Oil Roundup: First half of 2021

At the onset of the Covid-19 pandemic, specifically between February thru April 2020, oil plummeted to less than $20 per barrel. The black gold, which had been trading above $60 just two months prior, was now feeling the brunt of the lockdowns imposed throughout the world. With air travel significantly reduced, cars being used less, the economy was coming to a grinding halt and oil was not in demand.

Uncertainty reigned as to the nature of the pandemic. How long would it last? What would be the societal impact? Nonetheless, it was clear that society would return to some type of normalcy in the future, and oil would again be in demand.

The big question was: when this would happen.

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Oil industry roars back in the second quarter

On July 30th, Chevron announced its second quarter earnings for 2021 bringing in total revenues of $37.6 billion and net earnings of $3.1 billion. The total revenues were up $24 billion compared to the second quarter of 2020, and the net revenues of $3 billion in the second quarter of 2021 were an $11 billion swing from the previous year when the oil giant had lost $8.3 billion in the second quarter. 

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Exxon-Mobil also reported its second quarter earnings on July 30th, beating analysts’ expectations. Earnings per share were $1.10 beating expectations by 11 cents, and revenue exceeded estimates by almost $800 billion, clocking in at $67.74 billion, as opposed to the expected $66.81 billion. 

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Royal Dutch Shell also announced its second quarter earnings on July 29th, beating analysts’ expectations by $400 million with adjusted earnings of $5.5 billion. Their adjusted earnings were also an increase from the $3.2 billion adjusted earnings in the first quarter.

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Both Royal Dutch Shell and Chevron announced share buyback programs. Both companies will be investing at least $2 billion each in their buyback program for 2021. The buyback program is part of a larger trend in the energy industry where corporations are attempting to reassure investors that the company is on stable ground despite the pandemic. France’s TotalEnergies and Norway’s Equinor have also announced share buyback programs.

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Oil Prices in first half of 2021

Oil prices closed out the year 2020 just above $48. Between the beginning of January 2021 and early March oil prices rose from $48 to just above $66. The next surge came in late May when the price climbed from 66$ to just under $75 at the beginning of July 2021, breaking the previous high of just above $74 in September 2018. The last time oil was above $75 was in 2014 when the price plunged from $105 to $45 starting from June 2014 until the beginning of 2015. 

According to some analysts, there are three main factors in oil’s rebound over the first half of 2021. The first is the successful rollout of the vaccinations which has allowed economies to reopen. Second, government stimulus whose purpose is to encourage consumer activity and spending. Third, people don’t want to be locked up anymore and want to get out again. 

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Freezing weather wreaks havoc on US oil production

In the first half of 2021, there were also other events impacting oil prices. One of them was a period of freezing weather that hit areas in the Southern United States, specifically Texas, in mid to late February. This Polar Vortex caused equipment at oil refineries to freeze and widespread power outages throughout the state. These were the coldest temperatures to hit Texas in 30 years. 

During this period, Texas was losing an estimated four million bpd that it usually produces. By the end of the period analysts had estimated losses of somewhere between 18-40 million barrels. Oil prices briefly surpassed $66 at the tail end of this event.

Colonial Pipeline attacked

If Covid and bad weather weren’t enough, the Colonial Pipeline suffered a major cyberattack in May 2021. The primary artery for bringing oil refined products to the East Coast in the US was hit by cyberattack crippling operations for six days. The 5,500 mile pipeline brings around 100 million gallons of fuel daily from the Gulf Coast to the East Coast. The company agreed to pay more than $4 million to the hackers who breached the company’s computer systems.

Looking ahead to the second half of 2021

Negotiations are underway between Iran and the major world powers about reentering the JCPOA. Should an agreement be reached and sanctions dropped, Iran will ramp up production with the hopes of reaching 4 million bpd within a month. During the first half of 2021, despite the sanctions, Iran was selling 900,000 bpd to China. While some expect Iran to fully return to the market in August or September, prices are not expected to be affected as forecasts have already factored this scenario into the price.

In mid-July, an agreement was reached between OPEC+ countries about future oil output. The agreement phases out 5.8 million bpd of oil cuts by September 2022. Beginning in August 2021, OPEC+ will begin increasing 400,000 bpd per day of output on a monthly basis. In the wake of the agreement oil prices have tumbled. 

Finally, while most economies have reopened, new variants of the coronavirus keep appearing. Their impact on the world economies and potential renewed lockdowns remain to be seen. 

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