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Last Updated: December 28, 2018
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Market Watch

Headline crude prices for the week beginning 17 December 2018 – Brent: US$50/b; WTI: US$42/b

  • It hasn’t been a Merry Christmas for oil prices, as both international benchmarks slid down to lows for the year, with Brent prices dropping below US$50/b at one point as international financial markets descended into chaos
  • OPEC’s attempt to support prices via a new supply deal became merely a blip in a sea of red, as the market shrugged off the deal to focus on a softening global economy and surging American oil production
  • The US Federal Reserve’s decision to hike interest rates – and the subsequent Twitter tantrum by US President Donald Trump – spooked markets, resulting in a Christmas Eve selloff that rattled stock exchanges globally
  • Saudi Arabia has tried to re-assure the market that the OPEC+ club would continue to trim production, asserting confidence that the review due in April will see extended cuts and appealing to the market that ‘we need more time to achieve the (intended) results’
  • Perhaps as a sign of confidence, Saudi Arabia estimates that it will produce 10.2 mmb/d of crude in 2019, with prices expected at US$80/b; Russia’s Energy Minister Alexander Novak also attempted to reassure the market, stating that the producers will react if the situation changes
  • Counter to the market direction, American drillers added 10 new oil rigs – almost all onshore – to service, with the active rig count expected to be up by some 150 rigs year-on-year
  • Crude price outlook: After the panic sell-off, a rebound is likely, as the market realigns itself. Longer-term concerns over a supply glut are still looming, but Brent should be able to claw back some ground to US$52-54/b and WTI to US$44-46/b

Headlines of the week


  • China’s CNOOC has signed strategic cooperation agreements with 9 international oil majors – including Shell, Chevron, Total and Equinor – aimed at boosting production in the Pearl River Mouth Basin offshore area
  • South Sudan has announced that it has secured at least US$2 billion in oil investments, including funds from the South African government, Petronas and Oranto Petroleum, with more expected in 2019
  • Total is set to begin crude exports from the offshore Egina field in Nigeria, with an initial 100,000 b/d joining the market in February, possibly doubling after
  • The Canadian federal government has offered some US$1.1 billion in loans for the oil and gas sector, aimed at supporting the beleaguered industry in Alberta, but the package was criticised as ‘insufficient’ by the state premier
  • After agreeing on the Platina field development, Sonangol and BP have agreed to extend the production licence for the Greater Plutonio field in Angola’s offshore Block 18 to 2032, with Sonangol taking an 8% stake in the block
  • Total and Petrobras have agreed to another MoU, this one covering joint development of the Lapa field in Brazil – with Total acquiring an additional 10% stake, up to 45% – as well as onshore solar and wind projects
  • Mexico’s new President is boosting Pemex’s budget to US$23 billion next year - US$10.4 billion for upstream and the remainder for downstream – in a bid to reverse the country’s flagging oil production and slash fuel imports; Pemex’s new upstream budget is mainly aimed at shallow water and onshore fields
  • A record 100 crude tankers were scrapped this year by ship owners, as the industry consolidates after the worst average shipping rates in three decades


  • After vacillating between an imploding PDVSA and a failed courtship with a Chinese firm, the government of Curacao has reported chosen Motiva – Saudi Aramco’s American refining arm – to operate the island’s 335 kb/d Isla refinery
  • Saudi Arabia and India’s Reliance have agreed to explore joint ventures focusing on refining and petrochemical operations in both countries
  • Croatia’s INA has announced plans to invest some US$616 million to upgrade its largest refinery in Rijeka and convert the Sisak refinery into a fuel plant
  • Sudan has reportedly signed an agreement with a consortium of Russian firms to build a 222 kb/d refinery in Port Sudan, with access to the Red Sea

Natural Gas/LNG

  • BP and its partners Kosmos Energy, Petrosen and SMHPM have sanctioned FID for Phase 1 of the Greater Tortiue Ahmeyim development in offshore Mauritania and Senegal – an innovative deepwater gas project involving an FPSO/FLNG combo with capacity for 2.5 mtpa of LNG 
  • Sempara Energy subsidiary Port Arthur LNG and Poland’s PGNiG have signed a 20-year agreement which will see 2 mtpa of LNG exported from the liquefaction facility currently under development in Jefferson County, Texas
  • Production at Equinor’s Aasta Hansteen field in the Norwegian Sea has begun, with recoverable reserves estimated at 353 million boe


  • Shell is in preliminary negotiations to purchase American oil producer Endeavor Energy for US$8 billion, roughly half of the company’s self-valuation, with the prize of undeveloped land in the Permian up for grabs

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Renewables became the second-most prevalent U.S. electricity source in 2020

In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.

In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.

Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.

We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.

monthly U.S electricity generation from all sectors, selected sources

Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.

July, 29 2021

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July, 28 2021
Abu Dhabi Lifts The Tide For OPEC+

The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.

How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.

The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.

The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.

On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.

But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.

For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.

End of Article 

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Market Outlook:

  • Crude price trading range: Brent – US$72-74/b, WTI – US$70-72/b
  • Worries about new Covid-19 infections worldwide dragging down demand just as OPEC+ announced that it would be raising production by 400,000 b/d a month from August onward triggered a slide in Brent and WTI crude prices below US$70/b
  • However, that slide was short lived as near-term demand indications showed the consumption remained relatively resilient, which lifted crude prices back to their previous range in the low US$70/b level, although the longer-term effects of the Covid-19 delta variants are still unknown at this moment
  • Clarity over supply and demand will continue to be lacking given the fragility of the situation, which suggests that crude prices will remain broadly rangebound for now

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July, 26 2021