Optimism about COVID-19 vaccines is driving oil prices higher and energy stocks are now on course to see their largest quarterly gain since 1989
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Friday, December 18th, 2020
Crude oil prices held their gains this week and pushed to new highs. In midday trading on Friday, Brent was over $52. Optimism on vaccinations is outpacing the bearish winds from record Covid-19 infections in the United States. Analysts differ on what happens next, but some say oil has more room on the upside.
Investors turn bullish on North American oil. Having been savaged for much of 2020, stocks for North American oil and gas producers have surged in recent weeks. The Canadian Energy Sector Index is up 40% since November 9, and U.S. energy stocks are having their best quarter since 1989. Related: Mexico Is Quietly Pushing Out Foreign Oil Investors
LNG prices skyrocket. JKM prices shot up over $12/MMBtu in recent days. Energy Intel says a combination of factors is leading to the 80% rally in just three weeks. Supply disruptions in Australia, Qatar, and Norway, weather-related supply issues in the U.S., congestion at the Panama Canal, colder temperatures in the Northern Hemisphere,
Saudi cuts budget. Saudi Arabia cut its 2021 budget by 7%, as it seeks to minimize the damage from falling oil revenues.
Hydrogen production to increase 5000% in 5 years. After decades of stagnation and multiple false dawns, the hydrogen economy appears primed for a major takeoff. Industry experts are predicting that hydrogen could become a globally traded energy source, just like oil and gas, while the Bank of America says the industry is at a tipping point and set to explode into an $11 trillion marketplace.
ExxonMobil upgraded to Buy by Goldman Sachs. Goldman Sachs upgraded ExxonMobil (NYSE: XOM) to a Buy rating with a $52 price target, up from $42. The bank sees oil demand returning and Exxon’s shares have already been beaten down.
BP buys stake in forest carbon offsets. BP (NYSE: BP) bought a controlling stake in Finite Carbon, which helps landowners sell credits for their forests.
Strong oil demand in Asia. The Dubai January-February spread moved into backwardation this month, due to strong demand for crude in India and China.
Banning drilling on federal lands to cost $8.1 billion. A potential ban on drilling on federal lands would cost eight western states up to $8.1 billion in tax revenue according to a study from the state of Wyoming.
Federal Reserve joins climate risk body. The U.S. Federal Reserve joined an international group of central banks – the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) – a body that uses regulatory and research clout to mitigate effects of climate change risk to the financial system.
EVs to reach price parity in three years. EVs could reach price parity with the internal combustion engine on an upfront unsubsidized basis within the next three years, according to BloombergNEF. The key threshold can be reached when the cost of battery packs falls to an average of $100 per kilowatt-hour. The cost is now at about $126.
Lloyd’s of London to exit fossil fuels by 2030. Lloyd’s of London, the world’s largest insurance market, said it would end coverage of coal, oil sands, and Arctic energy exploration by 2022, and withdraw from the sector altogether by 2030.
SEC approves a watered-down anti-corruption rule. The Securities and Exchange Commission approved a rule requiring oil, gas, and mining companies to disclose payments made to foreign governments, although the rule had been significantly weakened. Unlike previous iterations, the new rule allows companies to disclose aggregated data at the country level, as opposed to on a contract-by-contract basis.
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7 European energy majors agree on transition principals. Seven European energy companies – BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS.A), Eni (NYSE: E), Equinor (NYSE: EQNR), Galp (FRA: DE), and Total (NYSE: TOT) – plus Occidental Petroleum (NYSE: OXY) have agreed on six energy transition principles: support Paris Agreement, reduce emissions from operations, collaborate with stakeholders and investors, support emissions sinks and carbon capture, disclose climate risk, and report information about membership in trade associations.
Trafigura denies bribery allegations in Brazil. Oil trader Trafigura is under fire for alleged bribery in Brazil, a case stemming from the long-running Lava Jato investigation.
Related: Will Biden Seal The Fate Of The U.S. Shale Patch?
Canada floats North American ban on gasoline vehicles. Canada’s Environment Minister floated potential closer ties with the U.S. on environmental issues, including aligning vehicle policies that could eventually lead to a North American phase-out of the internal combustion engine.
Biden’s energy and environment team. President-elect Joe Biden unveiled multiple cabinet and sub-cabinet picks related to energy and the environment this week. Former EPA administrator Gina McCarthy will be Biden’s domestic climate czar. North Carolina environmental regulator Michael Regan will be heading up EPA. Rep. Deb Haaland (D-NM) will be Secretary of Interior. Former Michigan Governor Jennifer Granholm will lead the Department of Energy.
Oil industry needs $12.6 trillion in investment. The global oil industry needs some $12.6 trillion in investments through 2045, the secretary-general of OPEC said at a videoconference.
By Tom Kool for Oilprice.com
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The Brent crude price is bolstered further by the fact that the Asian oil market, the biggest in the world, is strengthening with rising demand from both China and India, the world’s largest and the third largest importers of crude oil respectively.
Another bullish factor is that the global economy is projected to grow by an estimated 5.4% in 2021 and 3.7% in 2022 led by emerging markets particularly China and India both of which are projected to grow in 2021 at 8% and 8.3% respectively according to projections from the IMF.
For months on the pages of oilprice.com I have been saying that Brent is projected to end 2020 at $45-$50 a barrel. I was proven right. Today it has surged above $52.
I project also that Brent crude could hit $60 in the first quarter of 2021 and $70-$80 in the third quarter. This trajectory will give an average price of $65-$70 in 2021 and test $100 by 2024.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London