Suez Canal Suspends Traffic While Efforts to Dislodge Ship Continue

March 25, 2021

Suez Canal suspends traffic while efforts to dislodge Consultancy Wood Mackenzie said the biggest impact ship continue was on container shipping, but there were also a total of The Suez Canal temporarily suspended traffic on 16 laden crude and product oil tankers due to sail through Thursday as efforts to dislodge a 400 m (430 yard) long the canal and now delayed by the incident. container vessel that has blocked the waterway continued The load of the tankers amounted to 870,000 tonnes of for a third day, with eight tugs working to straighten the crude and 670,000 tonnes of clean oil products such as ship. gasoline, naphtha and diesel, it said. The Ever Given vessel, almost as long as the Empire State Building is high, ran aground diagonally across the Global oil markets under pressure as Asia destocks, single-lane stretch of the southern canal on Tuesday China imports slowed morning after losing the ability to steer amid high winds Crude oil producers from Europe, Africa and the United and a dust storm. States faced difficulties selling to Asia, especially China, It is now blocking transit in both directions through one of as buyers took cheaper oil from storage while refinery the world's busiest shipping channels for goods, oil, grain maintenance has reduced demand, industry sources said and other products linking Asia and Europe. on Thursday. Eight tugs, the largest of them with a towing power of 160 Chinese independent refiners, which account for a fifth of tons, have been trying to push and pull the Ever Given the country's imports, have slowed imports in the second free of the canal's banks, the Suez Canal Authority (SCA) quarter because of refinery maintenance, strong Brent said in a statement. prices and a large influx of supplies, including Iranian oil, Thirteen vessels that sailed south from Port Said in a in first quarter. convoy on Wednesday had dropped anchor in the Bitter These buyers and others in Asia are lapping up cheap oil Lakes waiting area until navigation could be resumed, it offered by traders under pressure to clear storage after said. Brent crude flipped into backwardation, with prices for Peter Berdowski, CEO of Dutch company Boskalis, which prompt delivery higher than those for future months, is trying to free the ship, said it was too early to say how traders said. long the job might take. As a result traders were forced to sharply reduce prices "We can't exclude it might take weeks, depending on the for spot cargoes loading in April and May from Europe, situation," Berdowski told the Dutch television programme Africa and the United States for delivery to Asia. "Nieuwsuur". Lockdowns in Europe have also reduced demand, they He said the ship's bow and stern had been lifted up said. against either side of the canal. "Barrels are struggling to find homes in the export market "It is like an enormous beached whale. It's an enormous as Asia still isn’t buying and Europe is struggling as well," weight on the sand. We might have to work with a said Scott Shelton, energy specialist at United ICAP. combination of reducing the weight by removing Crude grades priced on Brent were worst hit, traders containers, oil and water from the ship, tug boats and said, as a wide spread between the global benchmark dredging of sand." and Middle East's Dubai crude price made them least Several dozen vessels, including other large container appealing to Asian buyers. ships, tankers carrying oil and gas, and bulk vessels "China's demand for (Russian) Urals, West African, CPC hauling grain have backed up at either end of the canal to Blend oil just evaporated. Buying from stock is much create one of the worst shipping jams seen for years. more interesting for them now," said a source with a Bernhard Schulte Shipmanagement (BSM), the technical western trading house. manager of Ever Given, said dredgers were working to Caspian CPC Blend crude's discount to dated Brent clear sand and mud from around the blocked vessel while widened to $2.85 per barrel, the lowest since mid-May tugboats in conjunction with Ever Given's winches work to 2020 when the COVID-19 pandemic caused oil demand shift it. to plunge, Refinitiv Eikon data showed. Marine services firm GAC issued a note to clients CPC Blend is a popular grade with South Korean refiners, overnight saying efforts to free the vessel using tug boats but this month they also minimized oil purchases amid continued, but that wind conditions and the sheer size of refinery maintenance and buying from storage, two the vessel "were hindering the operation". traders said. Japanese shipowner Shoei Kisen apologised for the Unipec, the trading arm of Asia's largest refiner Sinopec, incident and said work on freeing the ship, which was offered six of its 10 term Angolan crude cargoes in April heading to Europe from China, "has been extremely to the market, traders said. difficult" and it was not clear when the vessel would float An April-loading cargo of Angolan Mostarda