Thursday, December 31, 2020

Oil will rally in 2021 but joy would be short-lived

Oh what a 'crude' year 2020 turned out to be as the Covid-19 pandemic ravaged the global economy and our lives, and even briefly created the aberration of negative oil prices back in April. Few would be unhappy to see the back of 2020, and the Oilholic is most certainly among them.

However, as a new trading year beckons, it is best cut out the din, and trade both the direction of the oil market as well as energy stocks with a level head. First off, all the doomsday oil demand decline scenarios from earlier in the year, of as much as 20 million barrels per day (bpd) on 2019 levels, simply did not materialise.

The actual figure is likely to be shy of 9 million bpd, which, while wiping out nearly a decade's worth of demand growth on an annualised basis, is nowhere near as catastrophic. Economic signals point to a rebound in post-pandemic demand when human mobility, consumption and core economic activity, especially in East Asia and the Indian subcontinent begin a rapid bounce back in 2021.

So what of the oil price? Using Brent as a benchmark, the Oilholic envisages a short-lived bounce to $60 per barrel before/by the midway point of the year, and on the slightest nudge that civil aviation is limping back to normal. However, yours truly firmly believes it won't last.

That's because the uptick would create a crude producers' pile-on regardless of what OPEC+ does or doesn't. Say what people might, US shale isn't dead and there remains a competitive market for American crude, especially light sweet crude, that will perk up in 2021.

Other non-OPEC producers will continue to up production on firmer oil prices as well. And finally, a Joe Biden White House would bring incremental Iranian barrels into play even if the return of the Islamic Republic's barrels is more likely to be a trickle rather than a waterfall. All of the above factors will combine to create a sub-$60/bbl median for the demand recovery year that 2021 will be. And the said price range of $50-60 will be just fine for many producers.

As for energy stocks, who can escape the battering they took in 2020. By the Oilholic's calculations, valuations on average fell by 35% on an annualised basis, and nearly 50% for some big names in the industry. 

However, based on fundamentals, where the oil price is likely to average in 2021 (~base case $55/bbl), portfolio optimisation and an uptick in demand, yours truly expects at least a third of that valuation decline to be clawed back over the next 12 months. And depending on how China and India perform, we could see a 15-20% uptick.

Of course, not all energy stocks will shine equally, and the Oilholic isn't offering investment advice. But if asked to pick out of the 'crude' lot – the horses yours truly would back in 2021 would be BP and Chevron. That's all for the moment folks! Keep reading, keep it 'crude'! Here's to 2021!

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© Gaurav Sharma 2020. Photo: Terry McGraw/Pixabay

Sunday, December 27, 2020

Additional ADIPEC Energy Dialogues

As revealed in July, for much of 2020 yours truly has been participating in the recording of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) Energy Dialogues series. Here is a further selection from the series, also available via ADIPEC's YouTube channel and the event's website.

Recent sessions included informative discussions with Dr. Peter Terwiesch, President of Industrial Automation at ABB, Craig Hayman, Chief Executive Officer of AVEVA and Hugo Dijkgraaf, Chief Technology Officer of Wintershall Dea. 

Dr. Peter Terwiesch, President of Industrial Automation, ABB


Craig Hayman, CEO, AVEVA


Hugo Dijkgraaf, Chief Technology Officer, Wintershall Dea


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© Gaurav Sharma 2020. Video © ADIPEC / DMGEvents, UAE

Wednesday, August 12, 2020

Joining Citi Private Bank

It has been a fantastic 'crude' journey for the Oilholic in the energy market and this blog has been with yours truly every step of the way for over a decade. Thank you all for your support. While long may that continue, commentary here would be a little tempered and slightly irregular as this blogger has taken up a Vice President / Lead Analyst's position at Citi Private Bank. 

Things won't be coming to a close here, but whatever appears on this blog would be in a private capacity only. That also applies to any commentary published here in the past prior to Aug 1, 2020. That's all for the moment folks! Keep reading, keep it 'crude'!

© Gaurav Sharma 2020.

Sunday, July 19, 2020

Hosting ADIPEC Energy Dialogues

Over the last few months, yours truly has been participating in the recording of the Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) Energy Dialogues series. Some of the recordings are now up. Here is a selection of them, also available via ADIPEC's YouTube channel and the event's website.

Recent conversations have included informative discussions with Morag Watson, SVP Digital Science & Engineering at BP, Jeff Zindel, Vice President and General Manager at Honeywell Connected Enterprise, Cybersecurity and Thomas Gangl, Chief Downstream Operations Officer, OMV.

Morag Watson, SVP Digital Science & Engineering at BP



Jeff Zindel, Vice President and General Manager at Honeywell Connected Enterprise, Cybersecurity



Thomas Gangl, Chief Downstream Operations Officer, OMV


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© Gaurav Sharma 2020. Video © ADIPEC / DMGEvents, UAE

Monday, June 15, 2020

End of 'voluntary' Saudi cuts, no Covid-19 end in sight

In the lead up to the OPEC+ summit on June 6, oil benchmarks continued to rise toward $40 per barrel and subsequently went beyond. Brent even capped $42 levels briefly as OPEC+ decided to predictably rollover ongoing crude production cuts of 9.7 million barrels per day (bpd) - scheduled to end on July 1 - by another month. 

All of it was accompanied by the common din of crude oil demand returning, underpinned by hopes of China reverting to its average importation rate of around 14 million bpd by end-2020. Such an assumption is fanciful in the Oilholic’s humble opinion, as a semblance of normalcy, especially in the aviation sector, is unlikely before Q1 2021. But even that assumption was further punctured by Saudi Arabia withdrawing its additional 'voluntary' cuts of 1 million bpd in June, atop what they were already cutting as part of the OPEC+ agreement. 

To quote Saudi Oil Minister Prince Abdulaziz bin Salman: "The voluntary cut has served its purpose and we are moving on. A good chunk of what we will increase in July will go into domestic consumption."

Be that as it may be, that's bearish joy for those with short positions who can now also count on rising sentiment in favour of a second wave of the Coronavirus or Covid-19 hammering crude oil demand, with rising cases in the U.S. and as well as a fresh outbreak in China. So, oil futures have duly retreated from $40 levels.

However, here's what this blogger doesn't get – how can it be all about a possible second wave, when the initial pandemic is far from over! Just look at the official and anecdotal data coming out of India and Brazil. 

And while European pandemic hotspots might be cooling down, the initial threat is far from over. A crude market recovery remains a long, long way off. The Oilholic reckons it will be Q1 2021 before we get into a proper recovery mode and can think of a nuanced reversal in market fortunes. By that argument near-term volatility is likely be in $30-40 range, unless Covid-19 situation escalates. To assume the only way is up from $40 is pretty daft. That's all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2020. Image by Omni Matryx from Pixabay

Contact:

For comments or for professional queries, please email: gaurav.sharma@oilholicssynonymous.com

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