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Twisted tale—The oil and gas industry is beyond bent out of shape

Twisted tale—The oil and gas industry is beyond bent out of shape

They might try their hardest to convince us but the oil barons of the world can never keep politics out of oil markets. And things can only get more convoluted.

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August 2, 2011 2:16 by



surplus it holds in top grade refining capacity. Saudi Arabia has increased production of lower quality crude, which require more sophisticated processing to turn into fuels, partly compensating for the top-quality oil that Libya sent to to European refiners.

“There is a push-out process where refineries that can take Saudi crude have to ramp up, so the arbitrage isn’t just crude, it has to go through the whole refining system,” Nunan said.

The rise in Mediterranean supplies following the IEA release is re-opening export opportunities to Asia, with high-quality Algerian crude sailing to Indonesia again. This marks a turnaround from the deficit of light and sweet crude that prevailed in Europe for most of the first half of the year.

As West and North African crude returns to Asia, it is freeing up Russian oil for export to the Americas. But with a saturated North American market after the IEA release, its usual destination, ESPO Blend crude pumped from East Siberia to the Pacific Ocean is looking for homes elsewhere.

ESPO is travelling through the Malacca Straits and Suez Canal to the Mediterranean, traders said, and diagonally across the Pacific Ocean to South America, both unprecedented flows.

And from the Americas to Asia, flows of lower-quality Colombian crude are increasing to India, which has the sophisticated refining capacity necessary to transform cheaper crude into high-value light oil products that are then shipped around the globe.

INDIA VS IRAN
India is also coping with the imminent suspension of shipments of Iranian crude.

New Delhi has caved in to US pressure to ditch a long-standing mechanism for payment of oil imports from Iran, which stopped allocating crude to Indian refiners for August. At stake is a crude flow of 400,000 bpd between OPEC’s second-largest producer and Asia’s third-largest consumer.

But the US-led strategy to isolate Iran may be clashing against efforts to cap the oil price and safeguard a fragile global economic recovery, said John Vautrain, director at Purvin & Gertz energy consultants in Singapore.

“Now we’ve got this weird thing where at the same time we are trying to lower the price by releasing crude from emergency stockpiles, while we are doing things that could push it up by cutting flows,” Vautrain said.

“It seems like they (the US) have shot themselves in the foot again. If you manage to engineer a shortage, you are cutting supplies from a country and hurting the Indian and the world economies. It feels like a change of policy,” Vautrain said, comparing it to a multi-year strategy to block Iran’s gasoline imports.

Top exporter Saudi Arabia’s unilateral decision to increase production this year after OPEC’s failed meeting in June enraged Iran, as it also came on the heels of the kingdom’s military intervention to stave off a Shiia uprising in Bahrain, a move strongly condemned by the Islamic Republic.

The Saudis this week approved sales of 3 million barrels of extra crude to India for August to make up for a loss of shipments from Iran.

“If India is only the nose of the camel in the tent, and we have more countries cutting off purchases and throwing the Iranians onto China’s lap, then that may force Iran to cut production,” Vautrain said. (By Alejandro Barbajosa; Additional reporting by Emma Farge and Dmitry Zhdannikov in London, Florence Tan in Singapore, Judy Hua in Beijing and Janet McGurty in New York; Editing by Simon Webb)



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