Oil Markets Bearish Despite Rising Geopolitical Risk - OIR 151019

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Wednesday, October 16, 2019   /08:56 AM  / By Tom Kool of Oilprice.com / Header Image Credit: Oil Price


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 API gravity of the U.S. oil mix has lightened significantly over the past decade, with booming light oil production from major shale basins.
  • Oil with API gravity above 38 degrees is considered light, while crudes with gravity of 22 degrees or lower is considered heavy.
  • Along the Gulf Coast, the average gravity of the crude slate has lightened from 30 degrees in 2011 to 32.6 degrees in 2018, according to the EIA. 

Market Movers

  • Whiting Petroleum (NYSE: WLL) is in deal talks with the smaller Abraxas Petroleum (NASDAQ: AXAS), although details have not been disclosed, according to Reuters.
  • Parsley Energy (NYSE: PE) is set to acquire Jagged Peak Energy (NYSE: JAG) in an all-stock deal valued at $2.27 billion. Parsley's share price fell 10 percent on the news.
  • ProPetro (NYSE: PUMP) laid off 150 workers this month, according to Reuters. The move comes after Halliburton (NYSE: HAL) last week announced that it would cut staff by 650. 

Tuesday October 15, 2019

Oil prices fell more than 2 percent on Monday on diminished excitement surrounding the partial trade agreement between the U.S. and China. Following last week's jolt, investors grew skeptical of the agreement as it became clear that Washington and Beijing had different interpretations of the outcome of last week's talks. "Its clearly a market that is very macro-focused right now," said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen. "Speculators have been quite aggressive sellers during the past couple of weeks."

Appalachian drillers cutting back. Natural gas production in the Marcellus and Utica shales continues to inch higher, but production could begin to slow as drillers cut back in the face of weak prices. EQT (NYSE: EQT) announced last month that it would lay off nearly a quarter of its workforce. 

UK Labour Party proposes ban on ICE engines by 2030. The Labour Party in the UK proposed to ban sales of the internal combustion engine by 2030. 

Fracking "dead" in UK. Cuadrilla has begun removing equipment from its only testing area following the last round of earthquakes in August. There are no plans to resume fracking in the area, and local residents and opponents of the company say that fracking in the UK is now dead. 

Ecuador President reverses on fuel subsidies. After the uproar and massive resistance to the proposed cut in fuel subsidies, Ecuador's President Lenin Moreno reversed course, agreeing to scrap the proposal. Indigenous groups cheered and called an end to protests following the decision. But Ecuador now won't be able to realize the budgetary savings from reduced subsidies, raising questions about how it will undertake reforms.

ConocoPhillips exits Northern Australia. ConocoPhillips (NYSE: COP) agreed to sell its northern Australian assets to Santos (ASX: STO) for $1.39 billion. Conoco will exit the Darwin LNG plant. 

California bans fossil fuel infrastructure on public land. California passed legislation that bars any California leasing authority from allowing pipelines or other oil and gas infrastructure on state land. The legislation comes in response to the Trump administration's aggressive leasing of public lands for mining and drilling.

Saudi Arabia denies role in Iran tanker attack. Saudi Arabia denied any role in the attack on an Iranian tanker in the Red Sea last week. Iran said that it has obtained evidence to prove that the attack was carried about by rockets, and that a government was involved. Iran also vowed to take revenge

U.S. Justice Department investigating Pemex. The Wall Street Journal reports that the U.S. Justice Department and the SEC are investigating Pemex for a widespread bribery scheme. At issue was the 2018 bankruptcy of Oro Negro. The company says that it was driven into bankruptcy by Pemex after refusing to pay bribes. Oro Negro is seeking $700 million in damages in a lawsuit submitted to a NAFTA arbitration panel.

Total SA's $600 million bet on India. Total SA (NYSE: TOT) is spending $600 million to purchase a 37.4 stake in India's Adani Gas Ltd.

Venezuela's oil production could plunge on Chevron decision. The Trump administration could drive down Venezuela's oil output by another 300,000 bpd if it decides to deny Chevron (NYSE: CVX) a waiver allowing the company to continue operating in the country, according to S&P Global Platts. Currently, Venezuela is producing about 600,000 bpd, but the forced exit of Chevron would damage joint ventures with PDVSA. "I think you'd see it go certainly to under 300,000 b/d within a month" if Chevron had to pull out, said Neil Bhatiya, an associate fellow with the Center for a New American Security, told Platts. The waiver expires next week. 

Saudi energy minister says production to reach pre-attack levels. Saudi energy minister Prince Abdulaziz bin Salman said that the country's oil production will surpass levels seen prior to the Abqaiq attack as soon as this month. He said production will likely average 9.86 mb/d in October and November. Production fell by 660,000 bpd to 9.13 mb/d in September.

Saudi Arabia to approve IPO this week. Saudi Arabia is expected to give official approval to the IPO of Saudi Aramco this week. "Aramco's IPO will take place sooner than you think," Yasir al-Rumayyan, chairman of Aramco, told the FT. The plans involve a public offering of 3 percent of the company on the domestic exchange as soon as November. 

Enterprise to expand ethane pipeline. Enterprise Products Partners (NYSE: EPD) is moving forward with plans to expand its ATEX ethane pipeline from Appalachia to Southeast Texas. "The expansion of ATEX will facilitate growing production from the Marcellus/Utica Basin and will provide access to attractive markets on the Gulf Coast through Enterprise's integrated midstream network," the company said in a statement.

European Investment Bank postpones gas lending decision. The European Investment Bank was set to consider a vote on Tuesday that would have cut off natural gas projects from lending eligibility, but it postponed the decision. Germany has reservations about the vote, but a top EIB official told Reuters that the vote is likely in November. 

Immigration crackdown hits oil and gas. Reuters reports that some oil and gas companies in the Permian basin are having trouble finding enough workers because of the immigration crackdown by the Trump administration. 

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