Brent rose more than 1 percent in early trading on Friday
Brent rose more than 1 percent in early trading on Friday, and is not far off of $80 per barrel. This week saw prices gain about 10 percent compared to last week after a combination of fears of Iran production outages, disruptions in Libya and a bullish stock draw in the U.S. It was only a week ago that OPEC+ promised to add 1 million barrels per day (mb/d) to the market, but it already feels like a distant memory with the oil bulls back on the march.
U.S. dials back hardline on Iran imports. Earlier this week, a State Department official laid out what sounded like a “zero tolerance” policy for nations cutting oil imports from Iran. The official said that countries need to “zero” out their imports by November, and that it would be unlikely anyone would receive a waiver. The statement led to a spike in oil prices because the market had to dramatically revise up the assumed outage from Iran. On Thursday, a State Department official appeared to soften the line. “Our focus is to work with those countries importing Iranian crude oil to get as many of them as possible down to zero by Nov. 4,” the official said Thursday. “We are prepared to work with countries that are reducing their imports on a case-by-case basis. We are serious about our efforts to pressure Iran to change its threatening behavior.” The walking back of the “zero” imports mantra suggests the U.S. fears the fallout of pushing oil prices too high.
India tells refiners to prepare for “zero” imports from Iran. India’s oil minister advised its refiners to prepare for a “drastic reduction or zero” oil imports from Iran by November, due to the threat of U.S. sanctions. India, as a close neighbor and significant purchaser of oil from Iran, appears willing to wind down oil imports from Iran even as it does not recognize the sanctions as legitimate. India’s actions are an indication that Washington could wield far-reaching influence over Iran’s oil exports, even though much of the world is not lined up with the U.S. position.
Saudi Arabia to ramp up production to 10.8-11.0 mb/d. Saudi Arabia reportedly will ramp up oil production to 10.8 mb/d in July, perhaps as high as 11.0 mb/d. The plans come as a series of outages around the world have pushed oil prices and left the market in a deficit. The increase in production, however, could eliminate as much as 40 percent of Saudi Arabia’s spare capacity, taking available capacity down to around 1.5 mb/d, a rather small buffer. “It basically leaves us with no spare capacity, at a time when Iran isn’t the only issue,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg television interview. “Venezuelan production’s falling, Angola, Libya, Nigeria --there are lots and lots of issues everywhere in the world.”
Oil jumps on massive crude draw. The U.S. saw crude inventories plunge by 9.9 million barrels last week, another sign of a tightening oil market. Oil futures jumped more than 3 percent on the news.
Argentina puts in place price controls, roiling shale industry. In an effort to shield consumers from inflation and a weak currency, Argentina’s government capped the price at which oil producers can sell their oil to refiners, and also fixed the price of petrol at the pump. That means oil producers in Argentina have to sell their product at prices much lower than the international price. “Suddenly from moving in the right direction, it feels like the country is taking a step back,” Anuj Sharma, CEO of Phoenix Global Resources, told the FT. “If there’s one thing markets hate, it is uncertainty. It makes planning very difficult.”
BP to buy UK electric vehicle charging company. BP (NYSE: BP) said it plans to acquire the largest EV recharging company in the UK. BP will pay $170 million for Chargemaster, which runs 6,500 charging points in the UK. The acquisition is the latest sign that the oil majors are beginning to plan for a post-oil world, diversifying their assets as a hedge against peak oil demand.
Venezuela to restart oil upgrader. Venezuela’s PDVSA said earlier this week that its Petropiar oil upgrader, a joint venture with Chevron (NYSE: CVX), will restart after being offline for maintenance for weeks. The 210,000-bpd facility help process heavy oil into an exportable product have been under strain because of poor maintenance and bottlenecks at the country’s ports.
Libya sees internal strife, oil output hangs in the balance. The outage of Libya’s ports have knocked more than 400,000 bpd offline but the decision by General Khalifa Haftar to hand over the ports to a rival National Oil Corp. in Benghazi, as opposed to the internationally-recognized NOC in Tripoli, has opened up a new flashpoint that could keep oil sidelined for longer. The government in Tripoli is trying to line up international support to prevent oil exports from the east. The U.S., U.K., France and Italy expressed concern about the transfer to “an entity other than the legitimate National Oil Corporation,” the countries said in a joint statement.
Royal Dutch Shell exits Iraq Majnoon oil field. Royal Dutch Shell (NYSE: RDS.A) exited the Majnoon oil field in southern Iraq this week, handing over its operations to the state-run Basra Oil Co., according to Reuters. Operations are not expected to be affected at the 235,000-bpd field.
