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Vol. 26, No.30 Week of July 25, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil makes comeback

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OPEC+ solidarity, supply cuts due to Latin America unrest bode higher prices

Steve Sutherlin

Petroleum News

The oil trading week began with a mini crash July 19, as the footings crumbled from under major oil indexes. Alaska North Slope crude plunged $4.90 to close at $68.67 per barrel, Brent dropped $4.96 to close at $72.23 and West Texas Intermediate lost $5.39 to close at 66.42.

The mid-$70 trading range the indexes had occupied solidly since mid-June was lost to a sudden panic, as traders worried over new COVID-19 cases linked to the rapid spread of the virulent Delta variant.

The collapse threatened a long climb that began at the beginning of November, after Brent tumbled out of a trading range in the $40s, having hit a low of $37.94 on Oct. 30.

On July 20, the slide continued. WTI hit $65.23 midday, before recovering to end the day up a dollar to $67.42. ANS and Brent pulled out of their own nosedives as well, with ANS eking out a 44-cent gain to close at $69.11, while Brent gained 73 cents to close at $69.35.

The midday low turned out to be the bottom of a sharp V-shaped recovery that accelerated skyward in July 21 trading. ANS surged $3.13 higher to close at $72.25, Brent and WTI each gained $2.88 to close at $72.23 and $70.30, respectively.

It seemed odd that the mini crash happened at all in the face of a predominance of bullish factors present as the week began, but July has been a jittery trading month after an expected routine production adjustment meeting of the Organization of the Petroleum Exporting Countries and affiliated producing counties came off the rails over an internal disagreement.

The meeting was indefinitely postponed, and pundits wondered if the OPEC+ alliance was in danger of coming apart, leading to a free-for-all opening of the taps amongst the group.

A resolution of the dispute mid-month should have been a calming factor, particularly considering that the agreed production boost of 400,000 barrels per day for August was in line with analysts’ early July expectations.

The sudden resolution had however piled one surprise atop another, and the jolt shook the confidence of bullish traders that found themselves rethinking the market entirely as prices hit a jagged pothole before extending a gradual slide into the weekend preceding the mini crash.

Going into the July 4 weekend, ANS notched a post-COVID high, up 30 cents to close at $76.83. Despite intraday turbulence during the month, that closing high was not again to be matched.

Bullish factors

The 19th OPEC and non-OPEC Ministerial Meeting, which replaced the 18th meeting called off earlier in the month, was held via videoconference July 18, OPEC said in a release.

OPEC said market fundamentals were strong, with oil demand showing clear signs of improvement and with Organization for Economic Cooperation and Development stocks falling as economic recovery continued in most parts of the world thanks to accelerating vaccination programs.

The participating countries in the OPEC+ Declaration of Cooperation delivered 113% overall conformity to the production adjustments in June, OPEC said.

The meeting resolved to reaffirm the framework of the DOC, and the group agreed to extend the production curtailment accord reached in April 2020 until Dec. 31, 2022.

OPEC said the group would expand overall production by 400,000 bpd each month starting August 2021 until phasing out the 5.8 million production adjustment currently in place, and it would meet in December 2021 to “assess market developments and participating countries’ performance.”

The group will hold monthly OPEC and non-OPEC Ministerial Meetings to assess market conditions and decide on production level adjustments for the following month, OPEC said, adding that it plans to end production adjustments by the end of September 2022, “subject to market conditions.”

Unrest hobbles Latin America production

Latin American problems may send oil prices higher.

There are concerns that anti-government uprisings in Latin America will negatively impact oil production in the region, according to a July 19 report on OilPrice.com.

Colombia, the fourth-largest oil producer and economy in the region has become the epicenter of broad anti-government dissent over chronic socioeconomic inequality, violence, lawlessness, corruption, and suppression of civil society, the report said.

“The COVID-19 pandemic caused poverty to rise sharply across the region and amplified the deep socioeconomic fault lines that exist sparking greater instability, turmoil and conflict,” the report said. “The latest developments, notably deep dissatisfaction with the region’s rightwing governments’ failure to deliver economic and social progress, could spark a Latin American Spring with leftwing politicians sweeping to power across the region.”

Violent anti-government marches caused onshore drillers in Columbia to shutter oil fields in May, causing production to plunge to a low of 650,884 bpd.

Oilfield invasions and community blockades of industrial facilities had been on the rise before anti-government protests erupted in late April, and from December 2020 there have been violent seizures of oil fields in the municipality of Puerto Gaitan in the Llanos Basin.

Electoral irregularities and political turmoil are testing Peru’s fragile democracy - already under a long-running constitutional crisis and pandemic-magnified divisions between rich and poor.

Newly elected President Pedro Castillo said he wants greater state control of natural resources, including increased taxation.

Turmoil is also brewing in Brazil, Chile, Cuba and Haiti, while Venezuela’s autocratic socialist regime appears on the verge of collapse.



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