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Can OPEC+ Maintain Order As Oil Prices Rise?

By Irina Slav - Feb 20, 2021, 6:00 PM CST



After months of neglect from traders, oil became a hot commodity again this month as Brent surged over $65 a barrel and WTI topped $60 for the first time in a year. The rally cast a shadow over OPEC+’s resolve to keep cutting as much production as they are cutting now. Oil had been recovering steadily even before the United States lost some 40 percent of its oil production because of the Arctic cold wave that swept across the country. The Texas deep freeze certainly helped it, but its effect is already dwindling as traders take profits: Brent was down to less than $63 at the time of writing, and WTI had slipped below $60 a barrel. Yet a substantial upside potential remains that could increase internal tensions between OPEC+ members.

For one thing, U.S. demand for oil is recovering. The recovery, Bloomberg reports, started with the vaccination drive that began in December, and since then, refiners have been ramping up fuel production. The last couple of weeks have seen gasoline stocks rise but so has production.

While demand in the world’s top consumer of oil recovers, production is stalling. According to the EIA, U.S. output will remain below 12 million bpd next year as well. This imbalance will turn the United States into a net exporter this year and next, EIA said in its latest Short-Term Energy Outlook. But more importantly for OPEC+, this would push oil prices higher still, tempting barely compliant members to become even less compliant.

There is already discord within the extended oil cartel. The last time OPEC+ made a decision on production, it had to make a compromise decision to take into account the interests of those—like Russia—that insisted on some rollback of the deepest production cuts. And now, Saudi Arabia has said it would suspend its voluntary unilateral additional cuts that amounted to 1 million bpd and that Riyadh effected in its whatever-it-takes quest for higher prices.

Related: Oil Rig Count Ends Twelve Week Streak Of Gains As Oil Prices Slip

That’s the clearest signal yet that OPEC’s de facto leader and biggest producer is becoming more optimistic about prices. Per the Wall Street Journal report that broke the news, however, the decision may yet be reversed if the price situation changes. Ironically, the very news that Saudi Arabia will add another million barrels daily to global supply is likely to have a negative effect on prices once the Texas deep freeze frenzy fizzles out.

But while Saudi Arabia continues to be ready to do whatever it takes, Russia sees the oil market as already rebalanced. Deputy Prime Minister Alexander Novak said as much last week as quoted by Russian media.

“We’ve seen low volatility in the past few months. This means the market is balanced and the prices we are seeing today are in line with the market situation,” Novak told TV channel Rossiya 1. Novak added that while last spring oil demand was 20-25 percent lower than its normal level at this time of year, by the end of 2020, the decline had shrunk to 8-9 percent. And Russia remains one of the barely compliant nations in the OPEC+ agreement. In fact, like Iraq, Russia has been producing over its quota.

Speaking of Iraq, the country reported an increase in oil exports for the first two weeks of February despite its attempt to reduce production of crude oil further to compensate for its overproduction last year. For the full month, according to Bloomberg, Iraq may exceed its self-imposed cap of 3.6 million bpd and even its OPEC+ cap of 3.85 million bpd.

And then there is Iran, which is already boosting production as it is exempt from the OPEC+ cuts and has big plans for its return on the international oil stage after U.S. sanctions are lifted. This has yet to happen, after Washington tied the removal of sanctions on Iran’s suspension of uranium enrichment activities.

Related Video: Beyond EVs and AI: Our Favorite Crazy Car Inventions

In what could be seen as a gesture of goodwill, the U.S. earlier this month said it had rescinded a declaration by the Trump administration that all UN sanctions against Iran had snapped back. The declaration was void because it used provisions from the 2015 nuclear deal with Iran that the U.S. had left before making the declaration. In any case, Iran has reasons for optimism that it will be sanction-free soon and ready to pump more.

The discord between production cut hawks and production growth doves within OPEC+ will only deepen with the latest bullish news on oil. It already led Saudi Arabia’s oil minister to warn against complacency.

“I must warn once again against complacency,” Prince Abdulaziz bin Salman said earlier this week as quoted by Bloomberg. “The uncertainty is very high and we have to be extremely cautious. The scars from the events last year should teach us caution.”

Uncertainty indeed remains high, and then there is the threat of U.S. producers giving in to the temptation of WTI at over $60. For now, they have been resisting it, in all fairness, perhaps displaying the same caution bin Salman talked about this week. But at some point, the temptation may become irresistible, and what for OPEC is a nightmare scenario may happen again: U.S. producers ramping up output thanks to OPEC+ efforts to keep prices high enough to make it economical.

For now, there is no sign that OPEC+ will depart from its current policy of sticking with 7.2 million bpd in cuts until April. But, again, as Saudi Arabia’s top oilman said, “Those who are trying to predict the next move of OPEC+, to those I say, don’t try to predict the unpredictable.”

By Irina Slav for

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Airlines Slammed By Soaring Jet Fuel Prices

By Irina Slav - Feb 22, 2021, 9:00 AM CST



Jet fuel prices hit a 13-month high last week as oil prices rose, making airlines’ already difficult life even more difficult.

Despite still depressed demand for air transport, jet fuel follows the price curve of crude oil as costlier oil for refining results in costlier end products, including jet fuel.

Last week was a special case, however. The Arctic cold wave that bore down on parts of the U.S. unused to such low temperatures caused massive disruption in oil production and refining due to wellhead freezing and power outages that affected refinery operations.

With airlines already battered by the pandemic and the travel restrictions it led to, this is just one more challenge to deal with while they are still in a vulnerable state. According to analysts, passengers could start flying again as early as this spring as more people get vaccinated and the weather becomes warmer.

However, there is no certainty as newly emerging variants of the coronavirus that caused the epidemic have medical experts warning of more waves of infections unless restrictions continue.

These restrictions have cost airlines billions. Just the four largest U.S. air carriers—Delta, United, American, and Southwest Airlines—lost more than $31 billion last year alone, the New York Times reported recently. According to estimates from Airlines doe America, the industry is still losing $150 million every day.

