OPEC discord could unleash a new level of volatility in oil market

Published

3 years ago

July 12, 2021

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Prince Abdulaziz bin Salman Al-Saud, Minister of Energy of Saudi Arabia arrives for the 178th meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, on March 6, 2020.

Alex Halad | AFP | Getty Images

Disagreement within OPEC could trigger a more a volatile period for oil, with prices jumping on lack of new supply or sinking suddenly if member countries decide to release crude independently.

Oil prices initially surged to a six-year high on news that the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, ended their meeting Monday with no action and no new meeting date. A proposed plan by OPEC, Russia and other allies to bring 400,000 barrels a day back to the market was disrupted by the United Arab Emirates’ objection to other aspects of the deal.

West Texas Intermediate crude futures for August traded as high as $76.98 Tuesday before falling back to settle down 2.4% at $74.53 per barrel. Many analysts had expected oil to rise on the discord among members of OPEC, and say prices could still climb despite the sell-off.

“It’s going to get worse before it gets better. I still think $85 to $90 per barrel should be the upper end,” said John Kilduff, partner with Again Capital. “You’ll see more oil produced. They’re not going to go crazy, but they’re not going to live within the current structures. Russia will lead the charge.”

“It could become a free for all,” he said.

Some analysts had already expected oil spikes into the $100 per barrel range over the course of the next year. The feuding between Saudi Arabia and the United Arab Emirates opens a new fissure in OPEC, which now means oil could also tank if members decide to open the spigots.

“Realistically, I don’t think anybody wants to go this way. I suspect cooler heads or rational thinking will prevail,” said Bart Melek, global head of commodity strategy at TD Securities. Melek said there are some wild cards for OPEC that could affect prices. A major one is whether the U.S. and Iran strike a deal on Iran’s nuclear programming, allowing it to return more than 1 million barrels a day back to the market.

Another risk is whether the variants of the Covid virus could affect the economy’s recovery and crimp demand for travel.

OPEC and its partners were able to agree to return 400,000 barrels a day to the market starting in August. But the UAE sought to also have its production baseline increased from 3.1 million barrels a day to 3.8 million barrels, and that was the sticking point with Saudi Arabia.

After three days of meetings, there was also a deadlock over whether the deal would include an extension of the the plan to the end of 2022, which was opposed by the UAE. Without an agreement, 5.8 million barrels a day, cut from production last year, will remain off the market even as demand rises.

“I think OPEC event risk is back. We had pretty smooth sailing this year, and now this was not priced at all,” said Helima Croft, global head of commodity strategy at RBC Capital Markets. “Once people start focusing on 5.8 million barrels off the market, I think they might get nervous. How they come back will be important.” The market will be affected much differently based on whether the oil trickles back or the producing countries flood the market with supply.

The friction between Saudi Arabia and the UAE, formerly strong OPEC allies, comes at a time when the market is increasingly in need of more supply. Analysts expect the world is short of upwards of 2 million barrels a day, based on current production levels and increasing demand. That means oil is being taken from storage, and there could be increasing pressure on prices as the economy rebounds and demand rises.

The U.S. is producing about 2 million barrels a day less than it did pre-Covid, and output has remained at a steady level even as prices rise. The U.S. industry has become more disciplined, due to demands from shareholders and lenders. Oil companies also face sustainability demands and pressure to reduce carbon.

But U.S. drillers do have capacity to increase drilling. “Certainly, $90 oil would encourage a lot of drilling in not only the Permian, but in the Bakken and Rockies,” Andy Lipow, president of Lipow Oil Associates said. “I think as prices creep up, one of the things [OPEC+ members] are worried about is a spike higher that would encourage lots of drilling in other parts of the world.”

Lipow said OPEC will also be careful about falling prices and the potential for even lower levels. “If prices fall $5 a barrel, they’ll come to an agreement to signal the market they’re not going to flood it with supplies,” he added.

It also comes as gasoline prices continue to rise and are nearly $1 per gallon higher than this time last year. The national average for unleaded was $3.13 per unleaded gasoline Tuesday, following a weekend where prices at the pump were the highest in seven years for the Fourth of July holiday, according to AAA. If crude prices continue to rise, so will gasoline prices.

“I think gasoline prices could remain above $3 a gallon for the balance of the summer,” said Lipow.

The White House Tuesday said there have been a number of high-level conversations with officials in Saudi Arabia, the UAE and other partners.

“If prices were rising, I think that would be more of a catalyst for the White House to get involved,” said Croft. “If you have a sell-off you may have people in the administration saying why do I need to be involved in this.”

Kilduff said he does not think the situation will last much longer. “I think we’re in the last innings of it right now. I’m targeting in mid-August, you’re going to start to see gasoline demand going down because kids are going back to school. Refiners will start to dial back,” he said.

