While oil market sentiment has been and remains decidedly bearish, Friday has seen a rare bullish bounce after the rig count fell once again and China released some positive manufacturing data. Both WTI and Brent were up by more than 3.5 percent on the day.
Friday, November 1st, 2019
Oil received a jolt on Friday morning on unexpectedly positive manufacturing data from China and a continued rig count collapse, although it doesn't put to rest concerns about an economic slowdown. Economic uncertainty continues to dominate the oil market narrative, and markets await the next move in the trade war.
Keystone pipeline spills, TC Energy declares force majeure. TC Energy's (TSE: TRP) Keystone Pipeline ruptured and spilled more than 9,000 barrels of oil in North Dakota this week. The company declared force majeure on shipments from the 590,000-bpd pipeline. WCS prices fell by more than $3 to a discount of about $20 to WTI, the largest discount since prior to the mandatory production cuts announced by Alberta at the start of the year. "If you start to see this situation where flows are reduced for a long period of time, that's when you'll see a price impact" on both WTI and WCS, Mike Walls, an analyst at Genscape Inc., told Bloomberg. Meanwhile, Alberta lifted production curtailments for producers who are shipping oil by rail.
Encana leaves Canada. Encana (NYSE: ECA) said it was moving its headquarters from Canada to the U.S. and changing its name to Ovintiv Inc. "Sadly, I cannot say I am surprised, as Encana has been shifting its efforts to the U.S. for years, in large part due to harmful policies in Canada," Sonya Savage, Alberta's energy minister said in a statement.
Trade war hurdles remain despite soothing words. President Trump has raised expectations that a partial trade deal is all but a done deal, but hurdles remain. Reuters reports that Trump's insistence on China buying as much as $50 billion in farm products - more than twice as much as China bought in the year before the trade war - is a sticking point. Bloomberg also reported that Chinese officials are not optimistic about a comprehensive deal, as they do not trust Trump to stick to the terms of any agreement. Still, press reports suggest there is momentum in the near-term for a partial deal. Related: Oil Production Paralyzed As Venezuela's Electricity Crisis Worsens
Trump admin may back off auto freeze. The Wall Street Journal reports that the Trump administration is reconsidering its freeze on fuel economy standards, and instead might opt for 1.5 percent annual increases, putting it closer to the Obama-era proposal.
Saudi budget deficit widens to $50 billion. Saudi Arabia's budget deficit is expected to widen to $50 billion next year.
Exxon earnings fall by half. ExxonMobil (NYSE: XOM) reported earnings of $3.17 billion in the third quarter, down from $6.24 billion a year earlier.
Iraq oil workers join protests. Oil workers in Iraq's southern provinces are beginning to join anti-government protests, according to Iraq Oil Report. For now, Iraqi production has not been affected.
Total SA production hits record high. Total SA (NYSE: TOT) saw its output rise to 3.04 mb/d in the third quarter, up 8 percent from a year earlier. "The environment remains volatile, with uncertainty about hydrocarbon demand growth related to the outlook for global economic growth and in a context of geopolitical instability," Total noted in a results statement. Profits stood at $3.02 billion.
Rex Tillerson takes witness stand. In the trial of ExxonMobil (NYSE: XOM), former CEO and former Secretary of State Rex Tillerson took the witness stand. He disputed allegations that his company defrauded investors over its risk to climate change and regulation.
Oilfield services scrap equipment. Bloomberg reports that the surplus of fracking equipment is being stripped for parts and sold off, rather than merely being idled. The industry is expected to use around 13 million horsepower at the end of 2019, out of 25 million horsepower available. Bloomberg reports that around 2.2 million horsepower - about 10 percent of industry capacity - is headed for the scrap heap.
Denmark gives greenlight to Nord Stream 2. Denmark gave approval to the controversial Nord Stream 2 pipeline, which is the last major hurdle standing in the way of construction. The U.S., along with some countries in Eastern Europe, oppose the project. More than 87 percent of the project is already built and the project could be completed within the next few months. Related: The U.S. Just Doubled Its Natural Gas Exports
China manufacturing data contracts sharply. Factory data from China showed a six consecutive month of contraction, and activity fell faster than expected. "We expect the official manufacturing PMI to remain sluggish in coming months, the growth slowdown could gather pace, and markets could become more volatile in coming months," said analysts from Nomura in a note. New data on Friday, however, was more positive.
Shell said worsening economy could slow returns. Royal Dutch Shell (NYSE: RDS.A) said that a deteriorating in the economy could hit returns, and could put a $25 billion share buyback plan into doubt. Shell beat earnings estimates, but its share price fell anyway. "The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25% and completing the share buyback program within the 2020 timeframe," Shell's CEO Ben van Beurden said in a statement.
Saudi Arabia eyes carbon trading. Saudi Arabia said it plans on launching a cap-and-trade scheme to reduce emissions and help diversify the economy. "We will come soon with a suggestion on carbon trading that would be a fair carbon trading system ... And I think it will work," Prince Abdulaziz bin Salman said at the Future Investment Initiative conference in Riyadh.
By Michael Kern for Oilprice.com
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Michael Kern is a newswriter and editor at Safehaven.com and Oilprice.com, More
Comments
What has given oil prices a bullish bounce is positive manufacturing data from China, the world's largest economy based on purchasing power parity (PPP) and the fear that a strike by Iraqi oil workers could cripple Iraq’s oil production, something reminiscent of the Iranian oil workers’ strike in 1979 which led to collapse of Iran’s oil production and the advent of the Iranian revolution.
However, oil prices will continue to be under the influence of a very powerful bearish factor as long as the trade war between the United States and China continues. The war has has widened an already existing glut from a manageable 1.0-1.5 million barrels a day (mbd) before the war to an estimated 4.0-5.0 mbd.
This glut has been big enough to nullify the impact of geopolitics on oil prices and also absorb a loss of 5.7 mbd from Saudi oil production.
Only an end to the trade war will brighten the prospects of the global economy and stimulate global oil demand and prices. A sticking point, however, is China’s demand that the United States should roll back some of the tariffs it has slapped on Chinese imports.
China could afford to outwait the United States on tariffs having already won the war. China’s economy is still growing at a healthy 6.1% per annum compared with 2.4% for the US despite the trade war.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London