Whole airlines received some $40 billion in federal grants to keep paying their employees and billions more in low-interest loans, the federal government could not foot their jet fuel bill. It will now just add to the conundrum of keeping airfares low enough to keep passengers coming but high enough to start recouping some of the losses incurred during the pandemic.

On the flip side, the jump in jet fuel prices may well be temporary, and prices could fall back down as refineries on the Texas Gulf Coast return to normal operation.

By Irina Slav for

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Corporate Earnings Reports this week...we'll be watching the energy sector...

Key Events This Busy Week: Powell, Stimulus And More Inflation Cues

Tyler Durden's Photo
by Tyler Durden
Monday, Feb 22, 2021 - 9:17 releases 2.22.jpg?itok=ktIQoW_P



Earnings Calendar
for Monday, February 22, 2021 and other days...




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Oil Prices Spike As U.S. Outages Tighten Supply

By Julianne Geiger - Feb 22, 2021, 11:00 AM CST

Oil prices rebounded again on Monday, with WTI shooting up more than 3% to over $61 per barrel by noon ET.

Oil prices spiked to 13-month highs last week after the Texas Freeze, but prices sagged toward the latter part of the week. But on Monday, a new price rally began, with the price of WTI spiking $1.81 per barrel to $61.05. Brent shot up by $1.73 to $64.64.

The price hike comes shortly after Goldman Sachs forecast that oil prices would climb into the $70s over the next few months, and after it became clear that U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries and oil production.

One would think that the market’s enthusiasm for oil would be somewhat tempered given the moderately bearish news that OPEC+ heavyweights Saudi Arabia and Russia might be on the cusp of a disagreement again over the oil output agreement that the group is set to soon discuss.

As usual, Russia is eager to increase oil production, while Saudi Arabia believes a more cautious approach is warranted.

According to Goldman Sachs, Brent will hit $70 per barrel in Q2—this is a $10 increase from from its previous estimate.

The Texas Freeze knocked out as much as 4 million bpd of U.S. oil production and 6 million bpd of refining capacity last week, IHS Markit said. The production outages have created a tighter supply situation that has been absent for most of the pandemic.

And the market is latching onto that reality, sending WTI prices north of $61.

Oil prices are still below last week’s levels, but by just pennies.

By Julianne Geiger for

Edited by Tom Nolan

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Goldman Sachs Sees $75 Oil In Q3 2021

By Tsvetana Paraskova - Feb 22, 2021, 2:00 PM CST

Goldman Sachs is now even more bullish on oil, expecting Brent Crude prices to hit $75 a barrel in the third quarter this year, on the back of faster market rebalancing, lower expected inventories, and traders hedging against inflation.

In a note on Sunday, cited by Forexlive, the investment bank’s analysts forecast Brent Crude prices reaching the $70 a barrel mark during the second quarter of this year, and hitting $75 in the third quarter. Goldman Sachs is thus lifting its previous Q2 and Q3 forecasts by $10 per barrel.

“Faster re-balancing during what was expected to be the dark days of winter will be followed by a widening deficit this spring as the ramp-up in OPEC+ production lags our above-consensus demand recovery forecast,” said Goldman Sachs.

“We further believe that this additional rally will be supported by the current repositioning for a reflationary environment with investors turning to oil, buying a lagging real asset that benefits from a stimulus-driven recovery and has demonstrated an unmatched ability to hedge against inflation shocks,” the analysts noted.

Goldman expects the lower inventories will lead to an oil price rally sooner and at higher price levels.

On Monday morning, Brent Crude prices were up by 2 percent at $64.18 at 9:54 a.m. ET, while WTI Crude again moved above the $60 per barrel mark, having risen 2.6 percent at $60.78.

Earlier this month, Goldman Sachs had another bullish message for oil markets, saying in a note that it expected global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year.

According to Goldman, the oil market was in a deficit of 2.3 million bpd in the final quarter of 2020. With supply still tight at the start of 2021, the immediate future for prices is bright despite expectations for a slow demand recovery.

By Tsvetana Paraskova for

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U.S. Shale’s Struggles Will Be Help OPEC Stabilize Oil Prices

By Tsvetana Paraskova - Feb 22, 2021, 3:00 PM CST


OPEC and its allies could find managing supply to the oil market easier this year, as U.S. shale producers are still not rushing to accelerate output at $60 oil, OPEC sources tell Reuters.

Even before the Texas Freeze last week, which is estimated to have reduced U.S. production by as much as 4 million barrels per day (bpd), American shale drillers were not boosting production as most of the large firms continue to vow capital discipline and a measured increase in drilling activity, with an eye of returning more capital to investors, rather than in digging new wells.

Both the U.S. Energy Information Administration (EIA) and OPEC see U.S. oil production, including tight oil production, down this year compared to 2020.

OPEC expects in its Monthly Oil Market Report (MOMR) for February that U.S. tight oil production would drop by 140,000 bpd year over year in 2021, from 7.3 million bpd in 2020 to 7.16 million bpd this year. Tight crude output is estimated to have seen the largest contraction among liquids components in U.S. liquids production in 2020, dropping by 450,000 bpd compared to 2019, OPEC has estimated.

The EIA, for its part, expects oil production in the seven largest shale regions to fall by 78,000 bpd from February to March, to stand at 7.5 million bpd next month, according to the Drilling Productivity Report.

Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker

Total U.S. crude oil production is seen averaging 11.0 million bpd in 2021—down from 11.3 million bpd in 2020 and 12.2 million bpd in 2019, the EIA said in its February Short-Term Energy Outlook (STEO). Next year, total U.S. crude oil production is expected to rise to 11.5 million bpd.

Capital discipline in the U.S. shale is set to help the OPEC+ alliance to manage supply to the oil market without having to worry about soaring U.S. production, an OPEC delegate told Reuters, but noted that “I don’t think this factor will be permanent.”

U.S. oil prices rising to $60 and above could tempt American producers to pump more oil, especially privately-held firms who depend on drilling for growing their business. Most analysts still expect cautiousness in the U.S. shale patch, but the higher the price of oil goes, the greater the temptation of companies to abandon restraint would be.

