Crazy, conflicting factors are moving oil prices. It seemed yesterday that all the oil market cared about was the prospects of a U.S. tariff delay on China. Oil does not care about the impeachment fraud nor did it care that the Democrats finally got off their chairs to approve the USMCA. Don’t call it the new NAFTA, please. They did not care that The Energy Information Administration “Short Term Energy Outlook” raised oil demand, and yet once again, lowered U.S. oil production expectations. Then you have the Saudi IPO show as well as reports that Chevron is taking a 10 billion dollar charge on shale fields that have lost true value.  

Oil traders want to know whether they can expect a tariff waiver on China. Traders know that China’s already record oil demand growth will go even higher if those tariffs get delayed. Oil rallied on reports out of China that seemed to suggest that a delay would happen, but White House economic advisor Larry Kudlow was not so sure.

Larry, as we all know, has a way with words. Oil sold off after Kudlow put cold water on those reports. “The reality is those tariffs are still on the table, the Dec. 15 tariffs, and the president has indicated if the short strokes remaining in negotiations do not pan out to his liking than those tariffs could go back into place. So, they could not, but they also could. There is no definitive decision on that yet” Kudlow said. 

Oil prices also have to grapple with strange supply data form the American Petroleum Institute (API) on a short term basis. Traders will have to weigh that against a comprehensive longer-term outlook from the Energy Information Administration (EIA) in their December “Short Term Energy Outlook,” along with their release of the official weekly petroleum status report.

The API once again was a head-scratcher. The API reported a surprise 1.41 million barrel crude oil increase even though they reported that supply in the Cushing Oklahoma delivery point fell by a substantial 3.53 million barrels.At the same time, the API reported that everyone walked to work. Ok, they maybe stayed home because of snowstorms. Whatever, they reported a very large, massive if you will, 4.92 million barrel increase in gasoline supply. That makes five gasoline builds in a row. Even distillates showed an impressive bearish increase of 3.324 million barrels. Still, the supply of distillates is well below the five-year average.

The EIA in their Short Term Energy Outlook continued its tradition of lowering U.S. oil production forecasts. They also raised demand forecasts, as well. They acknowledge that the dropping rig counts are part of it. The EIA expects U.S. crude oil production to average 13.2 million b/d in 2020, an increase of 0.9 million b/d from the 2019 level. Expected 2020 growth is slower than the 2018 growth of 1.6 million b/d and 2019 growth of 1.3 million b/d. Slowing crude oil production growth results from a decline in drilling rigs over the past year that EIA expects to continue into 2020. Despite the decline in rigs, EIA forecasts production will continue to grow as rig efficiency and well-level productivity increase, offsetting the decline in the number of rigs.

They also said that EIA data shows that the United States exported 90,000 b/d more total crude oil and petroleum products in September than it imported. This is the first month recorded in U.S. data that the United States exported more crude oil and petroleum products than it imported! U.S. imports and exports records of crude oil and petroleum products started on an annual basis in 1949 and on a monthly basis in 1973. EIA expects total crude oil and petroleum net exports to average 570,000 b/d in 2020 compared with average net imports of 490,000 b/d in 2019.

Beginning on January 1, 2020, the International Maritime Organization (IMO) is set to enact Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL Convention), which lowers the maximum sulfur content of marine fuel oil used in ocean-going vessels from 3.5% of weight to 0.5%. EIA expects that starting in the fourth quarter of 2019, this regulation will encourage global refiners to increase refinery runs and maximize upgrading of high-sulfur heavy fuel oil into low-sulfur distillate fuel to create compliant bunker fuels. EIA forecasts that U.S. refinery runs will rise by 3% from 2019 to a record level of 17.5 million b/d in 2020, resulting in refinery utilization rates that average 93% in 2020.

EIA expects one of the most significant effects of the regulation to be on diesel wholesale margins, which rise from an average of 45 cents per gallon (gal) in 2019 to a forecasted peak of 61 cents/gal in the first quarter of 2020 and an average of 57 cents/gal in 2020.

The launch of the Saudi IPO is so far, so good. Shares of Saudi Aramco increased by the 10% daily limit of the Riyadh exchange, giving it a valuation of $1.88 trillion as local money rushes to buy shares. Foreign investors (with the exception of UAE and Kuwait) had been completely absent. I wonder how it will fair in the real world.

The Wall Street Journal reports that Chevron Corp. is writing down the value of its assets by more than $10 billion, a concession that in an age of oil and gas overabundance, some will not be profitable anytime soon.

In the largest energy industry write-down in years, Chevron said Tuesday that it was cutting the value of a number of properties, notably its U.S. shale holdings in Appalachia, by a combined $10 billion to $11 billion. Chevron is also restructuring its operations to focus on fewer prospects in the face of persistently low natural gas prices and will explore sales of some assets. The second-largest U.S. oil company lowered its forecast for future commodity prices and said that as a result, it was reducing the value of production from one of its offshore oil projects in the Gulf of Mexico, called Big Foot. It also lowered the value of a planned facility to export liquefied natural gas from Canada.

Chevron Chief Executive Mike Wirth said in an interview that the company had performed well in a difficult market but wanted to focus on its most promising future prospects, including an expansion of shale oil drilling in Texas. "We have to make the tough choices to high-grade our portfolio and invest in the highest-return projects in the world we see ahead of us, and that's a different world than the one that lies behind us," Mr. Wirth said. Chevron's shares closed up less than a percentage point at $117.90 prior to the announcement Tuesday.

The sobering reappraisal by one of the world's largest and best-performing oil companies is likely to ripple through the oil-and-gas industry, forcing others to publicly reassess the value of their holdings in the face of a global supply glut and growing investor concerns about the long-term future of fossil fuels.

Particular pressure is falling on shale producers, especially those focused on natural gas in places like Pennsylvania, which are struggling with historically low U.S. prices caused by oversupply.