Category: Nieuws

Oil and gas plays a key role in running our world, from powering homes and businesses to keeping the transportation infrastructure running. Our lives wouldn’t be the same without oil and gas.

Consumers can easily spot price fluctuations within the oil and gas industry, from filling up our tanks at the gas pump or sticker shock on our utility bills during the winter and summer months. These price changes may seem meaningless at times, however, several factors influence increases and decreases in oil and gas pricing. There is more to it than supply and demand.

If you are considering investing in crude oil, understanding the factors which affect oil and gas prices will give you a more solid foundation for your investing activities.

There are four primary factors that affect the price of oil and related products worldwide. These factors include:

Demand
As with any commodity, one factor that dictates price is demand. The world demand is around 90 million barrels per day for crude oil. Many countries have fuel subsidies for their residents. This can be good or bad. It’s especially bad when a company is forced to sell at a loss.

Supply
Supply has an effect on price. Supply is usually kept slightly below demand by about one million barrels per day.

Forbes, Editor: Jay R. Young, January 27, 2021

BCOM, GSCI seen adding about 100,000 crude oil contracts. Annual re-balancing begins Friday and will last for five days

Tens of billions of dollars worth of commodity investments are about to be switched around in a move that’s set to cause a wave of oil-futures buying.

While the move happens every year, crude’s 20% decline in 2020 means that the value of oil index investments has been far below its target for months. As a result, as much as $9 billion of oil contracts could be purchased over the five days of re-balancing that start Friday, according to Citigroup Inc., at a time when the market is already surged to 10-month highs.

The move affects the world’s two biggest commodities indexes — the S&P GSCI Index and the Bloomberg Commodities Index. Crude has recovered from its coronavirus-driven rout and so far this year has been benefiting from Saudi Arabia’s unilateral output cuts, a surge of investments to hedge reflation and coronavirus vaccines. Markets are now abuzz with talk of the next tailwind for prices: commodity indexes plowing into another 80 to 100 million barrels of crude futures contracts.

“It’s a big deal,” said Gary Ross, a veteran oil market watcher and chief executive officer of Black Gold Investors LLC. “If you start increasing financial length by 80-100 million barrels, you push up the price $2-$3, all other things being equal.”

Investment products that track the S&P GSCI or BCOM are followed by billions of dollars in passive, long-only funds such as pension funds. Bloomberg Index Services Limited, the administrator of Bloomberg Indices, including BCOM, is a wholly-owned subsidiary of Bloomberg LP.

Buying Trigger
Estimates of the exact size of the inflows vary significantly. That’s because the figures are based not only on a product’s weight within the index, but also their total assets under management and how actively traded they are. For BCOM, the weight of most contracts will increase, except Brent and Nymex gasoline. For S&P GSCI, oil contracts will see a lower weighting, despite WTI remaining the largest constituent part.

What matters, though, is investment flows. While weightings might drop, the dollar value to maintain the new weightings might need to rise. And that’s what would trigger the contract buying.

Citi’s estimate assumes that BCOM and S&P GSCI both have about $100 billion of investments. Still, JPMorgan Chase & Co. said last month that it only expects about $3 billion worth of buying in the market as crude’s rally up toward $50 limited some of the additional purchases required.

There are some big unknowns about exactly how the process will play out. One is that investors and traders, aware of the re-weighting, may already have been pre-empting it. Another is the total dollar value of the commodity assets that funds will have under management, which will dictate the scale of investment flows.

RBC Capital Markets estimates that there will be about 80,000 Brent and West Texas Intermediate contracts bought during the re-balancing.

“This buying pressure across the complex should serve as a tailwind and help fortify the improving oil market sentiment,” RBC analysts Helima Croft and Michael Tran wrote in a note.

Bloomberg, Editor: Alex Longley, January 27, 2021

Kinder Morgan is currently one of the largest energy-infrastructure companies in North America. It operates 70,000 miles of natural gas pipelines, nearly 10,000 miles of oil and refined-products pipelines, and has an extensive storage footprint. The bulk of its assets transport, process, and store fossil fuels, which are vital to supporting the U.S. economy.

However, the economy is slowly transitioning to cleaner fuel sources. That could impact Kinder Morgan’s business in the coming years unless it joins the transition. The company’s management team addressed these concerns during its recent fourth-quarter conference call. Here’s what they had to say about the company’s plans for the energy-market transition.

