Saudis cut price of Arab Light to Asia, Exxon goes big on U.S. shale
Click here to see this email online.
Oil Price  

U.S. Shale Is Killing The Oil Price Rally

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

Oil prices fell to three week lows before recovering slightly on Friday morning as early reports of OPEC’s compliance in February look promising.

Urgent note: We have extended our offer for our Energy & Resource Insider service. We're temporarily offering the service for $49 per year instead of the regular price of $229 per year. Since we started in October, we have had 10 picks and 9 winners. We just closed our leading pick, taking over 98% profit. Click here to sign up for Energy & Resource Insider

Friday, March 3, 2017

Oil prices dropped to a three-week low on Thursday following a bearish data release from the EIA. Crude inventories broke a new record at 520.2 million barrels, and U.S. oil production figures jumped to 9.032 million barrels per day, a gain of 31,000 bpd from the previous week. Rising production and inventories weighed on prices. However, a weaker dollar buoyed WTI and Brent towards the end of the week. 

OPEC compliance reaches just about 100 percent. Data for February is in and it shows that OPEC increased its compliance rate. Saudi Arabia took on the additional burden, cutting deeper than it promised as part of the November deal. The oil kingdom cut output by 90,000 bpd in February from January levels, taking output down to 9.78 million barrels per day. Reuters puts the compliance rate at 94 percent, while Bloomberg has it at
104 percent. Saudi Arabia is making up for a handful of countries that are falling short on their commitments, including Iraq, the UAE, Angola and Venezuela. Plus, this does not take into account rising output from Libya, Nigeria and Iran. When included, OPEC is producing 415,000 bpd above its target. Moreover, Russia has not slashed its production beyond the 100,000 bpd reduction in January.

Saudi cuts prices for its crude for April. Saudi Aramco discounted its oil by 50 to 75 cents for its light oil to be delivered to Asia in April, and cut prices for its light and medium grades by 30 cents per barrel, according to the
WSJ. They also offered discounts to oil heading to North America and Northwest Europe. The price changes do not necessarily mean much, but changes in prices have been closely watched over the past few years by analysts hoping to glean clues from Saudi officials on their strategy. 

Oil to trade between $50 and $60. Daryl Liew of REYL Singapore sees oil trading
within a range of $50 and $60 for much of this year. OPEC compliance will keep prices from falling but rising U.S. shale production will cap any price gains. 

Natural gas inventories rise unexpectedly. Normally, U.S. natural gas stocks are drawn down in the winter as heating demand spikes, only to be replenished between April and November. But the EIA just reported a shocking
increase in natural gas inventories, a major development given that winter is not over yet. The increase of 7 Bcf puts gas stocks at 295 Bcf above the five-year average for this time of year. With only a few weeks left of winter, the disappointing drawdowns suggest that the market will be well supplied for the rest of the year, potentially heading off any chance of meaningful price gains. Natural gas spot prices are already down 30 percent from their December peak, sitting at $2.80/MMBtu. 

U.S. EPA scraps methane plan. Under the Trump administration, the EPA
reversed this week the Obama-era request for methane data from oil and gas companies, the basis for which future methane regulations were to be drawn up. Without the data, the EPA would have a tough time designing methane regulations – which is exactly what the EPA under President Trump is hoping to achieve. 

Trump’s energy cabinet confirmed. Former Texas Governor Rick Perry was confirmed this week as the new Secretary of Energy and former Congressman Ryan Zinke took the helm at the Interior Department. 

Keystone XL exempt from “Buy American.” President Trump made a show of the fact that TransCanada (NYSE: TRP) would be able to build the Keystone XL pipeline, but would have to do so with American-made steel. He even signed an executive order calling on all new pipelines to be used with American steel. But a White House spokesperson told
Politico that because the Keystone XL pipeline is not “new,” it won’t be subjected to those requirements. Some analysts question whether the executive order will have any legal power at all, since it only instructs the Commerce Department to develop a plan for the use of American steel. The upshot is that TransCanada will be able to build its project without any local content rules, keeping the cost of the project lower. 

