Saturday, July 04, 2020 /08:00
AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice
Oil prices hit four-month highs this week, but bearish sentiment quickly
snapped back into place and halted the rally.
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.
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 changesâ€¦Next, under the current agreements we should have a
partial restoration of the volume of reductions starting August 1," he said,
according to TASS.
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
restarts eastern oil field. Libya brought the Mesla
field back online, adding a small amount of idled production.
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.
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
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.
drillers squeezed by banks. Lenders have tightened credit by as
much as 20 percent in the latest
credit redetermination period.
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.
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.
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.
gas shipments rise. Mexico's imports from the U.S. will likely
hit a new record high in the
weeks ahead, due to new markets within Mexico, according to S&P Global
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.
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.
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.
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.
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.
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