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ENERGY: Oil report for February 13, 2018

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OILPRICE.COM –  The EIA predicts that the U.S will become a net energy exporter by 2022.

–    Natural gas exports and crude oil exports are both rising, after a long history in which the U.S. was a major importer of both.

–    To be sure, the U.S. is still one of the largest net-importers of crude oil, but the rising volume of exports is cutting down on that total.

–    In future scenarios in which oil prices are higher relative to a baseline assumption, the U.S. becomes a net energy exporter sooner, due to higher levels of production and lower levels of domestic consumption.

–    The EIA’s most aggressive scenario could have the U.S. as a net exporter as soon as 2020.

Market Movers

•    Hess Corp (NYSE: HES) saw its shares jump more than 5 percent after Credit Suisse upgraded the stock to Neutral from Underperform. That came after the stock fell more than 20 percent in the last two weeks.

•    Ecopetrol (EC) suspended production at three oil fields in Colombia after protests. Colombia’s second largest pipeline, the 210,000 bpd Cano Limon-Covenas pipeline, remains shut.

•    BP (NYSE: BP) said it would invest more than $1 billion in Egypt this year.

Tuesday February 13, 2018

Oil prices seemed to have stabilized at new, lower levels after a massive decline last week. WTI has some support at about $59-$60 per barrel and Brent at $62. But fears of a shale wave cut seemed to have ended the bullish sentiment and reduced the likelihood of a rebound in prices in the short run.

IEA: Supply to grow faster than demand. The IEA reiterated its position that global oil supply will grow faster than demand this year. The agency noted that global oil and product inventories have declined dramatically, and are very close to the five-year average, but that surging U.S. supply could tip the balance back into surplus. Production is growing so fast that it resembles the original shale wave from years ago. This “second wave of growth [is] so extraordinary” that the supply growth from the U.S. alone could equal total global demand growth in 2018. “[T]he underlying oil market fundamentals in the early part of 2018 look less supportive for prices,” the IEA wrote.

Total, Shell stand out among the pack. Total SA (NYSE: TOT) and Royal Dutch Shell (NYSE: RDS.A) are emerging ahead of their peers as darlings of investors, according toReuters. Total announced plans to hike its dividend by 10 percent and also buyback $5 billion worth of shares by 2020. Bernstein analysts said that Total represents “the new benchmark in shareholder returns,” and the firm upgraded Total’s shares to “outperform.” Shell, for its part, posted earnings and cash flow that exceeded ExxonMobil’s (NYSE: XOM). Shell said it will buy back $25 billion worth of shares by 2020. Meanwhile, Exxon disappointed the market and its share prices has fallen dramatically in the past two weeks.

Russia interested in long-term relationship with OPEC. Russia’s energy minister Alexander Novak said that his country would be interested in some sort of cooperative arrangement with OPEC for the long haul. “Taking into account the current political and economic relationship and projects that we’re considering, I think our relationship will be of long-term nature,” he said, according to S&P Global Platts.

OPEC readies the taps. OPEC continues to maintain high compliance levels with the production limits, keeping about 1.8 mb/d of supply off of the market. But at the same time, as the oil market has tightened significantly in recent months, OPEC officials are becoming more confident that they will be able to ramp up output at some point in the not-so-distant future. S&P Global Platts notes that several oil ministers from OPEC countries have trumpeted their plans to raise production capacity. Kuwait will add 225,000 bpd of capacity by the end of March; Iran’s minister said it could add 100,000 bpd immediately after the expiration of the agreement; Iraq said it would hit 5 mb/d of capacity by the end of the year; and the UAE will add a whopping 500,000 bpd in late 2018. This doesn’t necessarily mean a wave of supply will soon come online from OPEC, but the comments loom as a threat over the oil market.

Hedge funds liquidate bullish bets. Hedge funds and other money managers cut their bullish bets by the most since August last week. The rout in global equities, combined with the sudden drop in oil prices, caused investors to rush for the exits. Or, read another way, investors helped accelerate the decline in oil prices by liquidating their bullish bets. “This week has shaken the confidence a little bit that demand is going to rebound in the same robust fashion that we’ve seen it in the last few months,” Mark Watkins of U.S. Bank Wealth Management, told Bloomberg late last week. “You get this current volatility and some of those long positions may start to close out.”

OPEC acknowledges higher U.S. production. OPEC’s monthly Oil Market Report revised up its expectations of U.S. shale growth, putting non-OPEC supply 1.4 mb/d higher than last year, an upward revision of 250,000 bpd from last month’s report. Still, the projection is much more sanguine than the cartel’s counterparts in the EIA and IEA, which foresee much more bearish fundamentals ahead. OPEC says the oil market will balance later this year.

China inks LNG deal with U.S. The U.S’ Cheniere Energy (NYSE: LNG) signed a deal with China National Petroleum Corp. to send LNG to China. The agreement is long-term – Cheniere will send 1.2 million tons of LNG per year through 2043.

White House proposes streamlined permitting for infrastructure. The Trump administration is considering major reforms to the permitting process for new infrastructure projects. The goal would be to cut the permitting time for big projects down to two years.

Big Oil Uses Big Data. The FT reports that oil firms are turning to Big Data to cut oil production costs. The IEA estimates that the industry could slash costs by about 10 to 20 percent by using a variety of sophisticated software technologies and data analysis techniques. Digitalization in the energy industry could be the equivalent of how much horizontal drilling and fracking changed the industry 15 years ago. “It might help keep oil prices at the reasonable levels, meaning in the $60s, and let everyone produce economically,” a Schlumberger executive VP told the FT.

Batteries cutting into gas demand. The WSJ reports that energy storage is starting to cut into the market for natural gas peaker plants in the U.S., which are deployed at peak demand times during midday. The economics of a new gas peaker plant ($87/MWh) lose out to new battery arrays ($36/MWh). “I could see in 10 to 15 years where you have 30% of what is traditionally a peaker market served by storage,” Ben Fowke, CEO of Xcel Energy, a Minnesota-based utility, told the WSJ.

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