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Oil Prices Take A Breather After Big Rally

Oil prices fell back on Friday morning following a strong rally on the back of an OPEC+ agreement and new COVID-19 vaccine rollouts around the globe.

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Friday, December 11th, 2020

Brent hit $50 per barrel on Thursday for the first time since March, edging higher on optimism surrounding vaccinations, the OPEC+ deal, plus strong demand in Asia. However, prices eased a bit on Friday as demand in Europe and the U.S. remains subdued and Covid-19 cases continue to spread. The EIA also reported a surge in crude inventories for last week, up 15.2 million barrels.

Signs of demand rebound in Europe. Many European countries went back into lockdown in November, but are loosening restrictions again. Bloomberg says that road usage is on the rise, hitting a two-month high.

Pemex suspends work with Vitol. Pemex suspended business with Vitol after the oil trader paid $160 million to settle bribery charges. Vitol settled charges for paying bribes in Brazil, Mexico and Ecuador.

Exxon makes Suriname discovery. ExxonMobil (NYSE: XOM) and its partner Petronas announced a discovery in offshore Suriname, the first in the country for the partnership. The discovery adds to Exxon’s already large footprint in neighboring Guyana.

SEC to vote on disclosures. The Securities and Exchange Commission will vote on December 16 on whether or not to approve new disclosure rules for oil, gas and mining companies related to payments to foreign governments. It is the third iteration of the rule and stems from the 2010 Dodd-Frank law.

BLM fast-tracks Uinta Basin land sale. The Trump administration is fast-tracking a proposed 2,100 lease sale in Utah for tar sands developers. 

Germany hopes to insulate Nord Stream 2. Germany is looking for ways to insulate the Nord Stream 2 project from U.S. sanctions. The pipeline is more than 90% finished but has been held up by sanctions. 

EU clinches deal on tougher CO2 targets. The European Union has agreed to tighten climate targets to 55% reduction in CO2 by 2030 (from a 1990 baseline), ramping up ambition from the current 40% reduction. Carbon prices in Europe rose to 31 euros per tonne, an all-time high. Related: ''Widowmaker'' Natural Gas Trade Collapses On Mild Winter Forecast

Texas regulator banned from waiving environmental rules. The Texas Railroad Commission has been banned from enforcing a string of environmental rule waivers after a judge ruled the agency had failed to provide the public with adequate advance notice of such moves, first proposed in the spring.

Top shale gas basin continues to bleed cash. Frackers in the top shale gas basin, the Appalachia, continue to bleed cash, despite the deep cuts in capital expenditures this year as a result of the plunge in gas prices in the first half of 2020 due to mild winter early in the year and depressed demand later on with the pandemic.

Investors turn to SPACs. Burned by shale, investors are increasingly turning to clean energy SPACs, according to the Wall Street Journal. Private equity has done more deals in clean energy than oil and gas in 2020. Special-purpose acquisition companies (SPACs) are a new popular vehicle – SPACs raise money, go public, and only then do they merge with a startup company. The number of SPACs has skyrocketed this year. 

Some companies could benefit from a pipeline shortage. Some pipeline operators with pipes already in the ground will see the value of their existing pipelines rise amid a looming scarcity of infrastructure, analysts say.

Shell executives resign over the pace of transition. Some top executives at Royal Dutch Shell (NYSE: RDS.A) resigned over a disagreement over how quickly the company would pursue its clean energy transition. 

Consolidation in Canada’s oil industry. Whitecap Resources (TSE: WCP) said it would buy rival TORC Oil & Gas Ltd (TSE: TOG) in an all-stock deal worth C$552 million. It’s the latest sign that the downturn is forcing consolidation in the industry.

Oil majors take advantage of tax havens. Reuters published an investigation detailing how the oil majors shift billions of dollars in profits to tax havens, often in island nations in the Caribbean. From Reuters: “In 2018 and 2019, Shell earned more than $2.7 billion - about 7% of its total income in those years - tax-free by reporting profits in companies located in Bermuda and the Bahamas that employed just 39 people and generated the bulk of their revenue from other Shell entities.”

UAE awards contract to Occidental. Occidental Petroleum (NYSE: OXY) won a contract for exploration in the UAE.

New York to divest from fossil fuels. The New York State Common Retirement Fund said it would divest itself from the riskiest oil and gas stocks by 2025. The $226 billion pension fund is the largest yet to divest from fossil fuels. 

Oilfield services lost more than 91,000 jobs. The U.S. oilfield services sector lost91,680 jobs since the market downturn started last March. Related: Canada's Oil Heartland Goes Into Lockdown As Covid-19 Infections Surge

D.E. Shaw pushes Exxon to cut CAPEX deeper. D.E. Shaw & Co., which owns a sizable portion of ExxonMobil (NYSE: XOM), is pressuring the oil major to cut its spending in order to protect the dividend. The shareholder argues that Exxon is overspending and posting poor returns, resulting in its position slipping below that of chevron (NYSE: CVX). D.E. Shaw says Exxon should slash CAPEX to $13 billion, down from a planned $23 billion this year.

WoodMac: 77% of LNG projects at risk. A new report from Wood Mackenzie says that 77% of new LNG projects are at risk in a 2-degree climate scenario. In other words, climate policy will result in renewables outcompeting LNG. 

LNG gaining traction in shipping. Recently enacted IMO rules are forcing the shipping industry to use alternative fuels to slash emissions. LNG is gaining traction as a fuel source, the Wall Street Journal reports.

Tesla’s shares “dramatically overvalued.JPMorgan said that Tesla (NASDAQ: TSLA) was “dramatically overvalued.” The company’s shares have climbed 800% in the past two years.

By Tom Kool for Oilprice.com 

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