57 minutes ago, D Coyne said:

William,

It seems that until Venezuela solves current political problems, that the problem in your comment goes away, as it would seem the Canadian output could substitute for Venezuelan extra heavy oil.  As far as $20/b extra heavy oil, it seems this price would only apply to extra heavy oil, not to medium crude grades.

Although Venezuela's already lost production (75% of earlier production levels) helps Canada, the IMO impact will effectively dump the equivalent of another 3-4 Million barrels a day of heavy oil into the surplus. And to correct your misunderstanding, the heavy oil problem occurs with every barrel of heavy resid, whether mixed with one barrel of lighter oil or 100 barrels. You do not avoid the problem by camouflaging the culprit.

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On 4/28/2019 at 1:21 PM, ronwagn said:

I think LNG can beat the price of diesel easily, especially where it is nearby or piped natural gas is available. It can be compressed as CNG for a lower price or used as LNG at a greater expense but still less than diesel. I do not think that LNG is needed except for ships or locomotives. New pipelines are being rapidly built as are ships that can carry LNG directly from offshore facilities to any port in the world that is set up to receive it. All this is well underway as seen on NGV Global http://www.ngvglobal.com/ and thousands of links that I have collected. 

https://docs.google.com/document/d/1_QZTgxCECgIj7EItX9P6Q2J4BjsSt_nPyrDG1zAl4b0/edit

South Korean shipbuilding giant Samsung Heavy Industries has completed the construction of its first LNG-fueled vessels, using its in-house developed technology. 

The shipbuilder delivered two LNG-fueled 113,000-dwt oil tankers to an Asian shipowner earlier this year and with both vessels completing the first bunkering at the port of Rotterdam in the Netherlands before beginning operation.

The two oil tankers are the first LNG-fuelled vessels SHI built at its yard. The order was awarded at the end of 2015, and they were delivered this January and February, respectively, SHI said.

Both vessels feature LNG supply system, S-Fugas, developed by SHI that can eliminate Sulphur Oxide (Sox) emissions by 99 percent, Nitrous Oxide (NOx) emissions by 85 percent and Carbon Dioxide (CO2) emissions by 25 percent, SHI said in a statement.

Currently, LNG as fuel is considered as a cheaper and more eco-friendly alternative than low sulfur oil and scrubber in the long run to meet the IMO 2020 regulations that require the reduction of Sulfur content in fuel to 0.5 percent.

SHI said its own LNG propulsion technology has helped it secure orders for 10 LNG-fuelled ships from international shipowners to date this year.

Lithuanian LNG terminal operator Klaipedos Nafta has agreed to sell its stake in the world’s largest liquefied natural gas bunkering vessel, Kairos. 

The company informed on Tuesday that it has signed a deal with the Hamburg-based Nauticor, a unit of Linde, to sell the 10 percent stake it has in the vessel’s charter deal through its unit SGD logistika.

Following the completion of the transaction, Nauticor will become the sole charterer of the vessel, the statement reads.

The transfer shall become effective as of September 30, 2019. Purpose of the transaction is to allow both parties to optimize their core operations, Nauticor said in a statement.

Kairos, with a tank capacity of 7,500 cubic meters is owned by Babcock Schulte Energy. Klaipedos Nafta and Nauticor chartered the vessel through the joint venture Blue LNG, where Nauticor, up until the latest agreement, had a 90 percent share and Klaipedos Nafta had a 10 percent share.

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2 minutes ago, William Edwards said:

Although Venezuela's already lost production (75% of earlier production levels) helps Canada, the IMO impact will effectively dump the equivalent of another 3-4 Million barrels a day of heavy oil into the surplus. And to correct your misunderstanding, the heavy oil problem occurs with every barrel of heavy resid, whether mixed with one barrel of lighter oil or 100 barrels. You do not avoid the problem by camouflaging the culprit.

I would think the low sulfur grades would command a premium and refiners who can process the higher grades will become very profitable as the price of higher sulfur crude will fall.  Prices will adjust and demand for various types of crude and fuel will change and evemtually the market will balance out.  I would suggest this will tend to raise the price of Brent and it also might result in new benchmarks to be created.

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6 minutes ago, ceo_energemsier said:

South Korean shipbuilding giant Samsung Heavy Industries has completed the construction of its first LNG-fueled vessels, using its in-house developed technology. 

The shipbuilder delivered two LNG-fueled 113,000-dwt oil tankers to an Asian shipowner earlier this year and with both vessels completing the first bunkering at the port of Rotterdam in the Netherlands before beginning operation.

The two oil tankers are the first LNG-fuelled vessels SHI built at its yard. The order was awarded at the end of 2015, and they were delivered this January and February, respectively, SHI said.