Energy stocks best performing sector in S&P 500. After being one of the worst performing sectors in the S&P 500 in 2017, energy is now one of the best. Energy stocks are set to close out the second quarter up 12 percent, the largest quarterly gain since 2011. The gains make energy the best performing sector in the S&P for the second quarter.
Minnesota greenlights Canadian oil pipeline. While Keystone XL and the Trans Mountain Expansion remain in limbo, the most likely major Canadian oil pipeline to go forward is Enbridge’s (NYSE: ENB) Line 3 Replacement. The project, which would replace an old and deteriorating pipeline, allowing it to more than double capacity, just cleared an important hurdle this week when it received a regulatory approval from Minnesota. The pipeline runs from Alberta to Minnesota and Wisconsin, allowing Canadian oil to reach refineries in the U.S. Midwest. Native American tribes who sit in the pipeline’s path have threatened massive protests similar to the Dakota Access protests from two years ago.
U.S. dials back hardline on Iran imports. Earlier this week, a State Department official laid out what sounded like a “zero tolerance” policy for nations cutting oil imports from Iran. The official said that countries need to “zero” out their imports by November, and that it would be unlikely anyone would receive a waiver. The statement led to a spike in oil prices because the market had to dramatically revise up the assumed outage from Iran. On Thursday, a State Department official appeared to soften the line. “Our focus is to work with those countries importing Iranian crude oil to get as many of them as possible down to zero by Nov. 4,” the official said Thursday. “We are prepared to work with countries that are reducing their imports on a case-by-case basis. We are serious about our efforts to pressure Iran to change its threatening behavior.” The walking back of the “zero” imports mantra suggests the U.S. fears the fallout of pushing oil prices too high.
India tells refiners to prepare for “zero” imports from Iran. India’s oil minister advised its refiners to prepare for a “drastic reduction or zero” oil imports from Iran by November, due to the threat of U.S. sanctions. India, as a close neighbor and significant purchaser of oil from Iran, appears willing to wind down oil imports from Iran even as it does not recognize the sanctions as legitimate. India’s actions are an indication that Washington could wield far-reaching influence over Iran’s oil exports, even though much of the world is not lined up with the U.S. position.
Saudi Arabia to ramp up production to 10.8-11.0 mb/d. Saudi Arabia reportedly will ramp up oil production to 10.8 mb/d in July, perhaps as high as 11.0 mb/d. The plans come as a series of outages around the world have pushed oil prices and left the market in a deficit. The increase in production, however, could eliminate as much as 40 percent of Saudi Arabia’s spare capacity, taking available capacity down to around 1.5 mb/d, a rather small buffer. “It basically leaves us with no spare capacity, at a time when Iran isn’t the only issue,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg television interview. “Venezuelan production’s falling, Angola, Libya, Nigeria --there are lots and lots of issues everywhere in the world.”
Oil jumps on massive crude draw. The U.S. saw crude inventories plunge by 9.9 million barrels last week, another sign of a tightening oil market. Oil futures jumped more than 3 percent on the news.
Argentina puts in place price controls, roiling shale industry. In an effort to shield consumers from inflation and a weak currency, Argentina’s government capped the price at which oil producers can sell their oil to refiners, and also fixed the price of petrol at the pump. That means oil producers in Argentina have to sell their product at prices much lower than the international price. “Suddenly from moving in the right direction, it feels like the country is taking a step back,” Anuj Sharma, CEO of Phoenix Global Resources, told the FT. “If there’s one thing markets hate, it is uncertainty. It makes planning very difficult.”
BP to buy UK electric vehicle charging company. BP (NYSE: BP) said it plans to acquire the largest EV recharging company in the UK. BP will pay $170 million for Chargemaster, which runs 6,500 charging points in the UK. The acquisition is the latest sign that the oil majors are beginning to plan for a post-oil world, diversifying their assets as a hedge against peak oil demand.
Venezuela to restart oil upgrader. Venezuela’s PDVSA said earlier this week that its Petropiar oil upgrader, a joint venture with Chevron (NYSE: CVX), will restart after being offline for maintenance for weeks. The 210,000-bpd facility help process heavy oil into an exportable product have been under strain because of poor maintenance and bottlenecks at the country’s ports.
