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120 Posts authored by: David Feldman Champion

1. Schwarzenegger plans to sue big oil for ‘First Degree Murder’.

 

At a live recording of "POLITICO’s Off Message" podcast on Sunday, the former California governor announced he’s in talks with several private law firms and preparing a public push to sue big oil for knowingly “killing” people by producing and selling fossil fuels as an energy source. 

 

“This is no different from the smoking issue. The tobacco industry knew for years and years and years and decades, that smoking would kill people, would harm people and create cancer, and were hiding that fact from the people and denied it. Then eventually they were taken to court and had to pay hundreds of millions of dollars because of that,” Schwarzenegger said. “The oil companies knew from 1959 on, they did their own study that there would be global warming happening because of fossil fuels, and on top of it that it would be risky for people’s lives, that it would kill.”

 

“We’re going to go after them, and we’re going to be in there like an Alabama tick. Because to me, it’s absolutely irresponsible to know that your product is killing people and not have a warning label on it, like tobacco,” he said. “Every gas station on it, every car should have a warning label on it, every product that has fossil fuels should have a warning label on it.”

 

2. Corpus Christi expected to be fastest growing U.S. oil export hub.

 

The surge in U.S. oil production has Corpus Christi set to become one of the largest U.S. export hubs in the coming years.  With increased pipeline takeaway capacity, and a port expansion to accommodate larger vessels position the Texas port of Corpus Christi could see the most volume growth through 2023, stated analysts at Wood Mackenzie.

 

According to John Coleman, Wood Mackenzie’s Senior Analyst North American Crude Oil Markets, Corpus Christi will surpass 1 million bpd of exports by 2020, and those exports could double to 2 million bpd by 2023 as the United States vies to become a major player on the global crude oil market.

 

3. Technology is the rage at CERAWeek.

 

Liam Denning of Bloomberg Gadfly noted that the seats were all taken at the technology sessions during CERAWeek.  For an industry that has always lagged when it comes to technology, this is an indication that automation, artificial intelligence, 3D printing, Big Data, robotics and other new technology are finally making their way into the oil business.  Denning said, “Last year, getting a seat at them was easy. This time, it often paid to get there early just to nab a standing spot.”

 

Generally speaking, oil and gas is behind the curve when it comes to digitalization, trailing behind many other industries. This means there’s a ton of potential in the industry for improvement. The IEA said last year that the oil and gas industry could save roughly 10% to 20% on production costs by adopting a suite of data analytics and digitalization technologies.

With U.S. crude production on the rise and the U.S. the verge of becoming the world’s largest oil producer – overtaking typical powerhouses such as Saudi Arabia and Russia, the idea of U.S. energy independence is on everyone’s mind and a topic of many conversations lately.  The idea of U.S. energy independence isn’t a new idea.  Nixon declared war on foreign oil in the 70’s.  In 2006 George W. Bush said the U.S. is, “addicted to oil, which is often imported from unstable parts of the world.”  And it’s easy to see that Donald Trump is keeping to his promise to open the floodgates for US oil.  So, this brings up a couple good questions…

 

Is U.S. energy independence a good idea?

 

Well, on the surface, the thought seems like a good idea.  The U.S. imports over 60% of their oil from questionable locations around the globe, exposing our economy and politics to numerous world pressures, stresses and problems.  Our large imports also increase and our already massive trade imbalance, while simultaneously filling the pockets of countries like Iran, Russia, and Venezuela—not necessarily America’s list of best friends.  So, when you think about it, energy independence sounds like a pretty good way to move away from all those troubles.  Right?  Maybe… but maybe not.

 

First of all, currently the U.S. doesn’t have a “real” substitute for the oceans of oil we import.  Yes, American drilling is increasing in 2018 to levels we haven’t seen in years, but at this point, can that really replace what we are importing.  I don’t feel like we’re quite there yet.

 

“Well, Renewable energy is up and coming and can help offset the need for foreign oil, right?”

