Brent Back Above $69 As Bullish Sentiment Holds

Despite a strong U.S. dollar, there is an unmistakably bullish sentiment in oil markets as demand comes back online and the vaccine rollout continues.

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Friday, March 12th, 2021

Oil prices regained lost ground towards the end of the week, as tight supplies are forcing a global drain in inventories. “Overall, we are bullish on oil demand continuing its upward trajectory in tandem with vaccine programs and the resumption of economic activities,” Bjornar Tonhaugen of Rystad Energy said in a statement. 

OPEC downgrades demand forecast. OPEC cut its demand forecast for the next two quarters, with second-quarter demand down 690,000 bpd compared to a prior forecast. “Ongoing lockdown measures, voluntary social distancing and other pandemic-related developments” continue to weigh on economic activity, OPEC said in its monthly report.

Saudi voluntary cut smaller than stated. Saudi Arabia promised to voluntarily cut its output by an additional 1 mb/d in February and March, but new data suggests the cuts were smaller than expected. “According to Petro-Logistics’ assessment and following discussions with sources and contacts in the market, our estimate for Saudi supply in February is a cut of around 600,000 bpd month on month,” Daniel Gerber, chief executive of Petro-Logistics, told Reuters.

Analysts warn OPEC+ is overtightening. U.S. shale drillers promised restraint, but prices have risen to such a degree that they may be tempted off the sidelines. Analysts warn OPEC+ that they are playing with fire. “Withholding barrels as a means of sustaining the price rally will work,” Bill Farren-Price, a director at research firm Enverus, told Bloomberg. “But in doing so, the table is being laid for a feast at which the U.S. short-cycle operator will be the guest of honor.”

Related: Europe Can’t Keep Up With Demand For Battery Metals

BP and Shell earn billions in trading. BP (NYSE: BP) earned nearly $4 billion from its energy trading unit in 2020, cushioning the blow to earnings from the pandemic.Royal Dutch Shell (NYSE: RDS.A) said its trading profits doubled to $2.6 billion.

Iran’s oil exports to China surge. China’s imports of Iranian oil are on track to more than double in March, compared to February. Iran’s oil sells for a $3 to $5 per barrel discount relative to Brent, due to sanctions. At the same time, Saudi Arabia’s exports to Asian buyers for April are set to fall by 15%.

U.S. refinery gas flaring at an 18-month high. Natural gas flaring at US non-upstream onshore oil and gas facilities reached an 18-month high in February, at 180.9 million cubic feet per day (MMcfd), a Rystad Energy report shows.

Biden admin approves drilling permits. After an initial pause, the Interior Department approved 200 drilling permits in the past two weeks, mostly in Wyoming and North Dakota. While leases on federal lands have been temporarily suspended, approval of drilling permits appears to be resuming. 

Biden lease report by summer; Congress looks at reforms. The Biden administration said that it would publish an interim report on its suspension of lease sales on federal lands by the summer. At the same time, a bipartisan group of Senators is looking at reforms to hike the royalty rates paid by oil, gas, and mining companies. 

Shell taps mining exec as new chairman. Royal Dutch Shell (NYSE: RDS.A)appointed Andrew Mackenzie to be its new chairman. Mackenzie is the former CEO of BHP Group Ltd. and replaces outgoing Shell chairman Chad Holliday.

India looks at alternatives amid high prices. India called on OPEC+ to increase production in order to dampen crude prices. India’s oil minister Dharmendra Pradhan said his country would look to diversify away from the Middle East as a source of supply.

BP exits Kazakh oil projects. BP (NYSE: BP) abandoned three oil projects in Kazakhstan amid a strategy shift to focus on renewables.

Why are investors turning against fossil fuels? Over the next five years, oil and gas companies will definitely see less investment as the world’s biggest institutional investors are increasingly looking at the environmental credentials of the companies in their portfolios.

U.S. Senate floats methane tax. Three Democratic senators are supporting a bill that would tax methane emissions. 

Vaca Muerta poised for a comeback. Drilling activity collapsed in Argentina’s Vaca Muerta last year but soared to a 17-month high in January 2021. Higher prices and government subsidies are helping bring the Dead Cow back to life.  Related: How Oil Could Go To $100 Per Barrel

Biden’s DOE Secretary tells oil industry to adapt or die. “I’m not going to sugarcoat how hard transitions are,” new United States Energy Secretary Jennifer Granholmstated at the CERAWeek Conference. “The bottom line is this particular growth of clean energy and reduction of carbon provides a huge opportunity and I’m extending a hand of partnership,” Granholm said.

U.S. air travel starting to rise. Aviation will be the last sector to rebound from the pandemic, but there is some evidence to suggest that it is picking up. The volume of passengers passing through airports is now flirting with the highest levels since the pandemic began.

Canoo, EV startup, joins an all-electric pick-up race. Canoo, a U.S. EV startup, said it plans to launch an all-electric pod-like pickup truck in 2023, adding to a fast-growing choice of electric vehicles available to American buyers.

By Josh Owens for Oilprice.com

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