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Oil Prices Jump As China Seeks To End Trade War

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Oil prices were relatively quiet this week, bouncing around, but closed out the week on a positive note.

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Friday, January 18th, 2019

IEA: Balancing oil market will be a “marathon.” The IEA said in its latest Oil Market Report that “the journey to a balanced market will take time, and is more likely to be a marathon than a sprint.” The agency noted that while Saudi Arabia seems determined to follow through, there is “less clarity” on Russia. The agency left its demand growth forecast unchanged, arguing that while the global economy is starting to show some worrying signs, lower oil prices will also help keep demand aloft.

OPEC’s December production down 751,000 bpd. OPEC released its monthly Oil Market Report on Thursday, revealing a roughly 751,000 bpd decline, according to secondary sources. Saudi Arabia slashed output by 468,000 bpd, Iran lost 159,000 bpd, and Libya lost 172,000 bpd. Smaller cuts came from the UAE (-65,000 bpd) and involuntary losses from Venezuela (-33,000 bpd). The largest gain come from Iraq, which added 88,000 bpd. The monthly totals occurred before implementation of the OPEC+ agreement, which calls for cuts of 1.2 mb/d from October’s baseline.

EIA: Brent to average $61. The EIA forecasts a $61-per-barrel price for Brent for 2019, with WTI averaging $8 below Brent in the first quarter, a discount that will narrow to a smaller $4-per-barrel markdown by the fourth quarter. The agency maintained a forecast for U.S. oil production at 12.1 mb/d this year, unchanged from prior estimates even though it has lowered its pricing forecast.

No progress on U.S.-China trade talks. U.S. Trade Representative Robert Lighthizer did not see any progress on the structural trade issues during negotiations earlier this month. The two sides will resume negotiations at the end of January.

OPEC considers influence campaign in U.S. OPEC is considering a PR campaign in the U.S. to head off punitive measures in Congress, according to the Wall Street Journal. The influence campaign would be the cartel’s first, and it would consist of funneling money through “industry organizations, think tanks, academics and other opinion makers,” according to WSJ. OPEC is concerned mostly about anti-trust regulation that has been gaining support on Congress.

Gasoline glut in Asia. Global refineries are churning out ever-increasing volumes of gasoline as refiners chase higher margins for diesel. Meanwhile, a startup of new refineries in Asia with a focus on producing naptha for petrochemicals could also exacerbate the gasoline glut.

U.S. natural gas supply and demand breaking records. U.S. natural gas supply is expected to soar to an all-time record high of 90 billion cubic feet per day in 2019, according to the EIA. That’s up sharply from a record high in 2018 at 83.31 bcf/d. Demand will also hit a record high this year at 82.65 bcf/d.

Offshore spending to outgrow onshore in 2019. Offshore spending will outpace onshore shale spending this year. This will benefit oilfield services companies that are “exposed to the offshore subsea market and the maintenance, modifications and operations (MMO) sector,” according to Rystad Energy. “Many would expect offshore spending to be cut as drastically as shale, but offshore budgets were at a 10-year low last year, after four years of intense cost focus, and from that level you don’t need much additional activity or inflation to drive up the market,” Rystad Energy head of oilfield services research Audun Martinsen said.

Libyan National Army launches assault for Sharara field. The Libyan National Army (LNA), led by General Khalifa Haftar, launched an assault on January 15 to secure the El Sharara oil field, the country’s largest, which has a capacity of 300,000 bpd. The field has been offline since December. “Should the LNA succeed in taking over the El Sharara facilities, Haftar’s control over Libya’s strategically vital oil and gas resources would be hugely strengthened,” Verisk Maplecroft wrote in a note. “This, in turn, would shore up Haftar’s bargaining position in ongoing negotiations with the Government of National Accord.” Moreover, if the LNA does succeed, it also increases the odds of a rerun of the standoff with the internationally-recognized government in Tripoli, just as last year. In 2018, a significant portion of Libya’s oil went offline when the two sides fought over control of the nations’ oil export terminals.

Hedge funds closed after booking losses trading oil and gas. Nearly 100 energy-focused hedge funds closed from 2016 through September 2018, taking the total number down to 738, according to Reuters and Eurekahedge. That is the lowest number of active hedge funds focused on energy since 2010. “There is a massive decline in the number of funds, and no replacements,” David Mooney, founder of Casement Capital, told Reuters. “There has been a near ‘extinction event’ in commodities hedge funds.”

Tesla to lay off 7 percent of workforce. Tesla (NASDAQ: TSLA) said it would lay off 7 percent of its workforce in order to cut costs. That would allow the company to sell its Model 3 at a lower price as subsidies phase out.

China looks to expand oil deal in Iran. Despite the looming expiration of sanctions waivers on Iran in the coming months, China hopes to expand its operations in Iran, according to the Wall Street Journal. Sinopec is reportedly making stiff demands to Iran, knowing the country has few other options. Sinopec believes its operations fall under an existing contract, which would allow it to continue even if U.S. sanctions waivers expire.

By Tom Kool for


4 Comments on "Oil Prices Jump As China Seeks To End Trade War"

  1. print baby print on Mon, 21st Jan 2019 1:46 am . Yes whole world wil drive electric cars in 10years frame lol

  2. Go Speed Racer on Mon, 21st Jan 2019 4:59 am 

    In 10 years timeframe,
    this is what I will drive
    to Pastor Falwell’s, and listen
    to the Sunday sermon …..

    Put $250 in the collection plate,
    then get gas at Chevron after that.

  3. Mick on Mon, 21st Jan 2019 5:13 am 

    Someone needs to invent an engine that can run on discarded sofas and mattresses .theres plenty of them to keep the American dream of motoring for another decade at least .

  4. Go Speed Racer on Mon, 21st Jan 2019 4:25 pm 

    Mick we can do it.
    Come on over to my garage next
    Saturday and we will modify an old
    1978 Ford LTD like in the movie
    White Lightning.

    That type of engine exists you see.
    It’s called a “steam engine”.
    Zeke has the cutters and the welder
    So if you will help with the plate steel
    just a couple weekends working
    and we are
    ready for the maiden voyage on
    the San Francisco toll bridge.

    I ran computations and we should
    be able to go at least 40 miles on a
    load of old sofa cushions.
    And I plotted a route going past the
    Goodwill stores and the transfer stations
    . So we should be able to go at least
    200 miles before switching to
    bags of barbecue coal !!

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