The Phil Flynn Energy Report
Oil prices are lower on turmoil, whether it be from mother nature or politics. Fears of more Covid-19 shutdowns weigh on prices and fears that increasing political divides after the death of Supreme Court Justice Ruth Bader Ginsburg reduces the odds that the U.S. will get much-needed coronavirus relief. The U.K. and France are imposing more Covid-19 restrictions, which is offsetting news about improving European traffic. Bloomberg News reports that road traffic in Europe and China is still rising but stagnating in the U.S.
Even mother nature is creating problems for oil. Fox News reports, "Tropical Storm Beta, in an incredibly busy 2020 Atlantic hurricane season, is crawling off the coast of Texas and Louisiana and threatens to bring flash flooding to areas still impacted by Hurricane Laura. Beta could bring up to 20 inches of rain to some states over the next several days. It's to make landfall along Texas' central or upper Gulf Coast late Monday night.”
There also is the return of Libyan oil weighing on crude oil prices. It appears a deal made will allow the state oil production that at first will be about 90,000 barrel per day (bpd), and rise quickly to 220,000 bpd. Reports say that a tanker is heading to Libya's Marsa el Hariga terminal as the country’s national oil company announces partial force majeure lifting - ship tracking. Of course, one must keep in mind that previous deals to restart Libyan oil production and exports have fallen apart.
The short-term demand hit is causing many companies in energy to make rash decisions. A growing belief in peak demand is driving energy companies to reduce capital expenditures.
Reuters reported that, ”Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a primary drive to save cash to overhaul its business and focus more on renewable energy and power markets, sources told Reuters. Shell's new cost-cutting review, known internally as Project Reshape and expected to be completed this year, will affect its three main divisions. Any savings will come on top of a $4 billion target set in the wake of the Covid-19 crisis. Reducing costs is vital for Shell's plans to move into the power sector and renewables, where margins are relatively low. Competition is also likely to intensify with utilities, and rival oil firms, including BP and Total, all battling market share as economies worldwide go green. ‘We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,’ said a senior Shell source, who declined to be named. Last year, Shell's overall operating costs came to $38 billion, and capital spending totaled $24 billion. Shell explores ways to reduce spending on oil and gas production, its largest division known as upstream, by 30% to 40% through cuts in operating costs and capital spending on new projects. Two sources involved with the review told Reuters."
BP predicted that global oil demand will peak in the next 10 years in its 2020 Energy Outlook. A new report looks at possible developments in global energy to 2050: As the world moves towards a lower carbon, the global energy system fundamentally restructures, becoming more diverse, driven by customer needs, with increased competition between fuels. Energy consumption shifts away from fossil fuels, and renewables increase as the world continues to electrify. Decisive policy measures, such as significant increases in carbon prices, are needed to deliver a lasting reduction in emissions from energy use.
Natural gas is taking a demand hit. Andy Weisman at EBW analytics says natural gas posted gains early last week, then came under intense downward pressure due to:
1. A steep decline in cash demand, with Henry Hub Natural Gas futures falling to $1.565 on Friday.
2. Uncertainty regarding the restart of Cameroon.
3. A much higher-than-expected EIA-reported 89- billion cubic feet weekly injection.
With weather-driven demand near its lowest point this fall and concerns regarding a storage availability squeeze growing, the October contract is likely to retest support near $2.00. With power about to be restored in Cameroon, though, the market could bottom out soon.
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