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Oil rises to two-month high on hopes of longer OPEC cuts, U.S.-China trade deal

NEW YORK (Reuters) – Oil prices rose more than 2% on Thursday to the highest in nearly two months following a Reuters report that OPEC and its allies are likely to extend output cuts until mid-2020 and fresh signs that China had invited U.S. trade negotiators for a new round of talks. To support oil prices, the Organization of the Petroleum Exporting Countries and its allies are likely to extend output cuts to June when they meet next month, according to OPEC sources. OPEC meets on Dec. 5 at its headquarters in Vienna, followed by talks with a group of other oil producers, lead by Russia, known as OPEC+. The current supply cuts deal runs through to March 2020.

The sources told Reuters that formally announcing deeper cuts looked unlikely for now although a message about better compliance with existing curbs could be sent to the market.

Russian President Vladimir Putin said on Wednesday Russia and OPEC had “a common goal” of keeping the oil market balanced and predictable, and Moscow would continue cooperation under a global deal cutting oil supply. “I think the market is pretty much resigned to the fact that economic growth is slowing as is the rate of increases in oil demand where forecasts having been revised lower continually… a lot of that bearishness has been priced in, so that the upcoming OPEC meeting and unrest in Iran and Iraq is becoming the focus,” said Andrew Lipow, president of Lipow Oil Associates in Houston. Amid the long-drawn trade war between the United States and China, U.S. President Donald Trump is expected to sign two bills passed by Congress intended to support protesters in Hong Kong, a move likely to anger China. Hong Kong has seen increasingly violent protests against Chinese rule for several months and the passage of the bills could potentially undermine efforts to secure a trade deal. “Positive speak from China is not offsetting expectations that President Trump will sign a bill supporting Hong Kong protesters,” said Edward Moya, senior market analyst at OANDA in New York. “The timing of phase one deal is unclear, but markets are starting to get nervous we could see a repeat of the collapse in talks that took place in May.”

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EIA increases U.S. crude oil production forecast

Figure 2. Monthly U.S. crude oil production by region

WASHINGTON – The U.S. Energy Information Administration revises the U.S. crude oil production forecast it publishes in each Short-Term Energy Outlook based mainly on two factors: updates to EIA’s published historical data and EIA’s crude oil price forecast. In the November 2019 STEO, EIA increased its forecast of U.S. crude oil production in 2019 by 30,000 bpd (0.2%) from the October STEO. EIA increased its 2020 crude oil production forecast by 119,000 bpd (0.9%) compared with the October STEO.

  • EIA’s upward revision to historical production in the Lower 48 states of about 90,000 bpd for August, based on EIA’s most recent–October 31, 2019–914 monthly crude oil and natural gas production survey
  • Higher initial production for future wells that will be drilled in the Texas Permian region
  • Slightly higher crude oil price forecast for the November 2019–January 2020 time period than in the October STEO
Figure 1. U.S. crude oil production forecast
Figure 1. U.S. crude oil production forecast In the November STEO

EIA increased its U.S. benchmark West Texas Intermediate (WTI) crude oil price forecast by $2/bbl in November to $56/b and by $1/bbl in both December and January to $55/bbl and $54/bbl, respectively. The slight increase in crude oil prices also contributed to EIA’s increased production forecast for the first half of 2020 because of EIA’s assumption of a six-month lag between a crude oil price change and a production response. In the November STEO, EIA now forecasts U.S. crude oil production will increase to 12.3 MMBPD in 2019 from 11.0 MMbpd in 2018. Production in the Permian region is the primary driver of EIA’s forecast crude oil production growth, and EIA forecasts Permian production will grow by 915,000 bpd in 2019 and by 809,000 bpd in 2020 (Figure 2). Increases in Permian production are supported by the crude oil pipeline infrastructure expansion seen earlier this year, which helped alleviate the transportation bottleneck and supported prices for WTI in Midland, Texas (the price producers may expect to receive in the Permian region), relative to prices for WTI-Cushing. The higher relative prices in the Permian should continue to encourage production in the region. EIA forecasts that the Bakken region will have the next largest crude oil production growth in 2019, and it is forecast to grow by 152,000 bpd in 2019 and 96,000 bpd in 2020. EIA forecasts that production in the Federal Offshore Gulf of Mexico will increase by 138,000 bpd in 2019 and 116,000 bpd in 2020.Although EIA forecasts that overall U.S. crude oil production will increase, EIA expects the growth rate to decline from 11.8% in 2019 to 8.1% in 2020. One of the primary indicators of a slowdown in production growth is the decline in oil-directed rigs. According to Baker Hughes, active rig counts fell from 877 oil-directed rigs in the beginning of January 2019 to 674 rigs in mid-November. Rig counts in the Permian region also declined during this period, falling from 487 to 408 (Figure 3). Because EIA expects WTI-Cushing crude oil prices to stay below $55/b until August 2020, EIA anticipates that drilling rigs will continue to decline as producers cut back on their capital spending, resulting in notable slowing in the growth of domestic crude oil production over the next 14 months.

