BIG OIL IS SOWING SEEDS FOR A “SUPER-SPIKE”’ IN CRUDE PRICES ABOVE $150, BERNSTEIN WARNS

Tom DiChristopher | @tdichristopher
Published 11:16 AM ET Fri, 6 July 2018 Updated 12:15 PM ET Fri, 6 July 2018
CNBC.com

Oil prices could top all-time highs as energy companies invest too little money in new production, Bernstein Research warns.
The underinvestment could cause a super-spike “potentially much larger than” $150 a barrel. Reinvestment in oil reserves is the lowest in a generation, while the amount of time those reserves will last has shrunk since 2000, according to Bernstein.

Oil prices could top all-time highs near $150 a barrel because energy companies are investing too little money in new production, Bernstein Research said Friday.
Bernstein is part of a chorus of oil market watchers, including OPEC and the International Energy Agency, warning that companies are underinvesting in the type of big, long-cycle projects that yield huge payloads of crude. These projects tend to be carried out by oil majors like Exxon Mobil and Chevron, but fell out of fashion during a prolonged crude price slump.

By Bernstein’s count, 15 companies account for 80 percent of the world’s oil reserves, and only two of them — Exxon and BP — are showing improvement in this area.

The risk for the oil industry in reducing investment today, is creating a shortfall in oil supply tomorrow. Oil remains an essential part of our lives,” Bernstein said in a research note on Friday. “Any shortfall in supply will result in a super-spike in prices, potentially much larger than the US$150/bbl spike witnessed in 2008.”
International benchmark Brent crude and U.S. crude hit their highest-ever levels just above $147 a barrel in July 2008. Prices are currently trading in the $70-$80 per barrel range.

View Related ChartThe industry’s reinvestment ratio, which measures cash flow against investment in oil and gas exploration and production, is the lowest in a generation, according to Bernstein.

Meanwhile, the amount of time that big oil companies’ reserves will last has fallen by 30 percent since 2000. If they do nothing to replenish their reserves, they will last for 10 years. That compares with 15 years of coverage in 2000. The producers that let their proven oil reserve life fall below 10 years “will struggle to grow production” without purchasing other oil companies, in Bernstein’s view. “At some point the proverbial ‘chickens will come home to roost’. The impact will be production declines and another super-cycle in oil prices,” Bernstein analysts concluded.

Bernstein acknowledges that oil industry executives face considerable uncertainty about when crude demand will peak, given the rise of renewable energy and the popularity of electric vehicles. If demand peaks before 2030, pulling back investment in new production will pay off. But if oil consumption is still growing at that point, CEOs will look “foolish,” Bernstein said.

Investors currently calling on exploration and production companies to return more cash to shareholders at the expense of funding future production may also come to regret their strategy,Bernstein added

OIL PRICES RISE

JUNE 26TH 2018 by CNBC

Oil prices rose on Tuesday, supported by Canadian production losses and uncertainty over Libyan exports. Production problems at one of Canada’s largest oil sands facilities drove front-month U.S. crude to its highest premium above second-month futures since 2014. Eastern Libyan commander Khalifa Haftar’s forces have given control of oil ports to a separate National Oil Corporation based in the country’s east.

Oil prices rose on Tuesday, supported by Canadian production losses and uncertainty over Libyan exports, but under pressure from climbing OPEC supply and intensifying trade conflicts between the United States and other major economies. Benchmark Brent crude was up 69 cents at $75.42 a barrel by 8:47 a.m. ET (1247 GMT). U.S. light crude was 13 cents higher at $68.21 a barrel. Brent, which tends to reflect global supply and demand, was driven up by uncertainty around oil exports by Libya, a member of the Organization of the Petroleum Exporting Countries.

Eastern Libyan commander Khalifa Haftar’s forces have given control of oil ports to a separate National Oil Corporation (NOC) based in the country’s east. The official state-owned oil company from the capital Tripoli, also called NOC, will no longer be allowed to handle that oil, he said. “The move increases the risk that Libyan oil output will be shut in as the NOC in Tripoli is the only legal entity with the right to sell oil,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Production problems at one of Canada’s largest oil sands facilities drove front-month U.S. crude to its highest premium above second-month futures since 2014. Higher feedstock crude oil prices, as well as surging fuel exports from China, have pulled down Asian refinery product margins to two-year lows. Uncertainty over Libya’s exports follows a move by OPEC and other oil producers to increase supply by around 1 million barrels per day (bpd).

