Saturday, November 17, 2018 07:49 AM / Oilprice Intelligence Report
Oil prices rose on Friday morning as markets
hope OPEC and partners will take action to reverse bearish sentiment.
Friday,
November 16, 2018
Oil prices posted some gains on Thursday and in early trading on Friday, rising
on the hope that OPEC+ might agree to a production cut in early December.
IEA: OPEC achieved objective. The IEA said in
its latest Oil Market Report that the OPEC+ coalition had largely succeeded in
heading off the tightening oil market. Major oil producers within OPEC+ may not
be that pleased with the price decline, but the IEA welcomed the surge in supply.
“Rising stocks should be welcomed as a form of insurance, rather than a
threat,” the agency said Wednesday.
Saudi Arabia angered by Trump waivers. Reuters reports that Saudi officials were reportedly caught off guard by the
degree to which the Trump administration offered waivers on Iran sanctions. The
waivers to eight countries will largely allow Iran to continue exporting oil
and it effectively caps the potential outages from Iran in the short run. Those
waivers are widely cited as one of the most important drivers in the recent oil
price meltdown, something that Riyadh is not happy about. Saudi Arabia ramped
up supply on the understanding that Iran’s exports would be going offline.
Saudi sources told Reuters that the Saudi government feels betrayed by the
Trump administration and that they are more determined than ever to engineer a
production cut in order to put a floor beneath prices. Riyadh already announced
that it would cut exports by 500,000 bpd in December.
Russia hesitates on production cuts. A senior
Russian official told Reuters that Russia was not keen on reducing output,
despite reports that OPEC+ is considering such an option. “I think (oil)
production should not be lowered. Yes, we have done this in the past but this
was not the right systematic approach,” a senior Russian government
source said. Russian President Vladimir Putin was more careful and non-committal in
recent comments, saying only that Russia will continue to cooperate with
OPEC.
Citi: Oil plunge the fault of the Trump administration. The
Trump administration deserves a lot of blame for the recent plunge in oil
prices, according to Citibank. The waivers on Iran sanctions, U.S. shale
growth, Trump’s tweets about OPEC, and the trade war with China have all
contributed to a declining oil price. “The oversupply in the market is a
made-in-America phenomenon,” Citi’s Ed Morse told Bloomberg. “It’s the unexpected consequences of American policy and the
unintended impact of technological changes that made this historically
unprecedented arena for production growth blossom.”
U.S. shale finally profitable. The U.S. shale
industry suffered from years of red ink but is now becoming profitable – at
least some companies are. A Reuters survey of 32 shale companies found that a third of them are cash
flow positive, up from just 3 out of 32 a year earlier. However, the 32
companies still posted a collective cash flow deficit of $945 million in the
third quarter, although that was sharply lower than the $4.92 billion deficit a
year earlier.
Brain drain at Pemex? Bloomberg raises the possibility that Mexico’s Pemex sees a brain drain
under the new administration. Lower salaries and political interference could
be on the table, which could lead to an exodus of some of Pemex’s technical
staff.
Oil price collapse could hit junk bonds. Shale
companies dependent on junk bonds for funding could be in trouble with the
collapse of oil prices. The value of junk bonds fell to the lowest level in the last two years this week.
Oil and gas output up with fewer wells. U.S.
oil and gas production surged last year, and remarkably, the gains were
achieved with fewer
wells. In 2017, the total
number of producing wells fell to 991,000 across the country, down from a peak
of 1,039,000 wells in 2014. Advances in drilling technology have helped the
industry produce more with fewer and fewer wells.
Big Oil starting to dominate shale. The
largest oil companies are accelerating their drilling plans in U.S. shale
basins, according to the Wall Street Journal, beginning to take on a greater role relative
to the small and medium-sized E&Ps that have long been the main source of
activity. Over the past year, for instance, ExxonMobil
(NYSE: XOM) doubled its rig count, becoming the most
active shale driller in the entire United States. “Scale is so important in
shale,” Uday Turaga, chief executive of ADI Analytics, told the WSJ. “You can
drive down costs from suppliers, secure pipeline access more quickly and get
better contracts.”
Muted gasoline demand. The rise in oil prices
this year, along with the weakening of emerging market currencies, has depressed
demand in much of the world. Gasoline futures opened up a discount relative to
Brent crude this week, a relationship that usually trades in the other
direction. Bloomberg notes that the discount suggests weak global demand for gasoline.
Natural gas prices spike, fall back. Natural
gas prices saw heightened volatility this week as cold weather swept across the
country. Henry Hub prices spiked to $4.80/MMBtu on Wednesday, before falling
back to $4/MMBtu on Thursday. Prices were up again in early trading on Friday.
The U.S. is entering the winter drawdown season with inventories at a 13-year
low, which should ensure ongoing volatility this winter. Still, analysts expect
the high prices to be temporary as record-breaking upstream production should
replenish inventories in 2019.
Germany and Japan see weak GDP. More signs of
a global economic slowdown came from Germany and Japan, which revealed a contraction in GDP in the third quarter. Economic weakness is starting to
impact oil demand forecasts.
Drilling services picking up. The oil
industry is expected to drill and complete 72,000 wells around the world in
2019, up 3 percent from this year, according to Rystad Energy. Well completion activity hit a low point in 2016, but has grown 30
percent since then. Rystad expects drilling and completion activity to grow by
4 percent per year through 2021.
Previous Oilprice Intelligence Reports
1. Oil Prices Collapse To One-Year Lows – OIR 131118
2. What’s Behind The Oil Price Crash? – OIR 091118
3. Oil Prices Tumble On Iran Uncertainty – OIR 061118
4. Soaring U.S. Oil Production Forces Prices Down – OIR 021118
5. Oil Markets Uncertain As Iran Sanctions Loom – OIR 301018
6. Oil Markets Gripped By Supply Glut Fears – OIR 271018
7. Oil Prices Crash As Iran Fears Fade – OIR 231018
8. Where Have The Oil Bulls Gone? – OIR 191018
9. Oil Prices Under Pressure As U.S. Shale Supply Soars – OIR 161018
10. Oil Markets Take A Bearish Turn – OIR 121018
11. Oil Prices Rise On Iran, Hurricane Outages – OIR 091018
12. The Oil Price Rally Is Under Threat – OIR 051018
13. Why Brent Broke $85 – OIR 021018
14. The $100 Oil Debate – OIR 280918
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