Saudi Arabia Successfully Calms Oil Markets

June 11, 2019/OilPrice.com

–        In 2018, U.S. coal production fell to 756 million short tonnes, the second-lowest total since 1978 and down from a peak of 1,172 million short tonnes in 2008.

–    Production and consumption have fallen in tandem. Consumption dropped to just 687 million short tonnes last year, a four-decade low.

–    The vast majority of coal consumed is used for electricity generation. The ongoing shuttering of coal-fired power plants likely ensures steady declines for both production and consumption of coal for years to come.  

Market Movers

–    Cabot Oil & Gas (NYSE: COG) plunged by 5 percent on Monday, dropping to a four-month low. Other natural gas producers also fell sharply. Natural gas prices have fallen to three-year lows as a result of rising supply.

–    Devon Energy (NYSE: DVN) announced a voluntary methane reduction target, aiming to lower emissions by 12.5 percent from current levels to a methane-intensity rate of 0.28 percent by 2025. 

–    Legacy Reserves (NASDAQ: LGCY), a Permian shale driller, filed for Chapter 11 bankruptcy protection. 

Tuesday June 11, 2019

Oil prices rebounded a bit on Tuesday on Saudi assurances that OPEC+ would not let the oil market slide any further. “Prices are finding support from the prospect of OPEC oil production remaining restricted beyond mid-year,” Commerzbank said in a note. 

Russia uncommitted to OPEC+ cuts. Saudi oil minister Khalid al-Falih traveled to Moscow to meet his counterpart, and the two apparently discussed the possibility that crude oil would crash below $40 per barrel without a deal in Vienna. While Russia has been cagey about committing to an extension, market analysts say the odds of a rollover in the cuts is likely. 

U.S. considers sanctions on EU-Iran trade. The Trump administration is considering another round of sanctions that would target the European Union’s financial vehicle that was intended to keep trade alive with Iran. The U.S. sanctions would hit the financial entity Iran established to do business with the EU. Europe’s effort has largely been inadequate, but any U.S. move would damage its relationship with its European allies. 

Iran won’t leave OPEC. Iran has no intention of leaving OPEC despite the fact that the group has been turned “into a political forum,” treating Iran like an enemy, Iranian oil minister Bijan Zanganeh said. Iran has been outraged at the seeming cooperation between Saudi Arabia and the U.S. to block Iranian oil exports. 

Airlines prepare for higher fuel costs after IMO rules. When the new regulations on marine fuels take effect at the start of next year, jet fuel could become more expensive. The heightened demand for low-sulfur fuels and distillates will cut into supplies needed by the aviation industry.

Shell ships first LNG cargo from Prelude. Royal Dutch Shell (NYSE: RDS.A) shipped its first cargo from its Prelude FLNG (floating LNG) facility off the coast of Western Australia, one of the most expensive and highly-anticipated LNG export terminals in the world. “The first [LNG] cargo was more than eight years after FID and nearly two years after the facility arrived in Australia. How fast Prelude delivers its second and third cargo, and ramps up to plateau output, will be a key indicator of success,” Wood Mackenzie senior analyst Daniel Toleman said.

Wall Street cutting off financing for shale. The red ink accumulated by U.S. shale companies is making it difficult for them to access capital markets as investors are growing tired of the poor returns. New bond and equity issuances have ground to a halt, forcing more asset sales. If low oil prices persist, bankruptcies could begin to pile up.

Wind industry booming, but tariffs pose threat. The wind industry is growing quickly and hiring a lot of workers, but tariffs could slow development, according to CNBC

Trump admin considering more sanctions on Venezuela. The Trump administration is considering secondary sanctions that would close off avenues for Venezuela to export its oil. However, analysts say that more sanctions would have little effect since Venezuela is exporting to countries that would not comply. “Russia is not going to stop trading oil with Venezuela as a result of official secondary sanctions, especially since Russia itself is being sanctioned by the US,” Lisa Viscidi, director of energy, climate change and extractive industries at Inter-American Dialogue told S&P Global Platts.

Refiners sue Trump over ethanol. The American Fuel and Petrochemical Manufacturers group is suing the Trump administration over its decision to allow year-round sales of E15, a higher concentration of ethanol.

Biofuels don’t lower gasoline prices. A new report from the U.S. government found that the Renewable Fuel Standard, which requires refiners to blend in biofuels to their fuel mixes, has not helped to lower gasoline prices. And in states far from ethanol production, the standard has actually led to a slight increase in prices.

Oil exodus from Alberta leaves Calgary real estate ailing. Bloomberg reported on the rising number of vacancies in Calgary’s real estate market due to the exodus of international oil companies from Canada’s oil sands. Job cuts from Canadian producers have also added to the woe. Since 2016, more than 20 percent of Calgary’s downtown office space has been available for rent, Bloomberg said, which is about five times the rate seen in Toronto or Vancouver.

Keystone XL construction delayed. A federal court ruled that construction on Keystone XL can move forward, but TC Energy (NYSE: TRP), formerly TransCanada, missed the construction window for the year. “There will be no mainline construction in 2019 in the U.S.,” a TC Energy spokesperson told the Financial Post.

Hedge funds sell off oil on economic fears. Hedge funds and other money managers continued to liquidate their long bets on crude oil futures, as fears of an economic slowdown intensify. The retreat has helped exacerbate the pricing downturn. 

Texas drillers injecting gas back into wells. As the glut of natural gas in West Texas has grown worse, a number of E&Ps are beginning to pump the gas back into their wells. The benefits are two-fold – avoiding flaring while also boosting the recovery of oil. EOG Resources (NYSE: EOG) has found that in some cases it can increase oil production by 30 to 70 percent. Meanwhile, New Mexican regulators are beginning the process of writing new rules on methane emissions. 

Shell to return $125 billion to shareholders. Royal Dutch Shell (NYSE: RDS.A) said that it is on track to return $125 billion to shareholders between 2021 and 2025 via dividends and share buybacks. Shell has also allocating a rising portion of its spending to power generation, a strategy intended to plan for a low-carbon future.

Oil majors inundated with climate lawsuits. A growing number of cities and states are filing lawsuits against the oil majors, seeking damages related to climate change. For instance, the city of Baltimore wants damages related to the ballooning cost of retrofitting storm drains. San Francisco wants money to build a seawall. The FT reports that the litigation resembles the strategy against Big Tobacco. “They are frightened at the prospect of liability at what they have done, and they are scared of courts,” Rhode Island Senator Sheldon Whitehouse (D) said.

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