Why Oil Prices Are Heading Higher – OIR 120918

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Wednesday, September 12, 2018 / 10:04 AM / Oilprice Intelligence Report 

Today, we will take a quick look at some of the critical figures and data in the energy markets this week.  

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy. 

Trader Alert: Oil markets are set to become much tighter in the next couple of months, and more and more analysts are now expecting a major oil price rally in November as a direct result of sanctions on Iran. Our researchers have identified a number of unique opportunities in energy markets. Find out how to profit from the next oil price shock.

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Chart of the Week

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-    Hurricane Florence is barreling towards the east coast, aiming at North and South Carolina. The EIA has a
mapping tool that allows for adding layers to see various pieces of energy infrastructure that may be affected by the storm. 

-    At the time of this writing, Hurricane Florence was a Category 4 storm, and it is possible it could strengthen to a Category 5 before it makes landfall. 

-    The storm could be devastating, but from an oil market perspective, there is little in the storm’s path that would reverberate more broadly – no major oil refineries, no upstream production. As a result, there shouldn’t be any supply-side issues, other than localized fuel problems at the retail end during the storm. 

-    If anything, the storm could cut into demand as millions of people put everything on hold. 

Market Movers

-    ExxonMobil (NYSE: XOM) agreed to the sale of natural gas from the Prudhoe Bay and Point Thomson fields in Alaska’s North Slope to an entity owned by the state of Alaska, which would fuel an LNG export terminal. The estimated $43-billion Alaska LNG project would consist of an 800-mile pipeline from the North Slope to a liquefaction and export terminal on Kenai Peninsula at the southern end of the state. 

-    Suncor Energy (NYSE: SU)
said that it would consider building new oil sands projects in the future, beating back the ongoing market assumption that greenfield oil sands investments are a thing of the past. “The Canadian oil sands are one of the biggest and best oil reserves in the world,” CEO Steve Williams said at the opening of the company’s $17-billion Fort Hills project. “We will open mines.” However, Suncor said that new major oil sands investments would likely be contingent on the completion of an export pipeline, a problem that has plagued Alberta for years.  

-    Petrobras (NYSE: PBR)
slashed its net debt target for 2018 to $69 billion, down from $89 billion in 2017. PBR also says that it expects $15 billion in free cash flow this year, up from $13.9 billion last year. 

Tuesday September 11, 2018

Oil prices were quiet at the start of the week, but rose more than 1 percent in early trading on Tuesday on concerns about outages in Iran and turmoil in Libya and Iraq, although that bullish sentiment was offset by ongoing concerns about emerging markets. Still, after the recent price correction, there is room on the upside. “The path of least resistance for oil prices, given the supply fundamentals, remains up,” Harry Tchilinguirian, oil strategist at BNP Paribas, told Reuters Global Oil Forum.

Trump admin wants to loosen limits on methane emissions. The EPA is
reportedly set to release a proposal on Wednesday that would make it easier for oil and gas companies to meet rules on methane emissions. The proposed rule would extend the time that companies are required to assess and repair infrastructure in remote locations. For instance, drillers would have a year to conduct an inspection rather than six months, and 60 days to make repairs instead of 30. In a related move, the Interior Department is expected to release its final rule (it was proposed earlier this year) to loosen restrictions on flaring. 

Powder River Basin sees more attention. Long known for its coal production, Wyoming’s Powder River Basin is starting to receive more attention from the oil and gas industry as the Permian becomes crowded and expensive. The Powder River Basin produces less than 200,000 barrels of oil equivalent per day (boe/d), but as
Bloomberg Opinion points out, a growing number of shale companies are highlighting their assets in the region. Land prices can be a tenth of what they are in West Texas, so the spillover from the Permian is underway. The Powder River Basin has seen a fourfold increase in the rig count, a sign that drilling activity is on the upswing. 

California signs 100 percent clean energy bill. California took a bold step by passing legislation requiring 100 percent clean electricity by 2045, with the interim goal of 60 percent by 2030 (up from a previous target of 50 percent). Separately, California Governor Jerry Brown signed a bill that effectively bans offshore oil drilling on California’s coast. Because any drilling (were it to occur) would likely lie in federal waters beyond the reach of California, the legislation
bans the construction of associated pipelines, piers, wharves or other infrastructure that would support drilling. “Today, California’s message to the Trump administration is simple: Not here, not now,” Brown said in a statement. “We will not let the federal government pillage public lands and destroy our treasured coast.”

