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Exxon Mobil Corp. (NYSE:XOM) CEO Darren Woods has urged companies to stop focusing on certain energy sources, such as renewable energy, to save the climate, warning that it would be a “huge mistake to be picking winners and losers and focusing on specific technologies”.

Instead, “we need to look more broadly and let the markets figure out which solutions deliver the most emissions reductions at the lowest cost,” Woods told Nicolai Tangen, the CEO of Norway’s Wealth Fund,one of the largest mutual funds in the world, on his podcast.

An attempt to move away from oil and gas immediately, with unchanged global demand, could be disastrous for clean energy, Woods suggested, adding that if we produce less LNG, for example, something else–like coal–would have to step in to fill the demand gap.

According to Woods, Europe should follow the U.S. approach to climate policy, arguing that the continent risks driving companies away by regulating too hard. Woods told Bloomberg that one of the most important things the Americans (and ExxonMobil) are doing is developing technologies to capture and store carbon.

Back in April, Woods caused quite a stir when he touted the company’s burgeoning Low Carbon business, saying it has the potential to outperform its legacy oil and gas business and generate hundreds of billions in revenues. According to Woods, the business has the potential to generate tens of billions of dollars in revenue after the initial 10-year ramp-up.

“This business is going to look quite a bit different from the base business of Exxon Mobil. It is going to have a much more stable, or less cyclical, profile,” Dan Ammann, president of Exxon’s two-year-old Low Carbon Business Solutions unit, has vowed.

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Investors Have Now Spent $5 Billion Pursuing The “Holy Grail Of Energy”

August 20, 2022

Investors Have Now Spent $5 Billion Pursuing The “Holy Grail Of Energy”

When it comes to nuclear fusion, the joke is that it is always just decades away, but that hasn’t stopped investors from spending $5 billion on chasing the holy grail of energy.
In 2022, investors spent twice as much money as has ever been spent before on nuclear fusion, with nearly all of that investment coming from the private sector.
Every nuclear fusion experiment so far has been net negative when it comes to energy production, but the biggest ever reactor is nearly 80% complete and could change that.

What do The Dark Knight Rises, Back to the Future, Oblivion, and Interstellar all have in common? They are sci-fi blockbusters that showcase a technology that scientists consider to be the Holy Grail of Energy: Nuclear fusion. Theoretically, two lone nuclear reactors running on small pellets could power the entire planet, safely and cleanly. That’s the promise of nuclear fusion. So, why are we still relying on fossil fuels? What’s stopping us from building these reactors everywhere?

After all, scientists have been working on nuclear fusion technology since the 1950s and have always been optimistic that the final breakthrough is not far away. Yet, milestones have fallen time and again and now the running joke is that a practical nuclear fusion power plant could still be decades away.

Well, the past few years have witnessed a resurgence in the field with a handful of startups setting up shop to make nuclear fusion an everyday reality. Interestingly, the vast majority of the sector’s funding has come from the private sector rather than public investments.

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Dodgy Demand Data? The Oil Price Collapse Conspiracy

August 17, 2022

Dodgy Demand Data? The Oil Price Collapse Conspiracy

WTI oil prices have given up nearly all their gains since Russia invaded Ukraine, falling roughly 9.5% over the course of the week amid fears oil demand is collapsing.
Some oil pundits are now claiming that the Biden administration has been fabricating low gasoline demand data in order to drag prices lower.
While Gasbuddy claims there was a 2% rise in gasoline demand last week, the EIA reported a 7.6% drop in demand.

WTI crude oil prices fell to their lowest point since early February on Thursday, giving up virtually all gains since Russia invaded Ukraine. WTI crude for September delivery tumbled -1.5% to close at $89.26/bbl while Brent crude for October delivery fell -2.1% to $94.71/bbl. WTI crude has lost ~9.5% over the course of the week, marking the largest one-week percentage decline since April amid growing fears that oil demand will collapse when western nations descend into a full-blown recession.

While oil producers are certainly beginning to feel the heat, it’s refiners like Valero Energy (NYSE: VLO), Marathon Petroleum Corp.(NYSE: MPC), and Phillips 66 (NYSE: PSX) who have been hardest hit by the pullback thanks to a sharp decline in their refining margins aka crack spreads.

For months, refiners have been enjoying historically high refining margins, with the profit from making a barrel of gasoil, the building block of diesel and jet kerosene, hitting a record $68.69 in June at a typical Singapore refinery. The margin later settled in the high 30s a few weeks later, a level still nearly four times higher than the $11.83 at the end of last year, and some 550% above the profit margin at the same time in 2021.

