ANS hits upper $80s
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US commercial crude down seven straight weeks; dollar hits 2-month low
Alaska North Slope crude notched a close in the upper $80s Jan. 12, rising $1.08 to close at $86.05 per barrel. West Texas Intermediate surged $1.42 to close at $82.64 and Brent rose 95 cents to close at $84.67.
ANS set another post-omicron high, having risen more than 5% in one week of trading that saw the indexes at the highest prices in two months.
The gains came atop robust price action Jan. 11, which saw ANS rocket $2.84 to close at $84.97, while WTI leapt $2.99 to close at $81.22 and Brent popped $2.85 to close at $83.72.
As fears that the omicron variant might cause catastrophic demand destruction subsided, tight supply continued to support higher prices.
U.S. commercial crude oil inventories for the week ending Jan. 7 - excluding the Strategic Petroleum Reserve - fell by 4.6 million barrels to 413.3 million barrels, 8% below the five-year average for the time of year, the U.S. Energy Information Administration said in its Jan. 12 report. It was the seventh straight week of inventory draws, taking reserves to levels not seen since 2018, according to EIA data.
Oil markets and U.S. equity markets turned higher Jan. 11 after remarks by U.S. Federal Reserve Chairman Jerome Powell at a Senate confirmation hearing were seen as less hawkish than anticipated.
Powell said the U.S. economy would have only a “short-lived” impact from omicron, and that it is ready to endure tighter monetary policy.
Beyond the actions of supply and demand, a falling dollar may play a part in future oil price spikes.
Bryan Rich in Pro Perspectives said Jan. 12 that massive government overspending on COVID has set the dollar up for a fall.
“We are about 70% of the way (in time) through a very shallow bearish cycle, which argues that we could have a very steep drop in the dollar over the next two years,” Rich said. “Indeed, the dollar broke to two-month lows today - and it looks like this technical break will get the ball rolling.”
Lack of capacity, investment may stoke pricesA Jan. 12 Reuters report said some analysts predict that a lack of production capacity and limited oil sector investment could push crude prices to $90 or even above $100 a barrel.
Morgan Stanley estimates hold that Brent will hit $90 in the third quarter of 2022, it said.
With the prospect of depleting crude inventories and low spare capacity by the second half of 2022, and limited investments in the oil and gas sector, the market will have little margin of safety, Morgan Stanley said.
JPMorgan analysts said in a Jan. 12 note that they could see oil prices rising by up to $30 after the EIA and Bloomberg lowered OPEC capacity estimates for 2022 by 0.8 million barrels per day and 1.2 million bpd, respectively.
Prices could spike even higher, the analysts said, adding that oil prices will likely “overshoot” to $125 a barrel this year, and $150 in 2023.
Global investment on the riseGlobal oil and gas investment will expand by $26 billion in 2022, Rystad Energy said in a Jan. 11 release.
Rystad projects overall investments will rise 4% to $628 billion this year from $602 billion in 2021.
“The pervasive spread of the Omicron variant will inevitably lead to restrictions on movement in the first quarter of 2022, capping energy demand and recovery in the major crude-consuming sectors of road transport and aviation,” said Audun Martinsen, Rystad head of energy service research, adding that despite ongoing pandemic disruptions, “the outlook for the global oil and gas market is promising.”
Upstream gas and LNG investments will lead the way, growing 14%, from $131 billion in 2021 to $149 billion in 2022, Rystad said. Investments in the sector are expected to surpass 2019 levels of $168 billion in in 2024, reaching $171 billion.
Upstream oil investments are projected to rise 7% from $287 billion in 2021 to $307 billion in 2022, while midstream and downstream investments will fall by 6.7% to $172 billion this year, it said.
Global shale investments are forecast to surge 18%, reaching $102 billion in 2022 compared with $86 billion in 2021, Rystad said. Offshore investments are expected to increase 7%, from $145 billion to $155 billion, while conventional onshore will rise 8%, from $261 billion to $290 billion.
“This year’s investment growth is very much pre-programmed by the $150 billion worth of greenfield projects sanctioned in 2021, up from $80 billion in 2020,” Rystad said. “Sanctioning activity in 2022 is likely to closely match 2021 levels, with a similar amount of project spending to be unleashed over the short to medium term.”
Sanctioning activity will rebound in North America, with over $40 billion of projects due for sanctioning in 2022, Rystad said.
Offshore projects include the TotalEnergies North Platte project - in the final stage of its tender process, along with LLOG Exploration’s Leon and Chevron’s Ballymore developments in the U.S. Gulf of Mexico - expected to proceed to the development phase in 2022, Rystad said, adding that execution challenges related to the pandemic and increased inflationary costs for steel and other inputs is “likely to make operators mildly cautious regarding significant capital commitments.”