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Friday, December 21st, 2018

Global financial turmoil. Stocks fell yet again on Thursday, following the Federal Reserve’s decision to hike interest rates and maintain a rate tightening course in 2019. The S&P 500 fell 1.6 percent and the Dow Jones Industrial Average was off 2 percent. The Euro Stoxx 50 fell by 1.4 percent on Friday, and the index is set to enter a bear market after falling 20 percent from its November 2017 peak. The global financial upheaval, which could presage a growing economic slowdown, presents a major threat to oil prices.

U.S. government shutdown. At the time of this writing, the U.S. was hurtling towards a government shutdown over budget disagreements, with a midnight deadline Friday. An agreement is still possible, but the potential shutdown was seen as another contributor to financial turmoil this week.

Saudi Arabia increases production cuts. Saudi Arabia could increase the size of its production cut after watching oil prices spiral downwards. According to the Wall Street Journal, Saudi Arabia will cut by 322,000 bpd from October levels, rather than 250,000 bpd. That would limit output to 10.311 mb/d for six months. The report offers a mixed message, however, since Saudi Arabia has already signaled that it could lower output to 10.2 mb/d in January.

OPEC+ to release country quotas. OPEC+ is set to release country-specific production quotas, recognizing that the lack of detail in Vienna earlier this month has hurt its efforts to convince the market. “In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” OPEC Secretary-General Mohammad Barkindo told OPEC members in a letter.

Trump admin cuts deal with Iraq. The Wall Street Journal reported that the Trump administration has granted Iraq a waiver extension, allowing it to continue to import natural gas from Iran for another three months. In return, Iraq has seemingly pledged to allow American energy companies greater access in the country, including GE (NYSE: GE) and Orion Gas Processors LLC for power generation, and ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) for oil production.

OPEC members suffering from low oil prices. With Brent in the mid-$50s, the budgets for OPEC members will come under strain, and perhaps only Kuwait can see its budget breakeven. Low prices could sow unrest in several OPEC member states. “At current prices, too much attention on shale, not enough on OPEC,” Olivier Jakob, managing director at Swiss consultant Petromatrix GmbH, told Bloomberg. Libya and Algeria, for instance, need oil prices above $100 per barrel. Even Saudi Arabia needs oil north of $80 per barrel for its budget to breakeven.

North Sea oil emerges from downturn. Many obituaries were written for the North Sea during the 2014-2016 oil market downturn, but the region is starting to see a bit of rebound. A series of M&A deals this year have led to an injection of new investment. There are still formidable hurdles in the medium- and long-term, but S&P Global Platts reports on signs of hope for the aging oil basin.

China avoids U.S. oil. China is still holding off on buying much American oil, despite the three-month trade truce between the two countries. “Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee, an analyst at Beijing-based consultancy SIA Energy, told Reuters. “Even though the trade tension between China and the U.S. had been defused recently, the executives from the national oil companies hesitate to procure U.S. crude unless they are told to do so.”

ExxonMobil shelves Canada LNG project. ExxonMobil (NYSE: XOM) has scrapped its plan for its WCC LNG export terminal in Canada. The move comes shortly after Royal Dutch Shell (NYSE: RDS.A) gave the greenlight for its massive LNG export project on Canada’s coast. Exxon’s project was further behind, and the oil major is instead focusing on a handful of LNG projects in Papua New Guinea, East Africa and with Qatar.

Poland signs 20-year LNG deal with U.S. company. Poland’s state-owned natural gas company inked a 20-year agreement to import LNG from the U.S., a business decision that also affects geopolitics in Europe. Polish Oil & Gas Company, or PGNiG, signed a deal with Sempra Energy’s (NYSE: SRE) Port Arthur LNG facility, importing 2 million metric tons of LNG per year. The project has not received an FID yet, but the agreement with Poland could move it forward. The U.S. government has long pushed LNG exports as a vehicle to pry away Eastern Europe from dependence on Russia.

U.S. southwest explores gas pipeline. The governors of Arizona, New Mexico and Mexico’s state of Sonora signed an agreement on Wednesday to explore a potential natural gas pipeline to move Permian gas to the Gulf of California. The non-binding agreement encourages the states to explore and promote investment for a pipeline and possible LNG export terminal in the Gulf. “Asia’s burgeoning demand, New Mexico’s abundant supply, and Arizona and Sonora’s strategic location and transport networks all combine to present an opportunity for continued regional growth,” the agreement says.

Colorado drillers could see stiffer regulation. Democrats tightened their grip in Colorado in the mid-term elections, which could usher in a period of stricter regulation on oil and gas. Even though voters rejected a public referendum on greater setback distances for shale drilling, the legislature could aim for greater local control, handing towns and cities the ability to put restrictions on drilling. Just this week, the state’s regulator expanded setback distances near school properties to include playgrounds and not just the school buildings, a modest change, but one that foreshadows other restrictions.

Shell spends $175 million to develop offshore wind. Royal Dutch Shell (NYSE: RDS.A) spent $175 million on the rights to develop offshore wind projects on the U.S. Atlantic Coast. The Anglo-Dutch oil major said that its offshore expertise from oil and gas can be translatable to offshore wind.

https://oilprice.com/Energy/Energy-General/OPEC-Battles-To-Halt-Oil-Price-Collapse.html