Can Saudi Arabia Counter The Oil Price Crash? - OIR 281118

Oil & Gas
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Wednesday, November 28, 2018 08:32 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.

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-  Natural gas production in the Gulf of Mexico has been declining for two decades. But 10 new projects are expected to begin operations in 2018, according to the EIA, followed by another 8 in 2019.

-   These 18 projects have a combined resource estimate of 836 billion cubic feet.

-   Together, they could allow Gulf of Mexico gas production to rebound. 

Market Movers

-  Cheniere Energy (NYSE: LNG) has produced just about enough LNG at its Corpus Christi export terminal to ship its first cargo, according to S&P Global Platts. 

-  Kosmos Energy (NYSE: KOS) fell nearly 3 percent after-hours on Monday when it announced the sale of 15 million common shares in a secondary public offering. 

Total SA (NYSE: TOT) announced a shutdown of its 253,000-bpd Gonfreville refinery in Normandy because of a strike.

Tuesday November 27, 2018
Oil prices are struggling to find a bottom, moving up on Monday but floundering in early trading on Tuesday. 

Saudi Arabia pushes for “quiet cut.” A few weeks ago, rumors floated of a potential aggressive production cut at the upcoming OPEC+ meeting, perhaps as large as 1.4 million barrels per day. However, that now looks unlikely, as President Trump has simultaneously protected Saudi Arabia from international outrage over the Khashoggi murder, at the same time that he has pressured them into keeping oil prices low. Russia is also not keen on a large production cut. That leaves Saudi Arabia looking for a “quiet cut,” which would mean taking production back down to previously agreed upon production limit – around 10 mb/d, down from the current 11 mb/d. 

Trump wants low oil prices, but U.S. shale could take a hit. The pressure campaign by the White House to deter OPEC+ from cutting production could succeed in keeping crude prices low, but prices are approaching a level that could damage U.S. shale companies. “We're at the point where we're nearing full cycle break-evens for Permian producers and depending on how long this lasts, we might see an impact on capex budgets over the next few months,” Muhammed Ghulam, senior research associate at Raymond James, told CNBC.

Saudi Aramco eyes $500 billion makeover. Saudi Aramco’s CEO told Bloomberg that the company will spend $500 billion over the next decade to transform itself into a major refiner and petrochemical maker, not just an oil producer. “Saudi Aramco will make the most of those prospects with global investments in the chemicals space of roughly $100 billion over the next 10 years -- in addition to prospective acquisitions,” Aramco CEO Amin Nasser said. In total, Nasser outlined $500 billion in spending plans. Long-term oil demand is looking increasingly fragile, but the petrochemical sector is where most demand growth will be concentrated, according to the IEA.

Russia-Saudi oil alliance faces a test. Saudi Arabia is clearly itching for a production cut at the OPEC+ meeting next week, but Russia is much more hesitant. Russian oil firms are opposed to curtailing output, and the Russian economy does not benefit as much from higher prices than the Saudi economy does. Still, President Vladimir Putin has strategic reasons to keep up the partnership with Saudi Arabia. But after the production increases in June backfired, Moscow and Riyadh are not exactly on the same page anymore. 

Venezuela reaches deal with Crystallex. Canadian mining company Crystallex has been trying to force Venezuela’s PDVSA to sell Citgo as compensation for an expropriated gold mining project back in 2011. However, Venezuela and Crystallex just struck a deal that will allow PDVSA to hold onto Citgo. Under the terms, Venezuela paid an initial $425 million to Crystallex, and will pay the remaining balance in installments through 2021. 

Venezuela rejects BP offer. BP (NYSE: BP) reportedly proposed buying Total SA’s (NYSE: TOT) stake in a moribund natural gas project in Venezuelan waters. The project is located along the maritime border of Venezuela and Trinidad and Tobago. BP owns the rights to the Trinidadian side and wanted to buy Total’s stake on the Venezuelan side, and could use the gas to expand operations in Trinidad. Caracas blocked the offer, according to Reuters

Goldman Sachs: Oil shortage in 2020s. The oil market may be oversupplied now, but Goldman Sachs says a shortage is coming in the 2020s. “In the 2020's we are going to have a clear physical shortage of oil because nobody is allowed to fully invest in future oil production,” Michele Della Vigna, Head of EMEA Natural Resources Research at Goldman Sachs told CNBC Friday.

