Friday, October 19, 2018 /11:09PM / Oilprice Intelligence Report
Bullish sentiment has
dominated oil markets in recent months, driven by a fear of supply shortages,
but this sentiment has seemingly vanished over the last week
Friday, October 19th, 2018
The oil market is
suddenly rather sanguine about a supply shortage in the short run. “The
concerns about a tightening of supply, which dominated markets until two weeks
ago, have abated despite the fact that the reasons for them (falling Iranian
oil exports, declining oil production in Venezuela, reduced spare capacities)
still apply,” Commerzbank said in a note. The bank said that the recent uptick
in inventories provides some cover, and traders are no longer on edge about
shortages. “Nonetheless, we believe it is still too early to sound the
all-clear for the oil market.”
Oilfield services face
tough quarter. Oilfield services companies are
expected to post mediocre figures when they report third quarter results in the
coming days. Oil producers have been under pressure to keep costs low, which
means less revenue for servicers as more drillers are doing work in-house.
Also, U.S. tariffs are driving up the cost for projects. “The risk for a number
of (oilfield service) firms is to the downside,” Brad Handler, a Jefferies
equity analyst in New York, told Reuters.
U.S. sanctions losing
effectiveness. The overuse of sanctions by the Trump
administration is undermining their effectiveness, according to Jacob Lew, the
U.S. Treasury Secretary under President Obama, and Richard Nephew, the lead on
Iran sanctions during the Obama administration. “Today, Washington is
increasingly using its economic power in aggressive and counterproductive ways,
undermining its global position and thus its ability to act effectively in the
future,” Lew and Nephew write in a Foreign Affairs essay.
Goldman: $100 oil not
likely. Jeff Currie, head of commodities research at
Goldman Sachs, said that $100 oil is not “very likely.” “We're not saying $100 oil
cannot happen. It's not our base case nor do we think it's very likely,” Currie
told S&P Global Platts in an interview. Reaching $100 would require a
“sustainable loss in all of Iran's oil exports for an extendable period of
time.”
Oil prices fall on U.S.
production. The latest EIA report showed another
strong increase in inventories, which helped push down prices mid-week. The
data release also revealed a sudden drop in production, but that figure is an
anomaly due to hurricane-related outages. Also, the effort by the Trump
administration to smooth over tension with Saudi Arabia tamped down
geopolitical concerns. “The inventory numbers were a real bearish surprise,”
Michael Lynch, president of Strategic Energy & Economic Research,
told Bloomberg. “That combined with the gradual lessening of tension” between the U.S.
and Saudi Arabia “has taken some of the steam out of the market.”
SPR justified by Iran
sanctions. The outages from Iran give the Trump
administration the legal justification for a release from the strategic
petroleum reserve (SPR). “I don't agree with the reimposition of sanctions
against Iran, but if you are of the view that we need to take the strictest
possible line to crack down on Iran's egregious behavior and we have to take
their oil exports to zero ... then I think there is a plausible argument to say
that is a legitimate emergency supply disruption that justifies a release from
the Strategic Petroleum Reserve,” Jason Bordoff, founding director of Columbia
University's Center on Global Energy Policy, said in an interview with S&P Global Platts.
ExxonMobil betting on
China’s LNG demand. ExxonMobil (NYSE: XOM) is betting big
on Chinese gas demand for the long haul. Exxon already has its massive Papua
New Guinea gas production and LNG export facility, and it is looking to build
LNG export capacity in Mozambique. Both gas-exporting regions are situated to
serve Chinese demand. Meanwhile, Exxon is also building gas storage facilities
and a major petrochemical complex in China, investments that will soak up the
gas coming from its upstream assets in East Africa and the Pacific. The
combination “will guarantee us a steady outlet for lots of our LNG for
decades,” an unnamed Exxon manager told Reuters.
Turkey seeking U.S.
waiver on Iran. Turkey’s top refiner, Tupras, is seeking a waiver from the U.S. government that would allow it to continue
importing oil from Iran beyond the November 4 implementation of sanctions.
Turkey imported 97,000 bpd from Iran in August and 133,000 bpd in September.
Other nations in Asia are in talks with the U.S. for waivers, and some refiners
are confident they will receive one.
Neutral Zone fields to
remain offline. Saudi Arabia had sought to revive
talks with Kuwait over the restart of the Neutral Zone oil fields that
straddles the border of the two countries. The fields have been offline for
several years and have a capacity of around 500,000 bpd. The two sides seemed
to be making progress but the talks recently broke down, suggesting the fields will remain offline for
the foreseeable future.
U.S. sees no need for
more sanctions on Venezuela. Venezuela’s catastrophic
meltdown and the spiraling oil production crisis means that there is little
reason to impose more sanctions, several U.S. officials say. “The fact is that
the greatest sanction on Venezuelan oil and oil production is called Nicolas
Maduro, and PDVSA’s inefficiencies,” an official told Reuters. “At the end of the day, Nicolas Maduro has taken care of really
running PDVSA to the ground, and essentially more and more making it a
non-factor.”
ConocoPhillips clears
hurdle for Alaska drilling. ConocoPhillips (NYSE: COP) has cleared a key hurdle that could allow it to move forward with a
$1.5 billion project in Alaska’s National Petroleum Reserve.
Flood of light oil from
the Permian. Permian drillers are producing a flood of
light oil, leading to more varieties of oil sold to refiners. “There’s room for
more segregation instead of just West Texas Sour and WTI Midland crudes,” Neil
Earnest, president of industry consultant Muse Stancil & Co., said in a
phone interview with Bloomberg. “The growing production from the Permian has given rise to increasing
variety of crudes.”
Colorado setback
referendum sparks fear in industry. The Colorado
referendum that could increase drilling setback distances from 500 feet to
2,500 feet has attracted nearly $40 million in spending from the oil industry,
which is desperate to defeat the measure. By some estimates, the greater setback distances could cut the state’s oil production in
half.

Previous Oilprice
Intelligence Reports
1. Oil Prices Under Pressure As U.S. Shale Supply Soars
– OIR 161018
2. Oil
Markets Take A Bearish Turn – OIR 121018
3. Oil Prices Rise On Iran, Hurricane
Outages – OIR 091018
4. The Oil Price Rally Is Under Threat – OIR 051018
5.
Why Brent Broke $85 – OIR 021018
6. The $100 Oil Debate – OIR 280918
7. Brent Oil Hits Its Highest Level Since
2014 – OIR 250918
8. Is Oil On Its Way To $80? – OIR 210918
9. Oil Markets Unfazed By $200 Billion
Trade War Escalation – OIR
190918
10. A Crucial
Period For Oil Markets– OIR 150918
11. Why Oil
Prices Are Heading Higher – OIR 120918
12. The End Of
The Oil Price Rally – OIR 080918
13. What’s
Behind The Oil Price Rally? -OIR 050918
14. Why Oil
Prices Are Trending Upwards -OIR 310818
15.
Oil Holds
Gains Despite Downward Pressure -OIR 290818

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