Oil prices took a breather on Friday
Oil prices took a breather on Friday, with Brent sitting just shy of $80 per barrel. The Venezuelan election on Sunday could be the next near-term catalyst for the oil market.
$80 Brent for first time since 2014. Brent briefly breached $80 per barrel this week, although it is facing resistance at that level. Still, oil prices are at their highest in three and a half years. “There’s the Iran story which continues to develop and the general talk about a tighter market. It will be interesting to see if we make a clean break of $80 next week. It seems like that’s the direction we are going,” Jens Pedersen, a senior analyst at Danske Bank A/S, said in a Bloomberg interview.
$3 gasoline spreading across U.S. Average retail gasoline prices in the U.S. have climbed to $2.90 per gallon this week, but with Brent hitting $80 per barrel, more pain at the pump could be on the way. Peak summer demand unofficially begins during the Memorial Day holiday at the end of May, and this year motorists will see the highest gasoline prices in more than three years. The average motorist will pay an additional $100 for gasoline this summer compared to last year.
Shortage of oilfield services in Permian. Costs for oilfield services are on the rise as companies struggle to find enough workers. “Recruitment and staffing is a big challenge. We’re aggressively focused on recruiting people,” Kevin Neveu, chief executive at Precision Drilling Corp., said at a conference in Houston. He said they hired about 2,000 people in 2017. A study last year estimated that about 25 percent of the workers laid off during the downturn have moved on to other industries.
OPEC and Russia discuss oil prices. Saudi oil minister Khalid al-Falih said that OPEC and Russia were discussing price volatility and the health of the oil market. Al-Falih has said that OPEC would step in to mitigate and supply losses, although for now, the preference seems to be to leave the production limits unchanged. OPEC officials have said the price rally is being driven by fear and not based on the fundamentals.
EU moves to insulate companies from U.S. sanctions. Danish shipping giant Maersk said it would wind down operations in Iran by November to avoid U.S. sanctions. French oil company Total SA (NYSE: TOT) had the most high-profile investments on the line in Iran, including $1 billion tied up in the development of the South Pars gas field. Total said it would withdraw from Iran if it cannot obtain a waiver from the U.S. Treasury. China’s CNPC could buy out Total’s stake in the project. This comes even as the EU is trying to protect its companies from U.S. sanctions.
Trump tells Germany to scrap Nord Stream 2 to avoid trade war. The WSJ reports that President Trump is pressuring Germany to scrap the Nord Stream 2 natural gas pipeline from Russia if it wants to avoid a trade war with the United States. Trump reportedly told German Chancellor Angela Merkel that the U.S. would restart talks with the EU on a trade deal in exchange for Germany cancelling the Nord Stream 2 pipeline. “Trump’s strategy seems to be to force us to buy their more expensive gas, but as long as LNG is not competitive, Europe will not agree to some sort of racket and pay extortionate prices,” an EU official said.
Canada hoping to backstop Kinder Morgan pipeline. In an extraordinary move to benefit a single company, the Canadian government is trying to backstop Kinder Morgan’s (NYSE: KMI) Trans Mountain Pipeline, which would carry Alberta oil to the Pacific Coast. Kinder Morgan is on the verge of cancelling the project because of political opposition in British Columbia, which has created legal and financial risk. Canada’s finance minister suggested the federal government could offer “indemnity,” which could help defray unforeseen costs stemming from political delays. “We think there is a way to do it in a commercially appropriate way, so the project is economically viable -- then we can actually provide sort of like insurance,” he said during an interview with BNN Bloomberg. “We can effectively say, ‘Look there is a premium that’s going to get paid but we can insure this sort of delay so that the project gets done.”’ Talks with Kinder Morgan are ongoing although the company set a May 31 deadline.
Renewed interest in LNG as glut disappears. Up until recently, analysts expected the global LNG market to be oversupplied for years to come. But unexpectedly strong demand from China and others has rapidly erased the glut. China’s LNG imports were up 59 percent in the first quarter from a year earlier. LNG developers are now expressing interest in new projects again, but because of the long lead times, they may be too late to prevent a supply crunch in several years’ time. WoodMac estimates a supply deficit by 2025.
Statoil name change illustrates oil industry challenge. Statoil (STO) officially changed its name to Equinor on Wednesday, a move intended to better reflect the evolving makeup of the company, which is making heavy investments in renewable energy. By 2030, Equinor will allocate 15 to 20 percent of capex to “new energy solutions.”
