IEA says oil demand recovery set to slow for rest of 2020

By Noah Browning

LONDON (Reuters) – The International Energy Agency (IEA) trimmed its 2020 oil demand forecast on Tuesday, citing caution about the pace of economic recovery from the pandemic.

The Paris-based IEA cut its 2020 outlook by 200,000 barrels per day (bpd) to 91.7 million bpd in its second downgrade in as many months.

“We expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved,” the IEA said in its monthly report.

“The economic slowdown will take months to reverse completely … in addition, there is the potential that a second wave of the virus (already visible in Europe) could cut mobility once again.”

Renewed rises in COVID-19 cases in many countries and related lockdown measures, continued remote working and a still weak aviation sector are all hurting demand, the IEA said.

China – which emerged from lockdown sooner than other major economies and provided a strong prop to global demand – continues a strong recovery, while a virus upsurge in India contributed to the biggest demand drop since April, the IEA said.

Increasing global oil output and the downgraded demand outlook also mean a slower draw on crude oil stocks which piled up at the height of lockdown measures, it added.

The agency now predicts implied stock draws in the second half of the year of about 3.4 million barrels per day, nearly one million bpd less than it predicted last month, with July storage levels in developed countries again reaching record highs.

However, preliminary data for August showed industry crude oil stocks fell in the United States, Europe and Japan.

As output cuts eased among producers from the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia, global oil supply rose by 1.1. million bpd in August.

After two months of increases, recovery among countries outside the OPEC+ pact stalled, with production in the United States falling 400,000 bpd as Hurricane Laura forced shut-ins.

(Reporting by Noah Browning; editing by Jason Neely)

Oil markets flat as restarts begin at storm-hit energy operations

By Erwin Seba

HOUSTON (Reuters) – Energy companies on Friday continued efforts to restore operations at U.S. Gulf Coast offshore platforms and refineries shut by Hurricane Laura as oil markets largely shrugged off the storm’s impact.

Some 300 offshore production facilities and half-dozen refineries halted ahead of a Category 4 storm that hit the coast of Louisiana early Thursday with winds of 150 mile per hour (240 kph). The destructive winds cut a narrow path through the area, sparing facilities not directly in its path.

However, Citgo Petroleum’s 418,000-barrel per day Lake Charles, Louisiana, plant was on the storm’s path, and repairs could take four to six weeks, according to Mizuho Securities. The company did not reply to requests for comment.

Motiva Enterprises, operator of the largest U.S. refinery, and Valero Energy Corp on Friday began restarting their Port Arthur, Texas, refineries.

U.S. crude futures traded at $43.08 per barrel at midday, up four cents, up slightly from $42.34 a week ago. U.S. gasoline futures were up 2 cents, less than 2% higher than they were a week ago.

About 84%, or 1.56 million barrels per day, of U.S. Gulf of Mexico crude output and 60% of natural gas offshore production were shut on Thursday, the U.S. Department of Interior reported.

Exxon Mobil Corp said its 369,024 bpd Beaumont, Texas, refinery, about 50 miles (80 km) west of the storm’s landfall, required “minor repairs,” a spokesman said. The company was taking steps to restart once power and port operations were restored.

Cheniere Energy Inc’s and Cameron LNG’s Cameron liquefied natural gas plants in Louisiana took almost no pipeline gas early on Friday, according to preliminary data from Refinitiv.

“Refiners may be reluctant to quickly return to production when the product they make is a money losing proposition,” Robert Yawger, director of energy futures at Mizuho Securities, wrote on Friday.

The ports of Beaumont, Orange and Sabine, Texas, and Cameron and Lake Charles, Louisiana, remained closed on Friday, according to the U.S. Coast Guard.

Houston, the United States’ largest energy export port, restarted operations on Thursday and had nearly halved the list of 53 vessels waiting on Thursday to reenter the port.

One-way movement and other restrictions were in place on Friday at points along the Houston Ship Channel, according to the U.S. Coast Guard.

