Τhe Oil Market Is Destined To Re-Balance
Greetings from London.
Oil traded at the lowest level in three weeks as traders digest the U.S. withdrawal from the Paris climate agreement and put aside the bullish EIA inventory data.
Urgent: Before we take a look at this week’s data, we would like to inform you that we've just published a special report on a breakthrough technology in solar. This report along with several other reports will turn you into an expert in the rapidly growing and dynamic solar power industry. Find out how you can consistently make money from investing in renewable energy. This report is exclusively available to our Energy & Resource Insider members - We have temporarily extended our $49 per year offer for this service. Click here to find out more.
Friday, June 2, 2017
Oil prices continue to show weakness even though there are some bullish pieces of data emerging. The EIA reported a surprisingly strong drawdown in crude oil inventories, a drop off of 6.43 million barrels. However, weekly U.S. oil production continues to climb. Also, Libyan oil production broke new highs for the year. Oil might trade between $45 and $50 per barrel for quite a while, a range that is “the path of least resistance," Bill O’Grady, chief market strategist at Confluence Investment Management, told Bloomberg in an interview. "You stay in that range until you get some kind of clear and convincing evidence." Oil prices also sank on news that the U.S. withdrew from the Paris Climate accord (more below), raising fears of more unbridled drilling.
Exxon shareholders pass climate resolution. Shareholders of ExxonMobil (NYSE: XOM) passed a monumental resolution this week, calling on the company to assess its vulnerability to climate change. Shareholders passed the resolution with 62 percent support. The resolution is a milestone on the campaign by environmental activists to pressure the oil major into disclosing more details about its financial vulnerabilities. The difference this time compared to failed efforts in the past is that mainstream financial institutions are on board with more climate disclosure, fearing that their long-term investments are at risk. Shareholders also passed a resolution calling on Exxon to provide more details about its plans to reduce methane emissions.
OPEC faces conundrum: prices or market share. Robin Mills, a Middle-East based oil analyst, wrote in Bloomberg View that OPEC must choose between fighting for market share by raising production, or stabilizing prices by maintaining cuts. They can’t have both, despite attempts by the cartel to keep U.S. shale out of the market while also rescuing prices from falling. Unless OPEC chooses one course of action, it could face long-term attrition from lost market share and less-than-satisfying revenues.
U.S. withdraws from Paris. President Donald Trump announced his decision to withdraw from the Paris climate accord, a move that, on its face, has little impact on the trajectory of U.S. carbon emissions. The move will, however, strain the already tense relationship between the U.S. and its European allies. Meanwhile, the EU and China have vowed to press on with the accord and reaffirmed their commitment to reach their climate targets. Reaction from within the U.S was swift. Conservative organizations and some in the coal industry praised the move, but the broader corporate sector was mostly opposed to a withdrawal. Tesla’s (NYSE: TSLA) Elon Musk withdrew from a presidential advisory council in protest. Even many in the oil and gas industry wanted Trump to remain in the pact. ExxonMobil (NYSE: XOM)CEO Darren Woods made expressions of support for the climate accord.
GE receives EU approval for merger with Baker Hughes. Last year GE (NYSE: GE) announced plans to merge its oil and gas unit with oilfield services firm Baker Hughes (NYSE BHI). This week the EU gave the greenlight for the merger, a key hurdle for the merger to be realized.
Offshore drilling gets cheaper. A new report from Wood Mackenzie finds that offshore oil drilling is getting cheaper and cheaper. The industry is streamlining operations and prioritizing the sweetest spots to drill, which will push down the average breakeven price to $50 per barrel next year, down from $62 in the first quarter of 2017 and as high as $75 in 2014. That is good news for oil drillers but also bad news for prices because new offshore supplies could come online even with oil at $50. “There is life in deep-water yet,” Angus Rodger, director of WoodMac’s upstream Asia-Pacific research, told Bloomberg in an interview. “When oil prices fell, many projects were deferred, but the ones that were deferred first were deep-water because the overall break-evens were highest. Now in 2017, we’re seeing signs that the best ones are coming back.”
Libya and Nigeria restore supply. OPEC saw its collective output jump in May because of rising supply from Libya and Nigeria, two countries that are exempt from the production cut deal. The uptick in output was the first monthly increase across OPEC for the year. Both countries have already stated their objective of dramatically ramping up production in the second half of this year if they can maintain security.
