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Oil Edges Higher On Iran Fears

Oil exploration vessel

Oil prices rose slightly on Tuesday morning as analysts think that reduced supply from Iran could have a more significant impact on oil markets than previously thought.

(Click to enlarge)

Chart of the Week

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- The U.S. port district of Houston-Galveston recently became a net exporter of crude oil, the first time on record.
- In April, exports exceeded imports by 15,000 bpd, a figure that jumped to 470,000 bpd in May.
- The Houston-Galveston port area has made up more than half of the share of U.S. oil exports, a figure that jumped to 70 percent in in May as exports surged.

Market Movers

• Whiting Petroleum (NYSE: WLL) said that it cut completion costs by reducing the volumes of proppant it uses in fracking wells, bucking the industry trend. “New diversion techniques are allowing us to complete better performing wells while using about 30% less proppant, reducing capex by $400K/well,” CEO Brad Holly said during a presentation.
• Total SA (NYSE: TOT) has walked away from the $5 billion South Pars gas project, but is having trouble unloading its stake. Total has essentially given up on trying to get a waiver on sanctions from the U.S. government.
• Several days of strikes at oil and gas platforms in the North Sea run by Total SA (NYSE: TOT), which interrupted production, have ended.

Tuesday August 21, 2018

Oil prices edged up Monday and at the start of trading on Tuesday. “Prices are being supported by the prospect of lower oil supply from Iran,” Commerzbank said in a note. Also, the sharp fall over the past few weeks may have run its course, taking some steam out of the market, which reduces some of the downside risk. Still, concerns about the health of the global economy, and the recent rout in emerging market currencies, raises the threat of lower-than-expected demand.

China using oil tankers from Iran. In order to get around U.S. sanctions, China is reportedly seeking to use oil tankers from Iran for its purchases. “Chinese buyers of Iranian oil were beginning to shift their cargoes to vessels owned by National Iranian Tanker Co (NITC) for nearly all their imports,” Reuters reported. The move could keep Iran’s oil exports from falling more than they otherwise would.

Saudi Arabia suffers capital flight. According to Bloomberg and JPMorgan Chase, Saudi Arabia is set to see $65 billion in capital flee the country this year, or about 8.4 percent of GDP. The figure is down from the $80 billion that was withdrawn last year, but is still significant. Analysts attribute the political risk of the whims of the Saudi monarchy, and the “dimming of optimism surrounding Crown Prince Mohammed bin Salman’s Vision 2030 economic plan,” Bloomberg writes.

ConocoPhillips and PDVSA reach settlement. PDVSA agreed to repay $2 billion to ConocoPhillips (NYSE: COP) to settle claims related to international arbitration decision from earlier this year. PDVSA has agreed to pay the American oil company $500 million within 90 days, followed by quarterly payments over the next four and a half years. The hefty payment could be hard to meet for PDVSA, but the settlement could restore operations at the oil company’s facilities in the Dutch Caribbean, which could slow the decline in oil exports. On a related note, PDVSA reached a settlement with NuStar Energy LP (NYSE: NS), which should allow the Venezuelan oil company to regain control of a storage facility on the island of St. Eustatius. Related: Venezuela Takes Unprecedented Action To Stabilize Currency

Citgo asks court for delay in share auction. Earlier this month a U.S. federal judge ruled that Citgo was the “alter ego” of PDVSA (as a subsidiary), which means they are essentially the same entity. The ruling has exposed Citgo to asset seizure by creditors hunting down PDVSA. The result could be an auctioning off of Citgo’s shares. Citgo is now appealing the decision and asking for a delay in the auction.

Trump administration argues conserving fuel no longer needed. The Trump administration argued in a policy statement that the U.S. no longer needs to conserve fuel because of the abundance of oil and gas production. The argument was used to justify weakening fuel economy standards.

Bakken producers flaring at high levels. The inability to gather and process all of the natural gas that is coming out of the shale fields in North Dakota has resulted in high levels of flaring. According to S&P Global Platts, shale drillers flared nearly 17 percent of the gas produced in June, or 388 million cubic feet per day. It was the third straight month that producers failed to comply with the 15 percent limit on gas flaring.

DOE selling 11 million barrels from SPR. The U.S. Department of Energy is selling 11 million barrels of oil from the strategic petroleum reserve ahead of the November deadline for U.S. sanctions on Iran. The proposed sale of sour crudes are slated for October 1 through November 30.

Alaska North Slope is a “Super Basin.” A new report from IHS Markit finds that the North Slope of Alaska is poised to become a “Super Basin.” Much of the oil and gas reserves have been out of reach because of a variety of barriers, but production has the potential to increase by 40 percent over the next eight years. The North Slope holds an estimated 38 billion barrels of oil equivalent in remaining recoverable resources (about 16.8 billion boe has been produced to date). Related: What Caused Oil’s Longest Losing Streak In Years?


Brazil eases local content rules for Libra field. Brazil announced a relaxing of local content rules for the Libra oil field, paving the way for $16 billion in investment, the government says. Brazil has requirements for offshore pre-salt projects, setting a minimum percentage of equipment and services that come from domestic sources. Critics say the requirements inflate costs and delay projects. For the massive Libra field, Brazil has decided to relax those requirements in order to push the project along. The Libra field is being developed by Petrobras (NYSE: PBR), Total SA (NYSE: TOT), Royal Dutch Shell (NYSE: RDS.A) and China’s CNPC and CNOOC.

Virginia governor is advised to scrap permits for natural gas pipelines. An advisory council to Virginia Governor Ralph Northam recommended that he rescind crucial Clean Water Act certifications for the $6.5 billion Atlantic Coast pipeline and the $3.7 billion Mountain Valley pipeline. The two projects are crucial arteries that will move Marcellus shale gas to the U.S. southeast. Both are under construction.

U.S. gasoline demand stagnates. Higher retail gasoline prices have translated into flat growth in demand in the U.S. this year, after several years of growth. U.S. traffic rose by only 0.3 percent in the second quarter, year-on-year, after several years of annual growth rates of about 2 to 3 percent, according to Reuters. Gasoline prices are up more than 55 percent from their low point in February 2016. The EIA expects gasoline consumption to remain unchanged this year.

By Tom Kool of Oilprice.com

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