As the world races towards a greener future, coal country could stand to benefit drastically by embracing the hydrogen boom
(Bloomberg) -- OPEC’s oil ministers have a few challenges to consider at a crucial summit next week, but for the first time in years the shale boom won’t be at the top of the list.A devastating global pandemic and a reckoning with Wall Street appear to have broken the resolve of the shale wildcatters who turned the U.S. into the world’s biggest oil producer. Years of breakneck growth, at the expense of crude kingpins in the Middle East and Russia, have come to an end. If there was ever any doubt, it’s now abundantly clear who has the upper hand in the global oil market.“In the future, certainly we believe OPEC will be the swing producer — really, totally in control of oil prices,” Bill Thomas, chief executive officer of EOG Resources Inc., the biggest independent shale producer by market value, said earlier this month. “We don’t want to put OPEC in a situation where they feel threatened, like we’re taking market share while they’re propping up oil prices.”The shale industry’s prudence, also echoed by the CEOs of Pioneer Natural Resources Co. and Occidental Petroleum Corp., means that production will probably flatten after a steep plunge this year. U.S. oil output will end 2021 close to 11 million barrels a day, about the same as it is now, according to forecasters IHS Markit, Rystad Energy, Enverus and the U.S. Energy Information Administration.“I see no more growth until 2022, 2023, and it will be very, very light in regard to the U.S. shale industry ever growing again,” Pioneer CEO Scott Sheffield, who’ll run the fourth-largest shale operation in the country after his company completes the takeover of Parsley Energy Inc., said in an interview.That will surely come as a relief to OPEC and its allies.At the start of 2020, the group’s efforts to control prices were facing increasing difficulties. The breakthroughs in horizontal drilling and fracking that ushered in the shale revolution made it look as though U.S. production growth might never end. Output surpassed 13 million barrels a day for the first time in February.Then Covid-19 hit, people around the world stopped driving and flying, and the oil market crashed. President Donald Trump brokered a historic deal with OPEC in April to remove almost a 10th of global production from the market. He said the U.S. contribution would come in the form of market-driven cuts.That pledge was delivered faster than most predicted, and it made a huge difference. Investors who were already tiring of the shale industry’s cash-burning spree retreated from the sector, and several producers went bankrupt. Before the summer was over, U.S. output had collapsed by 3.4 million barrels a day, almost the same as removing the United Arab Emirates at peak production.Output from shale wells typically declines in a matter of months, so new ones need to be drilled and fracked just to maintain production at current levels. A recent uptick in drilling and fracking doesn’t seem to be enough to ensure production growth.Since hitting bottom in the summer, the number of rigs searching for crude in shale fields has increased by 69 to 241 this week, according to data from Baker Hughes Co. That’s still down from 683 in March. Similarly, the number of fracking crews in the once vibrant Permian Basin straddling Texas and New Mexico has increased to 63, an improvement from a meager 20 in June, data from Primary Vision Inc. show. But that’s less than half the 146 teams that were pumping mixtures of water, chemicals and sand into wells in January to release oil from shale rock in the area. It’s as though the U.S. suddenly went from being a thorn in OPEC’s side to being an unofficial member of the cartel’s alliance with Russia and other producing nations. Since June, benchmark U.S. oil prices have been remarkably stable, hovering around $40 a barrel, and that’s how OPEC likes it. Now, when the cartel meets in a virtual gathering Nov. 30, and the broader OPEC+ alliance on Dec. 1, they’ll probably be more focused on the pandemic’s impact on fuel consumption. Most of the crude the group removed from the market has already been successfully brought back without any turmoil.While shale’s retreat has made OPEC’s life easier, for the U.S. oil industry it’s been brutal. There have been 43 bankruptcies of exploration and production companies this year through October, according to a report from law firm Haynes & Boone.Shale may be down but it’s certainly not out, though. The U.S. is still an oil superpower, and will remain so for years to come. And there’s always the possibility that higher prices will get explorers drilling and fracking relentlessly like before.A sustained price rise to $50 a barrel will “trigger