By Mark Rossano [ihc-hide-content ihc_mb_type="show" ihc_mb_who="10,13,14,16,18,19" ihc_mb_template="1"] The U.S. completions market will keep heading higher to our target of 275 spreads as pricing supports an increase in activity. The hinderances remain the same regarding- labor and available equipment to meet the demand push. Wages and bonuses have increased across the board to entice new employees to come back to the oilfield. Hiring remains difficult even as the average wage has risen by about 15%-30% depending on the location. We are now only about 12 away from our national target with the next wave of increases coming from natural gas/ wet gas basins. There will still be some additional activity coming in the Permian and Williston, but the next leg higher will be more NG and “smaller” basin oriented. Typically- the smaller basins attract 1 or 2 spreads in Oct/Nov in order to maintain production through year end. The rig count will outpace spread additions in Q4 as DUCs have been drawn down and need to be replenished as we go into 2022. The Haynesville still has plenty of wells available, but most basins are running low on available drilling locations. The market is now off the 2020 lows and the 2016 bottom as rigs come back at a faster pace. But, just like all the other issues in the market- labor and equipment/material costs have hindered some pace of the new additions. Many of these problems aren’t going away quickly given the cost of everything from steel to diesel rising to multi-year highs. The rise in all the hydrocarbons across the complex will keep activity moving higher, but push spreads into more NGL heavy basins and rigs across all of them. The NGL barrel is pushing right back to multi-year highs in 2018 that saw surging prices, but they were swiftly met with new supply driven by U.S. production as well as new infrastructure coming online. The difference this time- we won’t see a similar increase in supply while exports and local demand remain at record highs. The increase in exports and global demand for LPG and ethane will help support where prices are at the moment. Propane and Propylene Storage Propane Days of Supply DOE Total US Propane/Propylene Exports US Total Ethane Exports The natural gas backdrop is also supported as we progress through build season at a slower pace vs historic. The difference this time is the limited amount of new supply mixed with LNG demand going into the global market. Given the pricing backdrop- our LNG will still flow freely into the market on a take or pay basis given our competitive pricing. LNG has been moving steadily at current rates with little chance (barring unplanned downtime) that we see this reverse in the winter months. Our LNG facilities will be trying to run as hard as possible to fill contractual volumes but also increase spot cargoes to capture the huge spike in pricing. Seasonally speaking- winter always sees elevated prices but given shortages on the coal/natural gas side- this will be a very strong environment. Given the proximity of the Haynesville- this will be a key spot of growth over the next 3-6 months. A lot of private companies operate in the region, which have already started increasing underlying activity. Crude futures have continued to push higher across the curve providing opportunity to not only hedge future production at strong pricing, but to sell WTI at premiums given the backwardation in the curve. The futures vs physical market remains in a broad disconnect but the view in the market is a broad shortfall exists with more to come on the back of a cold winter and conversion from coal/natural gas to oil consumption. The physical market on the other hand is struggling to clear cargoes-especially out of West Africa with Angola deferring cargoes and the rest of the region unable to clear November loadings. • Angola has deferred a cargo of Nemba crude from late October into November. Loadings for Nemba in October revised to 92k b/d, with three 950k-bbl cargoes planned • November exports revised higher to 63k b/d, including two 950k-bbl cargoes Angolan and Republic of Congo’s Djeno crude for November loading are clearing at a slower pace than October’s cargoes did around this time last month, said traders with knowledge of the matter. • Angola has yet to sell 7-8 cargoes out of 33 scheduled for November loading • That’s a slower pace than a month ago, when 4-5 shipments out of 38 were still seeking buyers, according to estimates compiled on Sept. 10 • The lack of quotas for so-called teapot refiners in China is slowing this month’s sales, according to traders • READ: China Private Refiners Wait for Import Quotas Amid Power Crisis • NOTE: Angola is due to release preliminary loading schedule for December on Monday • Republic of Congo is still searching for buyers for 3-4 cargoes of Djeno crude for November out of seven planned • That’s also slower than last month when 1-2 consignments were unsold as of Sept. 10 • The nation’s loading schedule for December exports is due around Oct. 24 We also got the China teapot quotas last night: China awarded a combined 14.9 million tons of crude oil import quotas to private refiners in its fourth batch for this year. The country once again favored more advanced mega-refiners in its latest allocation as Beijing seeks to clean up the nation’s refining sector in pursuit of its carbon goals. This is above the 3rd batch of 4.42M tons but well below the 2nd batch of 35.24M tons. The new quotas won’t be enough to absorb all of the excess