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Anti-Oil Activists Shift Focus to Insurers

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Oil Rises Ahead of Weekly Inventory Data

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Evan Kelly

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Fed Pours Cold Water On Oil Price Rally

When looking at this week’s key figures from the oil and gas industry, we can see that U.S. average gasoline prices are still rising while crude stockpiles rising and imports are slightly up.

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Friday, May 20, 2015

Oil prices bounced around this week, flirting with $50 per barrel but stopping short of that key threshold. The major supply outages in Nigeria (now at 900,000 barrels per day) and Canada (more than 1 million barrels per day) continue to put upward pressure on oil prices as they are erasing the supply overhang. Still, much of that will be temporary. The EIA poured a bit of cold water on the rally this week, reporting a surprise uptick in oil stocks. At the same time, U.S. production continues to slowly erode. The markets are more confident than at any point in recent weeks that prices won’t crash back into the $30s, but more movement to the upside is not a given. Related: Can Oil Prices Hold Onto Gains At $50 Per Barrel?

FMC Technologies and Technip tie up. Two large oilfield service companies agreed to merge this week, FMC Technologies (NYSE: FTI) of Texas and the French company Technip (EPA: TEC). The combined TechnipFMC would have a market value of $13 billion, and with 2015 combined revenues of $20 billion, the new company would earn more than Baker Hughes (NYSE: BHI). The drilling services sector has been hit hard by the downturn in oil prices as producers cancel rig contracts and cut back on drilling. The WSJ notes the synergies between the two – Technip’s engineering and construction expertise will work with FMC’s underwater equipment portfolio. The deal comes as the Halliburton (NYSE: HAL) and Baker Hughes merger fell apart because of anti-trust concerns.

Canadian wildfires rage but move away from key oil sands facilities. The massive wildfires in Canada continue to spread, encompassing more than 1.25 million acres, but cooler weather and efforts from firefighters have kept the blazes away from oil sands sites. More than 1 million barrels per day have been sidelined over the past two weeks, and the inability to get the fires under control has temporarily shelved some plans for restarts. The Alberta government said this week the 80,000 residents of Fort McMurray could start to return in increments beginning in June.

Canada approves Pacific pipeline expansion. Canada’s National Energy Board (NEB) issued a recommendation for approval for Kinder Morgan’s (NYSE: KMI) expansion of the Trans Mountain oil pipeline that runs from Alberta to the Pacific Coast in British Columbia. However, the thumbs up came with 157 conditions since the NEB also found that it would have negative environmental impacts, not the least of which is a five-fold increase in tanker traffic off the coast of Vancouver. The pipeline would nearly triple the capacity of the existing line from 300,000 barrels per day to 890,000 barrels per day. It would involve running 1,000 km of new pipeline parallel to the existing line. With so much oil trapped in Alberta with inadequate pipeline infrastructure, the expansion would be extremely welcome for oil sands producers. It would also allow Canadian crude to obtain a higher global market price, rather than the heavy discount it pays because of a shortage of pipeline capacity to the U.S. If the Prime Minister approves the project, construction could begin in 2017 and reach completion in 2019.

Norway opens up Arctic for drilling. The Norwegian government offered new oil and gas drilling acreage for the first time in more than 20 years this week. 10 drilling licenses were offered to 13 companies in the Barents Sea and some of the offshore acreage is located in disputed territory with Russia.

Iraq oil production could be at a peak. An official from Russian oil company Lukoil said that Iraq’s oil production could be at a peak as the government moves to trim payments to oil producers. Lukoil operates in some of Iraq’s southern oil fields near Basra. The Lukoil official told Bloomberg that the oilfields require more investment to boost production but spending cutbacks from Baghdad could lead to a decline in output. 2016 budgets could be cut by 50 percent. Lukoil, for example, will cut spending on the massive West Qurna-2 field from $3 billion in 2015 to $1.3 billion this year. The Iraqi government just reached a deal with the IMF for a $5.4 billion loan, the first major oil exporter to do so. Related: Can EVs Save Electric Utilities?


North Sea asset sell off. BP (NYSE: BP) is mulling a sale of a stake in the Forties pipeline in the North Sea, a crucial pipeline for the whole region. The pipeline connects more than 50 oil fields in the North Sea and has a capacity to move as much as 1 million barrels per day. The British oil giant has not decided for certain yet if it will proceed with such a sale, but it has plans to dispose of $3 to $5 billion in assets this year. Separately, Royal Dutch Shell (NYSE: RDS.A) is negotiating with potential buyers to sell off some North Sea assets, but also has not launched a formal sale process.

Petrobras raises $6.75 billion in new bonds. Embattled and indebted state-owned Brazilian oil company Petrobras successfully raised $6.75 billion in a new bond offering, although it came with a heavy price tag. About $5 billion in notes due in 2021 were sold with an 8.625 percent annual yield while the remaining $1.75 billion in debt due in 2026 sold with a yield of 9 percent. Still, the company needs the cash injection; it has $13.2 billion in debt falling due in 2016 and $28.5 billion maturing in 2017 and 2018.

France set for oil refinery strike. French workers could bring oil refineries to a halt as workers strike over changes to labor laws. The large CGT workers union will vote on Friday whether or not to strike. But truck shipments have already interrupted some fuel supplies around the country because of protests. French President Francois Hollande has supported the change in labor laws, reducing overtime pay and making it easier for workers to be fired from the job. Oil giant Total (NYSE: TOT) is the major refinery operator in the country.

Chevron to restart Gorgon LNG. Chevron (NYSE: CVX) is in the process of restarting its enormous Gorgon LNG export facility in Australia, after several weeks of disruption due to mechanical problems. The $54 billion LNG facility completed construction earlier this year.

By Evan Kelly of Oilprice.com

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