The most significant news driving the oil markets last week came from Washington, where major policy and personnel shifts drove the markets down and up last week. Crude posted its biggest weekly gain since July on Friday as President Trump changed his national security team, fueling speculation sanctions on Iran will be re-imposed. Earlier in the week, the President’s imposition of new tariffs on imports had observers talking about a tariff war that could cut the demand for oil as economies slipped. Indications from the Saudis and Russians that the OPEC production freeze could be extended into 2019 helped lift prices earlier in the week.
[In Venezuela] “Production is collapsing in a way rarely seen in the absence of a war. The country is also suffering the worst economic depression ever recorded in Latin America.”
Francisco Monaldi, a fellow in Latin American Energy at the Baker Institute for Public Policy at Rice University (3/17)
Oil prices closed on Friday at $66.21 in London and $66.34 in New York. Prices are about in the middle of the trading range where they have been since mid-February. The markets, torn between increasing US shale oil production and what is thought to be increasing global demand, seem likely to stay within this narrow range until there is convincing evidence one way or the other. While prices have climbed by more than 40 percent since the middle of 2017, day-to-day volatility has fallen to its lowest level since 2014.
“Yes, the amount of US tight oil being extracted could continue to grow for a while longer — as long as investors keep ponying up money, or as long as the ‘sweet spots’ last, or if oil prices rise significantly. But then production will fall and the country will gradually (or perhaps quickly) return to dependence on declining conventional oil production. As all this has been happening, the idea of a near-term peak in world oil supplies has become discredited. So discredited that even when multiple news organizations reported that the rate of new oil discoveries has plummeted to a level not seen since the 1940s, no one dared even mumble the words ‘peak oil.’”
Richard Heinberg, journalist, and educator
It was a volatile week with oil prices climbing slowly on Monday and Tuesday, falling by over $2 a barrel on Wednesday and Thursday, and then rebounding to close down about 50 cents for the week on Friday. As has become normal of late, the up days were largely driven by expectations of increasing demand and the down days by fears of a shale oil glut. New York oil has been bouncing around in the low to mid-$60s since mid-January while London futures have been trading some $3-4 higher.
State representative for South Carolina responding to new offshore drilling proposal by the Trump administration
“Eight to 10 million tourists a year come down to Charleston. They don’t want to come to see oil drilling off the coast. Ain’t gonna happen. Not on my watch!”
Rep. Nancy Mace (R), a new state representative for S. Carolina, responding to new offshore drilling proposal by the Trump administration
Oil prices fell sharply last week ending up at $61.25 in New York and $64.37 in London. A higher than expected increase in crude stocks and gasoline was the impetus for the decline. An unexpected decline in Chinese economic activity, likely due to the winter holiday, did not help the outlook for oil nor did President’s Trump’s announcement of new tariffs and the remark that “trade wars are good, and easy to win” did not help the outlook for oil prices. US oil production and the oil-rig count continue to climb slowly. Talk in Washington of crippling new sanctions on Venezuela which would likely remove still more of its oil from the export stream did not help the situation.
“For shale gas to be commercially produced [in the U.K.], extensive work must be carried out to better understand the potential resource base, the social…will for which remains sour. We remain highly skeptical over the longer-term viability of shale gas in the UK.”
BMI Research oil and gas analysts (2/17)
After a $7 a barrel fall between late January and mid-February, oil prices have rebounded by about $4.50 a barrel and are now in the $63-67 range. Both major oil price benchmarks, WTI and Brent, saw the second straight week of gains. There seem to be several factors behind the rebound. These range from strong demand particularly in Asia to reports that the oil glut that has obtained for the last few years is shrinking. US crude stocks fell by 1.6 million barrels last week and by 2.7 million at the Cushing hub which is receiving much of the US shale oil production. Last week’s EIA data showed US crude exports above 2 million b/d, very close to the record of 2.1 million set in October. Of note was the first export of US crude on board a 2 million barrel capacity supertanker that was loaded at the Louisianan Offshore Oil Port that has been reconfigured to handle exports as well as imports.
“I am resolved that not a single drop from Trump’s new oil plan ever makes landfall in California.”
Lt. Governor Gavin Newsom, chair of the State Lands Commission
and a Democratic candidate for governor (2/8)
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.