August 9, 2019/OilPrice.com
While a promise from Saudi Arabia to keep oil exports below 7 million bpd has given oil markets some hope, overall sentiment appears to be very bearish.
Friday, August 9th, 2019
The main news today comes from the IEA, which called global oil demand “fragile” amid signs of a slowing economy. “The situation is becoming even more uncertain: the U.S.-China trade dispute remains unresolved and in September new tariffs are due to be imposed,” the Paris-based agency said in its monthly report. “The outlook is fragile with a greater likelihood of a downward revision than an upward one.” While Saudi Arabia’s promise to keep oil exports below 7 million bpd has given oil prices a boost, sentiment remains undeniably bearish.
IEA cuts oil demand growth forecast again. The IEA’s latest Oil Market Report shows some worrying numbers on oil demand. Consumption declined in May by 160,000 bpd year-on-year. Between January and May, demand was only up by 520,000 bpd, the weakest increase since 2008. Overall, the agency cut global demand growth for 2019 to 1.1 mb/d. The data offers further evidence of an economic slowdown.
OPEC eyes deeper cuts. Reports suggest that Saudi Arabia called other producers to explore deeper action in response to sliding prices. The report alone helped spark a rebound in prices. The Oil Kingdom also announced that it would keep oil exports below 7 million bpd.
New Permian pipelines bring relief. Permian oil producers could see not only expanded midstream capacity, but also lower fees as new pipelines bring competition. As much as 1.6 mb/d of capacity is coming online in the next few months, with another 900,000 bpd set to be operational before the end of the year. The midstream bottleneck will quickly transform into a surplus. “There’s no way another 2.5 million bpd are waiting to get sent to Corpus Christi (Texas),” Sandy Fielden, an analyst at Morningstar, told Reuters. “Clearly, there’s going to be too much capacity … There will be buying up of barrels in Midland like it’s going out of style.”
U.S.-Saudi cooperation on Gulf Security. U.S. Secretary of Energy Rick Perry met with Saudi oil minister Khalid al-Falih on Tuesday, where the two pledged to cooperate on the security of oil flows.
Rystad: Oil outlook going from “gloomy to gloomier.” The potential for economic recession combined with ongoing increases in supply growth pose a rather gloomy recipe for oil prices heading into next year. Recent developments have “sent cold shivers” through the oil team at Rystad Energy, the consultancy said in a release.
UK sees GDP contraction. In the second quarter, the UK’s economy shrank for the first time since 2012. Analysts are also raising the odds of a no-deal Brexit later this year. “There is … little doubt that the economy is stalling, regardless of the volatility in the data,” PwC senior economist Mike Jakeman said.
U.S. natural gas demand at record high, but prices fall. Demand for natural gas in the U.S. continues to climb to record highs, but prices keep falling. The reason is that production continues to climb. Spot prices at the Henry Hub NG-W-HH-SNL benchmark in Louisiana were nearing a 20-year low, according to Reuters. “All the bulls are gone,” Kyle Cooper, consultant at ION Energy in Houston, told Reuters.
Argentina heads to polls. Argentina is holding an August 11 vote in the presidential primary, and due to the lack of reliable polling, the vote is viewed as a crucial barometer ahead of the general election later this year. Analysts say the reelection of President Mauricio Macri would provide certainty for the Vaca Muerta, where shale drilling is on the rise. However, analysts say that the opposition ticket, which includes former president Cristina Fernandez de Kirchner as the vice-presidential candidate, would still support Vaca Muerta development, although it would bring more uncertainty.
Nigerian oil struggling to find a home. According to Reuters, Nigeria’s light sweet oil is having trouble finding buyers, displaced by U.S. shale oil of similar quality. Rising U.S. exports have forced Nigerian oil not only out of U.S. markets, but also increasingly overseas. Reuters said that as many as forty cargoes of oil from Nigeria for August lacked buyers as late as July 18.
Big investors starting to divest from Big Oil. Bloomberg reports on a growing trend of major investors starting to divest from oil companies over climate concerns. “You cannot have the same conversation for 15 years with no results,” one investor told Bloomberg.
Occidental sells $13 billion in debt. Occidental Petroleum (NYSE: OXY) sold $13 billion in debt to help finance its takeover of Anadarko Petroleum. The result was successful, demonstrating there is still a strong appetite for debt from some investors.
PDC Energy in talks to combine with SRC Energy. PDC Energy (NASDAQ: PDCE) is in talks with SRC Energy (NYSEAMERICAN: SRCI) on a merger. If it goes through, the companies would combine to create a larger Colorado driller. The talks are also a sign of the pressure to consolidate as the industry goes through a rough patch.
Hamm sees little value in public listing. Continental Resources (NYSE: CLR) CEO Harold Hamm was asked about the value of listing his company publicly. “In today’s market, we don’t see a lot of value in it,” Hamm said. The company has lost $15 billion in market capitalization since late last year.
Berkeley gas ban could spread to other cities. The city of Berkeley, CA recently banned natural gas hookups for certain types of new buildings, which could be the beginning of a broader trend. “Wow. Can you imagine if every local municipality takes up this issue? It’s death by a 1,000 cuts,” Catherine Reheis-Boyd, the president of the Western States Petroleum Association said Wednesday. Some 50 other municipalities are weighing similar measures, according to S&P Global Platts.
Texas approves flaring permit in closely-watched case. The Texas Railroad Commission approved a closely-watched permit for flaring on Tuesday, siding with drillers over the pipeline industry.
Aramco IPO could be back. Saudi Aramco is expected to hold its first-ever investor call on Monday, and there is now speculation that the company could move forward with a public offering as soon as next year. Reuters reported that there is a rather large gap between the $2 trillion valuation the company wants and the roughly $1.5 trillion that some bankers think the company is worth.