Both vessels feature LNG supply system, S-Fugas, developed by SHI that can eliminate Sulphur Oxide (Sox) emissions by 99 percent, Nitrous Oxide (NOx) emissions by 85 percent and Carbon Dioxide (CO2) emissions by 25 percent, SHI said in a statement.

Currently, LNG as fuel is considered as a cheaper and more eco-friendly alternative than low sulfur oil and scrubber in the long run to meet the IMO 2020 regulations that require the reduction of Sulfur content in fuel to 0.5 percent.

SHI said its own LNG propulsion technology has helped it secure orders for 10 LNG-fuelled ships from international shipowners to date this year.

Lithuanian LNG terminal operator Klaipedos Nafta has agreed to sell its stake in the world’s largest liquefied natural gas bunkering vessel, Kairos. 

The company informed on Tuesday that it has signed a deal with the Hamburg-based Nauticor, a unit of Linde, to sell the 10 percent stake it has in the vessel’s charter deal through its unit SGD logistika.

Following the completion of the transaction, Nauticor will become the sole charterer of the vessel, the statement reads.

The transfer shall become effective as of September 30, 2019. Purpose of the transaction is to allow both parties to optimize their core operations, Nauticor said in a statement.

Kairos, with a tank capacity of 7,500 cubic meters is owned by Babcock Schulte Energy. Klaipedos Nafta and Nauticor chartered the vessel through the joint venture Blue LNG, where Nauticor, up until the latest agreement, had a 90 percent share and Klaipedos Nafta had a 10 percent share.

What is the cost savings or premium for these vessels?  LNG is not inexpensive.

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1 minute ago, D Coyne said:

I would think the low sulfur grades would command a premium and refiners who can process the higher grades will become very profitable as the price of higher sulfur crude will fall.  Prices will adjust and demand for various types of crude and fuel will change and evemtually the market will balance out.  I would suggest this will tend to raise the price of Brent and it also might result in new benchmarks to be created.

And I think that you have neglected the fact that the price is set by the most desperate participant. And that will be the sour crude producer who needs income, has oil to sell, but has no buyer. History has shown, repeatedly, that the desperate producer will lower his price unreasonably to try to sell his oil instead of someone else selling theirs. Just look to Canada's activity late last year. $50/B discounts!

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27 minutes ago, William Edwards said:

And I think that you have neglected the fact that the price is set by the most desperate participant. And that will be the sour crude producer who needs income, has oil to sell, but has no buyer. History has shown, repeatedly, that the desperate producer will lower his price unreasonably to try to sell his oil instead of someone else selling theirs. Just look to Canada's activity late last year. $50/B discounts!

My point is simply that there are different prices for different products, the price of the higher sulfur basket will fall to a level where the refiners that can handle that grade have all they need at the cheapest price they can find.  In a separate market for lower sulfur crude, refiners will fulfill their needs at the cheapest price they can find for an acceptable grade of crude.  Two separate markets with two separate prices.  The spread between the two markets will change.  I agree the price in the sour crude market will be set by producer willing to accept the lowest price.  Eventually prices fall to a level where profits are nil and investment to continue sour production will fall and prices will rise to levels that are just barely profitable for the marginal producer.  It takes time, but it eventually occurs.

Edited by D Coyne

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1 hour ago, D Coyne said:

My point is simply that there are different prices for different products, the price of the higher sulfur basket will fall to a level where the refiners that can handle that grade have all they need at the cheapest price they can find.  In a separate market for lower sulfur crude, refiners will fulfill their needs at the cheapest price they cam find for an acceptable grade of crude.  Two separate markets with two separate prices.  The spread between the two markets will change .

You are on the right track. Now please expand your perspective to the entire global supply/demand ramifications of the major crude switches and product demand changes expected over the next few months, and report the revised balances and imbalances that will impact the various product categories, and their prices. Once we have your input we will be able to forsee how the industry, and the price of crude and products, will be altered by the IMO 2020 regulation change. Thanks. 

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(edited)

1 hour ago, William Edwards said:

You are on the right track. Now please expand your perspective to the entire global supply/demand ramifications of the major crude switches and product demand changes expected over the next few months, and report the revised balances and imbalances that will impact the various product categories, and their prices. Once we have your input we will be able to forsee how the industry, and the price of crude and products, will be altered by the IMO 2020 regulation change. Thanks. 

