It was a volatile week with stock markets crashing and oil prices falling by nearly $7 a barrel from recent highs. Behind the price collapse was a stronger dollar, the break in the equity markets, ever increasing US shale oil production, and an unexpectedly large jump in the rig count the week before last. At Friday’s close New York oil futures were slightly below $60 a barrel and London’s Brent was not far behind at $62.79. With the Brent/WTI price spread below $3 a barrel, there will be less incentive to buy US crude when shipping costs are considered.
A communique from 15,000 scientists from 184 countries assessing the world’s latest responses to various environmental threats
“Humanity has failed to make sufficient progress in generally solving foreseen environmental challenges, and alarmingly, most of them are getting far worse. Soon it will be too late to shift course away from our failing trajectory.”
A communique from 15,000 scientists from 184 countries assessing the world’s latest responses to various environmental threats (11/14)
Oil prices fell for most of last week, but then rebounded to close at $56.55 in NY ($62.73 in London) on Friday. This was only a dollar or so a barrel below the recent high set the week before last. As usual, there were numerous factors impacting oil prices. OPEC reported a small drop in October production due to lower output from Iraq, Nigeria, and Iran. OPEC also said it expects global demand for oil to grow by 1.5 million b/d this year and again in 2018. The IEA is not so sure that demand will be so strong, noting that crude prices have risen by roughly 20 percent since early September and now the “market balance in 2018 does not look as tight as some would like and there is not, in fact, a ‘new normal’.”
“There isn’t a viable alternative to fossil fuels on the horizon. We’re not buying into the long-term demand destruction for oil.”
Alasdair McKinnon, portfolio manager at Scottish Investment Trust
“Vehicles of the future will no longer be driven by humans because in 15 to 20 years — at the latest — human-driven vehicles will be legislated off the highways. The tipping point will come when 20 to 30 percent of vehicles are fully autonomous. Countries will look at the accident statistics and figure out that human drivers are causing 99.9 percent of the accidents.”
Bob Lutz, former executive with major auto company
Oil prices leveled off last week with New York futures closing at $56.74, up more than $20 a barrel since June. Brent closed about $7 higher at $63.52. As has become normal these days, multiple factors impacted the oil prices last week pulling the markets in both directions. While the arrest of over 200 important princes, ministers and industrial leaders in Saudi Arabia on charges of corruption early in the week roiled the markets for a few days, by the end of the week the markets were largely ignoring what could morph into a major Middle East crisis or even hostilities.
“There’s a complacency that shale is going to continue to produce at the kind of volumes that we had in the past…If the world keeps believing we’ve got surplus oil as far as the eye can see—which I don’t believe—then the reality is going to smack everybody in the face. And it will be hard to catch up.”
Jim Brilliant, portfolio manager for Century Management
The price surge, which began in mid-September, continued last week with NY futures closing Friday at $55.64 and London at $62.07. The $6.50 spread is leading to ever higher US exports which are now above 2 million b/d. Crude prices are at their highest level in over two years. Behind the price surge has been the steady stream of hints from the Saudis and the Russians that they are ready to back an extension of the production freeze through 2018 at the November 30th meeting. Some are asking whether the major oil exporters will be willing to continue a production freeze if prices move much higher. There now is a solid perception among traders that the global crude stocks are declining and that demand is rising. This in addition to the OPEC hype is contributing to the price surge.
“There’s going to be a lot of excitement around batteries in the next five years. And I would say that the country will get blanketed with [battery] projects.”
Spencer Hanes, Duke Energy business development managing director
“In today’s low-price energy environment, providing the offshore industry access to the maximum amount of opportunities possible is part of our strategy to spur local and regional economic dynamism and job creation and a pillar of President Trump’s plan to make the United States energy dominant.”
Ryan Zinke, US Secretary of the Interior, after announcing a record 77 million acres for lease in the Gulf of Mexico
London futures closed above $60 a barrel last week for the first time since 2015. New York futures are now about $6 a barrel lower than London, increasing the incentive for foreign refiners to buy and export more US oil. The main impetus for the price surge on Friday was comments by Saudi Crown Prince bin Salman that he backs an extension of the OPEC production freeze until the end of next year. Coupled with the Prince’s statement were upbeat OPEC pronouncements about the increasing demand for its oil and the dubious proposition that compliance with the production cut was now at 120 percent of the agreed numbers. Beyond the hype, however, are real concerns that the Iraqi, Iranian, and Venezuelan situations could deteriorate and lead to lower exports.
“Deepwater is going to be playing a much-reduced role on the global oil-supply stage relative to what the industry expected as recently as three years ago.”
Thomas Curran, an analyst at FBR Capital Markets in New York.
Oil prices were little changed last week with New York futures trading around $52 a barrel and London around $57. Numerous factors continue to affect oil prices: Baghdad’s seizure of the Kirkuk oil fields and the consequent reduction in exports; a stronger US dollar brought on by the prospect of a tax cut; a falling US oil-rig count; a large drop in US crude inventories due to the recent hurricanes and unprecedented exports; the brightening prospects for a nine-month extension of the OPEC production freeze; and finally a warning that the China’s economy may not be doing as well as many believe. When all these forces pulling in various directions were netted out, there was little change.
“I think the question, a little bit in the longer term is – is this the last big rise in US production?… If you look at the economics on most of the big Permian players, not many of them make a lot of money.”
