Saturday,
January 18, 2020 /07:20AM / By Tom Kool of
Oilprice.com / Header Image Credit: Oilprice
China has been the key oil price driver this
week, with phase one of the trade deal driving prices higher before worrying
economic data from the country dragged prices lower.


Friday, January
17th, 2020
Oil prices regained a bit of ground at the end of the week on optimism
surrounding the Phase 1 U.S.-China trade deal. At the same time, China reported
some downbeat economic data that points to a slowdown.
IEA:
Oil market well-supplied. The global oil market dodged
a bullet after the U.S. and Iran backed away from war, although geopolitical
risk has not gone away. Nevertheless, non-OPEC supply is expected to continue
to grow faster than demand this year, leaving the market with a persistent supply surplus, according to the IEA. That puts
tremendous pressure on OPEC+, which may need to cut further.
China
GDP slowest in 30 years. China's GDP expanded by 6.1
percent in 2019, the weakest rate since 1990. The bigger question is whether
the economy will continue to decelerate, or if it will bounce back due to
reduced trade tensions. "Despite the recent uptick in activity, we think it is
premature to call the bottom of the current economic cycle," Julian
Evans-Pritchard, senior China economist at Capital Economics, told the FT. "This year could be the opposite of last
year, where the external environment improves but domestic stimulus efforts
aren't enough to support higher growth...We're particularly concerned about the
property sector."
Will
the Permian peak this year? The Permian basin is
suffering through bankruptcies, slower growth and investor scrutiny. While many
analysts still see production growing this year, some investors are starting to
see a peak in supply in the near-term.
West
Africa loses if China buys more U.S. oil and gas. The
Phase 1 trade deal calls for China to buy huge volumes of U.S. oil and gas,
although analysts question whether such increases are possible. China has
pledged to buy more than $52 billion in energy products from the U.S. over the
next two years. Such an increase would have ripple effects throughout the
global market, with West African exporters losing
out as China scoops
up more cargoes from the U.S.
Schlumberger
beats estimates. Fourth quarter earnings for Schlumberger
(NYSE: SLB) rose by 9.4 percent compared to a year
earlier, due to positive international conditions, offsetting weak drilling
activity in U.S. shale. Meanwhile, Reuters reports that Schlumberger, along
with Halliburton
(NYSE: HAL) and Baker Hughes (NYSE: BKR),
are planning to put a combined $800 million in assets up for sale. Together,
the three oilfield services giants control 26 percent of the global services
market.
Germany
announces coal phase out. Germany announced a plan to phase out coal entirely by 2038,
and estimated the cost at $44.5 billion. The cost is due to compensation for
companies and workers affected by the transition. Environmental groups say the
timeline is too slow.
LNG
prices continue to erode. JKM spot prices - an
important market for LNG in East Asia - fell below $5/MMBtu, a four-month low.
Those prices are also unusually low for this time of year, when demand tends to
be at a seasonal high. The downturn is a reflection of global oversupply - weak
demand and a large increase in export capacity last year. Some analysts see JKM
prices dipping below $3/MMBtu in the coming months,
which would put exporters exposed to the spot market under financial
pressure.
Five
clean energy trends to watch. Clean energy experts
laid out several trends to watch for 2020, which include the death of
coal, the loss of acceptance for gas, and the ongoing momentum for clean
energy, among others.
Iraqi
oil production in spotlight. Iraq has become the
battleground as the U.S. and Iran launch tit-for-tat attacks, and while a
full-blown war may be off the table for now, more attacks could continue in the
shadows. Iraq has become a major source of supply for the global oil market in
recent years, the second largest OPEC member. But that supply is increasingly at risk.
Oil
majors in disarray. A new report found that the five
largest oil majors - ExxonMobil (NYSE: XOM), Chevron (NYSE:
CVX), Royal Dutch Shell (NYSE: RDS.A), BP (NYSE: BP) and Total SA
(NYSE: TOT) spent $536 billion on shareholder dividends
and stock buybacks since 2010 while generating only $329 billion in free cash
flow. "The oil majors are consistently under-performing the market and may
believe that shareholders won't notice, as long as they receive generous
dividends," the authors of the report said.
Tullow
to take $1.5 billion write down. Tullow Oil
(LON: TLW) said it would write down $1.5 billion for
the fourth quarter, reflecting a lower oil price forecast and a downward
revision to its reserve estimates in Ghana. Tullow's share price is down 75
percent in the last three months.
Saudi
Aramco "underweight." Morgan Stanley rated Saudi
Aramco "underweight," while others gave a "neutral" outlook. Morgan
Stanley put a price target of SR28.10 per share
($7.49 per share), roughly 20 percent below current levels.
High-yield
energy issues bonds. Seven energy companies with
speculative credit ratings issued a combined $6 billion in new debt, according
to the Wall Street Journal. A sudden rally in corporate bonds late
last year allowed them to take advantage of the improved market conditions. It
could be a temporary window of opportunity to refinance debt. The WSJ says that
the North American oil and gas sector has $40 billion in debt maturing this
year and more than $200 billion over the next four years.
Canadian
oil frozen under extreme temperatures. A wave of
Arctic weather pushing temperatures to -30 degrees Celsius (-22 Fahrenheit)
has reportedly frozen some of Alberta's heavy oil
into a solid. That forces producers to blend in lighter oils in order to allow
the oil to flow through pipelines, but that increases costs.
UK
oil and gas sector losing "social license to operate." The
UK's oil and gas regulator warned that the industry is losing its "social
license to operate" due to climate change. "I have been through a number
of oil price cycles but I cannot remember anything like the industry rethink of
the last few months. Clearly, climate change is happening right now. That
debate is over. The framework, the license to operate for the industry, has
changed fundamentally and - unlike the oil price - forever," Tim Eggar said. "If the industry wants to survive and
contribute to the energy transition it has to adapt."

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