 

Not really.  Even if we had fleets of superefficient cars, solar panels on every roof, and wind turbines on every hilltop, we’d need decades to replace the current oil infrastructure – and that would take lots of energy in the process – AKA oil.  Somewhat ironically… to build the energy economy that we want, we would need to lean heavily on the current energy economy that we have.  However, this doesn’t stop the renewable lobbyists like wind and solar from pushing their agenda to get subsidies and advance their own sectors by playing on the fears of Americans being dependent on foreign oil. 

 

So, let’s return to our first question...  Is U.S. energy independence a good idea?  Yes, but it’s not as clear-cut as people would like you to believe. 

 

The better question might be, “do we have energy security?”  Regardless of where our energy is coming from, do we know we have a secure source of it long into the future?  That’s the answer we want to say YES to!  If we can get it cheaper by importing it, why not as long as it’s a secure source?  Let them use up their oil before we use up ours!  But we should also be Rolling out new technology as soon as possible because it takes so long for it to take hold. 

1. Libya stops oil production and exports from key ports.

 

Libya’s oil exports from the Mellitah terminal will be disrupted after protests disrupted production last week at the key El-Feel deposit.  According to Bloomberg, crude loadings at Mellitah, the export terminal for El-Feel, will be significantly reduced after force majeure was declared on deliveries from the deposit on Feb. 23. Because of protests over pay and other benefits.  Force majeure is a legal clause protecting a party from liability if it can’t fulfill a contract for reasons beyond its control.

 

2. Shell issues warning of liquefied natural gas shortage in the near future.

 

In its second annual LNG outlook, Royal Dutch Shell warned the world could be grappling with a shortage of liquefied natural gas within a decade due to underinvestment in new projects.  In their outlook, Shell reported the market for LNG grew by 29 million tons last year, 30% more than previously expected. 

 

The need for natural gas is expanding as the world looks to use it as a bridge energy until renewable energy options are more affordable and abundant.  LNG will play a major role as many nations seek to mitigate the impacts of climate change, and Shell has put everyone on notice that unless supply increases, the demand may overwhelm current producers. 

 

But aside from the warning, Shell's report is great news for an industry that hopes to see a huge amount of LNG capacity come online in the next few years, including from the United States, where five LNG export terminals are expected to start up by the end of 2019.

 

3. IEA says U.S. will overtake Russia as top oil producer by 2019.

 

Early this week the International Energy Agency (IEA) said the United States will overtake Russia as the world’s biggest oil producer by 2019 at the latest, as the country’s shale oil boom continues to upend global markets.

 

IEA Executive Director Fatih Birol said at an event in Tokyo the United States would overtake Russia as the biggest crude oil producer “definitely next year”, if not this year.

 

“U.S. shale growth is very strong, the pace is very strong ... The United States will become the No.1 oil producer sometime very soon,” reported Reuters.

1. U.S. looking into the largest ever oil and gas lease sale in the Gulf of Mexico.

 

The largest oil and gas lease sale in U.S. history will take place a little over a month from now for waters in the Gulf of Mexico.  According to an announcement from the Trump Administration, the official date is on March 21st.  It is part of President Donald Trump’s America First Offshore Energy Strategy, which promises to expand fossil fuel activity to lower imports and create jobs.

 

The draft program, which is set to replace President Barack Obama’s leasing plan through 2022 (which restricted drilling in the Arctic and other federal waters), realizes the White House’s promise to encourage the American fossil fuel sector, even as the international community is looking to move more toward renewable and alternative energies in the fight against climate change.

 

2. Saudi Arabia reveals it's in talks with 10 other nations on its nuclear energy ambitions, asks for fairness from the U.S.

 

Saudi Arabia's foreign minister requested the U.S. to give his country the same rights as other nuclear nations as it pushes to process its own nuclear fuel, saying that it's currently in talks with 10 other countries should America refuse.

 

Saudi Arabia plans to construct 16 nuclear power reactors over the next 20 to 25 years at a cost of more than $80 billion. It has invited U.S. firms to take part in the program but acceptance from Washington requires a country to sign a peaceful nuclear cooperation pact. Known as a 123 agreement, it separates civil and military nuclear facilities and aims to block the steps from nuclear fuel production to potential bomb-making applications. Countries like India have already signed up to such agreements with the U.S.