William,

I will leave that to an expert like you. :)  I do not foresee anything.  I mostly look at the big picture, I expect oil supply may be tight on the assumption that OPEC will not increase production by more than necessary to keep prices about where they are, so I expect Brent will be in the $70-$80/b range, disruptions in Libya, Venezuela, Nigeria, or Russian crude quality problems might lead to greater supply tightness. This has the potential to increase oil prices further, but higher US tight oil output might mitigate this.  Also future demand is hard to judge, recessions are difficult to predict so I won't pretend to know the level of future economic output.

Edited by D Coyne

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2 minutes ago, D Coyne said:

William,

I will leave that to an expert like you. :)  I do not fore see anything.  I mostly look at the big picture, I expect oil supply may be tight on the assumption the OPEC will not increase production by more than necessary to keep prices about where they are, so I expect Brent will be in the $70-$80/b range, disruptions in Libya, Venezuela, Nigeria, or Russian crude quality problems might lead to greater supply tightness which has the potential to increase oil prices further, potentially higher US tight oil output might mitigate this, also future demand is hard to judge, recessions are difficult to predict so I won't pretend to be able to predict future economic output.

As a helpful suggestion for your consideration, you might re-think whether Aracmo's production is low because they refuse to sell, or because there are not enough customers to buy. That distinction is key to the price impact. When keeping in mind that Aramco cannot effectively produce more oil than they can sell (no, they cannot put ten gallons of oil in a five gallon bucket), you can easily understand how their production level can be capped by demand, and not by their wishes for output. Of course, they will spin the fact of low production to appear that they have the control when, actually, they do not. But if the world is dumb enough to believe their spin, Aramco benefits financially -- until reality forces the world to reconsider the facts. On the futures market this translates into unwise longs, running the price up, followed by the collapse as longs must be liquidated -- at low panic-sell prices. We label that "market volatility".

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18 minutes ago, D Coyne said:

William,

I will leave that to an expert like you. :)  I do not foresee anything.  I mostly look at the big picture, I expect oil supply may be tight on the assumption that OPEC will not increase production by more than necessary to keep prices about where they are, so I expect Brent will be in the $70-$80/b range, disruptions in Libya, Venezuela, Nigeria, or Russian crude quality problems might lead to greater supply tightness. This has the potential to increase oil prices further, but higher US tight oil output might mitigate this.  Also future demand is hard to judge, recessions are difficult to predict so I won't pretend to know the level of future economic output.

American Refiners Clean Up Their Act as OPEC Shipments Dry Up

By
April 30, 2019, 1:03 PM MDTUpdated on April 30, 2019, 10:01 PM MDT

Oil refiners in the U.S. are using more light crude to fill the gap from the sludgy, sulfurous stuff they used to get from OPEC.

 
 

Crude shipments from the 14-member cartel to American ports dipped to a 33-year low in February in part because of the pact between OPEC and allied producers to curb output and forestall a global glut. Chronic issues with Venezuelan output and U.S. sanctions barring most purchases have further strained availability of the heaviest types of oil.

 
 

Starved of OPEC supplies, American refiners in February processed the least-dense crude in data going back to 1985. The so-called oil slate refined that month was just 1.25 percent sulfur -- the cleanest in more than 20 years.

 
 

U.S. refiners aren’t likely to see OPEC cargoes returning soon. Saudi Arabia, the de facto leader of the Organization of Petroleum Exporting Countries, has indicated they’re eyeing an extension of the cuts for the rest of 2019. That comes just days before the last U.S. exemptions allowing purchases of Iranian crude will expire, which will mean stiffer competition for barrels of heavy crude.

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21 hours ago, ceo_energemsier said:

Oh wow, the big , bad B word again......... BLENDING!

IS Trafigura according to your "proven" thoughts is BIG GARBAGE peddler?

This blend testing by SK and Trafigura also shows a topic of this discussion, replacement of potential lost Iranian barrels as well.

______________________________

 

April 29, 2019 / 12:07 AM / a day ago

Trafigura ships its first-ever West Texas Light cargo: source


Trafigura ships first cargo of West Texas Light. Trafigura shipped the first-ever cargo of West Texas Light (WTL), a new blend that is differentiated from West Texas Intermediate (WTI). WTL is a blend of light and ultralight oil, and it is an outgrowth of the booming supply of ultralight oil in the Permian. South Korea took the first shipment as it looks to replace condensate imports from Iran. 

NEW YORK (Reuters) - Trafigura exported its first-ever cargo of U.S. West Texas Light (WTL) oil last month, according to a source familiar with the matter, sending the shipment to South Korea, which has been testing this oil as a replacement for Iranian barrels.

Reuters reported earlier this month that South Korea has been testing WTL, a super-light oil, as a possible substitute for Iranian condensate as it seeks alternatives for those shipments after Washington reimposed sanctions on the Middle Eastern nation.

