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OPEC+ Is On The Brink Of A Crisis

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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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Oil Nosedives On Poor Economic Data

With so much bullish news in recent weeks, the fact that oil prices have failed to break out does not bode well for markets in the coming weeks.

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Friday, August 21st, 2020

Oil retreated at the end of the week on more negative news from the U.S. labor market. Oil prices fell back to a familiar trading range in the low-$40s. “With all the bullish headlines that we’ve seen over the last weeks regarding inventories,” the inability to break higher does not bode well, Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC, told Bloomberg. “Crude fails to break to the upside and you’re in a contango market, so risk is to the downside.”

Metal markets surge on Chinese stimulus. Copper prices surged to a two-year high at over $6,700 per tonne this week. Other metals followed suit. The combination of monetary stimulus, a weaker dollar and China’s fiscal stimulus has led to a surge in metals prices. 

OPEC: Inventories falling slower than expected. U.S. oil inventories declined again last week, the fifth time in six weeks. But the process will take a while. OPEC warned that the drawdowns are “slower than anticipated with growing risks of a prolonged wave of COVID-19.” The slow pace underscores the “fragility of the market.”

OPEC+ offset could total 2.3 mb/d. The group of OPEC+ producers that may need to compensate for past overproduction could cut by as much as 2.31 mb/d for one month, according to OPEC+ calculations seen by Reuters. If spread over more than one month, the figure would be smaller.  

Islamists attack Mozambique LNG. A major LNG project in Mozambique could face delays as Islamic militants seized a port handling key equipment. The multi-billion-dollar project is backed by Total (NYSE: TOT).

Libya’s GNA announces ceasefire. Libya’s internationally-recognized government in Tripoli announced an immediate ceasefire. The head of the Government of National Accord, or GNA, issued instructions to “all military forces to immediately cease fire and all combat operations in all Libyan territories.” The GNA also called for elections in March and an end to the oil embargo. 

Natural gas prices surge, but drillers not coming back yet. Natural gas prices have shot up to $2.30/MMBtu, as a heatwave, supply shut-ins, and LNG cancellations have quickly tightened up the market. Hedge funds and other money managers have stepped up bullish bets, betting that prices will continue to rise. But Appalachian gas drillers are not returning to drilling just yet, instead preferring a cautious approach. “If we don’t end up with a cold winter, the bull case for ’21 is pushed into 2022,” CNX (NYSE: CNX) Chief Operating Officer Chad Griffith told investors on a call. Related: Oil Piracy Has Spiked During COVID Pandemic

LNG market tightens. After a substantial glut that saw dozens of U.S. LNG cargoes canceled, the global LNG market appears to be turning a corner. Prices in Asia and Europe have hit multi-month highs. Goldman Sachs said that TTF gas prices (Europe) are on the rise and the rally could be sustained. Goldman said it expected the headwinds that had led to U.S. LNG cancellations “to disappear in 2021 as the global gas market moves to a more balanced setting.” The bank stuck with a Henry Hub forecast of $3.23/MMBtu for 2021. Meanwhile, Bank of America largely agreed and put out a JKM (Asia LNG) forecast price of $6/MMBtu by December 2020. 

Aramco suspends investment in Chinese refinery. Saudi Aramco is suspending its investment in a joint venture developing a US$10-billion refinery and petrochemicals complex in China amid CAPEX cuts.

Electric trucks could put a dent in emissions. California recently approved regulations to mandate the increased use of electric heavy-duty trucks. “The long-term effect of expanding California’s approach nationally would reduce oil consumption in 2045 by 16 to 17%,” according to a new analysis

Wall Street wants GM to spin off EVs. Deutsche Bank said that if GM (NYSE: GM)spun off its EV business, it would immediately be valued at around $15 to $20 billion, and could potentially be worth up to $100 billion. “Spinning it off essentially creates value, it could unlock a massive amount of value, actually,” Deutsche Bank analyst Emmanuel Rosner told CNBC. The less GM retains of the electric vehicle operations, “the better it would be for value creation,” according to Rosner.

Offshore rig service company files for bankruptcy. Valaris PLC, a London-based offshore drilling contractor, filed for bankruptcy Wednesday. The company warned of a prolonged contraction in offshore drilling activity.

Premier Oil to raise $530 million to cover debt. Premier Oil (LON: PMO) is seeking to raise $530m from shareholders as part of a $2.9bn refinancing effort. Premier will use $300 million to pay down some of its $2.4 billion debt pile.

Two tropical storms heading for the Gulf of Mexico. Twin storms are aimed at the U.S. Gulf Coast, potentially threatening offshore oil platforms and onshore refineries and processing facilities. 

Turkey announces Black Sea gas discovery. Turkey announced a significant natural gas discovery in the Black Sea, which could cut the countries energy imports if developed. “There is a natural gas finding in the Tuna 1 well,” a source told Reuters. “The expected reserve is 26 trillion cubic feet or 800 billion cubic meters, and it meets approximately 20 years of Turkey’s needs.” However, the source said it could take years to bring online.

By Tom Kool for Oilprice.com

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