Oil Prices Fall Below $43 on Demand Concerns - OIR 040920

Saturday, September 05, 2020 /07:00AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice

Oil prices fell below$40 for the first time since June as demand concerns grow and stock marketscrash.

Friday, September 4th, 2020

Oil prices hit a rough patch this week, falling back in concert with broaderfinancial markets. The dollar gained strength, which also pushed down crude.The demand rebound is also sputtering. WTI was driven below $40 for the firsttime since June.

Iraqseeks OPEC+ exemption. Iraq is looking for an exemption fromthe OPEC+ deal for the first quarter of 2021, raising fears that the group'scompliance may start to slip. A separate report says thatIraq wants a two-month extension on the extra production cuts that it agreed toimplement in August and September.

Kuwait'soil economy running on fumes. Kuwait's budget deficitis expected to reach $46 billion this year. But oil revenues collapsed afterthe 2014-2016 downturn and neve recovered. Now the country is grapplingwith tapping its sovereign wealth fund as the days of huge oil revenues appears to beover.

EUwarns of running low on critical metals. A new reportfrom the European Commission warns that the shortage of critical materialscould threaten the EU's push to become climate neutral by 2050. The EU estimates thatit will need up to 18 times more lithium and five times more cobalt in 2030, afigure that rises to 60 times more lithium and 15 times more cobalt by 2050.

U.S.LNG faces blowback in Europe. The Trumpadministration's aggressive use of sanctions related to Nord Stream 2 risksblowback from angry European policymakers. "This is not a way you treat alliesand friends. Now, the European Union should show unequivocally that it will notbe blackmailed," said KlausErnst, chairman of the German parliament's energy and economic affairscommittee. "If diplomacy fails, we'll need penalty tariffs on fracking gas oreven an import ban as a painful countersanction, since the U.S. gas industryseems to be a major driver of the sanctions policy."

Merkelunder pressure on Nord Stream 2 after Navalny poisoning. Thepoisoning of Russian opposition leader Alexei Navalny is ratcheting up the pressure on Germany to cancel the Nord Stream 2 project asretaliation against Russia.

Schlumbergerexits fracking. Schlumberger (NYSE: SLB) agreed tosell its North American fracking business to LibertyOilfield Services (NYSE: LBRT), marking something of an exitfrom shale for the oilfield services giant.

Only14% of utilities prioritize renewables. A newUniversity of Oxford study foundthat worldwide only about 14 percent of utilities prioritize renewables overgas or coal. "This research highlights a worrying gap between what is needed tostop global warming and what actions are being taken by the utility sector,"the author said.

Refineryglut continues. Overcapacity in the downstream sectoris a global problem, and some aging European refineries face the prospect of closure. Energy Aspects estimates that the refining sector needs tocut capacity by 10 percent. Total (NYSE: TOT) and Eni(NYSE: E) have already converted three refineries intohandling biodiesel, and more are likely to follow.

Imperialcuts oil sands after pipeline leak. Imperial Oil(TSE: IMO) shut down its production at the 220,000-bpdKearl oil sands site after the Polaris pipeline leaked diluent. The pipelinedelivers diluent for blending but spilled 566barrels near Fort McMurray. The outage is likely to remove 240,000 to 270,000bpd from the market for at least a few weeks, according to Reuters.

Australiangas losing out to batteries. Batteries arebecoming more attractive than gas-fired electric capacity in Australia. AGL Energy(ASX: AGL) new COO Markus Brokhof recently said that"there is a clear business case for big batteries." New electric capacity isincreasingly coming from renewables plus batteries, and as natural gas pricesrise worldwide from recent lows, that dynamic should continue.

Fossilfuels are here to stay. The future looks bright,emission-free, and electric. But a recent IEAreport offers a reality check. The world is still very much dependent on oiland gasâ€”and even coalâ€”for its continued energy supply. The 100-percentrenewable energy world is still decades away, and more than a couple.

U.S.jet fuel demand rebounding. Jet fuel demand in theU.S. is recovering faster than it is in Europe or therest of the Americas.

SaudiAramco slows diversification plans. Saudi Aramco(TADAWUL: 2222) is tapping the breaks on major investmentplans in Texas, China, India, and Pakistan, according to the Wall Street Journal. It is also delaying plans to increase domestic crudeproduction capacity.

Californiaoil and gas permitting up 190%. California has issued 190percent more oil and gas drilling permits in the first six months of 2020compared to a year earlier.

BillGates-backed battery company to go public. QuantumScape,a 10-year old battery company backed by Volkswagen Group, is looking to go public through a reverse-merger with SPAC Kensington Capital Corp.

Plasticsgrowth not assured. A new report from Carbon Trackerfinds that while the oil and petrochemical industries are betting their futuregrowth on demand for plastics, demand is likely to peak as the world starts totransition from a linear plastic system to a circular one. The report warnsthat disappointing demand growth will lead to $400 billion in stranded petrochemical assets.

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The post Oil Prices Fall Below $40 on Demand Concerns first appeared in Oilprice.com on September 04, 2020.