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OpEd: Oil money moves where it wants

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(FinancialPress)—In the international arena of oil and gas, governments are learning a hard lesson.  Investment is fluid and very mobile.  Yesterday’s darling is tomorrows pooch.  Oh it is not sudden, but you see it happening all of the time.

Only four or five years ago, the Canadian oil patch was a buzz with announcements about who was getting into the Alberta Oil Sands—Money could not move fast enough or big enough it seemed.

Names like Statoil (OSL), Nexen (A wholly-owned subsidiary of CNOOC Limited – Chinese Corporation), and Total SA (FP:EP) were making news.  Bold, and pricey entries into the business arena were announced with regularity.  Canada looked bright and the future was filled with very good things.

As often happens, the bloom comes off of the rose.

Statoil’s foray found the expansion room went away.  Hemmed in with no expansion other opportunities emerged and they began the process of extricating themselves from the oil sands.

Nexen is still operating in the Canadian oil sands space, but bogged down in the quagmire of regulatory issues, a massive forest fire and other technical issues.  They are in a capital holding program without sufficient motivation to change.  Maintenance is a grind and I’m sure their people have lost that tail wind that kept coming to work a joy.

Total did what most late comers to the party would do.  They bought a smaller entity who’s operations had progressed further ahead.  In an article in the Financial Post an analysis of Total’s experience was summed up.

Each of these parties sold assets.

As an old sage taught me in my earlier career, no one sells unless they have a better spot to put the money.  If your company has the international scope you move the money to a better home.  Sell what isn’t working and buy something that is better.

Total announced a series of expenditures that placed the money in other opportunities.  Mainly in the Americas.

It was a bit of daring and a bit of smarts.  They balanced between early-stage exploration with Chevron and consolidating existing assets in the Barnett Shale.

Total sold what they didn’t like and bought something that is possibly better.

An old sage told me once if you want the truth “follow the money”.  It is not today staying in the Alberta oil sands because other shiney things are out there if you look hard enough.  Options are a great thing.

Energy

Oil prices up on expectations of production cut extension

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(FinancialPress) — A major meeting set for the upcoming week has oil on the rise, as traders look towards it to cement an extension on production cuts – even when gains were capped by rising U.S. output.

Brent crude was up $0.47, reaching $62.69 a barrel by 09:32 GMT. U.S. light crude oil rose $0.32, up to $56.74.

Brent moved within range, with analysts expecting it to move between the $61 and $63 price gap. This happens as the market looks forward to what comes of the OPEC (Organization of the Petroleum Exporting Countries) meeting set for November 30th.

The Organization, allied with other non-members that have Russia at the helm, has managed to orchestrate an effort to end globe-wide oversupply with output restrictions – hoping that this will help prices get off of their current slump. Next week‘s meeting is expected to erase the March 2018 expiry date and thus extend the agreement.

Ole Hansen, Saxo Bank senior manager, stated on the topic: “There’s a general belief that anything but an extension could have a significant negative impact … So the market is just waiting for confirmation that OPEC wants to move on with the extension.“

The fact that storage levels remain consistently high even in light of the recent measures feeds expectations of the OPEC and its allies extending the cuts. However, some believe not all participants will be willing to continue to restrict their production.

Even so, that‘s not the biggest headache OPEC is experiencing – it‘s actually the rise of U.S. drilling that‘s being led by shale oil producers.

But the biggest headache for OPEC has been a rise in U.S. drilling, led by shale oil producers.

Westwood Global Energy Group, which specializes in energy consultancy, noted that the rising rig count is an inaccurate measure of how quickly U.S. output would climb – as producers become even more productive per well. Rig count has risen from 316 rigs in mid-2016 to 738 last week.

“Westwood Global Energy forecasts an 18 percent increase in active rigs in 2018, but more rapid demand growth in certain service areas as operators focus on efficiency and delivering more for less,” the consultancy said.

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Energy

Oil manages to stabilize after prior day‘s slump

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(FinancialPress) — Crude oil is beginning to slide after reaching 2-year highs through the first days of November. It experienced a slump in Wednesday‘s session, on the heels of a surprise jump in U.S. supplies. On Thursday, however, prices experienced little change
January Brent crude went down by 13 cents (0.2%) to $61.74 a barrel. December West Texas Intermediate crude, which originally experienced a minor gain, ultimately had 6 cents shaved off of its price (0.1%), to reach $55.27. In the prior session, WTI dropped a heavier 37 cents (0.7%), reaching a price of $55.33 – its lowest close since early November.
U.S. domestic crude supplies rose by 1.9 million barrels by the end of the week of Nov. 10th, as informed by the country‘s Energy Information Administration. This prove the prediction by S&P Global Platts analysts wrong – as it forecasted a drop of 1 million barrels in supply. The American Petroleum Institute (API) reported a 6.5 million barrel a week rise on late Tuesday.
Gasoline stockpile also rose to the tune of 900,000 for the week. Meanwhile, according to the EIA, distillate stockpiles, fell 800,000 barrels. The survey forecast by S&P Global Platts indicates dips in distillates stockpiles of 2 million barrels, and 1 million barrels for gasoline.
Tama Varga, a PVM analyst, said that the recent oil slump is being seen by some traders as “as a healthy and inevitable correction triggered by bulls taking profit,” on a Thursday note. He added that while sentiment looks bearish at the moment, they may believe that the positive trend for crude “should resume shortly“.
Up to the date, WTI has risen 3% overall – propelled by a rally begun in June. Crude hit a two-year high in its benchmark in early November, and recently began pulling back.

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Venezuela can no loger pay its debts; oil could be seized

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(FinancialPress) — Venezuelan President Nicolás Maduro finally admitted, during a Thursday televised speech, that his government can no longer keep up with the payments of its piling debt. Venezuela is now officially working towards restructuring its debt payments, as is PDVSA – the state-run oil company.

Considering that the country has only $10 billion left in the bank, the $1.1 billion payment made by the oil company on Thursday is very substantial to the country‘s reserves. Maduro said in the speech that “After this payment, starting today, I decree a refinancing and a restructuring of the external debt.“

A deep humanitarian crisis is already whipping the embattled South American nation, as people experience deep shortages of food and medical supplies. Basic items are becoming less and less attainable for the population, as prices skyrocket and wages fail to rise at  a rate that would paliate the inflation. The bolivar – Venezuela‘s currency – is now worth less than a tenth of a U.S. penny.
Should Maduro‘s government fail in its attempt to restructure debt owned by bondholders — a very real possibility, as often it means that they‘d agree to be paid less money —, the country will enter into default.
A potential default could trigger a series of very unfortunate events. Those same bondholders could choose to seize Venezuelan oil as collateral.
Seeing that oil is the only significant external revenue source the government has, this would cut the financial means it has to acquire medical supplies and food. While the country has vast farmlands, it was mismanaged by their office which forces the country to import almost the totality of its food products.
Even if it were a viable course of action, debt restructuring is a long and excruciating process. Venezuela‘s neighboring country Argentina battled in international courts for 15 years to get resolution over its unpaid debts.

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