The Oil Bulls Are Running Riot

• US natural gas prices have mostly recovered from their recent declines as November-delivery Henry Hub prices soared past the $6 per mmBtu mark this week.
• Despite October seeing milder-than-usual weather, forecasts indicating a cooler November have resonated awkwardly with LNG exporters that seek to export every molecule they can with prices quadrupling in Asia and Europe.
• The so-called widowmaker spread between March and April futures widened to its widest since October 06, at 1.5 per mmBtu, insinuating that the market anticipates end-winter gas inventories to be very tight.
• Concurrently, LNG exports out of the United States (at 11.3 billion cubic feet per day this week) are at their highest level since May. 

With the exception of a major breakthrough in the negotiations between Iran and the EU, there is very little downside risk for oil prices this week.

Chart of the Week

Market Movers

- France is rumored to turn against the general European trend of decommissioning nuclear plants and announce the construction of 6 new nuclear EPR reactors, boosting the long-term prospects of Areva and EDF (EPA:EDF). 

- US oil and gas pipeline operator Crestwood Equity Partners (CEQP) agreed to buy Oasis Petroleum’s (NASDAQ:OAS) midstream unit for $1.8 billion in a cash-and-stock deal, expanding its footprint in US shale basins. 

- Brazilian state oil company Petrobras (NYSE:PBR) is coming under increasing pressure as the Latin American nation’s President Jair Bolsonaro reiterated his readiness to privatize part of the firm by diluting the government’s share, seemingly unbeknownst to the oil producer itself. 

Tuesday, October 26, 2021

This week will see a string of Q3 financial results from US producers such as Continental, Hess, and EQT, with the general anticipation being of the shale firms’ strongest performance since the onset of the coronavirus pandemic. Whilst 2021 results have overwhelmingly exceeded oil producers’ expectations, importers continue to struggle with elevated crude prices. As of Tuesday, Brent remained flat at $86 per barrel, whilst WTI trended around the $84 per barrel mark. Global crude demand continues to fire on all cylinders, with the Iran talks (Iran’s chief negotiator will be negotiating with EU officials this week) being the only major downside risk factor for oil prices. 

China Caps Refining Capacity. Beijing will cap primary crude processing capacity at 20 million b/d by 2025, meaning that in addition to the current 17.8 million b/d in operation and further 2 million b/d being built, China should see no major downstream expansions in the future.  Related: Why Tesla’s Latest Battery Decision Is A Gamechanger

Saudi Arabia Launches Green Drive. Saudi Arabia’s crown prince launched a $10 billion investment fund called the Middle East Green Initiative, with the kingdom providing 15% of the funds, as Riyadh seeks to reduce the oil industry’s carbon emissions in the region by 60%. 

Shell To Bring Back Damaged Mars Infrastructure. Anglo-Dutch major Royal Dutch Shell (NYSE:RDS.A) stated it could restart its damaged West Delta-143 transfer facility in the first half of November, bringing back shut-in Mars production much sooner than the previously communicated Q1 2022 deadline. 

Goldman Reiterates Its Bullish Case. US investment bank Goldman Sachs (NYSE:GS) said in a research note that rebounding demand in Asia might pose an upside risk to its $90 per barrel year-end Brent forecast, assessing gas-to-oil switching at a whopping 1 million b/d.   

Tesla Market Cap Surpasses $1 Trillion Mark. The market capitalization of US-based carmaker Tesla (NASDAQ:TSLA) moved beyond $1 trillion following its biggest-ever order (100,000 cars) from rental company Hertz, with the company’s shares surging 15% on Tuesday. 

Strong Wind to Cap European Power Prices. With coal utilization still way higher than it was this time last year across Europe, robust North Sea wind generation this week, expected to be almost double the historical average, should push EU day-ahead power prices lower to some €130-140 per MWh.

Hilcorp Takes Over Exxon’s Alaska Field. Following its 2020 takeover of Prudhoe Bay operatorship, US firm Hilcorp Energy is poised to boost its Alaska standing even further as it is reported to take over operations of the Point Thomson field from another US major ExxonMobil (NYSE:XOM). 

Glencore Clinches Cheniere Long-Term LNG Deal. Swiss trader Glencore agreed to buy 800,000 metric tons of LNG per year from Cheniere (NYSEAMERICAN:LNG) for a period of 13 years, with FOB prices pegged to Henry Hub plus a liquefaction fee. Related: Will The Energy Sector Continue To Outperform The Market?

Spot Chinese Prices Contradict Official Narrative. Whilst Chinese authorities continue their investigations into coal industry manipulation, pushing down January thermal coal futures, spot prices in Qinhuangdao fell only marginally, currently trading around 2100 CNY per metric ton ($330 USD/mt). 

Mexico Delays ULSD Introduction Amidst Missing Production. Mexican authorities have admitted the Latin American country has no way of fulfilling its December 2021 deadline of mandating ultra-low-sulfur diesel utilization (delaying it to 2025), citing “insufficient availability”. 

Exxon Calls for Global Carbon Price. Promoting its carbon capture storage (CCS) strategy, US major ExxonMobil (NYSE:XOM) has called for a transparent carbon price and cross-border adjustments to be implemented globally, claiming it is a prerequisite for CCS projects proliferating. 

Total Increases Foothold in Saudi Downstream. Saudi Aramco and TotalEnergies (NYSE:TTE) have commissioned two new service stations in Saudi Arabia, the first of more than 270 stations to come, adding to the French major’s stake in the 400kbpd Jubail Refinery.  

Algeria to Stop Supplying Gas to Morocco. Algeria will cease supplying natural gas to Morocco, with which it cut diplomatic ties this year, starting from November 01, using the 8 bcm capacity Medgaz pipeline to maintain direct pipeline exports to Spain.

By Tom Kool for Oilprice.com 

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