COVID Market Update
Despite the vaccine optimism prevalent in the market that has successfully boosted oil prices to February levels, the oil market is still in trouble. OPEC has once again lowered its demand forecast for this year and next while simultaneously agreeing to boost production, and U.S. refiners are closing refineries, extending maintenance season, and upgrading less efficient units as demand for finished products continues to sag. U.S. inventories of crude and gasoline are still high, even though U.S. crude production is still more than 2 million bpd off this year’s high seen back in March. Rig counts in the U.S. continue to increase, and well completions are increasing at a quicker pace.
The Saudis have unleashed a ~$263 billion budget for 2021, which represents a 7% reduction on 2020’s estimated spending as lower oil prices continue to impact the deficit. The Saudi’s budget is almost entirely reliant on Saudi Aramco, which is now selling stakes in some of its subsidiaries so that it can keep up the generous dividend that it must pay out to The Kingdom.
Geopolitics
Earlier this week, a ship laden with explosives rammed into an oil tanker off the port of Jeddah, Saudi Arabia, with the Saudis suspecting the attack was orchestrated by Yemen’s Houthi rebels. No casualties have been reported, nor has anyone claimed responsibility for the attack as of the time of writing. This uptick in Iranian-backed Houthi activities…
COVID Market Update
Despite the vaccine optimism prevalent in the market that has successfully boosted oil prices to February levels, the oil market is still in trouble. OPEC has once again lowered its demand forecast for this year and next while simultaneously agreeing to boost production, and U.S. refiners are closing refineries, extending maintenance season, and upgrading less efficient units as demand for finished products continues to sag. U.S. inventories of crude and gasoline are still high, even though U.S. crude production is still more than 2 million bpd off this year’s high seen back in March. Rig counts in the U.S. continue to increase, and well completions are increasing at a quicker pace.
The Saudis have unleashed a ~$263 billion budget for 2021, which represents a 7% reduction on 2020’s estimated spending as lower oil prices continue to impact the deficit. The Saudi’s budget is almost entirely reliant on Saudi Aramco, which is now selling stakes in some of its subsidiaries so that it can keep up the generous dividend that it must pay out to The Kingdom.
Geopolitics
Earlier this week, a ship laden with explosives rammed into an oil tanker off the port of Jeddah, Saudi Arabia, with the Saudis suspecting the attack was orchestrated by Yemen’s Houthi rebels. No casualties have been reported, nor has anyone claimed responsibility for the attack as of the time of writing. This uptick in Iranian-backed Houthi activities targeting the Saudis should set off alarm bells regarding the potential to attack Saudi oil facilities, as happened last year. What is happening in Yemen specifically right now to prompt an uptick in attacks in a Saudi-led push to reunite two of its allies: The militaries of the Government of Yemen and the Southern Transitional Council (STC) of separatists, fighting between which became a second flashpoint in the conflict in Yemen against the Iranian-backed Houthis. Now that the Saudis have succeeded in reuniting these two forces with a power-sharing agreement, they will pursue a joint push against the Houthis.
Remember the Saudi-led coalition that implemented an economic blockade against Qatar? There’s a reason we haven’t heard much about that lately. While initially that silence had much to do with the fact that the blockade failed to bring gas giant Qatar to its knees, another reason for the recent silence is likely that a rapprochement is in the cards here, as well--and soon. The Saudis can’t afford to keep up this charade much longer, and it’s not having the desired effect, while a peace deal could also be used as leverage for point-scoring with US officials (old and new).
After much dragging of the diplomatic feet, Washington has now slapped sanctions on Turkey over its procurement and testing of the Russian-made S-400 air defense system, which flies in the face of Ankara’s NATO allies. The sanctions specifically target Turkey’s main defense procurement agency, the Presidency of Defense Industries, and the group’s president and three officers, who will have their US assets frozen. Turkey acquired the Russian air defense system in 2017, but it did not take delivery until July this year, and testing was undertaken in October.
Multiple energy agencies in the United States were hacked this week, including the Department of Energy and FERC--the latter which is responsible for the US electrical grid. The agencies involved insist that no critical infrastructure was harmed, but both agencies house information that are potentially harmful to the United States, including location and other sensitive information that could potentially give hackers new targets. The agencies will not know for weeks what information was compromised in the hack.
Discovery & Development
After stunning the offshore oil world with a series of discoveries offshore Guyana last year, and then watching Apache and French Total SA make their first discoveries right across the maritime border offshore Suriname, Exxon now boasts its own discovery in Suriname. The supergiant announced this week it had found oil and gas at the Sloanea-1 exploration well in Block 52 and is now evaluating. The well was drilled to a depth of 4,780 meters. Exxon has a 50% stake in the block, while Malaysia’s Petronas is the operator.
Norway’s Equinor has started production from its Snorre expansion project, which will add some 200 million barrels of recoverable oil reserves and extend the project’s life through 2040. Unusually for these times, the project is ahead of schedule, originally slated to begin production in Q1 2021.
Reliance and BP plc have started natural gas production from Asia’s deepest project in Block KG-D6, deepwater R cluster. It is the first of three deepwater gas projects in the block by BP and Reliance, which they hope will satisfy 15% of India’s gas demand by 2023. Reliance holds a 66.67 interest and BP holds the remainder. The second of the three projects is expected to come online next year.
Deals, Mergers & Acquisitions
Italian Eni, which is downsizing its non-essential assets in some parts of the world and has already put up Australian assets for sale, is now said to be looking for buyers for some of its Pakistani producing oil and gas assets.
Shareholders in Husky Energy Inc and Cenovus Energy Inc (two long-time oil and gas rivals) have voted in favor of the two companies joining forces, paving the way for Cenovus’ multi-billion-dollar takeover of Husky in a $3.80-billion, all-stock buyout.
Regulations & Legislation
A US Court of Appeals this week rejected the Trump administration’s approval of the Liberty offshore oil drilling project in federal Arctic waters, which opponents had feared would threaten local communities, animals, and the environment.
At the same time, Alaska Governor Mike Dunleavy is threatening to introduce legislation that would require state departments and agencies to cut ties with any financial institutions that are eschewing Arctic oil financing as ESG investing gains greater momentum.
Renewables
In another big boost for green hydrogen, Shell and Austrian OMV are joining forces with Volvo, Daimler, and Iveco in an initiative called H2Accelerate, to create mass-market roll-out of hydrogen trucks in Europe.
Under constant pressure from activist shareholders, Exxon has revealed its new five-year plan to reduce greenhouse gas emissions said to be in line with the Paris Agreement. Now, it’s another waiting game to see whether the new plan, which includes reducing methane flaring and emissions from upstream operations, is enough to assuage investors who are pushing the company to rethink its overall business model.
