OIL PRICE INTELLIGENCE REPORT

Oil prices stood their ground this week, but fell somewhat after investors sought to book profits on Friday afternoon. Important Note for Energy Investors: Experts predict a dull 2018 for oil, but one obscure public energy company is poised to explode—and this $10 stock could hand you 20,280% or more. Getting in now would be like going back to 1870 and grabbing ground-floor shares in Standard Oil, where just 1 share would be worth $119 million today. This is disruptive technology at its finest. Friday, October 20, 2017 Oil seems to have found a relative bottom after the declines over the past few weeks, with WTI firming up at the $50-per-barrel level. Tension in the Middle East, combined with growing confidence in the likelihood of an OPEC extension, has very few analysts seeing a lot of downside risk. “The oil market is tightening gradually,” Tamas Varga, analyst at brokerage PVM Oil Associates, told Reuters. “OPEC is expected to roll over output restrictions for another nine months, supplies are at risk in the Middle East and U.S. inventories are falling.” Still, prices showed some weakness on Thursday and Friday, and benchmark prices are set to post a loss on the week. Without some major bullish or bearish catalysts, prices could bounce around for the next few trading sessions. “Fragile Five” remain a supply risk. Geopolitics are back at the forefront of market concern after years of irrelevance. Citi said that five key oil producers – all OPEC members – should be on everyone’s mind. “The ‘Fragile Five’ petrostates - Iran, Iraq, Libya, Nigeria and Venezuela - continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal,” Citi concluded. Shale band prevents price rise to $60. The so-called “shale band” continues to cap oil prices at the $60-per-barrel ceiling, according to oil analysts. Any move above that threshold is widely seen as a likely catalyst for more shale production. This is why even the serious tension in the Middle East can seem to push Brent above $60. “The market is frightened by the shale oil band,” Olivier Jakob at PetroMatrix, who helped coin the term “shale band,” told the FT. “But it’s not just traders — we’ve seen indications from OPEC and Russian oil companies that even they think going above $60 a barrel right now would be too much and would bring on more oil from shale. They don’t want it.” Iraq asks BP to develop Kirkuk oil fields. According to the FT, the Iraqi government asked BP (NYSE: BP) to develop the oil fields around Kirkuk, just days after taking control from the Kurds. Iraq’s oil minister “sent a request for BP to quickly come in to begin studies and restart measures to develop the oilfields in Kirkuk province,” the ministry told the FT. BP’s CEO Bob Dudley, attending the Oil & Money Conference in London, said his company had not yet received an official proposal, although he added “If stability comes back and it’s predictable that’s a very different environment . . . We’re not going to rule anything out.” Chevron temporarily suspends work in Kurdistan. Chevron (NYSE: CVX) said on Thursday that it would halt drilling in Kurdistan amid the region’s standoff with the Iraqi government. The oil major said fighting near the Kirkuk oil fields compelled it to idle operations. “We continue to monitor the situation in the Kurdistan Region of Iraq,” a Chevron spokeswoman said. “We look forward to resuming our operations as soon as conditions permit.” Trump tells EPA not to touch biofuel mandate. President Trump reportedly told EPA administrator Scott Pruitt not to water down the biofuel mandate, likely over fears of the political fallout in corn states like Iowa. The mandate, which orders a certain volume of ethanol blended into the nation’s fuel supply, is reviled by oil refiners, who argue it is costly and burdensome. The issue is one of the few that puts the Trump administration at odds with the oil and gas industry. ExxonMobil starts up massive petrochemical plant. ExxonMobil (NYSE: XOM)started up an enormous new petrochemical facility in Mont Belvieu, Texas on Tuesday. It will manufacture plastics. When the second line at the facility starts up, the plant will be able to produce 2.5 million tons per year, making it one of the largest polyethylene facilities in the world. The plant is a boon for Texas shale drillers, who will find another huge buyer of natural gas nearby. China orders speed up of gas pipelines before winter. China has embarked on an ambitious program to build up natural gas pipeline infrastructure this year in order to cut its coal use, a campaign to cut down on air pollution. This week, China ordered its state-owned oil companies to accelerate its construction of pipelines ahead of winter, a time of year when air pollution peaks. Because of the emphasis on gas, millions of Chinese homes will burn gas this winter instead of coal. The initiative is good for air quality, but at the macro level, China’s gas push could add to global demand – perhaps by as much as 10 billion cubic meters, according to Wood Mackenzie, or equivalent to the entire annual consumption of Vietnam. Venezuela’s oil quality deteriorates. Reuters reports that PDVSA, Venezuela’s state-owned oil company, is increasingly shipping poor quality oil to refiners in the U.S., India and China, sparking complaints and demands for discounts. PDVSA’s oil is increasingly “soiled with high levels of water, salt or metals that can cause problems for refineries,” according to Reuters. The problems are the direct result of equipment and chemical shortages, and the decrepit state of Venezuela’s oil industry. Reuters says that U.S. refiner Phillips 66 (NYSE: PSX) canceled at least eight cargoes because of poor quality in the first half of 2017. The problems for PDVSA could accelerate and deepen the country’s fiscal and economic crisis. Saudi oil minister downplays IPO rumors. “We are on track,” Saudi oil minister Khalid al-Falih said on the sidelines of the Oil and Money energy conference in London. He insisted that Saudi Aramco is still targeting a partial IPO in 2018 after numerous reports in the past week suggested that the company could shelve the plans and opt for a private offering. U.S. set for mild winter. The U.S. Federal Energy Regulatory Commission said that an upcoming mild winter meant that it does “not see major risk factors that would likely lead to significant market disruptions during this winter,” undercutting the rationale for Sec. of Energy Rick Perry’s proposal to prop up coal and nuclear power plants. Mild temperatures could also keep a lid on natural gas prices and put further pressure on coal. In our Numbers Report, we take a look at some of the most important metrics and indicators in the world of energy from the past week. Find out more by clicking here. Thanks for reading and we’ll see you next week. Best Regards, Tom Kool Editor, Oilprice.com P.S. – Energy trader Martin Tillier explains in this week’s Oil & Energy Insider where and how to look for profit as oil majors are gearing up to publish Q3 results. Middle-East weighted majors and companies leaning towards refining could see their earnings impacted, while some shale weighted majors could see surprisingly good results. Find out where to find value as earnings season starts by claiming your risk-free 30 day trial on Oil & Energy Insider

