Reuters: Global refining demand to hit all-time high, Speculators gamble on $100 oil
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The Rally Could Continue Beyond $50

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This week’s key data for the oil and gas industry shows a small rebound in U.S. oil production after months of declines. While U.S. crude stocks continue to fall, we notice a small build in gasoline stocks as refinery runs continue to increase.

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Friday, June 10, 2016

Oil prices closed and opened above $50 per barrel this week, the first time that has happened in 2016. The highest supply outages in years have rapidly shrunk the global surplus, providing bullish momentum to WTI and Brent. Prices fell back on Friday due to a stronger dollar, however, and speculators also appeared willing to pocket some profits and take a breather on the rally. Some Canadian oil production is coming back online but the fundamentals continue to firm up. The EIA reported inventory drawdowns for the third week in a row, providing some clearer direction on which way the markets are heading. 

Demand is strong. Oil demand looks bright, with record gasoline consumption taking place in the United States. Also, global refining demand is nearing record highs as the world takes advantage of cheap fuel. In August, Reuters
projects that global refining demand could hit 101.8 million barrels per day, which would be a new all-time high. Record demand combined with falling supply offers clear signs that there is strong bullish momentum behind crude oil. 

Not everyone agrees that the rally will continue. Top analysts from
Argus media and S&P Global, among others, are not convinced that oil prices will move higher, arguing that the rally could be running out of room. Supply outages in Canada are starting to be resolved. Also higher oil prices could restart some drilling in the shale patch. The dollar could strengthen, putting downward pressure on prices. And oil inventories are still at record highs. 

Continental Resources starts completing wells. Harold Hamm, the chief of Continental Resources (NYSE: CLR) said that his company has begun completing some of the drilled but uncompleted wells (DUCs) in the Bakken now that oil prices are up to $50 per barrel. Continental will wait until prices hit $60 per barrel before they start to redeploy new rigs for fresh drilling. Hamm sees a supply shortage coming as U.S. oil production has declined, and he also said that oil could rise to $70 per barrel this year. 

More outages in Nigeria. The Trans Niger Pipeline was
shut down on Wednesday due to a leak, and will be shuttered for at least a week, taking another 130,000 barrels per day offline. The pipeline carries Bonn Light and is run by Shell, Eni, Total, and the Nigerian National Petroleum Corporation. Shell declared force majeure on Bonny Light in May when another pipeline that carries the oil stream, the Nembe Creek Trunk Line, was damaged from an attack. The Nembe Creek conduit, however, was just repaired, which could bring back 75,000 barrels per day. Separately, the Niger Delta Avengers successfully hit the Obi Obi Brass Pipeline on Friday, a pipeline operated by Eni. Nigeria says that oil production fell to 1.8 million barrels per day in March, but that assessment does not accurately depict what is going on now. Production as of today is likely sharply lower, perhaps as low as 1 mb/d. 

Middle East oil producers turn to debt markets. Oman
sold $2.5 billion in bonds on Wednesday, as it seeks to improve its financial position. The Gulf state oil producer, who is not a member of OPEC, went to the debt markets for the first time in more than twenty years, a sign of how badly it has been damaged from low oil prices. The move comes after some of Oman’s neighbors issued new bonds earlier this year – Qatar sold $9 billion in debt and Abu Dhabi sold $5 billion. Saudi Arabia is also expected to turn to the bond markets, perhaps selling as much as $15 billion worth of bonds. But the IMF warns that the Gulf States are going to need to do a lot more to cut spending in order for them to hold onto their currency pegs. 

Speculators gamble on $100 oil. Bloomberg
reports that some oil traders are buying contracts that will only pay out if oil surpasses $100 per barrel at some point in the next few years. The contracts do not suggest that such an outcome is necessarily likely, but only that some traders view it as a potential profitable position. The fact that traders are buying up these kinds of contracts suggests that the markets are starting to believe that today’s severe cutbacks in exploration and development will create the conditions for a supply shortage somewhere down the line. 

More gas in Egypt. Eni and BP made
new gas discoveries off the coast of Egypt, another “significant” find in the Eastern Mediterranean. The two companies are working together on the Baltim South license, with Eni as the operator. The discovery follows Eni’s August 2015 find of the Zohr field, one of the largest gas discoveries ever recorded in the Mediterranean. Neighboring Israel has had high hopes of developing gas fields off its coast, but regulatory delays have held up drilling. Egypt appears to be moving much quicker.

