Forum

With over 100 years of experience in the fuel industry, we believe there is no question or problem that Portland cannot answer or help you solve. We want to hear your questions and issues with regards fuel buying, fuel quality, fuel consumption, petrol forecourts, grades of fuel, refining etc, etc, etc. The list really is endless and we would like you the fuel user to test us so we can help you!

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Read our forum questions below:

May 7, 2015 Where do you see the Brent / WTI differential now? Is it behaving in the way you would expect?

This is a really interesting question Baz and truth be told we’re not quite sure – there has been so much volatility in the oil markets

Like most things in the oil market over the last few months, the Brent / WTI differential has been on a bit of a roller-coaster ride – dropping to a negative at the end of last year, before bouncing back to a level which is more or less where it has been for the last 5 years.

Traditionally the higher price of Brent reflects the fact that Brent is a seaborne crude that can be exported anywhere in the world. On the other hand, WTI is a land-locked crude which means it can only be consumed in the United States. So whereas Brent crude reflects world oil markets and world oil demand, WTI only reflects the US market. Therefore with world demand for crude oil more buoyant than the USA over the last years, we have typically seen Brent prices trading at a $10-$15 (and sometimes up to $20) more than the value of WTI.

That all changed in 2014 with the converging of Brent / WTI prices – partly as demand outside of the US dropped, whilst firming up considerably within the US because of a strengthening economy. But this was convergence was short-lived and as we stand today, we are back to having a fairly sizable gap between Brent and WTI prices. Overall, this would seem a more logical “natural” position for us to be in with huge amounts of shale oil flooding the domestic US market, whilst at the same time conventional oil production is declining.

As we do not expect the US state of affairs to change much in 2015 (ie, a glutted market and legislation staying in place to forbid US crude oil exports), we see a continuation of this differentiation (about $10) for the foreseeable future.

We received this question from Baz

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December 17, 2014 I read recently that it is illegal for American oil producers to export their oil, so how can the shale oil 'revolution' (as you call it) be affecting world oil prices downwards? Or are American exporters simply getting round this legislation?

This was asked at a recent conference we attended and on the surface it does seem confusing that shale oil is getting so much coverage in the media when we can’t actually access the stuff in the UK (or Europe or anywhere else in the world for that matter). That being said, as we know the world oil market is a single, inter-related entity and therefore what happens in the USA has an effect on prices elsewhere in the world.

Why so? Well the main point to make here is that crude production increases in the States (up from 6m bpd to 9m bpd in 3 years) has reduced crude imports into the States by the same amount. So crude oil that was hitherto coming into the States from places like Nigeria, Venezuela and Angola is now no longer needed in the USA and therefore has to find a new market elsewhere in the world.

So in a nutshell, US crude oil production has indirectly caused a glut of oil outside of the USA and this has helped push prices down.

We had this question from Iwan in Felixstowe

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July 4, 2014 Why is it that gas prices are so different to oil? Do the prices not track each other?

Thanks for this question Mike. If we didn’t know better we’d think that this question has come from one of the Russian Gas Companies. The reason we say this is because for the last 10 years or so, the Russian gas suppliers have been desperately trying to keep the link between oil and gas prices alive, whereas in reality there is now little correlation between the two products.

Historically this was not the case and gas was priced alongside oil because in general, gas was a by-product of oil exploration (gas reserves typically sitting above crude oil reservoirs). At that time and because gas demand was (relatively) modest, linking oil and gas prices was very common and probably logical, ie, gas was simply a bi-product of oil.

However as gas production technology developed, increasing numbers of gas reserves were located where no crude oil was extracted or even present. In addition (and possibly indirectly related), demand for gas started to explode (boom, boom…and a further boom, boom!). Initially the linking of gas and oil prices continued because much of the gas usage was simply replacing oil for the same purposes. Examples would be heavy industry (glass manufacturing, steel making) and electricity generation (power stations), where power from gas was simply replacing power from oil for the manufacturing process. In fact in these cases, the buyers were actively keen to maintain the link between oil and gas, so that there was consistency in pricing and a benchmark to compare the new supply costs with the old.

Since that point though (around the late 1980’s / early 1990’s) the divergence of oil and gas has accelerated in almost every way: exploration, supply-chain, pricing, uses. The result is that today there really should be no correlation between oil and gas prices as they are fundamentally two separate markets. The likes of Gazprom have of course fought to maintain the link, but this has nothing to do with operational correlations but is purely because the oil price is so high – even if you end up selling gas at a discount to oil (which the Russians have recently done with their mega Chinese gas deal), this still isn’t a bad price if oil is sitting at $110 per barrel.