By Tsvetana Paraskova for

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Brazil President Ousts Petrobras CEO

By Irina Slav - Feb 22, 2021, 9:30 AM CST


The President of Brazil, Jair Bolsonaro, ousted Petrobras chief executive Roberto Castello Blanco, replacing him with former Defense Minister Joaquim Silva e Luna.

The move follows a spat between Bolsonaro and Castello Blanco regarding diesel prices. Petrobras and its chief executive specifically have been calling for diesel and gasoline price hikes to reflect the oil price situation on international markets. However, price hikes like that tend to spark protests, which is why Bolsonaro instituted a two-month cut in diesel price taxes starting March 1.

This happened after Petrobras announced the fourth price increase at the pump since the start of the year, setting its chief executive on a collision course with the president, prompting the latter to say last week that “something will happen at Petrobras in the coming days,” per a Reuters report. The threat followed comments made by Castello Blanco about the possibility of a truckers’ strike in response to higher prices.

Roberto Castello Blanco is the second Petrobras CEO who is kicked out of the company for his market-oriented policies. His predecessor, Pedro Parente, also wanted to bring Petrobras prices at the pump closer to international market prices, as Petrobras kept losing money from the long-standing practice of keeping prices much below international benchmarks.

This met with opposition from the Brazilian president and eventually led to Parente’s resignation in 2018. The new appointment will be the third military official at a key energy-related post, according to Reuters. The minister of mines and energy is an admiral, and so is the president of the Petrobras board of directors.

If Silva e Luna’s appointment is any indication, Brazil’s president does not want a state oil company that operates under free-market principles. While the prioritization of low gas prices for voters is understandable, however, the departure from market-oriented leadership will cost the government in lost revenues.

By Irina Slav for


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Should You Follow Buffett Into Energy Stocks?

By Alex Kimani - Feb 22, 2021, 7:00 PM CST


For decades, Berkshire Hathaway (NYSE:BRK.B) chairman and CEO Warren Buffett maintained a pretty conservative approach to investing, favoring retail and banking stocks while avoiding sectors such as tech and energy. However, he finally pulled the trigger on PetroChina Co. (NYSE:PTR) in 2002 and Apple Inc. (NASDAQ:AAPL) in 2011. The Oracle's foray into energy and tech initially paid off after he realized a tidy $3.5B profit on PetroChina, while his $90 billion Apple stake now represents a ridiculous 20% of Berkshire Hathaway's market value.

However, Buffett has lately been doubling down on his energy investments while trimming his tech and banking holdings.

After a period of relative calm last year, Warren finally announced some long-awaited investments, including a $4.1 billion investment in Chevron Inc. (NYSE:CVX), good for a nearly 2.5% stake in the giant oil company. Chevron is now the conglomerate's 10th biggest equity holding. 

Meanwhile, Buffett trimmed its holding in Apple to 887.1M shares from 944.3M and Wells Fargo (NYSE:WFC) to 52.4M from 127.4M shares, according to Berkshire Hathaway's latest 13F filing.

Berkshire Hathaway has always operated on Buffett's famous ethos of buying when the market is fearful and selling when it gets greedy. It, therefore, came as a huge surprise that the giant conglomerate remained muted when the market crashed in April despite sitting in a massive $137 billion cash hoard. But it appears that the energy sector has become too much of a bargain for Buffett to continue ignoring.

It's also a clear sign that Buffett sees long-term value in a sector that's been taking plenty of flak lately.

Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker

Buffett is not the only billionaire who's doubling down on energy. Occidental Petroleum (NYSE:OXY), Energy Transfer LP (NYSE:ET),PG&E Corporation (NYSE:PCG) worth more than $800 million combined are now in David Tepper's top 12 holdings.


Source: CNN Money

Here's a peek into Buffett's latest energy buys.

#1. Chevron

Chevron stock plunged to its lowest level since 2006 after the pandemic crashed the oil and gas sector, and has failed to fully recover despite a bright start to the year. 

The integrated energy company posted a net loss of $5.5 billion for FY 2020, and the stock is currently trading 15% lower than a year ago.

With so much uncertainty surrounding the oil and gas sector and fears that it might be years before oil prices can fully recover to pre-pandemic levels, the ability of a company to withstand a prolonged bust cycle is an important consideration.

And...Chevron wins the stress test by a country mile.

Wood Mackenzie, a global energy, renewables, and mining research and consultancy group, has reported that Chevron Corp and Royal Dutch Shell (NYSE:RDS.A) are the most resilient, thanks to their robust deepwater projects and LNG as well as less exposure to high-cost assets.

Investing in Big Oil companies like Chevron comes with some risks, though.

Wall Street has been rapidly raising its climate standards, with BlackRock Inc. (NYSE:BLK), the world's biggest asset manager, recently disclosing plans to pressure companies to do a lot more to lower their carbon emissions by leveraging the massive weight of his firm mammoth asset base.

Related: Even Bill Gates Is Struggling To Go Completely Green

Chevron has not been moving as quickly as some of its European rivals and continues to expand its oil footprint, including its $5 billion purchase of Noble Energy last year. CVX has failed to make major investments in solar and wind beyond supporting its own power needs, meaning buying Chevron is a bet that oil demand will fully recover from Covid-19 despite growing public pressure. 

That's a possibility, but no longer seen as a given.

Perhaps Buffet's gamble will pay off, but it's clear the road ahead won't be easy.

#2. Dominion Energy

In July, Berkshire bought natural gas transmission and storage assets of Dominion Energy Inc. (NYSE:D), paying $4 billion in cash for the assets, and assuming $5.7 billion in debt.

Under the deal, Berkshire Hathaway Energy acquired 100% of Dominion Energy Transmission, Carolina Gas Transmission, and Questar Pipeline as well as 50% of the Iroquois Gas Transmission System. Berkshire also landed 25% of Cove Point LNG, one of just six export-import and storage facilities for liquefied natural gas in the U.S.

