Libya Reminds That Geopolitical Risk Is Likely To Be A Big Factor To Oil And OPEC In 2018

WTI’s big day yesterday was driven by the reports that a Libya oil pipeline explosion caused a shut in of 70,000 to 100, 000 b/d.   What caught our attention were the AP and Reuters reports that the explosion was not an accident but rather a deliberate attack.  The AP report notes it was ISIS.    It reminds that geopolitical risk may not be gone in Libya and will at least add risk that there could be a return to some of Libya’s prior issues that impacted its oil production levels and its ability to maintain its current ~1 million b/d thru H1/17 in the run up to the OPEC June meeting.   If Libya can’t sustain its production, it will help support the math to providing visibility to eliminating the oil oversupply in H2/18 and allow for some start of the exit of cuts in H2/18.   But perhaps even more than Libya’s pipeline explosion impact on the math for oil supply reduction, it reminds that geopolitical risk is likely to be a big factor to oil and OPEC in 2018. Continue reading “Libya Reminds That Geopolitical Risk Is Likely To Be A Big Factor To Oil And OPEC In 2018”

The Only Logical Time For OPEC To Start To Unwind The Cuts Is In July To Avoid Recreating A Surplus Problem

Before the end of Q1/18, we expect the market will turn its attention to how and when OPEC/non-OPEC exit from their cuts.  The lower seasonal oil demand in Q1 should help keep oil prices from running away too high too quickly.   Brent at $62.58 means the focus of the cuts is no longer how to get to $60, but how to manage to make sure a Brent >$60 is maintained without oil prices moving too high too fast.  At the June review, we expect OPEC to make the case that the oil surplus will be gone before the winter 2018/2019, which sets up the ability to start to wind down the cuts on July 1.  After all, this is the time of year when oil demand is always up seasonally every year.  It is the only logical time of year for the cut barrels to be returned to the market without causing a problem.  This timing should allow OPEC to manage an unwinding of the cuts and keeping Brent >$60 for the Saudi Aramco IPO, which in turn means WTI >$55 with the potential to look at a $60 base post termination of the cuts. Continue reading “The Only Logical Time For OPEC To Start To Unwind The Cuts Is In July To Avoid Recreating A Surplus Problem”

Increased Competition For Western Canada Heavy Oil With Exxon’s Start Of 150,000 b/d Hebron Oil Field, Offshore Newfoundland

All the big oil news this week (OPEC cuts, Keystone oil spill) overshadowed Exxon starting up oil production at the offshore Newfoundland Hebron oil field this week, which is to produce at peak rates of ~150,000 b/d from a single production structure.  Hebron is significant as it produces 20 API, not like the 33 API oil at nearby Hibernia.  This means it will compete against Western Canada heavy oil in PADD I East Coast and also PADD III Gulf Coast.   The Gulf Coast is the big opportunity given declining oil production from Venezuela and also Mexico.  The Hebron start up reinforces the need for Enbridge Line 3 expansion and/or Keystone XL for Western Canadian heavy oil to capture more of the Gulf Coast markets.  Continue reading “Increased Competition For Western Canada Heavy Oil With Exxon’s Start Of 150,000 b/d Hebron Oil Field, Offshore Newfoundland”