Focused on the cleanest fossil fuel
Kinder Morgan is already a step ahead of many fossil fuel-focused companies because it generates the majority of its revenue by operating natural gas infrastructure. That’s key because it’s a cleaner fuel, and its increased usage is important for reducing greenhouse gas (GHG) emissions. It’s also why electric utilities are investing in new natural gas power plants.

These plants currently have a competitive advantage over renewable energy in that they produce steady electricity. By contrast, renewables can be intermittent because the sun isn’t always shining and the wind doesn’t always blow. However, as the costs for battery storage come down, this competitive advantage will fade away.

Still, as CEO Steve Kean stated on the call, the company’s large-scale natural gas business “will continue to be needed to serve domestic needs and export facilities for a long time to come and continue to reduce GHG emissions as we expand its use around the country and the globe.” In the near term, the value of this business “increases as more intermittent resources are relied on for power generation” because “natural gas is clean, affordable, and reliable. And pipelines deliver that commodity by the safest, most efficient, most environmentally sound means.”

Looking ahead to the energy transition
While natural gas will remain vital to the economy for a long time, Kinder Morgan is already looking toward the future of energy. Kean noted that:

Also among the energy transition businesses that we participate in today is the storage handling and blending of liquid renewable transportation fuels in our products pipelines and terminals segments. We’ve handled ethanol and biodiesel for a long time. Today we’re handling about 240,000 barrels a day of a 900,000 barrel a day ethanol market, for example. We also handle renewable diesel today. That’s part of our business that is ripe for expansion on attractive returns.

As the CEO notes, Kinder Morgan has already started to pivot some of its liquids assets toward renewable fuel sources like ethanol, biodiesel, and renewable diesel. That’s beginning to open up new expansion opportunities.

For example, it’s investing $18 million to expand its market-leading Argo ethanol hub to add 105,000 barrels of ethanol-storage capacity and enhance the system’s ability to load this fuel into transportation vessels like rail and barges. Meanwhile, as demand for these fuels rise, the company should be able to leverage its existing footprint to capture additional expansion opportunities.

Kinder Morgan sees several other adjacent opportunities to participate in the energy transition in addition to what it’s already doing. Kean stated that:

Moving out the next concentric circle of opportunities is a set of things that we can largely use our existing assets and expertise to accomplish. Those include things like blending hydrogen in our existing natural gas network and transporting and sequestering CO2. A further step out would be businesses that we might participate in if the returns are attractive, such as hydrogen production, renewable diesel production, and carbon capture from industrial and power plant sources.

Hydrogen could be a massive opportunity since it could eventually replace natural gas as an emission-free fuel source. In addition to that, the company already has expertise in transporting and sequestering carbon dioxide since it uses that greenhouse gas to produce oil out of legacy fields in Texas. Thus, it’s well-positioned to potentially capture it from industrial sources and use it for oil production, or sequester it in abandoned oil and gas fields to reduce the economy’s carbon footprint.

While the company plans to participate in the energy transition, Kean made one thing clear: “[A]s always, we will be disciplined investing when returns are attractive in operations that we are confident we can build and manage safely, reliably and efficiently.” He said that the company “will not be chasing press releases” because “energy transitions for a variety of reasons take a very long time.” The company plans to “look hard as we lead” and will “evolve to meet the challenges and opportunities.”

A key theme to watch in the coming years
Kinder Morgan currently focuses on the infrastructure needed to transport and store the fossil fuels vital to supporting the economy. However, it’s well aware that the economy is moving toward cleaner fuel sources. That’s why it’s also beginning to transition its business to support the future of energy.

While it’s taking small steps now, Kinder Morgan will need to continue making strides to keep up with this change, which investors need to watch closely in the coming years.

The Mootley Fool, Editor: Matthew DiLallo, January 27, 2021

Oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, an official with International Energy Agency (IEA) said.

“Producers are grappling with huge uncertainty about where this goes from here,” said Tim Gould, head of energy supply outlooks and investment.

“That’s not just in terms of economic recovery but indicators we wouldn’t necessarily normally be looking at: (such as the) levels of trust in different countries about vaccines.”

OPEC and allied countries such as Russia agreed this month to cut crude production through March in a bid to match abundant supply with demand which has sagged amid surging virus cases while vaccination programmes get underway.

While the pandemic has prompted some energy majors and watchdogs to predict that a peak in the world’s demand for oil has been brought nearer or may have already come and gone in 2019, Gould said the IEA disagreed.

“As things stand, with the pace of change we see on the structural side is not enough in our view to deliver a peak anytime soon.”

“Growth in the economy, recovery in the economy will sooner or later bring oil demand back to 2019 levels. The 2020s in our view are the last decade in which you’re likely to see increasing oil demand,” he added.

