LONDON (Commodity Online): Crude Oil markets came under pressure in early trade on Tuesday as a combination of weak macro economic indicators in the form of a weaker than expected Chinese PMI and US ISM data along with sentiment surrounding the Greek referendum weighed. The key benchmarks however produced a stellar rebound later in the day offsetting most of the losses; with front month Brent ending marginally lower by 2 cents at $109.54/bbl while the equivalent WTI contract edged lower by $1 to $92.19/bbl. With macro data remaining the key driver, potential shortfalls in demand remain the mainstay of market focus. Yet, problems in the supply side persist.
In the latest data from the FSU, Russian oil production scaled another all-time high of 10.34 mb/d in October. However, the y/y growth slowed to just 70 thousand b/d, half the year-to-date average of 125 thousand b/d. With domestic consumption remaining high (crude deliveries to domestic refineries were up 1.8%), exports to countries outside the CIS fell by 5.5% y/y, continuing a trend of monthly declines in export volumes that had started in May, with the only exception in September, when crude exports rose y/y by 2.2%.
The rest of the Caspian region remained marred with problems too, with September data for Azerbaijan and Kazakhstan both showing y/y decreases. In the former, crude oil output fell by 12% y/y to 940 thousand b/d, while Kazakhstan’s output fell to 1.61 mb/d, despite the end to the prolonged strike action impacting KazMunaiGaz’s output since the end of May. The recovery back to full output has been slow and is likely to weigh on output in Q4, keeping Kazakhstan’s output broadly flat this year.
Azerbaijan’s production, on the other hand, is likely to get worse over the next few months. BP has already begun work at its 130 thousand b/d East Azeri field, shutting the field on 20th October to carry out major maintenance at its ACG complex. The first phase of the closures is expected to take around 10-15 days.
The second phase of the scheduled maintenance will begin on 14th November with the closure of the 220 thousand b/d West Azeri field, reducing Azerbaijan’s monthly output by an estimated 150 thousand b/d. The final stage of the work will be carried out from 1st December at the Central Azeri platform, reducing average monthly production by an estimated 100 thousand b/d.
The ACG project is the main source of crude feeding the BTC oil pipeline, with scheduled volumes through the pipeline in November set to drop to only some 500-600 thousand b/d, compared with normal levels of about 800 thousand b/d. Production is also running lower than initial expectations and compared to last year’s levels by 75 thousand b/d, with Azerbaijan likely to miss its official target of 1.03 mb/d.
Against a problematic non-OPEC supply backdrop, OPEC output is broadly constant, with the latest OPEC estimates survey from Bloomberg and Reuters offering a contrasting picture on the group’s output for October with the Reuters survey indicating a 310 thousand b/d drop in output while Bloomberg estimates show an increase of 125 thousand b/d. Though both the surveys are similar in indicating that declines from Iraq, Nigeria and Saudi Arabia offset most of the increases seen in Libyan supplies, there is a wide difference in the spectrum of estimations.
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