Figure 3. Total U.S. and Permian Basin region oil rigs
 Total U.S. and Permian Basin region oil rigs

Although U.S. rig counts are declining, improvements in rig efficiency, which allows fewer rigs to drill the same number of wells, partially offset declining rig counts. In addition, higher initial production from wells (although not necessarily the total estimated ultimate recovery) is offsetting some of the slowdown in rigs.

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U.S. Rig Count Crashes Again: Loses Nearly 100 Rigs In 3 Months

Rig roughneck

The US oil and gas rig count continued its downward slide this week, according to Baker Hughes, as the rig count piles on a string of losses with a drop of 11 rigs for the week. For oil rigs specifically, this week marks eleven decreases out of the last thirteen weeks, falling 96 rigs in that timeframe. The total oil and gas rig count now stands at 806, or 276 down from this time last year. The total number of active oil rigs in the United States decreased by 10 according to the report, reaching 674. The number of active gas rigs fell by 1 to reach 129. Oil rigs have seen a loss of 214 rigs year on year, with gas rigs down 65 since this time last year. By state, Texas has seen a drop of 127 year on year, while Oklahoma sunk by 94 to hit 52 rigs. Even though the number of oil rigs have declined by 203 this year alone, production has grown from 11.7 million bpd at the beginning of the year to an all-time high of 12.8 million bpd for week ending November 8, marking the first production increase after five weeks of holding fast at 12.6 million bpd. The production growth represents an increase of more than 1 million bpd from the beginning of the year. Canada’s overall rig count decreased this week, with oil and gas rigs falling by 6, after last week’s 2-rig decrease. Oil and gas rigs in Canada now stand at 134, down 63 year on year.

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Dow drops 200 pts amid fears over phase-one trade deal

The Dow Jones Industrial Average dropped 200 points on Wednesday after media reports said that there is a chance the United States and China will not reach the “phase-one” of their trade deal until the end of the year. Earlier in the day, President Donald Trump stated that it will be up to him to decide if he wants to ink a deal with China as the US is benefiting from tariffs.The Dow was 0.71% in the red at 1:05 pm ET as it was led lower by The Home Depot Inc which lost 1.70% at 12:50 pm ET. The Nasdaq 100 was down 0.92% at 1:06 pm ET as Ulta Beauty Inc led the losses as it fell 2.68% at 1:07 pm ET. Meanwhile, the S&P 500 was down 0.69% at 1:07 pm ET. L Brands Inc fell 5.88% at 12:53 pm ET ahead of its third quarter earnings release which is due after the bell.

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Russian Oil Boss: OPEC+ Won’t Decide On Output Cuts Before 2020

Alekperov Putin

Vagit Alekperov, the chief executive of the second-biggest Russian oil producer, Lukoil, expects OPEC and its Russia-led non-OPEC partners to decide next March whether to roll over the production cuts through the rest of 2020. “It is going to be decided in March,” Alekperov told reporters on Wednesday, as carried by Reuters, referring to the ongoing production cuts which currently expire in March 2020. OPEC and its non-OPEC allies are set to meet in the first week of December to discuss the state of the global oil market and possible additional moves to rebalance supply and demand. Despite reports and speculation that the OPEC+ coalition could consider deeper cuts when energy ministers meet in Vienna on December 5 and 6, the partners may not make a decision on the ongoing cuts and leave such discussions for March, when the restrictions are currently set to expire.   Going into the December meeting, the Saudis are reportedly pressuring non-compliant cartel members to fall in line with their quotas, instead of pushing aggressively for a deeper overall cut. Russia is still non-committal, as it has been ahead of all previous such meetings, before agreeing to rollover of the deal.   OPEC and its partners could decide in December to wait and see how global oil demand growth will hold up in the coming months, and only decide how to proceed with the cuts in March next year. Separately, Kirill Dmitriev, chief executive at the Russian Direct Investment Fund (RDIF), said on Wednesday that oil demand growth could accelerate if trade wars abate. “Of course, the committee will look at demand in the oil markets,” Dmitriev told Reuters, asked about his expectations from the December meeting. “But we see that the situation with demand may improve as the United States reduces pressure on China in trade wars,” Dmitriev noted.

