Oil prices added to their gains on Friday
Friday, April 13th 2018
Oil prices added to their gains on Friday, with Brent holding at multi-year highs. The possible trade war poses a threat to demand, but for now, the market is focused on geopolitical dangers in the Middle East. Oil prices are set to post their strongest weekly gain since July.
IEA: Trade war could hit oil demand. The IEA said in a new report that the U.S.-China trade war could result in lower oil demand. The agency kept its forecast of oil demand growth at 1.5 million barrels per day (mb/d) but noted that the trade war represented a serious “downward risk” to that projection. The IEA said a 1 percent decline in global GDP growth would translate into lower oil demand growth by 690,000 bpd. Meanwhile, the IEA said that OPEC has largely accomplished its goal of draining global inventories back to the five-year average.
OPEC supply falls by 200,000 bpd. OPEC production fell by 200,000 bpd in March, on the back of declining output in Venezuela, Libya, Iraq, Angola and Saudi Arabia. The group’s production levels are now at a one-year low at 31.958 mb/d.
OPEC won’t let glut return. Saudi Arabia’s energy minister said that OPEC would not sit by and allow an oil supply glut to return, although the cartel would also not let oil prices jump to “unreasonable levels.” Khalid al-Falih said he was content with the current state of the oil market, according to Reuters. “I think a lot of the glut has been cleared,” said Falih. When asked if $80 per barrel was an appropriate price for oil, al-Falih said “There is no such thing as a target price by Saudi Arabia,” before adding that upstream investment is falling short of what might be needed in the future. “We’re seeing many regions declining. The only way to offset this is for the financial markets to start financing and funding upstream projects. I don’t know what is the price that will provide that equilibrium. All we know is in 2018 we’re still not seeing that.”
Aramco agrees to build $44 billion refinery project with Indian consortium. Saudi Aramco and a consortium of Indian refiners agreed to build a $44 billion refinery and petrochemical project on India’s West Coast, according to Reuters. The project would consist of a 1.2-million-barrel-per-day refinery integrated with petrochemical facilities. For Aramco, the deal offers downstream assets abroad while also locking in sales for its crude oil. Meanwhile, India’s fast-growing economy is hungry for petroleum products.
Devon Energy to lay off 9 percent of workforce. Oklahoma-based Devon Energy (NYSE: DVN) announced on Tuesday that it would lay off 300 workers, or about 9 percent of its employees. The move comes as shareholders are pressing shale companies to focus on profits. The company’s share price rose 7 percent on the news.
Trump administration’s biofuels policy in flux. The Trump administration’s approach to biofuels has been all over the map. Earlier this week, Reuters reported that the Trump administration would likely punt on the issue of reforming U.S. biofuels policies, which has come under fire from the refining industry. Because of the opposition from Big Corn, the Trump administration appeared to moving in the direction of taking no action to further undermine the ethanol market, which would have been welcome news to the ethanol industry after the administration had repeatedly lent support to refiners. Chinese tariffs on U.S. agriculture also made reforms to biofuels policy a heavy political lift. “There’s just a lot going on right now, so they decided to take a pause and revisit in three months,” a source told Reuters.
Trump hopes to make it up to U.S. farmers. Sensing a crack in biofuels requirements, ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) have reportedly requested waivers from the mandate. The waivers have typically only been granted to smaller refiners, but because the Trump administration has cracked open the door to more exemptions, the oil majors want in on the action. But, with farmers taking a hit, President Trump voiced support for allowing the sale of gasoline containing 15 percent ethanol year-round, allowing sales in summer that are currently banned. The move would be “very exciting news” for the ethanol industry, according to the Iowa Renewable Fuels Association.
Record U.S. oil production with fewer rigs. U.S. oil production continues to break records. Output jumped above 10.5 mb/d last week. Yet all the output gains are occurring with just a fraction of the rigs from years ago. For instance, Texas is producing much more oil than it was in 2014, with 25 percent fewer rigs.
U.S. summer gasoline prices to be the highest in four years. The EIA estimates that U.S. gasoline prices will average $2.74 per gallon this summer, the highest in four years.
