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Uncertainty Lingers In Oil Markets Despite OPEC Cuts

Oil prices bounced on Tuesday after losing ground on Monday as news of unexpected outages in Libya helped buoy sentiment.

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¬ U.S. LNG export capacity is expected to more than double by the end of 2019, rising to 8.9 Bcf/d, up from 3.6 billion cubic feet per day (Bcf/d) currently.

¬ That will be enough to make the U.S. the third largest LNG exporter after Australia and Qatar.

¬ The U.S. only began exporting LNG in early 2016.

Market Movers

* ConocoPhillips (NYSE: COP) said that its shale output will grow by 25 percent next year even with the prospect of oil prices much lower than 2018 levels. Conoco says its Eagle Ford, Permian and Bakken assets can make a return even with oil at $50 per barrel.

* BP (NYSE: BP)  agrees to consider a climate resolution at its 2019 annual general meeting, pushed by activists investors. The resolution would call on BP to set and publish targets in line with the Paris Climate agreement.

* HESS (NYSE: HES)  announced a $2.9 billion spending program for 2019, forecasting a 12 percent increase in production. Hess also said that 2019 will be the peak spending year for the Liza 1 development in Guyana, which is on track to come online in 2020.

Tuesday, December 11, 2018

Saudi Arabia to cut oil exports by 1 mb/d in January. Saudi Arabia will lower oil exports by 1 mb/d beginning in January. Sources told Reuters exports will drop to 7.3 mb/d, down from 8.3 mb/d in November.

Libya declares force majeure. Libya’s National Oil Corp. declared force majeure on crude loadings at its Sharara field because of the presence of a militia, according to S&P Global Platts. “The shutdown of Sharara will result in a daily site production loss of 315,000 b/d, with an additional loss of 73,000 b/d at El Feel due to its dependence on Sharara for electricity supply,” NOC said in a statement. Related: Saudi Arabia’s Biggest Geopolitical Error

Markets rocked by trade war fears. Despite the hyped Trump-Xi truce, the trade war may only be on hold. U.S. Trade Representative Robert Lighthizer said on Sunday that tariffs would rise on March 1 if a significant deal cannot be reached. Meanwhile, the political turmoil in the UK following the cancelled parliamentary vote on the Brexit package also fed uncertainty. Financial markets started the week in the red.

Russia to only cut by 50,000-60,000 bpd. Russia and other non-OPEC producers agreed to cut a combined 400,000 bpd at the OPEC+ meeting, but the reality is beginning to sink in. The cuts may only be phased in over time. Russia may only cut output by 50,000 to 60,000 bpd in January, according to Russian energy minister Alexander Novak. That could mean that actual reductions from the entire group may trail the headline figure of 1.2 mb/d in cuts.

OPEC+ deal may not impact U.S. shale significantly. The U.S. shale industry is likely rejoicing after the successful OPEC+ meeting, which should tighten the market and push up prices. But some analysts believe the deal won’t significantly alter the shale supply picture. “I just think there's a lot of uncertainty and this is a pretty small cut,” Amy Myers Jaffe, director of the Council on Foreign Relations' energy security and climate program, told S&P Global Platts. The duration of the deal is an open question, as is compliance. The outlook for the global economy could loom much larger for shale operators. “I don't think OPEC has the will to make the kind of cuts we'd need to make if we saw a real recession,” Myers Jaffe said.

Analysts say OPEC+ deal should balance market. Most major investment banks were in agreement that the OPEC+ deal should eliminate the supply surplus in the first half of 2019. Yet, oil prices have not jumped as much as many expected. “The current price weakness is all the more surprising given that just short of 400,000 barrels per day of Libyan oil are currently missing because production has been interrupted at Libya’s largest oil field,” Commerzbank said in a note. Nevertheless, the cuts should do the trick. “We believe that the cuts, if strictly implemented, will rebalance the oil market next year.”

Trump water rule could pave way for new pipelines. The EPA is unveiling a proposed roll back of federal water protections this week, a move that could make it much easier to build new oil and gas pipelines. An estimated 60 to 90 percent of U.S. waterways could lose federal protection.

Morgan Stanley cuts oil pricing forecast. Morgan Stanley expects Brent to reach $67.50 per barrel in the second quarter of 2019, a downward revision by $10 from its prior forecast. The investment bank said that non-OPEC supply growth could still overwhelm demand, which should keep a lid on prices. The OPEC+ deal helps erase some of the surplus, but also removes some risk from non-OPEC suppliers.

Related: Is This The Next Big Petrochemical Hub In The U.S.? 

Citi: Oil flat in 2019. Citibank forecasts Brent to average just $60 per barrel in 2019, or essentially flat from today’s level. That forecast is notable given the sizable cuts from OPEC+. Citi says the cuts could actually sow the seeds of another selloff. “OPEC+ did the work of drawing down inventories that otherwise would have to be done through a painful period for shale producers,” Citi said in a research note. “[T]he more OPEC+ tries to support prices by withholding oil from the market, the more they give the US shale sector an out from rationing supply growth themselves.”

Global investors say lack of climate action risks financial crash. Global investors managing a combined $32 trillion in assets warned negotiators at the UN climate summit that the lack of action on climate change could provoke a financial crisis much deeper than the 2008 meltdown. For instance, investment firm Schroders said that the global economy could see losses of $23 trillion in the long run without rapid action. On the contrary, a rapid clean energy transition could result in enormous benefits. “The low-carbon economy presents numerous opportunities and investors who ignore the changing world do so at their own peril,” said Thomas DiNapoli of the $207 billion New York State Common Retirement Fund.

Atlantic Coast pipeline delayed. A major natural gas pipeline intended to carry Marcellus shale gas to the U.S. South just hit another setback. A federal court ordered the project to halt construction, suspending federal permits because of potential impacts on wildlife.

Iran says oil exports improving. Iranian president Hassan Rouhani said that oil exports from the country have improved since November. “The goal of the Americans was to block our oil exports. I want to say frankly to our people that our oil exports after (Nov. 4) have improved by degrees,” Rouhani said. “So the Americans have been unsuccessful with regard to the oil issue.” Much of it is likely bluster, but there are reports that Japan and South Korea, at least, intend to buy more oil from Iran after obtaining waivers from the U.S. Treasury Department.

By Tom Kool for Oilprice.com

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