Weaker shale oil production forecast for 2023

The shale oil patch this week closes the door on a disappointing year while bracing for weaker output gains in 2023, hamstrung by rising costs, dwindling reserves and pressures to hold down spending.

The US oil production is anticipated to rise by an average of 620,000 barrels per day, according to the latest government estimates, a third less than the roughly one million bpd some forecasts called for at the start of the year. That shortfall has undercut shale's influence on global markets and helped lift prices for the second year in a row.

Gains in 2023 year will be harder to come by, said Scott Sheffield, Chief Executive Officer of top Permian producer Pioneer Natural Resources. He predicted 300,000 bpd to 400,000 bpd of increased shale production in 2023.

"Most companies are drilling tier two and tier three inventories now," having tapped their best prospects, Sheffield said in an interview. "Less quality production is coming out of the Permian, out of the Bakken," he said, referring to the top two US shale basins.

Weakening output gains come despite historically strong demand in the wake of Russia's invasion of Ukraine. Brent futures on Friday December 30, 2022 settled at US$85.91 per barrel, a level that typically would spur producers to pursue higher prices with drilling increases. For the year, Brent is up about 10%, after jumping 50% in 2021.

Sheffield predicts global crude to average about US$90 per barrel in 2023, with a potential upside of about US$120, higher than current levels.

A more optimistic production view from energy technology firm Enverus - which forecasts an about 500,000 bpd increase next year - is still below this year's tepid level.

"These headwinds are expected to persist," said Chetan Sharma, a senior associate with Enverus who cited supply chain constraints and uncertainty over what the OPEC cartel will do.

Denver-based Civitas Resources, Colorado's largest producer, said the regulatory environment also has made it difficult for companies to ramp up production quickly.

"If we want to increase significantly as an industry, we would need to shorten permit cycle times," said CEO Chris Doyle, pointing to an 18-month lead-time for a new drilling permit.

Civitas grew volume about 4% year-over-year and anticipates relatively flat production in the coming year as it prioritizes free cash flow and balance sheet strength over growth.

Pioneer and other shale producers are experimenting with oil recovery techniques that could eventually squeeze more oil out of older wells. The maturing of shale fields became a bigger problem for industry growth year 2023.

In the near-term, Sheffield warned oilfield inflation, which ran around 10% to 15% this year, will persist and limit production growth. Another restraint is investor demands to focus on returns over volume increases.

Pioneer and other oil firms are no longer contracting with drillers or fracking firms to have new equipment built because of the financial demands.

"We're not doing that this year because they would charge another 30% to 40% more, and we don't know what is going to happen in three or four years, by the time we've made that investment," Sheffield said.

 

 

 

Iran: IMF sees a positive outlook in 2023

Drawing a positive outlook for the Iranian economy in 2023, the International Monetary Fund (IMF) has predicted that 10 major indicators of the Iranian economy would experience growth and improvement in the forthcoming year as compared to 2022.

IMF has announced that Iran's foreign currency reserves are more than US$120 billion, but it claims that Iran has access to only a small part of these reserves due to the US sanctions.

According to the IMF data, Iran's Gross Domestic Product (GDP) based on the purchasing power index will grow by US$91 billion or two percent in 2023 to reach US$1.7 trillion.

Meanwhile, Iran's GDP per capita is also expected to increase by US$865 based on the purchasing power index to reach US$19,528 in 2023 from US$18,663 in 2022.

IMF sees Iran's GDP excluding oil grow by 2% in 2023, and the growth of the country’s economy including oil will be 2.1% this year.

The inflation rate in Iran is predicted to be 40% in 2023, registering no change as compared to 2022.

The International Monetary Fund expects the rate of the country’s liquidity growth to slow down in 2023. The liquidity growth that reached 47.5% of GDP in 2022 will decrease to 45.6% in 2023.

The budget deficit of the Iranian government in 2023 will reach 6% of GDP, which is 1.8% higher than the figure for 2022.

The Iranian government’s total revenues will not change in 2023 as compared to the previous year. The Iranian government’s income in 2023 is estimated to be 8.3% of the GDP, registering no change compared to the previous year. However, the government's non-oil incomes will increase from 7.4% of GDP in 2022 to 7.5% of GDP in 2023.

Based on the IMF data, the downward trend of the Iranian government's gross debt will continue in 2023 to settle at 31.9% of the GDP this year.

The fund also predicts Iran's current account balance to be US$30.2 billion in 2023. Iran's current account balance in 2022 is estimated at more than US$32 billion.

