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Low Oil Prices Have Put OPEC+ In A Bind


While bearish sentiment has returned to oil markets due to what appears to be a weakening demand recovery, oil prices climbed on Friday morning after steep losses earlier in the week.

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Friday, September 11th, 2020

Oil prices edged up just a bit during midday trading on Friday, with Brent climbing back above $40 per barrel. Sentiment remains more pessimistic than in previous weeks. 

OPEC+ in a bind as demand softens. Low prices are hitting OPEC+ members, just as they began ramping up production. Should OPEC stay on course with the cuts, hoping that demand recovery picks up next year, enduring low-for-longer oil prices that crush OPEC budgets? Should they cut deeper? 

ExxonMobil puts Guyana FPSO on hold. ExxonMobil (NYSE: XOM) suspended work on a third floating production, storage and offloading vessel in Guyana. The company awaits approval from the government of Guyana for its Payara project. 

U.S. CFTC: Climate change presents dangers to financial system. A report from the U.S. Commodity Futures Trading Commission concluded that climate change poses risks to the stability of financial markets. “A world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system,” the report said. While not new, the conclusion carries weight coming from the top commodities regulator. 

Trump to ban offshore drilling in Florida, Georgia and South Carolina. The Trump administration said it would block offshore oil drilling in Florida, Georgia and South Carolina. While the Atlantic seaboard remained a speculative and arguably uncompetitive region for drillers, the Eastern Gulf of Mexico has long been prized (and off-limits) to the industry. Up until now, the administration has supported opening up that section for drilling, but with the key battleground state of Florida up for grabs, Trump reversed course. 

Uber commits to 100 percent EVs by 2040. Uber (NYSE: UBER) committed to making its fleet 100 percent electric by 2040, and it also said it would spend $800 million on transitioning drivers to EVs through 2025. Lyft (NASDAQ: LYFT) previously said it would meet the target by 2035, although without financial support for drivers.

Related: Colombia’s Oil Industry Is Showing Signs Of Recovery

Investors sue over potential Anadarko fraud. A searing Bloomberg report details the alleged fraud committed by top management at Anadarko Petroleum. A former engineer alleges the company defrauded investors by overstating the size of an offshore oil field. Former CEO Al Walker walked away with $100 million when the company was sold.

Enbridge to resume Line 5. Enbridge (NYSE: ENB) will restart the eastern segment of the Line 5 pipeline in Michigan.

Enterprise cancels Permian pipeline. Enterprise Products Partners (NYSE: EPD) scrapped the proposed Midland-to-Echo 4 oil pipeline project, a 450,000-bpd pipeline that would carry Permian oil to the Gulf Coast. The decline of production and the weak market led to the decision.  

Floating storage on the rise again. Oil is filling up in vessels at sea again as the contango deepens. “The market is soft and bearish and floating storage is returning again,” a market source told Reuters.

Oil market turns pessimistic again. The EIA reported a surprise jump in crude stocks and weaker gasoline demand, adding to bearish sentiment. Covid-19 cases are rising in Europe and India, and India’s oil demand is expected to contract this year for the first time in over four decades. “It will take three years for global oil demand to recover from COVID to its new normal, assuming we have a vaccine or a cure,” analysts at Bank of America wrote in a report this week.

BP spends $1.1 billion on offshore wind. BP (NYSE: BP) purchased a 50 percent stake U.S. offshore wind assets from Equinor (NYSE: EQNR) for $1.1 billion.

Elliot hopes to derail Chevron takeover of Noble. Hedge fund Elliott Management Corp., which holds a large stake in Noble Energy (NYSE: NBL) is pushing the company to abandon its plans to sell itself to Chevron (NYSE: CVX), arguing that the proposed deal undervalues Noble.

UBS advises clients to pick sustainable investments. Swiss Bank UBS Group said that it is telling its clients to invest in sustainable investments, the first major financial institution to do so. The bank handles $2.6 trillion in assets.

Options market says Exxon’s dividend in danger. The options market is increasingly skeptical of ExxonMobil’s (NYSE: XOM) ability to maintain its dividend. “Right now, the options market is forecasting an implied dividend range of somewhere between about 30 and 50 cents over the next dividend period, declining to somewhere between 20 and 30 cents this time next year. That would be a significant cut from the 87 cents [Exxon is] currently paying,” Michael Khouw, chief investment officer at Optimize Advisors, said Tuesday on CNBC’s “Fast Money.”

Lawsuits against Big Oil. New lawsuits for climate change damages against the oil majors were filed this week by several governments, including Charleston, South Carolina, the city of Hoboken, New Jersey, and the state of Delaware.

Copper demand to surge on clean transition. The global need for copper could increase by an estimated 350% by 2050, with current reserves depleting sometime between 2035 and 2045, according to a new report. Copper prices continue to rise, topping $6,800 per ton this week.

Natural gas prices on the rise as supply stagnates. Contracts for natural gas delivery at Algonquin city-gates, Transco Zone 6 New York and Tennessee Zone 6 for December, January and February have moved up to $6.63/MMBtu, $6.03/MMBtu, and $6.61/MMBtu, respectively. Natural gas supply hit a relative peak (temporarily perhaps) late last year, falling as drillers cutback amid low pricing. Lower supply is tightening up the market heading into winter.  Related: The Complete Breakdown Of Russian Output Cuts

Colorado drillers sink on new setback proposal. The Colorado Oil and Gas Conservation Commission voiced support for 2,000-foot setbacks, significantly larger than current rules. The commission won’t vote until October, but the share prices of Colorado-focused drillers sank on the news.

Appalachian drillers “red ink” in Q2. An analysis of nine Appalachian-focused shale gas drillers found that the group collectively posted $134 million in negative free cash flow for the second quarter. 

Seeds of commodity “super cycle” being planted. While it could be years before prices shoot up again, the deep cuts in investment in new oil capacity could sow the seeds of the next boom. India, China and other fast-growing nations could shorten the downtime before the next boom begins.  

Hurricane Energy slashes reserves. UK-based Hurricane Energy (LON: HUR) slashed its reserves in the West of Shetland area. Its Lancaster field now holds an estimated 58 million barrels, down from 486 million barrels. The company’s stock price plunged by more than 50 percent.

By Josh Owens for Oilprice.com 

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