Oil prices rose more than 3 percent last Wednesday after President Trump abandoned the Iranian nuclear deal and announced the “highest level” of sanctions against Tehran. The price surge stalled on Friday, however, after it looked likely that Europe would try to maintain the deal with Iran, which could keep that country’s crude exports on global markets. Crude futures closed the week just below multi-year highs with London at $77.12 and New York at $70.70, up 2.8 percent and 1.2 percent respectively.
“Hopefully we won’t see the continued exodus of quality workers and equipment from the Gulf.”
Matt McCarroll, Fieldwood Energy CEO, commenting on a “new attitude” toward US Gulf of Mexico operators among federal government regulators and the White House.
Oil prices continued to climb last week and are now up nearly $8 a barrel in the past month with NY futures at $69.72 and London $74.87. US oil futures are now at their highest in more than three years, as global supplies remain tight and the market awaits new US sanctions against Iran which seem likely to be imposed later this week. According to the EIA, US domestic oil production continues to climb — up by another 33,000 b/d the week before last — and US drillers added nine oil rigs to the count last week. Thus the struggle between increasing US shale oil production and deteriorating geopolitical situations around the world continues.
“The migration towards the electrification of society is unstoppable.”
Lord John Browne, former CEO of BP
With only two weeks to go before President Trump decides whether the US will withdraw from the Iran nuclear treaty, the oil market’s chief concern is about what could happen if the US reimposes sanctions. Even though Washington would have few, if any, allies helping to reimpose sanctions on Iran, the US carries considerable weight in the world banking system by threatening to deny access to the US to anyone doing business with Tehran. Conventional wisdom holds that renewed sanctions would slow Iranian oil exports and drive prices higher.
In Canada, Kinder Morgan Canada Ltd wants to almost triple the capacity of its Trans Mountain pipeline from Alberta to the Pacific province of British Columbia, which strongly opposes the idea on environmental grounds. Prime Minister Justin Trudeau said, “I have asked the finance minister to engage in discussions, financial discussions, with Kinder Morgan and that’s exactly what is going on. We will ensure that this pipeline gets built in a way that upholds and protects the interests of Canadians. “This pipeline will get built.” (4/20)
In the last two weeks, London oil futures have increased by $7 a barrel, closing last week at $74.06. New York futures closed circa $5.50 below London. This price differential is making US crude very popular on the world markets so that exports are setting records and drawing down US crude stocks. Behind the price surge is the steady drop in world crude stocks; strong demand from Asia as China’s economy grows faster than forecast; the likelihood that OPEC will continue its production cut on into next year; and the possibility that the Trump administration will abandon the nuclear treaty and impose new sanctions on Iran. There also are the deteriorating situations in Venezuela where production seems likely to drop by hundreds of thousands of barrels per day this year, and in Libya where the incapacitation of the country’s military strongman could result in a drop in oil production as local militias reassert themselves.
“US dry gas production is projected to rise to an all-time high of 81.7 billion cubic feet per day (bcfd) in 2018, but US consumption is also expected to hit an all-time high of 78.2 bcfd in 2018. With exports rising to record highs as well, it does not leave a lot of extra gas to go into storage.”
Scott DiSavino, Reuters
“We feel the current [natural gas] market has become far too complacent and that prices are simply too low to account for demand growth and the amount of gas needed in storage for the next winter heating season.”
Martin King, director institutional research at GMP FirstEnergy in Calgary
Oil prices rose by nearly $5 a barrel on concerns that a US and allied attack on Syrian military installations would lead to a wider war. Futures prices closed Friday at $67.39 in New York and $72.58 in London setting multi-year highs. After the markets closed, strikes on Syrian chemical facilities were launched. Initial reports suggest that considerable care was taken to avoid harming Syrian civilians or Russian and Iranian interests. A relatively benign response from Moscow suggests that this attack alone will not lead to more serious hostilities in the immediate future that could drive oil prices higher.
“Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil. Meanwhile, consumption has totaled 360 billion barrels. This 250-billion-barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends. It is understandable why people would be complacent about this scenario. After all, didn’t the world face similar risks a decade ago, only to have shale oil save the day? But it isn’t clear that there is another “shale oil miracle” that is ready to save the day. There are indeed more high-cost oil resources out there that can be developed, but these projects take a long time to complete. That’s why we can look out two to three years and see an impending supply crunch. The longer investments in the industry remain depressed, the more unavoidable this scenario becomes.”
Robert Rapier, oil industry writer/commentator (4/3)
Oil futures have fallen about $3 a barrel from two weeks ago when London prices were close to $70. New York futures closed out last week circa $62 and London $67. Prices held steady until Thursday when President Trump announced another round of the tariff war with China sending prices down $1.50 a barrel on Friday. So far neither side has actually imposed any new tariffs, leaving observers to wonder whether Washington and Beijing are simply posturing before negotiations, or a major trade war is in the offing. Other than the possibility of a trade war, the trashing of the Iran nuclear treaty, increasing tensions in the Middle East, and the Korean situation, most of the news lately has suggested higher prices are in the offing.
[In Europe] “One in every three cars registered in February 2018 was an SUV. Small and mid-size SUVs led the growth for the segment in February, whilst compact SUVs also had a strong month.”
Green Car Congress
After an up-and-then-down week, oil and gas markets closed slightly higher Thursday ahead of the Easter holiday weekend. All major U.S. and European stock exchanges and markets were closed Friday for Good Friday, which coincides with the Passover holiday that starts Friday at sundown.
CEO of EOG Resources on the future of US Shale & Research Physicist at the Princeton Plasma Physics Lab in New Jersey on Nuclear Fusion Reactors
“Mark Papa, the former CEO of EOG Resources, and who has probably been presented more technical data pertaining to shale oil than anyone, believes that shale oil growth potential may be over-stated as the prime areas of the Eagle Ford and Bakken are already drilled up. The question is how far does the Permian have left. Probably a couple of years.”
Randy Evanchuk, P. Eng., retired from oil operations in 2015
“Now that I have retired, I have begun to look at the whole [nuclear] fusion enterprise more dispassionately, and I feel that a working, every-day, commercial fusion reactor would cause more problems than it would solve.”
Daniel Jassby, a research physicist who worked on nuclear fusion experiments for 25 years at the Princeton Plasma Physics Lab in New Jersey (3/19)
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.