OIL INTELLIGENCE REPORT

Oil prices falter at the end of a week full of OPEC rhetoric as a result of the soaring U.S. dollar. But before we get onto the data please do take a moment to look at our premium service. If you find the weekly free letters of value then you will get huge benefit from a premium membership. There is no risk to you as the first 30 days are without charge so you can see if the service is right for you at our expense. To find out more please click here. Friday, November 18, 2016 Oil prices spiked this week on the renewed push by OPEC to overcome differences on a production cut. WTI and Brent rose back above the mid-$40s per barrel, up from lows seen earlier in the week. The bullish move came from news that OPEC is trying hard to actually seal a deal. Saudi Arabia’s energy minister Khalid al-Falih said that OPEC was targeting the lower end of its proposed range of 32.5 to 33.0 million barrels per day. That sparked a rally in oil prices. "I'm still optimistic that the consensus reached in Algeria for capping production will translate, God willing, into caps on states' levels and fair and balanced cuts among countries," Al-Falih said. Oil prices moved down slightly during midday trading on Friday, hovering at $45 for WTI and $46 for Brent. The strength of the U.S. dollar continues to put downward pressure on crude prices. Iran a problem, but might not sink deal. The two major hurdles to an OPEC deal are the cartel’s second and third largest producers, Iraq and Iran. However, Algeria’s energy minister Nouredine Bouterfa said that Iran would not scuttle a deal. "Iran is not a problem. Iran is a particular situation and needs particular treatment. They will not have the same rule for the reduction. We will study what the best solution is for Iran,” he told Reuters. "There is strong consensus among OPEC producers for a freeze.” Iraq could undermine the deal. Iraq, on the other hand, is still an open question. A separate Reuters report finds that Iraq would be forced to compensate international oil companies who operate in country if Iraq signs onto an OPEC cut. Iraq pays private oil companies a fixed fee per barrel of oil produced, and contracts with these companies include stipulations requiring compensation if Iraq forces them to cutback. That could make it much more difficult for Iraq to agree to a cut in Vienna. A source at the Iraqi state-owned South Oil Company said this won’t be a problem because Iraq has no intention of cutting its output. "On the contrary, we're encouraging the foreign companies to raise production as much as they can," the official told Reuters. But to confuse matters even further, Iraq’s oil minister Jabbar al-Luaibi, told the Wall Street Journal on Friday that he is optimistic about a deal on Nov. 30. As always, we won’t know the outcome of the OPEC meeting until it happens. IEA does not see peak oil demand. Projections for a peak in oil demand have become much more commonplace over the past year. Even the CFO of Royal Dutch Shell (NYSE: RDS.A) predicted earlier this month that demand would peak within the next 5 to 15 years. But in its annual World Energy Outlook, the IEA sees demand growing through the end of 2040. The agency sees slow adoption of EVs, and growth in oil demand in a variety of sectors not related to passenger vehicles, including petrochemicals, aviation and long-haul trucking. At the same time, the IEA warned of a shortfall in supply towards the end of this decade as the industry scales back investment. The agency said that if investment remains low in 2017 – the third consecutive year of declines – then a supply shortfall around 2020 would be hard to avoid. Obama might block Arctic, Atlantic drilling. President Obama only has two months left in office, but on his way out of the door he is hoping to make drilling in the Arctic and Atlantic Oceans more difficult going forward. Bloomberg reports that the Department of Interior is finalizing its five-year lease plan for 2017-2022, and it could leave out leases for tracts in the Arctic and Atlantic Oceans, two highly controversial regions for drilling. President Trump could reverse this order, but the five-year plan takes time to produce, so it could delay offerings to the industry. The plan is not yet finalized but the Obama administration is rushing to get it done before the end of the term. Separately, the Bureau of Land Management published its final rule for methane emissions from natural gas operations on public lands. The rule cracks down on venting and flaring. Industry groups immediately filed a lawsuit. Again, the Trump administration is expected to try its best to overturn the rule. Tesla shareholders approve SolarCity takeover. Elon Musk won the approval of the takeover of SolarCity by Tesla (NYSE: TSLA). Critics viewed the purchase as a bailout of SolarCity, which as posted steep losses in recent quarter. But Musk argues that the acquisition would streamline the two businesses, creating an integrated clean energy company. Tesla is also planning to roll out a solar-powered roof next year that looks like an ordinary roof with shingles. Musk argues that the solar roof will be as cheap or cheaper than a