Shale industry struggles to make money. The WSJ reports that 15 out of the 20 top shale drillers posted negative cash flow in the first quarter, a surprise result given the rally in oil prices. The top 20 companies by market cap collectively spent $2 billion more than they earned in the quarter. Some of that is the result of locking themselves into hedges back when oil prices were lower, meaning they were unable to benefit from higher prices. Oasis Petroleum (NYSE: OAS) spent $3.27 for every $1 in revenue in the quarter.
Venezuela election looms, U.S. might not slap on new sanctions. Venezuela’s meltdown continues, and ConocoPhillips’ (NYSE: COP) pursuit of PDVSA assets threatens deeper troubles. But the presidential election on Sunday could be pivotal in deciding what happens next in the country. The situation is so bad that the U.S. is seemingly thinking twice about stiffer sanctions following the vote. That, combined with the fact that the U.S. has already put Iranian supply in jeopardy, might mean that the Trump administration holds off on further sanctions following the sham election. A ban on Venezuelan crude imports is “off the table now,” said Francisco Monaldi, fellow at Rice University's Baker Institute for Public Policy, told S&P Global Platts. “Partly because the collapse of the Venezuelan oil sector makes it almost unnecessary, partly because with the price of oil going up and elections in the US they do not want the domestic backlash, partly because the Iran sanctions make it less timely.”
$80 Brent for first time since 2014. Brent briefly breached $80 per barrel this week, although it is facing resistance at that level. Still, oil prices are at their highest in three and a half years. “There’s the Iran story which continues to develop and the general talk about a tighter market. It will be interesting to see if we make a clean break of $80 next week. It seems like that’s the direction we are going,” Jens Pedersen, a senior analyst at Danske Bank A/S, said in a Bloomberg interview.
$3 gasoline spreading across U.S. Average retail gasoline prices in the U.S. have climbed to $2.90 per gallon this week, but with Brent hitting $80 per barrel, more pain at the pump could be on the way. Peak summer demand unofficially begins during the Memorial Day holiday at the end of May, and this year motorists will see the highest gasoline prices in more than three years. The average motorist will pay an additional $100 for gasoline this summer compared to last year.
Shortage of oilfield services in Permian. Costs for oilfield services are on the rise as companies struggle to find enough workers. “Recruitment and staffing is a big challenge. We’re aggressively focused on recruiting people,” Kevin Neveu, chief executive at Precision Drilling Corp., said at a conference in Houston. He said they hired about 2,000 people in 2017. A study last year estimated that about 25 percent of the workers laid off during the downturn have moved on to other industries.
OPEC and Russia discuss oil prices. Saudi oil minister Khalid al-Falih said that OPEC and Russia were discussing price volatility and the health of the oil market. Al-Falih has said that OPEC would step in to mitigate and supply losses, although for now, the preference seems to be to leave the production limits unchanged. OPEC officials have said the price rally is being driven by fear and not based on the fundamentals.
EU moves to insulate companies from U.S. sanctions. Danish shipping giant Maersk said it would wind down operations in Iran by November to avoid U.S. sanctions. French oil company Total SA (NYSE: TOT) had the most high-profile investments on the line in Iran, including $1 billion tied up in the development of the South Pars gas field. Total said it would withdraw from Iran if it cannot obtain a waiver from the U.S. Treasury. China’s CNPC could buy out Total’s stake in the project. This comes even as the EU is trying to protect its companies from U.S. sanctions.
Trump tells Germany to scrap Nord Stream 2 to avoid trade war. The WSJ reports that President Trump is pressuring Germany to scrap the Nord Stream 2 natural gas pipeline from Russia if it wants to avoid a trade war with the United States. Trump reportedly told German Chancellor Angela Merkel that the U.S. would restart talks with the EU on a trade deal in exchange for Germany cancelling the Nord Stream 2 pipeline. “Trump’s strategy seems to be to force us to buy their more expensive gas, but as long as LNG is not competitive, Europe will not agree to some sort of racket and pay extortionate prices,” an EU official said.
Canada hoping to backstop Kinder Morgan pipeline. In an extraordinary move to benefit a single company, the Canadian government is trying to backstop Kinder Morgan’s (NYSE: KMI) Trans Mountain Pipeline, which would carry Alberta oil to the Pacific Coast. Kinder Morgan is on the verge of cancelling the project because of political opposition in British Columbia, which has created legal and financial risk. Canada’s finance minister suggested the federal government could offer “indemnity,” which could help defray unforeseen costs stemming from political delays. “We think there is a way to do it in a commercially appropriate way, so the project is economically viable -- then we can actually provide sort of like insurance,” he said during an interview with BNN Bloomberg. “We can effectively say, ‘Look there is a premium that’s going to get paid but we can insure this sort of delay so that the project gets done.”’ Talks with Kinder Morgan are ongoing although the company set a May 31 deadline.