(Reporting by Erwin Seba; writing by Gary McWilliams; Editing by Marguerita Choy and David Gregorio)

Iraq is open for U.S. business, prime minister says; Trump eyes oil prospects

WASHINGTON (Reuters) – President Donald Trump on Thursday said U.S. companies were involved in many prospects in Iraq’s oil business, as Iraqi Prime Minister Mustafa al-Kadhimi declared his country open for American business and investment.

Trump told reporters before a meeting with the Iraqi leader that the U.S. military had very few troops in Iraq and looked forward to the day when it did not have to be there, but would help the country if neighboring Iran should do anything.

Al-Kadhimi took office in April, becoming the third Iraq head of state in a chaotic 10-week period that followed months of deadly protests in the country, which has been exhausted by decades of sanctions, war, corruption and economic challenges.

The meeting comes amid a new spike in tensions between the United States and Iran after Washington said it would move to reinstate all U.S. sanctions on Iran at the United Nations.

Washington is pushing to extend a U.N.-imposed arms embargo against Iran that is due to expire in October under Tehran’s 2015 nuclear deal with world powers. Trump withdrew the United States from the deal in 2018 and reimposed crippling sanctions on Iran.

Five U.S. firms, including Chevron Corp, signed agreements on Wednesday with the Iraqi government aimed at boosting Iraq’s energy independence from Iran.

The U.S. Department of Energy said in a statement that Honeywell International Inc, Baker Hughes Co, General Electric Co, Stellar Energy and Chevron signed commercial agreements worth as much as $8 billion with the Iraqi ministers of oil and electricity.

The agreements were signed following a meeting of the Iraqi ministers with U.S. Energy Secretary Dan Brouillette, as well as a roundtable in Washington on Wednesday with the Iraqi prime minister and the U.S. energy industry.

(Reporting by Jeff Mason; writing by Andrea Shalal; editing by Diane Craft and Dan Grebler)

Dakota Access oil pipeline users downplay need for line to investors

By Laila Kearney and Devika Krishna Kumar

NEW YORK (Reuters) – The largest oil pipeline out of the Bakken shale formation in North Dakota could be forced to shut this week, and the companies that use it are telling investors they can survive without it. But in legal filings, they have made its closure seem dire.

The 570,000 barrel-per-day (bpd) Dakota Access Pipeline (DAPL) is facing a federal court order to be closed and drained pending a new environmental assessment. A decision on whether it can remain running while a legal battle continues is expected any day. The pipeline is critical for moving oil out of North Dakota, the second-largest crude-producing state, trailing only Texas.

Numerous industry groups and states issued legal statements in support of DAPL both prior to and after a judge last month ordered the line, operated by Energy Transfer LP, closed by early August.

Before opening in 2017, producers and refiners relied on a patchwork of pipelines and rail to get oil out of the region.

But on recent earnings calls and fillings, companies including Marathon Petroleum Corp and Continental Resources Inc, the largest Bakken producer, said they have plenty of alternatives should the line be shut.

“It would not have a major impact on moving all of our production if DAPL were shut in, and the cost to us would be a few dollars per barrel,” said John Hess, chief executive officer of Hess Corp, which transports about 55,000 bpd of oil on DAPL, on an earnings call last week.

However, in an April court filing, the company said it “does not have other practical options to transport the crude oil that is currently being shipped on DAPL.”

A source familiar with the company’s thinking said Hess has since found alternatives for shipping its oil.

The differing statements come down to the need to reassure investors, experts said.

“They really shouldn’t do that,” said Ted Borrego, who has practiced oil and gas law for over 45 years and teaches at the University of Houston Law Center. “But a big chunk of what you need to be able to drill wells is money, and if you’ve got investors that are nervous, they tend to sit on their wallets.”

Last month, a U.S. district court judge found fault with one of the pipeline’s permits and ordered DAPL shut and drained by Aug. 5. That order was delayed by an appeals court, which is still deciding whether DAPL can remain in use during the appeals process.

Energy Transfer did not immediately respond to a request for comment.

Producers and refiners that use Bakken oil relied for years on rail transit due to the lack of pipelines. North Dakota output peaked at 1.5 million bpd in late 2019 and is at about 1 million bpd as of August, according to the state’s Department of Mineral Resources.

