Front futures are trading sluggishly, WTI down 24 cents at $92.07; Brent up 25 cents at $93.52.
If you tell the producers that any money they put in the ground is going to be a stranded asset, as has been the case for a decade, they stop putting money in the ground and you end up with headlines like this one last week: "Shell announces commencement of a share buyback programme"
Shell plc (the ‘company’) today announces the commencement of a share buyback programme of $8.5 billion for the first half of 2022....
"It's important for the American oil and gas industry to address near term energy demands while also recognizing that they need to begin transitioning their companies,” a DOE spokesperson said in a statement Wednesday....December 22, 2021
From OilPrice, January 30:
- The current move in oil prices is largely attributed to geopolitical risk.
- The next major move in oil could be triggered if inventories fall to critical levels.
- Wall Street’s consensus seems to be that Brent will reach $100 by the summer.
Brent crude touched $90 per barrel briefly this week for the first time in years. This latest jump was attributed to tensions around Ukraine, but this is the most transitory reason for oil price rises. The bigger reasons all have to do with fundamentals. And $90 per barrel of Brent may be only the beginning. A lot has been written recently about OPEC's spare capacity and the not too rosy outlook for it. That spare capacity is in decline for several reasons, but chief among them appears to be underinvestment. As a result, JP Morgan earlier this month warned that Brent could rise to $125 per barrel as OPEC's spare production capacity falls to 4 percent of total capacity by the fourth quarter of 2022.
The International Energy Agency has gone even further, warning OPEC spare capacity could fall by half to just 2.6 million bpd in the second half of the year. The agency then went on to say that, "If demand continues to grow strongly or supply disappoints, the low level of stocks and shrinking spare capacity means that oil markets could be in for another volatile year in 2022."
It is not just OPEC, however. The biggest non-OPEC producer of oil—and biggest oil producer globally—is pumping less than it can. Pressure from shareholders on public oil majors in the United States has increased, as has an insistence that companies focus on greening up their operations instead of looking for more oil and gas to extract. As a result, the U.S. is pumping less oil than it could and, many would argue, should.
As a result, the stage seems set for another expensive year in oil, which happens to coincide with an expensive year overall as central banks begin tightening monetary policies in response to stubborn inflation that, like the IEA's oil demand forecasts from the early days of the pandemic, proved to be far from the transitory glitch the Fed said it was last year.
"The oil market is heading for simultaneously low inventories, low spare capacity and still low investment," Morgan Stanley analysts wrote in a note cited by the Wall Street Journal this week, summing up the situation quite nicely. In this situation, $90 for a barrel of Brent may be just the beginning....
....MUCH MORE
We've become pretty much convinced oil is a one way trade. Not that every tick is an uptick but that the trend over most time-periods will be up.
Feb. 3WTI crude oil tops $90 a barrel for first time since 2014
Feb 1
"Fuel for Thought: Persian Gulf energy producers caught in the middle of new world order"—Platts
Whoa! "OPEC+ Fails To Reach Production Targets In January"
Since 2012 when the Carbon Tracker Initiative came up with the idea as a pitch to keep hydrocarbons in the ground we've been kicking around in-house what, if any, effects the the carbon bubble/stranded assets arguments will have on price, and to this day don't have a clear-cut answer for patient reader.
Well, six years later we have a bit more clarity, oil companies have been putting money in shareholder's hands rather than in the ground, nothing dramatic, on a year to year basis but on a decadal scale it's hundreds of billions/trillions that didn't go into exploration.
January 27GDP: A Dichotomy in Commodities—"Oil Could Be The Haven Stocks Traders Need To Shelter From Fed"
