It has been an eventful 12 months for the energy sector. With 2019 nearly in the rearview mirror, let’s reflect on some of the highlights from the year.
Saudi Aramco’s Grand IPO: Earlier this month, Saudi Aramco raised $25.6 billion to pull off the biggest stock market floatation ever. The oil and gas juggernaut, which has started to trade on the Riyadh stock market, beat the previous record held by Chinese e-commerce behemoth Alibaba (BABA - Free Report) , which raised $25 billion when it was listed on the New York Stock Exchange in 2014.
Saudi Aramco priced its initial public offering of three billion shares at 32 riyals ($8.53 a share), the top end of the set range. With the shares rising further, Saudi Aramco achieved a staggering $2 trillion valuation - a level that Crown Prince Mohammed bin Salman was looking for. Moreover, it is significantly higher than Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) or Apple (AAPL - Free Report) – the only other firms ever to have topped $1 trillion.
The Single Worst Sudden Oil Market Disruption Ever: In September, unmanned aerial vehicles struck the state-run Saudi Aramco’s Abqaiq plant – a key crude processing facility – and the Khurais complex, which houses the kingdom’s second-largest oilfield. Such was the extent of damage that it was touted as the ‘single worst sudden disruption ever’ for the oil markets, surpassing the impact of the 1991 Persian Gulf War. WTI crude, the U.S. benchmark, soared nearly 15% on the following Monday, to $62.90 a barrel. This marked the sharpest daily price rise for the domestic grade since September 2008, putting black gold at a four-month high.
The Abqaiq plant has a capacity to process approximately 7 million barrels of oil a day, or roughly 7% of the global crude volumes, while Khurais boasts of a daily production capacity of around 1.5 million barrels with estimated reserves of more than 20 billion barrels of oil. As a result, the strikes hit the Saudi energy infrastructure hard, cutting the kingdom’s oil production by around 50%. This loss amounted to a staggering 5 million barrels of daily crude output, or 5% of the world’s oil supply.
U.S. Becomes a Net Oil Exporter: For the first time since government monthly records began in 1949, the United States has established itself as a net petroleum exporter. This is because in September, America’s exported volumes of oil and petroleum products were more than imported, per data provided by U.S. Energy Information Administration.
Twin OPEC Interventions: Recently, the OPEC+ group announced cutting output by as much as 500,000 barrels per day from Jan 1 for three months. to end a supply glut and prop up prices. This is in addition to the existing production curbs of 1.2 million barrels per day by OPEC, Russia and other non-member oil producers.
Back in July, the OPEC producers' cartel decided to prolong output cuts at its meeting in Vienna, Austria. True to assumptions, OPEC, Russia and other non-member oil countries planned to stick to existing output cuts up to March 2020 instead of letting the pact expire in June. The so-called OPEC+ deal, in place since the start of 2017, is aimed to rein in a global supply overhang and bolster prices.
The Permian Juggernaut: The Permian shale play accounts for roughly one-third of the total U.S. oil output and is the dominant domestic growth area for onshore oil production. It is primarily because of the Permian shale that volume from U.S. oil fields has risen more than 50% since mid-2016 to a record 12.9 million barrels per day. Permian's crude production has dramatically increased from below 1 million barrels a day, through entire 2009, to 4.7 million barrels a day now. Such is the popularity of this unconventional basin that oil supermajors like ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) – both carrying a Zacks Rank #3 (Hold) – have made the region mainstays of their future production.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Tightening Sanctions on Iran and Venezuela: U.S. sanctions against Venezuela and Iran continue to tighten the commodity’s fundamentals.
With Venezuela tethering on the verge of political and economic collapse, oil output has dwindled significantly since 2016. The country currently churns out less than 1 million barrels per day. Importantly, the ongoing production disruptions have led to a plunge in Venezuela’s oil exports to multi-decade lows. Further, as part of the U.S. sanctions on the government in Caracas, American companies have been restricted to conduct business with Venezuela's state-run oil firm PDVSA.
In April, the U.S. government announced the expiry of waivers granted to eight Iranian crude importers. This severely constrained the Persian Gulf country’s ability to export, which was already reeling under American sanctions since last November.
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