Peak oil demand in five years? A new report from Carbon Tracker predicts that the world will hit peak oil demand by 2023, much faster than most forecasts. Separately, a report from Norwegian risk-management company DNV GL comes to a similar conclusion. “The transition is undeniable,”
said DNV CEO Remi Eriksen.

Pushback on oil export terminal near Corpus Christi. Trafigura is hoping to build a major crude oil export terminal near Corpus Christi, which would dramatically expand U.S. crude oil export capacity. However, the port of Corpus Christi, which would lose out if Trafigura succeeds, is
trying to delay the project. Right now, the port of Corpus Christi cannot handle very large crude carriers (VLCCs), and Trafigura’s project would allow for VLCCs.

Short-term backwardation strengthens. The premium for Brent oil futures in November compared to December rose to
45 cents per barrel in recent days, flipping from a 20-cent-per-barrel discount a month ago. The backwardation suggests oil traders are betting on short-term supply shortages as U.S. sanctions on Iran take effect in November. 

Sec. Perry meets Saudi oil minister. U.S. Secretary of Energy Rick Perry met with Saudi oil minister Khalid al Falih in Washington DC on Monday. The two discussed “the potential for U.S.-Saudi civil nuclear engagement and new technologies such as Small Modular Reactors, the state of world oil markets and the status of joint efforts to share technologies to develop clean fossil fuels,” according to a DOE
statement

Plains All American found guilty in pipeline spill. Plains All American (NYSE: PAA) was found guilty last week on a felony count connected to the 2015 oil spill from ruptured pipeline in California that fouled the coastline. Criminal prosecutions on pollution cases are rare, requiring a higher burden of proof than a civil case. “The general impact will be to increase scrutiny of new pipelines not just in California, but throughout the U.S. where we have seen increasingly lengthy and polarizing permit battles,” Sandy Fielden, director of oil and products research at Morningstar, an investment research firm, told the
Houston Chronicle. The conviction could increase project delays and energize pipeline opponents.

South Korea zeros out oil imports from Iran. South Korea
decided to comply with U.S. demands to cut oil imports from Iran to zero, becoming the first to do so out of the top three buyers. South Korea bought 194,000 bpd from Iran in July.

Oil and gas industry spending heavily to defeat Colorado ballot initiative. Colorado voters will decide in November whether or not to place stricter setback rules on oil and gas drilling. The initiative would increase setback distances from the current 500 feet up to 2,500 feet. Grassroots activists argue the longer setbacks will increase safety while the industry argues the rules will effectively ban drilling in the state. Pro-industry groups have are spending millions to defeat the measure, according to
S&P Global Platts

Philippines and China near deal on South China Sea. The South China Sea has been a source of territorial conflict for years, but the Philippines and China are nearing a deal on joint development of natural gas reserves in the region. If a deal is reached, it would be a major win for Beijing as it seeks to extend its claim on territory in the sea, while also clearing some hurdles towards gas development. 


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Previous Oilprice Intelligence Reports

1.       The End Of The Oil Price Rally – OIR 080918

2.      What’s Behind The Oil Price Rally? -OIR 050918

3.      Why Oil Prices Are Trending Upwards -OIR 310818

4.      Oil Holds Gains Despite Downward Pressure -OIR 290818

5.      Bullishness Is Back In The Oil Market - OIR 250818

6.      Oil Edges Higher On Iran FearsOIR 220818

7.      Oil Prices Take A Breather As Supply JumpsOIR 180818

8.     Oil Prices Fall Despite Supply Fears – OIR 150818

9.      Oil Prices Take A Breather As Supply Jumps - OIR 100818

10.  The Oil Bulls Are Back - OIR 080818

11.   OPEC Nears 100 Percent Compliance – OIR 030818

12.  Oil Prices Seesaw As Uncertainty Grips Markets – OIR 310718

13.  Profits For Oil Majors Soar But Wall Street Wants MoreOIR 270718

14.  Oil Prices Head Upwards As Iran Hits BackOIR 240718

15.   Is This the End of the Oil Rally?OIR 170718

16.  Libyan Supply Keeps Oil Prices Down -OIR 130718

17.   Bullish Sentiment Soars As Oil Outages MountOIR 100718

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