Oilprice Intelligence Report

Oil posted some solid gains this week on outages in Libya, further confidence in an OPEC extension, and the first sizable drawdown in U.S. crude stocks this year. The IEA added its voice to the growing chorus of analysts seeing light at the end of the tunnel.

IEA: oil market very close to balance. The IEA said in its latest report that the oil market is probably already balanced, although more data is needed. Oil inventories are falling in many parts of the world and have started to decline in the OECD as well.

In the coming months, the agency says, more substantial inventory declines will arrive and demonstrate that the oil market is no longer oversupplied. At the same time, the IEA downgraded its oil demand growth estimate for this year from 1.4 mb/d to 1.3 mb/d.
Goldman: $50 long-term. Goldman Sachs maintains its projection that oil prices will remain stable for years to come due to improvements in drilling technology that can add marginal barrels whenever they are needed, keeping a lid on prices.

The investment bank says that shale will also limit volatility, with crude likely to trade within a 10 to 20 percent band. Goldman has a five-year estimate on WTI at $54 per barrel. "We believe we are going back to an environment similar to pre-2003, a period characterized by stable long-term oil prices and low oil-dollar correlation," the bank’s research note said.

Banks doing better on energy loans. JPMorgan Chase, Wells Fargo and Citigroup said this week that their portfolio of energy loans has turned out much better than expected, allowing them to put to work a combined $370 million that they had set aside to cover for losses on those loans. The result will likely be more lending, which will allow more shale companies to drill more wells.

Ultimately, this could boost production. Early evidence suggests banks are already stepping up their lending. So-called leveraged loans, which are loans to already indebted companies, shot up by 86 percent in the first quarter compared to a year earlier.

Rig count at highest level in nearly 2 years. The U.S. rig count jumped again this week, the 13th consecutive week of increases. Standing at 683, the rig count is now at its highest level since April 2015.

Drilling permits surge, but not all shale wells completed. Texas issued more than 1,300 drilling permits in March, twice as many as the same month in 2015. Rigs are rising and companies are rushing back to the shale patch, and to the Permian Basin in particular.

But at the same time, well completions were lower than they were last year. The result will be a rise in production but also an increase in the number of drilled but uncompleted wells (DUCs), which will leave a level of production sitting on the sidelines.

ConocoPhillips to sell natural gas assets for $3 billion. ConocoPhillips (NYSE: COP) announces plans to sell 1.3 million acres in Colorado and New Mexico in the gas-rich San Juan Basin for $2.7 billion in cash plus contingent payments of $7 million per month depending on natural gas prices, a total sum that would ultimately be capped at $300 million.

U.S. Gulf of Mexico production rising. Oil production in the Gulf of Mexico hit a record high 1.6 million barrels per day in 2016, according to new data from the EIA. Output hit a fresh high of 1.7 mb/d in January. The gains came after eight offshore projects reached completion in 2016. More gains are slated for this year and next as an additional seven new projects come online. The EIA expects the Gulf of Mexico to produce 1.7 mb/d this year and 1.9 mb/d in 2018.

PDVSA avoids default. Cash-strapped Venezuelan oil company PDVSA met a $2.23 billion bond payment that was due on Wednesday. The company had nearly $2.5 billion payments this month and the bond markets grew concerned about a possible default. The state and the oil company are in dire straits and the investors put the probability of a default within the next 12 months at over 50 percent.

Saudi Arabia raises $9 billion in sale of Islamic Bonds. In its first international sale of Islamic Bonds, or sukuk, Saudi Arabia sold five- and ten-year tranches of bonds, raising $9 billion. The proceeds will be used to plug budget holes stemming from low oil prices. After a nearly $100 billion budget deficit in 2015, austerity measures helped close the gap to $79 billion in 2016 and potentially $53 billion this year.

Pipeline construction flurry to boost Marcellus and Utica gas production. The Marcellus and Utica Shales in Pennsylvania and Ohio account for around a quarter of U.S. natural gas production, but producers in the region have run into pipeline constraints, holding back further production gains.

Several major gas pipelines will be completed in the near future, and the EIA argues that the new capacity could allow natural gas production to grow by a staggering 50 percent. That will fuel more gas in the electric power sector and also lead to more gas exports.

source:  Oilprice.com

Oil posted some solid gains this week on outages in Libya, further confidence in an OPEC extension, and the first sizable drawdown in U.S. crude stocks this year. The IEA added its voice to the growing chorus of analysts seeing light at the end of the tunnel.

IEA: oil market very close to balance. The IEA said in its latest report that the oil market is probably already balanced, although more data is needed. Oil inventories are falling in many parts of the world and have started to decline in the OECD as well.

In the coming months, the agency says, more substantial inventory declines will arrive and demonstrate that the oil market is no longer oversupplied. At the same time, the IEA downgraded its oil demand growth estimate for this year from 1.4 mb/d to 1.3 mb/d.
Goldman: $50 long-term. Goldman Sachs maintains its projection that oil prices will remain stable for years to come due to improvements in drilling technology that can add marginal barrels whenever they are needed, keeping a lid on prices.

The investment bank says that shale will also limit volatility, with crude likely to trade within a 10 to 20 percent band. Goldman has a five-year estimate on WTI at $54 per barrel. "We believe we are going back to an environment similar to pre-2003, a period characterized by stable long-term oil prices and low oil-dollar correlation," the bank’s research note said.

Banks doing better on energy loans. JPMorgan Chase, Wells Fargo and Citigroup said this week that their portfolio of energy loans has turned out much better than expected, allowing them to put to work a combined $370 million that they had set aside to cover for losses on those loans. The result will likely be more lending, which will allow more shale companies to drill more wells.

Ultimately, this could boost production. Early evidence suggests banks are already stepping up their lending. So-called leveraged loans, which are loans to already indebted companies, shot up by 86 percent in the first quarter compared to a year earlier.

Rig count at highest level in nearly 2 years. The U.S. rig count jumped again this week, the 13th consecutive week of increases. Standing at 683, the rig count is now at its highest level since April 2015.

Drilling permits surge, but not all shale wells completed. Texas issued more than 1,300 drilling permits in March, twice as many as the same month in 2015. Rigs are rising and companies are rushing back to the shale patch, and to the Permian Basin in particular.

But at the same time, well completions were lower than they were last year. The result will be a rise in production but also an increase in the number of drilled but uncompleted wells (DUCs), which will leave a level of production sitting on the sidelines.

ConocoPhillips to sell natural gas assets for $3 billion. ConocoPhillips (NYSE: COP) announces plans to sell 1.3 million acres in Colorado and New Mexico in the gas-rich San Juan Basin for $2.7 billion in cash plus contingent payments of $7 million per month depending on natural gas prices, a total sum that would ultimately be capped at $300 million.

U.S. Gulf of Mexico production rising. Oil production in the Gulf of Mexico hit a record high 1.6 million barrels per day in 2016, according to new data from the EIA. Output hit a fresh high of 1.7 mb/d in January. The gains came after eight offshore projects reached completion in 2016. More gains are slated for this year and next as an additional seven new projects come online. The EIA expects the Gulf of Mexico to produce 1.7 mb/d this year and 1.9 mb/d in 2018.

PDVSA avoids default. Cash-strapped Venezuelan oil company PDVSA met a $2.23 billion bond payment that was due on Wednesday. The company had nearly $2.5 billion payments this month and the bond markets grew concerned about a possible default. The state and the oil company are in dire straits and the investors put the probability of a default within the next 12 months at over 50 percent.

Saudi Arabia raises $9 billion in sale of Islamic Bonds. In its first international sale of Islamic Bonds, or sukuk, Saudi Arabia sold five- and ten-year tranches of bonds, raising $9 billion. The proceeds will be used to plug budget holes stemming from low oil prices. After a nearly $100 billion budget deficit in 2015, austerity measures helped close the gap to $79 billion in 2016 and potentially $53 billion this year.

Pipeline construction flurry to boost Marcellus and Utica gas production. The Marcellus and Utica Shales in Pennsylvania and Ohio account for around a quarter of U.S. natural gas production, but producers in the region have run into pipeline constraints, holding back further production gains.

Several major gas pipelines will be completed in the near future, and the EIA argues that the new capacity could allow natural gas production to grow by a staggering 50 percent. That will fuel more gas in the electric power sector and also lead to more gas exports.

source: Oilprice.com

Oil prices posted incremental gains at the start of this week on the eve of scheduled OPEC cuts, but had stalled by Thursday after the EIA reported a surprise uptick in oil inventories. Oil ends the year nearly twice as high as where it started, pointing to a more balanced market in the months ahead.

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U.S. shale promises discipline. By most accounts, U.S. shale is poised for growth in 2017. A tightening oil market could push prices up: Should crude hit $60 per barrel, shale output could rise by 500,000 bpd, according to Citigroup. At $70 per barrel, production would grow by 1 million barrels per day. That of course, could merely induce another downturn as the world becomes once again flush with supply. Some shale companies are expanding operations, but cautiously. “There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development," Harold Hamm, CEO Continental Resources (NYSE: CLR), told Bloomberg. “They’re going to be disciplined going forward."

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U.S. imposes sanctions on Russia, expels diplomats. The Obama administration responded harshly to Russian interference in the presidential election, expelling 35 diplomats, imposing new sanctions on Russian officials and ordering the closure of two Russian compounds in the U.S. “All Americans should be alarmed by Russia’s actions,” President Obama said in a statement. “These data theft and disclosure activities could only have been directed by the highest levels of the Russian government.” The move puts President-elect Donald Trump in an awkward position of either having to go along with the Obama administration or defying U.S. intelligence agencies. As for oil and gas, it is unclear what comes next, but Obama’s decision could make it more difficult to lift sanctions on Russia, thus imperiling future drilling projects in the Arctic, although, to be sure, that is speculation at this point.

Ohio Gov. vetoes clean energy freeze. The Ohio state legislature passed a bill that would have made the state’s renewable energy standard voluntary, but Governor John Kasich (R) vetoed the legislation. The veto is an unexpected win for the renewable energy industry in a state controlled by Republicans.

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Petrobras assets sales just shy of $15 billion target. The most indebted oil company in the world missed its target for assets sales in 2016. Brazilian state-owned oil company Petrobras sold off $13.6 billion in assets this year in an effort to pay down debt, just short of the $15.1 billion divestment target. However, Petrobras upped its planned divestment plans for the 2017-2018 period to $21 billion, higher than the original $19.5 billion plan. Brazil is emerging as a country of growing interest to international oil companies – the indebtedness of Petrobras, as well as the economic malaise in the country, is opening up the door to greater private sector investment. Companies like Royal Dutch Shell (NYSE: RDS.A) are poised to capitalize on the situation.

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Natural gas inventories continue to plunge. The EIA reported another drawdown in natural gas stocks, with inventories falling 237 billion cubic feet in the week ending on December 23. That puts total stocks at 413 Bcf lower than last year’s levels at this time and also 79 Bcf below the five-year average. It is hard to overstate the significance of this development – inventories had been running well above the five-year average since late 2015, but are now back in normal territory. In other words, the gas market is no longer in a glut, which helps explain why prices are up above $3.81/MMBtu, the highest price in more than two years. Production has fallen this year while demand has climbed. If inventories continue to fall, prices will rise even further, potentially surpassing $4/MMBtu for the first time since 2014. That is good news for natural gas drillers, who are already adding rigs back to the shale patch. It is also good for coal-fired power plants, which are being called upon more than they have in the recent past to generate electricity. Oil prices often gain much more traction in the media, but the ongoing rise in natural gas is a huge untold story.

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Oil speculators sowing seed of another price downturn. Hedge funds and other money managers have built up such a speculative position on rising oil prices that they risk sparking a liquidation if OPEC does not delivery on their promised cuts. "The boat is loaded to one side in the market right now. Shorts have covered. People have piled in from the long side, waiting for these cutbacks to come through. If they don't, there's going to be big punishment in this market," John Kilduff, founding partner of Again Capital, told CNBC's "Squawk Box." He also said that China could be the oil market’s Achilles’ heel, as growth continues to slow. Oil demand could disappoint if China fails to come through. “That's the real demand center. That's the swing place, and I still see issues there," he said.

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NYMEX trading floor shuts down. In a shift towards electronic trading, the NYMEX trading floor is set to shut down on Friday. The pit is home to the boisterous buying and selling that symbolized the frenetic and frenzied business of commodity trading. But CME group, which owns the NYMEX, had announced earlier this year that it would shut down the trading floor at the end of the year, as its share of options only accounted for just 0.3 percent of the overall trade in energy and metals. Most trading is done electronically at this point, making the trading pit a relic of the past. The trading floor’s share has plunged remarkably in just a few years – as recently as 2009 the trading floor accounted for more than 80 percent of the options volume.

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OPEC deal begins next week. The OPEC deal goes into effect next week at the start of the New Year, but members are allowed to average their reductions over a six-month period, so immediate cuts are not a given. It will take a few weeks to figure out who is cutting and by how much – data for January will be released in February.

This was our final report of 2016, we hope you will stay with us into the New Year and continue to follow energy markets in what is sure to be an exciting start to 2017.

source:Evan Kelly , Oilprice.com

Oil prices seesawed this week on the hopes and fears of whether or not OPEC will be able to fully implement its historic deal, as well as the uncertainty over the additional non-OPEC cuts. Still, WTI and Brent mostly held onto their gains that accrued from the deal, with both benchmarks seemingly holding safely above $50 per barrel.  
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Inventories may not fall as much as expected. The OPEC deal has been billed as a cure for the oversupplied oil markets, potentially setting the market up for a shortfall as soon as early 2017, which would require a drawdown in inventories. But some analysts see stockpiles remaining elevated through next year. The EIA’s latest Short-Term Energy Outlook expects inventory builds over the course of 2017, and a few more voices are coming to the same conclusion. “Even with 100 percent compliance from both OPEC and non-OPEC producers global stocks are unlikely to fall in the first half of 2017," Tamas Varga, analyst at brokerage PVM Oil Associates Ltd., told Bloomberg in an interview. “That should keep oil prices in check.”
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Calculations and estimates from Bloomberg News also finds very few inventory reductions next year. A lot of the uncertainty comes down to whether or not OPEC members comply with promised production cuts, as well as the commitment of Russia and other non-OPEC countries. Full compliance with the OPEC deal could lead to inventory drawdowns, whereas cheating from members could result in inventories remaining elevated.

OPEC meets non-OPEC. A follow up meeting with non-OPEC countries is scheduled for Saturday, where they will hash out the details of the promised 600,000 barrels per day of production cuts. Russia alone promised to cut 300,000 barrels per day, although it appears only willing to reduce gradually over the first half of 2017. OPEC invited 14 non-OPEC countries to the meeting in Vienna, but only five so far have said they will attend – Russia, Azerbaijan, Kazakhstan, Oman and Mexico. One OPEC source told Reuters that the stated cuts of 600,000 barrels per day might actually turn out to be just 500,000 barrels per day, an ominous sign that the results could be less impressive than previously thought. So far, aside from Russia, only Oman has expressed a willingness to cut.
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Saudi Arabia in retreat. The Economist lays out a case that Riyadh is losing on all fronts, burning through economic, military, and diplomatic resources. Its side is losing in Syria, it is losing leverage in Iraq, its disastrous war in Yemen is hemorrhaging cash and prestige, and its economy is not doing well. The OPEC deal was a coup for the group as a whole, but Saudi Arabia is shouldering most of the burden of production cuts. Overall, these are uncertain and worrying times for Saudi Arabia.
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Oklahoma AG is Trump’s choice for EPA. Oklahoma Attorney General Scott Pruitt was selected by Donald Trump to lead the EPA. Pruitt is known as an ally of the oil and gas industry, a climate change skeptic, and an expert in the workings of environmental law and regulation. He has spearheaded a fight against EPA regulations, suing the agency over greenhouse gas rules. The New York Times wrote in a Dec. 2014 article that Pruitt submitted a letter to the EPA, disputing the agency’s calculation about methane emissions from natural gas wells. The letter was secretly written by lawyers for Devon Energy (NYSE: DVN), demonstrating Pruitt’s close ties to the industry. Needless to say, the industry is welcoming Trump’s selection.

