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The Oil Bull Market Is Back

Tom Kool

Oil is officially back in a bull market as confidence grows over both the global economy and the willingness of OPEC+ to adhere to its production cut agreement.

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Friday, January 11th, 2019

Oil entered a bull market this week, having gained 20 percent since the low point reached in December. WTI rose above $52 per barrel, while Brent moved above $61. “The mood brightens, and the market realizes that the world economy and oil demand are not grinding to a halt,” Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich, told Bloomberg. “Moreover, there is confidence that the petro-nations will cut supplies as promised to balance the market.”

Saudi Aramco releases audit of oil reserves. Saudi Aramco released figures on its oil reserves this week, a figure that has been the subject of speculation for decades. The independent audit was originally initiated in anticipation of Saudi Aramco’s now-delayed IPO. The audit largely confirmed what Saudi officials have long said – that the Kingdom is sitting on massive reserves. The audit revealed 266.3 billion barrels of oil reserves and 307.9 trillion cubic feet of natural gas. Meanwhile, Aramco is expected to issue its first ever international bond sale later this year, with plans to use the proceeds to finance its acquisition of petrochemical giant Sabic.

BP eyes gas find in Caspian. BP (NYSE: BP) plans on drilling six new exploration wells in Azerbaijan by 2020, with the hopes of making another giant natural gas discovery. BP only recently brought its $28 billion Shah Deniz gas field online, but as Bloomberg reports, the oil major hopes to replicate that success. “Alongside Brazil, Azerbaijan stands out in terms of the areas of focus for the next few years,” Gary Jones, BP’s regional president for Azerbaijan, Georgia and Turkey, told Bloomberg in a phone interview. “It’s a very significant exploration program for us, which demonstrates the confidence and the role that we see in the Caspian.”

Related: OPEC’s No.2 Boosted Production, Exports Just Before Cuts Began

Automakers to spend $300 billion on electric vehicles. Global automakers have plans to spend at least $300 billion developing and rolling out electric vehicles over the next decade, according to a Reuters analysis. Nearly half of that total – $135 billion – will be spent in China, where a suite of government policies are pushing technologies and EV adoption forward.

Offshore oil spending to rise by 6 percent. The oil industry will increase offshore spending by 6 percent this year, according to Bloomberg and Rystad Energy. That figure will jump to a 14-percent increase in 2020.

China pulls back on renewables subsidies as costs decline. China is paring back subsidies for solar and wind because new projects can compete without government support. Reuters reports that unsubsidized renewable energy now costs about the same as coal-fired power plants. “Some regions with good natural resources and firm demand have already achieved subsidy-free, or grid price parity, conditions,” said China’s National Development and Reform Commission (NDRC).

New generation in U.S. mostly renewable. The EIA expects 23.7 gigawatts of new electric capacity to be installed in the U.S. this year, and more than 60 percent of that will be wind and solar.

Pompeo lays out activist U.S. foreign policy. U.S. Secretary of State Mike Pompeo laid out a “new” vision for U.S. foreign policy in a speech in Cairo, declaring that “the age of self-inflicted American shame is over.” The speech was vague but promised more action in the Middle East, mostly centered on containing Iran. The speech raised questions, however, because it seemed to contradict President Trump’s desire to withdraw troops from Syria.

Government shutdown hits ANWR. The U.S. Bureau of Land Management delayed hearings on its draft Environmental Impact Statement for oil and gas leasing in the Arctic National Wildlife Refuge due to the government shutdown.

Related: There Is Still Room To Run For Oil Prices

Potential Permian pipeline delay. The 900,000-bpd EPIC oil pipeline that will run from the Permian to the Texas coast in Corpus Christi could face some delays due to regulatory holdups. EPIC Crude Pipeline LP said the expected third quarter startup is in “some jeopardy.”

India pays for Iranian oil in rupees. India has begun paying for oil from Iran in rupees, according to Reuters. India received a waiver from the U.S., allowing it to buy Iranian oil through May. Iran is attempting to construct payment structures and barter deals to bypass U.S. sanctions.

TAP pipeline eyes 2020 startup. The Trans-Adriatic Pipeline (TAP), which will ferry natural gas from the Caspian to Italy, and then on to other parts of Europe, has completed the $4.5 billion in project financing. This will allow the pipeline to finish up its final leg, putting the $40 billion project on track for a 2020 startup. TAP will allow Europe to access non-Russian gas, and as such, it has enormous geopolitical implications.

U.S. oil boom sets off scramble for ports. There are seven proposed oil export terminals for the U.S. Gulf Coast, as developers race to profit off of the export boom. Major developers, including Trafigura and a company backed by Carlyle Group, are battling it out to be the first mover.

Mexico faces widespread gas shortages. The Mexican government shifted gasoline shipments from pipelines to tanker trucks in an effort at cracking down on fuel theft from pipelines. However, the move has caused widespread fuel shortages in the country.

ExxonMobil considers EV infrastructure investment. ExxonMobil (NYSE: XOM) is reportedly mulling an investment in EV recharging infrastructure, although the company has declined to reveal details. If true, it is a glaring recognition that even the more conservative oil executives see the future as one dominated by clean energy. While several European oil majors have made investments in EVs, recharging infrastructure and renewable energy, Exxon has notably refrained from such moves.

By Tom Kool for Oilprice.com

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