Reuters, Editor: Noah Browning, January 27, 2021

The closely watched oil market report comes as coronavirus cases continue to surge worldwide, with new lockdowns imposed in Europe and parts of China. OPEC said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year over year to average 95.9 million bpd.

“Anyone who keeps his or her finger on the pulse of the oil market knows that prices are currently driven by expectations and not by immediate realities,” said Tamas Varga, senior analyst at PVM Oil Associates.

Oil producer group OPEC on Thursday kept its 2021 forecast for global crude demand growth unchanged, but warned uncertainties over the impact of the coronavirus pandemic remain high.

The closely watched oil market report comes as Covid cases continue to surge worldwide, with new lockdowns imposed in Europe and parts of China.

In recent weeks, optimism about the mass rollout of coronavirus vaccines appears to have been tempered by the resurgent rate of virus spread.

It has resulted in oil producers trying to orchestrate a delicate balancing act between supply and demand as factors including the pace of the pandemic response continue to cloud the outlook.

“Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior,” OPEC said Thursday.

“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”

The 13-member group said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year on year to average 95.9 million barrels per day. The forecast was unchanged from last month’s assessment.

The group said world oil demand growth in 2020 declined by 9.8 million barrels per day year on year to average 90 million barrels per day. The group noted the fall was marginally less than expected in December.

OPEC said its 2021 forecasts “assume a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.”

“Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels,” the group said.

Oil prices ‘driven by expectations’
OPEC and its non-OPEC allies, an alliance sometimes referred to as OPEC+, cut oil production by a record amount in 2020 in an effort to support prices, as strict public health measures worldwide coincided with a fuel demand shock.

OPEC+ initially agreed to cut output by 9.7 million bpd, before easing cuts to 7.7 million and eventually scaling back further to 7.2 million from January. OPEC kingpin Saudi Arabia has since said it plans to cut output by an extra 1 million barrels per day in February and March to stop inventories from building up.

International benchmark Brent crude futures traded at $55.77 a barrel on Thursday, down 0.5% for the session, while U.S. West Texas Intermediate futures stood at $52.76, around 0.3% lower. Oil prices are currently on pace for their third consecutive week of gains.

“Anyone who keeps his or her finger on the pulse of the oil market knows that prices are currently driven by expectations and not by immediate realities,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note.

“Those who disagree are recommended to have a quick look at the forecasts of H1 2021 oil demand over the past few months and compare these estimates with price developments,” he added.

Ahead of Thursday’s publication of its oil market report, OPEC had steadily lowered its demand growth forecasts for 2021.

Other major forecasters, including the International Energy Agency and the U.S. Energy Information Administration, have also downgraded their oil demand growth estimates for 2021 in recent weeks.

CNBC, Editor: Sam Meredith, January 27, 2021

The U.S. will remain important in oil markets, even if President-elect Joe Biden is less vocal than President Donald Trump, says UAE Energy Minister Suhail al-Mazrouei.

Outgoing President Trump used to post on Twitter about crude oil and even communicated with OPEC leaders Saudi Arabia and Russia during the oil price war last year. Biden is expected to take a different approach.
Al-Mazrouei also weighed in on the timeline for a recovery in the oil market.

The U.S. will always play an important role in global energy markets, even though President-elect Joe Biden is likely to be less vocal than President Donald Trump about oil, the UAE’s energy minister told CNBC ahead of Inauguration Day.

“The United States of America is a major player now … with its production, with the fact that this industry that has been developed through shale oil and gas has created lots of jobs and created an economy by itself,” said Suhail al-Mazrouei.

That won’t change under a new U.S. president who is expected to focus more on renewable energy and less on oil, he said.

President Trump used to post on Twitter about crude oil and even communicated with OPEC leaders Saudi Arabia and Russia during the oil price war last year. Biden is likely to take a different approach, but al-Mazrouei said the U.S.’s leading role in energy markets is likely to remain.

“Whether President Biden and the new administration [will] be vocal on Twitter or not … the role of the United States will be always important,” he told CNBC’s Hadley Gamble on Tuesday as part of the virtual Atlantic Council Global Energy Forum.

Timeline for Oil Market Recovery
Separately, the UAE energy minister said he’s “optimistic” that the oil market will recover before OPEC+ cuts expire in April 2022.

The oil-producing group and its allies in April reached an agreement to cut a historic 9.7 million barrels per day in an effort to support crude prices after the coronavirus pandemic destroyed demand. The cuts will taper gradually until April 2022, when the deal will expire.

