In today’s newsletter, we will take a quick look at some of the critical figures and data in the energy markets this week.
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.
– Natural gas production in Pennsylvania topped 15 billion cubic feet per day (Bcf/d) in 2017, a 3 percent increase from the year before.
– The Marcellus and Utica shales are driving rapid growth, and the inauguration of new pipelines is allowing growth to continue to grow.
– Two key pipelines – the Rover Pipeline (3.25 Bcf/d) and the NEXUS Gas Transmission Project (1.5 Bcf/d) – are expected to come online this year, adding more takeaway capacity, which will open up even more potential for upstream gas production.
– Lockheed Martin (NYSE: LMT) says it will launch a “flow” battery made of inexpensive, non-toxic materials next year. The flow batteries will last longer than lithium-ion batteries and allow utilities to use more renewable energy combined with energy storage.
– BP (NYSE: BP) obtained approval to begin drilling off the coast of Nova Scotia for one deepwater well. The well will be BP’s first in Canada’s Scotian Basin Exploration Project.
– ConocoPhillips (NYSE: COP) and its joint venture partners agreed to begin front-end engineering and design phase for the Barossa project, a gas field that will extend the life of the Darwin LNG project in West Australia.
Tuesday, April 24, 2018
Brent prices hit $75 per barrel in early morning trading on Tuesday, the highest price in more than three years. While prices quickly fell back again, bullish sentiment remains strong. The reasons are familiar – geopolitical events are flaring up at a time when the oil market is tightening. The Trump administration is less than three weeks away from a key decision on whether or not to withdraw from the Iran nuclear deal. “Let’s assume he will withdraw from the deal on May 12, we don’t know how much volume will be lost, we might see the $80 level for Brent,” Giovanni Staunovo, a commodities analyst at UBS Wealth Management, told the WSJ.
Halliburton revenue up as shale drilling increases. Halliburton (NYSE: HAL)reported a 34 percent increase in first quarter revenue largely due to higher drilling activity in North America. The oilfield services giant did take a revenue hit in the first quarter due to winter weather, but that was offset by the uptick in demand for its services from the shale industry. Halliburton’s CEO said that margins of 20 percent should return later this year as the fracking market tightens. “We believe the pressure pumping market is undersupplied and will remain tight,” CEO Jeff Miller said.
Halliburton writes off Venezuela assets. Halliburton (NYSE: Hal) took impairment charges on its entire operation in Venezuela, citing lack of reimbursement from PDVSA, currency turmoil, U.S. sanctions and political uncertainty. The oilfield services company said it would remain in the country for now despite the $312 million write-downs. “This is one step further into the collapse of the Venezuelan oil industry,” Francisco Monaldi, energy expert at Rice University, told the NYT, “because it means oil serviced contractors, which are absolutely essential to operations, are slowly giving up on the country.” PDVSA only produces about half of Venezuela’s oil production on its own, and joint ventures with private companies represent the other half.
Asian oil demand to hit record in April. Even as oil prices hit multi-year highs, demand in Asia is set to rise to a record high in April. That is helping drive oil prices higher. “Rising tensions in the Middle East have likely played a role in oil price strength, but we believe a tight physical market is a key driver,” investment bank Jefferies said in a note. Reuters estimates that China’s oil imports will hit 9 million barrels per day in April, a monthly record high. China’s overall oil demand is expected to jump some 370,000 bpd in 2018.
Oil majors to post largest profits in a decade, but investors wary. As Bloomberg notes, cash flow for the oil majors is set to be the highest in 12 years, yet they have fallen out of favor with investors. Fears of abundant supply in the next few years, combined with fears that demand will peak in the long run has pushed down the stock prices of the majors. “Earnings have started to come through but no one believes it’s sustainable,” Kevin Holt of Invesco Ltd. in Houston told Bloomberg. “That’s why the stocks haven’t worked even though the commodity has gone up. Everyone’s saying they don’t believe it.”
Enbridge Line 3 expansion clears hurdle. Enbridge (NYSE: ENB) cleared a crucial hurdle on Monday when a Minnesota judge gave conditional approval for the company’s Line 3 replacement. The overhaul of the Line 3 pipeline, which runs from Alberta to refineries in the U.S. Midwest, will add 380,000 bpd of additional pipeline capacity when completed. The project is all the more important now that Kinder Morgan’s (NYSE: KMI)Trans Mountain Expansion is on its deathbed. Enbridge hopes to bring the replacement online by the end of 2019.
Canadian oil producers turn to trucks to ship oil. The pipeline bottleneck in Canada has become such a problem that some producers are shipping oil by truck to the U.S., a mode of transit that is at least 10 times more expensive than pipeline.
Libya outage after pipeline attack. An attack on a Libyan pipeline temporarily knocked80,000 bpd of supply offline. The pipeline connects the Waha field to the Es Sider terminal, Libya’s largest oil export terminal. Libya’s National Oil Corp. said the pipeline would take a few days to repair.
OPEC content with current production limits. OPEC/non-OPEC officials met in Saudi Arabia last week to analyze the progress of the production cuts, and despite the run-up in prices, the group signaled that it would stick with the current limits for the remainder of the year.
New Jersey bans offshore drilling. The state of New Jersey just banned offshore oil and gas drilling, a move intended to signal opposition to the Trump administration’s proposal to open up the Atlantic Ocean for drilling. A state cannot block drilling in federal waters, but the law bars the state from approving any onshore infrastructure that would be necessary to stage drilling operations off the coast.
Hedge funds step up bullish bets. Already sitting at record highs, hedge funds and other money managers continue to scoop up bullish bets on oil futures while also squeezing out shorts. The positioning reflects an overwhelming belief that oil prices will continue to rise. As always, however, the disproportionate positioning on one side exposes the market to a downward correction if sentiment shifts.
Stronger dollar drags on oil and metals. Oil prices dipped in early trading on Monday on the strength of the greenback, with losses also likely attributed to some profit-taking from investors. “We are seeing some renewed dollar strength…which is really the main driver,” Ole Hansen, head of commodity strategy at Saxo Bank, told the Wall Street Journal. Geopolitical risk has mostly been priced into the oil market already, “allowing some profit-taking to occur,” Hansen added. Higher yields on U.S. Treasuries and expected rate hikes from the Fed are causing some concern. Still, the dollar strength story was buried after oil rebounded on Monday to move up to multi-year highs.