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Energy Industry Stumbles As Recession Looms

Tom Kool

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- S. average retail gasoline prices dropped to $2.57 per gallon in the last week of August, or about 25 cents (9 percent) lower than at the same time last year.

- Each dollar per barrel change in price of crude oil translates into a change in the price at the pump of about 2.4 cents per gallon.

- The year-on-year decline on Brent crude prices from $70 per barrel in August 2018 to $58 per barrel in August 2019 explains the fall in gasoline prices.

- The U.S. Labor Day holiday is an unofficial end of the peak summer driving season.

Market Movers

- Crescent Point Energy (NYSE: CPG) agreed to sell its Uinta Basin assets and some of its Saskatchewan conventional oil assets to an unnamed buyer for $912 million.

- Concho Resources (NYSE: CXO) agreed to sell its assets in the New Mexico Shelf to Spur Energy Partners for $925 million. The proceeds could help fund a stock buyback plan.

- The government of Papua New Guinea reaffirmed a $13 billion gas export deal with Total (NYSE: TOT) signed under a previous administration. Total made some minor concessions. “The government has now cleared Total to proceed full steam ahead with the implementation of the Papua Gas Project,” Petroleum Minister Kerenga Kua said in a statement.

Tuesday September 3, 2019

Oil prices fell back on Monday on returning fears of a global economic slowdown. Higher tariffs took effect over the weekend. Also, China and the U.S. have not yet agreed to a schedule for trade negotiations, a further sign that the trade war is very far from a resolution. “It is still all about the economy,” Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA, told Bloomberg. “When it comes to U.S.-China trade tensions, any setbacks appear to lend support to the U.S. dollar and generate headwinds for commodities.”

China’s tariffs on U.S. oil take effect. Last month China announced retaliatory tariffs on U.S. oil imports. Those levies took effect on Sunday.

Aramco corporate reshuffling ahead of IPO. Saudi Arabia has named Yasir al-Rumayyan, the head of the sovereign wealth fund, as the chairman of Saudi Aramco, replacing energy minister Khalid al-Falih. The decision was made as a preparation for the company’s public offering. Also, the government created a new ministry for industry and mineral resources, separating it out from the energy ministry. Together, the moves diminish the authority of al-Falih, although he will retain control of the energy ministry. Sources told Reuters that the government has been unhappy with the results of development under al-Falih. The Saudi economy has been slowing down amid production curtailments and low oil prices. Economists see GDP growing by 1.4 percent this year, down from 2.2 percent last year.

Related: Analysts Cut WTI Oil Price Forecast Again

OPEC production rose in August for first time in 2019. OPEC production rose by 200,000 bpd in August, the first collective increase since the OPEC+ cuts took effect at the start of the year. Gains came from Saudi Arabia, Nigeria and Iraq.

ExxonMobil falls out of top 10 in S&P 500. For the first time ever, ExxonMobil (NYSE: XOM) fell out of the top 10 in the S&P 500, a sign of the declining position of the oil major, but also a warning sign for the oil industry on the whole. 

U.S. oil production slows. The latest EIA data shows monthly U.S. oil production falling to 12.082 mb/d in June, a slight decrease from the month before. The figures show a decline in some states, while only tepid growth in Texas. The data offers more evidence of a slowdown in production growth from the shale patch.

China submits WTO case against U.S. China has submitted a WTO complaint against the U.S. over tariffs. The complaint comes as reciprocal tariffs took effect on September 1 on a larger portion of goods.

Equinor to start Sverdrup oil field in autumn. Equinor (NYSE: EQNR) won approval to start its Johan Sverdrup oil field in October, earlier than expected. Production could start at 226,000 bpd and rise to 440,000 bpd in the summer of 2020. The second phase could increase output to 660,000 bpd by 2022.

U.S. truck makers report lower orders. U.S. truck manufacturers report sharply lower orders, another sign of an economic slowdown. Trade tariffs and a slowdown in manufacturing is reducing demand for freight. Rates for freight have declined 20 percent since June 2018, according to the Wall Street Journal.

EV sales fall in China for first time. Global EV sales fell for the first time in modern history in July, largely because of a cutback in subsidies in China. Monthly sales declined by 14 percent worldwide, according to Bloomberg.

Oil & Money Conference rebrands due to pressure. The Oil & Money Conference in London has been held for forty years, but due to global pressure surrounding climate change, starting in 2020 the gathering will be called the Energy Intelligence Forum. Meanwhile, the New York Times, a longtime sponsor of the conference, announced that it would end its relationship.

Related: Iran Offers EU Two Options To Keep Nuclear Deal In Place

Hedge funds cut positions in oil. Hedge funds and other money managers have become a bit more pessimistic on crude oil, cutting their net-length in the futures market last week for the third time in the last four weeks.

Iran won’t negotiate. After news reports surfaced last week that suggested that Iran was open to negotiate with the U.S. over its nuclear program and even its ballistic missile program, Iranian officials moved to quash such rumors. “We’ve said it before time and again, and we say it again: We have no intention to hold bilateral talks with the United States. We never did and never will. It has been the case in the past year and a half, and even in previous years. There have been calls for talks, but we never responded to them,” Rouhani said as quoted by Mehr news agency.

Ethanol package expected from Trump admin. Recent decisions from the Trump administration have infuriated corn and ethanol producers. Last week, President Trump promised to soon release a package of ideas that would repair relations with farm country. Analysts suspect the government might boost requirements for biofuels for next year or some other way to offset the damage done to the ethanol market.

By Tom Kool for Oilprice.com

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