U.S. to escalate trade conflict with China. The White House is reportedly preparing new tariffs on China as it tries to step up the pressure on Beijing. The U.S. will also draw up prohibitions on Chinese investment in advanced U.S. technology, “whether by acquisition, joint ventures, licensing or any other arrangement,” the Wall Street Journal reported.
ExxonMobil resumes production at PNG LNG. ExxonMobil’s (NYSE: XOM) sidelined Papua New Guinea LNG export terminal has resumed production and export after it was shut down following an earthquake in February.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. – In this week's Insider Opportunities, Martin Tillier focuses on the recent breakout in WTI, looking beyond the geopolitical causes of said rally and examining what it means for technical indicators. Find out what the recent breakout means for WTI by signing up for your free trial of Oil & Energy Insider
Oil prices added to their gains on Friday, with Brent holding at multi-year highs. The possible trade war poses a threat to demand, but for now, the market is focused on geopolitical dangers in the Middle East. Oil prices are set to post their strongest weekly gain since July.
IEA: Trade war could hit oil demand. The IEA said in a new report that the U.S.-China trade war could result in lower oil demand. The agency kept its forecast of oil demand growth at 1.5 million barrels per day (mb/d) but noted that the trade war represented a serious “downward risk” to that projection. The IEA said a 1 percent decline in global GDP growth would translate into lower oil demand growth by 690,000 bpd. Meanwhile, the IEA said that OPEC has largely accomplished its goal of draining global inventories back to the five-year average.
OPEC supply falls by 200,000 bpd. OPEC production fell by 200,000 bpd in March, on the back of declining output in Venezuela, Libya, Iraq, Angola and Saudi Arabia. The group’s production levels are now at a one-year low at 31.958 mb/d.
OPEC won’t let glut return. Saudi Arabia’s energy minister said that OPEC would not sit by and allow an oil supply glut to return, although the cartel would also not let oil prices jump to “unreasonable levels.” Khalid al-Falih said he was content with the current state of the oil market, according to Reuters. “I think a lot of the glut has been cleared,” said Falih. When asked if $80 per barrel was an appropriate price for oil, al-Falih said “There is no such thing as a target price by Saudi Arabia,” before adding that upstream investment is falling short of what might be needed in the future. “We’re seeing many regions declining. The only way to offset this is for the financial markets to start financing and funding upstream projects. I don’t know what is the price that will provide that equilibrium. All we know is in 2018 we’re still not seeing that.”
Aramco agrees to build $44 billion refinery project with Indian consortium. Saudi Aramco and a consortium of Indian refiners agreed to build a $44 billion refinery and petrochemical project on India’s West Coast, according to Reuters. The project would consist of a 1.2-million-barrel-per-day refinery integrated with petrochemical facilities. For Aramco, the deal offers downstream assets abroad while also locking in sales for its crude oil. Meanwhile, India’s fast-growing economy is hungry for petroleum products.
Devon Energy to lay off 9 percent of workforce. Oklahoma-based Devon Energy (NYSE: DVN) announced on Tuesday that it would lay off 300 workers, or about 9 percent of its employees. The move comes as shareholders are pressing shale companies to focus on profits. The company’s share price rose 7 percent on the news.
Trump administration’s biofuels policy in flux. The Trump administration’s approach to biofuels has been all over the map. Earlier this week, Reuters reported that the Trump administration would likely punt on the issue of reforming U.S. biofuels policies, which has come under fire from the refining industry. Because of the opposition from Big Corn, the Trump administration appeared to moving in the direction of taking no action to further undermine the ethanol market, which would have been welcome news to the ethanol industry after the administration had repeatedly lent support to refiners. Chinese tariffs on U.S. agriculture also made reforms to biofuels policy a heavy political lift. “There’s just a lot going on right now, so they decided to take a pause and revisit in three months,” a source told Reuters.
Trump hopes to make it up to U.S. farmers. Sensing a crack in biofuels requirements, ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) have reportedly requested waivers from the mandate. The waivers have typically only been granted to smaller refiners, but because the Trump administration has cracked open the door to more exemptions, the oil majors want in on the action. But, with farmers taking a hit, President Trump voiced support for allowing the sale of gasoline containing 15 percent ethanol year-round, allowing sales in summer that are currently banned. The move would be “very exciting news” for the ethanol industry, according to the Iowa Renewable Fuels Association.
