Oil steady on OPEC cuts, strong demand and looming Iran sanctions

CNBC

  • Oil prices held firm on strong demand and ongoing OPEC-led supply cuts.
  • Markets remained below multi-year highs from the previous day.
  • The crude oil price forward curve is in firm backwardation.

Oil

Lucy Nicholson | Reuters

Oil prices held firm on Friday on strong demand, ongoing supply cuts led by producer cartel OPEC and looming U.S. sanctions against major crude exporter Iran.

But markets remained below multi-year highs from the previous day as surging output from the United States is expected to offset at least some of the shortfalls.

Brent crude futures were at $79.48 per barrel at 0041 GMT, up 5 cents from their last close. Brent broke through $80 for the first time since November 2014 on Thursday.

U.S. West Texas Intermediate (WTI) crude futures were at $71.55 a barrel, up 6 cents from their last settlement.

Crude prices have received broad support from voluntary supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at tightening the market.

Helped by strong demand, especially in Asia, as well as a U.S. announcement earlier this month to renew sanctions against OPEC-member Iran, Brent has climbed 20 percent since the start of the year.

“Global inventories are approaching long-run averages, suggesting that the coordinated OPEC/non-OPEC supply cuts have been successful,” said Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald.

$80 oil, friend or foe of the rally?

$80 oil, friend or foe of the rally?  

Despite this, he said he saw “little to drive benchmarks much higher in the immediate term (as) there is a building concern over demand growth, partially on account of higher prices.”

At $80 per barrel, Asia’s thirst for oil costs the region a whopping $1 trillion a year, more than twice what it was in 2015/2016, the two years prior to the OPEC-cuts which started in 2017.

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Longer-term

The crude oil price forward curve is in firm backwardation, a structure that suggests a tight market as prices for immediate delivery are higher than those for later dispatch.

Front-month Brent prices are now almost $1.80 per barrel more expensive than those for delivery in December.

“Longer-dated (crude) futures … remain in backwardation, driven by confidence in indefatigable U.S. shale producers,” U.S. firm Height Securities said in a note, although it warned that strong demand as well as looming disruptions due to renewed U.S. sanctions against Iran and falling output in Venezuela could soon start lifting the crude forward curve too.

U.S. crude oil production has soared by more than a quarter in the last two years, to a record 10.72 million barrels per day.

That puts the United States within reach of top producer Russia, which pumps around 11 million bpd.

As a result of its surging production, U.S. crude is increasingly appearing on global markets as exports.

Exxon’s Darren Woods will break from oil giant’s longstanding CEO silence on quarterly results

DALLAS NEWS

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Wire Services

Darren Woods is breaking with tradition to become the first Exxon Mobil Corp. CEO to sit in on quarterly conference calls with analysts. But it’s not happening until next year.

Woods, who rose to chief executive in early 2017, will participate in the Irving-based company’s fourth-quarter earnings call, typically in late January or early February, Vice President of Investor Relations Jeff Woodbury said Friday in a webcast. In the meantime, a member of his inner circle will answer questions on quarterly calls.

“We believe that the investment community did not have a very good understanding of what our value growth potential was,” Woodbury said Friday during a conference call. “We have taken an extra effort in order to engage with the investment community at all levels of the corporation.”

Exxon CEO Darren Woods(Melissa Repko/Staff)
Exxon CEO Darren Woods
(Melissa Repko/Staff)

For Exxon, the announcement represents a seismic shift in corporate culture as well as a bow to investors and analysts who have said they want more direct access to Woods. Typically Woodbury hosts the calls alone.

Neither of the CEO’s predecessors — Rex Tillerson and Lee Raymond — participated in the quarterly ritual during their combined 24 years leading the company.

The comments follow an earnings report that included the worst first-quarter output since the 1999 merger with Mobil and financial results that fell short of expectations. Exxon reported first-quarter earnings of $4.65 billion, which missed analysts’ estimates despite rapidly rising crude prices.

Crude oil prices are recovering after years of low prices weighing down revenue and profit for Exxon and its peers. Higher prices helped offset higher costs and a drop in production.

The company’s profit jumped 16 percent, with earnings of $1.09 a share, a nickel shy of projections on Wall Street, according to a poll by Zacks Investment Research.

Revenue rose 16.3 percent to $68.21 billion, which easily exceeded analyst expectations of $66.07 billion.

Crude prices are up about $8 per barrel since the beginning of the year.

