Energy Sector Update for 04/12/2019: BHGE, XOM, CVX, RDS.A, RDS.B, BP, E, COP, TOT, PBR, PBR.A, EC, SLB, HAL, NOV, SPN

(Updates with the price move, EIA/OPEC/Goldman Sachs reports and general market commentary from the first paragraph.)

Crude advanced on Friday, trading close to its highest level since November, after a worsening geopolitical crisis in Libya and stronger Chinese exports underpinned prices.

West Texas Intermediate futures were up 0.6% to $64.12 a barrel while global benchmark Brent crude added 1.3% to $71.73 a barrel on Friday.

After the latest outbreak of fighting, Libya's National Oil Chairman Mustafa Sanalla was cited as saying in a report from Financial Times the energy industry faced its biggest crisis in eight years. If fighting persists, current production of "barely" 1.2 million barrels per day could be further impeded, he said.

"Prevailing tight supply conditions have meant geopolitical disruptions could lead to higher risk premium being reflected in oil prices," India's ICICI Bank analysts were cited as saying in a report from Marketwatch.

China's dollar-denominated exports in March beat expectations, up 14% year-on-year in the month, while imports declined 7.6% from a year earlier. The country is the second largest importer of oil after India, and its economic well being sits at the heart of many bullish oil forecasts based on growth in demand for oil.

While Libya and China helped underpin prices this week, data from the Organization of Petroleum Exporting Countries (OPEC) show the cartel's output fell in March mainly due to a slowdown in output in political-crisis stricken Venezuela and Saudi Arabia, which is the defacto head of OPEC.

OPEC said output dropped by 534,000 barrels per day to 30.02 million barrels a day, signaling a relatively high rate of compliance with the 1.2 million barrels per day of cuts being implemented since January in conjunction with non-OPEC members led by Russia.

Goldman Sachs analysts led by Damien Courvalin said in a report Monday the "shock and awe" implementation of the OPEC cuts, global activity sequentially accelerating, further tightening of US oil sanctions against Iran, and a moderate increase in shale production, for now, has been sustaining the rally in oil prices.

"Brent prices have finally reached $70/bbl, following a fundamentally led rally reflective of a deficit larger than even we had forecast," Courvalin wrote in the report. "We expect the drivers of this deficit to persist through 2Q19."

On Wednesday, the Energy Information Administration said crude stockpiles surged by 7 million barrels to 456.6 million barrels, increasing for the third straight week, putting some downward pressure on oil prices.

Goldman, however, said it saw limited upside in prices while noting its Brent target of $72.50 per barrel, which has already been raised from a previous estimate of $65 per barrel. Beyond disruptions, the key to further spot price upside in the coming months and years will be how OPEC manages its exit from the current production cuts, it noted.

"Should long-dated prices rally and become unanchored once again, our conviction in lower prices next year would increase given the likely shale supply response," Courvalin said. "Conversely, guidance for higher output in coming months would likely weight on long-dated prices, maintain backwardation and lead to persistent shale restraint, creating upside risks to our 2020 spot price forecast."

Meanwhile, Baker Hughes (BHGE) said data tracked over the seven-day period ending April 12 show the number of oil rigs operating in the US rose by two to 833, after jumping by 15 last week. The combined oil and gas rig count in the US, however, fell by three to 1,022 as gas rigs slid by five to 189.

In Canada, the number of oil rigs in operation slipped by four to 18 over the same period, while the number of gas rigs rose by two to 48. As a result, the North American total fell by five to 1,088 versus 1,110 a year ago, the data showed.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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