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U.S. diplomat Sondland says he ‘followed the president’s orders’ on Ukraine

WASHINGTON (Reuters) – A U.S. diplomat who is a pivotal witness in the impeachment inquiry into President Donald Trump said on Wednesday he worked with his personal attorney Rudy Giuliani on Ukraine issues on “the president’s orders,” confirming Trump’s active participation in a controversy that threatens his presidency. Gordon Sondland, the U.S. ambassador to the European Union, told the inquiry that Giuliani’s efforts to push Ukrainian President Volodymyr Zelenskiy for investigations into Trump’s political rivals “were a quid pro quo for arranging a White House visit” for the Ukrainian leader. Quid pro quo is a Latin term meaning a favour exchanged for a favour. Sondland, a wealthy hotel entrepreneur and Trump donor, said U.S. Secretary of State Mike Pompeo was aware and “fully supportive” of their efforts on Ukraine, providing a fuller role of the top U.S. diplomat’s role in the affair. Pompeo, a close Trump ally, has declined to defend State Department witnesses who have been attacked by Trump and other Republicans over the Ukraine controversy. Sondland was appearing on Wednesday before the House of Representatives Intelligence Committee, which is taking the lead in the impeachment inquiry. He smiled and laughed as he took his seat at the witness chair in the hearing room on Capitol Hill in the fourth day of public proceedings in the investigation.

Sondland testified that Trump had ordered him and two other senior officials to work with Giuliani, who has refused to cooperate with the impeachment inquiry. Giuliani at the time had been working to get Ukraine to carry out the investigations that would benefit Trump politically.

“We did not want to work with Mr. Giuliani. Simply put, we played the hand we were dealt. We all understood that if we refused to work with Mr. Giuliani, we would lose an important opportunity to cement relations between the United States and Ukraine. So we followed the president’s orders,” Sondland said. The inquiry focuses on a July 25 phone call in which Trump asked Zelenskiy to carry out two investigations that would benefit him politically including one targeting Democratic political rival Joe Biden. The other involved a debunked conspiracy theory embraced by some Trump allies that Ukraine, not Russia, interfered in the 2016 U.S. election. Ahead of his request that Zelenskiy carry out the two investigations, Trump froze $391 million in U.S. security aid approved by Congress to help Ukraine combat Russia-backed separatists in the eastern part of the country.

Democrats have accused Trump of using the frozen aid and Zelenskiy’s desire for an Oval Office meeting as leverage to pressure a vulnerable U.S. ally to dig up dirt on political adversaries. Trump is seeking re-election next year. “I think we know now … that the knowledge of this scheme was far and wide and included among others Secretary of State Pompeo as well as the vice president,” said Adam Schiff, the Democratic chairman of the Intelligence Committee, referring to Vice President Mike Pence.

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Russia to continue working with OPEC despite ‘minor disagreements’: Putin

Moscow — Russian President Vladimir Putin said Wednesday his country will continue to work with OPEC on stabilizing oil markets despite “minor disagreements.” The current OPEC+ output cut agreement is in place until the end of March 2020. Participants will meet to discuss the market situation in early December, with prices continuing to hover around $62/b, which is significantly below the fiscal breakeven level for the cartel’s core Gulf producers. “We have some minor disagreements but overall we have a common task,” Putin said during the Russia Calling forum in Moscow on Wednesday. “The task is to balance the market so that it is acceptable for producers and consumers. The most important thing, I want to stress, is that it is predictable.” Earlier on Wednesday, Russia’s energy minister Alexander Novak told reporters that the Kremlin wanted new volumes of gas condensate — a high-value byproduct of natural gas — excluded from its quota as part of its OPEC + pact. “Only coordinated steps have the optimal impact for international energy markets,” Putin said, adding that Russia will always be a “responsible” participant in the energy market. Under the current OPEC /non-OPEC cuts deal — which runs to the end of March 2020 — Russia has committed to pare 230,000 b/d from its October 2018 output of 11.42 million b/d. Putin also described current US shale oil and gas technology as “barbaric” and too environmentally damaging for Russia to consider using. “We don’t need such production, despite all the possible economic benefits, we will never do this. We have options offshore and onshore, therefore there is not an urgent need,” he said. He added that he does not expect serious shale oil growth in the US in future. Finally Putin said that Russia is not planning to use funds from the National Welfare Fund to develop the oil and gas industry, but will prioritize development of the infrastructure and technology sectors.

