Oil climbs from 3-month low as more oil workers strike in Norway

CNBC

  • Brent crude prices rose from a three-month low on Tuesday after more oil workers went on strike in Norway.
  • The market has been dominated by oversupply issues in recent days.

Oil fracking

David McNew | Getty Images

Brent crude prices rose from a three-month low on Tuesday after more oil workers went on strike in Norway, supporting a market that has been dominated by oversupply issues in recent days.

Brent crude futures had climbed 28 cents, or 0.4 percent, to $72.12 a barrel by 0331 GMT. They fell 4.6 percent on Monday, at one point touching their lowest since mid-April.

U.S. West Texas Intermediate futures were down 1 cent at $68.05. They fell 4.2 percent on Monday.

An oil worker strike in Norway intensified on Monday when hundreds more walked out in a dispute over pay and pensions after employers failed to respond to union demands for a new offer.

The strike, which began last Tuesday, has had a limited impact on Norway’s oil production so far, but some drillers warned of possible contract cancellations if the dispute goes on for a month or more.

“The threat of further supply disruptions hasn’t totally evaporated,” ANZ said in a morning note.

ANZ also said that “production from Libya remains susceptible to further declines, despite its ports reopening”.

While Libyan ports are reopening, output at the Sharara oilfield was expected to fall by at least 160,000 barrels per day (bpd) after two workers were abducted by an unknown group, the National Oil Corporation said on Saturday.

On July 11, the NOC said four export terminals were being reopened after eastern factions handed over the ports, while a lengthy shutdown at the El Feel oilfield in the southwest also ended. Two days later, output at the nearby 300,000 bpd Sharara was slashed.

U.S. oil output from seven major shale formations is expected to rise by 143,000 bpd to a record 7.47 million bpd in August, the U.S. Energy Information Administration said in a monthly report on Monday.

Production is expected to climb in all seven formations, with the largest gain of 73,000 bpd seen in the Permian Basin of Texas and New Mexico. All shale regions except for Appalachia are at a high, according to the data.

Oil prices dip as markets eye potential supply increases 

CNBC

  • Oil prices fell on Monday as concerns about supply disruptions eased and Libyan ports resumed export activities.
  • Traders eyed potential supply increases by Russia and other oil producers.

Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Getty Images
Pump jacks and wells are seen in an oil field on the Monterey Shale formation, March 23, 2014, near McKittrick, Calif.

Oil prices fell on Monday as concerns about supply disruptions eased and Libyan ports resumed export activities, while traders eyed potential supply increases by Russia and other oil producers.

Brent crude futures were down 26 cents, or 0.4 percent, at $75.07 a barrel at 0057 GMT.

U.S. West Texas Intermediate (WTI) crude was down 27 cents, or 0.4 percent, at $70.74 a barrel.

Supply outages in Libya and strike action in Norway and Iraq pushed oil prices higher late last week, although prices still ended down for a second straight week.

“Crude oil prices fell as fears of supply disruptions eased. News that Libya’s state oil producer had restarted output from a major oil field ignited the selloff earlier in the week,” ANZ Bank said in a note.

The market focus shifted towards possible supply increases, even as a Norwegian union for workers on offshore oil and gas drilling rigs stepped up a six-day strike.

Russia and other major oil producers may increase output further should supply shortages hit the global oil market, Russian Energy Minister Alexander Novak said on Friday.

Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA, said U.S.-China trade tensions “should subside this week and could be a possible plus for oil prices,” but a possible sale of U.S. oil reserves would weigh on prices.

“With the Trump administration actively considering tapping into the nation’s Strategic Petroleum Reserve, it could weigh negatively,” Innes said.

The United States holds a reserve of about 660 million barrels, and the Trump administration was considering drawing on the country’s oil reserve, which would increase supply, according to a Bloomberg report.

Meanwhile, the number of rigs drilling in the United States remained unchanged at 863 in the week to July 13 as the rate of the growth slowed amid a fall in crude prices.

