A Terrible Time for OPECplus to Resolve Its Differences - OIR 200721

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Wednesday, July 20, 2021 / 06:00 AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice


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We will take a quick look at some of the critical figures and data in the energy markets this week. 

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy.



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  • ROPEC+ countries have agreed on a deal to boost collective output by 400kbpd per month until year-end 2022, having aligned on new production baselines to become effective from May 2022 onwards.
  • Spare production capacity, however, has become something of a rarity amongst OPEC+ countries with only Saudi Arabia, Russia, the UAE, Iraq, and Kuwait wielding genuine prospects of bringing in incremental production, the rest is producing as much as it can.
  • Whilst on the level of official rhetorics OPEC+ has indicated it would phase out the production curtailments by the end of 2022, rare are those who believe this would happen, primarily owing to a risk of oversupplying a market that even under the most optimistic scenarios would not be able to accommodate 3.8mbpd of additional crude. 


Market Movers

  • According to media reports, Chevron (NYSE:CVX) has failed to meet carbon-sequestering government targets on its $54 billion Gorgon LNG project. Gorgon's CCS facility, a precondition for the LNG terminal to operate, was assumed to pump CO2 more than 2km underground. Instead of the promised 80% of all emissions, the Chevron-operated project captured only 30% of total CO2 generated over the past five years, writes Bloomberg, raising fears on the readiness of CCS technologies globally.
  • Australia's Oil Search (ASX:OSH), a Papua New Guinea-focused oil firm, rejected a $16.1 billion merger proposal from Santos (ASX:STO) that could have seen the creation of a national oil and gas champion. Amidst questionable behavior from Oil Search top officials, Santos is expected to produce a "revised offer". Oil Search stocks surged 6% on Tuesday.
  • Italy's ENI (NYSE:E) has arguably been one of the worst-performing major oil stocks this week, falling 4% d-o-d on Monday and continuing its descent the next day on fears of another COVID wave being just around the corner. 


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Tuesday, July 20, 2021

It seems that the news of Saudi Arabia and the UAE ironing out their OPEC+ policy differences could not have come at a worse time for oil markets. The news came against the background of increasing COVID-19 cases globally, triggering concerns that OPEC+ will be bringing production back just at a time when demand would be subdued again. Under the deal, the UAE would see its production baseline hiked by 0.5 mbpd from May 2022 onwards, in return for joining the combined effort to bring back 2mbpd of crude by the end of 2021. 

Goldman Sachs Sees Upside to Oil Prices. US investment bank Goldman Sachs (NYSE:GS)
stated the extension of the OPEC+ deal supports its view on oil prices and present a modest upside to its $80 per barrel summer Brent forecast. Whilst oil prices took a walloping Monday, Goldman did issue a caveat that upcoming weeks should see tangible "gyration" due to risks from rising Delta variant headwinds. 

European Union Goes All Out on "Fit for 55". Europe's largest industrial conglomerates have given the EU's ambitious "
Fit for 55" emissions-curbing package a rather cold shoulder as Brussels seeks to include shipping and aviation in Europe's ETS trading scheme, increase taxation on energy and simultaneously roll out renewable energy projects. The proposals put forward by the European Commission still need to be approved by the European Parliament and EU member states, implying that much of the initial zeal might be mitigated by mid-2022. 

Chinese Coal Plants Ordered to Build up Stocks. China's state development agency, the National Development and Reform Commission (NDRC), has ordered all coal power plants to build mandatory 7-day inventories as Chinese coal consumption readings hit all-time highs.
According to Reuters, average daily consumption surpassed 2.2 million tons already, sending total inventories to their lowest on record despite the government's 10 million ton strategic reserve release. 

Oil Majors Go Big on Scottish Wind Auction. Scotland's first seabed leasing off in more than a decade has seen a
flurry of oil and gas majors wrestle for floating offshore wind acreage on offer in Europe's windiest region. Whilst tendering results will only become known in early 2022, it is certainly a noteworthy feat that bids were presented by such giants as Royal Dutch Shell (NYSE:RDS.A), Engie (EPA:ENGI), ENI (NYSE:E), TotalEnergies (NYSE:TTE), BP (NYSE:BP), and Equinor (NYSE:EQNR)

Copper Prices Fall on China's Reserve Release. Copper prices fell to a four-week low as slowing demand in China, combined with the government's release of 20 000 tons of
strategic stocks designated to depress prices, have weighed on the previous months' metals rally. LME benchmark prices dropped to just above $9200 per metric ton, further weakened by the US dollar strengthening.

Germany and US Close to Nord Stream-2 Entente. Washington and Berlin are close to reaching a long-awaited agreement on Gazprom's (OTCMKTS:OGZPY) Nord Stream 2 pipeline,
Reuters reports. Under the new deal, the US would scrap sanctions in return for increased investment into Ukraine's energy transformation and energy security as the new gas conduit inevitably reduces its transit revenues. 

Argentina Eases Biodiesel Requirements. Global soy oil prices are expected to decrease as Argentina, the world's No.1 soy oil producer, has
relaxed biodiesel requirements blended into common diesel fuel. The previous 10% limit was eased to 5% in a bid to generate more hard currency amidst a COVID-triggered slump in economic activity, leaving Argentinian producers like Glencore (LSE:GLEN) or Louis Dreyfus with more volumes to export.

First Iranian Cargo from Jask to Load This Week. Iranian officials
stated that the first cargo to avoid Strait of Hormuz exposure, loading from the newly commissioned terminal at Jask will be loading anytime soon for a departure at some point during this week. Currently, the terminal's handling capacity is some 300,000 barrels per day, with crude coming in from the West Karun oil fields. Most Iranian exports, impossible as they are to track and locate, end up with Chinese buyers. 

Japan Central Bank to Finance Energy Transition. Japan's Central Bank will provide interest-free long-term loans to companies that act towards the country's 2050 decarbonization target. The BoJ will also buy foreign government's green bonds using its foreign reserves to increase its exposure to international non-polluting markets. 

Greenland Gives Up on its Oil Bounty. Greenland officially
rejected
all plans for future oil exploration, despite wielding a completely untapped reserve bounty of some 18 billion barrels. Whilst oil revenues could have been used to boost Greenland's claim for independence, the potential environmental risks tipped the balance. Copper and gold exploration, however, continues unabated. 

Ethiopia Starts Monster Hydro Dam. Ethiopia has completed the second-year filling of the Grand Ethiopian Renaissance Dam (GERD), the largest hydro object in Africa the capacity of which amounts to 6500MW. Sudan and Egypt continue to object to GERD operating, expressing fears over the dam's safety and potential consequences for their own hydropower systems.


Credit:

The post A Terrible Time For OPEC+ To Resolve Its Differences first appeared in Oilprice.com on July 20, 2021.  


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Related News - Previous Oilprice Intelligence Report 

1.       Uncertainty Has Overtaken Oil Markets Once Again - OIR 160721

2.      Oil Price Volatility Spikes on OPECplus Uncertainty - OIR 130721

3.      Oil Prices Rise on Strong Fuel Demand - OIR 090721

4.      Oil Rally Grinds to a Halt - OIR 060721

5.      Oil Prices Fall as OPECplus Struggles for Consensus - OIR 020721

6.      COVID Variant Threatens Oil Demand - OIR 290621

7.      Can Anything Halt This Oil Price Rally? - OIR 250621

8.     Oil Prices Fall as OPECplus Looks to Boost Production - OIR 220621

9.      Is The Oil Rally Nearing Its End? - OIR 180621

10.  Oil Prices Rise as Demand Outstrips Supply - OIR 150621


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