Oil prices were volatile last week trading inside a narrow range of about $1.50 a barrel and climbing or falling in response to the news of the day. Reports of the OPEC production freeze, the Iran sanctions, or production slowdowns in Libya and Venezuela push prices up while news of economic problems and falling equity markets tend to push prices down. At week’s end, New York futures settled at $51.20, about where they have been since the $7 a barrel price in mid-November. London futures closed $9 higher at $60.28 which is about they have been since November 22nd.
“As a matter of our policy, we want to end all of those subsidies [for electric vehicles]. And by the way, other subsidies that were imposed during the Obama administration, we are ending, whether it’s for renewables and so forth…It’s just all going to end in the near future. I don’t know whether it will end in 2020 or 2021.”
Larry Kudlow, White House economic advisor
Oil prices surged briefly on Friday after the announcement of a 1.2 million b/d OPEC+ production cut; however, by the close NY futures were up only $1.61 to close at $52.61, and London was up about the same to close at $61.67. The bulk of the cut is to come from the Saudis and their Gulf Arab allies. Moscow is to cut production by 228,000 b/d but does not expect its cuts to start until spring, and the Iranians were exempted from the cut. Despite the announcement, oil prices were still down slightly for the week.
“Total US oil reserves in 2017 exceeded a … 47-year-old record, highlighting the importance of crude oil development in shales and low permeability plays, mainly in the Southwest.”
Quote of the Week “Total US oil reserves in 2017 exceeded a … 47-year-old record, highlighting the importance of crude oil development in shales and low permeability plays, mainly in Continue Reading
“In my 36 years in this [petroleum] business, I have never seen such a wide differential in sentiment between Canada and the US. I’ve never seen more frustration among our customers and our competitors and in our peer-group companies than right now.”
Kevin Neveu, chief executive officer of the oilfield-service company Precision Drilling Corp.
“The assumption that current and future climate conditions will resemble the recent past is no longer valid…With continued growth in [greenhouse gas] emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century – more than the current gross domestic product (GDP) of many US states,”
The Fourth National Climate Assessment Volume II, compiled through combined efforts of 13 US government agencies
Oil prices slid more than 6 percent on Friday to the lowest levels in more than a year. New York futures closed at $50.42, down almost $26 a barrel since early October, and London closed at $58.80, down more than $27. The reasons for the plunge, which some observers are calling excessive, are well known. Inventories continue to build as US shale oil production increases; there are signs of a weaker global economy ahead; Washington has granted six-month waivers for Iranian oil importers; Moscow is not interested in cutting production; and there are doubts that the Saudis will make a significant cut in production while under pressure from President Trump to keep up production. Trump’s support for Crown Prince bin Salman in the wake of the killing of journalist Jamal Khashoggi is likely to complicate decision-making in Riyadh, to say the least.
“It is likely that in the coming years world oil production will decline (at around 5 percent per year) and that LTO [light tight oil] will decline more sharply. This will come as a shock because it is contrary to the official forecasts, which see oil production rising up to 2040.”
Jean Laherrère, retired geologist-geophysicist involved in oil and gas exploration worldwide; from “Thoughts on the Future of World Oil Production,” 11/18
The $20 a barrel price plunge, which began in early October, continued last week with New York futures closing at $56.46 and London at $66.76. Behind the drop is weaker demand; Washington’s issuance of waivers that would allow Iran to keep exporting at least some of its production for the next six months; increasing production of US shale oil; and the rapid buildup of US crude inventories. The EIA reported last week that the US crude stockpile climbed by 10.3 million barrels during the week before last to 442.1 million barrels, the highest level since early December 2017. The EIA also reported that US crude production climbed by 100,000 b/d to 11.7 million b/d, the highest on record.
“US crude oil production reached 11.3 million barrels per day (b/d) in August 2018, up from 10.9 million b/d in July. This is the firded the Russian Ministry of Energy’s estimated August production of 11.2 million b/d, making the United States the leading crude oil producer in the world.”
US EIA monthly report
“We thought that we got away with not a lot of warming in both the ocean and the atmosphere for the amount of CO2 that we emitted. But we were wrong. The planet warmed more than we thought. It was hidden from us just because we didn’t sample it right. But it was there. It was in the ocean already.”
Laure Resplandy, Princeton University research team leader
The plunge in oil prices, which began in early October, continued last week with New York oil futures closing Friday at $63.14, down about $14 a barrel in the past month. London futures have followed a similar pattern falling from $86 to $72.83 on Friday. During September the threat of the renewed US sanctions on Iranian exports forced world prices into the high $80s with many predicting that we would soon see $100 oil again. During the past month, however, market sentiment changed as it appeared the sanctions might not be as effective as some hoped, the global oil production increase, higher prices and the brewing US-China trade war threaten demand in the coming years.
“To outward appearances, the US oil and gas industry is in the midst of a decade-long boom. [However] America’s fracking boom has been a world-class [financial] bust …. Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting $3.9 billion in negative free cash flows through June.”
Report from Institute for Energy Economics and Financial Analysis, and the Sightline Institute
Oil prices fell by nearly 3 percent last week to settle at $77.62 in London and $67.59 in New York. This was the third weekly decline in a row that has taken prices down by about $10 a barrel since early October. As has been the case for several months, prices fall on reports of excess supply or the possibility of lower demand and increase on concerns about what the Iran sanctions due to begin next week will do to supplies.