Norway’s $1 Trillion Wealth Fund Looks To Dump Oil & Gas Stocks

Oilprice.com

Norway

The global campaign to divest from fossil fuels may have just picked up its most significant ally to date – the largest sovereign wealth fund in the world.

Norway’s trillion-dollar sovereign wealth fund has proposed dropping investment for oil and gas companies. The plan, backed by the central bank, still needs approval by the finance ministry, but it would see the fund gradually divesting itself of oil and gas stocks over time. Currently, fossil fuel investments account for about 6 percent of the fund’s assets, or $37 billion.

“Our advice is to simply remove the oil and gas sector, as it is defined in the FTSE reference index, from the fund’s reference index,” Deputy Central Bank Governor Egil Matsen told Reuters in an interview. “That would mean all companies that the FTSE has classified with the sector, should be removed from our reference index.”

The global movement for fossil fuel divestment has been one of the fastest growing divestment campaigns ever witnessed. According to Fossil Free, a project of 350.org, an estimated 808 institutions from around the world have committed to divestment, totaling $5.57 trillion in assets. The type of groups are varied – about 27 percent of them are faith-based, another 20 percent are philanthropic foundations, 18 percent are government, 16 percent are education institutions, and 10 percent are pension funds.

But the potential move by Norway’s sovereign wealth fund is one of the most significant pledges yet, for a few reasons. First, the size of the fund, with $1 trillion in assets, is obviously notable. Second, the fund was built on oil and gas money, so a diversification away from fossil fuels has symbolic importance. But third, the justification for divestment, according to the fund, is not because of concerns over climate change, which is the usual reason why most other institutions have opted to divest.

Norway’s sovereign wealth fund wants out of fossil fuels in order to avoid exposure to oil price fluctuations.

The sovereign wealth fund is a massive investor in oil and gas, so the news of a shift in investment strategy is significant. According to Reuters, Norway’s sovereign wealth fund holds a 2.3 percent stake in Royal Dutch Shell, 1.7 percent stake in BP, 0.9 percent stake in Chevron and 0.8 percent of ExxonMobil.

But, as any energy investor would know, oil and gas stocks have been poor performers for the past few years. “It clearly stands out, perhaps not surprisingly, but not obviously, that indeed there is a substantial difference … in return between the oil and gas sector and the broad stock market in periods when the oil price changes substantially,” Matsen said. “Oil price exposure of the government’s wealth position can be reduced by not having the fund invested in oil and gas stocks.” The sovereign wealth fund, like other investors, would have been better off putting their money in other sectors of the global economy.

It isn’t just the most recent downturn that Norway is worried about. Over the long-term, peak oil demand looms. Pulling out of companies like Royal Dutch Shell and BP would make Norway’s wealth “less vulnerable to a permanent drop in oil and gas prices,” according to the country’s central bank, the FT reported.Related: Why Saudi Arabia Should Fear U.S. Oil Dominance

The sovereign wealth fund is seeded with revenues generated from oil and gas sales, so it is already vulnerable to oil price fluctuations. Moreover, the Norwegian government owns a substantial portion of Statoil, making the country even more dependent on oil and gas revenues. One way to reduce the country’s financial risk would be for the sovereign wealth fund to get out of the oil business.

Critics of the divestment campaign often note that liquidating one’s assets does very little to influence the actions of the oil and gas industry. After all, even if divestment dragged down the valuation of an oil company, its share price would merely be discounted for opportunistic investors to scoop up the asset on the cheap. But that was never the overarching goal. The objective of the divestment movement was to make fossil fuels so toxic in the minds of the public that it forces governments to change policies to force a transition towards cleaner energy. That fight is ongoing.

However, the proposal from the Norwegian sovereign wealth fund opens up an entirely new front on the oil and gas industry. Hard-headed central bankers are concerned about the long-term investment case for fossil fuels…unrelated from climate change. The largest sovereign wealth fund in the world simply doesn’t think it makes sense to hold onto oil and gas assets anymore.

By Nick Cunningham of Oilprice.com