The purchase greatly increases Berkshire's footprint in the natural gas business, increasing its carrying market share to 18% of all interstate natural gas transmission in the United States, up from 8% previously.

And that might turn out to be one of Buffett's better energy buys.

With bond yields stuck at historic lows, Barron's recently said that the best yield opportunities are clustered in the equity markets, ranking energy pipelines as the best income investment opportunity for 2021 ahead of dividend stocks, electric utilities, REITs, telecoms, convertibles, and junk bonds in that order.

Dominion Energy also has better green credentials than most of its peers.

Dominion Energy has outlined plans to spend a massive $72B on capital investment in decarbonization by 2035, which it estimates should help drive a 10% annual shareholder return for its regulated utility operations, making it the largest regulated decarbonization investment opportunity in the country.

Dominion plans to spend $32B during 2021-25 to support its "clean-energy profile," which it estimates will generate 6.5% annual EPS growth and a ~3.5% dividend yield for a ~10% total shareholder return.

Dominion Energy has been selling off after recently cutting its dividend, but thankfully, its peers Enterprise Products Partners (NYSE:EPD) and Salient Midstream & MLP (NYSE:SMM) are still decent picks.

#3. Suncor Energy

According to Berkshire Hathaway's 13-F filings for Q2, the company bought around five million shares of Canadian oil kingpin Suncor Energy Inc. (TSX:SU) (NYSE:SU) during the second quarter. Berkshire now owns 19.2 million shares of Suncor worth ~US$217 million.

At first glance, Buffett's purchase of Suncor stock appears to have been driven by his long-term ethos to buy companies that are undervalued compared to their intrinsic values. After all, Suncor never truly recovered from the 2014 oil crisis and has been on a particularly sharp downtrend over the past two years. The Covid-19 pandemic and the oil price war only served to exacerbate the stock's unfortunate trend.

But there could be something deeper than that.

It appears Warren Buffett is a big fan of Suncor's assets, especially its long-lived oilfields with a lifespan of approximately 26 years. Suncor's dependable assets have helped the company generate stable cash flows and pay out consistently high dividends. Suncor had consistently increased dividends since it began distribution in 1992 till the 2008 financial crisis. The company, however, slashed the dividend by 55% in April due to the pandemic, but boasts a still respectable forward yield of 4.6%. Thankfully, the deep dividend cut really helped shore Suncor's balance sheet which is now among the most resilient among its peers.

In fact, Suncor revealed that it requires WTI prices to be north of $35/barrel to meet capex and dividend payouts. With WTI prices now in the high 50s, Suncor appears well placed to maintain that dividend and maybe even raise it in the not-so-distant future.

By Alex Kimani for

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Associated Press

EPA changes stand, sides with ethanol industry in court case


Mon, February 22, 2021, 3:29 PM·3 min read


DES MOINES, Iowa (AP) — The federal government announced Monday that it will support the ethanol industry in a lawsuit over biofuel waivers granted to oil refineries under President Donald Trump's administration.

The Environmental Protection Agency said it is reversing course and will support a January 2020 decision by the Denver-based 10th U.S. Circuit Court of Appeals in a lawsuit filed by the Renewable Fuels Association and farm groups. The lawsuit is headed to arguments before the U.S. Supreme Court this spring.

Federal law requires refiners to blend billions of gallons of biofuels in the nation’s gasoline supply or buy credits from refineries that do the blending. Refineries can seek waivers if they can show that meeting the ethanol quotas would create a financial hardship for their companies.


The appeals court concluded the EPA improperly granted exemptions to refineries that didn’t qualify. The court said that refineries should be granted waivers only as extensions, but most refineries seeking exemptions had not continuously received them year after year. The decision effectively limited the EPA’s ability to grant most exemptions. Two refineries appealed the decision to the Supreme Court.

Trump, who polls show had overwhelming support among Midwestern farmers, had promised to back policies that helped agriculture, but his EPA approved sharp increases in the waivers, aiding oil refiners and reducing demand for corn-based ethanol.

Roughly 40% of U.S. corn is used to produce ethanol. The EPA under Trump issued 85 retroactive small refinery exemptions for the 2016-2018 compliance years, undercutting the renewable fuel volumes by a total of 4 billion gallons, (15.1 billion liters) according to the Renewable Fuels Association.

Roughly a month after President Joe Biden took office, his EPA reversed the federal government’s stand, saying the EPA agrees with the appeals court that the exemption was intended to operate as a temporary measure.

“The change reflects the agency’s considered assessment that the Tenth Circuit’s reasoning better reflects the statutory text and structure, as well as Congress’s intent in establishing the RFS program,” the EPA said in a statement.

Biofuels and farm advocates applauded the decision.

“This announcement marks a giant step forward by the new administration to restore the integrity of the Renewable Fuel Standard and honor the statutory intent of the program,” said Renewable Fuels Association President Geoff Cooper.

Iowa Republican politicians, who were loyal supporters of Trump but struggled to defend his administration's ethanol policy, also supported the Biden administration move.

“This is a step to provide much-needed certainty to ethanol and biodiesel producers,” Sen. Joni Ernst said.

Iowa Gov. Kim Reynolds called the decision an “encouraging sign" from the Biden administration.

American Petroleum Institute Vice President Ron Chittim said the group supports the EPA decision "as it follows the 10th Circuit court’s finding and is consistent with Congress’ intent when it enacted the Renewable Fuels Standard.”

The group, which represents a range of companies serving the oil and natural gas industry, advocates for equal treatment among refineries.


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Bank Of America Sees $70 Oil By Summer

By Tsvetana Paraskova - Feb 23, 2021, 1:00 PM CST

Brent Crude prices could hit $70 a barrel in the second quarter of 2021, while they are set to average $60 this year, Bank of America said this week, raising its average price outlook by $10 a barrel from its previous projection

Easy monetary policy in major economies, as well as tighter oil supply due to the OPEC+ production cuts and the Texas Freeze, are the key drivers of Bank of America Global Research’s increased price forecasts for both benchmarks this year. While Brent Crude is seen averaging $60 throughout this year, the U.S. benchmark, WTI Crude, is expected to average $57 in 2021.

