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Headline crude prices for the week beginning 2 March 2020 – Brent: US$51/b; WTI: US$45/b

  • Global crude oil prices are now at three-year lows, as the weakening and deepening of the Covid-19 outbreak wrecks havoc with global demand, both on a sentiment- and on an actual consumption-basis
  • The freefall, which saw the worst weekly oil drop since 2011, has prompted calls for the OPEC+ to act; however, that requires the duelling factions within the oil producer club to cooperate on the necessity and scale of cuts
  • Despite saying that the Covid-19 outbreak will be ‘temporary’, Saudi Arabia is still urging OPEC+ to agree on a 1 million b/d cut through June 2020 at least at a planned extraordinary OPEC+ meeting this week in Vienna; the OEPC technical committee originally recommended a 600,000 b/d cut
  • Russia is reportedly ready to cooperate to support the world oil market – based on the comments of President Vladimir Putin – though there will still be squabbles over the size and length of the new supply agreement
  • This acted to support crude oil prices at the start of this week, but a 1 mmb/d cut may not even be enough to contain the rout in crude oil prices, as there is major uncertainty over how long the pandemic will last
  • Although cases and deaths in China are plateauing, cases and deaths in three new hotspots – South Korea, Italy and Iran – are accelerating, with possibilities of new hotspots in Europe and the USA; records of deaths suggest that the actual number of cases may be far higher based on the observed fatality rate
  • The outbreak in Europe is causing employers to order self-quarantines, with Chevron and Unipec among those directing workers to stay home; if this extends to manufacturing facilities, the demand hit will be even greater than it is now
  • Chinese demand for oil and gas continues to be weak, with reports of contracted crude and LNG cargoes cancelled, delayed or held back; some of these cargoes are being offered to the next largest market – India – at cheaper prices
  • The US active rig count recorded a net loss of 1 oil rig according to the Baker Hughes Rig Count, keeping the total number of rigs at 790 sites, or down 248 rigs y-o-y
  • The direction of prices will depend very much on the outcome of the OPEC+ meeting in Vienna Friday – and whether the rest of the countries can persuade Russia to join in a new supply deal; if the outcome is favourable, crude prices could be supported into the range of US$49-54/b for Brent and US$45-49/b for WTI

Headlines of the week


  • Shell has announced plans for a major deepwater well campaign in Mexico – 4 wells each in 2020 and 2021, part of an overall 10-13 planned – though it admits that any potential fields will likely start up after the current new government (under Andres Manuel Lopez Obrador) and its pro-Pemex policies serve its term
  • Rosneft is attempting to skirt US sanctions on the Venezuelan crude export complex, shifting trades to its affiliate TNK Trading International after Rosneft itself – Venezuela’s top crude buyers – was sanctioned by the US Treasury
  • The Trump administration in the US is finalising a plan for Arctic oil drilling, aiming to lease out land in the Arctic National Wildlife Refuge
  • Eni has raised estimates of oil in place at its Agogo field in Angola to some 1 billion barrels, a 40% increase contributed by the new Agogo-3 well
  • Kazakhstan will resume pipeline exports of crude to China this month, after shipments were suspended following organic chloride contamination of crude
  • Teck Resources will be abandoning plans for its Frontier oil sands project in Alberta, taking a US$850 million write down on the cancellation
  • BP will be leaving three US trade associations, including the main lobby group American Fuel and Petrochemical Manufacturers, following an alignment review on climate policies and activities that ‘could not be resolved’


  • Algeria has restarted the Sidi Rezine refinery in Algiers after completing a modernisation overhaul that has increase capacity by 35% to some 85 kb/d
  • ExxonMobil will be restarting the largest CDU at its 502,500 b/d Baton Rouge refinery in Louisiana after a fire knocked out operations in early February
  • The oil trade row between Russia and Belarus has forced state refiner Belneftekhim to slash refinery utilisation rates by half since January
  • Saudi Aramco has gained EU antitrust appeal to proceed with the acquisition of 70% in Saudi petrochemicals group SABIC
  • Saudi Aramco’s trading arm Aramco Trading Company has established a trading desk in London to support its operations in Europe and the Americas

Natural Gas/LNG

  • Saudi Arabia has announced plans to invest US$110 billion to develop its unconventional natural gas reserves in the eastern Jafurah field, which is estimated to hold some 200 trillion cubic feet of wet gas; Jafurah output is expected to start in 2024, rising to a peak of 2.2 bcf/d by 2036
  • Venture Global has signed a 20-year LNG agreement with Electricité de France for 1 mtpa of LNG from the start date of the Plaquemines LNG export terminal
  • ExxonMobil and Indian Oil have signed an agreement to collaborate on virtual gas pipeline in India, potentially delivering LNG by road, rail or waterways in a fast-growing LNG market that is hampered by a lack of pipeline infrastructure
  • New Fortress Energy has started work on its LNG receiving and regasification terminal in the port of Pichilingue in Baja California Sur, Mexico

Natural Gas/LNG

  • The success of Saudi Aramco’s IPO is inspiring other Middle Eastern producers to go public, with Bahrain is looking to transfer its oil and gas assets in a potential state fund to be sold to investors to balance its budget
  • Total’s acquisition of Anadarko’s assets in Ghana – part of a deal signed between Occidental Petroleum and Total – has been held up over a capital gains tax claim of some US$500 million

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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