The petroleum uptrend continues because of vigorous Chinese refining activity and a realization that weak oil demand will not last forever. The “Peak Demand” hysteria making the rounds and climate change fears have oil companies making rash decisions that we will pay for down the road. Reports that Shell (LON:RDSa) employees were quitting over the speed of green energy directives show that Shell’s leaders still have common sense.
Underinvestment in traditional forms of energy wipes off millions of barrels a day of future oil production, pointing to a decade of rising oil prices. That will only worsen under a Joe Biden Administration that will regulate fossil fuels to the point that it will not allow US production to recover to post-pandemic levels. While in the short term, Covid pandemic shut down and weak demand may mask the longer-term looming supply deficit, in the long run, it looks like the supply deficit “die has been cast.”
In the meantime, OPEC Plus is trying to figure out how to deal with more shutdowns and more Libyan oil supply. Reports say that OPEC moved up its JMMC meeting to Dec. 16 instead of Dec. 17. The trades will look at OPEC Plus production to see how quickly they implement their 500,000 barrel production increase and see the net effect versus better compliance by cheaters and improving global demand.
Crude oil shorts are covering. Even the drama over a stalled stimulus package in Washington and an antitrust crackdown on Facebook (NASDAQ:FB) has not shaken the bull’s confidence.
The FT reported that several clean energy executives’ departure had hit royal Dutch Shell amid a split over how far and fast the oil giant should shift towards greener fuels. The wave of resignations comes just weeks before Shell is set to announce its energy transition strategy. According to four people familiar with the matter, some executives have pushed for a more aggressive shift from oil, but top management is more inclined to stick closer to the company’s current path.
What is also supporting oil is a crisis in confidence in oil investment. The Wall Street Journal reports that:
“Even before a pandemic sapped the world’s thirst for crude, fossil-fuel producers faced threats from renewable energy, electric vehicles and worries about climate change. Is now the time to strike, or slip away?”
The article talks about the fear of oil investment, an attitude that will leave the market undersupplied.
The Wall Street Journal says that: The biggest oil companies increasingly disagree on what the future holds. Exxon Mobil (NYSE:XOM) continues to invest in increasing oil production and has said it believes oil demand will increase for years to come. BP (NYSE:BP), by contrast, believes demand may already have peaked and plans to reduce its oil and gas production by 40% over the next decade as it pivots to green energy.
What makes the situation even more challenging for investors are new questions about the direction of oil prices, which no longer follow the fairly predictable cycle of boom and bust that governed the industry for much of the past century. Prices traditionally fell when supply exceeded demand, and rose when reduced investment in new drilling resulted in shortages. In the past decade, America’s idea spread adoption of hydraulic fracturing disrupted that historic pattern, resulting in a flood of new oil that could be produced quickly. That tamped down price spikes and eroded profits. The quandary investors now face is this: Will global oil demand recover before EVs, renewable power, and environmental regulations permanently dent the market for fossil fuels?” My bet is it will! A must-read in the Wall Street Journal.
Natural Gas got a nice bounce on bullish EIA data. According to EIA estimates, the EIA reported that, “Working gas in storage was 3,848 Bcf as of Friday, December 4, 2020. This represents a net decrease of 91 Bcf from the previous week. Stocks were 309 Bcf higher than last year at this time and 260 Bcf above the five-year average of 3,588 Bcf. At 3,848 Bcf, the total working gas is within the five-year historical range. The natural gas bigger than expected draw is a sign that the nat gas market could rally hard if we get cold weather.