 

3 India is on the rise for oil demand.

 

Traditionally, everyone has been fixated on China and the pace of its oil demand and imports growth, but lately, India has grabbed the global spotlight after its oil imports rose to record highs amid strong economic growth and fuel demand. Projections of India’s long-term energy and oil consumption are also optimistic, and India is already a major oil demand growth driver.

 

Recently in India, high refinery runs and expanding refining capacity pushed crude oil imports to a record 4.93 million bpd in January 2018, up by double digits compared to both December 2017 and January 2017, according to data compiled by Thomson Reuters Oil Research & Forecasts.

India invests in oil, signifying an all-electric future isn’t here yet.

 

In a speech on Monday, India's prime minster Narendra Modi announced that Indian energy businesses will be buying into oil concessions abroad.  Coming less than a year after India’s minister announced the goal for India to offer only electric vehicles in India by 2030, this is a significant sign that perhaps the dreams of electric vehicles and alternative energies are not yet realistic; something for oil traders and electric vehicle enthusiasts should take into consideration.  During a visit to the UAE this week, the announcement was made that the Indian state-owned ONGC Vinesh, Indian Oil Corp., and Bharat PetroResources would be purchasing a 10% stake in an offshore Abu Dhabi oil concession.

 

U.S. shale production is surging.  Highest daily production since 1970, with continued growth expected.

 

The latest surge in U.S. oil output has vaulted the U.S. to the top of the producer pile.  Last week's numerous releases from the U.S. Department of Energy showed daily oil production above 10 million barrels a day for the first time since 1970.  The one-week jump was 332,000 barrels a day!

 

What does this mean?

 

I suppose the big thing is, bragging rights. Although they aren’t there yet, the U.S. is close to becoming the world's largest producer of crude and condensate.  It's pretty much on par with Saudi Arabia's combined output, and if they continue to grow as they are expected, Citigroup is saying the U.S. will catch up to Russia's 10.95 million daily barrels by the end of the summer.

 

The 2018 Winter Olympics are underway!

 

This isn’t oil related, but it’s definitely something to know about and enjoy over the next couple weeks.  They’re underway, but if you haven’t tuned in yet, you haven’t missed everything.  There are still a ton of fun events. 

 

The question then becomes how do I know when and how to watch everything.  Here is a helpful link that will tell you everything you need to know:  LINK TO CBSSPORTS

 

No matter what country you live in, these games are a great way for countries to come together and compete, have fun, and build relationships that will last into the future.

1. Iraq launching military operation to secure oil route to Iran.

 

Iraqi forces are readying military forces to consolidate control of an area near the Iran border that will be used for the transit of Iraqi oil to Iran.  According to Reuters, the operation to secure the Hamrin mountain range could start this week.  There has been turmoil in the region since Baghdad refused to acknowledge the area’s independence. 

 

Since Iraqi oil officials announced in December plans to transport Kirkuk crude by truck to Iran’s Kermanshah refinery, they have had the threat of two armed groups in the area that pose significant threats to the operation. 

 

2. Rex Tillerson weighs in on situation in Venezuela.

 

Secretary of State Rex Tillerson again brought up the fact that the US is considering drastic action against the Venezuelan government during his trip to Argentina this weekend.  He stated that the US is still open to the idea of imposing restrictions on oil imports and exports from Venezuela in his address.

 

"Obviously, sanctioning the oil or in effect prohibiting the oil to be sold in the United States, or for the United States as well to sell or provide oil to Venezuela, or refined products, is something we continue to consider," he said.

 

Later, he called the situation in Venezuela "quite dire," and added that there would be a fine balancing act to establish the right solution that will not impose too many costs to the people of Venezuela, yet pressure Venezuelan President Nicolas Maduro.

 

"One of the aspects of considering sanctioning oil is what effect will it have on the Venezuelan people, and is it a step that might bring this ... to a more rapid end?" Tillerson said. "Because not doing anything to bring this to an end is also asking the Venezuelan people to suffer for a much longer time."

 

3. Lake Tahoe leading the way to 100% renewable energy.

 

The world-famous Lake Tahoe ski and recreation resorts in California announced they will be the first ski facilities in the US to operate on 100% renewable energy – a goal that when completed is expected to cut their carbon footprint in half!

