Saudi Arabia says it's complying with the OPEC deal, Tesla Gigafactory starts up
Click here to see this email online.
Oil Price  

Oil Gains On Early Signs of OPEC Compliance

Dear Member,
  Upgrade to premium
Why upgrade?
Greetings from London.

Oil prices rose on Friday as a result of a strong draw to U.S. oil inventories and early signals that OPEC is following up on their pledge to cut output.

But before we get onto the data please do take a moment to look at our
premium service. If you find the weekly free letters of value then you will get huge benefit from a premium membership. There is no risk to you as the first 30 days are without charge so you can see if the service is right for you at our expense. To find out more please click here.

Friday, January 6, 2017

Oil prices are set to end the week slightly up from where it started, following a few rocky days of trading. After a sharp correction earlier in the week, oil regained ground on a steep fall in crude oil inventories. Still, the gains would have been much larger if not for the fact that U.S. gasoline stocks rose sharply. Nevertheless, oil is starting off the year on a positive note, and early signs of OPEC compliance (more below) are buoying the market. 

Tesla gigafactory starts up. Tesla (NASDAQ:TSLA) announced that its gigafactory has started commercial production of batteries at its much-hyped gigafactory in Nevada. The inauguration of mass battery production marks a new era for the energy industry. The gigafactory could lower the cost of batteries for electric vehicles as well as home energy storage systems. Tesla says that at peak production, slated for 2018, the factory will add as much battery capacity to the global market as the rest of the world currently produces. 

U.S. to become net-energy exporter. The EIA released its
Annual Energy Outlook 2017, with projections out through 2050. The report estimates that the U.S. will become a net-energy exporter in the years ahead under most of its possible scenarios. That is largely due to falling oil imports and rising natural gas exports. The higher energy prices go, the quicker the U.S. becomes a net-exporter. 

Saudi Arabia says that it is already is complying with OPEC deal. Saudi Arabia offered encouragement to oil traders this week when it
announced that it is lowering its output to 10.058 million barrels per day (mb/d) in January, complying with its promised cuts laid out in the November OPEC deal. OPEC members are required to bring their six-month average production levels to the targeted range, but Saudi Arabia said it will meet that level immediately. The announcement adds credibility to the deal and raises the likelihood that other members will comply with their targets. 

Second quarter to see tightest supply conditions. The second quarter of 2017 appears to be the period of time in which the global oil market will experience its tightest conditions: Other OPEC members will ratchet down their production levels to comply with the deal; non-OPEC countries including Russia will lower output; U.S. refineries will begin to ramp up operations to meet summer driving demand; Middle East countries such as Saudi Arabia and Iraq burn more oil in warmer months; inventories will decline as supply drops; plus underlying growth in oil demand continues to soak up excess supply. Many oil analysts expect oil prices to rise the most in the first two quarters of 2017, with the market easing in the second half of the year, potentially leading to lower prices in late 2017. 

Speculative bets on rising oil prices continue to increase. Oil speculators continued to add bullish bets on oil prices at the end of 2016. For the week ending on December 27, bullish positions rose by 7 percent to 358,573, with the current makeup the most net-long since 2014. Long bets outnumbered short positions by a factor of 35 to 1,
the WSJ reports. That sets up the market for downside risk if bearish news emerges in the coming weeks. If speculators get spooked, they could begin to unwind their positions rapidly, leading to a sharp correction in oil prices. 


A newly discovered super crystal is about to upend the entire energy sector and make solar as we know it obsolete. Our researchers have put together a video explaining this technology in more detail.

Click here to watch the video

Oil deals hit $69 billion in 2016. Oil M&A activity reached $69 billion in 2016, more than double the total from the year before, according to research firm PLS. Much of that activity was focused in the Permian Basin in West Texas, as companies rushed to scoop up acreage in the country’s most prolific shale basin. "In 2017, we do believe that acquisition activity will expand beyond the Permian into other known, proven plays that become significantly more economic at pricing above $50," Brian Lidsky, managing director of research and content at PLS, told CNBC.