Oil markets have tightened significantly since 2017, when OPEC and its partners started withholding supply to prop up slumping prices at the time.
But some analysts think oil markets will stay tight.

Despite the OPEC agreement (last week) we believe that tight supply is likely to drive oil prices higher during 2018,” said Jason Gammel of U.S. investment bank Jefferies.
Bank of America Merrill Lynch (BoAML) said Brent could rise to $90 a barrel by the second quarter of 2019. But BoAML said the effects of the global trade dispute between the United States and major other economies including the European Union and China were gradually taking effect.

In a sign of what may lie ahead for economic growth, the escalating trade fight has already led to sharp sell-offs in stock markets, especially in Asia.

OIL PRICES RISE AHEAD OF OPEC MEETING

By Christopher Johnson | LONDON
Report: June 20,2018

Oil prices rose on Wednesday, supported by reports of a drop in U.S. commercial crude inventories and the loss of storage capacity in Libya, but under pressure ahead of a meeting of OPEC exporters which may increase global production.

Brent crude was up 30 cents at $75.38 a barrel by 1230 GMT. U.S. light crude was 65 cents higher at $65.72.

U.S. crude inventories fell by 3 million barrels to 430.6 million barrels in the week to June 15, according to an American Petroleum Institute report on Tuesday.
Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.

Looming large over markets, however, were meetings scheduled on June 22-23 in Vienna of the Organization of the Petroleum Exporting Countries with other big producers, including Russia. Saudi Arabia is trying to convince fellow OPEC members of the need to raise oil output, sources familiar with the talks said on Wednesday.

Russia, not in OPEC but the world’s biggest oil producer, is also pushing to loosen supply controls introduced to prop up prices in 2017.

Other OPEC members, including Iran, oppose such a move, fearing a price slump. “The run-up to this OPEC meeting is fraught with uncertainty with Iran from the onset adopting a very entrenched opposition to any supply increase,” Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told Reuters Global Oil Forum.

Technical analysts say prices are unpredictable: “The market is now stuck in an OPEC-wary condition. It is likely to be thrown around by headlines and over enthusiastic participation is not advised,” said Robin Bieber, director of London brokerage PVM Oil Associates.

Jack Allardyce, research analyst at Cantor Fitzgerald Europe, expects OPEC to compromise and agree a fairly modest increase of 300,000-600,000 barrels per day in production, equivalent to about 0.5 percent of world production.

“We could see this knocking $5 per barrel off Brent,” Allardyce said. Markets are also watching tension between the United States and China, with both sides threatening to impose duties on each other’s exports, including U.S. crude oil.

A 25 percent tariff on U.S. crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make U.S. crude uncompetitive in China versus other supplies.

This would almost certainly lead to a sharp drop-off in Chinese purchases of U.S. crude, which have boomed in the last two years to a business now worth around $1 billion per month. More data on the state of the U.S. oil market will be published at 10:30 a.m. EDT (1430 GMT) when the U.S. Energy Information Administration releases its weekly data.

(Additional reporting by Henning Gloystein in Singapore; editing by Jason Neely and David Evans)

UPDATE 8-Oil prices turn positive as U.S. crude inventories fall

Jessica Resnick-Ault
Published 11:07 AM ET Wed,14 June 2018
BY: Reuters

U.S. stockpiles fall 4.143 million barrels in week- EIA
* OPEC, Russia expected to increase output
* OPEC and non-OPEC producers meet on June 22-23 in Vienna (New throughout, updates prices, market activity and comments; new byline, changes dateline, previously LONDON)

NEW YORK, June 13 (Reuters) – Oil prices edged higher on Wednesday, turning positive after U.S. government data showed a bigger weekly draw than expected in domestic crude inventories along with unexpected declines in gasoline and distillate stocks.
Earlier in the session, Brent and U.S. crude had retreated on concerns about rising production in the United States and expectations that OPEC and other producers could relax voluntary output cuts.
Brent crude was up 53 cents at $76.41 a barrel by 10:52 a.m. EDT (1552 GMT). U.S. light crude was up 10 cents at $66.46 a barrel.
U.S. crude stocks fell more than expected last week, while gasoline and distillate inventories dropped, the Energy Information Administration said on Wednesday. Crude inventories fell by 4.1 million barrels in the week to June 8, exceeding analysts’ expectations for a decrease of 2.7 million barrels. U.S. estimated gasoline demand hit a record high of 9.88 million bpd in the week, the data said.
“The demand metrics here are amazing for crude oil and gasoline,” said John Kilduff, a partner at Again Capital in New York. “Put the exports of crude on top of that, and it’s just a really bullish report.” U.S. production rose to 10.9 million barrels a day in the week, but Kilduff said the market appeared able to absorb the increase. “It seems like we need almost every barrel of that to keep up with this refining demand.”
With output in Russia rising back above 11 million bpd in June and Saudi production climbing to more than 10 million bpd, supplies from all three top producers are increasing.
The Organization of the Petroleum Exporting Countries and some non-OPEC producers, including Russia, started pumping less in 2017 to reduce a global crude glut. Prices have risen around 60 percent over the last year.

