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Last Updated: March 13, 2020
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Headline crude prices for the week beginning 9 March 2020 – Brent: US$31/b; WTI: US$27/b

  • A bloodbath has ensued, as the fragile-but-necessary Saudi Arabia-Russia alliance to stabilise crude oil prices shattered into an all-out price war
  • Following Russia’s refusal to participate in and extend the OPEC+ supply deal to 1.5 mmb/d and to the end of 2020 (as proposed by Saudi Arabia), the OPEC+ alliance is over; Saudi Arabia immediately announced it would raise its production to 12 mmb/d and offering steep discounts on its crude for April
  • The largest discounts offered on Arabian crude was for European markets – directly impacting one of Russia’s largest markets – and the Saudi government is planning to go even further, directing Saudi Aramco to raise output to 13 mmb/d for April, which may involve dipping into stocks
  • Saudi Arabia’s drastic move was joined by some of its OPEC allies – including the UAE – and appears to be intended to punish Russia for its reticence to shoulder responsibility, particularly after Vladimir Putin suggested that Russia was ‘content’ with oil prices at US$50/b
  • The aftermath of the price war’s start was that crude oil prices plunged by 31% in a day to their lowest levels in 3-years, triggering a global panic that caused a severe sell-off in all financial and commodity markets, exacerbating a situation already made desperate by the global Covid-19 pandemic
  • The price war between the two oil giants will claim many victims, including other OPEC members dependent on oil revenue like Iraq and Iran, as well as US shale producers that were already in dire straits due to debt; this, indeed, might be the end goal of the Saudi-Russia tiff
  • Although Russia itself is standing firm against Saudi Arabia’s opening salvo – stating that it will raise its output by 500,000 b/d as well – it also hinted that it remains open to further cooperation, although this olive branch may fall on deaf ears in the Saudi Kingdom
  • As the Covid-19 outbreak begins to accelerate in Europe and the US, the global worst case scenario keeps getting worse and worse, as the possibility of several countries going into full lockdown becomes very real
  • The price war kicked off by Saudi Arabia is poised to decimate the US active rig count; the decline is coming, but the Baker Hughes rig count managed a rare gain last week, adding 3 sites for a total of 793
  • With no sign of the price war ending, and the Covid-19 pandemic spreading far and wide, crude oil prices will remain infected with pessimism, although there will be windows for opportunistic trades; wide swings are expected, with Brent is likely to trade between US32-38/b, and WTI at US$28-34/b


Headlines of the week


  • ExxonMobil announced that it would be slowing its Permian production growth by some 10% over the next two years in the face of the recent havoc on crude prices, in sharp contrast to Chevron that intends to increase Permian output to fund a planned US$80 billion programme of dividends and share buybacks
  • Spirit Energy has sold two ‘non-core’ Danish upstream assets to Ineos, which include its 40% stake in the Hejre and 27.7% stake in the Solsort discoveries
  • ConocoPhillips has sold its US Niobara and Wadell Ranch assets (in the Denver-Julesberg Basin and the Permian Basin) to undisclosed buyers
  • Santos has taken FID on the Van Gogh Infill Development Phase Two project in offshore Western Australia, ramping up production of the heavy-sweet crude produced from the WA-35-L block in the Exmouth Basin
  • Equinor has reported its first oil discovery of 2020, with two wells in the North Sea Sigrun East prospect estimated to contain 7-17 million barrels of oil
  • ExxonMobil and Shell are teaming up to explore for oil offshore Somalia, with a government-approved roadmap converting the companies’ previous concessions into new PSAs under the recently-approved Petroleum Law
  • CNOOC is moving full speed ahead with its seven-year action plan to boost upstream production in China, earmarking US$13.6 billion in CAPEX for 2020


  • PDVSA’s US refining arm Citgo has reached an agreement with Aruba to transfer the ownership of the 209 kb/d San Nicolas refinery to the island’s government, after failure to overhaul the site idled since 2012
  • Sinopec’s 400 kb/d Maoming refinery has exported its first shipment of low sulfur fuel oil, with Chinese refineries grappling with a fuels glut as domestic demand craters amid the shift towards cleaner marine fuels
  • As its spat with Russia over crude oil deliveries continues, Belarusian state refiner Belneftekhim is turning to Azerbaijan’s SOCAR to fuel its refineries
  • China’s largest refinery – Sinopec’s 460 kb/d Zhenhai refinery – will shut down one of its three CDUs in March for maintenance as domestic demand weakens
  • Eni is reportedly mulling closure of its 100 kb/d Milazzo refinery in Sicily as the site might fail to meet the region government’s air quality requirements
  • Liberia has suspended all fuel import licences – including those of France’s Total – for review as the country deals with severe gasoline shortages, with fears that importers had been grossly overstating their inventories
  • The planned 100,000 b/d grassroots Fort Stockton refinery in Texas – which will refine Permian shale crude – has kicked off two months ahead of schedule

Natural Gas/LNG

  • Sempra Energy’s Cameron LNG Train 2 in Louisiana has reached commercial operations, with Train 3 expected in Q3 2020 for a total of 12 mtpa of LNG
  • Cryopeak LNG Solution has completed a 18,000 gallon/29-ton shipment of LNG by truck in Canada, the largest-ever road shipment of LNG in North America as an alternative LNG distribution channel
  • Eni is reportedly the front-runner to acquire most of Chevron’s gas assets in Indonesia, including the Indonesia Deepwater Development project in the Makassar Strait that involves the Bangka, Gendalo and Gehem fields
  • Santos is poised to sell a 25% stake in Darwin LNG and its feed field Bayu-Undan for some US$390 million to SK E&S, in order to developer the offshore Barossa gas field to keep the Darwin LNG plant going

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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.

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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