Global Oil Market - April 24

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Asian oil demand to hit record in April. Even as oil prices hit multi-year highs, demand in Asia is set to rise to a record high in April. That is helping drive oil prices higher. “Rising tensions in the Middle East have likely played a role in oil price strength, but we believe a tight physical market is the key driver,” investment bank Jefferies said in a note. Reuters estimates that China’s oil imports will hit 9 million barrels per day in April, a monthly record high. China’s overall oil demand is expected to jump some 370,000 bpd in 2018.

Oil majors to post largest profits in a decade, but investors wary. As Bloomberg notes, cash flow for the oil majors is set to be the highest in 12 years, yet they have fallen out of favor with investors. Fears of abundant supply in the next few years, combined with fears that demand will peak in the long run has pushed down the stock prices of the majors. “Earnings have started to come through but no one believes it’s sustainable,” Kevin Holt of Invesco Ltd. in Houston told Bloomberg. “That’s why the stocks haven’t worked even though the commodity has gone up. Everyone’s saying they don’t believe it.”

Enbridge Line 3 expansion clears hurdle. Enbridge (NYSE: ENB) cleared a crucial hurdle on Monday when a Minnesota judge gave conditional approval for the company’s Line 3 replacement. The overhaul of the Line 3 pipeline, which runs from Alberta to refineries in the U.S. Midwest, will add 380,000 bpd of additional pipeline capacity when completed. The project is all the more important now that Kinder Morgan’s (NYSE: KMI) Trans Mountain Expansion is on its deathbed. Enbridge hopes to bring the replacement online by the end of 2019.

Canadian oil producers turn to trucks to ship oil. The pipeline bottleneck in Canada has become such a problem that some producers are shipping oil by truck to the U.S., a mode of transit that is at least 10 times more expensive than pipeline.

Libya outage after pipeline attack. An attack on a Libyan pipeline temporarily knocked 80,000 bpd of supply offline. The pipeline connects the Waha field to the Es Sider terminal, Libya’s largest oil export terminal. Libya’s National Oil Corp. said the pipeline would take a few days to repair.

OPEC content with current production limits. OPEC/non-OPEC officials met in Saudi Arabia last week to analyze the progress of the production cuts, and despite the run up in prices, the group signaled that it would stick with the current limits for the remainder of the year.

Brent prices hit $75 per barrel in early morning trading on Tuesday, the highest price in more than three years. While prices quickly fell back again, bullish sentiment remains strong. The reasons are familiar – geopolitical events are flaring up at a time when the oil market is tightening. The Trump administration is less than three weeks away from a key decision on whether or not to withdraw from the Iran nuclear deal. “Let’s assume he will withdraw from the deal on May 12, we don’t know how much volume will be lost, we might see the $80 level for Brent,” Giovanni Staunovo, a commodities analyst at UBS Wealth Management, told the WSJ.

Halliburton revenue up as shale drilling increases. Halliburton (NYSE: HAL) reported a 34 percent increase in first quarter revenue largely due to higher drilling activity in North America. The oilfield services giant did take a revenue hit in the first quarter due to winter weather, but that was offset by the uptick in demand for its services from the shale industry. Halliburton’s CEO said that margins of 20 percent should return later this year as the fracking market tightens. “We believe the pressure pumping market is undersupplied and will remain tight,” CEO Jeff Miller said.

Halliburton writes off Venezuela assets. Halliburton (NYSE: Hal) took impairment charges on its entire operation in Venezuela, citing lack of reimbursement from PDVSA, currency turmoil, U.S. sanctions and political uncertainty. The oilfield services company said it would remain in the country for now despite the $312 million write-down. “This is one step further into the collapse of the Venezuelan oil industry,” Francisco Monaldi, energy expert at Rice University, told the NYT, “because it means oil serviced contractors, which are absolutely essential to operations, are slowly giving up on the country.” PDVSA only produces about half of Venezuela’s oil production on its own, and joint ventures with private companies represent the other half.