Energy Prospectus

OPEC Meeting/Agreement: Bloomberg reported on 12/1/2017 that OPEC and its allies outside the group agreed to maintain oil production cuts until the end of 2018, extending their campaign to wrest back control of the global market from America’s shale industry. “Fundamentally, the cuts have worked well,” Patrick Pouyanne, CEO of oil major Total SA (TOT-NC), said at a press briefing in Antwerp. “I’m not surprised they decided to extend”. OPEC’s evolving view of the oil market supported a full year extension. OPEC’s internal analysis concluded that stockpiles would be back in line with the five-year average in 3Q or 4Q 2018.

Libya and Nigeria, previously exempt from cutting production due to internal strife, agreed to a collective cap on their output that exceeds the nations’ current production. To accommodate the two new entrants, the existing deal will be reset to run for twelve months from January to December, delegates said.

Before the meeting, Russia had sought assurances on how and when the agreement would be phased out, people involved in negotiations said earlier last week, as reported by Bloomberg and Reuters. The country needs greater clarity than most OPEC members because its economic policy making is more complex, including a floating exchange rate that fluctuates with the oil price.

The decision showed the strength of the unprecedented alliance between the world’s top two oil producers, Saudi Arabia and Russia, and confounded Wall Street analysts who had predicted Moscow would be reluctant to keep going, reporting by Reuters added.

Gary Ross, a veteran OPEC watcher and founder of PIRA consultancy, told Reuters the market could surprise on the upside with Brent rising to $70 if there were a major supply disruption. “In Iraq’s Kurdistan there is a major risk to oil exports because of tensions with Baghdad, in Libya militias are still fighting, in Nigeria the risks of disruptions are significant, Venezuela is on the verge of default, Iran could again face U.S. financial sanctions and even in Saudi Arabia political risk is on the rise,” Ross added.

EIA 914 Crude Oil Production Report: The EIA reported U.S. crude oil production increased in September 2017 to 9.481 million b/d, an increase of 3.2% or 290,000 b/d over August 2017 as weather related events depressed production during August. U.S. crude oil production was up 10.8% from the 8.553 million b/d figure from a year ago. Growth was largely driven by New Mexico, up 9.3% month over month and Texas, up 5.7% month over month. Gulf of Mexico production was flat at 1.65 million b/d but likely increases going forward due to facility downtime in connection with weather related events. < This is a bit surprising as lots of Texas and Louisiana oil production was shut down in September because of Hurricane Harvey flooding. - Dan

Raymond James said this on December 4 in their weekly "Energy Stat":

"An impressively high degree of OPEC compliance with its production cuts over the past year has helped to shrink global inventories
to a level currently below historical norms (as measured by days of consumption). While we do not believe the “real” OPEC cuts
were as high as advertised, last week’s decision to extend the cuts through year-end 2018 still translates into a more bullish global
inventory trajectory for 2018 than our prior oil model had forecasted. We now project a 2018 global inventory draw of 0.67 million
bpd which is about 0.5 million bpd greater inventory draw than our prior model. Even though the impact of these additional cuts is
much lower than the 1.8 million bpd that many pundits have been suggesting, they are still very relevant to global supply/demand
balances and should lead to meaningful oil inventory reduction through 2018. In fact, we now think that OECD inventories (on a
days of consumption basis) will fall well below normal in 2018, giving us much more confidence in our out-of-consensus bullish 2018
WTI oil price forecast of $65/Bbl. Looking further out to 2019/20, global oil supply/demand balances should once again move back
into surplus, but rising demand should still keep inventories on a days of consumption basis below normal though 2020. Put another
way, we are still looking for oil prices to reach cyclical highs over the next six to twelve months before settling into a relatively
healthy range of $60-65/Bbl in 2019 and beyond."

Reuters: U.S. shale eases into detente with OPEC as supply cut extended.

"U.S. shale oil producers and OPEC appear to have called a truce of sorts even though there is no sign the U.S. industry will do anything to help reduce the global oil supply glut. U.S. producers applauded Thursday’s decision by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers led by Russia to extend output cuts until the end of 2018. Texas and North Dakota - the two largest U.S. shale-producing states - described it as a boon for their producers. Their appreciation was in contrast to a more combative style in recent years, when shale states seemed to relish openly bashing the group. “Now that it seems prices are looking to stabilize with this OPEC deal around $60 (per barrel), I think that’s going to be a very nice price environment for folks around the state,” Ryan Sitton, one of three commissioners on the Texas Railroad Commission, said in a phone interview from Austin."