By Tom Kool
Crude oil fell slightly on Tuesday despite news from Saudi Arabia and Iran which should have put upward pressure on prices.
Oil prices rebounded in early trading on Tuesday before falling in the afternoon as economic uncertainty stemming from Turkey’s currency crisis dampened bullishness. Saudi Arabia’s oil production reduction in July and rising fears of Iranian outages weren’t enough to keep oil prices in the green.
Turkey’s lira crisis drags down oil. Oil prices fell on Monday after Turkey’s currency crashed, raising fears of emerging market financial contagion. Turkey’s lira has declined 30 percent in the past week alone. China’s yuan dipped again. Argentina’s central bank just hiked interest rates by 5 percentage points. India’s rupee fell to a historic low against the dollar. Analysts don’t see an emerging market crisis as necessarily likely, but it isn’t impossible either. An emerging market slowdown raises the risk of much slower-than-expected oil demand.
Megaprojects get greenlight again. The first wave of megaprojects since the oil market downturn in 2014 is on the verge of receiving a greenlight. According to Wood Mackenzie, the oil and gas industry is set to move forward with $300 billion of new spending in 2019 and 2020, more than the combined total of the three-year period between 2015 and 2017. The aggressive spend seems to run in contrast to the promise from industry executives to maintain capital discipline. Oil executives seem to think that they can return to megaprojects while avoiding the cost blowouts of the past, but that remains to be seen. “Oil companies have improved their delivery in small projects, but can they do it with bigger ones?” Angus Rodger, a WoodMac analyst, told Bloomberg. “There’s massive upside on the table if they can show sustained success with capital discipline as oil prices rise. They could deliver the best returns in a decade.”
Shell says deepwater drilling breaks even at $30. Royal Dutch Shell (NYSE: RDS.A) says that the economics of drilling have “flipped” back in favor of deepwater drilling after several years of low investment. Shell says that dramatic cost declines mean that deepwater drilling can breakeven at $30 per barrel, and offshore offers a better return than onshore shale. “It’s great to have both in the portfolio and we are growing our shales business… but in terms of sheer cash flow delivery, our deepwater has significantly more cash flow potential,” Shell’s head of exploration and production Andy Brown told the FT.
Venezuela to hike gasoline prices to market level. Venezuela’s cast-strapped government said that it would allow domestic gasoline prices to rise to the international market level, a move clearly made because the government can no longer afford the hefty cost of subsidizing fuel. “Gasoline must be sold at an international price to stop smuggling to Colombia and the Caribbean,” President Maduro said in a televised address.
India considers cutting oil imports from Iran by 50 percent. India has offered to slash its purchases of oil from Iran by half if the U.S. grants it an exemption on the rest, according to Bloomberg. India is Iran’s second largest buyer of oil, and the extent of the outages in Iran will largely come down to decisions made in New Delhi and Beijing.
Iran vows never to negotiate with Trump. Iran’s Supreme Leader said that Iran would never negotiate with the U.S. over a new nuclear deal.
ETP plans Dakota Access expansion. Energy Transfer Partners (NYSE: ETP) is planning a 100,000-bpd expansion of its Dakota Access pipeline that carries crude oil from the Bakken to Illinois, and connects to a system that runs down to the Gulf Coast. The pipeline has averaged about 500,000 bpd of throughput, but the company is eyeing an expansion.
Caspian nations near deal on oil reserves. The five countries bordering the Caspian Sea have signed an agreement to settle longstanding territorial disputes over the control of Caspian oil and gas reserves. The region is estimated to hold about 48 billion barrels of oil and 292 trillion cubic feet of natural gas, according to a 2012 EIA estimate. The five nations include Russia, Kazakhstan, Iran, Azerbaijan and Turkmenistan.
ConocoPhillips prepares job cuts. ConocoPhillips (NYSE: COP) said it is preparing for “modest” job cuts in Houston and throughout the U.S. to help keep costs down. Conoco posted a $1.6 billion profit in the second quarter but is focusing on paying down debt.
Trump’s tariffs hurting pipelines. Trump’s proposed doubling of steel and aluminum tariffs on Turkey could add more costs to oil and gas pipelines in the United States. Steel prices have already been on the rise in recent months because of U.S. tariffs on imports from a list of countries. For instance, Plains All American (NYSE: PAA) says that the tariffs have already added $40 million to the cost of its pipeline that will run from the Permian to the Texas Coast. Plains was denied an exemption for imported steel from Greece. Turkey is not a major supplier, but U.S. companies imported over $1 billion worth of steel from Turkey last year.
PetroChina could cut U.S. LNG purchases. PetroChina, a subsidiary of China’s CNPC, may suspend its purchases of LNG from the United States this winter, just as new capacity from Cheniere Energy (NYSE: LNG) comes online. That could force Cheniere to cut prices and offer discounts to get its cargoes to market. Oil and gas have yet to be officially hit with tariffs by China, but that is still a possibility.
Saudi eyes Tesla investment to diversify. Elon Musk has received a massive amount of media attention for the bizarre way he announced the potential for taking Tesla (NASDAQ: TSLA) private. His financing depends on the deep pockets of Saudi Arabia. From the Saudi standpoint, the move is being interpreted as a hedge against the threat of peak oil demand.
Venezuela blackout could lead to deeper declines in oil production. A widespread blackout affecting nearly all of Zulia state in Venezuela – home to 300,000 bpd around Lake Maracaibo – could lead to more outages of Venezuelan supply. The blackout is a few days old, but could last until at least the end of August, according to Argus Media. PDVSA had plans to reactivate thousands of old wells in the region, a plan that will be shelved for months because of the blackout.
Source: Oilprice.com