Goldman Sachs sees EOG Resources as “favorite” pick. Goldman Sachs’ says that EOG Resources (NYSE: EOG) is their “favorite” pick in the E&P space, noting that the company could grow production 20 percent annually through 2020. EOG will have free cash flow in 2018 and beyond; the company will also see expensive rig contracts signed back in 2014 start to expire this year, reducing costs; and EOG is working through already drilled but uncompleted wells this year, which should boost cash flow. 

OPEC production falls in December. Output from the cartel dipped in December on falling Nigerian output. Nigeria was exempted from the OPEC deal, but saw its production fall by 200,000 bpd in December. Meanwhile, Royal Dutch Shell (NYSE: RDS.A)
shut down the Trans Niger Pipeline this week after a fire struck the line. The pipeline is one of the country’s largest, able to transport 180,000 barrels per day to the Bonny Export Terminal. The outage raises the possibility that Nigeria’s oil production could fall even further. Output was down to 1.45 million barrels per day in December, not far above the 1.39 mb/d low reached in August. 

China to invest $360 billion in clean energy. China
announced plans to invest $360 billion in renewable energy over the next four years. The move comes as Beijing has been choked in smog this winter, adding urgency to the country’s campaign to cut pollution. Separately, a report from the Institute for Energy Economics & Financial Analysis finds that China is surpassing the U.S. in clean energy investment and leadership. At a time when U.S. president-elect Donald Trump is poised to roll back clean energy investment, China could widen its lead over the U.S. in an industry that could dominate the 21st century energy landscape. 

New gasoline taxes. The U.S. has seen gasoline consumption rise to record highs, but consumption could flatten out as oil prices rise. Gasoline
prices are now 35 cents per gallon higher than they were a year ago. On top of that, several U.S. states have imposed steeper gasoline taxes that came into effect in the New Year. New Jersey tops the list, adding a 23-cent per gallon tax at the pump. 

In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by
clicking here

Thanks for reading and we’ll see you next week. 

Best Regards,

Evan Kelly

P.S. – Energy Insider Martin Tillier this week writes about natural gas. Anyone who wonders if the currently unwinding rally was a one off might be wrong. Martin sees plenty of reason why natural gas sees upside in 2017. Find out why Martin is still bullish on natural gas after it tanked in recent days by claiming your free 30 day trial on
Oil & Energy Insider 
back to top
What's in Oil & Energy Premium this week:
Inside Investor
• The Natural Gas Play To Start The Year
Inside Opportunities:
• Could 2017 Be A Banner Year For Natural Gas?
Executive Report:
• Is This The Start Of A New Super Cycle In Commodities?
Inside Markets:
• Oil Capped Until OPEC Brings Evidence Of Output Cuts
Inside Intelligence:
• Global Energy Advisory - 6th January 2017
Upgrade to Premium
back to top

Global Energy Advisory January 6th 2017

Politics, Geopolitics & Conflict

•    In Libya, the Deputy Prime Minister of the UN-backed Government of National Accord has handed in his resignation. Musa al-Koni told media that the GNA has proved unable to handle the numerous challenges Libya has to deal with, from widespread violence to lack of adequate healthcare. Al-Koni added that he considers the GNA responsible for the violence that has been tearing the country apart in the past year and that he acknowledges its failure to solve them. The resignation is indicative of how difficult it continues to be for Libya’s authorities to establish control over the civil war-torn country and steer it on the way to normalcy.