Oil tanker rates plummeting. The oil tanker industry is about to get hammered by the OPEC deal. Higher prices could cut into global demand, which would likely reduce the volume of tankers plying the world’s oceans. Tanker rates could fall by as much as 40 percent – very bad news for tanker companies. Morgan Stanley predicts tanker rates will fall from $45,200 per day currently down to just $25,000 per day next year. However, Reuters reports that the tanker industry is working on new routes to make up for slower business. BP (NSYE: BP) shipped U.S. crude to Asia, a new route that is a very long distance by today’s standards.
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China oil imports to slow. China’s oil import growth will slow by 60 percent next year, according to a Bloomberg survey. Oil imports could grow by 5 to 9 percent in 2017, as opposed to the annual increase of 11 to 14 percent expected this year. The slowdown has a lot to do with China’s transitioning economy, relying less on heavy industry, but it also has to do with a slowdown in stockpiling for its strategic petroleum reserve. Having filled up a lot of storage tanks, China could purchase less oil next year as a result.

Oil sands companies reviving output. The approval of two major oil pipelines in Canada is giving Alberta oil sands producers a new lease on life. Cenovus Energy and Canadian Natural Resources have announced plans to expand existing projects, adding 50,000 bpd and 40,000 bpd, respectively. The decisions are the first expansions since the downturn in oil prices two years ago, and indicate that Alberta is ready to pour money into projects.
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Alberta has suffered from a shortage of pipeline capacity that often requires them to sell their oil at a discount to WTI, which often runs as much as $15 per barrel. New pipelines – the Trans Mountain Expansion and Line 3 – will collectively add roughly 1 million barrels per day of takeaway capacity, which should cut down on the discount for heavy Canadian oil. OPEC also sweetened the pot, agreeing to cut production and lift prices, which is crucial for expensive oil sands production.
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Canadian carbon tax. Canadian Prime Minister Justin Trudeau has tried to balance the growth of the oil industry with environmental progress, and while he approved pipelines he is also implementing a national carbon tax. The federal government and the nation’s provinces are set to agree to a national carbon tax today. The tax will begin at C$10 (USD$7.60) per ton in 2018, rising by C$10 per year until it reaches C$50 in 2022. The provinces have a choice of the tax or opting for a cap-and-trade program.

source: oilprice

•    U.S. natural gas exports to Mexico are set to rise as new pipelines come online connecting the two countries.
•    Pipeline capacity currently stands at 7.3 billion cubic feet per day (Bcf/d), but will double to more than 14 Bcf/d by 2018.
•    The U.S. has already become a net exporter of gas this year with the commissioning of an LNG export terminal along the Gulf Coast. Texas shale fields will find the market for their gas is set to grow with the new cross-border pipelines over the next two years.

•    Royal Dutch Shell (NYSE: RDS.A) is selling a 20 percent stake in offshore oil and gas fields in the Gulf of Mexico to Mitsui (OTCPK: MITSY) for an undisclosed figure. The fields hold an estimated 100 million barrels of oil equivalent.
•    Chesapeake Energy (NYSE: CHK) saw its share price shoot up more than 5 percent after it announced its decision to sell part of its Haynesville Shale acreage for $450 million.
•    Energy Transfer Partners (NYSE: ETP) and Sunoco Logistics Partners (NYSE: SXL) lost more than 3 percent at the market opening on Monday after the Obama administration rejected an easement for the Dakota Access Pipeline (more below). Both the companies saw their share prices recover some of those losses later on Monday.

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Oil prices fell back from 16-month highs on Tuesday, after fresh data showed that OPEC hit another record high in production in November. Brent briefly rose above a key threshold of $55 per barrel on Monday for the first time since the summer of 2015, but retreated on Tuesday to $53 per barrel.

Since the OPEC agreement was announced last week, WTI climbed 19 percent and Brent prices are up 16 percent. "OPEC sentiment continues to support oil markets. Speculative short positions are still at elevated levels and as more traders unwind these positions they could trigger more support for oil prices," Hans van Cleef, senior energy economist at ABN Amro, told Reuters.

OPEC production hit record in November. But OPEC’s collective production set a record high in November, rising to 34.19 million barrels per day. That means the group will need to cut 1.69 mb/d from their production levels, not just the 1.2 mb/d in announced cuts last week in Vienna. However, the problem for OPEC is that a lot of the gains came from countries that are exempted under the November deal. Angola, Libya and Nigeria all added output in November from the month before. To offset those gains, OPEC would have to make deeper cuts, but since that was not specified in the agreement, there is little chance that it will happen. The data caused oil prices to fall more than 2 percent on Tuesday.

OPEC meets with non-OPEC producers. OPEC is set to meet with non-OPEC producers to finalize the technical details of their agreement. Non-OPEC producers have agreed to cut 600,000 barrels per day beginning in January, which will come on top of the 1.2 mb/d cut from OPEC. Russia alone will cut 300,000 barrels per day, although Russian officials have said that they would do so gradually.

Questions about implementation. By any measure, OPEC’s latest meeting was its most successful in years. But there is still some uncertainty surrounding the cartel’s ability to implement the deal, and the willingness of individual members to adhere to their prescribed production allotments. OPEC has a history of not living up to agreements, with each member having the individual incentive to produce more than they say they will. The markets rallied last week on the severe cuts OPEC agreed to, but if the cuts are not carried out as promised, it will eventually undermine the effectiveness of the deal. "The only tool they have is to constrain production," former Saudi oil minister and legendary OPEC icon Ali al-Naimi said at an event in Washington, D.C last week. "The unfortunate part is we tend to cheat."

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Dakota Access denied. The Army Corps of Engineers rejected an easement needed for Energy Transfer Partners (NYSE: ETP) to finish up the construction of the more than 1,000 mile pipeline. The pipeline is not dead yet, but delayed until at least President-elect Donald Trump assumes the Oval Office. Most analysts expect the Trump administration to move quickly on reversing this policy, but the pipeline delay will cost the companies involved. According to court filings, Energy Transfer Partners is under contract to have the pipeline operational by January 1, meaning its customers will have the opportunity to back out of contracts to ship their oil through the pipeline if it is not completed in the next few weeks.

Trump could privatize Indian lands. Not only will the Trump administration move to support the Dakota Access Pipeline, but Reuters reports that some Trump advisers want to make even more radical change in Indian country. A few advisers close to Donald Trump, sources told Reuters, want to loosen the rule regarding drilling on Native lands, which are subject to more onerous conditions. The move would divide Native Americans, who differ on whether or not to promote fossil fuel production on their ancestral homelands. A full privatization would be much more “politically explosive,” Reuters says, but something under consideration as part of the incoming administration’s efforts at promoting drilling and development.

Citi bullish on commodities. Citigroup expects commodity prices to rise in 2017 on the back of faster economic growth and the tightening of supply after several years of a glut. Citi sees prices for oil, copper, zinc and wheat rising for the next six to 12 months. “For commodities in general, the oversupply that was induced by high prices in the first decade of this century are finally being balanced,” Citi analysts wrote in a recent research note. “What’s more, the cost structures across commodities are reaching an end of a period of persistent and record deflation.”

Mexico offshore auction a success. Mexico pulled off a successful auction for offshore blocks in the Gulf of Mexico, with twice as many awards issued than officials had expected. The auction led to the sale of eight of the 10 blocks offered, which could ultimately lead to investment of some $40 billion over time. The winners included ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), Cnooc, and BHP Billiton (NYSE: BHP). BHP will join state-owned Pemex in developing the Trion oil field, the most sought after offer because the field is already discovered. The auction was the latest offering from Mexico, stemming from its historic liberalization legislation from a few years ago.

Oil hedging rises. With oil prices shooting above $50 per barrel, more oil producers are starting to hedge their production for 2017 and 2018. Bloomberg says that a rash of new hedges could ensure U.S. oil production rises next year. But that will also flatten the futures curve, locking in oil at around $50 per barrel for futures for 2017 and 2018. "The curve is screaming producer hedging," Adam Ritchie, founder of consultant AR Oil Consulting, told Bloomberg.

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ISIS loses control of Sirte. U.S. airstrikes helped Libyan forces push ISIS out of Sirte, its last main stronghold in the country. ISIS militants have controlled the city for almost two years. Libya is still crippled by political infighting between factions, but the losses that ISIS have suffered bodes well for the country’s prospects. It also is a sign that more oil production could be forthcoming. Libya has a goal of tripling its output from 2016 levels to 900,000 barrels per day next year.

source: Evan Kelly, Oilprice

The two-and-a-half-year oil bust could be coming to an end, thanks to OPEC. The oil cartel pulled off a surprise agreement, snatching victory from the jaws of defeat. The deal calls for collective cuts from 13 members (Indonesia suspended its membership), reducing output by 1.2 million barrels per day to 32.5 mb/d. Also, non-OPEC countries will cut output by 600,000 barrels per day, including 300,000 bpd from Russia. The deal will take effect in January.
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Oil prices surge. WTI and Brent shot up on the news, rising by more than 14 percent since Tuesday. On Friday, investors took a breather, pocketing some profits. WTI and Brent hovered at $51 and $53 per barrel, respectively, during early trading hours. Brent crude is on track for its biggest weekly increase since 2009. Oil analysts around the globe see further price gains in the next few months.
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OPEC deal almost didn’t happen. Bloomberg reports that the negotiations came down to the wire. With a gulf still between several OPEC members, the breakthrough came from a 2 a.m. phone call on the eve of the final meeting from Russian energy minister Alexander Novak to Saudi energy minister Khalid al-Falih. Novak told his Saudi counterpart that Russia was not only willing to freeze but to actually cut output, a surprise concession that jolted the talks back to life. Al-Falih then went to his colleagues in OPEC and demanded concrete reductions. With Russia on board, others were willing to play ball.
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Saudis need higher oil prices. The WSJ reports on Saudi Arabia’s motivation for departing from its strategy over the past two years and deciding to pursue a production cut. Saudi Arabia needs oil prices to average $70 per barrel for its budget to breakeven. With prices much lower, Riyadh is running large budget deficits and burning through cash reserves. Meanwhile, the oil kingdom is trying to diversify its economy to develop non-oil sources of revenue. But in the interim, it needs oil revenues to make the necessary investments.
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Banks are also happy with OPEC. Another constituency pleased with higher oil prices is the banking sector, which will benefit from improved prospects of loan repayment to energy companies. Banks have had to set aside cash reserves to cover from expected defaults on their loans. Earlier this year, 15 of the largest U.S. banks stockpiled $6 billion in cash to cover energy losses, however, as the WSJ reports, defaults have not been as bad as expected. Higher oil prices will likely mean that most banks will emerge in decent shape from the two year oil bust.
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BP greenlights deepwater project. The timing might have been mere coincidence, but a day after OPEC agreed to cut production, which saw oil prices shoot up more than 8 percent, BP (NYSE: BP) gave the go-ahead to a major deepwater drilling project in the Gulf of Mexico. The Mad Dog phase 2 is a $9 billion project could add 140,000 barrels per day in output to the project that is already producing 80,000 barrels per day. It could begin operations in 2021. Mad Dog Phase 2 is one of a handful of major final investment decisions from the oil industry during the past year. BP says that it has more than halved the price tag for the project from an original estimate of $20 billion. The greenlight is a sign that the oil majors could begin to cautiously return to some high-profile drilling projects, especially now that oil prices are on the upswing.
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Canada approves two major oil pipelines. Canadian Prime Minister Justin Trudeau tried to split the difference between industry demands and environmental opposition, approving two major oil pipelines this week while rejecting another. He gave the OK to the Trans Mountain Expansion Project, a Kinder Morgan (NYSE: KMI) pipeline that will run from Alberta to the Pacific Coast and triple the system’s capacity from 300,000 barrels per day up to 890,000 barrels per day. Also, he approved Enbridge’s (NYSE: ENB) Line 3 replacement, a more than 1,000 mile replacement for an existing line that runs from Alberta to Wisconsin in the U.S. Together, the pipelines could add almost 1 million barrels per day of pipeline capacity when completed.

Trudeau also rejected the Northern Gateway Pipeline, which would run through sensitive rainforest in British Columbia. The multiple decisions could put years of conflict to rest, throwing an enormous lifeline to Alberta oil sands producers. But environmentalists were not mollified, and vowed to oppose construction of the Trans Mountain expansion. The controversy surrounding long distance oil pipelines is long from over.
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U.S. renewables 15 percent of electricity in 2016. New data from the EIA shows that renewable energy accounted for 15 percent of total U.S. electricity generation in the first three quarters of this year, up substantially from just 13 percent last year. Solar in particular rose from less than 1 percent in 2015 to 1.4 percent this year – still a small share, but growing quickly. Renewables have been capturing the majority of new generation capacity added in the U.S. for the better part of two years; it remains to be seen if that continues in the Trump administration.

ExxonMobil’s Tillerson to U.S. State Department? Rumors should always be taken with a grain of salt, especially in the theatrical atmosphere that President-elect Donald Trump has created around his transition, but news reports surfaced that Trump is considering ExxonMobil’s CEO Rex Tillerson for U.S. Secretary of State. The search for Sec. of State has been one of the most lengthy and circuitous efforts of all of Trump’s selections, with a long list of candidates in the running. Exxon

source: Evan Kelly ,oilprice

• The election of Donald Trump to the U.S. Presidency has raised questions about his promise to revive the coal industry. The short answer is: probably not.

• Coal production has been in decline for years. Output fell 10 percent in 2015. Obama-era regulations accelerated its decline, by forcing the closure of coal-fired power plants. But the vast majority of coal plants were more than four decades old and were nearing retirement anyway.

• Utilities, on their own, have been replacing them with natural gas plants. EPA regulations have hurt, but cheap gas is the real culprit.

• Petrobras (NYSE: PBR) saw its stock price fall 5.5 percent on Monday after it said that oil production has declined 2 percent year-on-year in October. Petrobras suffered a 19 percent drop in its share price since releasing third quarter numbers.

• Royal Dutch Shell (NYSE: RDS.A) is mulling plans to sell $3 billion in Norwegian assets. Shell’s CFO said recently that its North Sea assets are “not the most profitable assets in the portfolio.”

• Citi is enthusiastic about ConocoPhillips’ (NYSE: COP) plan to sell $5-$8 billion in North American gas assets, which Citi thinks are stranded anyways. The plan could return $3 billion to shareholders.

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Oil prices sunk to fresh three-month lows on Monday amid growing doubts about OPEC’s ability to reach a deal on production cuts. Gary Ross, executive chairman of PIRA Energy Group predicts that oil could drop as low as $35 per barrel if OPEC fails to come to an agreement in two weeks’ time. On the other hand, he says that oil could jump to $60 per barrel if they do agree on cuts.

Prices rebounded at the end of the trading day on Monday, and jumped by nearly 3 percent in early trading on Tuesday, after news surfaced from OPEC that member countries were in the midst of a renewed push to overcome their differences to seal a deal. Of course, one could take a pessimistic perspective on those comments: unable to overcome their differences up until now, they have one last shot to prevent the meeting from turning into a disaster. Prices tend to move on every new comment from OPEC about efforts to resolve differences, so as always, take this piece of news with a grain of salt and a heavy dose of wait-and-see skepticism. The problem for OPEC is that its collective output rose quite a bit in October, which will require deeper cuts from its members than originally envisaged.

