Oil prices fell sharply in early trading on Friday.


Friday, April 26, 2019

Oil prices fell sharply in early trading on Friday as the market reassessed the impact of U.S. sanctions on Iran. Analysts argue that Iran may succeed in mitigating the impact, maintaining some degree of exports. Also, expectations of OPEC swinging into action are also on the rise. Oil prices fell nearly 2 percent on Friday.

Spare capacity in spotlight after Iran sanctions. While Saudi Arabia and the UAE have apparently indicated a willingness to offset Iranian disruptions, it would come at the expense of spare capacity. OPEC has about 3 mb/d of spare capacity, but Iran could lose nearly 1 mb/d if the U.S. succeeds. An outage elsewhere leaves little margin for error. “If you assume Iran exports don’t go to zero, and China continues to take some Iranian barrels, then yes the Gulf states should be able to replace them,” Olivier Jakob, managing director at consultants Petromatrix GmbH, said in a Bloomberg interview. “But you still come back to the fact that the spare capacity is gone.”

Poland and Germany suspend oil imports from Russia over quality concerns. Citing quality concerns, Germany and Poland temporarily suspended imports of oil from Russia. The suspension could have knock on legal effects, as buyers in Western Europe could open up lawsuits against Russian suppliers, Reuters reports.

Trump admin sides with Haftar. Bloomberg reports that President Trump indicated his support for the Libyan National Army’s (LNA) assault on Tripoli in a phone call with strongman Khalifa Haftar last week, reversing official U.S. policy of supporting the internationally-recognized government in Tripoli. Trump was apparently convinced to back Haftar after speaking with Egyptian President Abdel Fattah El-Sisi and Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan, both of whom stressed Haftar’s importance in securing Libya’s oil fields.

China pulling back from Iran. Asian companies are beginning to pull back from Iran, fearing retaliation from U.S. sanctions, according to the Wall Street Journal. Iran had hoped that international companies, especially companies from China, would provide an economic lifeline after the U.S. withdrew from the nuclear deal. But many deals between Iran and China “are now dead in the water,” an adviser to a Chinese oil company in Iran told the WSJ. China may try to continue to import oil from Iran, defying U.S. sanctions, but Chinese companies are curtailing their exposure.

Musk: Tesla might need to raise cash. After two quarters of profits, Tesla (NASDAQ: TSLA) fell back into unprofitable territory in the first quarter. The EV manufacturer reported one of its worst losses in its history on Wednesday, and its available cash fell by more than 40 percent to $2.2 billion. Elon Musk suggested that the company may need to raise cash. Tesla reiterated its forecast of delivering 400,000 vehicles this year, and it hopes to return to profits in the third quarter.

Ford to invest $500 million in Tesla rival. Ford (NYSE: F) said it would invest $500 million in Rivian, an EV startup viewed as a Tesla rival. Rivian plans on manufacturing an electric pickup truck and SUV by the end of 2020. Amazon (NASDAQ: AMZN) invested $700 million in Rivian in February.

Anadarko subject of bidding war. Occidental Petroleum (NYSE: OXY) lodged a rival bid for Anadarko Petroleum (NYSE: APC), hoping to edge out Chevron’s (NYSE: CVX). But Chevron may up the ante to ensure it wins out. Occidental is offering $76 per share to Anadarko shareholders, a deal that would be valued at about $57 billion. That tops Chevron’s offer of $65 per share, or $50 billion. Anadarko seems to prefer Chevron despite Occidental’s stronger offer, and analysts believe that Chevron will prevail.

Shell announces major discovery in Gulf of Mexico. Royal Dutch Shell (NYSE: RDS.A) announced a major deepwater discovery in the Gulf of Mexico on Wednesday. The so-called Blacktip prospect is the company’s second significant discovery in the Perdido Corridor.

Oil majors expected to post disappointing results. Lower oil prices, weak LNG prices, and lower refinery margins could put a dent in the profits of the oil majors when they report first quarter earnings, according to Reuters. “We’re not looking for a great first quarter for the group,” Blake Fernandez, senior research analyst with Piper Jaffray & Co’s Simmons Energy, told Reuters. Total SA (NYSE: TOT) reported adjusted net income of $2.76 billion, down 4.3 percent from a year ago, but still viewed as a strong result with rising cash flow and higher oil and gas production. ExxonMobil (NYSE: XOM) said its profits in the first quarter were 50 percent lower than a year earlier.

Trump to delay offshore oil expansion until after election. The Trump administration will delay its proposal to open up much of the U.S. coastline to offshore exploration until after the 2020 presidential election. Drilling is widely opposed along the East and West Coasts, including in Republican-controlled states. Most notably, the Republican Governor Ron DeSantis in the battleground state of Florida has indicated that Trump’s reelection could be put into jeopardy if he pushes forward on opening Florida’s waters for drilling.

