By Josh Owens
Oil jumped spiked on Tuesday morning on the back of positive manufacturing news and a weakening of the dollar.
Chart of the Week
– From 2011 to mid-2020, roughly 95 GW of coal-fired capacity has gone offline, with another 25 GW slated to shut down by 2025.
– The U.S. coal fleet will soon drop below 200 GW, down from 314 GW at its peak in 2011.
– The remaining plants are underutilized because of coal’s declining competitiveness.
– Total’s (NYSE: TOT) Port Arthur refinery is awaiting the restoration of electricity in order to restart operations following Hurricane Laura. Citgo and Phillips 66 (NYSE: PXD) said that assessments of the damage at their facilities in Lake Charles could take days.
– Chesapeake Energy (NYSE: CHK) hoped to cancel a $300 million contract with Energy Transfer (NYSE: ET), but a court ruled in Energy Transfer’s favor.
– Enbridge (NYSE: ENB) said that an offshore natural gas pipeline that services four offshore platforms in the Gulf of Mexico remained out of commission due to the hurricane.
Tuesday, September 1, 2020
Oil prices rose on Tuesday on new manufacturing data from both the U.S. and China, which surprised on the upside. The dollar also weakened, adding some support to crude. Nevertheless, crude is showing few signs of being able to break out from its current range.
Distressed shale assets from the last boom. Many of the M&A deals in U.S. shale following the 2014-2016 oil market downturn are now “unworkable,” according to Reuters. Of the 50 largest acreage purchases between 2016 and 2019, 31 of them only add value if Brent trades above $50 per barrel. For instance, Diamondback Energy (NASDAQ: FANG) paid roughly $54,977 per acre when it purchased Energen in 2018, a deal that would now breakeven if Brent averaged $77 per barrel.
Gulf of Mexico output remains down. As of Monday, about 53 percent of oil production in the Gulf of Mexico was still shut-in, following the devastation from Hurricane Laura. About 41 percent of natural gas production is shut-in. Personnel remain evacuated from 117 production platforms or 18 percent of the total.
EVs still costly to produce. EVs will remain more costly to manufacture than traditional gasoline and diesel-fueled vehicles for the rest of the decade, according to new research. EV manufacturing costs could average 16,000 euros by 2030, or 9 percent higher than conventional cars.
Goldman: Oil prices to jump to $65. Goldman Sachs expects Brent crude to reach $65 a barrel in the third quarter of 2021, although it could end the year lower, at $58 a barrel, according to Goldman Sachs analysts. “There is a growing likelihood that vaccines will become widely available starting next spring, helping support global growth and oil demand, especially jet,” the Goldman analysts said.
U.S. seizes websites involved in illegal oil trade. The United States announced today that it has seized three websites used by sanctions-violators to trade in crude oil, according to an official press release. The websites were, according to the U.S. government, used by Iran to trade oil with Venezuela—two sanctioned countries that are not allowed to trade oil at all, let alone with each other.
Natural gas prices sink on cooler weather. Natural gas prices sank early on Monday on expectations of lower demand due to cooler weather and lower liquefied natural gas (LNG) feed in the aftermath of Hurricane Laura passing through the U.S. Gulf Coast.
Biden: “I am not banning fracking”: In a speech on Monday in Pittsburgh, Biden dismissed accusations that he would target oil and gas drillers. “I am not banning fracking. Let me say that again. I am not banning fracking. No matter how many times Donald Trump lies about me,” Biden said.
UAE overproduces in August. The UAE breached its OPEC+ quota in August, pumping 2.693 million b/d, according to S&P Global Platts.
U.S. SPR damaged from the hurricane. The U.S. Energy Department said on Monday that the West Hackberry site of the Strategic Petroleum Reserve “sustained considerable damage” from Hurricane Laura.
Shipping companies profit amid downturn. Cost-cutting and removing excess capacity have kept shipping margins in positive territory this year.
Trump Administration Proposes Easing Oil and Gas Permitting in National Forests. The Trump administration on Aug. 31 issued a proposal that would make it easier to permit oil and gas drilling operations in national forests, aligning permitting processes between the Forest Service and the Bureau of Land Management. Environmental groups say the move will sidestep environmental reviews.
U.S. gasoline demand fizzling. U.S. demand for gasoline surged after bottoming out in April but has flattened out in the past two months below pre-pandemic levels. Stagnating demand raises concerns about the health of the economic recovery. “The easy work has been done,” Noah Barrett, an energy analyst for Janus Henderson Investors, told the WSJ. “That last 10% to 15% of lost demand is going to be really hard to get back.”
Trump admin prepares more sanctions on Venezuela. “We think our sanctions have been extremely effective in reducing income to the regime but we think we can make them more effective. So we are going to be doing some things to tighten up in the near future,” Elliott Abrams, U.S. Special Representative for Venezuela said in a Reuters interview. He did not specify but hinted that the new sanctions would include eliminating exemptions offered to third parties buying Venezuelan oil.
Tesla to sell $5 billion in shares. Tesla (NASDAQ: TSLA) said it would sell as much as $5 billion in shares “from time to time” in order to fund growth. The company has plans to build new factories in Germany and in Austin, Texas, following the recent completion of a plant in Shanghai.
Exxon considers job cuts. According to a memo sent to employees Monday and obtained by Business Insider, ExxonMobil (NYSE: XOM) is considering job cuts. The company is looking at its upstream unit for “organizational efficiencies and lower activity levels,” according to the memo, including job cuts.
Total and Macquarie pursue 2 GW offshore wind in South Korea. Total (NYSE: TOT) will partner with Macquarie Group’s green bank to develop more than 2 gigawatts of floating wind farms off South Korea, the latest push by the French oil and gas giant to diversify into clean energy.
By Josh Owens for Oilprice.com