Exxon and Total interested in drilling off the coast of Crete. Greece, desperate for cash amid a never-ending financial crisis, has sought to promote oil and gas exploration. ExxonMobil (NYSE: XOM) and Total SA (NYSE: TOT) have submitted an expression of interest to explore near Crete.
Dakota Access Pipeline begins operations. Energy Transfer Partners (NYSE: ETP) said that its Dakota Access Pipeline began operations on Thursday. The inauguration of Dakota Access means that the company’s broader Bakken Pipeline system will now be able to ship 520,000 bpd to the U.S. Gulf Coast. The pipeline is a boon for drillers in North Dakota’s Bakken, who will now be able to ship more crude via lower-cost pipelines rather than rail. It will also allow Gulf Coast refiners to access more light sweet crude for their operations.
First floating LNG approved for Gulf Coast. The U.S. Department of Energy granted approval for what could be the U.S. Gulf of Mexico’s first floating LNG export terminal. The project, backed by Fairway Peninsula Energy Corp., could begin operation in 2020.
In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by clicking here.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. –Energy market expert Martin Tillier explains the consequences of the Paris Climate agreement withdrawal this week. He notes that the U.S. pulling out of the agreement has absolutely no effect on the immediate future and calls it pure political grandstanding. Oil markets appear to agree with Martin, remaining unimpressed by the latest move from the Trump Administration. Martin warns traders not to be fooled by the hysteria in the media. Find out how Martin and our other top traders played this news by claiming your risk-free 30 day trial to Oil & Energy Insider
What's in Oil & Energy Premium this week:
The Oil Market Is Destined To Re-Balance
It’s been one week after the ‘magic’ oil supply deal was extended between OPEC members and Russia and it’s been followed by just about the most pessimistic response I’ve ever seen to bullish news.
Now as a trader, no one is more familiar with the axiom to ‘buy the rumor and sell the news’, so this drop in oil prices and even more vicious drop in oil stocks should not have come as much of a surprise to me.
But quite frankly, it did, as has the pessimism that has surrounded the oil markets since the announcement in Vienna. I suppose it’s an easy position to take; after all, if a combined OPEC/Russian deal to limit production through the Spring of 2018 can’t make prices go higher, what can?
I’ve seen analyst after analyst quaking in their boots over the continued production of U.S. frackers and the unintended consequence of derailing the OPEC deal and keeping prices low.
Others continue to wonder whether OPEC could have cut even more to out balance whatever increases U.S. producers were going to deliver.
Others have even managed to challenge the Saudis themselves, calling into question their strategy of re-balancing global oil, either suggesting that the Saudis work more like Central Banks in telegraphing their long-term intentions, or just abandoning production guidelines entirely and forcing some well-deserved bankruptcies to remove uneconomic oil production the old-fashioned way.
The pessimism is universal it seems. Both Goldman Sachs and Morgan Stanley have seen the Saudi plan, measured it against the suicidal pace of U.S. fracking anddeepwater drilling advances, and decided that oil is going to have a secondary swoon in 2018.
I’ve even seen a few analysts who are ready to say it’s totally over: Oil prices are here in the $40-$60 range to stay.
I’ve been following and trading oil for thirty years. Every time oil goes up, analysts opine that it’ll never come down again When it’s down, those same voices very carefully analyze why it’ll never go up again.
Don’t these guys ever get tired?
I could give you my own analysis of the future marginal price of a barrel of oil, or my analysis of the financial market cycle and where we are in their influence on global oil prices.
Further, I could start showing you with the indicators of the other side of the oil equation that convinces me that this is hardly a ‘new normal’. While it is clear that oil markets are experiencing new factors of efficiency and investment pressures, there remains nothing that I see that is capable of stopping the global oil price cycle that has been in play, in one form or another, since the 1950’s.
Now is not the time to believe the naysayers on the ultimate result of that cycling – an opportunity to find quality oil investments in a market that is still destined to re-balance and rise – even if that rise has been forestalled by new pressures we could not predict even two years ago.
I’m not convinced in any kind of ‘new normal’ in oil price cycles. And remain committed to oil stocks here.
www.fotavgeia.blogspot.com
Greetings from London.
