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China stokes demand
New China tax sets crude buyers on hunt to replace feedstock hit by levies
Steve Sutherlin Petroleum News
Alaska North Slope crude gained 17 cents May 26 to close at $67.94, while West Texas Intermediate added 14 cents to close at $66.21 and Brent added 22 cents to close at $68.87. The day marked the fourth trading day in a row of gains for the indexes as they broke upward from a savage three-day swoon that saw Brent testing the $70 mark May 18 before reversing to close at $67.42 for a loss of 75 cents on the day.
Prices continued sharply downward May 19 and May 20, a drop which analysts attributed to jitters over surging COVID-19 cases in Asia, as well as inflation concerns on the United States.
ANS sunk to a close of $64.12 May 20, before decisively snapping the downtrend May 21 with a rise of $1.41 to close at $65.53, while WTI gained $1.53 to $63.58 and Brent gained $1.33 to $66.44.
The rise followed a report of planned tax adjustments in China expected to boost its crude imports and raise refinery run rates across the nation.
From mid-June, China will introduce a levy on inbound flows of three oil-related items - bitumen mix, light-cycle oil and mixed aromatics - that are used to make low-quality fuels or processed in refineries, Bloomberg reported May 20. The prospect of costlier products sent Chinese buyers after barrels of suitable crudes to make replacements.
Spot differentials for Middle Eastern and Russian crude hit a multi-month high, and time spreads for Dubai crude strengthened on expectations China will continue its oil-purchasing spree, Bloomberg said, adding that the spreads are a “key gauge of the supply-demand balance.”
ANS continued to surge $2.14 higher May 24 to close at $67.67, while WTI jumped $2.47 to $66.05 and Brent popped $2.02 to close at $68.46.
The three indexes moved modestly higher May 25.
Dutch verdict chills drilling A Dutch court ordered Royal Dutch Shell Plc to curtail its emissions more rapidly than planned, delivering a chill on investment in oil drilling that could spread across the industry.
The court told Shell to slash emissions by 45% by 2030 from 2019 levels, rejecting Shell’s pledged reductions in greenhouse gas emissions of 20% by 2030 - reaching net-zero by 2050.
The landmark Dutch verdict “could trigger what some experts say is a coming wave of climate-related litigation with ramifications far beyond the Netherlands,” Law360 said.
Legal experts said the impact of the decision will be amplified because the court relied on global human rights standards and international instruments on climate change to arrive at its decision, according to a May 26 CNN report.
“I can imagine this will inspire a series of other cases against companies, especially those active in the oil extraction industries like Shell,” said Eric De Brabandere, an international dispute settlement professor at Leiden University in the Netherlands. “It is a groundbreaking decision, it’s really a landmark.”
The case was heard in The Hague, home of Shell’s headquarters.
Shell can appeal the ruling, something the company said it expects to do, but the judge said the more ambitious target for the company will remain in effect while the appeals process plays out, NPR said in a May 26 report.
Pandemic depresses upstream investment COVID-19 placed a pall on upstream investments, whacking away $285 billion of spending in the first two years of the downturn, according to a May 12 Rystad Energy report. The shale sector was most affected, with conventional exploration and investments in mature assets suffering the least.
In February 2020, Rystad estimated global upstream investments for the year would near $530 billion - mirroring 2019 levels - and that 2021 investments would remain in line with 2020 levels.
E&P companies slashed 2020 investment budgets to protect cash flow, and the spending trend was not reversed in 2021, when prices rose, Rystad said.
Compared to pre-pandemic estimates for 2020 and 2021, Rystad observed that spending fell by $145 billion last year and will end up losing $140 billion by the end of this year, implying that COVID-19 eliminated 27% of planned investments.
Upstream spending was $382 billion in 2020 and is forecast to marginally grow to $390 billion this year, Rystad said.
Although spending will start growing from 2022 it will not return to the pre-pandemic level of $530 billion, the consultancy said. Growth will be limited, and investments will only inch up annually to just over $480 billion in 2025, when the report’s forecast ends.
Over the period of 2020 and 2021, shale/tight oil investments are most affected, losing $96 billion of previously expected spending, or 39% for the sector, Rystad said, adding that exploration spending is expected to drop by $19 billion, or 22% below the previous forecast.
Greenfield investment in new conventional projects will fall by $78 billion, or 28%, while brownfield investment in existing conventional projects will fall by $92 billion, or 20%, the consultancy said.
“Since shale/tight oil is both the segment with the highest decline in activity and the supply source in greatest need of continuous reinvestment to keep production growing, the immediate impact on output from this sector has been significant,” said Espen Erlingsen, Rystad head of upstream research.
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