Brent is now flirting with the $70 mark after OPEC+ shocked markets once again by refusing to bring more oil production online.
In this week's Global Energy Alert, our trading team delves into how an inflationary environment will impact oil stocks. Sign up today to get breaking news, expert analysis, and trading tips.
Friday, March 5th, 2021
Oil skyrocketed on Thursday after OPEC+ decided to hold off on easing production cuts for another month, surprising the oil market. WTI and Brent shot up more than 4%. During early trading on Friday, Brent surpassed $69 per barrel,
OPEC+ extends cuts, surprising market. OPEC+ extended the cuts through April, aside from a slight increase allowed for Russia and Kazakhstan, due to seasonal consumption patterns. Even Saudi Arabia decided to keep its 1 mb/d of voluntary cuts in place. The surprise news led to a price surge. “One of the reasons the market is continuing to react positively today could be that OPEC’s own balances suggest very steep draws,” Rystad Energy said in a statement.
Related Video: Goldman Predicts $70 Oil in Q2
Oil majors expect record cash flow. Big Oil is looking at 2021 with increased optimism, mostly because oil prices have rallied in recent weeks. Moreover, the ultra-conservative capital spending plans and the huge cost cuts have allowed international oil companies (IOCs) to materially lower their cash flow breakevens. These factors are set to result in a record cash flow for the biggest oil firms this year if oil prices average $55 per barrel, Wood Mackenzie said in new research.
Oil majors going green? Speaking from the annual CERAWeek by IHS Markit energy conference, Big Oil chief executives from Exxon Mobil (NYSE:XOM), Chevron Corp.(NYSE:CVX), Occidental Petroleum (NYSE:OXY) and ConocoPhillips (NYSE:COP)have all spoken about the industry’s transition to a lower-carbon world, with OXY even branding itself a ‘carbon management’ company that wants to set the industry standard for the production of net-zero carbon oil. But are they really going green?
Oil market tighter with 500,000 bpd offline. Maintenance at three oil sands upgraders in Canada will take off some 500,000 bpd in production offline, helping tighten supply amid a price rally, Bloomberg reports.
IHS Markit: Shale discipline likely to stay. U.S. shale is unlikely to return to aggressive spending, but rising oil prices could tempt drillers to get off the sidelines. “At any given price growth will be less than in years past but if you get into the $70-$75 per barrel oil range, you can both return money to investors and have strong growth ... so there is a point at which the temptation becomes too strong,” Raoul LeBlanc of IHS Markit said at CERAWeek.
Pioneer: very little shale growth. U.S. oil production will likely see “very little growth” in the future after remaining largely flat in 2021 at around 11 million barrels a day, Scott Sheffield, Pioneer Natural Resources (NYSE: PXD) chief executive officer, said at CERAWeek.
ExxonMobil offers a new strategy. At ExxonMobil’s (NYSE: XOM) Investor Day, it outlined plans to keep production flat and return excess cash to shareholders, and/or cut debt. The new strategy is an about-face from previous aggressive production growth plans. Exxon also detailed more significant investments in carbon capture.
Exxon to cut 300 jobs in Singapore. ExxonMobil (NYSE: XOM) expects to cut about 300 jobs in the Asian oil-trading hub of Singapore by the end of 2021, part of a global retrenchment that was announced last year.
India urges OPEC+ to boost production. India, one of the largest and fast-growing oil consumers, wants OPEC+ to increase production to keep a lid on prices.
Volvo to go all-electric by 2030. Volvo will become a “fully electric car company” by 2030, the latest major automaker to promise an electric transition.
Related: Is This The World’s Next Big Offshore Oil Region?
U.S.-Iran thaw? Iran has given encouraging signs about returning to the table with the U.S. regarding the potential revival of the 2015 nuclear deal.
Natural gas withdrawal tightens the market. The Texas freeze led to the second-largest natural gas inventory withdrawal on record for the week ending on Feb. 19. The drawdown tightens the market and sets the stage for higher prices later this year.
Biden federal lands moratorium could cut production. Closing off federal lands to new drilling won’t have an immediate impact on Permian production, given the thousands of permits and leases the industry has already stockpiled. By the end of 2025, however, the drilling ban could curb production by between 230,000 and 490,000 bpd, according to the Dallas Fed.
Chevron to build a carbon capture plant with Microsoft. Chevron (NYSE: CVX)said it would partner with Schlumberger (NYSE: SLB), Microsoft (NASDAQ: MSFT), and Clean Energy Systems to build a carbon capture plant in California.
Exxon drills a third dry hole in Guyana. ExxonMobil (NYSE: XOM) hit a third dry hole in four months in Guyana, a string of setbacks in an otherwise successful campaign. “Our exploration success in Guyana is 80pc with 18 discoveries on the Stabroek block,” the company said.
Pentagon tests solar in space. The Pentagon has successfully tested a solar panel in low-earth orbit as a prototype of potential future power-generating systems capturing light from the Sun and beaming it back as energy to earth.
By Josh Owens for Oilprice.com
More Top Reads From Oilprice.com:
- India: OPEC+ Decision Could Derail Oil Demand Recovery
- Oil Soars As OPEC+ Sources Suggest No Production Increase
- Will Private Shale Firms Crush The OPEC Oil Rally?
Moreover, I have been projecting that Brent crude oil prices could hit $70-$80 a barrel in the third quarter of 2021. But it seems that Brent could hit $70 any moment now underpinned particularly by OPEC+’s decision yesterday and also by the fact that oil is now in a bull market that could last for many years.
Brent could be headed towards $100 in the second half of 2022 or the first quarter of 2023 because of an expected demand-supply deficit estimated at 10-15 million barrels a day by then triggered by a serious decline in global oil industry’s investments.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
My hat is off to Mamdouh Salameh. Anyone who lives in Europe and actually understands economics deserves praise. (To be fair, though, it is true that people who otherwise don't understand economics at all do seem to understand -- suddenly, miraculously -- the law of supply and demand once they are employed in the oil industry.) Kudos to Salameh for his foresight. Following his prognostications for the oil industry will be interesting.
I think it's worth mentioning that if the Russians were wiser and would cut production as OPEC+ has, that entire group could force prices up even more effectively. My understanding is that the Saudis and OPEC+ have figured out that you can control your market share with high production, or you can control the price with attenuated production -- but you can't do both. You MUST pick one or the other. The Saudis have figured out that a significantly higher price is far more important than bragging rights for market share are.
The Russians . . . being the Russians . . . which means drunk or slow learners or whatever, obviously have not figured out that helping OPEC+ push oil to at least $80/bbl would benefit them as much as it would anyone else.
One wonders what goes on in their vodka-soaked brains.