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Oil Prices Boosted By String Of Bullish News

Oil

Friday, August 18, 2017

Oil prices rose on Friday afternoon amid a flurry of bullish news. A sign that traders are regaining confidence in the market. 

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Oil prices fell significantly this week, although they regained some ground on Friday. Reports of weak Chinese demand deflated the market, but a rather bullish EIA report, a weaker U.S. dollar and a falling rig count provided a bit of a lift.

Energy Aspects: Oil prices should be $10 higher. The rapid decline of U.S. oil inventories in recent months suggests the market is tighter than everyone thinks. “Prices should be $10 higher given where the fundamentals are,” Amrita Sen, chief oil analyst at Energy Aspects, told the WSJ. She said that investors have been too worried about rising U.S. oil production. “The market is so obsessed with supply. If U.S. output is going up and stocks are drawing that is an extremely bullish development,” she said, arguing that rising demand is being overlooked.

Citi: Oil stuck between $40 and $65 for next five years. Citi says that oil will be stuck within the range of $40 to $65 through 2022, although the bank said that this assumes “smooth sailing” for the oil market. In other words, some unforeseen shocks could temporarily push prices outside of that range. If disruptions are resolved, which restore supply to the market, prices could crash below $40, but outages could cause prices to jump above $70. But beyond that, prices will be range bound.

Blackstone to purchase Harvest Fund Advisors in a bet on natural gas. Blackstone Group LP (NYSE: BX) is set to buy Harvest Fund Advisors LLC, an investment-management firm with more than $10 billion in assets under management, which will bring midstream energy assets under the private equity giant’s portfolio. The move seeks to profit off of rising natural gas production – the midstream assets benefit from fees, like tolls, so they would make money on the rising volume of gas moving around, regardless of the market price for that gas.

Related: Aggressive U.S. Oil Sanctions Could Bankrupt Venezuela

Goldman loses $100 million on bad gas bet. Goldman Sachs lost $100 million in the past quarter after wagering that natural gas prices in the Marcellus Shale would rise. However, pipeline problems prevented that from happening, causing Goldman’s bet to sour.

Henry Hub goes global. The WSJ reported that natural gas and LNG traders around the world are increasingly using the Henry Hub benchmark, based in the U.S. Gulf Coast, for natural gas pricing. The growing importance of the benchmark is a reflection of the expansion of U.S. LNG exports, as well as the shifting nature of LNG markets. That is, with more supplies coming online from various sources, the LNG market is increasingly similar to that of crude oil, with the disparities in regional prices narrowing.

Brent moves into backwardation. For the first time in years, the Brent futures curve has flipped into backwardation, a sign that the oil market is healing. Backwardation – when front month contracts trade at a premium to futures further out – will help drain inventories as it becomes uneconomical to put oil in storage. The backwardation is a significant development, which many analysts say is a sign that the oil market is progressing towards some sort of balance.

Venezuelan oil exports stall at sea on bank jitters. A crude oil tanker carrying 1 million barrels of Venezuelan oil is stuck off the coast of Louisiana for more than a month “for lack of a bank letter of credit to discharge,” Reuters reported. The deteriorating financial position of Venezuela and its state-owned oil company PDVSA threaten to push the nation into a death spiral – oil accounts for nearly all of its export revenue but production and sales are in jeopardy because of the horrific financial position Venezuela finds itself in.

Trump’s push for Atlantic drilling meets resistance. The Trump administration has supported opening up the Atlantic seaboard for offshore exploration, a plan that has run into a “wall of resistance,” according to E&E News. While Republicans are typically supportive of the oil and gas industry, coastal residents of all stripes have come together to block the U.S. government’s plan to open up the coast for oil and gas exploration. Thursday was the deadline for public comments, ahead of a potential revision of the five-year exploration plan for 2019-2024.

Texas oil and gas employment still rising. New data from the Federal Reserve Bank of Dallas shows that the oil and gas industry added 4,300 jobs in June, compared to May. Many of those new jobs were in oilfield services, a sign that rising drilling activity was lifting employment. Related: Is Wall Street Funding A Shale Failure?

Shale drillers using less frac sand. After a steep rise in the use of frac sand, shale drillers are cutting back. More sand has been used to drill longer laterals and extract more gas per well. However, Reuters says that the industry is on track to see frac sand use decline in the second and third quarters. Part of the reason is the spike in frac sand prices, which has pushed up costs for oil producers. As a result, drillers are tweaking their well designs to use less sand. Halliburton (NYSE: HAL), for example, reported in July its first decline in the average sand use per well. Frac sand accounts for about 12 percent of the cost of a drilling and fracturing, Reuters says. For sand miners, this development is not good – if drillers cutback at a time when sand mines are expanding, prices could crash.

Iran threatens pull out of nuclear accord. The U.S. has added more rounds of sanctions on Iran this year, but the harder line from the Trump administration has provoked Tehran into threatening to withdraw from the landmark 2015 nuclear deal. “Iran will certainly return to conditions much more advanced than before the negotiations started in a short period, not on a weekly or monthly scale, but on a daily and hourly scale” if the U.S. continues to step up sanctions, Iranian President Hassan Rouhani said.

By Tom Kool for Oilprice.com

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  • Dan on August 18 2017 said:
    Very good report, one of the best. It appears Goldman learned that doing away with the middle man, lobbyists and consultants as Trump said, can help speed up anything as long as facts and common business sense are applied. It takes hours to clean up a spill but weeks or months of consultants charging millions to begin projects again. Im sure young workers looking to buy homes appreciated the order to speed up project approval so they have secure jobs. Hard to believe how fast leaves are changing and Goldman may yet see profit on that pipeline. I remember those 10 month winters. The Climatic Cycle returns.
  • John Brown on August 28 2017 said:
    I'm puzzled? Dropping U.S. oil inventories see like a silly reason for the price of a barrel of oil to trade up another $10. That drop looks more like a silly attempt to artificially hold up the price of oil in a world that has an oil glut, in which U.S. production continues to increase, in which OPEC desperately continues to idle more readily available capacity to prop prices up, and in which I just read that China's strategic reserve may be stuffed to the brim, and Chinese demand my be about to fall. So the equation is this: Huge global Oil glut + rising U.S. production + increasing OPEC idle capacity = soon to drop Chinese demand - a drop in U.S. inventories = $50 or higher per barrel oil? Honestly that equation makes no sense. It should read = $30 or less? Shouldn't it?

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