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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 Up Despite Demand Fears


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Chart of the Week

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-    The U.S. became a net oil exporter in recent months, having exported 772,000 bpd on a net basis in November 2019.

-    However, most regions outside of the Gulf Coast are still large net importers.  

-    Excluding petroleum products, such as gasoline and diesel, the U.S. as a whole is still a large crude oil importer, having imported 5.8 mb/d of oil in November and only exporting 3 mb/d.  

Market Movers

-    Diamond Offshore Drilling (NYSE: DO) fell nearly 10 percent, dropping to all-time lows after the company’s CFO said it would probably be cash flow negative this year.  

-    Four LNG terminals in Texas received approvals from the U.S. Department of Energy, including Exelon's (NASDAQ: EXC) proposed Annova LNG, NextDecade's (NASDAQ: NEXT) Rio Grande LNG, Texas LNG and an expansion project at Cheniere Energy's (NYSE: LNG) Corpus Christi LNG.

-    Oceaneering International (NYSE: OII) jumped 5 percent on Tuesday on news that the company was awarded a contract from BP (NYSE: BP) for an offshore project in Angola. 

Tuesday February 11, 2020

WTI fell below $50 per barrel on Monday, before bouncing back during midday trading on Tuesday. The hesitation from OPEC+ helped explain some of the decline, but the world continues to watch China for the latest on the coronavirus, where the death toll surpassed 1,000. 

OPEC recommends cuts, but nothing confirmed. OPEC’s JTC recommended 600,000 bpd in cuts and an extension of the deal through the end of 2020. Russia has hesitatedon supporting the proposal and an emergency meeting in February now looks unlikely. The reluctance or hesitation from Moscow helped push prices down on Monday, although many analysts still see a deal taking place in March.

China cuts petrochemical operations. China’s private chemical and refining giant Hengli Petrochemical slashed operations to 90 percent of capacity due to the coronavirus, according to Reuters. The cuts at its 400,000 bpd refinery amount to about 76,000 bpd. PetroChina cut refinery runs by 320,000 bpd as well. 

Oil stored at sea. Vitol, Royal Dutch Shell (NYSE: RDS.A) and Litasco SA are making moves to hire oil tankers in order to store oil at sea, amid a brewing global glut of supply. The flip of the futures curve into a contango situation provides financial incentives to store oil and sell at a later date. 

Related: Can OPEC+ Rescue Oil Markets Once Again?

Natural gas falls again. U.S. natural gas prices fell below $1.80/MMBtu on Monday, dragging down a broad range of gas-focused shale drillers. Gas prices are at a four-year low. Natural-gas prices took “heavy losses to start the week…as mild weather outlooks continue to pressure prices lower,” said Christin Redmond, commodity analyst at Schneider Electric. But the warm weather is a global phenomenon. Mild temperatures probably hit oil demand by about 800,000 bpd in January, according to Gary Ross, founder of PIRA Energy.

Brazil oil workers strike continues. Petrobras (NYS: PBR) could hire emergency workers as a workers strike stretches into its 10th day. 

BP to increase production at Shah Deniz. BP (NYSE: BP) said it would ramp up production at its Shah Deniz gas field in Azerbaijan. The company’s Azeri-Chirag-Guneshli (ACG) oil field lost production last year, and BP will work to maintain output. 

Pennsylvania shale gas permits collapse. As prices fall off a cliff, drilling activity in Pennsylvania’s shale plays plunged 74 percent in January, compared to a year earlier.EQT (NYSE: EQT), the largest gas producer in the U.S., cut activity by more than 80 percent, as did Range Resources (NYSE: RRC)

Peak shale could support offshore boom. Signs of U.S. shale reaching a peak continue to mount, and it could push more companies to shift their sights offshore

Trans Mountain costs soar. The estimated cost of the Trans Mountain Expansion pipeline soared from C$7.4 billion to $12.6 billion, due to higher labor and materials costs. 

Trudeau considers major oil sands project. The Canadian government must make a decision on whether or not to approve a major oil sands project proposed by Teck Resources (TSE: TECK.A). Reuters reports that if the government of Prime Minister Justin Trudeau rejects the project, he would likely consider an aid package for Alberta as compensation. Alberta’s Premier Jason Kenney warned of “devastating” economic consequences for the province if Trudeau rejects the project. 

10 refiners emit dangerous levels of benzene. Ten U.S. oil refineries released cancer-causing benzene levels above federal limits last year, according to a report by the Environmental Integrity Project. Six of the refineries are in Texas.  Related: Peak Shale Could Spark An Offshore Drilling Boom

Chevron adds production in Venezuela. Chevron (NYSE: CVX) has increased production in Venezuela, and President Nicolas Maduro has flirted with loosening control over the sector in order to attract foreign investment. Maduro’s “likely goal is to make it so attractive, companies start to lobby harder in the U.S.,” Raul Gallegos, director at Control Risks, told Bloomberg.

Saudi Arabia and Kuwait to restart Neutral Zone. Saudi Arabia said on Monday that it was ready to restart some production at the Neutral Zone oil fields with Kuwait. The fields have a capacity of 500,000 bpd but have been idled for several years. 

Chevron pushes back on Jim Cramer. Chevron (NYSE: CVX) CEO Michael Wirth said that Big Oil is not like Big Tobacco, pushing back against recent comments from CNBC’s Jim Cramer. The industry is on the defensive as investors bolt. 

By Tom Kool for Oilprice.com 

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  • Mamdouh Salameh on February 11 2020 said:
    I would describe the coronavirus outbreak as an ABERRATION in the global oil market.

    With China virtually in quarantine and therefore closed to business and unable to receive crude oil shipments, one could assume that its crude oil demand would decline significantly pushing oil prices down possibly below $50 a barrel. However, the frenzy in the global oil market will soon evaporate with China’s oil imports and oil prices rebounding and recouping all their recent losses.

    Until the outbreak, China’s economy, the world’s largest based on purchasing power parity (PPP) was projected to grow at a healthy 6.1% in 2020. Moreover, all the fundamentals of the global oil market were positive and the global economy was projected to grow by 3.3%. These positive fundamentals supported by a de-escalation of the trade war would have propelled global oil demand upwards with demand growth projected to add some 1.2 million barrels a day (mbd) over 2019. The sudden outbreak changed the calculus but hopefully not for long.

    Any new cuts by OPEC or deepening production cuts by further 600,000 barrels a day (b/d) will be a total waste and futile with no effect whatsoever on oil prices and will only lead to a loss of market share.

    Even if OPEC’s production plunges by 2.0 mbd on top of Libya’s virtual loss of its production amounting to 1.0 mbd, this will not stop the continued decline in global oil demand and prices as long as the outbreak is still raging. This is not due to lack of global demand but to physical inability of China to import and receive crude oil while it is in quarantine.

    The United States will never become a net crude oil and product exporter for this year or ever.
    In 2019 US net crude oil imports amounted to 8.8 mbd based on a consumption of 21.0 mbd and a CLAIMED production of 12.2 mbd. In 2020, the US will need to import 11.49 mbd of crude oil based on a projected consumption of 21.49 mbd and a PROJECTED production of 10 mbd. Even offsetting its imports of crude oil against exports of 5.5 mbd of refined products leaves it with a deficit of 5.99 mbd. This could only increase given the terminal state of the US shale oil industry. It will be no more in 4-9 years from now.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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