OPEC and other producers will meet on June 22-23 in Vienna to discuss future production.
“More oil from OPEC plus is the base case,” said Bjarne Schieldrop, analyst at Swedish bank SEB. “Saudi Arabia and Russia have already started to lift production,” he said. “Unofficial sources have said Russia will propose to return production back to the October 2016 (level), i.e. removing the cap altogether over a period of three months.”
Longer term, the market could tighten as demand increases if OPEC fails to cover supply shortfalls, the International Energy Agency said on Wednesday.
The IEA said it expects global oil demand to grow 1.4 million bpd this year, and in 2019, and will top 100 million bpd in the fourth quarter of 2018.
“The market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption,” the IEA said in its monthly report.

Fund manager Pierre Andurand at Andurand Capital is bullish.
Prices will be above $150 in less than two years,” he tweeted on Wednesday.

(Additional reporting by Henning Gloystein in Singapore and Christopher Johnson in London; Editing by David Gregorio and Dale Hudson)

GOLDMAN SACHS OIL – PRODUCTION WILL INCREASE IN USA

Goldman Says U.S. Oil Request Won’t Stop Stockpiles Dwindling
Published in Oil Industry News on Friday, 8 June 2018

The outlook for oil is still bullish even if OPEC accedes to U.S. pressure to boost supply, Goldman Sachs Group Inc.’s top commodities analyst said. The U.S. government has quietly asked Saudi Arabia and some other producers in the Organization of Petroleum Exporting Countries to increase oil production by about 1 MMbpd, according to people familiar with the matter.

But Jeff Currie, Goldman’s global head of commodities research, said an increase of that magnitude — which was already his assumption — won’t prevent stockpiles from diminishing in the second half of this year.

It’s not enough,” he said on the sidelines of the S&P Global Platts’ annual crude oil summit in London, where he’d just finished speaking. His bullishness reflects a wider belief that investors including some of Goldman Sachs’ own clients are under-appreciating energy and commodities, he said during the speech. Surging oil demand, particularly in the case of China, is likely to surprise the market to the upside. There’s also been a shift away from long-term investment in the oil industry toward short-cycle spending, he said.

“Between now and the end of this business cycle, I definitely want to be long oil,” Currie said. The upbeat outlook comes at a pivotal moment in oil markets. OPEC members are preparing to meet later this month to discuss their coordinated output cuts, which are supposed to expire at the end of the year. There are already growing signs they’ll add barrels sooner than that.

While OPEC has a window of opportunity to manage the oil market without losing its share — due to infrastructure constraints in the U.S. — it will still take three or four months for the group to add supply, according to Currie. The market is currently heading for a shortfall of about 1 MMbpd between supply relative to demand, he said.
While Goldman’s clients say the commodities space is “un-investible,” the strength of oil demand, as indicated by pricing structures, suggests they may be wrong, Currie added. Long-term

THE OIL TRADERS TUG-OF-WAR

By: Tsvetana Paraskova June 4th 2018

Despite the recent sell-off, Brent Crude prices continue to be supported by geopolitical events and supply concerns, while the U.S. benchmark WTI Crude has been pressured to the downside by pipeline constraints in the most prolific U.S. shale basin amid record-high American oil production.

The discount of WTI Crude to Brent Crude topped $10 a barrellast week, and even touched $11 a barrel last Thursday. The WTI-Brent spread is currently at its highest since 2015.

The huge discount of the U.S. oil benchmark to the international benchmark is setting the stage for a tug-of-war between oil majors and big oil trading houses that seek to capitalize on the wide price gap to make profitable arbitrage exports of U.S. crude oil on the one hand, and hedge funds and other money managers who bet that WTI will be pushed further into discount.

