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Oil Prices Rebound As Demand Optimism Returns

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·5 min read
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The IEA made headlines last week when it suggested that there should be no new oil and gas investments after 2021... If that were to happen - with a supply crunch already looming - the oil traders at OPC Markets would have a great time.

Chart of the Week

- Natural gas-fired power generation averaged 3,394 GWh per day in the first four months of 2021, down nearly 7% from the same period in 2020.

- The decline is mostly the result of higher natural gas prices and increased competition from renewables. The decline is the first year-on-year decline since 2017.

- The drop is even more notable given that overall electricity generation increased by 6.6% over the same period.

Market Movers

- Williams Companies (NYSE: WMB) has an extra two years to build its proposed Northeast Supply Enhancement (NESE), a gas pipeline from Pennsylvania to New York, according to a decision from FERC. The project has run aground due to the lack of permits in New York and New Jersey.

- BP (NYSE: BP) said it will sell its stake in the Shearwater field in the North Sea to Tailwind Energy for an undisclosed sum.

- Royal Dutch Shell (NYSE: RDS.A) won a $2.5 billion 10-year contract to supply New South Wales with battery backup power.

Tuesday May 25, 2021

Oil prices rose by 2% on Monday on renewed optimism about global demand as global vaccinations continue. Also, concerns about a rush of new supply from Iran eased.

Hiccups in Iran negotiations. Iran said that gaps remain in negotiations with the U.S., which helped push up crude oil prices.

Cabot and Cimarex to merge. Cabot Oil & Gas (NYSE: COG) has agreed to merge with Cimarex Energy (NYSE: XEC), combining two shale drillers in a deal valued at $7.4 billion. It is the latest sign of consolidation in the shale industry, and the combined company will have a major presence in the Marcellus, Permian, and Anadarko basins.

Investors skeptical of new oil deal. Shares of both Cabot and Cimarex fell by 6% on the announcement, an indication of skepticism from investors. Analysts questioned the logic of combining companies from different geographies rather than creating scale in one basin. “This deal comes as a bit of a surprise and may have a less clear story to tell investors,” Andrew Dittmar, an analyst at Enverus, wrote in a statement. “Some investors may wonder why in-basin opportunities weren’t pursued ahead of a surprising multi-basin deal.”

Goldman: $80 oil this year. Goldman Sachs still expects crude oil to rise to $80 per barrel by the end of the year despite reports about progress on U.S.- Iranian talks about the lifting of sanctions. "The case for higher oil prices therefore remains intact given the large vaccine-driven increase in demand in the face of inelastic supply," Goldman analysts said.

Dakota Access to remain open. A federal judge decided against shutting down the Dakota Access pipeline, even though the same judge vacated a crucial permit last year. Still, the Army Corps of Engineers is conducting an environmental review on a new permit that will be completed in 2022, which will decide the fate of the project. But the court decision lets the pipeline operate until then.

China tamps down commodity prices. China said it will curb “unreasonable” increases in commodity prices, a move intended to deflate soaring prices.

Exxon’s referendum on Darren Woods. On Wednesday, shareholders will vote on one of the most significant investor activist campaigns in years, with Engine No. 1’s proposal to replace a third of ExxonMobil’s (NYSE: XOM) board. The vote is shaping up to be a referendum on CEO Darren Woods’ tenure, and also a symbolic fight in Exxon’s corporate strategy in the context of energy transition.

European oil majors compete with renewables companies. The European oil majors are increasingly expanding their footprints in renewable power generation, and are trying to compete with traditional renewables companies. “We’re actively exposed to different forms of energy in a way that pure-play renewable companies don’t have,” Dev Sanyal, BP’s (NYSE: BP) head of gas and low-carbon energy, told the WSJ. “We’re basically getting our wind from the Nordics, and we’re taking solar from Spain… We’re providing a blended offer.”

OPEC to enforce compensation. OPEC has had to remind once again the laggards in compliance in the OPEC+ oil production deal to submit plans on how they will compensate for pumping above their respective quotas in recent months, sources at OPEC told Energy Intelligence this week.

Oasis exits Permian, switches to Williston. Oasis Petroleum (NASDAQ: OAS) saidthat it is exiting the Permian basin and is instead doubling down on the Williston Basin as a pure-play driller. Oasis is selling its Permian acreage for $481 million to an undisclosed buyer.

U.S. looks abroad for EV metals. The Biden administration plans on looking abroad for metals needed for batteries, while focusing domestic efforts on processing, according to Reuters.

California begins rulemaking on fracking. California initiated on Friday the pre-rulemaking stage of proposed legislation that would end fracking in the state in 2024.

Shell on trial in the Netherlands. A Dutch court is expected to issue a decision on Wednesday on whether or not Royal Dutch Shell (NYSE: RDS.A) has a legal responsibility for climate change. The decision is only legally binding in the Netherlands but is being closely watched by both industry and environmental groups for its potential impacts elsewhere.

$150 billion in stolen oil money in Iraq. Some $150 billion in oil revenues has been stolen and smuggled out of Iran since the fall of Saddam Hussain in 2003, the president of Iraq said.

Texas requires winterization. A new law has advanced in Texas that would require power plants and some gas facilities to winterize their operations, potentially adding significant costs to utilities and owners of gas infrastructure.

Pemex buys Houston refinery. Pemex will buy Royal Dutch Shell’s (NYSE: RDS.A) stake in a Deer Park, Texas refinery for $596 million.

Top 5 oil firms saw revenues fall 31%. The five largest oil and gas companies in the world saw their combined revenues drop by 30 percent last year, although they still generated more than $1 trillion in total revenues.

By Tom Kool for Oilprice.com

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