“The loss of the pipeline has less of an impact if production is reduced,” said Sandy Fielden, analyst at financial services firm Morningstar.

Privately, shippers and executives say ramping up rail shipments takes time and rail cannot handle the same volume as pipelines. One unit train can carry between 50,000 and 90,000 barrels of oil, far less than DAPL’s daily capacity.

“No producer wants DAPL to close,” said one shipper on the line, who spoke on the condition of anonymity.

In May, 52 million barrels of crude was transported from the PADD 2 region that includes North Dakota to the U.S. Gulf Coast, compared with just 351,000 barrels shipped via rail, according to U.S. Energy Information Administration data.

Continental Resources said in a legal filing in June that shutting the line could cost between $4 and $7 a barrel extra, boosting costs for all producers and shippers by $832 million to $1.5 billion annually. Bakken oil currently costs about 20 cents less than U.S. benchmark crude.

Executives on the company’s earnings call on Tuesday said they were confident that the line would remain open.

(Additional reporting by Arathy S Nair; Editing by Marguerita Choy)

Oil prices gain on sharp U.S. crude inventory drop

By Laila Kearney

NEW YORK (Reuters) – Oil prices edged up on Wednesday after a steep drop in U.S. crude inventories, but another record day for COVID-19 cases worldwide kept gains in check.

Brent crude futures <LCOc1> gained 35 cents to $43.57 a barrel by 10:57 a.m. EDT (1457 GMT). U.S. West Texas Intermediate crude futures <CLc1> were up 18 cents to $41.22.

U.S. crude oil inventories fell by 10.6 million barrels last week to 526 million barrels, the Energy Information Administration said, in their largest drawdown since December. [EIA/S]

Net U.S. crude imports fell 1 million barrels per day to 1.9 million bpd, the EIA said.

The drawdown was likely a result of supply cuts by the Organization of the Petroleum Exporting Countries and its allies, which were agreed-upon in April, finally being realized in fewer shipments.

“There’s an assumption those tankers pretty much let go of all their oil and so the expectation is that the OPEC cuts are going to lead to bigger draws in the United States,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.

A record number of new coronavirus infections were reported globally, while in the United States, deaths from the novel coronavirus were approaching 150,000, the highest level in the world and rising by 10,000 in 11 days, according to a Reuters tally.

“The virus is spreading like wildfire across the Americas while Europe and Asia are displaying worrying signs of a second surge in cases,” said Stephen Brennock of oil brokerage PVM.

Six U.S. states reported one-day records for coronavirus deaths on Tuesday and cases in Texas passed the 400,000 mark.

Attempts to provide relief amid the outbreak were in disarray after Republicans in the United States on Tuesday disagreed over their own plan for providing $1 trillion in new coronavirus aid.

Indian refiners are cutting crude processing and shutting units for maintenance as fuel demand falters, officials at the companies said.

(Additional reporting by Ahmad Ghaddar in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy)

Exclusive: More than 40 countries accuse North Korea of breaching U.N. sanctions

By Michelle Nichols

NEW YORK (Reuters) – More than 40 countries accused North Korea on Friday of illicitly breaching a United Nations cap on refined petroleum imports and called for an immediate halt to deliveries until the end of the year, according to a complaint seen by Reuters.

The 15-member U.N. Security Council imposed an annual cap of 500,000 barrels in December 2017 in a bid to cut off fuel for North Korea’s nuclear weapons and ballistic missile programs.

But in a complaint to the U.N. Security Council North Korea sanctions committee, 43 countries – including the United States, Britain and France – said they estimated that in the first five months of this year Pyongyang had imported more than 1.6 million barrels of refined petroleum via 56 illicit tanker deliveries.

The complaint said North Korean vessels continue to conduct ship-to-ship transfers at sea “on a regular basis as the DPRK’s primary means of importing refined petroleum.” North Korea’s formal name is the Democratic People’s Republic of Korea (DPRK).

The countries asked the Security Council sanctions committee to make an official determination that North Korea had exceeded the cap and “inform member states that they must immediately cease selling, supplying, or transferring refined petroleum products to the DPRK for the remainder of the year.”

