Bearish News Fails To Subdue Oil Prices

Oil & Gas
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Friday, March 16, 2018 7:45 PM / 

Oil prices jumped on Friday despite an increase in the rig count, rising U.S. production and a subdued decline in oil inventories.

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Friday, March 16, 2018

OPEC acknowledged this week that U.S. shale production was rising quickly, and suggested that supply growth would surpass demand this year. Trump’s recent tariffs have created fears of a global trade war, inventory declines have slowed and the rig count has risen once again. Despite all this bearish news, oil prices jumped on Friday, with WTI breaking above $62 and Brent nearing $66.

Saudi Arabia indicates commitment to OPEC cuts. Saudi Arabia dismissed concerns of a fraying OPEC deal, stating that the country would remain committed to the production limits this year. The response came after the Iranian oil minister suggested his country wanted to ramp up production, sparking speculation that the OPEC deal could begin to suffer, but Saudi Aramco said on Wednesday that its output would remain below 10 million barrels per day (mb/d). “Saudi Arabia continues to lead by example by producing below the production targets it agreed to,” the Saudi energy ministry
said in the news release. That statement was unusual because the company typically does not publish what it will produce ahead of time. 

U.S. accuses Russia of cyberattacks against power plants. The Trump administration
accused Russia of staging cyberattacks against U.S. and European nuclear power plants and water and electric systems. Russia had allegedly compromised some power plants by the spring of 2017 and could have disrupted their operations. “We now have evidence they’re sitting on the machines connected to industrial control infrastructure, that allow them to effectively turn the power off or effect sabotage,” said Eric Chien, a security technology director at Symantec, according to the New York Times. “From what we can see, they were there. They have the ability to shut the power off. All that’s missing is some political motivation.” 

EPA signals fight with California over fuel efficiency standards. The U.S. EPA chief Scott Pruitt
indicated that the agency would battle with California over the state’s tighter fuel efficiency requirements for passenger vehicles. The EPA has an April 1 deadline to decide whether or not it wants to try to revise Obama-era fuel efficiency standards for cars and light trucks for model years 2022-2025. California has often led the nation in such standards, which have been credited with dramatically improving the efficiency of the nation’s auto fleet and slowing the growth of gasoline consumption.  

Trump admin staff shakeups. President Trump kicked off what appears to be a significant overhaul of his cabinet this week, sacking Rex Tillerson in favor of CIA Director Mike Pompeo for Secretary of State. That move has raised fears of a more belligerent foreign policy, which could put Iranian oil at risk later this year. Meanwhile, there are
rumors that Trump was considering moving Secretary of Energy Rick Perry over to Veterans Affairs, although that wasn’t a done deal. Also, EPA chief Scott Pruitt has reportedly been angling for the Attorney General job should the president force out current AG Jeff Sessions. However, again, nothing is certain at this time. 

West Virginia orders halt of construction of Rover pipeline. West Virginia regulators
ordered Energy Transfer Partners (NYSE: ETP) to stop construction on the 700-mile Rover pipeline, which would carry 3.25 billion cubic feet of natural gas from West Virginia and Ohio to Michigan. Regulators cited multiple water pollution violations. 

Iraq struggling to attract new investment. Iraq has had ambitious goals of ratcheting up oil production in the years ahead, but the low margins in the country are deterring international companies from making new investments. Many companies lowered their production targets in 2013 and 2014 and might have to lower them again as investment stays on the sidelines, according to
Reuters. Iraq added around 2.5 million barrels per day of new supply over the past decade, but growth has stalled out in the past few years. “There are alternatives in tight oil and deepwater from many of the Iraq players that are more favorable,” Ian Thom, principal analyst at WoodMac, told Reuters. Iraq is getting close to having the capacity to produce 5 mb/d, and could still expand supply by another 10 percent, but that is a far cry from the 12 mb/d the country had once hoped to produce by the end of the decade.

OPEC acknowledges shale growth. OPEC sharply
revised up its forecast for U.S. shale growth this year, an admission that rival non-OPEC production is set to growth significantly. The group said the U.S. would produce 260,000 bpd more than previously thought, and that total global supply would rise faster than demand this year. Meanwhile, the IEA issued a mostly unchanged forecast from last month, but said that Venezuela’s sharp decline could push the oil market into deficit in 2018. 

Statoil changes name to Equinor in nod to green energy. Norway’s Statoil (NYSE: STO)
announced a name change to Equinor, which would reflect a greater focus on renewable energy. The prefix “equi” is supposed to represent equal or equality, an indication that the company would focus on many types of energy production and not just oil and gas. From a marketing standpoint, many analyst panned the name change, but others see it as a sign of the changing times. 

U.S. Commerce to release details on tariff exclusions. The Trump administration has
indicated it would be reluctant to grant exemptions to U.S. companies from tariffs on steel and aluminum imports, and would only do so on a rigorous case for national security. That is an ominous sign for the oil and gas industry, which desperately wants a waiver. Many projects upstream, midstream and downstream require a type of steel that is hard to come by in the United States. For instance, imported steel made up 77 percent of the steel used in pipelines, according to an industry study. The Trump administration is set to release details on the exemption process this week or next week. 

Libya oil looks steady. Libya suffered some temporary setbacks recently at a handful of oil projects, but the country’s output has proved resilient. The IEA
said in a report this week that the North African country’s output was steady and looks set to “hold onto recent gains.” Libya’s production has held up at about 1 mb/d for nearly six months. 

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