Libya sees internal strife, oil output hangs in the balance. The outage of Libya’s ports have knocked more than 400,000 bpd offline but the decision by General Khalifa Haftar to hand over the ports to a rival National Oil Corp. in Benghazi, as opposed to the internationally-recognized NOC in Tripoli, has opened up a new flashpoint that could keep oil sidelined for longer. The government in Tripoli is trying to line up international support to prevent oil exports from the east. The U.S., U.K., France and Italy expressed concern about the transfer to “an entity other than the legitimate National Oil Corporation,” the countries said in a joint statement.
Royal Dutch Shell exits Iraq Majnoon oil field. Royal Dutch Shell (NYSE: RDS.A) exited the Majnoon oil field in southern Iraq this week, handing over its operations to the state-run Basra Oil Co., according to Reuters. Operations are not expected to be affected at the 235,000-bpd field.
Energy stocks best performing sector in S&P 500. After being one of the worst performing sectors in the S&P 500 in 2017, energy is now one of the best. Energy stocks are set to close out the second quarter up 12 percent, the largest quarterly gain since 2011. The gains make energy the best performing sector in the S&P for the second quarter.
Minnesota greenlights Canadian oil pipeline. While Keystone XL and the Trans Mountain Expansion remain in limbo, the most likely major Canadian oil pipeline to go forward is Enbridge’s (NYSE: ENB) Line 3 Replacement. The project, which would replace an old and deteriorating pipeline, allowing it to more than double capacity, just cleared an important hurdle this week when it received a regulatory approval from Minnesota. The pipeline runs from Alberta to Minnesota and Wisconsin, allowing Canadian oil to reach refineries in the U.S. Midwest. Native American tribes who sit in the pipeline’s path have threatened massive protests similar to the Dakota Access protests from two years ago.
Volf
30.06.2018 kl 09:21
1438
A Wild Card In Oil Markets
This column needs to be somewhat of a hodgepodge of ideas, because the one consistent thesis that has moved our investment needle for the last year and a half – the supply shortage in crude that continues to emerge – hasn’t shown any signs of weakening. But some other, trade associated ideas have come into the picture that we must be aware of, and use to fine tune our investment strategy.
These are three main ones:
First, there is the continuing threat of a trade war. While President Trump had once backed away from the plan of steel and aluminum tariffs when it was announced in March, since May he has again signaled wide-ranging metals tariffs to go into effect starting on July 7th. Since those signals in May, most traders, and in fact the markets at large, have been treating the tariff threat with sangfroid – assuming that again the President would have to retreat from a trade war with our Allies and China. And while the White House has backed down from additional threats of intellectual property penalties on Chinese electronics and tech, the plans for the metals tariffs still remain in place.
Understanding that the targets of these tariffs – both our allies and China – have indicated that they will strongly retaliate with tariffs of their own and, in the case of China, with perhaps other even more targeted measures, it is tough to see another way out of this dilemma than for Trump to at some point blink and step back from this frankly economically unhelpful path. Yet two banks – JP Morgan and Morgan Stanley – have released client notes this week warning investors to reduce exposure, now believing that President Trump may not, in fact, turn away. We’ve seen several grains and metals commodities begin to crater on the possibility of a trade war, and if it does begin, oil will not be far behind.
Second, there is the concurrent rise in the dollar – which has helped to pressure the livestock/grains/metals contracts lower. What has been interesting to us, of course, is that the big rally in the dollar has done nothing to slow the big rally in oil – this after years of being told that the dollar and oil were inexorably inversely correlated. Now, I have been one of the few voices who have maintained for years that the dollar’s moves have impacted oil almost entirely because of the algorithmic trading programs that have set upon it – a sort of “build it and they will come” connection that had little to do with global oil barrels being priced in dollars. So – believing that I have been right all along, what we need to do is continue to track the speculative activity in oil to try and ascertain when the machines might again want to play this dollar/oil connection they’ve been currently ignoring (or short-circuiting). Spec longs have been decreasing, but shorts having really been increasing, and this is what I’m going to look for as a ‘tell’ of when the dollar will again impact oil and our oil stocks.
