Oil price discussion and analysis

[Ann]

Without turning this into a chemistry lesson, the basic ways to use methanol as a fuel are blended with petrol for automotive use, as straight methanol to run engines, as additives to petrol, via a conversion process turning it into petrol as such, or in other forms such as dimethyl ether which is a workable alternative to LPG for the same uses.

So it could sort-of be said that China is "making" oil. Well, they're not making actual crude oil but they're making a direct substitute for a major end use of oil and doing so on a large scale which has thus far replaced around 5% of the oil China would otherwise be consuming.

Thanks Smurf, that is very interesting. It appears they are trying to wean themselves off oil. Probably not such a silly thing to do. The fact they use coal to produce the methanol is also very interesting. We have loads of the stuff, it may be a saving grace for us down the distant track.

Oil Market Bright Spot Gets Dimmed by Korea, China Supply Surge

South Korea and China just served oil traders with a little reminder that one the market’s brighter trades -- diesel -- is far from a one-way bet.

Combined exports from the two nations soared to an all-time high of about 34 million barrels in January, according to government data. South Korea’s shipments surge was the most eye-catching, reaching a record 20 million barrels.

An emerging theme in the oil market over the past year has been how increasingly light crude production, particularly in the U.S., is resulting in a gasoline glut, while supplies of products like diesel have remained more constrained. China’s shipments surge was in part caused by weak domestic demand for transport fuel, according to JBC Energy GmbH, a Vienna-based researcher. More...

 

[Ann]

Good article. Your comment of 300 people sounds strange. I thought it was people pressure on pension funds hence it is the European companies like Shell , BP and Total being affected.

No it is not 'people' pressure, it is the few with massive green dollars intimidating the funds and banks and stirring up the people. I guess the people who are being intimidated know exactly who the 300 are worldwide but I haven't the time or the inclination to work through it all and find out who they all are. I have found many many names but not the entire 300. I haven't worked out who is behind all the tax free not-for-profit charities which are heading the push. I enjoy irony, so wouldn't it be a laugh if it turned out to be the big privately owned oilers trying to get rid of all the pesky little publicly owned companies by using gullible environmentalists to do their dirty work so they can control the POO without competition!
This is just a tiny sample of things I have found about the kind of intimidation that is going on....

Tell BlackRock's CEO: Stop Funding the Climate Crisis

BlackRock plans environmentally conscious money market fund

Global Investors Driving Business Transition

Throwing stones at BlackRock’s fossil fuel investments
.....The Sunrise Project, Sierra Club, Friends of the Earth and Amazon Watch kicked off the BlackRock’s Big Problem campaign in New York yesterday to coincide with global leaders gathering for Climate Week in New York.....

 

[Parse]

Looks like the Donald's oil tweets are starting to be ignored. The price drop lasted about one day and the POO has now increased due to a surprise crude oil draw. Also of significance is the belief that the Saudi's are no longer listening. One train of thought is that after last year when Donald convinced the Saudi's to pump more to keep the price down and they agreed, the Saudi's were then a little put off when the sanctions against Iran didn't really happen as the Donald handed out all these waivers. Thus oil production went high and prices went low. Now, the Saudi's are still talking of possibly more cuts to come.

 

[Smurf1976]

Looks like the Donald's oil tweets are starting to be ignored.

I'll avoid outright political comment in this thread but it's the "boy who cried wolf" syndrome at work.

 

[Sdajii]

I was surprised to see people react so much to Mr. Trump's tweet, but less surprised to see them forgetting it.

Oil is set to skyrocket within the next 4 months.

 

[rederob]

Oil is set to skyrocket within the next 4 months.

Ok, what will drive it to "skyrocket" highs?
The USA has more than enough oil while the Saudis and OPEC's others can crank out excess at will.
I think reaching into the low $60s is possible, but beyond that we need a global incident.
I see oil range-bound in the $50s for most of this year until something signals a break one way or the other.

 

[Ann]

Baker Hughes Oil Rig count shows a big drop today of ten rigs....

 

[Ann]

Oil Slump Catches Funds Off Guard in Longest Bull Run Since 2012

Oil’s sudden slump seems to have caught optimists by surprise.

Hedge funds increased wagers on rising Brent crude prices for an eighth straight week, the longest streak since 2012, according to ICE Futures Europe data for the seven days through Feb. 26.


But the enthusiasm has proved to be misplaced, at least for now. The international benchmark posted a weekly loss for the first time since early February as President Donald Trump warned OPEC to “take it easy" in cutting supplies and U.S. economic data fell short of expectations. Brent lost 3.1 percent for the week, after rising 25 percent to start the year. More....