In view of the continuing global health crisis, the alliance in December agreed to raise production by 500,000 barrels per day instead of the initial 2 million bpd. This month, OPEC+ agreed to hold output largely steady, while Saudi Arabia announced an additional voluntary cut of 1 million bpd for February and March.

Al-Mazrouei said there are still many barrels of oil in storage and the market is not balanced yet.

“We continue drawing down on the inventories until we reach some reasonable levels, and hopefully that will be done by … the timeframe that we set, which is April 2022,” he said.

“I’m optimistic that we would reach it before [that],” he added. “But let’s say, even if it takes us … to that date, then I think that will take us to balance.”

Oil prices have somewhat recovered on the back of vaccine hopes and production cuts, but are still down from pre-Covid levels and are expected to average just above $50 per barrel this year.

The International Energy Agency this week cut its forecast for global oil demand in 2021, pointing to surging Covid-19 cases globally and fresh lockdowns that will further limit mobility.

CNBC, Editor: Abigail Ng, January 27, 2021

Majors are eying Suriname as the next big oil player. With recent success in neighbouring Guyana, Suriname offers hope for low-cost oil exploration and production going into 2021. Exxon Mobil, Royal Dutch Shell, Total, Apache are all showing interest in the South American state, hoping Suriname will provide oil for as little as $30 to $40 a barrel thanks to lower production costs. This is well below the average US production cost of almost $50 per barrel.

After years of political unrest, Suriname is eager to make a name for itself in the oil world and encourage economic stability and growth. The hard-hit economy has been further hampered by the Covid-19 pandemic, with the new government looking at the country’s oil potential to drag them out of economic disaster.

Attracting oil investment from foreign companies only became possible after the successful discovery of oil in deep wells in 2015, following around 60 years of failure in shallow waters. At present, state-owned Suriname’s national oil company Staatsolie controls most of the industry.

To encourage investment, Suriname is offering companies 30-year production-sharing agreements, around 10 years longer than those of Latin America’s other oil-rich countries. Following a difficult 2020, emerging oil states such as Suriname and Guyana are expected to dominate licensing rounds this year with such attractive terms.

Oil experts believe there to be at least three to four billion barrels of reserves in Suriname’s waters, providing foreign companies with a bet worth taking for the future of the region’s oil.

Earlier this month, Total and Apache Corporation made an important oil and gas discovery off the coast of Suriname at the Keskesi East-1 well, in Block 58. This brings the total number of oil discoveries in the country to four in 2020, or 1.4 billion barrels of oil equivalent. Total’s Senior Vice President Exploration Kevin McLachlan stated “We are… excited, as new operator of the block, to start the appraisal operations designed to characterize the 2020 discoveries, while in parallel start a second exploration campaign on this prolific block in 2021.”.

In addition, ExxonMobil announced oil and gas finds in Suriname in December. Mike Cousins, Exxon’s Senior Vice President of exploration and new ventures, explained “Our first discovery in Suriname extends ExxonMobil’s leading position in South America, building on our successful investments in Guyana. We will continue to leverage our deepwater expertise and advanced technology to explore frontier environments with the highest value resource potential.”

One recent partnership that’s caught attention in the region is the contract between Maersk Drilling and Total E&P, valued at $100 million. The partnership’s deepwater oil rigs Maersk Valiant and Maersk Develop in Block 58 are expected to start operations this month.

Suriname hopes to follow in the footsteps of neighbouring Guyana, which has attracted significant foreign investment in its oil industry in recent years. Exxon in particular has been investing heavily in the region, commencing production in Guyana’s Liza oilfield in 2019; an area capable of pumping 120,000 bpd. Exxon is now looking to develop the Stabroek Block, having signed a sharing agreement with the government, expected to produce 750,000 bpd by 2026.

Oil production in Guyana could extend beyond the next 30 years, presenting an attractive opportunity for longer-term exploration and low-cost production. In 2020, Guyana had an anticipated economic growth of around 50 percent, mainly owing to its burgeoning oil industry. According to the IMF, the country can expect an average annual real GDP growth of around 13 percent over the next four years.

As companies are less willing to become entangled with neighbouring Venezuela, due to its complex political situation and current US sanctions, with the country’s oil exports falling to its lowest levels in 77 years in 2020, Guyana and Suriname offer a bright alternative.

While it is early days for drilling in Suriname, success in Guyana and a clear interest from international oil majors could put the small South American state on the map.

OilPrice.com, Editor: Felicity Bradstock, January 27, 2021