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Stronger dollar, lower oil. The dollar is surging in the wake of Donald Trump’s election as the markets start to price in some of the potential policies of the new administration. The markets ultimately see higher inflation because of Trump. "Infrastructure, deficit spending, protectionism, immigration reform; everything he's mentioned so far is going to push prices higher in the U.S.," Tai Hui, market strategist at JPMorgan Asset Management, told CNBC. "If you block immigrants, or even illegal immigrants working in the states, wages will rise. If you think about trade policy, if you block Chinese exports to the U.S. prices will rise." Higher inflation would likely force the U.S. Federal Reserve to hike interest rates, which would strengthen the dollar. That all sounds convoluted, but the bottom line right now is that a rising dollar is putting some downward pressure on oil prices.

Harold Hamm on short list for Energy Secretary. Continental Resources’ (NYSE: CLR) chief Harold Hamm was long been rumored to be in the race to lead the U.S. Department of Energy, but U.S. Rep. Kevin Cramer (R-ND) recently confirmed to Reuters that Hamm was indeed at the top of the list to head the agency. Hamm made billions of dollars drilling for shale oil and gas, particularly in North Dakota and Oklahoma. If he is chosen, he will be the first Energy Secretary that will come directly from the oil and gas industry since the agency’s creation in 1977. It would also mark a tone set by the Trump administration, indicating his intention to fully support oil and gas drilling during his term.

Obama punts on Dakota Access Pipeline. Late Monday afternoon, the Army Corps of Engineers issued a statement saying that it has completed its review of the Dakota Access Pipeline, which it started in September after delaying an easement for the controversial pipeline. But the Corps said that more consultation is needed with the Standing Rock Sioux Tribe “in light of the history of the Great Sioux Nation’s dispossession of lands.” The move prevents construction by Energy Transfer Partners (NYSE: ETP), likely delaying the project until the Trump administration assumes power.

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Trump policies could hurt gas trade to Mexico. Mexico has become a rapidly growing buyer of U.S. natural gas, which has been a boon to Texas shale drillers. But President-elect Donald Trump’s promises to revisit trade agreements and build a wall with Mexico could cause problems for U.S. gas exporters and pipeline builders. If that were to happen, the gas glut in the U.S. would grow, pushing down prices, which would inflict damage on the Texas oil and gas industry.

Mediterranean oil market most oversupplied. Rising output from Libya, Iraq, Iran, Russia and even Kazakhstan are putting a strain on the Mediterranean market, which is now drowning in oil, according to Reuters. Oil shipments to the Mediterranean have grown by around 2 million barrels per day.

Signs point to approval of Trans Mountain expansion. Canadian Prime Minister Justin Trudeau has handed greens a list of wins this year, proposing a carbon tax, spending billions on marine protection and conserving rain forests that could block a key pipeline. Bloomberg News believes that all of this has laid the groundwork for an approval of the Trans Mountain pipeline, an expansion of Kinder Morgan’s (NYSE: KMI) existing pipeline that runs from Alberta to the coast of British Columbia. A decision is expected in the next few weeks and it could grant the Canadian oil industry its first pipeline victory in years.

Earthquakes in Oklahoma on the rise. It is becoming harder and harder to ignore the frequency of earthquakes that routinely hit the state of Oklahoma. The Nov. 6 earthquake to hit Cushing, where so much of the region’s oil and gas storage is located, is just the latest occurrence. The science now convincingly points to the practice of disposal wells, but the state is struggling to deal with the issue. Bloomberg reports that there are new companies springing up in Oklahoma with new and innovative technologies hoping to solve the issue of wastewater disposal. Nothing is proven or scalable yet, but there are huge opportunities if one of them can present a solution.

source: Evan Kelly , Oilprice.com

Oil prices settled at a six-week low on Thursday following several consecutive days of large price declines. The major catalysts this week were doubts over an OPEC deal and EIA data showing a record build up in crude oil stocks. The EIA said Wednesday that U.S. oil inventories rose by 14.4 million barrels last week, the largest gain in a single week since data collection began in the early 1980s. WTI plunged below $45 per barrel on the news and the five consecutive days of losses was the longest streak since June.
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The data could be misleading, however. The huge buildup in inventories came largely because weekly imports spiked. Imports rose by about 2 million barrels per day last week after several weeks of hovering at below-average levels. The import spike was partially affected by bad weather, including a hurricane, and could be an anomaly. If that is the case, crude stocks probably won’t gain at similar rates in the weeks ahead.
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Still, sentiment is negative after such a down week. "The persistent market dynamic of softer demand and stronger supply will become a more dominant driver of prices as the impact of OPEC's verbal interventions begins to fade and expectations for coordinated cuts are readjusted," BMI Research said in a note to clients.
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OPEC deal probable, Citi says. Saudi Arabia and Russia are “hungry for an agreement,” Ed Morse, the head of commodity research at Citigroup, said this week. That means that OPEC and several non-OPEC countries will probably reach a deal at the end of the month to cut oil production. "We’re expecting the parties that need to do something to boost prices to be serious about deciding something," Morse said. For its part, OPEC said it was “deeply optimistic” this week that they would reach a deal.

Oil prices to stay below $60 per barrel in 2017. A Wall Street Journal survey of 14 investment banks predicts that oil prices will not rise above $60 per barrel for another year. The average forecast of the 14 respondents puts Brent oil prices at $56 per barrel in 2017 and WTI at $54. Those figures are down $1 per barrel from last month’s survey, and stand in stark contrast to forecasts from a year ago, which predicted oil to move above $70 per barrel this year.
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Colonial Pipeline still closed. The largest pipeline ferrying gasoline around the U.S. has been closed since Monday due to an explosion. The Colonial Pipeline carries gasoline from the Gulf Cost to the Southeast and Northeast U.S., and its closure has led to a spike in gasoline futures. On Tuesday, gasoline futures spiked as much as 15 percent, the largest single day increase in nearly a decade, according to the WSJ. The pipeline’s operator had hoped to have it back up and running by this weekend but a small fire continued to burn as late as Thursday. Nearly two months ago, the pipeline was shut after a leak, a short outage that also led to higher gasoline prices in regional markets. The WSJ reports that more than 60 percent of U.S. fuel pipelines are more than 46 years old, posing questions around the integrity of some of the nation’s largest oil and gas conduits.
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Attacks in Nigeria continue. Sabotage by the Niger Delta Avengers and other militant groups against oil infrastructure continue to pick up pace. The latest attack hit a flow station along Royal Dutch Shell’s (NYSE: RDS.A) Trans Forcados pipeline. In a statement the Niger Delta Avengers said that its attack was to warn oil companies that “there should be no repairs [to pipelines] pending negotiation/dialogue with the people of the Niger Delta.” U.S. intelligence officials told CNBC that the worrying thing for Nigeria is that Niger Delta militants could splinter, leading to ongoing attacks under no coherent umbrella, making them more difficult to control. Nigeria’s oil production recently rose to 1.9 million barrels per day but the attacks threaten to derail more gains.
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North Sea oil production set to jump. Oil shipments from the aging North Sea could rise by 360,000 barrels per day between September and December of this year, taking output for the region up to 2.16 million barrels per day. The buildup of tankers in the North Sea is starting to clear, adding to the global surplus of supply and complicating the effects of a potential OPEC agreement on oil prices.

Solar stocks plunge on glut of panels. First Solar (NASDAQ: FSLR) saw its share price fall by 18 percent on Thursday, taking it multiyear lows, after it missed revenues and pointed to a global glut in solar panels. Prices for panels have declined 30 percent in large part due to a slowdown in demand from China, First Solar said.

U.S. presidential election poses market uncertainty. The S&P 500 has suffered a string of losses lately, which many attribute to jitters over uncertainty regarding the outcome of next week’s election. The markets seem to prefer Hillary Clinton over the uncertainty of Donald Trump, and indices have sunk as the campaign has tightened in recent days.

Source: Evan Kelly, Oilprice.com

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• Global offshore oil production in deepwater topped 9.3 million barrels per day in 2015, up from 7 mb/d a decade ago.

• At the same time, shallow water oil production is losing significance as resources are exploited and exhausted. Shallow water output only accounted for 64 percent of offshore production, the lowest share on record.

• Offshore output accounts for 30 percent of overall oil production, but companies need to go further offshore and into deeper water to find new reserves.

• ExxonMobil (NYSE: XOM) was cut to Neutral from Buy by Goldman Sachs on Monday, lowering its price target from $98/share to $93/share. But Goldman upgraded Chevron (NYSE: CVX), noting a more favorable risk vs. reward.

• Occidental Petroleum (NYSE: OXY) announced a $2 billion purchase of Permian Basin acreage, expanding its holdings in several properties with a focus on enhanced oil recovery.

• Statoil (NYSE: STO) and YPF agreed to cooperate on exploring offshore drilling potential on Argentina’s Atlantic Coast.


Oil prices sank on Monday by more than 2 percent as news emerged from Vienna: OPEC met to discuss the technical details of its proposed production cut and the meeting did not go well. The members could not hammer out specifics on who would cut and by how much. Worse, Iraq continued to object to being included in the cut, arguing that it needs resources to fight ISIS.

All reports suggest that little if any progress was made during the lengthy meetings, and OPEC issued a vaguely worded statement with no concrete commitments and merely some words about agreeing to continue to negotiate. The news did not sit well with the markets, casting doubt on the late November meeting in Vienna. With the chances of a meaningful deal starting to fade, oil prices plunged below $50 per barrel.

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OPEC approves long-term strategy. While OPEC is struggling to ink a deal on production cuts, the cartel did manage to approve a document that outlines a long-term strategy. The pact puts forth a strategy to pursue price stability, which is to say intervening in the market to prop up prices. OPEC has been unable to agree to that strategy for quite a while because Saudi Arabia has been arguing since 2014 that the markets should determine oil prices.

However, since the replacement of former oil minister Ali al-Naimi and the ascendancy of the Deputy Crown Prince Mohammed bin Salman as one of the kingdom’s most powerful officials, Saudi Arabia’s strategy has shifted. Of course, persistently low oil prices played their part in the Saudi about-face, but Saudi Arabia now backs a more assertive hand in the oil market. The strategy document argues for market management, but stops short of calling for individual country quotas. While OPEC seemingly wants to control prices, its members are still at odds over how to do so.

Chart of the Week
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Pipeline explosion sends gasoline prices soaring. A section of the Colonial Pipeline exploded on Monday, leading to the sharpest increase in gasoline futures prices in eight years. The Colonial Pipeline is the largest pipeline carrying gasoline in the entire U.S., moving refined products from the Gulf Coast to the East Coast. An explosion in Alabama killed one worker and injured others, and gasoline prices for December delivery spiked by 15 percent. This is the second time in two months that the pipeline’s main line was shut – the first instance was for maintenance after a spill, an outage that also led to regional prices increases for gasoline.

Canadian oil industry was near the “brink.” CBC News reports that much of the Canadian oil industry was near bankruptcy after two years of low oil prices and “would have gone belly up if the downturn dragged on for another year.” Low oil prices forced some operators out of business, and banks started cutting off credit. “The industry doesn't work under $50 oil and when oil is under $50, we have major capital expenditure cuts, we have major outflows of money,” Rick Grafton, the CEO of Grafton Asset Management and co-founder of FirstEnergy, said at a recent event. “The industry is resilient, but they were on the cusp. I think $25 oil and $1.50 natural gas for 12 more months would have been a disaster." But activity is starting to pick up with oil prices back to around $50 per barrel.

Nigeria confirms more attacks. A pipeline run by Nigeria’s state-owned NNPC in the Niger Delta was attacked by a militant organization known as the Greenland Justice Mandate. The attack follows one by the Niger Delta Avengers, which damaged Chevron’s Escravos Pipeline. Both incidents are a sign that violence could be returning to Nigeria, potentially preventing the country’s ability to restore lost output. On Tuesday, Nigerian President Muhammadu Buhari met with Niger Delta leaders and also representatives from militant groups in an effort to diffuse the violence.

GE to take over Baker Hughes. First reported last week, GE (NYSE: GE) confirmed on Monday that it would merge its oil and gas business with that of Baker Hughes (NYSE: BHI). GE will own 62.5 percent of the new company and Baker Hughes will own 37.5 percent. Shareholders of Baker Hughes will receive a one-time cash dividend of $17.50 per share after the deal closes. The deal comes after Halliburton (NYSE: HAL) was blocked from taking over Baker Hughes earlier this year.

More quarterly results:

• Anadarko Petroleum (NYSE: APC) lost $830 million in the third quarter, much lower than the $2.24 billion it lost a year earlier but worse than analysts had expected. Anadarko’s share price dropped nearly 2 percent on the news.

• BP (NYSE: BP) saw profit rise by 35 percent in the third quarter from 3Q2015. It posted a replace cost profit (similar to net income) of $1.66 billion, reaping the benefits of cost reductions. The profit comes after three consecutive quarters of losses. BP lowered its capex to $16 billion for 2016, compared to a previous range of $17 to $19 billion.

• Royal Dutch Shell (NYSE: RDS.A) reported $1.4 billion in net income for the third quarter, sharply up from a $6.1 billion loss in 3Q2015.

Chevron runs into LNG cost overruns again. Chevron (NYSE: CVX) raised its cost projection for its Wheatstone LNG project in Australia by 8 percent on Friday, which would increase its bill for the project to $34 billion. The cost overruns come after Chevron’s Gorgon LNG in Australia cost a gargantuan $54 billion.

