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Oil Rallies Despite Growing Demand Concerns

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Editor OilPrice.com
·6 min read
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We hope you enjoy.

Chart of the Week

-    U.S. fossil fuel production declined by 6% in 2020.

-    The EIA projects that production will remain flat in 2021, with increased coal production offsetting declines in gas output.

-    Production will resume growth in 2022 but will remain below the 2019 peak.

Market Movers

-    ExxonMobil (NYSE: XOM) said that its latest well in offshore Guyana did not find commercial volumes of oil. That is the second setback the company has faced in Guyana in recent months.

-    ConocoPhillips (NYSE: COP) announced that it has completed its acquisition of Concho Resources. 

-    Tellurian (NASDAQ: TELL) co-founder Charif Souki said that the company is aiming to start construction on its $16.8 billion Driftwood LNG project this summer. 

Tuesday, January 19, 2021 

Oil prices fell more than 2% on Monday on rising concerns about oil demand. New lockdown restrictions in China spooked the market. “The COVID-19 pandemic’s spread is taking center stage again and traders are getting increasingly worried about the long duration of European lockdown and about the new restrictions (in) China,” Bjornar Tonnage from Rystad Energy said. However, oil regained lost ground in early trading on Tuesday. 

Related: Rising LNG Prices Welcome News For U.S. Exporters

IEA: Demand to recover by 5.5 mb/d. In the IEA’s January Oil Market Report, the agency projects that oil demand will bounce back to 96.6 mb/d this year, an increase of 5.5 mb/d over 2020 levels. That erases some of the 8.8-mb/d decline from last year. However, the agency cut its forecast for first-quarter demand by 600,000 bpd compared to last month’s report. On the supply side, production will increase by 1 mb/d this year, after declining by 6.6 mb/d in 2020.

Biden may cancel Keystone XL. President Biden may cancel the permit for the Keystone XL, perhaps on his first day in office, according to Reuters. In an effort to stave off a death sentence for the project, TC Energy (NYSE: TRP) said it would make the pipeline have a net carbon zero emissions profile by spending $1.7 billion on renewable energy to power the pipeline and to use union labor. Bloomberg reports that materials and pipe could be sold for scrap. 

Biden executive orders planned for Day 1. A series of executive orders are expected on Wednesday from newly inaugurated President Biden. In addition to one on Keystone XL, Biden is expected to rejoin the Paris Climate Agreement, reimpose methane regulations on oil and gas operations, use the federal procurement power to make government buildings shift towards clean energy, and block new drilling permits in the Arctic National Wildlife Refuge.

Sky-high LNG prices may not last. The rally in LNG prices in Asia is likely temporary. While February JKM prices topped $21/MMBtu, April contracts are trading at around $7. And the long-term pricing outlook for LNG remains bearish, according to the Wall Street Journal. China stands at the center of long-term forecasts, and China’s domestic gas production is on the rise, increasing by 9% in the first 9 months of 2020.

Oil majors benefit from LNG  price spike. Majors such as Royal Dutch Shell (NYSE: RDS.A) and Total (NYSE: TOT) might benefit more from the LNG price spike than trading houses due to their access to multiple sources of gas, allowing them to reroute cargoes, according to Reuters.

Total buys $2.5 billion stake in Indian renewables company. Total (NYSE: TOT) is investing $2.5 billion to acquire a 20% stake in Adani Green Energy Ltd., an India-based renewable energy company.

IEA: New methane report warns cuts needed. Oil and gas operations emitted 70 million metric tons of methane in 2020, a 10% reduction from the year before due to the pandemic, according to the IEA’s new report on methane. “The task now for the oil and gas industry is to make sure that there is no resurgence in methane emissions, even as the world economy recovers, and that 2019 becomes their historical peak,” said IEA executive director Fatih Birol. The IEA said that methane emissions need to decline by 70% over the next decade.

Enbridge defies Michigan, attempts to keep Line 5 open. In November, Michigan ordered the Line 5 pipeline shut down. On January 12, Enbridge (NYSE: ENB) wrote a letter arguing that the state didn’t have the authority to shut down the aging pipeline. 

China’s economy picked up speed in the fourth quarter. China’s GDP grew 2.3% in 2020, making China the only major economy that did not suffer economic contraction last year. China grew 6.3% in the fourth quarter, year-on-year.

$501 billion in decarbonization. The world invested $501 billion into cleantech and decarbonization efforts in 2020, beating the previous record by 9%, according toBloombergNEF. That included more than $300 billion on renewable energy and nearly $140 billion one electric vehicles.

Pipeline issue hits Libyan production. A leak that forced the shutdown of an oil pipeline in Libya has reduced its recovering oil production by as much as 200,000 bpd.

SEC to increase scrutiny on oil and gas. The Biden administration is likely via the SEC to increase disclosure requirements related to climate risk for oil and gas companies. In fact, a more aggressive push on ESG standards and requirements could be in the offing. The Wall Street Journal looks at the SEC’s potential agenda. Bloomberg also looks at the SEC, although from the angle of financial fraud in the oil and gas industry. 

Court strikes a fatal blow to Trump carbon rule. The U.S. Court of Appeals for the District of Columbia Circuit killed the Trump administration’s rule on power plant emissions. The court said that the Affordable Clean Energy (ACE) rule, a watered-down replacement for the Obama-era Clean Power Plan, did not adequately protect health and the environment. The decision gives the Biden administration something of a clean slate to start over. 

Related: Iran Expands Its Sphere Of Influence With Iraqi Energy Deals

Russia starts work on its Arctic mega project. Russia is aiming to develop the massive Vostok project. Rosneft expects the operation to cost $170 billion over a decade that will employ 400,000 workers, create 15 new industrial towns, and build 800 km of new pipelines. The Vostok projects should already produce 30 million tonnes of oil by 2024 which rounds up to 600,000 barrels per day. Eventually, it could produce as much as 2 mb/d.

Biden to face question on Venezuela fuel swaps. Representatives of fuel suppliers in Venezuela are expected to press the Biden administration to loosen the ban on fuel swaps for the impoverished country.  

Axis Capital rules out Arctic projects. Axis Capital Holdings Ltd. said it wouldn't ensure oil and gas projects in the Arctic National Wildlife Refuge, the first underwriter to rule out insurance for the Arctic.

Money pouring into offshore green investments. The Wall Street Journal reports that investors are pouring money into retrofitting deep-sea vessels that once serviced offshore oil projects to now handle offshore wind installations.  

By Tom Kool for Oilprice.com

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