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Biden Asks The World For Help Easing The Global Energy Crisis

November 22, 2021

Biden Asks The World For Help Easing The Global Energy Crisis

Oil prices have fallen below a key psychological barrier on news that Biden is trying to persuade a number of countries to release crude from their Strategic Petroleum Reserves.
Biden’s highly unusual move comes just months after he made another request to OPEC+ to boost production so as to tame the oil price rally, and was once again denied.
U.S. gas prices have surged 60% since the beginning of the year, with prices in California hitting all-time highs, pitting Democrats against the administration.

Oil prices have dipped to their lowest levels in six weeks, with both Brent and WTI dropping below the psychologically important $80 per barrel mark for the first time in weeks. Brent was quoted at $79.67/barrel in Friday’s intraday session, with WTI trading at $77.65 as talk of several countries releasing crude from their strategic reserves continued to gain momentum. According to Reuters, the Biden administration has reached out to several countries, including China, India, South Korea, and Japan, urging them to synchronize the release of crude from their Strategic Petroleum Reserves (SPRs) in a bid to lower global energy prices.

On the opposite side of the spectrum, European gas prices have recovered from their intra-week lows as indications of Russian supply flows remained disappointingly low.

According to the Financial Times, whereas Gazprom (OTCPK:OGZPY) started adding some gas to its largest storage sites in Germany and Austria last weekend, Russia has failed to book additional pipeline capacity, suggesting that any storage fill would come from existing flows.

“Russia has done what it said it was going to do, but in a very narrow way. What would get a bigger reaction from the market would be if Gazprom went back to auctioning short-term gas supplies, as they have done in previous years,” Laurent Ruseckas at IHS Markit tells FT.

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One Of Wall Street’s Biggest Oil Bears Sees Higher Crude Prices On The Horizon

October 8, 2021

One Of Wall Street’s Biggest Oil Bears Sees Higher Crude Prices On The Horizon

Standard Chartered Global Research has maintained its somewhat bearish oil price outlook during the last couple of months, but last week, the investment bank suddenly turned bullish
Standard Chartered raised its 2021 average Brent price forecast by USD 6/bbl to USD 71/bbl, and its 2022 forecast by USD 8/bbl to USD 67/bbl

There has been a major dichotomy on Wall Street regarding the oil price trajectory, with some viewing the massive oil and gas rally as being temporary and transitory while the bulls have been saying this rally still has legs to run.

Standard Chartered Global Research has been providing regular commodities updates, and made waves in August when they declared that a Brent price of $65/bbl or lower was more likely than $75/bbl or higher. Stanchart said its bearish view was informed by the fact that “…a significant amount of money has already entered the market in the Wall Street-generated belief (mistaken according to our analysis) that the balances are much tighter and justify USD 80-100/bbl.”

More recently, Stanchart maintained its bearish tone, saying that the oil price rally is not fully justified, and that the fundamental case for USD 80/bbl is not any stronger today than it was a few months ago.

Well, the energy bull market has continued defying all bearish expectations, and has forced Stanchart to do a 180 and join the bull camp.

In its latest commodity update, coming shortly after the October 4th OPEC+ meeting, Stanchart analysts say:

“We think the market has concluded that OPEC+ does not see USD 80 per barrel (bbl) as a ceiling, and that it is unlikely to cool prices in the short term…

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Biomass: The EU’s Great ‘Clean Energy’ Fraud

July 14, 2021

Biomass: The EU’s Great ‘Clean Energy’ Fraud

“The professionalization of the biomass industry is a problem that needs attention.”–Bas Eickhout, Dutch politician and member of the European Parliament.

When it comes to the global shift to low-carbon energy sources, Europe has traditionally been viewed as the world leader while the United States has frequently been regarded as an important, albeit grudging, participant. Over the past half-decade, China has also improved its stock in the fast-growing market through a plethora of heavy investments, especially in solar and wind.

For the most part, those views appear merited: Renewables rose to generate 38% of Europe’s electricity in 2020 (compared to 34.6% in 2019), marking the first time renewables overtook fossil-fired generation, which fell to 37%. In contrast, the IEA estimates that natural gas and coal generated a combined 61% of electricity in the United States in 2020, with renewables accounting for just 20%.

Earlier this year, the EU earned extra bragging rights after renewable energy surpassed the use of fossil fuels on the continent for the first time in history.

In contrast, the United States’ standing in the energy transition cycle took a significant hit after former president Donald Trump fulfilled a key campaign pledge by withdrawing the United States from the Paris climate agreement, joining the likes of Syria and Nicaragua as the only countries not party to the agreement.

