Oil Rally Falters As Traders Seize Profits

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Oil Rally Falters As Traders Seize Profits
Oil Rally Falters As Traders Seize Profits

… Trump seeks to open U.S. coastal areas to drilling

After a strong start to 2018, oil prices fell back slightly on Friday morning.

While geopolitical tensions and strong inventory drawdowns were the main culprits for the rise in prices, a strong build in gasoline stocks slowed both WTI and Brent’s momentum.

Oil prices fell back on Friday during early trading after posting strong gains for much of the week.

The tension in Iran has helped push prices up, and a strong U.S. crude inventory drawdown added some momentum on Thursday, although that bullish data was slightly offset by the large build in gasoline stocks.

Overall, by Friday, it appeared that oil traders had sold off some positions to pocket some of the recent gains. The breather raises questions about the durability of the current rally.

Trump admin seeks to open nearly all U.S. coastal areas to drilling. The Trump administration has proposed to open up vast new territory for offshore oil and gas drilling, going so far as to push drilling in areas currently off limits, including the Atlantic, Arctic and Pacific Oceans, as well as parts of the Gulf of Mexico that haven’t seen drilling.

The five-year plan for 2019-2024 would replace the Obama-era plan for 2017-2022, and it would include 47 possible auctions that encompass more than 90 percent of the U.S. outer continental shelf. The proposal will take time to finalize and would be vulnerable to legal challenges.

Rising confidence in oil stocks. Energy stocks have significantly lagged behind the broader stock market, underperforming even in a period in which oil prices rebounded.

But 2018 could be different. With oil prices at their highest level since mid-2015, the outlook looks better for energy stocks than it has in some time.

On top of that, a long list of companies have trimmed costs and the oil majors have returned to positive cash flow. This has more investors gaining confidence in the investment case of oil and gas stocks. “2017 was a challenging year for investors but there are now real opportunities in the energy sector,” Olivia Markham, portfolio manager at BlackRock Commodities Income Investment Trust, told Reuters.

According to Reuters, investment banks UBS, RBC and JP Morgan issued strongly positive outlooks for the oil and gas sector in recent weeks, while Barclays predicted European integrated oil companies could rise 20 percent from the third quarter.

Others agree. “Annus Mirabilis. Highest free cashflow in a decade bodes well for 2018,” Bernstein said, referring to its prediction for European oil majors.

EV sales in Norway outpace gasoline and diesel. In Norway, EVs captured 52 percent of auto sales last year, beating out conventional vehicles fueled by gasoline and diesel. With EVs taking a majority of auto sales, Norway is cementing itself as a global leader in the switch to EVs.

Norway offers generous incentives for EVs, which make them cheaper than buying a conventional vehicle. Norwegian auto experts told the New York Times that the market share for EVs would have been even higher except that some potential buyers are waiting for Tesla’s (NYSE: TSLA) Model 3.

 

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