Oil markets see light at the end of the tunnel

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Oil prices rose on Monday and remained steady on Tuesday morning as markets are cautiously looking beyond the COVID-19 pandemic

Chart of the week

• The EIA forecasts U.S.
• oil production remaining flat through the end of 2021.
• Production topped out at 12.9 mb/d (on a monthly basis) in November 2019, before falling to 10 mb/d by May 2020.
• Production rebounded to 10.6 mb/d by August. But with global demand unable to rebound to pre-pandemic levels until 2022 at the earliest, U.S. production will be unable to increase dramatically.

Market Movers

• Devon Energy (NYSE: DVN) was upgraded by two Wall Street banks. Goldman Sachs raised DVN to Buy, and Morgan Stanley raised it to Overweight. “Improving Permian well performance and lower operating/capital costs make the company more competitive,” Goldman’s Brian Singer says.
• ExxonMobil (NYSE: XOM) needs another $8 billion in debt financing to maintain its 2021 dividend, according to MKM Partners.
• Suncor Energy (NYSE: SU) could be on the verge of a turnaround after getting hit hard this year. Suncor is “one of the [stocks] that is most undervalued, and I think the market has got a few things wrong on it in terms of concerns – so that’s one of the [companies] where we see the best opportunity,” BMO Capital’s Randy Ollenberger says.

Tuesday November 17, 2020

News that a second vaccine was highly effective lifted global markets on Monday, adding optimism to the prospect that the end of the pandemic is within sight sometime next year. Oil prices rose again on Monday, but were down in early trading on Tuesday. WTI was trading just above $41 and Brent at about $43.50 per barrel. Despite vaccine hopes, the near-term remains grim in the western hemisphere with coronavirus cases continuing to rise.

OPEC+ sees deficit, eyeing 3-month extension. The extension of the OPEC+ production cut deal by three to six months will swing the oil market into a deficit  next year, the group believes. OPEC+ is considering four possible scenarios for 2021. The group is leaning towards a three-month extension, sources told Reuters.

Oil rally on the horizon. Multiple vaccines could set the stage for a rally next year. Meanwhile, even with the energy transition looming in the long run, oil and gas demand will rebound next year and beyond.

Natural gas prices sink on mild weather. Natural gas futures plunged by more than 8% on Monday on updated weather forecast that suggested the winter across the U.S. could be relatively mild. Shares for a long list of natural gas companies sank on the news.

Trump admin rushes Arctic sale. The Trump administration is hurrying to finalize a lease sale for the Arctic National Wildlife Refuge (ANWR) before Joe Biden takes over. The “call for nominations” was announced on Monday, which is followed by a 30-day comment period. Then there is another 30-day period before the lease sale can occur.

Trump admin rushes environmental rules. Agencies are hurrying to lock in some two dozen regulatory changes before the clock runs out on January 20. Bloomberg details the list of rules at Department of Interior, Energy and EPA.

China refinery output hits record high. In a sign of robust gasoline demand, China’s refineries churned out a record volume, processing  14.09 mb/d of crude in October.

Gulfport Energy files for bankruptcy. Gulfport Energy (NASDAQ: GPOR) filed for Chapter 11 bankruptcy protection on Friday. The Oklahoma-based company produced natural gas in Ohio and Oklahoma, but had taken on debt over the past decade for a series of acquisitions. 

Ovintiv to shed Eagle Ford assets. Ovintiv (NYSE: OVV) is looking to sell off  its assets in the Eagle Ford shale in an effort to pay down some of the $7.14 billion in debt. Ovintiv bought the assets in 2014 from Freeport-McMoRan for $3.1 billion, but a source told Reuters that they may now only fetch $600 to $700 million.

Michigan could shut Line 5. Michigan Governor Gretchen Whitmer ended a lease for Enbridge’s (NYSE: ENB) Line 5 pipeline because of its “unreasonable risk” to the Great Lakes, and if it withstands legal challenges, the pipeline may need to shut down entirely by May. The pipeline carries oil and natural gas liquids from Alberta to refineries in Ontario, passing through Michigan.

Minnesota grants permit to Line 3. Enbridge (NYSE: ENB) received a key permit for its Line 3 replacement from Minnesota regulators. The approval moves the project closer to construction in the state.

UK to announce petrol car ban. British Prime Minister Boris Johnson is set to announce  a ban on gasoline and diesel car sales by 2030, bringing forward a previously announced date. The ban will be part of 10-point plan intended to slash emissions.

Arizona approved carbon-free electricity by 2050. Arizona utility regulators approved  new rules that will require electric companies to provide 100% carbon-free energy by 2050.

Saudi Aramco plans debt sale. Saudi Aramco (TADAWUL: 2222) said it would sell another round of debt to plug a deficit. Aramco issued $12 billion last year. Debt issuance from the Middle East has topped $100 billion this year. 

U.S. Fed eyes joining green network. The Federal Reserve could join  the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), an international group of central banks that study financial risk from climate change.

Europe to overhaul carbon market. The European Commission is drafting a law to tighten the carbon market so that it aligns with the Green Deal. The move could cancel carbon permits, among other measures, in order to drive up carbon prices.

Tesla, Uber and utilities form EV lobbying group. A powerful group of companies are forming a lobbying  group to push 100% EV sales by 2030. Tesla (NASDAQ: TSLA), Uber (NYSE: UBER), Rivian, a handful of utilities such as Southern Company (NYSE: SO), will form the Zero Emissions Transportation Association (ZETA).

Tesla to join S&P 500. Tesla (NASDAQ: TSLA) will officially join the S&P 500, the index said.

250 oil and gas bankruptcies since 2015. An updated counting from Haynes and Boone finds that an estimated 250 North American oil and gas companies have filed for bankruptcy since late 2014. When including the oilfield services sector, the total tops 500 bankruptcies.

Sempra announces FID for LNG in Mexico. Sempra Energy (NYSE: SRE) announced  its subsidiary ECA Liquefaction approved a final investment decision for the Energia Costa Azul LNG project in Baja Mexico. The project will be the first LNG terminal on the Pacific Coast of North America, and it could connect gas supplies in Texas and the U.S. mountain west to a pacific export route.