Exxon goes big on U.S. shale. New ExxonMobil (NYSE: XOM) CEO Darren Woods gave his first presentation to investors this week, where he outlined a
strategy to step up investment in U.S. shale. Exxon will allocate a quarter of its 2017 budget to short-cycle shale projects. The move will help the oil major navigate an uncertain market, as cash can be returned to the company much quicker from shale drilling than it can from the major offshore projects that Exxon has long been accustomed to. Still, Exxon will move forward aggressively on its large offshore discovery in Guyana, hoping to bring it online in the next few years. 
Libyan violence takes place near oil export terminals.
Libya’s major oil export terminals Es Sider and Ras Lanuf have been crucial elements in the latest upswing in Libyan oil production. But
violence once again erupted near the terminal this week. Rival factions fighting for territorial control have torn the country apart, and this week airstrikes occurred within a few dozen miles of both ports. Libya is targeting a dramatic ramp up in production this year and next, but if the terminals were disrupted, those plans would likely be derailed. 

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. – As the markets slowly become overbought, a wealth of bearish signs such as the uptick in rigs and production starts to form a threat to oil prices. However, there are still subsectors in oil which are not overbought. Dan Dicker explains in his column this month where to look for value in the oil markets as the White House abandons climate regulation. Find out more by caiming your risk-free 30 day trial on
Oil & Energy Insider
back to top
What's in Oil & Energy Premium this week:
Inside Investor
• Energy Stocks And The Political Prism
Inside Opportunities:
• Can Energy Stocks Break Out Of Their Range?
Executive Report:
• As OPEC Cuts Back, U.S. Shale Fills Void
Inside Markets:
• Where Further Upside For Oil Comes From
Inside Intelligence:
• Global Energy Advisory - 3rd March 2017
Upgrade to Premium
back to top

Global Energy Advisory - 3rd March 2017

Politics, Geopolitics & Conflict

•    The Philippines are cozying up to China which could have implications for geopolitical dynamics in the South China Sea at a time of aggressive Chinese expansion there and Beijing’s claims on about 90% of the basin. Rodrigo Duterte’s government seems to be willing to play down a case it won against China in an international court concerning a disputed part of the sea. Foreign Minister Perfecto Yasay said this week that the disputed area “had never belonged to anyone,” suggesting Manila is offering China an olive branch. Some argue that this statement is an indication of Duterte’s intentions to pitch China and the US against each other and reap potential benefits. Others see it as a dangerous game that could end badly for Duterte, inciting a coup. The South China Sea is believed to hold significant reserves of oil and gas. Exploration in the Philippine sector is suspended, awaiting a clarification with bilateral relations with China, according to Energy Secretary Alfonso Cusi.

•    Nigeria’s President continues to be on medical leave in London, and while last month tensions were high due to his absence, sparking protests, the situation appears to have stabilized—for now. Acting President Yemi Osinbajo met with protesters seeking answers to the economic recession, rather than unleashing security forces on them. Osinbajo has continued Buhari’s efforts to negotiate peace with the Niger Delta communities to stop the violence that crippled Nigeria’s oil industry and economy. This suggests continuity of Buhari’s rule and even an improvement: besides the progress in the Delta, Osinbajo has made visa rules laxer to encourage foreign investors. Osinbajo has also openly admitted that the government’s fight against graft has not been particularly fruitful. According to diplomats, the change at the helm is welcome news.

•    The Syrian army has apparently retaken Palmyra, the ancient city that ISIS has taken control of twice in the past few years. According to military sources cited by Iranian media on Wednesday, the day the offensive started, the troops were waiting for fresh enforcements, which should join them in the coming days. The ground operation was to be aided by aerial cover from Syrian and Russian bombers. At the same time, the army has blocked Turkey’s advance on Raqqa, the IS stronghold, possibly in a bid to maintain the current balance of power in the country, but also because Turkey’s advance on Raqqa could lead to clashes with the Kurd-dominated Syrian Democratic Forces: Turkey has no interest in a unified Kurdish territory and is eager to take Al-Bab from ISIS before the SDF does.

•    Iraq's Kurdistan region has boosted its loans guaranteed by future oil sales to US$3 billion in new deals. And it the Iraqi Kurds desperately need this. New deals have been negotiated with Russian Rosneft and trading houses. This comes a day after Kurdish forces took control of Iraq’s North Oil Company in Kirkuk, and the Nigata and Taza Tarkiza oilfields under the pretense of combing the area for ISIS bombs. Crude oil was temporarily halted in the chaos, but started flowing again just hours later. This is another power play by the Kurds in Kirkuk, and it was a clear message—which even the Kurds concede—to Baghdad about the distribution of Kirkuk’s oil revenues. 

Deals, Mergers & Acquisitions

•    Total has struck a deal to sell oil and gas assets in Gabon for $350 million to Anglo-French Perenco. The assets include 15 fields with a combined daily output of 13,000 barrels and a pipeline network. The deal, which is subject to local government approval, will see Perenco buy 100% in a local Total subsidiary that operates 10 of the fields, and the direct acquisition of Total’s Gabon’s interests in another five.