Renewed interest in LNG as glut disappears. Up until recently, analysts expected the global LNG market to be oversupplied for years to come. But unexpectedly strong demand from China and others has rapidly erased the glut. China’s LNG imports were up 59 percent in the first quarter from a year earlier. LNG developers are now expressing interest in new projects again, but because of the long lead times, they may be too late to prevent a supply crunch in several years’ time. WoodMac estimates a supply deficit by 2025.
Statoil name change illustrates oil industry challenge. Statoil (STO) officially changed its name to Equinor on Wednesday, a move intended to better reflect the evolving makeup of the company, which is making heavy investments in renewable energy. By 2030, Equinor will allocate 15 to 20 percent of capex to “new energy solutions.”
Shale industry struggles to make money. The WSJ reports that 15 out of the 20 top shale drillers posted negative cash flow in the first quarter, a surprise result given the rally in oil prices. The top 20 companies by market cap collectively spent $2 billion more than they earned in the quarter. Some of that is the result of locking themselves into hedges back when oil prices were lower, meaning they were unable to benefit from higher prices. Oasis Petroleum (NYSE: OAS) spent $3.27 for every $1 in revenue in the quarter.
Venezuela election looms, U.S. might not slap on new sanctions. Venezuela’s meltdown continues, and ConocoPhillips’ (NYSE: COP) pursuit of PDVSA assets threatens deeper troubles. But the presidential election on Sunday could be pivotal in deciding what happens next in the country. The situation is so bad that the U.S. is seemingly thinking twice about stiffer sanctions following the vote. That, combined with the fact that the U.S. has already put Iranian supply in jeopardy, might mean that the Trump administration holds off on further sanctions following the sham election. A ban on Venezuelan crude imports is “off the table now,” said Francisco Monaldi, fellow at Rice University's Baker Institute for Public Policy, told S&P Global Platts. “Partly because the collapse of the Venezuelan oil sector makes it almost unnecessary, partly because with the price of oil going up and elections in the US they do not want the domestic backlash, partly because the Iran sanctions make it less timely.”
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Volf
19.05.2018 kl 09:20
2310
The Ideal Moment In Oil Markets
There are moments – very very few moments – when a trader feels he’s got the markets pretty well sussed, has his positions all in the right places and believes that all roads lead to a very rosy endpoint. It’s not only rare, it’s also a little spooky when it happens; as the natural tendency for good traders is to always be suspicious about their positions and ready to rethink, retool and reallocate at a moment’s notice.
But with all that in my mind - I believe we’re at one of those rare moments today.
Oil prices are not only responding to our two year old thesis of decimated capex, OPEC restraint and falling surpluses, they are showing no signs of stopping their upwards climb. The increases in oil prices has forced many of the most doubting analysts to reassess their views of the oil market and begin to see things the way that we have for the past year. In the last week alone, for example, the EIA raised their short-term forecast more than seven dollars a barrel (!!). And many of the big oil analysts at the major banks have begun to see the light as well – Morgan Stanley is now looking for a $90 target oil price, where they before saw little above $55 dollars for 2018 and 2019.
Enough of the self – congratulations…… we are only going to continue to churn out big profits by STAYING AHEAD of the johnny-come-latelys who have latched on correctly to our energy thesis. They need to continue to ride on OUR coattails, not the other way around.
First and foremost, be careful not to do too much with your positions – we have spent much time and effort in crafting our positions and can only do damage by trading too much. However, there are a few recent trends that will impact the quality of further profits that must be noted here and will inform where we need to fine-tune our portfolio.
First we need to look closely into the Permian where much of our value in E+P has been found. While the Permian still represents by far the most likely shale area for cheap production growth it is now laboring under a desperate lack of infrastructure. Many areas of the Permian are now a victim of their own success as oil and gas are overflowing into pipelines that are now insufficient to handle the throughput. We’ve seen this lack of infrastructure impact prices of both oil and associated gas, where gas prices are nearly a dollar less per Mmbtu than in the severely glutted Appalachian Marcellus/Utica region. Similarly oil prices are now running more than $10 lower to the benchmark WTI.
