A driver pumps gas at a Sunoco gas station in Washington, DC, US, on Tuesday, Nov. 28, 2023.
Al Drago | Bloomberg | Getty Images
Oil prices are on pace to close out the year about 10% lower as bearish sentiment has taken over due to worries that the market is oversupplied from record production outside OPEC.
The West Texas Intermediate contract for February gained 10 cents, or 0.14%, to trade at $71.87 to barrel on Friday. The Brent contract for March rose 12 cents, or 0.16%, to trade at $77.27.
But U.S. crude and the global benchmark were headed for the first annual decline since 2020 despite ongoing geopolitical risk in the Middle East due to the devastating war in Gaza.
Oil prices rose nearly 3% on Tuesday on worries that militant attacks on shipping in the Red Sea would disrupt global trade and crude supplies. However, WTI is down 10.45% for the year, and Brent has lost 9.9%.
While fears of escalation in the Middle East have triggered brief spikes in crude prices, traders are primarily focused on the supply and demand balance.
Record U.S. production
The U.S. is producing crude at a record pace, pumping an estimated 13.3 million barrels per day last week. Output is also at a record in Brazil and Guyana. The historic production outside OPEC has collided with an economic slowdown in major economies, above all China.
OPEC and its allies, meanwhile, have promised to cut production by 2.2 million barrels per day in the first quarter of 2024, but traders apparently have little confidence that the bloc’s policy will bring the market into balance.
Oil production outside OPEC, above all in the U.S., is expected to more than cover demand growth in 2024, according to the International Energy Agency. Global oil demand growth is expect to fall by half to 1.1 mbd next year, while output outside OPEC is expected grow by 1.2 mbd.
Profound impact on oil
The shift in crude supply from the Middle East to the U.S. and other Atlantic countries is “profoundly impacting the global oil trade,” the IEA said in its December outlook.
The U.S. was responsible for two-thirds of the growth in supply outside OPEC this year. This is challenging efforts by producers in the Middle East to defend their market share and lift oil prices, according to the IEA.
OPEC seems to have little room to maneuver, with production cuts falling on deaf ears. Brazil has agreed to ally itself with the bloc, but it is not clear what that means for markets.
Occidental CEO Vicki Hollub told CNBC in December that U.S. production this year has reached levels that surprised even her. She had a message of caution for the industry.
“It would be prudent of U.S. producers to be careful in terms of putting too much supply in the market,” Hollub said.
The Occidental CEO and Morgan Stanley do see U.S. crude prices bouncing back next year with a barrel of WTI averaging about $80. Wells Fargo has a lower forecast with WTI averaging $71.50 a barrel next year.
Mideast escalation threat
While the market is focused on the supply and demand picture, Helima Croft of RBC Capital Markets told investors to watch developments in the Middle East closely.
“Anything that brings more direct confrontation with Iran and the United States is what you have to watch,” Croft said Friday on CNBC’s “Squawk Box.”
Three U.S. troops were injured Monday in a drone attack in Iraq carried out by Iran-backed militants. President Joe Biden then ordered retaliatory strikes on militia sites. And attacks by Iran-backed militants in Yemen on vessels in the Red Sea caused global shipping companies to reroute some traffic from the Suez Canal around the Cape of Good Hope in Africa.
The situation is also escalating on Israel’s northern border with Lebanon. Israel Defense Minister Yoav Gallant said Tuesday that his country is facing a “multiarena war” from seven areas: Gaza, the West Bank, Iran, Iraq, Lebanon, Syria and Yemen.
“If you look at the situation in the Middle East, I think it is far too soon to write off the risks there,” RBC’s Croft said.
The California Air Resource Board (CARB) has withdrawn its request to enact the proposed Advanced Clean Fleets rule, which required fleets that are “well-suited for electrification” to reduce emissions through the phase-in of Zero-Emission Vehicles (ZEVs) and the banning of commercial diesel sales after 2035.
“Frankly, given that the Trump administration has not been publicly supportive of some of the strategies that we have deployed in these regulations, we thought it would be prudent to pull back and consider our options,” CARB chair Liane Randolph said in an interview. “The withdrawal is an important step given the uncertainty presented by the incoming administration that previously attacked California’s programs to protect public health and the climate and has said will continue to oppose those programs.”
Here’s hoping the BEVs and ZEVs have better luck next round.
Electrek’s Take
While some may celebrate the delay of the Advanced Clean Fleets rule, their celebrations will undoubtedly prove to be myopic and short-lived. The reality is that America is no longer the world leader in technology or transportation that backward organizations like the American Trucking Association believe it to be, and the fact is that delaying a transition to cleaner, more efficient technology will only put the US further behind its economic rivals in Asia and the Middle East.