Similar requests to the committee in 2018 and 2019 were blocked by North Korean allies Russia and China. They are also the only two countries to have formally reported deliveries of refined petroleum to the Security Council sanctions committee.

“China and Russia collectively have reported 106,094.17 barrels of refined petroleum product transfers … January through May,” the complaint said. “The official accounting of the DPRK’s imports vastly under represents the volume of refined petroleum products that actually enter the DPRK.”

The 43 countries also urged the committee to call on states to “immediately exercise enhanced vigilance regarding the DPRK attempting to procure additional refined petroleum products and to prevent illicit ship-to-ship transfers of refined petroleum products to vessels owned, controlled, or acting on behalf of or working in cooperation with the DPRK.”

North Korea has been subjected to U.N. sanctions since 2006 over its nuclear and ballistic missile programs. While the Security Council has steadily strengthened sanctions, U.N. monitors reported this year that North Korea continued to enhance its programs last year.

North Korean leader Kim Jong Un and U.S. President Donald Trump have met three times since 2018, but failed to make progress on U.S. calls for Pyongyang to give up its nuclear weapons and North Korea’s demands for an end to sanctions.

The complaint to the Security Council committee said: “If the DPRK is able to flagrantly evade international sanctions, it will have little incentive to engage in serious negotiations.”

The North Korean mission to the United Nations in New York did not immediately respond to a request for comment.

(Reporting by Michelle Nichols; Editing by David Gregorio)

Living near gas flaring sites may increase risk of preterm birth, study shows

By Valerie Volcovici

WASHINGTON (Reuters) – Women living near oil and gas production sites where natural gas is flared may be at a higher risk of giving birth preterm, a team of California researchers reported on Wednesday.

Analysis of more than 23,000 birth records from 2012 through 2015 reveals a 50% higher chance of preterm birth for women living within three miles (5 km) of Texas’ Eagle Ford shale basin than for women who lived farther away, according to the study.

“Our study finds that living near flaring is harmful to pregnant women and babies,” said co-author Jill Johnston, an environmental health scientist at the University of Southern California.

The research, published in the journal Environmental Health Perspectives, adds to evidence linking pollution with poorer pregnancy outcomes. Another study in June found a correlation between air pollution or higher outdoor temperatures and increased chances of having a preterm or stillborn baby.

Those findings, in the Journal of the American Medical Association, resulted from analyzing 70 studies covering 32 million births. It also found that black women were disproportionately at risk.

In the new study, by scientists at USC and UCLA, the association between preterm births and flaring proximity was seen only among Hispanic and Latina women, who made up 55% of the study population. No effect was seen among non-Hispanic White women, who comprised 37% of the total. Preterm babies are at higher risk of respiratory and cardiovascular illness, as well as developmental delays.

The team said it was the first to look at birth outcomes in relation to oil and flaring, which has seen a sharp increase in southern Texas’ Eagle Ford and other U.S. shale hubs.

Flares can release chemicals such as benzene, carbon monoxide and nitrogen oxides, along with fine particulate matter, heavy metals and black carbon.

The U.S. drilling industry flared or vented more natural gas in 2019 for the third year in a row, amid soaring production and a lack of regulatory efforts to curb the practice, according to state data and independent research estimates.

When oil prices are low, or when oil fields lack pipeline access, drillers tend to vent or flare gas, which can burn for weeks at a time.

(Reporting by Valerie Volcovici; Editing by Katy Daigle and Marguerita Choy)

Energy Transfer digs in on North Dakota pipeline expansion despite oil slump, sources say

By Laila Kearney and Devika Krishna Kumar

NEW YORK (Reuters) – U.S. pipeline company Energy Transfer has taken the rare step of invoking force majeure – normally used in times of war or natural disaster – to prevent oil firms from walking away from a proposed expansion of the controversial Dakota Access pipeline, according to two sources familiar with the matter.

Energy Transfer wants to nearly double the size of the line, and some companies that signed up say it is no longer necessary due to the sharp fall in U.S. oil production after the coronavirus pandemic. North Dakota is one of the costliest spots in the United States to produce crude, and its output has dropped by about one-third from last year, more than most other oil-producing states.

