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Global Oil Supply Under Threat

Friday May, 10, 2019

1. Grain prices crash on Trump’s trade war

Grain

- Soybean and corn futures plunged after President Trump announced tariff hikes on China via twitter. The Bloomberg Grains Subindex Total Return fell to its lowest level since 1977.

- As Bloomberg noted, July soybean futures fell to a record low, falling to $8.1675 per bushel at the start of the week.

- Meanwhile, U.S. farmers are still drying out from record floods, which damaged crop land and infrastructure, and delayed plantings.

- The prospect of a major hike in tariffs on China, and the anticipated retaliatory trade actions on the U.S., could depress agricultural commodities further.

2. Libya could lose 1 mb/d

Libya

- Over the past year, Libya has been a bearish factor for oil prices, restoring long-disrupted output and reaching multi-year production highs at over 1.2 mb/d as recently as March.

- But the reignited civil war could put an end to all of those gains.

- The restoration of production hinged on a delicate but important division of the oil sector: The government in Tripoli controlled the legal authority to export oil, while the LNA provided the security.

- Now, at war, it’s much more likely a winner-take-all mentality will emerge, leading to disruptions. “[W]e think it unlikely that the arrangement can survive a protracted stalemate and the associated weakening of the LNA. In our view there is a high risk that Libyan outages could add another 1mb/d loss to the 1.9mb/d y/y reduction from Iran and Venezuela,” Standard Chartered said in a May 7 report.

3. Plastic bans could cut into oil demand

Plastic

- The global “war on single-use plastics” is “gaining pace,” according to Barclays. Bans on single-use plastic bags and plastic straws in the U.S. are proliferating at the municipal and state level. The European Parliament passed a ban on 10 single-use plastic items, to take effect in 2021.

- Roughly 40 percent of plastics end up in landfills, and another 30 percent escapes collection systems, Barclays estimates. Only a small percentage is actually recycled.

- Single-use plastics account for 3 to 3.5 mb/d of global crude oil demand. Barclays says that figure could swell to 5.5 to 6 mb/d by 2040-2050.

- However, as bans on these plastics multiply, the forecast is in doubt. Ultimately, 6 mb/d, or about 5 percent of global oil demand, could be erased by these policies.

4. Bitcoin prices fall on security

Bitcoin

- Binance, one of the world’s largest cryptocurrency exchanges, announced that hackers took and withdrew 7,000 Bitcoins, valued at about $40 million. It was a “large scale security breach,” the exchange said.

- Shortly after, Bitcoin fell about 3 percent, although recovered some of those losses.

- The broader Bloomberg Galaxy Crypto Index also declined.

- It was “not the best of days, but we will stay transparent,” Zhao Changpeng, Binance’s chief executive officer, said in a tweet.

- Bitcoin and other cryptocurrencies have been plagued by fears of security and hacking.

5. Parts of Permian showing strain

Permian

- Production improvements in the Permian have come as a result of longer laterals and the more intense use of water and proppant. But parts of the Permian have seen productivity improvements halt and even fall.

- “[W]e see that 2017 was the best vintage ever for the Lower Spraberry and Wolfcamp B intervals, but normalized productivity seemingly declined last year,” Rystad Energy said in a new report.

- Rystad said that well spacing is a big reason for the decline. “In 2017 and 2018, we generally observe clear degradation in normalized productivity for child wells across the Lower Spraberry and Wolfcamp B zones. In particular, child wells in the Lower Spraberry intervals exhibit degradation of more than 20% compared to parent wells.”

- In other parts of the Permian, such as Wolfcamp A, productivity continued to rise, indicating that there is still some room for more down-spacing.

6. Iran’s oil exports plunging

Iran

- Iran’s oil exports are plunging, following the full implementation of U.S. sanctions and the expiration of waivers.

- Bloomberg reports that not a single ship has been seen leaving Iran’s oil terminals for foreign ports. Oil exports fell below 1 mb/d in April, but in early May, there is no sign of exports.

- However, Iran will likely manage to keep exporting through a variety of clandestine tactics, such as turning off transponders on tankers. Bloomberg said that there has been no sign of a tracking signal on 10 very large crude carriers for 16 days.

- Estimates on the impact on Iranian oil exports vary, but only differ on different magnitudes of decline. WoodMac says exports could fall to 0.7 mb/d by the summer.

7. Solar installations top 2 million in U.S.

Solar

- U.S. cumulative solar installations surpassed 2 million only three years after reaching 1 million. California alone has just under 1 million installations.

- The next doubling of installations, to 4 million, will be reached by 2023, according to the Solar Energy Industries Association and Wood Mackenzie.

- “We believe that the 2020s will be the decade that solar becomes the dominant new form of energy generation,” SEIA CEO Abigail Ross-Hopper said in the statement.

- By 2024, there will be a solar system installed at a rate of one per minute in the U.S., according to WoodMac.

- Solar is now a $17 billion industry. Solar and wind together account for 11 percent of U.S. electricity generation.


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