Tesla to see solar roof and battery package. Elon Musk of Tesla (NYSE: TSLA) unveiled a new offering that it says could change the game for residential power: a solar roof that looks like a normal roof, with several different design options for the appearance of the mounted solar cells. The effort hopes to overcome not just the aesthetic challenge for solar; Tesla’s solar roof functions as a normal roof but generates electricity. That combined with Tesla’s Powerwall, a home battery system, could change the game for solar, Musk argues.

source: Evan Kelly, Oilprice.com

Oil prices faltered in the second half of this week, on deteriorating expectations of an OPEC deal. Prices regained some ground on Thursday following EIA data showing a surprise drawdown in crude oil stocks after the market predicted an increase. Gasoline stocks also fell by more than expected. Adding a bit more buoyancy to the market were comments from OPEC officials suggesting that the cartel would be willing to cut production by 4 percent.
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The markets initially took the announcement as positive news, but in what has become a familiar script from the oil cartel, the lack of details or hard commitments ultimately meant the price impact wore off. OPEC is meeting today and tomorrow to discuss the technical details of the Algiers accord, ahead of its official meeting at the end of November. Investors should take every OPEC utterance with a giant grain of salt, and wait to see what happens in a month’s time. WTI hovered slightly below $50 per barrel in early trading on Friday.
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Third quarter earnings start coming in. The quarterly earnings reports started this week, with Statoil (NYSE: STO) posting a hugely negative result. The Norwegian firm lost $432 million in the third quarter, worse than the $307 million it lost a year earlier. The figure was also much worse than expectations, and Statoil said that it would cut spending by an additional $1 billion. ConocoPhillips (NYSE: COP) did not fare much better, reporting a $1 billion loss for the three months ending in September, although those figures beat estimates. The company lowered its full-year spending forecast from $5.5 billion to $5.2 billion. ExxonMobil (NYSE: XOM) reported earnings of $2.7 billion, or $0.63 per diluted share, down 35 percent from a year earlier. Eni (NYSE: E) lost 484 million euros in the third quarter, compared to a 317 million euro loss in the third quarter of 2015.
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Exxon considers setting up trading division. The FT reports that ExxonMobil (NYSE: XOM) is looking into setting up an oil trading unit, which would mark a dramatic shift in its strategic focus. Struggling to find and produce large volumes of new oil reserves at a time of low oil prices, the oil major is looking to branch out. The trading division would buy and sell other producers’ crude, as well as its own. Exxon’s peers, including BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS.A), already have trading units within their companies, but Exxon has had a more conservative approach that focuses on upstream and downstream activity, viewing trading as a riskier form of business.
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Iraq angles for data revision, eyes higher output. Iraqi officials are not only demanding that they be exempt from any OPEC production cut, but they are also pushing the cartel and energy watchers to see its side of the story. OPEC uses data from “secondary sources” to calculate each member’s production levels, and Iraq is disputing the accuracy of that data. It is not an academic argument – Iraq does not want its production to be restrained by inaccurate production figures. Iraqi officials rolled out the red carpet for energy reporters this week, Bloomberg reports, in order to convince them that Iraq is not getting fair treatment. The dispute threatens to sink the OPEC deal.
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Meanwhile, Iraq is also soliciting bids from international oil companies to develop 12 “small and medium-sized” oil fields, Reuters reports. The details of the tenders consist of incentives to rapidly increase output, a sign that Baghdad has no intention of limiting its oil production.
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Protests heat up in Venezuela. After Venezuelan President Nicolas Maduro cancelled a public referendum to recall him, the opposition took to the streets. Hundreds of thousands of people protested on Wednesday, and the fracas took a disturbing turn. A policeman was shot dead during the protests, and the atmosphere is one of chaos in the capital. The economy is in a tailspin and although the President is trying to crackdown to maintain control, he has left the opposition no other avenue to protest than through direct confrontation in the streets, surely a worrying sign for the country’s stability. Oil production is down more than 10 percent on the year and will continue to fall.
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Nigerian militants hit Chevron pipeline. The Niger Delta Avengers proved that they have not gone dormant, announcing the successful attack against the Escravos pipeline, a 100,000 barrel-per-day oil export pipeline operated by Chevron (NYSE: CVX) in Nigeria. The attack puts an end to a three-month ceasefire, and threatens to derail Nigeria’s efforts to bring back lost oil production. Nigeria’s oil minister said recently that output is up to 1.9 million barrels per day, not far off from the 2.2 mb/d the country produced before the attacks started earlier this year. Separately, ExxonMobil (NYSE: XOM) announced a new discovery off the Nigerian coast, which could hold between 500 million and 1 billion barrels of oil. Exxon holds a 27 percent stake in the project, along with Chevron Nigeria Deepwater, Total E&P Nigeria, Nexen Petroleum Deepwater Nigeria, and Nigeria Petroleum Development Company.

Dakota Access pipeline protest turns violent. On Thursday, more than 200 police officers forced protestors of the Dakota Access pipeline in North Dakota away from a barricade along the pipeline’s construction route. Authorities arrested more than 140 people. The controversial pipeline, owned by Energy Transfer Partners (NYSE: ETP), is quickly becoming the sequel to the Keystone XL saga.

GE considers merging oil unit with Baker Hughes. GE (NYSE: GE) has reportedly approached Baker Hughes (NYSE: BHI) about merging their oil and gas units, a deal that could be worth around $20 billion. The idea would be that the merged company would be spun off from GE’s core business. However, details have not been released and the talks are not guaranteed to lead to a deal. Baker Hughes was the target of a takeover effort from Halliburton (NYSE: HAL), but that acquisition ran into a brick wall of antitrust opposition from the U.S. government earlier this year.

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.

source:Evan Kelly, Oilprice.com

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•    Offshore oil production made up about 30 percent of the global total in 2015, the highest level since 2010.

•    A litany of offshore projects have come online in the past few years, projects that were planned when oil prices were in triple-digit territory.

•    Still, over the past decade, onshore output, particularly from U.S. shale, has taken a larger share of production away from the offshore sector.

•    Five countries account for 43 percent of all offshore oil output – the U.S., Saudi Arabia, Brazil, Mexico and Norway.


•    Valero Energy (NYSE: VLO) saw its share price jump more than 2 percent in premarket trading on Tuesday after reporting better than expected third quarter numbers. Valero’s costs fell by 8 percent in the third quarter, saving it $2 billion and allowing it to post a $1.24 Q3 EPS, which beat estimates by $0.27.

•    Baker Hughes (NYSE: BHI) reported Q3 EPS of -$0.15, which beat estimates by $0.30 per share, but the oilfield services giant saw revenues plunge by 36 percent year-on-year, down to $2.4 billion.

•    Petrobras (NYSE: PBR) announced an exploration and production partnership with Total (NYSE: TOT), with a focus on natural gas and electrical projects. Separately, Petrobras also announced an agreement with investors to settle lawsuits surrounding the Car Wash corruption scandal. Petrobras’ stock has surged 186 percent so far this year and recently hit a 52-week high.

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Oil prices are largely unchanged from a week ago, with the late-September rally now firmly at a standstill. There are conflicting signs over what to expect next for crude. Supply still exceeds demand and inventories are still at extraordinary heights, although stocks are starting to draw down. Restored supply from countries like Nigeria and Libya have extended the supply overhang, while weak Chinese demand remains one of the most pivotal factors moving forward. We are still a month away from the OPEC meeting, which is likely the next big catalyst on the horizon.

DUCs to come online. The WSJ reports that a large chunk of the backlog of drilled but uncompleted wells (DUCs) could start to get worked through in the next year and a half. There were 5,069 DUCs in September, sharply up from the 3,768 tally in January 2014. And while it is entirely normal to have a few thousand DUCs, the huge increase in the total over the past two years was due to companies drilling but waiting completion until oil prices regained ground. Wood Mackenzie estimates that the industry could work through roughly 2,000 DUCs, which would bring the total back to a more normal level. If that were to occur, it could add about 250,000 barrels per day of additional supply.

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Oilfield service companies tired of getting squeezed. Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB) have suggested that they will no longer grant concessions to production companies looking for lower rates. Over the past two years oilfield service companies have been forced to cut their prices for services and equipment as drilling has dried up. 

But Schlumberger’s CEO said last week on a call with investors that his company will only take projects that are profitable and will no longer cut rates just to secure work. His position is important because if oilfield service companies begin charging higher rates as drilling picks up, then the efficiency gains touted by production companies over the past two years could prove to be transitory. If the cost of services rises, the cost to produce a barrel of oil will begin to rise again as well.

Oil and gas companies restructure debt. Three oil and gas companies reached an agreement with creditors to restructure some of their debt, which could allow them to quickly move through the Chapter 11 bankruptcy process. The WSJ reports that Key Energy Services, Stone Energy Corp., and Basic Energy Services either have already or are in the process of restructuring their debt in a prepackaged bankruptcy process ahead of Chapter 11. The deal with creditors could allow them to avoid a drawn out bankruptcy, and allow them to swiftly recover.

Iraq wants to be exempt from OPEC deal, casting further doubt on agreement. Iraq said this week that it wants to be exempted from any production limits imposed by OPEC at its upcoming November meeting. Iraqi officials argue that its costly war against the Islamic State is a justification for allowing it to produce as much oil as possible. 

"We should be producing 9 million if it wasn't for the wars,” the head of Iraq state oil marketer SOMO, Falah al-Amiri, told reporters. "Some countries took our market share.” Iraq’s insistence is yet another blow to the prospects of the cartel reaching an agreement on meaningful production cuts.

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Venezuela swaps debt. A last minute deal with investors allowed Venezuela’s state-owned PDVSA to avoid a default on its debt. Creditors accepted a deal that swaps debt due this year and next for payments spread out over the rest of this decade. Venezuela has descended into a deep economic and political crisis from which there is no easy way out. Oil production is falling and the state is nearly out of funds. The swap deal allows Venezuela a little bit of breathing room, but it does not mean that the situation will improve.

Lukoil starts up Arctic field. Russian oil giant Lukoil said that it had started up an Arctic oil field on Tuesday, which will help Russia maintain record levels of output. The field, known as Pyakyakhinskoye is located in the Yamal region, and is one of the region’s largest.

Earthquake caused by disposal wells. The USGS linked disposal wells to an earthquake that hit Oklahoma in February 2016, the state’s third largest on record. Evidence is piling up that disposal wells contribute to earthquakes, and the state government has begun cracking down on their use.

Clean energy exceeds fossil fuels in 2015. Renewable energy outpaced fossil fuels for installed electricity capacity across the globe last year, according to the IEA, a milestone that could prove to be an inflection point for the transition to cleaner sources of energy. The world saw installations of 153 gigawatts of renewable energy in 2015, or about 55 percent of the total. It was the first time that the world installed more renewable energy than fossil fuel-based capacity. The IEA said that an average of 500,000 solar panels were installed every single day last year.

Climate change to trigger financial crisis? Paul Fisher of the Bank of England warned that climate change could spark the next financial meltdown. A sudden drop in the value of fossil fuel assets as a result of climate change could be “a systemic risk,” he says. The notion of “stranded assets” has become more popular in just the past two years, but Fisher goes further, explaining that not only will stranded assets be a problem for oil and gas companies themselves, but the write down of hundreds of billions of dollars could trigger a financial crisis.

source: Evan Kelly , Oilprice.com

The top oil officials and executives gathered in London this week for the Oil & Money conference, jointly hosted by the New York Times and Energy Intelligence. Several headlines came out of the conference. ExxonMobil’s CEO Rex Tillerson said that he does not see a supply shortage several years from now even though so many voices are warning about the shortfall in investment today. "I don’t necessarily have the view that we are setting ourselves up for some big collapse in supply within the next three, four, five years," Tillerson said.
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That comes despite warnings from the IEA and even Saudi energy minister Khalid al-Falih. In fact, the diverging perspectives about future supply is turning out to be one of the hottest debates right now. OPEC’s Secretary-General Mohammed Barkindo said that the global oil industry will need around $10 trillion in investments through 2040 to meet oil demand, but the low levels of investment today because of low oil prices poses a “serious threat.” If investment continues to fall “then the global community—not only the industry—should really take this seriously and join hands in order to ensure the much needed security of supply going forward,” Barkindo said. Others at the conference echoed his worries about future supply shortages.

Oil drops on dollar strength and potential new supply. The European Central Bank kept its quantitative easing program intact, and Mario Draghi said that the ECB has not discussed altering the stimulus. The comments pushed up the dollar and putting downward pressure on oil prices as a result. Separately, the chief of Russia’s Rosneft, Igor Sechin, hinted at the fact that his company could boost production “significantly.” 
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He said that Russia has the ability to add roughly 4 million barrels of oil per day at some point in the future if there is enough demand. Also, Nigeria slashed the price that it is selling its crude for by $1 in order to offload a glut of cargo. Altogether, these developments pushed down oil prices by more than 2 percent on Thursday.

Schlumberger, Halliburton posts small profit. Schlumberger (NYSE: SLB) saw its third quarter profits plunge to $176 million, down from $989 million a year earlier. Adjusted earnings per share still beat analysts’ estimates at $0.25 per share. Schlumberger said it is difficult to get a picture on what to expect next as many oil companies are still considering drilling plans but have not made final investment decisions on an array of projects. 
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The oilfield services giant does expect to see increasing drilling activity in Russia and the Middle East but weakness in Latin America. The world’s second largest oilfield services firm, Halliburton (NYSE: HAL) surprised the markets on Wednesday, reporting a small profit of $6 million, up from a $54 million loss a year ago. The earnings of 1 cent per share beat estimates of a 6 cent-per-share loss.

Permian land rush continues. Denver-based SM Energy (NYSE: SM) announced this week its decision to spend $1.6 billion on acreage in the Permian basin, a deal that works out to about $42,000 per acre. That comes after a deal announced last week, in which RSP Permian (NYSE: RSPP) agreed to pay $47,000 per acre in a deal worth $2.4 billion. The two deals illustrate the frenzy going on in the Permian right now, with E&P companies scrambling to gobble up the best acreage in the most attractive shale basin in the country. “The Permian is so hot right now,” said Ben Shattuck, an analyst with Wood Mackenzie, according to Fuel Fix. “These are high-water numbers.”
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U.S. oil production declines begin to slow. The EIA predicts that the major shale basins in the U.S. will lose about 30,000 barrels of oil production per day in November compared to October. But that amount is the smallest monthly decline since May 2015, a sign that output could be nearing a bottom. While the Bakken and Eagle Ford are expected to lose 21,000 bpd and 35,000 bpd, respectively, the Permian is projected to add another 30,000 bpd.

Venezuela struggling to restructure debt. Venezuela’s PDVSA has $5.325 billion in debt payments falling due next year, and the state-owned firm, along with the Venezuelan government, are desperately short on cash and will have trouble meeting obligations. PDVSA has offered creditors revised terms but has so far failed to secure a deal to restructure its debt by extending maturity dates. The deadline for a swap is Friday. The company itself said that it would be “difficult” to make payments on existing debt. Bloomberg writes that refineries along the U.S. Gulf Coast could be impacted if PDVSA defaults, which would affect the reliability of crude deliveries to the U.S.
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Shell Sells $1 billion in Canadian assets. Continuing its multiyear divestment plan, Royal Dutch Shell (NYSE: RDS.A) reached a deal to sell $1 billion of non-core oil assets in Canada to Tourmaline Oil Corp. (TSE: TOU). The 206,000 net acres in Alberta and British Columbia are both developed and undeveloped, and produce a small 24,850 barrels of oil per day. The sale is part of Shell’s plan to sell off $30 billion worth of assets over a few years.
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China’s oil production stabilizes; Asian market tightens. China has lost about 400,000 barrels per day in oil production since the end 2015, with sharp monthly declines for nearly a year. Production dipped below 3.9 million barrels per day in August but the latest data for September shows output slightly up, suggesting that the declines could be at an end. A separate analysis from Reuters finds that the oil and refined product markets in Asia are tightening as inventory levels are in decline. Refining margins in Singapore have climbed as the supply of refined products has contracted. This trend is important because it suggests the global oil market is moving towards balance.
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source: Evan Kelly , Oilprice.com

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•    Oil production from the Bakken continues to fall, having recently dipped below 1 million barrels per day for the first time in two years.

•    North Dakota has suffered from an exodus of capital and drilling equipment, with new drilling taking place elsewhere.

•    The EIA expects output to continue to fall in the Bakken, dropping by another 21,000 barrels per day in November compared to October. That could take production down to just 946,000 barrels per day, compared to a peak of 1.23 mb/d in December 2014.

•    Statoil (NYSE: STO) stopped production at its Statfjord A platform in the North Sea after a fire. The fire was brought under control but it is not clear when operations can restart at the field, which produces 24,700 barrels of oil equivalent per day.

•    Chesapeake Energy (NYSE: CHK) saw its price target increased to $8 per share by Citigroup this week. Citi sees falling costs and rising production as reasons for its upgrade.

•    Alon USA Energy (NYSE: ALJ) saw its share price jump by more than 12 percent on Monday after it confirmed that it received a buyout offer from Delek US Holdings (NYSE: DK).


Oil prices wobbled to start off the week, rebounding a bit during early trading on Tuesday. A slightly weaker dollar supported prices, while energy analysts suggested the oil market is not as oversupplied as some think. "Global oil inventories (industry and government) increased by 17 million barrels to 5.618 billion barrels in 3Q16. 

This is the smallest build since 4Q14, confirming that inventory builds are slowing as the market comes back into balance," Bernstein Energy analysts said, according to Reuters. Wood Mackenzie is even more aggressive, predicting a balanced market by the end of the year.

