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Josh Owens

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Oil Demand Under Threat From Delta COVID Variant

Oil edged up on Tuesday after posting a loss on Monday due to demand concerns sparked by the Delta variant of the COVID-19 virus. 

Chart of the Week

-    Demand for gasoline, distillate, and jet fuel is on the rise in the U.S. as mobility increases.

-    For the week ending June 18, the four-week average demand for gasoline was 94% of the four-week average for the same week in 2019, distillate was 98%, and jet fuel was 74%, according to the EIA.

-    At their lowest points in 2020, gasoline demand fell to 56% of its corresponding 2019 level, distillate demand to 80%, and jet fuel demand to 31%.

Market Movers

-    Total Energies SE (NYSE: TOT) is partnering with Uber to offer recharging points for drivers of EVs in France.  

-    ExxonMobil workers in Chad continue their strike. 

-    California Resources plunged by more than 8% after Goldentree Asset Management, which owns 10% of the company, sold shares.

Tuesday, June 29, 2021 

Oil edged up on Tuesday after posting a loss on Monday due to demand concerns. 

New Covid restrictions. The spread of the Delta variant is raising some red flags, with new restrictions on visits implemented in Hong Kong, Spain, and Portugal in recent days. New flareups in cases have occurred in the UK and Australia, among other places. The Delta variant could pose some oil demand risks, and oil prices have tapped on the brakes as a result.

OPEC+ optimistic ahead of meeting. OPEC+ says that the overall conditions in the oil market have significantly improved in recent months. The group was optimistic as this week’s meetings began, with a decision on whether they will ease the production cuts further expected on July 1. Related: How Much Oil Can Saudi Arabia Really Produce?

U.S. shale still showing restraint. Despite WTI hitting a two-year high, shale drillers are not rushing back with a wave of new drilling. “I'm still confident the producers will not respond” to the run-up in prices, said Scott Sheffield, CEO of Pioneer Natural Resources.

Anger in Texas after huge gas bills from February storm. Utilities across multiple states in the central U.S. are suffering losses related to the widespread blackout in Texas in February. Lawmakers and regulators in Minnesota, Oklahoma, Missouri, Arkansas, and Kansas have called for investigations into market manipulation and are exploring regulatory changes.

EU approved climate target into law. European Union countries on Monday gave the final seal of approval to a law to make the bloc's greenhouse gas emissions targets legally binding. The bloc will cut emissions by 55% by 2030.

VW to end ICE cars by 2035. German carmaker Volkswagen will stop selling combustion engines cars in Europe by 2035, but slightly later for its sales in the United States and China.

California approves 11.5 GW of new clean energy. California approved an 11.5 GW procurement package composed entirely of clean energy resources that will come online in the middle of the decade, marking its largest-ever capacity procurement ordered at once.

Shell buys BP’s stake in North Sea gas field. Royal Dutch Shell bought BP’s stake in the Shearwater North Sea gas field, raising its stake in the field to 55.5%.

DUCs drop 27%. The number of drilled but uncompleted wells (DUCs) in the U.S. shale patch has declined by 27 percent since the peak in June 2020, the Energy Information Administration (EIA) has estimated.

Biofuels groups urge EPA not to issue waivers. After the Supreme Court handed a victory to oil refiners in their dispute with ethanol groups, the biofuels industry is hoping the EPA will nevertheless keep waivers limited.

Russia struggling to boost oil production. Russia is having trouble reversing an oil production decline it implemented under its agreement with OPEC+. Russia has been producing some 10.42 million bpd of crude oil and condensates since the start of the month, which is lower than May’s average of 10.45 million bpd. Related: U.S. Shale Producers Stick To Output Discipline

Supreme Court rules in favor of Penn East. The U.S. Supreme Court ruled in favor of PennEast Pipeline Company in a high-profile case over eminent domain, overturning a lower court decision in favor of the state of New Jersey which sought to protect landowners. 

Aramco bets on blue hydrogen. Saudi Aramco (TADAWUL: 2222) outlined plans to invest in blue hydrogen as the world shifts away from dirtier forms of energy but said it will take at least until the end of this decade before a global market for the fuel is developed.

Smaller oil sands keep pumping. Despite the push towards decarbonization, carbon-intensive oil sands operations are boosting cash flow and performing well in the short run.

Qatar: Peak gas around 2040. One of the world’s largest liquefied natural gas (LNG) exporters, Qatar, expects global natural gas demand to peak at some point around 2040. According to Qatar’s state-owned giant, worldwide natural gas demand still has two decades to grow.

Brazil’s oil boom continues. Latin America’s largest oil producer Brazil is one of the worst affected countries globally by the COVID-19 pandemic. By March 2021 petroleum and natural gas production was in decline with total hydrocarbon output falling by nearly 3% year over year to an average of 3.6 million barrels of oil equivalent per day. Nevertheless, by April operations began to recover and the country’s economically critical oil output was rising.

Natural gas prices soaring. A historic heatwave in the Pacific Northwest, along with other heatwaves in parts of the U.S., has contributed to a huge spike in natural gas prices. The August contract surged 7.3 cents higher in Monday’s session, a rally that analysts at EBW Analytics Group attributed to near-term heat and corresponding strength in the physical market.

Europe natural gas prices also soaring. TTF prices for natural gas shot above $11/MMBtu in recent days. On Tuesday, Russia declined to add more gas to its pipeline system through Ukraine, another bullish spark for European gas markets.

By Josh Owens for Oilprice.com

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