July 05, 2019 /10:50PM / By Tom Kool of Oilprice.com / Header Image Credit: Oilprice.com
Despite the OPEC+
agreement and a de-escalation of the trade war, oil prices are refusing to
rally as bearish fundamentals and global economic fears put traders on edge.
Friday, June 5th, 2019
Oil prices are set to post a loss for the week despite being bolstered by the
OPEC+ deal and the forthcoming restart of trade talks between Washington and
Beijing. It seems that economic concerns will continue to weigh on the market
in the coming weeks.
U.S. shale production faces spacing problem. According
to the Wall Street Journal, a drilling test conducted by Encana (NYSE: ECA), has proved
to be a dramatic disappointment. Encana’s “cube” development envisioned packing
dozens of wells together – originally supposed to be as much as 60 – from a
single location. However, instead of cutting costs and boosting output, the
wells performed poorly, and they are expected to produce as little as half of
the oil as other wells drilled farther apart. The result suggests U.S. shale
could peak sooner than expected, the WSJ said.
UK seizes Iranian oil tanker. The British
Royal Marines seized an
Iranian oil tanker in Gibraltar on Thursday for attempting to take oil to
Syria, which violates European Union sanctions. But the move could escalate
tension between Iran and the West. “This is the first time that the EU has done
something so public and so aggressive. I imagine it was also coordinated in
some manner with the U.S. given that NATO member forces have been involved,”
Matthew Oresman, a partner with law firm Pillsbury Winthrop Shaw Pittman who
advises firms on sanctions, said in a Reutersinterview.
BP: Some oil reserves “won’t see the light of day.” A BP
(NYSE: BP) official admitted that
some of the company’s “more complicated to extract” resources will have to be
sold or otherwise will stay in the ground. More expensive and time-consuming
reserves “won’t see the light of day,” Dominic Emery, BP’s head of strategy,
Climate change, peak demand and investor pressure to focus on short-cycle
projects will ultimately mean that some resources “won’t come out the ground.”
U.S. shale destroyed 80% of its value since 2008. Former EQT
(NYSE: EQT) chief executive Steve Schlotterbeck said that
the shale industry continues to destroy capital “every time they put the drill
bit to the ground.” He spoke at a petrochemical conference where he said that
the industry has destroyed 80
percent of its value since 2008.
Trump considers quiet waiver for China on Iran imports. The
Trump administration is reportedly weighing whether to allow China to continue
to import Iranian oil in order to avoid looking powerless as China imports oil
anyway. The U.S. had vowed to “sanction any imports of Iranian crude oil,”
threatening to enact punishment on anyone buying oil from Iran. However, as
China recently did just that, the Trump administration fears looking impotent.
According to Politico,
U.S. officials are considering using a loophole to grant China a waiver.
OPEC production drops to new low. OPEC’s
production declined to a five-year low in June, largely due to sharp losses
from Venezuela and Iran, according to Reuters.
The group produced 29.6 mb/d, down 170,000 bpd from May. Reuters estimates that
Iran’s oil exports have fallen below 400,000 bpd.
Europe building battery supply chain. Europe
is aiming to
funnel over 100 billion euros into building a supply chain for lithium-ion
battery packs for electric vehicles, according to Bloomberg. In addition to
greenhouse gas reductions, a significant motivator is ensuring that top
European automakers can pivot to the electric future, as well as fears that
China will dominate the industry.
U.S. auto sales plunge, jobs up. While Europe
and China are showing signs of an economic deceleration, the U.S. is throwing
up mixed signals. Manufacturing data is weak, and auto sales could
dip below 17 million this year for the first time since 2014. Also, more
than 80 percent of
companies in the S&P 500 revised their earnings forecast lower, a sign of a
deterioration in the broader business environment. But the latest jobs report
showed the U.S. added an unexpectedly strong 224,000 jobs in June, easing
concerns about a slowdown. However, the job gains lessen the pressure on the
Federal Reserve to cut interest rates.
U.S. gasoline imports from Europe up on Philadelphia outage. The
shutdown of the crippled refinery in Philadelphia, the largest on the east
coast, means that the eastern seaboard will have to import more gasoline. The
U.S. east coast accounts for a third of the country’s gasoline demand and 70
percent of its imports. Gasoline stocks at the key European ARA hub plunged by
9.4 percent this week, a sign that more gasoline is heading from Europe to the
U.S., according to Commerzbank. “The refinery outage could therefore push up
gasoline prices in Europe,” the investment bank said in a note.
Tesla hits sales target. Tesla
(NASDAQ: TSLA) delivered a record number of vehicles in
the second quarter, easing the pressure on Elon Musk. After reporting that
it had delivered 95,200 cars, Tesla’s stock jumped 7 percent.
Oil and gas industry hit by tariffs. The U.S.
oil and gas industry was relieved that
Trump and Xi decided to restart trade negotiations, but existing tariffs still
impact drilling operations. “Section 301 tariffs have been levied on more than
100 products - including bearings, drill collars, electronic circuits, fluids,
lithium batteries, meters, motors, pumps, pump parts, rotors/stators, steel, turbines,
and valves - are hurting the natural gas and oil industry,” Aaron Padilla,
American Petroleum Institute's senior advisor for international policy,
recently told the U.S. Trade Representative in a testimony. U.S. oil and gas
exports to China have plunged, with no LNG cargoesdelivered during the second quarter.
Eni starts production in Mexico. Eni (NYSE:
E) began production at the first offshore oil project in Mexico since the country
launched its reforms five years ago. The field, off the coast of Campeche, is
estimated to hold 2.1 billion barrels of oil equivalent.
Saudi Arabia and Kuwait nearing deal on Neutral Zone. Saudi
Arabia and Kuwait have reportedly made
a breakthrough in negotiations over the restart of the Neutral Zone oil fields
along their shared border. The fields have around 500,000 bpd of capacity, but
have been offline for years as both countries dispute their sovereignty.
Reconstitutes Gas Flaring Steering Committee
2. Of Trade Wars
and Oil Thieves: As Nigeria's Key Industry Legislation Gathers Momentum
3. OPEC Extends
Voluntary Production Adjustments For An Additional Period Of Nine Months
4. Oil Markets
Unimpressed By OPEC plus Deal - OIR 020719
5. The Oil Crisis
Saudi Arabia Can't Solve
6. Oil Markets
Await Two Vital Decisions– OIR 280619
7. Middle East
Tensions Move Oil Prices Higher – OIR 250619
8. War Worries Send
Oil Prices Soaring – OIR 210619
9. Fitch Ratings
Updates Oil Price and Lowers Gas Price Assumptions
10. Are Oil Markets
At A Turning Point? – OIR 180619
11. Average Prices
of PMS, AGO, HHK and Cooking Gas – May 2019
12. The Tanker
Attacks: A Storm In A Teacup – Oil Markets Refocus On Fundamentals