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ENERGY: Oil report for April 20, 2018

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OILPRICE.COM – Geopolitics and an ever-tightening oil market are pushing prices up to fresh multi-year highs. “Brent crude oil is ticking higher by the day as OPEC+ cuts are intact, global oil demand growth is firm…Venezuela oil production is in a death spiral, renewed Iran sanctions are imminent (12 May) and sanctions towards Russia on oil and not just aluminum is possible,” Bjarne Schieldrop, chief commodities analyst at SEB, wrote in a note. “Barring a global recession we think there is more room on the upside and as we stated in early march, if OPEC+ sticks to its cuts we are likely to see $85/bl later in the year as inventories draw lower.” While Friday morning saw a string of bearish news push oil down, this bullish sentiment drove a rebound in prices.

Trump criticizes OPEC in tweet. In an early morning tweet on Friday, President Trump took aim at OPEC. “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” His tweet helped reverse the gains for crude benchmarks, although the effect will likely be brief.

Phasing out OPEC cuts premature. Saudi oil minister Khalid al-Falih said that OPEC will phase out its cuts so as not to shock the market, but that it would be premature to discuss such plans at the June meeting. He also said that the global economy could tolerate higher oil prices and that there wouldn’t be demand destruction. The comments suggest OPEC is set on keeping the limits in place for the rest of this year. Still, OPEC is meeting in Jeddah to take stock of the market, and the data suggests that they have just about eliminated the inventory surplus, which means that keeping the cuts in place could help drive up prices. “The petro-nations seem willing to over-tighten the market, with the current price levels fostering confidence in their supply deal,” Norbert Ruecker, head of macro and commodity research at Julius Baer, wrotein a note.

Explosion at Valero refinery in Texas. An explosion occurred at Valero’s (NYSE: VLO) Texas City refinery on Thursday. No injuries were reported.

Australia’s Northern Territory lifts fracking ban. Australia’s Northern Territory liftedits ban on fracking, which could offer a new frontier for shale drillers. The territory “could have enough gas to serve Australia for almost 200 years,” Australia’s Resources Minister Matt Canavan said on Twitter. However, it is also in the very early stages of exploration.

Interest in Houston and Midland contracts rise. WTI is beginning to lose its luster as the premier oil benchmark price in the U.S., as oil traders are gaining interest in alternative pricing metrics, such as prices based in Houston or Midland. As the U.S. becomes a larger crude oil exporter, on top of the growth of refining and petrochemical capacity along the Gulf Coast, oil prices based in Houston are starting to become more relevant to traders and purchasers. Meanwhile, upstream production is surging in the Permian, making Midland relatively more important. Bloomberg reports that a spike in trades on futures contracts that track the differential between WTI and Houston or WTI and Midland. If the trading practice continues to blossom, WTI might eventually give way to a Houston benchmark as the top marker for North American crude.

Chevron employees arrested in Venezuela. Venezuelan authorities arrested two employees from Chevron (NYSE: CVX), the first workers directly employed by a foreign oil company to be detained in the country. Venezuela’s oil production is collapsing, and if the government scares away some of the private companies operating in the country, it could jeopardize even more of its output. Roughly half of Venezuela’s oil production comes from joint ventures with private companies.

Tesla aims for 6,000 Model 3s per week. Tesla’s (NASDAQ: TSLA) Elon Musk said that the company hopes to overcome manufacturing hurdles and begin producing 6,000 Model 3s per week by the end of the second quarter. The company’s stock pricejumped more than 2 percent on the news.

Oilfield services likely to disappoint on Q1 earnings. The oilfield services sector will likely report disappointing first quarter earnings due to bad weather, and overcapacity in fracking equipment, according to Reuters. Schlumberger (NYSE: SLB),Halliburton (NYSE: HAL) and GE’s (NYSE: GE) Baker Hughes are all expected to report a decline in profits, quarter-on-quarter.

Exxon could lose deal in Iraq. Negotiations between Iraq and ExxonMobil (NYSE: XOM) over a multi-billion-dollar infrastructure contract have gone south, according toReuters. The two sides have been in discussions for more than two years over a water treatment facility and pipelines to help increase oil production, which would also include the rights to develop two oil fields in Iraq’s south. Reuters says they are far apart on pricing and Iraq may award a contract to another company.

3 LNG tankers move through Panama Canal. Three LNG tankers passed through the Panama Canal on the same day this week, the first time that has occurred since the expansion of the canal was completed. The shipment through the canal could open up more LNG trade. “You’re going to have a lot of these plants up and running and you need the logistics to get those cargoes” through the canal, Sam Margolin, lead analyst at Cowen and Company LLC in New York, told Bloomberg. The increased traffic “should make people feel a lot more confident about the U.S.’s ability to place LNG in China.”

CNPC and Petrobras close to a refinery/oil swap deal. Brazilian state-owned oil company Petrobras is nearing a deal with China’s CNPC, which would see a large investment from CNPC in a Brazilian oil refinery, and in exchange, CNPC would receive oil shipments. If it goes forward, it would mark CNPC’s first refining asset in the Americas. CNPC could also receive stakes in offshore oil fields in the Campos basin.
Global Energy Advisory – 20th April 2018

The plot around Canada’s Trans-Mountain oil pipeline expansion has thickened to the point that nobody can say anymore whether the project will survive or go under. If the latest remarks from Kinder Morgan CEO Steven Kean are any indication, the latter has become a bit more likely than the former.

In the company’s Q1 financial report conference call, Kean said that the problem with Trans Mountain was not financial but political. The executive referred to Ottawa’s offer to provide financing for the project if Kinder Morgan is uncertain about investing more in it. Yet, according to Kean, what Kinder Morgan needs from the authorities is not money but an end to the political opposition from the government in British Columbia.

