Brent bulls may have been eying the oil market through rose-tinted glasses. Even a routine monitoring committee meeting of OPEC and non-OPEC this week seemed to fit neatly into a larger sanguine narrative. Remarks by the Iraqi oil minister that an extension of the OPEC/non-OPEC production cuts through the end of 2018 was one of the options being considered added to the mood, never mind the ifs and buts. He hinted at the prospect of a deeper cut, and the market ran with it, ignoring the devil in the detail. Brent, having climbed to six-month highs above $56/barrel this week, may be good for a sprint amid reduced North Sea production, continued strong demand for crude in Europe and Asia due to lingering downstream outages in Texas after Hurricane Harvey and signs of some floating and landed oil inventories starting to drain. But is it ready for a marathon? Meanwhile, Iraq, having declared victory over ISIS after a three-year battle, could be in for a new fight with itself, as the Kurdish north prepares to hold a contentious independence referendum Sep 25.
The market’s high expectations from the OPEC/non-OPEC Joint Ministerial Monitoring Committee Meeting Friday set the event up for failure in the eyes of crude bulls, and we can see Brent losing steam or reversing its recent gains if no concrete decisions emerge from Vienna.
The five-member committee, despite the heft lent by the presence of Russian energy minister Alexander Novak, defacto leader of the 10 non-OPEC producers participating in the cuts agreed last December, is not a forum for making decisions. It was constituted under the OPEC/non-OPEC production cut agreements specifically to ensure that the producers kept their promises. It is chaired by Kuwait and includes fellow OPEC members Algeria and Venezuela and non-OPEC producers Russia and Oman.
It is worth revisiting the events of May: The JMMC met May 24 and produced a “recommendation” for the OPEC and non-OPEC producers to roll over their cuts for nine months beyond the initial June 30 expiration. The ministers agreed an extension to March 2018 at their meeting the following day and Brent slid by $2.50/barrel (5%) in the day’s session. At that point, an extension had already been baked in and the market wanted to see more action from the OPEC/non-OPEC alliance. Brent went into a tailspin in the following two weeks, dropping to a six-month low below $48.
There may be a shadow lurking over oil supplies. A Kurdish independence referendum scheduled for September 25 could jeopardize 550-600,000 b/d of crude flows from northern Iraq, given the opposition from the central Iraqi government in Baghdad and the spectre of a civil war breaking out just as the north has cleared out the ISIS militants. The tail risk of a wider conflict across Iraq, potentially drawing in vested neighbours Iran and Turkey, could put the country’s 4.4 million b/d of crude output at risk, but that is not our base-case scenario.
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Source: U.S. Energy Information Administration, Electric Power Monthly
Renewable generation provided a new record of 742 million megawatthours (MWh) of electricity in 2018, nearly double the 382 million MWh produced in 2008. Renewables provided 17.6% of electricity generation in the United States in 2018.
Nearly 90% of the increase in U.S. renewable electricity between 2008 and 2018 came from wind and solar generation. Wind generation rose from 55 million MWh in 2008 to 275 million MWh in 2018 (6.5% of total electricity generation), exceeded only by conventional hydroelectric at 292 million MWh (6.9% of total generation).
U.S. solar generation has increased from 2 million MWh in 2008 to 96 million MWh in 2018. Solar generation accounted for 2.3% of electricity generation in 2018. Solar generation is generally categorized as small-scale (customer-sited or rooftop) solar installations or utility-scale installations. In 2018, 69% of solar generation, or 67 million MWh, was utility-scale solar.
Source: U.S. Energy Information Administration, Electric Power Monthly
Increases in U.S. wind and solar generation are driven largely by capacity additions. In 2008, the United States had 25 gigawatts (GW) of wind generating capacity. By the end of 2018, 94 GW of wind generating capacity was operating on the electric grid. Almost all of this capacity is onshore; one offshore wind plant, located on Block Island, off the coast of Rhode Island, has a capacity of 30 megawatts. Similarly, installed solar capacity grew from an estimated less than 1 GW in 2008 to 51 GW in 2018. In 2018, 1.8 GW of this solar capacity was solar thermal, 30 GW was utility-scale solar photovoltaics (PV), and the remaining 20 GW was small-scale solar PV.
Growth in renewable technologies in the United States, particularly in wind and solar, has been driven by federal and state policies and declining costs. Federal policies such as the American Reinvestment and Recovery Act of 2009 and the Production Tax Credit and Investment Tax Credits for wind and solar have spurred project development.
In addition, state-level policies, such as renewable portfolio standards, which require a certain share of electricity to come from renewable sources, have increasing targets over time. As more wind and solar projects have come online, economies of scale have led to more efficient project development and financing mechanisms, which has led to continued cost declines.
Conventional hydroelectric capacity has remained relatively unchanged in the United States, increasing by 2% since 2008. Changes in hydroelectric generation year-over-year typically reflect changes in precipitation and drought conditions. Between 2008 and 2018, annual U.S. hydroelectric generation was as low as 249 million MWh and as high as 319 million MWh, with hydroelectric generation in 2018 totaling 292 million MWh. Generation from other renewable resources, including biomass and geothermal, increased from 70 million MWh to 79 million MWh in the United States between 2008 and 2018, and it collectively represented 1.9% of total generation in 2018.
Headline crude prices for the week beginning 11 March 2019 – Brent: US$66/b; WTI: US$56/b
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