Even before this Pyrrhic victory for American truck brands that have been slow to push BEVs into production, demand for diesel was at a generational low, and companies like Volvo, Renault, and Mercedes-Benz have been logging millions of electric miles on their deployed trucking fleets.
All of which is to say: if you thought it was going to be hard for American brands to catch up before, it’s going to be even harder now.
In an official announcement released at 8:15PM last night, Walmart-backed electric van company Canoo filed a voluntary petition for relief under Chapter 7 of the US Bankruptcy Code and will cease operations immediately.
“We would like to thank the company’s employees for their dedication and hard work,” said Tony Aquila, Canoo CEO and one of the company’s largest investors (according to the press release). “We know that you believed in our company as we did. We are truly disappointed that things turned out as they did. We would also like to thank NASA, the Department of Defense, The United States Postal Service (‘USPS’), the State of Oklahoma and Walmart for their belief in our products and our company. This means a lot to everyone in the company.”
As a result of the chapter 7 filing, Canoo will cease operations effective immediately, 8:15PM on 17JAN2025. The next step in the company’s dissolution will see a court-appointed trustee manage the liquidation of the company’s remaining assets.
Electrek’s Take
Rumors fueled by outspoken former employees of Canoo began circling late last year, with furloughed employees urging Oklahoma state leaders to “hold the electric vehicle company accountable” after it shuttered the OK production line that had received more than $100 million in state incentives.
The same employee claims that the company was being wildly mismanaged, and that what few Canoo vehicles the company said it had built in the Oklahoma plant were actually built in Texas, and that no vehicles were actually ever built in OK. “Nothing was functioning,” the unnamed employee said, speaking to local news channel KFOR. “There was no, there was not one robotics line that actually worked to fabricate a part.”
You could argue that the employees should also be held accountable for happily collecting paychecks without actually producing anything this whole time, but that’s a conversation for another day. For now, I’ll be mourning the loss of what could have been a fun little domestic off-roader, and hoping Canoo’s employees find a soft landing and better jobs elsewhere.
The US Department of Energy (DOE) today announced $1.2 billion in financing to replace Puerto Rico’s fossil fuel plants with solar and battery storage through 2032.
The DOE’s Loan Programs Office announced two conditional commitments and one loan closing to power producers in Puerto Rico. Each supports a project contracted with the Puerto Rico Electric Power Authority. The announcements include:
The closing of a $584.5 million loan guarantee to subsidiaries of Convergent Energy to finance a 100 MW solar farm with a 55 MW (55 MWh) battery energy storage system (BESS) in the municipality of Coamo and BESS installations in the municipalities of Caguas (25MW/100MWh), Peñuelas (100MW/400MWh), and Ponce (up to 100MW/400MWh)
A conditional commitment for a loan guarantee of up to $133.6 million to a subsidiary of Infinigen for a 32.1 MW solar farm with an integrated 14.45 MW (4.76 MWh) BESS, and a co-located standalone 50 MW (200 MWh) BESS expansion in the municipality of Yabucoa
A conditional commitment for a loan guarantee of up to $489.4 million to a subsidiary of Pattern Energy for three stand-alone BESS in the municipalities of Arecibo (50 MW/200 MWh), and Santa Isabel (50 MW /200 MWh and 80 MW/320 MW), and a 70 MW solar farm with an integrated BESS in the municipality of Arecibo.
If all are finalized, these projects would more than double LPO’s support for utility-scale solar generation and battery energy storage in Puerto Rico.
LPO provides low-cost financing and a rigorous due diligence process, making it a valuable resource for Puerto Rico as it works to rebuild an affordable, reliable, and clean energy system. As a result of reliance on imported fuel, the persistent threat of tropical storms, and underinvested infrastructure, Puerto Ricans today face average energy costs that are twice the US average – all while consuming only one-quarter of the energy of the US per capita.
LPO’s initial loan to a power producer in Puerto Rico, Project Marahu, closed in October 2024, and when complete will add more than 200 MW of solar and up to 285 MW of stand-alone energy storage to Puerto Rico’s grid.
Through its September 2023 partial loan guarantee to Project Hestia, LPO also supports virtual power plant (VPP)-ready rooftop solar and battery storage installations in Puerto Rico. As a nationwide project, Hestia’s sponsor is committed to at least 20% of installations under Project Hestia going to homeowners in Puerto Rico.
As part of its procurement plan, Puerto Rico Electric Power Authority seeks to install 1,500 MW of battery storage and requires a minimum capacity of storage to be co-located with each utility-scale solar project. Energy storage systems currently online in Puerto Rico are being dispatched every day.
When including Marahu, LPO’s closed and conditionally committed financing supports over 100% of the capacity Puerto Rico Electric Power Authority aimed to procure under its initial request for energy storage project proposals, the first of six.
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