Unfortunately, the B.C. government seems set on continuing on the same course. This week, PM John Horgan said the province will take Alberta to court if it passes legislation seeking to reduce deliveries of crude and fuel to its stubborn neighbor.

The fight has drawn in two more provinces as well. Saskatchewan has sided with Alberta, saying it will introduce its own anti-B.C. legislation, although it is not such a major exporter of oil and fuels to the province. In Quebec, opposition Parti Québécois has offered B.C. its know-how in asserting provincial control over the local environment, which B.C. is seeking to do in order to prevent Ottawa from using federal jurisdiction to force it to accept Trans Mountain.

The fight is likely to further intensify. Alberta is ready to buy the expansion project from Kinder Morgan and to turn the taps off for B.C. to punish it for opposing the pipe. Ottawa is looking for legislative ways to reassert its jurisdiction over Trans Mountain in order to be able to twist B.C.’s arm with the minimum pain, apparently. B.C. is at the same time seeking the local court of appeals opinion on the same issue: jurisdiction over the transportation of oil on its territory. And so it continues and the winner remains elusive.

Deals, Mergers & Acquisitions

• Total will buy a majority stake in electricity retailer Direct Energie for $1.73 billion, which will turn the oil supermajor into a competitor of France’s leading utility EDF. The acquisition is part of Total’s diversification drive, which has a special emphasis on gas and electricity generation.

• Norway’s Statoil is considering closing a partnership with India’s biggest energy company ONGC to enter deepwater exploration on the subcontinent. According to an Indian government source, the Norwegian company has been tempted by the increasingly favorable regulatory environment as India seeks to increase its local oil and gas production to reduce its dependence on imports.

Tenders, Auctions & Contracts

• Schlumberger has finalized a contract with Kenya National Oil Corporation for the development of several oil and gas blocks in northwestern Kenya. Oil was discovered in Kenya’s Lokichar region recently, with Tullow Oil and Canadian Africa Oil striking it first. Currently, the two companies share two blocks in Lokichar equally, with Tullow the operator. Another shareholder in the 10BB and 13T blocks, Danish Maersk, sold its interest to Total and Kenya National Oil Corp. is preparing to take a stake, too.

• Ukraine has rejected a gas transit contract offered by Russia’s Gazprom following the ruling of the Stockholm Court of Arbitration on the long-running gas supply and payments dispute between the company and Kiev. Ukraine is adamant that it should remain the key transit route for Russian gas to Europe to avoid the risk of Gazprom turning the taps without affecting European deliveries, which is what the Russian company aims to do with the Nord Stream pipeline expansion.

• BP and Petrobras have inked a preliminary partnership agreement to jointly pursue projects in the upstream, downstream, marketing, and even low-carbon segments of the energy industry. The two are already partners on 16 upstream projects in Brazil.

• Iraq’s Energy Ministry has delayed its next oil tender until April 25, which gives potential suitors for 11 undeveloped oil fields because of issues around the contracts it will offer oil companies. Now the contracts have been picked and the 16 companies shortlisted for the tender have until the 25th to submit their proposals if they approve the terms of the contracts. Previously, international oil companies had complained about the technical service agreements they had to sign as providing for too low revenues.

Discovery & Development

• Chevron’s Wheatstone LNG project off the coast of Australia is producing at rates above its nameplate capacity and its train two is on track to start operating before the end of June. The Wheatstone project, which also involves Australian Woodside Petroleum, Kuwait Foreign Petroleum Exploration Company, and Japan’s Kyushu Electric Power Company, has an annual liquefaction capacity of 8.9 million metric tons of LNG.

• Chevron has announced the start of expansion at its Gorgon LNG project in Australia, which will ensure the consistent supply of natural gas for the three liquefaction trains on Barrow Island over the lifespan of the project, estimated at 30 to 40 years. The Gorgon is one of the largest LNG projects globally, so far worth $54 billion. The expansion will cost several billion dollars to ensure long-term supply to the 15.6-million-ton liquefaction plant.

• The Permian is on track to break its own oil production record, with the Energy Information Administration expecting the play to yield 3.11 million bpd this month and 3.18 million bpd in May. This will be made possible thanks to the fast addition of new wells: last month, new DUCs in the Permian totaled 122.

Company News

• Denmark’s largest pension fund has announced it will pull out of oil and gas investments. The PKA fund currently has interests in 35 oil and gas companies but will exit them all for failing to uphold the Paris Agreement on climate. The fund previously pulled out of 70 coal companies while raising its exposure to renewable energy consistently.

• Two Chevron employees have been arrested in Venezuela on charges that have yet to be divulged by the authorities. There is an ongoing crackdown on corruption in the troubled South American nation but until now employees of the few foreign companies still maintaining a presence in Venezuela were not being targeted.

• Liberia’s President has ordered an investigation into Exxon’s acquisition of an offshore block on suspicion that the company knew parts of the block were owned by Liberian public servants who awarded themselves these assets illegally. Exxon was apparently worried about the ownership structure of the block, so it bought it from Canadian Overseas Petroleum—a partner in the block—rather than from the Liberian partners.

Politics, Geopolitics & Conflict

• Cuba’s President Raul Castro retired this week and will be succeeded by his second-in-command Miguel Diaz-Canel.

• In Mexico, the frontrunner for the July election, Andres Manuel Lopez Obrador, has increased his lead to 22 points. Obrador has vowed to review oil contracts with foreign companies if he gets the presidency.

• CIA chief Mike Pompeo secretly visited North Korea ahead of a planned summit between president Trump and Kim Jong Un. Trump said he hoped the summit would be productive, adding that he would up and leave if he felt it wasn’t meaningful.

—— AUTO – GENERATED; Published (Halifax Canada Time AST) on: April 20, 2018 at 04:34PM

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