But it’s been a busy week for Libya all around, and for now it looks like General Haftar, leader of the Libyan National Army (LNA) is poised to continue solidifying power. Since taking back the country’s oil and then handing it over to the appropriate National Oil Company (NOC) earlier this year, Libya has been re-opening export terminals that have been shut down for more than two years and ramping up production just as OPEC agrees to cuts that exempt the North African nation. Earlier this week, Libya announced that it had reached production of close to 700,000 barrels per day and is eyeing 900,000 bpd over the next few months, with a hoped-for 1 million barrels by year’s end. At the same time, it’s also preparing to re-open the last remaining port that was shut down—Zawiya, the last of nine ports to re-open. This news follows news that the pipeline feeding crude to this port has been re-opened. Simultaneously, the Petroleum Facilities Guard (PFG), the hired militia that had been hijacking the country’s ports and terminals for over two years until Haftar pushed them out, is now withdrawing from Zawiya, where they served as ‘security’. This should be yet another indication that Haftar is consolidating his power (amid hopes that he’s not going to be another Ghaddafi at home). 

•    Turkey has become a major target for the Islamic State, according to defectors from the terrorist group. The New Year’s Eve attack in Istanbul that resulted in 39 casualties may be only the start, as ISIS is being pushed out of Iraq and Syria and is blaming, among others, Turkey. From the group’s perspective, Turkey is particularly guilty because it is a Muslim state but has teamed up with non-Muslim states in this fight. Turkey has long played an untenable role in the Syrian conflict, at times clearly viewing ISIS as a corridor of sorts that would help indirectly in Turkey’s renewed, embryonic empire-building aspirations. The cat-and-mouse game Turkey is playing with all parties in this conflict essentially means that all of its allies are also enemies, so we will be looking to 2017 for some significant challenges to Turkey’s security. 

•    Militant Arab separatists are rearing their heads in southern Iran. This week, one local organization that calls itself the Arab Struggle Movement for the Liberation of al-Ahwaz claimed to have bombed two oil pipelines in the oil-rich Kuzhestan province in southern Iran. It also claimed it had caused severe damage to the infrastructure. The Iranian Interior Ministry denied the claim but the fact remains that a separatist movement is brewing in one of the most oil-rich regions of Iran and is threatening attacks on oil infrastructure over the rest of the year.

•    Nicolas Maduro, Venezuela’s President, has appointed a new Finance Minister and Economy Vice-President, a double role to be filled by a former MP, and a new Oil Minister – PDVSA’s former head of U.S. Citgo operations, Nelson Martinez. The ex-Oil Minister Eulogio del Pino will remain at the helm of the state oil company. The shuffle probably aims to solidify the troubled government’s position amid protests caused by triple-digit recession, food shortages and calls from the opposition for Maduro to step down and let someone else – the opposition – fix things.

•    Finally, it should be an interesting year geopolitically for the offshore oil exploration world, as Lebanon finally passes two decrees that were languishing in purgatory for years but now will open up the playing field for exploration of the country’s part of the prolific Levant Basin—the same basin where neighbor Israel made its discovery of the supergiant Leviathan gas field and the already-producing Tamar gas field. Cyprus and Syria also share this basin, and exploration isn’t likely to go down without some maritime border battling. 

Deals, Mergers & Acquisitions

•    Blackstone is considering an acquisition of assets from Energy Transfer Partners, the company behind the controversial Dakota Access oil pipeline. Although nothing about the nature of the assets to be sold has been divulged, the Dakota Access project may be one of them. Energy Transfer late last year agreed to be acquired by sister company Sunoco Logistics Partners.

•    Total plans to invest $1 billion in Brazil annually, under a partnership with Petrobras closed last year. The investments will cover both upstream and downstream operations and will include technology development as well as exploration and production. As part of the plan, Total will acquire stakes in two of the most promising plots in the prolific Santos Basin, where a lot of Brazil’s presalt oil and gas deposits are located.

•    BP has agreed to acquire a network of Woolworths fuel stations in Australia worth $1.3 billion. The deal involves 527 outlets, complete with convenience stores, as well as 16 ones under construction. These will be rebranded and added to BP’s already existing network of 350 stations across Australia.

•    Freeport McMoRan has sold $592 million worth of oil and gas assets in California. The buyer is Sentinel Peak Resources California LLC. The assets will be paid for in cash and the copper miner will have rights to additional payments of $50 million in 2018, 2019, and 2020 as long as oil prices rise to $70 a barrel or more on average for each of these years.