growth again,” according to Bernadette Johnson, vice president for strategy and analytics at Enverus. At $60 a barrel, U.S. shale will come back strongly, she said.The oil market received a boost this week as AstraZeneca Plc became the third drug company to show promising results from a trial of its coronavirus vaccine. That helped push prices in New York above $45 a barrel for the first time since March. If other pieces of bullish news take prices to levels that would encourage growth in shale, even if temporarily, producers could seize the opportunity to lock in prices with hedging contracts. That’s a risk OPEC+ will have to consider. Whether investors will be willing to bankroll shale anew is another question. Before Covid-19, the industry was already buckling under high debts and shareholder discontent. Shale producers burned through about $342 billion of cash since 2010, Deloitte LLP said in June.Another unknown is what titans Exxon Mobil Corp. and Chevron Corp. will choose to do next year. Both slashed capital budgets by around a third this year, with the biggest cuts coming from U.S. shale."Crucially, OPEC+ does not have to battle for market share just yet,’’ Natasha Kaneva, a commodities analyst at JPMorgan Chase & Co., said. “After six months of minimal capital spending, U.S. shale production will remain constrained.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Oil rose for a fourth straight week, buoyed by optimism over Covid-19 vaccine progress ahead of an OPEC+ ministerial gathering next week.Futures in New York advanced 8% this week, despite edging lower on Friday. The shape of the oil futures curve firmed over recent sessions with some nearer-dated futures contracts rising above later-dated ones. It’s a sign of how the market has dramatically repriced the increased likelihood of a vaccine rollout jumpstarting a stronger demand rebound next year.Meanwhile, informal talks between an OPEC+ panel will take place on Sunday after previously being scheduled for Saturday. That will precede the formal ministerial meetings scheduled for Monday and Tuesday, where producers will decide whether to postpone a planned output hike.“With three vaccine candidates at least close to deployment, a material recovery in economic activity and oil consumption in the next six months is on the horizon,” said Erduan Reid, head of crude swaps at Eagle Commodities in London. If OPEC+ extends its current output cuts, “most balance estimates assume a first-quarter 2021 global draw driven by Asia, even if Europe and the U.S. build on mobility restrictions.”While most analysts surveyed by Bloomberg are forecasting OPEC+ will postpone the planned increase by three months to March, oil’s recent rally may further complicate the decision amid growing tension with some member countries. Meanwhile, Algeria, which holds the rotating OPEC presidency this year, said the group must remain cautious because the organization’s internal data point to the risk of a new oil surplus emerging next year. That’s if the cartel and its allies go ahead with a supply hike.“Some of OPEC’s members like the UAE and Iraq have expressed misgivings around the course of supply policy, and in part, we view this early meeting as a means to keep them in the OPEC+ fold and maintain group cohesion” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. “If the news that filters out over the weekend leans towards OPEC+ considering a delay to the tapering of its cuts, then we are likely to see the oil market continuing its advance.”The OPEC+ alliance’s agreement is expected to be in place throughout 2021 and the group will delay its planned tapering by three months, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a report. The bank says inventories will decline by 1.2 million barrels a day on average next year, though demand still won’t reach normal levels until 2022.Alongside strong demand from Asia, there are signs consumption is also gradually improving elsewhere. Foot traffic in U.S. airports hit the highest since March before the Thanksgiving holiday, though it remains about 1.5 million people lower year-over-year, according to data from the U.S. Transportation Security Administration.Still, in the near-term, there is the lingering threat of further lockdown measures due to the pandemic. Refiners globally will have to keep runs low until at least the second quarter of next year to prevent significant gasoline stockpile builds as lockdowns result in reduced mobility and weaker demand, according to a note from FGE. That’s as refiners continue to contend with razor-thin margins. The combined refining margin for gasoline and diesel is at its lowest seasonally since 2009.(An earlier version of this story corrected a source error.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.