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OPEC deal wobbles on Iran data dispute. Iran became the third OPEC member to question the data being used to calculate baseline production figures for the group. Venezuela and Iraq already said that OPEC was underestimated their production levels, an important point that would affect what the countries can produce after the pending deal to cut output is finalized in November. 

The head of the National Iranian Oil Co. said on Monday that it is actually producing 300,000 barrels per day more than it is getting credit for. The fight over data threatens to undermine the whole deal, and a failure in Vienna in November could reverse the latest oil price rally. “If nothing concrete emerges on production control, the market will lose patience, with the risk of an end-year price bloodbath,” David Hufton, CEO of PVM Group, told Bloomberg.

Iran wooing oil and gas investment. Iran is soliciting interest from international oil and gas companies, asking them to submit documents to pre-qualify as bidders for future oil auctions. Iran is hoping to attract $100 billion in investment over the next decade in order to increase output by some 1 million barrels per day. In the short run, Iran plans on increasing production to 4 mb/d by the end of this year, up from 3.8 to 3.9 mb/d currently.

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BP considers green investments. Before the end of the year, BP (NYSE: BP) will decide whether or not to move forward on its first investment in renewable energy in five years. The British oil giant decided against additional investments in renewables years ago, but is now weighing a decision to expand its U.S. wind business. 

The extension of federal tax credits for renewables through the end of the decade makes wind particularly attractive in the U.S., but it will benefit from more generous incentives if it moves ahead before the end of 2016. Ultimately, BP’s decision may not be all that consequential in terms of size, but it could be closely watched as a harbinger of what oil companies face as the global transition towards cleaner energy continues to pick up momentum.

BP also moving towards increasing oil investments. The oil markets may finally be turning a corner, and after two years of cutbacks, BP may finally step up new drilling. At this week’s Oil and Money Conference in London, BP’s CEO Bob Dudley said that his company could make final investment decisions on several projects this year and more next year. “Investments are back,” Dudley said. “But it’s only going to be the very best.” Dudley expects oil prices to trade between $50 and $60 per barrel in 2017.

Dakota Access Pipeline sees construction equipment destroyed. Energy Transfer Partners (NYSE: ETP) suffered another setback on its campaign to build the Dakota Access Pipeline, which would carry Bakken crude from North Dakota to refineries in Iowa and Illinois. Over the weekend, about $2 million worth of construction equipment was intentionally burned. 

The destruction occurred in Iowa along the pipeline route, but the individuals responsible are not known at this point. The pipeline has sparked an enormous backlash among Native American tribes affected by the pipeline and environmental groups. The $3.7 billion pipeline was also put on hold by the U.S. government.

Natural gas price rally halts as rigs rise. Natural gas prices have surged about 15 percent since the start of October, as supplies have declined and demand ticks upwards. But traders sold off gas contracts in recent days as the U.S. gas rig count jumped at the end of last week. Gas rigs increased by 11 for the week ending on October 14, the largest weekly gain in years. 

The gains come as both oil and natural gas prices have showed gains since September, encouraging companies to send crews back to work. The higher rig count, however, spooked traders on Monday.

Oil and gas industry donate to Republicans, but not to Trump. Recognizing that the presidency is slipping away from Republican nominee Donald Trump, the oil and gas industry is focusing its political efforts down ballot. According to E&E, the oil and gas industry has donated more than $70 million to federal candidates, but less than $1 million to Donald Trump. They are convinced they will be dealing with a President Clinton, which could pose some challenges.

Green groups advise Clinton against Colorado Governor. A collection of environmental groups are eyeing a Hillary Clinton presidency, and called on her to not pick Colorado Governor John Hickenlooper (D) for Secretary of Interior, due to his support for hydraulic fracturing. Hickenlooper is viewed as a centrist, and has supported the drilling boom underway in his state. Green groups are pressing Clinton to focus on climate change and crack down on oil and gas drilling.

Fitch Ratings warns about EVs. Widespread adoption of electric vehicles will be “resoundingly negative” for oil and gas companies, Fitch Ratings said in a new report. The ratings agency urged the industry to plan for the potential disruption from new technologies, which could spark an investor sell off in fossil fuels. Such a sell off would make debt and equity more expensive, threatening the financial prospects for many companies. 

“If they stick their heads in the sand and try and pretend it will all go away, we think they will ultimately have issues,” the report’s lead author, Alex Griffiths, a Fitch managing director, told the Financial Times.

source:Evan Kelly , Oilprice.com

Crude oil is set to close out the week not much different from where it started, seesawing a bit along the way. Oil prices sank on EIA data showing rising crude inventories – the first increase in six week – but that was offset by a large drawdown in refined product stocks. “It could simply be the fact that selling couldn’t sustain itself below $50,” Mark Anderle, director of supply and trading at TAC Energy, told the WSJ in an interview. “Clearly to me this says the bulls are still in charge.” Oil prices are looking for some direction with conflicting data emerging this week.
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North Dakota’s oil production drops below 1 mb/d. The Bakken continues to feel the effects of low oil prices. New data shows that North Dakota’s oil production dipped below 1 million barrels per day for the first time in more than two years. Output fell to 981,000 bpd in August, down from a peak of over 1.2 mb/d in December 2014. 

The Bakken has seen drilling vanish and companies decamp to more profitable plays such as the Permian in West Texas. "It does send a signal to the world markets that U.S. producers are serious about reducing activity, reducing costs, reducing production and I think that should help support the recent price increase we saw," Lynn Helms, director of state’s Department of Mineral Resources, told reporters.
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Permian gas on the rise. The flurry of drilling in the Permian basin is leading to an increase in the volume of associated natural gas produced. Gas production has topped 7 billion cubic feet per day, according to Bloomberg Intelligence, equivalent to about 8 percent of U.S. supply. Natural gas markets are growing tighter in the U.S. as demand rises and drilling slows (in most places), but the Permian remains as one region where gas output is expected to climb in the near-term. As such, it could be one of the few downside risks to natural gas prices. Nevertheless, Henry Hub is up to $3.30 per MMBtu as overall supply in the U.S. falls.  
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U.S. energy emissions at 25-year low. The EIA says that energy-related emissions in the U.S. in the first half of 2016 have declined to their lowest levels since 1991, due to mild weather and a cleaner energy mix. A warm winter led to weak demand for electricity, and renewable energy and energy efficiency continue to eat into the market share for fossil fuels, particularly for coal. But the upcoming winter is expected to be colder, which could lead to higher emissions, and as the EIA noted in a separate report, higher natural gas prices and more expensive electricity.
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Kashagan exports first oil. One of the most expensive oil fields in history finally began operations. The Kashagan project in Kazakhstan sent its first shipment of oil, after 16 years of development and more than $50 billion spent. Kashagan has suffered from repeated delays, equipment failures, and massive cost overruns – the project had a price tag of $38 billion in 2008 but that mushroomed to at least $53 billion by 2015. 

Nevertheless, the project is expected to be significant, potentially adding 370,000 barrels per day by the end of next year, something oil analysts and investors need to keep an eye on in the context of global supplies. Eni (NYSE: E) is the lead operator, working with ExxonMobil (NYSE: XOM), Total (NYSE:TOT) and Royal Dutch Shell (NYSE: RDS.A).
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First energy IPO in two years. Extraction Oil & Gas succeeded in going public this week, the first public offering since 2014. The Denver-based company sold more than 33 million shares at $19 per share, valuing the company at $2.4 billion. The successful IPO suggests that investors are still hungry for energy exposure, and could once again be warming up to the sector as oil prices rise.
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Russia’s Rosneft to acquire India’s Essar Oil. Rosneft is leading a group that will purchase Essar Oil in a deal valued at about $7.5 billion. Rosenft will take a 49 percent stake, and Trafigura Group and a Russian investment fund will split the remainder. Essar has a large 450,000 barrel-per-day refinery in western India. The deal will also offer Russia’s Rosneft access to over 2,700 retail gas stations in India, giving it a greater ability to market its fuels.
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Gazprom nears deal with EU antitrust regulators. The Russian gas giant and EU regulators are expected to reach a deal within the next few weeks that would settle antitrust concerns. The multi-year saga could come to a close, forcing changes in how Gazprom operates. The EU has accused Gazprom of charging unfair prices to certain Eastern European countries. The WSJ reports that Gazprom might avoid paying billions of dollars in fines but will agree to change its pricing practices. The deal could be a boon to Eastern Europe.
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Williams Partners and Cabot see share prices fall on pipeline delay. Williams Partners LP and Cabot Oil & Gas (NYSE: COG) have seen their share prices slip as a major shale gas pipeline in Pennsylvania faced a setback. The federal pipeline regulator, FERC, extended a public comment period for the $3 billion Sunrise project, which would carry Marcellus shale gas to market.

source: Evan Kelly, Oilprice.com

•    A federal appellate court said construction could proceed on the Dakota Access Pipeline, but the U.S. Army Corps of Engineers said it has not yet authorized construction after calling for a pause last month. The controversial $3.8 billion pipeline is owned by Energy Transfer Partners (NYSE: ETP).

•    ConocoPhillips (NYSE: COP) has started production at the second of its two units at its Australia Pacific LNG facility. The coal seam gas-to-LNG plants off of Australia’s east coast has the capacity to ship 9 million tons per year.

•    Brigham Resources LLC is considering a sale of the company, while also planning an IPO next year. The four-year old company has quality assets in the white-hot Permian Basin and could be worth $2 billion. It is testing the waters for a sale, but also has plans for a 2017 IPO.


Oil prices continued to add to the latest rally, with credit for the latest gains due to Russian President Vladimir Putin, who lent his support for OPEC’s production cut. Putin said on Monday that Russia “stands ready to join common efforts to limit production” and he also said that intervention from OPEC and Russia to reduce production is “the only way to save the stability of the energy sector.” The comments were enough to push oil prices up to one-year highs on Monday. Russia is the largest oil producer in the world at over 11 million barrels per day.
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Putin and OPEC all talk? The comments could once again be an attempt from a top oil producer to push up the prices through a bit of market psychology, only to be followed by some less-than-substantial actions on production levels. But recent history suggests that trying to manipulate the oil markets is indeed possible in the short-term. WTI and Brent are now trading comfortably above $50 per barrel.

 “I think we’re going to see the market react to a number of potentially competing headlines” over the next several weeks, said Andy Lipow, president of Lipow Oil Associates, according to The Wall Street Journal. Mark Waggoner of Excel Futures agreed. “We still have a glut. We still should have prices going lower,” he told the WSJ. “Everyone wants prices higher but nobody wants to cut. By jawboning the market higher, they don’t have to do anything.”

IEA downgrades demand…again. In its October Oil Market Report, the IEA said that demand continues to soften, with a deceleration underway in China. The energy agency lowered its 2016 oil demand growth estimate to 1.2 million barrels per day, down from 1.3 mb/d in September and 1.4 mb/d in August. 

At the same time, the IEA said the world remains flush with oil, as OPEC has succeeded in ramping up production to record levels. “Left to its own devices”, the IEA says, the oil market “may remain in oversupply through the first half of next year. If OPEC sticks to its new target, the market’s rebalancing could come faster.”
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Higher OPEC production threatens Algiers deal. The IEA also said that OPEC’s rising production threatens to overwhelm the planned production cuts announced in Algeria last month. OPEC’s oil output rose by 160,000 barrels per day in September to an all-time high of 33.64 mb/d. 

Gains from Iraq, Libya, and Iran pushed production higher, while the Gulf States continued to pump at elevated levels. The problem with that is that OPEC would need to somehow find cuts on the order of at least 600,000 barrels per day just to reach the upper end of the range (32.5 mb/d to 33.0 mb/d) that it said it would lower output to. 

That may be difficult to pull off and would likely require Saudi Arabia to do almost all of the heavy lifting. Goldman Sachs agreed – in a note to clients the investment bank said that while the odds of a deal in November have become a “greater possibility,” the cuts might be dwarfed by rising production from within OPEC. "Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017,” Goldman analysts wrote.

Saudi Arabia says oil will last 70 years. Saudi Arabia plans on selling at least $10 billion in bonds in order to raise cash for its depleted treasury, and as part of its bond prospectus, it revealed that it expects its 266.5 billion barrels of oil reserves to last another 70 years, according to Bloomberg News.

However, those numbers have not been independently verified and Aramco admits that the figures are difficult to precisely assess. The oil reserves figure of 266 billion barrels, for example, has not changed in years. Still, Aramco is moving forward with an IPO in 2018, and the 5 percent offering of what is expected to be a $2 to $3 trillion company could bring in roughly $100 to $150 billion.

Royal Dutch Shell (NYSE: RDS.A) backed out of plans to build an oil train terminal in Washington State to receive oil from North Dakota. The decision is the latest major infrastructure project planned for the Pacific Northwest to bite the dust. Shell said a tight capital market and persistent low crude oil prices made the project not economically viable. But the failed terminal is another blow to the Bakken, which has struggled to find enough pipeline and train capacity to move product to market.

Turkey and Russia sign agreement to move natural gas pipeline forward. Russia and Turkey continue to improve their relations after the downing of a Russian jet last year along Turkey’s border. On the sidelines of an energy summit in Istanbul, Russian President Vladimir Putin and his Turkish counterpart Recep Tayyip Erdogan signed a deal to push the Turkish Stream pipeline forward. 

The pipeline would carry Russian gas through the Black Sea to Turkey, and then on to the rest of Europe. Turkish Stream is seen as a rival to European backed pipeline from the Caspian Sea.

BP scraps drilling plans for Australian Bight. BP has cancelled controversial drilling plans for the Great Australian Bight, a stretch of coastline on Australia’s southern coast that the British oil giant billed as one of the last great unexplored oil frontiers. 

BP said that it was abandoning plans for the Bight because the project would not be able to compete with other projects around the world for increasingly scarce capital. The drilling plan had been subjected to stiff environmental opposition, but BP scrapped the project on commercial grounds.




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•    For the first half of 2016, residential electricity prices averaged 12.4 cents per kilowatt-hour, a decline of about 0.7 percent from a year earlier. The U.S. is on track to see its first decline in retail electricity prices in 14 years.

•    Low natural gas prices are at the heart of the slight decline in prices. Natural gas prices were about 28 percent lower in the first half of 2016 compared to a year earlier.

•    The decline in electricity prices may not continue, however, as natural gas prices have rebounded in recent months, rising above $3 per MMBtu in October.

source:Evan Kelly, Oilprice.com

Oil prices held onto their gains this week, adding a bit of momentum to the rally that started in late September following the OPEC deal. On Thursday, WTI broke through the $50 per barrel threshold for the first time since June on a fragile, but growing sense of optimism that oil markets are heading closer to balance. U.S. crude oil stocks fell again this week, adding to the bullish sentiment.

oil and natural gas prices:

Another bit of positive news came at the end of the week when OPEC’s Secretary-General said he will meet Russia’s energy minister in Istanbul for talks. The “consultations” will take place on the sidelines of an energy conference this weekend, and while there is no guarantee that Russia will coordinate or cooperate with OPEC’s planned production cuts, Russia has been more open to cooperation with OPEC this year than at any point in recent memory.

u.s.oil production:

Saudis to cut production anyway. The Wall Street Journal reports that Saudi’s powerful Deputy Crown Prince Mohammed bin Salman gave the greenlight to negotiators to come to a deal with OPEC countries on production cuts in Algiers last month. However, according to WSJ sources, it does not mark an about-face for the country’s oil strategy of fighting for market share. 

The Prince gave the space to negotiate a production cut, but only for volumes that the Kingdom had been planning to cut anyway. Production in Saudi Arabia tends to fall after peak summer demand, so the announced cuts for the OPEC deal did not involve much of a sacrifice. The distinction is important because it could offer clues into how far Saudi Arabia will be willing to go to prop up oil prices, which is to say, perhaps not that far.

crude oil futures:

Saudi Aramco to publish accounts. The world’s largest oil producer plans on publishing details of its finances for the first time ahead of a planned partial IPO in 2018, the FT reports. Aramco’s finances have long been shrouded in mystery, but in order to list shares, the company will need to provide more transparency to investors. 

