February 01, 2019 07:32 PM / By Tom Kool Editor,
Oil prices rose almost 2 percent on Friday morning, closing higher for the
week, with traders turning turned bullish once again as a result of lower OPEC+
supply and global outages.
February 1, 2019
Oil prices gained roughly 18 percent in January, the largest gain for that
month of the year on record. “A break through $55 in WTI and $65 in Brent would
be a very bullish signal for these and could be the catalyst for more significant
upside, with oil having stabilised over the last few weeks following the
post-Christmas bounce,” Craig Erlam, senior market analyst at brokerage OANDA, wrote in a
briefing. Prices lost ground on Thursday, but there are plenty of bullish
landmines lurking in the market, ranging from Venezuela and Iran outages, OPEC+
cuts, and slowing U.S. shale growth.
U.S. considers SPR release. The U.S. government is
considering a release of oil from
the strategic petroleum reserve (SPR), timed with potential outages from
Venezuela. Venezuela has exported roughly 500,000 bpd to the U.S., and because
of American sanctions, those volumes are now in jeopardy. The only problem is
that the SPR does not contain heavy crude. Already the market for heavy oil is
tight while that for lighter oil is much looser.
U.S. refiners looking for alternatives to Venezuela. U.S.
refiners that import heavy oil from Venezuela are now looking for alternatives.
Canada and Mexico have heavy oil, but have little scope to increase supply.
“The region with the biggest shortfall of Venezuelan crudes, either through
sanctions or inadvertently through further production declines is the U.S.,”
said Michael Tran, commodity strategist at RBC Capital Markets, in a note. U.S.
domestic medium and heavy sour grades, including Mars Sour, have seen their
prices jump. “It’s nuts. Everything with sulfur in it is getting bid,” one U.S.
crude trader told Reuters, referring
to sour oil that is typically less desired. Valero (NYSE: VLO),
(NYSE: CVX), and of course, Citgo, are the
largest importers of Venezuelan oil.
PDVSA is scrambling to renegotiate contracts. PDVSA
is trying to work around U.S. sanctions, seeking fuel swaps and intermediaries.
“We are trying to redo the contracts. It is not yet entirely clear how because
customers are being individually called, but we are studying alternatives,” a
PDVSA source told Reuters.
Rosneft could lose out in Venezuela. Rosneft has
made billions of dollars’ worth of loans to Venezuela and could suffer if the
U.S.-backed coup is successful. Rosneft’s share price fell last week after the
U.S. recognized the opposition.
ExxonMobil gives greenlight to Permian pipeline. Plains All
American (NYSE: PAA) and ExxonMobil (NYSE: XOM) are moving forward on
the Wink to Webster pipeline, connecting Permian oil to the Texas Coast. The 1
million-barrel-per-day pipeline will expand midstream capacity while also
servicing refineries along the Gulf Coast. Not coincidentally, ExxonMobil also
gave the greenlight to a major expansion of its Beaumont refinery near the
eases production cuts. Alberta partially lifted the
mandatory production cuts that took effect at the start of the year. The
curtailments were aimed at reducing a supply glut, which was a symptom of the
midstream bottleneck. The province had expected to lift some of the cuts in
March, but is doing so earlier than expected, allowing another 75,000 bpd to
come back. Western Canada Select prices have climbed sharply in recent weeks,
and the potential outages in Venezuela have heavy oil, such as Canada’s, in
high demand. “We’re not out of the woods yet, but this temporary measure is
working,” Premier Rachel Notley said in a statement.
Crude-by-rail surging in U.S. Shipping crude oil
by rail waned in importance over the past few years, but more recently has
started to make a comeback as pipelines reach capacity. In October 2018, the
U.S. saw 718,000 bpd shipped on railways, up 88 percent from a year
earlier. Crude-by-rail shipments peaked in October 2014 at 1.1 mb/d. The uptick
is the result of the bottleneck from Canada, which imposed painful discounts on
Europe sets up SPV for Iran. Europe announced the
launch this week of the “special purpose vehicle,” or SPV, that is aimed at
allowing European companies to continue to do business with Iran despite U.S.
sanctions. Few expect the SPV to amount to much commercially, but politically
it is symbolically important, both in terms of Europe laying down a foreign
policy independent of the U.S., and as a means to keep the Iran nuclear deal alive.
Chinese oil companies to increase spending and drilling.
China’s state-owned oil companies are set to spend and drill at their highest
rate since 2016, according to Reuters. “China’s trio of oil majors - PetroChina,
Sinopec Corp and CNOOC Ltd - are adding thousands of wells at
oil basins in the remote deserts of the northwest region of Xinjiang, shale
rocks in southwest Sichuan province and deepwater fields of the South China
Sea,” Reuters wrote.
Corporations turn to renewable energy. In the
U.S., spending on wind and solar up 13 percent in 2018 from a year earlier.
Growth will more than double in 2019, according to Wood Mackenzie. Corporations
are driving the growth, the Wall Street Journal reports. In a sign
of the times, even Baker Hughes (NYSE: BHGE), the
world’s third largest oilfield services company, is considering a pivot towards goods and services for the wind and solar industries, eying the
long-term transition to cleaner energy.
ExxonMobil leads in exploration. Oil and gas
exploration ticked up last year, and ExxonMobil (NYSE: XOM) led the
pack. ExxonMobil was exceptional, both in terms of discovered volumes and value
creation from exploration,” Rystad Energy head of upstream research Espen
Erlingsen said in a statement. Exxon discovered
close to 2 billion barrels in additional gross resources in the Stabroek block
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