Vol. 26, No.19 Week of May 09, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

ANS, Brent near $70

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Summer travel beckons in US, Europe; April ends with oil 7.5% higher

Steve Sutherlin

Petroleum News

Alaska North Slope crude slipped 42 cents May 5, to close at $68.84 per barrel, while West Texas intermediate crept 6 cents lower to $65.63, and Brent rose 8 cents to $68.96.

Prices settled lower after spirited trading earlier in the day that saw Brent prices loft to $69.81, just 19 cents shy of the $70 mark. WTI traded above $66 before falling back.

The surge reflected positive pandemic news from the United States and Europe that lifted hopes of a strong summer travel season.

The May 5 action capped two strong days of gains to open the week that featured ANS notching a closing price above $69 and the indexes hitting seven-week highs.

ANS jumped $1.45 May 4 to close at $69.26, while WTI and Brent each gained $1.20 to close at $65.69 and $68.88, respectively.

On May 3, ANS rose 98 cents to $67.81, WTI rose 91 cents to $64.49, and Brent rose 31 cents to $67.56.

Each of the three indexes gained just over a dollar on April 29 to the highest level in six weeks but gave the gains - and a few cents more - back April 30. Nonetheless, April was positive for oil prices, with WTI up 7.5% for the month.

U.S. domestic air travel was up in April as well. The number of passengers processed by the U.S. Transportation Security Administration averaged 1.4 million per day, up from 1.2 million per day in March.

Jet fuel consumption rose accordingly.

The U.S Energy Information Administration in its Weekly Petroleum Status Report said that four-week average consumption of jet fuel from April 9 through April 23 was more than 1.2 million barrels per day, 200,000 bpd higher than the four-week average that ended on March 26.

The government expects jet fuel use to jump 30% this summer from where it was in the first quarter, Bloomberg reported May 5.

Airlines are gearing up for a surge in leisure travel, adding capacity and non-stop flights to popular destinations.

A prospect of war

The China threat has become a point of focus in commodity markets according to Forbes contributor Bryan Rich.

Rich said saber rattling is adding steam to a 7%, two-week oil price surge which Rich largely attributes to President Biden’s remarks to 30 world leaders attending the virtual Climate Summit April 22.

“I see workers capping hundreds and thousands of oil and gas wells,” Biden said.

The Sydney Morning Herald ran a headline May 4 quoting a general saying, “War with China is likely,” Rich said, adding that the U.S. media has officially done a flip-flop on China, with a NY Times headline “Is there a war coming between China and the U.S.?”

“60 Minutes interviewed the Secretary of State (May 2) where he talked tough on China; this is all just over the course of a few days,” Rich said. “Add to this, the G7 foreign ministers are meeting in the U.K., where China relations has been the big focus.”

“With the specter of a China confrontation being introduced, expect the move in commodities to kick into another gear, especially oil prices,” Rich said.

‘Big Oil’ proven-reserves-to-production ratio slips

The big six companies - ExxonMobil, BP, Shell, Chevron, Total and Eni - are seeing proven oil and gas reserves fall at an “alarming” rate, as produced volumes are not being fully replaced with new discoveries, according to Rystad Energy.

Rystad said in a May 5 release that its analysis showed the companies lost 15% of their “stock levels in the ground” in 2020, and that remaining reserves are set to run out in less than 15 years unless more new commercial discoveries are made.

“The task is becoming more and more challenging as investments in exploration shrink and success rates slump,” Rystad said. “The declining proven reserves could create serious challenges for Big Oil to maintain stable production levels in coming years.”

The group of six companies experienced a drop in proven reserves of 13 billion barrels of oil equivalent in the last year as the companies took large impairment charges, Rystad said, adding that global first quarter discovered volumes for the industry were 1.2 billion boe, the lowest in seven years.

Pandemic related investment cuts could “aggravate the challenge of many major operators as they strive to boost their proven reserves,” the consultancy said.

Business models will continue to be dominated by the sale of oil and gas even for European majors focused on the energy transition, it said.

“The ability of Big Oil to generate future revenues will continue to depend on the volume of oil and gas the companies have at their disposal to sell,” said Parul Chopra, Rystad vice president of upstream research. “If reserves are not high enough to sustain production levels, companies will find it difficult to fund expensive energy transition projects, resulting in a slowdown of their clean energy plans.”

ExxonMobil’s proven reserves fell 30% or 7 billion boe from 2019 levels in 2020, mainly on reductions in Canadian oil sands and U.S. shale gas properties, Rystad said.

Shell’s proven reserves fell by 20% to 9 billion boe last year, Rystad said, adding that liquid reserves - mostly from U.S. and South American projects - accounted for one-third of total reductions.

Chevron had reserve losses due to impairments, despite adding 2 billion boe of proven reserves through the Noble Energy acquisition, Rystad said.

BP’s proven reserves dropped from 19 billion boe in 2019 to 18 billion boe in 2020, mainly due to asset sales and a lack of major new discoveries, it said.

Total and Eni have been able to avoid any reduction in proven reserves over the past decade, Rystad said.

“Amid the proven reserve reductions - due to impairments and a lack of new discoveries - companies are seeing a negative impact on their ratio of proven reserves to production,” Rystad said.

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