Oil Is On The Brink Of A Bear Market– OIR 040619

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Wednesday, June 05, 2019   /  11:05AM  /  By Tom Kool of Oilprice.com / Header Image Credit: OilPrice 

 

In today’s Oil & Gas update, we will take a quick look at some of the critical figures and data in the energy markets this week.


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  • Saudi Arabia used 0.4 mb/d of oil for power generation in 2018, the lowest total since 2009, according to the EIA.
  • The Kingdom has deployed more gas-fired generation, freeing up oil for export.
  • It also has increased its refining capacity, making it a larger exporter of refined products and not simply crude oil.

 


Market Movers

  • Four people were injured when an explosion hit an oil and chemical storage terminal owned by Kinder Morgan (NYSE: KMI) in Carson, CA.
  • Apache (NYSE: APA) agreed to sell 140K MMBtu per day of natural gas to Cheniere Energy’s (NYSE: LNG) Corpus Christi liquefaction Stage 3 terminal. Meanwhile, Cheniere issued a final investment decision for Train 6 at its Sabine Pass facility. 
  • BP (NYSE: BP) agreed to sell its Gulf of Suez oil concessions to Dragon Oil. BP is focusing on its offshore Egypt assets. 

 

 

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Tuesday June 4, 2019


Prices for coal, natural gas, LNG and crude oil have all dropped significantly in recent weeks. “Fear of global economic growth slowing,” Peter Kiernan, lead energy analyst at the Economist Intelligence Unit (EIU), told
Reuters, is “afflicting the entire energy complex with worries that demand growth will be bearish this year.”


OPEC+ likely to extend production cuts. The collapse of oil prices makes OPEC+’s
decision an easy one when they meet in Vienna. There are very few analysts who believe OPEC+ will remove or significantly reduce the current production cut agreement.


Colorado municipalities issue drilling regulations. Fresh off a major state overhaul of oil and gas regulations, municipalities have moved quickly to begin regulating the industry at the local level. At least seven drilling municipal drilling moratoria have been passed, according to
S&P Global Platts


Trump’s Mexico tariffs could hit refiners. The looming tariffs that Trump is about to implement on Mexico would impact crude oil imports, which would
raise costs for U.S. refiners. The tariffs are expected to begin at 5 percent on June 10, and then rise by 5 percent each month going forward, topping out at 25 percent. A 5 percent tariff could add about $3 per barrel to the cost of Maya crude. With profit margins for refiners on those barrels trading at roughly $6.86 per barrel, margins would be cut in half, according to E&E News.

 

The tariffs would also trickle down to consumers at the pump. “The implication of that would be less gasoline produced, and prices would increase at the pump,” Sandy Fielden, director of oil research for Morningstar Inc, told the Wall Street Journal. On the other hand, to the extent that Trump’s tariffs drag down the global economy – and thus, crude oil prices – the impact on retail prices could be offset. 


Exxon could be affected by Papua New Guinea shakeup. ExxonMobil’s (NYSE: XOM) massive natural gas production and LNG export facilities in Papua New Guinea could be
affected by a government shakeup. Newly installed Prime Minister James Marape has called for greater local control over its resources. “We will look into maximizing gain from what God has given this country — from our natural resources,” he said on Thursday. “I have every right to tweak and turn resources laws for my country.” WoodMac said the leadership change could delay the expansion of the LNG project by two years. 


Mexico files charges against former Pemex chief. Mexican investigators
filed corruption charges last week against Pemex’s former chief executive. 


Russia’s oil production drops on contamination. Russia’s oil production
fell to an 11-month low in May due to outages related to the contamination crisis. Production dropped to 11.11 mb/d, down from 11.23 mb/d in April.


Investment banks losing patience with oil trading. Trading units at investment banks are making a lot more money buying and selling gas, metals and carbon permits than they are trading crude oil. Oil, in fact, is falling out of favor with big banks as major economies continue to shift towards cleaner energy. The world’s 12 largest investment banks earned $2.5 billion last year from power, natural gas and metals, while they only earned $450 million from oil. “As we move toward a decarbonized economy these businesses realize they need to be involved in electricity,” Jonathan Funnell at recruiters Proco Commodities told
Reuters. “Oil (revenues) being so bad has brought this to the forefront.” 


Line 3 hits another snag. Enbridge’s (NYSE: ENB) Line 3 replacement project hit another
legal setback on Monday, when a Minnesota court ruled that the state’s environmental impact statement was inadequate. The project involves replacing an aging long distance pipeline, which would double its current capacity to 760,000 bpd. It represents the only meaningful addition to midstream capacity for Canada’s oil sands. The decision, which said that Minnesota regulators did not study the impact of a potential oil spill, could lead to more delays. 


Oil exports rising amid growing supply. A record six supertankers are expected to dock and load up on crude at the Louisiana Offshore Oil Port (LOOP) over the next few weeks, according to
Reuters, double the previous record set in December. Rising oil flows to the Gulf Coats and weaker prices are leading to more oil heading overseas. The LOOP port is the only U.S. terminal at the moment that can handle very large crude carriers.


ENI announces another offshore discovery. Eni (NYSE: E)
announced its fifth oil discovery in the past year in offshore Angola. The discovery at the Agidigbo prospect is close to its existing West Hub development, and it could hold as much as 300 to 400 million barrels. 


Lawsuit against Permian leasing. Environmental groups are suing the Bureau of Land Management for a major leasing plan in the Permian basin. The lawsuit said the federal government did
not adequately assess the full environmental impacts of oil and gas leasing in the New Mexico offering.


Biden releases climate plan. Pressured by activists and other candidates in the Democratic primary, former Vice President Joe Biden
released a climate plan that calls for a ban on new oil and gas leasing on public lands and calls for a $1.7 trillion federal investment in clean energy and infrastructure. The plan comes just a few weeks after a Reuters report suggested that he would pursue a “middle ground” plan that leaned heavily on natural gas. Biden faced blowback from his left flank after that report. 


EV push on SUVs. A flurry of new electric SUV models are in the offing. In the first quarter, 19 of the top 25 most popular vehicles in the U.S. were either a pickup truck, SUV or jeep. The Ford (NYSE: F) F-150 has been the most popular vehicle for four decades. But falling battery costs are making electric SUVs and trucks
more viable.

 

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In case you missed it, the latest Global Energy Alert was filled with breaking geopolitical news, oil market analysis and energy company breakdowns, viz:

 

·         Why Energy Investors Should Be Wary Of "Freedom Fuel"

Following on from 'Freedom Fries' and "Liberty Cabbage", the U.S. has named its natural gas exports "Freedom Fuel" - a move that should make energy investors very wary. 

·         Warning Signs Flash For U.S. Oil Markets

From shale producers burning through cash to Saudi Arabia stealing market share from U.S. exporters to China - there are some worrying data points for the U.S. oil industry in this week's numbers report.

·         How To Make Money In A Bearish Energy Market

If the market is correct then it looks like we are heading for a recession in the U.S. and a long-term fall in oil prices, but there are still opportunities out there for smart investors!

·         OPEC Is Unlikely To Boost Production

Despite Trump's aggressive stance against both Iran and Venezuela, it seems unlikely that OPEC will increase production - with members still only hitting 96% of their pledged cuts in May. 

·         Downward Momentum Is Building For Oil

As U.S. production returns to record levels and fears of an economic slowdown threaten demand, downward momentum is building for oil prices.

 

 

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