Geopolitical Breakthroughs Calm The Oil Market

Oil & Gas
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Sunday, April 29, 2018 10.59 AM /

Oil markets were calm on Friday morning as multiple geopolitical tensions around the globe showed signs of cooling, reducing the potential impact of geopolitical risk on oil prices.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Friday, April 27th 2018
The diplomatic breakthrough on the Korean Peninsula is taking away one source of geopolitical risk, at least for now, with oil prices dipping in early trading on Friday. 

Libya oil exports resume at Es Sider. After a brief outage, Libya’s Es Sider export terminal
resumed shipments. A pipeline suffered damage from an explosion last Saturday, leading to a temporary outage of 80,000 bpd, but the pipeline has since been repaired. Separately, Libya’s eastern military leader, Khalifa Haftar, returned to the country after a hiatus in France for medical treatment. His absence fueled speculation about a return to instability, which threatened new oil supply disruptions. 

China’s refinery maintenance. At least six state-owned and private oil refineries will shut down in May and June for maintenance. The pause could result in a
10 percent decline in refinery runs, or about 1.09 million barrels per day, which could temporarily hit China’s demand for crude oil imports. 

Oil majors post strongest quarterly earnings in four years.
First quarter earnings began coming out this week from the oil majors, most of whom are posting the largest profits in years. Statoil (NYSE: STO), Royal Dutch Shell (NYSE: RDS.A), Total SA (NYSE: TOT) and ExxonMobil (NYSE: XOM) all reported their strongest figures since before the oil market downturn began in 2014. All are making more money with oil at $65 to $70 today than they were in the pre-2014 environment in which oil topped $100 per barrel.

Shell greenlights Vito Gulf of Mexico project. Royal Dutch Shell (NYSE: RDS.A)
announced the final investment decision for the Vito project, a deep-water offshore development in the Gulf of Mexico. The Anglo-Dutch oil major said the project has a breakeven price of about $35 per barrel and will produce 100,000 bpd at its peak. The project is expected to begin producing in 2021.

Trump squeezed between Big Corn and Big Oil. The Trump administration has repeatedly found itself caught in the fight between the oil refining and the corn ethanol industries, industries that are battling over the renewable fuels standard (RFS) and how much ethanol refiners are required to blend into their fuel mixes. Refiners are demanding changes to the rule that requires 10 percent ethanol, asking for a rollback. The ethanol industry is digging in its heels. The EPA has granted exemptions to a growing number of refiners, which is giving more urgency to the debate because it is undermining the ethanol market. Trump is
caught between the two sides and has tried to avoid making a decision over fears of alienating one of these constituencies. 

Chevron evacuates staff from Venezuela. Chevron (NYSE: CVX) has come under fire in Venezuela after two of its workers were detained by Venezuelan authorities. That prompted an
evacuation of high level company officials from the country this week, raising questions about the longevity of the oil major’s operations there. The matter is of utmost important as Chevron and other joint venture partners have been critical in keeping Venezuela’s oil production from falling faster than it already has. But the attack by the Venezuelan government on Chevron threatens to make a bad situation much worse. 

PDVSA ordered to pay ConocoPhillips $2 billion. An international arbitration court
ruled that Venezuela’s PDVSA must reimburse ConocoPhillips (NYSE: COP) $2 billion related to the early dissolution of their joint venture in 2007. The government of the late Hugo Chavez expropriated Conoco’s oil assets in the country, leading to Conoco’s withdrawal from the country. The arbitration decision would seem to bind PDVSA to paying Conoco, but there is no way to enforce the decision. Conoco had been seeking $22 billion in damages. 

Japan begins purchasing U.S. LNG. As Dominion Energy’s (NYSE: D) Cove Point LNG export terminal comes online, LNG shipments are
beginning to head to Japan, which will be “the first of many,” according to the U.S. Embassy in Tokyo.

Macron wraps up U.S. trip, but survival of Iran deal in doubt. French President Emmanuel Macron made an aggressive pitch to President Trump to stick with the Iran deal. Despite the bromance and despite comments about some sort of “new deal” with Iran, Macron admitted to the press that he thinks Trump will still abandon the accord ahead of the May 12 deadline. The decision has enormous implications for Iranian oil supply, and thus, the trajectory of oil prices for the rest of this year and beyond. Iran, for its part, said there is no “Plan B” to the existing accord, and that “it’s either all or nothing.” Meanwhile, Bloomberg
reports that some oil traders are already steering clear of Iranian oil contracts valid after May 12. Estimates from FGE and Gunvor SA say that 500,000 bpd of Iranian oil could be at risk this year because of U.S. sanctions. 

Yemeni attacks on Saudi oil assets increasing. In response to the heavy bombardment from Saudi air strikes, Yemeni rebels have
stepped up missile attacks on Saudi oil assets, although without much success to date. On Monday, Houthi rebels fired missiles at a Saudi oil port near the Yemen border. The missiles were intercepted, but the increased attacks raise the prospect of some sort of damage to Saudi oil infrastructure. For now, this is having no effect on supply, but a successful attack would add a significant risk premium to oil prices. “Yemen is one part of the resurgent fear factor in the market,” said Helima Croft, head of global commodity strategy for RBC Capital Markets, according to the WSJ.

Canadian oil producers could get some relief from rail. Canadian oil producers, slammed by the lack of pipeline capacity, could make concessions to the rail industry to gain more access to Canadian railways. Rail companies typically demand long-term contracts, a practice oil producers find too restrictive. But, because the pipeline problem has grown more acute without any prospect of relief in the short run, producers are warming up to the idea of moving more oil by rail. Deals signed this year could have a longer duration than previous agreements and they could contain obligations for oil companies to pay for rail capacity even if it goes unused, according to Cenovus Energy (NYSE: CVE). “I’m really confident that as we move into the second half of the year and into the first half of 2019, we’re going to be seeing very material volumes of oil moving by rail,” Alex Pourbaix, CEO of Cenovus Energy,
on a call with analysts Wednesday.

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