 

Squaw Valley Alpine Meadows, the parent company is partnering with electric service provider Liberty Utilities to identify and develop new renewable energy generation, storage, and efficiency projects to benefit the two Lake Tahoe resorts as well as the entire Olympic Valley area.

 

The President and COO of Squaw Valley Alpine Meadows, said: “Solar power has come down in cost so much that it’s accessible now.  It’s a purely economic decision. And it’s also about how we operate sustainably long into the future”.

 

1. Oil settles lower and the dollar is up.

 

Oil prices settled lower today, pushed down by the strengthening dollar and increasing US crude output.  But even with the slump, prices are still on track for the biggest January increase in five years.

 

Brent crude futures for March delivery dropped to $1.06 to $69.46 a barrel.

 

US West Texas Intermediate (WTI) crude futures dropped $0.58 to close at $65.56 a barrel.

 

The oil rally has been bolstered by the US dollar's six-week slide.  We’ll see if this is just a hiccup, or if the trend continues. The US dollar is estimated to fall 3% this month. Oil is priced in US dollars, so a falling dollar can boost demand for crude from buyers using other currencies.

 

2. Tesla looking to invest in Chile as a way to stay ahead in the Lithium battle.

 

The Financial Times is reporting that Tesla may be interested in investing in a processing plant in Chile—one of the top-producing lithium countries in the world.  Tesla is looking to ramp up production of its Model 3, which is way behind initial construction and delivery schedules.

 

Lithium prices have been increasing as demand for batteries continues to go through the roof, and nearly every legacy automaker has announced plans to roll out electric vehicles in the coming years.  Tesla is under the gun to get their cars out fast and at an affordable price for the public!

 

3. Iraq plans to comply with OPEC cuts despite efforts to increase its oil export capacity.

 

Even though Iraq has been ramping up its oil export capacity, their Oil Minister Jabbar al-Luiebi said at a conference in London that they still plan to comply with the OPEC production cuts pact in which Iraq agreed to cut 210,000 bpd off its October 2016 level and cap production at 4.351 million bpd.

1. Recent International Energy Agency report predicts U.S. is on track to take the number two spot.

 

According to a report released by the International Energy Agency on Friday, the United States is on track to overtake Saudi Arabia as the second-largest oil producer in the world, behind Russia.

 

The IEA wrote, "This year promises to be a record-setting one for the US.  Relentless growth should see the US hit historic highs above 10 million barrels per day, overtaking Saudi Arabia and rivaling Russia during the course of 2018 – provided OPEC/non-OPEC restraints remain in place.”

 

They then added, "Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico. The big 2018 supply story is unfolding fast in the Americas.”

 

2. RFS comes under attack as major East Coast refinery files bankruptcy. 

 

The parent company of Philadelphia Energy Solutions announced it is filing for Chapter 11 bankruptcy in an attempt to restructure more than $100 million in existing debt and still continue operations.  They blamed the Renewable Fuels Standard for the financial struggles. 

 

Greg Gatta, CEO of Philadelphia Energy Solutions LLC said in his statement, “In order to complete this process without delay, we will continue to work with the government to address the broken RFS system that is harming smaller, independent merchant refiners like PES. This is a win for the region, the Commonwealth of Pennsylvania and the City of Philadelphia,”

 

U.S. Sen. Pat Toomey (R-Pa.) also chimed in, “I am pleased PES is able to remain operational during this process and retain its workforce for now; however, the mechanism for enforcing the RFS is the primary cause for this bankruptcy filing and it must be fixed,"

 

He continued, "I’ve had extensive conversations with PES management, senior EPA officials, my Senate colleagues, and directly with President Trump in an effort to resolve this situation. I will remain engaged until we find an acceptable solution.”

 

3. Saudi Arabia continues its efforts to develop their solar grid and even become an exporter to neighbors.

 

Saudi Arabia is taking steps to diversify their energy portfolio.  With extremely high solar insolation, they are slowly realizing that it's a lot cheaper to power their grids with solar energy than domestically produced oil, which could be sold overseas.

