Oil Prices Crash As Iran Fears Fade – OIR 231018

Wednesday, October 24, 2018 /08:54AM / Oilprice Intelligence Report

Today, we will take a quick look at some of the critical figures and data inthe energy markets this week.

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

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- The rupture of Enbridge’s(NYSE: ENB) natural gas pipeline in British Columbia on October9 disrupted the fuels market on the entire northwest coast of NorthAmerica.

- The interruption of gas flows into the U.S., in WashingtonState and Oregon, forced several oil refiners to cut back on refinery runs.That led to a shortage of gasoline and, thus, led to much higher prices.

- Retail gasoline prices in Seattle

rose 9 cents per gallon for theweek ending on October 15, the largest weekly increase since 2015.

MarketMovers

- The Atlantic Coast pipeline received the greenlight from thestate of Virginia to begin construction in the state. The $6.5 billion naturalgas pipeline will help connect Marcellus shale gas to the U.S. southeast.

- Halliburton(NYSE: HAL) saw its share price fall more than 2 percent afterreporting that its fourth quarter earnings would come in lower than analystsexpect. The oilfield services company says fourth quarter fracking work willdecline by a double-digit percentage.

- Saudi Arabia plans to sign deals worth morethan $50 billion in the oil, gas, industries and infrastructure sectors at its“Davos in the Desert” summit in Riyadh. Beneficiaries include Trafigura, Total (NYSE:TOT), Hyundai (OTCPK:HYMLF),Norinco, Schlumberger(NYSE:SLB), Halliburton(NYSE:HAL) and BakerHughes (NYSE:BHGE).

TuesdayOctober 23, 2018

Brent dipped below $80per barrel last week and crashed even further in early trading on Tuesday. Iransanctions still loom, but oil prices are trending downwards at a rapid rate.“[T]he latest withdrawal of speculators and the negative price response sinceyesterday indicate that the market is not nearly as nervous as it was just afew weeks ago. One role in this is doubtless played by the fact that the oilmarket looks set to ease noticeably in 2019,” Commerzbank said in a note.

Halliburton says shaleactivity slowing down. Halliburton (NYSE: HAL) reported that its North Americanoperations are slowing down, a sign that pipeline constraints are taking a tollon the shale industry. Earnings in the third quarter for the oilfield servicescompany were 50 cents per share, up 19 percent from a year earlier, but downfrom 58 cents per share in the second quarter. The fourth quarter could be evenworse. Pipeline bottlenecks are hurting activity, but “our customers’ budgetexhaustion” also led to a weakening of demand for its services. However,Halliburton says earnings will rebound strongly next year.

OPEC+ to be formalized.Saudi oil minister Khalid al-Falih said that Saudi Arabia and Russia will forgeforward to institutionalize the OPEC+ partnership, likely moving to create aSecretariat based in Vienna. The group’s coordination would not have an enddate, nor would it target a specific production level. The comments, made in aninterview with TASS, suggest the Saudi-Russianpartnership could supplant OPEC in terms of importance, even if not in anofficial way. Al-Falih also tried to reassure the markets that Saudi Arabiawould not use its oil production as a weapon in retaliation to any punishmentfrom the U.S. related to the death of journalist Jamal Khashoggi.

Saudi Aramco: It wouldonly take 3 months to get to 12 mb/d. Saudi Arabia has longmaintained that it can produce 12 mb/d, implying spare capacity of around 1.3mb/d at this point. Saudi Aramco’s CEO Amin Nasser said on Monday that it would onlytake 3 months to ramp up to that production rate.

Chevron ready to restartWafra oil field if dispute resolved. Saudi Arabia andKuwait are still at an impasse on the territorial dispute over the Neutral Zoneoil fields, which total around 500,000 bpd of capacity. Chevron (NYSE: CVX) said it stands ready to restartproduction at the Wafra oil field in the Neutral Zone if the negotiationsbetween Saudi Arabia and Kuwait reached a breakthrough. The fields have takenon added importance with the oil market tightening, as the market turns its attentionto available spare capacity.

Trump admin eyes EasternGulf of Mexico. The Trump administration’s hopes of openingup new waters for offshore oil and gas drilling is increasingly focused on theEastern Gulf of Mexico, an area that has long been off limits. The Trumpadministration has proposed to open nearly all of the U.S. coastline –including the Atlantic, Pacific and Arctic Oceans, plus all of the Gulf – buthas run into political opposition in many places. In any event, the industrywould be most interested in the Eastern Gulf of Mexico. “The eastern Gulf isreally 99% of what all the operators care about,” Christopher Guith, a seniorvice president for policy at the US Chamber of Commerce's Global EnergyInstitute, told S&P Global Platts. “It'sreally all that matters. It's what they have the most data on, there's someexploration at play and, more importantly, there's some ancillary data from theexisting exploration in the central Gulf.” For now, the Eastern Gulf remainsoff limits until at least 2022, and there is talk of extending themoratorium.

U.S. wants to delay IMOregulations. The International Maritime Organization hasrules on marine fuels set to take effect at the start of 2020, and they areexpected to significantly tighten the market for low-sulfur fuels. The Trumpadministration is hoping to phase the regulations in over time, the Wall StreetJournal reports, although it is not clearhow successful they will be. The regulations have been on the horizon foryears, and the U.S. even has stricter requirements in place along itscoastline. Given the fact that the rules take effect just as the 2020presidential campaign will be hitting full swing, the Trump administrationfears a political price from higher fuel costs.

France says EU financialvehicle could be used to evade U.S. The “special purposevehicle” (SPV) that the European Union set up to help European companies to dobusiness with Iran while evading U.S. sanctions could also be used to morebroadly to avoid the extraterritorial reach of the United States. A spokeswomanfor the French foreign minister suggested that the EU would explore otherfunctions for the SPV. “It is therefore a long-term plan that will protectEuropean companies in the future from the effect of illegal extraterritorialsanctions,” she said.

Record shale productionfuels building boom for ports. Surging U.S. shale productionis leading to a scramble for oil export capacity along Texas’ coast. Exportshave routinely traded above 2 million barrels per day and could double to morethan 4 mb/d within the next two years, according to S&P Global PlattsAnalytics. But, as of now, there isn’t enough export infrastructure to handlethose volumes. Several companies are racing to build and upgrade ports capableof handling very large crude carriers. Only one U.S. port, in Louisiana, can doso currently. The problem is that not all of the ports on the drawing boardnecessarily make sense in the long run, putting a premium on the firstmovers.

Investors demand shaledrillers consolidate. Private equity firm Kimmeridge EnergyManagement sent demands to ResoluteEnergy (NYSE: REN), threatening to install new board members ifResolute didn’t follow through on previous suggestions to find merger or asset saleopportunities, according to the Wall Street Journal. The activistcampaign highlights angst from investors that some shale companies are stillnot profitable despite the significant increase in oil prices over the pastyear.

Permian ICE contractlaunches in Houston. A new oil pricing benchmark launched on Monday in Houston,highlighting the shifting nature of the shale industry. The IntercontinentalExchange Inc. (ICE), launched the Permian WTI futures contract, based on WTIdelivered to Magellan Midstream Partners’ large terminal in East Houston alongthe Houston Ship Channel. The contract is intended to more accurately reflectmarket conditions along the Gulf Coast, where Permian oil is delivered, incomparison the Cushing-based WTI contract.

Hedge funds slashbullish bets. Hedge funds and other money managers cut their bullish bets on WTI forthe sixth week in a row last week, as rising inventories and softening demandweighed on sentiment.