You only have to look outside the Russian sphere of influence to see clear differences in gas prices. For example in the USA, gas is currently trading at the $3-4 per mBTU (Millions of British Thermal Units – the gas equivalent of $ per barrel), whereas in Europe and the Far East (Russian influence), the price of gas is in the order of $15-20 / mBTU! Calculating equivalent mBTU gas prices with $ per tonne oil prices is notoriously difficult, but if we consider that the European / Far Eastern gas price sits at the top end of oil pricing (ie, $110 per barrel), this would mean that the current US gas price is equivalent to $25 per barrel! Now in reality WTI (the US crude benchmark) is trading at about $95-100 per barrel which only goes to show that where gas prices are open to market influences (rather than supply manipulation), they follow a completely different path to oil.

If only the yanks would start exporting the stuff…

This question came in from Mike in Swansea (July 2014).

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April 3, 2014 You paint a pretty gloomy picture for the Nabucco pipeline in your last Oil Market Report and yet still say it is Europe’s best hope for gas security. How so?

The March Oil Market Report certainly generated a fair bit of interest…

Nabucco certainly faces massive challenges, but still does hold a couple of “aces in the pack”. The first one is obviously the increasing EU determination to get the thing done. Yes of course we can all joke about EU bureaucracy, but where there is a political will, things do happen in the end – even in Brussels! So whilst it’s true that Nabucco has been severely hampered by a lack of political will over the last 5 years, we believe that events in Ukraine will bring an increasing focus to this project and we should expect accelerated activity on the Nabucco pipeline, as a result.

The second ace is Turkey and its booming economy – the fastest growing economy in the European area and expected to be the 3rd largest electricity and gas market in Europe by 2020. The country is planning to spend 100bn lira (£50bn) on energy projects over the next 10 years and the Nabucco line is expected to be the main supplier to many of these projects. So you can also expect a re-opening of EU accession negotiations with Turkey on the back of these developments, as Turkey is almost certainly going to become the key to Nabucco’s success.

We received this email from Helena in London

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March 28, 2014 I am very interested in your latest article on our country. You seem to know a lot. We have nice summer house in Oblast-Siberia. I would like to invite you. We always interested in protecting people like you. Do not tell anyone of arrangements in case they worry. You may be some time.

That’s a kind offer Vladmir, but we will give it a miss. I will not look as good as you without my shirt.

This latest question/invitation relating to the March Oil Market Report came from Vladimir in Moscow.

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March 17, 2014 I enjoyed January’s Oil Market Report on price predictions for 2014, but felt they only touched on the really big issues. Are there smaller, more technical issues that might affect prices this year?

Respect Jackie! You are certainly keen, although you should perhaps get out a bit more…

To answer your question, we see two factors that could shape oil prices in 2014 – both unlikely to grab too many headlines but both significant;

Firstly, the strength of the $ has always had a big impact on oil prices. Put simply, as the $ weakens against other currencies, it means that those currencies can afford to buy more things that are priced in $. For tourists, this might mean they can enjoy a cheaper holiday in the USA or fly to New York and stock up with cheap goods. But in commercial terms, this means that buyers of oil can buy a lot more oil for the same amount of money. Take the UK and today’s oil prices at $100 per barrel. With current exchange rates (circa $1.65 per £), a UK buyer could buy 1 barrel of oil for £61, but if the $ was to weaken versus the £ (say for example, we went up to an exchange rate of $1.90 per pound – roughly where it was in 2007), then that £61 would now buy circa 1.2 barrels of oil.

Such “value for money” might incentivise the UK buyer to take the opportunity and buy a whole lot more oil and if you then extend that concept across the whole world, then the impact on prices becomes apparent. In every country, we have the big strategic buyers (state stocking agencies, big plc’s, large transport infrastructures) increasing their purchases of oil because they can afford more through the weakness of the $. Result = oil prices go up!

Secondly, worldwide interest rates could also play a part in deciding oil prices. Over the last 5 years, interest rates across almost all the major economies have been at record-breaking low-levels. This has meant that a lot of financial funds (pension, hedge) have taken their money out of interest bearing schemes (safe but puny returns) and looked to invest them elsewhere. The elsewhere was often commodities with proven track records of returns, ie, oils, metals and agri-minerals and this has created a buying pressure that has undoubtedly pushed prices northwards. Arguably this is the worst type of speculative pressure, as it simply represents walls of money being invested in oil and simply because historically the oil price has risen and a bet is being made that, that trend will continue.

So central banks now have a very interesting role to play with regard interest rates and indirectly, oil prices. Keep interest rates low and the funds will continue to look at alternatives such as oil – thus keeping oil prices buoyant. Start increasing interest rates on the other hand (for example to encourage prudent savers, to combat inflation or to avoid property bubbles) and funds may come back to the safety of central banks, who can now offer more attractive returns. If and when this happens, you could see a great deal of money leaving the (oil) market and that should push prices downwards.

We had this question at the beginning of February 2014 from an anonymous sender – so we will call him / her Jackie Diesel…

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