It will release data next year, for the years 2015-2017. Saudi Arabia plans on listing about 5 percent of the company, and Saudi officials believe the company will be valued at as much as $2 trillion.

u.s. crude oil stocks:

A sign of oil glut. Bloomberg reports that at least 10 oil tankers are waiting in the North Sea, a sign that the oil market for Brent crude is still oversupplied. It is unusual for more than one or two tankers to be anchoring waiting to transfer their cargo. The uptick in what is essentially oil sitting in floating storage, in spite of oil field maintenance in the North Sea, suggests oil markets are still weak.

refinery runs:

Major Alaska oil discovery; tax changes loom. Caelus Energy LLC reported a 6 billion barrel oil discovery on the northern coast of Alaska this week. The “world class” discovery could be one of the largest in over a decade for Alaska, and has the potential to eventually produce 200,000 barrels per day. The project will be expensive, however, and not profitable at today’s oil prices. 

It will take years to develop as well and wouldn’t come online before 2020. Meanwhile, the state is paring back tax incentives for the industry as it sees revenues plunge. In 2014, Alaska took in $7.4 billion in oil revenues; by 2017 that will fall by 86 percent to just $1 billion. Now the state is scrapping tax credits and other incentives, but the industry is warning that it will kill off the golden goose.  

crude oil imports:

UK greenlights fracking. In a surprise move, the British government gave the go-ahead to Cuadrilla Resources to drill for natural gas in northern England. The UK Secretary of State for Communities overruled local planning commissions, granting the company a win after a multiyear battle for the right to hydraulically fracture. Proponents of the drilling plan say that fracking for gas will halt the UK’s more than a decade decline in natural gas production. Cuadrilla says producing gas will likely require prices at about $6 per million Btu – current gas prices trade for less than that.

u.s. gasoline stocks:

Brazil opens up oil sector to international investment. Brazil’s Congress voted to allow international companies to invest in the country’s pre-salt oil fields. For years, only the state-owned Petrobras was allowed to be the operator on any pre-salt project, but with the company drowning in debt, Brazil is turning to international companies for investment. Bloomberg calls it the most “investor-friendly change in regulation since the 1997 oil law that ended the state company’s monopoly in Brazil.”

Russian government orders Rosneft to take over Bashneft. Russia’s state-owned oil company Rosneft was ordered to swallow up a majority stake in Bashneft, the largest state-owned asset sale in a decade. Rosneft will buy out the government’s stake for $5.3 billion, giving government coffers a cash injection. The sale of Bashneft had once been billed as a privatization effort, but now Russia’s oil assets will be further concentrated into its largest state-owned company.

Natural gas market tightens. Natural gas prices for 2017 rose to their highest levels in a year as demand continues to rise and supply falters. Henry Hub prices for July 2017 rose to $3.147 per MMBtu, the highest price in more than a year. U.S. natural gas markets were terribly oversupplied last winter, but production continues to fall and demand is steadily rising as new gas-fired power plants come online. The result has been a surprisingly weak injection season, setting the market up for tighter conditions this winter.

UN ratifies agreement on airline emissions. The UN ratified an agreement that calls for cuts to greenhouse gas emissions from international flights, the first international agreement to address airline emissions. The deal calls for a peak in international airline emissions in 2020, but would allow airlines to continue to increase emissions beyond that date as long as they buy carbon offsets. With few fuel alternatives for airliners, emissions are expected to continue to climb in spite of the agreement.

source: Evan Kelly, oilprice.com/

The stunning news of a tentative OPEC agreement out of Algiers caught just about every trader flat-footed. Speculative short positions in oil had been growing, and oil markets and oil stocks rallied spectacularly on the news to rip the guts out of any trader who’d bet on nothing happening at this meeting, as had been the case the four previous times. There’s a lot to unpack here, but first things first: I wouldn’t be fading this move – OPEC is back.

We haven’t been short names in the energy space, quite the opposite – but we had been looking for a retreat in some U.S. shale names for the opportunity to add to core positions. That opportunity is gone. The OPEC agreement, despite its many, many holes, puts a floor under oil I don’t think will ever again be breached.

Here’s a mistake I will never make again, ever since my first days on the floor trading on the NYMEX: Never doubt the words of the Saudis. Every time in my long career that the Saudi oil minister signaled a price shift, whether up or down, they’ve made it happen. I misread a Saudi signal one time, however, in the fall of 2014, when they indicated their desire to pump freely and fight for market share. I lost $15 dollars a barrel in crude price before I remembered what I never should have forgotten and got to the other side of the trade – and I won’t be fooled ever again.  

But first, let’s look. The agreement calls for a modest 750K barrel a day reduction in OPEC output, and does not seem to limit Iran, nor does it mention Russian cooperation. On the face of it, Saudi Arabia could easily cut ¾ million b/d and be done with it, but that wouldn’t make any sense for the Saudis – I can’t believe they’d agree to be entirely alone.

But they might agree to be mostly alone: Their hemorrhage of reserve assets, at an average pace of more than $10b a month since late 2014, has clearly caused a moderate panic:


Yes, the Saudis had the strategy of bleeding the U.S. shale industry white, forcing U.S. producers to go bankrupt and stop producing, and putting the global swing barrel oil threat and responsibility back in the hands of the Saudis.

You’d have to say now that the U.S. shale industry faced this rifle barrel without flinching. With this OPEC announcement, they can declare at least a pyrrhic victory. Through stringent cash control, quick refinancing and secondaries, efficiency gains and concentration on core drilling, the strongest shale producers have continued to survive, if not thrive. It is Saudis that blinked.

The U.S. players that will benefit the most, and are rallying the most strongly off of this news are those with ready acreage that breaks even above $50 a barrel – companies that haven’t taken the foot off the gas pedal much during this downturn, like Pioneer Natural Resources (PXD), Parsley Energy (PE) and Continental Resources (CLR). 

I won’t chase them here, as they’ve all caught short sellers in the headlights that are scrambling to cover and magnifying their pop, but I will target them as the dust clears. I believe the details of this OPEC agreement, yet to be worked out in November, should give the markets enough pause to lose some interest in these names during October.

And looking at the very few details of the agreement that have been announced, there remain plenty of questions: Who else besides the Saudis will participate? How will the cartel balance the coming production increases from Libya and Iraq? After a long history of disregarding quotas, who’s to believe they can be enforced now? Can the Saudis and Iranians really agree upon anything, considering their overall confrontational stance and real time confrontations in Syria and Yemen?

I say forget all that – I learned something in 1983, my first year on the floor, that I forgot for a moment in 2014. I won’t make the same mistake again.



OPEC did the unthinkable – it decided to cut production for the first time since the global financial crisis in 2008. The group met in Algiers and decided to cut its production from 33.24 million barrels per day (mb/d) to a range of between 32.5 and 33.0 mb/d. The details will be finalized in November, but the tentative deal succeeded in boosting oil prices more than 6 percent on Wednesday, and by another 1 percent on Thursday.

Deal still uncertain. There are plenty of reasons OPEC won’t reach a deal. The group did not allocated production limits to each of its members, so it is still unclear who will be cutting. Also, some of the members could cheat, even if they do seal the deal in Vienna in November. Moreover, if the cap is placed at the high end of the range – 33.0 mb/d – it would amount to a very unimpressive cut of just 200,000 barrels per day. On top of that, Nigeria, Iran, and Libya are exempt from the limits. 
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They are allowed to produce at “maximum” levels, and combined they are hoping to bring back 1.5 mb/d. The psychological effect on the oil market has been enormous, with oil prices up big on the week. But with oil traders starting to question the viability and the significance of the deal, the rally came to a temporary halt on Friday.

Iraq questions numbers. Another unexpected sticking point could be Iraq, which is no longer exempt from OPEC limits after years of special treatment as it recovered from war. Iraq’s oil minister questioned the data that OPEC was using – the minister argued that Iraq was producing much more than OPEC was giving it credit for. The discrepancy would potentially limit Iraq’s production more than it should, Iraqi officials say. The conflict poses another stumbling block for the November meeting.
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Saudi Arabia needed a deal. The OPEC production cut only came because Saudi officials did an about-face, a 180-degree turn from its position over the past two years of letting the market sort out the surplus. The Wall Street Journal reports that Saudi officials, including energy minister Khalid al-Falih, grew concerned about the economic toll on the kingdom from persistently low oil prices. 
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The minister reportedly became alarmed from the latest forecast for oil prices remaining low through 2017, and the revelation was enough to lead the Saudis to reverse course. “I’m not convinced they have changed from the market-share policy but I have to think they have erased the ‘We don’t care if it goes to 20 $/bbl’ policy,” Olivier Jakob of Petromatrix told the WSJ. “They seem less idealistic, a little more realistic.”
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Refiners down on OPEC deal. The surge in oil prices will be welcome by producers, but not by refiners. The BI North America Refining & Marketing index, an index of refiners, dropped by 4.6 percent on Thursday. Higher oil prices is bad news for refiners, which need to purchase crude in order to process it into refined products. Gasoline inventories are still high, and margins are low, Moody’s said, a problem that could persist for some time.
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Oil analysts not impressed by OPEC cut. Oil prices skyrocketed this week after OPEC came to terms, but seasoned oil analysts are not exactly overwhelmed. Several major investment banks – including Goldman Sachs, Societe Generale, Jeffries and UBS – did not alter their oil price forecasts on the news. Citi’s Ed Morse said the decision is “still kicking the can down the road.” Goldman, however, did say that if the deal is implemented, it could add $7 to $10 per barrel to the oil price next year.
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U.S. Congress overturns Obama’s veto on 9/11 bill; but now regret it. This week both the U.S. House and Senate overwhelmingly overturned President Obama’s veto of a bill that would allow the victims of the 9/11 terrorist attacks to sue Saudi Arabia. But by Thursday, many of them expressed regret for doing so, fearing reprisals for Americans abroad. It’s a bizarre development from the Congress, given that the President explicitly vetoed the bill for just that reason. The bill also threatens to disrupt the relationship between the U.S. and Saudi Arabia, and Saudi stock exchange took a beating as the bill progressed.
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Court decision in Pennsylvania could hurt shale gas drilling. The Pennsylvania State Supreme Court overturned an industry-friendly law that could be a burden for shale gas drillers. The court ruled that the 2012 law unfairly favors the gas industry. The law allowed drillers to notify public water suppliers but not private well owners about spills or leaks. 

It also restricted health care professionals from obtaining information about the chemicals used. The court ruling also struck a blow against eminent domain, a procedure that allowed gas drillers to seize private and public land for drilling. Opponents of fracking in the state hailed the ruling, but the Marcellus Shale Coalition, an industry trade group, said it would make investment difficult.

Deepwater Horizon movie a headache for BP. The British oil giant may have thought it put the 2010 disaster behind it, but a new movie about the Deepwater Horizon disaster paints the oil major in a very bad light. “Deepwater Horizon,” starring Mark Wahlberg, Kate Hudson and John Malkovich releases on Friday. 

The movie is particularly ill-timed for BP as the company is hoping to drill off of Australia’s southern coast and has run into stiff environmental opposition. Australian regulators sent a request this week to BP for more information regarding its oil spill response plan. Critics of BP have used the example of Deepwater Horizon to argue for blocking the drilling plan in the Great Australian Bight.

source: Evan Kelly , oilprice.com

•    The Brazilian state-owned Petrobras could spend $6 billion on new oil platforms, and could solicit offers beginning next year. The company announced a five-year spending plant last week, lowering spending by 25 percent to $74 billion for 2017-2021.

•    Noble Energy (NYSE: NBL) says it has secured a deal with Jordan’s state-owned electric utility to export natural gas from the giant Leviathan gas field in the Mediterranean. The agreement could see Israel export 300 mcf/d of gas over 15 years to Jordan.

•    TransCanada (NYSE: TRP) announced its intention to purchase Columbia Pipeline Partners (NYSE: CPPL), a deal worth roughly $848 million. The acquisition will give TransCanada stakes in three regulated natural gas pipelines in the U.S., plus an array of processing assets.

oil and natural gas prices:

chart:

•    So much attention is paid to shale basins such as the Bakken or Permian, but the lesser-known Utica Basin has seen production grow steadily over the past several years.

•    The Utica is mainly a source of natural gas production, with more lucrative spots producing natural gas liquids. Monthly production has increased from 0.1 billion cubic feet per day (Bcf/d) in December 2012 to more than 3.5 Bcf/d in June 2016.

•    The Utica only produces about 76,000 barrels of oil, however. Natural gas production has leveled off as well.


All eyes are on Algeria this week where the International Energy Forum is being held. But instead of the conference itself, the global oil markets are anxiously awaiting the developments of an informal meeting to be held on the sidelines of the Forum between OPEC and non-OPEC officials. At the time of this writing, no deal had been announced, although there are some unconfirmed reports that Iran and Saudi Arabia are considering some sort of limit on production.

The proposal would call for Saudi Arabia cutting output by several hundred thousand barrels per day if Iran froze production at 3.7 million barrels per day. Oil prices surged on Monday on hopes of a deal, jumping more than 2 percent. However, in early trading on Tuesday, WTI and Brent were back down by more than 2 percent as expectations of an agreement began to fade.

The result may not be known until Wednesday, but comments from Iran’s oil minister, saying that the talks were simply “consultative,” seemed to dash hopes of any specific agreement. For now, it appears that if anything is agreed to, it would only be the outlines of a deal, which would make the official Nov. 30 summit in Vienna much more important for finalizing the specifics.

U.S. Total Rig Count:

Saudi Arabia appears more desperate than Iran. For years, Iran wanted higher oil prices while Saudi Arabia was satisfied letting other producers sweat. But after two years of low oil prices, Saudi Arabia is under serious fiscal pressure, an unfamiliar predicament in Riyadh. Saudi Arabia just announced that it would cut its ministers’ salaries by 20 percent and slash benefits for government employees as the country pursues deeper belt tightening. Meanwhile, Iran is seeing a resurgence in its economy after the lifting of international sanctions and the return of supply.

Saudi Arabia has a massive budget hole equivalent to 13.5 percent of GDP, while Iran’s deficit will only reach 2.5 percent of GDP. In other words, Saudi Arabia seems to be more desperate than Iran for higher oil prices.

IEA reiterates bearish forecast. On the sidelines of the energy conference in Algiers, IEA’s executive director Fatih Birol said that the global surplus in crude oil will persist until late 2017. Unless there is “major intervention,” Birol said, referring to OPEC production cuts, "We don’t see the oil market re-balancing until late 2017.” He sounded especially bearish on the demand side of the equation, “demand is weak, weaker than many of us thought…about 0.8 million barrels per day…less than 1 million barrels per day.” He went on to add that “supply is coming strongly, especially from Middle East countries. And the stocks are huge. As a result of that, we have lower oil prices with huge implications for the next few years.”

China SPR a “wildcard.” S&P Global says that the oil markets are facing a “wildcard” with the potential slowdown of China’s oil imports as the country’s strategic petroleum reserve system is filling up. OPEC could act to boost prices by limiting output, but China could respond to the higher prices by cutting imports, leaving the oil market no better off. Even if OPEC does nothing to restrain oil exports, China may soon ratchet down imports because it no longer needs to fill its SPR, at least with the same urgency as the past two years. This presents a downside risk to the oil markets.

Goldman Sachs lowers oil price forecast. Citing a larger supply surplus than previously expected, Goldman Sachs lowered its fourth quarter oil price forecast from $50 to $43 per barrel.