Chevron struggling to restore operations in Venezuela. Chevron (NYSE: CVX) is struggling to return its Petropiar oil upgrader, its largest joint venture in Venezuela, back to normal operations following the widespread blackout on chronic electricity outages in the country. Production at the facility fell by half from February to March, according to Bloomberg. Venezuela’s oil production plunged to just 732,000 bpd in March, with more losses expected. “We estimate a loss of 400,000 barrels due to the economic and electricity crisis,” Reinaldo Quintero, president of the Venezuelan Oil Chamber, told Bloomberg.

Trump considers lifting Jones Act. Bloomberg reports that President Trump is considering waiving Jones Act rules that require ships traveling between American ports must be U.S.-flagged ships. Waivers would allow Puerto Rico and the U.S. Northeast to import LNG from foreign-flagged ships. Because there are no Jones Act-compliant ships capable of moving LNG, Puerto Rico and New England have had to import LNG from abroad at a higher cost rather than from other parts of the U.S.
Volf
26.04.2019 kl 20:42 347

Global Intelligence Report - 24th April 2019
Sources

- OP boots on the ground in Libya

- Western diplomat in Algeria

Billionaires Fall in Algeria: Here’s Why Sonatrach Is Less Worried Than Others

Algeria’s clientelist patronage system just took its first major hit, and this is now officially elite clan warfare: the presidential clan versus the military clan. The military clan now has the advantage, and Sonatrach will be their primary cash cow.

In the fallout of the Algerian political crisis, five billionaires have so far been targeted with arrest in relation to an anti-corruption investigation put in motion under pressure from mass protests. So far, the purge has netted Issad Rebrab, chairman of Cevital, the biggest privately held company in Algeria. The influential Kouninef family was also targeted, with four brothers arrested. Earlier this month, Ali Haddad, another prominent businessman, was also arrested attempting to flee to Tunisia. Former Prime Minister Ahmed Ouyahia and current Finance Minister Mohamed Loukal have also been summoned to court in relation to an investigation into abuse of public funds. Now, the CEO of Sonatrach has been sacked.

These are all influential businessmen who served as tools of the regime to pacify the population during times of protest or “crisis”. In fact, this is the presidential clan - and right now, it’s a clan that is paranoid. It’s important to understand the General Ahmed Gaid Salah is the military wing of this clan whose members he is now hanging out to dry, including the very powerful Kouninef family. Salah is attacking the non-military wing of this clan, while the military itself enjoys its own share of Algeria’s oil wealth.

Where does this leave Sonatrach? We’re talking about a state-run oil company that has been funneling billions of dollars into the pockets of the elite in an exorbitant system of corruption. Here’s one indication of how things will trace back to Sonatrach based on who has been arrested so far: Reda Kouninef owns a company called Secur Group, which managed to secure itself a massive contract from the National Company of Large Petroleum Works (ENGTP), a subsidiary of Sonatrach. And that’s just one deal that will lead to significant scrutiny as the patronage system unravels - or, more precisely, is potentially restructured to better serve the military.

Sonatrach CEO Abdelmoumen Ould Kaddour (a US-trained CEO hired in 2017 to revamp the state-run oil company) was dismissed by the President on 23 April and replaced by another senior company figure, Rachid Hachichi. This is exactly why Exxon called off talks about entering Algeria’s shale patch in March: They were afraid the CEO would end up being replaced, putting any deal in jeopardy.

Rachid Lachichni became Sonatrach’s director of production and exploration in late 2017. He is either a temporary figure in the shakeup, or he is someone the military thinks it will be able to use to regain more advantage over oil revenues in the political vacuum. After all, the Sonatrach CEO was part of the presidential clan.

The military will undoubtedly be angling to find its own advantage in the investigation into Sonatrach that has been promised. Individuals will fall, but Sonatrach will be preserved nicely for the military. What happened in Egypt could easily happen in Algeria. But Egypt is different: It’s reforms under a government led by a military general have been real and have transformed the oil and gas industry: In Algeria, this is elite clan warfare and it’s only just begun. Chevron - emboldened by a massive deal to acquire Anadarko - is jumping the gun with plans to sit down with the Algerians now that Exxon has bowed out.

Elsewhere on the Oil Patch Geopolitical Front …

Why the Oil Industry Cares What Happens Next in Egypt

Keep a close eye on Egypt’s controversial referendum to extend Al-Sisi’s presidency to 2030. This is an important referendum for the energy industry. Results of the referendum will be announced by April 27th. For the energy industry, al-Sisi represents stability, but there is cause for concern given the spiral of coup activity across the region, including in Libya, Algeria and Sudan. All three venues seem to be following Egypt years later, and what happens with Al-Sisi could affect what happens in the wider region as the military attempts to take power in the name of stability. This is a critical time for the energy industry as Egypt works towards becoming a net gas exporter.