“Increased commodity prices, coupled with a focus on operating efficiently and strengthening our portfolio, resulted in higher earnings and the highest quarterly cash flow from operations and asset sales since 2014,” Woods said in the earnings announcement.

The Associated Press and Bloomberg

Oil logs strongest weekly performance in over 8 months

MarketWatch

Monthly IEA report, Syria tensions lift oil

Reuters

By

MyraP. Saefong

Markets/commodities reporter

SaraSjolin

Markets reporter

Crude-oil prices rose for a fifth straight session Friday, with U.S. benchmark crude tallying a gain of nearly 9% for the week, driven by fears of a U.S.-led military conflict in Syria.

A report from the International Energy Agency on Friday also indicated that OPEC soon will have succeeded in reaching its target for reducing the global supply glut.

May West Texas Intermediate crude CLK8, +0.48%  tacked on 32 cents, or 0.5%, to settle at $67.39 a barrel on the New York Mercantile Exchange. For the week, the U.S. oil benchmark rallied by roughly 8.6%, which was the strongest weekly percentage performance since late July of last year.

June Brent LCOM8, +0.83% added 56 cents, or 0.8%, to $72.58 a barrel on ICE Futures Europe. For the week, in the international benchmark was up about 8.2%.

On Friday, the IEA indicated that global oil stockpiles are dwindling and approaching the five-year average the Organization of the Petroleum Exporting Countries is targeting.

“It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished,’ but if our outlook is accurate, it certainly looks very much like it,” the IEA said in its report.

The Vienna agreement refers to the group of OPEC and non-OPEC countries that in 2016 agreed to cut output in an effort to reduce a global supply glut that had dragged oil prices substantially lower. The IEA report echoes the monthly data from OPEC earlier this week, which showed the group’s output declined by 201,000 in March and that the supply surplus is evaporating.

The IEA also noted that the continuing U.S.-China trade spat could dent oil demand.

Longer term, “we are bullish on oil prices as continued global economic growth drives demand higher by approximately 1.5% per year,” said Jay Hatfield, chief executive officer and founder of InfraCap. Global supply also “remains constrained by declines in Venezuela production, flat to declining production in offshore areas such as the North Sea, offset by steady growth in U.S. production of approximately 1 million barrels per day.”

Hatfield expects WTI to trade in the $60-70 range this year and $70-80 in 2019, “with more risk to the upside.”

Read: Here’s why Credit Suisse just boosted its oil price forecast by 18%

In the U.S., Baker Hughes BHGE, +1.37%  on Friday reported that the number of active domestic oil rigs edged up by 7 this week. The figure, which offers a peek at U.S. oil activity, was up a second straight week.

Still, market participants said crude futures have come under pressure amid fears that Russia may retaliate against the U.S. by imposing sanctions in response to sanctions levied against Moscow last week in response to what the U.S. said was attempts to subvert Western democracies, and malicious cyber activities.

“This news offset good news about the ratcheted down of trade tensions with China and the possibility the U.S. could be re-entering the [Trans-Pacific Partnership],” said Phil Flynn, senior market analyst at Price Futures Group, in a note.

The fear is that sanctions from Russia could hurt demand and push prices lower, he explained.

More broadly, the stellar weekly performances for both WTI and Brent this week come as geopolitical tensions have returned to the fore after a suspected chemical-weapons attack in Syria that killed civilians over the weekend. That matter is also complicated by Syria’s friendly ties with Russia, Iran and Turkey.

U.S. President Donald Trump on Wednesday warned Russia that he was ready to launch an imminent military attack on Syria, but toned down his rhetoric on Thursday.

Among energy products, gasoline RBK8, +0.34%  settled 0.5% higher at $2.065 a gallon, for a 5.7% gain on the week. May heating oil HOK8, +0.87% added 0.8% to $2.10 a gallon—up about 7.3% for the week.

May natural gas NGK18, +1.86%  rose 1.8% to $2.735 per million British thermal units, for a weekly rise of 1.3%.

Crude Oil Prices Are Up Sharply, But Is The Bakken Shale Play Back?

INVESTOR’s BUSINESS DAILY

Three years after the start of the global oil glut, crude oil prices are rising

and oil industry momentum is picking up.

U.S. benchmark West Texas Intermediate traded on Wednesday 55% above a June 2017 low. In January, crude oil prices recovered above $65 a barrel for the first time since December 2012.

During the downturn, Texas’ Permian and Eagle Ford basins rose to become the star shale oil performers with investors. Now, as industry earnings and crude oil prices continue to recover, investors are looking further afield.