crude sold again. this month for $1.50 a barrel below dated Brent, down The ship's GPS signal shows only minor changes to its over a dollar from levels seen in the previous month, they position over the past 24 hours. said. Roughly 30% of the world's shipping container volume "There's just too much supply so buyers want to see transits through the 193 km (120 miles) Suez Canal daily, cheap cargoes," a Singapore-based trader said. and about 12% of total global trade of all goods. Reduced Asian buying also put pressure on U.S. Gulf Shipping experts say that if the blockage is unlikely to be Coast grades. WTI at East Houston, a popular export cleared within the next 24-48 hours, some shipping firms grade, slumped to the weakest since October this week may be forced to re-route vessels around the southern tip as export activity for April has been muted. of Africa, which would add roughly a week to the journey. U.S. crude arrivals in Asia are expected to drop to about

1 March 25, 2021 (continued)

30 million barrels in April, the lowest since June 2020, Prince Abdulaziz bin Salman Al-Saud stood firm, citing a according to initial assessments from Refinitiv Oil return to lockdown in Milan as one of the reasons. Research on Eikon. That decision is now looking wise. European nations However, the recent drop in Brent crude prices closer to including France, Switzerland and Norway have since $60 a barrel if sustained, could help revive Asia's demand tightened restrictions to address rising coronavirus cases in late June or early July, traders said. as OPEC+ prepares to assess their policy on April 1. By that time, Asia's peak maintenance season would Brent crude futures, the industry benchmark, which have ended while inventories would have largely been topped $71 a barrel this month, the highest since before drawn down, they said. the pandemic, have since fallen to about $63. Four OPEC+ sources told Reuters they expect a similar GRAPHIC-Energy transition risks political strife in oil- decision to the last meeting. OPEC+ then broadly stuck to producing states - report its cuts, allowing Russia and Kazakhstan a modest rise of The transition towards green energy imperils oil- 150,000 barrels per day. producing states that have lagged in diversifying their "I won't be surprised to hear the view that it is better to be economies, United Kingdom-based risk consultancy cautious and not add more supply yet," said one OPEC+ Verisk Maplecroft warned in a report on Thursday. source, who asked not to be identified. "Algeria, Iraq and Nigeria will be among the first The energy minister for the United Arab Emirates, casualties of a slow-motion wave of political instability OPEC's third-largest producer, also expressed caution that will engulf an array of oil producing countries over the this week, saying that OPEC+ was unlikely to pump more next 3-20 years as the energy transition takes hold," it oil than the market could handle. said. "The price of oil has not yet stabilised," said another Other states facing the greatest risk include Angola, OPEC source. "Under these circumstances, any OPEC+ Gabon and Kazakhstan, it added. decision to increase production could jeopardise their "With the move away from fossil fuels accelerating, and previous gains in managing the oil market and restoring COVID-19 levelling out any gains oil made over recent stability." years ... time is running out for a number of countries that Another reason for caution is rising Iranian oil exports, have failed to diversify their economies away from which have also weighed on prices. Iran has managed to exporting fossil fuels." boost shipments in recent months despite U.S. sanctions. The outlook for the oil price by mid-century is deeply OPEC members Iran, Libya and Venezuela are exempt uncertain, Verisk Maplecroft said, and could lie within a from the cuts due to challenges facing their respective broad range of anywhere between around $48 to $95 a economies. barrel. Brent crude is currently trading around $63 a The cuts involve OPEC's 10 other members as well as barrel. non-OPEC producers led by Russia. Together their cuts The U.S. Energy Information Administration offers an currently stand at just over 7 million bpd plus an even wider spread, predicting in its annual energy outlook additional 1 million bpd voluntarily pledged by Saudi last month a 2050 oil price of anywhere between $48 and Arabia. $173 a barrel. Last year they touched a record 9.7 million bpd, or about Though low-cost Gulf Arab oil producers are best placed 10% of world output. to capture market share, they will not be immune from Major producers not part of OPEC+ include the United future shocks: a prolonged downturn in prices could eat States, Canada, China, Brazil and Norway. into foreign exchange reserves and domestic spending, undermining stability, the report said. Petrobras top managers quit for clashing with "Even diversification could come with its own political incoming CEO's plans - source risks by challenging traditional petro-state social Petroleo Brasileiro