OPEC+ Set New Production Levels at their January 5th meeting with a surprise 500,000 barrels per day (bpd) cut by Saudi Arabia for February and March while Russia and Kazakhstan will increase their official production by a combined 75,000 bpd for those two months. Oil prices moved higher to the $52 per barrel zone and continued to head up into February. The next meeting will be held in early March. Iraq’s oil exports rose slightly in January despite pledges to cut output to make up for previous overproduction. Russian oil and gas condensate output increased by 120,000 bpd to 10.2 million bpd (mbpd) in January. Iran started ramping up its oil production and claimed that it will reach pre-sanctions levels in one to two months – even while the Biden administration promised to hold Iran accountable for nuclear production. Iran also released a seized South Korean oil vessel, as a gesture of “goodwill.” No word whether Korea remitted some or all of the $7 billion Iran claims it is owed. Pallets of cash on a plane perhaps? Interesting also that Biden still held onto an Iranian shipment of oil that the Trump administration claimed – Iran denied that the oil was theirs, FWIW.
US Production Slipped Fractionally to 10.9 mbpd while operating rigs continued higher, moving to 295 on January 29th from 267 as of January 1st. US oil output rose 692,000 bpd in November last year to 11.1 mbpd, the first time it has surpassed 11 mbpd since April 2020. Oil supply in US storage however declined through the month due to strong exports. Gasoline demand stayed suppressed due to winter weather and limited COVD lockdown relief last month. US crude exports primarily to Asia averaged 3.2 mbpd in 2021, up from a December average of around 2.9 mbpd. The US’ Energy Information Agency revised US production a little higher for 2021 with a smaller decline of 190,000 bpd instead of 240,000. With Biden’s changes in oil policy and still suppressed global oil demand (at still down -5% in 2021 versus 2019), oil supply growth will be lackluster. Oil exports could become challenged with the shutdown of the Keystone pipeline (1,000 direct jobs lost) and the halting of oil leases on federal lands (though, not on tribal lands), primarily affecting the Gulf of Mexico and Alaska. Halting these leases would over the next ten years cut 22% of last year’s total U.S. oil production and 12% of U.S. natural gas production per the EIA.
Other Energy News included Brazil’s Petrobras production data for the full year 2020 indicates a strong return of production in December to over 3 mbpd with 620,000 bpd of new capacity scheduled for 2021 with an even more ambitious plan of over 1 mbpd in 2022. In January, Brazil followed up with record oil exports. China‘s total crude oil imports surged 7.3% to 10.85 mbpd in 2020 despite the coronavirus shock earlier in the year, with record arrivals in the second and third quarters as refineries expanded operations and low prices encouraged stockpiling. Their first deep water platform in the South China Sea will add further to their domestic production. China also had record refinery output and natural gas production. A subsidiary of GCL-Poly Energy Holdings Ltd. defaulted on a $500 million bond as the Chinese government delayed subsidy payments. The parent firm still had valued businesses as it owns two of the four largest polysilicon factories in the world, which products were in high demand by the solar industry. And despite building out 130 gigawatts of renewable energy in 2020 (mostly wind power but also solar and hydro), China put 38 gigawatts of coal-fired power capacity into operation, more than three times the amount built elsewhere around the world. GDP growth more important than climate pledges, apparently.
Chinese Feed Stocks jumped to multi-year highs in some areas, indicating that heavy corn users remain concerned about crop shortages even in the wake of the recent harvest. China’s industrial corn users have snapped up the grain to feed a fast-recovering hog sector since 2019, propelling local corn prices 50% higher during 2020 and triggering record crop imports, including China’s largest ever U.S. corn deal at the end of January. China’s grains imports soared to record highs in 2020, after tight domestic corn supplies pushed prices to multi-year peaks, driving demand for cheaper imports. China bought a record 11.3 million tonnes of imported corn last year, including 2.25 million tonnes in December alone, according to General Administration of Customs data. For 2021, plans are to increase corn acreage and production, though numbers were not specified. Meanwhile, a new form of African swine fever spread through Chinese pig farms with two new strains having infected more than 1,000 sows on several farms owned by New Hope Liuhe, China’s fourth-largest producer. China’s pork output fell in 2020, but recovered sharply from the year prior as government support and industry investment helped revive a sector ravaged by disease in 2019. China’s 2020 pork output fell -3.3% from a year earlier to 41.13 million tonnes after plunging -21% in 2019, the National Bureau of Statistics said. China imported 9.91 million tonnes of meat in 2020, though a recovery could severely cut that number in 2021.
David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource