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Is The Oil Rally Nearing Its End?

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Middle East Oil Prices Rise As Global Demand Recovers

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Tom Kool

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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OPEC's Surprise Decision Bodes Well For Oil Demand

Oil prices climbed on Thursday despite the surprise decision by OPEC+ to increase production, a decision that has been seen as promising for demand.

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Oil prices rose despite OPEC+’s decision to increase production. In fact, rather than a bearish move, investors interpreted the decision as a vote of confidence in demand. “The [supply] deficit that we’re already in is likely to accelerate,” Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview

OPEC+ agrees to gradually increase production. OPEC+ decided to add more than 2 mb/d over the next few months, betting on rising demand. The deal calls for a 350,000-bpd increase in May, followed by the same amount in June, and then by 450,000 bpd in July. At the same time, Saudi Arabia will ease its voluntary 1 mb/d cuts by July. OPEC+ surprised markets last time around by maintaining cuts, this time they surprised in the other direction after analysts expected no change.

Pioneer Natural Resources nears $6 billion deal for DoublePoint Energy. Pioneer Natural Resources (NYSE: PXD) is nearing a $6 billion deal to acquire DoublePoint Energy, a cash and stock deal, according to Reuters.

Shale output to erode. U.S. shale production is set to decline through at least 2022, according to BNEF. By the end of the year, the industry could lose another 485,000 bpd. “It could be a while before U.S. oil companies feel comfortable growing production again,” BNEF analyst Tai Liu said in a note.

Total and Shell see lingering refinery issues. Total’s (NYSE: TOT) Port Arthur refinery may be offline for another three to four weeks for repairs after an unplanned shutdown during the Texas freeze. Royal Dutch Shell (NYSE: RDS.A) is having problems with its Deer Park refinery as well. Meanwhile, ExxonMobil (NYSE: XOM) said it would take an $800 million hit related to the storm.

Oil companies win one climate court case, lose another. A federal appeals court rejected New York City’s effort to hold oil majors accountable for climate change, a big win for the industry. 

EVs gain in Biden’s $2.25 trillion infrastructure plan. President Joe Biden introduced the outlines of his major infrastructure package, which would have far-reaching effects on the energy industry. The bill calls for $174 billion for EV recharging stations. “For the EV sector, the Street has been awaiting this day since Biden was elected,” an analyst with Wedbush Securities wrote in a note to clients. ChargePoint Holdings Inc (NYSE: CHPT), the largest owner and operator of EV-charging stations in the U.S., jumped as much as 24%

Aramco could reduce dividend. Aramco could pay less than the originally planned $73.5 billion to its Saudi state shareholder in order to prioritize investments, Crown Prince Mohammed said earlier this week, opening the door to the oil giant to relieve some of the pressure on its balance sheet

Renewables gain too. The infrastructure plan calls for a 10-year extension of wind, solar, and battery tax credits. It also calls for incentives to build out 20 GW of long-distance transmission. 

Oil’s surprise gain in Biden’s plan. Bloomberg notes that Biden’s infrastructure plan, which leans heavily on clean energy, would also stoke demand for asphalt, boosting heavy crude blends. 

Is Russia About To Invade Ukraine? While the world is focused on OPEC news and Easter preparations, the Ukrainian crisis is heating up and there is a real threat of a military confrontation involving Ukraine, Russia, and Belarus.

California turns to energy storage. California is expected to add 1.7 GW of energy storage this year, enough to power 13 million homes. The state is hoping that the batteries will help head off blackouts this summer.

Energy storage to take $277B from the grid. Energy storage will become a $277 billion market between 2020 and 2050.

Related Video: Saudi Arabia Goes  All In On Hydrogen

ConocoPhillips takes a hit from hedges. Oil prices are up sharply this year, but ConocoPhillips (NYSE: COP) said that its first-quarter results would take a $600 million hit from its acquisition of Concho Resources and hedges. The incident highlights that many companies would miss out on the oil price rally due to hedges they locked in at lower prices. According to Reuters, many independent companies hedged their production at an average between $43 and $45 per barrel.

Santos announces LNG FID. Santos (ASX: STO) announced an FID on its Barossa joint venture, a $3.6 billion LNG export project in Australia. Santos had to take on a greater share of the project than it had previously wanted.

Europe lockdown to hit demand. Oil demand will take a hit from new lockdowns in Europe and slow vaccinations. Rystad Energy says it could prevent 1 mb/d of demand from coming back this year. 

Two countries leading on offshore drilling. Lower lifting and breakeven costs at the most prolific offshore oil regions off Brazil and Guyana are setting the stage for a rebound in offshore drilling in South America, which will be one of the main growth drivers of global offshore activity this year.

Europe gas storage depleted. Diminished natural gas storage in Europe could provide a jolt to the global gas market as the year wears on.

Canada’s oil sands face pressure to transition. Canada’s oil sands producers are posting stronger cash flow than expected, and investors praised producers for returning cash to shareholders and to pay down debt. However, they are also under growing pressure to plan for the energy transition. 

World Bank revises lending policy. The world bank revised its climate change commitments but stopped short of halting all funding for fossil fuels.

By Tom Kool for Oilprice.com

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Leave a comment
  • George Doolittle on April 02 2021 said:
    Good news for Boeing and US based defense contractors I would agree with that.

    Not so sure about how good this is for oil producers as of yet but it does show confidence that these higher prices are here to stay. Iran negotiations back on would normally be bearish but we'll see come Monday. Not really sure what to make of "War in the Donbas" part 2.

    Long $cnx Consol Energy
    Strong buy

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