Oil is officially back in a bull market as confidence grows over both the global economy and the willingness of OPEC+ to adhere to its production cut agreement.
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Friday, January 11th, 2019 Oil entered a bull market this week, having gained 20 percent since the low point reached in December. WTI rose above $52 per barrel, while Brent moved above $61. "The mood brightens, and the market realizes that the world economy and oil demand are not grinding to a halt," Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich, told Bloomberg. "Moreover, there is confidence that the petro-nations will cut supplies as promised to balance the market."
Saudi Aramco releases audit of oil reserves. Saudi Aramco released figures on its oil reserves this week, a figure that has been the subject of speculation for decades. The independent audit was originally initiated in anticipation of Saudi Aramco's now-delayed IPO. The audit largely confirmed what Saudi officials have long said - that the Kingdom is sitting on massive reserves. The audit revealed 266.3 billion barrels of oil reserves and 307.9 trillion cubic feet of natural gas. Meanwhile, Aramco is expected to issue its first ever international bond sale later this year, with plans to use the proceeds to finance its acquisition of petrochemical giant Sabic.
BP eyes gas find in Caspian. BP (NYSE: BP) plans on drilling six new exploration wells in Azerbaijan by 2020, with the hopes of making another giant natural gas discovery. BP only recently brought its $28 billion Shah Deniz gas field online, but as Bloomberg reports, the oil major hopes to replicate that success. "Alongside Brazil, Azerbaijan stands out in terms of the areas of focus for the next few years," Gary Jones, BP's regional president for Azerbaijan, Georgia and Turkey, told Bloomberg in a phone interview. "It's a very significant exploration program for us, which demonstrates the confidence and the role that we see in the Caspian."
Related: OPEC's No.2 Boosted Production, Exports Just Before Cuts Began
Automakers to spend $300 billion on electric vehicles. Global automakers have plans to spend at least $300 billion developing and rolling out electric vehicles over the next decade, according to a Reuters analysis. Nearly half of that total - $135 billion - will be spent in China, where a suite of government policies are pushing technologies and EV adoption forward.
Offshore oil spending to rise by 6 percent. The oil industry will increase offshore spending by 6 percent this year, according to Bloomberg and Rystad Energy. That figure will jump to a 14-percent increase in 2020.
China pulls back on renewables subsidies as costs decline. China is paring back subsidies for solar and wind because new projects can compete without government support. Reuters reports that unsubsidized renewable energy now costs about the same as coal-fired power plants. "Some regions with good natural resources and firm demand have already achieved subsidy-free, or grid price parity, conditions," said China's National Development and Reform Commission (NDRC).
New generation in U.S. mostly renewable. The EIA expects 23.7 gigawatts of new electric capacity to be installed in the U.S. this year, and more than 60 percent of that will be wind and solar.
Pompeo lays out activist U.S. foreign policy. U.S. Secretary of State Mike Pompeo laid out a "new" vision for U.S. foreign policy in a speech in Cairo, declaring that "the age of self-inflicted American shame is over." The speech was vague but promised more action in the Middle East, mostly centered on containing Iran. The speech raised questions, however, because it seemed to contradict President Trump's desire to withdraw troops from Syria.
Government shutdown hits ANWR. The U.S. Bureau of Land Management delayed hearings on its draft Environmental Impact Statement for oil and gas leasing in the Arctic National Wildlife Refuge due to the government shutdown.
Related: There Is Still Room To Run For Oil Prices
Potential Permian pipeline delay. The 900,000-bpd EPIC oil pipeline that will run from the Permian to the Texas coast in Corpus Christi could face some delays due to regulatory holdups. EPIC Crude Pipeline LP said the expected third quarter startup is in "some jeopardy."
India pays for Iranian oil in rupees. India has begun paying for oil from Iran in rupees, according to Reuters. India received a waiver from the U.S., allowing it to buy Iranian oil through May. Iran is attempting to construct payment structures and barter deals to bypass U.S. sanctions.
TAP pipeline eyes 2020 startup. The Trans-Adriatic Pipeline (TAP), which will ferry natural gas from the Caspian to Italy, and then on to other parts of Europe, has completed the $4.5 billion in project financing. This will allow the pipeline to finish up its final leg, putting the $40 billion project on track for a 2020 startup. TAP will allow Europe to access non-Russian gas, and as such, it has enormous geopolitical implications.
U.S. oil boom sets off scramble for ports. There are seven proposed oil export terminals for the U.S. Gulf Coast, as developers race to profit off of the export boom. Major developers, including Trafigura and a company backed by Carlyle Group, are battling it out to be the first mover.
