Wartime Windfalls For Investors – Not New Drilling?

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Today’s Key Takeaways: Global oil demand surges to record levels.  Oil industry wartime windfall dwindling.   Another lawsuit from environmentalists against AKLNG.  Montana climate ruling.  


Global oil demand hits record, and prices may climb, IEA says
Bloomberg/Energywire, August 14, 2023

World fuel use averaged 103 million barrels a day for the first time in June, the organization said.

 Global oil demand has surged to a record amid robust consumption in China and elsewhere, threatening to push prices higher, the International Energy Agency said.

World fuel use averaged 103 million barrels a day for the first time in June and may soar even higher in August, the agency said in a report. As Saudi Arabia and its partners constrict supplies, oil markets are tightening significantly.

“Oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” the Paris-based IEA said. “Crude and products inventories have drawn sharply” and “balances are set to tighten further into the autumn.”

Oil this week touched a six-month high above $88 a barrel in London amid the post-pandemic resurgence in fuel use and supply restraint by the Saudi-led OPEC+ alliance. Brent futures eased back a little to trade below $87 on Friday.

The plunge in world oil demand during the Covid-19 crisis three years ago spurred speculation that consumption may be close to a peak as remote working gained in popularity and governments sought to shift away from fossil fuels to avert catastrophic climate change.

But the IEA data shows that, despite growing evidence of a warming planet shown by this summer’s heat waves and wildfires in the Northern Hemisphere, oil use is stronger than ever. China will account for 70 percent of this year’s demand growth, but surprisingly resilient developed nations added to the latest surge.

Energy shift

The energy transition looks set to have an impact next year, when global demand growth will roughly halve to 1 million barrels a day due to improved vehicle efficiency and the adoption of electric cars, the IEA said.

But in the meantime, world markets are tightening, leaving oil inventories in developed nations about 115 million barrels below their five-year average, according to the report. Global stockpiles are set to deplete by a hefty 1.7 million barrels a day in the second half of the year, and preliminary data appears to confirm declines in July and August, the IEA said.

Major consuming nations have criticized the Saudis and their allies in OPEC+ for constricting supplies, warning that a renewed inflationary spike would squeeze consumers and endanger the global recovery. Nonetheless, Riyadh has said it could deepen current cutbacks if necessary.

Output from OPEC and its partners plunged last month to near a two-year low as the Saudis implemented a unilateral cut of 1 million barrels a day. Russia, a fellow member of the coalition, is also reducing exports.

The need for OPEC’s crude during the fourth quarter looks a little less pressing compared with last month’s report, as a slightly weaker demand outlook for the period and a little extra supply elsewhere shave the requirement for OPEC production by 400,000 barrels a day.

Nonetheless, an average of 29.8 million barrels a day is needed from the cartel’s 13 members between October and December — far more than the 27.9 million a day they pumped in July, according to the IEA.

“If the bloc’s current targets are maintained, oil inventories could draw” significantly, the agency warned, “with a risk of driving prices still higher.”


Oil Firms Face Hard Choices After a Year of Big Spending
David Uberti, The Wall Street Journal, August 14, 2023

The industry’s wartime windfall is dwindling

Wall Street wants Big Oil’s cash. Washington wants it to drill more. Keeping them both happy is about to get a lot tougher.

Armed with a mountain of cash after Russia’s invasion of Ukraine sent oil prices skyrocketing, U.S. oil-and-gas firms cranked up production near record levels while also raining money on shareholders with dividends and buybacks. 

The continuing investor windfall and a recent run-up in oil prices helped make the energy sector the S&P 500’s best performer over the past month. 

But oil prices are still considerably below last summer’s highs, dragging down producer revenues. That is going to mean hard choices for businesses such as international major oil companies and independent drillers, as well as for energy investors and policy makers who have benefited from the past year’s largess.

“It is moving toward companies spending what they can while they can,” said Mark Young, a senior analyst at data-analytics firm Evaluate Energy. 

How the industry uses its cash in coming years has huge implications for U.S. drivers and energy investors. Oil executives last year buoyed their stock prices by funneling most of their wartime windfalls to investors—not new drilling. As a surge in fuel costs supercharged inflation to 40-year highs, President Biden accused oil firms of profiteering and urged them to invest in boosting capacity.



Environmental Groups Sue Energy Agency Over Alaska LNG Project
Shayna Green, Bloomberg Law, August 14, 2023

  • DOE didn’t properly consider climate harms, groups say
  • Project could release significant carbon pollution

The Center for Biological Diversity and the Sierra Club sued the Department of Energy for approving exports from an Alaska LNG project designed to transport gas from the state to Asia.

The environmental groups on Aug. 11 challenged the Energy Department’s order authorizing Alaska LNG Project LLC to export domestically produced liquefied natural gas to non-free trade agreement countries.

The organizations are also seeking review in the US Court of Appeals for the D.C. Circuit of the department’s order denying rehearing. The agency’s order affirmed and amended a previous one.


Montana Climate Ruling
1440 Daily Digest, August 15, 2023
A Montana state court yesterday ruled in favor of a group of young people who claimed the state’s policies violated their constitutional right to a clean environment by prohibiting agencies from considering the effects of greenhouse gas emissions. The case is the first of its kind in the US to have gone to trial.  At issue in Held v. Montana are a pair of state laws, including an amendment to the Montana Environmental Policy Act, which prevent the state from evaluating climate impacts when approving energy and mining projects. Sixteen youths sued the state, citing Montana’s constitution guarantees the right to a “clean and healthful environment.” Only two other state constitutions have such language: Pennsylvania and New York. The judge invalidated Montana’s policies, ruling the limitations didn’t protect the state’s natural resources from depletion and that its degradation would continue without a remedy. The judge also noted the state didn’t adequately explain its reasoning for setting the limitations. See the ruling here.  Montana is home to the largest recoverable coal reserves in the US, accounting for nearly 30% of the nation’s total. See an overview of greenhouse gases here.