Oil Prices Head Higher Despite OPEC Skepticism - OIR 171219


Tuesday, December 17,  2019   /06:37 PM  / By Tom Kool of Oilprice.com / Header Image Credit: Kazakhtv


Today, we will take a quick look at some of the critical figures and data in the energy markets this week. 

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.

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  • Employment in the U.S. coal mining industry declined from 92,000 in 2011 to just 54,000 in 2018. The largest declines were concentrated in Appalachia.

  • In 2008, the U.S. produced 1.2 billion tons of coal from 1,458 mines. In 2018, those figures fell to 756 million tons from 679 mines.

  • Appalachian mines tend to be smaller and more labor-intensive.    

Market Movers

  • ConocoPhillips (NYSE: COP) saw its outlook upgraded to Overweight by Atlantic Equities. The firm said that COP has a 20 percent upside potential, with a price target of $75 per share.

  • Tallgrass Energy (NYSE: TGE) surged by 21 percent in early trading on Tuesday after it accepted an offer from Blackstone Infrastructure Partners to acquire shares in the company. The deal values the company at $6.3 billion.

  • Transocean (NYSE: RIG) saw its share price jump after it announced a one-year contract for one of its drillships in Trinidad and Tobago.

Tuesday, December 17, 2019

Oil has edged up to three-month highs and is holding firm. "The conditions for a rising oil price appear favorable at present," Commerzbank said in Tuesday. "Economic optimism coupled with a weaker US dollar and growing investor demand have allowed Brent and WTI to climb to over $65 and to over $60 per barrel respectively." However, the bank noted that the shine on the OPEC+ deal will wear off, which creates downside risk. 

Investors skeptical of OPEC+ deal. Oil prices have hit three-month highs on the back of the OPEC+ cuts and the thaw in the trade war, but the rally has already slowed. Some analysts are skeptical that the lagging members of the OPEC+ cohort, including Iraq and Nigeria, will live up to their commitments. "Why would they change next year just because they made a pledge?" said Giovanni Staunovo, commodities analyst at UBS Global Wealth Management, according to the Wall Street Journal.

Best and worst performing stocks of 2019. Who are some of the best-performers and worst-performers of 2019? The "worst" list is riddled with energy names, while the "best" list contains bad performers from 2018 who managed to stage a rebound. 

Shale gas study: Economic benefits, but larger health costs. A study from Carnegie Mellon University found that Pennsylvania, Ohio and West Virginia enjoyed economic benefits from the rise of shale gas, but the region also suffered premature deaths due to pollution. The economic boost between 2004 and 2016 totaled $21 billion, but the costs reached $23 billion. 

EIA: Permian still growing, contraction elsewhere. The EIA's Drilling Productivity Report forecasts growth of 48,000 bpd in the Permian in January, compared to December. However, output falls by 15,000 bpd in the Anadarko and by 9,000 bpd in the Eagle Ford. On the gas side, output grows in the Permian, but contracts in the Anadarko, Appalachia and Eagle Ford. The contraction in Appalachia is notable since it is the largest source of gas in the country. But the basin has been plagued by poor finances amid low prices. 

Goldman Sachs bars new financing for coal and Arctic oil. Goldman Sachs revised its policy to exclude financing for projects based on coal or oil drilling in the Arctic. The Wall Street giant also said that it would mobilize $750 billion in financing for "climate transition and inclusive growth finance" over the next decade. The new policy is "now the strongest among the big six U.S. banks," according to the Sierra Club and the Rainforest Action Network. 

Weatherford emerges from bankruptcy. Weatherford International has emerged from Chapter 11 bankruptcy with $10 billion in financial support. Weatherford is currently trading as a penny stock but has plans to return to the New York Stock Exchange. 

Exxon gas well a super emitter. Using satellites, scientists found that a shale gas blowout at an XTO gas well, a subsidiary of ExxonMobil (NYSE: XOM), emitted more methane into the atmosphere than some countries do in an entire year. 

Hedge funds short "greenwashing" industries. Some hedge funds sense a short-selling opportunity, identifying companies that have inflated values because of unwarranted claims about sustainably. Investments defined as "sustainable" account for more than a quarter of all assets globally, according to Reuters. "Greenwashing is absolutely rampant now," Chad Slater of Morphic Asset Management told Reuters. "From the short side, it's quite interesting."

Big Oil names to face shareholder pressure on climate. Activist shareholder group Follow This is preparing more climate resolutions at annual shareholder meetings next year. The majors have tried to beat back rising shareholder activism, with mixed success to date, but the problem is not going away.

BP makes large gas discovery off West Africa. BP (NYSE: BP) found high quality natural gas reservoirs off the coast of Senegal and Mauritania. The Orca-1 well is the deepest and largest discovery made worldwide this year. 

WPX to pay $2.5 billion for Felix Energy. In a small sign that the U.S. shale sector may be turning a corner, Oklahoma's WPX Energy decided to pay $2.5 billion to buy privately-held Felix Energy, two names few outside of the industry would have heard of. The deal could be interpreted as a sign the sector has bottomed out, with bigger companies willing to shell out to buy up other companies and assets. For much of this year, there has been little deal-making, and any acquisition was panned by investors. But, WPX's stock was up after the news, an indication that the markets have not entirely shunned the shale sector. 

Goldman Sachs: Policy clarity to spur commodities demand. The de-escalation in the trade war, the UK election, and the new NAFTA deal (the USMCA) could "stimulate commodity demand" as they contribute to reduced uncertainty, Goldman Sachs said in a note. "Most importantly, the Chinese have agreed to purchase at least $40 billion of US agriculture goods in 2020," the bank said. "However, the structural supply problems that have discouraged investment in commodity production remain: poor company returns, too much debt and environmental liabilities."

The 5 biggest threats to oil and gas in 2020. For oil and gas, 2019 turned out to be a busy year with weak demand and growing skepticism from investors. But 2020 could offer even more unknowns, black swan events, and derailed forecasts. There are 5 big factors to watch out for. 


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