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Why Oil Bulls Aren't Backing Down

While there is still plenty of potential new oil supply on the market, particularly from OPEC+, analysts remain very bullish and banks are beginning to talk about $100 oil.

In this week's Global Energy Alert, our research team delves into the role of natural gas in bringing peace to the Middle East. Sign up today to get breaking news, expert analysis, and trading tips.

Friday, February 26th, 2021

Oil prices took a breather on Friday after Brent traded just above $67 on Thursday. While downside risks remain, banks are now openly talking about the possibility of $100 oil at some point. OPEC+ still has the power to send oil prices down, but very few analysts are staking out overly bearish outlooks. 

Texas scrutinizes blackouts. 5 members of ERCOT, the grid manager in Texas blamed for the historic outages last week, resigned on Wednesday. A sixth withdrew his application. Executives from Calpine Corp., Vistra Corp. (NYSE: VST), and NRG Energy (NYSE: NRG) blamed natural gas-supply shortages

Texas gas production fell by half. Natural gas production in Texas collapsed by half during the freeze. 

Traders betting on $100 oil. The open interest on $100 strike Dec 2022 calls has exploded higher since the turmoil in the Texas energy markets. $100 oil is still a gamble, but there is more interest in triple-digit oil prices than there has been in years. 

Shell’s Deer Park refinery could take until April. Royal Dutch Shell’s (NYSE: RDS.A) Deer Park refinery in Texas could take until April to restart, following damage from the freeze across Texas. 

China’s shale boom over before it began. Despite China’s natural resources and best efforts, the country has not been able to get its own shale boom off the ground, and a recent analysis by Reuters shows that what progress Beijing has made toward its own shale revolution could already be obsolete by the middle of this decade.  “Complex geology and failure to draw in more investors” are projected to make the industry’s expansion economically untenable.

Keystone XL death means more oil by rail. Cenovus Energy (TSE: CVE) and Imperial Oil (TSE: IMO) are moving more oil by rail, and Canada’s oil-by-rail shipments have tripled since July. Analysts say without Keystone XL, more oil will hit the rails over the course of the 2020s to get heavy Canadian crude to Gulf Coast refiners.

Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker

Continental Resources sues BLM over delay in leases. Continental Resources (NYSE: CLR) is suing the Bureau of Land Management over what it says is an illegally long wait for 50 applications for drilling on federal lands. 

Venezuela and Iran swap jet fuel for gasoline. Venezuela and Iran, both sanctioned by the United States, are helping each other out. Venezuela is shipping jet fuel to Iran in the same tankers in which Iran delivers gasoline and spare parts for the refineries in Venezuela.

China’s oil imports to slow. China’s oil imports in the second quarter are expected toslow in the face of higher prices and refinery maintenance. 

Occidental to lose $750 million on midstream. Occidental Petroleum (NYSE: OXY) has seen its Permian production decline and now it has surplus unused midstream capacity, which could result in a midstream loss of around $750 million this year. Occidental has 800,000 bpd of contracted pipeline capacity, but only 485,000 bpd in Permian production, forcing the company to buy supply elsewhere. 

Exxon’s reserves plunge by one-third. In an SEC filing, ExxonMobil (NYSE: XOM)said its total oil and gas reserves fell by one-third to 15.2 billion barrels of oil. Most of the downgrade was concentrated in Canada’s oil sands.

Exxon to sell North Sea assets. ExxonMobil (NYSE: XOM) said it would sell upstream assets in the North Sea for $1 billion, although the company had originally hoped to obtain $2 billion. 

OPEC+ considers modest production boost. OPEC+ will discuss a modest increase in oil production at next month’s meeting, sources told Reuters. The most likely number is an increase of 500,000 bpd beginning in April. At the same time, Saudi Arabia’s voluntary 1 mb/d cuts are set to expire. 

Pioneer: U.S. shale no longer threat to OPEC. OPEC won’t have to worry about U.S. shale growth anymore, according to Pioneer Natural Resources. “I’m confident that we can assume the Iranian barrels into the marketplace over time and then U.S. shale is no longer going to be a threat to OPEC and OPEC+,” Scott Sheffield said

Fracking banned in Delaware River basin. A regulatory agency governing water supplies in the Delaware River basin implemented a permanent ban on fracking in the region. The basin, which supplies drinking water to 13 million people in New Jersey, New York, Delaware and Pennsylvania, encompasses the northeastern tip of the Marcellus shale. A moratorium had been in place since 2010.

SEC to step up climate scrutiny. The acting chair of the Securities and Exchange Commission Allison Herren Lee said on Wednesday that the SEC would focus on climate disclosure in corporate filings. “Now more than ever, investors are considering climate-related issues when making their investment decisions,” Lee said in the statement. “It is our responsibility to ensure that they have access to material information when planning for their financial future.”

Shell: Global LNG demand to double by 2040. Royal Dutch Shell (NYSE: RDS.A) said that global LNG demand could double by 2040, with 75% of the growth concentrated in Asia.  Related: Natural Gas Production Plunged 45% During The Texas Freeze

EOG hikes dividend 10%. EOG Resources (NYSE: EOG) boosted its annual dividend on Thursday by 10% after posting better-than-expected fourth-quarter results. However, the company’s share price fell 3% after the announcement, and analysts cited the fact that EOG plans a capex increase this year, even as production is expected to remain flat.  

Pembina takes big write-down. Canada-based Pembina said that it can “sadly” no longer predict when it might be able to build Jordan Cove LNG, the only LNG project on the U.S. Pacific Coast still alive. Jordan Cove has suffered too many regulatory defeats. Pembina took a C$350 million write-down on the project.

By Tom Kool for Oilprice.com 

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Leave a comment
  • Mamdouh Salameh on February 26 2021 said:
    Because we are in a bull market with all the bullish factors working in synchrony and pushing oil prices higher. That is why I have been projecting that Brent crude is going to hit $70-$80 in the third quarter of 2021.

    Still, Brent has a long way to go with $100 oil in sight by the second half of 2022 or the first quarter of 2023.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • George Doolittle on February 26 2021 said:
    Interest rates are a proxy for economic ahem *growth* ahem so good luck still being long oil here.

    Natural gas replaced oil just as coal relaced water power and oil replaced coal all the way back in 2008 almost a generation ago.

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