Last week’s surprise drawdown in crude inventories may be the last for a while, as analysts are expecting a reversal in stocks this week.
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- China became the second largest LNG importer in 2017, surpassing South Korea.
- China’s LNG imports of 5 billion cubic feet per day (Bcf/d) was second only to Japan’s 11 Bcf/d.
- The surge in LNG imports is helping China fuel its rapid switchover from coal to gas. China has run into gas shortages amid its aggressive push to clean up air pollution by shutting down coal.
Market Movers
• Sanchez Energy (NYSE: SN) saw its stock jump more than 3 percent after it announced it would pay dividends on series A and B convertible perpetual preferred shares in cash rather than stock.
• The share price of Carrizo Oil & Gas (NASDAQ: CRZO) fell by more than 6 percent after hours after reporting that its 2018 production could dip 10 percent, while also predicting that oilfield services costs would see a “double-digit increase” this year.
• Schlumberger (NYSE: SLB) and Baker Hughes (NYSE: BHGE) were upgraded by Bank of America to a Buy rating, while Halliburton (NYSE: HAL) was downgraded to Neutral.
Tuesday February 27, 2018
Oil prices gained a bit over the past few trading days, after a surprise drawdown in crude stocks last week. But analysts see that to be a one-off, with expectations that inventories will resume climbing this week.
IEA: U.S. to become world’s largest oil producer by next year. The IEA’s executive director said that the U.S. will surpass Russia to become the world’s largest oil producer “definitely next year,” if not in 2018. “U.S. shale growth is very strong, the pace is very strong ... The United States will become the No.1 oil producer sometime very soon,” Fatih Birol told Reuters. Related: Crashing Cushing Inventories Boost Oil Prices
OPEC hopes to ease production cuts in 2019. Saudi oil minister Khalid al-Falih said that he hopes that OPEC can relax the production limits next year, while putting in place a more permanent framework for cooperation between OPEC and the non-OPEC countries that are participating in the deal. “A study is taking place and once we know exactly what balancing the market will entail we will announce what is the next step. The next step may be easing of the production constraints,” al-Falih told reporters in New Delhi. “My estimation is that it will happen sometime in 2019. But we don’t know when and we don’t know how.” He went on to add that a longstanding cooperative agreement is a priority. “What we want is an evergreen framework that brings producers from OPEC and non-OPEC (countries) together in a market monitoring fashion that allows us to take quick decisions,” he said.
Trump tries to broker deal on biofuels. The standoff between the refining and biofuels industries is coming to a head, and the Trump administration is trying to figure out how to please both sides. President Trump is set to preside over a meeting on Tuesday that will look at tweaks to the Renewable Fuels Standard, which requires refiners to blend in biofuels to their fuel supply. The situation blew up a few weeks ago after the refiner Philadelphia Energy Solutions declared bankruptcy, blaming the high costs of complying with the RFS as a major cause in the company’s demise.
German court rules diesel bans permissible. A German court upheld a lower court ruling that allowed municipalities to ban dirty diesel vehicles in an effort to reduce air pollution. German carmakers saw their stocks dive on the news. The rulings essentially find that complying with air pollution rules and upholding the health of citizens is more important than private property rights. It is another blow to diesel vehicles.
Over 100 cities obtain 70 percent of electricity from renewables. A new study finds that over 100 cities around the world generate at least 70 percent of their electricity from renewables. That number of cities is double what it was in 2015. The study from the non-profit CDP also found that 40 cities generate 100 percent of their electricity from renewables. However, the common thread through most of these cities is a heavy reliance on hydropower, a source that will have a low growth rate going forward because it has been maxed out in many areas.
Lithium stocks fall on fears of oversupply. Morgan Stanley warned that lithium could suffer from “significant oversupply,” which could cause prices to fall by 45 percent by 2021. The investment bank downgraded shares of Albemarle Corp. (NYSE: ALB) and Sociedad Quimica Y Minera De Chile (NYSE: SQM), two top global suppliers of lithium. ALB lost nearly 8 percent on Monday while SQM lost more than 9 percent. Lithium had been one of the hottest trades in 2017, but the bull run has come to a screeching halt. Morgan Stanley says that 2018 could be the last year in which the market for lithium is in a state of a deficit, as new sources of supply will come online beginning next year.
Construction on Bayou Bridge pipeline suspended. A federal judge suspended work on the Bayou Bridge pipeline in Louisiana, a project that is crucial to fully connecting the Bakken oil fields to refineries on the U.S. Gulf Coast. The project, a joint venture between Energy Transfer Partners (NYSE: ETP) and Phillips 66 (NYSE: PSX), would help more oil move to refineries and for export. Environmental groups sued over damage to the Atchafalaya Basin and for violations of the Clean Water Act. The judge issued an injunction, barring ETP from taking further action, pending the merits of the case.
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ExxonMobil shuts Papua New Guinea natural gas after earthquake. A natural gas production and processing site in Papua New Guinea was shut by ExxonMobil (NYSE: XOM) after an earthquake to assess damage.
Borr Drilling to acquire Paragon Offshore Ltd. for $232.5 million. The Bermuda based Borr Drilling will acquire Paragon Offshore Ltd. for $232.5 million, consolidating the rig market.
Related: Peak U.S. Shale Could Be 4 Years Away
LOOP to cut costs for Asian refiners. Buyers in Asia will be able to buy more American crude oil at a cheaper cost because of the new LOOP export facility on the Louisiana coast, which can handle very large crude carriers (VLCCs). That means that Asian refiners won’t have to rely on oil traders to manage the tanker logistics, saving time and money by cutting out middlemen, according to Bloomberg. The result could be more U.S. oil heading to Asia.
EQT spinning off pipeline unit. EQT (NYSE: EQT), the largest natural gas producer in the U.S., announced that it would spin off its pipeline business into a separate publicly-traded entity. The move is made with an eye on shareholder returns after some investors balked at the company’s purchase of Rice Energy in 2017. The move would separate out the upstream and the midstream assets, creating two pure-play companies.
Libya’s NOC declares force majeure. After protests shuttered the El Feel oilfield in Libya, the country’s National Oil Company declared force majeure on 70,000 bpd of production. The development highlights the ongoing instability at Libya’s oil facilities.
By Tom Kool for Oilprice.com
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The reason such claims are false is because of the way US oil production is calculated. The EIA, like BP Statistical Review of World Energy, includes in its calculations not only conventional oil and shale/tight oil but also natural gas liquids (NGLs) which come from natural gas wells as well as such gases as ethane, propane, butane and pentanes which don’t qualify as crude oil and condensates in its crude oil count. These gases are estimated to account for 1-2 mbd of US total oil production.
The real question is whether natural gas plant liquids can be sold as oil on the world market. The answer is a emphatic “No”. In fact, major oil exchanges accept neither natural gas plant liquids nor lease condensates as satisfactory delivery for crude oil. And if major exchanges don’t accept natural gas liquids as crude oil, then they are not crude oil or as a well-known Texan oilman, Jeffrey Brown, pointed out:” If what you are selling can’t be sold on the world market as crude oil, then it’s not crude oil”.
The IEA has repeatedly made claims and projections which don’t stand up to scrutiny. The claim that the US will surpass Russia and Saudi Arabia to become the world’s largest oil producer in 2018 or 2019 is one of them.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London