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Oil

Oil prices crashed on Friday as a result of a major increase in U.S. drilling activity.

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Friday, February 9, 2018

After a bit of a hiatus mid-week, instability in the global financial markets returned on Thursday. Benchmark oil prices appeared to be headed for steep losses to close out the week.

Oil prices crash on more market turmoil. WTI and Brent lost another 1 percent on Thursday, as global equities sold off yet again. The Dow Jones Industrial Average fell by another 4 percent. That dragged down the entire energy sector. As this newsletter has noted in the past, the preponderance of bullish bets on oil futures from hedge funds and other money managers puts benchmark prices at risk of a correction. That could be underway – WTI and Brent are off more than 10 percent in a week. Forthcoming data will reveal if financial moves from investors are accelerating the oil price slide.

EIA: U.S. to hit 11 mb/d a year earlier than expected. The EIA published its latest Short-Term Energy Outlook, in which it drastically revised its forecast for U.S. oil production, predicting the country will hit 11 mb/d by the end of 2018, a year earlier than it previously thought. In fact, the latest weekly survey estimates that U.S. oil production already jumped to 10.25 mb/d in the first week of February. Surging output threatens to push down oil prices further. The EIA sees Brent averaging $62 per barrel in 2018, and WTI to average $58. Related: Nearly Half Of All Public Buses Will Be Electric By 2025

Statoil, Total and Chevron increase dividends. The oil majors posted mixed results for the fourth quarter. Collectively, profits rose significantly, however, on an individual basis, some of the largest oil companies disappointed, at least relative to analysts’ expectations. Meanwhile, Statoil (NYSE: STO), Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP) all announced dividend increases. Rising oil prices are putting the oil majors back on sound financial footing, allowing them to dish out more rewards to shareholders.

BP to invest $500 million in clean energy. BP (NYSE: BP) said that it plans on investing $500 million per year in renewable energy. The move would come after exiting the sector six years ago after posting losses on solar investments.

Tesla reports record loss. Elon Musk cheered this week as he sent a Tesla roadster into space, but Tesla (NYSE: TSLA) also revealed a record loss for the fourth quarter. The company lost $675 million, with both revenue and spending up. Production problems with the Model 3 continue.

Forties pipeline briefly shuts down. The Forties pipeline briefly shuttered this week on a problem with a control valve, but quickly resumed operations. The crucial North Sea pipeline was responsible for a major outage late last year that pushed up Brent prices.

California to block offshore drilling. The Trump administration is working on opening up the vast majority of U.S. coastal waters for oil and gas drilling, but California announced plans to block the effort. The California Public Lands Commission sent a letter to the Interior Department, urging them to withdraw California from the Trump administration’s offshore drilling plan. The letter also issued a not-very-subtle threat to block permits for any industry equipment or infrastructure moving through the state. “It is certain that the state would not approve new pipelines or allow use of existing pipelines to transport oil from new leases onshore,” the commission wrote in the letter.

U.S. to sell off 100 million barrels from SPR. A provision in the congressional spending plan includes a sale of 100 million barrels from the U.S. strategic petroleum reserve (SPR) by 2027. Combined with previous sales, the move would take the SPR down to 303 million barrels, roughly half of the level it used to hold prior to 2017. Critics warn that the sale is foolish and short-sighted. "This is the biggest non-emergency sale in American history," Kevin Book, managing director of ClearView Energy Partners, told Bloomberg. "This is nothing short of liquidation of a safety net."

Canada overhauls energy regulation. The Canadian government unveiled new rules for energy projects aimed at balancing the complaints from the energy industry about permitting, while also assuaging concerns of environmentalists. New energy projects will now have to be assessed for their health, social, economic and environmental impact. First Nations will also have more influence over the process. The rules have been in the works for two years, and initial reactions from both the oil industry and environmental groups has been positive. Both sides say the new evidence-based approach could address what has been seen as political motivations behind top decision-making.

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New earthquakes in Oklahoma. Earthquakes in Oklahoma are popping up in the Scoop and Stack shale plays, in areas where the injection of fracking wastewater is actually pretty limited. The uptick in seismic activity is puzzling regulators and seismologists. The rate of quakes fell significantly after volumes of wastewater were limited a few years ago.

China to launch yuan-backed oil futures contract. China said that it would launch a yuan-denominated oil futures contract on the Shanghai International Energy Exchange on March 26. The move would bolster China’s currency and its role in the global financial system. It would also offer a rival to the leading crude benchmarks, WTI and Brent. Still, capital controls pose obstacles for China’s effort.

ExxonMobil announces higher reserves. ExxonMobil (NYSE: XOM) announced on Thursday that it added 2.7 billion barrels of proven oil and gas reserves in 2017. That meant the oil major posted a reserve-replacement ratio of 183 percent on the year. Exxon had proved reserves of 21.2 billion barrels of oil equivalent at the end of 2017.

By Tom Kool for Oilprice.com

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