Oil prices could rally to $100 a barrel if Middle East tensions ‘really kick off,’ analyst says

CNBC

  • “I don’t think its unfeasible to see triple-digit oil prices at some point this year if things really kick off in the Middle East,” Anish Kapadia, founder and managing director of Akap Energy, told CNBC’s “Street Signs” on Friday.
  • Both benchmarks were on track to post their biggest weekly gain in more than eight months on Friday.
  • World leaders continued to mull over military action on Friday, in response to a suspected chemical attack in Syria over the weekend.

What you see is a shift in the oil market, says energy expert

What you see is a shift in the oil market, says energy expert  

Oil prices could soon skyrocket to more than $100 a barrel amid escalating tensions in the Middle East, one oil analyst told CNBC Friday.

Crude futures surged to highs not seen since December 2014 earlier in the week, underpinned by greater geopolitical uncertainty in Syria and elevated concerns over the prospect of imminent military action by Western powers.

“I don’t think its unfeasible to see triple-digit oil prices at some point this year if things really kick off in the Middle East,” Anish Kapadia, founder and managing director of Akap Energy, told CNBC’s “Street Signs” on Friday.

A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

Brittany Sowacke | Bloomberg | Getty Images
A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.

He added market participants had been “laughed out the room” when they projected crude futures to reach either $60 or $70 a barrel six months ago. But heightened tensions in the Middle East had since brought about the prospect of oil prices soaring to more than $100 a barrel later this year, he added.

Geopolitical premium ‘alive and well’

Both benchmarks were on track to post their biggest weekly gain in more than eight months on Friday, shortly after President Donald Trump‘s comments about potential missile strikes and reports of dwindling global oil stocks.

Brent crude was trading at $72.26 during lunchtime deals on Friday, up around 0.3 percent, while WTI traded at $67.35, approximately 0.4 percent higher. Both benchmarks have gained about $5 since the start of the week.

An uptick in oil prices followed incendiary comments from Trump on Wednesday. The U.S. president tweeted missiles “will be coming,” in response to a suspected chemical attack in Syria over the weekend. He has since sought to dial back such explosive rhetoric, raising the prospect that an attack on Syria may not be as imminent as it first appeared.

Nonetheless, world leaders continued to mull over military action in the war-torn country on Friday.

President Donald Trump

Getty Images
President Donald Trump

“Trump’s will-he-or-won’t-he antics are here to stay and will, therefore, ensure that the geopolitical risk premium remains alive and well,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note Friday.

He added oil prices were likely to continue to extend their recent gains in the near term.

However, the International Energy Agency (IEA) said Friday it “remained to be seen” whether recently elevated oil prices could be sustained.

In the Paris-based organization’s latest monthly report, the group left its forecast for oil demand unchanged at 99.3 million barrels per day (bpd) in 2018. The IEA’s outlook for supply also remained the same, as it projected non-OPEC growth to reach 1.8 million bpd this year.

Oil drops after US President Trump threatens new China trade tariffs

CNBC

  • Oil prices fell along with equities as U.S. President Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.
  • While oil market watchers were wary of the brewing trade war, they did not expect to see steep falls amid signs of tightening supplies.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Oil prices fell on Friday after U.S. President Donald Trump’s threat of new tariffs on China reignited fears of a trade war between the world’s two biggest economies.

President Trump said on Thursday he had ordered U.S. trade officials to consider tariffs on $100 billion more of imports from China, escalating tensions with Beijing.

Brent crude for June delivery was down 32 cents, or 0.5 percent, at $68.01 per barrel at 0410 GMT.

U.S. West Texas Intermediate crude for May delivery was down 35 cents, or 0.6 percent, at 63.19 a barrel.

Shanghai September crude futures were untraded due to public holidays in China, after falling 0.8 percent on Wednesday. Shanghai trading will resume on Monday.

