May Newsletter 2021: Oil Market Review

May Newsletter 2021: Oil Market Review

BRENT CRUDE MAYOil prices swings on US pipeline attack and potential Iran deal.

I am finally back from my one overseas travel plan for the year and I miss it already. Spent 4 days on a cruise just staring into the ocean with a fancy drink in my hand. I am already beginning to miss the sea breeze and late-night pizza buffets (guess which cruise I was on 😉). Alas, the party had to end sometime, and I had to return to dry land with my Mal de Debarquement Syndrome, also known as “I-want-to-stay-on-the-cruise syndrome”.

Across the Pacific, things have not been as smooth sailing (Get it? Get it?) in America. On the 7th of May, the Colonial Pipeline that supplies about 100 million gallons of gasoline per day, or 45% of all fuel along the US East Coast, was attacked by ransomware. The cyberattack compromised the computer systems that managed the pipeline and the entire system had to be shut down to contain the attack. Ransom to the tune of US$4.4M was paid to the hackers which restored the pipeline operations to a certain degree. The pipeline was only back to operation capacity on the 12th of May, ending a 6-day shutdown.

Despite the short-lived shutdown, it sent the market into a panic on concerns with the uncertain timeline to a full restart of the pipeline. This was further exacerbated by the fact that motorists were also panic buying any gasoline they could get their hands on, even to the point where they would go to petrol stations and fill plastic bags with gasoline (There was an official tweet from the US Consumer Product Safety Commission advising people against that). That is if they could even get any. By mid-May, over 10,000 petrol stations remained empty with any additional supplies being immediately snatched up and 5 states reporting shortages in supply. The increasing demand coupled with stuttering supply rallied gasoline prices to a 6-year high of over USD$3.00 a gallon or slightly over SGD$1/litre, which is……. still soooooooo cheap relative to Singapore’s petrol prices. Urgh……. The impact on the pipeline also drove up crude prices with Brent rallying almost 6% within 3 days after the attack.

The rally was fairly short-lived as Iran’s President Hassan Rouhani announced a potential Iran deal with the US on lifting sanctions on the 20th of May. He said “The main issues, oil sanctions, petrochemical sanctions, shipping sanctions, insurance and so on and so forth, Central Bank and banks, they (US) have agreed on these all” on state television. The optimism is contrasted by the statements released from the western powers that gave a more lukewarm acknowledgment, but the market seems to have largely assumed the deal would work. Should the deal go through, it would reverse Former President Trump’s decision to withdraw from the nuclear accord in 2018 and sanctions on Iranian institutions, potentially bringing back 1.5mbpd of crude production. Crude prices dipped to a 1-month low over the announcement, dropping over 6% in 4 days. Iran’s National Iranian Oil Company has already been readying oil fields, refineries, and re-engaging customer relationships in preparation for when the deal is finally struck.

A huge win for environmental activists this month when Exxon unexpectedly lost at least 2 of the 12 board seats to an activist investment firm, Engine No. 1, with a green-focused agenda. The upset represents Exxon shareholders’ desire to pivot the company towards a more environmentally conscious future over its traditional carbon-intensive business model. As the green wave sweeps across the globe, the investments in renewable energies have been intensifying with over $500B invested in 2020 alone. Investors led by Engine No. 1 have said the changing world meant that Exxon’s CEO, Woods, needed to make big changes to ensure Exxon’s future value to investors. This was quickly followed by Royal Dutch Shell losing a landmark lawsuit and is ordered to rapidly reduce its greenhouse gases emissions by 45% compared to 2019 levels by the end of 2030. It seems that the tide is turning as the green movement gains momentum.

USEP MAYVolatility returns in Apr21 on outages and resilient demand.

Volatility continues into May21 as the renewed lockdown draws uncertainty to energy demand. Unlike the initial phase of the lockdown last year with retail stores shuttering, the restrictions this time were less severe and with WFH back in force. Energy demand impact from Phase 2 Heightened Alert was only 100MW on weekdays and marginal impact on the weekends. That said, it is likely that the mitigated impact is due to the increased residential usage offsetting the decrease in commercial consumption. By my estimation, my own electricity is due to increase by at least 50% with my liberal air-con use just to reminiscence on that cooling sea breeze and counter the dastardly hot weather!

So to help you save electricity, here is a few useful tips I use to save electricity!

  • Instead of using the dryer, use the sun! Resolve that antagonistic relation with the sun and let him (her?) help!
  • Turn down that water temperature! I hate it when you sweat right after a nice hot shower! I avoid that by shunning hot showers altogether!
  • I turn off my appliances when I’m not using them! Now I can save on your electricity bills AND avoid a nagging from my mum for wasting electricity (that I pay for!).

Can’t believe that we are almost at the halfway mark of 2021. I still recall the naivety in my optimism last year where I thought the world would return to normal by now. Ahhhh……hindsight is such a beautiful view, isn’t it? I am looking forward to the newly announced GST Voucher that is due to be paid out in June. Time to use that to offset my Heightened Alert utility bills!

 

Zheng Tianbai
Analyst, Oil & Power
Written on 31st May 2021

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