Oil prices started the week at a one-month high, with geopolitical tensions and growing confidence over an OPEC deal extension driving a rally. But as oil prices settle in the mid-50s the rally is slowing and traders appear happy to lock in gains.
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Chart of the Week
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• Gross U.S. oil imports rose in 2016 by an average of 514,000 bpd compared to a year earlier, rising to 7.9 million barrels per day (mb/d). On a net basis – after accounting for the rising volume of exports – imports increased by 460,000 bpd.
• Still, gross imports in 2016 were 22 percent lower than the 10.1 mb/d hit in 2005.
• Canada continues to capture a growing share of imports, as lighter domestically-produced U.S. crude displaces oil from West Africa and the Middle East.
• Seadrill’s (NYSE: SDRL) share price jumped by more than 14 percent after its subsidiary, North Atlantic Drilling (NYSE: NADL) won a 10-year contract with ConocoPhillips (NYSE: COP) for drilling work in Norway.
• BP (NYSE: BP) and Chevron (NYSE: CVX) are in talks with Saudi Arabia about joint ventures on natural gas drilling. Saudi Arabia has the world’s sixth largest gas reserves and is trying to ramp up gas production in order to free up crude for export. Saudi Arabia still burns crude oil for electricity.
• Barron’s listed six E&P companies that look attractive coming out of bankruptcy, including Linn Energy (OTCQB:LNGG), Ultra Petroleum (OTCPK:UPLMQ), SandRidge Energy (NYSE:SD), Halcon Resources (NYSE:HK), Midstates Petroleum (NYSE:MPO) and Goodrich Petroleum (OTCQX:GDPP).
Tuesday April 11, 2017
Oil prices started the week at a one-month high, as outages in Libya combined with market concerns over the U.S. airstrikes in Syria pushing WTI and Brent up into the mid-$50s. Traders took a breather on Tuesday on expectations of rising production from U.S. shale. Also, after sharp gains in recent weeks, the rally for crude prices could be slowing.
Gunvor considers sale. One of the world’s largest oil traders, Gunvor, has approached at least two of its competitors to gauge interest in a sale of the company. The discussions are being held close to the vest – Gunvor’s CEO says it has no plans to sell – but if it occurred it would consolidate an already consolidated industry. The WSJ reports that Gunvor’s trading volumes have held steady in recent years while its competitors, including Vitol Group, Glencore (LON: GLEN) and Trafigura Group have increased their volumes. The market turmoil since 2014 has been a boon due to the fact that traders profit on storage and volatility. The market stability so far in 2017 has led to softer business for the traders. Related: Wall St. Gears Up For The World’s Biggest Oil Trade
Oil majors’ reserves falling. The oil majors, including ExxonMobil (NYSE: XOM), Statoil (NYSE: STO), Royal Dutch Shell (NYSE: RDS.A) and Total (NYSE: TOT) are all suffering from a falling reserve base as they fail to replace the reserves that are being produced, according to a Reuters analysis. Exxon, for example, saw its reserves fall to an equivalent of just 13 years’ worth of oil, given its current rate of production. That is the lowest lifespan since 1997. Shell has the lowest reserve life since 2008, even after incorporating the large oil and gas reserves from its purchase of BG Group. Historically, the volume of reserves was one of the most important metrics for Wall Street. But in an age of low oil prices, that is no longer the case. Shareholders are increasingly willing to overlook a declining reserve base as long as the majors keep debt and spending in check. Of course, that raises questions about a supply shortage years from now because of a failure to find and discover new reserves.
Russia talks OPEC extension. According to TASS news agency, Russian officials will start consultations with Russian oil companies about the extension of the OPEC deal, a sign that Russia is on board with a six-month extension.
Shell CEO worried about corruption probe in Nigeria. A recently released phone call between Royal Dutch Shell’s (NYSE: RDS.A) CEO and its CFO Simon Henry show that they are worried about corruption scandal that dates back to Shell’s acquisition of a Nigerian oil field. Shell is already under investigation in Italy, as is Italian oil company Eni (NYSE: E), for alleged bribery. Shell’s CEO is apparently worried that it could run afoul of a prior agreement with the U.S. Justice Department. “We should have maybe at the time been more open with the DOJ than we now find we have been,” Shell CEO Ben van Beurden said on the phone call.
IMF warns on Bahrain finances. Without spending cuts, Bahrain will continue to lose investor support, according to the IMF. “A sizable fiscal adjustment is urgently needed to restore fiscal sustainability, reduce vulnerabilities, and boost investor and consumer confidence,” the IMF said in a statement. The warning highlights the damage still being done to the budgets of the Gulf States with oil trading at $50 per barrel.
2020s to be “decade of disorder.” Former head of the U.S. EIA Adam Sieminksi told Platts Capitol Crude podcast this week that there could be turmoil in the oil market over the course of the 2020s because of a severe slowdown in upstream investment today. “I am thinking the decade of the 20s is going to be one of difficulties. That's why I called it the decade of disorder. We are not getting enough capital investment now. I don't know that shale is going to be able to do it all,” Sieminksi said.
Offshore oil sector to increase hiring. Employment on offshore rigs has plunged over the past few years, but Rystad Energy predicts that hiring will rebound this year. "With more projects offshore being revived in 2017, we expect the offshore lay-offs to stabilize and start to increase later in 2017," Rystad analyst Audun Martinsen said in a new report. "Already we see this trend in Norway and it is only a question of time before it starts elsewhere."
Creditor sues to block PDVSA from raiding Citgo. Canadian mining company Crystallex asked a U.S. judge to stop Venezuelan state-owned oil company PDVSA from transferring funds from Citgo to use for its own purposes. PDVSA and the Venezuelan state are rapidly running out of cash and are facing steep debt payments this year. If PDVSA is blocked from taking funds from Citgo, it would exacerbate its cash crunch. Related: Venezuela Is The Wild Card In The OPEC Deal Extension
Australia to break ground on world’s largest solar + battery project. Construction will soon begin on the world’s largest solar plus battery storage project in Adelaide, Australia. The project will consist of 300 megawatts of solar and 100 megawatts of battery storage. It is slated for completion by the end of the year.
G-7 nations fail to sign joint energy declaration because U.S. doesn’t know what it wants. The Trump administration is reversing a lot of energy policies and is in the midst of a review of energy and climate strategy, preventing the Group of Seven nations from issuing a joint declaration.
Trump’s public lands push. The Bureau of Land Management, an agency within the Interior Department that oversees federal lands, issued a “priority work” list, ordering its 10,000 employees to focus on increasing oil and gas permitting for public lands, as well as for securing the U.S.-Mexico border.
China to attract $782 billion in renewables investment. Between 2016 and 2030, China could see $782 billion in investment in renewable energy, according to a Greenpeace report. That could allow China to scale up renewables to 20 percent of primary energy consumption by then, up from 12 percent today.
Nuclear power plants seek state support. The fleet of U.S. nuclear reactors is aging and increasingly uncompetitive due to the rise of renewables and cheap natural gas. A handful have already closed but many more could be in danger without government support. Some nuclear power plants won policy support in Illinois and New York recently, and more proposals are under consideration in Connecticut, New Jersey, Ohio and Pennsylvania.
By Tom Kool of Oilprice.com
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