Jul 21, 2021 (Baystreet.ca via COMTEX) -- It seems that Saudi Arabia and the UAE could not have picked a worse time to resolve their differences, with the OPEC+ announcement coming just as COVID cases climbed and bearish sentiment returned to markets.
ROPEC+ countries have agreed on a deal to boost collective output by 400kbpd per month until year-end 2022, having aligned on new production baselines to become effective from May 2022 onwards.
- Spare production capacity, however, has become something of a rarity amongst OPEC+ countries with only Saudi Arabia, Russia, the UAE, Iraq, and Kuwait wielding genuine prospects of bringing in incremental production, the rest is producing as much as it can.
- Whilst on the level of official rhetorics OPEC+ has indicated it would phase out the production curtailments by the end of 2022, rare are those who believe this would happen, primarily owing to a risk of oversupplying a market that even under the most optimistic scenarios would not be able to accommodate 3.8mbpd of additional crude.
- According to media reports, Chevron /zigman2/quotes/205871374/composite CVX +0.95% has failed to meet carbon-sequestering government targets on its $54 billion Gorgon LNG project. Gorgon's CCS facility, a precondition for the LNG terminal to operate, was assumed to pump CO2 more than 2km underground. Instead of the promised 80% of all emissions, the Chevron-operated project captured only 30% of total CO2 generated over the past five years, writes Bloomberg, raising fears on the readiness of CCS technologies globally.
- Australia's Oil Search (asx:OSH), a Papua New Guinea-focused oil firm, rejected a $16.1 billion merger proposal from Santos (asx:STO) that could have seen the creation of a national oil and gas champion. Amidst questionable behavior from Oil Search top officials, Santos is expected to produce a "revised offer". Oil Search stocks surged 6% on Tuesday.
- Italy's ENI /zigman2/quotes/200785836/composite E -0.07% has arguably been one of the worst-performing major oil stocks this week, falling 4% d-o-d on Monday and continuing its descent the next day on fears of another COVID wave being just around the corner.
Tuesday, July 20, 2021
It seems that the news of Saudi Arabia and the UAE ironing out their OPEC+ policy differences could not have come at a worse time for oil markets. The news came against the background of increasing COVID-19 cases globally, triggering concerns that OPEC+ will be bringing production back just at a time when demand would be subdued again. Under the deal, the UAE would see its production baseline hiked by 0.5 mbpd from May 2022 onwards, in return for joining the combined effort to bring back 2mbpd of crude by the end of 2021.
Goldman Sachs Sees Upside to Oil Prices. US investment bank Goldman Sachs /zigman2/quotes/209237603/composite GS +1.65% stated the extension of the OPEC+ deal supports its view on oil prices and present a modest upside to its $80 per barrel summer Brent forecast. Whilst oil prices took a walloping Monday, Goldman did issue a caveat that upcoming weeks should see tangible "gyration" due to risks from rising Delta variant headwinds.
European Union Goes All Out on "Fit for 55". Europe's largest industrial conglomerates have given the EU's ambitious "Fit for 55" emissions-curbing package a rather cold shoulder as Brussels seeks to include shipping and aviation in Europe's ETS trading scheme, increase taxation on energy and simultaneously roll out renewable energy projects. The proposals put forward by the European Commission still need to be approved by the European Parliament and EU member states, implying that much of the initial zeal might be mitigated by mid-2022.