Conflict—whether it’s between regional rivals in the Persian Gulf or corporate foes in the Permian Basin—is seeping back into the oil business.
Oil prices shot upward Monday after Saudi Arabia said two of its oil tankers came under attack Sunday near the Strait of Hormuz, the waterway in and out of the Persian Gulf — a critical avenue for crude transportation.
“The geopolitical risk premium increased over the weekend,” said consultancy Global Risk Management in a note. That became evident once markets opened in London this morning. Brent crude, the global oil benchmark, was up about 2% and West Texas Intermediate, the U.S. oil standard, was last up more than 1.5%.
The attacks came days after the U.S. said it would heighten its military presence in the Persian Gulf to counter what it said is a growing threat from Iran. Saudi Arabia has pledged to help balance global oil markets as Washington tries to push Iran’s oil exports to zero.
Until the weekend attacks, the oil industry had been transfixed by a very different confrontation: Occidental’s battle with Chevron to buy Anadarko, a melee Oxy won late last week for $38 billion, after Chevron bowed out of the bidding.
The struggle is far from over for Oxy’s chief executive, Vicki Hollub. Now she has to convince skeptical shareholders that they aren’t the losers in this deal.
Ms. Hollub went all-out to come out on top in one of the biggest energy-deal dramas in recent years, a contest for prime assets in the engine of the American shale boom, the Permian Basin of Texas and New Mexico. The battle pitted her smaller company against one of the planet’s oil giants, write the Journal’s Christopher M. Matthews, Bradley Olson and Cara Lombardo.
The victory, though, ratchets up tensions with some Oxy investors including mutual fund giant T. Rowe Price. Ms. Hollub defended the deal Friday during the company’s annual meeting. Taking exception with those who confused Occidental’s “determination with desperation,” she called the deal a “unique, transformational opportunity.”
—John Simons, London Energy Editor and Miguel Bustillo, U.S. Energy Editor
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• OPEC releases its Monthly Oil Market Report on Tuesday.
• The Senate Committee on Energy and Natural Resources holds a hearing Wednesday about the challenges facing the Power Marketing Administrations, federally owned utilities that serve millions of U.S. electricity customers.
• The International Energy Agency releases its monthly Oil Market Report on Wednesday at 10 a.m. CET.
• Saudi Arabia and other OPEC members gather for a technical meeting in Jeddah on Sunday to debate how much extra oil the cartel should pump in the latter half of 2019.
• BP hosts its annual general meeting on May 21 in Aberdeen, Scotland.
• Royal Dutch Shell’s AGM is the same day in the Hague, followed by a shareholder presentation in London on May 23.
Oil futures were buoyed by concerns about disruptions to the global crude supply on Monday after Saudi Arabian said two of its oil tankers were damaged in a sabotage attack over the weekend near the Strait of Hormuz.
Brent was trading up 1.85% at $71.94 a barrel on London’s Intercontinental Exchange Monday. WTI futures were up 1.62% at $62.66 a barrel on the New York Mercantile Exchange.
Saudi Arabia’s Oil Minister Khalid al-Falih called the incident sabotage, but authorities didn’t place blame for the attack.
The Strait of Hormuz is a strategic choke point for the world’s oil supplies. A third of the world’s liquefied natural gas and a third of its oil shipped by sea flows through the strait. The incident happened amid heightened military tensions in the region, write Michael Amon and Sune Engel Rasmussen.
The U.S. said last week that it is sending an aircraft carrier, bombers and a Patriot antimissile battery to the Persian Gulf to counter what the Trump administration says is a growing threat from Iran. Iran called the attack “dreadful.”
Washington Backs a Libyan Warlord After Push by Saudi Arabia and Egypt
The leaders of Saudi Arabia and Egypt successfully lobbied President Trump to change U.S. policy in Libya and contact the general leading an offensive against the country’s United Nations-backed government, report Vivian Salama, Jared Malsin and Summer Said.
In early April, Saudi Crown Prince Mohammed bin Salman and Egyptian President Abdel Fattah Al Sisi urged Mr. Trump to back Gen. Khalifa Haftar, whose forces are seeking to capture the Libyan capital Tripoli amid a long-running battle for control of the oil-rich country.
Mr. Trump later called Gen. Haftar, and “discussed a shared vision for Libya’s transition to a stable, democratic political system,” the White House said.
Since Gen. Haftar launched his military campaign against the capital, the country’s conflict has seen a surge in violence, with more than 450 people killed. The hostilities have contributed to a rise in global oil prices.
Occidental Delivers Knockout Bid For Anadarko
Chevron threw in the towel on its bid to buy Anadarko Petroleum, leaving Occidental Petroleum as the victor of a deal that captured the market’s attention, write the Journal’s Bradley Olson and Christopher M. Matthews.
Occidental is now set to buy Anadarko’s prized assets in the heart of the U.S. shale oil boom in West Texas and New Mexico for $38 billion.
