In the oil and company news 22/11/2021

"Politician logic" first appeared in the great British sitcom "Yes, the Prime Minister": "Something must be done. This is something. Therefore, we must do this." The Biden administration is struggling to cope with rising gasoline prices. Show signs that this logic is working. The bad news is that none of its ideas seem to be very effective. The good news for President Joe Biden and American consumers is that there will be relief anyway. Crude oil prices plummeted this week, causing Brent crude oil to fall below $79 a barrel on Friday. This is a harbinger of a better-supply oil market that Wood Mackenzie analysts believe is coming.

President Biden's approval rating has been declining since the summer, and rising gasoline prices seem to be one of the reasons. The average retail price of regular gasoline this month is about $3.40 per gallon, the highest level in more than seven years. In California, due to higher requirements for gasoline specifications, it has a special fuel market, and the price has hit a record high.

In fact, after adjusting for inflation, US gasoline prices were still lower than most of the late 2000s and early 2010s. But by the standards of the past seven years, they are uncomfortably high. In the United Kingdom and some other countries, the lowest-income people are not affected by rising fuel prices because they usually do not own a car. In the United States, the poorest people face the greatest burden from rising gasoline prices, which is measured as a percentage of household fuel expenditure. In the year to October, gasoline and fuel oil were the fastest-rising items in the consumer price index, rising by about 50% and about 59% respectively in the past 12 months. They are an important factor in the overall increase in CPI inflation.

Energy Secretary Jennifer Granholm (Jennifer Granholm) has always pointed out that in the long run, the solution to fluctuating oil prices is to switch from gasoline and diesel to electric vehicles. However, when people have bills to pay this week, the government's 2030 and beyond goals do not help much. There will be congressional elections and 2024 presidential elections next year. This shows the urgency of this issue. When President Biden held a three-and-a-half-hour conference call with Chinese President Xi Jinping on Monday, the official White House read out that they discussed the “importance of taking measures to solve global energy supply problems.” . (China has been facing an energy supply crisis of coal and natural gas this year.)

For months, the government’s main strategy has been to urge OPEC countries to expedite the lifting of the production cut agreement they reached when the pandemic broke out in April 2020. So far, these efforts have been in vain: the organization insists on steadily increasing production. According to the plan agreed by the ministers in July, its official output is limited to 400,000 barrels per day. Suhail al-Mazrouei, the energy minister of the United Arab Emirates, commented this week that supply growth “should be enough”. He added: "We don't have to panic. We need to calm down."

This week, the government’s efforts accelerated and the focus shifted. On Wednesday, President Biden wrote to the Chairman of the Federal Trade Commission, Lina Khan, asking him to investigate "illegal behavior" that may affect gasoline prices. His letter was sent after the White House earlier called on the Federal Trade Commission to investigate. As early as August, Brian Deese, director of the National Economic Council, wrote to Khan: “Although many factors affect natural gas prices, the president wants to ensure that consumers will not be affected by anti-competitive or other illegal behavior. And pay more for natural gas." Khan responded that the Federal Trade Commission will conduct a more stringent review of oil and gas mergers and acquisitions, especially in the fuel retail industry.

For decades, the competitiveness of the US fuel market has been studied many times. An investigation by the FTC in 1973 concluded that it “reasonably believes” that eight major oil companies violated the Federal Trade Commission Act (Act), which covers “any unfair method of competition or unfair or deceptive conduct Or do it or affect business" and began a legal battle that lasted for the rest of the decade.

In 2011, the US Federal Trade Commission reported that “in the next few years, the review and supervision of the oil and gas industry will remain at the core of our work.” However, a detailed study by the committee that year concluded that the market The main feature of "Crude oil prices continue to be the main driving force of gasoline prices". The study pointed out that when crude oil prices rise, fuel prices seem to react faster than when they fall. "It is said that the price rises like a rocket, but falls like a feather." However, the long-term impact of this on consumers is unclear.

In this case, the evidence cited by the president seems untenable. In his letter to the FTC, he pointed out that in the past month, the wholesale price of unfinished gasoline has fallen by 5%, while the average price at gas stations has risen by 3%. If anyone wants to prove the fundamental problem of insufficient competition in the retail fuel market, they will need more than a month of data.

Alan Gelder, vice president of refining, chemicals and petroleum markets at Wood Mackenzie, pointed out that the US oil majors own less than 5% of US retail gas stations, so their pricing power is limited. The largest fuel retailer in the United States is 7-11. Even so, it has fewer than 9,000 of the approximately 150,000 sites nationwide. The industry is highly fragmented.

