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OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

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  • OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

Russia and Middle Eastern oil producers want to keep oil prices between $50 and $60 per barrel, RBC Capital Markets said at the weekend.

It added that supply from the United States (U.S.) remained real problem for the Organisation of Petroleum Exporting Countries (OPEC).

Drop in U.S. fuel inventories forced oil price to climb above $52 per barrel on Friday amid plans from OPEC and major non-OPEC producers for a supply freeze agreement to help stabilise prices.

Managing Director/Global Head of Commodity Strategy at RBC Capital Markets, Helima Croft, said: “I think that Saudi Arabia, OPEC and the Russians hope that some U.S. production will come back but $50 to $60 is probably not enough to resurrect the entire U.S. shale complex.

“I don’t think they are aiming for $70 to $80, because I don’t think they want to bring it all back.” Croft told CNBC at the weekend that Russia and the Middle East want a “steady grind higher, not a gallop” in terms of prices.

With oil prices above $70 per barrel production from shale will be economic and profitable but at $50 per barrel, oil production from shale would be uneconomic.

In their most recent note RBC capital markets see WTI and Brent averaging $51 per barrel and $53 per barrel over the rest of this year, before increasing to $56.50 per barrel and $59 per barrel on average next year.

November’s OPEC meeting is seen as the forum where a supply freeze deal will stand or fall. RBC’s Croft said it will be down to Saudi Arabia whether anything meaningful is achieved.

“Almost all these other countries are basically maxed out and really it will have to be the Saudi’s and the GCC (Gulf Cooperation Council) who takes the cut,” she said. “If the Saudi’s incentivise the deal, I think it gets done,” she added.

And on fears that Libya will ramp up supply to previous levels, Croft said political turmoil in the country would prevent that happening. “Libya has three governments at the moment; there are 100 militias in Tripoli. The country is awash with weapons. It’s like asking Somalia to get their act together,” she said.

OPEC’s output has increased with Iran’s crude oil production reaching 3.665 million barrels per day in September, OPEC said in a monthly report published on October 12.

OPEC crude oil production averaged 33.39 million barrels per day (mb/d) in September, increasing by 0.22 mb/d over the previous month, according to secondary sources.

Crude oil output increased mostly from Iraq, Nigeria and Libya, while production in Saudi Arabia showed the largest drop. Iran has repeatedly stated that it plans to increase oil output to 4 million barrels per day by March next year.

Iran has the fourth largest oil reserves and the largest natural gas reserves in the world, while the country is also the third largest exporter of oil in the world and has nearly doubled since sanctions were lifted on its oil exports in January 2016. In fact, Iran is recovering market share faster than many experts had expected.

China and India are looking to further lock down Iranian supply, with a large planned investment in Iran’s oil and gas infrastructure. Iran is seeking $130 billion worth of investment to bring its energy sector up to date after years of sanctions, Reuters reported.

 

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Holds Near Highest Since 2018 With Global Markets Tightening

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Crude Oil - Investors King

Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.

Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.

Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.

At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.

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Energy

Unlocking Investments into Africa’s Renewable Energy Market

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green energy - Investors King

The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT. 

The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.

Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.

In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.

Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustain­able energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.

The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.

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Energy

Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips

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Shell profit drops 44 percent

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

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