Oil Markets: Oil Bulls Broken By Economic Fears - OIR 251019

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Friday, October 25, 2019   /08:07PM  / By Tom Kool of Oilprice.com / Header Image Credit: Oilprice.com


While a surprise inventory draw, positive noises from OPEC and geopolitical uncertainty have driven oil prices up this week, bullish sentiment has been largely smothered by growing fears of a global economic recession. 

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Friday, October 25, 2019

Oil was down at the start of trading on Friday, but was poised to close out the week with modest gains on the back of EIA inventory drawdowns and rumors of OPEC+ cuts. 

Trade talks eye turning back the clock. Top U.S. and Chinese trade negotiators have discussed a plan in which China would buy more farm products in exchange for the U.S. removing some tariffs, according to Reuters. The outlines of the partial deal are striking since they would essentially attempt to take the trading relationship back to where it was before the trade war, without touching the hot button issues of intellectual property. Even still, there is a long way to go - for now, President Trump has only agreed to cancel the October 15 tariff increase on $250 billion worth of goods. China is offering more purchases, but also wants the planned December tariffs scrapped. 

Offshore oil companies use loophole to save $18 billion. A new government report found that a loophole has allowed offshore oil drillers to avoid paying a combined $18 billion in royalties to the U.S. government over the past few decades. 

U.S. refined product exports barely grew in 1H2019. Exports of gasoline, diesel and other refined products have soared over the past decade, but growth came to a halt in the first half of 2019. Exports averaged 5.47 mb/d, according to the EIA, up by a paltry 19,000 bpd (0.3 percent) from the same period in 2018. The agency said the sudden slowdown is likely due to lower refinery runs and a slowing economy. 

Rosneft switches from dollars to euros. Russia's Rosneft has entirely switched the currency of its oil contracts from dollars to euros, a move intended to avoid U.S. sanctions. It is part of a broader de-dollarisation plan by the Russian government.

Low-sulfur stockpiles growing. With the implementation of the IMO rules on marine fuels just two months away, stockpiles of low-sulfur fuels held in floating storage around the key storage hub of Singapore are growing. Roughly 32 supertankers are anchored in Malaysian waters near Singapore, according to Reuters

IEA: Offshore wind a "game-changer." A new report from the IEA explores the "game-changing" potential of offshore wind. Costs for the technology are forecasted to fall by 40 percent by 2030. The IEA said the magnitude of the potential is on par with two other energy revolutions of the past decade - fracking for shale and the explosive growth of solar. "Looking at the future of offshore wind...it has the potential to join the ranks of shale [gas] and solar photovoltaics in terms of steep cost reductions," IEA executive director Fatih Birol said. Total investment in the offshore wind sector could reach $840 billion over the next two decades.  

Russia sees the end of U.S. shale. Russia's energy minister Alexander Novak said that U.S. oil production growth leveling off. "In the near future, if forecasts turn out correct, we will see a plateau in production," Novak said.

U.S. moves to protect Citgo. The Trump administration blocked required bond payments by Citgo to creditors. The U.S.-based Venezuelan refining company faced imminent breakup due to a $913 million bond payment, but the Trump administration views the company has crucial to the opposition leader Juan Guaidó. The move gives Citgo a 90-day reprieve.  

Trump sides with refiners on biofuel dispute. Biofuel groups revolted after the latest proposal by the EPA to increase demand for ethanol disappointed, and Bloomberg reports that the White House essentially sided with the EPA and refiners over the objections of the Department of Agriculture and biofuels groups. 

Tesla beats short sellers. Tesla (NASDAQ: TSLA) posted a surprise profit in the third quarter, and the company's stock price jumped by 20 percent, burning short sellers. 

Climate litigation week. ExxonMobil (NYSE: XOM) went on trial this week for allegedly defrauding investors over its climate risk. However, several other cases also inched forward. On Tuesday, the U.S. Supreme Court rejected a request by more than two dozen oil companies to block a state court lawsuit brought by the city of Baltimore. The industry wants the case in federal court, not state court. Baltimore is suing for damages related to climate change. Separately, the Attorney General of Massachusetts sued ExxonMobil on Thursday for defrauding investors, mirroring the case in New York. 

Chevron sees Permian boom continuing. Chevron (NYSE: CVX) dismissed rising concerns about the longevity of the shale boom. "We see a long, healthy pace of activity in the Permian and Texas for decades to come," Steve Green, president of Chevron's North American business, said at a forum sponsored by the Texas Oil & Gas Association.

Kuwait could limit oil production on climate concerns. Kuwait may cut its long-term oil plans due to climate change, a move that would raise eye-brows since most state-owned companies have not waded into such waters. Bloomberg reports that a source with knowledge of internal discussions said that Kuwait Petroleum Corp. could cut its plans to reach 4 mb/d of capacity by 2020 to 3.125 mb/d instead. It would also lower its 2040 target to 4 mb/d instead of 4.75 mb/d. 

Equinor profits disappoint. Equinor (NYSE: EQNR) reported a larger-than-expected decline in profits for the third quarter, due to a decline in natural gas prices and production. Earnings fell to $2.59 billion, down from $4.84 billion a year earlier. 

California considers electric truck mandate. California air regulators are exploring mandates to require half of all medium and heavy trucks to be zero-emission by 2030, which would be the first of its kind. A final vote is expected by mid-2020. 

Schumer proposes EV bill. Senate Minority Leader Chuck Schumer is proposing a $450 billion "cash for carbon" bill, a major initiative that would aim to replace a fifth of the U.S. auto fleet with EVs within 10 years. Senator Schumer said that the proposal would be part of climate change legislation if the Democrats retake the majority after the 2020 election. 

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