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Surge In COVID Cases Counters Oil Market Optimism

Editor OilPrice.com
·6 min read

While much of the media attention has been on the recent Pfizer vaccine success, COVID cases are surging and new lockdowns are coming into effect, weighing further on oil prices 

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Friday, November 13th, 2020

Oil prices surged early in the week on enormously optimistic vaccine news. But prices withered as the week wore on, as the short-term Covid-19 outlook continues to darken. The U.S. posted nearly 160,000 positive cases on Thursday, more than doubling the daily case-count in less than two weeks. Crude is still set to close out the week with price gains, but the short-run outlook is pessimistic. 

New restrictions hurt demand. The vaccine won’t be widely available for months at the earliest, and in the meantime, new partial stay-at-home orders have been announced in a growing number of places. Last week, Austria, France, Germany, the UK, and Portugal all began implementing a wide variety of restrictions that will no doubt compound the oil demand problem. 

IEA: vaccine won’t help in short run. The IEA downgraded its demand outlook by 1.2 mb/d for the fourth quarter in its latest Oil Market Report. “With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provide a difficult backdrop” to the OPEC+ meeting, the IEA said. “Unless the fundamentals change, the task of rebalancing the market will make slow progress.”

Related: Growing Crude Inventories Put A Cap On Oil Prices

India’s fuel demand returns to growth. India’s fuel consumption in October posted year-on-year growth for the first time since the onset of the pandemic in February. Refined fuel consumption was up 2.5%. Asia continues to rebound as the West struggles with the pandemic. 

Shale acreage falls 70% in value. Drilling rights in the Permian basin now costs nearly 70% less than it did in 2018, falling from an average of $17,000 per acre to just $5,000 per acre, according to Rystad Energy. The decline in value is contributing to an M&A wave as embattled companies become easier targets.

U.S. set for record year for wind. The U.S. could add 23 GW of wind capacity this year, substantially more than the previous record set back in 2012 at 13.2 GW. One of the main drivers is the phasing down of the federal production tax credit.

EIA: WTI to average $44 next year. WTI Crude oil prices are expected to average $44.24 per barrel next year, the EIA said in its latest Short-Term Energy Outlook (STEO), with the forecast price not much higher than the $42 spot price early on Wednesday.  

Gas could lose market share this winter. U.S. natural gas prices have rebounded ahead of winter, which could work against natural gas in the electricity mix and provide coal with a temporary reprieve. 

Pipelines uncertain with Biden administration. President-elect Biden has previously said he would revoke key permits for the Keystone XL pipeline. But the Dakota Access pipeline could also face new problems with the change of government. A federal judge tossed out the pipeline’s permit earlier this year, although the pipeline continues to operate. A change of leadership at the Army Corps of Engineers could weaken the pipeline’s ability to overcome legal challenges. 

Line 3 wins approval from MN regulators. Enbridge’s (NYSE: ENB) Line 3 replacement obtained key permits from Minnesota regulators on Thursday, but still needs final authorization before construction can begin.

Related: EIA Sees WTI Crude Averaging $44 In 2021

Biden SEC could add climate disclosures. The Biden administration may empower the Securities and Exchange Commission to mandate corporate disclosures on climate change risk.

Shell wants Biden to put methane regs back in place. Royal Dutch Shell (NYSE: RDS.A) said that the Trump administration’s rollback of methane regulations on oil and gas sites was a “backward-facing position.” Shell said it would press the Biden administration to put them back into effect. “Some of the regulatory rollbacks that we’ve seen under the current administration haven’t actually benefited our industry,” Shell U.S. President Gretchen Watkins said Tuesday.

More refinery cuts. Petroineos said it would mothball its 200,000-bpd Grangemouth refinery in Scotland. Royal Dutch Shell (NYSE: RDS.A) said it would cut jobs and processing at its 500,000-bpd Singapore refinery. Reuters has a roundup of more than a dozen recent announcements of refinery cuts and closures. 

Biden announces energy transition team. The Biden camp announced its transition team for EPA, Department of Energy and Department of Interior. Arun Majumdar, co-director of Stanford University's Precourt Institute for Energy and founding director of the DOE's Advanced Research Projects Agency-Energy is heading up the DOE team. 

Ford unveils E-van. Ford (NYSE: F) unveiled its all-electric delivery van, which will have a 126-mile range and a sticker price of $45,000 when it goes on sale in 2022. Next year Ford will announce its electric F-150.

Baker Hughes to pivot outside of oil and gas. Baker Hughes (NYSE: BKR)announced a new partnership with Germany’s Wurth Group to manufacture parts for industries outside of oil and gas.

2-degree pathway means 65% less investment in natural gas. Meeting climate goals would translate to sharp reductions in upstream natural gas, according to Wood Mackenzie. Demand is on the rise, and meeting 2040 demand would require almost US$2 trillion of capital. “However, a 2-degree demand scenario dramatically alters this outlook, with future supply requiring a more modest, though still considerable, US$700 billion of new investment as global gas demand peaks earlier,” WoodMac said.

San Francisco bans new gas hookups. San Francisco will ban natural gas in newly constructed buildings beginning next year, the latest city to restrict gas use. 

New tankers to Venezuela suggest export rebound. At least 18 oil tankers are heading to Venezuela for oil loading, suggesting a rebound in exports.

EQT considers net-zero strategy. EQT (NYSE: EQT), the largest natural gas producer in the U.S., says it is considering a path to net-zero emissions. But for now, that would only include its operations, rather than Scope 3 emissions (from the end-user).

By Tom Kool for Oilprice.com 

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