What to Watch

Gulf Oil Sale No Turning Point for Offshore Drilling

 

The Trump administration’s efforts to jump-start offshore exploration got off to a weak start as a big auction of oil and gas leases in the Gulf of Mexico drew few bidders, writes The Wall Street Journal’s Timothy Puko.

 

President Donald Trump’s administration offered up enough acres for oil and gas drilling in the gulf to cover the state of New Mexico on Wednesday, in what Interior Secretary Ryan Zinke billed as the biggest such sale in U.S. history.

 

But only 1% of the acres offered drew a bid, and the winners paid an average of $153 an acre, some of the lowest prices of the decade.

 

Lease sales have languished for several years, since commodity prices plummeted more than three years ago.

 

Energy News

 

Oil prices retreated from a seven-week high  on Thursday, caught between the unexpected fall in U.S. inventories and the country’s ever-rising production.

 

Brent crude, the global oil benchmark, fell 0.6% to $68.63 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.4% at $64.90 a barrel. Crude inventories fell 2.6 million barrels in the week ended March 16 according to official data.

 

China Is Set to Launch Oil Futures

 

China, the world’s biggest importer of crude, is preparing to launch its own yuan-based oil futures contract on Monday, a move set to shake up the global crude market currently dominated by trading in London and New York.

 

“After 42 months, the U.S. crude surplus has finally gone”

– Paul Horsnell, the head of commodity research at Standard Chartered

 

Complaints About Falsified Pipeline Endorsements Draw No Response

 

Dozens of people haven’t heard back from U.S. regulators nearly two yearsafter their names were falsely used in letters supporting approval of a gas pipeline from Ohio to Canada, writes the WSJ’s James V. Grimaldi.

 

Meanwhile, Nathaniel Taplin argues that investors have bought and sold shares of pipeline owners for all the wrong reasons. But now there is a chance to buy them for the right ones.

 

Big Number

10

 

Oil infrastructure is the most glaring constraint to limitless growth in U.S. shale output, said analysts for Energy Aspects in a recent note. The Permian basin had 10 oil takeaway pipelines with a combined capacity of 2.92 million barrels a day as of February 2018, said analysts.”There will be a shortage of takeaway capacity in the Permian by August, which will only get worse into year-end,” noted experts.

 

FutureCurve

 

Friday: The oil-services firm Baker Hughes releases data on the number of active U.S. rigs drilling for oil.

 

April 18–19: IQPC hosts the Oil & Fuel Theft Summit in Geneva. Speakers include Mahmoud Al-Bayati, the director general for counter-terrorism for Iraq, William J. Waggoner, the Chief Executive Officer for the Mexico Petroleum Company and Daniel Gianfalla, a member of the national maritime security advisory committee at the U.S. Department of Homeland Security.

 

Reporter’s Notebook

 

The WSJ’s Dan Molinski on the impact of the Federal Reserve’ rate increase on oil futures. Oil prices held at six-week highs above $65 per barrel after the U.S. central bank raised interest rates as expected and continued to signal a total of three hikes for all of 2018. Some in the market speculated the Fed may change to a four rate-hike schedule this year given recently-stronger economic data, a move that might have boosted the dollar and weakened oil. Instead, the WSJ Dollar Index slipped after the Fed statement, helping to consolidate oil’s strong gains Wednesday on the back of data that showed a decline in U.S. oil inventories.

 

WSJ reporter Saurabh Chaturvedi on the effect of an increase in air traffic on energy firms. Amid anticipation of continued air-traffic growth, RHB upgraded Singapore-listed China Aviation Oil to buy and boosted its stock target 13% to S$1.80. The company is also seen benefiting from anticipated earnings growth at an aviation fuel-supply joint venture. Shares were up 0.6% at S$1.61, halving the year’s drop and putting the week’s jump at 3.2%.

 

The WSJ’s Neanda Salvaterra on the potential effects of U.S. trade tariffs. Critics of the Trump administration’s plan to erect trade barriers with China warn that the measure could backfire. “America’s newfound energy leadership could become an effective counterweight to China’s financial muscle in the developing world,” writes Rupert Darwall in a recent opinion piece.” But if Mr. Trump insists on starting a trade war that makes American manufacturers less competitive and pushes the U.S. to the margins of the international trading system, expect the world’s aspirational economies increasingly to turn to Beijing.”