SA's chief financial officer and three contracts: legitimacy to rule in return for hydrocarbon other top executives decided to leave the state-controlled largesse," said James Lockhart Smith, Verisk Maplecroft's producer after clashing with the plans of the company's head of market risk. incoming chief executive, a person close to the Most oil-producing countries have failed to diversify away executives said. from oil and some have even become more dependent Topics of disagreement between the current since an oil price crash in 2014, the report added, with management and the incoming CEO, retired general Norway and Qatar among the modest success stories. Joaquim Silva e Luna, include his plans for Petrobras' fuel price policy, the person said. As Europe tightens lockdowns, OPEC+ to keep oil Petrobras, as the Rio de Janeiro-based firm is known, taps tight -sources announced on Wednesday its four most important With oil prices making steady gains earlier this year, division heads will step down, following outgoing CEO OPEC and other producers had hoped to ease output Roberto Castello Branco. cuts, but industry sources say a fresh wave of lockdowns Brazilian President Jair Bolsonaro fired Branco in around the world threatens to tear up those plans. February after they clashed over fuel prices. The OPEC+ group of producers, which are holding back Luna is the latest in a slew of active-duty and former millions of barrels of daily supply, surprised the market on military men Bolsonaro has surrounded himself with since March 4 by deciding to hold output broadly steady. taking office. Russia and Kazakhstan were allowed to pump a small The executives leaving are investor relations chief, amount of oil more. But Saudi Arabia's Energy Minister Andrea Almeida; sales and logistics chief in charge of the

2 March 25, 2021 (continued) price policy, André Chiarini; exploration and production "The gasoline demand kicked up, but it’s still well below head, Carlos Alberto Pereira de Oliveira; and executive last year," said John Kilduff, partner at Again Capital LLC head of development and production, Rudimar in New York. Lorenzatto. Distillate stockpiles, which include diesel and heating oil, They all told the board of directors they will step down, rose by 3.8 million barrels, versus expectations for a although they will remain in their positions until April 12, 122,000-barrel drop. when new executive management should be approved in Net U.S. crude imports rose last week by 338,000 bpd. a board meeting. Crude stocks at the Cushing, Oklahoma, delivery hub for The company said in a separate filing on Wednesday that U.S. futures fell by 1.9 million barrels in the last week, the board has chosen Salvador Dahan as the company's EIA said. new director of governance and that he will start his new Crude prices were higher after the report, maintaining the role from May 1. day's gains. U.S. crude was up $1.98, or 3.4%, at $59.74 Incoming CEO Luna told Reuters in an interview on a barrel, while Brent rose 3.3% to $62.80 a barrel as of Tuesday that he considered keeping the management 10:43 a.m. ET (1443 GMT). team when he takes over in April, though he said he knew at least two executives were planning to leave. Fourteen U.S. states sue Biden administration over Petrobras refining head Anelise Lara and chief oil and gas leasing pause compliance officer Marcelo Zenkner left the company Fourteen U.S. states including Louisiana and Wyoming earlier this year, also for reasons that included fear of filed lawsuits on Wednesday against President Joe government interference at the company. Biden's administration, challenging his pause on new oil Bolsonaro is just the latest Brazilian leader to intervene in and gas leasing on federal lands and waters. Petrobras, whose virtual refining monopoly gives it control The legal actions, which seek to restore regular federal over domestic fuel prices. drilling auctions, came a day before the administration is Castello Branco's sacking after hiking fuel prices more set to launch a review of the oil and gas leasing program. than 30% within a couple of months sent jitters through Biden, a Democrat, in January signed an executive order financial markets. Fuel prices are a sensitive topic for putting on hold new leasing pending that review. During investors after Petrobras lost $40 billion between 2011 his election campaign, he pledged to end new federal and 2014 as the government, which controls a majority of leasing as part of a sweeping plan to address climate the company's voting shares, forced it to subsidize local change. pump prices. The pause has triggered heavy criticism from the oil Luna told Reuters on Tuesday he would attempt to keep industry and producing states that receive half of the Petrobras free of inappropriate political interference. revenues generated from federal lands drilling within their borders. U.S. crude, fuel stockpiles rise in most recent week - "We believe that the president's actions are illegal and EIA unlawful, and we're going to hold him accountable