OIL PRICES CLIMB AS SUPPLY WOES INTENSIFY

Crude oil prices accelerated another 6.6% in April to USD 70.78 per barrel – a six-month high amid improving economic prospects and supply curtailments.

“Oil prices continued their uptrend in the second part of April on renewed geopolitical tensions in the Middle East that could lower crude production and exports in upcoming months,” according to the latest report from the Organization of the Petroleum Exporting Countries (OPEC).

“Supply disruptions of Russian Urals via the Druzhba pipeline to Eastern Europe and Germany due to crude contamination by organic chlorides also added support to prices.”

OPEC has maintained its growth forecast for global oil demand to 1.41 million barrels per day (bpd) this year, taking total demand to 98.7 million bpd.

While oil demand in OECD Europe is expected to decline, OECD America and emerging markets will drive growth. China and wider Asia are anticipated to lead oil demand growth in the region with a combined potential of around 0.72 million bpd in 2019.

On the supply side, OPEC’s production fell marginally to 30.03 million bpd in April, compared to March. The group’s output has fallen from the 32 million bpd produced on average in 2017, after it agreed to implement voluntary cuts to stabilise crude oil prices. Saudi oil output reached 9.42 million bpd in April, compared to 9.78 million bpd in March, and well below the 10.3 million reached last year.

Total non-OPEC supply for the year is now projected to average 64.52 million bpd, with the US, Brazil, Russia, Australia, the UK, Ghana and the Sudans forecast to be the main drivers for this year’s growth. Mexico, Kazakhstan, Norway, Indonesia and Vietnam are projected to see the largest declines.

But the big ramp up in the United States and elsewhere that was seen over the past few years is losing steam.

In addition to geopolitical developments, the performance of non-OPEC supply in 2019 will depend on a number of factors, OPEC noted.

“Supply growth is likely to be slower than last year amid the expected weaker global economic growth at 3.2%. US tight oil production is increasingly faced with costly logistical constraints in terms of out-take capacity from land-locked production sites. Such constraints have also impacted Canada’s oil production.”

The Saudi Arabian Oil Company (Aramco) continued its strong push to build its downstream portfolio with two new acquisitions.

In April, Aramco Overseas Company B.V., a unit of the company, agreed to purchase a 17% stake in South Korea's Hyundai Oilbank, a subsidiary of Hyundai Heavy Industries Holdings, for around USD 1.25 billion.

The investment will support Aramco’s crude oil placement strategy by providing a dedicated outlet for Arabian crude oil to South Korea.

“The investment supports Saudi Aramco’s broader downstream growth strategy, as well as providing long-term crude oil placement supply options and product offtakes as part of our trading business,” said Abdulaziz Al-Judaimi, Saudi Aramco’s senior vice president of downstream.

Hyundai Oilbank’s refining plant in the key petrochemicals hub in South Korea’s Daesan Complex, has the capacity to produce around 650,000 bpd. The company’s five units are focused on oil refining, base oil, petrochemicals, and gas stations.

Aramco followed up a deal to acquire Shell Saudi Arabia Refining Limited’s 50% share of the Saudi Aramco Shell Refinery joint venture in Jubail Industrial City for USD 631 million, giving Aramco full control of the project.

The 305,000-bpd refinery produces liquefied petroleum gas, naphtha, kerosene, diesel, fuel oil and sulphur.

Aramco also signed a supply agreement with Poland’s PKN Orlen to enhance the integration of its downstream network in Europe.

“The increasing number of strategic partnerships established across refining, chemical and marketing activities reinforce Saudi Aramco’s downstream growth ambitions and bolsters its successful efforts to span the length of the value chain,” the company said. “The increased European presence also positions Saudi Aramco favourably to supply critical feedstock to the European market.”

Aramco provided details on more than 600 upcoming Saudi Arabian construction projects worth USD 130 billion during a contracting forum in Riyadh in April, which was attended by more than 1,500 project management professionals in the country. The company is currently implementing around 200 major projects through various local and international contractors.

“We are always keen to support and encourage contractors and manufacturers, and to provide opportunities for them to carry out work within the various projects carried out by Saudi Aramco in the oil or gas, petrochemical industries, energy projects, and infrastructure, as well as social participation projects,” said Ahmad A. Al Sa’adi, Aramco’s senior vice president of technical services.