And the energy industry has every reason to support al-Sisi: Egypt’s newfound gas fame is precisely because of the military government which has conducted serious reforms on this level. It is fair to say that prior to al-Sisi, Egypt’s oil and gas was highly inefficient and there were no incentives for exploration, while production was declining, infrastructure being decimated and projects falling by the wayside - not to mention billions of dollars in unpaid bills to international oil companies. That all changed when al-Sisi took over, and now Egypt stands to become one of the most important oil and gas hubs in the world. The key venues to watch are the Zohr offshore gas field (Italian Eni), and the up-and-coming Nour field, which could potentially even outdo Zohr.

That said, the general has ruled Egypt with a strong arm, escalating attacks on the Sinai Peninsula and pursuing a highly controversial path of massive human rights violations. But this is the era of military coups and generals in charge - and they tend to have the support of the West because they pursue energy reforms that lead to major new discoveries and keep the oil and gas flowing. They also happen to control access to the Suez Canal and have been playing nice with Israel on the energy front.

Haftar Still Only Knocking on Tripoli’s Door

Media reports invariably say that Haftar is either gaining ground in his assault on the Libyan capital, or that he is being pushed back. Oilprice.com is on the ground in Tripoli, and the situation is one that can best be described as Haftar knocking on Tripoli’s door. The general has not succeeded in getting past the capital city’s outskirts. Daily, his forces manage to make advances forwarded, but are then pushed back. In the meantime, external forces continue to line up in support of Haftar - even when that support is not directly implied. The European Commission has condemned the advance on Tripoli, but because of France and oil giant Total SA’s interests in the country and in having Haftar stabilize the oil flow, Brussels refrained from actually mentioning Haftar’s name in the condemnation. As we stated previously, Trump has directly voiced support for the General’s push. There is a deeper reason for Trump’s support of Haftar, and unlike France’s support, it’s not about the oil interests implicitly. It’s about Iran, and it’s about Qatar and Iran being on the “wrong” side of this conflict. Haftar, of course, is using Trump’s recent targeting of Iran through sanctions and its labeling of the Revolutionary Guards as a ‘terrorist group’ to buy more external political capital. On Wednesday, Haftar’s LNA said it had spotted a ship tied to the Iranian Revolutionary Guards off the coast of Misrata, in western Libya, saying the “vessel is involved in suspicious activities”. This statement is meant to garner additional support from Washington in the offensive on Tripoli.

At the same time, we have pointed out in recent briefings that Haftar needs to take Tripoli in order to get his hands on oil revenues to continue buying the local support he requires. The UN had earlier called for an audit of the country’s two rival central banks, but the potential auditors (all the big 4 accounting firms) have withdrawn from the bidding process. The winning bid was meant to be chosen by the end of this month. That audit would have been a first step in uniting the two rival central banks, and then potentially the National Oil Company and the Libyan Investment Authority. The key to following this conflict is following the money, and right now the oil money isn’t in Haftar’s hands.

$10M Reward for Information on Hezbollah Financing

The US is offering a $10-million reward for information that could help break down Hezbollah’s financing chain, but one avenue of this has already been circulating around Washington, strategically distributed by our favorite lobbyists from Saudi Arabia and the UAE. This information is in the form of data retrieved from Qatar’s central bank in a black-ops hack job by the UAE. The hackers appear to have held on to this data for future leverage, but we have seen some of the documents, which provide names and trace accounts to figures who are known to serve as Hezbollah financing conduits.

Saudis are under ISIS threat

The Saudis may have successfully thwarted the Islamic State attack over the weekend on a state security building north of the capital, Riyadh, and will be downplaying the level of the threat--but it is very real. Now that ISIS has been largely decimated in Syria, we expect it to start nit-picking more at Saudi targets. It has the funding still in place because it’s funding system is just as mobile as its entire operation.

Global Oil & Gas Playbook

Markets & Trading

- Hedge funds are getting a boost from Trump’s market-tightening move to end waivers for Iran oil sanctions, increasing net long positions on an extended bull run for oil and gas. It’s not yet quite as bullish as bets were in September, but significantly higher than January. Goldman chimed in Tuesday to say that they expected limited price impact from the removal of sanctions waivers, despite the abruptness of the decision. As a result of the move, Goldman foresees Iranian production declining by 900,000 bpd against global spare capacity of 2 million bpd - and rising. It is also important to note that in Trump’s targeting of Iran and sanctions against the Iranian Revolutionary Guards, he has actually exempted some forei