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EIA  Weekly Petroleum Data for the week ending November 15, 2019

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.4 million barrels from the previous week. At 450.4 million barrels, U.S. crude oil inventories are about 3% above the five year average for this time of year.  U.S. crude oil refinery inputs averaged 16.4 million barrels per day during the week ending November 15, 2019, which was 519,000 barrels per day more than the previous week’s average. Refineries operated at 89.5% of their operable capacity last week. Gasoline production decreased last week, averaging 10.1 million barrels per day. Distillate fuel production increased last week, averaging 5.1 million barrels per day. U.S. crude oil imports averaged 6.0 million barrels per day last week, up by 222,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.1 million barrels per day, 18.0% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline
blending components) last week averaged 515,000 barrels per day, and distillate fuel
imports averaged 315,000 barrels per day.
Total motor gasoline inventories increased by 1.8 million barrels last week and are about 2% above the five year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week.
Distillate fuel inventories decreased by 1.0 million barrels last week and are about 11% below the five year average for this time of year. Propane/propylene inventories decreased by 3.4 million barrels last week and are about 6% above the five year average for this time of year. Total commercial petroleum invento ries decreased last week by 5.0million barrels last week. Total products supplied over the last four-week period averaged 21.4 million barrels per day, up by 0.5% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.4 million barrels per day, up by 1.9% from the same period last year. Distillate fuel product supplied averaged 4.4 million barrels per day over
the past four weeks, down by 1.3% from the same period last year. Jet fuel product supplied was virtually unchanged compared with the same four
-week period last year.
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A White House Now ‘Cannibalizing Itself’

WASHINGTON — As Lt. Col. Alexander S. Vindman sat in a stately chamber testifying on Tuesday, the White House posted on its official Twitter account a message denouncing his judgment. His fellow witness, Jennifer Williams , had barely left the room when the White House issued a statement challenging her credibility.   Trump has publicly disparaged cabinet secretaries, former aides and career officials working elsewhere in the government, but now he is taking aim at people still…   In President Trump’s Washington, where attacks on his enemies real or perceived have become so routine that they now often pass unnoticed, that might not seem all that remarkable — but for the fact that Colonel Vindman and Ms. Williams both still work for the very same White House that was publicly assailing them. With the president’s allies joining in, the two aides found themselves condemned as nobodies, as plotting bureaucrats, as traitors within and, in Colonel Vindman’s case, as an immigrant with dual loyalties. Even for a president who rarely spares the rhetorical howitzer, that represents a new level of bombardment. Mr. Trump has publicly disparaged cabinet secretaries, former aides and career officials working elsewhere in the government, but now he is taking aim at people still working for him inside the White House complex by name.

“This White House appears to be cannibalizing itself,” said William C. Inboden, a former national security aide to President George W. Bush. “While many previous White House staffs have feuded with each other and leaked against each other, this is the first time in history I am aware of a White House openly attacking its own staff — especially for merely upholding their constitutional duties.”

In part, that reflects the challenge for a president facing an impeachment inquiry where every witness called so far either currently or previously worked in the government over which he presides. To defend against potential charges of high crimes and misdemeanors, Mr. Trump evidently feels he must undercut the believability of the witnesses testifying about his pressure campaign on Ukraine for help against his domestic rivals. It also reflects the president’s longstanding distrust of the career professionals who populate his White House, just as they have every other. While such officials characterize their work as nonpartisan in service of presidents of either party, Mr. Trump has felt burned since the early days of his administration when internal documents were leaked, including transcripts of two of his phone calls with foreign leaders.

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Corbyn: I will carry out result of 2nd Brexit referendum

Leader of the Labour Party Jeremy Corbyn said on Tuesday he will carry out the result of a second referendum on Brexit. He further explained that his party’s priority is to get Brexit sorted. “We will negotiate incredible leave options in 3 months and in the next 6 months give the choice to British people to decide whether we leave or stay,” Corbyn said, adding that Prime Minister Boris Johnson Johnson “cannot protect jobs. We have to maintain firm and good trade relations with Europe because if we don’t, more jobs will be lost.” Johnson, answering a question on his Brexit timetable on itvNEWS said that Conservatives “certainly will come out on January 31 entire and perfect – England, Wales and Northern Ireland together.” He added that the problem is in the fact that there is a “deadlocked parliament that will not deliver Brexit. We conservatives can. If you vote for us, we have a deal that we want to get through parliament in the next few weeks. We can break the deadlock and get Brexit done.”