North Sea job losses mount. By the end of 2016, the UK oil and gas industry will
lose 120,000 jobs compared to 2014 levels because of low oil prices, according to a trade group in the UK. The North Sea has high costs of production and mature output levels, making it less attractive for investment than some other prominent regions when oil prices are low. 

U.S. solar market to double in 2016. Solar installations could reach as high as 14.5 gigawatts this year,
almost double the 2015 record high of 7.28 GW. First quarter installations are already up 27 percent from the same period a year ago. The rapid growth of the industry is being spurred along by federal tax breaks that were extended late last year through the end of the decade. 

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. – Long-time trader Martin Tillier has seen many investors getting burned on solar stocks. He warns against the pitfalls of solar companies but points out two bargains in solar and one very promising ETF. In addition, Martin sees two pivotal factors that could make or break solar stocks in 2016. Find out where to get the best exposure to solar this summer by taking a risk-free trial on
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What's in Oil & Energy Premium this week:
Inside Investor
• A Rare Opportunity In Natural Gas
Inside Opportunities:
• This Summer Could Be Good For Solar Stocks
Executive Report:
• Have Oil Prices Hit The Sweet Spot?
Inside Markets:
• Why The Natural Gas Rally Isn’t Over Yet
Inside Intelligence:
• Global Energy Advisory 10th June 2016
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Inevitable OPEC Failure Provides Opportunity To Buy

Politics, Geopolitics & Conflict
•    The news is now flooded with the battle for Raqqa, but this isn’t the real battleground in Syria. This is largely the Western media being sucked into the elections by politicians hoping to show a real (arm chair) victory in Syria. The real battle is for Aleppo and Palmyra. Right now, the Islamic State (ISIS) has positions in Aleppo and Raqqa, linked by the strategic town of Tabqa. The Syrian Kurds are hoping to take Raqqa, with a little help from the U.S., but they remain sorely outnumbered and out-gunned. In our opinion, they have little chance of taking Raqqa. They may make some inroads, but they don’t have the support to hold it, especially not if the Turks interfere. What it tells us that Washington is hoping the Syrian Kurds can take Raqqa and that this can then be used as a base for new political entity in a divided Syria, managed by Washington—presumably as a bulwark against areas ‘managed’ by Assad (and the Russians). The Turks continue to play a dangerous game here with jihadists as they attempt to keep the Kurds from advancing. 

•    All eyes this week are also on Angola’s swift moves clearly designed to pave the way for the succession of the “first daughter”, whose presidential father has appointed as head of the state-run oil behemoth, Sonangol. Whether qualified or not is besides the point here. Isabel dos Santos, the daughter of Angolan President Jose Eduardo dos Santos, was appointed chairwoman of Sonangol after the entire board was dismissed last week. Angola’s main opposition UNITA party has rejected the appointment, and said it would ask parliament to debate the decision. Santos’ powerful new role at the head of Sonangol is a way to ensure that the president’s dynasty can continue.

•    Another attack in northern Iraq, near Kirkuk, has targeted a pipeline that carries oil from the Hayana field to the Turkish port of Ceyhan. This pipeline carries oil from the Iraqi National Oil Company, which had earlier this year halted exports through this northern pipeline, in its tit-for-tat with the Iraqi Kurds over exports and revenues. As such, the pipeline wasn’t carrying any oil at the time of the attack.
Deals, Mergers & Acquisitions
•    Dong Energy—the largest offshore wind operator in the world, 50% owned by the Danish government, with a Goldman-controlled company owned 14.7%--is set to list its stock on the Nasdaq OMX in Copenhagen if the largest European IPO this year. Dong has sold 17.4% of its share so far to raise about $2.6 billion and push it to a $15-billion value. 

•    Australian Cooper Energy has signed an agreement with Canada’s ACL International Ltd. and Singapore-based Lamara Energy Pte, to sell a 55% interest in the Tangai-Sukananti KSO, South Sumatra Basin in Indonesia. Cooper, which is refocusing on Australia, will receive US$4.3 million, including working capital, in total consideration. The sale still needs to be approved by regulators. 

•    French utility Engie SA’s Brazilian unit is planning to sell its natural gas blocks in Bahia and Maranhao states as the company refocuses on renewable energy resources. The company’s CEO has said that investments will be 100% in renewable energy, including hydro, solar and wind. As such, Engie Brazil will be gradually selling off exploration and production assets globally.