The shale oil fields of the Bakken stretch north from Montana and North Dakota into Canada. The region hosted some of the first stages of the shale oil revolution. But Bakken output peaked in late 2014, then fell off sharply as crude oil prices collapsed due to a worldwide glut.

During the downturn, a number of Bakken producers declared bankruptcy. Others sold assets and shifted their focus to other regions. The Permian and Eagle Ford fields emerged as the premier U.S. shale oil plays. More than a few boomtowns fell quiet in North Dakota and Montana.

Today, the Bakken is regaining steam. Production levels are approaching their 2014 peak. Analysts are turning bullish on Bakken shale play holdouts, including Oasis Petroleum (OAS), Continental Resources (CLR), Marathon Petroleum (MPC), Hess (HES) and ConocoPhillips (COP).

It’s “the number one play” for investors looking to diversify beyond Permian holdings, said Derrick Whitfield, managing director at Stifel.

Politics & Crude Oil Prices

A meeting a week ago between President Trump and a member of the Saudi royal family sent crude oil prices higher. The reason: speculation that the U.S. planned to withdraw from the Iran nuclear deal and impose fresh sanctions. Trump’s appointments of John Bolton and CIA Director Mike Pompeo, both aggressive hawks, bolstered this view.

In addition, the Organization of Petroleum Exporting Countries and Russia are reportedly discussing a production deal that could range to 20 years. Their current agreement props prices by trimming 1.8 million barrels of oil per day from the market. It runs through the end of this year.

Production in Texas’ Permian has been going gangbusters for some time. But the recent rise in crude oil prices has prompted increased activity in shale oil fields with higher break-even prices. That includes the Bakken.

WTI oil at $55 to $60 per barrel means “things start to get interesting in the Bakken,” said Benjamin Shattuck, research director for Wood Mackenzie’s Lower 48 unit. Crude prices closed the week at $64.94 a barrel.

Five years ago, the break-even price for a barrel of oil in the 200,000 square mile Bakken play ran between $70 and $80. Today, that break-even price is closer to $50 to $60, according to Wood Mackenzie data.

That’s still significantly higher than the Permian’s average break-even. Mackenzie says that runs from the high $30s to mid-$40. But it still provides a healthy profit when prices provide enough margin.

The Bakken is one basin that “will be incredibly sensitive to price, the most sensitive of the big three oil plays. But what’s unique and interesting is that it’s very predictable. We know when we drill a well, what it will be like,” Shattuck said.

Geology & Crude Oil Price

The geology of the Bakken is more straightforward than that of the Permian, according to Trisha Curtis, president and co-founder of PetroNerds, an energy analytics and advising firm. Curtis says the Bakken is “like an Oreo cookie:” made up of a main reservoir, held in place by two shale areas on either side.

That well-defined geology has allowed Continental Resources and other key Bakken players to stake out the basin’s prime acreage. New players can’t infiltrate these areas unless they buy assets from owners looking to head south to Texas.

The Permian, on the other hand, has a “muddy layering”of  sub-basins and subplays. This allows operators to find top-producing wells outside the core acreage, but only after risky and expensive exploration.

The Bakken has benefited from advances in well drilling and completion techniques. They are essentially the same advances that have helped lower costs and break-even prices across most shale oil basins.

“The completion design has changed. There is some degree of geosteering that has improved the (Bakken),” Whitfield said. “Proppant loads have increased. You’re more effectively stimulating the reservoir today.”

EIA data show a rising number of drilled but uncompleted wells being restarted in the Bakken. Those DUC wells were drilled, then capped, before the downturn. They come back online as prices rise, needing only to be “completed” by services companies. Prices for pressure pumping and other completion services related to hydraulic fracturing are lower now than they were as production peaked in 2014. Those costs will eventually rise. But, for now, they help to lower producers’ break-even costs.

Bottlenecks And Break-Even Prices

The Permian and the Bakken are the most well-developed U.S. shale oil basins. But both continue to face bottleneck issues. Those issues relate primarily to the takeaway capacity of rail terminals and pipelines. Water supply limitations and truck congestion can also be problems.

The Bakken went through the worst of that phase in 2008 to 2010, Whitfield says.

“A lot of the Bakken from the logistical perspective, like rail and pipe, was all established back during the period,” Whitfield said. “It’s very capital efficient to grow in the Bakken now. You don’t have to build more terminals.”

