Oil prices fell on Tuesday morning as OPEC+ failed to reach an agreement regarding production cuts in 2021, with the three most influential members all disagreeing on how to proceed.
Chart of the Week
- U.S. distillate inventories declined to 143 million barrels in mid-November, dipping back into five-year-average territory for the first time since May.
- Inventories hit a high of 180 million barrels in July, just short of an all-time record high reached in 1982.
- Distillate demand averaged 4.2 mb/d for the week ending on November 20, around the five-year average for this time of year.
- Repsol (BME: REP) said it would cut upstream CAPEX to 1.6 billion euros per year for 2021-2025, down from 2.4 billion euros in 2019.
- ExxonMobil (NYSE: XOM) saw its stock rise after it announced an operational update, which included deep spending cuts (more below).
- SandRidge Energy (NYSE: SD) shot up nearly 5% in early trading after closing on a new $30 million credit facility from Icahn Enterprises (NASDAQ: IEP).
Tuesday, December 1, 2020
Oil prices dipped on Tuesday as the OPEC+ meeting ran into some unexpected turbulence, with the three most influential members failing to agree on how best to proceed with production in 2021.
OPEC+ delays meeting as talks continue. OPEC+ postponed a decision on its next steps until Thursday after talks proved trickier than expected. Analysts expected the group to extend its current agreement by three months or so, rather than allowing the cuts to taper beginning in January. However, Reuters reports that some members are itching to increase production. Russia has suggested easing by 0.5 mb/d each month beginning in January. At the same time, the UAE is uncomfortable with low compliance levels of other members. Related: Process Banned By President Carter Could Solve U.S. Nuclear Waste Problem
Exxon takes historic $20 billion write-down. ExxonMobil (NYSE: XOM) said that it would write down as much as $17 to $20 billion in the fourth quarter, the largest write-down in modern history. The impairment was concentrated in natural gas assets across a wide geographic area: Appalachia, Rocky Mountains, Oklahoma, Texas, Louisiana, along with Western Canada and Argentina. The move dates back to a major blunder when Exxon purchased XTO Energy for $35 billion in 2010, an acquisition widely seen as a costly mistake.
Exxon’s new strategy. Exxon is also slashing capex to $20-$25 billion per year, down $10 billion from pre-pandemic guidance. The oil major said it would concentrate its focus on the Permian, Guyana, Brazil, and its chemicals portfolio. Exxon is also seeking to protect its dividend, a $15 billion payout that analysts increasingly see as unsustainable.
Invenergy breaks ground on massive Texas solar project. Invenergy LLC broke ground on a $1.6 billion solar project northeast of Dallas, which will be the nation’s largest when it comes online in 2023. The WSJ reports on the solar boom in Texas.
Gazprom to restart Nord Stream 2 after a year-long delay. Gazprom will attempt to restart construction on the Nord Stream 2 pipeline, which has been held up for a year due to U.S. sanctions. Analysts believe that Russia has the ability to complete the project. Sanctions have targeted pipelaying vessels, which have complicated Russia’s construction effort.
U.S. shale is broken. After many ups and downs, most analysts see U.S. shale production remaining flat for years, handing leverage back to OPEC+. “I see no more growth until 2022, 2023, and it will be very, very light in regard to the U.S. shale industry ever-growing again,” said Pioneer (NYSE: PXD) CEO Scott Sheffield.
Shale drillers shift to gas. Higher natural gas prices and subdued crude prices have drillers shifting towards gas, a turnaround from much of the past decade. EOG Resources (NYSE: EOG) and Continental Resources (NYSE: CLR) have both increased their focus on gas, for example.
S&P to buy IHS Markit for $44 billion. S&P Global Inc. agreed to acquire IHS Markit Ltd. for about $44 billion, the companies said Monday. The all-stock deal is the largest of the year and will create a data behemoth.
New Asia trade pact could hurt U.S. LNG. Fifteen countries in the Asia-Pacific region—including China and Australia—recently signed the world’s newest and largest trade pact. The Regional Comprehensive Economic Partnership (RCEP) Agreement is set to gradually reduce and, in some cases, eliminate, trade tariffs on goods, including commodities. The pact could further sideline U.S. exporters of energy to the world’s most resource-thirsty region.
Volkswagen plans small EV. Volkswagen is accelerating plans for a mass-market small electric vehicle, with a price of between $24,000 and $30,000. Related: Climate Targets Could Slash Natural Gas Investment By $1 Trillion
Venezuela convicts Citgo executives. A judge in Venezuela convicted six oil executives at Citgo, five of which are American citizens. The so-called “Citgo 6” were arrested on corruption charges three years ago, but their lawyers argue that the charges are without evidence.
Oil markets face a 200-million-barrel glut in 2021. Rystad Energy’s balances show that should OPEC+ fail to amend its existing deal and increase its production, the world in January will face its biggest monthly glut since April 2020 with an average daily surplus of 3.1 million barrels for the month.
Bank of America rules out Arctic financing. Bank of America joined other major banks in ruling out funding for new oil and gas drilling in the Arctic. Goldman Sachs, Morgan Stanley, Wells Fargo, and Citi have all previously done the same.
Enbridge gets Line 3 greenlight. Enbridge (NYSE: ENB) received final approval from Minnesota regulators to begin construction on its Line 3 replacement, which will roughly double the system’s throughput.
Japan and Kuwait strike major oil storage deal. Japan and Kuwait have struck a deal to store crude oil for Southeast Asia in Japan in a bid to boost the region’s oil supply network, which is currently rather weak and vulnerable to supply outages.
Ford urges fuel economy deal with California. Ford (NYSE: F) is urging other major automakers to back a deal with California over fuel economy standards, as a way of aligning regulations with the incoming Biden administration. A week ago, GM (NYSE: GM) also abandoned the Trump administration’s effort in favor of California’s stricter standards.
By Josh Owens for Oilprice.com
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