Saturday, October 27, 2018 /03:40PM / Oilprice Intelligence Report

Fears of a supply glut have gripped oil markets, sending oil prices downfor the third consecutive week and forcing OPEC to consider a productionreduction.



















Friday,October 26th, 2018
Oil suffered steeplosses this week on renewed fears that the supply surplus might make acomeback. 

Saudi Arabia and Russiaagree to extend cooperation. Saudi Arabia and Russia agreed to extend their pact to manage oil production levels, according tocomments from Saudi oil minister Khalid al-Falih. “Saudi Arabia and Russia willinterfere together, along with the heads of the other producing states, toprevent the market from falling out of balance,” he said. This echoes his interviewearlier this week in which he said he was looking to formalize a partnershipwith Russia within an official OPEC+ architecture. 

OPEC ponders productioncut as inventories rise. The fears of $100 oil seem longgone. OPEC suggested that it might need to cut output in 2019 to avoid a return of thesupply glut. There are some mixed messages coming from the cartel. Earlier thisweek, Saudi oil minister Khalid al-Falih said that the group was in “produce asmuch as you can mode.” But a technical committee offering recommendations tothe OPEC+ group said that it would prepare “options” for production plans in2019 to avoid a glut. 

IEA urges more supply. Evenas OPEC wonders whether or not it should cut output, the IEA pressed the cartelto increase production. “Global oil markets are going through a very sensitiveperiod -- global economic growth as well,” IEA Executive Director Fatih Birolsaid in a Bloomberg interview on Thursday. “If the oil producers care about thehealth of the growth of the global economy, which I believe they do, theyshould take the steps to further comfort the market.”

Libya aims for 1.6 mb/d.The head of Libya’s National Oil Corp., Mustafa Sanalla,said that Libya is hoping to reach 1.6 mb/d by the end of next year, a levelnot seen since the days of dictator Muammar Qaddafi. Libya’s production hasbeen volatile since 2011, but seems to be on the upswing, having recentlytopped 1.25 mb/d. “We’ve put together a plan to boost field production,including pipeline maintenance and addition of new pipelines,” Sanalla said. “We aim to reach 1.6 million barrels a day by the end of next year,and this level can increase.”

ConocoPhillips beatsestimates. ConocoPhillips(NYSE: COP) earned $1.36 per share in the third quarter, up more than eight-fold from the$0.16 per share a year earlier. Conoco’s production in the Permian, Eagle Fordand Bakken rose 48 percent to 313,000 bpd. The figures were a vote ofconfidence in the shale patch, where companies have struggled to earn aprofit. 

New York AG suesExxonMobil. ExxonMobil(NYSE: XOM) was hit with another lawsuit this week when the New York Attorney General sued the company forallegedly defrauding investors. The fate of the case is unclear, but the suitposes a legal challenge to the oil major. The NY AG argues that Exxon defraudedinvestors by “systematically” undervaluing the risk that the company faces fromfuture climate regulation. Exxon said the lawsuit lacks merit. 

IMO reaffirms 2020marine fuel regulations. The U.S. has been trying to delaythe implementation of regulations on maritime fuels beyond the January 1, 2020start date. However, the IMO dismissed the effort, and said that the regulations are set to go ahead asscheduled. Beginning in 2020, maritime ships will have use fuels with sulfurconcentrations of just 0.5 percent, down from the current limit of 3.5percent. 

Tesla turns surpriseprofit. Tesla(NASDAQ: TSLA) posted a third quarter profit, shocking WallStreet. It is the first quarterly profit in years, as well as its largest ever.Production of the beleaguered Model 3 increased in the third quarter, helpingthe company end several years of red ink. “I’ve said before that we must provethat Tesla can be sustainably profitable,” Elon Musk told reporters during a public conference call with analysts. “This quarter was animportant step towards that.” The electric car maker earned $311.5 million inthe quarter, up from a $619.4-million loss a year earlier. 

Big Oil lobbies againstEV infrastructure. The American Petroleum Institute,American Fuel and Petrochemical Manufacturers and Americans for Prosperity –three major oil lobbies – have weighed in at utility commissions in Illinois,Iowa and Kansas over the last few weeks, arguing against utilities investing inEV infrastructure, according to E&E News. Typically, an arcane affair and far out of the limelight, publicutility commissions can decide whether or not to approve electricity rateincreases for utility investments. The effort by the oil industry to block EVinvestments highlights their fear of losing market share as EVsproliferate. 

Nigeria needs investmentto keep production from falling. “Nigeria’s oil productionis expected to remain stable in the short to medium term, with new projectsoffsetting the decline from mature fields. The timely development of theseresources is seen as key for maintaining the country’s oil supply,” RystadEnergy said in a new report. Nigeria used to produce over 2 million barrels per day but instabilityhas dropped that figure to about 1.7 mb/d. Production could return to about 2mb/d in the medium-term but the timely development of new discoveries will beneeded to keep production stable. Existing output is expected to erode in theyears ahead.

U.S.-China tradenegotiations hit a wall. The U.S. is refusing to resumetrade talks with China unless the Chinese government puts forward concreteproposals on forced technology transfers, according to the Wall Street Journal. The roadblock undercuts the odds of abreakthrough when Donald Trump meets Xi Jingping at the G20 summit in BuenosAires next month.

Previous OilpriceIntelligence Reports

1.      Oil Prices CrashAs Iran Fears Fade – OIR 231018

2.      WhereHave The Oil Bulls Gone? – OIR 191018

3.     Oil Prices Under Pressure As U.S. Shale Supply Soars– OIR 161018

4.      OilMarkets Take A Bearish Turn – OIR 121018

5.      OilPrices Rise On Iran, Hurricane Outages – OIR 091018

6.      The Oil PriceRally Is Under Threat – OIR 051018

7.     WhyBrent Broke $85 – OIR 021018

8.     The$100 Oil Debate – OIR 280918

9.      BrentOil Hits Its Highest Level Since 2014 – OIR 250918

10.  IsOil On Its Way To $80? – OIR 210918

11.   OilMarkets Unfazed By $200 Billion Trade War Escalation – OIR190918

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