Oil prices soared on Monday as optimism around demand grew, but rumors that OPEC+ is considering boosting its oil production in August sent prices lower on Tuesday morning
Chart of the Week
- Coal stockpiles declined by 16 million tons in February 2021, the largest inventory decline since July 2011.
- Typically, coal stocks decline in the summer months, when coal demand surges.
- Rising natural gas prices in late 2020 and early 2021 have also increased coal demand, with coal generation up 16% in December 2020 and January 2021, from a year earlier.
Market Movers
- The Biden administration is considering a ban on polysilicon from Xinjiang, China over the use of forced labor. Solar stocks trade mostly lower on Monday, with Sunrun (NASDAQ: RUN) down 4.7% during midday trading.
- Devon Energy (NYSE: DVN) announced new emissions targets, including net-zero targets by 2050 for Scope 1 and 2.
- Cimarex (NYSE: XEC) was upgraded to a Buy rating by Bank of America, which said it likes the stock “in spite” of the pending acquisition of Cabot Oil & Gas (NYSE: COG). BofA said the deal also may not close.
Tuesday, June 22, 2021
Oil prices shot up on Monday as bullish sentiment around demand took hold, but in early trading on Tuesday, prices were slightly down on news that OPEC+ might start increasing production.
“Reports that OPEC+ is already discussing, ahead of its scheduled meeting, to increase its output from August indicates that the demand-supply gap is already becoming an issue and that the alliance is working on a plan to tap that deficit,” Louise Dickson of Rystad Energy said in a statement. “The OPEC+ chatter to raise supply is the most bearish risk for the recent oil price rally, which has been propelled on strong summer demand and an overall conservative supply environment.”
OPEC+ discusses oil increases. OPEC+ is discussing a further easing of oil output cuts from August as oil prices rise on demand recovery, but no decision had been taken yet on the exact volume to bring back to the market, sourced told Reuters. “It is highly possible to increase gradually from August,” said one of the sources. Related: It’s Too Late To Avoid A Major Oil Supply Crisis
BofA: Oil could hit $100. Bank of America is out with one of the bullish calls yet, predicting that Brent could surge to $100 per barrel next year. “There is plenty of pent-up oil demand ready to be unleashed,” said Francisco Blanch of BofA.
What about $130? From $35 per barrel to $130 per barrel—this is the range for oil prices in the next few years that we could see, according to a commodity trading group.
Exxon prepares job cuts. ExxonMobil (NYSE: XOM) is planning on culling its workforce by as much as 10% over the next three to five years using an internal management system that ranks its employee performances against one another.
Gas drillers perform well as prices rise. Gas drillers such as Range Resources (NYSE: RRC) and Antero Resources (NYSE: AR) have been among the best performers of the energy sector with Nymex natural gas prices up more than 90% over the past year. Demand is up on hot weather while production is far below the December 2019 peak. “In the past we’ve had these demand gains, but they were all overwhelmed by production increases,” an energy analyst told the WSJ. “We don’t have that any more.”
U.S. shale finally making money. U.S. shale industry on track to generate $30 billion in free cash flow this year, which comes on the heels of a decade-long string of losses totaling $300 billion in negative cash flow.
Colorado regulators prepare orphan wells regulations. Colorado oil and gas regulators looking to avoid a rash of abandoned and unplugged oil and gas wells are proposing to increase financial guarantees by operators for each of their wells — a price tag that could add up to billions of dollars.
Iran stores oil, readying for sanctions relief. Iran could quickly export millions of barrels of oil it is holding in storage if it reaches a deal with the United States on its nuclear program. Iran has been stashing oil on tankers at sea, readying for a breakthrough, according to Reuters.
New Houston oil contract launched. Magellan Midstream Partners (NYSE: MMP), Enterprise Products Partners (NYSE: EPD), and Intercontinental Exchange (ICE) announced the establishment of a new futures contract for the physical delivery of crude oil in the Houston area.
EU considering phaseout of ICE vehicles. The European Union is considering a mandatory phaseout of sales of gasoline and diesel cars by 2035. The final text of the European Commission’s new rules are set to be published on July 14.
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EIG Global Energy Partners to buy Aramco assets for $12 billion. U.S.-based EIG Global Energy Partners said on Friday a consortium it led has closed a deal to buy 49% of Saudi oil producer Aramco's (TADAWUL: 2222) pipeline business for $12.4 billion.
SEC prepares climate disclosure rules. The Securities and Exchange Commission is preparing to require public companies to disclose more information about how they respond to threats linked to climate change. A proposed rule could be issued by October, according to the WSJ. Related: The Real Reason Big Oil Is Giving Up On Iraq
Moody’s: Gulf states need 10 years to end oil dependence. Countries in the oil-exporting Gulf will remain heavily dependent on hydrocarbon production for at least the next ten years as efforts to diversify economies have made limited progress since the 2014-2015 oil price shock, Moody's said.
India’s LNG imports drop in May, but now rebounding. India’s LNG imports declined in May due to coronavirus restrictions. However, India returned to the spot market more recently after a two-month absence, a sign that demand is on the rebound.
Caribbean refinery shuts. Limetree Bay Energy will shut its St. Croix refinery indefinitely due to financial problems, following the forced closure of the 210,000-bpd facility by the EPA over environmental concerns.
Senate energy committee to hold hearing on bill. A Senate committee that’s led by key swing vote Sen. Joe Manchin (D-W.Va.) has released a 400-page energy infrastructure proposal that it will weigh at a hearing scheduled for Thursday.
Oil traders beefing up renewable fuels trading teams. Oil traders and investment firms, including Citadel, Gunvor, and Trafigura are bolstering U.S. teams that specialize in trading renewable fuels as demand soars, according to Reuters.
Reddit-fueled stock rally for oil driller. Tiny oil company Torchlight Energy Resources Inc. (NASDAQ: TRCH) saw its shares more than double in a week after it became the latest stock touted on Reddit as a possible short squeeze.
By Josh Owens for Oilprice.com
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Furthermore, Saudi Arabia and the majority of OPEC+ members with the exception of Russia want Brent crude to hit $80 or even higher so as to balance their budgets. So Saudi-led OPEC+ isn’t going to be seduced to make a further easing in production cuts in August until Brent tops $80.
Russia whose economy could live with an oil price of $40 would wait a bit before demanding a further relaxation of the production cuts so as not to upset Saudi Arabia. Anyway, Brent will soon touch $80.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London