Some have suggested the drop is due to investors also considering the potential impact of higher taxes and how that could affect corporate profit growth. The US President Joe Biden is planning the first major federal tax hike since 1993 to help pay for a long-term economic program, according to people familiar with the matter. The White House is expected to propose a suite of tax increases, mostly mirroring Biden’s 2020 campaign proposals, according to four people familiar with the discussions.

We do note that as prices tumble ‘mysteriously’, that WTI swap dealer shorts are at their highest since 2018…

And WTI’s nearest time spread flipped into a bearish contango structure – signaling oversupply – after stockpiles in the U.S. grew in recent weeks.

The silver lining, if this trend reversal holds, is we may avoid $3.000 gas at the pump becoming the norm.

The post Oil Prices Retreat As Biden Plans Major Federal Tax Hike appeared first on Iran News Daily.

The oil rig count fell by 1 this week, and the number of gas rigs stayed the same. The number of miscellaneous rigs also remained unchanged.

The EIA’s estimate for oil production in the United States for the week ending March 5 rose by 900,000 bpd to 10.9 million barrels with higher oil prices and demand, enticing drillers to bring on more barrels.

Canada’s overall rig count decreased this week by 25. Oil and gas rigs in Canada are now at 116 active rigs and down 59 year on year.

The Permian basin saw another increase this week in the number of rigs. The Permian’s total rig count rose by 1, bringing the total active rigs in the Permian to 212, or 206 below this time last year.

While the rig count dipped this week, the Frac Spread count, provided by Primary Vision, rose from 165 to 182. The Frac Spread tracks the number of fracking crews working to complete wells.

WTI and Brent were trading slightly up on Friday before the data release, with the market confused which signal they should be following—OPEC’s commitment to not ramp up production in April, or OPEC’s forecast of even lower global oil demand for Q2 and bloated oil stocks in the United States.

At 12:22 p.m. EDT, WTI was trading up $0.09 per barrel at $66.11. Brent crude was trading up $0.01 at $69.64.

At 1:019 p.m. EDT, WTI was trading down 0.21% on the day at $65.88—nearly flat on the week. Brent was trading down 0.34% on the day, at $69.39.

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Oil prices began rising last November when the first news about vaccine safety and efficacy emerged. Then, oil prices experienced a series of small dips. After that, it’s been mostly smooth sailing since January, thanks to the mass rollout of vaccinations that are expected to boost oil demand soon.

In addition to the vaccinations, however, OPEC+ continued to keep a cap on its production, with Saudi Arabia taking on a unilateral cut of 1 million bpd in addition to its OPEC+ quota. The cuts have been effective, as production cuts tend to be, reducing global stocks of crude oil.

As a result of these developments, more people began talking about a rebalancing market and the possibility of an oil shortage—something that would have been a ridiculous idea just a year ago. But expectations of a tighter oil market have been strong and have pushed oil prices higher. Most recently, benchmark contracts also got a boost from a series of attacks by the Yemeni Houthi rebels against Saudi oil infrastructure.

Earlier this week, Brent crude topped $70 for the first time in 14 months, according to the Financial Times, albeit only briefly, soon after media reported the attacks. Even though Riyadh said there was no serious damage and no loss of production due to the attack, traders reacted as they always do on the news of an attack on Saudi oil infrastructure: they started buying oil, pushing the price higher.

According to Reuters’ John Kemp, institutional traders have been selling oil for the past two weeks, however. Some of that was prompted by profit-taking, and some were the result of betting on a future price drop. Yet the profit-taking has been moderate: Kemp reports that funds sold a total of 20 million barrels across the six most traded futures and options on oil and oil productions. This compares with a weekly buying rate of 36.53 million barrels over the previous 15 weeks.

The latest reports on oil price movements, however, suggest this particular boost to prices will not be an enduring one. Prices are already down after they touched their multi-month highs, pressured by a stronger U.S. dollar and the fact that the Houthi attack on Aramco’s infrastructure did not affect production.

The greenback jumped this week after the Senate granted preliminary approval of the $1.9-trillion stimulus bill proposed by President Joe Biden, and final approval is expected this week, possibly as early as today. The stimulus package is one of the factors analysts have been pointing to as crucial for the recovery in oil demand in the world’s biggest consumer.

That package, together with the OPEC+ cuts, could hypothetically push prices even higher—closer to the $80-per-barrel that Saudi Arabia needs to balance its budget—but for now this is only a hypothetical possibility. While the oil cartel has brushed off the competition of U.S. shale producers amid the pandemic, and while shale producers themselves have been careful about not jumping right back into output growth, this may change with prices of over $70 per barrel.

“Crude’s spike was a knee-jerk reaction to a shocking OPEC+ decision,” Vandana Hari, founder of Vanda Insights, told Bloomberg earlier this week. Yet “the kingdom might be pushing its luck if it pursues the hawkish path for too long.”

