February 137, 2019 02:57 PM / By Tom Kool Editor, Oilprice.com
Oil prices headed higher on Friday for the
fifth day in a row as fears related to U.S.-China trade talks subsided and
production cuts continued to make headlines.
February 15, 2019
Oil posted sizable gains this week, with ongoing outages in Venezuela
tightening the market. Also, one of the largest bearish factors for oil – the
U.S.-China trade war – showed some signs of easing.
cut output…and demand forecast. OPEC cut production by 800,000
bpd in January, going a long way to erasing the supply surplus. However, the
group also cut the demand estimate for its crude by 240,000 bpd from the last
forecast due to a slowing economy. The group is still producing a bit more than
what they think is needed. Saudi Arabia already indicated that it would
shoulder an additional 0.5 mb/d reduction by March.
warns on quality differences. The IEA said in its latest Oil
Market Report that the dwindling supplies of medium and heavy barrels, at a
time when light sweet oil is surging from U.S. shale, has disrupted both the
crude and product markets. Medium and heavy losses from Iran, Venezuela, Mexico
and limited midstream capacity restraining growth in Canada has all combined to
put a premium on those barrels. As a result, refiners could face some
challenges this year as they search for the right type of crude for their
U.S. to surpass 13 mb/d in 2020. The EIA revised up its
forecast for U.S. oil production in its latest Short Term Energy Outlook. The
agency expects the U.S. to average 12.4 mb/d this year, a huge 300,000-bpd jump
from last month’s estimate. Even better, the U.S. could average 13.2 mb/d in
2020, revised up from 12.9 mb/d from the previous report.
Arabia partially shuts oil field after accident. Saudi Aramco
partially shut its Safaniyah offshore oil field after a power cable was cut by
a ship’s anchor, according to Reuters. The
shutdown occurred about two weeks ago. The Safaniyah field is the largest
offshore oil field in the world, with a capacity exceeding 1 mb/d. Energy
Intelligence says about
300,000 bpd was impacted.
trade talks make progress. A week of trade talks in Beijing
between the U.S. and China ended with both sides indicating that significant
progress was made. The talks will continue next week in Washington. It seems
unlikely that a comprehensive agreement will be secured before the March 1
deadline, but the WSJ reports that they
could agree to a memorandum of understanding outlining a framework trade deal,
allowing talks to continue beyond the deadline. President Trump also indicated
he would be willing to punt on tariffs if the two sides were making progress.
bans MTBE shipments to Venezuela. The U.S. has banned MTBE from
entering Venezuela, a fuel additive in gasoline. The sanctions could make the
gasoline shortage much worse.
names a new Citgo board. Venezuela’s opposition named a new
temporary board of directors to Citgo this week, a move intended to seize
control of the U.S.-based subsidiary of PDVSA.
negotiates with Venezuela’s opposition. China has loaned more
than $50 billion to Venezuela over the last decade, and has begun talks with
Venezuela’s opposition, fearing that it could see its position cut off with a
change of government. Venezuela still owes China more than $20 billion, to be
paid back with crude oil shipments. “China recognizes the increasing risk of a
regime change and does not want to be on the bad side of a new regime,” R. Evan
Ellis, a China expert at the U.S. Army War College, told the WSJ. “While
they prefer stability, they realize they have to put eggs in the other basket.”
leverage over Iran wanes due to Venezuela. The U.S. is likely
to allow some degree of oil purchases from Iran beyond the May deadline, a
growing number of experts believe. The catastrophic losses of oil supply in
Venezuela, and the failure to secure rapid regime change, will make it
difficult for the U.S. to take Iran’s oil exports down to zero without causing
an oil price spike. Venezuela sanctions and tighter heavy crude oil market
would lead to another round of…U.S. waivers on Iran oil export sanctions,” Sara
Vakhshouri, president of Washington-based SVB Energy International, told the WSJ.
and GM in talks on electric truck. Amazon (NASDAQ: AMZN) and GM (NYSE:
GM) are reportedly in talks on investing in Rivian Automotive
LLC for a deal that would value the electric truck maker at $1 to $2 billion.
The deal would give Amazon and GM minority stakes in Rivian, Reuters reports.
Rivian is trying to mass market an electric pickup truck.
and German tensions ease. Germany agreed to help
finance an LNG import terminal that would receive gas shipments from the United
States, and in return, the Trump administration will pullback from its effort
to try to kill the Nord Stream 2 pipeline. The handshake agreement eased
tensions between the two countries. U.S.-German relations have taken a turn for
the worse under the Trump presidency, with high-profile fights over the Iran
nuclear deal, the Paris Climate agreement, steel tariffs, NATO and the Nord
Stream 2 pipeline, among other issues.
convenes summit on alternative to dollar. The European Union
held a summit to promote the euro in an effort to break dollar dominance,
according to Reuters. The
meeting included top European oil and gas companies, utilities, and other
industrial giants. The EU has long paid lip service to its preference for
alternatives to the dollar, but the souring ties between the EU and the Trump
administration has accelerated those efforts. “Washington doesn’t like cartels
like OPEC,” one participant told Reuters. “But then how can you have one market
dominated by one currency - the dollar.”
imports and exports rebound in January. China’s imports and
exports rose faster than
expected in January, reducing fears of a dramatic slowdown. Both metrics were
in negative territory in December.
companies perform better without growth metrics. Oil and gas
companies have long tied production growth or reserve replacement growth to CEO
pay. A new report finds that
companies that separate executive pay from growth metrics perform better. This
comes at a time when shareholders are increasingly pressuring the oil and gas
industry to focus more on profits rather than growth. Moreover, the prospect of
peak demand calls into question aggressive spending on long-lived assets.
bets on shale. In an interview with Bloomberg, Chevron’s
(NYSE: CVX) CEO Mike Wirth laid out a vision of belt-tightening
and lower spending, with an overwhelming focus on shale, particularly in the
Permian. Gone are the days when Chevron threw down billions of dollars on a
single project. Chevron’s spending is about half of what it was in 2014.
Initial Issuer Rating of BBB (NG); Outlook Stable
of PMS, AGO, HHK and Cooking Gas – January 2019
Set To Weather Oil Price Volatility - Fitch
Tightens On OPEC Cuts– OIR 120219
What Is Keeping
Oil Prices Subdued? – OIR 080219
Bank Of America:
Oil Demand Growth To Hit Zero Within A Decade
Oil Rally Halts
On Economic Concerns – OIR 050219
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