Wednesday, February 07,
2018/ 08.45 AM / OilPrice.com
In today's newsletter, we will take a
quick look at some of the critical figures and data in the energy markets this
We will then look at some of the key market movers early this week before
providing you with the latest analysis of the top news events taking place in
the global energy complex over the past few days. We hope you enjoy.
Important Note for Energy Investors: A revolutionary shift is about to occur, and there’s one
small, publicly traded company—trading for $15—at the center of it all. Those
closest to this development are buying all the stock they can. You want to be a
shareholder, however small a position. This could be your trade of the year. - China surpassed the U.S to become the
world’s largest oil importer in 2017, averaging 8.4 million barrels per day
(mb/d) of imports compared to just 7.9 mb/d for the U.S. China had already
become the largest importer of petroleum and other liquid fuels in 2013.
- China’s demand continues to rise, but its imports are also
elevated by China continuing to fill up its strategic petroleum reserve.
Domestic oil production also fell sharply, accentuating China’s import
- Higher U.S. crude oil exports also lowered the net import
figure last year.
- ExxonMobil (NYSE: XOM) received a double downgrade at
Barclays. The investment bank lowered its outlook for Exxon’s shares from
Overweight to Underweight.
- Midstates Petroleum (NYSE: MPO)
has offered to merge with SandRidge
Energy (NYSE: SD) in an all-stock deal. Shareholders of MPO
would hold 40 percent of the combined company and SD shareholders would own 60
- Eni (NYSE: E) and Total SA
(NYSE: TOT) reported a large gas discovery
off the coast of Cyprus, the latest in a string of discoveries that could
transform the Eastern Mediterranean into a major gas hub.
Tuesday February 6, 2018
The major news over the last few days is the global market meltdown, which has
inflicted disproportionate pain on the energy sector. Equities sold off around
the world, but energy stocks dropped especially severely. Falling oil prices
and a rebound in the U.S. dollar magnified the losses in the energy space. As
of early trading on Tuesday, the losses continued.
stocks plunge. The Energy Select Sector SPDR ETF, an
exchange-traded fund that tracks the energy sector, lost 4.31 percent on
Monday, the largest one-day decline since January 2016. The fund has lost more
than 10 percent in two days. The losses mirror those at individual companies. ExxonMobil
(NYSE: XOM) saw its share price plunge by more than 10 percent
between Friday and Monday. The oil major was hit on two fronts as poor earnings
came on the same day that markets started melting down. Barclays gave Exxon a
double downgrade. "This is contagious from the financial markets and the
equity market, especially,” Michael Lynch, president of Strategic Energy &
Economic Research, told Bloomberg. "People worry
that the demand may be not as robust over the next couple of quarters as people
have been anticipating.” Hedge
funds hit pause button on oil futures. Ahead of the market
meltdown, hedge funds and other money managers trimmed their bullish bets on oil
futures, the first cut in net-long bets in six weeks. The reduction was small,
but it was an indication that investors were growing wary last week of the oil
price rally. Meanwhile, since that data release, global equities have sold off.
That risks a deeper liquidation of bullish bets on crude oil, which could send
prices careening down. U.S.
ban on Venezuelan oil? U.S. Secretary of State Rex Tillerson floated the idea of a ban on
Venezuelan oil imports into the U.S., a drastic move that would send shockwaves
through a country already dealing with falling oil production and an economic
crisis. American refiners would also be hit. Valero Energy (NYSE: VLO)
(NYSE: CVX) would be impacted the most, the first and
second largest U.S. buyers of Venezuelan oil. They have refineries on the Gulf
Coast that would be negatively affected, a fact not lost on the U.S.
battles Schlumberger for fracking patents. Bloomberg reports
that Halliburton (NYSE: HAL) is trying to convince U.S.
patent authorities that Schlumberger (NYSE: SLB) is using
repackaged Halliburton technology, justifying a cancellation of some patents.
“They’re the two big dogs in the space,” said J. David Anderson, an analyst at
Barclays, according to Bloomberg. “Halliburton and
Schlumberger have been battling for that top spot in North American services
for a decade, so the fact they’re going after each other with patents is not
increase oil price forecasts. A Wall Street Journal survey of 15 investment banks
finds that the banks are revising up their predictions for oil prices for the
year. The average forecast for Brent prices in 2018 jumped to $61 per barrel,
according to a January survey, up $3 per barrel from a month earlier. Permian
with 500,000 bpd of spare capacity. The Permian rivals Saudi
Arabia in terms of spare capacity, at least according to Nansen Saleri, former
head of reservoir management at Saudi Aramco. He pegged spare capacity in the
Permian at 500,000 bpd, which is about a third of the 1.5 mb/d of Saudi Arabia.
“For decades there was one country and one company that had spare capacity and
that country was Saudi Arabia and that company was Saudi Aramco,” Saleri said,
according to Bloomberg. “Now we are seeing an
analog to that in the Permian.” He argues that Permian drillers can ramp up
output in just a few days, faster than anywhere except Saudi Arabia.
majors disappoint in fourth quarter earnings. Lower downstream
earnings due to shrinking margins contributed to a wave of disappointing figures
from the oil majors. ExxonMobil (NYSE: XOM) and Chevron (NYSE:
CVX) missed earnings expectations by a wide margin, while Royal Dutch
Shell (NYSE: RDS.A) and BP (NYSE: BP) fared better.
acknowledges peak demand scenario. ExxonMobil (NYSE: XOM) said
in a securities filing that the effect of climate change regulations and
policies could lead to a decline of oil demand by 20 percent by 2040. The
filing came in response to a 2017 shareholder resolution calling on the company
to assess the risks of climate change to its business. Meanwhile, the oil major
also laid out a scenario in which demand grows by 20 percent over the same
timeframe, a vastly different outcome that the
company says it is using for its business decisions. OPEC
to overshoot? S&P Global Platts estimates that global oil
inventories are mostly drained down to average levels, a conclusion echoed
recently by a report from Goldman Sachs. Data is murky and is often published
on a several-month lag, which could add to the danger that OPEC tightens the
market too much. Head of S&P Global Platts Analytics, Chris Midgley, said
that the seasonal dip in demand could mean that oil prices do not spike until
the second half of the year. EIA
estimates of shale growth “extremely optimistic.” A new report from the Post Carbon
Institute analyzed thousands of shale wells and concluded that the EIA’s
assumptions about the long-term production potential of U.S. shale are “highly
to extremely optimistic, and are therefore very unlikely to be realized.” The
report said that depletion will force shale drillers outside of core areas, and
even there, it will be difficult to keep production elevated for the next
several decades, as the EIA assumes.
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