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The Oil Bulls Are Back Despite Bearish Fundamentals

In early trading on Friday, oil prices hit a three month high on positive trade war and geopolitical developments. 

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Oil jumped on Friday after the UK election and the announcement of a “Phase One” trade deal between the U.S. and China. Both issues offered some certainty to investors. In early trading on Friday, WTI was at about $60 per barrel, a three-month high. “Risk appetite among financial investors is now likely to remain high thanks to the deal between the U.S. and China,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. But, “the oil market risks facing a massive oversupply and a pronounced inventory build, at least in the first half of the year.”

IEA: Oil glut still coming. The IEA said that despite the OPEC+ deal, the oil market will still see a supply surplus of 0.7 mb/d in the first quarter.

Partial trade deal reached. The U.S. and China reached a partial trade deal, consisting of the U.S. cutting tariffs on Chinese goods and delaying a separate tranche of tariffs scheduled to go into effect next week. In exchange, China would make verbal commitments to buy agricultural goods. The deal would mark a significant climb-down by President Trump, but from the market’s perspective, any truce is positive news. Oil rose on Thursday and in early trading on Friday. Related: Should The West Be Worried About The Power Of Siberia Pipeline?

Saudi Aramco shares surge. Aramco’s shares surged in the first days of trading, which Riyadh took as a vindication of its strategy. The valuation, as a result, briefly hit the Kingdom’s $2-trillion price target. “It’s a great day for Saudi Arabia and the leadership of Saudi Arabia and for the people of Saudi Arabia. It’s a D-Day for Aramco, it’s a day of reckoning and vindication,” Energy Minister Prince Abdulaziz bin Salman told Reuters in Madrid. However, the FT Editorial Board noted the extensive political interference makes the IPO a “pyrrhic victory.”

Chevron moves on from $11 billion write down, greenlights offshore project. Chevron (NYSE: CVX) announced that it would take an $11 billion impairment charge in the fourth quarter largely due to its shale gas business in Appalachia. The shale industry has struggled to prove it can consistently post positive cash flow, and gas-focused assets are under particular stress. Analysts say Chevron’s write down are indicative of a broader industry problem. Meanwhile, Chevron moved on from the bad news and gave the final investment decision on a $5.7 billion Anchor project in the Gulf of Mexico.

13 ethanol plants shut down in a year. About 13 ethanol plants in the U.S. Midwest have shut down since November 2018, according to Reuters, victims of the trade war and EPA policies favoring oil refineries.

Big investors predict energy stock rebound. A handful of major investors are piling into the energy sector, betting that battered shares could finally turn a corner. Is energy about to go into bullish mode?

Canadian energy outperforms U.S. energy. Canadian energy companies have seen their shares outpace their American competitors. “The Canadian industry has been starved of capital for four years now,” Rafi Tahmazian, senior portfolio manager at Canoe Financial, said in an interview on BNN Bloomberg Thursday. He said Canada’s industry is “on the edge of extreme profitability.”

EU unveils 2050 climate target. The European Union unveiled its 2050 net-zero emissions target this week, a proposal that calls for 100 billion euros invested in the transition. One of the sticking points was Poland’s vast fleet of coal-fired power plants.

U.S. solar industry grows 45% in third quarter. The U.S. solar market installed 2.6 GW of new solar PV in the third quarter, a 45% increase from a year earlier, and up 25% quarter-on-quarter. The residential sector saw 700 MW of installations, a new record. For the full year, WoodMac expects the sector to grow by 23 percent over 2018.

Permian methane leaks. The New York Times produced a stunning piece of visual journalism, documenting the extensive leaks of methane in the Permian basin. Related: Permian Drillers Are Struggling To Keep Output Flat

U.S. Army to fund rare earths plant. The U.S. Army has plans to finance the construction of rare earths processing facilities, as the supply of those elements is viewed as a national security issue.

The U.S. to dominate oil and gas growth. The U.S. is expected to account for the vast majority of oil and gas production growth over the next five years.

Climate policy could force $1.6 trillion in stock repricing. Climate policy could result in trillions of dollars’ worth of assets suffering a repricing. One report put the figure at $1.6 trillion, while another put it at $2.3 trillion.

Hess and Exxon to export oil from Guyana in 2020. ExxonMobil (NYSE: XOM) and Hess Corp. (NYSE: HES) are scheduled to export the first-ever shipments from Guyana as soon as early 2020.

Total SA to buy Marathon’s Libya assets. Total SA (NYSE: TOT) is buying Marathon Oil’s (NYSE: MRO) assets in Libya for $450 million.

By Tom Kool for Oilprice.com

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  • Mamdouh Salameh on December 13 2019 said:
    While the oil bulls are back, the fundamentals of the global oil market continued to be positive despite the hugely bearish impact of the trade war.

    The news that the US and China reached a partial trade deal immediately started to invigorate the global economy thus providing some certainty and also enhancing the global demand for oil leading to surging oil prices.

    This partial agreement is without a doubt a victory for China since President Trump had to agree to cut tariffs on Chinese goods and delay a separate tranche of tariffs scheduled to go into effect next week in exchange for verbal commitments by China to buy agricultural goods from the US. China which has already won the war was prepared to outwait the United States on tariffs.

    In the final analysis, the real winner is the global economy.

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

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