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Oil Posts Sixth Week Of Gains

Tom Kool

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Friday, April 12th, 2019

Despite losses on Thursday, oil is set to close out a sixth consecutive week of price gains. The market has been steadily tightening for quite some time, but the instability in Libya this week was the main contributor. “Demand is mixed” but “the tightness of the market is going to win out,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd., said in a Bloomberg television interview.

OPEC production falls 534,000 bpd. OPEC production in March fell by 534,000 bpd, led by a massive 324,000-bpd reduction from Saudi Arabia, putting overall output at just below 9.8 million barrels per day (mb/d), well below its 10-mb/d ceiling as part of the OPEC+ deal. Meanwhile, Iraq lowered output by 126,000 bpd, and Venezuela saw a sharp 289,000-bpd decline in output, due in large part to power outages. On the other hand, Libya saw 196,000 bpd come back online, owing to the ramp up of the Sharara oil field. However, fighting in Libya now puts those gains at risk.

IEA: Oil supply and demand fundamentals relatively bullish. The IEA said that supply declines and steady demand have helped tighten up the oil market. However, the agency noted that there are some concerns about demand, and even as the agency maintained its 1.4-mb/d demand growth estimate, it conceded that there are downside risks to that forecast.

Related: Is This The End Of The OPEC Deal?

ExxonMobil in talks on floating LNG in Israel. ExxonMobil (NYSE: XOM) is reportedly in talks with Noble Energy (NYSE: NBL) and Delek Drilling (OTC: DKDRF) on building a floating LNG gas ship to help develop the Leviathan gas field in Israeli waters. Such a project would allow gas to be exported beyond the region and it would also avoid having to build infrastructure to connect the field to Egypt.

Investors see climate change as threat to profits. Investment advisory firm Mercer LLC says that climate change could cut into profits in entire sectors. While coal, oil and gas lose out if the world gets serious about addressing carbon emissions, sectors such as industrials and agriculture could lose out if there is inaction. “Asset owners should consider climate change at every stage of the investment process, from investment beliefs, policy and process to portfolio construction decisions,” said Deb Clarke, global head of investment research for Mercer.

New gas pipeline could help Permian, and Mexico. Kinder Morgan received a greenlight from federal regulators to begin construction on its Sierrita Compressor Expansion, which would expand the existing Sierrita Gas Pipeline from Arizona to Mexico. More capacity could ease gas bottlenecks in the Permian.

IMF downgrades global GDP. The IMF warned about slower economic growth in an April 9 report, downgrading estimated GDP growth to 3.3 percent this year, down from 3.6 percent in 2018. Previously, the Fund expected growth of 3.5 percent.

Trump issues executive order on pipelines. President Trump signed an executive order intended to streamline the permitting of new energy infrastructure, an effort to strip states of their authority to regulate projects. The effect of the order is unclear since many legal experts think that the order cannot get around federal Clean Water Act legislation that grants states such authority.

Related: European Markets Defy The Biggest Oil Rally In A Decade

Texas flaring enough gas to power the entire state. The Permian natural gas crisis has become so acute that oil producers were flaring gas at the end of 2018 in volumes equivalent to Texas’ entire residential gas demand, according to Bloomberg. The lack of pipelines has resulted in a glut of gas, but because drillers are focusing exclusively on oil, the associated gas continues to come out of the ground. With nowhere to go, natural gas prices have crashed to zero and companies have increased their rates of flaring. “It’s a black eye for the Permian basin,” Pioneer Natural Resources Chief (NYSE: PXD) CEO Scott Sheffield said at a conference at Columbia University this week. “The state, the pipeline companies and the producers -- we all need to come together to figure out a way to stop the flaring.”

Singapore said it will have enough supply for IMO regulations. Forthcoming regulations on marine fuels have raised fears that ship-owners may not have enough low-sulfur fuels, but Singapore, which is home to the world’s largest maritime refueling port, said that it will have ample supply when the IMO regulations take effect at the start of 2020.

Chevron to buy Anadarko for $33 billion. Chevron (NYSE: CVX) has agreed to purchase Anadarko Petroleum (NYSE: APC) for $33 billion in a cash-and-stock deal. The acquisition will boost Chevron’s shale assets, as well as some offshore and natural gas plays. Chevron agreed to purchase all of Anadarko’s shares at $65, a 39 percent premium. Chevron said it would dispose of $15 to $20 billion worth of assets between 2020 and 2022 as a result.

ExxonMobil accuses DOE of selling tainted oil from SPR. ExxonMobil (NYSE: XOM) said that some oil it purchased from the federal government’s strategic petroleum reserve (SPR) last year was tainted, containing “extremely high levels” of hydrogen sulfide, according to Bloomberg. That follows complaints from other companies, and raises the concern that the SPR may not offer the supply assurance that the government and the market have long thought.

U.S. approves 40 percent more drilling permits under Trump. The U.S. government has approved nearly 40 percent more oil and gas drilling permits on public lands in 2018 because of an automated online system, helping to clear a backlog, according to Reuters. Notably, however, the online system was setup in the last days of the Obama administration. Meanwhile, Politico reports that the Trump administration is considering opening up the eastern Gulf of Mexico near Florida to offshore drilling, a politically dangerous move that both parties have steered cleared from for a long time.

By Tom Kool for Oilprice.com

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