But maybe Europe is not as clean as it has made the world believe—and the United States is not as dirty.

In 2009, the European Union issued a Renewable Energy Directive (RED), pledging to curb greenhouse gas emissions and urging its member states to shift from fossil fuels to renewables. But the fine print provided a major loophole: the EU classified biomass as a renewable energy source, on par with wind and solar power.

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Big Oil Is In Desperate Need Of New Discoveries

May 11, 2021

Big Oil Is In Desperate Need Of New Discoveries

The year 2020 was a watershed moment for the fossil fuel sector. Faced with a global pandemic, severe demand shocks and a shift towards renewable energy, experts warned that nearly $900 billion worth of reserves–or about one-third of the value of big oil and gas companies–were at risk of becoming worthless.

Even Big Oil mostly appeared resigned to its fate, with Royal Dutch Shell (NYSE:RDS.A) CEO Ben van Beurden declaring that we had already hit peak oil demand while BP Plc. (NYSE:BP)—a company that doubled down on its aggressive drilling right after the historic 2015 UN Climate Change Agreement--finally gave in saying “..concerns about carbon emissions and climate change mean that it is increasingly unlikely that the world’s reserves of oil will ever be exhausted.” BP went on to announce one of the largest asset writedowns of any oil major after slashing up to $17.5 billion off the value of its assets and conceded that it “expects the pandemic to hasten the shift away from fossil fuels.”

Yet, an ironic twist of fate might mean that rather than huge oil and gas reserves remaining buried deep in the ground, the world could very well run out those commodities in our lifetimes.

Norway-based energy consultancy Rystad Energy has warned that Big Oil could see its proven reserves run out in less than 15 years, thanks to produced volumes not being fully replaced with new discoveries.

According to Rystad, proven oil and gas reserves by the so-called Big Oil companies, namely ExxonMobil (NYSE:XOM), BP Plc., Shell, Chevron (NYSE:CVX), Total ( NYSE:TOT), and Eni S.p.A are falling, as produced volumes are not being fully replaced with new discoveries.

Source: Oil and Gas Journal

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The Very Real Possibility Of Peak Oil Supply

December 28, 2020

The Very Real Possibility Of Peak Oil Supply

Three months ago, British oil giant BP Plc. (NYSE:BP) sent shockwaves through the oil and gas sector after it declared that Peak Oil demand was already behind us. In the company’s 2020 Energy Outlook, chief executive Bernard Looney pledged that BP would increase its renewables spending twentyfold to $5 billion a year by 2030 and ‘‘… not enter any new countries for oil and gas exploration.’’ That announcement came as a bit of a shocker given how aggressive BP has been in exploring new oil and gas frontiers.

The investing universe appears to concur with BP’s sentiments, with the oil and gas sector consistently emerging as the worst performer over the past decade. The sector suffered yet another blow after the largest investor-owned oil company in the world, ExxonMobil (NYSE:XOM), was kicked out of the Dow Jones Industrial Average in August, leaving Chevron (NYSE:CVX) as the sector’s sole representative in the index.

Meanwhile, oil prices appear stuck in the mid-40s with little prospects of climbing to the mid-50s that most shale producers need to drill profitably.

Delving deeper into the global oil and gas outlook suggests that it’s peak oil supply, not peak oil demand, that’s likely to start dominating headlines as the quarters roll on.

Source: Bloomberg

Peak Oil Demand

When many analysts talk about Peak Oil, they are usually referring to that point in time when global oil demand will enter a phase of terminal and irreversible decline.

According to BP, this point has already come and gone, with oil demand slated to fall by at least 10% in the current decade and by as much as 50% over the next two. BP notes that historically, energy demand has risen steadily in tandem with global economic growth with few interruptions; however, the COVID-19 crisis and increased climate action might have permanently altered that playbook.

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Private Equity Is Bargain Hunting In Canada’s Oil Patch

September 10, 2020

Private Equity Is Bargain Hunting In Canada’s Oil Patch

After two months of an encouraging—if not half-hearted–rebound, oil prices have gone into reverse gear once again. Futures tied to WTI crude were down a whopping 8% on Monday morning to trade at $36.35/barrel, a level they last touched two months ago as the markets come under a fresh wave of pressure from a stalling recovery in demand as well as a mistimed expansion of production by OPEC that threatens to reverse the gains by the cartel’s latest production cuts. The latest rout has elicited another round of price cuts by Saudi Arabia in a situation eerily reminiscent of the oil price war that sent the markets crashing into negative territory for the first time ever.