Based on the referred data, Iran's foreign currency reserves increase by more than US$11.4 billion in 2023 and reach US$42.2 billion. Iran's available foreign currency reserves in 2022 are estimated at US$30.8 billion.

According to the estimate of the International Monetary Fund, Iran's foreign debt in 2022 will be equal to 0.5% of the GDP and it is expected that this figure will remain the same in 2023.

 

Weak demand persists for US natural gasoline

The natural gasoline market in the US Gulf coast could face headwinds in 2023 as faltering gasoline blending demand undercuts stable export demand, while record production provides ample supply.

One of the primary demand drivers for US natural gasoline is its use as a diluent for bitumen produced in the oil sands in Alberta, Canada. Diluents like natural gasoline are mixed into bitumen so it can more easily be transported on pipelines and railcars.

US natural gasoline exports to Canada totaled 204,000 barrels per day (bpd) in September, up by 4.6% from a year earlier, according to the latest available US Energy Information Administration (EIA) data.

During the first nine months of year 2022, exports averaged 176,555 bpd, down by 13% from the same time last year and down by 3.6% from the five-year average.

Bitumen production remained robust and reached 3.3 million bpd in September, up by 9.3% from last year, according to the Canada Energy Regulator (CER).

Bitumen production in the first nine months of this year totaled 3.12 million bpd, up by 2.3% from the same period last year.

Over the past decade, bitumen production has increased every year apart from the crude demand shock in 2020 that was caused by the onset of the Covid-19 pandemic.

Historical trends suggest bitumen production will continue to increase in 2023 and beyond, providing a stable, if not favorable, outlook for the US natural gasoline export market.

The other primary demand driver for natural gasoline is as a blending component for motor gasoline.

US refinery and blender net inputs of natural gasoline into gasoline blending pools averaged 212,000 bpd in September, up by 18% from a year earlier, according to the EIA.

US blending demand averaged 205,333 bpd through the first nine months the year, up by 41% from the same time last year.

Part of the increase in blending demand can be attributed to favorable margins for gasoline blenders. As a low-octane fuel, natural gasoline is one of many possible fuels that blenders can use in their blending pool. Lower natural gasoline prices relative to motor gasoline prices generally can incentivize blenders to incorporate more natural gasoline in their blending pools.

The premium of Nymex RBOB gasoline futures to natural gasoline prompt-month prices at Mont Belvieu, Texas, for example, averaged 154.17¢/USG from May 02 to August 30 this year, according to Argus data.

Refiners and blenders used on average 216,750 bpd in their blending pools during that time. During the same period last year, the differential averaged 66.89¢/USG and the amount of natural gasoline used in the blending pool averaged 139,000 bpd.

The premium started to narrow again in late-November 2022, a worrying sign for gasoline blending demand. The RBOB-natural gasoline spread narrowed from 105.31¢/USG on November 23 to 73.11¢/USG on December 09, 2022. Should this trend continue into 2023, it could provide downward pressure on natural gasoline prices.

In addition, record natural gasoline production will likely continue to pad inventories and provide ample supply. Natural gasoline production rose to a record 738,000 bpd in September, up by 12% from a year earlier.

Production this year through September was also a record at 662,777 bpd, up by nearly 11% from the same period last year.

Record production has helped to build inventories, which stood at 27.2 million barrels in September, up by 21%YoY.

Persistently elevated production heading into 2023 will likely provide additional downward pressure on prices as caverns will have ample supply to meet buying interest.

 

Pakistan Stock Exchange benchmark index up 1.89%WoW

The benchmark index of Pakistan Stock Exchange (PSX) closed at 40,420 points, up 1.89%WoW on the last day of the week ended on December 30, 2022.

The gain can be largely attributable to renewed interest in the oil and gas sector as the Government of Pakistan (GoP) constituted a new committee for the resolution of circular debt.

Participation in the market improved, with daily traded volume averaging 214.27 million shares during the week, as compared to 180.2 million shares in the prior week depicting a gain of 18.9%WoW.

Pakistan is scheduled to make debt repayments of US$ one billion to two commercial banks early in January 2023. Foreign exchange reserves held by State Bank of Pakistan (SBP) further declined by US$294 million to paltry US$5.8 billion as of December 23, 2022.

Other major news flows during the week included: 1) SBP raised EFS and LTFF rates by 2% to 13%, 2) foreign exchange reserves held by SBP plunged to eight-year low, 3) makers raised steel prices by up to Rs25,000, 4) development spending dropped 38% in July-November period, 5) fertilizer offtake declined by 26.4%YoY during Rabi season, 6) power sector receivables crossed PKR2.5 trillion mark, 7) ADB said Pakistan needed US$62 billion to $155 billion for energy sector until 2030, and 8) FBR reduced duty on import of tractors to 15%.