Finally, there is the massive collapse of the Brent/WTI spread back to nearly $4. Much of this has been blamed on the outage of the Syncrude facilities in Canada, and their 350,000 barrel a day shortfall. This is a big deal, of course, but the short-term spreads in WTI futures would indicate that the markets aren’t expecting much more from this than a 2 month shortfall. But while the Syncrude slowdown looks to be a very temporary supply disruption, there are others in the US that are less so. Foremost is the Permian bottleneck, where even Scott Sheffield admits that Permian throughput will be completely spoken for by September, at which point trucks will need to be brought in (with their additional $10/barrel costs) if more crude from the Permian will be permitted to get to market. Several analysts (particularly at RBN) see this infrastructure shortage as lasting through most of 2019 and into 2020, so it puts the EIA estimates of production increases in the Permian in great doubt – the US will not reach 11m barrels this year as they predict, that’s for sure. Add that to the 600,000 barrels a day that OPEC has approved to increase that will weigh on the Brent contract, and you’ve got both temporary, but also systemic reasons to believe that US oil is going to continue to be more constructive going forwards.
All of this informs a more cautious and more selective investment plan going forwards for the next couple of weeks, until at least the July 7th trade deadline passes and we see where this massive trade issue is headed. We can attempt to predict and plan for the others, but President Trump’s decision on trade remains a wild card no one can be sure of.
This column needs to be somewhat of a hodgepodge of ideas, because the one consistent thesis that has moved our investment needle for the last year and a half – the supply shortage in crude that continues to emerge – hasn’t shown any signs of weakening. But some other, trade associated ideas have come into the picture that we must be aware of, and use to fine tune our investment strategy.
These are three main ones:
First, there is the continuing threat of a trade war. While President Trump had once backed away from the plan of steel and aluminum tariffs when it was announced in March, since May he has again signaled wide-ranging metals tariffs to go into effect starting on July 7th. Since those signals in May, most traders, and in fact the markets at large, have been treating the tariff threat with sangfroid – assuming that again the President would have to retreat from a trade war with our Allies and China. And while the White House has backed down from additional threats of intellectual property penalties on Chinese electronics and tech, the plans for the metals tariffs still remain in place.
Understanding that the targets of these tariffs – both our allies and China – have indicated that they will strongly retaliate with tariffs of their own and, in the case of China, with perhaps other even more targeted measures, it is tough to see another way out of this dilemma than for Trump to at some point blink and step back from this frankly economically unhelpful path. Yet two banks – JP Morgan and Morgan Stanley – have released client notes this week warning investors to reduce exposure, now believing that President Trump may not, in fact, turn away. We’ve seen several grains and metals commodities begin to crater on the possibility of a trade war, and if it does begin, oil will not be far behind.
Second, there is the concurrent rise in the dollar – which has helped to pressure the livestock/grains/metals contracts lower. What has been interesting to us, of course, is that the big rally in the dollar has done nothing to slow the big rally in oil – this after years of being told that the dollar and oil were inexorably inversely correlated. Now, I have been one of the few voices who have maintained for years that the dollar’s moves have impacted oil almost entirely because of the algorithmic trading programs that have set upon it – a sort of “build it and they will come” connection that had little to do with global oil barrels being priced in dollars. So – believing that I have been right all along, what we need to do is continue to track the speculative activity in oil to try and ascertain when the machines might again want to play this dollar/oil connection they’ve been currently ignoring (or short-circuiting). Spec longs have been decreasing, but shorts having really been increasing, and this is what I’m going to look for as a ‘tell’ of when the dollar will again impact oil and our oil stocks.
Finally, there is the massive collapse of the Brent/WTI spread back to nearly $4. Much of this has been blamed on the outage of the Syncrude facilities in Canada, and their 350,000 barrel a day shortfall. This is a big deal, of course, but the short-term spreads in WTI futures would indicate that the markets aren’t expecting much more from this than a 2 month shortfall. But while the Syncrude slowdown looks to be a very temporary supply disruption, there are others in the US that are less so. Foremost is the Permian bottleneck, where even Scott Sheffield admits that Permian throughput will be completely spoken for by September, at which point trucks will need to be brought in (with their additional $10/barrel costs) if more crude from the Permian will be permitted to get to market. Several analysts (particularly at RBN) see this infrastructure shortage as lasting through most of 2019 and into 2020, so it puts the EIA estimates of production increases in the Permian in great doubt – the US will not reach 11m barrels this year as they predict, that’s for sure. Add that to the 600,000 barrels a day that OPEC has approved to increase that will weigh on the Brent contract, and you’ve got both temporary, but also systemic reasons to believe that US oil is going to continue to be more constructive going forwards.
All of this informs a more cautious and more selective investment plan going forwards for the next couple of weeks, until at least the July 7th trade deadline passes and we see where this massive trade issue is headed. We can attempt to predict and plan for the others, but President Trump’s decision on trade remains a wild card no one can be sure of.