•    SМ Energy plans to sell assets worth $800 million in Eagle Ford. The assets include 37,500 acres producing 27,260 barrels of oil equivalent daily, plus related infrastructure. The buyer is Venado Oil and Gas LLC, a unit of private equity major Kohlberg Kravis Roberts.

•    Israeli Delek Group will buy all the shares of Alon USA that it doesn’t already own in a deal valuing the company at $868 million. Prior to the deal, Delek had 47 percent of Alon’s stock.

•    Whiting Petroleum has completed the sale of a 50 percent holding in the Robinson Lake gas processing plant and its interest in a natural gas gathering system in North Dakota, for a total consideration of $375 million. 

Tenders, Auctions & Contracts

•    Gazprom has awarded three contracts worth a total $654 million to Stroygazmontazh for the construction of a stretch of a gas pipeline. The Ukhta-Torzhok 2 pipeline will feed natural gas into the domestic gas distribution network as well as into the controversial Nord Stream 2 pipeline to Europe.

•    Petronas has picked a new shipping site for its $27-billion Pacific Northwest LNG project in western Canada. The move is prompted by local opposition to the project as it is now, as well as efforts to lower its cost. While the liquefaction trains will be located on Lelu Island, the shipping site, where ships will dock to load the fuel, will be moved to neighboring Ridley Island, which is outside an environmentally sensitive area and where the construction of the berths will be cheaper.

•    Italy’s Eni has been awarded two new exploration licenses off the shores of Cyprus. The company will get a 50 percent stake and the operatorship of one of the blocks, and 100 percent in the second one. Eni already has licenses for three exploration blocks in the area, on the Egyptian side.

•    Egypt has sealed exploration deals worth $220 million with BP, Total, and Eni and concern exploration blocks in the Mediterranean. Six wells will be drilled under the agreements by the three companies.

Company News

•    Three more oil and gas independents in the U.S. are about to file for bankruptcy in the next month or so: Memorial Production Partners, Forbes Energy Services, and Bonanza Creek Energy, adding to the more than 200 businesses that went under during the oil price crash. This year, however, the pace of bankruptcy filings is expected to slow down substantially and a boom in IPOs may well be on the way. Deregulation when Trump takes office as president, coupled with higher oil prices, should they last, will be the drivers behind the increase in listings.

•    Oil trader Gunvor Group is suing its partner in a failed bid for Chevron assets, Cerberus Capital management, for refusing to shoulder its share of the costs, which the partners incurred when their $650-million offer failed. Guvnor says it spent $1.6 million on conducting due diligence on the assets and Cerberus was supposed to supply half of that, which it didn’t do.

Discovery & Development

•    Gazprom Neft said it may suspend production at several wells this year as part of efforts to optimize production. The company also expects lower output growth at other wells, although as a whole it plans to pump 5 percent more oil this year than last. The increase is a reduction from an earlier growth rate, in compliance with the company’s commitments under the OPEC-Russia production cut agreement.

•    Shell has failed to find oil in two wells drilled off the Tanzanian coast. The company has partnered on exploration in the area with Ophir Energy, which said that the wells were drilled on time and safely but failed to yield any oil or gas.

•    Maersk Oil plans to stop production at Denmark’s largest gas field, Tyra, next year. The reason is that there is currently no economically viable way to extract what gas remains at the field. Tyra has been the main source of gas in the Danish part of the North Sea since 1984. 

•    Chevron has restarted production at its giant Gorgon LNG field off the Australian coast. It was suspended since November, for the second time in 2016, due to performance issues, according to the company.

•    Indian Summit Group has signed a deal with Bangladesh’ Petrobangla for the construction of a $500-million LNG plant in Bangladesh, on Moheshkali Island. Construction should be completed within 18 months of signing the final agreement. LNG is the optimal fuel for energy demand in Bangladesh, according to government officials, due to its low cost, lower emission rate and quick to produce.
back to top