Still, some obstacles to the deal remain. Chief Executive Vicki Hollub’s big mistake was agreeing to a transformational deal while bypassing shareholders in the process, writes Lauren Silva Laughlin.
U.S. Imposes Higher Tariffs on Chinese Imports Amid Tense Trade Talks
Analysts are warning that the ongoing trade dispute is slowing global growth and could hurt demand for oil. On Friday, the U.S. increased tariffs on $200 billion of Chinese goods to 25%.
The Trump administration increased pressure on China in an attempt to gain concessions for a wider trade deal, write Bob Davis and Josh Zumbrun. The sudden deterioration of U.S.-China talks this week raises the prospect of a once-unimaginable rupture between the world’s two largest economies.
U.S. Sanctions Threaten Europe’s Effort to Save Iran Deal
European governments pushed back against Iran’s threat to abandon the 2015 nuclear deal and its demand that the block help it circumvent U.S. sanctions within 60 days, reports Laurence Norman.
Iran’s ultimatum leaves Europe with few options to save the accord, given monthslong efforts by EU officials to provide relief to U.S. sanctions that have crippled the Islamic Republic’s economy and reduced its oil exports.If Europe’s leaders can’t free up enough economic benefits to persuade Tehran to abide by its commitments, they will have to decide whether to kill the agreement by reimposing European sanctions.
• The Trump administration unveiled plans to open 725,500 acres along the California coast to fossil fuel exploration. (L.A. Times)
• A contaminated oil crisis is costing Russia half a billion dollars a day in profits. (Forbes)
• One proposal to rebuild Paris’ Notre Dame Cathedral includes a roof that harnesses solar energy to provide power for nearby buildings. (CNN)
• China is building a nuclear fusion reactor that could make the technology available as soon as 2050. (Science X)
That’s the additional revenue Mexico’s state-run oil company Petróleos Mexicanos hopes to garner this year as a result of a plan to thwart fuel thieves. During this year’s first quarter, Pemex said its losses from stolen fuel were about $79 million, down from around $368 million in the first quarter of 2018.
On the afternoon of May 1, Sune Engel Rasmussen, one of the Journal’s Mideast reporters, found himself locked in a traffic jam in Tehran. Long lines outside gas stations paralyzed parts of Iran’s already notoriously congested capital. Here is what he saw:
At midnight, the U.S. started a new, tightened ban on Iranian oil sales, aiming at bringing the country’s most important export to zero. Iran’s leaders insisted all week that the country would continue to export oil.
But in the streets, people weren’t buying it. Rumors had spread through Tehran that the government would ration fuel beginning the next day to mitigate damage on the country’s already battered economy. Hence the long lines.
I was in Tehran covering an oil-and-gas exhibition. Iran doesn’t often give visas to foreign reporters. It was an opportunity to travel there at a time when tensions between Iran and the U.S. are heating up. There is little reporting about life in Tehran or the mood among regular Iranians amid the new sanctions.
I lived in Iran previously for nearly three years, until 2014. On my first return to the capital, I found a Tehran at once more liberal and more anxious than I left.
Headscarves are looser and political discussions louder. The growing freedom isn’t all that surprising. Iranian authorities sometimes loosen enforcement of social restrictions when the population is being squeezed from other sides, in this case externally—by the U.S.—and economically.
Tehran’s mostly grimy urban landscape is dotted with astonishing old houses, which young entrepreneurial Iranians, despite the economic crisis, are turning into coffee shops and restaurants. Iran’s repressive political system, forcing artists to create a language of protest subtle enough to evade censorship, has spawned one of the region’s most sophisticated art scenes. Galleries across town fill up on Friday afternoons.
I have always found Iranians, no matter their political beliefs, to be kind, mild-tempered and warm. I went to Friday prayer, delivered by ultra-conservative cleric Ahmad Khatami who railed against the misdeeds of “The Great Satan” and prompted several “death to America” chants.
But as the only Westerner at the prayer, I was treated with exceeding friendliness and palms-to-heart greetings—a customary sign of respect.
Yet, resentment against the U.S. government is palpable, even among the broadly pro-American middle class. Many say the U.S. has empowered hardliners who thrive on international isolation by ditching the 2015 nuclear pact that promised to open Iran up.
Largely, Iranians seem unfazed by the newest round of U.S. sanctions. Faced with new sanctions, Iranians across the board have little choice but to endure. They have gone through revolution, devastating war and decades of sanctions.
The U.S. State Department has noted Iran has missed out on some $10 billion in oil sales since November.
Here, though, geopolitics are embedded in all aspects of life. One rug merchant told me that even though sanctions are crippling the economy, Iranians know the drill and they hunker down. “American sanctions are like antibiotics on bacteria. They give us a little every five years, and it only makes us more resilient.”
—Sune Engel Rasmussen, WSJ Middle East Correspondent
About Us We want to be your first energy read of the week. This newsletter is a production of the global WSJ energy team, which is made up of a dozen editors and reporters in Houston, New York, London and Dubai. Send feedback to John Simons and Neanda Salvaterra at [email protected]
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