Headwinds outside of OPEC+ and shale drillers remain, too. In the United States, for example, a number of medical experts have been warning states to not rush into relaxing their movement restrictions amid a surge in new variant infections with the coronavirus. In Europe, the new variants are marching across countries, lifting new infection rates yet again. This heightens the uncertainty in the outlook for oil demand, and uncertainty, in turn, leads to heightened price volatility. The message continues to be “Expect the unexpected.”

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In an analysis marathon that has generated a series of three commentaries and a report to its clients, Rystad Energy has assessed the way E&Ps are navigating the energy transition, based on energy diversification, portfolio resilience, and decarbonization. While the full in-depth findings are not going to be made public outside our client portal, in this press release we are offering a glimpse of our portfolio resilience findings.

The downside risk that the energy transition can bring to oil prices is calculated to as much as $10 per barrel in the long term, meaning oil prices could end up $10 lower in the future than they otherwise would if the transition to cleaner energy speeds up.

This oil price downside risk is by far the biggest factor in determining the resilience of global E&P upstream portfolios, along with the potential for rising costs for emitting carbon dioxide. Rystad Energy has studied the portfolio resilience of the top 25 non-national oil and gas companies and found big differences in how robust they are to the risks of lower commodity prices and increased CO2 taxes.

While the average portfolio value at risk due to volume (stranded assets) is normally very low, on average contributing less than 1% to the reduction in valuation, the value at risk due to price has the largest impact, contributing to an average reduction of 30%. The value at risk due to cost (CO2 tax) is low for most companies, mostly below 10%. As a result, up to 30-40% of the net present value of an average portfolio is at risk as a result of the energy transition.

“The energy transition risks vary depending on each individual E&P company. Equinor, for example, whose risk is relatively smaller compared to other peers, could see the value of its upstream portfolio reduced by $21.8 billion, almost 30%, with an oil price decrease of $10 per barrel and a CO2 tax,“ says Espen Erlingsen, head of upstream research at Rystad Energy.

There is a large span for the price risk among the different companies. For some companies, the value is reduced by around 50% when the long-term oil price falls by $10 per barrel. Companies with a large price risk are typically oil sands companies or shale/tight oil companies.

The reason these companies are most affected is that their portfolios normally include assets with high breakeven prices. On the opposite side of the scale, most majors have a reduction in value due to price risk in the range of 20-25%. Mature assets and high gas content help reduce the risk for these companies.

When it comes to CO2-related costs, some companies stand out with a high value. Oil sands companies have the highest cost risk, causing the value of their portfolio to decrease by around 30% in an example of a CO2 tax of $100 per tonne.

Eni, Shell, Equinor, and Total all have very similar scores with modest value at risk. ExxonMobil has a higher revenue risk than its peers, primarily because its portfolio includes several large, capital-intensive projects such as Permian tight oil and its Guyana assets.

Producers with less profitable projects, like oil sands and shale/tight oil, are typically punished both along the revenue and cost dimensions. The key reason for this is that the profitability of these projects is very sensitive to price and cost changes. Besides, oil sand projects normally have high CO2 emissions, which increases their cost risk.

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Futures in New York declined for a second straight session Monday, falling to the lowest in over a week. The alliance gathers on Thursday and is expected to loosen the taps after prices got off to their best-ever start to a year. But it’s unclear how robustly the group will act, with the Saudi Arabian energy minister calling for producers to remain “extremely cautious.”

See also: OPEC+ Faces Calls to Cool Oil Market Frenzy With Extra Barrels

The market continues to face risks in the near term. China’s Unipec was re-offering cargoes of April Angolan crude amid weaker sales. Diesel demand in India was also down versus a year earlier amid record pump prices in the country. Both point to a limit on some of the recent firmness seen within the oil market.

“Now that oil’s back at $60, there’s going to be a push to wean off of those cuts,” said Stewart Glickman, energy equity analyst at CFRA Research. “The question is how much are they going to bring back. The biggest risk is if supply presumes we’re back to pre-pandemic demand in 2021 and that turns out not to be the case.”

Still, there has been a raft of bullish calls in recent weeks predicting the rally will continue as the producer response trails consumption, while maintenance in North Sea fields is set to further reduce supply. There are also some signs that demand is starting to pick up. U.S. gasoline demand jumped by 1 million barrels a day last week to 8.76 million barrels a day, a level comparable to March 2020 before the pandemic, according to Descartes Labs.

“People have become very optimistic about the ability of OPEC+ to manage a return to a balanced market,” said Michael Lynch, president of Strategic Energy & Economic Research. The market continues to “see improved demand down the road and OPEC+ not oversupplying the market as they ramp up again.”

