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.
“It will likely be years before the oil and gas industry can start drilling off the Atlantic coast, even in the best-case scenario. But even then, it is unclear if there will be any interest. The Atlantic has not been explored very much, and as a result, the exact nature of the oil and gas reserves in place is unknown. That likely means that development costs will be high. If oil prices fail to rise much from current levels, it is not at all clear that the Atlantic will be very competitive.”
Nick Cunningham, Oilprice.com
It likely will take several weeks to assess the impact that Hurricane Harvey will have on the US oil industry. As of Monday morning, the storm is still dumping large amounts of rain on Houston and its refineries. Weather forecasts are predicting that the storm will continue to cause heavy flooding along the Gulf Coast and will move further east, possibly closing or damaging additional oil production facilities in Louisiana.
“When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse…Falling interest rates between 1981 and 2014 are one of the things that allowed Peak Oil to be postponed for many years…. Peak Economy is likely not very far away. We do not need to encourage it, by raising interest rates and selling securities held by the Federal Reserve. We badly need more people to understand the connection between interest rates and oil prices, and how important it is that interest rates not rise.”
Gail Tverberg, actuary and commentator (8/16)
Oil continues to trade in one of the narrowest ranges seen in the last decade as the efficacy of the OPEC production cap weighs against increasing US and other production increases and slowing Chinese demand. Last week saw oil prices falling for three days and then rebounding sharply on Friday to close at $48.50 in New York as a combination of a large drop in US crude stocks, a weaker US dollar, and a falling rig count supported prices.
[After two nuclear plants in South Carolina were cancelled:] “We continue to believe that the problem with new nuclear (small modular units excepted) power plants is not that they generate electricity with nuclear fission. The difficulty is economic. The nuclear units are expensive, base load generating units in a world where production of electricity is becoming less expensive and increasingly decentralized. Base load power plants (and especially nuclear ones) are, in general, must-run, inflexible price takers. Going forward there will be less need for those facilities regardless of how they are fueled. Furthermore, the builder of a nuclear plant must bet an enormous sum on the need for electricity a decade hence, when the plant is completed. Given the uncertainty in power demand and prices, that is a gamble uncompensated in the regulatory process.
By Leonard Hyman and William Tilles for Oilprice.com
It has been two weeks of mixed signals as to the course of oil prices. Last week prices fell around 1.5 percent, closing at $48.82 in New York on concerns that the OPEC/NOPEC collation was not following through on its pledge to cap production. Even though US stocks continue to fall, much of this is due to increasing exports of light oils and finished oil products and not to increased domestic demand. On Friday, the IEA said that although the oil markets were slowly balancing, it is not going quickly. OPEC and other friends of higher oil prices continue to release optimistic reports, but the consensus seems to be that oil prices will stay around their current levels for the rest of the year unless there is a major geopolitical upheaval.
“Even if the UK, France and the Western world, in general, will all go to 100 percent electric vehicles, that would be great, but that wouldn’t be enough…We still have less advanced economic economies that cannot do that switch.”
Ben van Beurden, CEO of Royal Dutch Shell (7/28)
Oil prices were strong last week with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in US stockpiles of 7.2 million barrels. This decline was brought about by a high level of US refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016. A reduction in Saudi shipments to the US was also seen as responsible for the unusually large decline in inventories.