traditional roof, hoping to pave the way for an expansion of its residential solar business. UN warns Iran on nuclear deal. The IAEA, the UN nuclear watchdog, warned Iran last week on its stockpile of heavy water. Spent nuclear fuel can be extracted from heavy water, and Iran has more than its allowed limit as part of the 2015 nuclear deal. The stakes are high as incoming U.S. president-elect Donald Trump has vowed to rip up the nuclear agreement. The latest IAEA warning could add fuel to that fire. Israel launches auction for gas. On Tuesday, Israel opened an auction for gas exploration in the Mediterranean. Israel believes that its waters could hold up to 75 trillion cubic feet of natural gas. The bidding process will end in April. In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by clicking here. Thanks for reading and we’ll see you next week. Best Regards, James Stafford Editor, Oilprice.com P.S. – Oil market veteran Dan Dicker this week gauges the attitude of the key actors in the OPEC meeting. And while many fear that Iran and Iraq could sink the OPEC deal by rejecting both a freeze and a cut, Dan expects OPEC to come together and reach a substantial deal at the last moment as he reckons that OPEC has more to win than to lose from a deal. Read Dan Dicker’s complete analysis by claiming your free 30 day trial on Oil & Energy Insider

What's in Oil & Energy Premium this week: Inside Investor • Why You Should Expect A Substantial OPEC Deal Inside Opportunities: • Playing The Overreaction To The Election Results  Executive Report: • OPEC Overproduction To Create Problems In Vienna Inside Markets: • Oil At A Crossroads Ahead Of OPEC’s Vienna Meeting Inside Intelligence: • Global Energy Advisory November 18th 2016

Global Energy Advisory November 18th 2016

Politics, Geopolitics & Conflict •    The U.S. seems to be close to exhausting its options in Syria and Iraq. While the battle for Mosul, the IS’ stronghold in Iraq, goes on with Iraqi troops on the group and U.S. remote support, Washington is planning to take on Raqqa, the HQ of the terrorist group in Syria. The problem is that as the so-called moderate opposition forces in the war-torn country surface to light as not all that moderate, the Kurdish-dominated Syrian Democratic Forces seem to be the only option of leader of the attack on the ground. It’s fairly certain the U.S. won’t send in its own troops to liberate Raqqa from the IS and besides the Kurdish forces, its allies in Syria have been revealed as uncomfortably radical. The problem with the SDF is geopolitical: the Kurds have been treated as a pain in the neck by Turkey for decades because of their push for independence. Allying with them more closely won’t do any favors for Turkish-U.S. relations. On the other hand, with what seems like a complete makeover in U.S. politics in the making after the November 8 elections, nothing can be taken for granted or certain. •    Meanwhile, the battle for Mosul continues, with the prospects of an Iraqi success in driving IS out growing. However, according to observers, this will not result in peace returning to Iraq. Quite the contrary: the geopolitical divides in the country and the power play in the Middle East will only become more obvious with direct implications for the country’s oil industry. The Kurds are stronger in Iraq than they are in Syria, and are likely to push for more influence. The U.S. is taking a damage control approach, keeping away from direct intervention, and Saudi Arabia, Iran, Turkey, and Russia are – quietly for now – wrestling for more influence. Chances are that Iraq will remain a focal point for regional geopolitical tension in the near future. •    OPEC has entered the final phase of its production cut negotiations. Here is a brief timeline of events so far. September: Saudi Arabia initiates talks about a production freeze as prices stay around $50 a barrel. There is general agreement both inside and outside OPEC that such a move is necessary. October: A Technical Committee in charge of hammering out the details of the agreement is set up, chaired by Algeria. Venezuela turns into the most vocal defender of a freeze or a cut as it is perhaps the hardest hit by the low prices. Government officials talk with Gulf, Russian and Iranian counterparts, and even call on the U.S. to join the freeze talks. Russia, having declared general support for a freeze, refrains from any more specific remarks, repeatedly noting only that if it is to join the drive, OPEC member should be unanimous about it. Iran, Nigeria, and Libya are exempted from the freeze because of market share loss for reasons other than the oil price crash. Iraq insists it is exempted too as it is fighting IS and needs the oil revenues. Saudi Arabia refuses. Production freeze talks turn into production cut talks as it becomes clear the Exempted Club is fast building its output, and so are other OPEC members, plus Russia, Brazil, and Kazakhstan. November: Saudi Arabia threatens to turn its own taps up if its co-members, namely Iraq, don’t play along with the cut. Venezuela’s Nicolas Maduro says, after a meeting with OPEC gensec Mohammed Barkindo, that the cartel is ready and willing to use force