Oil gains on U.S. crude drawdown, easing of tension in U.S.-China spat

Oil Stock Markets

Oil prices rose on Thursday, buoyed by the U.S. government data showing a surprise drawdown in crude stockpiles and an easing of tensions over a trade row between the United States and China.

U.S. West Texas Intermediate crude for May delivery CLc1 was up 27 cents, or 0.4 percent, at $63.64 a barrel by 0445 GMT after settling down 14 cents.

Front-month London Brent crude LCOc1 for June delivery was up 30 cents, or 0.4 percent, at $68.32, having ended down 10 cents.

Oil also got support from firm global equities, as the United States expressed willingness to negotiate a resolution on trade after proposed U.S. tariffs on $50 billion in Chinese goods prompted a quick response from Beijing that it would retaliate by targeting key American imports.

Oil prices have recently closely tracked equities.

Before the rebound late on Wednesday, after the release of the Energy Information Administration (EIA) inventory data, WTI and Brent had hit two-week lows after China proposed a broad range of tariffs on U.S. exports, feeding fears of a trade war.

U.S. crude inventories fell by 4.6 million barrels last week, compared with analysts’ expectations for an increase of 246,000 barrels, EIA data showed on Wednesday.

Oil has also received support after a Reuters survey showed on Wednesday that OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output.

Shanghai crude futures trading was closed on Thursday due to a public holiday in China. Trading will resume on Monday.

Oil giants stay in their own backyards in U.S. auction

Oil Stock Markets

The Trump administration heralded the government’s sale last month of U.S. drilling leases in the Gulf of Mexico as a bellwether. 

The sale brought in $124.8 million, as just 1 percent of the 77 million acres (31.2 million hectares) offered found bidders. Reuters examined the acreage offered and leased, and nearly all the purchases show big drillers stuck closest to existing infrastructure, shunning the most far-flung areas.

While U.S. crude oil production reached a record last year at more than 10 million barrels a day, most new development is in onshore shale regions. The U.S. Interior Department has said it wants to open all U.S. coasts for drilling, including the Atlantic and Pacific. But the Gulf result indicates limited interest even in already-developed areas, never mind unexplored coasts.

The March auction included 9,088 deepwater blocks, each comprising roughly nine square miles. Only 105 of these blocks received bids and all but three of these were close to existing infrastructure and leases.
 
However, money for exploration is increasingly flocking to other regions, particularly Latin America, where energy reforms have attracted billions of dollars in investment from companies historically known as Gulf heavyweights. A January auction by Mexico brought in more than four times the bids as the U.S. sale.

Of the 105 new U.S. leases in water depths of more than 656 feet (200 meters), 85 were immediately contiguous with existing leased acreage or production platforms, and another 17 were within about two miles of existing leases or infrastructure, according to the Reuters analysis.

Among the areas where companies submitted bids were Mississippi Canyon and Green Canyon, two of the most densely leased plays in the Gulf, about 100 miles (160 km) off the Louisiana coast. Royal Dutch Shell Plc was the high bidder on two Mississippi Canyon blocks.

Overall, Shell picked up 16 Gulf blocks including 6 adjacent to its deepwater developments known as Kakias and Stones, and 10 clustered around other actively leased areas. It told Reuters that it wanted to “acquire blocks that could potentially support future development using our existing hubs.”

BP Plc’s most notable bids were 19 blocks in DeSoto Canyon, contiguous to a known gas field, about 100 miles from the Louisiana coast. “BP is strategic with its bids, and we use the opportunity to expand and strengthen our plays,” a company spokesman told Reuters.

Only three blocks leased were more than a few miles from existing acreage. Those blocks were snapped up by Chevron, which declined comment.

Bidding on parcels close to known assets increases the likelihood of finds that can be produced affordably, cutting infrastructure and supply costs.

Major oil companies remain lukewarm about pushing the boundaries of available frontiers, desiring longer leases and lower royalty rates.

Deepwater offshore blocks currently require an 18.75 percent payment to the U.S. government, compared with 12.5 percent for shallower areas and onshore drilling. An Interior Department panel in February recommended lowering those rates.

Companies have also expressed a desire for longer leases to more effectively drill in unexplored areas further from the coasts. Six deepwater regions more than 200 miles off the Louisiana coast received no bids at all. The water here is generally about two miles deep. The locale makes both drilling and transporting oil to shore especially costly.

The high cost of building underwater pipelines is another deterrent. Deepwater projects like Chevron’s Jack and St. Malo fields, more than 200 miles from the coast, required a pipeline connecting them to existing Gulf infrastructure closer to shore, approved in 2010, during a boom when U.S. crude traded at about $90 a barrel.

Nikkei drops after strong yen hurts exporters, mining firms soar

Japan’s Nikkei share average dropped to a 10-day low on Thursday morning as a stronger yen hurt exporters, although oil and mining stocks bucked the weakness, supported by firmer oil prices. 

The Nikkei fell 0.8 percent to 23,754.10 in midmorning trade after hitting as low as 23,688.94 earlier, the lowest since Jan. 15. The index is below its 5-day moving average of 23,888.85.

The dollar dropped 1 percent to a four-month trough of 108.965 yen before recovering to trade at 109.300 during Asian trade.

Transport equipment stocks tumbled, with Honda Motor Co sliding 1.2 percent, Subaru Corp falling 1.4 percent, while electronic appliance maker Panasonic Corp shed 1.2 percent and chip-making equipment manufacturer Advantest Corp stumbled 3.5 percent.

Banks also lost ground, with Mitsubishi UFJ Financial Group and Mizuho Financial Group both falling 1.0 percent.

Oil and mining stocks outperformed after oil prices hit their highest since December 2014, pushed up after U.S. crude inventories posted a 10th straight week of declines and as the dollar continued to weaken.

Inpex Corp added 0.3 percent, Japan Petroleum Exploration Co gained 1.6 percent, while Showa Shell Sekiyu advanced 1.1 percent.

The broader Topix declined 0.6 percent to 1,889.07.