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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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Oil Prices Spike On Middle East Tensions

Oil prices rose on Friday on bullish data from China showing an uptick in oil imports by 1 million barrels per day in September, from a month earlier. On top of that, anxiety over President Trump’s decision to decertify the Iran nuclear deal, plus simmering tension in Iraq likely added a bit of upward pressure on crude prices. WTI and Brent gained more than 2 percent in early trading on Friday.

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Friday, October 13th, 2017

Trump to decertify Iran deal. President Trump has confirmed his plan to decertify the Iran nuclear deal on Friday, a move that could ratchet up tensions between the two nations. However, he will stop short of calling for new sanctions. Instead, he will ask the U.S. Congress to hold off until the administration tries a new strategy to tighten the screws on Tehran. Iran promised a “crushing” response if the U.S. declared the Revolutionary Guard a terrorist organization. As of now, the ramifications for the oil market are unclear, but probably not that significant in the near-term. The key European nations party to the agreement are still supporting the original deal.

Troops mobilize in Iraq. Kurdish authorities have sent thousands of troops to the key oil region of Kirkuk to defend the region, after the Iraqi government mobilized troops and tanks south of the city. The military movements raised concerns of a possible clash between the central government in Baghdad and Kurdish forces, a development that some fear could lead to civil war. Related: Kurdistan Accuses Baghdad Of Planning Oil Field Seizure

OPEC revises up demand forecast. OPEC increased its demand forecast for its oil in 2018, and also said that the oil market could flip into deficit next year. The group said that the world would need 33.06 million barrels per day (mb/d) from OPEC, an upward revision of 230,000 bpd from its last forecast. That is the third consecutive month that OPEC has increased its demand projection for 2018 and it underscores the growing confidence in the impact of the collective cuts. Separately, a top OPEC official estimated that the crude inventory surplus would be eliminated next year. Meanwhile, the IEA warned that while progress is being made, the inventory gains will stall next year as non-OPEC supply picks up pace. The Paris-based energy agency said that OPEC will probably need to take more dramatic action to accelerate the tightening underway.

Top OPEC official says more countries need to participate in cuts. OPEC’s Secretary-General made headlines this week on multiple fronts, stating that the group needs to take “extraordinary measures” and also calling on U.S. shale to restrain output. Another comment he made included the notion that more nations need to join in on OPEC’s production cuts in order to accelerate the rebalancing effort. It remains unlikely that any substantial cuts will come from additional countries, but the market is growing confident that the OPEC/non-OPEC coalition will at least stick with the current agreement and possibly extend it.

Oil executives see sub-$60 oil next year. A Deloitte survey of 250 oil executives found that the industry does not see oil rising above $60 per barrel next year and most see oil remaining below $70 per barrel through the end of the decade. That is marked shift from last year’s survey, which had some executives seeing a steady increase in prices. “The bottom line is that companies should focus on cost discipline and operational efficiency,” said Andrew Slaughter, head of Deloitte’s Center for Energy Solutions. “The new reality seems to have set in; waiting for a significant price recovery may be a long haul.”

$30 oil a thing of the past. The oil market has erased enough of the surplus that prices won’t return to $30 per barrel, according to the head of global oil analytics at S&P Global Platts. “We think with the surplus stocks are mostly gone–we’re not going to see $30 oil anymore,” S&P’s Gary Ross said a conference. “We’re basically in a $50 to $60 Brent world for the time being.”

China to “compel” Saudi Arabia to use yuan. Carl Weinberg, chief economist and managing director at High Frequency Economics, told CNBC that the days of the U.S. dollar dominating the oil trade are numbered. As China has overtaken the U.S. as the world’s largest oil importer, it will eventually convince countries to deal in yuan instead of the dollar. Weinberg argues that the yuan will overthrow the dollar when Saudi Arabia agrees to the switch, prompting others to follow suit. If that occurred, demand for dollars and U.S. treasuries would decline sharply.

Shell to scale up EV recharging stations. Royal Dutch Shell (NYSE: RDS.A) is raising some eyebrows with its decision to purchase NewMotion, a Netherlands-based provider of electric vehicle recharging infrastructure. Shell said it would roll out EV infrastructure at most of its 45,000 retail locations. The move is notable because Shell has been one of the more bullish forecasters on EVs, predicting peak oil demand could arrive within the next decade and a half.

BNP Paribas to stop financing shale and oil sands. France’s largest bank said that it would no longer finance oil sands or shale drilling projects as a matter of policy. “These measures will lead us to stop financing a significant number of players that don’t further the transition toward an economy that emits less greenhouse gas,” BNP Paribas CEO Jean-Laurent Bonnafé wrote in a statement. Related: The Next Big Digital Disruption In Energy

Chevron abandons Great Australian Bight. Chevron (NYSE: CVX) scrapped plans to drill in deep-water off the southern coast of Australia, citing low oil prices. BP (NYSE: BP) made a similar decision last year, arguing that in a world of scarce capital, the Great Australian Bight didn’t make the cut. Only Statoil (NYSE: STO) still has drilling plans in the Bight on the drawing board.

ExxonMobil expands in South America. ExxonMobil (NYSE: XOM) has made several significant moves in South America this year. The oil major is developing its offshore assets in Guyana, and the drilling campaign resulted in yet another discovery last week in the South American nation. Also, at the end of September, Exxon acquired 10 offshore blocks in Brazil, a notable investment in a country that it had abandoned years ago. Exxon partnered with Petrobras to vastly outbid the competition, hoping to capitalize on some offshore acreage after the Brazilian government liberalized the energy sector in 2016. Moreover, Exxon is scaling up investment in Argentina’s Vaca Muerta shale, with commitments to spend $200 million to develop shale oil and gas. The investments amount to a sizable foray into South America.

By Tom Kool for Oilprice.com

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