•    Qatar will merge two petrochemical businesses, Qatar Vynil and Qatar Petrochemical Co., their parent, Qatar Petroleum said. Both are parts of larger businesses, majority-owned by Qatar Petroleum – Mesaieed Petrochemical Holding Co. and Industries Qatar QSC. The two will now become part of Industries Qatar QSC, to reduce operating costs and boost their profitability. 

•    Indian energy major ONGC may acquire smaller local peer Hindustan Petroleum Corporation as part of a government plan seeking to merge a dozen state-owned oil and gas companies into a giant fit to compete with international Big Oil. Reports, which have not been confirmed, say that ONGC could take the government’s 51.11% interest in HPC plus another 26% from other shareholders. Such a deal would be worth around $6.6 billion based on HPC’s current stock price.

Tenders, Auctions & Contracts

•    Gazprom’s Nord Steam 2 could only be stopped by political reasons, the company’s deputy chairman Alexander Medvedev said at an investor event in Singapore. The pipeline fulfills all EU technological standards, he said, so it could not be found wanting in any technological or safety aspect. Medvedev also said that Gazprom will be raising its prices for the European market, to between $180 and $190 per 1,000 cubic meters.

•    Saudi Arabia will invest $7 billion in a refining complex in Malaysia, in partnership with the local state-owned energy company, Petronas. The refinery will make up part of a bigger, $27-billion refining and petrochemical project, to be built in the southern state of Johor.

Discovery & Development

•    First oil in Mozambique should start flowing in two to three years, according to Sasol, the South African oil and gas operator exploring for hydrocarbons in Mozambique. Sasol has drilled four of 12 planned wells and the finds from them are promising, the company said. Mozambique, one of the poorest African countries, is believed to have huge offshore oil and gas reserves.

•    Lundin Petroleum has announced a discovery in the Barents Sea, at its Filicudi field. The initial estimate for the find is between 5.5 and 16 million cu m of oil equivalents, the company said. Lundin will continue to drill wells in the Barents Sea, advancing its Arctic exploration agenda, along with other major local players such as Statoil. The Barents Sea is believed to hold around half of Norway’s still undiscovered oil and gas reserves.

•    Iraq plans to begin offshore exploration for oil and gas in a bid to boost its reserves. Just last week the country’s Oil Minister announced several onshore discoveries that will add 10 billion barrels to Iraq’s total, bringing it to 153 billion barrels. Offshore exploration should further increase these considerably.

•    Shell will not enter any new projects in the Canadian oil sands as it continues to keep tight reins on its costs, CEO Ben van Beurden said. Oil sands used to be attractive for Big Oil while crude traded above $100 a barrel but now that prices have slumped about 80% from 2014 highs, the high-cost bitumen extraction process is being shunned by those who have other options.

Regulatory Updates

•    Nigeria’s Federal High Court will rule on a request from Eni and Shell to reverse a forfeiture order for the OPL 245 block on March 13. The request followed a temporary forfeiture in favor of the Nigerian government on several assets co-owned by the two companies. The OPL 245 is particularly controversial: prosecutors have alleged that Eni and Shell bought the field cheaply in exchange for a major bribe for then-Oil Minister Dan Etete. To make matters more challenging, Malabu, the company which won the license for the development of block OPP 245 initially, in 1998, also wants it back. In the meantime, earlier this week, Nigeria’s anti-graft agency filed new charges against Eni and Shell, accusing them of paying $801 million in 2011 to acquire the offshore oilfield. 

•    Texas legislators have called on the White House to roll back environmental regulations that during President Obama’s two terms harmed the state’s oil and gas industry. Two resolutions, drafted by the heads of the state House and Senate, address both the presidential administration and Congress, asking them to review the legislation and either revoke it, amend it, or leave the powers to do this to the state of Texas.

•    The New Mexico Oil Conservation Division will once again be authorized to penalize oil and gas companies operating in the state for water pollution. Under a bill that was endorsed by a Senate panel this week, the OCD would have the powers to fine energy companies up to $10,000 a day if they spill oil in an aquifer or if their drilling operations near one threaten the quality of water. Since 2009, the OCD has been stripped of its powers to penalize oil and gas companies, after a decision by the state’s Supreme Court, which ruled the only way it could prosecute violators of the New Mexico Oil and Gas Act is through court.
back to top