Outflow from the Bakken received a boost in June last year. That’s when the Dakota Access pipeline — the subject of a year-long protest at South Dakota’s Standing Rock Sioux Reservation — launched operations. The line delivers Bakken oil to a hub in Illinois. The hub then feeds Midwestern refineries around the always thirsty Chicago market.

The Dakota Access has a total eventual capacity of 570,000 barrels per day. Rail transport, such as that which supplies oil to the Philadelphia Energy Solutions refinery, still accounts for as much as 70% of Bakken’s take away. But the new pipeline helps drive down the delivery cost of Bakken oil.

Another price benefit may come from sand. The Permian’s soaring demand for local sand in Texas could help lower fracking sand costs in the Bakken. Some high-quality northern white sand once shipped out of Wisconsin to Texas is now likely to be redirected to the Bakken, Whitfield suggests. The increased supply could force competing sand vendors to lower prices.

Is The Bakken Back?

Last month, Texas-based Smart Sand (SND) announced a $15.5 million deal to expand its facilities in the Bakken. The deal provided rights to the Van Hook train terminal for unloading sand. That outlet will help digest added supply from the Wisconsin frac sand mine it expanded earlier this year.

The Bakken’s recovering production follows a shift among exploration and production companies away from spending to chase rising oil prices.

“Producers are more focused on bringing cash to the bottom line than in the past, when they were more interested in developing proven resources,” said James Williams, an economist at energy consultant WTRG.

While the Bakken is getting increased attention, Curtis said there won’t be a rush of new players, such as has been the case in the Permian.

“I wouldn’t say it’s back. I would say you have core players in the Bakken that are running with it, that it was their baby and that’s going to drive it,” Curtis said.

But so long as prices hold near $60, the Bakken will play a critical role in keeping U.S. shale oil production on an uptrend into the 2020s, Williams says.

“I mean, we are going to keep increasing production at well over 1 million barrels per day a year unless prices collapse,” Williams said. “If they collapse the whole game changes.”

Crude Oil Prices – Weekly Outlook: March 12 – 16

© Reuters.  Crude oil prices score a gain for the week © Reuters. Crude oil prices score a gain for the week

Investing.com – Oil prices rallied sharply on Friday, scoring a weekly gain, as traders cheered data showing the number of U.S. oil rigs fell for the first time in seven weeks, pointing to a potential slowdown in domestic oil output.

Improved appetite for risk-sensitive assets in the wake of strong U.S. jobs data and news of a potential U.S.-North Korea meeting also contributed to oil’s price rise.

U.S. West Texas Intermediate (WTI) crude futures for April delivery surged $1.92, or 3.2%, to close at $62.04 a barrel.

The U.S. benchmark slipped to a three-week low of $59.95 on Thursday, as investors worried over soaring U.S. output levels.

Meanwhile, May Brent crude futures, the benchmark for oil prices outside the U.S., jumped $1.88, or roughly 3%, to settle at $65.49 a barrel.

For the week, WTI crude rose 1.3%, while Brent gained 1.7%.

The number of oil drilling rigs fell by four to 796 last week, General Electric (NYSE:GE)’s Baker Hughes energy services firm said in its closely followed report on Friday.

That marked the first such decline in seven weeks, suggesting the possibility of a fall in future output.

That came after data on Wednesday showed U.S. oil production, driven by shale extraction, rose to an all-time high of 10.37 million barrels per day (bpd), staying above Saudi Arabia’s output levels and within reach of Russia, the world’s biggest crude producer.

Analysts and traders have recently warned that booming U.S. shale oil production could potentially derail OPEC’s effort to end a supply glut.

The Organization of the Petroleum Exporting Countries, along with some non-OPEC members led by Russia, have been restraining production by 1.8 million bpd to curb the market of excess supply. The arrangement, which was adopted last winter, expires at the end of 2018.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer and how fast output levels will continue to rise.

Oil traders will also focus on monthly reports from the Organization of Petroleum Exporting Counties and the International Energy Agency to assess global oil supply and demand levels.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday

The U.S. Energy Information Administration (EIA) is to issue a monthly update on shale-oil production levels

Tuesday

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

Later on, the U.S. EIA is to release weekly data on oil and gasoline stockpiles.

Thursday

The International Energy Agency will release its monthly report on global oil supply and demand.

The U.S. government will publish a weekly report on natural gas supplies in storage.

Friday

Baker Hughes will release weekly data on the U.S. oil rig count.