Russia ramps up unconventional drilling. Reuters reports that Russia’s Rosneft and Gazprom Neft are ratcheting up their efforts to increase oil and gas production from unconventional sources. By 2020, Russia hopes to source 11 percent of its output from unconventional sources, up from 7 percent in 2016. The potential is enormous – government officials estimate Russia has 88 billion barrels of unconventional oil reserves, or about two-thirds of its total reserves.

With much of Russia’s current output coming from large but aging oilfields, there is increasing pressure to expand into shale and other hard-to-reach oil reserves. The U.S. and its western allies slapped sanctions on Russia back in 2014, focusing on blocking the spread of shale drilling technology. But Russia is moving forward anyway, or at least trying to.

Niger Delta Avengers strike again. The fragile and short-lived ceasefire between the Niger Delta Avengers and the Nigerian government seemed to come to an end this weekend. The Avengers announced on their website that they struck the Bonny crude export line on September 23. The militant group said that the “so-called dialogue and negotiation process on the side of President Muhammadu Buhari and his government” has been an “over dramatization.”

The Avengers still favor negotiation, but said there has been “no progress and no breakthrough.” Nigerian government officials recently said that they brought back several hundred thousand barrels per day of lost output to the market, with plans to ramp up production with repaired infrastructure. A renewed bout of violence threatens that objective.

Venezuela sweetens pot on debt swap proposal. Venezuela’s PDVSA is hoping to push off debt payments that soon fall due, but after the state-owned oil company approached creditors with a proposal to spread out $7 billion worth of near-term payments for payments over the course of several years, investors balked. PDVSA increased its offer for payments made on bonds due in 2020 in exchange for payments maturing in 2017. Wall Street analysts, according to Reuters, say the new offer could earn a better reception from investors. If PDVSA succeeds in bringing investors on board, it could help prevent a default.

Rice Energy to purchase Vantage for $2.7 billion. Rice Energy (NYSE: RICE) announced its decision to purchase the private company Vantage for $2.7 billion, making Rice one of the largest shale gas drillers in the Marcellus in Pennsylvania and Ohio.  

source : Evan Kelly , Oilprice.com

Spoiler:

•    Gasoline prices in the southeast U.S. spiked over the weekend due to an outage at the Colonial Pipeline, the largest gasoline pipeline in the country. The line sprung a leak and has been temporarily shut down.

•    GE says its will spend $10 billion in Argentina over the next decade, building out 1 GW of electrical capacity.

•    Chesapeake Energy (NYSE: CHK) fell by more than 4 percent after news surfaced that Carl Icahn reduced his 9.4 percent stake in the company to just 4.55 percent.

Spoiler:

OPEC’s Secretary-General said over the weekend that the upcoming meeting in Algeria between OPEC members and a handful of non-OPEC countries would not end with a definitive agreement. For its part, Venezuela says that OPEC and non-OPEC countries are close to a deal. But that could simply be a bit of bluster.

“It is an informal meeting, it is not a decision-making meeting,” Secretary-General Mohammed Barkindo said, according to Algerian state media. The oil markets could end up disappointed next week if OPEC has little news to announce.

The only way this turns out bullish for oil is if OPEC agrees to a production limit to be finalized at a future meeting. Even then, the devil will be in the details.

Chart of the Week:

New York AG investigates ExxonMobil accounting practices. The NY Attorney General initiated an investigation into ExxonMobil (NYSE: XOM) last year, focusing on the oil supermajor’s shady history with climate science.

But more recently, the AG has suggested that he is less concerned with the company misleading the public on climate science decades ago, and more interested in it misleading investors today. At issue is whether or not Exxon is defrauding investors by failing to write down assets that may no longer be worth as much as once thought.

While competitors have written down $200 billion in assets over the past two years, Exxon has written down nothing. Exxon says the assets could still be worth their stated value if oil and natural gas prices rebound. The NY AG is not so sure. What began as a climate investigation is turning into one over accounting practices.

Oil majors grow through M&A, not exploration. Wood Mackenzie says that the oil majors have slashed their exploration budgets to such a degree that they appear to be forgoing growth through the drill bit.

Growth in oil reserves will increasingly come from M&A activity, the consultancy says. The industry will cut $1 trillion from their exploration and development budgets over the next five years, ensuring that very little new discoveries will be made.

“The need for M&A in exploration is likely to be here for a considerable time," Andrew Latham, vice president of exploration research at WoodMac, said in an interview. Companies will focus their efforts “on assets rather than on taking over companies.”

Libya targets 1 million barrels per day, but fresh fighting raises obstacles. Libya has ruled out any cooperation with a potential OPEC freeze deal as it aims to triple oil production from today’s levels.

Despite the ambitious target, Libya’s main oil ports continue to change hands, as rival factions battle for control. Oil prices rose on the news that fresh fighting will delay petroleum shipments from the North African OPEC member. Libyan oil is very uncertain, but if output comes online, it presents a large downside risk to oil prices.

Niger Delta Avengers…the sequel? A militant organization calling itself the Niger Delta Greenland Justice Mandate blew up an oil pipeline operated by Nigeria’s state-owned NNPC on Sunday.

"The Niger Delta Greenland Justice Mandate is just starting, you are yet to see what we are about," the group said. The Niger Delta Avengers made international headlines this year after a long list of successful attacks against oil pipelines and platforms brought Nigeria’s oil production down by 700,000 barrels per day.

The Avengers have since agreed to negotiation with the government. But the problem for Nigeria is that militants have splintered into a variety of groups, not all of which are willing to adhere to a ceasefire. The latest attack shows that despite the Avengers agreeing to halt attacks, violence in the Niger Delta is not over.

The good news for Nigeria is that oil production is now back up to 1.75 million barrels per day, up from about 1.4 mb/d earlier this year. Nigeria’s oil minister expects output to keep climbing if they can keep a lid on the violence in the region.

PDVSA rebuffed by investors on debt swap. Venezuela’s state-owned oil company PDVSA has been shopping a proposal to swap $7 billion in upcoming debt payments for notes that instead have repayments over the next several years.

But investors are not interested. PDVSA did not offer any more than face value, but instead offered a lien on Citgo, its U.S. refining division. “PDVSA considers its Citgo collateral to be attractive, but I’m not sure the market will take it the same way,” Anthony Simond, a money manager at Aberdeen Asset Management, which holds PDVSA notes due in 2016 and 2017, told Bloomberg in an interview.

“This may be too optimistic an assessment of Citgo’s potential market value,” Francisco Rodriguez, the chief economist at Torino Capital LLC, said in an email to Bloomberg. The poor response from investors increases the odds that PDVSA may not be able to meet its debt payments.

Petrobras slashes spending plan again. The Brazilian state-owned firm, the most indebted oil company in the world, once again revised its five-year spending plan down, lowering it to $74.1 billion. That is down sharply from the $98.4 billion the company previously laid out for its five-year program, and from the $236.5 billion the company planned on spending back in 2012. Petrobras is desperately trying to lower its debt.

India's oil imports rise to record. Led by a hunger from Indian refiners, India’s crude oil imports rose to a record high of 4.45 million barrels per day in August, up 9.1 percent from a year ago. Gasoline consumption is also up by a massive 25 percent from 2015. India is the largest source of demand growth in the world right now and will continue to play that role for years to come.

Oil markets, investors await central banks. Both the U.S. Federal Reserve and the Bank of Japan are due to release decisions on Wednesday on whether or not they will raise interest rates. Most analysts see the Fed punting for now.

source: Evan Kelly , News Editor, Oilprice.com

Oil prices posted another down week after the IEA dashed hopes that the global supply and demand picture would come into balance this year. The Paris-based energy agency said demand is much slower than it previously expected, and supplies are also surprising on the upside, mostly due to record OPEC production.

The end result? The supply surplus might not be worked through until the middle of next year. Oil prices plunged on the news earlier this week and have struggled to regain ground.

Spoiler:

Goldman pessimistic on oil prices. Jeff Currie, the head of commodities research at Goldman Sachs, sees low oil prices sticking around for a while. Not only that, but Currie says the risk to oil is on the downside, not the upside. He sees a dearth of bullish catalysts, and unexpectedly high output from Saudi Arabia, Iran and Russia adding to global supplies.

He predicts oil will trade within a narrow range of $45 to $50 per barrel. “It really looks similar to the period of the early 1990s, when we were at $20 oil,” he said. “Is $45 to $50 the new $20? I am not ready to say we are in this new equilibrium environment, but it sure does feel like we’re moving in that direction.”

The negative sentiment echoes the latest monthly report from the IEA, which surprised the markets with its downbeat assessment, predicting a rise in crude oil inventories through much of next year.

Spoiler:

Libyan and Nigerian supply raise fears of deeper surplus. After several oil ports were briefly taken over by a rival general in Libya’s east, the government lifted a block on sales from three ports, which could see exports rise by 300,000 barrels per day relatively quickly.

That would take output up to 600,000 barrels per day, and Libyan officials are targeting further increases to 950,000 barrels per day by the end of the year, or about triple current levels. Libya has repeatedly failed to follow through on such promises, but the prospect of a return of some Libyan supply is weighing on oil prices.

Also, violence in the Niger Delta is finally calming a bit. ExxonMobil (NYSE: XOM) said that it would resume shipments of its Qua Iboe crude, the largest Nigerian grade. Royal Dutch Shell (NYSE: RDS.A) is also expected to bring an additional 200,000 barrels per day back in Nigeria.

Spoiler:

Bottom for offshore rig market within sight. Offshore rig owners have been slammed by the collapse in oil prices as drilling activity has screeched to a halt. However, Transocean (NYSE: RIG) says that the bottom for the market could arrive by the middle of next year, with rig utilization rates stabilizing at some point in 2017.

The third-largest offshore rig operator also said that rental rates have probably already stabilized, although at levels ($200,000 daily) less than one-third of 2013 levels ($650,000 daily).

Spoiler:

Colonial pipeline down, but should restart on weekend. The Colonial Pipeline, the largest refined product pipeline in the United States, suffered a leak this week, spilling about 6,000 barrels of gasoline in Alabama.

Its owner shut down the main gasoline and distillates line last Friday, although the distillates line has since been restarted. The gasoline line should start back up over the weekend. The outage led to surging refining margins, owing to the supply disruption. The incident could also temporarily push up gasoline prices in the U.S. Southeast.

Spoiler:

Nord Stream 2 moving forward. The pipes being used to build the Nord Stream 2 expansion should be delivered in December or January, the head of Pipe Innovation Technologies said at the Reuters Russia Investment Summit this week.

The pipeline, which would double the volume of Russian gas to Germany via the Baltic Sea, is highly controversial in Europe. Many EU countries, particularly in Central and Eastern Europe, are opposed to the expansion because it would increase EU dependence on Russian gas. The prospects for the pipeline have been up in the air but the confirmation about the delivery of pipes suggests the project is moving forward.

Spoiler:

PDVSA looking at $7 billion debt swap. Venezuela’s state-owned PDVSA is looking to defer hefty debt payments that come due this year and next, hoping for some breathing room. Bloomberg reports that the oil company is hoping to swap $7 billion in debt, asking unsecured bond owners to take notes with payments spread out over the next few years.

The specifics have not been disclosed, but the effort is an attempt to avoid default, and an economist with Capital Economics in London told Bloomberg that Venezuela could buy itself 12-months if it succeeds with the swap.

Spoiler:

UK government greenlights controversial nuke plant. EDF’s $24 billion Hinkley Point nuclear power plant got the go ahead from the British government this week, a highly controversial project that will be Europe’s largest energy project. The approval came after a tightening up of security over fears of Chinese involvement in the project.

The announcement is a win for EDF, but analysts are not sure it is a good idea for the UK. “In light of a changing energy landscape, the falling cost of renewables, and lower financing costs, we are not convinced that this would be the right decision for the U.K. consumer,” Martin Young, an analyst at RBC Capital Markets, said in a research note on Thursday. The two reactors are expected to take ten years to build.

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.

source: Evan Kelly, Oilprice.com

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy.

But before we get onto the data please do take a moment to look at ourpremium service. If you find the weekly free letters of value then you will get huge benefit from a premium membership. There is no risk to you as the first 30 days are without charge so you can see if the service is right for you at our expense. To find out more please click here.

oil ans natural gas prices:

U.S. Toral Rig Count:

Chart of the Week:

•    India has replaced China as the world’s largest source of oil demand growth. It still has a long way to reach China on an absolute basis, but growth will increasingly come from the sub-continent. 

•    Because of its rapidly rising import dependence, India is also following in China’s footsteps in its decision to build out its strategic petroleum reserves (SPR). India’s first phase of SPR construction includes three facilities with a combined capacity of 39.1 million barrels, or about 13 days’ worth of supply based on 2015 data.

•    India hopes to add another 91 million barrels by 2020. India’s objective is to eventually have 90 days’ worth of supply, which is what IEA member states, including the U.S., have in their stockpiles. 

Market Movers

•    Royal Dutch Shell (NYSE: RDS.A) says that it will slash its deepwater Gulf of Mexico workforce by more than 25 percent, eliminating 200 out of its 770 jobs in the region. Shell hopes to cut 2,200 jobs by the end of the year as part of its plan following its merger with BG Group.

•    The head of Libya’s National Oil Corporation objected to a deal between the government and guards at key oil export ports. His opposition tosses a fragile deal into doubt, which could delay the return of disrupted oil exports from Libya.

•    Transocean (NYSE: RIG) saw its share price sink more than 5 percent on Friday after it revealed that it had stacked another six rigs, bringing its total number of stacked rigs to 28.

Tuesday July 26, 2016

Oil prices have taken another turn for the worse, with both WTI and Brent moving down below $45 per barrel at the start of the week. Fears of oversupply of both crude oil and refined products continue to act as a drag on oil, and prices have dropped to their lowest level in months. For the second year in a row, a multi-month rally in oil prices has come to an end in the month of July. 

Oil dips on higher rig count and stronger dollar. In addition to the glut of crude oil and refined products in storage, the rising U.S. rig count is adding to the growing concerns about a resurgence in U.S. oil production. The rig count has climbed for four weeks in a row. The dollar added strength in the past few days, which put more pressure on crude to start off the week. Looking out over the next several months, demand could slow as summer ends (more on that below). 

Another phase of short selling.Oil seems to be entering another downturn, the depths of which are uncertain. The speculative positions of hedge funds and money managers have turned decidedly pessimistic, with the liquidation of long positions and the increase in shorts. And as Reuters notes, speculators have pushed the market into its fourth phase of a buildup in short positions since the downturn began two years ago. The speculative movements often provide clues into where the market is heading, as the liquidation of longs and the increase of shorts foretells a decline in oil prices. For now, speculators are pessimistic. On the other hand, the speculative movements have opened up an opportunity for traders to buy the dip – so pessimism today does not mean that negativity will continue.

BP suffers another loss. BP (NYSE: BP) reported its third straight quarterly loss on Tuesday, revealing a replace cost loss (a metric similar to net income) of $2.25 billion, which is smaller than the $6.27 billion it lost in the second quarter of 2015. The Deepwater Horizon disaster in 2010 continues to haunt the British oil giant – BP’s second quarter figures include a $5.2 billion pretax charge, which brought its final estimated tally from the incident to $61.6 billion. Excluding those charges, BP’s underlying earnings stood at $720 million, about 45 percent lower than the $1.31 billion the company earned in the second quarter of 2015. BP’s share price dropped by 2.4 percent in early trading. 