West African crude that is floating in the market as the new data from Nigeria also remains concerning. West Africa Floating Storage Nigeria is still searching for buyers for 25m bbl of crude for loading in October and November, said traders with knowledge of the matter. • Drops from 25-35m bbl in estimates compiled on Oct. 5 • Most of the shipments are due to load in November, with some late-October cargoes also still seeking buyers, the people said • The unsold tally represents almost half of the November schedule of about 53 cargoes • The pace of sales is weak for this point in the trading cycle, given that December’s crude loading programs are expected to be released next week, traders said • Loading delays at various Nigerian terminals seen in recent months are discouraging sales of the country’s crude as refiners seek to profit from the recovery in margins without any uncertainty on timing, one of the people said Another hit to West Africa demand was the increase in purchases by India from the Middle East instead of WAF. There has been an excess of Middle East crude in the market that is trading at an expanding discount helping to move cargoes over West African volume. India buying more from the ME instead of WAF will push more cargoes further into Dec creating a bigger glut in the winter months out of WAF. Japan and South Korea have increased run rates, which should pull in more discounted crude on the market but the question will be “who blinks first son price.” Japan and SK are operating at about 75% as both look to build up storage for the winter months. India also reversed recent comments regarding a cut to refinery run rates, and have kept them at current run rates which is why they bought extra cargoes out of the ME. Indian Oil Corp. bought 6m bbl of Middle Eastern crude via tenders for November-December loading, said traders familiar with the matter. • The supplies include 3m bbl of Abu Dhabi’s Murban crude, 2m bbl of Abu Dhabi’s Upper Zakum grade and 1m bbl of Saudi Arabia’s Khafji crude, the people said o Final prices, sellers not immediately available There is also another increase in CPC loadings now that maintenance has ended, which is increasing the amount of product in the Mediterranean. CPC Blend loadings will rise to 20-month high of about 1.46m b/d in November, according to a preliminary loading program. Transneft expects the number of crude tankers delayed at Novorossiysk to fall to one vessel. CPC PROGRAM: Caspian CPC Blend loadings for November are set at 5.54m tons from the terminal near Russia’s Black Sea port of Novorossiysk, according to a preliminary loading plan seen by Bloomberg. That equates to 1.46m b/d, highest since March 2020, compared with revised 1.37m b/d for October Urals pricing also remains weak as more competition comes into the market from Libya, Iraq, KSA, and Nigeria as OSPs were cut to increase flow into the region. The U.S. crude position will keep building as we are in shoulder season and imports accelerate into the end of Oct. PADD3 is at the third highest ever: The premium of WTI vs Dubai will keep exports limited and averaging around our expected level of 2.6M-2.8M. We are also seeing discounts grow from the North Sea with another pricing cut happening yesterday. Floating cargoes in the market remain well above seasonal norms driven by Asia and West Africa. Middle East storage already dropped as more crude has set sail for Asia. The comments in the market remain around fuel oil, diesel, and gasoil consumption in order to supplement the shortages in the natural gas and coal markets. We have seen steady movements of product out of some storage regions on the middle disty side while builds increased on the heavy distillate/ residual side. China saw a drop in diesel storage while they sit on a a record of fuel oil in tanks with more builds coming over the next few weeks. Teapot refiners have started to bring units back online while state-owned facilities remain well below seasonal norms. Refined product exports out of China should see a decline in Oct after we had a spike in Sept. TOTALENERGIES TTEF.PA SHUTS DIESEL-MAKING HYDROCRACKER AT ITS 338,000 BPD ANTWERP, BELGIUM, REFINERY ON 8 OCT FOR ECONOMIC REASONS - TRADERS - Reuters News. We keep getting shifts in refiner commentary and underlying pricing as Europe has well above seasonal norms in fuel oil but near record lows in gasoil. China’s inventories of gasoline and diesel both dropped to the lowest level in at least a year due to strong demand, according to a note from industry consultant OilChem. • NOTE: OilChem adjusted its methodology for calculating fuel stocks this year and its data only extends back to October 2020 • Gasoline stockpiles -11% w/w to 13.92m tons, or ~40% of capacity • Diesel inventories -11% w/w to 15.3m tons, or ~34% of capacity • OilChem tracks fuel stockpiles at state-owned oil-product sales companies, independent refineries as well as fuel traders; figures don’t include inventories at state refineries The underlying market will see more products shifting around the world as Emerging Markets take down additional fuel oil, while the total increase in product demand will be beholden to the winter weather. Global growth has already been under pressure with more issues arising as leading indicators move lower and inflation pressures mount globally. I will do a broader deep dive next week on the underlying economy now that we have a lot of the PMI/ CPI/ PPI data available heading into the end of Oct. [/ihc-hide-content]