The Organization of Petroleum Exporting Countries and its allies must decide how much output gets restored — and at what pace — with current reductions amounting to just over 7 million barrels a day, or 7% of global supply. The 23-nation coalition will choose whether to revive a 500,000-barrel tranche in April, and in addition, whether the Saudis confirm an extra 1 million barrels they’ve taken offline will return as scheduled.

Citigroup Inc. thinks the coalition will boost output by about 500,000 barrels a day next month, with Saudi Arabia unlikely to continue its voluntary curbs.

“A higher oil-price environment, an increasingly promising demand picture by summer, and the recovering but still growing U.S. oil production outlook for 2021 should give OPEC+ the confidence to slightly increase supply,” said Louise Dickson, an analyst at consultant Rystad Energy AS.

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Yet, not all investment banks and analysts are as convinced that we are in for a commodities supercycle across the board, warning that the term supercycle is too optimistic for a bull run that could fizzle out within a year or two and could still fall victim to negative COVID-related impacts.

As early as October 2020, a few weeks before the first announcement of an effective vaccine candidate, Goldman Sachs said that commodities were headed toward a bull run in 2021. Hedges against expectations of rising inflation, a weakening U.S. dollar in which most commodities are traded, and signals of “very easy” monetary policy from central banks would be the key drivers of rallying commodities, Goldman Sachs said back then.

Goldman expected the S&P Goldman Sachs Commodity Index (GSCI) to return 42.6 percent for energy over a 12-month period, and 17.9 percent for precious metals.

Over the past three months, the S&P GSCI has outperformed the S&P 500 index, with the commodity index rising by 25 percent, compared to (just) a 9-percent increase in the S&P 500.

Over the same period, oil prices have rallied from the low $40s to above $60 a barrel, driven by vaccine rollouts, OPEC+ production cuts, and expectations of a tight market and rising oil demand later this year when economies return to growth, helped by large stimulus packages.

According to JPMorgan, there are reasons to believe that a new commodity supercycle may have just started.

“We believe that the new commodity upswing, and in particular oil up cycle, has started,” JPMorgan analysts led by Marko Kolanovic said in a note last week, as carried by Bloomberg.

The latest commodity supercycle ended in 2008 after a 12-year run, boosted by the super-spending and economic surge in China.

JPMorgan now sees several potential factors underpinning a new supercycle: post-pandemic global economic growth, “ultra loose” monetary policies, increased and tolerated inflation, weakening U.S. dollar, financial inflows to hedge inflation, metals for energy transition markets such as batteries and electric vehicles (EVs), and underinvestment in new oil supply.

The International Energy Agency (IEA) warned last year that if investment in oil were to stay at the 2020 levels over the next five years, it would reduce the previously expected level of oil supply in 2025 by nearly 9 million barrels per day (bpd).

This year, global upstream investments will stay low, just like they were in 2020, Wood Mackenzie said in December, expecting upstream oil and gas investment at a 15-year low of just US$300 billion, down by 30 percent from the pre-crisis level of investment in 2019.

“The world may be sleepwalking into a supply crunch, albeit beyond 2021. A recovery in oil demand back to over 100 million b/d by late 2022 increases risk of a material supply gap later this decade, triggering an upward spike in price,” said Simon Flowers, Chairman and Chief Analyst at WoodMac.

Then, “very easy monetary policy” and reflation trade could push oil prices as high as $100 a barrel next year, Amrita Sen, chief oil analyst at Energy Aspects, told Bloomberg earlier this month.

In the week to February 9, hedge funds increased bullish bets on 24 major commodity futures by 5 percent to a fresh high of 2.7 million lots, representing a nominal value of $143.7 billion, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, commenting on the latest Commitments of Traders report.

The combined net long position—the difference between bullish and bearish bets—in Brent and WTI has now increased to the highest in 28 months, while the net long in the grain sector in agriculture is not far from the record set in August 2012, Hansen noted.

Post-pandemic growth, tightening supply, and continued demand for reflation hedges pushed the Bloomberg Commodity index to a 27-month high, Hansen said.

Although crude oil and other commodities have rallied and signals have emerged to support the call for a new supercycle, some analysts are cautious and say it is a little early to proclaim the beginning of the next commodity supercycle.

What we see in oil and commodities right now is a cyclical recovery, but a supercycle could be “two to three years away,” George Cheveley, portfolio manager at asset management company Ninety One, told Financial Times’ Natural Resources Editor Neil Hume.

This bull run is unlikely to turn into a supercycle for commodities, because while investment may be depressed, “the material is abundant” for many commodities, including crude oil, Ed Morse, managing director and global head of commodities research at Citigroup, told the Financial Post in an interview last week.

Commodities have certainly benefited from the optimism that post-COVID growth and stimulus packages will boost demand and prices, but it may be a little premature to trumpet the next decade-long across-the-board commodities supercycle.

The post Is This Oil Rally The Start Of Something Much Bigger? appeared first on Iran News Daily.

