Is the Oil Price Collapse Finally Over?

• Hedge funds have turned bearish on commodities for the first time since 2016, citing concerns about an economic slowdown.
• Saudi Aramco pledged to pay a record $124 billion in dividends this year despite a drop in net profits.
• Solar developer SunPower filed for bankruptcy amid challenges facing the solar industry.

Oil prices have been tumbling in recent weeks, but there are signs that they may have hit their bottom, with glints of bullish sentiment and Goldman Sachs saying it doesn't expect Brent to fall below $75.

Beaten But Not Broken, Commodities Need to Regain Trust of Investors

- Hedge funds and other money managers turned bearish on commodity futures for the first time since 2016 as fears of economic slowdown dent investors’ trust that there is a bright future for raw materials over the next months. 

- After eight years of consecutive bullishness, the net short held by money managers across a basket of 20 raw materials amounted to 58,600 contracts in the week ended July 30. 

- Confirming that weakening Chinese demand plays an important role in the overall market pessimism, hedge funds’ positioning in NY heating oil futures has been bearish for the past 9 weeks and the ICE gasoil futures are on the brink of breaking into bearish territory. 

- Market positioning reflects generally lower commodity prices as the Bloomberg Commodity Index, tracking selected energy, crop, and metals futures, is down 4% so far this year, having already dropped 13% in 2023.

Market Movers

- The world’s largest oil producer Saudi Aramco (TADAWUL:2222) pledged to pay out a record $124 billion in dividends this year, despite a 3.4% year-over-year drop in net profits to $29 billion. 

- California-based solar developer SunPower has filed for bankruptcy, creating a huge headache for French oil major TotalEnergies (NYSE:TTE) which owned some 65% of SunPower.

- Canada’s pipeline major TC Energy (NYSE:TRP) sold a minority stake in its Canadian natural gas pipelines NGTL and Foothills to Indigenous communities for $725 million as part of its divestment program.

Tuesday, August 06, 2024

So far, every single day in August has seen a day-over-day decrease in oil prices, with Monday’s stock selloff seeing ICE Brent drop to an 8-month low of $76.30 per barrel. Yet beyond the panic and confusion, some semblance of recovery might be on the horizon for crude, with Libyan production disruptions and Middle Eastern tensions potentially adding some bullish momentum. 

Aramco Turbocharges H2 Demand Expectations. Amin Nasser, the chief executive of Saudi national oil firm Saudi Aramco, said this week he expected oil demand of 1.6-2 million b/d in the second half of this year, saying that fundamentals don’t support the current weakness in prices. 

Libya’s Production Threatened by Protests Again. Libya’s largest producing asset, the 300,000 b/d capacity Sharara field, has been almost completely shut down over the weekend amidst public protests that are believed to be linked to the Eastern government’s Libyan National Army.

Texas Gas Market Continues to Weigh on Chevron. Chevron reported that the average price for its US gas production in Q2 stood at $0.76 per mmBtu, the lowest since 2020 and half of what it used to be a year ago, as negative Waha prices (averaging -$0.58 per mmBtu) hamper profitability in the Permian. 

Japan Signs Up for More LNG From the Emirates. Japan’s leading gas company Osaka Gas (TYO:9532) signed a Heads of Agreement with the UAE state oil firm ADNOC for the delivery of up to 0.8mtpa of LNG starting from the late 2020s, to be sourced from the new Ruwais LNG project.

Citgo Auction Sees Icahn vs Koch. The auction of US oil refiner Citgo Petroleum seems to have two front-runners as a consortium led by Koch Industries offered $9 billion in combined cash and claims against Venezuela, pitting it against Carl Icahn-controlled CVR Energy that offered an all-cash bid of $8 billion.  

Indonesia Sets Ambitious Upstream Goals. Indonesia’s government seeks to boost natural declines from legacy oil and gas fields by at least 100,000 b/d by 2028 through enhanced oil recovery, reactivating old wells as well as new developments, seeing output slump to 580,000 b/d lately. 

French Major Gets Rid of Pakistani Exposure. French energy giant TotalEnergies (NYSE:TTE) has agreed to sell its 50% stake in Pakistan’s oil marketing company PARCO to global commodities trader Gunvor, allowing the latter to tap into PARCO’s more than 800 service stations and logistical chains. 

US Government to Invest $2.2 Billion in Power Grids. The Biden administration vowed to invest $2.2 billion to revamp the US’ power grid and to protect it against the growing disruptions caused by extreme weather events, providing funding for 8 pilot projects across 18 states. 

P66 Goes to Court in Trade Secret Case. The case of California retailer Proper fuels demanding $1 billion in damages from US refiner Phillips 66 for alleged trade secret theft is going for jury trial in August, alleging that the refiner used information gained in a pre-acquisition due diligence process for its renewables business.  

Brazilian Giant Finds Gas in Colombia. Brazil’s state-owned oil firm Petrobras (NYSE:PBR) confirmed its Uchuva-2 exploration well in Colombia’s deepwater offshore zone found natural gas, extending the range of hydrocarbon-rich deposits it found with the Uchuva-1 well drilled two years ago. 

Chinese Tech Giant Stockpile Chips. According to Reuters, Chinese tech majors Huawei and Baidu have been stockpiling high bandwidth memory (HBM) semiconductors from Samsung Electronics, accounting for a third of the Korean firm’s demand in 2024, in anticipation of potential US curbs on exports to China.

Glencore Faces Another Bribery Case Penalty. Mining giant Glencore (LON:GLEN) has been fined $152 million by the Swiss attorney general’s office for “not taking sufficient measures” to prevent bribery of Congolese officials, taking the bribery-related payouts of the firm to a whopping $1.7 billion.

Gold Hits Record High Before Selloff Slump. The price of gold surpassed $2,500 per ounce for the first time in history last Friday following the publishing of the US nonfarm payroll data, hitting $2,522/oz in early trading hours, and then collapsing to $2,390/oz during Monday's market panic. 

Tom Kool
Editor, Oilprice.com

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