 

In 2017, Saudi Arabia began exploring the renewable energy business with small solar and wind projects. But, in 2018 The Saudis are planning a more serious investment in solar with 3.25 GW of tenders expected along with another 800 MW of tenders for wind energy. By 2023, Saudi Arabia plans to have 9.5 GW of renewable energy capacity and hopes to be exporting electricity from wind and solar to neighboring countries.

1. Legendary oil tycoon Pickens closing his energy hedge fund.

 

Texas oil tycoon T. Boone Pickens has struggled with health problems as he ages,

and is finally throwing in the towel on his energy focused hedge fund after a 22

years. 

 

“It’s no secret the past year has not been good to me, from a health perspective

or a financial one,” said Pickens in his recent Linkedin post.  He’s suffered from

multiple strokes over the last year. 

 

“If you are lucky enough to make it to 89 years of age like I have, those things

tend to put life in perspective,” he said.  “I’ve thrived and profited on the volatility

in the energy space. But for me, personally, trading oil is not as intriguing to me as

it once was,” Pickens said.

 

2. Russia hints that they me be looking to exit OPEC deal.

 

Russia is dropping hints that they may be on their way out of the OPEC output

reduction deal, according to the country’s Energy Minister, Alexander Novak.

 

“We see that the market is becoming balanced. We see that the market surplus is

decreasing, but the market is not completely balanced yet and, of course, we

need to continue monitoring the situation,” Novak said.  And he then went on to

say that Russian oil majors have been complaining about the deal and how it is

holding them back from expansion plans.

 

Reuters is reporting that Novak might discuss the country’s potential exit from the

pact in Oman next week.  

 

3. International Renewable Energy Agency publishes report saying renewable

energy will be cheaper than fossil fuel in two years.

 

Renewable energy will be cheaper than fossil fuels in two years, according to a

new report published by the International Renewable Energy Agency (IREA).

 

In the report, they cover the fact that continuous technological improvements

have led to a rapid fall in the cost of renewable energy in recent years, meaning

some renewable energy sources can already comfortably compete with fossil

fuels.

 

The report predicts the trend will continue, and that by 2020 “all the renewable

power generation technologies that are now in commercial use are expected to

fall within the fossil fuel-fired cost range”.

 

“Turning to renewables for new power generation is not simply an environmentally conscious decision, it is now – overwhelmingly – a smart economic one.” Says the report

1. Oil prices flatten out as rising US output offsets OPEC worries.

 

After hitting $61 per barrel, the highest prices we’ve seen since 2015, oil is leveling off this week and holding steady.  Oil prices saw little change today as political concerns in some OPEC nations offset projections for higher US oil production.  Ongoing protests in Iran, combined with the recent detention of several princes in Saudi Arabia, have bolstered geopolitical concerns, stalling any significant price increases in the near future. 

 

Brent futures gained 16 cents to settle at US$67.78 a barrel, and US West Texas Intermediate (WTI) crude rose 29 cents, to settle at US$61.73 as of Monday.

 

2. Oil Spill Liability Trust Fund expired on December 31st, and is yet to be renewed.

 

For over 30 years oil companies have been levied a 9 cents-per-barrel tax on domestic crude oil and imported crude oil and petroleum products to build up a fund for federal oil-spill response efforts. The fund is Intended to help the US government respond quickly to accidents on land or offshore. 

 

The fund generated an average of $500 million in federal revenue per year, according to the Government Accountability Office, and currently has at least $5.75 billion in reserve.

 

Although Congress chose not to renew the tax in December, they are considering reinstating it retroactively in an “extenders” bill that would revive several recently expired taxes.  Industry officials noted that the U.S. Coast Guard or the National Oceanic and Atmospheric Administration could always ask Congress to reimpose it the levy if either felt it was needed.

 

3. The Middle East is looking to diversify its energy sources in 2018.

 

As we enter 2018, it’s important to realize that many Middle Eastern countries have started to look above ground for generating energy as a way to diversify away from crude oil.

 

Saudi Arabia, the UAE and Oman, are just a few of the countries that have set ambitious goals to boost the construction of clean energy facilities and the use of renewables in their energy mix in the long run.  As global solar and wind costs continue to drop and make those energy solutions increasingly competitive, the Middle East is expected to continue to move ahead with renewable projects this year

1. Oil prices have the strongest opening since 2014.

 

2018 is off to a good start.  Oil prices posted their best opening to a year since 2014, with crude rising to mid-2015 highs.  Prices have been driven by large anti-government rallies in Iran and ongoing supply cuts led by OPEC and Russia.

