ANS, Brent top $75
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Highest levels since Oct. 2018 on surprise US crude oil inventory draw
Alaska North Slope crude and Brent crude closed above the psychologically important $75 per barrel mark June 23. ANS gained 42 cents to close at $75.06, Brent rose 38 cents to close at $75.19 and West Texas Intermediate moved 2 cents higher to close at $73.08.
Brent made a session high of $76.02 and WTI made a high of $74.25, for each the highest level since October 2018, after the U.S. Energy Information Administration announced a surprise drawdown from U.S. crude inventories of 7.6 million barrels for the week ended June 18, to 459.1 million barrels.
Analysts had anticipated a 3.9 million-barrel drawdown, according to a Reuters poll.
U.S. crude oil inventories are 6% below the 5-year average for this time of year, the EIA said.
The stage for new highs was set with a price surge at the beginning of the week June 21, as ANS leapt $1.44 to close at $74.63, WTI surged $2.02 to close at $73.66, and Brent popped $1.39 to close at $74.90.
The test of the top half of the $70 range added authority to a claim on a new normal trading range in the $70s, which ANS and Brent have occupied since the beginning of June. WTI first closed above $70 June 8.
The U.S. dollar has given up steam after posting its largest single-day gain in 15 months June 16 on comments from the Federal Reserve that it may raise interest rates more quickly than expected. A weaker dollar makes oil more affordable in other currencies.
The Organization of the Petroleum Exporting Countries and its affiliated producing countries will hold its 18th OPEC and non-OPEC Ministerial Meeting July 1 to consider additional tapering of its current production curbs in August. Falling inventories and growing demand point to a likely production boost by the cartel.
$80 oil coming in Q3?Jeff Currie of Goldman Sachs said commodities in general are in the early innings of a super-cycle, and oil is currently the commodity with the most upside.
The baton of pandemic reopening is being passed from the United States to Europe, to the emerging markets, Currie said in a June 15 CNBC interview, adding that even India is recovering.
Currie said little new investment is being made despite inventory drawdowns and falling unconventional well production curves, in the face of relatively inelastic supply, “leaving OPEC as the only game in town.”
“Our target in third quarter is $80 per barrel,” he said.
Francisco Blanch, Bank of America Merrill Lynch head of global commodities said Brent crude oil could hit $100 a barrel in 2022.
Blanch told CNBC Closing Bell June 21 that OPEC+ is likely to hold back supply for an additional 12 to 18 months.
Demand is only starting to recover, Blanch said, adding that while air travel and road traffic are bouncing back in the United States, the rest of the world is behind.
“I think emerging markets are going to come out of this in 12 months,” he said. “Probably by sometime next year, the vaccination campaigns will gather pace, and allow for price to rise as demand recovers.”
Blanch said people worldwide are reluctant to use mass transit due to COVID-19, and even if they work at home, they will spend more time in their cars.
On the supply side, a lack of investment will lead to shortage, made worse by government policy and investor pressure on oil companies to address climate change, he said.
Record E&P free cash flow 2021Publicly traded exploration and production companies worldwide are set to generate record-breaking free cash flows in 2021, according to Rystad Energy.
Despite oil trading above $70 per barrel, investment activity remains low, Rystad said in a June 23 release.
The combined free cash flow for the group is expected to surge to $348 billion this year, topping the previous high of $311 billion in 2008.
Rystad estimated that total gross revenue for all public upstream companies will increase by up to $500 billion in 2021, up 55% from last year, excluding hedging effects. It expects the investment level of the companies to grow by 2% in 2021, leading to significantly higher profits.
The turnaround in the U.S. tight oil industry is a key driver of higher results.
Historically, the tight oil segment has struggled to generate positive returns, but that could change in 2021, Rystad said, adding that it estimates that all public tight oil companies will make $60 billion in free cash flow this year, before hedging effects.
The conventional onshore supply segment will earn $160 billion - behind the record set in 2011, Rystad said.
Both deepwater and offshore shelf are recovering this year, each approaching $60 billion in free cash flow, but tight oil is expected to surpass both offshore segments in 2021, it said.
“Oil demand has gradually increased after the initial shock of the Covid-19 pandemic, and OPEC+ continues to hold back volumes from the market,” said Espen Erlingsen, Rystad head of upstream research. “The consequent high price movement has been further supported by a slow ramp-up in U.S. tight oil activity. In conjunction with the persisting low investment environment, E&Ps are enjoying super-profits.”
Merger and acquisition activity transaction values in 2021 increased 30% compared to 2020, and new projects are also making a comeback, Rystad said.
Greenfield investment sanctioned as of June has matched the full year 2020 total, Rystad said, adding that it expects the full year 2021 level to be double that of last year.