Oil prices held steady on Friday afternoon, but the announced sanctions on steel and aluminium imports spooked global markets.
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Friday, March 2, 2018
Oil prices fell sharply at the close of the week, as the EIA reported a larger-than-expected build in crude oil inventories, while gasoline stocks also rose. Meanwhile, the surprise announcement that the Trump administration was planning harsh tariffs on imported steel led to a broad selloff in financial markets, particularly those in the industrial sector – with negative implications for commodities. An early morning tweet from President Trump, arguing that “trade wars are good and easy to win,” doesn’t bode well for global equities and commodities.
U.S. considers crippling sanctions on Venezuela. Venezuela is set to hold presidential elections on April 22, but because it is widely regarded as a rigged affair, the U.S. is gearing up for another round of sanctions on the struggling South American nation. No decision has been made, but among the measures could be a ban on Venezuelan oil imports into the U.S., a ban on U.S. diluent to Venezuela, a ban on oil tanker insurance, or some combination of those options, perhaps in several waves. Any/all of these sanctions would be crippling to Venezuela, which is already expected to see a decline of oil production by several hundred thousand barrels per day this year. U.S. sanctions could lead to wider losses.
ExxonMobil makes another Guyana discovery. ExxonMobil (NYSE: XOM) and its partner, Hess Corp. (NYSE: HES), announced its seventh major oil discovery in the Stabroek block off the coast of Guyana after it drilled the Pacora-1 exploration well. The well, according to the companies, will include in the third phase of development, which will ultimately lead to more than 500,000 bpd of new supply.
Exxon quits Russia joint venture. After years of limbo, ExxonMobil decided to call it quits on its joint venture with Russia’s Rosneft, after initially pulling back following U.S. sanctions on Russia in 2014. Rosneft warned it would lead to “serious losses” for the oil major, but welcomed Exxon’s return if the “legal possibility arises,” Reuters reports. In 2014, Exxon was forced to end work just weeks after it and its Russian partner made a major discovery in the Russian Arctic.
Exxon’s Papua New Guinea LNG project offline for 6 weeks. Exxon declared force majeure on natural gas exports from its PNG LNG project in Papua New Guinea, and the project could remain offline for about six weeks after an earthquake forced its shutdown earlier this week. “Given the location and magnitude of the earthquake, as well as the scale of the aftershocks, we anticipate at least a month’s downtime is likely” and six weeks is possible, UBS analyst Nik Burns wrote in Feb. 28 note, according to Bloomberg. UBS slashed its earnings per share forecast for Oil Search Ltd. (OTCMKTS: OISHY), which owns a 29 percent stake in the project, by 15 percent.
OPEC to meet with shale companies. The Secretary-General of OPEC, Mohammad Barkindo, plans on meeting with shale executives on Monday in Houston, the second year the group’s leader has done so. “One of the lessons learned from this oil-price cycle is that as producers we are all in the same boat,” Mohammad Barkindo told Bloomberg in an interview. The meeting will be held on the sidelines of the CERAWeek Conference in Houston, a widely attended event from industry executives and policymakers from around the world.
Geopolitical tensions key risk to oil prices in 2018. A report from Verisk Maplecroft identifies conflicts involving Iran and North Korea as two major risks to the oil market this year. A conflict on the Korean Peninsula would pose significant threats to global oil demand while surging tensions between the U.S. and Iran present supply-side risks. The financial risk forecasting firm says the odds of military conflict are low in both cases, but the risks would be enormous if that occurred.
Despite hiccups, Libya crude on the rise. Although Libya has periodically suffered oil outages, including just days ago, the trend is pointing up for the North African OPEC member. Total (NYSE: TOT) has committed to spending $450 million in the country, and Libya has secured more contracts for oil sales with international companies. “There are always some issues, but if you look at the term contracts being signed, Total coming back, the trend is for the return of more Libyan crude,” Olivier Jakob, an analyst at Petromatrix, told Bloomberg. “On the way, there will always be some issues with protests, but the medium-term is that they will increase their production level.”
Banks hike oil price forecast for the 5th consecutive month. A Wall Street Journal survey of 15 investment banks found an average predicted oil price rising for the fifth month in a row. The banks see Brent averaging $62 per barrel this year and WTI averaging $58, both forecasts are up $1 per barrel from last month’s results. “Overall, we see markets balanced in 2018 as we expect a strong commitment from OPEC and participating non-OPEC countries to deliver on the agreed deal,” analysts at JPMorgan said.
Oklahoma tightens fracking regulations with an eye on earthquakes. The Oklahoma Corporation Commission, which regulates oil and gas in the state, announced that oil and gas companies must use seismic arrays, which detect seismic activity underground. Also, the Commission lowered the threshold at which drillers must pause activity from a 3.0 magnitude earthquake to 2.5.
EOG Resources says Wyoming’s Powder River Basin a “core asset.” Wyoming is known as a huge supplier of coal, but EOG Resources (NYSE: EOG) told investors that the Powder River Basin is a “core asset” in terms of oil production. EOG completed 39 wells in the Powder River Basin in 2017.
Energy ETF named after T. Boone Pickens launches. The Pickens Oil Response ETF launched this week, with a ticker symbol of BOON, named after the famed oil magnate. It is reportedly the first stock index named after an individual. This energy ETF will have a diversified focus, with holdings in energy producers but also in energy consumers, offering exposure to both sides of a price cycle.