Top performing sectors were: Food & Personal care products, Leasing Companies, and Leather and Tanneries, while the least favorite sectors were included Woolen, Textile Weaving, and Automobile Parts and Accessories.

Top performing scrips were: PSMC, HACR, NESTLE, PPL, and PGLC, while laggards included: THALL, YOUW, NCL, AICL, and ARPL.

Flow wise, Banks were the major buyers with net buy of US$23.93 million, followed by other organizations (US$3.91 million), while foreign investors were major sellers during the week, with a net sell of US$16.59 million.

The market is expected to remain under pressure in the near future, driven by the weakness in the PKR and the concerns regarding the country’s fiscal health. Pakistan will have to repay around US$8.3 billion in shape of external debt servicing over next three months of current fiscal year.

Additionally, the political uncertainty and any developments regarding the 9th review by the IMF would remain in the limelight, which would unlock inflows from friendly countries.

The market is likely to remain jittery amid uncertainties over economic fronts. Therefore, analysts to advise a cautious approach to investors while building positions in the market.

 

 

 

Pakistan Stock Exchange benchmark index declines 9% in CY22

Economic and political issues badly affected Pakistan Stock Exchange (PSX) in 2022. The benchmark index, KSE-100 index, declined 9% during the year. With PKR depreciating 22% against greenback, Index was down 29% in US$ terms.

According to Pakistan’s leading brokerage house, Topline Securities, 2022 was also a turbulent year for global stock markets as US$18 trillion were wiped out in 2022 with drop of approx 20% in MSCI World Index which is worst performance since the 2008 crisis. MSCI EM fell 22%, while MSCI FM was down 29% in 2022.

According to Bloomberg data, Pakistan’s KSE-100 Index was amongst worst performing market in US$ term in 2022.

Due to macroeconomic issues, activity at PSX also remained dull. Average traded volume (ready/cash) per day at PSX was down 52% to 230 million shares/day.

Similarly, average traded value per day was down 59% to PKR7 billion/day which was lowest since 2019.

In futures market, total traded volume and value per day were also down by 33% and 56% to 94 million shares and PKR3.6 billion, respectively.

KSE-100 Index also underperformed as compared to other asset classes in 2022 including Gold (+45%), one-year US$ denominated Naya Pakistan Certificate (+36%) and greenback (+28%).

T-Bills, Money Market Fund and Property indices posted return in the range of 12% to 14% in 2022.

Initial public offering (IPO) market was also impacted due to eroding equity values as only 3 IPOs raised funds in 2022 as against 8 IPOs in 2021. The number of IPOs was also the lowest in 2019 when Pakistan saw just one IPO at PSX.

Selling by foreigners continued in 2022 with net selling of US$127 million. In last 7-years, foreign corporates have sold shares worth of US$2.5 billion at PSX.

Local Mutual Funds and Insurance Companies also trimmed their position in 2022, with Mutual Funds selling US$166 million, while Insurance Companies sold US$128 million.

Selling was absorbed by Local Individuals, Banks and Companies with net buying of US$138 million, US$117 million, and US$78 million respectively.

 

Oil set to end turbulent 2022 directionless

On the last trading day of year 2022, oil prices are inching higher and are on track to post their second straight annual gains, albeit modest, in a stormy year marked by tight supplies due to the Ukraine war, a strong dollar and weak demand from the world's top crude importer China.

Next year is set to be another year of uncertainty, with plenty of volatility.

Brent crude futures rose 20 cents to US$83.66 a barrel by 0445 GMT, after settling 1.2% down in the previous session. Brent looked set to end the year with a 7.6% gain, after jumping 50.2% in 2021. Prices surged in March to a peak of US$139.13 a barrel, a level not seen since 2008, after Russia invaded Ukraine, sparking supply and energy security concerns.

US West Intermediate crude (WTI) was traded at US$78.63, after closing 0.7% lower on Thursday. It is on track to rise 4.5% in 2022, following a 55% gain last year.

While an increase in year-end holiday travel and Russia's ban on crude and oil product sales are supportive of oil prices, declining consumption due to a deteriorating economic environment next year will offset supply tightness, said CMC Markets analyst Leon Li.

The global unemployment rate is expected to rise rapidly in 2023, restraining energy demand. So I think oil prices may fall to US$60 next year," he said.

