Oil price lift off
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US air travel gains altitude; coming supply constraints hike price forecast
Jet fuel demand may climb higher as U.S. passenger numbers lifted above the 1 million mark for a single day, according to Transportation Security Administration passenger screening numbers. The agency cleared 1,031,505 passengers for takeoff Oct. 18.
The TSA said 6.1 million people passed U.S. airport checkpoints between Oct. 12 and Oct. 18 - the highest weekly traveler volume it reported since the pandemic sent passenger counts into a tailspin in March.
Daily screenings plunged below 100,000 passengers on April 14, a 96% reduction from 2019. While Oct. 18 numbers - the highest since March 16 - are a ten-fold improvement from the low for 2020, that passenger count is less than half of the 2.6 million that passed TSA checkpoints Oct. 18, 2019.
The TSA numbers nonetheless offer a bit of blue sky to the outlook for oil prices. The recovery in jet fuel demand has lagged behind that of other transportation fuels since the pandemic began.
On the supply side, this year’s decline in North American light tight oil production is likely to continue into 2021, according to a Rystad Energy forecast for shale oil, gas production and capital investments released Oct. 21.
Activity levels and output in key contributing shale plays are “anticipated to show notable decline” in 2020 and 2021 as well, Rystad said.
“Since the downturn that prevailed between 2014 and 2016, LTO production in the region has revamped with a new force, able to adjust to a depressed price environment through high grading of acreage and considerable cost and productivity improvements,” Rystad said.
In 2019, oil output reached 8.6 million barrels per day, representing a year-on-year growth of about 20%, it said.
In 2020, the pandemic-induced global oversupply and oil demand destruction hammered oil prices, and North American producers cut capital budgets and trimmed back drilling and completion programs, focusing on cash flows and returns, Rystad said, adding that many producers were forced to curtail production volumes in addition to taking frac holidays and cutting the number of rigs and frack crews.
Rystad said production shut-ins and restricted flowbacks on wells peaked in May, when many operators began to return curtailed volumes as oil prices improved.
“We expect that majority of curtailments have been returned online by the end of August 2020,” it said, adding that oil production increased over the summer due to shut-in reactivations and higher levels of completion of already drilled wells.
New drilling activity remains low, however, leading Rystad to conclude that oil output will decline again in fourth quarter 2020, falling to 8.2 million bpd this year and to 7.7 million bpd in 2021.
“Producers are poised to keep activity levels low amid uncertain market environment and a focus on capital discipline,” Rystad said.
In 2021, Rystad estimates that West Texas Intermediate crude prices will recover sharply, nearing $70 per barrel, leading to an upward trajectory in activity and oil production in 2022 that will take North American light tight oil production to 13.6 million bpd by 2030.
“The Permian Basin will be the major contributor to expansive growth going forward with Permian Delaware also remaining the most resilient play during the ongoing downturn,” Rystad said.
Saudi/Russia axisDespite a pair of high-level discussions between Saudi Arabia and Russia, the Organization of Petroleum Exporting Countries and allied nations made no changes in the OPEC+ oil production strategy following its ministerial monitoring committee meeting Oct. 19.
President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman had a telephone conversation Oct. 13 to discuss crude oil markets, followed by a second call Oct.17, the Middle East Monitor reported.
According to statements by the Kremlin, the two leaders exchanged views on the progress of the OPEC+ agreement, and agreed to continue coordination in order to maintain stability in the crude market.
OPEC+ for now is sticking with its plan to ease oil production restrictions in January, from the 7.7 million bpd production cuts in effect now, to 5.8 million bpd.
However, three sources from producing countries said a planned output increase from January could be reversed if necessary, Reuters said in an Oct. 19 report.
OPEC’s monitoring committee said in an Oct. 19 release that the economic recovery has slowed due to the resurgence of COVID-19 cases in major economies, particularly in the Americas, Asia and Europe.
The committee told all participating countries to be mindful of “the necessity to be vigilant and proactive given the precarious market conditions and prospects.”
Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said OPEC has been flexible during the pandemic, adapting “to changing circumstances when required.”
Accommodative statements may be the only tool to assuage oil markets for the next month or so. While OPEC+ ultimately may not ease the production cuts in January, the decision won’t actually be made until the full group meeting which will be held Nov. 30 and Dec. 1.
The price of OPEC basket of thirteen crudes stood at $41.04 per barrel Oct. 20, compared with $41.38 the previous day, according to OPEC Secretariat calculations.
Alaska North Slope crude closed down 8 cents at $42 Oct. 20. WTI closed up 63 cents at $41.46 Oct. 20, but it slipped below $40 in trading Oct. 21. Brent closed up 54 cents to 43.16 Oct. 20, but in trading Oct. 21 it fell to $41.73.