for U.S. crude and fuel stockpiles rose last week and them to try to make sure that the gains that we've made refineries increased capacity use in their recovery from over the years to help protect domestic oil and gas and last month's unusual cold that hit southern U.S. states, energy continue," Louisiana Attorney General Jeff Landry the Energy Information Administration said on said in an interview. Wednesday. A coalition of 13 states filed one lawsuit in federal court in Crude inventories rose by 1.9 million barrels in the week Louisiana, while Wyoming filed its own lawsuit in federal ended March 19 to 502.7 million barrels, compared with court in that state. analysts' expectations in a Reuters poll for a 272,000- The states joining Louisiana's lawsuit included Alabama, barrel drop. Alaska, Arkansas, Georgia, Mississippi, Missouri, Refinery crude runs rose by 956,000 barrels per day in Montana, Nebraska, Oklahoma, Texas, Utah and West the week, EIA said. Refinery utilization rates rose by 5.5 Virginia. All have Republican attorneys general. Louisiana percentage points in the week, bringing overall utilization Governor John Bel Edwards is a Democrat. to 81.6% of capacity. The lawsuits allege the administration's leasing pause "The refiners are coming out of maintenance and violates the Mineral Leasing Act that requires quarterly recovering from the power outages. The expectation is lease sales. now that they're getting back to work, we will see crude In its lawsuit, Wyoming said the administration was also inventories trending lower in the coming weeks, even required to conduct an environmental review of the though we eked out a build this week," said Phil Flynn, leasing suspension under the National Environmental senior analyst at Price Futures Group in Chicago. Policy Act before taking action. U.S. gasoline stocks rose by 203,000 barrels in the week "The real consequences of the action are far from certain to 232.3 million barrels, the EIA said, compared with and far from uniformly environmentally friendly," Wyoming expectations for a 1.2 million-barrel rise. said in its complaint. Product supplied by refineries shows fuel demand White House Press Secretary Jen Psaki, responding to a returning at a slow pace. Motor gasoline product supplied question about the lawsuits, said the Trump over the last four weeks is averaging about 8.7% below administration had "flooded the oil markets with cheap the last-year period, which matches the period just before federal leases. This will not affect oil and gas markets for the first wave of coronavirus-related lockdowns took years to come." effect. The Department of Interior, which oversees the federal

3 March 25, 2021 (continued) leasing program, declined to comment. combined value of all transactions in the Eagle Ford shale basin in 2020, Dittmar said. Venezuela's PDVSA cuts light crude output after gas "It is a strong price that includes value for untapped pipeline burst acreage." Venezuelan state oil company PDVSA has slashed Ovintiv shares closed up a fraction at $23.81. output of light crude by at least 30,000 barrels per day The sale comes weeks after Ovintiv ended a proxy fight (bpd) after a pipeline used to transport associated natural with private equity firm Kimmeridge Energy Management gas burst, two people familiar with the matter said on that had urged the company to alter its capital spending Wednesday. and focus on governance. The suspension of wells producing light, sweet Santa Ovintiv said on Wednesday, with over $1.1 billion in asset Barbara crude in the northern part of eastern Monagas sales, including the Eagle Ford and the previously state could also threaten production of Venezuela's main announced Duvernay sale, proceeds will achieve its debt crude export blend, Merey 16. PDVSA has been using reduction target. It anticipates year-end 2021 debt to be Santa Barbara to dilute the extra heavy crude from the below $5 billion. Orinoco belt further south, the main component of Merey. It also expects to achieve its $4.5 billion debt target in the The interruption of output comes after a 36-inch pipeline first half of 2022. providing natural gas to the Pigap II re-injection plant The announcement confirms a Reuters story from March exploded on Saturday, in an incident the oil minister 12 that Ovintiv was in talks to sell the asset to Callantine's blamed on an attack but that Venezuela's political investment firm Pontem Energy Capital, which is the opposition said was the result of years of financial backer of Validus, according to the latter's underinvestment and lack of maintenance. website. PDVSA has in recent months sought to boost crude production, which last year fell to its lowest levels in U.S. oil activity jumps as executives remain wary of decades below 400,000 bpd, according to figures OPEC, Biden -survey Venezuela provided to OPEC. Output had rebounded to Activity and spending in U.S. oil fields is soaring this year 538,000 bpd by February, OPEC data show, and as the industry recovers from last year's pandemic-driven