DAPL is the largest pipeline running out of North Dakota’s Bakken shale basin. It has capacity to ship 570,000 barrels per day (bpd) of crude to its endpoint in Illinois. Users say an expansion to 1.1 million bpd is unlikely to be filled because the state’s production is not expected to rebound soon.

“Honestly, DAPL is not needed,” said one customer who committed to space on the expanded line, speaking on condition of anonymity. “They’re trying to build a house that all these people signed up for. Even if there’s no longer a need for the house, you can’t really walk away from it. Would I like to get out? Yes, for sure.”

Energy Transfer, however, has invoked force majeure because it could not get the permits by a certain date, according to one shipper on the line and another familiar with the declaration. That buys the company more time to get regulatory approvals and prevents customers from walking away from their commitments.

The company declined to comment on the force majeure. Energy Transfer spokeswoman Lisa Coleman reiterated previous company statements that it has received enough interest to increase the pipeline’s capacity.

Pipelines are generally built after companies find customers willing to commit to shipping oil. That helps pipeline builders to line up financing for such projects, which take years to complete. Contracts to use future pipeline space usually allow customers to walk away from those agreements when substantial delays occur.

In an April filing with Illinois regulators, Energy Transfer said that “not one shipper has sought to withdraw from an existing agreement” despite the oil downturn and that demand exceeds DAPL’s current capacity. The company said in legal filings that the downturn is temporary.

North Dakota’s production has dropped by 450,000 bpd, down from a peak of nearly 1.5 million bpd reached last year, according to the Energy Information Administration’s data.

The expanded line is currently expected to enter service in late 2021.

At least a half-dozen U.S. oil pipeline projects have been put on hold indefinitely so far this year, according to U.S. Energy Department data. U.S. production has dropped from a record 12.9 million bpd in late 2019 to roughly 11 million bpd.

OPPOSITION IN ILLINOIS

DAPL drew thousands of people to North Dakota in 2016 in support of Native American tribes and environmental groups protesting the line’s initial construction. It eventually started in mid-2017 after months of delays.

To expand the line, Energy Transfer needs approval from regulators in North Dakota, South Dakota, Iowa and Illinois.

The first three have said yes, but environmental groups brought numerous legal challenges in Illinois starting a year ago. They argued the application was improperly filed and that an expansion increases the risk of large-scale leaks. The challenges may force the company to resubmit its application.

“They’re in force majeure right now because they did not get the permits,” one source with direct knowledge of the matter said.

An administrative law judge in Illinois could issue findings on the legal dispute as early as this month, though there is no timeline for that report. Once those findings are released, and both Energy Transfer and the opposition respond, the Illinois Commerce Commission will vote on whether the expansion can go forward. That vote has not been scheduled.

Even if producers wanted to fight Energy Transfer’s declaration of force majeure, they may be hesitant to initiate legal action due to the time and cost involved, said Ted Borrego, who has practiced oil and gas law for over 45 years and teaches at the University of Houston Law Center.

“Rarely will you see a shipper trying to bail out of a contract,” he said.

DAPL customers such as Hess Corp and refiner Marathon Petroleum, which invested in the original DAPL project, declined to comment specifically on any contractual agreements on DAPL or on the proposed expansion. Continental Resources, another large Bakken producer, did not respond to requests for comment.

“Hess believes that DAPL has and will continue to be a critical piece of U.S. energy infrastructure, which allows for transportation of crude oil into expanded domestic markets in the U.S. and abroad,” company spokesman Rob Young said.

Bakken crude producers generally break even on drilling at a price of about $46.50 a barrel, according to Deutsche Bank analysts, higher than other parts of the country. The U.S. crude oil benchmark is trading just below $40, after averaging just $17.50 in April and $33.70 in May.

While output in North Dakota has rebounded somewhat from its fall in May to less than 1 million bpd, production is expected to remain lower than its peak.

“At the moment I don’t think the demand is there from shippers for more DAPL, given the decline in Bakken output,” said Sandy Fielden, director of oil and products research at Morningstar in Austin, Texas.