Record U.S. oil production with fewer rigs. U.S. oil production continues to break records. Output jumped above 10.5 mb/d last week. Yet all the output gains are occurring with just a fraction of the rigs from years ago. For instance, Texas is producing much more oil than it was in 2014, with 25 percent fewer rigs.
U.S. summer gasoline prices to be the highest in four years. The EIA estimates that U.S. gasoline prices will average $2.74 per gallon this summer, the highest in four years.
U.S. to escalate trade conflict with China. The White House is reportedly preparing new tariffs on China as it tries to step up the pressure on Beijing. The U.S. will also draw up prohibitions on Chinese investment in advanced U.S. technology, “whether by acquisition, joint ventures, licensing or any other arrangement,” the Wall Street Journal reported.
ExxonMobil resumes production at PNG LNG. ExxonMobil’s (NYSE: XOM) sidelined Papua New Guinea LNG export terminal has resumed production and export after it was shut down following an earthquake in February.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. – In this week's Insider Opportunities, Martin Tillier focuses on the recent breakout in WTI, looking beyond the geopolitical causes of said rally and examining what it means for technical indicators. Find out what the recent breakout means for WTI by signing up for your free trial of Oil & Energy Insider
Volf
13.04.2018 kl 22:28
1791
Global Energy Advisory – 13th April 2018
Brent crude this week broke the $72 barrier for the first time since 2014 on the latest developments in Syria. President Donald Trump earlier this week threatened Russia with missile strikes after an alleged chemical attack that the U.S. and UK were quick to blame on the Syrian army following reports from rebel-held Douma.
Despite some cooler heads noting that neither Washington nor Moscow really want to have a third world war on their hands, markets are more jittery than they have been for a long time, with the news from Syria overshadowing any other piece of news about the oil industry.
In fact, as Commerzbank’s chief of commodities Eugen Weinberg noted, oil’s fundamentals do not justify such a price jump and yet prices are jumping as the world watches the Middle East yet again. But it would all be short-lived, as Trump appeared to back down on a Syria strike with a ‘maybe yes, maybe no’ qualification that eased tensions and pushed equities markets back into rally mode.
Meanwhile, U.S. crude oil production rose further last week, hitting 10.525 million bpd, up from 10.46 million bpd a week earlier. This should have had a marked negative effect on prices, but it hasn’t because of the events in Syria, where Washington is effectively supporting the Jaish al-Islam (the Army of Islam) – a Saudi-backed rebel group that controlled Douma – the town where the alleged chemical attack occurred.
It seems that the heating-up in Syria is exactly what Saudi Arabia needs to get oil prices closer to its target level of $80 a barrel, so we expect more saber-rattling over Syria, even if only to raise the specter of tensions in appearance to help boost oil prices. This is the price that the Kingdom needs to break even and stimulate interest in the initial public offering of Aramco.
Deals, Mergers & Acquisitions
• Total and Aramco have inked a $5-billion deal for the expansion of their refining joint venture Jubail. The deal is for the construction of a petrochemicals complex at the site, which processes 440,000 barrels of crude per day. Work on the expansion will begin in the third quarter of 2018 and will feature a 1.5-million-tons ethylene cracker along with associated petrochemical production facilities. Aramco has a 62.5% interest in Jubail, with Total holding the remainder.
• Indonesia’s Pertamina has received a 56.96% stake in state gas peer PGN in the latest stage of a takeover that began five years ago with the aim of making the management of Indonesia’s gas network simpler. This was also the last stage of the state energy firm consolidation. The merger will be effective immediately, with Pertamina turning into a holding energy company.
• Aramco and a consortium of state Indian energy companies struck a deal to build a $44-billion oil refinery on India’s west coast, with a daily capacity of 1.2 million barrels of crude. Aramco and the Indian consortium hold equal 50% stakes in the project aimed to contribute to the satisfaction of India’s growing fuel hunger. Kuwait Petroleum Corp. is currently considering buying a stake in the project to secure a spot for its crude as well.
Tenders, Auctions & Contracts
• Abu Dhabi’s state oil company, Adnoc, earlier this week announced its first-ever tender of oil and gas blocks that will involve six blocks, of which two offshore and four onshore. The reserves of the blocks put up for auction have not been divulged with the company only saying they are “substantial”. Interested companies have until October to make a bid. Adnoc will have 60% interests in all projects that get to the phase of production.