authorities had pledged to boost output to 1.5 million bpd oil price crash, according to cautiously optimistic energy this year. company executives polled by the Federal Reserve Bank Neither PDVSA nor Venezuela's oil ministry immediately of Dallas in a survey released on Wednesday. responded to requests for comment. While improved oil prices have boosted expectations for PDVSA halted production at 85 wells due to the 2021, executives are cautious about the potential for explosion, said one of the people, who spoke on the Biden administration oil and gas policy changes or the condition of anonymity. Another source said some key threat that the Organization of the Petroleum Exporting projects had inventory of Santa Barbara to use as diluent, Countries and partners could easily return oil to the global but it was not clear how long supplies would last. market. U.S. sanctions on PDVSA enacted in 2019 as part of an "While the price increases have been welcome news, effort to oust Venezuelan President Nicolas Maduro OPEC+ is a sword of Damocles: if U.S. operators raise barred oil companies from sending diluents such as capital expenditures, OPEC+ will open its taps and flood heavy naphtha to the South American country, forcing the the market," one executive said. "There is a tense state firm to switch to alternatives including Santa detente currently." Barbara crude and condensates. The COVID-19 pandemic dented global oil demand, prompting deep cuts in drilling last year by shale oil Oil producer Ovintiv to sell Eagle Ford assets for producers. $880 mln More than half of executives said they were not hiring Debt-ridden Ovintiv Inc said it will sell its Eagle Ford more workers and were concerned the administration of assets in Texas to Validus Energy for $880 million, as the President Joe Biden - a Democrat who defeated oil and gas producer seeks to shore up its finances Republican Donald Trump in the November election - following a tumultuous year for the energy industry. would take a tough stance on regulation. Ovintiv moved its headquarters from Canada to the "I believe that it is their goal to effectively shut down our United States in 2020 in the hopes of better access to industry, and they will pursue that end with great energy," capital. But a pandemic-driven crash in oil prices last year one executive said. pushed away investors from the shale industry, forcing Several executives also cited the potential for greater companies to look at asset sales and mergers for regulation in New Mexico, a Democratic-leaning state survival. with lots of federal land and a large slice of the Permian Oil prices have recovered since as OPEC and its allies Basin, the top U.S. oil field. made record output cuts. New restrictions could boost oil prices, but also create With crude prices well above their 2020 lows, "there is a "political risk and pose a long-term threat," one executive pool of private-equity backed companies looking for said. opportunities in lower growth" oilfields including the Eagle Survey respondents expect a U.S. oil price of $61 per Ford in south Texas and Bakken in North Dakota, said barrel by year-end, around the same level where it traded Enverus M&A analyst Andrew Dittmar. on Wednesday. The $880-million price by Validus, headed by Felix Companies reported a break-even price $50 per barrel, Energy founder Skye Callantine, was higher than the $1 higher than last year, to drill in the Permian Basin, the

4 March 25, 2021 (continued) top U.S. shale field. Africa can play central role in India's oil diversification, says minister Brazil's oil industry battles deadliest COVID-19 wave African nations could play a central role in efforts by India yet to diversify its sources of oil and gas, India's oil minister The deadly coronavirus wave that has torn through Brazil said on Wednesday, as the nation strives to reduce its in recent weeks has not spared its oil industry, according energy reliance on the Middle East. to unions and government data reviewed by Reuters, with India, the world's third biggest oil importer, has asked infections among workers jumping and production taking state refiners to speed up the diversification of oil imports a hit. to gradually cut their dependence on the Middle East New COVID-19 cases among offshore oil workers rose to after OPEC+ decided earlier this month to largely 46 on March 24 from 17 on March 3, based on a 15-day continue production cuts in April. moving average, data from national oil regulator ANP "As India seeks to further diversify sourcing of crude oil showed. and LNG, Africa has a central role - largely due to its Active cases are at their highest level since December at proximity and absence of any choke points in trans- Brazil's largest oil producer, state-run Petrobras, with 294 shipments," Dharmendra Pradhan told an industry cases among employees as of Monday, according to summit. Mines and Energy Ministry data. India imports over 80% of its oil and has a huge oil import Petroleo Brasileiro SA, as the firm is formally known, told bill. Reuters