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Better news for oil

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Screen Shot 2016-03-16 at 22.36.32By Ed Crooks: Friday 18 March 2016

Oil continued to creep up this week with Brent going past $42 per barrel, its highest level since early December. Crude was a beneficiary of the wider upturn in markets, which pushed the S&P 500 index briefly back up above its level at the start of the year. The positive correlation between share prices and oil prices seems to be alive and well.

Suggestions that the US Federal Reserve is in no hurry to raise interest rates gave a boost to crude and other markets. Oil was also helped by reports that Opec ministers had at last agreed to hold a meeting with leading non-Opec producers such as Russia, in an attempt to make some progress with their much-discussed, little-implemented production freeze.

Governments on opposite sides of the Atlantic reacted in different ways to the very similar set of pressures faced by their countries’ oil industries. In Britain, George Osborne cut taxes on the country’s North Sea oil and gas industry to their lowest level since 2003. In the US, President Obama killed off a plan for oil drilling off the country’s east coast.

Two corporate deal announcements this week hinted at some of the fallout from another recent decision by Mr Obama that stymied the oil industry: the refusal to allow a presidential permit for the Keystone XL oil pipeline from Canada into the US.

Transcanada, the company that had sought to develop and operate Keystone XL, chose another tack for its US expansion, agreeing a $13bn deal to buy Columbia Pipeline Group, a gas transmission company that is strong in the Marcellus and Utica shales of Pennsylvania and Ohio.

Meanwhile, Shell agreed to unpick its US refining and marketing joint venture with Saudi Aramco, which has been going since 1998. Shell did not give much detail on its thinking about the JV, called Motiva, but some speculated that the block on Keystone XL would make it more difficult for increased supplies of Canadian crude to reach refineries on the Gulf of Mexico coast. That would undermine the rationale for Shell retaining its half-share in the Motiva Port Arthur refinery, which is being transferred to Saudi Aramco as part of the break-up deal.

Mr Obama said one key reason for blocking Keystone XL was to avoid undermining US leadership in efforts to tackle the threat of climate change, and there was some good news on that from the International Energy Agency:  global energy-related carbon dioxide emissions stalled last year, even though the economy was still growing.

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