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Tom Kool

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 Prices Range Bound As Pipelines Come Under Pressure

US oil and gas pipelines have hit yet another snag, leaving crude prices in limbo for the time being. 

Chart of the Week

-    Exports of natural gas from the U.S. to Mexico account for 40 percent of total U.S. gas exports. 

-    A recent pipeline came online in Mexico, connecting Guadalajara to a long-distance pipeline system running from the U.S. border deep into Southern Mexico. 

-    Exports were expected to grow substantially this year, but the pandemic has lowered those forecasts. 

Market Movers

-    Energy Transfer’s (NYSE: ET) Dakota Access LLC filed a motion to stay the court decision to vacate a permit and shut the pipeline down (more below). “We will be immediately pursuing all available legal and administrative processes and are confident that once the law and full record are fully considered Dakota Access Pipeline will not be shut down and that oil will continue to flow,” Energy Transfer said.

-    U.S. Department of Energy authorized Pembina’s (NYSE: PBA) Jordan Cove LNG project, which has ridden a regulatory roller coaster for 15 years. But the pipeline and export terminal still needs to obtain state permits in Oregon.

-    Hi-Crush (NYSE: HCR) says its lenders agreed to extend the term of a forbearance through July 12. The company has been in default due to its failure to be in compliance with the springing fixed charge coverage ratio financial covenant.

Tuesday, July 7, 2020

A wild 24 hours brought a tidal wave of pipeline news to start the week. Meanwhile, oil prices continue to be range-bound, with WTI trading right around $40 per barrel and Brent just a little bit higher. For now, crude appears stuck between worrying Covid-19 news and a weak economy on the one hand, and tightening oil market fundamentals on the other. Analysts are generally more optimistic for next year, with some predicting prices would rise to $66 per barrel.
    
Dominion scraps Atlantic Coast pipeline. Dominion Energy (NYSE: D) and Duke Energy (NYSE: DUK) canceled the Atlantic Coast pipeline, citing regulatory uncertainty and ballooning costs. The pipeline would have offered a key interconnection from the Marcellus shale to the southeast. The cancellation is a major hit to Marcellus shale drillers and highlights growing investor risk to long-distance pipelines. Dominion was downgraded to Neutral from Outperform by Credit Suisse. Dominion also agreed to sell gas transmission and storage assets to Berkshire Hathaway in a $10 billion deal. Related: Saudi Arabia Hikes Oil Prices For The Third Consecutive Month

Dakota Access ordered to shut down. A federal judge vacated a permit for the Dakota Access pipeline and ordered it to shut down within 30 days. The decision found that the Army Corps of Engineers violated federal law when approving the project. The 570,000-bpd pipeline has been operational for three years. The pipeline needs to undergo a full environmental review, which could last until next year, at which point it is vulnerable to a potential new president in the White House.

Midwest product prices could rise after DAPL decision. The halting of Dakota Access’ operations could increase the cost of shipping oil to the Midwest. Marathon Petroleum (NYSE: MPC) is the most exposed to the shutdown, according to Tudor Pickering. “There could be a big problem in the Chicago market,” Sandy Fielden, director of oil and products research at Morningstar, told Reuters.

Bakken could suffer. The price of oil at Clearbrook, Minnesota – a marker for Bakken crude – fell on Monday, opening up the widest discount to WTI since May. If Dakota Access shuts down, the Bakken will struggle to rebound. 

Saudi Arabia raises oil price to Asia. Saudi Arabia hiked the price of Arab Light to buyers from Asia by $1.20 per barrel, the third consecutive month of price increases, adding further evidence of a tightening market. 

Keystone XL can’t continue construction. A third major court decision ruled that TC Energy’s (NYSE: TRP) cannot continue construction on Keystone XL, another decisive setback for pipeline builders. However, the Supreme Court offered a consolation – reinstating the Nationwide Permit 12 permitting program, a fast-tracked authorization by the Army Corps of Engineers. The decision allows dozens of other pipelines around the country to continue to move forward. Keystone XL was the only exception, the Supreme Court said, blocking its construction for now. 

IEA: Oil demand unlikely to have peaked. The debate about peak oil demand having already arrived due to the pandemic continues, but the IEA’s Fatih Birol has expressed skepticism.

Eni announces 3.5-billion-euro write down. Italian oil company Eni (NYSE: E) said that it would write down between 3.2 billion and 4.2 billion euros, and it would also assess how it can accelerate its transition to low-carbon energy.

Canadian rig count plunges to record-low. Only 18 rigs were active in Canada as of last week, down more than 100 from the same week a year ago. Some fleets may be permanently idled, according to Reuters.

Shale industry got $2.4 billion in government assistance. The U.S. shale industry received at least $2.4 billion in loans from the Paycheck Protection Program.

Sunrun acquires Vivint in major solar deal. Sunrun (NASDAQ: RUN) announced a $3.2 billion acquisition of Vivint Solar (NYSE: VSLR), which will form a major solar PV provider. The companies are the U.S.’ number one and two largest installers. The combined company would have 500,000 customers. The share prices of both companies surged on the news. 

Nearly half of LNG projects face delays. Of the 45 major LNG export projects in pre-construction development, at least 20 are facing delays, according to a new report from Global Energy Monitor. Related: Oil Price Crash Causes Major Recession In Russia

Battery metals see rising demand. After a downturn, the future looks more bullish for metals used in batteries – nickel, aluminum, copper – as governments accelerate efforts to switch to EVs. The European Union and China in particular are aiming to boost EV demand. 

Shell considers moving HQ. Royal Dutch Shell (NYSE: RDS.A) is considering a move from the Netherlands to the UK in order to simplify its governance structure. 

Angola resisting OPEC+ pressure. Angola is resisting pressure from OPEC+ to cut deeper, according to Reuters. “Angola is saying they would not compensate for its overproduction in July-September like the rest of the countries but would be able to compensate only in October-December,” said one OPEC source. “We are still trying to convince them.”

By Tom Kool for Oilprice.com

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