 

U.S. West Texas Intermediate (WTI) crude futures (CLc1) were at $60.61 a barrel, their highest since June 2015. Brent crude futures (LCOc1), the international benchmark, were at $67.12 a barrel.  This is the first time since January 2014 that both crude oil benchmarks opened the year above $60 per barrel.

 

2. South Korea seizes another ship with oil headed to North Korea.

 

According to customs officials, South Korean authorities have seized a ship flying the Panama flag suspected of transporting oil products to North Korea in violation of international sanctions.

 

The seizure is the second reported by South Korea within a few days, as the United Nations steps up efforts to squeeze essential oil supplies to the uncooperative North following its nuclear and ballistic missile testing.

 

3. UAE And Saudi Arabia End Tax-Free Living.

 

The United Arab Emirates and Saudi Arabia have long provided tax-free and heavily subsidized living for foreigners.  However, recently they introduced and International Monetary Fund (IMF)-backed value-added tax (VAT) starting January 1.  The general consensus is this is due to oil prices slumping and causing significant budget shortages across the board for the countries.  The 5% levy is imposed on most goods and services and aims to boost revenue after the collapse in crude prices over the last couple years. Although it threatens to slow economic growth at a time when it is already sluggish, the UAE is expected to raise around $3.3 billion from the tax.

1. Oil prices hits $60 a barrel for the first time since June 2015.

 

Oil prices jumped levels we haven’t seen in over 2½ years.  The news of the pipeline explosion in Libya combined with increased US output has caused the boost.  International benchmark Brent crude rose $1.81, or 2.8%, to $67.06.  Additionally, U.S. West Texas Intermediate crude futures jumped $1.50, or 2.6%, to $59.97. 

 

2. Reports show China has stopped oil product exports to North Korea.

 

Recent Chinese customs reports with November data show China exported no oil products to North Korea.  This is above and beyond the sanctions imposed by the UN.   Last week, the U.N. Security Council imposed new caps on trade with North Korea, including limiting oil product shipments to just 500,000 barrels a year.  Tensions have been high over North Korea's ongoing nuclear and missile programs, pursued in defiance of years of U.N. resolutions.

 

3. Oil discoveries hit 70 year low.

 

As we close out 2017, major oil discoveries have tumbled to their lowest levels in more than 70 years.  Without the incentive of high oil prices, as drillers across the world have struggled to justify the cost of new projects that are lucrative enough to provide investor returns. 

 

2017 will end at only 7 billion barrels of oil and gas discovered.  Compare this to 2012’s 30 billion barrels identified, and we see it’s quite a stark difference.  According to Norwegian research firm Rystad Energy, the falloff could translate into supply shortages and sharply rising prices in the future. 

 

"We haven't seen anything like this since the 1940s," senior Rystad analyst Sonia Mladá Passos said in a report. "We have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels some 10 years down the road."

Oil prices are predicted to close out 2017 around 15% up, and the market seems more stable than it has in years. The question is: What does 2018 have in store for us?

 

Many experts think 2018 will bring more of the same – inventory declines, moderate shale growth, a slow increase in oil prices and potentially the end of the OPEC deal. All this being said, a lot remains uncertain.

 

Here are five key things to pay attention to in 2018:

 

1. U.S. Shale Growth

 

We all know that U.S. shale output is continuing to rise, but nobody knows for sure at what magnitude it will grow. At the beginning of 2017, outlets such as EIA and IEA made bullish estimates for shale output, with the EIA predicting U.S. output to average 10 million barrels a day in 2018.

 

As 2017 wore on, many warning signs began to pop up, raising many questions about the health of the shale industry. Drilling costs were on the rise once again; a few shale companies ran into operational issues; drilling activity diminished when prices dropped below $50 per barrel, which was an indication that the average breakeven prices of the shale industry were not as low as once thought; rig count dipped; and investors started wanting more restraint and a slower pace of drilling. All of these problems combined, many started to believe shale was sputtering.