Oil traded at the lowest level in three weeks as traders digest the U.S. withdrawal from the Paris climate agreement and put aside the bullish EIA inventory data.
Urgent: Before we take a look at this week’s data, we would like to inform you that we've just published a special report on a breakthrough technology in solar. This report along with several other reports will turn you into an expert in the rapidly growing and dynamic solar power industry. Find out how you can consistently make money from investing in renewable energy. This report is exclusively available to our Energy & Resource Insider members - We have temporarily extended our $49 per year offer for this service. Click here to find out more.
Friday, June 2, 2017
Oil prices continue to show weakness even though there are some bullish pieces of data emerging. The EIA reported a surprisingly strong drawdown in crude oil inventories, a drop off of 6.43 million barrels. However, weekly U.S. oil production continues to climb. Also, Libyan oil production broke new highs for the year. Oil might trade between $45 and $50 per barrel for quite a while, a range that is “the path of least resistance," Bill O’Grady, chief market strategist at Confluence Investment Management, told Bloomberg in an interview. "You stay in that range until you get some kind of clear and convincing evidence." Oil prices also sank on news that the U.S. withdrew from the Paris Climate accord (more below), raising fears of more unbridled drilling.
Exxon shareholders pass climate resolution. Shareholders of ExxonMobil (NYSE: XOM) passed a monumental resolution this week, calling on the company to assess its vulnerability to climate change. Shareholders passed the resolution with 62 percent support. The resolution is a milestone on the campaign by environmental activists to pressure the oil major into disclosing more details about its financial vulnerabilities. The difference this time compared to failed efforts in the past is that mainstream financial institutions are on board with more climate disclosure, fearing that their long-term investments are at risk. Shareholders also passed a resolution calling on Exxon to provide more details about its plans to reduce methane emissions.
OPEC faces conundrum: prices or market share. Robin Mills, a Middle-East based oil analyst, wrote in Bloomberg View that OPEC must choose between fighting for market share by raising production, or stabilizing prices by maintaining cuts. They can’t have both, despite attempts by the cartel to keep U.S. shale out of the market while also rescuing prices from falling. Unless OPEC chooses one course of action, it could face long-term attrition from lost market share and less-than-satisfying revenues.
U.S. withdraws from Paris. President Donald Trump announced his decision to withdraw from the Paris climate accord, a move that, on its face, has little impact on the trajectory of U.S. carbon emissions. The move will, however, strain the already tense relationship between the U.S. and its European allies. Meanwhile, the EU and China have vowed to press on with the accord and reaffirmed their commitment to reach their climate targets. Reaction from within the U.S was swift. Conservative organizations and some in the coal industry praised the move, but the broader corporate sector was mostly opposed to a withdrawal. Tesla’s (NYSE: TSLA) Elon Musk withdrew from a presidential advisory council in protest. Even many in the oil and gas industry wanted Trump to remain in the pact. ExxonMobil (NYSE: XOM)CEO Darren Woods made expressions of support for the climate accord.
GE receives EU approval for merger with Baker Hughes. Last year GE (NYSE: GE) announced plans to merge its oil and gas unit with oilfield services firm Baker Hughes (NYSE BHI). This week the EU gave the greenlight for the merger, a key hurdle for the merger to be realized.
Offshore drilling gets cheaper. A new report from Wood Mackenzie finds that offshore oil drilling is getting cheaper and cheaper. The industry is streamlining operations and prioritizing the sweetest spots to drill, which will push down the average breakeven price to $50 per barrel next year, down from $62 in the first quarter of 2017 and as high as $75 in 2014. That is good news for oil drillers but also bad news for prices because new offshore supplies could come online even with oil at $50. “There is life in deep-water yet,” Angus Rodger, director of WoodMac’s upstream Asia-Pacific research, told Bloomberg in an interview. “When oil prices fell, many projects were deferred, but the ones that were deferred first were deep-water because the overall break-evens were highest. Now in 2017, we’re seeing signs that the best ones are coming back.”
Libya and Nigeria restore supply. OPEC saw its collective output jump in May because of rising supply from Libya and Nigeria, two countries that are exempt from the production cut deal. The uptick in output was the first monthly increase across OPEC for the year. Both countries have already stated their objective of dramatically ramping up production in the second half of this year if they can maintain security.