(Reporting by Laila Kearney and Devika Krishna Kumar; Editing by Marguerita Choy)

Oil falls on fears of more COVID-19 cases

(Reuters) – Oil prices fell on Wednesday on fears about fresh outbreaks of COVID-19 but prices drew some support from stimulus measures and positive tests of a drug that could save some critically ill patients.

Brent crude was down 38 cents, or 0.9%, at $40.58 a barrel at 1335 GMT. U.S. West Texas Intermediate (WTI) fell 56 cents, or 1.5%, to $37.82 a barrel.

The World Health Organization said it was moving to update its guidelines after results showed the corticosteroid medication dexamethasone cut death rates by about a third among the most severely ill COVID-19 patients.

Yet concerns persisted about the spread of the virus in some regions and the risk of second waves in places where the spread had started to slow.

“The pandemic is rapidly evolving and the outlook for oil demand will, therefore, remain plagued by a degree of uncertainty,” said Stephen Brennock of broker PVM.

To contain the spread of a new virus outbreak in Beijing, scores of flights were canceled and schools shut.

“We think the oil market is not currently pricing in a significant probability of either second waves of coronavirus cases in key consumers and the associated lockdowns, or anything less than a rapid return to economic business-as-usual,” Standard Chartered analysts said, pointing to a downside risk for prices in the medium term.

Weak economic activity is still weighing on demand for crude. Oil imports in Japan, the world’s fourth-biggest crude buyer, slumped in May to the lowest in almost three decades.

However, the Organization of the Petroleum Exporting Countries forecast a gradual recovery in oil demand and said record supply cuts by the group and other producers were already helping rebalance the market.

Business confidence at Asian companies sank to an 11-year low in the second quarter, a Thomson Reuters/INSEAD survey found, with two-thirds of firms polled seeing a worsening COVID-19 pandemic as the biggest risk over the next six months.

(Reporting by Bozorgmehr Sharafedin in London; Additional reporting Jane Chung in Seoul; Editing by Louise Heavens, Mark Potter and David Clarke)

States ask Trump administration to pay laid off oil workers to plug abandoned wells

By Nichola Groom

(Reuters) – A coalition of U.S. oil-producing states has asked the Trump administration for stimulus funds to hire laid-off energy workers to plug abandoned wells, a proposal aimed at fending off unemployment while tackling a growing environmental problem, a spokeswoman for the group said.

The request from the Interstate Oil and Gas Compact Commission, a consortium of 31 states, comes as the coronavirus pandemic triggers a historic downturn in crude oil prices and fuel consumption, forcing the once-booming U.S. drilling industry to slash production and cut its workforce.

IOGCC spokeswoman Amy Childers said the group had recently asked the Department of Energy for stimulus funds “to help keep oil and gas crews working during the current crisis.” Childers did not say if a specific amount of funds was requested.

DOE officials would not comment on the proposal.

There are about 3 million abandoned oil and gas wells in the United States, about two-thirds of which are unplugged, according to the U.S. Environmental Protection Agency. That number is likely to grow as the current market meltdown pushes hundreds of drilling companies toward bankruptcy, according to industry analysts, bankruptcy attorneys and state regulators.

Unplugged wells are typically abandoned by distressed operators and can pose serious environmental and safety risks if left to leach pollutants into the air and water. Most state governments lack sufficient funding to plug all the wells themselves, according to the IOGCC.

The push from U.S. states comes after Canada said last month that it would invest $1.2 billion to clean up abandoned wells in three provinces as part of a suite of measures to help the hard-hit oil and gas industry during the coronavirus outbreak.

U.S. states would like to see a similar commitment from the Trump administration, Oklahoma Secretary of Energy and Environment Kenneth Wagner said in an email.

“Oklahoma is certainly supportive of the idea around a stimulus similar to what has been done in Canada around plugging abandoned wells,” he said. Oklahoma has roughly 4,000 abandoned and unplugged wells, according to state records.

North Dakota’s top energy official, Lynn Helms, said at a public meeting last month that his state is seeking federal stimulus money to tackle its list of around 800 abandoned wells: “We’ll be asking for some of this money.”

(Reporting by Nichola Groom; editing by Richard Valdmanis and Marguerita Choy)