Energy Prospectus

Oil opened lower on July 16 because Trump is meeting with Putin and there is talk of oil being released from the SPR. Releasing oil from the SPR actually makes the long-term outlook for oil prices more bullish IMO. - Dan
-----------------------
Phil Flynn 7-16-2018

Going to The Bullpen

The world’s oil consuming nations are showing growing unease about the rapidly tightening global oil market and are considering releasing oil from their strategic petroleum reserves. On Friday, Bloomberg News reported that the Trump Administration is reviewing options ranging from a 5 million-barrel test sale to the release of 30 million barrels from its oil reserve to cool pump prices ahead of congressional elections in November and as sanctions on Iran are due to snap back.

Today the Wall Street Journal reported that the International Energy Agency is also considering releasing oil supply. The Journal quoted Fatih Birol, director of the International Energy Agency, a group that advises industrialized nations on energy policy and coordinates emergency oil releases globally, told a private dinner last month that a release was an option if supply outages worsen, according to people at the dinner.

Iran was pleading to not go there. Bloomberg reported that a senior Iranian oil official urged U.S. President Donald Trump not to use the nation’s Strategic Petroleum Reserve to push prices lower, and instead drop sanctions on Iran’s crude exports. “My advice to you, Mr. President, is to avoid touching the SPR - to cool down and give up sanctioning Iranian oil," Hossein Kazempour Ardebili, Iran’s representative to OPEC, said by email.

The release of oil from global reserves that some believe are for short term political purposes may lead us down a slippery slope that may backfire in the end. Trying to use the oil reserve to try to control prices might prove fruitless because it may not slow growing demand and underinvestment is the main reason for the tightening supply. On top of that talk of more oil from Saudi Arabia and the fact the President Donald Trump is going to bring up oil with Russian President Vladimir Putin in Helsinki is also pressuring prices in the short term. It would be better to let the market work and slow demand mainly because the worlds spare production capacity is near historic lows.

Yet, even the talk of a release from the global strategic petroleum reserves shows how far the global economy has come in the last few years. The drawdown from the biggest oil glut in history in large measure was driven by a strong U.S. economy that helped lead the world throuhg economic muck we had been sloshing through. Underinvestment in oil and a false assessment on shale oil ability to be a swing producer caught many by surprise. Now relying on the bullpen to ease prices is going to fail and may discourage more oil investment.

President Trump has the authorization to release more oil and the Saudis are offering more oil as well. Bloomberg reported that Saudi Arabia offered additional cargoes of its Arab Extra Light crude to at least two buyers in Asia, people familiar with the matter said.

Raymond James 7-16-2018 AM

With OPEC and global excess oil productive capacity poised to fall to near zero over the next six months, the risk of any global oil supply disruption becomes a BIG, BIG DEAL going forward. Even within OPEC, there are many uncertainties when it comes to sustainable production including: 1) How much spare capacity does Saudi Arabia have?; 2) How will the return of U.S. sanctions impact Iranian exports?; 3) What happens to other OPEC countries whose production has been steadily declining for years (including Algeria, Angola, Equatorial Guinea, Gabon, Qatar, and Venezuela)?; 4) Speaking of Venezuela, how long before PdVSA begins to barter crude for emergency supplies of toilet paper?; and 5) What will happen to what is (arguably) the most unpredictable OPEC producer - Libya?

In this week's ''Stat'', we will discuss Libya's recent oil supply disruptions and offer our take on its future production outlook. As recently as May, all seemed well since Libya had been consistently producing around 1.0 million bpd for the past year. Over the past month, however, Libyan production has fallen sharply (even more sharply than Venezuela) as escalation of political strife has now added to the global oil market's current spate of supply disruptions. As shown below (and in contrast to our expectations for Venezuela), we are modeling a recovery in Libyan output to the approximate 1 million bpd levels seen before the latest disruption. That said, this assumed recovery is by no means set in stone, and our bias is likely to the downside: thus, bullish for oil prices.

Crude Oil Prices Settle 4% Lower as Traders Cut Supply Shortage Bets
Jul 16, 2018 02:35PM ET Investing.com

WTI crude oil prices settled sharply lower Monday, pressured by expectations for an increase in supplies after U.S. Treasury Secretary Steve Mnuchin said some crude importers may receive waivers to continue buying supplies from Iran.

On the New York Mercantile Exchange crude futures for August delivery fell 4.2% to settle at $68.06 a barrel, while on London's Intercontinental Exchange, Brent fell 4.5% to trade at $71.92 a barrel.

"We want people to reduce oil purchases to zero, but in certain cases if people can't do that overnight, we'll consider exceptions," Mnuchin told reporters on Friday, Reuters reported. The comments were not released until Monday morning.

This somewhat softer outlook on restrictions of Iranian crude oil buyers comes as U.S. President Donald Trump has repeatedly called on OPEC to address the sharp uptick in oil prices, which rose earlier this month, to levels not seen since November 2016.

With the drop in Iranian crude supplies likely to be less than many had anticipated, investors have lowered expectations for a shortage in global crude supplies.

Expectations of increased crude supplies were heightened as Libyan ports reopened, while Iraq output reportedly soared in the first half of the July .

Iraq crude exports jumped 6% to 4.05 million barrels a day (bpd) in the first half of July from 3.839 million bpd for the entire month of June, according to tanker tracking and data from port agents compiled by Bloomberg. < Just remember that "exports" and "production" are two totally different things. On a short-term basis, a country can increase exports by draining storage tanks. - Dan

The slump in oil prices comes as oil market observers were monitoring potential comments on oil markets at the meeting between President Donald Trump and Russian President Vladimir Putin on Monday.

Putin hinted that the U.S. and Russia could work together in a constructive way to regulate the international energy markets as an extreme drop in prices was not in Russia's interest.

That, however, did little to stem the plunge in oil prices, as attention shifted toward weekly U.S. petroleum inventory data from the American Petroleum Institute on Tuesday, and from the Energy Information Administration on Wednesday.