 

With this in mind, recent data really suggest that shale is back on track with strong production gains in September. Recent December reports from IEA and OPEC predicted that U.S. shale would add 870,000 bpd and 1mb/d of new supply in 2018. These estimates threaten to overwhelm demand growth but to what extent the actual increase lives up to expectations remains to be seen and will help determine the pace of rebalancing in 2018.

 

2. OPEC Compliance

 

OPEC production dropped in November for the fourth month in a row, this time falling by 130,000 bpd from a month earlier. This sharp decline puts the group’s compliance rate with the production reductions at 115%, the highest rate yet. OPEC’s ability to stay with its commitments is a positive sign heading into the next year that they’ll keep compliance rates high. To be clear, involuntary dips in Venezuela are somewhat hiding less-than-100% compliance from Iraq and the UAE, but a reduction of supply is still a reduction of supply.

 

The real question is the long-term resilience of high compliance throughout 2018. If the oil market rebalances suddenly, OPEC members might be led to abandon their pledges, tempted by higher oil prices. Russia has signaled that it is more than ready to leave the deal once inventories reduce to average levels once again. We must also consider the opposite end of the spectrum as well: a steep decline in oil prices could tempt members into cheating as they become desperate for more revenues.

 

3. The OPEC Exit Strategy

 

OPEC brought much-needed stability to the oil market through its determination to preserve output limits, and the strong cooperation, particularly between Saudi Arabia and Russia, relieved the oil market at the last OPEC meeting.

 

Even so, both countries did not detail their OPEC exit strategies, giving the June 2018 meeting, even more, weight, especially as the inventory surplus reduces. Leaving the production cuts behind is highly dangerous as even the slightest hints of a return to full production could scare jumpy oil traders. Top OPEC officials were hopeful to push off the conversation for this reason alone, however, by Q3 of 2018, they won’t be able to avoid the issue any longer. It’s likely OPEC will choose some kind of glide path which is a gradual reduction of the production limits, but we won't know for sure until then. 

 

4. Fluctuations in Inventories

 

OPEC’s 2018 strategy will largely depend on what happens to global inventories. OECD commercial stocks decreased by more than 40 million barrels in October, setting total stocks at 2,940 million barrels, the weakest level in more than two years. The stock surplus is now near 100 million barrels which is more than the five-year average, down two-thirds from the beginning of 2017. It's likely that the large surplus will be erased during 2018, at which point OPEC will be under pressure to abandon its production limit agreements.

 

However, the IEA said in its December Oil Market Report that it anticipates inventories to start rising again in 2018, mostly because of blistering increase from U.S. shale. In the first half of 2018, the IEA predicts it will see inventories increase at a pace of 200,000 bpd. If the agency is right, zeroing out the surplus could prove difficult.

 

5. Unpredictable Incidents

 

All of these forecasts and predictions fall by the wayside should supply disruptions occur. Just days ago, cracking along the Forties pipeline caused a shutdown, and the pipeline's operator announced force majeure on oil shipments. The 450,000-bpd pipeline could be down for weeks which will lead to closures at North Sea oil fields. This event is exactly the type of incident that can catch the oil market off guard, causing a sharp and sudden price increase even if the rest of the world is operating just fine.

 

There are plenty of possible flashpoints that could lead to supply outages in the next year. The most obvious is Venezuela, which is experiencing steep and continuing declines. Venezuela's output fell by 41,000 bpd in November from a month earlier, after experiencing a decrease of 26,000 bpd in October 2017.

 

Production in the country is at a 30-year low and is moving south. Other outages are possible in unpredictable countries like Nigeria and Libya. Additionally, any conflict between the U.S. and Iran would be an entirely different animal, with serious implications for the oil market. Then, other potential outages are unpredictable altogether.

 

Incidents like the crack in the Forties pipeline, the spill from the Keystone pipeline in the U.S. and the massive wildfires in Alberta in 2016 are just a few examples of incidents that nobody saw coming. It only takes one vital disruption to upend even the most carefully predicted oil forecast.

