Grant Smith, Bloomberg News

LONDON
EnergiesNet.com 02 08 2024

OPEC+ plans to decide in the coming weeks on extending oil supply cutbacks into the second quarter. But its choice looks like an open-and-shut case.

Saudi Arabia and its allies are withholding roughly 2 million barrels of daily output to avert a glut and defend prices. Riyadh has said the curbs can “absolutely” be prolonged, and delegates expect a decision in early March.

If the Organization of Petroleum Exporting Countries and its partners want to maintain prices near $80 a barrel, they need to persevere. Prices are about 7% lower than when Hamas attacked Israel four months ago, despite the ongoing conflict, crimping the producers’ revenues.

While global demand growth remains robust, it’s being matched by a tide of new supply, according to the International Energy Agency in Paris. If OPEC+ relaxes the cuts and revives production after March, world markets will tip back into surplus, the IEA predicts.

In fact, the coalition needs to step up implementation of the curbs after making a slow start last month.

Both Iraq and the United Arab Emirates are collectively pumping several hundred thousand barrels a day above their quotas, and the performance of Russia has been even more delinquent. Moscow boosted fuel exports to a six-week high, and only temporarily pared crude shipments when forced to by winter storms.

Meanwhile, America’s oil heartlands are reminding the cartel of the need for discipline.

Exxon Mobil Corp. and Chevron Corp. announced surprisingly strong growth and ambitious plans for the Permian Basin last week — an ominous echo of the shale-oil surge that thwarted OPEC+’s efforts to balance markets both last year and during the past decade.

OPEC+ may view shale’s comeback as a sign that its efforts to shore up prices are backfiring, and revive halted output to protect its market share.

But this is belied by Saudi Aramco’s recent cancellation of a 1 million-barrel-a-day output capacity expansion scheduled for 2027. Whatever ultimately drove that decision, it suggests the kingdom is inclined to keep supplies on a tight leash for some time to come.

–Grant Smith, Bloomberg News

Chart of the day
China Gold and Silver Sales Hit Six-Year High

Gold has never been more expensive in China heading into the Lunar New Year, but consumers are still finding lots of reasons to buy it. While the holiday period usually drives increased spending on items like jewelry, reports of robust demand this year are notable because the shopping season happens to coincide with a stock-market crash. It shows gold’s billing as a surefire store of value in times of trouble is finding new fans.

Today’s top stories

Europe’s oil companies continue to reward investors in earnings season, with TotalEnergies SE raising its dividend and buying back shares, shrugging off lower profit. Equinor ASA is doing likewise.

Meanwhile in wind energy, Orsted A/S will suspend dividends until at least 2025 and slash plans for new projects as part of cost-cutting steps. But things are looking up for Vestas Wind Systems A/S.

The capture of a Libyan tanker off Albania opened a window on a $5 billion trade in smuggled fuel. Much of it’s from Russia and being diverted to countries in Europe that have banned such imports.

Woodside Energy Group Ltd. and Santos Ltd. ended tie-up talks that would have created an Australian gas-export powerhouse. That leaves Santos under pressure to consider asset sales and other options to boost its lagging valuation.

De Beers Chief Executive Officer Al Cook said any recovery in the beleaguered diamond sector will be slow and gradual amid weak economic growth in key markets such as China and the US.

Best of the rest

• A Category 5 hurricane can collapse a home. Studies now show that with 2C global warming, the risk of stronger storms — a hypothetical Category 6 — would double in the Gulf of Mexico, according to a paper in the PNAS journal.
  
• The White House decision to pause approvals of liquefied natural gas terminals has fed a contentious debate: Is LNG dirtier than coal? It’s complicated, ClimateWire says.
  
• Much is made of the decarbonization potential of hydrogen. But the huge emissions of current production are often overlooked. H2 View looks at the role of carbon capture in cleaning it up.

— With assistance from Sybilla Gross

bloomberg.com 02 07 2024