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

Oil & Gas
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Wednesday, November 21, 2018 07:29 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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-    The Wolfcamp has been one of the most important shale formations that has helped drive up oil and gas production in the Permian basin over the past decade.

-    As of September 2018, the Wolfcamp has been responsible for roughly 1 million barrels of oil production per day, as well as 4 billion cubic feet of natural gas per day (Bcf/d). 

-    The Wolfcamp accounts for about a third of both oil and gas output in the Permian. 

Market Movers

-    EQT (NYSE: EQT) was upgraded to a Buy rating by Goldman Sachs, up from Neutral, with a $23 per share price target. EQT jumped by 2 percent on the news.

-    Alberta Premier Rachel Notley
said that “no option has been taken off the table” in response to the bottlenecks and price crashes for oil Canada. The statement referred to mandatory production curbs, which has been floated even by Canadian oil executives. The price discount for WCS is costing Canada $80 million per day. 

-    Minnesota regulators
reaffirmed their support for Enbridge’s Line 3 replacement, which would double the line’s capacity to 760,000 bpd. The project is expected to come online by late 2019 or early 2020 and represents Canada’s best hope of adding midstream capacity. Pipeline opponents are trying to stop the project in Minnesota. 

Tuesday November 20, 2018

Oil prices fell in early trading on Tuesday on persistent fears of oversupply. OPEC+ could cut output in two weeks’ time, but for now, volatility is here to stay. “The name of the game in the oil market is volatility,” IEA executive director Fatih Birol said at a conference in Oslo. “And with the increasing pressure of geopolitics on oil markets that we are seeing, we believe that we are entering an unprecedented period of uncertainty.”

Middle East crucial to long-term conventional growth. Major oil-producing countries in the Middle East will add 2.7 mb/d of capacity through 2025, according to
Rystad Energy. Iraq will add the most at 1.5 mb/d, and an additional 1.2 mb/d will come from the UAE, Iran, and the Neutral Zone between Saudi Arabia and Kuwait. Global output from conventional fields outside the Middle East peaked in 2010, Rystad says, and will fall by another 2.3 mb/d by 2025. 

Hedge funds eliminate bullish bets. The bull market has now fully unwound after hedge funds and other money managers have sold off all the bullish positions they had accumulated since the second half of 2017, according to
Reuters. The last seven weeks has seen the largest liquidation of long positions since 2013. Long positions are now at their lowest level since January 2016 – a period of time that coincided with the very bottom of the oil market cycle. Fund managers now have a roughly neutral position towards the market. 

Japan and South Korea could resume importing from Iran. Reuters
reports that Japan and South Korea may begin importing oil from Iran again in January, having obtained waivers from the U.S. government. The two countries had virtually eliminated imports from Iran in recent months, but now feel that they have some space for buying oil once again. The waivers last until May. 

Oil majors focus on shale, but questions remain. The world’s largest companies continue to step up their bets on short cycle shale. BP (NYSE: BP) purchased shale assets from BHP Billiton (NYSE: BBL) earlier this year for $10 billion, while Royal Dutch Shell (NYSE: RDS.A), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP) and ExxonMobil (NYSE: XOM) have all previously announced aggressive plans to scale up production in the U.S. shale. But some of them have encountered problems, including write-downs in recent years. Medium-sized shale companies question whether or not the oil majors are equipped to perform well in short-cycle shale projects, a problem that S&P Global Platts

Energy companies lost $1 trillion in oil price slide. The global oil and gas sector has
lost $1 trillion in value over a 40-day period since October after crude prices fell by about $20 per barrel. U.S.-listed companies in the S&P 500 shed $240 billion. ExxonMobil (NYSE: XOM), for instance, lost $35 billion in value. Some analysts are warning that OPEC+ will need to cut output to balance the market. “If they don’t cut, I guarantee you it’s going to be 2014 all over again,” Mike Bradley, managing director at the energy investment firm Tudor, Pickering, Holt & Co., told the Houston Chronicle.

Aramco abandons bond sale. Saudi Aramco
abandoned plans to launch the world’s largest corporate bond sale, the proceeds for which would have funded a $70 billion stake in SABIC, the Saudi petrochemical firm. Previously, Aramco had considered a $40 billion bond sale for the acquisition, but has rejected the idea because of the financial disclosures that would be required for the sale, while officials are also worried about another market downturn that would affect interested in the debt sale.

UK shale gas may not be economic. Cuadrilla Resources has begun drilling for shale gas in the UK after years of regulatory delays, but has struggled with stoppages after seismic activity. The FT
warns that Cuadrilla has another problem: Producing shale gas in the UK may not ever be economic because of ample supplies on the continent and a growing source of supply in the form of LNG from Qatar, Norway and the UK. Beyond that, renewables are steadily falling in cost, down 50 percent since 2013. 

Natural gas volatility bankrupts trader. Commodity-trading firm OptionSellers.com has
fallen apart because of the violent swings in oil and natural gas prices. The firm apparently suffered a “catastrophic loss” by wrong-way bets on prices. Oil fell by 7 percent on November 13 and natural gas spiked by 18 percent on November 14. Individual investors, which apparently had to have made a minimum investment of $250,000, are set to lose their money. 

Cimarex Energy to buy Resolute Energy for $1 billion. Cimarex Energy (NYSE: XEC) is set to
buy Resolute Energy (NYSE: REN) for $1 billion, combining two Permian drillers. The deal is illustrative of a wave of a consolidation underway in the Permian.

Petrobras rules out privatization. The new head of Brazil’s Petrobras
ruled out a privatization effort, although he supports ongoing asset sales to help trim the company’s debt. 

Protests in France over diesel taxes. The French government has
hiked taxes on diesel in order to bring them up to parity with gasoline, which has been taxed at higher rate for years. However, diesel prices have been climbing around the world, in part because of the pending IMO regulations set to begin in 2020, which are putting a premium on diesel. The taxes are sparking outrage in France.

Alberta considers refinery as WCS plunges. Prices for Western Canada Select have
dropped as low as $14 per barrel, as pipelines carrying oil from Alberta are full. Alberta’s Premier suggested that they could build oil refineries in the province to help alleviate the glut. Some oil companies have already curtailed output because of plunging prices, and some executives have proposed the province issue mandatory production curbs.

EVs to dominate battery market. By 2030,
eight out of ten batteries
sold worldwide will be used for electric vehicles, according to Bloomberg New Energy Finance. By 2040, about 55 percent of all vehicles sold will be EVs, BNEF estimates.

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Previous Oilprice Intelligence Reports

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

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

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

4.      Oil Prices Tumble On Iran Uncertainty – OIR 061118

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

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

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

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

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

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

11.    Oil Markets Take A Bearish Turn – OIR 121018

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

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

14.   Why Brent Broke $85 OIR 021018

15.   The $100 Oil Debate – OIR 280918


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