At the same time, more and more people speculate that the government will announce the release of more crude oil from the US Strategic Petroleum Reserve. Reuters reported this week that the United States has been asking other major oil-consuming countries, including China, Japan and India, to join the ranks of coordinating the release of reserves. According to a sales plan announced in August, oil has been released from the US SPR, but coordinated intervention in the market is unusual and may have an impact on market psychology. The experience of previous versions has shown that they can temporarily affect prices, although this effect is usually short-lived.

Another action taken by the government this week to solve the oil supply problem has been on the agenda for many years and will not achieve any results in increasing production in the next few years. The Ocean Energy Administration has leased and sold land in the Gulf of Mexico, and has offered a high price of approximately US$192 million on 308 acres of 1.7 million acres in federal waters. The sale was approximately eight months later than originally planned and attracted bids from 33 companies. In contrast, 27 companies participated in pre-pandemic rental sales in August 2019, so this seems to be a positive indicator in terms of future investment. It sent a signal that although the Biden administration promised to reduce U.S. greenhouse gas emissions, it did not try to prevent all new oil and natural gas development. But this does not help the president's immediate problems.

Even if all these measures are combined, the impact on gasoline prices may be minimal. By the mid-term elections next year, it is difficult to see that anything the government is doing now has a significant impact on the oil market. Fortunately for President Biden, however, the tightness of the world oil market, which is pushing up crude oil and gasoline prices, will ease next year. The steady output growth of OPEC countries may frustrate President Biden, but it is steadily supplying more crude oil to the market. At the same time, production in several non-OPEC countries is picking up. Ann-Louise Hittle, head of Macro Oils services at Wood Mackenzie, said: "Personally, their increase may be quite small, but they all add up."

She predicts that non-OPEC production in the first quarter of 2022 will be 650,000 barrels per day higher than that in the fourth quarter of 2021, and production in countries such as Russia, Norway, the UAE, Brazil, and Canada will all increase. Although oil demand continues to grow, inventories may increase in the first quarter of next year. This may not allow President Biden to get all the relief he wants in terms of gasoline prices. But it at least seems likely to have a greater impact on the market than any ideas currently being tried by the government.

European gas and electricity prices have soared again after a slight recovery in October. Wood Mackenzie analysts said they expect tight market supply to continue into the second half of 2023.

Jeremy Will, CEO of Trafigura, warned that there is a risk of rotating power outages in Europe this winter. "Frankly, we currently do not have enough natural gas, and we do not store it in winter," he said. "So, what is really worrying is that if we have a cold winter, we might have alternating power outages in Europe."

Royal Dutch Shell plans to remove the "Royal Dutch" from its name and move its global headquarters and tax residence from the Netherlands to the United Kingdom. It will also simplify its share structure.

Saudi Arabia is planning to issue its first green bond. According to Bloomberg News, sustainable investors are discussing how to respond.

Net Power is a company with an innovative technology that burns natural gas to generate electricity. This technology can generate a stream of carbon dioxide suitable for storage or use, and has delivered the first batch of electricity to the Texas grid. The company’s CEO said: “This is the first energy breakthrough of the Wright Brothers: using natural gas fuel technology to deliver zero-emission, low-cost electricity to the grid.”

The US Federal Energy Regulatory Commission has submitted its final report on the blackout that hit Texas during the winter storm Uri in February this year. It concluded that the power industry needs to make its operations in cold weather more resilient, and emphasized that “there is an urgent need for stricter mandatory power reliability standards, especially in terms of key components and systems for generators in cold weather.” . Most of the generating units that unexpectedly shut down in cold environments are gas-fired power plants (58%), followed by wind power (27%), coal (6%), and solar power (2%), of which 4 nuclear power plants are less than 1 %.

Finally, a popular new way of entertainment: watching people clean solar panels. One of the more harmless enthusiasm of the Internet is videos showing industrial processes or technological skills, which satisfies the urge to see tasks executed accurately and neatly. The process of cleaning solar panels, as shown in this short video, was selected from these "strangely satisfying" videos that have been popular on Reddit and Instagram recently. It is true that watching the shiny glass surface emerge from below. Some strange pleasure a thick layer of sand. Of course, keeping the panel clean is essential to optimize its performance, especially in dry and dusty places. With the popularity of solar energy all over the world, providing cleaning services seems to be a good business opportunity. But as a recent Twitter post warned, without the right equipment, this can be a frustrating exercise. Source: Wood Mackenzie