While oil market watchers were wary of the brewing trade war between the United States and China, they did not expect to see steep falls amid signs of tightening supplies.

“As the escalating trade tensions continue to weigh on the commodity sector, we view the oil market as the best sector in which to wait out the volatility,” analysts at ANZ bank said in a note. “Supply-side issues amid a backdrop of falling inventories should override any concern over weaker economic growth.”

The Energy Information Administration reported a 4.6 million-barrel draw in U.S. crude inventories last week, compared with analysts’ expectations for an increase of 246,000 barrels.

“U.S. oil inventories remain a volatile gauge, but they still provide a good litmus test for the short-term,” said Stephen Innes, head of trading for the Asia-Pacific region at futures brokerage OANDA in Singapore.

Meanwhile, Saudi Arabia said on Thursday it would raise its official selling price for May crude for Asian customers.

The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia are committed to cutting output by around 1.8 million barrels per day through the end of 2018 in a bid to clear a global overhang and support prices.

Saudi Arabia, the de facto leader of the oil cartel, has said production cuts could be extended in one form or another.

OPEC and its allies should keep the cuts to ensure healthy price levels as a way to boost investment in the industry and avoid a supply and price shock in the long run, Qatar’s Energy Minister Mohammed al-Sada told Reuters.

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.”

Oil prices fall as U.S. trade dispute with China looms

CNBC

  • Oil prices reversed early gains on Monday as concerns of a looming trade dispute between the United States and China weighed on global markets.
  • U.S. crude futures were at $65.51 a barrel at 0255 GMT, down 0.6 percent, from their previous close.
  • Brent futures were down 0.3 percent at $70.24.
  • Crude was also squeezed by a rise in the number of U.S. rigs drilling for oil to a three-year high of 804, implying further rises in production.

Oil prices reversed earlier gains on Monday as concerns of a looming trade dispute between the United States and China weighed on global markets.

The possibility of a full-blown trade war between the United States and China battered Asian shares on Monday. The falls came after U.S. President Donald Trump last week signed a memorandum that could impose tariffs on up to $60 billion of imports from China.

U.S. West Texas Intermediate (WTI) crude futures were at $65.51 a barrel at 0255 GMT, down 37 cents, or 0.6 percent, from their previous close.

Brent crude futures were at $70.24 per barrel, down 21 cents, or 0.3 percent.

Crude was also squeezed by a rise in the number of U.S. rigs drilling for oil to a three-year high of 804, implying further rises in production, which has already jumped by a quarter since mid-2016 to 10.4 million barrels per day (bpd).

Earlier in the session, prices were lifted by statements from Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), that production cuts that have been in place since 2017 may be extended into 2019, as well as concerns that the United States may re-introduce sanctions against Iran.

“President Donald Trump continues to suggest the U.S. will pull out from (the) Iran nuclear deal, which raises the spectre of bringing back sanctions on the country and severely limiting Tehran’s ability to export crude oil,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.

New future

Financial oil markets have long been dominated by Europe’s Brent and America’s WTI, despite Asia being the world’s biggest and fastest growing oil consumer, has so far not had a benchmark.

That possibly changed on Monday, as Asia saw the launch of Shanghaicrude oil futures.

Few analysts doubt that Asia is overdue a financial oil price benchmark, and that China with its vast consumer and production base is a prime location for it.

“The government (in Beijing) seems determined to support it, and I hear a number of firms are being asked or pressured to trade on it, which could help,” said Jeff Brown, President of energy consultancy FGE.

Despite this, Brown said there were concerns over regulatory interference, as seen in other Chinese financial commodity markets, including iron ore and coal.

“The fact that the government is encouraging the exchange and also is not shy about stepping in to occasionally change the rules may discourage international players,” Brown said.

That concern did not scare off global commodity trading giant Glencore, which according to Chinese brokerage Xinhu Futures carried out the first trade on the Shanghai crude oil futures.

