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ENERGY: Oil report for June 28th, 2019

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Oil Markets Await Two Vital Decisions


Oil prices moved higher at the end of this week, on the eve of a highly anticipated meeting between Donald Trump and Xi Jingping, which could result in a breakthrough in trade negotiations, an agreement to resume talks, or a collapse and subsequent increase in tariffs. On Monday, OPEC kicks off its meeting in Vienna. “The next few days will provide a much-needed dose of clarity for the oil balance over the coming months,” PVM’s Stephen Brannock said in a note. “Market bulls will be (hoping) that the G20 summit will provide a trade breakthrough … All the while, the supply side of the oil coin continues to display bullish signals,” he added.

Europe sprinting to keep Iran on board. European governments will “double down” on efforts to keep economic ties alive with Iran, in an effort to keep the nuclear deal on life support, according to the Wall Street Journal. The EU has tried to develop a financing mechanism to circumvent U.S. sanctions but few foreign companies are willing to do business in Iran. Iran said that it would breach limits on uranium stockpiles as soon as this weekend. The last-ditch effort looks set to fail.

U.S. to assemble naval watch in Persian Gulf. The U.S. is hoping to enlist other nations in an effort to keep an eye on the Persian Gulf, according to the Wall Street Journal. The U.S. would contribute ships and aircraft but operational control would be headed by another nation. The plan aims to present deterrence to Iran, securing oil shipment lanes through the Strait of Hormuz.

Saudi investment to bring Russia on board. Saudi Arabia is set to invest $5 billion in Russia this year, and many analysts believe that Saudi investments are inducements to keep Russia on board with an extension of the OPEC+ production cut agreement.

Philadelphia refinery set to close. Philadelphia Energy Solutions may permanently shut down its damaged refinery, decimated from a series of explosions last week. PES may try to sell the complex as well.

Drillers use gas for electricity. Permian drillers are beginning to use some of their surplus gas to power their operations, a practice that will save on costs, reduce flaring and emissions, according to Bloomberg.

Kinder Morgan wins court decision for gas pipeline. Kinder Morgan won a court decision that will allow them to move forward with a natural gas pipeline, easing the company’s way to plan its own route and acquire land without a landowner’s consent.

ConocoPhillips: U.S. to lead global supply growth. The U.S. will be the dominant source of supply growth through the 2030s, according to ConocoPhillips (NYSE: COP). The company sees infrastructure bottlenecks having only a temporary impact on the sector, “but we don’t foresee those being permanent issues,” ConocoPhillips’ chief economist Helen Currie told S&P Global Platts. “There are plenty of projects along the Gulf Coast.”

Investors with $34 trillion urge climate change action. Investors managing more than $34 trillion in assets are demanding urgent action from governments at the G20 to address climate change, according to Reuters.

Renewables surpass coal. For the first time ever, renewable energy generated more electricity in the U.S. than coal on a monthly basis.

India looks for alternatives to Iran. Indian Oil Corp., a state-run company, is looking to replace 70 percent of its Iranian imports with crude from Saudi Arabia and the United States, according to S&P Global Platts.

Tesla aiming to reach sales target. Despite financial distress and investor scrutiny, Elon Musk said that Tesla (NASDAQ: TSLA) could reach its second quarter sales target if everyone goes “all out.” Tesla hopes to reach a record target of 90,700 units sold for the quarter.

Exxon to invest in carbon capture. With an eye on future carbon restrictions,ExxonMobil (NYSE: XOM) said on Thursday that it would invest in a new carbon-capture tech company, a joint venture with Global Thermostat, which has a pilot project in Alabama.

Canada explores fuel standards with California. Canada and California announcedan agreement to harmonize fuel economy standards, bolstering California’s battle against the Trump administration’s effort to slash standards. Fearing a patchwork of markets, automakers have urged the White House not to gut the standards, to no avail. Instead, California will press ahead with its own standards, and Canada’s announcement to join expands the North American market for more fuel-efficient vehicles.

BASF to slash 6,000 jobs. BASF SE plans to cut 6,000 jobs worldwide in a sign of weakening demand for petrochemicals, according to Bloomberg.

Michigan sues to shut down Line 5. The state of Michigan has sued to shut downEnbridge’s (NYSE: ENB) aging Line 5 pipeline, a move that could disrupt a significant chunk of midstream capacity from Canada. The 540,000-bpd pipeline has been the subject of controversy due to its risk to water supply in Michigan. Enbridge wants to build a replacement, but has run into regulatory roadblocks in Michigan.


