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Two Bullish Factors Pushing Oil Prices Higher

Oil prices were up on Tuesday as Washington agreed to delay the scheduled December 15th tariff hike on China. The impact of the OPEC+ production cut agreement on markets has also yet to wear off.

Oil prices

Rigs

Rig Count

Chart of the Week
Natural gas

- The volume of natural gas that was vented or flared in the U.S. reached a record high 1.28 billion cubic feet per day (Bcf/d) in 2018.

- That rate is equivalent to 1.25 percent of gross withdrawals of natural gas, up from 0.84 percent in 2017.

- North Dakota and Texas alone accounted for 82 percent of all gas flared or vented.

- The pace of flaring surged by even more this year.

- Oil executives have referred to this problem as a “black eye” for the industry.

Market Movers

- Laredo Petroleum (NYSE: LPI) says it has closed a bolt-on acquisition of 4.475 contiguous net acres in Glasscock County, TX, for $65 million. LPI says the acquired acreage is located “in an area of high oil productivity with relevant offset wells indicating first year oil production 37% higher than expectations for legacy Laredo Wolfcamp drilling.”

- Kosmos Energy (NYSE: KOS) fell sharply on Monday, dragged down by the meltdown of Tullow Oil (LON: TLW). Tullow fell by 70 percent on Monday after reporting lower production guidance. Kosmos partners with Tullow in Ghana.

- Marathon Petroleum (NYSE: MPC) and Delek US (NYSE: DK) were downgraded by JPMorgan to Neutral and Underweight, respectively.

Tuesday, December 10, 2019

Oil prices held onto the modest gains following the OPEC+ deal at the start of this week. The next move for crude benchmarks likely depends on the outcome of the U.S.-China trade negotiations, which appear to be moving in the right direction after the U.S. agreed to delay China tariffs.

U.S. to delay China tariffs. At the time of this writing, press reports indicated that the U.S. and China were still haggling over phase one of the trade deal, but were close enough to warrant a delay in the scheduled December 15 tariff hike. The Trump administration is insisting on hefty purchases of American farm goods from China, but Beijing is balking at the volumes demanded. Related: Cautious Canadian Oil Majors Forced To Cut Spending

OPEC+ reactions are mixed. The reaction from oil market watchers to the OPEC+ deal was mixed, ranging from bullish to indifference. Bank of America said Brent could hit $70 this year, while Raymond James was more bullish on 2021, seeing Brent averaging $80. Others noted that the OPEC+ deal may not be all that significant since the cartel was already over-complying.

U.S. Congress reaches deal on Nord Stream 2. The U.S. House and Senate armed services committees reached an agreement on language within the defense bill that would force the Trump administration to sanction companies working on the Nord Stream 2 pipeline. Senator Ted Cruz (R-TX) said the provision would prevent “Putin from leveraging billions of dollars that could be used to fuel Russian aggression”.

Tullow Oil plunges. Tullow Oil (LON: TLW) saw its shares plunge by roughly 70 percent on Monday after its CEO Paul McDade stepped down, the company scrapped its dividend, and it lowered its production targets. The main reason is weaker-than-expected production results from its main assets in Ghana. Tullow has seen delays and technical problems at its Jubilee and TEN fields. Tullow said its output will fall steadily over the next few years.

China imports record level of oil. China imported 11.13 mb/d in November, a record high. But some of that oil could be the result of stockpiling. “Crude oil imports in the first eleven months combined totaled a good 10 million barrels per day, which puts them 10.4% up on the previous year,” Commerzbank said in a note.

Saudi deficit balloons. Saudi Arabia said that its budget deficit will rise to $50 billion next year due to low oil prices and production cuts. That will be $15 billion larger than this year. The Saudi budget requires oil prices in the mid-$80s for it to break even.

Big investors pile back into energy. The FT reports that some high-profile investors, including Warren Buffet and Carl Icahn, are making bets on battered energy stocks, hoping for a rebound. “There’s been a relatively quiet, strategic movement into energy by a group of billionaires,” Thomas Hayes, chairman of New York-based hedge fund, Great Hill Capital, told the FT.

Oil train derails and explodes. A Canadian Pacific oil train derailed in Saskatchewan on Monday and exploded.

Libya declares force majeure on El-Feel. The Libyan National Oil Corp. declared force majeure on crude loadings after the 73,000-bpd El-Feel field was shut down last Thursday.

Devon Energy forms deal with Dow on STACK play. In a creative way to tap new financing, Devon Energy (NYSE: DVN) entered into an agreement with Dow (NYSE: DOW) to jointly develop a part of the company’s STACK assets. Devon will sell half of its interest in 133 undrilled locations in exchange for $100 million. Devon calls the arrangement “innovative,” but it arguably is also a reflection of the restricted capital environment.

Israel tells oil drillers to hold off. Israel’s Energy Minister told three companies – Noble Energy (NYSE: NBL), Royal Dutch Shell (NYSE: RDS.A) and Delek Drilling not to start work on the Aphrodite gas field off the coast of Cyprus until the two countries resolve territorial disputes.

Natural gas prices sink on mild weather. Natural gas prices fell further on Monday on forecasts for warmer weather. Prices fell to $2.232/MMBtu, down 4.4 percent. Prices are now down by roughly 50 percent from a year ago. Related: The Danger Of Deeper OPEC+ Cuts

Brazil to drill amid climate crisis. Brazil said it would continue to expand pre-salt drilling despite concerns about climate change. Brazil’s Mines and Energy Minister Bento Albuquerque said Brazil as a developing country “could not release its grip on hydrocarbons,” according to Reuters. Brazil aims to re-auction blocks that went unsold in a recent offering.

China tries to resell LNG. In a sign of how oversupplied the market for LNG has become, China is looking to resell cargos on the spot market. A slowing economy and full inventories mean that some LNG cargoes have nowhere to go.

Gas emits more CO2 than coal. With natural gas production and consumption soaring, emissions from gas now exceed that of coal in Europe and the United States. New data shows that the rise of gas is also offsetting the gains made from shutting down coal, undercutting its case as a “bridge fuel.”

Europe to unveil green new deal. Europe is set to unveil its version of the Green New Deal this week, a roadmap for net zero emissions by 2050.

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