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Oil Markets Brace For Another Hurricane

Oil prices fell from last week's highs as investors pocketed gains. Not all hope is lost, however. Saudi Arabia and Russia just announced some promising news regarding the rebalancing of the oil markets. 

Friday, October 6, 2017


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Friday, October 6, 2017

Oil prices were soft this week as concerns about oversupply resurfaced and investors pocketed gains from the recent bull run. But positive comments from Saudi Arabia and Russia regarding their resolve to rebalance the oil market helped sooth worries about faltering prices.

Gulf of Mexico oil production disrupted by storm. Tropical storm Nate is making its way through the Gulf of Mexico, forcing a range of oil producers to shut in production and evacuate staff. Nate is expected to strengthen into a hurricane before it makes landfall in Louisiana this weekend. About 15 percent of U.S. Gulf of Mexico production was forced offline, or a little more than 250,000 bpd. An estimated 6.4 percent of the Gulf’s natural gas was also idled. Disruptions and/or evacuations were reported by Royal Dutch Shell (NYSE: RDS.A), BP (NYSE: BP), Chevron (NYSE: CVX), Anadarko (NYSE: APC), ExxonMobil (NYSE: XOM) and Statoil (NYSE: STO).

Trump set to decertify Iran deal. The Washington Post reports that President Trump could announce his plans to decertify the Iran nuclear deal next week. That move will kick the issue to the U.S. Congress, which would have 60 days to decide to reimpose sanctions on Iran, ultimately leading to the unraveling of the deal. But Trump is reportedly also supposed to announce a new strategy intended to confront Iran next week. The move will likely leave the U.S. isolated even from its key allies on the deal because there is not a lot of evidence to suggest Iran is violating the terms of the accord. Related:The Permian Boom Is Coming To An End

Court rejects Trump admin’s attempted delay of methane regulations. The U.S. Department of Interior tried to delay enacting Obama-era regulations on methane emissions from public lands, but a U.S. District Court said the agency violated federal law by doing so. As a result, the regulations will go into effect immediately, forcing oil and gas companies operating on federal land to capture their methane emissions. Interior had tried to delay the rules until 2019.

LNG prices up on Chinese demand. LNG prices typically rise ahead of winter months, but demand is much stronger than expected due to fuel switching underway in China. Spot LNG prices were up 39 percent to $8.40 per MMBtu at the end of September, compared to just $6.05/MMBtu in August.

Saudi visit to Moscow highlights tighter relationship with Russia. OPEC cohesion has been bolstered by the inclusion of Russia in the production cuts, and the growing relationship between two of the world’s largest oil producers suggests coordination will continue through next year. OPEC and Russia have refrained from endorsing a course of action, but the first state visit by a Saudi monarch to Russia highlights the degree to which they are working together. Russian President Vladimir Putin said this week that if the group decides to extend the cuts, it should extend through the end of 2018. The two countries also signed a range of deals that will deepen their energy relationship, including cooperation on drilling technology between Saudi Aramco and Gazprom Neft, as well as preliminary agreements on sizable investments in petrochemical projects.

U.S. oil exports spiked at end of September. U.S. oil exports hit an all-time high of nearly 2 million barrels per day in the last week of September, double the rate from just two weeks earlier. The record spike in exports is largely due to the disruptions related to Hurricane Harvey. The Brent-WTI spread widened to over $6 per barrel in September, making U.S. crude some of the cheapest on the market. The WSJ notes that U.S. oil exports at these levels – although probably temporary – compare to that of sizable OPEC exporters.

TransCanada scraps Energy East. TransCanada (NYSE: TRP) has decided to shelve its plans for the Energy East pipeline, a project that would have carried oil sands from Alberta to Canada’s east coast. TransCanada expects to take an after-tax $1 billion charge. The Canadian pipeline company is still awaiting permits for its much more controversial Keystone XL pipeline, and it is also nearing a decision on whether or not to proceed with the project.

Barclays: EVs will erase 3.5 mb/d of oil demand by 2025. Barclays published a bullish forecast on the growth of EVs, estimating that the rapid adoption of EVs will cut into global oil demand by about 3.5 mb/d by 2025, roughly equivalent to the total oil production by Iran. Beyond that, EVs will account for a third of the auto market by 2040, reducing oil demand by about 9 mb/d. Related: Tax Breaks Make $50 Oil Profitable In The U.S.

The Permian is showing signs of “fatigue.” The Permian basin is slowing down as costs continue to rise for shale drillers. The WSJ became the latest outlet to highlight the changes underway in the hottest shale play on the planet. Investors are clamoring for shale companies to “put the brakes on” and focus on profitability rather than growth. The WSJ noted that costs for oilfield services and labor are rising, while some Permian wells are producing more gas than expected. “All these factors are pointing to slower, more methodical development,” David Pursell, managing director at Tudor Pickering Holt, said in a WSJ interview. “That needs to happen.”

Pemex secures partners for onshore oil. Mexican state-owned oil company Pemex has signed up partners to increase oil production at onshore mature fields. They included Egyptian oil company Cheiron Holdings Ltd. and German firm DEA Deutsche Erdoel. The deals could halt the declining output at some key onshore fields.

By Tom Kool for Oilprice.com

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