A Very Real Threat To Libya’s Oil Production
Why Libya’s Oil Exports Could Be Halted

Earlier this week, the head of the Libyan National Oil Company (NOC) came out with a vague statement condemning calls to shut down Libya’s oil production. The Western media was, of course, baffled, because they had no idea that anyone had suggested shutting down the country’s oil production. Our team on the ground in Libya, however, notes that this is not a vague or random statement from the NOC. The threat to shut down Libya’s oil production is very real, and this is the first major oil-related fallout from the conflict to control Tripoli.

Last week, Agila Saleh, the head of the House of Representatives (HoR) of Libya in Tobruk, in the country’s far east, threatened to halt all oil exports by force in order to prevent oil revenues from going to militia leaders in Tripoli who are supporting the Government of National Accord (GNA) against General Haftar. Haftar essentially controls all the oil right now, and the ports, but the revenues still go to the Tripoli central bank, and those funds are being used to pay for the war effort against Haftar.

Unexpectedly, UNSMIL is now demanding that the Central Bank of Tripoli account for the use of oil revenues. Stephanie T. Williams, the Deputy Special Representative for Political Affairs in Libya for the United Nations Support Mission in Libya (UNSMIL) on Tuesday met with Central Bank Tripoli governor Al-Sediq Al-Kabir and demanded that he provide financial reports for the NOC and the Central Bank. This was entirely unexpected as the UN has resoundly come out on the side of the GNA in this conflict. Right before this, the UNSMIL head in Libya, Ghassan Salame, paid a visit to Benghazi, the main city in the east, where he and his senior economic advisor, Robert Walker, met with officials from the parallel central bank.

One of our sources inside the Tripoli NOC has told us that the parallel government has managed to convince Walker that officials in Tripoli are seizing the bulk of Libya’s oil income. If the Central Bank of Tripoli is found to have been diverting funds to militias out of Libya’s oil revenues, the GNA stands to lose the UN’s support at a very critical time. This would be a major victory for Haftar, who could potentially win the UN’s blessing to halt oil exports unless funds are accounted for.

The Red Sea Is Not A Hormuz Alternative

If you think the Strait of Hormuz is not that important to oil – think again. We doubt that the Trump administration fully understood the significance of Iran blocking the Strait when it started down this path of conflict. And while, yes, Iraq, Kuwait and Bahrain, for starters, are preparing (unlikely) alternative routes, largely all through Iraq, which is not feasible given the situation with the Kurds, blocking the Strait could take nearly a quarter of the world’s oil off the market. There is no indication that Iran would go this far, yet. But there is a clear indication that the Trump administration is concerned that it could.

That has come in the form of Trump backing down over some very hawkish moves of late, including over his response to Iran’s shooting down of a surveillance drone, and his backtracking on ordered airstrikes. He was given a thorough report on what could potentially happen here, and now he needs to consider the consequences. This was all when the Bilderberg Group was meeting in Switzerland. If the Strait is closed, at stake is a market value of derivatives contracts in the heavy trillions, if not much more. It would crush global trade, in other words, and wreak serious havoc on the global financial system. It would mean potentially $200 oil.

This is where Trump has begun to diverge significantly with the likes of Pompeo and Bolton, who continue their warmongering. Certainly, the elite of the Bilderberg Group are concerned about what is going on. Trump, now, is looking to talk to Iran, and the pressure on him to undo the damage done is mounting in the back corridors of power.

In the meantime, the Saudis are claiming that they can keep crude oil flowing normally by redirecting it through the Red Sea. What the Saudis are talking about here is Aramco’s 5MMbpd pipeline that carries crude across the country, to either the Gulf or the Red Sea. So there are options for diverting one way or the other, but not fully. This capacity leaves 2 MMbdp unaccounted for. Nor is the pipeline safe these days: It was targeted by the Houthis recently and temporarily halted flow. Once it gets to the Red Sea, there are other risks.

In the Red Sea, Saudi crude goes through the Bab al-Mandeb shipping lane. In July last year, shipments through this lane were halted as well due to Houthi attacks on oil tankers. To bring this into clearer focus, the Bab al-Mandeb shipping lane is not a viable alternative in a conflict with Iran:

Elsewhere …

– The EU has extended economic sanctions on Russia over Crimea, and we should expect to see a Russian retaliation for this.

