What to Watch

Oil Prices Fall in Thin Trading

Crude futures were in the doldrums Friday, as many traders packed up early and others cashed in ahead of the holiday weekend.

Brent crude, the global benchmark, was down 0.42%, at $64.16 a barrel on London’s Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.57%, at $58.03 a barrel.

“It’s a thin trading environment–and the market is not going to be very active today,” said Olivier Jakob, head of energy consultancy Petromatrix.

While analysts expect a quiet week following Christmas, many said they would be looking to see whether the Forties Pipeline System in the North Sea resumes full operations at the start of the New Year.

Overall, crude prices have risen more than 20% since September, as a result of renewed geopolitical risk to supply in the Middle East, declining global inventories and OPEC’s ongoing efforts to curb production.

Energy News

Georgia Officials Approve Funding for Troubled Nuclear Plant

Georgia officials voted to continue building two half-finished nuclear reactors even though construction is more than $10 billion over budget and five years late.

Russia Backs Gradual, Managed Exit From Oil Cuts With OPEC

Russia’s energy minister said OPEC and Moscow will exit from oil production cuts very smoothly, possibly extending the curbs in some form so as not to create any new surplus in the market, according to Reuters.

“Nobody believed what we were going to do, analysts said we were crazy; now we can say they were wrong and we were right [about Zohr]”

– Claudio Descalzi, chief executive officer Eni

China to Back Fresh UN Sanctions on North Korea Fuel

China has signaled it’s ready to back another round of United Nations sanctions that willslash exports of fuel to North Korea, Bloomberg reports.

WSJ Energy In-Depth

OPEC’s Christmas Present: Compliance

OPEC and its allies will have much to celebrate this Christmas season, writes Benoit Faucon.

The cartel said participants in the ongoing output-cut deal reached their highest compliance level ever at 122% last month. Skeptics who thought the group of producers from four continents couldn’t pull its act together have been proven wrong.

Last month, the 14-member Organization of the Petroleum Exporting Countries along with ten allies outside the cartel including Russia, the world’s largest oil producer, agreed to continue output curbs of a combined 1.8 million barrels a day until the end of next year.

That effort has been compounded by a string of disruptions, notably of the Forties pipeline in the U.K. North Sea, to keep oil prices above $60 a barrel.

That’s the price level OPEC kingpin Saudi Arabia wants when it launches the initial public offering of its oil giant company Saudi Aramco next year. But OPEC should be careful what it wishes for.

Some delegates are now worried rising oil prices and tightening supplies are benefiting its foe in the oil market: U.S. oil shale, which is set to break record production levels at the end of the year.

Big Number

7 billion

Record low volumes of oil and gas were discovered in 2017, according to a report by oil consultancy Rystad Energy. Less than 7 billion barrels of oil equivalent has been discovered year to date. The reserve replacement ratio this year was 11% for oil and gas combined compared to over 50% in 2012.

FutureCurve

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

Monday: The New York Stock Exchange, the London Stock Exchange and Nasdaq will be closed in observance of the Christmas holiday.

Tuesday: The London Stock Exchange will be closed in observance of a holiday.

Reporter’s Notebook

Be on the lookout for more coal plant retirements next year, especially in areas where natural gas is readily and cheaply available, BTU Analytics’ Matthew Hoza tells the WSJ. Mr. Hoza said that after the wave of retirements last year, there are still more than 100 non-retiring coal plants that are operating at dangerously low utilizations. “It’s hard to argue that low utilizations are sustainable in the long-term,” he said, adding in a new report that “the coal plants most at risk come from areas that are on top of or adjacent to the Marcellus and Utica, where we have seen prolific natural gas production growth over the past few years,” the WSJ’s Dan Molinski reports.

In the latest sign big oil is looking to become big power, Royal Dutch Shell PLC said Thursday it will buy U.K.-based First Utility. Big oil-and-gas companies are increasingly dabbling in the world of utilities, betting on the future of electricity as the world moves towards more renewables and lower-carbon energy sources. The acquisition for an undisclosed sum will allow Shell to broaden its energy supply business, gaining 3% of the U.K. residential market, reports the WSJ’s London-based correspondent Sarah Kent.

Plunging Canadian crude oil prices threaten to drag global prices down as well, Texas-based consultant William Edwards said in an Infill Thinking report. A glut there has worsened due to pipeline problems, other bottlenecks and new trading specifications. “It is a contagion that can infect the entire oil producing industry,” he said, adding the Canadian industry “must find or install the other control lever, the one labelled ‘Cut Production’, or expect major bankruptcies with the possibility of a world collapse in the price of crude,” Dan Molinski reports.