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Chaos in the Oil Patch: Energy Update, PBR, LNG, Gazprom, and OPEC

Posted May 29, 2018 at 4:42PM

The Saudis and Russians got together last week to talk about easing the caps on oil.

These caps were put in place to drive oil up from the low $30s a barrel. With oil trading more than double that and Venezuela and Iran oil production looking vulnerable, a boost in production is on the table.

As a result, WTI crude dropped $5 a barrel to $67.07. Brent crude fell more than 3% to $76.02 but is up this morning. The new production numbers could be announced on June 22 at the next OPEC meeting in Vienna.  

Meanwhile, U.S. production continues to increase:

Meanwhile, in Brazil...

Workers at Petrobras, Brazil’s $68 billion oil company, are threatening to go on strike, ironically enough due to high oil and gas prices.

Brazilian truckers have been on strike due to a 50% spike in fuel prices over the last year. Zero Hedge reports:

This has resulted in a state of emergency across most major cities as shelves run bare and vital supplies dwindle. Airports have reported running out of fuel, hospitals are running out of supplies, and public transport and trash collection have been reduced or halted across the country. Some food prices have also spiked as supplies dwindle. As we noted on Friday, a lack of livestock feed threatens a billion chickens and 20 million pigs who may starve to death.

Petrobras workers are going to join them starting May 30, demanding that the company fire its CEO and permanently lower fuel prices.  

Petrobras (NYSE: PBR) shares fell 35%. The company produces 2.07 million barrels of oil a day. PBR will be a huge crisis buy at some point this summer.

Asian LNG

Despite the shenanigans with OPEC and oil, liquid natural gas (LNG) continues to be in high demand in Asia. Natural gas is not subject to the OPEC cartel.

In an effort to clean the air, China is switching from brown coal to natural gas. Japan is moving from nuclear to natural gas. The global stockpile of natural gas has dwindled. Qatar has sold forward all of its production, and the U.S. is picking up the slack in exports.

The difference between the U.S. export price of LNG and the Asian selling price is about $4. In my latest issue of Bubble and Bust Report, I tell readers how to profit from this disparity.

Russia Will Bury You

The EU settled a longstanding antitrust complaint against Gazprom (OTC: OGZPY), Russia’s natural gas company. There was no fine. Gazprom accepted some new restrictions, which will make it easier to build the Nord Stream 2 pipeline to Germany.

In other news, Gazprom said on Saturday that it had signed a protocol with the Turkish government on a planned gas pipeline and agreed with Turkish firm BOTAS to end an arbitration dispute over the terms of gas supplies. This settlement with Turkey will allow construction to begin on the southern pipeline for Russian natural gas to Europe, the TurkStream gas pipeline.

The United States opposed both of these new outlets for Russian gas to EU markets.

I am long Gazprom in my newsletter Christian DeHaemer’s Bubble and Bust Report.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.

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