May 11, 2019 08:27 AM / By Tom Kool Editor, Oilprice.com
Trump has officially
restarted the trade war after doubling tariffs on China, but supply issues with
U.S. shale, Iran, Venezuela and Libya seem to have countered that news in oil
Friday, May 10th, 2019
Oil prices were flat in early trading on Friday, sandwiched between supply
outages and the escalating U.S.-China trade war.
Trump doubles tariffs on China, markets wait. The
U.S. hiked tariffs on $200 billion of Chinese goods from 10 to 25 percent on Friday,
while leaving open the possibility that trade talks could continue. Trump also
began the process of new tariffs on another $325 billion in Chinese imports.
China vowed to implement retaliatory measures. “The opportunity window for
avoiding a trade war is closing fast,” Citigroup wrote in a note to clients.
Global financial markets were largely stable on Friday, suggesting that major
investors still think that a resolution can be reached. “Our base case remains
that the U.S. and China will eventually reach some kind of accord,” said Mark
Haefele, global chief investment officer for the Swiss bank UBS, in a note.
U.S. shale running into trouble. As the sweet
spots in the U.S. shale patch become crowded, it may be more costly and
difficult to keep production elevated, according to a new report. While
drilling techniques have succeeded in growing output, the industry may simply
be front-loading production.
Oil prices firm up on bullish EIA report. Crude
inventories fell and
oil production also dipped in the most recent report from the EIA. That ended a
string of inventory increases and offers some evidence that the market is not
Oil fundamentals diverge from prices. Brent
crude futures have opened up a steep backwardation, evidence that the physical
market for crude is tightening. Yet, spot prices have fallen in the last two
weeks, and analysts are puzzled at the discrepancy. “There is no true sign of
weakness in the physical market,” Olivier Jakob, managing director of
consultant Petromatrix GmbH, told Bloomberg.
“You have lower exports from Venezuela, you’ve got sanctions for Iran, Libya
which is still a risk.”
Iran oil exports falling amid escalating tension. The
U.S.-Iran conflict escalated this week, with rhetoric on both sides growing
more heated. Iran said it would withdraw from parts of the nuclear deal, and
top U.S. officials hinted at a military response. Washington also imposed sanctions on
metals exports from Iran. Iran warned the EU to step up incentives or else it
will fully withdraw from the 2015 accord. Meanwhile, Iran’s oil exports
Saudi Arabia to keep oil exports below 7 mb/d in June. Saudi
Arabia is holding firm on oil exports despite the tightening market. Saudi oil
exports are expected to
remain below 7 mb/d in June, with production also below the OPEC+
Venezuelan opposition VP detained. The Vice
President of Venezuela’s opposition, Edgar Zambrano, was detained by
the government this week, a sign that the failed coup attempt is now leading to
Turkey to drill near Cyprus. Turkey said that
it was going to drill in disputed waters off the coast of Cyprus, raising tensions
between the two sides. The series of gas discoveries in the Eastern
Mediterranean appear to be exacerbating tensions, not resolving them, as many
analysts had once hoped.
Texas air quality deteriorates. Air quality
in and around Odessa, Texas – in the heart of the Permian basin – continues
to deteriorate as oil production grows.
“Controlling air pollution in West Texas has not been a priority for the state,
as evidenced by the scarcity of air pollution monitoring stations in the
Permian Basin,” a report from the Environmental Integrity Project said. “And
yet, the type of air pollution in the Permian Basin — dominated by excessive
emissions of sulfur dioxide and hydrogen sulfide — is known to have serious
environmental and public health consequences.”
New Colorado oil and gas law deters investment. The
overhaul to oil and gas regulation in Colorado, which was recently signed into
law, could slow investment into the sector. The new law gives local communities
greater authority over zoning and regulation. According to Reuters,
there were only five land transactions of negligible value in the
Denver-Julesburg Basin in the nine-month period through March, down sharply
from the nine deals worth $2 billion in the same period between 2016 and
2017. ConocoPhillips (NYSE: COP) tried to sell its
acreage for more than $1 billion last year but found no willing buyer. Reuters
reports that more recently some companies have begun to scale back
U.S. solar panels surpass 2 million. The U.S.
now has 2 million solar installations, only three years after hitting 1 million. It will
only take until 2023 to hit 4 million.
Iraq close to $53 billion oil deal. Iraq
is close to signing a long-term, $53 billion oil deal with ExxonMobil
(NYSE: XOM) and PetroChina. Iraq said the deal could bring
in $400 billion in revenue over its 30-year lifetime.
Chevron threw in the towel on Anadarko deal. After Occidental
(NYSE: OXY)raised its offer for Anadarko
Petroleum (NYSE: APC), Chevron (NYSE: CVX) said
it would not up the ante. “Winning in any environment doesn’t mean winning at
any cost. Cost and capital discipline always matter, and we will not dilute our
returns or erode value for our shareholders for the sake of doing a
deal,” said Chevron’s
Chairman and CEO Michael Wirth. Anadarko has to pay Chevron a $1 billion
Saudi Aramco weighs U.S. shale investment. Saudi
Aramco is considering a
potential investment in Equinor’s (NYSE: EQNR) U.S.
shale operations. Equinor has operations in the Marcellus shale.
Pioneer slashes jobs. Pioneer
Natural Resources (NYSE: PXD) said on Tuesday that it
would ask nearly a third of its executives to leave their jobs, a cost-saving
measure on the order of $100 million per year. “The big change is to treat
capital just as important as production,” CEO Scott Sheffield said.
UK coal-free for a week. For the first time
since the 1880s, the UK went an entire week with
zero electricity generation from coal. The UK plans to entirely phase out coal
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