•    Russian Russneft, a mid-sized oil producer majority owned by Mikhail Gutseriyev, is planning to sell new shares on the Moscow stock exchange in the fourth quarter. The company will sell a 25-49% stake in an IPO and is seeking to raise around $2 billion. Russneft produced 150,000 bpd last year. Gutseriyev's family and trader Glencore will remain its major shareholders after the IPO. Gutseriyev’s family owns 54% of the shares, while Glencore owns 46%.
Company News
•    Russian Rosneft reports first quarter net profits down by 75% over the same period last year, while Russian Lukoil reports a 50% loss on the same parameters. Rosneft sales fell by 21%, while it produced an average of 4.1 million bpd—a 1% decline year on year. According to Rosneft, the decline was the result of large investment to generate new production.

•    ConocoPhillips Canada has restarted production at its Surmont oil sands project and suffering minor damage to infrastructure from the Fort McMurray wildfires. The company will ramp up production to around 60,000 bpd on a gradual basis. ConocoPhillips operates the project with a 50% interest, while Total E&P Canada Ltd. hold the remaining 50%. Suncor and Syncrude Canada Ltd—also shut down due to the wildfires—will restart later this month, eyeing a resumption of full production capacity by mid-July. 

•    Argentina's state oil company YPF has appointed for French Total SA executive Ricardo Darre as CEO, amid changes being made under the country’s new ‘pro-business’ government. Darre will officially assume leadership on 1 July.
Discovery & Development
•    Ghana's National Petroleum Corp. (GNPC) will see first production from its Sankofa offshore field in the second half of next year. The field is being developed by Italian giant Eni and Vitol. First gas production from the field will follow a year later. 

•    Chevron Corp.'s Unocal East China Sea will ramp up production in the Luojiazhai and Gunziping gas fields, following the first stage success of its Chuandongbei project. This is Chevron’s largest investment in China. Unocal will use all three of its existing gas trains with a combined capacity of 258 million cubic feet of natural gas per day. Production started with the first train in January. Development of the Luojiazhai and Gunziping gas fields are the first stage of this project, while the second stage entails building a gas processing plant.

•    Australian AWE Ltd. has reported a 93% increase in the reserves in its Waitsia natural gas field in the onshore North Perth basin. This is one of the biggest onshore gas discoveries ever in Western Australia. The upgrade follows the extensive evaluation of new core data acquired in 2015 from the two Waitsia wells. The project partner is Origin Energy Resources Ltd., with 50%. AWE will drill two more appraisal wells here next year. Private equity group Lone Start Fund bid to take over AWE last year for $310 million, which was rejected by the AWE board. 

•    Chinese state-owned China National Petroleum Corp. (CNPC), plans to boost announced its natural gas supply and transportation capacity over the next five years. The management said its pipeline network is expected to exceed 60,000 kilometers, with an annual gas transportation capacity of 6.4 Tcf by 2020. The company is also looking to add 12 gas-storage facilities and expand its LNG terminal receiving capacity from 13 million tons to 19 million tons. 

Regulations & Litigation
•    Chile's environmental regulator has launched an investigation into oil and gas explorer GeoPark Ltd. for alleged violations, including fracking without the necessary permits, faulty systems for avoiding soil erosion, mismanagement of hazardous spills and damaging archeological findings.

•    Talks between employers and workers over collective pay in Norway’s oilfield services sector have collapsed. This was said to be the fourth and final round of talks, and now changes of a strike of some 6,000 workers looms large. Oil companies in Norway are expected to spend only $18.5 billion next year, down 7.6% from this year’s estimates. Oil investment in Norway is projected to drop again in 2017 for the third straight year. Labor disputes have tripled since oil prices began to slump in mid-2014. The Unite union is now balloting hundreds of workers for a strike vote for a strike that would affect eight North Sea oil and gas platforms run by Shell.
Licenses, Auctions & Tenders  
•    Equatorial Guinea has launched the country’s latest licensing round, offering up 32 blocks offshore West Africa and another 5 blocks onshore. Up for grabs will be Block A-12, from which Marathon Oil recently withdrew. Discovery success rates here are over 40%. Meanwhile, the government has accused Schlumberger of trying to monopolize an FLNG project with UK’s Ophir. Schlumberger denies this. In January, Schlumberger and Ophir agreed that the US group would receive a 40% stake in the project, and would have reimbursed Ophir for half of its past costs. However, it withdrew from the project in late April. According to the government, the project, which is expected to produce 2.2 million tons per annum, will go ahead anyway, with the state-owned company taking an equity stake. 

•    Weatherford International Plc has opened a public offering of $1 billion in a series of senior notes due 2021 and a series of notes due 2023. 
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