U.S. WTI futures are retreating after having reached a six-year high on Tuesday morning. The OPEC+ standoff has been the latest in a string of bullish events that has sent crude prices up by almost 60 percent since the beginning of the year.
Chart of the Week
- Investors that bet against U.S. oil fund USO (NYSEARCA:USO) got burned following the failed OPEC meeting.
- The popular oil ETF nearly doubled in value since October last year as a result of falling U.S. crude inventories and tighter markets.
- With oil continuing to trade around multi-year highs, oil funds such as USO, DBO, BNO, and USL make for popular investments.
Market Movers
- Talos Energy saw its stock price fall around 8% on Tuesday after Mexico’s Energy Ministry awarded the operation rights of the country’s Zama field to state-owned Pemex.
- JPMorgan advised clients to remain bullish on energy stocks, naming European oil stocks as the best investments in the space.
- Chinese ride-hailing and food-delivery firm DiDi Global saw its share price tank on Tuesday morning after the Chinese Cyberspace Administration ordered app stores to remove services from their platforms.
Tuesday, July 6, 2021
Iraqi Lawmaker Warns Of New Oil Price War. Following the discord within OPEC, the financial adviser to the Iraqi prime minister has warned that there is a danger of yet another oil price war within the cartel. "In the absence of coordination and understandings between OPEC producers, the beginnings of a price war will be formed again," Mazhar Mohammed Saleh said, as quoted by Reuters, yesterday.
Others See This As An Unlikely Scenario. While some think that the absence of coordination could lead to chaos within OPEC, others say that OPEC+ may see its strongest period in decades. The CIO of a large energy fund in Canada was quoted as saying: A total breakdown is highly unlikely, “the oil market globally is in a sweet spot, there is too much money on the line for all the players. Demand globally is strong, we are looking at a deficit of 2.3 to 2.5mbd in June, the highest since last year coming out of covid”
Biden Administration Urges OPEC To Raise Production. After a few months of very little high-profile correspondence between Washington and Vienna, the Biden Administration has now officially called on OPEC to increase production volumes. The White House is ‘’closely monitoring the OPEC+ negotiations and their impact on the global economic recovery from the COVID-19 pandemic,”.
Saudi Aramco Hikes OSPs To Asia, U.S. Aramco has set the August OSP for Arab light at $2.70/barrel, up 80 cents per barrel from July’s price, Reuters reports, while the OSP to the United States was set up 20 cents a barrel for August.
U.S. Oil Prices Hit 6-Year High After OPEC+ Deadlock. The U.S. benchmark oil price WTI Crude hit its highest level since November 2014 early on Tuesday, after OPEC+ on Monday called off its third attempt to reach an agreement over oil policy management for the coming months. The rapid rise in crude prices even got market-guru Jim Cramer nervous. After having been recorded as saying that fossil fuels are dead, Cramer said this morning that 'Oil's Got to Stop Going Up'
Goldman Sachs: World Desperately Needs Extra 5 Million Bpd To Avoid "Critically Low Inventories". As markets continue to speculate about what OPEC’s next step may be, investment bank Goldman Sachs warns that the world is facing a serious supply deficit. Goldman’s Damien Courvalin claims that the global market needs an extra 5 million bpd in production to avoid ‘’critically low inventories’’
Explosion Rocks Iranian Oilfield Near Iraqi Border. Iranian media reported a large explosion at the Cheshmeh Khosh field near the Iraqi border on Tuesday afternoon. Local sources told Bloomberg that "Three oil workers were killed and four injured in an explosion on a pipeline that transfers oil from the Cheshmeh Khosh field." The oilfield is a relatively small one, which produces around 18,000 bpd of heavy crude.
Former U.S. Energy Secretary: Oil Prices Could ‘’Very Easily’’ Hit $100. In an interview with CNBC, former U.S. Energy Secretary Dan Brouillette said that “You could very easily see oil hitting $100 a barrel, potentially even higher,” He also warned that if a no-deal scenario could lead to a collapse in oil prices as countries would create some sort of ‘free for all’ scenario in which the taps would be opened.
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Debate About Biofuels Has EU divided. An intense debate about bioresources and biofuels comes ahead of the release of a new set of rules by the EU about what exactly can be defined as ‘’renewable’’ biofuels. Historically, the use of biofuels has been controversial, and skeptics say that an increase in the use of biofuels would have serious consequences for the global food supply and biodiversity. Related: Record Decline In U.S. Crude Stockpiles Fuels Oil Rally
Sportscar Maker Porsche To Make All Parts With Renewable Energy. Starting this month, the German carmaker is calling upon its roughly 1,300 suppliers to use 100 percent renewable energy in the production of parts for its new models. Porsche recently doubled down on its decarbonization agenda, and now aims for at least 80% of its total sales to be electric or plug-in hybrid by 2030.
Mexico Snubs Private Oil Company, Awards Operation Rights Of Major Oil Field To Pemex. In what can be seen as a new push towards energy nationalism, the Lopez-Obrador government has decided to award the operation rights of the Zama discovery to state-owned oil company Pemex. Houston-based Talos Energy the oil firm that was credited with the discovery of the deposit back in 2017, said that it was ‘very disappointed with the decision of the Mexican government.
Tesla Faces Reality Check In China. After a few years of remarkable cooperation between the EV-makers and Beijing, the honeymoon between Tesla and the Chinese government is over. The deterioration in relations between the U.S. and China, the semiconductor supply crisis, and claims about failing braking systems have hurt Tesla’s reputation in the world’s largest car market.
$140 Billion Asset Sale In Oil & Gas Creates Huge Opportunities For Some. While the world’s oil majors are rushing to put non-core assets up for sale, some smaller E&Ps are seizing the opportunity to acquire choice assets at a discount. According to WoodMackenzie’s Greg Aitken, “The list of assets is way higher than the number of buyers out there and particularly for some of the bigger deals,”. And according to the energy consultancy, the total value of oil and gas assets up for sale across the industry now stands at more than $140 billion.
By Tom Kool for Oilprice.com
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Oil prices are projected to continue their surge because the global economy is roaring ahead at 6.3% this year or more than double the rate of growth in 2019 and also because of the fast decline of the global oil inventories particularly in the United States.
Therefore, prices will continue surging whether OPEC+ reaches agreement on production or not. If OPEC+ fails to reach an agreement, prices will surge further because this will deprive the market of 2 million barrels of increased OPEC+ production leading to a further tightening of the market. And if OPEC+ does reach an agreement, prices will also rise because this will show its great confidence in the global oil demand. Either way, OPEC+ wins.
There is no risk that the spat between Saudi Arabia and UAE could lead to another price war. The reason is that Saudi Arabia doesn’t fancy another debacle like the one it had with its price war with Russia. Moreover, Saudi Aramco is hiking the price of its Arab Light by 80 cents per barrel from July’s price. This isn’t a sign of a country wanting to engage in another price war. As for the UAE, its production isn’t that big to precipitate a price war.
Thinking outside the box, I believe that the spat has much less to do with OPEC+ oil production and far more to do with the UAE challenging the pre-eminence of Saudi Arabia in the Gulf region buoyed by its normalization of relations with Israel and being part of the US-Israel-UAE-India axis to confront the China-Russia-Iran bloc. It is also possible that the UAE might be preparing the ground for leaving OPEC though I personally discount this possibility.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London