The End Of The Oil Price Rally – OIR 080918

Saturday,September 08, 2018 / 09:45 AM / Oilprice Intelligence Report

Oil prices look set tosee their largest weekly decrease since July as an unexpected build in gasolineinventories pointed towards the end of driving season and a fall in demand

Friday, September 7th, 2018

Oil prices are set for their largest weekly loss since July, due to fears ofemerging market contagion and some bearish data from the EIA.

Mixed EIA report, oilprices fall. Crude oil prices fell sharply this week afterthe EIA revealed a surprising build in gasoline inventories, suggesting thatpeak summer driving season has come to a close and could usher in a softerperiod of demand. The news overshadowed a strong decline in crude oil inventories.

Saudi Arabia ramps up oilshipments to United States. Saudi oil exports to the U.S.jumped above 1 million barrels per day last week (four-week average) for thefirst time since 2017, according to EIA data. Shipments are also up 250,000 bpdcompared to May, perhaps an indication that Saudi Arabia is responding to political pressure from the American lawmakers.

Transocean buying Ocean Rigfor $2.7 billion. Transocean (NYSE: RIG)announceda move to take over OceanRig (NASDAQ: ORIG), a rival offshore drilling contractor, for$2.7 billion. The deal will give Transocean twice as many deepwater rigs anddrillships as its nearest competitor, according to the Houston Chronicle. The acquisition is also a sign of the faith thatTransocean has in the growth of the offshore drilling sector (more below),which has lagged onshore shale, for instance. "Adding Ocean Rig's premiumassets to our industry-leading fleet ... better positions us to capitalize onwhat, we believe, is an imminent recovery in the ultra-deepwater market,"Transocean President and Chief Executive Jeremy Thigpen said.

Offshore activity showssigns of rebound. A recent report from IHS Markit projectsthat global demand for mobile offshore drilling rigs will increase by13 percent through 2020 as the oil industry steps up offshore exploration. IHSsays there will be demand for an average of 521 rigs in 2020 up from 453 thisyear.

Baker Hughes selected foroffshore Saudi fields. Saudi Aramco awarded BakerHughes a major services contract to help boost production at the Marjan oilfield. Saudi Arabia is aiming to boost production capacity by 1 million barrelsper day by 2023 at a handful of offshore fields in order to offset declinesfrom mature fields.

Midstream giants team upfor new Permian pipeline. Energy Transfer Partners (NYSE: ETP), Magellan Midstream Partners (NYSE: MMP), Delek Group, (TLV: DLEKG) and MPLX (NYSE: MPLX) have decided tojointly fund the “Permian Gulf Coast Pipeline,” another major conduit that willconnect the Permian to the Gulf Coast. The target in-service date is mid-2020.The announcement adds yet another pipeline to the mix – there are alreadyseveral projects in the works to expand midstream capacity from West Texas.

Schlumberger, Halliburtonwarn of Permian slowdown. The CEOs of Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL) admitted thisweek at an industry conference that they are seeing activity in the Permianslowdown. Pipeline constraints have not yet curtailed production growth, butthe oilfield service companies, who are on the frontlines and have a goodvantage point on drilling activity, have already felt the impact. “Thesechallenges will likely have a dampening effect on production growth, wellheadprices and investment levels in the coming year,” Schlumberger’s CEO PaalKibsgaard said at the Barclays conference in New York. Also, Kibsgaard said thatthe assumption that Permian production will grow at a 1.5-mb/d annual rate is“starting to be called into question.”

Mexico’s President to buildcountry’s largest oil refinery. Mexican president-electAndres Manuel Lopez Obrador (AMLO) offered more details on his plans to build anew oil refinery. “It will be a refinery that will produce 400,000 barrels perday of gasoline with an approximate cost of $8 billion that we want to build inthree years,” Lopez Obrador told a group of business leaders, accordingto Reuters.Meanwhile, Bloomberg reports thatAMLO may not suspend future oil auctions after all.

Chevron downgraded. Bankof America Merrill Lynch downgraded Chevron’s (NYSE: CVX) to“neutral” from “buy” because the bank says that the renewal on several ofChevron’s key projects in Asia may be harder to obtain than some think.Specifically, BofAML cited Chevron’s “emerging uncertainties around spendingand PSC [production sharing contract] renewals [and] a more selective sectorview that acknowledges the tailwind from the commodity as largely played out.”Several “key production sharing contracts” expire in 2021-2023.

Chevron launches predictivemaintenance campaign. Chevron (NYSE: CVX) announcedthe beginning of a predictive maintenance campaign, equipping refineries andoil fields with sensors, cloud computing, data analytics and a variety of othertechnologies often referred to as “predictive analytics,” that promise toprecisely predict when assets need maintenance and head off problems beforethey arise. These suite of new technologies could potentially save oil companiesmillions of dollars. “In the past, we had to figure out how equipment wasperforming,” Chevron’s Chief Information Officer Bill Braun told the Wall Street Journal. “In the future, the equipment will tell us how it’sperforming. This represents a big shift.”

Tesla sued for misleadinginvestors. Prominent short-seller Andrew Left has suedTesla (NASDAQ: TSLA) and Elon Musk for misleading investors when Muskannounced his decision to take Tesla private, only to abandon the plan. Leftargues the scheme was intended to “burn” investors.

OPEC wants to finalizecooperative agreement in December. OPEC and its non-OPECpartners, often collectively referred to as OPEC+, hope to formalize a cooperative agreement at the next meeting inDecember. The move would be a way of institutionalizing the ongoing productioncut agreement that began in early 2017, and provide a framework for indefinitecooperation.

ExxonMobil moves ahead onpetrochemical project in China. Despite U.S.-China tradetensions, ExxonMobil(NYSE: XOM) has decided togo ahead with a multibillion-dollar petrochemical project and gas importterminal in southern China.

Saudi Aramco considers $1billion venture fund. Saudi Aramco is reportedlyconsidering a $1 billion venture-capital fund to invest in internationaltechnology firms, according to the Wall Street Journal. The move would be another major initiative todiversify the Saudi economy.