Hopes for more U.S. stimulus and an easing of coronavirus lockdowns helped support the rally after prices gained around 5% last week.

Brent crude was up 66 cents, or 1.1%, at $63.09 a barrel at 0004 GMT, after climbing to a session high of $63.44, the highest since Jan. 22, 2020.

U.S. West Texas Intermediate (WTI) crude futures gained 86 cents, or 1.5%, to $60.33 a barrel. It touched the highest since Jan. 8 last year of $60.77 earlier in the session.

The Saudi-led coalition fighting in Yemen said late on Sunday it intercepted and destroyed an explosive-laden drone fired by the Houthi group toward the kingdom, state TV reported.

“An early spike in oil markets was triggered by the news,” said Kazuhiko Saito, chief analyst at commodities broker Fujitomi Co.

“But the rally was also driven by growing hopes that a U.S. stimulus and easing of lockdowns will boost the economy and fuel demand,” he said. WTI may be pulled back by profit-taking as it reached a key $60 level, he added.

U.S. President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan.

Oil prices have rallied over recent weeks also as supplies tighten, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+.

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“Based on the technical outlook, oil prices could rally to $70-72/barrel, which are the peaks of September 2019 and January 2020. However, based on fundamental analysis, the case for further price gains is hard to make, although we are seeing optimism in financial markets in general.”

“We continue to expect a trading range in which the average Brent oil prices trade roughly between $50 and $60/barrel. Nevertheless, market speculation may temporarily push oil prices higher. Based on the supply/demand balance, we think that such much higher oil prices are not sustainable and that oil producers will then start to increase production.”

“With so much spare production capacity available, there will be no shortages in the coming years. There is also a risk that the expected recovery in demand for oil will be disappointing. The biggest recovery of demand will have to come from the aviation sector. Especially for aviation, we do not yet see a major recovery this year.”

“If investors start to feel that the upward movement is coming to an end, profit-taking on the extensive long positions could trigger a severe downward price correction. We, therefore, believe that the risks to the oil price are mainly on the downside.”

“We have also adjusted the oil price somewhat for 2022 and 2023. Again, we still see the $50-60 range. However, the price could rise slightly as a result of the expected economic recovery once the lockdowns ease.”

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Brent crude for April touched a high of $59.95 a barrel and was at $59.85 by 0041 GMT, up 51 cents, or 0.9%. Front-month prices last hit $60 on Feb. 20, 2020.

U.S. West Texas Intermediate crude futures advanced 54 cents, or 1%, to $57.39 a barrel, the highest since January last year.

“A weak U.S. jobs report boosted hopes of further stimulus measures,” ANZ analysts said, adding that energy products and industrial metals benefited from an increased appetite for risk among investors.

A weaker dollar against most currencies on Monday also supported commodities, with dollar-denominated commodities becoming more affordable to holders of other currencies.

Meanwhile, Saudi Arabia’s pledge of extra supply cuts in February and March on the back of reductions by other members of the Organization of the Petroleum Exporting Countries and its allies, including Russia, is helping to balance global markets.

In a sign that prompt supplies are tightening, the six-month Brent spread settled at $2.33 on Friday after hitting a high of $2.44, its widest in a year.

Still, stronger crude prices are encouraging U.S. producers to increase output, while anti-coronavirus lockdowns across parts of Europe and Asia are keeping a lid on fuel demand, analysts said.

The U.S. oil rig count, an early indicator of future output, rose to its highest since May last week, according to energy services firm Baker Hughes Co.

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As of 10:05 a.m. ET on Monday, WTI Crude was up 0.63 percent at $52.45 and the international benchmark, Brent Crude, was rising by 0.80 percent at $55.48.

After gaining around 8 percent in January, oil prices began the month of February with gains, too, buoyed by Saudi Arabia’s commitment to reduce its crude oil production by an additional 1 million barrels per day (bpd) beyond its quota in the OPEC+ pact.

The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite Index all rose at market open on Monday, with the equity markets trying to recoup some of the losses from Friday. The risk-on sentiment was spilling onto oil on Monday, despite some mixed economic data.

In China, the purchasing managers’ index (PMI) showed that the Chinese economy continued its recovery in January, but at a slower pace, because of the virus-related lockdowns in some cities to fight the biggest resurgence of COVID-19 cases since the summer of 2020.

Despite the coronavirus and the slower vaccine rollout and vaccinations than initially expected, the oil market chose to focus at the start of February on the expected tighter market in the coming months.

The futures curve of the Brent contract showed further signs on Monday that market participants expect the tighter market to help a faster drawdown of inventories.

According to Bloomberg estimates, the second-month contract in Brent is now the most expensive versus the third-month in over a year, signaling deeper backwardation, the state of the market that points to tighter supplies with the prices of the nearer futures contracts higher than those further out in time.

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