– Turkish president Erdogan has suffered a major blow over the Istanbul mayoral elections. On Sunday, the opposition candidate won the re-run of the vote, after having won by a small margin in March against an Erdogan AKP party candidate. Erdogan misplayed this one, as he tends to do when he suffers from bouts of paranoia that cloud his judgement. It was a mistake to claim that opposition candidate Imamoglu won the Istanbul mayoral election in March through fraud. Those highly controversial claims turned Imamoglu into a martyr and a major household name, leading to a solid re-run victory on Sunday. Losing Istanbul is a major defeat for Erdogan. Istanbul is the economic capital of Turkey, the country’s largest city, and a long-time bastion of Erdogan’s conservative power base. For the first time, Erdogan has been humbled by the people, and there is now a gaping hole in the one-man dictatorship. The AKP’s loss of Istanbul has also emboldened the opposition CHP to call for the scrapping of the presidential system, after the role of PM was abandoned and presidential powers expanded for and by Erdogan.

– Four Iraqi police officers have been killed in a bomb blast near Kirkuk, a major flash point venue in the ongoing oil dispute between Baghdad and the Iraqi Kurds, and also an area known for ISIS activity.

– Africa-wide, there is a trend to reevaluate major natural resources contracts with Western companies, and the latest is Papua New Guinea, which this week saw its new treasurer warn French Total SA, Exxon and others that the country will seek more benefits from lucrative LNG and mining projects operated by foreign companies. This threat is real, and investors should be paying very close attention right now. There are multiple African venues of concern. Africa nations are emboldened recently due to the expanding Chinese footprint, which offers them alternatives to the Western oil and gas and mining status quo. The Chinese are easier to work with and tend to offer better deals because they seek a footprint over profit. They are also not bothered by corruption or environmental issues.

– In Senegal, the President’s brother has resigned from the government in the wake of fraud allegations related to natural gas contracts, largely spurred by a BBC report accusing him of accepting $250,000 in bribes from Frank Timis – one of our favorite African middle men whose questionable activities to help major players secure concessions are becoming the focus of several investigations. The allegations concern BP’s securing of two major offshore gas blocks in Senegal.

Global Oil & Gas Playbook

– A 35% stake in Magellan Midstream’s Longhorn crude oil pipeline (Texas) may be up for grabs soon for around $2 billion. The trend is for American pipeline companies to sell off their majority stakes in order to invest in new, more lucrative projects.

– Russia has now scooped up more China market share than the Saudis for crude oil, which makes Russia a key beneficiary of the sanctions against Iran, having exported 1.5 million barrels of crude per day to China in May. Iranian crude exports to China were down over 500,000 bpd in May, compared to April. Saudi Arabia has lost a quarter of this market share compared to a year ago. In April, China imported over 1.5 million bdp of Saudi crude. In May, it was down to just over 1.1 million bpd.

– The biggest deal in Africa this week was in Kenya, where the government signed a deal with Tullow Oil, Total and Africa Oil for the development of fields in the South Lokichar basin, a central processing facility and an export pipeline to the port of Lamu. It’s been a long road to this point since the 2012 Tullow/Africa Oil discovery that put Kenya on the global oil map. The crude processing facility will handle up to 80,000 bpd initially. The next step is to secure financing for an export pipeline. In total, the Lokichar basin is believed by the partners to hold some 560 million barrels in proven and probable reserves.

– With Exxon planning an expansion of its Singapore integrated refining complex to come online by 2023, Linde industrial gases group has announced it will spend $1.4 billion to boost its facilities there in support of Exxon’s plan. Both plans are in line with the new marine fuels regulations of the International Maritime Organization beginning in 2020. The Exxon expansion project will be geared toward compliance with the IMO’s new emissions rules.

– Late last week, Canada’s provincial government of Alberta has finally addressed its controversial oil and gas royalty structure, introducing new legislation that guarantees the same rates when a well is drilled, and for ten years following. In other words, freezing the royalty structure for a decade, which should help draw more investment to the province.

– Exxon may be gearing up to divest all of its Norwegian continental shelf assets (around 20 projects), which could earn the supergiant up to $4 billion, but the strategy right now seems to be to let this leak a bit and test the waters with shareholders. For investors, such a move would largely signal an end to major interest in the North Sea. (This follows Chevron’s decision last year to exit the area).

– Occidental Petroleum is preparing to sell a majority stake in Western Midwest Partners, which it is inheriting from its Anadarko deal. The idea is to have a buyer acquire a 45% stake, with Occidental retaining a minority stake.

– The Saudi Crown Prince is still working towards that elusive Aramco IPO. The most recent indication of this being the Kingdom’s move to have Aramco cut its spending on the oil ministry in an attempt to show potential investors that there are, in fact, boundaries between company and state. Investors will not be keen to pay the exorbitant expenses of oil ministry officials.

—— AUTO – GENERATED; Published (Halifax Canada Time AST) on: June 28, 2019 at 06:08PM

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