Prepare For Major Oil Market Consolidation

COVID-19 Market Update

Brent crude gained over 1% Thursday, which--dull as it sounds--was its highest level since March. The bump came as US inventories lessen and OPEC cuts production, while governments are starting to ease COVID-19 restrictions and reopen parts of the economy helping to put demand on the recovery path. WTI gained 1.28% Thursday. But on Friday, a new panic set in after China declined to publish its annual economic growth targets, sending oil prices 6% down in the early Friday hours. (Check out the Oilprice.com homepage for live oil prices).

US inventories dropped for two straight weeks, with EIA data showing that inventory rose by 6.6 million bpd in Q1 and will rise by 11.5 million bpd in Q2, but then we will see refiners buy up stored oil as the economy reopens.

The aftermath of the oil price war and a global pandemic will revert the oil industry back to the 1990s, with consolidation, capital efficiency, and higher barriers to entry, according to the new Goldman Sachs annual report. And the driving force of it all will be demand from investors for higher profits plus lower carbon intensity. This fortifies Oilprice.com's continued insistence that we have entered a new megatrend of ESG investing that is driven by market forces rather than politics.

Giant YPF, Argentina's state-controlled energy company, has announced it will shelve LNG export expansion plans due to low demand. YPF was originally planning to potentially install a large-scale liquefaction complex at Bahia Blanca, where it has already launched small-scale exports.

Deals, Discoveries & Development

The US approved this week the long-awaited $43 billion Alaskan LNG project that will liquefy and move LNG from the North Slope to Nikiski where it will be exported. The project still lacks investors.

Equinor's wildcat well 35/10-6 in the northern part of the North Sea came up dry this week. It was the first well in production license 827 S.

Qatar Petroleum has engaged in a farm-in agreement with Total SA for a 45% participating interest in two blocks in the Ivorian-Tano basin offshore the Ivory Coast. The two blocks cover 3200 km2.

Equinor, Shell, and French Total SA have invested in a major C02 transport and storage project called Northern Lights that calls for initial investments of $674 million. The project will initially have the capacity to transport and store up to 1.5 million tonnes of CO2 per year.

Politics, Geopolitics & Conflict

While it may seem like it happened against all odds, Turkish forces have managed to push back General Haftar in Libya and regain significant territory for the Government of National Accord (GNA). Turkey is punching way above its weight here, as we have noted previously, but in this case, other external meddlers were sitting on the sidelines, watching it happen amid the oil price war and the coronavirus pandemic. Haftar is in trouble, and this could be a turning point (and surely a feather in Erdogan's cap), so either Haftar's allies, including UAE, Egypt and Russia, among others who have been sitting even further off the sidelines, will have to step up to the plate to reverse these losses or let the GNA win this fight.

Venezuela was defeated in court this week after the U.S Supreme Court declined to hear its appeal in a case brought by wronged Canadian gold miner, Crystallex. Venezuela seized more than $1 billion in Crystallex's Venezuela assets, and now a lower court ruling stands that would allow Crystallex and others to seize parts of Venezuela's U.S. refinery, Citgo, as compensation.

Algerian President Tebboune is investigating energy firm Sonatrach over a fuel scandal involving Lebanese allegations that the fuel they received was defective. Lebanon has arrested 20 people connected to the scandal since April, including Sonatrache's Lebanese representative.

The U.S. sent its first crude cargo to Belarus this week, where it will arrive in June. as tensions escalate between Belarus and Russia over oil. Belarus presents a new oil market for the United States at a critical time when oil demand has sharply dropped off.

Greenpeace has accused Microsoft, Google, and Amazon in a public report of undermining their own carbon commitments by providing services to oil and gas firms, and Google has listened. In response, Google said this week that it would stop providing custom AI to oil and gas companies, who have in past oil price crises relied on such AI to sift through big data to improve efficiencies.