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The Energy Report: Rescue

Published 10/02/2023, 09:31 AM
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Oil is back on the rise as a government shutdown was averted and the focus flips back to global undersupply. Oil had a sharp Friday sell-off on reports that a government shutdown would not pass the House but now has turned after Speaker Kevin McCarthy cut a deal with the Democrats. Now with reports that OPEC has no plans to raise output and with another drop in the US rig count, it appears there is no help on the horizon to avert the risks of the coming price spikes.

While the International Energy Agency (IEA) continues to believe that it’s possible that the global demand for coal, oil, and natural gas may peak before 2030, it provides us little comfort as their previous predictions about peak demand proved to be wrong and OPEC has no problem calling them out on that.

The IEA also continues to suggest that we can divert investments away from fossil fuels. OPEC is warning that the underinvestment in fossil fuels is putting the economy at risk.

Reuters reports that OPEC Secretary General Haitham Al Ghais said on Monday at an energy industry event in Abu Dhabi:

“OPEC is optimistic on demand and sees under-investment as a risk to energy security.“

He stressed the importance of continued investment in the oil and gas industry and said he sees calls to stop investing in oil as counterproductive.

“We still see oil demand as quite resilient this year, as it was last year,” Al Ghais said, noting the group’s forecast was for year-on-year demand growth of more than 2.3 million barrels per day (bpd). He stressed the importance of continued investment in the oil and gas industry and said he sees calls to stop investing in oil as counterproductive.

The UAE’s energy minister says over the past 3 years OPEC plus lost 4 million bpd because of lack of investment and that volume will not be coming back

The IEA’s Fatih Birol continues to push the IEA green energy agenda even though there is evidence that the promotion of IEA policies has left the global economy at risk.

While he is calling for a reduction in fossil fuel investment, he seems to be looking to the US shale oil producers to keep the globe supplied.

That might be difficult after Baker Hughes reported on Friday that the total oil rig counts fell by 5 to 502. The horizontal oil rig counts fell by 4 to 447 and the Permian horizontal oil rig count fell by -4

While there is no doubt that the US oil and gas industry has done an amazing job with innovation and increasing well productivity, especially in a hostile regulatory environment, the reality is that the recent production gains, which have finally been acknowledged by the Energy Information Administration by changing the way they report their data, now seems to be nearing a peak.

The Maritime Executive reported that “The Biden administration plans to reduce the frequency of future offshore oil and gas lease sales to a historic low, drawing the ire of the energy industry without satisfying the objectives of environmental groups.

They write that the Department of the Interior’s five-year plan “phases down” oil and gas auctions in the U.S. Gulf of Mexico with three lease sales, one each in 2025, 2027, and 2029. It also calls for a moratorium on E&P leasing off the Atlantic, Pacific, and Alaskan coastlines.

In a statement Friday, the Department of the Interior noted that this would be the smallest number of offshore oil and gas lease sales in industry history. It also explained that the number was the minimum needed to comply with a leasing provision in the Inflation Reduction Act: this clause requires the administration to hold at least one offshore E&P auction in the same year it holds an offshore wind lease auction.

The one-for-one provision was added during the White House’s negotiations with Senator Joe Manchin (D-WV), an energy-industry advocate whose vote was required to pass the IRA. In recent months, Sen. Manchin has made clear that he believes the Biden administration has violated the spirit of that compromise.

“This administration is trying as hard as they can to implement a version of the legislation that never passed,” said Manchin in an interview Sunday. “You can’t just go with all renewables if you aren’t producing the energy the country needs.”

The American Petroleum Institute (API), the largest oil and gas producers’ association, also slammed the five-year plan and accused the administration of implementing a “coordinated strategy to reduce energy production.” “For decades, we’ve strived for energy security and this administration keeps trying to give it away,” said API President and CEO Mike Sommers. Environmental groups also decried the administration’s lease plan but for the opposite reason: for climate activists, three auctions in five years is still three auctions too many.

We did get a report that OPEC’s September oil output increased by 120.000 barrels a day led by Iranian and Nigerian output.

There seems to be no oil rescue on the horizon. The market’s pessimism earlier in the year is now being replaced with supply tightness reality.

Natural gas is trying to bottom and the falling rig count and the sharp differential between the price at the hub and in the field EBW analytics says that the November contract notched a 5.0¢ gain last week as a blowtorch start to October gave way to flashes of chilly autumn weather, leading the NYMEX front-month contract to trade within three-tenths of a penny of the $3.00/MMBtu psychological benchmark.

While the weather may dictate near-term price moves, the potential for production to turn lower is key to any realization of dormant bullish potential. Although this may start to impact production.

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