But as the debt-riddled U.S. shale patch braces for a new reality of ‘Lower Forever’ with massive asset writeoffs amid a growing wave of bankruptcies, its equally distressed neighbor further north has resorted to a different trick: Mergers and Acquisitions.

Starved of vital capital by weary banks and shareholders, small- and mid-sized oil and gas companies in Canada are scrambling to find partners in a bid to become bigger and– hopefully–more solvent.

Meanwhile, bargain-hunting private equity firms have pounced on the opportunity, hoping to buy distressed assets for pennies on the dollar.

WTI Oil Price 30-Days Change

Source: Business Insider

Source: Visual Capitalist

Orphaned Businesses

After years of continuous underperformance and paltry returns following a six-year downturn by the sector, cheap credit for Canada’s oil and gas companies has dried up, forcing them to look for less conventional means to survive.

The Covid-19 crisis has only served to worsen the situation, with the S&P/TSX Capped Energy–Canada’s equivalent of the U.S.’ Energy Select Sector SPDR Fund (XLE)–down 46.8% in the year-to-date vs. -41.9% return by XLE.

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Oil Price Crash Sparks A Wave Of Banking Mergers In The Middle East

July 13, 2020

Oil Price Crash Sparks A Wave Of Banking Mergers In The Middle East

The historic oil price crash and Covid-19 pandemic have left major producers of the commodity in a deep economic crisis. Dramatic production cuts by OPEC+ has exacerbated the situation by further lowering export inflows for economies that depend heavily on oil dollars. Some, such as the UAE, have tried to put on a brave face by touting the strength of their banking systems and claiming they can withstand shocks of any scale.

Unfortunately, a growing body of evidence suggests pretty much the opposite: A wave of banking mergers is sweeping through the Middle East as the sector scrambles to stay afloat amid slowing economic growth.

About $440 billion worth of deals are already on the table. That’s a remarkable feat for a region that has the lowest banking penetration anywhere on the globe.

Interestingly, Saudi Arabia–guilty of initiating the oil price war with Russia that triggered the oil price crash–is well represented in the growing trend.

Source: World Bank

Giant mergers

Source: Bloomberg

#1 Saudi Arabia The National Commercial Bank, Saudi Arabia’s largest lender by assets, has lined up a $15.6 billion takeover bid for rival Samba Financial Group. The $15.6B tab represents a nearly 30% premium to Samba’s valuation before the deal was announced, while the potential deal will create a $210 billion (assets) behemoth.

The Saudi Arabian Monetary Authority, the Kingdom’s central bank, has unveiled nearly $27 billion in stimulus packages to support its flagging banking system suffering from years of weak private sector loan growth. The Kingdom’s oil and gas sector accounts for 50% of GDP and 70% of export earnings. The IMF has estimated Saudi Arabia’s fiscal breakeven sits at $76.1 per barrel, a far cry from the current ~$40/bbl.

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COVID Crisis Could Unify World’s Largest Oil Companies

May 21, 2020

COVID Crisis Could Unify World’s Largest Oil Companies

Sir Winston Churchill once admonished leaders to never let a good crisis go to waste. Wall Street banks and other large banks have been paying attention: They were shrewd enough to seize the opportunity presented by the last financial crisis to get hard-nosed government agencies to approve giant M&A deals they would otherwise have frowned upon.

The oil sector should take its cue from the banking sector and try out a little Churchillian wisdom.

Rob Cox, global correspondent for Reuters Breakingviews, seems to feel that is inevitable. He has told Reuters that the Covid-19 crisis could lead to merger mania in sectors like telecoms, auto, consumer goods, and energy.

But unlike the mid-cap energy mergers that had begun to break out before the crisis struck, Rob says tie-ups between giant producers like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and BP(NYSE:BP) among others is now within the realm of possibility.

Cutting Costs

Pre-crisis notions about competition and antitrust concerns, Cox argues for Reuters, might take a backseat as economies emerge from lockdowns with governments changing tack and beginning to prioritize building industries with better operational efficiencies, lower costs, and healthier balance sheets.

Giant energy companies could use the cost-cutting gambit to justify mammoth deals that would otherwise fail to pass muster.

Under this backdrop, Exxon and Chevron might bandy together, and even throw in BP for good measure, to form the acronymous “ExChevBrit” whose combined market cap of $425 billion and reserve pool of ~70 billion barrels of oil equivalent would still pale in comparison to Saudi Aramco’s $1.6 trillion value and 270 billion Boe.

The financial crisis of 2008 that crippled the global banking sector, Cox notes, opened the way for mega-mergers such as Bank of America paying $50 billion for Merrill Lynch; Wells Fargo ponying up $15.1B to snag West Coast rival Wachovia and high-street lender Lloyds TBS coughing up £12bn for HBOS.

