Oil Prices Climb On Strong Fuel Demand

Oil prices rose on Friday morning, fueled by strong U.S. fuel consumption data, but held back by continued uncertainty about the OPEC+ deal.

Friday, July 9th, 2021

Seven straight weeks of inventory draws didn’t go unnoticed, and according to the EIA, U.S. gasoline demand rose by 870,000 bpd last week as summer driving season heats up. U.S. gasoline consumption figures reached their highest level since 2019, and yesterday’s crude inventory report helped oil prices back in the black.

Vienna Stays Silent Amid OPEC+ Impasse. While the Joint Ministerial Monitoring Committee (JMMC) of OPEC+ still has to decide on a new official meeting, behind the scenes, high-placed Russian and U.S. officials are said to have talks to convince both camps of a reasonable output hike. 

Upside For Oil Prices Limited Without OPEC+ Agreement. Despite the strong demand fundamentals in the U.S., markets continue to gauge the impact of the discord within the OPEC+ alliance. Reuters quoted Stephen Brennock of oil broker PVM as saying: "Clearly, U.S. oil markets are tight. However ... the only way to prevent further losses is for the threat of an OPEC+ price war to be contained," he added.

New Full-Blown Oil Price War Seems Unlikely. As we mentioned in Tuesday’s newsletter, the risk of a new 2020-style price war is low. The OPEC+ group as a whole is currently reaping the benefits of a much tighter oil market and it’s in no one’s interest to destroy the current price environment. According to Rystad Energy’s Louise Dickson: ‘’It is in the interest of the group to provide some leniency to the UAE and other supply hawks to produce a bit more within the framework of the deal instead of triggering a free for all supply regime of chaos.’’

China’s CNOOC Looks To Exploit Large Ultra-Deepwater Gas Field. CNOOC’s recent success in the South China Sea has been an important step for the Asian giant. In late June, the company started producing gas from its ultra-deepwater Lingshui 17-2 prospect, a deposit with proven reserves of around 100 billion cubic meters, with some wells at a depth of more than 4000 meters below the seabed. According to CNOOC, full operational capacity will be reached as of 2024 at 3 billion cubic meters per year, representing about 1% of China’s current gas demand.

France Calls For Global Carbon Price Floor. At a G20 meeting with his counterparts, French Finance Minister Bruno LeMaire said that the world needs a carbon price floor in order to efficiently tackle carbon emissions. LeMaire said that while countries cannot come to agree to a ‘’unique carbon price’’, a ‘’global floor could be a good starting point’’. Related: Oil Major Exodus In Iraq Creates Opportunity For China

Japanese Oil Company Japex May Pull Out Of Canadian Oil Sands Project. Japan’s state-backed Japex is considering selling its 75% stake in the Hangingstone project according to Reuters. The Japanese company said that it would either consider selling its entire stake in the 20,000 bpd project or cutting production costs to improve the profitability of the project.

Soaring U.S. Economy Drives Boom In Coal Production. U.S. domestic coal production is set to increase by 15% this year compared to 2020. According to the EIA, coal output is set to rise to 617 million short tons this year, some 78 short tons more than last year, because of higher power demand and rising natural gas prices. The production boom, however, is likely to be short-lived as the agency expects production volumes to fall slightly in 2022.

Almost Half Of Oil & Gas Emissions Could Be Cut At No Cost. Analysis from the IEA Methane Tracker shows as much as 40% of current methane emissions could be avoided at no net cost. So what’s the magic? The IEA suggests governments and producers focus on cutting methane emissions by replacing pumps, valves, and compressors. CBSNews quotes the IEA’s Christophe McGlade as saying: "Natural gas is essentially just methane, and in many cases, if you can avoid that methane leak, you can sell that gas for profit,"

Japan Remains Committed To Oil & Gas. In an interview with S&P Global, Japan’s Ministry of Economy, Trade and Industry (METI) confirms that it will continue to pursue oil and gas development. Commenting on the IEA’s net-zero 2050 roadmap, METI Director of petroleum and natural gas Takeshi Soda said that "While the IEA says it is only one pathway, Japan does not intend to refrain from upstream developments based on that,", he went on to say that "it remains extremely uncertain whether the IEA's net-zero 2050 will be realized.".

India’s New Oil Minister To Focus On Boosting Oil & Gas Production. Hardeep Singh Puri, India’s new Petroleum Minister looks to cut India’s mounting energy import bill by boosting domestic hydrocarbon production. Puri sees a big role for natural gas as India looks to transform itself into a $5 trillion economy. The fast-growing Asian economy is grappling with rising crude prices and falling oil production from its aging domestic oilfields.

EIA: U.S. Refining Capacity At Six-Year Low. As a result of refinery closures in 2020, total U.S. refining capacity has fallen to 18.1 million bpd at the start of 2021. EIA’s Refinery Capacity Report states that at the beginning of the year, 129 sites were operating or idle versus 135 at the beginning of last year.

Texas Oilfield Services Struggle To Find Employees. After having laid off more than 100,000 employees in 2020, the oil industry is once again hiring, and Texas oilfield services companies now report that they are struggling to find new hands. In order to contract drivers, derrickmen, floor hands, and supervisors, companies are now even offering startup bonuses as high as $20,000.

By Tom Kool for Oilprice.com 

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