Mid-Week Review – October 7, 2020

Sole survivor? Saudi Aramco doubles down on oil to outlast rivals

The slump in demand for crude during the coronavirus pandemic has forced oil companies to contemplate the possibility that the fossil fuel market has peaked and the time for a global energy transition has come. But Saudi Aramco plans to boost its production capacity so it can pump as much of Saudi Arabia’s vast oil reserves when demand picks up – before a shift to cleaner energy makes crude all but worthless, industry sources and analysts told Reuters.

Trump calls off stimulus negotiations

Asia-Pacific stocks mostly advanced on Wednesday as U.S. President Donald Trump called off stimulus negotiations till after the November election. “History tells us that the state of the economy is a big factor that can determine election outcomes, going into an election with a weakening economy more often than not means Presidents don’t get re-elected,” Catril said.

“Of course there is a blaming game going on here and whether Trump can convince the electorate that this is not his fault, but the Democrats, it remains to be seen.”

Saudis Raise Oil Prices for Asia in Sign of Market Strength

Saudi Arabia raised pricing slightly for its flagship crude oil shipped to Asia, the first sign of strength in the physical market after a month and a half of weakness and falling refining margins. The increase in November pricing marks a change for the world’s biggest exporter, which pared prices in September and October as crude demand stagnated. It suggests the Saudis are confident that OPEC+ supply cuts will buoy the market even as the pandemic continues to crimp demand.

Oil Producers Increase Hedging to Protect Production

According to the U.S. Energy Information Administration’s (EIA) analysis, financial hedging activity in the second quarter (Q2) of 2020 increased year on year from the second quarter of 2019. As of their second quarter filings, these 77 companies entered into hedging contracts covering 673 million barrels of crude oil for the next four quarters, compared with the 583 million barrels of coverage provided during the same time last year (Figure 1). These companies collectively accounted for 3.9 million barrels per day (b/d), or 36% of total U.S. crude oil production, in Q2 2020.