Rising shale output & oil's recovery to November levels

At the start of the year there were some doubts whether US shale oil production would remain high, having broken records in 2023 and propelled the States to the top of the global oil production leader-board. 

But a recent update from the Energy Information Administration (EIA) has gone some way in dispelling those doubts. 

The statistics arm of the US Department of Energy projects that production will likely  go up in March. Key basins are expected to produce around 20,000 more barrels per day (bpd) next month. This implies a total of 9.7 million bpd in shale production - a volume that hasn't been recorded since December last year. 

Conventionally, you'd think an upbeat US production forecast would knock a few dollars off crude prices. However, the market is more or less holding firm, as the Oilholic noted in an earlier blog post. After the profit-taking of last few weeks cooled, the last couple of sessions have seen oil futures return to levels not seen since November. That'd be $83+ per barrel prices for the Brent front-month contract and $79+ per barrel for the WTI.

A combination of OPEC+ cuts, Moscow's recent (and well documented) difficulties in shifting its crude owing to Western sanctions and heightened geopolitical tensions in the Middle East are keeping oil prices at elevated levels. 

However, the Oilholic reckons the price will face resistance at $85 and the upcoming week should be interesting. (And the EIA's next update - in this data series - is on March 18, and next weekly US inventory report is out on February 22). 

Elsewhere, yours truly participated in a panel discussion on TRT World's Round-table program to discuss Italy's overtures to Africa for its energy security needs whilst addressing the thorny issue (or shall we say the political hot potato) of migration. 

One guesses, that in reaching out to African heads of state ahead of the Gas Exporting Countries Forum (GECF)'s next high-level summit in Algeria in March, Italy's Prime Minister Giorgia Meloni has made a strategic and pragmatic move. (The full broadcast is available here)

And finally, remember Uniper? And it's bailout by the German government in 2022 after its options for Russian gas imports ran out? Well its back with a bang, and ready to repay (some of) the bailout money back in phases. That's just as Berlin is seemingly contemplating a share sale to recoup (some of) the money. Here's a full Forbes report. Well that's all for now folks. More soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Oil well in Oman © Shell. 

On modest crude price gains and more

In what's coming up to mid-February, oil benchmarks are largely holding on to geopolitical risk gains made since the start of the month. That's after the U.S. response to an attack on its military base in Jordan allegedly by Iranian-backed militia and Israel's rejection of a ceasefire in Gaza.

Of late, Brent futures have found support around $80 per barrel mark but it remains to be seen whether the level will hold. For what its worth, the global proxy benchmark still remains in technical backwardation. It was though bemusing to read a recent Financial Times editorial declaring "The days of $100 oil prices are over" in a rapidly decarbonising world where "demand will continue but potential world supply is likely to peg back the cost." Indeed. 

In fact, it's something yours truly agreed with former BP boss Bob Dudley back in 2017 at the World Petroleum Congress in Istanbul, who if the Oilholic recollects well, was positioning his company to even weather a $30 per barrel oil price. Speaking of CEOs, Occidental's boss Vicki Hollub told Business Insider that oil oversupply may well be keeping prices low, but the situation is about to flip! 

And of course, Goldman Sachs analysts reckon we may be about to enter a commodities supercycle with a potential for driving oil prices as high as - yup you guessed it - $100 per barrel. Well we shall see, but for now $70-$80 will do, and the Oilholic seriously doubts we'll hit $100 imminently! Elsewhere, oil giant BP hiked its dividend by 10% and accelerated the pace of share buybacks in a bid - by its new CEO Murray Auchincloss - to woo investors. 

And finally, here is one's take via Forbes on US President Joe Biden's arguably barmy plan to pause the approvals of new LNG export projects for a review. All at a time when his country has become the world's largest LNG exporter! Clever eh? Well that's all for now folks. More market thoughts to follow later in the month. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo © Terry McGraw from Pixabay.

The mad first month of crude trading year 2024

As the first month of the current oil trading year nears its end, the Oilholic's thoughts on the direction of crude prices hasn't materially altered. We're likely to see prices oscillate in the range of $70 and $85 per barrel in 2024, using Brent as a benchmark. And that's because the bearish bias in wider market fundamentals remains the same in a different trading year, despite all the geopolitical flare-ups we've seen October. We'll touch on those later in this blog. However, admittedly it has been the maddest possible start to trading. 

Feeling the pulse of the market and tepid demand, the Saudis made two profound short- and medium-term decisions. The first came early in the month after Aramco - the Saudi state-owned behemoth - announced a cut to official selling prices (OSPs) for all regions, including lucrative Asian markets, for several crude grades. These included Aramco's flagship Arab Light crude oil. Aramco said cuts in Asia would be as high as $2 per barrel versus the Dubai Oman regional crude benchmark from January levels. 

Prices for Europe would be down by $1.50-$2 per barrel versus Brent January prices, while North American exports would see a drop of $2 per barrel versus the Argus Sour Crude Index (ASCI) used to benchmark U.S. Gulf Coast sour grades. The move weighed on oil prices and seemed like a logical one. 