“The big Texas freeze in the past week should reduce global inventories by an additional 50 million barrels, further supporting (oil) prices,” BofA said in a note dated Monday, as carried by Reuters.

Oil prices erased earlier gains and traded lower at 9:35 a.m. ET on Tuesday, with WTI Crude still above $61 and Brent Crude above $65 a barrel.

Oil prices spiked on Monday on a slow restart of U.S. oil production lost in the Texas storm and analysts upgrading their forecasts, predicting a tighter market and prices rallying faster and higher on expected lower inventories. Related: Even Bill Gates Is Struggling To Go Completely Green

Echoing Bank of America, Morgan Stanley also sees Brent touching the $70 mark this year, but a bit later—in the third quarter, expecting “a much-improved market,” including on the demand side.

On Sunday, Goldman Sachs started the investment banks’ upgrades of oil price forecasts, expecting Brent Crude prices to hit $75 a barrel in the third quarter this year, on the back of faster market rebalancing, lower expected inventories, and traders hedging against inflation.

Goldman Sachs forecast Brent Crude prices reaching the $70 a barrel mark during the second quarter of this year, and hitting $75 in the third quarter. Goldman Sachs is thus lifting its previous Q2 and Q3 forecasts by $10 per barrel.

By Tsvetana Paraskova for

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Oil Holds Gains Above $60

By Josh Owens - Feb 23, 2021, 2:00 PM CST

Investor Alert! Oilfield service giants are looking like an increasingly good investment as oil prices rebound. Read our latest Global Energy Alert investment column to get the full breakdown of what to watch...




Chart of the Week


-    The Texas blackouts came from a steep drop in generation from gas, coal, wind and nuclear power. 

-    Natural gas typically can supply 40 GW of capacity at peak periods, but frozen gas lines, wellheads, and other damage to infrastructure led to widespread outages. 

-    The mismatch between supply and demand grew to as much as 30 GW on February 15. 

Market Movers

-    SunPower (NASDAQ: SPWR) was downgraded by Credit Suisse to Underperform. The solar company’s stock sank by 9.6% during midday trading on Monday. 

-    Electric truck maker Xos will go public with a blank-check SPAC, valued at $2 billion. 

-    Mizuho Securities downgraded Sunoco (NYSE: SUN) to Neutral from Buy. 

Tuesday, February 23, 2021 

Oil prices were off a bit in early trading on Tuesday, but are nonetheless trading close to more than one-year highs after soaring on Monday. The price hike comes shortly after Goldman Sachs forecast that oil prices would climb into the $70s over the next few months and after it became clear that U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries and oil production.

Texas refineries restarting. Motiva, the U.S.’ largest oil refinery, began to restart operations in Port Arthur, TX after a weeklong shutdown. A handful of other large refineries announced a return of operations. Still, a full recovery could be weeks away, which could push up gasoline prices

Texas crisis was historic. Gas traders said the volatility was historic. “I’ve been through a lot: The ‘98 and ‘99 power spikes in the Midwest, the California crisis” of 2000-2001, Cody Moore, head of gas and power trading at Mercuria Energy America, told Bloomberg. “Nothing was as broadly shocking as this week.” Some traders likened it to a Lehman Brothers moment. 

Texas blackouts leave winners and losers. Some high-profile companies, such as Comstock Resources (NYSE: CRK), saw a windfall for their natural gas when Texas market prices went haywire last week. But buyers of gas were slammed. Atmos Energy (NYSE: ATO), a distributor of gas, said it needs to raise cash after spending $3.5 billion to secure fuel during last week’s crisis. Canada-based Just Energy Group (NYSE: JE) lost$250 million and may have trouble continuing as a going concern. Its shares were down by nearly 25%.

Texas oil production restart could take weeks. It could take at least two weeks to restart the more than 2 mb/d of Texas oil production shut-in from last week’s cold snap. “With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note. “I think it will be a while before things get better out in the field,” one executive at a Permian producer told Reuters.

Diamondback says it lost 4-5 days of production. Diamondback Energy (NASDAQ: FANG) said that it lost four to five days’ worth of total production from the Texas blackouts, sending its shares down 4% in late trading on Monday. Cimarex (NYSE: XEC)said it could lose up to 7% of its first-quarter production. 

OPEC cuts U.S. shale forecast. OPEC downgraded its assessment of U.S. shale production for 2021, expecting a contraction of 140,000 bpd, a bit deeper than what the EIA foresees. The lack of shale growth gives OPEC+ more room and leverage to unwind production cuts and regain market share. 

Bullish forecasts start to multiply. Several investment banks came out with bullish crude oil forecasts. Goldman sees Brent averaging $70 in the second quarter and $75 in the third quarter. Morgan Stanley sees $70 by the third quarter. Socar Trading SA says oil could hit $80 this year. 

Saudi and Russia disagree on strategy. OPEC+ will soon decide on the next steps regarding their massive production cuts, and Riyadh and Moscow disagree on the strategy. The Saudis want to mostly stay the course and allow prices to rise, while Russia is keen to increase production. At the same time, Saudi Arabia suggested it would reverse the 1 mb/d of voluntary cuts it announced in January.

Eni aims for net-zero by 2050. Eni (NYSE: E) said it would fully decarbonize by 2050, but will still increase oil and gas production through the mid-2020s.

Exxon pressured to announce net-zero goal. Activist investor Engine No. 1 called on ExxonMobil (NYSE: XOM) to revamp its board and announce a net-zero goal. “This is not just a climate issue but a fundamental investor issue—no different than capital allocation or management compensation—given the immense risk to Exxon Mobil’s current business model in a rapidly changing world,” San Francisco-based Engine No. 1 wrote in a letter sent to the company.