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The Wave Of Shale Well Closures Has Finally Begun

May 1, 2020

The Wave Of Shale Well Closures Has Finally Begun

Oil well

U.S. shale oil producers have so far held up admirably, hanging on for dear life amidst the biggest oil demand collapse in history. American producers continued to pump at record highs in March, even after dozens of drillers laid out blueprints to limit production.

But with U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.

Oil production in the country tumbled sharply to 12.2 million bpd in the third week of April, a good 900,000 bpd less than the record peak of 13.1 million bpd recorded just a month prior. That’s a 7% production cut in the space of only a few weeks and the lowest level since July.

A lot more could be on the way.

More Production Cuts

Oklahoma-based Continental Resources (NYSE:CLR), the company controlled by billionaire Harold Hamm, has ceased all its shale operations in North Dakota and shut in most wells in its Bakken oil field totaling roughly 200,000 bpd.

The company, though, has refused to sell its contracted oil to pipelines at negative prices by declaring force majeure.

Continental has defended its stance by pointing out that the coronavirus outbreak has “…brought about conditions under which force majeure applies” while adding that selling its oil at negative prices constitutes waste.

Continental made the risky gamble of betting that economic growth would lift prices and, therefore, left itself heavily exposed to low oil prices by failing to employ the industry’s usual playbook of hedging future production with derivatives.

Continental is in good company, though.

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Oil Price War Claims Another Victim

April 13, 2020

Oil Price War Claims Another Victim

LNG Qatar

The oil price war has already claimed its first victim.

Whiting Petroleum Corp. (NYSE: WLL), once the largest oil and gas producer in North Dakota’s Bakken Shale, has filed for Chapter 11 bankruptcy becoming the first major shale producer to do so in the current year. Whiting has cited the “severe downturn” in oil and gas prices courtesy of the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand.

But this shale producer has no plans to go into a state of suspended animation: Whiting has announced that it will go ahead with full production claiming it has ample liquidity with $585M of cash on its balance sheet and has reached an agreement in principle with certain noteholders for a comprehensive restructuring.

In short, Whiting’s playbook is to buy more time hoping for a rebound in energy prices to bail it out.

WLL shares have jumped 15.1 percent after the bankruptcy announcement–probably an indication that investors believe the company has healthy odds at a comeback. Still, the shares have crashed an appalling 95 percent YTD, making the sector’s 46.9 percent YTD plunge appear tame in comparison. Whiting has announced that existing shareholders holders will only receive 3 percent of the equity in the reorganized company.

The bankruptcy is symptomatic of the sheer pain reverberating throughout the oil supply chainas per Bloomberg.

It also serves as a cautionary tale for the battered natural gas sector which is, sadly, following in the footsteps of Saudi Arabia, Russia and the oil sector by stubbornly refusing to lower production.

Head Fake

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The Big Bet Against Italian Banks

November 23, 2018

The Big Bet Against Italian Banks

The eurozone’s third-largest economy, Italy, is marooned in a deep political and economic crisis, with seeming endless problems: an economy that has barely grown in decades, sky-high unemployment rates, ballooning national debt, an inability to form a stable coalition government and, lately, a looming showdown with the EU over mounting debt.

These have precipitated a wave of populism that has rejected the old establishment and brought in a new guard.

Unfortunately, that has done little to resolve another Italian bugaboo: a massive banking crisis.

European banks have accumulated about $1.2 trillion in bad and non-performing loans (NPLs) that have continued weighing down heavily on their balance sheets. Italian banks are sitting on the biggest pile of bad debt: €224.2B ($255.9B), with NPLs and advances making up nearly a quarter of all loans.

As if that is not bad enough, the banks now have to contend with potentially heavy penalties coming from Brussels after Italy’s recalcitrant leadership refused to revise the country’s fiscal 2019 budget to lower debt and borrowing.

The sharks can already smell the blood in the water, and investors have been shorting Italian banking stocks to death. Italian banks hold nearly a fifth of the country’s government bonds.

(Click to enlarge)

Source: Bloomberg

(Click to enlarge)

Source: Reuters

Short sellers have mainly been targeting medium-sized lenders as well as asset manager Banca Mediolanum and investment bank Mediobanca. According to FIS Astec Analytics data, the volume of these banks’ shares on loan—a good proxy for short interest—has shot to its highest in 15 months.

Short interest on Mediolanum’s shares now stands at 8.7 percent of outstanding shares, while Mediobanca has 15 percent of its shares sold short.

Rome Refuses To Back Down

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