Nigeria lost $6 billion to Shell and Eni. A new report finds that Nigeria missed out on nearly $6 billion in projected revenues because of the odd structure of a 2011 oil deal it made with Royal Dutch Shell (NYSE: RDS.A) and Eni (NYSE: E). The deal is now in focus because of a corruption trial in Milan, where Eni executives are in the hot seat. 

France and Germany move to keep business with Iran alive. The EU previously proposed to setup the special purpose vehicle (SPV) to allow European companies to continue to do business with Iran, working around U.S. sanctions. France and Germany have agreed to jointly host the financing arrangement, and are taking aggressive moves to try to keep the Iran nuclear agreement alive even as the U.S. continues to pressure European capitals not to move forward. 

U.S. pressures Iraq to break from Iran. The U.S. is trying to pressure Iraq to wean itself off of Iranian energy, according to the Wall Street Journal. Iraq depends on Iran for natural gas, which is used to generate electricity. The U.S. granted Iraq a 45-day waiver on sanctions on gas imports, but Iraq says it will need more time. Iraq warns that the U.S. could destabilize the country if it presses too hard. 

China imports from Russia amid Iran sanctions. China cut oil imports from Iran ahead of U.S. sanctions, and instead is leaning more on Russia. China’s imports of Russian oil hit a record high in October.  

Chevron announces first oil from Gulf of Mexico project. Chevron (NYSE: CVX) announced first oil from its Big Foot project in the Gulf of Mexico last week. The project is located 225 miles south of New Orleans and has a projected lifespan of 35 years. 

France fuel protests. France has seen a second week of protests over a proposed tax hike on diesel. Diesel prices have climbed around 20 percent this year in France, although that is largely due to the increase in crude oil prices (until recently). The tax is intended to harmonize gasoline and diesel prices – diesel has long been undertaxed relative to gasoline in France.

Trump maintains hard line on China. Trump is set to meet with Xi Jingping this week, but on Monday he suggested that he would move forward with a tariff hike in January. The 10 percent tariff on $200 billion of Chinese imports is set to jump to 25 percent at the start of 2019. Trump said it was “highly unlikely” that he would hold off on that increase. He also said he was ready to move forward with additional tariffs on another $267 billion of Chinese goods if the two leaders don’t reach an agreement this week.

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Previous Oilprice Intelligence Reports

1.       OPEC Drowning Under Oil Supply Glut - OIR 231118

2.      Oil Companies Lose $1 Trillion As Prices Crash - OIR 201118

3.      Oil Rebounds On Hopes Of OPEC and Action – OIR 171118

4.      Oil Prices Collapse To One-Year Lows – OIR 131118

5.      What’s Behind The Oil Price Crash? – OIR 091118

6.      Oil Prices Tumble On Iran Uncertainty – OIR 061118

7.      Soaring U.S. Oil Production Forces Prices Down – OIR 021118

8.     Oil Markets Uncertain As Iran Sanctions Loom – OIR 301018

9.      Oil Markets Gripped By Supply Glut Fears – OIR 271018

10.  Oil Prices Crash As Iran Fears Fade – OIR 231018

11.    Where Have The Oil Bulls Gone? – OIR 191018

12.  Oil Prices Under Pressure As U.S. Shale Supply Soars OIR 161018

13.   Oil Markets Take A Bearish Turn – OIR 121018

14.   Oil Prices Rise On Iran, Hurricane Outages – OIR 091018

15.   The Oil Price Rally Is Under Threat – OIR 051018

16.   Why Brent Broke $85 OIR 021018

17.   The $100 Oil Debate – OIR 280918


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