Petrobras sinks after Bolsonaro sacks CEO. Brazilian President Jair Bolsonaro fired the chief executive of state-owned Petrobras (NYSE: PBR), scapegoating him for rising domestic fuel prices. Investors did not like the move – Petrobras’ stock was down more than 22% as markets opened on Monday. Investors are interpreting the move as an abandonment of the market-based stewardship of Petrobras. 

Is another LNG glut looming? A tight LNG market could prompt a new wave of an investment super-cycle in LNG projects. However, a possible new wave of strong investment in LNG could create a massive glut later this decade if most of the planned or proposed projects move forward.

Occidental posts large loss. Occidental Petroleum (NYSE: OXY) reported a $731 million loss for the fourth quarter, compared to a $269 million loss from a year earlier. Its shares fell 4% in after-hours trading.

By Josh Owens for 

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U.S. Freeze Chills Asian Plastic Makers as Feedstocks Soar

Saket Sundria and Jack Wittels
Wed, February 24, 2021, 8:24 AM·3 min read

U.S. Freeze Chills Asian Plastic Makers as Feedstocks Soar

(Bloomberg) -- The fallout from the Arctic blast that took out some of the biggest American refineries is being felt across the Pacific Ocean in Asia, where plastics makers are facing surging prices for key feedstocks.

The U.S. is a major supplier of naphtha and propane -- which are turned into petrochemicals used to make everything from medical masks to car interiors -- to Asia. While American refineries are slowly restarting, it looks set to be a messy process that could take several weeks.

Naphtha in Japan is up around 7% since Feb. 11 and was at the widest backwardation, a market structure indicating tight supply, in a year this week. Prices for propane, a type of liquefied petroleum gas, for late-March and early-April delivery to Asia are fetching premiums of $28 to $45 a ton over the regional benchmark, traders said, from as low as $3 for end-February delivery.

The big freeze’s impact is rippling through energy supply chains in different ways. Asian plastics makers -- including Formosa Petrochemical Corp., LG Chem Ltd. and Lotte Chemicals Corp. -- are facing higher costs, but the region’s producers of fuels such as gasoline are benefiting from the refinery shutdowns.

Asia needs about 2.5 million tons of naphtha from the U.S. and Europe in both March and April, according to Armaan Ashraf, an analyst at FGE. However, the U.S. is forecast to send just 910,000 tons to the region this month, according to estimates from Vortexa, down from 1.2 million tons in January.

“The U.S. is pulling more than usual volumes of oil products from Europe,” Ashraf said. “So there’s a chain reaction across the board.”

A similar trend is happening with propane. U.S. LPG exports to Asia are just under 1.1 million tons so far in February, according to Vortexa, down from 2.6 million tons in January. Around 11 LPG tankers are in the Houston Ship Channel to pick up cargoes, while 27 are waiting to get in, ship-tracking data show.

“The cold weather meant propane demand in the U.S. has been very strong for February, running down inventories, and leaving fewer barrels available to export to Asia and Europe,” said Ciaran Tyler, an analyst at Energy Aspects Ltd.

Formosa Petrochemical bought naphtha for April delivery at a $14 to $16 per ton premium to Japanese benchmark prices on Thursday, according to traders who asked not to be identified. That compares with a premium of $11 to $12 for cargoes for March delivery.

Prices may ease once the LPG backlog starts getting cleared in April, but stronger-than-usual demand due to the cold weather may keep benchmark prices firm, the traders said.

That will in turn result in higher demand and prices for naphtha, FGE’s Ashraf said. There will also be much more incentive to blend the light ends fuel into the gasoline pool in the U.S. as prices have soared, he said.

Upcoming refinery maintenance could also be supportive. Energy Aspects currently estimates there will be 3.2 million barrels a day of crude distillation and condensate splitting capacity offline in Asia in April. That’s higher than the five-year average of 2.94 million barrels a day, Tyler said.

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Iran To Receive $1 Billion In Oil Funds Previously Blocked By Sanctions

By Michael Kern - Feb 23, 2021, 11:30 PM CST

Iran said on Tuesday that South Korea had started to release the first US$1 billion of the US$7 billion Iranian oil funds blocked in Korean banks because of the U.S. sanctions on Tehran, but Seoul says that any transfer of the funds will be made only after consultations with the United States.

After the United States pulled out from the so-called Iran nuclear deal in May 2018, it imposed sanctions on Tehran, specifically targeting its oil industry as a vital source of revenue. As a result, somewhere between US$7 billion and US$8 billion in oil revenues held at Korean banks were frozen by the banks, cutting off Iran’s access to the money.

The strained relations between Iran and South Korea in recent years also led to the Islamic Revolution Guards Corps (IRGC) of Iran seizing last month a South Korea-flagged tanker in the Strait of Hormuz, the most crucial oil chokepoint in the world.


After talks between Iran and South Korea in recent days, Seoul has now agreed to unfreeze U$1 billion of the funds as a first step to potentially resolving the dispute between the two countries, Bloomberg quoted Iranian government spokesman Ali Rabiei as saying at a news conference on Tuesday.

On Monday, Iranian media reported that Abdolnaser Hemmati, Governor of the Central Bank of Iran (CBI), met with the South Korean Ambassador to Tehran, Ryu Jeong-Hyun, to negotiate the details of allocating a part of Iranian funds blocked in South Korea for purchasing essential goods from third countries.

Yet, South Korea’s foreign ministry said on Tuesday that “any release of the money will take place after consultations with the United States,” as carried by the Yonhap news agency.

“The actual unfreezing of the assets will be carried out through consultations with related countries, including the United States,” the ministry said.  

By Michael Kern for

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Canadian Oil-by-Rail Exports To U.S. Keep Rising

By Irina Slav - Feb 24, 2021, 9:30 AM CST

Crude oil exports from Canada to the United States are increasingly being shipped by rail due to the now chronic shortage of pipeline capacity that is only going to become more severe as Canadian oil output rises while pipeline capacity stagnates.

Bloomberg’s Robert Tuttle reports that Cenovus Energy and Imperial Oil are among the companies increasingly using oil trains to carry their heavy crude south of the border. The companies’ combined oil exports by train have tripled since last July, the report said, adding that a railway company now expects other producers to follow in their footsteps.

