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Supply risk firms ANS
Drone attack on pipeline in southern Russia crimps shipments to Europe
Steve Sutherlin Petroleum News
Alaska North Slope crude crept back above $75 per barrel Feb. 19 -- up 36 cents to close at $75.16. West Texas Intermediate was up 40 cents to $72.25 and Brent edged 20 cents higher to close at $76.04.
Supply disruption fears drove prices higher for a second day but were moderated by bearish factors.
(See chart in the online issue PDF)
U.S. crude inventories rose by 3.34 million barrels for the week ended Feb. 14, market sources said, citing American Petroleum Institute figures Feb. 19, a Reuters report said.
U.S. Energy Information Administration data was scheduled to be released Feb. 20 after Petroleum News press time. Both reports were delayed a day by the U.S. Presidents Day holiday.
Analysts in a Reuters poll forecast that 2.2 million barrels of crude were added to U.S. inventories for the week ended Feb. 14.
Traders were also waiting to see whether OPEC and its allies will delay plans to restore extra production cuts or delay them once again.
"A delay could wipe out the surplus we expect for the market this year, which would leave prices better supported," ING analysts said in a Feb. 19 Barron's report.
Also, preliminary talks between Russia and the United States to ending the war in Ukraine capped upside on the potential easing of sanctions on Russia's energy sector.
U.S. markets were closed Feb. 17 for Presidents Day -- but when U.S. trading resumed Feb. 18, ANS leapt $1.02 to close at $74.80, WTI gained $1.11 Feb. 18 for a close of $71.85 and Brent gained $1.10 to close at $75.84.
Drone attack amps up supply fears Crude rose after a drone attack by Ukraine on a pipeline carrying crude from Kazakhstan across southern Russia curtailed flows.
On Feb. 17, seven explosive-packed drones hit a pump station on the Caspian Pipeline Consortium, which transports Kazakh oil across south Russia for export via the Black Sea, including to western Europe, according to an Agence France Presse release carried by Barron's.
"The consequences of this hit will be eliminated within one-and-a-half to two months, which could lead to a fall in the volume of oil pumped from Kazakhstan by 30 percent," Transneft, Russia's state-controlled pipeline company said in a Feb. 18 statement.
The 930-mile pipeline is owned by a consortium which includes the Russian and Kazakh governments along with Western energy majors Chevron, ExxonMobil and Shell. It moves some 1% of global daily production.
ANS slid 51 cents to a close of $73.78 Valentines Day Feb. 14, as WTI slid 55 cents to close at $70.74 and Brent edged 28 cents lower to close at $74.74.
Feb. 13 was a slight down day; ANS was down 3 cents to close at $74.29, WTI slid 8 cents to close at $71.29 and Brent lost 16 cents to close at $75.02.
From Wednesday to Wednesday, ANS gained 87 cents from its Feb. 12 close of $74.29 to its close of $75.16 Feb. 19.
On Feb. 19, ANS closed at a premium of $2.91 over WTI and at an 88-cent discount to Brent.
Stronger-for-longer demand A stronger-for-longer demand scenario for oil and gas demand into the next decade will require a boost in investment for oil companies, according to Wood Mackenzie.
It's a great opportunity for organic investment, Simon Flowers, WoodMac chairman and chief analyst wrote in The Edge Feb. 13, adding, "Companies that can find and develop low-cost resource, deliver the incremental barrels the world needs and ride the wave of higher prices in a stronger-for-longer demand scenario will be among the winners over the next decade."
In WoodMac's delayed energy transition scenario, upstream will need to deliver an additional 6 million barrels per day of oil on average -- 6% more than its base case -- through to 2050, as well as 3% more gas.
The consultancy estimates global investment in upstream will have to increase from its base case by 30% to deliver the incremental supply, from $500 billion a year currently to $660 billion.
Upstream companies will be pushed to add risk to deliver higher supply, tackling new projects and increasing resource capture through M&A and exploration, Flowers said. "Should our scenario turn into reality and oil prices stay firm into the next decade and beyond, the returns will justify higher risk," he said.
Investment would first target lower-cost advantaged resources, then move on to higher-cost plays, with clear implications for oil and gas prices, Flowers said.
The increased development activity required will put extreme pressure on the supply chain, he said, adding, "A service sector that's taken a decade to stabilize finances and rebuild margins will not rush to build new capacity; instead, service costs and margins will go up."
Just one-third of the increase represents higher activity, such as drilling and development, Flowers said. The balance is service sector cost inflation and exploitation of higher-cost resources -- even after allowing for operational and efficiency improvements.
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