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Oil Rally Halted As European Vaccination Campaign Stalls

While plenty of analysts remain confident that there remains upside for oil prices, a combination of high crude stocks and issues with vaccine rollouts in several countries has caused oil prices to retreat and demand fears to grow.

Oil prices

News

Rig Count

Chart of the Week

LNG

-    U.S. LNG exports increased in 2020 to an average of 6.5 bcf/d, up 31% from the year before.

-    That increase came despite a plunge during the summer months due to the pandemic. 

-    In November and December 2020, U.S. LNG exports posted record highs. 

-    Asia was the largest buyer of U.S. LNG, accounting for nearly half of the total. 

Market Movers

-    Tellurian (NASDAQ: TELL) repaid its 2019 Term Loan in full, and its shares rallied. 

-    ConocoPhillips (NYSE: COP) was downgraded to Neutral by Bank of America. 

-    Comstock Resources (NYSE: CRK) was downgraded to Neutral by Piper Sandler.

Tuesday, March 16, 2021 

Oil analysts turned bullish in recent weeks, and some are pondering a stronger rally ahead. “Further price strength is very feasible,” Tamas Varga, an analyst at PVM Oil Associates Ltd., told Bloomberg. An increase to $80 later this year “has now become more than just wishful thinking.”

However, prices dipped on Tuesday on renewed demand fears in Europe due to the temporary suspension of vaccinations in multiple countries. “There are no silver linings for oil prices this week,” Bjornar Tonhaugen of Rystad Energy said in a statement. “The positivity that helped prices reach and stay close to $70 per barrel earlier this month has now evaporated, giving way to concerns over vaccination campaign setbacks and crude stock levels.”

U.S. gasoline demand back to normal. U.S gasoline demand is just about back to pre-pandemic levels. As the vaccination campaign accelerates and economies shift towards further reopening, the rebound is kicking into a higher gear. 

OPEC+ bet is paying off. U.S. oil firms focused exclusively on the shale patch are expected to only marginally increase their combined production this year compared to 2020, according to Bloomberg Intelligence data of listed companies—a sign that OPEC+ could be right, at least for now, that $70 oil would not unleash a massive production increase from the United States.

China to unwind stimulus. China appears to be cautiously moving forward on withdrawing economic stimulus. Tighter credit conditions and less fiscal stimulus could lie ahead. At the same time, China’s economy has posted impressive growth so far this year, which helped boost oil prices on Monday. 

Related Video: Why The Oil & Gas Rig Count Matters

U.S. exports more oil to India. The U.S. became India’s second-largest supplier of oil (after Iraq), surpassing Saudi Arabia last month. India’s imports of American crude jumped 48% last month to a record 545,000 bpd.

Repsol ships LNG with carbon-offsets. Repsol (BME: REP) for the first time has used carbon offset credits to compensate for emissions from LNG. 

Skepticism on commodity supercycle. A market narrative about a new commodity supercycle – when commodity prices of all stripes enter a sustained boom – has taken hold in recent months. But the WSJ pours cold water on such a scenario. 

Bakken getting “gassier.” North Dakota’s Bakken shale “continues to get more gassy as time goes on, and that is something we have anticipated,” North Dakota’s Department of Mineral Resources Lynn Helms said.

U.S. airlines rebounding. Airline stocks are on the rise as the number of people taking flights has climbed to the highest level since the pandemic began. This also bodes well for jet fuel demand.

HighPoint Resources files for bankruptcy. HighPoint Resources Corp. (NYSE: HPR) filed for bankruptcy, which could clear the way for its acquisition by Denver-based Bonanza Creek Energy (NYSE: BCEI).

Ovintiv to sell Eagle Ford assets. Ovintiv (NYSE: OVV) is in talks with a privately-held Pontem Energy Capital to sell its Eagle Ford assets for $800 million.

New natural gas pipelines expand interconnections. Between November 2020 and January 2021 roughly 4.4 bcf/d of new natural gas pipeline capacity came online in the U.S.

The new Libyan government could stabilize the oil sector. The first unified Libyan government in seven years was sworn in on Monday, ending a geographic split between east and west. The end of civil war and an attempt at reunification could stabilize the oil sector. “Libya’s oil and gas production will likely remain stable and the odds of broad conflict will remain low,” said analysts at Stratfor. 

WoodMac: U.S. solar to quadruple by 2030. The U.S. solar industry grew by 43% in 2020, but a new study from Woo Mackenzie forecasts a quadrupling in size by 2030, growing by an additional 324 GW to 419 GW. 

Nord Stream 2 inches towards completion. Reuters reports that Germany is betting that Nord Stream 2 will become less of a point of contention with the U.S. once it reaches completion, which could occur later this year. 

Chevron targeted by new FTC complaint. Chevron (NYSE: CVX) is misleading consumers about its efforts to cut greenhouse gas emissions, according to environmental groups that filed a complaint with the Federal Trade Commission.  Related: Oil Bulls Beware: This Optimism Is Unjustified

Pemex reports a billion-barrel discovery. Mexico’s Pemex has discovered a gigantic oilfield in the state of Tabasco that could hold as much as one billion barrels of oil, the firm said.

UK oil industry sees production decline. UK oil production could decline this year by 5-7% due to an investment slump, following a 5% decline in 2020. Meanwhile, the UK is exploring the option to ban new offshore oil and gas exploration licenses in what could be a radical move away from fossil fuels and part of the country’s net-zero and green recovery commitments.

IRENA: Fossil fuel demand peaked. Global oil demand peaked in 2019, according to the International Renewable Energy Agency. The agency said that in a Paris-compliant world that limits warming to 1.5 C, oil demand will fall by 75% by 2050.

Gasoline prices could continue to rise. Gasoline prices could rise this year, due to rising crude oil prices, the loss of refining capacity, and a seasonal transition to summer fuel blends.

By Tom Kool for Oilprice.com

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