Episode 65 - Oxy and Anadarko | Contaminated Russian Oil | Trump | Sarp Ozkan (DrillingInfo.com) - a podcast by Ryan Ray & Ellen Wald

Connect with Sarp on LinkedIn - https://www.linkedin.com/in/sarpozkan/

DrillingInfo.com - https://info.drillinginfo.com/

Occidental and Anadarko
https://www.reuters.com/article/us-anadarko-petrol-m-a-occidental-exclus/exclusive-anadarko-to-pursue-deal-talks-with-occidental-petroleum-sources-idUSKCN1S5043
Occidental was vying for Anadarko before Chevron made deal to buy Anadarko, but now Anadarko is entering into negotiations with Occidental.
Sources say Chevron will be allowed to match a deal made with Occidental but if Chevron loses out in the end then Anadarko will have to pay Chevron $1 billion
Where does this leave either company? Will the loser look for a consolation company to buy?

Russian oil contaminated
https://www.cnbc.com/2019/04/25/russia-oil-germany-and-poland-suspend-imports-via-russian-pipeline.html
Germany, Poland, Belarus, Czech Republic halted imports from Russia through Druzha line because of contamination, also several tankers of contaminated crude left Baltic port
700,000 bpd of oil impacted - contaminated with organic chloride, a chemical that is used to boost production but has to be separated from the crude before transporting it because it can damage refining equipment
Clean oil expected to have started flowing April 29 - loss can be made up in about 3 days.

Trump on defending Saudi Arabia
https://dailycaller.com/2019/04/27/trump-losing-ass-defending-saudis?
Trump compares Saudi Arabia to a delinquent tenant
It’s going to be a battle of perception - whether or not Trump can portray the Saudis as subservient to him vs. whether Khalid al Falih can convince world (and especially OPEC) that Saudi oil production serves no one but Saudi interests first.

Trump V OPEC and oil prices
https://www.wsj.com/articles/opec-saudi-officials-havent-spoken-with-trump-about-oil-prices-11556304536
In that ongoing battle, Trump said he “called up OPEC” to bring down oil prices. This comment send oil prices down on Friday, but then OPEC Sec. General and Saudi oil minister countered by saying neither of them has spoken to Trump about oil prices. (Trump may have been referring to King Salman?)
Question is - how long can this back and forth go on before traders stop paying attention to it?

Interview with Sarp Ozkan, Director of Energy Analysis at Drilling Info - IMO 2020 report
https://info.drillinginfo.com/blog/imo-2020-potential-impacts-and-coker-refinery-case-study/
Jan 1, 2020 important date for all ships because IMO asking all ships to reduce sulfur content in fuel from 3.5% to 0.5%.
THere are 3 ways: lower sulfur fuels (likely most chosen route), installing scrubbers on ships, switching to alternative fuels (requires retrofitting)
Refineries will be impacted the most, will have to change the way they refine heavier crude oils that have a lot of sulfur to get the sulfur content in fuel down.
Refineries in the U.S. are most impacted because they are complex and have coking units. Refineries abroad will have to use lighter crude oil.
Refinery margins will be impacted - whenever refineries change from their usual crude there is a loss in efficiency. Refineries will have higher gasoline yield instead of distillate. But distillate has better margins.
But US refineries will be able to make more distillate.
Will we see even higher oil exports from the US because foreign refineries will want to purchase lighter crude? We might see some producers in the US realize an uptick in price relative to the benchmark crude.
The U.S. will likely continue to export heavier crude because their units can produce more distillate because that will go into the bunker pool. U.S. refineries will stay spected the way they are because they can deal with this change. Refineries abroad aren’t ready to deal with very very light shale crude.
CNG is a fuel under consideration, as well as nuclear. Those are the two alternative fuel options. But its basically like building a new fleet. Switching cost is very expensive. Would also require ports to provide that fuel as well. Most switching will be regional and won’t have as great an impact as the switch to lower sulfur fuel.

Enforcement? “We’re waiting to see what enforcement will look like as well.” Police won’t be pulling ships over on the high seas to check sulfur content of fuel, that’s for sure.

Fluctuation in prices towards the end of the year as this rolls out or is it all baked in? Believes prices will be impacted even though everyone has known about this for a long time. Main impact will be on distillate grades. Impact on diesel market could be significant - 15%!

It really comes down to the flow of crude oil and how its going to change around the world. U.S. oil imports haven’t changed in 3 years even though domestic production has increased. More light crude being exported. Possible we could see an increase in U.S. oil imports as more U.S. light oil goes abroad.

Contact Drilling Info at www.drillinginfo.com

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