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Exposing The OPEC Deal Saboteurs

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OPEC’s Three Options To Boost Oil Prices

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Is This Oil Price Rally Sustainable?

Oil

Oil prices have recovered as a result of a flurry of bullish catalysts, and while most oil majors see earnings improve, upstream investments are falling.

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Friday, July 28, 2017

Oil prices are on track for the biggest weekly gain so far this year, with Brent solidly above $50 per barrel and WTI not far behind.

Shell’s CEO: Oil prices “lower forever.” Royal Dutch Shell’s (NYSE: RDS.A) CEO Ben van Beurden said this week that oil prices will likely remain “lower forever,” not just because of too much supply, but also because the coming wave of EV adoption will lead to peak demand, possibly as soon as the late-2020s. His company now produces more natural gas than oil and will continue to diversify. Meanwhile, the company posted better-than-expected profits for the second quarter at $3.6 billion, or more than three times larger than the year before.

JBC Energy: Oil to drop below $40 in 2018. Unless OPEC makes deeper production cuts, oil prices are in danger of falling below $40 per barrel in the first quarter of next year, according to JBC Energy GmbH. The consultancy sees oil prices trading between $45 and $47 later this year, but then it gets “very tricky,” as demand slows. “If OPEC stays the same and we have the same output restrictions even in the first quarter, we’re looking at a lot of surplus in the market,” Richard Gorry, managing director at JBC Asia, told Bloomberg. “To really tighten the market, OPEC will have to cut more, and I don’t know if they want to do that.”

Saudi Aramco IPO leaning towards London. Financial advisors for Saudi Aramco have recommended the company list its shares on the London Stock Exchange, rather than Yew York, citing tougher disclosure rules in the U.S. The final decision for the estimated $100 billion IPO is not expected until later this year.

Related: China Outpaces Competition In Renewable Race

Oil majors see profits improve. So far, the largest oil companies are posting much better financials in the second quarter. Shell’s profits tripled, but it wasn’t the only one enjoying profits on the upswing. Total (NYSE: TOT) saw adjusted profit of $2.5 billion, a 14 percent increase from a year earlier. Statoil (NYSE: STO) said profits jumped to $3 billion, or triple the level from a year ago. And ExxonMobil (NYSE: XOM) said its earnings doubled to $3.35 billion in the second quarter, year-on-year. Still, most of the majors feel pressure to remain cautious with oil prices not showing any signs of a rebound.

UAE: We will increase compliance. The UAE said that it would cut production deeper in the near future in order to boost compliance with the OPEC cuts. “The U.A.E. is committed to its share in the OPEC production cut,” the UAE’s Minister of Energy Suhail Al Mazrouei said in a tweet on Tuesday. The IEA estimates that the UAE has only achieved a 54 percent compliance rate.

UK to ban gasoline and diesel cars by 2040. The announcement from the UK this week that it would ban sales of gasoline and diesel vehicles by 2040 is the clearest sign yet of the coming energy transition. The move is a signal to the oil industry that while the fears of peak supply are long gone, the industry could be legislated out of existence. Of course, the world will still need oil for years and decades to come, but the fears of peak demand are more real than ever.

New oil and gas projects get green light. The oil industry has given the greenlight to more oil and gas projects in the first half of 2017 than all of last year, according data from Wood Mackenzie, cited by the FT. Also, average development costs are down 40 percent since 2014, making now a good time to invest. “The industry took a while to get its collective mind around the idea of ‘lower for longer’ and now people are getting used to lower for even longer,” Readul Islam, analyst at Rystad Energy, told the FT. There were 15 large conventional oil and gas projects that moved forward in the first six months of 2017, encompassing 8 billion barrels of oil equivalent, compared to just 12 projects in all of last year, which covered 8.8 billion barrels.

U.S. sanctions Venezuelan officials; Venezuelan labor unions stage general strike; U.S. evacuates embassy families. The U.S. decided to sanction more than a dozen top Venezuelan officials as the government proceeds with a July 30 effort to rewrite the constitution and consolidate power. The move from Washington was one of the more mild options on the table, and it appears that an effort to ban Venezuelan oil imports won’t be taken up right now. Still, the troubles for the South American OPEC member are not going away. More than 300 Venezuelan labor unions launched a two-day general strike to put pressure on the government of President Nicolas Maduro. Several people were killed in clashes between protestors and security forces this week. The violence and turmoil has escalated ahead of Sunday’s vote and the U.S. government has ordered family members of embassy staff in Venezuela to leave the country.

More shale drillers cut spending. In addition to the decision by Anadarko Petroleum (NYSE: APC) to cut spending this week, other shale drillers began to follow suit. Whiting Petroleum (NYSE: WLL), the largest producer in the Bakken, said it would slash its 2017 spending by 14 percent. Hess (NYSE: HES) also lowered its capex for the year. Others are cutting spending, a sign that the recent downturn in prices are erasing any hopes of higher prices this year. The lower spending is also a sign that the shale boom is bumping up against its limits with oil at or below $50 per barrel.

Related: Libya’s Oil King Won’t Be Stopped By OPEC

Total to cut off funding for oil sands. Total (NYSE: TOT) decided to cut off funds for the major oil sands project it is working on with Suncor Energy (NYSE: SU). The Fort Hills project is still expected to start up later this year. The companies played down the dispute, but it highlights the waning interest in Canada’s high-cost oil sands.

Petronas cancels major LNG export project in Canada. Malaysian-owned Petronas announced that it was shelving its proposed $29 billion Pacific Northwest LNG terminal in British Columbia, a major blow for Canadian gas exports. The company cited low prices for LNG globally.

By Tom Kool for Oilprice.com

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