Obviously these differentials can make the latest rally in benchmark oil prices moot, or even swamp them out altogether and bode poorly for the upcoming quarterly results for these Permian producers. Therefore, my recommendation has been – and continues to be – to slowly rotate from Permian players into other E+P’s in the already mature Bakken and Scoop/Stack plays. Continental (CLR) and Whiting (WLL) were mentioned by me previously and have now traveled outside of ‘value’ areas – they must be bought on dips only as they have parabolic. If you’re trying to find solid value to rotate into, these are no longer best. Instead, have a look at Marathon Oil (MRO), with balanced production in the Eagle Ford shale and in both North Dakota and Oklahoma. Also consider Hess (HES) with quality Bakken growth potential as well as cheap assets in Guyana and the Gulf of Mexico.
With oil continuing to go higher and with oil stocks still trading at a disconnected discount, despite their recent performance, I see a sector rotation continuing throughout the summer from portfolio managers, hedge funds and mutual funds into the energy space. Everything is a go for out-performance for the next several months. All we need to do is a few little adjustments and hang on.
There are moments – very very few moments – when a trader feels he’s got the markets pretty well sussed, has his positions all in the right places and believes that all roads lead to a very rosy endpoint. It’s not only rare, it’s also a little spooky when it happens; as the natural tendency for good traders is to always be suspicious about their positions and ready to rethink, retool and reallocate at a moment’s notice.
But with all that in my mind - I believe we’re at one of those rare moments today.
Oil prices are not only responding to our two year old thesis of decimated capex, OPEC restraint and falling surpluses, they are showing no signs of stopping their upwards climb. The increases in oil prices has forced many of the most doubting analysts to reassess their views of the oil market and begin to see things the way that we have for the past year. In the last week alone, for example, the EIA raised their short-term forecast more than seven dollars a barrel (!!). And many of the big oil analysts at the major banks have begun to see the light as well – Morgan Stanley is now looking for a $90 target oil price, where they before saw little above $55 dollars for 2018 and 2019.
Enough of the self – congratulations…… we are only going to continue to churn out big profits by STAYING AHEAD of the johnny-come-latelys who have latched on correctly to our energy thesis. They need to continue to ride on OUR coattails, not the other way around.
First and foremost, be careful not to do too much with your positions – we have spent much time and effort in crafting our positions and can only do damage by trading too much. However, there are a few recent trends that will impact the quality of further profits that must be noted here and will inform where we need to fine-tune our portfolio.
First we need to look closely into the Permian where much of our value in E+P has been found. While the Permian still represents by far the most likely shale area for cheap production growth it is now laboring under a desperate lack of infrastructure. Many areas of the Permian are now a victim of their own success as oil and gas are overflowing into pipelines that are now insufficient to handle the throughput. We’ve seen this lack of infrastructure impact prices of both oil and associated gas, where gas prices are nearly a dollar less per Mmbtu than in the severely glutted Appalachian Marcellus/Utica region. Similarly oil prices are now running more than $10 lower to the benchmark WTI.
Obviously these differentials can make the latest rally in benchmark oil prices moot, or even swamp them out altogether and bode poorly for the upcoming quarterly results for these Permian producers. Therefore, my recommendation has been – and continues to be – to slowly rotate from Permian players into other E+P’s in the already mature Bakken and Scoop/Stack plays. Continental (CLR) and Whiting (WLL) were mentioned by me previously and have now traveled outside of ‘value’ areas – they must be bought on dips only as they have parabolic. If you’re trying to find solid value to rotate into, these are no longer best. Instead, have a look at Marathon Oil (MRO), with balanced production in the Eagle Ford shale and in both North Dakota and Oklahoma. Also consider Hess (HES) with quality Bakken growth potential as well as cheap assets in Guyana and the Gulf of Mexico.
With oil continuing to go higher and with oil stocks still trading at a disconnected discount, despite their recent performance, I see a sector rotation continuing throughout the summer from portfolio managers, hedge funds and mutual funds into the energy space. Everything is a go for out-performance for the next several months. All we need to do is a few little adjustments and hang on.
JSL
19.05.2018 kl 10:53
2231
Interessant lesing. Tror du denne sektorrotasjonen kan påvirke interessen og kursen for GOGL de neste mnd? I utgangspunktet så tenker jeg at høyere oljepris bør kunne medføre at flere ønsker benytte seg av kull som kilde til energi pga lavere kostnader, og at fraktrater derfor bør gå opp. Men det er klart at dersom investorene roterer sine investeringer inn mot oljerelaterte aksjer så kan vel det også medføre lavere omsetning og interesse for GOGL i en periode. Er det noen som har erfaring med hvordan GOGL har beveget seg i tidligere perioder med sterkt stigende oljepris?
Volf
19.05.2018 kl 11:52
2174
Beklager det skulle stå FRO i ticker,ble litt miks da jeg også holder på med en analyse av GOGL.
Ha en fin helg.
Ha en fin helg.