Vol. 26, No4 Week of January 24, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

ANS remains above $56

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Eyes on stimulus and 2021 demand, traders shake off short-term headwinds

Steve Sutherlin

Petroleum News

Alaska North Slope crude rose 66 cents Jan. 19 to close at $56.83 per barrel, after diving $1.28 Jan. 15 to close at $56.17.

U.S. prices recovered Jan. 19 after Janet Yellen, U.S. President-elect Joe Biden’s nominee for Treasury Secretary, told the U.S. Senate Finance Committee to “act big” on new coronavirus relief, arguing that the economic benefits far outweigh the risks of a higher debt burden. West Texas Intermediate gained 62 cents to close at $52.98, but Brent fell 35 cents to $55.10.

Brent price action Jan. 19 may have been influenced by the extension of pandemic lockdowns in Germany until mid-February.

Prices fell Jan. 15 after China announced new widespread lockdowns due to an unexpected outbreak of COVID-19 cases, leading to the first weekly decline in three weeks. WTI fell to $52.36, down $1.21, and Brent slipped $1.32 to $55.10.

Prices jumped in early trading Jan. 20 - Inauguration Day - approaching the 11-month highs hit in the previous week, but prices slid lower later in the trading day.

As of Petroleum News press time Jan. 20, WTI was at $53.24, clinging to a 26-cent gain, while Brent traded at $56.08, up 18 cents.

The International Energy Agency, in its January Oil Market Report said a resurgence of COVID-19 cases is slowing the demand rebound for now, but the widespread vaccination effort and accelerated economic activity is expected to spur stronger growth in the second half of the year.

The IEA expects global oil demand to recover by 5.5 million barrels per day to 96.6 million bpd in 2021, following an unprecedented collapse of 8.8 million bpd in 2020.

After falling by a record 6.6 million bpd in 2020, world oil supply will likely rise more than 1 million bpd in 2021, with OPEC+ increasing output more than those outside the bloc, the IEA said, adding that there may be scope for higher growth given IEA’s expectations for further demand improvement in the second half.

After holding flat at 92.8 million bpd in December, global supply is rising in January due to production increases on the part of OPEC+, the IEA said.

In the United States, crude oil inventories rose 2.562 million barrels for the week ending Jan. 15, the American Petroleum Institute reported Jan. 19. For the week ending Jan. 8 the API reported a draw in oil inventories of 5.81 million barrels.

Offshore investment to rise

After 2020, when the pandemic caused sanctioning of offshore projects to dip to $44 billion from $99 billion the year before, Rystad Energy projects offshore sanctioning will rebound to at least $56 billion in 2021 and keep rising to as high as $131 billion in 2023.

“Operators are now even more focused on costs and profit margins, and majors are expected to concentrate their individual activity to fewer countries than before,” Rystad said. “This means the world’s resource-rich countries will have to compete more than ever to attract investments.”

Rystad analyzed how each country’s fiscal regime affects the profitability and breakeven price of developing offshore mega-projects.

For the purpose of modeling, Rystad used a sample project with the characteristics of Norway’s Johan Castberg field, a single-phase project with plenty of available data that makes it an ideal candidate for benchmarking. The analysis does not include activity of national oil companies in their home countries.

The United Kingdom scored the highest post-tax valuation and offers the best profitability conditions for operators, with a net present value of $11.10 per barrel of oil equivalent in the country at a flat oil price of $70 per barrel. The next in line are Kuwait ($11 per boe), Canada ($8.90 per boe), the U.S. ($8 per boe) and Colombia ($8 per boe), Rystad said.

In Norway, a non-NOC company would see an NPV of $3.90 per boe, but other parameters factor in - the risk of exploration is lower as the country shoulders some of the cost for unsuccessful wells.

OPEC+ to remain vigilant, adaptable

The Organization of the Petroleum Exporting Countries and its allied producing nations (OPEC+) must remain vigilant and adaptable to changes in the economy and oil market in the face of ongoing COVID-19 uncertainties, OPEC Secretary General Mohammad Sanusi Barkindo said Jan. 19 in remarks to the Atlantic Council Global Energy Forum via videoconference.

“Our target remains stable oil markets, and to ensure that we have stability on a sustainable basis, we need to be flexible and adaptable,” Barkindo said. “We all agree that the recovery is fragile: there are still uncertainties, but we are cautiously optimistic that the recovery will materialize this year.”

Barkindo said that the OPEC and non-OPEC Ministerial Meeting will reconvene in March “to take stock and examine oil market conditions and developments.”

“I want to use this opportunity to assure consumer countries that we have their interests in mind,” he said. “Our role is to assist the market to return to stability.”

OPEC enjoys effective relations with the United States and noted that OPEC’s cooperation with U.S. independent oil producers has grown over the years, Barkindo said, adding that the United States made an important contribution to international efforts in April to help mitigate the devastating impact of the pandemic on the oil market.

“We congratulate President-elect Biden,” he said, “and we look forward to deepening our relations with the U.S. independent producers.”

UAE Minister of Energy and Infrastructure Suhail Mohamed Al Mazrouei said the COVID-19 impact last year was “extraordinary,” adding that the efforts of OPEC+ have helped mitigate the pandemic’s impact on the oil market.

“We see this year as the year of recovery,” he said.

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