to make members comply with the agreement although the means by which this force would be exerted remain unclear. Russia says it’s optimistic about a final agreement, and so are many analysts. Some argue that if the agreement falls through, OPEC will lose all relevance on international markets. Opexit is also an option for some members. Iran, Iraq oil ministers say they will not attend talks on the cut between Saudi Arabia and Russia in Qatar. Tenders, Auctions & Contracts •    Pakistan has invited Chinese energy companies to invest in its oil and gas industry as part of the bilateral China-Pakistan Economic Corridor, which is focused on infrastructure projects in Pakistan. LNG is a separate area of interest, according to Pakistan’s Petroleum and Natural Resources Minister Shahid Khaqan Abbasi. •    Israel is accepting bids for the development of offshore oil and gas deposits in its Mediterranean shelf. A total 24 blocks have been tendered, all in the country’s exclusive economic zone. The deadline for bid submission is April 2017 and the winners will be made public three months later. •    Mexico is tendering 14 onshore oil exploration licenses. The licenses are for 25 fields in the Burgs basin, the Tampico-Misantla area, the Southeast basins, and the state of Veracruz. Winners will be announced in July 2017. •    The UK and Norway will see a higher rate of oil and gas field going out of commission over the next decade, according to Oil and Gas UK. More than 100 platforms are seen to be either completely or partially removed from the two countries’ shelves until 2025 and more than 1,800 wells will be plugged and abandoned. Discovery & Development •    The U.S. Geological Survey has announced that the Wolfcamp shale in the Permian contains technically recoverable reserves of 20 billion barrels of crude, which makes it the largest onshore unconventional oil discovery in history. The size of the reserves is three times that of North Dakota’s Bakken formation. •    Libya’s Es Sider terminal, the largest of the four export terminals in the Oil Crescent could start shipping cargoes starting next week. The port is currently undergoing some maintenance work. Es Sider has been closed for two years on force majeure grounds. •    Turkish Petroleum plans to spend $1.7 billion on exploration next year, both at home and abroad. Of this, the state-owned energy company will allocate $1.45 billion on overseas exploration for oil and gas. Currently, Turkish Petroleum has presence in Russia, Iraq, Azerbaijan, Libya, and Afghanistan. •    Ghana will soon get its third floating production, storage and offloading vessel (FPSO), to be located in the Sankofa OCTP block of fields, operated by Italian Eni. Gas from the block will be used for power generation. Oil is planned to start flowing at a daily rate of 80,000 barrels in 2017. •    Russia’ Yamal LNG project is at 68 percent of completion, with first production set to start in late 2017, when the completion rate reaches 85 percent. The $27-billion project is operated by Novatek and, according to CEP Leonid Mikhelson, will stay within budget. •    Ithaca Energy expects first commercial oil from its project in the Greater Stella Area in the North Sea to start flowing before the end of November. The UK company said production costs at the field at $23. Output is seen at 20,000-25,000 barrels of oil equivalent. •    Africa Oil, Tullow Oil, and Maersk Oil plan to drill up to eight exploration and appraisal wells in Kenya, beginning next month. The companies have partnered on oil exploration and production in Kenya’s newly discovered reserves. The wells should increase proven reserves and improve the chances of development projects and pipeline construction getting the necessary funding. •    Shell, French Total, and South Korea’s Kogas are discussing a gas pipeline from Iran to Oman with officials from the two countries. The construction of the pipeline, to supply some 1 billion cu ft of gas from Iran to Oman, has been estimated to cost $1.5 billion. The initial agreement on the project was signed three years ago. Regulatory Updates •    Nigeria will unify its oil regulation agencies into one body in a bid to improve efficiency. According to the draft National Oil Policy, the different bodies currently responsible for various aspects of oil industry regulation are prone to dysfunction. The new Petroleum Regulatory Commission will take on powers from the Nigerian National Petroleum Corporation, the Department of Petroleum Resources, and the Petroleum Products Pricing Agency, as well as others. •    Russia’s Economy Minister Alexei Ulyukayev has been charged with bribery and detained by the Investigative Committee. According to the authority, Ulyukayev has received $5 million for the Economy Ministry’s green-light of Rosneft’s acquisition of smaller rival Bashneft. The deal itself, however, is legal, the Committee said. •    Fitch has revised to Stable from Negative its outlook for the Russian oil and gas industry for 2017. The ratings agency said that tax rates in 2017 for Russian oil and gas firms would remain largely the same as this year’s, although mover the medium term they could be increased.