Ian Taylor, chief executive at Vitol, which trades more than 7 percent of global oil.
Prices climbed last week with Brent up almost 3 percent to $57.17 a barrel and WTI up over 4 percent to close the week at $51.45. The major developments affecting prices was an unexpected jump in Chinese oil exports of 1 million b/d in September to 9 million and the announcement that the President would not certify Iranian compliance to the nuclear accord. Statements by OPEC and Russian officials concerning a possible extension of the production freeze and the growing concerns that there will be hostilities in the aftermath of the Kurdish independence vote also supported prices.
“The solar PV story is a Chinese story. China has been for a long time the leader in manufacturing. What’s new is the share in the market. This year, it was equivalent to the total installed capacity of PV in Germany.”
Paolo Frankl, head of the IEA’s renewable energy division
US crude futures fell to $49.23 on Friday for a weekly loss of nearly 5 percent – the first weekly drop in more than a month. Hurricane Nate struck the US Gulf Coast Saturday night forcing the temporary closure of some 70 percent of US offshore oil production. In comparison with other recent hurricanes, Nate was relatively weak, so the damage to oil production and refining should be minimal and production back to normal in a day or two.
“The Permian Basin is America’s super basin in terms of its oil and gas production history, and for operators, it presents a significant variety of stacked targets that are profitable at today’s oil prices.”
Prithiraj Chungkham, director of unconventional resources for IHS
After climbing steadily for over a month, oil prices slid downwards about a dollar a barrel last week ending up circa $51.50 in New York and $56 in London. The summer price surge took oil to the highest seen in two years with New York futures climbing from $42 a barrel in late May to peak above $52 last week. Several factors sustained the summer price surge. OPEC and the IEA released reports forecasting that global consumption would be higher. The Kurd’s independence referendum which led to Turkey threatening to block Kurdish oil exports was another factor, as were the effects of the hurricanes in the Gulf of Mexico.
After the most recent missile launch and after the UN imposed fuel supply sanctions on North Korea: “We’ve been kicking the can down the road, and we’re out of road.”
H.R. McMaster, White House national security adviser
Oil prices continued to climb last week with US futures closing at $50.66 and London at $56.90. The $6 spread between NY and London is mostly due to the aftermath of the US hurricanes which have resulted in the growth of US crude inventories while elsewhere they have declined. Market sentiment has changed in the last few weeks with many now convinced that oil prices will be moving higher due to the OPEC production cuts and strong demand for oil products brought on by the relatively low prices. The IEA just upgraded its demand growth estimate for 2017 to 1.6 million b/d. If growth like this continues, it will eat through the global surplus rather quickly.
[In commenting on India forcing ExxonMobil to renegotiate LNG prices] “This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets. The risk of price renegotiations will become more acute over the next couple years as spot LNG prices remain depressed, even if oil-linked prices rise. The elephant in the room will be how negotiations play out with traditional markets in Japan and Korea, and especially the Chinese national oil companies.”
Saul Kavonic, analyst with Wood Mackenzie
Oil prices rose steadily last week with US crude futures briefly topping the psychological barrier of $50 a barrel and with London futures closing at $55.62. Most analysts are talking about higher prices ahead. The IEA’s monthly report says that the global oil supply contracted in the past month and that demand remains strong. These judgments came despite the US hurricanes that shut down over 25 percent of US refining capacity and took a good, but as yet unknown, bite out US demand in the Southeastern US and along the Gulf Coast.
“…The US is deluding itself when it comes to energy abundance (generally) and oil (specifically). Yet that’s not what we hear from the cheerleaders in the industry or in our media. From them, we hear a silver-tongued narrative of coming riches — a narrative that contains some truth, some myth, and a lot of fantasy. It’s those last two parts — the myths and fantasies — that are going to seriously hurt many investors, as well cause a lot of extremely poor policy and investment decisions.”
Chris Martenson, commentator at www.peakprosperity.com, former investments manager
Oil prices rose some $3 a barrel for the first three days last week and then collapsed on Thursday and Friday as Beijing announced its plans to reduce the capacity of its small “teapot” refineries, and Hurricane Irma closed in on Florida reducing demand for oil products in the state. Recovery from the Texas hurricane, Harvey, continues with 8 of 20 refineries that were closed by the hurricane now back to normal operations. The ports of Corpus Christi and Houston are returning to normal, and several other refineries report they will be back in operation in the next week or two. Gasoline prices in the US are starting to retreat from storm-induced spikes as refineries and pipelines return to normal. The unusually large crude and product reserves in stockpiles have helped cushion price increases.
“Any changes that disrupt energy trade across our North American borders, reduce investment protection or revert to high tariffs and trade barriers that preceded NAFTA could put at risk tens of millions of jobs.”
From top oil and gas trade groups from the US, Canada. and Mexico, in a joint position paper released last month prior to new NAFTA-related talks.
As the severe flooding spread further east last week, closing down numerous refineries and causing widespread devastation, it is becoming apparent that it will be several weeks before the full impact on the US oil industry and indeed global oil markets can be assessed. At one point last week the hurricane shut down a quarter of US refining capacity, some 4.0-4.4 million b/d, but oil production outages mostly from Gulf production came to less than 1 million b/d. With a lot of oil going into storage and refinery demand well below normal, US oil prices have moved very little in the past week, while Brent has remained stronger in anticipation that Europe will be called on to replace the missing US barrels in the next few weeks.