Mexico faces widespread gas shortages. The Mexican government shifted gasoline shipments from pipelines to tanker trucks in an effort at cracking down on fuel theft from pipelines. However, the move has caused widespread fuel shortages in the country.
ExxonMobil considers EV infrastructure investment. ExxonMobil (NYSE: XOM) is reportedly mulling an investment in EV recharging infrastructure, although the company has declined to reveal details. If true, it is a glaring recognition that even the more conservative oil executives see the future as one dominated by clean energy. While several European oil majors have made investments in EVs, recharging infrastructure and renewable energy, Exxon has notably refrained from such moves.
By Tom Kool for Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More
Comments
Folks, please remember that "the market" is NOT an entity that functions on its own but rather group of investors--and the main driver behind prices has been and most definitely still is 'algos' (algorithmic trading on behalf of hedge fund managers and private equity firms accounts for approx. 84% of all trades).
WTI's 2018 low of $42.36/bbl and the recent high (made just today) of $53.31 represents an upward surge of $10.95, or an increase of almost 26%. Can you name any other investment that is up that much in the same time?
Why should long-time traders such as myself do my part to bid the price any higher without any explanation of what OPEC+ plans on doing with that $11/bbl that we have already given them, despite the production cuts just starting and data from both API & EIA report no such considerable losses with inventory.
Why is RBOB at all this week? Data continues to show massive builds yet it moves in tandem with WTI, so why is there even a separate futures product if consumers are paying more for the same stuff?
Please don't forget: As a trader, you can make the same amount of money just as easily by shorting the market--but as an oil bull, you mostly are helping the Saudis and Russians...let that sink in and I for one have not forgotten 9/11.
Three bullish developments could be at play during 2019. The first is the growing feeling in the global economy that the trade war between the US and China could be coming to an end.
The second is the recently-agreed OPEC+ cuts amounting to 1.2 million barrels a day (mbd) and Saudi Arabia’s determination to effect even deeper cuts in its oil production if necessary in support of oil prices.
The third development is the reported slowdown in US shale oil production. The latest disclosure by the Wall Street Journal (WSJ) that US shale companies have over-hyped the production potential from thousands of shale wells comes in the footsteps of many authoritative organizations including MIT accusing the US Energy Information Administration (EIA) of overstating US oil production.
And despite bullish influences, two bearish elements may still be at play in 2019, namely the failure of US sanctions to cost Iran the loss of even one barrel from its oil exports leading the global oil market to realize that there will not be a supply deficit in the market.
Another bearish element is the hiking of the US dollar’s rates which in effect slows down the global demand for oil.
One important topic that hit the headlines yesterday is the claim that an independent
audit confirmed what Saudi Arabia has been telling the world about the size of its proven reserves. It transpires that the audit can neither be independent nor unbiased and I will explain why.
First, the companies that conducted the audit (DeGolyer, MacNaughton, and Baker Hughes’ Gaffney, Cline, and Associates) have or have had service contracts with Saudi Aramco, so it can’t truly be classified as an independent audit.
Second, the audit smacks of a blatant attempt by Saudi Aramco abetted by foreign oil companies which are beneficiaries of Saudi Aramco largess to resurrect the IPO of Saudi Aramco. This attempt is bound to fail miserably because the IPO is dead and buried. Saudi King Salman ordered its withdrawal because of risk of American litigation related to the 9/11 destruction of the World Trade Centre in New York and question marks about the true size of Saudi proven oil reserves.
Third, we need to know the method the companies used to calculate the reserves. To get a relatively accurate figure, they need to count the actual number of Saudi oil-producing wells and the production and recoverable reserves of each. I doubt the companies would have done that as it takes a very long time to track the production and reserves of each well.
Four, a simpler way of estimating Saudi proven reserves is to add Saudi production since the discovery of oil in 1938 till now (for which we have figures) and have it deducted from Saudi claimed proven reserves along with an annual depletion rate of Saudi aging fields averaging 5%-7% for the same period. When I did exactly that, my calculations came to around 70-74 billion barrels (bb) of remaining reserves. My figures are more or less in line with those of other experts.
Five, the fact that Saudi Arabia’s proven reserves remained virtually constant year after year despite sizeable annual production and a lack of major new discoveries since 1965 is due to the Saudis increasing the oil recovery factor (R/F) to offset the annual production. The Saudis have been declaring an R/F of 52% or even higher when the global average is 34%-35%.
Another important topic in the news is that India is not only buying increasing volumes of Iranian crude but is also bypassing US sanctions altogether by paying for its Iranian crude imports in rupees. The sanctions are doomed to fail miserably.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London