Oil Markets Struggle For Direction- OIR 260719

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Friday, July 26, 2019   /07:54PM / By Tom  Kool of Oilprice.com / Header Image Credit: Oilprice.com


Oil prices have ended the week where they started, with demand fears and inventory draws countering one another and geopolitical shocks failing to move the needle.

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Friday, July 26, 2019

Oil seems to be stuck in a range at the moment, with strong inventory draws being offset by ongoing fears about weak demand. Fundamentals are playing an increasingly large role in oil markets, with geopolitical shocks failing to move the needle when it comes to oil prices. 

Oilfield services warn of more financial pain. The CEO of Helmerich & Payne (NYSE: HP), a large U.S.-based oilfield services company, said that the sector will see more financial pain as the pace of drilling slows down. “The full effect of the industry’s emphasis on disciplined capital spending continues to reverberate through the oil field services sector,” CEO John Lindsay said in a statement. “We are reluctant to predict another bottom and see further softening during our fourth fiscal quarter as our guidance would indicate.” The statement comes a few days after both Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB) echoed similar concerns about the contraction in U.S. shale. 

Shale may need to spend more. In order to keep production from flattening out or even falling, some shale companies may need to increase spending, according to Wood Mackenzie. However, the problem is that Wall Street has lashed energy stocks over the past year, and punished companies that are heavy spenders. “Steeper decline rates ... in the Permian basin will likely result in operators needing to drill more wells than originally planned, if they're committed to hitting previously established long-term targets,” said Robert Clarke, WoodMac's Lower 48 research director, according to the Houston Chronicle. “This will be especially challenging in the near-term because raising capital budgets today is effectively off-limits.”

China imports from Iran continue. China imported about 209,000 bpd of oil from Iran in June, according to Bloomberg, despite U.S. sanctions. Imports are down from just under 500,000 bpd in the first five months of the year, but the levels are still significant. 

Profits at Total, Equinor dip in second quarter. Earnings for Total SA (NYSE: TOT) fell to $2.76 billion in the second quarter, down from $3.72 billion a year earlier. The company said lower natural gas prices were in part to blame, but production was also up 9 percent. Equinor (NYSE: EQNR), on the other hand, saw its production fall in the second quarter, with earnings also hit by lower gas prices. 

Automakers cut deal with California on fuel economy. Four major automakers – Ford (NYSE: F), BMW (FRA: BMW), Volkswagen AG (VOWG_p.DE) and Honda Motor Co Ltd (7267.T) – secretly negotiated a deal with California on stricter fuel economy standards in an attempt to provide some clarity going forward. The deal is also aimed at forcing the Trump administration to back down from gutting national fuel economy standards, which could leave regulatory standards in the auto market bifurcated. The non-binding agreement with California would be much stricter than what the Trump administration is proposing, but slightly weaker than the Obama-era regulations on the books. 

Chevron awards Schlumberger with 20-year contract. Chevron (NYSE: CVX) awarded Schlumberger (NYSE: SLB) a 20-year contract for services and equipment at its offshore project in the Gulf of Mexico. In recent days, Schlumberger had voiced confidence in the oil market outside of U.S. shale, with growth picking up offshore and around the world. 

Canadian rail shipments steadily on the rise. Oil-by-rail shipments from Canada continue to increase, with volumes rising to 285,131 bpd in May, up from 232,294 bpd in April. With pipeline projects either on ice or in perpetual legal morass, oil-by-rail shipments have been viewed as an increasingly important mode of transport for Alberta’s oil. 

Tesla bleeds cash, but car deliveries rise. Tesla (NASDAQ: TSLA) saw its stock price nosedive by more than 13 percent this week, after the EV company reported a $408 million loss for the second quarter, which followed a $702 million loss in the first quarter. The results were worse than Wall Street expected. On a positive note, Tesla said that it delivered 95,200 cars in the second quarter, a 50 percent increase from the first quarter. 

Valero sees profits fall by 32 percent. Valero (NYSE: VLO) saw its profits plunge by 32 percent in the second quarter, which the company blamed on the rising cost of heavy crude. The mandatory production cuts in Alberta rescued oil producers there, but the higher prices are more costly for refiners. 

California Governor tours Chevron spill, talks fossil fuel transition. California Governor Gavin Newsom visited the site of a major oil spill by Chevron (NYSE: CVX)one of the largest spills in the state’s history – and he promised to step up regulation of the industry and even wants to begin planning to phase down oil production. “I want to focus not just on demand but supply, and that, I think, is a new approach in this state with this new administration,” the governor told The LA Times.

Native Americans sue Enbridge over Line 5. A Native American tribe in Wisconsin is suing Enbridge (NYSE: ENB) over its aging Line 5 pipeline, demanding the shutdown of the line. The same pipeline is facing legal troubles in Michigan. Line 5 has also become ensnared in presidential politics, with at least two major Democratic candidates calling for its closure ahead of the next round of debates to be held in Detroit next week. 

Global solar installations to hit record this year. New solar PV installations are expected to rise to a record high 114.5 GW this year, according to Wood Mackenzie, a 17.5 percent jump from 2018. WoodMac says the industry is growing on the back of improving markets in Europe, the U.S., India and Vietnam. 

Moody’s to buy climate data firm. In a sign of the times, Moody’s has purchased a controlling stake in Four Twenty Seven, a firm that measures physical risks of climate change. The move is a sign that top credit rating agencies are growing more concerned about the quality of credit for a number of governments and industries exposed to climate change. 

PDVSA to halt output at upgrader. Venezuela’s oil production is set to take another hit as PDVSA plans to indefinitely halt output at a heavy oil upgrader. Meanwhile, the Trump administration is set to decide the fate of the waiver that Chevron (NYSE: CVX) has that allows it to continue operating in Venezuela. At the time of this writing, the decision had not been made, but the waiver expires on Saturday.

Bipartisan bill emerges in industrial emissions. A bipartisan group of senators is supporting legislation that would cut emissions in the industrial sector. The bill would create a program within the Department of Energy dedicated to developing technologies to cut emissions from industrial processes, such as cement, steel and petrochemical production. Notably, in addition to support from both parties, the legislation also has support from top industry, labor and environmental groups.

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