Hedge funds are betting that the spread will continue to widen, while physical oil traders bet on record U.S. oil export volumes to narrow that gap, brokers and traders tell Bloomberg.

The WTI discount to Brent has doubled from around $5 a barrel in mid-May, while U.S. production continues to break records by the week, and the Permian faces takeaway capacity constraints. The Permian’s production is expected to grow by another78,000 bpd in June over May, to 3.277 million bpd, EIA estimates show.

TRUMP’S REVENGE: U.S. OIL FLOODS EUROPE, HURTING OPEC AND RUSSIA

By Olga Yagova and Libby George

MOSCOW/LONDON (Reuters) – As OPEC’s efforts to balance the oil market bear fruit, U.S. producers are reaping the benefits – and flooding Europe with a record amount of crude.

Russia paired with the Organization of the Petroleum Exporting Countries last year in cutting oil output jointly by 1.8 million barrels per day (bpd), a deal they say has largely rebalanced the market and one that has helped elevate benchmark Brent prices close to four-year highs.

Now, the relatively high prices brought about by that pact, coupled with surging U.S. output, are making it harder to sell Russian, Nigerian and other oil grades in Europe, traders said.

“U.S. oil is on offer everywhere,” said a trader with a Mediterranean refiner, who regularly buys Russian and Caspian Sea crude and has recently started purchasing U.S. oil. “It puts local grades under a lot of pressure.” U.S. oil output is expected to hit 10.7 million bpd this year, rivaling that of top producers Russia and Saudi Arabia.

In April, U.S. supplies to Europe are set to reach an all-time high of roughly 550,000 bpd (around 2.2 million tonnes), according to the Thomson Reuters Eikon trade flows monitor.

In January-April, U.S. supplies jumped four-fold year-on-year to 6.8 million tonnes, or 68 large Aframax tankers, according to the same data. Trade sources said U.S. flows to Europe would keep rising, with U.S. barrels increasingly finding homes in foreign refineries, often at the expense of oil from OPEC or Russia.

In 2017, Europe took roughly 7 percent of U.S. crude exports, Reuters data showed, but the proportion has already risen to roughly 12 percent this year. Top destinations include Britain, Italy and the Netherlands, with traders pointing to large imports by BP, Exxon Mobil and Valero.

Polish refiners PKN Orlen and Grupa Lotos and Norway’s Statoil are sampling U.S. grades, while other new buyers are likely, David Wech of Vienna-based JBC Energy consultancy said.

“There are a number of customers who still may test U.S. crude oil,” Wech said. The gains for U.S. suppliers could come as a welcome development for U.S. President Donald Trump, who accused OPEC on Friday of “artificially” boosting oil prices.

“Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!” Trump wrote on Twitter.

‘KEY SUPPLY SOURCE’

While the United States lifted its oil export ban in late 2015, the move took time to gain traction among Europe’s traditional refineries, which were slow to diversify away from crude from the North Sea, West Africa and the Caspian.

“European refiners started experimenting with U.S. crude last year,” said Ehsan Ul-Haq, director of London-based consultancy Resource Economics. “Now, they know more than enough to process this crude.”

U.S. oil gained in popularity, sources said, in part because of the wide gap between West Texas Intermediate, the U.S. benchmark, and dated Brent, which is more expensive and sets the price for most of the world’s crude grades.

This gap, known as the Brent/WTI spread, has averaged $4.46 per barrel this year, nearly twice as high as the year-earlier figure, Reuters data showed. Wech of JBC Energy said the spread would likely persist in the near future.

The most popular U.S. grades in Europe are WTI, Light Louisiana Sweet, Eagle Ford, Bakken and Mars. Prices for alternative local grades have been slashed as a result. CPC Blend differentials recently hit a six-year low versus dated Brent at minus $2 a barrel. Russia’s Urals also came under pressure despite the end of seasonal refinery maintenance.

WTI was available at 80-90 cent premiums delivered to Italy’s Augusta, well below offers of Azeri BTC at a premium of $1.60 a barrel, according to trading sources. U.S. oil is even edging out North Sea Forties, which is produced in the backyard of the continent’s refineries. Cargoes of WTI were offered in Rotterdam at premiums of around 50-60 cents a barrel above dated Brent, cheaper than Forties’ premium of 75 cents to dated.

(Additional reporting by Julia Payne and Devika Krishna Kumar; Editing by Dale Hudson)