Promised Production Cuts Help Push Oil Prices Higher

By Glenn Dyer | More Articles by Glenn Dyer

Saudi Arabia’s oil deal last week to keep the OPEC plus production cap in place for at least the first quarter of this year also played well for the world’s energy majors and not so major.

On Tuesday, Saudi Arabia said it would voluntarily cut its production by 1 million barrels per day (bpd) in February and March, after Russia pushed to increase output, worried about US shale benefitting from the price rise during the output cap.

Under the deal, Russia and Kazakhstan will increase their output for the two months.

Overall, the OPEC+ group had been due to restore 500,000 bpd in February and March. Saudi officials volunteered to make the cuts by itself to make sure any extra production in the March quarter wasn’t made worse by weak demand from the latest round of COVID deaths and infections and associated lockdowns.

That saw prices jump by around 9% last week to close at new 11-month highs.

That in turn saw shares in Exxon Mobil, still number 1 in oil, rise 10%, BP shares surged more than 17%, Shell shares leapt more than 13%, shares in Chevron rose a ’sedate’ 7.5%, while in Australia Woodside shares rose 9%, Santos shares jumped more than 11% and Oil Search shares were up more than 15%.

US production remains the big concern for OPEC. US oil rig use continues to rise to 275 last week, up 99 from the low reached in August.

US production remains around 11 million barrels a day, down by just under 2 million barrels a day from 2019.

Shale output remains low, but might return quickly if prices keep rising.

US stocks fell 8 million barrels in the first week of 2021, far more than the expected 2.1 million-barrel decline.

That was the four consecutive weeks of inventory declines, according to data from the Energy Information Administration, but early December saw a 15 million-barrel increase.

Oil would have to hit $US60 to $US65 per barrel to restore U.S. output by 1 million barrels a day and boost investor returns, according to data provider IHS Markit.

Energy executives in Colorado, Oklahoma, Wyoming and northern New Mexico in a Federal Reserve Bank of Kansas City poll released Friday the said oil prices would have to average $56 per barrel for them to substantial increase drilling.

Oil and gas producers made deals worth $US27.1 billion in the December quarter, up from $US21 billion in the third, helped by three multi-billion dollar acquisitions in the prolific Permian basin of West Texas and New Mexico.

ConocoPhillips acquired Concho Resources for $US13.3 billion, the biggest pure shale takeover by any company since 2011. It was followed by Pioneer Natural Resources’ purchase of Parsley Energy for $US7.6 billion. Diamondback Energy also took over listed QEP Resources and private equity-backed Guidon Operating for just over $US3 billion.

These deals saw no cash change hands, just shares  with debt being added where necessary to provide working capital boosts.

Figures from US energy data group, Enverus showed a slump in oil and gas deals last year. Just 140 were done in 2020, the lowest since at least 2006, as most companies focused on preserving cash to pay down debt or returning capital to shareholders.

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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