What's in Oil & Energy Premium this week: Inside Investor • Oil Stocks To Watch As Geopolitical Risk Mounts Inside Opportunities: • Where To Look For Value This Earnings Season Executive Report: • The End Of The Oil Majors? Inside Markets: • Oil Is Stuck In A Range, Waiting For A Catalyst Inside Intelligence: • Global Energy Advisory - 20th October 2017

Oil Stocks To Watch As Geopolitical Risk Mounts

This week in oil news continue to deliver nothing but ‘green lights’ for investors, and keeps me convinced as I have been for several weeks now that every dip in oil prices – and oil stock prices – is an opportunity to position oneself aggressively for the medium term. One story that added to my bullish attitude has been ongoing skirmishing in Kurdistan. Kurdish Independence has been an ongoing struggle, and the recent ISIS losses have given the Peshmerga renewed room to push back on the centralized Iraqi government and Turkish forces looking to retain control of Kurdish land – and Kurdish oil. The U.S. is supposedly supportive of Baghdad, but also historically very supportive of the Kurds. This makes the U.S. position touchy indeed. Kurdish oil output totals about 1.2m barrels a day and a recent small shutdown is about to be restored. I don’t expect any large-scale removal of Kurdish oil from the global marketplace, unless full scale civil war erupts, but continuing destabilization is going to add bullish sentiment to the current market in any case. Meanwhile, Saudi oil minister Al-Falih again confirmed the Saudi Aramco IPO on track for 2018, after several rumors that the Saudis might call the whole thing off, or alternately look to privately place the entire 5% of the proposed sale in Chinese hands. While a public offering would bring a much higher price as well as allow continued easy issuance of shares to raise capital in the future, the Saudis have been threatening the London stock exchange with pulling the IPO to forego full due diligence. In my view, the Saudis will neither pull the IPO nor avoid the full exchange spectacle of a public offering. The Saudis have been working on production cuts and compliance too hard to put this IPO in jeopardy. Since oil is now on the upswing, the Saudis can take their time on the IPO, particularly as all of OPEC has confirmed their readiness to extend production cuts through 2018. This continues to be massively bullish for the markets, and the final valuation of the Saudi Aramco IPO whenever the Saudis decide to schedule it. I suggest that investors put the Saudi Aramco IPO on your radar now, because whenever it happens, U.S. investors might find it very difficult to participate without preparation. And I want to give an almost blanket recommendation for owning the initial shares when they are offered. While we wait, I still remain convinced of concentrating investing efforts on well capitalized Permian shale producers. And I’ve recommended staying clear of both domestically focused and global oil services companies, but one short-term opportunity that might be forming in the oil services group is bellwether Schlumberger (SLB). Schlumberger seemed to be benefiting from the oil rally into early October, when several trade houses, including BMO, downgraded the stock, positing that horizontal drilling revenues for 2018 might not be as strong as Schlumberger suggests. I don’t even really care whether BMO has this right or not – I recognized and warned against falling shale rig revenues months ago for the oil services group, but there is always a price at which I become interested in the number one oil services company. And Schlumberger may again be reaching that price: It doesn’t take a trading genius to realize two things about SLB: one, that it’s stock has been continually negatively impacted by the oil bust and two, that negativity is at least temporarily wiped away when shares near $62-64. And while I don’t want to be invested strongly in the sector right now, I do find SLB to be approaching a very compelling trade area. One idea for you as we all await the Saudi Aramco IPO.