• Aker BP has won a $1-billion contract from Norway for the development of the $1-billion Aerfugl field in the North Sea. Aerfugl is a gas condensate field and is located near an Aker BP-operated FPSO project. The first phase of development of the condensate field will include drilling three wells, with production slated to begin in late 2020.
• BP has picked Tesla to build an energy storage facility at its Titan 1 wind farm in South Dakota. For BP, this will be the first large-scale battery storage facility globally. For Tesla, it will be a relatively minor project, at 212 kW/840 kWh, compared with its South Australia 100 MW/129 MWh installation. The South Dakota facility will be commissioned in the second half of the year.
Discovery & Development
• BP has announced two new projects in the North Sea—Alligin and Vorlich—which it will develop in partnership with Shell and Ithaca Energy, respectively. The two fields will need investments estimated at almost $600 million. The combined production from the two fields at its peak will average 30,000 barrels of oil equivalent per day.
• Exxon plans to resume production at the Papua New Guinea LNG project early next month. Production was suspended following the devastating earthquake that hit Papua New Guinea in February. Parts of the infrastructure at the site of the project were damaged by the quake but there were no signs of damage on the 700-km pipeline that carries the gas from the field to the liquefaction plant.
• New Zealand has banned all offshore oil and gas exploration beginning this year. Onshore exploration will continue and so will exploration work on offshore licenses awarded previously. New Zealand is a minor oil producer, with the average daily production rate in five-digit territory but the local industry has slammed the move for not being made after consultation with it.
• Indian Gail Ltd., the country’s largest state gas supplier, said deliveries from Gazprom will begin next month. The planned annual from the Russian giant is set at half a million tons for 2018. The company has also planned the purchase of up to 5 million tons of LNG from the United States.
• California regulators have issued at $12.5 million fine to an oil company with a long history of safety violations and regulatory lapses. The Department of Conservation issued the fine Wednesday against Greka Oil & Gas for nearly 1,500 violations last year at its Richfield oil operation in Orange County.
• Looking to become less dependent on gas imports, China cut the resources tax levied on shale gas production by 30 percent on April 1. The tax was reduced to 4.2 percent from the previous 6 percent - and will be in place for the next 3 years.
Politics, Geopolitics & Conflict
• China is conducting a three-day naval drill near the coastal province of Hainan, on the disputed South China Sea. The drill is seen as the latest affirmation of China’s claim on almost all of the South China Sea.
• The Syrian army has taken complete control over the region of eastern Ghouta after it took over the town of Douma.
• Taliban militants have taken control over a district in an Afghanistan province that was considered one of the safest areas in the country. More than a dozen locals were killed.
Brent crude this week broke the $72 barrier for the first time since 2014 on the latest developments in Syria. President Donald Trump earlier this week threatened Russia with missile strikes after an alleged chemical attack that the U.S. and UK were quick to blame on the Syrian army following reports from rebel-held Douma.
Despite some cooler heads noting that neither Washington nor Moscow really want to have a third world war on their hands, markets are more jittery than they have been for a long time, with the news from Syria overshadowing any other piece of news about the oil industry.
In fact, as Commerzbank’s chief of commodities Eugen Weinberg noted, oil’s fundamentals do not justify such a price jump and yet prices are jumping as the world watches the Middle East yet again. But it would all be short-lived, as Trump appeared to back down on a Syria strike with a ‘maybe yes, maybe no’ qualification that eased tensions and pushed equities markets back into rally mode.
Meanwhile, U.S. crude oil production rose further last week, hitting 10.525 million bpd, up from 10.46 million bpd a week earlier. This should have had a marked negative effect on prices, but it hasn’t because of the events in Syria, where Washington is effectively supporting the Jaish al-Islam (the Army of Islam) – a Saudi-backed rebel group that controlled Douma – the town where the alleged chemical attack occurred.
It seems that the heating-up in Syria is exactly what Saudi Arabia needs to get oil prices closer to its target level of $80 a barrel, so we expect more saber-rattling over Syria, even if only to raise the specter of tensions in appearance to help boost oil prices. This is the price that the Kingdom needs to break even and stimulate interest in the initial public offering of Aramco.