Environment

Jaguar rebrand is a great success, but Elon’s $55 billion payday is a huge fail

Published

3 hours ago

December 4, 2024

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Jaguar rebrand is a great success, but Elon's billion payday is a huge fail

For the second time, a judge strikes down Elon Musk’s $55 billion Tesla CEO pay package as the company struggles to avoid seeing its sales slip year over year for the first time. Plus: an all-new look for Jaguar this Giving Tuesday on Quick Charge!

We’ve also got record EV sales from both Kia and Hyundai, with the latter seeing IONIQ 5 sales double over last year, more Tesla discounts in China AND North America, and more.

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Environment

Tesla loses out to EVgo in Oklahoma’s NEVI EV charger rollout

Published

4 hours ago

December 4, 2024

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Tesla loses out to EVgo in Oklahoma's NEVI EV charger rollout

“Tesla could not meet program standards” on Oklahoma’s NEVI EV charger installation program, so EVgo took over.

As Electrek originally reported in April, Oklahoma approved more than $8 million in federal funds for Tesla, Love’s Travel Stops, and Francis Energy to build DC fast chargers along its interstates.

The three companies were to provide a combined $7 million in private funding match to build 13 DC fast charging stations. The first round of awards would complete the buildout of I-35, I-40, and I-44 as Alternative Fuel Corridors.

Tesla was supposed to install three Superchargers at the I-44 exit 240 in Catoosa, the I-40 exit 240B in Henryetta, and the I-44 exit 125B in Oklahoma City. In order to qualify for National Electric Vehicle Infrastructure (NEVI) Formula Program funding, they had to be equipped with Magic Docks – that is, CCS compatibility.

However, OK Energy Today reports that Oklahoma Transportation Commissioners unanimously approved replacing Tesla with second-place EVgo yesterday.

Jared Schennesen, multi-modal division manager to the nine commissioners, said:

Tesla could not meet program standards for the gap awarded along I-44 in Oklahoma City.

Due to not meeting the program requirements, ODOT required that the award be revoked from Tesla as direct[ed] by state procurement rules and awarded to second-place finisher EVgo for this gap.

Schennesen didn’t specify exactly how Tesla couldn’t meet the program standards, but the article goes on to note that EVgo reduced its costs considerably compared to what Tesla’s project costs were:

EVgo won the award for a total of $519,740, and Schennesen said it reduced the total project cost by $317,932. The federal share of the project will increase by $201,781 bringing the final total to $801,780.

EVgo has more than 1,000 DC fast charging locations in 40 states and serves over 65 metropolitan areas.

Oklahoma’s NEVI EV charger installation program, EVOK, is responsible for spending $66 million from 2022-27 in NEVI Formula Program funds to create a state EV charging network. The federal NEVI program allocates $5 billion over five years to help US states create a network of EV charging stations. The funding comes from the Bipartisan Infrastructure Law.

The NEVI program requires EV charging stations to be available every 50 miles and within one travel mile of the Alternative Fuel Corridor. EV charging stations must include at least four ports with connectors capable of simultaneously charging four EVs at 150 kilowatts (kW) each, with a total station power capacity of 600 kW or more.

The charging stations must have 24-hour public accessibility and provide amenities like restrooms, food and beverage, and shelter.

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Environment

US to loan $7.54B to Stellantis joint venture for 2 EV battery plants

Published

5 hours ago

December 4, 2024

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US to loan .54B to Stellantis joint venture for 2 EV battery plants

Dodge-Charger-Daytona-EV-Stellantis — 2024 Dodge Charger Daytona EV (Source: Stellantis)

The US Department of Energy (DOE) says it will loan up to $7.54 billion to a Stellantis and Samsung SDI joint venture to help build two EV lithium-ion battery plants in Indiana.

Stellantis + Samsung EV battery plants loan

The joint venture is called StarPlus Energy LLC, and its huge project will create huge job growth: at least 2,800 jobs at the plants, plus hundreds more for parts suppliers at a nearby park.

At full capacity, the plants will produce about 67 GWh of batteries for Stellantis EVs in Kokomo, enough to supply about 670,000 vehicles annually, the DOE’s Loan Programs Office said. Stellantis said yesterday that the first plant will open in early 2025 and the second in 2027.

To secure the loan, StarPlus needs to implement its Community Benefits Plan, which includes working with community and labor leaders to create well-paying jobs. It’s unclear whether the loan will be able to be finalized before Donald Trump takes office on January 20, but according to the Associated Press, the DOE said “it would be irresponsible for ‘any government to turn its back on private sector partners, states, and communities that are benefiting from lower energy costs and new economic opportunities’ from the loans.”

Electrek’s Take

Since Trump is threatening tariffs all over the place to stimulate domestic manufacturing, it would be pretty dumb if he attempted to kill this loan. The DOE anticipates this and makes a point of saying in its announcement that “the project will greatly expand EV battery manufacturing capacity in North America and reduce America’s reliance on adversarial foreign nations like China, as well as other foreign sourcing of EV batteries.”

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