President Joe Biden canceled the federal permit for Keystone XL on his first day in office despite warnings from analysts, as well as Alberta’s Premier Jason Kenney, who said that killing Keystone XL would not diminish demand for heavy crude oil at U.S. refineries in the future. It could, however, raise America’s dependence on crude oil imports from OPEC, instead of imports from Canada, for the U.S. Gulf Coast.

“This is a gut punch for the Canadian and Alberta economies. Sadly, it is an insult directed at the United States’ most important ally and trading partner on day one of a new administration,” Alberta Premier Jason Kenney said after the decision to ax the pipeline was announced.

The province’s government is currently considering forcing Washington to pay it for the money poured so far into the project, which amounts to about $1.2 billion. According to an official from Premier Kenney’s office, Alberta may invoke terms in the North American Free Trade Agreement to recoup at least some of its expenses.

Meanwhile, research has suggested that transporting oil by rail rather than pipeline is riskier in terms of spills. At the end of 2019 and beginning of 2020, this was highlighted by two major oil train derailments that occurred within two months of each other in Saskatchewan.

By Irina Slav for



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Texas Refinery Restarts Could Take Until April

By Charles Kennedy - Feb 24, 2021, 9:00 AM CST

The restart of Shell’s Deer Park refinery in Texas could take until April, Reuters has reported, citing unnamed sources familiar with the issue.

A spokesman for the company told Reuters no timeline has been set for the refinery’s return to normal operation.

Shell shut down the two crude processing units at the 318,000-bpd refinery in the middle of this month, before the cold spell that hit Texas’ energy industry and shut down several other refineries as well, because of a pump seal malfunction.

Then the Arctic blast hit, and the supermajor shut down the rest of the refinery’s operations. The cold wave shut down more than 6 million bpd in refining capacity in the Lone Star state, according to calculations from IHS Markit. It also took down 4 million barrels in daily oil production capacity.

Exxon is also taking its time in restarting two units at its Baytown refinery, according to a Reuters report citing unnamed sources from the company.

The units concerned are the wastewater unit at the 560,500-barrels-per-day refinery and its sulfur recovery unit.

“Exxon Mobil continues to make progress restarting its Baytown operations,” a company spokesman told Reuters. “As a matter of practice, we do not discuss the operation of individual units.”

The shutdowns led to a surge in flaring: refiners flare gases produced during refining to prevent it from damaging their processing units. According to data from the Texas Commission on Environment Quality, the collective emissions of refineries during the Arctic freeze totaled some 153 tons of gases, including benzene, carbon monoxide, and sulfur dioxide, among others.

The industry is starting to get things back to normal, but it will take a while, especially for refineries that can’t rush the restart of their units.

Motiva, the Saudi refining giant, filed a notification that it was beginning a 17-day restart of operations earlier this week. Marathon Petroleum is restarting its Galveston facility. Valero and Citgo are also restarting their refining plants on the Gulf Coast.

Meanwhile, oil producers are also working to bring wells back online, but some of these will remain idle, according to analysts. Marginal wells may simply prove to not be sufficiently economical to be brought back online.

By Charles Kennedy for

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Oil Prices Climb Despite Crude Build

By Irina Slav - Feb 24, 2021, 9:38 AM CST

Oil prices rose on Wednesday morning, despite a somewhat surprising EIA inventory report, which reflected a build in crude stocks and virtually unchanged gasoline inventories

Crude oil prices rose today after the Energy Information Administration reported a crude oil inventory build of 1.3 million barrels for the week to February 19. The build was much lower than the one the API had estimated a day earlier.

The report came a day after the American Petroleum Institute estimated an oil stock build of over 1 million barrels. It also compared with analyst expectations of a 5.372-million-barrel draw for the reported week and a 7.3-million-barrel inventory draw the EIA reported for the previous week.

Gasoline stocks surprisingly stayed virtually unchanged in the week to February 19, after a modest build of 700,000 barrels for the previous week, despite disruptions to refining operations by the Texas Freeze.

Gasoline production last week declined as a result of the Texas refinery shutdowns, to 7.7 million bpd. This compared with an average production rate of 9 million bpd during the previous week.

In distillates, the EIA reported an inventory decline of 5.0 million barrels for the week of the Texas Freeze. Middle distillate stocks remain above seasonal averages but are declining steadily, currently at 3 percent over the five-year average.

Distillate production averaged 3.6 million bpd last week, compared with 4.6 million bpd the week before.

Last week’s events in Texas will likely keep oil prices higher for some time as production restarts slowly, and some of it may not return at all as companies leave uneconomical, marginal wells idled, despite WTI prices of above $60 a barrel.

A growing bullish sentiment among banks and traders has also contributed to higher oil prices recently, especially after Goldman said it expected prices to hit $70 and top it by the summer. Recovering demand is driving this sentiment, and the production outages in the United States only served to strengthen it further.

At the time of writing, Brent crude was trading at $66.61 a barrel, with West Texas Intermediate at $62.76 a barrel.

By Irina Slav for

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Oil Prices Rally On U.S. Outages And A Weak Dollar

By Tsvetana Paraskova - Feb 24, 2021, 11:10 AM CST

After slipping late on Tuesday after a surprise U.S. inventory build reported by the API, oil prices rose on Wednesday morning, supported by the slow restart of the U.S. oil production lost during the Texas Freeze and a weaker U.S. dollar.

Before the EIA inventory report, WTI Crude and Brent Crude benchmarks were both trading up by 2 percent at 10:28 a.m. ET, with Brent at over $66 and the U.S. benchmark trading at $62.80.

Earlier on Wednesday, oil prices were struggling for direction, but firmed up in the morning Eastern Time after the U.S. dollar weakened.

Crude oil traded softer after reaching a fresh one-year high on Tuesday, after the API industry report contradicted surveys and reported the first rise in U.S. crude oil stockpiles in five weeks, Saxo Bank strategists said early on Wednesday, noting that both benchmarks are “still in overbought territory.”

