Oil prices rose slightly on Friday morning following attacks on an Iranian oil tanker.
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Friday, October 11th, 2019
Oil prices rose in early trading on Friday on hopes that the U.S.-China trade negotiations might result in a limited breakthrough. President Trump said that talks on Thursday went well, and the two sides resume negotiations on Friday. An attack on an Iranian tanker (more below) also bolstered oil prices.
IEA cuts demand forecast. The IEA cut its demand forecast once again to just 1 mb/d in 2019 and 1.2 mb/d in 2020, a cut of 100,000 bpd for both. The agency also raised its forecast for supply growth from non-OPEC sources by 400,000 bpd.
Iran says tanker was attacked. Two missiles apparently struck an Iranian oil tanker traveling through the Red Sea off the coast of Saudi Arabia on Friday. Oil leaked into the Red Sea. The incident could rachet up tensions once again between Iran and Saudi Arabia.
Pioneer Natural Resources upgraded, Continental downgraded. Pioneer Natural Resources (NYSE: PXD) rose by more than 2 percent on Thursday after Mizuho upgraded the company to Buy. Mizuho analyst Paul Sankey said the company has shifted its strategic focus to free cash flow. Meanwhile, Mizuho downgraded Continental Resources (NYSE: CLR) to Neutral over spending concerns and long-term quality of acreage. Related: How To End The World's Dependence On Oil
Total SA wins big in Brazil auction. Total SA (NYSE: TOT) and partners won an offshore block in a Brazilian offshore auction, agreeing to pay $978 million.
Argentina could freeze energy tariffs. Argentina’s front-runner for president Alberto Fernandez is under pressure from his party to freeze natural gas and power tariffs, and also to peg oil product prices to pesos instead of dollars. Some economists warn that doing so would deter investment in the Vaca Muerta shale. The number of frac stages have already fallen by 25 percent since current President Mauricio Macri implemented temporary price freezes, according to S&P Global Platts.
ExxonMobil awards $13 billion to three companies for Mozambique. ExxonMobil (NYSE: XOM) awarded $13 billion to three companies as it seeks to develop its LNG project in Mozambique.
Saudi Aramco to publish prospectus by end-October. Saudi Aramco plans to offer 1 or 2 percent of the company and could publish a prospectus as soon as October 25.
Ecuador unrest disrupts oil. Ecuador’s President Lenin Moreno is fending off nationwide protests after his decision to remove fuel subsidies. He moved his government out of Quito, temporarily decamping to Guayaquil. Protestors seized some oil installations, disrupting 165,000 bpd, or nearly a third of production. On Wednesday, Ecuador’s state-owned oil company declared force majeure on trading operations. The cuts came as part of IMF prescriptions in conjunction with $4.2 billion in loans. U.S. West coast refiners are most exposed to the disruption, such as Marathon’s (NYSE: MPC) refineries in L.A. and San Francisco.
Chevron boss likes Texas. Chevron CEO (NYSE: CVX) Mike Wirth had disparaging words for his company’s home state of California, while praising Texas. “The policies in California have become pretty restrictive on a lot of business fronts, not just the environment,” Wirth said. “I don’t know there’s a better place in the world for us to do business than” Texas and the Gulf Coast, he said at an event in Houston. Chevron’s home may be in California, but its largest office is in Houston, which continues to grow with the company’s increased focus on the Permian basin. Wirth also said that Chevron will cut flaring rates.
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Halliburton slashes jobs. Halliburton (NYSE: HAL) announced that it would cut 650 jobs across four U.S. states this week. The oilfield services company blamed the slowdown in shale drilling.
World’s 50 largest oil companies to increase supply by 7 mb/d. The world’s 50 largest oil companies have plans to increase oil production by 7 mb/d over the next decade, according to The Guardian. The research suggests that the companies could add 35 percent more between 2018 and 2030 compared to the previous 12 years. The Guardian notes that these plans stand in direct contradiction to greenhouse gas emissions reductions required to avoid the climate crisis.
Nigeria gains higher OPEC quota. OPEC granted Nigeria a larger production quota as part of the curtailment agreement with non-OPEC countries. Nigeria has been allocated 1.774 mb/d, up from 1.685 mb/d previously. Related: Oil Pirates: The Gulf Of Mexico’s Billion Dollar Problem
Large oil traders bearish on prices. Vitol Group and Trafigura, two of the world’s largest oil traders, see oil prices languishing in the $50s next year. “Without some resolutions to the trade wars then we remain a little bit bearish, a five handle for us,” said Russell Hardy, chief executive officer at Vitol.
India’s Reliance to resume Venezuela oil loadings. Indian refiner Reliance Industries Ltd. is set to resume purchasing oil from Venezuela in October after a four-month pause, according to Reuters.
Fort McMurray goes bust. Fort McMurray in Alberta was once the booming capital of Canada’s oil sands industry. Now it has gone bust.
California blackout; Tesla tells car owners to charge up. PG&E (NYSE: PCG) issued a historic pre-planned blackout of nearly a million people in northern California in order to head off fire risk. Tesla (NASDAQ: TSLA) sent a message to owners of its vehicles to charge up ahead of the blackout in order to ensure they can still drive. PG&E’s share price fell nearly 30 percent on Thursday.
Sanctions on Chinese shipper interrupts LNG. U.S. sanctions on Chinese shipping company COSCSO could interrupt LNG shipments from Southeast Asia to China, according to S&P Global Platts. Shipping rates have also gone through the roof in the wake of the sanctions.
By Tom Kool for Oilprice.com
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The only bullish factor that could give a strong push upwards to oil prices is a breakthrough in the trade war between the United States and China.
Even a deeper cut by OPEC+ will prove futile while the trade war is continuing. It will merely deprive OPEC+ of a slice of its market share with no effect whatsoever on oil prices. In other words, OPEC+ will be treating the symptoms rather than the disease. The disease is the glut and the cause is the trade war
President Trump knows he lost the trade war with China. He has no alternative but to end it soon if he wants to improve his chances of winning four more years in the White House. He can’t go to the American electorate with a declining US economy and a trade war trailing behind him.
An end of the trade war will lead to a deep reduction of the glut and this will enhance global demand for oil and therefore prices. As a result oil prices could surge to $70-$75 a barrel.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London