it has adopted "rigorous measures" since the Africa's share of India's oil imports is about 15%, or about beginning of the pandemic to protect workers, carrying 34 million tonnes of oil last year, Pradhan said. India's out some 650,000 COVID-19 tests among its workforce of imports of gas from Africa are also gradually increasing. roughly 46,000. India traditionally buys oil from Nigeria, Angola, Algeria, When employees are confined to enclosed spaces, as is Egypt and Equatorial Guinea. In recent years it has common on offshore platforms, the company monitors bought oil from Cameroon, Chad, Ghana and Côte them for 14 days prior to the beginning of their shift, d'Ivoire also, Pradhan said. Petrobras said. "Therefore, we would naturally be seeking commercial Still, those efforts have not insulated the company from a partners in Africa to meet India's growing energy needs nationwide surge in COVID-19 cases in recent weeks. through imports of crude oil, LNG and other petroleum Brazil's death toll from the virus hit a record high 3,251 on and energy products". Tuesday, the Health Ministry reported, with 1,171 in the State-run Indian companies have invested $8 billion in oil states of Sao Paulo and Rio de Janeiro, the heart of and gas assets in various African nations. Brazil's oil industry. India, the third largest refiner in the world, is a major Automakers Volvo AB, Volkswagen AG and Mercedes exporter of refined fuels. Benz have scaled back production, citing health risks to Africa is the second-largest destination for Indian refined workers. fuels, Pradhan said, adding rising demand for technology, fuels, skills and investment in some African nations offers PRODUCTION India opportunities for equity investment and two way tie- The virus is also hitting output at Petrobras. ups. Production slowed last week at two platforms at the major Marlim Sul oilfield after an outbreak, a branch of the Saudi Aramco sends request to banks for pipeline national FUP oil union told Reuters. deal financing - sources By the end of last week, lost production totaled roughly Saudi Aramco has sent a request for proposals to banks 64,000 barrels, the union said. for financing it wants to offer to investors looking to lease Petrobras said it had brought back to shore all workers its pipelines, three sources said, a sign the oil giant is who tested positive for the virus, along with those who progressing with plans to extract value from its assets. had come in close contact with them. The company Aramco, which is being advised by JPMorgan and confirmed that production levels had been reduced at two Japan's MUFG on the financing, has sent the request platforms, but said they had since returned to normal over the past few weeks to its relationship banks, levels. meaning to banks that have already lent to the company, On Monday, workers at Petrobras' REGAP refinery said two of the sources. The sources spoke on condition walked off the job, the local FUP branch said in a of anonymity as the matter is private. statement, alleging that some 200 workers were currently It is asking lenders to submit commitments for a loan that sick and 10 were hospitalized with COVID-19. could go up to $10 billion in size, said the two sources. Petrobras said that REGAP production had not been Aramco and JPMorgan did not immediately respond to affected. requests for comment. MUFG declined to comment. "Unfortunately, there has been an increase in cases The planned pipeline transaction would be similar to throughout the country and that increase in COVID-19 is infrastructure deals signed over the last two years by Abu also present among Petrobras workers," the company Dhabi's national oil company ADNOC, which raised said. billions of dollars by leasing its oil and gas pipeline assets

5 March 25, 2021

to investors, sources have previously said. International investors interested in the pipeline business Aramco is preparing a so-called "staple financing" for its include BlackRock, and Brookfield Asset Management, bidders - a financing package provided by the seller that sources have previously told Reuters. buyers can use to back their purchase. Aramco, the world's largest oil exporter, said on Sunday One of the sources said the terms proposed by the net profit fell 44.4% to 183.8 billion riyals ($49.01 billion) company were "aggressive" both in terms of pricing and for the year ended Dec. 31 as the COVID-19 pandemic duration of the loan. depressed global crude demand. A second source said the terms reflected market However it maintained its pledge to declare a $75 billion conditions, with Aramco taking advantage of banks flush dividend for 2020, most of which goes to the Saudi with liquidity and hungry for new assets. government.

(Inside Oil - Americas Edition is compiled by Shruthi Narayanan in Bengaluru) Refinitiv 3 Times Square, New York, NY 10036 For questions or comments about this report, contact: [email protected] Please visit: Refinitiv for more information. To subscribe to Americas Oil newsletter, click here. Privacy statement