OPEC Plus “Cuts” Deal to Boost Supply
OPEC and its “plus” allies have reached another covid-induced agreement, but this time it will not be more production cuts. For the second time since the covid pandemic began, the OPEC plus members will be reversing the reductions and beginning to increase production. The increases are scheduled over time, will begin in August 2021, and the agreement bounds the countries together through 2022.
Oil prices have reached a 6 year high following the end of discussion between OPEC and other nations known for oil production. They reached a conclusion that there will not be an increase of 400,000 barrels per day. Failure to reach an agreement is based off of a split in OPEC between the United Arab Emirates and Saudi Arabia.
Americans are seeing the highest increase in gasoline prices since 2014. The price of gas has increased almost a dollar since last year. The national average price per gallon of regular gas is $3.12 a gallon as of last Thursday. Analysts say it is expected that in July and August hundreds of thousands of barrels of more fuel will be burned compared to prior levels, sending the national average price of gasoline upward towards $3.20 or higher.
Last Friday China’s National Petroleum Corporation made a significant discovery while drilling in the Tarim Basin located in the Fuman Oilfield area of the Xinjiang Uyger Autonomous region. In their drilling efforts, China uncovered a new 1-billion-ton oil and gas area making it the largest discovery in over 10 years. The Furman Oilfield is one of the most challenging oilfields in the world for drilling. Read More
Unless you have been living under a rock, it is no secret crude oil has been on a tumultuous ride. Crude has long been a commodity that follows up and down trends on traditional cycles. The seven-year boom followed by a year of bust broke cycle in 2015 and saw the oil and gas sector consumed with historic lows, layoffs, and bankruptcies. Oil struggled to regain its dominance at $100+/bbl and E&P Operators scrambled to be leaner and more efficient as $40 seemed to be the new $100.
Fast forward to 2019/2020 when oil finally seemed to find a balance. Exploration began to increase, and we saw some promise in drilling rig numbers. COVID-19 ravaged the world oil demand and we saw crude trade negative. COVID-19 kept a death grip on crude for the better part of a year, but 2021 is lining up to be a HUGE year for Crude. The roller coaster ride for crude leading up to 2021 has culminated into ripe conditions for an oil boom!
The API reported a crude draw of 8.537 million barrels far exceeding the 3 million barrel expected draw. While gasoline and diesel added inventories, the EIA reported less production. In the face of refined product inventory increases, prices held and, in some cases, climbed as the supply/demand curve signaled a stronger demand and tightening supply. Crude was trading at 32-month high of near $75 a barrel.[1]
Crude has averaged $65/bbl in April, $68/bbl in May, and is holding above $70/bbl for June. Experts predict that crude will easily surge above $100/bbl and gas prices are likely to follow suit and increase as well. As supply continues to tighten and demand increases oil will continue to climb. The International Energy Agency began Friday urging OPEC to ramp up production while the Saudi Prince urged investors to back oil and gas exploration.[2] Energy investors have been scared off and have shied away from backing E&P operators. The uncertainty leading up to June 2021 has led to less investing for exploration and drastically cut drilling budgets. Mergers and Acquisitions have pushed out many small operators and the larger operators are sticking to smaller and more lean operational footprints that focus more on efficiency and per foot costs.[3]
The new super cycle of $100+/bbl crude is expected to come quicker than anticipated but also may last less than 18 months. Many factors could derail oil futures. New Covid strains that lead to lockdowns are a major concern. Government regulation and emissions standards are also sizeable threats. Despite the oil rally and a looming price explosion, many supers are still being ultra conservative in the Oil and Gas play.[4] Navigating through the ever-changing crude and refined products market is less than ideal so talk to a Guttman sales representative today to secure your success for 2021 and into the future.
[1] https://oilprice.com/Energy/Crude-Oil/Oil-Jumps-On-Significant-Crude-Draw.html
[2] https://www.foxbusiness.com/energy/oil-prices-hit-100-barrel-crisis-looming-energy
[3] https://www.worldoil.com/news/2021/6/16/saudis-warn-an-oil-price-surge-could-follow-reduced-global-crude-exploration
[4] https://www.rigzone.com/news/conditions_ripe_for_oil_price_boom-15-jun-2021-165690-article/
As COVID-19 vaccine distribution continues to roll out, global markets underestimated the demand for oil as the economy reopens for business. Goldman Sachs is expecting Brent crude to hit $80 per barrel and forecasters remain optimistic that prices will stay above $70 per barrel by mid-2021. Read More
On Tuesday, March 23rd, the giant container ship, the Ever Given, ran aground in the Suez Canal causing hundreds of ships to get stuck at both ends of the canal. The canal connects the Red Sea to the Mediterranean Sea and carries approximately 10% of global shipping traffic. The Suez Canal is vital for nearly every cargo ship that moves between Asia and Europe, and it is also an important shipping lane for cargo coming from Asia to the East Coast of the United States. At the time of this writing, the Ever Given has been partially refloated and moved alongside the canal bank, but the backup is still impacting oil markets.
Crude has been the underdog since Covid-19 broke onto the scene in early March of 2020. We have seen historic contango, negative trading, inventories at the verge of 100% capacity. However, we have also seen refineries curtailing production and shutting down, crude breaking technical level after level, OPEC + committing to decreased outputs, a Texas winter weather creating supply concerns, and a slow steady recovery of crude as inventories are drawn down and production resumes. Crude has built a full head of steam and looks to be an unstoppable force and a surefire pick to rise to glory yet again for 2021. March Madness is known for its volatile emotional up and downs and surprise sleeper teams with unimaginable upsets. Will 2021 and a third European lockdown amid vaccine safety concerns be the sleeper to upset the rise of Crude?!
Following a brutal year for their balance sheets, the world’s biggest oil companies are anticipating a windfall of cash flow this year. Prices have rallied significantly over the past month or so, and the massive cost-cutting from last year positions some of the biggest International Oil Companies (IOCs) to reap the benefits of high crude prices.
Since 1944, one of the largest oil field service companies in Texas, Baker Hughes Company, has released data at the end of each week on the state of the oil and gas industry. Last week, Baker Hughes reported an increase in U.S. rig counts which affects demand in a variety of energy sectors such as drilling, completion and production. These rigs are aided in the exploration and production of oil and natural gas domestically.