 

[Ann]

Oil Rig count down 9 to 834


Oil Sputters as Economic Woes Outweigh U.S. Drilling Slowdown
......“The bearish signs are more prevalent than any kind of bullish ones right now,” said William Rhind, chief executive officer at GraniteShares, a commodity-focused exchange traded fund. “You have a world that is slowing.”

Crude prices climbed more than 25 percent for the year through mid-February as the Organization of Petroleum Exporting Countries and its partners curbed output, and American sanctions on Iran and Venezuela tightened supplies.




But the rally has sputtered since then. This week alone, the European Central Bank cut economic forecasts, China reduced its goal for expansion and the OECD lowered its global projections. The U.S. also reported a surprisingly big jump in oil inventories.......

Norway Gives $1 Trillion Wealth Fund Approval to Dump Some Oil Stocks

Fund approved to sell $7.5 billion in smaller oil explorers
Big Oil dodged a bullet.

Norway took a partial step in divesting oil and gas stocks in its massive $1 trillion wealth fund, approving the sale of smaller exploration companies while sparing the biggest producers such as Royal Dutch Shell Plc and Exxon Mobil Corp.

After more than a year of deliberation, the government on Friday approved excluding 150 companies that are held by the fund and classified as exploration and production companies by FTSE Russell. These include Cairn Energy Plc, Anadarko Petroleum Corp., Chesapeake Energy Corp., Cnooc Ltd. and Tullow Oil Plc. The proposal would see the fund sell about $7.5 billion in stocks...........

 

[Ann]

Shale Boom Drives U.S. to Take Least OPEC Crude in Three Decades

.......OPEC supply cuts that started in 2017 were extended in 2018. The end result was Saudi Arabia cutting exports to the U.S. by 9 percent to about 870,000 barrels a day in 2018. OPEC as a whole sent 17 percent less than the year before, and the least since 1987, according to the latest U.S. government data.

Rapid production growth in the prolific Permian oil patch also sapped interest among American refiners for OPEC’s deliveries. With the help of light oil, U.S. crude production hit a record 12 million barrels a day and is expected to grow more into 2020, based on data from the Energy Information Administration.......more

 

[Ann]

Oil's Big Reset: Energy Majors Learn to Thrive After Price Crash

When OPEC started an oil-price war in late 2014, most people believed U.S. shale was doomed. In reality, the giant oil majors suffered most -- burdened by expensive mega-projects, Chevron Corp., BP Plc and the rest struggled to adapt to the fall in energy prices.

Slowly, those companies figured out how to survive in the lower-for-longer price era. They cut costs and, more importantly, learned how to stop them from rising again. In an industry that favored tailored solutions for every project, companies started to talk about standardization. At closed-door sessions in Davos, Switzerland, Big Oil bosses didn’t waste time on self-important talk, but instead discussed how to share the design of anything from underwater valves to pumps.....More.

 

[Ann]

World's biggest fund to dump Woodside, Santos and others

The world's largest sovereign wealth fund will divest $8 billion worth of oil and gas holdings, which could include stakes in Australian companies such as Woodside Petroleum, Santos, Oil Search and Beach Energy.

Norway's $US1 trillion sovereign wealth fund announced on Friday evening it would seek to phase out holdings classified as exploration and production companies from the portfolio in order to "reduce the aggregate oil price risk in the Norwegian economy".

(The rest you will need an AFR subscription.)

 

[Smurf1976]

The world's largest sovereign wealth fund will divest $8 billion worth of oil and gas holdings, which could include stakes in Australian companies such as Woodside Petroleum, Santos, Oil Search and Beach Energy.

So logically we may see a disconnect going forward between the price of oil and the value of oil stocks. Eg the stocks go down due to this significant selling even if the oil price itself remains exactly the same or if the oil prices goes up then the stocks go up less than they otherwise would have. Etc.

 

[Ann]

So logically we may see a disconnect going forward between the price of oil and the value of oil stocks. Eg the stocks go down due to this significant selling even if the oil price itself remains exactly the same or if the oil prices goes up then the stocks go up less than they otherwise would have. Etc.

It is hard to say Smurf, the fund won't be panic selling, they will sell off into the market over a long period of time and potentially selling these stocks up into higher price levels. They won't want to damage their fund with a fire sale. I would doubt we will see any major reaction. I think the problem will be longer term when the oilers want to finance new projects. Those are my thoughts and I may be dreadfully wrong.

