Tom Whipple gives us his observations about where crude oil prices may go as we turn the corner into a new year:

“The key issues for 2018 will be how fast US shale oil production grows and whether OPEC and its associates can adhere to its production cut agreement for the next 12 months and just what will be the OPEC exit strategy. Then we will have the unplanned outages, such as we are currently experiencing in the North Sea and Nigeria. There are also several geopolitical crises which could lead to major declines in oil exports, especially in the Middle East; however, the Venezuelan situation is also deteriorating rapidly. These three factors will determine just where global oil inventories go during the coming year. Should the inventory shrink to normal then prices will climb higher, possibly much higher should there be major supply disruptions. Should US production surge as some, particularly the Energy Information Agency predict, then we could see a narrow trading range in 2018.

The protocol for ending the OPEC/Russian production freeze 12 months from now is already being discussed in the financial press. Many believe that a precipitous production increase of nearly 2 million b/d or more would send prices lower in a big hurry and that a slow increase in production and exports is the only way to prevent this from happening. Several major OPEC exporters are saying that it is too early to discuss any exit strategy but that the matter will be raised at the at the next OPEC meeting in July. Several participants in the agreement have hinted that they are already discussing the issue, but are afraid to do so in public for fear of spooking the volatile oil markets”

Saudi Arabia plans to increase domestic gasoline and jet fuel prices in January, part of a program to gradually eliminate energy subsidies as the desert kingdom seeks to overhaul its economy and balance the budget. Gasoline prices are set to increase by about 80%, while jet fuel prices will be raised to world levels. The government also will begin to provide subsidies to low- and middle-income citizens to cushion the blow as the Saudis overhauls their oil-dependent economy. Monthly cash payments will start this week to compensate those affected by a host of new measures including subsidy cuts and new taxes.

China may start a yuan-priced crude oil futures contract shortly to make its currency more international and challenge the dominance of the petrodollar. Many Chinese investors eagerly anticipate the start of yuan oil futures trading on the Shanghai International Energy Exchange. International investors may not be as eager to invest in China’s futures market because it is not clear yet how much freedom China would allow.

China has set strict specifications for mercury, arsenic, phosphoric, chlorine and fluorine content in imported coal. This has hindered the attempts of some countries, such as Vietnam, from exporting to China.

The International Energy Agency predicts Venezuela’s crude oil output will fall at least 500,000 barrels per day to 1.5 million b/d in 2018. Analysis firm Medley Global Advisors forecasts a decline of as much as 550,000 b/d. A steep drop would heighten chances that cash-strapped Venezuela defaults on some $60 billion in foreign debt.

Desperate for income, Venezuela has awarded licenses to Russia’s Rosneft to develop two offshore natural gas fields.  Under the 30 year agreement, Grupo Rosneft will become the operator of the Patao and Mejillones offshore gas fields in the Atlantic Ocean.

A report by Edinburgh University predicts the UK’s crude oil and natural gas reserves could run out in as little as a decade, that fracking is not viable in Scotland and barely feasible in the UK thanks to a dearth of suitable geology, and that the UK will soon have to import all its oil and gas. Professor Roy Thompson of Edinburgh University’s School of Geosciences also concluded that only 10% of the UK’s original recoverable oil and gas remains, roughly 11% of oil and 9% of gas resources. If Thompson’s predictions prove correct, the UK will soon be importing almost all of its oil and gas. At present, 50% of the UK’s gas is imported from abroad. See Twilight years: is the UK entering its last decade of oil and gas production?

The largest natural gas deposit in the Mediterranean, Egypt’s Zohr natural gas field, began production this month. The country’s Petroleum and Mineral Resources Minister, Tariq al-Molla, said the gas field is set to produce an initial 350 million cubic feet per day. By June 2018 production is expected to reach 1 billion cubic feet per day. By the completion of the  project in December 2019, the figure is expected to rise to 2.7 billion cubic feet per day. See Why One Giant Gas Field Is a Big Deal for Egypt

Demand for fuel oil in Pakistan is expected to decline 50% or more over the next three years as growing liquefied natural gas (LNG) imports help the country move to a gas-based energy economy.

South Korea wants to increase the portion of liquefied natural gas (LNG) in its electricity generation mix to about 19% in 2030 from an estimated 17% this year as part of efforts to reduce its heavy reliance on coal and nuclear. In its long-term supply blueprint, the Ministry of Trade, Industry and Energy said renewable sources would account for up to 20% of the electricity generation mix in 2030, up from an estimated 6.7% this year, by increasing investment in solar and wind power operations.

The South American country of Colombia has started imports of bulk liquid propane gas, with volumes expected to rise significantly in the coming years as the country’s natural gas reserves and output continue to decline.

In the US today, there are more than 65,000 public buses but just 300 are electric. Among the challenges facing electric buses: EVs are expensive, have limited range, and are unproven on a mass scale.

 

 

 

 

 

 

 

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with h/t Tom Whipple

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