The Saudis, having voluntarily cut their headline production down to 9 million barrels per day (bpd), want to make sure every single drop of it gets sold in a competitive market receiving plenty of barrels, especially of US light crude. 

The second move came late-January, after Aramco said it was stopping its expansion plans and concentrating on a maximum sustained capacity of 12 million bpd. This immediately generated headlines along the lines of the Saudis acknowledging the end of oil, which, as the Oilholic said via market commentary on several broadcasters, is a load of rubbish. 

Aramco plans to finish the oilfields it has started - namely Berri (250,000 bpd), Dammam (75,000 bpd), Marjan (300,000 bpd) and Zuluf (600,000 bpd). There's only one project cancellation and the company intends to let some other existing fields decline. So with respect, it is nothing more than a pragmatic business move faced with changing medium- to long-term demand in a market the Saudis hope to tap with aplomb for as long as they can.

Away from Saudi moves there were geopolitical flash points aplenty. But none of these managed to move the oil price quite like they used to back when US crude barrels weren't keeping the global markets honest. Following weeks of attacks by Yemen's Iran-backed Houthi rebels on energy and commercial shipping in the Red Sea, the US and UK pounded Houthi positions and infrastructure. The Houthis vowed a response and their sporadic attacks on shipping continued. 

Then on January 28, after over 170 drone and missile attacks on US bases in Syria, Jordan and Iraq since October by Iran-backed proxies in the Middle East, one got through and killed three service personnel. The US' imminent response is to be expected and could mark a dangerous escalation. Where this goes is anybody's guess. But an attack by the US on Iranian soil appears unlikely. (Should it happen, and its hasn't since the 1980s, we could see crude prices around the $90s).

As things stand, crude prices remain range bound. January offered precious little to alter this despite it being one of the most volatile starts to a trading year. Well that's all for now folks. More market thoughts to follow. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Gaurav Sharma on Asharq Business with Bloomberg TV in January 2024 © Asharq Business with Bloomberg TV.

Getting going in 2024 after a break!

Greetings folks, the Oilholic is getting going meaningfully in 2024 after last year was marked by sporadic commentary and long pauses in blogging. 

Sincere apologies for that as yours truly was busy juggling his departure from a full-time job at a bank and taking time out for a paternity break for much of the last quarter. All went well in the end and bubb is here safe, sound and healthy! 

Call it a reboot, relaunch or a 'crude' restart - this blog is now going to be bigger and better with your support carrying regular market commentary, details of industry engagements, missives and interviews on energy economics, geopolitics, financials and more. So watch this space! 

And of course, the Oilholic will also continue his broadcast media commentary, energy circuit speaking engagements, and writing for Forbes and many other publications and websites as before! So here's to 2024. Keep reading, keep it here, keep it 'crude'!

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© Gaurav Sharma 2024. Photo © Pixabay

Can oil really hit $150? (And more!)

As the current crude oil trading year enters its final two months marked by festive breaks and potentially higher consumer demand as the Northern Hemisphere's winter approaches - thoughts inevitably turn to what price levels we will likely encounter in 2024.

With hostilities in the Middle East failing to lift crude prices despite all the talk of risk premiums and potential supply disruptions, being bullish about oil early in 2024 is proving hard. That's because concerns over crude demand are outweighing concerns over supply. 

We're talking muted demand from the economic powerhouses of Germany and China, lower consumer confidence levels in key OECD markets and elevated interest rate levels kept there by major global central banks, especially the US Federal Reserve. 

It therefore came as a surprise to The Oilholic when the World Bank opined that crude prices could hit $150 if hostilities in the Middle East escalate! Here are this blogger's thoughts on that via Forbes. Simply put - don't hold your breath! 

And let's not forget, Brent hasn't even capped a more realistic $100 per barrel level the bulls crave. The benchmark's January 2024 contract is barely higher than current levels, and contracts further out into the summer of next year are even lower. That implies Brent remains in backwardation mode.

Away from the crude price, the latest quarterly earnings posted by energy majors provided plenty of talking points. More so, after the return of megadeals as ExxonMobil swooped for Pioneer Natural Resources and Chevron swooped for Hess Corp. 

Other deals may follow as the energy majors fish for viable plays. It's led many, including this blogger, to wonder if a supermajor itself could be vulnerable? The prime candidate for finding itself in this position is BP; a chronically undervalued supermajor in the Oilholic's opinion. More on the subject here via Forbes. 

Is it possible? Yes, especially in a industry built on big ticket deals. Will it happen? Probably no, not least down to BP's $100 billion plus valuation (however discounted that may appear to some). But as yours truly noted on Forbes - that the company has had to bat away questions about being a takeover target is pretty extraordinary and indicative of how far it has fallen. Well that's all for now folks. Keep reading, keep it here, keep it 'crude'!

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© Gaurav Sharma 2023. Photo: Oil pump jack model at the AVEVA World 2023 Conference, Moscone Center, San Francisco, US. © Gaurav Sharma October 2023.