“With US producers having restored around 80% of lost production after the Texas freeze, the focus will increasingly turn to the outcome of next week's OPEC+ meeting,” Saxo Bank said.

Many analysts have raised their oil price forecasts in recent days, expecting oil prices to rally into the summer amid an increasingly tighter market.

Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker

Bank of America said this week that Brent Crude prices could hit $70 a barrel in the second quarter of 2021, and will average $60 this year, raising its average price outlook by $10 a barrel.

On Sunday, Goldman Sachs started the investment banks’ upgrades of oil price forecasts, expecting Brent Crude prices to hit $75 a barrel in the third quarter this year, on the back of faster market rebalancing, lower expected inventories, and traders hedging against inflation.

“The 12-month Brent spread is quickly approaching a backwardation of US$7/bbl. This steepening of the forward curve is obviously increasing roll yields, and so making oil an increasingly attractive option for investors,” ING strategists Warren Patterson and Wenyu Yao said on Tuesday.

By Tsvetana Paraskova for

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Ethanol Output Plunges Most on Record After U.S. Deep Freeze

(Bloomberg) -- Ethanol production in the U.S. dropped the most on record last week as a historic cold snap prompted some plants to slow or completely shut down amid power outages and a spike in natural gas prices.

Output slid 28% to 658,000 barrels a day, according to the Department of Energy. The decline was the biggest in figures going back to 2010, according to data compiled by Bloomberg. Production was also below the average estimate of 819,000 in Bloomberg survey of analysts.

A brutal cold snap in the central U.S., home to the bulk of the country’s ethanol production, caused some plants to lose electricity and others to slow down or temporarily stop operations to conserve energy as natural gas prices soared. Some makers of the corn-based biofuel pulled back output as much as 60%, Renewable Fuels Association President Geoff Cooper said last week.

Cooper said in an email on Wednesday that it could be another week before most plants are ramped back up to pre-deep-freeze levels of output, as producers deal with the various gas, electricity, and rail disruptions.

Output last week was 38% below the same period a year earlier, and the smallest since early May, shortly after initial stay-at-home orders amid the coronavirus outbreak dramatically cut demand for motor fuel. Stockpiles for the week fell 6.2%.

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A Key Fracking Indicator Just Hit Record Lows

By Osama Rizvi - Feb 24, 2021, 2:00 PM CST

Oil prices have staged an extraordinary rally in the last three months, rising by 50%. Biden’s presidency, the vaccine rollout, a weak dollar, low interest rates, no inflation, and hopes of more stimulus in the future have all played a part in sending oil prices higher. Now, the recent Polar Vortex in Texas has taken prices to a new 13 month high, with WTI rising 3 percent on Monday the 22nd February. The storm in Texas, which killed at least 25 people, pushed an estimated 4 mbpd of U.S. oil production offline, output that will take an estimated two weeks to return.

Primary Vision Network’s Frac Spread Count, which calculates the number of active spreads across the U.S./Alberta market, fell to a record low from 161 to 41, a weekly reduction of 120. Evidently, the cause of this steep fall was Texas’ Polar Vortex that caused a severe power shortage and other issues. As fracking requires a large amount of water, producers were forced to shut some of their equipment down. According to PVN, the Frac Spread will eventually return to 160, but the complicated process of restarting this equipment will mean that the rebound may take a while.  

The Frac Spread Count will return back to where it was over the course of two to three weeks according to Mark Rossano of C6 Capital Holdings. Due to the storm in Texas, almost 5 million barrels per day of refinery throughput has been lost, which will take more than 4 weeks to recover, as damage to pipes, valves and other apparatus will have to be repaired.

Related Video: Goldman Calls $70 Oil in Q2, But Jet Fuel Is The Joker



U.S. drillers will, given the lack of demand from refineries, be faced with two choices: store the excess oil or export it. The latter would involve reducing the price slightly to incentivize buyers, forcing spreads to open up.

In another important development, Saudi Arabia is expected to increase production in the coming months according to the Wall Street Journal. Goldman Sachs recently said that (Brent) prices will soon surpass $70 on the back of a “resilient demand”. Oil prices, along with other commodities, are rallying rapidly, so traders should be wary of a correction.

By Osama Rizvi for

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Bank Of America Expects Fastest Oil Price Rise In 30 Years

By Irina Slav - Feb 25, 2021, 9:00 AM CST

Oil prices are set to rise by the fastest rate since the 1970s over the next three years, Bank of America said in a new report, joining the growing group of analysts forecasting a return of oil to three-digit territory.

The average price of Brent over the next five years, however, will be between $50 and $70 per barrel, according to the bank, as quoted by The National.

The bank also said OPEC+ might decide to reverse its production cuts now that Brent is trending above $60, but added that a slow return of U.S. shale to international markets might lead to an extension of the production cut agreement to make sure prices stay higher.

"We believe that slower shale growth and oil price stability will likely require a continuation of Opec+'s market management beyond April 2022," the bank's analysts said.

OPEC+ is meeting next week to discuss the progress of its agreement in an environment of much tighter supply, and expectations are that some members may push for a production increase. The increase, however, will be moderate, at 500,000 bpd, according to reports.

The last Joint Ministerial Monitoring Committee of OPEC+ met in the first week of February, and the meeting ended without many surprises. For the month of February, another 75,000 bpd was added to the quotas—65,000 bpd to Russia and 10,000 bpd to Kazakhstan. For the month of March, production quotas were eased again by the same amount, with the same distribution of the additions.

Russia is one of the extended cartel's members that will likely call for a further increase in production. Moscow has a tradition of budgeting for pessimistic oil prices, which increases the benefits from each additional dollar benchmarks gain. Saudi Arabia, on the other hand, might like to see much higher prices as its breakeven level, despite the lowest production costs in the world, remains quite high.

By Irina Slav for




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Thanks for keeping it going 👍

  • Like 1

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Here's a very informative video that talks about the politics of the Keystone pipeline:

There's a great map of pipelines in the U.S. as well.

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