Author: Kevin Olson

Opinion Piece: How Will OPEC+ Respond?

There is no denying global oil demand is on the rebound, and unfortunately it may be slowed by a new round of lockdowns gripping the United States and Europe from a second wave of the global pandemic. Even though many countries in the OPEC+ group rely on oil revenues to support their national economies, RARE PETRO anticipates they will most likely continue overall production cuts instead of boosting output in January. Regardless of whether or not the current production cuts of 7.7 MMBPD are extended, any move by OPEC+ to keep cuts above 5.8 MMBPD beyond January should be received favorably by the market and may give oil prices additional upward momentum.

Survival Of The Fittest

Despite boasting the lowest lifting costs in the world at $2.80, even Saudi Arabia is struggling in this low price environment. In fact, Saudi Aramco was forced to raise $8 billion from the sale of U.S. dollar-denominated bonds to meet a dividend pledge to their shareholders. Earlier this month, the company posted a 45% fall in net income for the third quarter, generating free cash flow of only $12.4 billion, compared with the roughly $18.75 billion it requires each three months to meet its dividend pledge.

The Energy Transition

As the world continues to consume more and more energy, a sustainable energy source is needed to meet growing demand. As climate change continues to be a hot topic, the world has begun “the energy transition.” This refers to the energy sector’s shift from a fossil-fuel based system of energy production and consumption, namely crude oil, natural gas, and coal, to renewable energy sources like wind, solar, and lithium-ion batteries. As the world continues down this path, it becomes clear that the energy transition should gradually shift allocation for the leading source of power in a cumulative energy mix, and to pursue a single source of energy for the globe is not only foolish but irresponsible.

Delayed Recovery

For yet another month, OPEC revised its expectations for global oil demand as the renewed spike in coronavirus cases in major economies is slowing down demand recovery. The group now sees global oil demand at slightly above 90.0 million barrels per day this year, down by 9.8 million bpd compared to 2019. As a result, talks between OPEC and its allies are zeroing in on a delay to next year’s planned oil-output increase of three to six months, according to several delegates as they think twice about easing cuts in January.

Global Refining Capacity

The global refining landscape has been changing over the past decade, but the rapid demand destruction associated with the global pandemic has flipped the sector on its head. Many refineries in the U.S. and around the world have been changing their refined products or closing entirely. Luckily the wave of closures in the United States and Europe does not signal an end to global refining, but more of a shift in output priority and refining location. Companies and countries are moving away from refineries only designed to make gasoline and diesel, favoring those with the additional capability to refine crude into petrochemicals and plastics.

Energy Sector Woes

The energy sector has emerged as the worst-performing of the United States eleven market sectors in the current year, dropping to its lowest point relative to the S&P 500 since 1931. In fact, not only is the oil and gas industry the biggest market loser of 2020, but it has also now become the worst performer on the market ever. Over the past 20 years, the S&P 500 has risen more than 130% while the XLE energy ETF has fallen 3%. Things need to start changing quickly if there is any hope for the energy sector.

Bullish Natural Gas Markets

A highly contested election, global pandemic, and historically low oil prices have grabbed headlines in recent months but there has been little focus on the surging natural gas market. In recent weeks, natural gas rose to prices not experienced in over a year and a half when the Henry Hub gas benchmark climbed to a 19-month high in late October. With a cold winter ahead, a historic Hurricane season in full swing, depressed oil production, and soaring LNG exports; the gas futures market remains strong and will maintain its upward momentum into the foreseeable future.

Some Will Win, Some Will Lose

In a spooky week in oil, Third Quarter results were released for some of the worlds largest and most powerful oil and gas companies and there were some surprising results. Low prices, reduced production, and slashed operating costs forced companies like ExxonMobil and Chevron to report massive losses while others like Shell and BP surprised investors and the world by turning a profit during a tumultuous third quarter.

Opinion Piece: Fearing The Second Wave

covid-19

A second wave of the coronavirus pandemic is tearing its way through Europe and there is no question whether or not the rest of the world will eventually follow. The surge in coronavirus cases in many major developed oil-consuming economies has rekindled fears that oil demand recovery is again off track, and market balancing is still further away. Luckily, those fears are misplaced as a second wave of shutdowns may not take as large of a dent out of global demand as individuals have begun to resume their day to day lives. Therefore, global oil demand recovery will not be derailed as fear of the virus is likely not going to keep people locked up anymore.

Consolidation Is Key

This week, two major U.S. shale acquisitions were officially announced when ConocoPhillips announced their acquisition of Concho Resources and Pioneer Natural Resources announced their agreement to acquire Parsley Energy. The Pioneer all-stock transaction valued at $4.5 Billion (inclusive of Parsley’s debt increases the value to $7.6 Billion) is significantly less than the all-stock transaction of the ConocoPhillips deal valued at $9.7 Billion (inclusive of Concho’s debt increases the value to $13.3 Billion) but is significant nonetheless. Major moves in the U.S. oil and gas sector indicate that consolidation is the future.

Nationalizing the United States Oil Industry

Falling oil prices and a surge in green energy policies have breathed new life into an old idea: to nationalize the fossil fuel industry. The problem is, nationalizing oil and gas would be a radical step, and alone it would not be enough to deliver a comprehensive energy transition that can meet climate goals as well as the social objectives of the Green New Deal. While calls have been made to nationalize oil and gas development in the U.S., the inefficiency of government oversight cannot do a better job than private enterprise at developing and managing these natural resources.

Heating Up

A wild week in oil news saw some of the world’s top analytics firms’ predictions on the future of the oil and gas industry in the United States be overshadowed by the possibility of a massive merger between two shale powerhouses and approval of an expansion for the Dakota Access Pipeline. As temperatures begin to cool off into the winter season, election season is causing the oil industry to heat up.

Brent-WTI Crude Price Spread: An Ever-Changing Dynamic In Commodity Futures

The price spread between the world’s most traded crude oil blends and the most actively traded commodities in the world generally track one another, but divergences often reflect technical, supply/demand, or geopolitical issues. Over the course of history, the spread between Brent crude and WTI blends has grown, shrunk, crossed paths, and reversed again countless times. As a result of reduced U.S. pipeline constraints, ongoing OPEC+ production cuts, and China purchasing record amounts of WTI crude oil, the spread between Brent and WTI crude oil prices has begun to shrink close to zero. The future may hold a reversal giving WTI prices the upper hand.

Battle Of The Bigs

Chevron Corporation overtook Exxon Mobil Corporation as the largest oil company in America by market value, the first time the Texas-based giant has been dethroned since it began as Standard Oil more than a century ago. But neither are any match for a Hurricane as both majors have evacuated production platforms in the Gulf of Mexico ahead of Hurricane Delta. The Bureau of Safety and Environmental Enforcement estimated about 80% of the Gulf’s oil production and 49% of natural gas production has been shut-in, including over 180 production platforms. Hurricane season has chronically caused trouble in the gulf region and a historic 2020 is no different.