“The well-established market consensus that the Permian [basin] can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question.”
Paal Kibsgaard, CEO of Schlumberger
“Two-thirds of US oil producers failed to live within their means in the second quarter, even as oil prices have risen almost 40% over the past year to more than $70 per barrel. Fifty major US oil companies reported they collectively spent $2 billion more than they took in.”
FactSet’s analysis of free cash flow
Crude oil prices have been volatile thus far in October, hitting a four-year high to start the month before falling nearly $8 a barrel in the two weeks. At the close on Friday, New York futures were at $69.12 and London at $79.78. Market sentiments have changed this month with more traders worrying about the economic problems facing China than how effective the US sanctions on Iranian exports will be.
“Higher oil prices seem inevitable and, in our view, $100/barrel is easily within reach.”
Bank of America/Merrill Lynch
Oil futures fell by over $4 a barrel on Wednesday and Thursday but then stabilized on Friday to close at $71 in New York and $80 in London. Behind the selloff were a sharp drop in the equity markets, profit-taking in the wake of a $14 a barrel price increase since mid-August, and concerns that the Sino/US trade war may reduce global demand for oil. EIA, IEA, and OPEC revised their forecasts downward for the size of next year’s demand increase. The International Monetary Fund cut its forecast for global growth to 3.7 percent for 2018 and 2019, down from a previous estimate of 3.9 percent, and the EIA reported that US crude stocks increased by 6 million barrels the week before last.
“The amazing thing [the Trump administration] is saying is human activities are going to lead to a rise in [atmospheric carbon] that is disastrous for the environment and society [a 7-degree Fahrenheit increase from pre-industrial levels]. And then they are saying they are not going to do anything about it.”
Michael MacCracken, senior scientist at US Global Change Research Program (1993 – 2002)
Oil prices continued to climb last week, with London futures hitting $86.74 a barrel on Wednesday, $10 higher than they were a month ago. Later in the week, profit taking and announcements from the Saudis and Russia that they were going to increase production drove prices lower. Whether the Saudis, Russia, and their close allies can increase production by enough to cover the decline in Iranian exports remains contentious. At week’s end, oil prices had settled to $74.34 in New York and $84.16 in London for a $10 a barrel difference.
“The sanctioning of LNG Canada would mark a potential turning point in the LNG market, signaling the industry’s appetite to invest has returned. Even new large-scale greenfield projects are back on the agenda, after a dearth of project financial investment decisions over the last few years.”
Saul Kavonic, Credit Suisse Group AG’s director of Asia energy research
Oil prices continue to increase primarily on concerns that the sanctions on Iran and the collapse of Venezuelan production will lead to shortages in the coming year. Last week London futures, which are more vulnerable to the Iranian situation, climbed by about $2 a barrel to close at $82.78. London futures are on track for a fifth quarterly advance, a streak not seen since the first half of 2008. Iranian exports of crude and condensates have declined by 800,000 b/d from April to September, according to the Institute of International Finance. Analysts expect a reduction of anywhere between 500,000 and 1.5 million b/d in Iranian supply due to the sanctions, with most expecting Saudi Arabia to take the lead in filling any supply gaps.
”Assuming that the balancing act between declining and growing [oil producing] countries continues (from Mexico through to Canada) the whole system will peak when the US shale oil peaks (in the Permian) as a result of geology or other factors and/or lack of finance in the next credit crunch, and when Iraq peaks due to social unrest or other military confrontation in the oil-producing Basra region. There are added risks from continuing disruptions in Nigeria and Libya, steeper declines in Venezuela and the impact of sanctions on Iran.”
Matt Mushalik, Australian engineer and oil industry analyst
Oil prices continued to show strength last week but closed in London up by less than a dollar for the week at $78.80. Brent now has closed above $78 a barrel six times since mid-May and has touched $80 a barrel once or twice but failed to close above $80 since mid-2014. As is now routine, traders are split between the increasingly effective US sanctions on Iran and the prospects of a lengthy trade war between the US and China. Last week was complicated by the issue of whether the OPEC+ consortium would officially raise production or leave individual production levels cloudy as they have been since June.
[The Trump administration stated there is a “reduced the urgency of the US to conserve energy.”] I strongly disagree with this argument. It isn’t certain that the US will become a net exporter of petroleum and petroleum products, but in any case, that’s not a reason to forego conservation. There are economic reasons, national security reasons, and environmental reasons for conserving oil.”
Robert Rapier, energy industry commentator
Oil prices climbed for the first three days last week with Brent climbing above $80 a barrel on Wednesday before falling back to close at $78.09 on Friday. An unexpected drop in the US crude stocks of 5.3 million barrels and a warning from the IEA that the global oil market was tightening and that higher prices are coming were behind the spike. However, concerns that the Sino/American trade war is showing no sign of getting better took over and sent prices lower. During the week, the price spread between Brent and WTI climbed above the $10 a barrel mark and closed the week at $9. The size of the price spread should continue the export demand for WTI in the coming weeks sending US crude supplies even lower.