September 06, 2019 /08:48PM / By Tom Kool of Oilprice.com
/ Header Image Credit: Oilprice.com
Bullish sentiment appears to be creeping back into oil markets as China
and the U.S. agreed to hold trade talks in October while the EIA released
another positive report.
September 6th, 2019
Oil was down at the start of trading on Friday, but has shown more life this
week after the U.S. and China agreed to hold trade talks in October. Jobs data
from the U.S. Labor Department was slightly worrying, with employment gains
slowing, but markets are increasingly confident that the Federal Reserve will
cut interest rates again this month.
report provides boost to oil. Another bullish report from
the EIA eased fears of an imminent recession. The agency reported strong
drawdowns in crude oil, gasoline inventories, and a dip in production. Oil
prices rose on the news.
to revoke California waiver on fuel economy standards. In
what would be a dramatic escalation in the standoff between the Trump
administration and California over national fuel economy standards, the EPA is
preparing to revoke the waiver granted to California that allows the state to
set stricter fuel economy standards than the federal government. On a separate
track, the EPA is in the midst of trying to water-down federal requirements for
automakers. Just weeks ago, major automakers announced a plan to align their
operations with the California standards, a blow to the Trump administration. "Going for preemption is the nuclear option," said Jody Freeman,
a Harvard environmental law professor.
takes steps on $1 billion hedging program. Mexico has
initiated the process for its $1 billion oil hedging program by asking banks
for quotes, according to Reuters. Mexico
engages in an annual hedging program, locking in prices for the upcoming year,
in the world's largest sovereign derivatives trade. Mexico's 2019 sales were
locked in at $55 per barrel.
veiled threat against private oil industry. The frontrunner
and likely future president of Argentina said on Thursday that "it makes no
sense to have oil if multinationals take it," a cryptic statement that will
likely send a shudder through the oil industry in the country. "I have no
problems with multinationals, but my main concern is to generate wealth for
Argentina and the Argentines," Alberto Fernandez said. Meanwhile,
the economic and political crisis, which has led to price controls on oil and
fuel, has severely damaged the prospects of Vaca Muerta development. YPF (NYSE:
YPF) saw its share price recently drop to an all-time low.
preparing to leave Venezuela if needed. Chevron (NYSE:
CVX) is laying the groundwork for an exit from Venezuela in the
event that the Trump administration lets its sanctions waiver for the company
expire. Bloomberg reports that Chevron
updated some of its agreements with partners to remove penalties if Chevron
decided on early termination.
Resource downgraded on "elusive" cash flow. TD Securities downgraded Centennial
Resource Development (NASDAQ: CDEV) to Hold from Buy with a $6
price target, arguing that free cash flow will "prove elusive" in a range-bound
oil price environment. The CEO recently acknowledged that the company's
high-growth model would remain challenged with current WTI prices, and admitted
that free cash flow was unlikely in 2020.
destabilizing oil market. According to Emirates NBD, OPEC
is actually destabilizing the oil market, rather than stabilizing it. The production cuts have simply created
one more source of uncertainty.
removes all "buy" ratings from oil majors. Redburn, an
equity research firm, has removed all of its "buy" ratings from integrated oil companies, citing "existential risk" from
looming peak oil demand. Redburn says that oil demand forecasts are
underestimating forthcoming government action to address climate change, and
that demand estimates are at least 30 percent too high. It amounts to a near
sector-wide downgrade. ExxonMobil (NYSE: XOM) received a
rare "double downgrade."
Oil majors overspending on climate-busting projects. A new report from Carbon
Tracker estimates that the oil majors have spent $50 billion recently on projects
that are not aligned with the Paris Climate agreement. The report says that the
industry is essentially betting heavily against compliance.
wave coming in U.S. shale. Beaten down U.S. E&Ps are
looking increasingly appetizing to the oil majors. With share prices trading at
mere fractions from a year ago, the time is ripe for more M&A activity in the shale patch, according to analysts.
glut far from over. Lithium supplies could outpace demand
until the early 2020s, keeping prices low until that time. Morgan Stanley sees
lithium carbonate prices from South America dropping by 30 percent
shale sector cutting spending. U.S. E&Ps are cutting
spending, staff and production targets as confidence in higher oil prices has
evaporated. "You're going to see activity drop across the industry," Earl
Reynolds, CEO of Chaparral Energy (NYSE: CHAP) told Reuters. Investment
bank Cowen & Co. expects collective spending by the industry to fall by 11
percent in the second half of 2019. Scott Sheffield, CEO of Pioneer
Natural Resources (NYSE: PXD), expects WTI to remain below $55
per barrel for the next three years, which could result in a "significant
fallback in Permian growth" and probably "no growth for most" companies.
oil contractor halts work in Venezuela. Because of lack of
payment, a Chinese oil contractor stopped work on a
crude blending facility.
met with Ag and EPA on biofuels. In an attempt to sooth the
anger of American farmers over recent waivers to oil refiners, allowing them to
get out of their biofuels blending requirements, President Trump met with the
Agriculture Department and the EPA to come up with a way to boost demand for
ethanol. The proposal could consist of increasing ethanol requirements by 1
billion gallons in 2020. The oil refining industry is incensed. The plan "jeopardizes the refining industry's support of the president and would
undoubtedly raise fuel prices for consumers, neither of which would be good for
the president going into next year's election," said Chet Thompson, head of the
American Fuel and Petrochemical Manufacturers.
to sell $4 billion assets in Norway. ExxonMobil
(NYSE: XOM) has agreed to sell its
Norwegian assets for $4 billion, ending a century of work in the country,
according to Reuters.
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Drown The World In Oil
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