Today’s Key Takeaways: OPEC wants a higher price. Oil price forecasts rise on OPEC cuts. World Energy Council: “we’ll need natural gas”. Fairbanks forum looks at impacts of mining in the interior. Biden could make a big splash in Alaska.
NEWS OF THE DAY:
OPEC+ Makes Shock Million Barrel Cut
Matthew Martin, Grant Smith, Bloomberg/Rigzone, April 3, 2023
OPEC+ announced a surprise oil production cut of more than 1 million barrels a day, abandoning previous assurances that it would hold supply steady and posing a new risk for the global economy.
It’s a significant reduction for a market where — despite the recent price fluctuations — supply was looking tight for the latter part of the year. Oil futures soared as much as 8% in New York on Monday while gasoline also gained, adding to inflationary pressures that may force central banks around the world to keep interest rates higher for longer.
Saudi Arabia led the cartel by pledging its own 500,000 barrel-a-day supply reduction. Fellow members including Kuwait, the United Arab Emirates and Algeria followed suit, while Russia said the production cut it was implementing from March to June would continue until the end of the 2023.
“OPEC+ clearly want a higher price,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. The group “is following through on being proactive and ahead of the curve, and is trying to rip oil prices from the grip of” macro sentiment.
The international Brent benchmark traded near $84 a barrel at 1:30 p.m. in Singapore, while US gasoline jumped as much as 4.5%. Any increase in the cost of transportation fuels tends to be closely monitored by American politicians, particularly ahead of the summer season when more people take road trips and vacations.
Top oil analysts issued calls for $100 crude after the decision, with some expecting worldwide supply-demand balances to be in deficit earlier than expected. That view was reflected in the strengthening of Brent’s backwardation — where the premium of prompt shipments rises relative to later supplies in a closely watched signal of tightness.
Oil price forecasts rise on Wall Street as OPEC cuts signal ‘geopolitical posturing’
Ines Ferree, Yahoo! Finance, April 3, 2023
Wall Street is raising its forecasts on oil prices following a surprise OPEC+ announcement to cut production by a total of 1.66 million barrels per day, a move which sent West Texas Intermediate (CL=F) and Brent (BZ=F) crude futures up more than 5%.
Goldman Sachs Commodities Research analysts increased Brent forecasts by $5/bbl to $95/bbl (vs. 90 previously) for December 2023, and to $100 (vs. 97) for December 2024.
“Today’s surprise cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” wrote researchers led by Dean Struyven in a note to investors.
Analysts at Capital Economics also raised their price target writing, “We have revised up our end-2023 Brent forecast to $90 per barrel ($85 previously). Nonetheless, this forecast does not rule out bouts of price weakness as advanced economies enter recession between now and then.”
Green transition won’t be perfect and we’ll need natural gas, World Energy Council CEO says
Anmar Frangoul, CNBC, April 3, 2023
The planet appears to be at a major crossroads when it comes to meeting climate-related goals.
Discussions about how to mitigate the effects of climate change are closely tied to the energy transition, which can broadly be seen as a plan to shift away from fossil fuels to a system in which renewables dominate.
It’s difficult to predict how the transition will pan out, given that it depends on a complex combination of factors, such as technology, finance and international cooperation.
The topic was covered in detail during a recent panel discussion moderated by CNBC’s Steve Sedgwick.
“We can’t let perfection be the enemy of the good in this, right? The reality is, to get renewables to scale we’re going to have to have other clean energy friends in the mix, we’re going to have to build multiple clean energy bridges.”
“We’re going to have to have hydrogen [doing the] lifting, we’re going to have to have gas with CCUS [carbon capture, utilization and storage] lifting, we’re going to have to have grid strengthening going on,” Wilkinson said.
The idea of using gas as a “transition” fuel that would bridge the gap between a world dominated by fossil fuels to one where renewables are in the majority is not a new one and has been the source of heated debate for a while now.
To mine or not to mine? Forum presents multifaceted look at mining and its role in the Interior
Jack Barnwell, Fairbanks Daily News Miner, April 2, 2023
A large audience filled Schaible Auditorium at the University of Alaska Fairbanks Thursday night to hear a roundtable discussion on the Interior Alaska mining industry.
The roundtable was hosted by the League of Women Voters in partnership with the News-Miner and KUAC FM 89.9.
The roundtable included representatives from the Alaska Miners Association, an economist, the Alaska Department of Natural Resources, the Fairbanks North Star Borough, Save Our Domes and the Advocates for Safe Alaska Highways.
Topics ranged from the local nature and economic impacts that mining presents, and permitting and environmental concerns. The borough currently has one hard rock mining operation at Kinross Fort Knox northeast of Fairbanks, 56 placer mines and 11 hard rock exploratory efforts in various stages.
Deantha Skibinski, executive director of the mining association, stressed the importance of mining in Alaska and the need for national resources.
“We have no choice but to be completely dependent on minerals, and that demand is going nowhere,” Skibinski said. “That’s not just an industry view, there are international organizations like the World Bank and the International Energy Agency … particularly as we look at transitions to alternative energy, changes in our devices, and all of the things that make our lives convenient.”
Skibinski said Alaska has the critical minerals needed for those, such as cobalt, along with the environmental and human rights track records afforded to the U.S. as compared to other countries.
Bob Loeffler, an economist and visiting University of Alaska Anchorage professor said mining represents a “rounding error” in the state’s overall revenue stream, or $60 million, when compared to oil and gas revenue and federal funding. Locally, or regionally, however it’s a different story.
“Where there is a mining community or a mine, it has a large impact on the community,” Loeffler said. He noted that Kinross Fort Knox employs 700 people in the Fairbanks North Star Borough as well as hundreds more in indirect jobs, and generates nearly 10% of the borough’s property tax revenue.
“[Companies like Fort Knox] create a society that works and creates good-paying jobs for blue collar workers,” Loeffler said. “The presence of a well-paying employer has a positive effect on the community.”
Sarah Heinchon, with the nonprofit Save Our Domes, which opposes hard rock mining in domes around Fairbanks, countered that potential mining projects will impact the borough. She added that Save Our Domes isn’t anti-mining, just “anti-mining in our backyard.”
“No one should have a gold mine in their backyard,” Heinchon said.
She noted Save Our Domes was formed due to increase in hard rock gold mining exploratory projects and apparent insufficient public noticing to alert community members. She added gold isn’t considered a critical element in terms of developing technology, electric vehicles or wind turbines.
“Fairbanks was originally established because of Pedro Felix’s discovery of gold,” she said, but added times have changed. We live here because of the strong sense of community, the proximity to wild landscapes, the solitude of the forest and the tundra and the incredible recreational opportunities. Mine development to the northwest and east is in direct conflict with our quality of life and our community.”
Alaska Is Essential to U.S. Energy Security
Rick Whitbeck, Real Clear Energy, April 3, 2023
Nowhere could Biden make a bigger splash than in Alaska, which boasts world-class deposits of graphite, copper, and numerous critical and strategic minerals, in addition to the aforementioned Pebble deposit. Fast-tracking the permitting timelines, without sacrificing the thorough scientific studies that are part of the NEPA process, would be a boon for American energy.
In Northwest Alaska, two projects are noteworthy: Graphite Creek and the Ambler District. Graphite Creek could be the U.S.’s only graphite mine – we currently import 100% or our nation’s needs – and is big enough to one day supply our entire domestic demand. Not only will Graphite One, the mine’s developer, extract the raw materials, it will process them in Washington state. This additional link in the supply chain will create more jobs, but also provide a hand-off to manufacturing facilities the Biden administration continues to promise.