Trafigura, one of the largest exporters of U.S. crude, sold the cargo in March, the source said last week, asking not to be named. The company declined to comment.

South Korean refiners SK Energy and Hyundai Oilbank earlier this year turned away two cargoes of condensate produced in the Eagle Ford shale region due to quality concerns.

 

Both refiners declined to comment on whether they had purchased the Trafigura shipment.

WTL is a relatively new stream of oil produced in the western Permian basin with an API gravity - a measure of oil density - of about 44-50 degrees. That is similar to condensate, an extremely light oil which mostly occurs as a byproduct of natural gas production.

The grade has only become available for export over the past three months after pipeline companies required shippers to segregate WTL within the lines, market sources said.

The size of Trafigura’s shipment was unclear.

 

South Korea’s refiners are big users of Iranian condensate for producing petrochemicals. The U.S. decision to not renew exemptions to sanctions, granted last year to buyers of Iranian oil, has South Korea scrambling to source that feedstock.

The country is one of the largest importers of U.S. oil, averaging nearly 167,000 barrels per day (bpd) in 2018, according to Reuters calculations based on data from state-run Korean National Oil Corp. Its first-quarter U.S. oil imports averaged roughly 323,090 bpd, nearly five times higher than about 64,960 bpd from a year earlier.

Ceo-ener.

This shows blending can work for light crude.  Generally blending can help create a certain weight of oil, seems to meet the new standard, sulfur needs to be removed, blending will not get the job done.  Seems your blending solution needs a sulfur free crude steam in quantities that don't exist.  Unless you propose the "magic oil" exists somewhere, then refinery capacity needs to be created to remove the appropriate quantity of sulfur.  Oil refineries also cannot be magically created overnight, Jan 1, 2020 is 8 months away and the refinery capacity is not there.  This seems to point to higher prices for sweet crude and very low prices for sour crude as there won't be the capacity to refine the sour crude to acceptable sulfur levels.  Seems the shut in scenario seems likely until refinery capacity becomes available.

Sometimes these papers are written by economists who know very little physics.  They assume a can opener as the old joke goes.

In the real world there is no can opener lying about on the deserted island. :)

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7 minutes ago, D Coyne said:

Ceo-ener.

This shows blending can work for light crude.  Generally blending can help create a certain weight of oil, seems to meet the new standard, sulfur needs to be removed, blending will not get the job done.  Seems your blending solution needs a sulfur free crude steam in quantities that don't exist.  Unless you propose the "magic oil" exists somewhere, then refinery capacity needs to be created to remove the appropriate quantity of sulfur.  Oil refineries also cannot be magically created overnight, Jan 1, 2020 is 8 months away and the refinery capacity is not there.  This seems to point to higher prices for sweet crude and very low prices for sour crude as there won't be the capacity to refine the sour crude to acceptable sulfur levels.  Seems the shut in scenario seems likely until refinery capacity becomes available.

Sometimes these papers are written by economists who know very little physics.  They assume a can opener as the old joke goes.

In the real world there is no can opener lying about on the deserted island. :)

Right on, Mr. Coyne!

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47 minutes ago, D Coyne said:

This seems to point to higher prices for sweet crude and very low prices for sour crude as there won't be the capacity to refine the sour crude to acceptable sulfur levels.  Seems the shut in scenario seems likely until refinery capacity becomes available.

But that assumes (as does William Edwards) that the end refined product is going to be used as a regulated transport fuel.  I would posit yet another outcome:  that the sour crude will be "refined" to the point where it can meet No. 4 fuel oil specifications, and then it will be consumed in heating plants and stationary diesel and steam generators.  

For example, there are still plenty of coal plants out there, and those operators continue to face all kinds of political and shareholder pressures to go off-coal.  The classic direct substitute would be a retrofit to #4 fuel oil.  I don't think there is a sulfur standard for stationary plants.  Burning #4 that has more than 0.5% sulfur would be entirely possible, even plausible, and the retrofit requires only the oil tanks installation, the plumbing, and the burner nozzles.  That is not that difficult to do.  If you can burn #4 (or even #6, which is a bit harder to do but not impossible by any means) in stationary plants, then you have product substitution - heavy oil for coal. Do you have to go remove crud stuff first - such as the asphaltenes?  Sure you do.  But the Canadians have to do that anyway.  Is there a market for that asphalt product?  Sure there is - but if there is too much placed into the market, unless there is some new market developed, you cannot make any money with it.  Can you develop new markets?  Sure you can - but then you have to get off your ass to go do that.  

The failure to develop new markets for your products means that you are always elbowing your peers in the established markets.  And that is the recipe for price wars.  You want to stay away from that. 

Edited by Jan van Eck

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