What to Watch

Hopes for OPEC’s Rebalancing Effort Boost Expectations for More Expensive Oil

Banks are continuing to bet that oil prices will rise as the market rebalances, underpinned by a supply cut by major producers and geopolitical turmoil, writes the WSJ’s Christopher Alessi.

For the fifth month in a row in February, financial institutions including Morgan Stanley and Citigroup raised their forecasts for crude’s fortunes.

Brent crude—the global benchmark—is now expected to average $62 a barrel this year, while West Texas Intermediate, the U.S. standard, should average $58 a barrel, according to a poll of 15 investment banks surveyed by The Wall Street Journal toward the end of this month. Both predictions are up roughly $1 from the January survey.

Central to that rebalancing has been the effort led by the Organization of the Petroleum Exporting Countries to limit crude production.

OPEC and 10 major producers outside the oil cartel, including Russia, have been holding back crude output by around 1.8 million barrels a day, or nearly 2% of global supply, since the start of 2017.

Prices have also been supported by geopolitical risks to supply in the Middle East.

Meanwhile, a stronger dollar  after new Federal Reserve Chairman Jerome Powell signaled growing confidence in the U.S. economy weighed on oil prices on Wednesday.

Brent crude, the global benchmark, was down 0.27% at $66.45 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.19% at $62.89 a barrel.

Energy News

Coal Jobs Get a Boost—From Exports

In a rare bit of good news for the coal industry, American companies are shipping more coal to Europe and Asia, helping to stop a downturn in the sector and the loss of U.S. mining jobs. Exports of U.S. thermal coal used by utilities rose 117% to 42 million tons last year. That more than offset the 11-million-ton decline in coal used at domestic power plants.

Gas Prices Are Heading Back Toward $3 a Gallon

Consumers may have to brace themselves for the biggest fuel price jump in recent years. Driven partly by rising crude prices and a seasonal increase in driving, gasoline prices could soon reach an average of $2.79 a gallon, according to Oil Price Information Service.

“The largest effect [of Germany’s diesel ban] is likely to be psychological, with consumer[s] now facing the potential of additional unwanted consequences when purchasing diesel cars”

– Analysts for JBC Energy Reports

 

Exxon Reports No Damage to Gas Pipeline After Earthquake

ExxonMobil Corp. said a major liquefied natural gas pipeline in Papua New Guinea was not damaged by an earthquake on Monday that killed about 20 people, Reuters reports. The firm also said it plans to expand its LNG operations in Qatar and Papua New Guinea, and that it will build a LNG export facility  in Mozambique.

WSJ Energy In-Depth

Iraq Delays Oil Production Capacity Boost on Lower Prices, OPEC Cuts

Iraq is delaying a sharp boost to its production capacity by more than a year due to lower oil prices and OPEC output curbs, along with its first oil-field tender since 2012, a top Iraqi oil official said Tuesday.

The slowdown underscores the challenges Iraq’s recovering oil industry faces as it seeks to attract investments from Western oil giants following the defeat of Islamic State, writes the WSJ’s Benoit Faucon for Dow Jones Newswires.

Abdulmahdy al-Ameedi, director general of oil contracts and licensing at Iraq’s oil ministry, said the country was set to increase its production capacity to 5 million barrels a day next year, more than a year later than initially planned.

Speaking to reporters on the sidelines of the Iraq Petroleum conference in Berlin, he said international oil companies had delayed investments due to lower oil prices and more recently because Iraq had agreed to curb its output as part of a pact with the Organization of the Petroleum Exporting Countries.

Oil majors have also complained of late payments and tough contracts, an issue Mr. al-Ameedi said the government wants to resolve by improving terms.

He later said the Iraqi government was ready to link repayments on oil production to price movements, instead of the previous fixed fee.

Royal Dutch Shell PLC decided to pull out of the giant Majnoon field last year. But the official said Iraq is in talks with Chevron Corp. and Total SA to replace Shell in the project, but that the government may still develop the field without a foreign operator.

The official also said Iraq is in discussions with ExxonMobil on joining the Southern Integrated Project, which will involve oil-field development and refining.

Nine new blocks were currently offered near the Kuwaiti and Iranian borders, he said. But he also said bids would not start being accepted on May 7 as previously planned because they will clash with national and provincial elections.

 

 

Members of the cabinet will be focused on campaigning and may also change, delaying the decision process, he said, adding that a set of natural-gas fields also would be put for tender soon.

Big Number

80.97 %.

The U.S. is set to impose anti-dumping measures on China’s exports of aluminum foil, a metal often used as a conductor for the transmission of electricity. The Commerce Department said Tuesday that Beijing producers are benefiting from unfair subsidies. The levies will hit several Chinese firms with anti-subsidy measures ranging from 17.14% to 80.97%.

FutureCurve

Today: The U.S. Energy Information Administration releases U.S. production figures. Also, the Iraq Petroleum 2018 conference takes place in Berlin. The speakers include Iraq’s Oil Minister Jabar al-Luaibi and Shell’s Iraq Development & Joint Venture Manager Mark Wharton.

March 5-9: IHS Markit hosts the CERAWeek energy conference in Houston. The speakers include IHS Markit Vice Chairman Dr. Daniel Yergin and Amin Nasser, president and CEO of Saudi Arabia Oil Co., or Saudi Aramco.

June 5-6: The London Crude Oil Summit. The speakers include Shell Vice President of Crude Trading Mike Muller and Franco Magnani CEO, of Eni Trading and Shipping.

Reporter’s Notebook

The WSJ’s Max Bernhard on Germany’s Diesel Ban. It is too early to know how diesel bans will be implemented, but they won’t happen overnight, says Evercore ISI analyst Arndt Ellinghorst. Car makers and the German government will have some time to come up with ideas, such as hardware upgrades and scrapping schemes, as cities will need at least six months to draft their new pollution policies, he says. The ruling will likely put auto stocks under pressure in the coming months. Once the impact of the bans “has been stomached” auto stocks may resume performance, says Mr. Ellinghorst.

WSJ Correspondent Erin Ailworth on how the U.S. tax reform affects energy firms. Sempra Energy said federal tax reform is driving a plan to bring billions of dollars that the company has parked offshore into the U.S. While discussing earnings with analysts Tuesday, an SRE executive said the company plans to repatriate about $1.6 billion of undistributed foreign earnings over the next five years, and another $2.4 billion after that as its international businesses generate additional cash. The tax changes, the SRE executive said, allow the company to repatriate that money “with minimal, if any expected foreign or federal state tax expense.”

The WSJ’s Christopher Alessi on the appetite for crude. Oil demand is set to grow again this year on the back of robust economic growth in the U.S., Europe and India, according to Thomas Pugh, commodities economist at Capital Economics. The world’s appetite for oil should increase at roughly the same pace as in 2017, Mr. Pugh wrote in a note Tuesday. But he cautioned that a “sharp slowdown in China’s economic growth will limit the increase of global oil consumption.” He added: “Oil demand growth will probably fall back in 2019 as global economic growth falters and increasing fuel efficiency weighs on demand.”