What to Watch

Shale Producers Should Not Bet on Rising Crude Prices, Says Executive

The benchmark U.S. oil price is up about 27% since June, but that doesn’t mean shale companies should bank on a continued rise, said David Hager, chief executive of Devon Energy Inc., in an interview with The Wall Street Journal’s Lynn Cook.

 

Oil prices nudged higher Wednesday, with Brent underpinned by a supply disruption in the North Sea, which is expected to trigger further reductions in global oil inventories.

 

Brent crude, the global oil benchmark, rose 0.9% to $63.90 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.7% at $57.54 a barrel.

 

Assuming a world of about $50 oil and $3 gas, “growth in shareholder value is going to be through delivering strong returns at the corporate level, not because we believe the price of oil will increase,” Mr. Hager said. “It won’t be because of some huge exploration discovery somewhere or a new type of play being found either.”

 

Devon and many other U.S. energy companies have faced investor pressure this fall to stop growing oil production without delivering returns to shareholders.

 

“To me it’s exciting,” Mr. Hager said. “When prices are higher it’s harder to tell good management from bad or good companies from bad. It appears everybody’s being successful.”

Energy News

Investors Pledge Cuts to Fossil-Fuel Commitments at Paris Meeting

Several global financial firms including Dutch lender ING and the World Bank pledged to cut financing of fossil-fuel projects at a summit in Paris on Tuesday. One of the largest pledges at the One Planet Summit came from French insurer AXA, which said it would pull $2.8 billion from the coal industry, shed all investment in oil sands and no longer insure new projects in either sector.

 

Electric-Vehicle Boom Is a Boon for Glencore

Mining giant Glencore PLC, which made a losing bet on coal in recent years, is benefiting from a coming boom in electric-vehicle production and a surge in the value of the components copper, cobalt and nickel. The company said it has completed an $880 million upgrade of one of its massive copper-mining operations in Congo. Its shares are up 26% this year.

 

“We are beginning to see a return to stable markets”

Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries

Blast at Austrian Import Hub Chokes European Natural Gas Supply

An explosion Tuesday at Austria’s largest import hub for natural gas left one dead and created further disruption in a European energy market already reeling from the closure of a major oil pipeline system. Massimo Di-Odoardo, a principal analyst for gas at the Scottish energy consultancy Wood Mackenzie, described the one-two punch of the Austrian explosion and the Scottish pipeline crack as a “perfect storm.”

 

WSJ Energy In-Depth

U.S. Criticizes Germany’s Support of New Russian Natural Gas Line

A top U.S. official excoriated Germany over its continued support of a Russian gas pipelineto Europe, writes Paul Sonne.

 

  • Wess Mitchell, assistant secretary of state for European and Eurasian affairs, said the formation of a new government in Germany offers an opportunity for the U.S. to make a renewed case against the Russian pipeline known as Nord Stream 2, which Washington says will give Moscow more leverage over Europe’s energy supply.

 

“On energy security, Germany gets it wrong,” Mr. Mitchell said in testimony to the Senate Foreign Relations Committee.

 

Europe has few natural-gas sources, unlike the U.S., where domestic supplies are abundant and readily available. Russia supplies about a third of Europe’s gas needs but the relationship is contentious as Moscow has sometimes flexed its muscle by cutting off supplies.

 

The Russian pipeline project, a wholly owned subsidiary of Russian state energy giant Gazprom, would double Russia’s export capacity to Europe.

 

Big Number

$10.4 billion

Today Saudi Aramco, the world’s largest energy company, inked agreements with foreign and local companies worth at least 39 billion riyals or $10.4 billion, reports Reuters

FutureCurve

Today: S&P Global Platts is hosting its second annual Middle East refining summit, and the Organization of the Petroleum Exporting Countries releases its closely watched Monthly Oil Market Report.

Thursday: The International Energy Agency releases its Oil Market Report.

Friday: Oil-services firm Baker Hughes Inc. releases its count of active drilling rigs, a bellwether for production in the U.S. oil industry.

 

Reporter’s Notebook

Middle East oil refining capacity should increase by 25% by 2020, to 12 million barrels a day, up from 9.5 million barrels a day, according to RK Mehra, strategic adviser at GP Global Group. Saudi Arabia is leading the way on both capacity and exports of refined products. The Jubail Satorp and Yanbu Yasref refineries in Saudi Arabia have already been commissioned to Asian and European buyers. Other countries are following, as “Saudi has created a product war,” Mr. Mehra said Tuesday in Dubai at the S&P Global Platts Middle East Refined Products Summit. In particular, Middle East diesel is increasingly playing a stronger role in the global diesel market, he said, according to WSJ correspondent Christopher Alessi.

 

Roughly $20 million isn’t a bad birthday gift. As Block Island Wind Farm, the first offshore wind installation in the U.S., celebrates a year in operation, the U.S. Department of Energy says it will put $18.5 million in funding toward an offshore wind research and development consortium aimed at reducing the cost of the energy-generating technology. In making the announcement, U.S. Energy Secretary Rick Perry touted Texas and his past support for wind. Texas has more installed wind energy generating capacity than any other state by far, and that build out largely occurred when Mr. Perry was governor, reports the WSJ’s Houston-based correspondent Erin Ailworth.

 

The rise in oil prices this year could prove self-defeating, as expensive crude motivates U.S. shale producers to ramp up activity, analysts say. Producers typically take advantage of rising oil by using hedges to lock in the higher prices. According to Citigroup, U.S. suppliers sped up hedging activities for their 2018 production in the third quarter. Over the course of the last quarter the hedge ratio for 2018 production jumped from 12% to 27%, the highest level of hedges since 2014, the bank said. “High levels of hedge cover of 2018 production could bolster the growth outlook for U.S. shale next year,” the bank said, reports the WSJ’s London correspondent Georgi Kantchev.