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The Oil Rally Has Stalled Once Again

Oil prices hit four-month highs this week, but bearish sentiment quickly snapped back into place and halted the rally.

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Friday, July 3rd, 2020

Crude oil hit four-month highs on Thursday, aided by a tightening market and a better-than-expected U.S. jobs report. The caveat is that the jobs survey took place before the latest Covid-19 wave and the associated closures. Analysts still expect oil to face resistance to any further gains. “Gasoline has carried the load on recovery and demand, and it’s not clear whether that could continue into August and September,” Andrew Lebow, senior partner at Commodity Research Group, told Bloomberg. Oil prices retreated during midday trading on Friday. 

OPEC+ scheduled to ease production cuts. OPEC+ is scheduled to ease production cuts beginning in August, and sources told Reuters that the group will likely refrain from an extension. Saudi Arabia also reportedly put pressure on Nigeria to increase its compliance. On Thursday, Russian energy minister Alexander Novak reiterated that position. “At present, there are no decisions to prepare any changes…Next, under the current agreements we should have a partial restoration of the volume of reductions starting August 1,” he said, according to TASS.

Russia’s oil exports to Europe near two-decade low. Russia is set to cut oil exports to Europe to just 900,000 bpd in July, the lowest level since 1999, as supplies from elsewhere continue to gain market share. U.S. oil, in particular, has gained a foothold.

Libya restarts eastern oil field. Libya brought the Mesla field back online, adding a small amount of idled production. 

Saudi Arabia and Kuwait restart Neutral Zone. Saudi Arabia and Kuwait have restarted production at the Al-Khafji oil field in the neutral zone between the two countries. Related: Saudi Arabia Eyes Total Dominance In Oil And Gas

Shell eyes energy transition. Royal Dutch Shell (NYSE: RDS.A) announced a $15 to $22 billion write down and lowered both its long-term oil and natural gas price deck. Analysts widely say that the writing is on the wall in terms of demand. “Oil and gas demand might well continue to grow from here, and many companies are still chasing a share of that growth,” Luke Parker of Wood Mackenzie wrote. “But make no mistake, the likes of Shell and BP are already positioning for the twilight years.”

India’s fuel demand rebounds. Coronavirus continues to spread in India, but fuel demand rose in June from a month earlier, although it was 12 percent lower than in June 2019.

Global oil demand and CO2 emissions peaked in 2019. A new report from DNV predicts that oil demand and global greenhouse gas emissions hit an all-time high last year and won’t rebound. Still, the consultancy sees demand only declining slightly in the next three decades, putting the world far behind stated climate targets. Separately, Citi said that demand for refined products peaked as well. 

Shale drillers squeezed by banks. Lenders have tightened credit by as much as 20 percent in the latest credit redetermination period. 

Moody’s: Pandemic accelerates energy transition. “COVID-19 lockdown experience of reduced commuting and business travel, alongside better air quality and family time, may deliver lasting changes in energy consumption,” Moody’s said in a recent report. Along with the long-term economic damage, these changes could accelerate the shift away from fossil fuels. 

Canadian Supreme Court dismisses case against TMX. The Supreme Court of Canada will not hear a new appeal from British Columbia First Nations over the Trans Mountain pipeline expansion. The decision effectively ends the legal battle against the pipeline. 

Goldman: Refineries to suffer consolidation. A slew of mega refineries set to come online between 2021 and 2024, in the face of weak demand growth, will compress margins and lead to consolidation, according to Goldman Sachs. Older refineries in the developed world could be pushed offline

U.S.-to-Mexico gas shipments rise. Mexico’s imports from the U.S. will likely hit a record high in the weeks ahead, due to new markets within Mexico, according to S&P Global Platts.  Related: Oil Rallies On Bullish EIA Inventory Data

Japan’s LNG bet could sour. Japan has spent $25 billion on LNG assets in the last three years, but those investments may not pay off, according to a new study. “The original rationale for the program - enhanced energy security - appears now to be fundamentally flawed, as the simultaneous shocks of the COVID-19 pandemic and the 2020 oil price crash reveal the vulnerability of global LNG supply chains,” the authors wrote. 

Energy Transfer invokes force majeure on Dakota Access. Energy Transfer (NYSE: ET) invoked force majeure to prevent buyers on its Dakota Access pipeline from walking away from capacity on the proposed expansion, according to Reuters. Energy Transfer wants to double in size, but some companies say it is no longer needed. The fall of Bakken production means that the proposal to expand the pipeline from 570,000 bpd to 1.1 mb/d probably won’t happen. “Honestly, DAPL is not needed,” one unnamed customer told Reuters. 

ExxonMobil signals big loss. ExxonMobil (NYSE: XOM) will report a larger operating loss for the second quarter, according to data the company submitted in a securities filing. Refinitiv IBES estimates the company will lose $2.3 billion in the second quarter. Exxon’s decision thus far not to write down assets is attracting scrutiny and criticism. 

Venezuela’s oil production declines by 32%. PDVSA’s oil production fell by 32 percent to 422,000 bpd in June, the sixth consecutive month of declines. The country only had one rig operating in May.

IEA: Clean energy acceleration needed. The goal of net-zero emissions by 2050 will require a significant acceleration in clean energy innovation, the IEA said on Thursday.

By Josh Owens for Oilprice.com 

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