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Oil Volatile As Traders Debate OPEC Versus Excess Supply

Rig In Dock

Oil prices looked choppy on Tuesday morning after a rapid rise on Monday coming from optimism over a possible OPEC action to constrain output.

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Chart of the Week


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• China’s crude imports stood at about 7.35 million barrels a day in July, the slowest import trend since January, Bloomberg reported on Monday.
• Still, signs that shrinking demand in China may hit oil prices globally – again -- had already started to appear early in July.
• Even as Chinese teapot refinery demand for crude oil is cooling, it seems that China’s product glut has only increased over the last months. According to Reuters, China’s product exports have increased 46 percent from January to July.

Market Movers

PEGI: Pattern Energy (PEGI) is looking to raise capital. After the bell Monday, the company announced a public offering of 10M common shares at $23.90 each for a total raise of $239M plus an underwriter’s option of an additional 1.5 million shares. PEGI says it plans to use the proceeds to fund potential acquisition opportunities, repayment of its revolving credit facility and for general corporate purposes.
VTTI: VTTI Energy Partners moved higher after the bell on Monday after agreeing to acquire an additional 8.4% equity interest in VTTI Operating and associated pro-rata net debt from VTTI MLP Partners, which owns the interests in the entities that own the partnership's terminal facilities, for $96.2M. For financing, VTTI launches a public offering of 5.25M common units, with an underwriters option to purchase up to an additional 787,000 units.
WMB: Williams Cos. and Williams Partners have agreed to sell their Canadian businesses to Inter Pipeline for just over $1B USD. The companies say they plan to use the proceeds to reduce borrowings on credit facilities.

Tuesday 8th August 2016

Energy stocks were a top performing group on Monday as WTI crude rallied 3% to $43.07 a barrel. The move was a result of traders digesting reports that several OPEC members are attempting to restart production freeze talks. Qatar’s Energy Minister says OPEC will hold an informal meeting in Algeria on September 26 to the 28th. The news comes following reports that several OPEC members want to revive the idea of limits on oil production. The last effort failed in April when Saudi Arabia backed out over Iran’s refusal to join in a production freeze. An improvement in the gasoline crack margin may also help boost the market. Some market participants are skeptical of the sustainability of gains and think they likely will be short-lived owing to the glut of crude and refined products in the market.

Callon Petroleum beat earning expectations by $0.01 with Q2 EPS of $0.05. Revenue missed by $2.6M coming in at $45.15M – up 15.1% YOY.

Colorado may get tough on fracking in November. Environmental groups have reportedly collected enough signatures to put anti-fracking initiatives on the ballot this fall. Among other rules, one proposal would strengthen the state's setback rules, requiring new oil and gas development facilities to be located at least 2,500 ft. from occupied structures or areas such as parks, while the second would transfer regulatory control of new oil and gas development to local governments. Anadarko Petroleum, Noble Energy, and Whiting may be the most exposed given their acreage holdings in the state’s DJ Basin.

Energy companies dilute shareholders – there are no shortage of energy companies looking to take advantage of the market’s current strength by issuing stock. Among other firms that have announced secondary offers in the past few days are Dominion Resources, Phillips 66 Partners, and Pattern Energy. Dominion’s move comes after the firm was downgraded to Equal Weight from Overweight with a $79 price target, trimmed from $82, at Morgan Stanley, which says shares are fairly valued on a more balanced risk/reward outlook.

Things are looking up for the pipeline industry: Williams Partners and its co-developers in the $925M Constitution natural gas pipeline are favored to prevail in at least one of two legal challenges to New York’s opposition to the project, Bloomberg reports. Regulatory group FERC last month approved the 124-mile pipeline from the Marcellus shale region in Pennsylvania to markets in New England and New York, and also granted the developers a two-year construction extension to December 2018. Related: Nigerian Ex-President Accused of Backing the Niger Delta Avengers

Permian Valuations still strong: SM Energy’s $980M purchase of drilling rights in the Permian Basin adds validity to the view that that producers are still willing to pay a premium for access to the area. The Permian is one of the few remaining spots where oil exploration is still profitable. Quality of acreage continues to trump quantity in the oil patch at current prices.

BP is accused of rigging the oil markets: Investment partnership SilverRange Capital Partners accuses BP of manipulating the crude oil market on a single day in 2014. SilverRange is owned by two Wall Street commodity market veterans, who allege that BP took the actions to get a better price on a deal it was negotiating with SilverRange. The behavior reportedly cost SilverRange $33M according to Bloomberg.

BMW takes aim at Tesla: In a new Olympic ad, BMW is taking aim at Elon Musk’s upstart Tesla. You will wait, and wait and wait some more -- all before that electric car company's new model ever even arrives," laments the voiceover in the spot before the German automaker's 330e is unveiled

Following Donald Trump’s major economic speech on Monday: there is some skepticism over the candidate’s energy policies, especially his promises to help the beleaguered coal industry spring back to life. Commentators are suggesting that Trump’s promise to help both the natural gas industry and coal industry are in direct conflict.

By Evan Kelly of Oilprice.com

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Leave a comment
  • Douglas on August 15 2016 said:
    Didn't we just hear that the price of oil was down from all of the over supply and then the latest EIA report shows by year end the world will be short 1 million bbls /day because of continued demand? I used to think that traders were all crazy, now I know why.

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