 

[Ann]

This whole POO thing is a tug of war between price manipulators.
However, if the Saudis et al keep reducing their output and delivering less than was ordered, I feel two things might happen, one, the countries will fall into recession with reduced oil income or the customers for the oil will just go elsewhere for the product, or both.

Saudi Arabia to Extend Deep Oil Output Cuts Into April

Saudi Arabia will supply its clients with significantly less oil than they requested in April, extending deeper-than-agreed production cuts into a second month, a Saudi official familiar with the policy said.

The move is the latest sign Riyadh is determined to regain control of the oil market as prices remain well below the level that many OPEC members need to cover their government spending.


Saudi Arabia plans to produce well below 10 million barrels a day in April, a similar pace to March, when it cut output by 500,000 barrels a day from February, the same official said, asking not to be named discussing internal deliberations. Last year, Riyadh agreed with OPEC and its partners, including Russia, to cap production at 10.31 million barrels a day. More....

 

[Ann]

The Climate Change Policy Disconnect - Will It Lead To An Energy Crisis?


Summary
Focus on curbing supply as opposed to demand for fossil fuels may lead to permanent under investment in new supply projects.

This creates the risk of a supply-shock and energy crisis in the next decade.

For investors, this will create an opportunity to generate superior returns as supply-side constraints lead to higher prices and profit margins for existing fossil fuel companies. More...

 

[Smurf1976]

The Climate Change Policy Disconnect - Will It Lead To An Energy Crisis?

I'll add my observation that this is true but it's actually a broader movement.

That is, it's not simply climate change versus oil supply but it's a broader set of environmental concerns versus energy supply in general.

Coal, oil, gas and in many places electricity are all in the same mix really. Just about everyone wants to consume but there's quite a bit of opposition to production.

I'll leave the politics out of it and just make that observation. Eg There's presently a debate about offshore oil and gas drilling in South Australia. What nobody mentions is that the state's production of both fuels is below the rate of consumption and is declining. Quite a fuss about wanting to stop drilling but not a word said about getting petrol guzzlers off the road etc.

I'll keep out of the politics and simply make that observation. Everyone wants to consume, few are willing to do otherwise, but there's considerable opposition to production. That's a pretty sure fire way to get a supply crunch and price shock.

 

[Ann]

Trading Surge in Oil Options Creates a Whirl of Speculation

Global oil options markets this week were the busiest since November after a flurry of buying from what appeared to be a large producer protecting against a drop in prices.


Trading on Monday was dominated by $60 puts -- which give the owner the right to sell oil contracts for the rest of 2019, with a total of 16 million barrels changing hands in June, August and September, ICE Futures Europe exchange data show. More than 8 million barrels of similar contracts traded in the over-the-counter market, said people familiar with the matter.
More...

 

[Ann]

Just one oil rig down this week from 834 to 833. This may be a reason for the falling rig count....

U.S. Oil Explorers Scale Back Drilling as Shale Weakness Emerges

Oil explorers settled into the deepest drilling hibernation in more than a year as the U.S. shale patch struggles to maintain its explosive growth.

Working oil rigs fell by one this week to 833, according to data released Friday by oilfield-services provider Baker Hughes. The four-week decline is the longest since May 2016.


The U.S. government cut its oil production forecast for the first time in six months as drillers scale back in smaller shale plays and the U.S. Gulf of Mexico. While crude output is still expected to reach record levels, the Energy Information Administration trimmed its 2019 forecast to 12.3 million barrels a day -- 110,000 barrels-a-day lower than its previous forecast. More..


One would imagine this may see a reason for a bit of a hike in the POO.....

Fires Hit Exxon, Phillips 66 Refineries in Texas, California

The third-biggest refinery in the U.S. suffered a fire Saturday near Houston, hours after a Los Angeles plant was partially shut by a blaze, potentially boosting gasoline prices from Texas to California.

Exxon Mobil Corp.’s Baytown, Texas, refinery was fighting a furnace fire at a gasoline hydrofiner, which removes sulfur from fuel to meet clear-air regulations, people familiar with the matter said. Phillips 66 shut a crude unit Friday night at its Carson plant after a fire.


The fires, which come at a time when gasoline inventories are in decline with a number of refineries closed for seasonal maintenance, threaten to further increase gasoline pump prices that have already risen 31 cents a gallon since early January to edge above year-ago levels. More...

 

[Smurf1976]

To me this signals higher prices ahead if oil companies aren't keen to drill at the current price.

It might take a while to play out but less drilling ultimately = less production and from there it's just supply and demand economics.

That doesn't preclude the price doing literally anything in the short term though. Could well go down before it goes up etc.