Saturday, October 06, 2018 /10:45AM / Oilprice Intelligence Report
The most recent oil price rally is set to hit some resistance as
refinery maintenance season looms and U.S. oil stocks rise.
Friday, October 5th, 2018
Oil fell back sharply on Thursday, coming
on the heels of a huge buildup in U.S. crude inventories. However, the stock
increase was largely due to an unexpected dip in exports, so the implications
of the EIA report are still unclear. Still, even as Iran outages loom, seasonal
factors could offset the bullishness. “We’re now into fall refinery maintenance
season, and so we’re seeing builds in inventories because refineries aren’t
taking in as much crude. Those builds could continue for a while,” Mark
Waggoner, president of Excel Futures, told the Wall Street Journal in an interview.
IEA: Petrochemicals
driving oil demand. The IEA put out a new report that
highlights the increasingly prominent role that the petrochemical sector is
playing in driving global crude oil demand. Petrochemicals will account “for
more than a third of the growth in oil demand to 2030, and nearly half to 2050,
ahead of trucks, aviation and shipping.” Transportation will start to lose its
prominence as an engine of demand growth in the years ahead, with
electrification taking hold. But there are few major alternatives to crude oil
and natural gas in the petrochemical sector.
U.S. accuses Saudi
Arabia of holding back. The U.S. State Department
criticized Saudi Arabia for not using its spare capacity this week. A State
Department official said that the U.S. was working with Saudi Arabia to use the
spare capacity that they are “not deploying,” while also insisting that the
U.S. was “doing its part.” "The United States continues to engage with
OPEC countries and we encourage them to utilize their spare capacity to ensure
world oil supply meets the demand," the State spokesperson said in a
statement to S&P Global Platts on Wednesday. The official said OPEC and non-OPEC producers including
Russia “continue to withhold production.” The statement was odd given that
spare capacity is very low by any standard.
Saudi Arabia to invest
$20 billion in spare capacity. Saudi Arabian oil minister
Khalid al-Falih said it will invest $20 billion
to maintain and potentially grow the volume of its spare production capacity.
Saudi Arabia has consistently claimed that it could produce and sustain 12
million barrels per day, a figure that has yet to be tested. Riyadh is
contemplating investments to increase that threshold to 13 mb/d. “This spare
capacity is not just a natural reservoir that we have. This is very expensive
investments for the kingdom, and some of our partners within OPEC and OPEC+
have elected to invest to maintain (oil capacity) to have the readiness on a
short notice,” he said at an energy industry event in Moscow. “The next 1
million bpd of Saudi capacity is going to cost us over $20 billion. It costs us
$2 billion a year of operation expenses to staff and maintain these facilities.”
Traders wager on $100
oil. Hedge funds and other speculators have staked out bets that
would pay off if WTI hit $100 per barrel by the end of 2019, a sign that the
market thinks that the loss of Iranian supply, combined with IMO regulations
cutting into marine fuel supply at the start of 2020, could severely tighten
the oil market.
Canada will restart
Trans Mountain process. Canada said on
Wednesday that it would not appeal a court ruling that blocked construction of
the Trans Mountain expansion. Instead, the federal government will restart the
consultation process with First Nations.
Oil industry sees
Colorado ballot initiative as major threat. Houston oil and
gas companies are spending heavily in Colorado to defeat a ballot measure that
would increase the distance between homes and where companies can drill. These
setback distances would increase from 500 feet to 2,500 feet, a distance that
would kill off drilling, the industry argues. Oil and gas companies have spent
at least $20 million to defeat the measure, according to the Houston Chronicle.
Trump admin to allow
year-round ethanol sales. The Trump administration is
reportedly set to announce a new
policy of allowing the sale of high-ethanol gasoline all year long, removing
the prohibition in place for summer months. The move is intended to placate
Midwestern farmers, who have been hit by falling soybean prices stemming from
Trump’s trade war. The oil refining industry has vociferously opposed any
policy favoring ethanol sales, and refining interests are lobbying hard at the
eleventh hour in an attempt to dissuade Trump from going forward.
Repairs at Venezuelan
dock delayed. A tanker collision a month ago at a critical
Venezuelan port may take longer to repair than initially expected. Reuters says one of
the docks will take another month before it can come back online, which will
likely lead to steeper oil export losses. Venezuela’s exports fell to just 1.1
mb/d in September.
India cuts fuel taxes. Succumbing
to the crushing weight of high fuel prices, which are exacerbated by the weaker
rupee, the Indian government decided to lower taxes on gasoline and diesel to
provide some relief to motorists. “The combined relief to a consumer will be
Rupees 2.5/liter,” India’s finance minister said. Efforts
such as this, which have increased in 2018 as global oil prices surged, will
minimize oil demand destruction that would otherwise occur.
EU companies won’t play
along with Iran sanctions workaround. The EU setup a
special purpose vehicle to allow companies to continue to do business with
Iran, but the FT reports that top
European refiners are not convinced that the financing vehicle would shield
them from U.S. sanctions. “We cannot afford to take the risk to be banned from
using the US financial system,” Patrick Pouyanne, CEO of Total SA (NYSE: TOT),
said at a conference in Russia.
Previous Oilprice Intelligence Reports
1.
Why
Brent Broke $85 – OIR 021018
2. The
$100 Oil Debate – OIR 280918
3. Brent
Oil Hits Its Highest Level Since 2014 – OIR 250918
4. Is
Oil On Its Way To $80? – OIR 210918
5. Oil
Markets Unfazed By $200 Billion Trade War Escalation – OIR
190918
6. A Crucial Period For Oil Markets– OIR 150918
7. Why Oil Prices Are Heading Higher – OIR 120918
8.
The End Of The Oil Price Rally – OIR 080918
9.
What’s Behind The Oil Price Rally? -OIR 050918
10. Why Oil Prices Are Trending Upwards -OIR 310818
11.
Oil Holds Gains Despite Downward Pressure -OIR 290818

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