White House-approved report concludes humans are behind climate change

CNBC

  • Humans activity is behind the accelerated warming of the planet since the mid-20th century, the latest U.S. National Climate Assessment finds.
  • The report was prepared by 13 federal agencies and approved by the White House.
  • Its conclusion contradicts public statements by President Donald Trump and top administration officials who have cast doubt on humans’ role in climate change.
2016 is likely to have been the hottest year since global temperatures were recorded in the 19th century.

Getty Images
2016 is likely to have been the hottest year since global temperatures were recorded in the 19th century.

Human activity is the primary cause of rising global temperatures in recent decades, and there is no convincing evidence to the contrary, according to a report issued Friday by 13 U.S. agencies. The assessment, approved by the White House, contradicts public statements by President Donald Trump and several top members of his administration.

The findings came in the Fourth National Climate Assessment, an authoritative review of climate science. The assessment finds that the period from 1901-2016 was the warmest in modern civilization and warns that temperatures and sea levels will rise much more if no action is taken.

“This assessment concludes, based on extensive evidence, that it is extremely likely that human activities, especially emissions of greenhouse gases, are the dominant cause of the observed warming since the mid-20th century,” the report finds.

“For the warming over the last century, there is no convincing alternative explanation supported by the extent of the observational evidence.”

Trump has called climate change a “hoax.” Environmental Protection Agency Administrator Scott Pruitt and Energy Secretary Rick Perryboth told CNBC earlier this year that carbon dioxide emissions from human activity are not the primary driver of climate change.

The Trump administration has rolled back a series of Obama-era rules and initiatives to reduce greenhouse gas emissions and mitigate the effects of climate change. Trump announced in June that he will pull the United States out of the Paris Agreement, a global effort to prevent world temperatures from rising 2 degrees Celsius above preindustrial levels.

Incoming Energy Secretary Rick Perry (R) gives a double thumbs up during the Inaugural Parade for U.S. President Donald J. Trump January 20, 2017 in Washington, DC.

Sec. Perry: Bringing back nuclear energy  

Temperatures in the United States have risen by 1.8 degrees Fahrenheit, or 1 degree Celsius, since 1901, the report finds. The authors forecast that between 2021 and 2050 U.S. temperatures could rise by 2.5 degrees Fahrenheit above 1975-2005 levels in all “plausible future scenarios.”

“The magnitude of climate change beyond the next few decades will depend primarily on the amount of greenhouse gases (especially carbon dioxide) emitted globally,” the authors wrote.

Annual average temperatures could increase by 9 degrees Fahrenheit above preindustrial levels by the end of the century if humans do not reduce emissions, they warn.

“In addition to warming, many other aspects of global climate are changing, primarily in response to human activities,” the report finds. Those include “changes in surface, atmospheric, and oceanic temperatures; melting glaciers; diminishing snow cover; shrinking sea ice; rising sea levels; ocean acidification; and increasing atmospheric water vapor,” according to thousands of studies.

Scott Pruitt

EPA chief Scott Pruitt says carbon dioxide is not a primary contributor to global warming  

Global average sea levels have risen by 7 to 8 inches since 1900, with about half of the rise occurring since 1993, according to the assessment. The authors say a further 8-inch rise by 2100 cannot be ruled out, and the U.S. East and Gulf coasts in particular will be impacted.

Changes in extreme weather events are putting humans, infrastructure, agriculture, water supplies and ecosystems at risk.

The White House told CNBC that the Trump administration supports “rigorous scientific analysis and debate,” and will continue to “support technology, innovation and the development of modern and efficient infrastructure” to reduce emissions and mitigate climate-related risks.

“The climate has changed and is always changing. As the Climate Science Special Report states, the magnitude of future climate change depends significantly on ‘remaining uncertainty in the sensitivity of Earth’s climate to [greenhouse gas] emissions,'” said White House principal deputy press secretary Raj Shah, in a statement.