The Oil Big Five: Scandal, politics, and looking ahead

There are certain times of the year that seem to rush by and October is one of those, as evidenced by this installment of The Oil Big Five coming out a bit later than usual. In some ways, this is an indicator of how much there is to do and keep track of, including for the global oil industry.

The third quarter has officially wrapped and now we’re looking at the last portion of the year. We asked our oil editors and analysts in offices around the world, from Houston and New York to London and Singapore, to share what they’re most intrigued by at the moment, and their varied responses are featured here.

This is just a small sampling of all the interesting trends taking shape in oil around the globe, though, and we couldn’t include all the suggestions in this post. We’d also like to hear what you think: Are there any items here that are also forefront in your mind for the rest of 2015? Or are there other items that are also worthy of inclusion? Tell us your thoughts in the comments below or on twitter with the hashtag #oilbig5, and thanks for giving us a glimpse into what you’re most interested.

1. Asian stockpiling ahead of winter

Seasonal shifts are often strong market drivers for oil products and the Asia-Pacific jet/kerosene market strengthened in September, heading into the fourth quarter, on the autumn turnaround season and winter stockpiling demand. There is a possible hitch, though: Long-term weather outlooks from the Japan Meteorological Agency call for 10 of the country’s 12 regions to have temperatures above the 30-year average, and there are higher stockpile levels this year compared with previous years. Indeed, the cash differential in the FOB Singapore jet/kerosene market was rising, but then hit a premium of 4 cents/b on October 5 and flipped back into a discount October 6 at minus 2 cents/b, and slid to close at minus 32 cents/b on October 12. What do you think winter could hold for Asia, and what will it mean for stockpiles and expected seasonal market changes?

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After a summer of pursuing oil and gas drilling offshore Alaska, Shell abandoned plans for production there and has no plans to return anytime soon.  Brian Salerno, the top US offshore safety regulator, spoke to Platts’ Capitol Crude in early October about Shell’s decision, which surprised the Obama administration, as well as what other companies could face if they pursue production in the Arctic. Attention is now being turned to Hilcorp Alaska, which has a development and production plan to develop the Liberty Prospect off the state’s coast, in federal waters of the Beaufort Sea that were formerly held by BP. Hilcorp will likely face many of the same hurdles Shell did, including strong opposition from environmentalists and, of course, the harsh conditions of working in the Arctic. Will there be successful oil production from the US Arctic in the next few years? Widening the view a bit, will this have any impact on Arctic production elsewhere?

3. Indonesia stumbles on fuel subsidies

Last year, a handful of Asian countries sought to unwind costly fuel subsidies, including Indonesia. Newly elected President Joko Widodo ended the subsidy on 88 RON gasoline and capped a gasoil subsidy, but now the government has prevented state-owned Pertamina from adjusting 88 RON prices in line with the market, which led to more than $1 billion in marketing losses on fuel sales from January-August 2015. Prices have not been adjusted since March and price adjustments in the future will not necessarily be made once in three months, even as the government decided in September to calculate prices once in three months. As one of our editors put it, “If the Indonesian government can’t develop a strategy to rid the country of the fuel subsidy burden at a time oil prices have crashed 60% from their June 2014 peak and are forecast to remain weak, there’s little hope for it being able to ever get out of the quagmire.”  Should Indonesia keep plugging away at its commitments from last year, or are adjustments needed?

4. Kurdish crude exports

Kurdistan’s growing independence from Iraq is evident in its oil exports, which continued to ramp up in September, reaching more than 600,000 b/d. The Kurdistan Regional Government reported shipping 18,964,071 barrels of crude oil (an average 632,000 b/d) through its pipeline network to the port of Ceyhan in Turkey in September, up 29% from August. The KRG is a major player in the lucrative Mediterranean oil market at this rate, especially given the crude’s API gravity of between 32 and 34 degrees. There’s also an interesting dynamic with Baghdad here, in that the KRG did not hand over any of the crude exported to Ceyhan during September to Iraqi oil marketing authority SOMO, despite a December agreement that a handover would be help facilitate Baghdad paying the KRG its share of the Iraqi national budget. Throw in the impending return of Iranian crude to Western markets and southern Iraq’s boosted supply playing into OPEC’s role in the global oil industry and it will be interesting to see if or how the KRG holds onto its growing market share in the future.

5. The future of diesel

This topic was repeatedly mentioned by editors from Platts offices around the globe. The Volkswagen emissions scandal and its potential impact on diesel demand has been covered extensively, including here in The Barrel by Platts editors Robert Perkins and Caroline Knight and Reinout Geyssens. (In a non-oil side note, the incident also affected metals markets.) In summary, Europe has already been asking itself if gasoline is the new diesel, and in the US, gasoline holds supreme. How often do consumers really make purchasing decisions based on environmental impacts? Will the Volkswagen incident be enough to tip the balance away from diesel in a meaningful way? When we zoom out from Europe, could emerging markets and demand centers in other parts of the world play a part in shifting the balance between gasoline and diesel? Tell us your thoughts both as a potential car buyer and as an industry watcher.