Oil prices cooled quickly in the second half this year as central banks across the world hiked interest rates to fight inflation, boosting the US dollar. That made dollar-denominated commodities costlier investment for holders of other currencies.

Also, China's zero-COVID restrictions, which were only eased in December, squashed oil demand recovery hopes for the world's No. 2 consumer. While China is expected to slowly recover in 2023, a surge in COVID cases in the country and global recession concerns are clouding the commodities demand outlook.

"The recent easing of travel restrictions was expected to boost oil demand; however, the sharp increase in COVID cases in China has raised serious concerns over a potential global outbreak," John Driscoll, director at consultancy JTD Energy Services, said.

In response to China's surge in COVID cases, several countries including the United States, South Korea and Japan have imposed mandatory COVID tests on travellers from China.

A health data firm estimated that around 9,000 people in China are probably dying from COVID each day, as infections spread in the world's most populous nation.

Looking ahead on supplies, western sanctions will push Russia to divert more crude and refined products exports from Europe to Asia.

In the United States, output growth in top oil-producing states has slowed despite higher prices. Inflation, supply chain snags and economic uncertainty have led executives to lower their expectations, the latest survey by the Federal Reserve Bank of Dallas found.

"This year has been an extraordinary year for commodity markets with supply risks leading to increased volatility and elevated prices," ING analyst Ewa Manthey said.

 

 

 

Uzbekistan links child deaths to Indian syrup

According to Saudi Gazette, Uzbekistan's health ministry has said that 18 children have died after drinking a cough syrup manufactured by Indian drug maker Marion Biotech.

The ministry said that preliminary tests showed a batch of the medicine contained ethylene glycol, a toxic substance.

The children were given the Dok-1 Max syrup without a doctor's prescription, it said. The amount they consumed also exceeded the standard dose for children.

The allegation from Uzbekistan comes weeks after The Gambia also linked child deaths to cough syrups made by another Indian firm.

India's health ministry said in a statement that its officials have been in regular contact with the national drug regulator of Uzbekistan regarding the matter since December 27, 2022.

It added that health officials have conducted an inspection of Marion Biotech's facility in Noida in Uttar Pradesh state.

"The samples of the cough syrup have been taken from the manufacturing premises and sent to Regional Drugs Testing Laboratory, Chandigarh for testing," the statement added.

News agency ANI has quoted a Marion Biotech executive as saying that the company has halted production of the syrup temporarily. He added that the government was conducting an enquiry and that the firm would take action accordingly.

Marion Biotech is based in Noida, near India's national capital Delhi. Its website is currently down, but the company's LinkedIn page says it was founded in 1999 and that its products are household names in Central Asian countries, Central and Latin America, South East Asia and Africa".

India produces a third of the world's medicines, mostly in the form of generic drugs.

The country, home to some of the fastest-growing pharmaceutical companies, is known as the world's pharmacy and meets much of the medical needs of developing countries.

The Uzbek ministry statement, dated December 27, says that Dok-1 Max tablets and syrup have been sold in the country since 2012.

"It was found that the deceased children, before admission to hospital treatment, took this drug at home for 2-7 days, 3-4 times a day, 2.5-5ml, which exceeds the standard dose of the drug for children," the ministry said.

The statement did not specify over what time period the deaths occurred. BBC Monitoring had reported on December 23, citing news website Gazeta.uz, that Uzbek authorities were investigating claims that 15 children died in central Samarkand region over the past two months after taking a cough syrup made in India".

On December 26, Podrobno.uz news website reported that 21 children - 15 of them under the age of three - were treated for acute kidney failure allegedly caused by the India-made cough syrup Dok-1 Max between September and December". Three of the patients recovered.

The ministry also said that preliminary laboratory studies have shown that this series of Dok-1 Max syrup contains ethylene glycol.

In October 2022, the World Health Organization (WHO) had sounded a global alert and linked four India-made cough syrups to the deaths of 66 children from kidney injuries in The Gambia. It said tests on samples of the syrup showed that they contained unacceptable amounts of toxic substances diethylene glycol and ethylene glycol.

Both the Indian government and the company, Maiden Pharmaceuticals, have denied the allegations.

India said earlier in December that tests on the four syrups showed that they complied with specifications, and a government official told the BBC that the WHO had been presumptuous in blaming the syrups. But the WHO said it stood by the action taken.

Last week, a parliamentary committee in The Gambia recommended the prosecution of Maiden Pharmaceuticals after weeks of investigation. The committee also recommended banning all products by the firm in the country.