March 15, 2019 08:45 PM / By Tom Kool Editor, Oilprice.com
Oil prices climbed to multi-month highs this week as slowing U.S.
production combined with outages in Venezuela to drive bullish sentiment in oil
March 15, 2019
Oil prices have surged to their highest level in months, with WTI rising above
$58 per barrel and Brent trading north of $67. The instability in Venezuela and
the growing evidence of a slowdown in U.S. shale have pushed prices up.
production dips. Weekly figures show that U.S. oil production
dipped to 12 mb/d last week, down from 12.1 mb/d the week before. The figures
are just estimates, and are rounded off to the nearest 100,000 bpd, but they at
least offer an indication that the explosive growth could be slowing
Guaido proposes liberalizing oil sector. Opposition leader and
self-proclaimed president of Venezuela, Juan Guaido, is working on
overhauling the country’s oil sector if he gains power. The proposal would
include weakening PDVSA and allowing a vastly larger role for private sector
companies. The reforms would resemble those of Mexico over the past few years
and would amount to a historic change, although for now, Guiado is still
struggling to gain power.
lowered output in February. OPEC reduced production by 221,000
bpd in February, a more modest reduction than in prior months. Most of the
reductions came from Venezuela, which saw output drop by 142,000 bpd.
Meanwhile, OPEC estimated that OECD inventories rose by 22 million barrels in
January, or 19 million barrels above the five-year average.
OPEC’s spare capacity a “cushion” for oil market. The IEA said
that although the crisis in Venezuela is disrupting the oil market, the OPEC+
production cuts have rebuilt spare capacity, providing a “supply cushion” that
can offset the turmoil. “Much of this spare capacity is composed of crude oil
similar in quality to Venezuela’s exports,” the IEA said.
“Therefore, in the event of a major loss of supply from Venezuela, the
potential means of avoiding serious disruption to the oil market is
theoretically at hand.”
hints at Iran waivers extension. The Trump administration’s
lead envoy on Iran sanctions, Brian Hook, said that waivers granted to eight
countries importing Iranian oil could be extended, as long as they demonstrate reductions
in purchases. The U.S. is aiming to get Iran’s oil exports below 1 mb/d, a
reduction of roughly 20 percent from current levels, but a far cry from “zero.”
Higher oil prices are constraining the Trump team. “He has made it very clear
that we need to have a campaign of maximum economic pressure ... but he also
doesn't want to shock oil markets, he wants to ensure a well-supplied and
stable oil market,” Hook said, referring to Trump.
warns shale drillers. Earlier this week, a group of top OPEC
officials warned U.S. shale
executives in a meeting on the sidelines of the IHS CERAWeek Conference in
Houston that the NOPEC legislation working its way through the U.S. Congress
could result in much higher levels of production from OPEC, which would crash
prices. They made clear that without the ability to coordinate, they would
produce at maximum levels.
clash feared. Although Libya’s oil production is at multi-year
highs and could rise even further, the division of the country between two
governments could lead to a conflagration. The Libyan National Army (LNA) has
piled up multiple victories on the battlefield, and analysts now fear it
could turn its sights on the capital in Tripoli, where the internationally
recognized government lacks the military might to fend off an invasion.
to shale: “show me the money.” Investors continue to pressure
the shale industry to demonstrate profits. Shareholders’ expectation “a couple
years ago was ‘drill, baby, drill,’” John Hess, CEO of Hess Corp.
(NYSE: HES) said Tuesday in an interview with CNBC at the
CERAWeek conference. “Now it’s ‘show me the money.’” But spending cuts could
translate into much lower production growth, he said.
decline rates top 10 percent. Decline rates at offshore oil
fields worldwide grew
significantly beginning in 2016 due to lower infill activity. Last year,
decline rates reached nearly 10 percent, almost double the rate from 2015,
according to Rystad Energy.
oil sands could slow on pipeline delays. MEG Energy Corp. (TSE: MEG)
and Imperial Oil (TSE: IMO) are reconsidering expansions
of oil sands projects in Canada due to the inability for the region to build a
new long distance pipeline, according to Bloomberg. MEG had
planned to bring an expansion online later this year, but the most recent delay
of the Line 3 pipeline means that the “probability of that going ahead this
year has decreased,” MEG said. “We don’t want to be building capacity into a
system where we don’t have the ability to move it,” MEG’s CEO Derek Evans said
in a conference call last week.
targets $15 breakevens for Permian. ExxonMobil
(NYSE: XOM) plans on cutting
the cost of production in the Permian to just $15 per barrel, putting it on par
with some of the lowest cost oil fields in the world. The President of XTO
Energy, a subsidiary of Exxon, said that the oil major’s scale could allow it
to cut costs that low. He also said that the Permian’s total production,
currently at 4 mb/d, could double by 2025. Exxon will deploy 55 rigs in the
Permian this year, more than any other company.
in Algeria threatens more disruptions. No oil and gas
production has been affected yet, but political unrest in Algeria has raised the risk of
more outages at a time when the oil market is already reeling from
to sell LNG in remarkable turnaround. Egypt’s state gas company
EGAS tendered a sale for
four LNG cargoes for April, only a few years after the country was forced to
buy up LNG to plug a supply deficit. Egypt has lofty aspirations to build a gas
hub in the Eastern Mediterranean.
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