1. New US tax bill will open up drilling AND continue incentives for renewable energy.

 

The Republicans' introduced their tax package last Friday, and from an energy perspective, the highlights are it would boost traditional forms of energy such as oil and gas while still supporting renewable energy such as wind and solar power, and also extend tax credits to buyers of electric cars.

 

The new bill will open Alaska's Arctic National Wildlife Refuge to drilling while preserving tax credits for wind power and other clean energy.  Opening the remote Arctic refuge to oil and gas drilling has long been a Republican priority that most Democrats oppose for fear it would harm the wildlife.  The 19.6-million-acre refuge in northeastern Alaska is one of the most pristine areas in the United States and is home to polar bears, caribou, migratory birds and other wildlife. 

 

However, Alaska Sen. Lisa Murkowski, chairman of the Senate Energy and Natural Resources Committee says new technology allows for drilling to be done safely without harming or disrupting the wildlife population.

 

2. Exxon Mobile and Shell are working toward a greener future.

 

Exxon Mobil and Shell are showing they are committed to a greener future in their most recent SEC filings by publicly adopting plans to disclose the risk climate change poses to their core business and roll out investments in renewable energy projects. 

 

Earlier this month Exxon reported it will begin reporting the "impacts" that climate change and environmental policies have on the company, including implications of the 2 degrees Celsius warming limit set by the Paris Climate Agreement in 2015.  They will also report their plans and progress toward creating a "lower-carbon future."

 

Shell, is taking its climate commitment a step further by announcing earlier this month that they have pledged to reduce its net carbon emissions 20% by 2035, and 50% by 2050.

 

3. North Sea pipeline still shut down.

 

Prices are up this week for a number of reasons: Threat of Nigerian Oil Union strikes, US oil rig count is down...  but a big one is also the fact that the Forties Pipeline is still down with an unknown restart date.

 

The 450,000-barrels-per-day (bbl/d) link that provides a good portion of the physical crude underpinning Brent has been shut down since Dec 11th

 

“There is still no reliable information about how long the repair work will last and when the pipeline will go back into operation,” stated a representative from Commerzbank, “this should preclude any fall in the Brent price for the foreseeable future.”

1. Iraq and Iran set up a one-year oil swap.

 

Iraq and Iran agreed to a mutually beneficial deal for the next year until they can build a pipeline and negotiate a longer-term deal.  Iraq’s Oil Minister, Jabbar al Luaibi told media that the deal is finalized and in effect, but can be renegotiated at any time.  The deal entails swapping up to 60,000 bpd of crude oil, with the Iraqi oil coming from the Kirkuk field in northern Iraq, and Iran supplying the same amount of similar grade oil to Iraq’s southern ports. 

 

Until recently, the Kirkuk region was under the effective control of the Kurdistan Regional Government, but Baghdad rejected, their independence referendum and retook control of the oil fields a short time ago.   

 

2. GlassPoint Solar and Aera Energy are teaming up on a large solar steam and power installation in the San Joaquin Valley.

 

Set to be California’s largest solar farm, the 26.5-megawatt photovoltaic array and 850 megawatts-thermal solar collectors are slated to come on-line in 2020.  Aera observed GlassPoint for years after attending the 2011 launch of a pilot plant at the Berry Petroleum Company field, also in Kern County. But GlassPoint’s COO and acting CEO, Ben Bierman, said “the stars aligned” recently to make this project viable for Aera.

 

“At first it didn’t make economic sense to deploy solar at our operations,” said Aera CEO Christina Sistrunk. “But over the years GlassPoint has made advancements in their technology to reduce costs and has proven the viability of their solar technology in Oman.”

 

3. U.S. oil production continues to increase, putting pressure on OPEC and oil prices.

 

As of last Friday, the U.S. rig count for this week is up by two to for new oil in the United States to 751, the highest since September, according to Baker Hughes.

 

A higher rig count points to a further rise in U.S. crude production, which is already up more than 15 percent since mid-2016 at 9.71 million barrels per day. This is putting the pressure on OPEC countries that just agreed to extend cuts into 2018 as an attempt to keep prices up.  But the pressure is on because U.S. production is the highest it’s been since the early 1970s, and close to the output levels of top producers Russia and Saudi Arabia.