ExxonMobil declares force majeure on Nigerian production.  ExxonMobil (NYSE: XOM) declared force majeure on its Qua Iboe production because of damage to its 300,000 barrel-per-day pipeline. The Niger Delta Avengers have claimed credit for the outage, but the oil major denied that its pipeline had been hit with any attack, instead citing a “system anomaly” as a reason for the outage. But a company security official told the Associated Press that the damage was too extensive to be a system anomaly. Either way, the disrupted supply could be offline for weeks. The outages in Nigeria continue to plague the oil majors operating in country, but the disruptions are supporting oil prices. 

Refiners switch to winter blends. Some refiners are switching to winter fuel blends ahead of schedule, which could be bad news for oil prices. With a glut of refined products sitting in storage, some refiners are taking the opportunity to conduct maintenance and switch away from the legally required summer fuel blends (which are cleaner but more expensive) earlier than usual. Summer demand has not been able to cut into large inventories, and the glut has pushed down margins. Typically, refiners begin switching to winter fuel blends in August, but Reuters says some are already doing so. If refining runs drop significantly it could lessen the demand pull on crude oil. 

Oil by rail declining. The practice of shipping oil by rail became commonplace a few years ago, as the surge in oil production, particularly from the Bakken, came at a time when pipeline capacity could not keep up. As recently as 2014 more than 1 million barrels per day flowed on U.S. railways, or more than 10 percent of production. But that volume plunged to just 430,000 barrels per day as of April. Low oil prices have cut into upstream production, but at the same time new pipelines have come online to ease the congestion. New regulations have also made oil-by-rail less competitive, as it is more costly than pipeline shipments. The decline of rail as a means of transportation for oil could be permanent. Meanwhile, in Canada, older rail cars that have been implicated in a string of derailments and explosions in recent years, will be phased outahead of schedule.   

North Sea oil strike begins.A 400 worker strike in the North Sea began on Tuesday, a 24-hour event that will affect at least eight [i]Royal Dutch Shell (NYSE: RDS.A)platforms. The strike is the first to hit the UK oil industry in 28 years. Workers are protesting a planned 30 percent pay cut and are following up the stoppage with other strikes in the coming weeks.

source by: Evan Kelly News Editor, Oilprice

The OPEC meeting in Vienna ended with no agreement on production targets, despite some rumors ahead of time that Saudi Arabia had floated a reinstatement of those limits. Iran still has no use for OPEC’s coordinated action, and Iran’s oil minister says that it still has some lost ground to regain. Iran won’t consider any possibility of limiting its production until it reaches 4 million barrels per day (mb/d) of production; its output currently stands at about 3.8 mb/d. As a result, OPEC couldn’t agree on anything, but such an outcome was largely expected by oil analysts. Still, prices plunged by more than 1 percent on the news from Vienna.
Oil storage levels fall. But the losses were quickly regained on June 2 as the fundamentals continue to provide some reassurance. Storage levels in the U.S. fell by another 1.4 million barrels, the first time that the U.S. has posted consecutive weeks of declines in a long time. Also, U.S. oil production fell by yet another 32,000 barrels per day last week – the losses continue to mount and output is down by more than 900,000 barrels per day from last year’s peak at nearly 9.7 mb/d. The oil markets were buoyed by these figures, pushing WTI and Brent back towards $50 per barrel following the disappointment from Vienna.

Weak jobs report. On the other hand, the Labor Department released the worst monthly jobs report in years on June 3, revealing that the U.S. added only 38,000 jobs in the month of May. The unemployment rate fell to just 4.7 percent, but largely because of people dropping out of the labor force. The dismal report could put downward pressure on crude oil, but it could also cause the Fed to delay a rate hike, which would be seen as a positive for oil prices. 
Nigeria output back up. Nigeria’s oil minister said that his country’s output has climbed to 1.6 mb/d, up from 1.4 mb/d in May. Still, the Niger Delta Avengers continue their aggressive campaign against oil companies operating in the Delta. This week the militant group claimed that it successfully carried out attacks against two oil wells controlled by Chevron (NYSE: CVX). The Nigerian government has had very little success in slowing the attacks and much of the country’s oil production remains offline. 

ExxonMobil considers $10 billion investment in Argentina. Argentina could be home to the next shale revolution, as the vast Vaca Muerta shale holds large volumes of oil and gas. Several oil majors have had a presence there for several years, but have not yet been able to crack the shale basin in a massive way. ExxonMobil (NYSE: XOM) announced that it is considering a $10 billion investment in the Vaca Muerta over the next few decades. The oil major has already poured $200 million into Argentina, and is now looking at another $250 million for a pilot project. If that is successful, Exxon’s CEO Rex Tillerson says that the company would make investments over the next 20 to 30 years “that would be well in excess of $10 billion.” 
Banks require more liquidity from oil and gas companies. Lenders are increasingly requiring oil and gas drillers to set aside cash in order to keep a certain level of liquidity. The measures are intended to reduce the banks’ exposure to debt that might not be paid. Also, the banks are concerned that indebted drillers might exhaust their credit lines ahead of a bankruptcy event. Banks are under their own scrutiny from regulators to minimize their vulnerability to bad energy debt.  

Natural gas inventories rise at slower pace. Natural gas prices jumped to a nearly six-month high on EIA data showing that inventories increased at a much smaller-than-expected rate. Spring typically brings strong gains in natural gas storage levels because of lower demand. The EIA reported that inventories climbed by 82 billion cubic feet last week, lower than the 86 bcf expected by some analysts surveyed by The Wall Street Journal. In the last week of May, inventories stood at 35 percent above the five-year average, down from 37 percent a week earlier. In other words, inventories are still extraordinarily high, but the glut is a bit smaller than was expected only a few weeks ago. Low prices since last year have halted production levels, which should help narrow the supply overhang going forward. Natural gas prices jumped to $2.42 per million Btu (MMBtu), sharply up from the sub-$2/MMBtu range where gas had been trading at for weeks. 

BP reaches $175 million settlement. BP (NYSE: BP) reached a $175 million settlement related to some outstanding legal claims from the Deepwater Horizon disaster in 2010. The claims were brought by investors that purchased BP shares following the disaster, a class-action suit that was about to go to trial. 

Petrobras could undergo major changes. The new head of Brazil’s state-owned Petrobras backs reforms that would scrap the legal requirement that Petrobras operate all of the pre-salt oil fields. If the law is loosened, it would be a huge opportunity for international oil companies, opening up some of Brazil’s most prized oil fields in the Atlantic Ocean. Petrobras has $130 billion in debt and can no longer afford the expenditures required to develop many of the pre-salt fields. The political crisis and the change of government in Brazil could accelerate market reforms and liberalize Brazil’s oil sector. 

ConocoPhillips offers best value. Bank of America Merill Lynch said in a report that ConocoPhillips (NYSE: COP) offers the best relative value in its peer group. Although its dividend is only 2.2 percent, lower than some of the other oil majors, Conoco offers the “top ‘free cash’ yield idea.” BofA Merrill Lynch’s Doug Leggate said that Conoco was best positioned to deliver outsize returns to shareholders from share buybacks.

sourece: Evan Kelly , Oilprice.com

•    The Memorial weekend is normally a time when Americans hit the roads for some vacation. This past holiday saw retail gasoline prices average $2.30 nationwide, 47 cents per gallon lower than last year.
•    Memorial Day 2016 saw the lowest gasoline prices since the aftermath of the financial crisis in 2009.
•    The West Coast has the highest gasoline prices at $2.66 per gallon, in part due to the major disruption at ExxonMobil’s Torrance refinery in Southern California. Also, the Californian market is somewhat separated from the rest of the country’s retail fuel market.
•    The Gulf Coast, near much of the nation’s refinery capacity, has the cheapest fuel prices, averaging $2.03 per gallon.


•    Noble Energy (NYSE: NBL) and Delek Group (OTCPK: DGRLY) signed an agreement to send natural gas from the Leviathan field in the Eastern Mediterranean to an Israeli power plant. The deal comes as the regulatory barriers to developing the massive gas field are clearing away.

•    Suncor Energy (NYSE: SU) announced that it has restarted some operations in the Fort McMurray area, following several weeks of outages related to the wildfires. That will bring several hundred thousand barrels per day back online.

•    Pipeline operators lowered rates after wildfires disrupted Canadian supply, which cut into demand for pipeline space. Tallgrass Energy Partners (NYSE: TEP), Legacy Reserves (NYSE: LGCY), and Suncor Energy (NYSE: SU), and Red Butte Pipe Line Co. lowered pipeline tariffs.



Oil prices were hit with some bearish news to start off the week, as Canada is set to bring much of the more than 1 million barrels per day of oil production that was disrupted from wildfires back online. But optimism is rising in the oil markets.

Is $60 around the corner? Even with that crude coming back online, there is a growing bullishness pervading the markets as of late, as forecasters raise their price projections and speculators gamble on steadily higher prices. Bloomberg reports that speculators shorting crude oil have been squeezed out of the market, and short bets have fallen to their lowest levels in almost a year. The shift in trades reflects more and more confidence that oil will not fall back down, at least not to the depths seen earlier this year. Also, several banks, including Standard Chartered Plc and SEB Bank have come out and said that oil will hit $60 before the end of the year. UAE’s economic minister, Sultan Bin Saeed Al Mansoori, said on Monday that he could see oil hitting that threshold by summertime. A survey conducted by The Wall Street Journal found that the array of investment banks polled raised their price targets for Brent crude in 2016 by $2 on average in May compared to the previous month’s forecasts.

Not everyone is so bullish, however. Some analysts attribute the recent price gains simply to the supply disruptions in Canada and Nigeria, outages that were always going to be temporary (at least in the case of Canada). "The output disruptions are a key factor supporting prices at the minute. We don't think prices will go much further from here," Thomas Pugh of Capital Economics told Reuters. "In fact, we think prices are vulnerable to a downturn in the short term if some of the disrupted supply returns, or there is evidence that higher prices are stimulating more production." Even with the upward revisions, many are still cautious – the average projections polled by the WSJ expect oil to trade at only $48 per barrel in the fourth quarter.  


New drilling possible. The rig count fell again last week, but with oil prices hovering around $50, market watchers are looking for clues to see if shale drillers will get back to work. Pioneer Natural Resources (NYSE: PXD) recently said that it is considering redeploying rigs if it grows confident that prices will stay above $50. But the WSJ reports that the oil majors could be more cautious, having been burned by megaprojects that cost tens of billions of dollars in recent years. “We’re not going to try and get into a boom and bust,” BP’s CFO, Brian Gilvary, said in April. “We wouldn’t be looking to significantly ramp [activity] up” even if oil prices rose to $60. The oil majors do operate in U.S. shale basins, but also source much of their oil and gas from large-scale long-lived projects. That means they won’t move as nimbly as smaller shale drillers as oil prices rebound.

OPEC meeting set to begin. OPEC officials are arriving in Vienna for the start of their semi-annual meeting. After the inability to set a production target in December 2015, plus the collapse of the Doha production freeze deal in April, few expect any result to emerge from the discussions this week. Moreover, the sharp gains in oil prices over the past few months has reduced the urgency to act. Although many OPEC members are still hurting terribly from oil prices that remain at less than half of their 2014 peak, prices are trending in the right direction. OPEC’s strongest member, Saudi Arabia, was highly unlikely to change strategies even when crude was $30 or $40 – now that it has moved up to $50, Riyadh is likely perfectly happy to stay the course and let the market sort out the winners and losers. Moreover, Saudi Arabia’s economic overhaul has made domestic economic and political objectives a much higher priority than cooperation with OPEC.


Forget oil prices, invest in majors. UBS offers some advice to energy investors. Don’t try to bet on oil prices, instead just pick up stocks in the oil majors. They will rise along with oil prices, they are also not as vulnerable to price swings, and they pay a dividend.

Nigeria’s supply outages continue; President to let currency float. Nigeria has been hit hard by the downturn in oil prices but its problems have been compounded by the fact that militants have successfully carried out a series of attacks against pipelines and platforms, cutting off roughly half of the country’s oil production. The woes have plunged the country into an economic calamity. The government has tried to defend its fixed exchange rate, but after burning through the country’s cash reserves, the President has thrown in the towel. On Monday, Nigerian President Muhammadu Buhari gave the green light to allow flexibility in the exchange rate. If a looser monetary policy proceeds, it will likely lead to a devaluation, or at least a depreciation. That will raise inflation and the cost of imports, but ease pressure on the central bank’s reserves. Meanwhile, the Niger Delta Avengers have promised to step up attacks against oil infrastructure until its demands for full sovereignty are met, issuing a May 31 deadline for oil companies to withdraw from the region.

ISIS on the back foot. Iraqi forces began an assault to retake Falluja from ISIS this week, a symbolic prize because it was the first city that the militant group took over in 2014. Also, in Libya, ISIS has lost control of two towns as security forces that protect oil ports have dislodged ISIS fighters with minimal losses. Libya is still producing sharply below its potential – a few hundred thousand barrels per day compared to a pre-war capacity of 1.6 mb/d. Iraq, for now, has seen its production levels hold up. In fact, Iraq raised its export target for June.

source: Evan Kelly, News Editor, Oilprice.com

Yesterday, to much fanfare from the online financial sites and business television stations, WTI, the benchmark for U.S. oil, broke through the $50 level. No sooner had the breathless talk of a complete recovery in oil prices begun, though, than it ended as WTI reacted to the level like a scalded cat and retreated as quickly as possible. This morning brought some attempts to explain why that rapid retracement occurred, but as far as I can see none of them have hit on what I consider to be the real reason.

In some ways it may seem that analyzing and attempting to explain what happened yesterday is a bit pointless; it is all over after all. Usually I would feel that way, but it is important that what happened yesterday is understood by anybody who trades oil, or for that matter any commodity futures from home, as it is not a rare phenomenon. To understand what caused the rapid retreat, you have to first understand what probably caused the run up above $50, and to do that you have to put yourself in the position of a desk or floor trader, a job that I did for nearly twenty years.

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The above chart is for oil futures from 1 AM on Wednesday to early morning Friday U.S. Eastern time. When traders in the U.S. came to their desks at around 6AM they would have seen a chart that showed that oil had been basically flat for the last 6 hours. There had been an attempt to push lower that had failed, which suggested some support at around 49.70, but otherwise 49.76/96 had covered most of the trades. I can assure you that if I had come in in the morning and seen a chart like that, with that level of proximity to a round number, I would have been a buyer straight away, but only to set up a sell.

The round number, in this case $50 per barrel for WTI really means nothing to traders, except in one sense. They will be aware that it does look significant to retail traders and many of their customers, so orders will likely be clustered around the level. Most importantly it is reasonable to assume that there are stop losses just above $50…and that sets up a classic squeeze. In the thin early market it would take a relatively small amount of purchases to push the price up through $50 and trigger those stops. Keep in mind, though, that this is not a move that is in response to any fundamental factors, nor is it done with any conviction by those traders.

Once the price gets to the point where most of those stops have probably been triggered, in this case $50.20, those same traders who bought to drive the price up, sell into the stops that they have triggered. It is a basic, bread and butter play by desk traders and one which, I am sure has hurt most people who trade at some point. It is often done by people who already have long positions in order to squeeze the last little bit of profit out of that position.

What is important in understanding yesterday’s action, though, is that other than as a short term, technical play the traders who buy in that situation have no interest in remaining long. They are looking to dump positions as soon as possible. In some cases the whole reason for buying is to sell. It is little wonder then that the first break of a round number such as we saw in WTI yesterday is usually a false one, and once momentum is reached in the other direction, those that misread the situation and bought on what they saw as a breakout above $50 get squeezed out on the way back down. (Incidentally, if you think that this is trading with 20/20 hindsight, I should point out that I advised the Energy Trader Team members to sell at $50.10 yesterday morning).

source: Oilprice.com