Exxon and Total interested in drilling off the coast of Crete. Greece, desperate for cash amid a never-ending financial crisis, has sought to promote oil and gas exploration. ExxonMobil (NYSE: XOM) and Total SA (NYSE: TOT) have submitted an expression of interest to explore near Crete.
Dakota Access Pipeline begins operations. Energy Transfer Partners (NYSE: ETP) said that its Dakota Access Pipeline began operations on Thursday. The inauguration of Dakota Access means that the company’s broader Bakken Pipeline system will now be able to ship 520,000 bpd to the U.S. Gulf Coast. The pipeline is a boon for drillers in North Dakota’s Bakken, who will now be able to ship more crude via lower-cost pipelines rather than rail. It will also allow Gulf Coast refiners to access more light sweet crude for their operations.
First floating LNG approved for Gulf Coast. The U.S. Department of Energy granted approval for what could be the U.S. Gulf of Mexico’s first floating LNG export terminal. The project, backed by Fairway Peninsula Energy Corp., could begin operation in 2020.
In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by clicking here.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. –Energy market expert Martin Tillier explains the consequences of the Paris Climate agreement withdrawal this week. He notes that the U.S. pulling out of the agreement has absolutely no effect on the immediate future and calls it pure political grandstanding. Oil markets appear to agree with Martin, remaining unimpressed by the latest move from the Trump Administration. Martin warns traders not to be fooled by the hysteria in the media. Find out how Martin and our other top traders played this news by claiming your risk-free 30 day trial to Oil & Energy Insider
What's in Oil & Energy Premium this week:
The Oil Market Is Destined To Re-Balance
It’s been one week after the ‘magic’ oil supply deal was extended between OPEC members and Russia and it’s been followed by just about the most pessimistic response I’ve ever seen to bullish news.
Now as a trader, no one is more familiar with the axiom to ‘buy the rumor and sell the news’, so this drop in oil prices and even more vicious drop in oil stocks should not have come as much of a surprise to me.
But quite frankly, it did, as has the pessimism that has surrounded the oil markets since the announcement in Vienna. I suppose it’s an easy position to take; after all, if a combined OPEC/Russian deal to limit production through the Spring of 2018 can’t make prices go higher, what can?
I’ve seen analyst after analyst quaking in their boots over the continued production of U.S. frackers and the unintended consequence of derailing the OPEC deal and keeping prices low.
Others continue to wonder whether OPEC could have cut even more to out balance whatever increases U.S. producers were going to deliver.
Others have even managed to challenge the Saudis themselves, calling into question their strategy of re-balancing global oil, either suggesting that the Saudis work more like Central Banks in telegraphing their long-term intentions, or just abandoning production guidelines entirely and forcing some well-deserved bankruptcies to remove uneconomic oil production the old-fashioned way.
The pessimism is universal it seems. Both Goldman Sachs and Morgan Stanley have seen the Saudi plan, measured it against the suicidal pace of U.S. fracking anddeepwater drilling advances, and decided that oil is going to have a secondary swoon in 2018.
I’ve even seen a few analysts who are ready to say it’s totally over: Oil prices are here in the $40-$60 range to stay.
I’ve been following and trading oil for thirty years. Every time oil goes up, analysts opine that it’ll never come down again When it’s down, those same voices very carefully analyze why it’ll never go up again.
Don’t these guys ever get tired?
I could give you my own analysis of the future marginal price of a barrel of oil, or my analysis of the financial market cycle and where we are in their influence on global oil prices.
Further, I could start showing you with the indicators of the other side of the oil equation that convinces me that this is hardly a ‘new normal’. While it is clear that oil markets are experiencing new factors of efficiency and investment pressures, there remains nothing that I see that is capable of stopping the global oil price cycle that has been in play, in one form or another, since the 1950’s.
Now is not the time to believe the naysayers on the ultimate result of that cycling – an opportunity to find quality oil investments in a market that is still destined to re-balance and rise – even if that rise has been forestalled by new pressures we could not predict even two years ago.
I’m not convinced in any kind of ‘new normal’ in oil price cycles. And remain committed to oil stocks here.
www.fotavgeia.blogspot.com
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