Tuesday, April 03,
2018 /08:15 AM / Oilprice.com Oil
prices have bounced back at the end of the quarter as geopolitical risk and
OPEC's determination to further extend its production cut deal put a floor
under prices.
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Friday, March 30, 2018
Oil prices closed out the first quarter on a high note, with Brent hovering
around $70 and WTI at $65. Rising geopolitical concerns – declines in Venezuela
and fears that the U.S. will step up confrontation with Iran – are elevating
crude prices.
OPEC
and Russia consider 10- to 20-year alliance. There have
been rumors for some time that OPEC and Russia are looking at ways of
institutionalizing their cooperation beyond the current production cut
agreement, which may or may not expire at the end of this year. Reuters
reported this week that they are working on something much more ambitious than
previously thought: OPEC and Russia are looking at solidifying their
cooperation for the long-term. “We are working to shift from a year-to-year
agreement to a 10 to 20 year agreement,” Saudi crown prince Mohammed bin Salman
told Reuters in an interview on Monday. “We have agreement on
the big picture, but not yet on the detail.”
OPEC/non-OPEC
looking at six-month extension. OPEC and its non-OPEC
partners are reportedly considering an extension of the current production cut
agreement for six months, through mid-2019, according to Iraqi oil
minister Jabbar al-Luaibi. “By the end of this year, we will assess and decide
how to go ahead,” he said at the Iraq Energy Forum. “Some are suggesting a
three-month extension, some suggest a six-month extension.”
Saudi
Arabia and SoftBank announce 200 GW solar plan. Saudi
Arabia and Japan’s SoftBank announced plans to build a 200 GW solar project in Saudi
Arabia, which would be about 100 times larger than the largest project
currently installed. The project would be built in phases through 2030, and
would amount to a major investment in Saudi Arabia’s post-oil economy. Still,
there are questions about the viability of the project, given the multiple
solar targets announced in the past that have gone nowhere.
European
oil majors scoop up shallow water assets in Mexico. Mexico
held a shallow-water auction this week, and several European oil majors successfully acquired tracts, including Royal Dutch
Shell (NYSE: RDS.A), BP (NYSE: BP), Total (NYSE: TOT), Eni (NYSE: E) and
Repsol
(BME: REP). Unlike past rounds, ExxonMobil (NYSE: XOM) and
Chevron
(NYSE: CVX) stayed away. Notably, it was the last oil auction
before Mexico’s presidential election in July. The frontrunner, Andres Manuel
Lopez Obrador, has promised to halt future oil auctions if elected.
ExxonMobil
goes big in Brazil. While ExxonMobil (NYSE: XOM)
took a pass on Mexico’s shallow water auction, it made a big splash in Brazil’s deepwater auction this
week. Exxon was awarded eight tracts, the most among the 12 winning companies.
The highest bid came in the Campos basin, and the investment marks a serious
interest in Brazil on behalf of the American oil major.
Concho
Resources to buy RSP Permian for $9 billion. Concho
Resources (NYSE: CXO) announced plans to buy RSP Permian
(NYSE: RSPP) in an all-stock deal worth about $9 billion. The
acquisition would form the largest shale producer in the Permian and some
analysts think it could trigger more M&A activity. The purchase would represent the
largest shale deal since 2012, but Concho’s shareholders are skeptical – the
company’s share price fell about 9 percent – because of the hefty price tag.
Meanwhile, the Permian is starting to see some pipeline bottlenecks, which
could hamper the ambitious production forecasts published by a wide array of
analysts.
VW
promises to buyback diesel cars if they are banned. Volkswagen
said it would buy back new diesel cars if German cities move to ban
them, hoping to bolster confidence in the diesel vehicles after a German court
ruled in February that cities have the authority to ban them. Diesel car sales
fell by 19 percent in Germany last month, as fears of bans are pushing
consumers elsewhere.
HSBC:
LNG market facing supply crunch in 2022-2023. HSBC said in a new report that strong demand from Asia has meant that the
LNG market has avoided the “glut” that many analysts had predicted up until
recently. In fact, the LNG market faces the opposite problem: By 2022-2023,
there could be a shortage of supply, the result of a slowdown in spending on
new projects. The conclusion closely echoes a recent report from Royal Dutch
Shell (NYSE: RDS.A), which warned of a brewing supply crunch in
the 2020s due to a shortfall in project development.
Tesla
shares drive on credit downgrade. Moody’s Investors Service
downgradedTesla’s (NYSE: TSLA) credit
rating this week, following a fatal crash involving one of its cars and ongoing
problems with manufacturing the Model 3. Tesla’s share price has lost more than
13 percent this week, and the New York Times published a scathing article questioning whether the company even
had a viable future.
Three
companies complain U.S. SPR oil tainted. Three companies
that purchased oil from the U.S. strategic petroleum reserve (SPR) have
apparently complained that the oil contains dangerous levels of hydrogen
sulfide (H2S), according to Reuters. A concentration of H2S that is too high can
corrode pipes and refineries. If there are broader problems with the quality of
the remaining 665 million barrels sitting in storage, it would make the U.S.
strategic reserve much less effective as an energy security tool.
China
moves to purchase oil with yuan. Fresh off the launch of
its yuan-denominated oil futures contract, China is reportedly preparing to make some oil purchases later this
year in yuan instead of dollars. It would be a shot across the bow as China
hopes the yuan will rival the greenback as a global currency. Because oil is
the world’s most traded commodity, shifting part of the oil trade to yuan would
have enormous ramifications. "Being the biggest buyer of oil, it's only
natural for China to push for the usage of yuan for payment settlement. This
will also improve the yuan liquidity in the global market," a source told
Reuters.