Deals, Mergers & Acquisitions
• Total and Aramco have inked a $5-billion deal for the expansion of their refining joint venture Jubail. The deal is for the construction of a petrochemicals complex at the site, which processes 440,000 barrels of crude per day. Work on the expansion will begin in the third quarter of 2018 and will feature a 1.5-million-tons ethylene cracker along with associated petrochemical production facilities. Aramco has a 62.5% interest in Jubail, with Total holding the remainder.
• Indonesia’s Pertamina has received a 56.96% stake in state gas peer PGN in the latest stage of a takeover that began five years ago with the aim of making the management of Indonesia’s gas network simpler. This was also the last stage of the state energy firm consolidation. The merger will be effective immediately, with Pertamina turning into a holding energy company.
• Aramco and a consortium of state Indian energy companies struck a deal to build a $44-billion oil refinery on India’s west coast, with a daily capacity of 1.2 million barrels of crude. Aramco and the Indian consortium hold equal 50% stakes in the project aimed to contribute to the satisfaction of India’s growing fuel hunger. Kuwait Petroleum Corp. is currently considering buying a stake in the project to secure a spot for its crude as well.
Tenders, Auctions & Contracts
• Abu Dhabi’s state oil company, Adnoc, earlier this week announced its first-ever tender of oil and gas blocks that will involve six blocks, of which two offshore and four onshore. The reserves of the blocks put up for auction have not been divulged with the company only saying they are “substantial”. Interested companies have until October to make a bid. Adnoc will have 60% interests in all projects that get to the phase of production.
• Aker BP has won a $1-billion contract from Norway for the development of the $1-billion Aerfugl field in the North Sea. Aerfugl is a gas condensate field and is located near an Aker BP-operated FPSO project. The first phase of development of the condensate field will include drilling three wells, with production slated to begin in late 2020.
• BP has picked Tesla to build an energy storage facility at its Titan 1 wind farm in South Dakota. For BP, this will be the first large-scale battery storage facility globally. For Tesla, it will be a relatively minor project, at 212 kW/840 kWh, compared with its South Australia 100 MW/129 MWh installation. The South Dakota facility will be commissioned in the second half of the year.
Discovery & Development
• BP has announced two new projects in the North Sea—Alligin and Vorlich—which it will develop in partnership with Shell and Ithaca Energy, respectively. The two fields will need investments estimated at almost $600 million. The combined production from the two fields at its peak will average 30,000 barrels of oil equivalent per day.
• Exxon plans to resume production at the Papua New Guinea LNG project early next month. Production was suspended following the devastating earthquake that hit Papua New Guinea in February. Parts of the infrastructure at the site of the project were damaged by the quake but there were no signs of damage on the 700-km pipeline that carries the gas from the field to the liquefaction plant.
• New Zealand has banned all offshore oil and gas exploration beginning this year. Onshore exploration will continue and so will exploration work on offshore licenses awarded previously. New Zealand is a minor oil producer, with the average daily production rate in five-digit territory but the local industry has slammed the move for not being made after consultation with it.
• Indian Gail Ltd., the country’s largest state gas supplier, said deliveries from Gazprom will begin next month. The planned annual from the Russian giant is set at half a million tons for 2018. The company has also planned the purchase of up to 5 million tons of LNG from the United States.
• California regulators have issued at $12.5 million fine to an oil company with a long history of safety violations and regulatory lapses. The Department of Conservation issued the fine Wednesday against Greka Oil & Gas for nearly 1,500 violations last year at its Richfield oil operation in Orange County.
• Looking to become less dependent on gas imports, China cut the resources tax levied on shale gas production by 30 percent on April 1. The tax was reduced to 4.2 percent from the previous 6 percent - and will be in place for the next 3 years.
Politics, Geopolitics & Conflict
• China is conducting a three-day naval drill near the coastal province of Hainan, on the disputed South China Sea. The drill is seen as the latest affirmation of China’s claim on almost all of the South China Sea.
• The Syrian army has taken complete control over the region of eastern Ghouta after it took over the town of Douma.
• Taliban militants have taken control over a district in an Afghanistan province that was considered one of the safest areas in the country. More than a dozen locals were killed.