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OPEC VARIABLE RESOLVED...FOR NOW: OPEC and its non-member partners decided to move forward with a plan to add 400,000 barrels of crude oil per day to the market next month, giving traders a measure more certainty about the state of play, but the possibility of governments taking significant action on the omicron coronavirus variant remains a huge risk, as does the possibility that OPEC+ changes its mind.
The cartel agreed that the meeting will “remain in session pending further developments of the pandemic” and that it will “make immediate adjustments if required,” leaving open the possibility of backtracking.
OPEC+’s decision to move forward with a ramp-up in production came despite early indications that top members Saudi Arabia and Russia were interested in pausing the plan following the Biden administration’s announcement that the U.S. and other nations would release millions of barrels of stockpiled crude oil to try bringing down gasoline prices.
The SPR announcement had little immediate effect on the markets, while the variant clearly has. Still, the decision by OPEC+ to move forward with its plan today had a great deal to do with unknowns related to where demand will be going into next year, Jacques Rousseau, managing director at ClearView Energy Partners, told Jeremy.
“We just don't know enough about the potential demand dip here,” Rousseau said with regard to the virus.
The difference a week makes: Brent crude oil prices surpassed $80 per barrel last week on the same day of the SPR announcement.
“The shoe was on the other foot so to speak, where the concern was that there was not enough supply,” Rousseau said of the market state going into the SPR announcement.
But news about the omicron variant and associated travel restrictions caused a major slide last Friday, with Brent crude futures falling by nearly 12% and the U.S.-based West Texas Intermediate by more than 13%.
“It has totally shifted the conversation,” Rousseau said. “The conversation was, ‘We need more supply,’ and now the conversation is, ‘Is there enough demand?’”
Gasoline prices in for a downward turn: Oil prices fell this morning before recovering following the OPEC+ announcement, but they still remain well down over early last week. The week-over-week drop spells good news for drivers, Rousseau said.
“That'll translate into lower gasoline prices very shortly,” he said, adding that an average retailer holds around three days worth of supply that should be replaced with the newer, cheaper stock.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writer Jeremy Beaman (@jeremywbeaman). Email jbeaman@washingtonexaminer.com for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
PRODUCER GROUPS LOBBY MANCHIN ON SPENDING BILL: A mix of oil and gas industry groups are asking Democratic Sen. Joe Manchin to command his rank as chairman of the Energy and Natural Resources Committee and work to cut out “punitive” measures in the Democrats’ House-passed social and climate spending bill.
The groups, which include the American Petroleum Institute, the Independent Petroleum Association of America, and the U.S. Oil & Gas Association, wrote Manchin yesterday and bashed President Joe Biden's approach to current energy prices as a regressive “import more oil” strategy, moving on to name various spending bill items they see as supporting that strategy, such as higher leasing fees for federal-land drilling, higher royalty rates, and shortened onshore lease term lengths, among others.
The letter puts forward the argument that pro-oil and gas parties typically make: American consumers are going to use oil and gas, and it’s better that U.S. firms produce more of that share for the sake of federal revenues, the environment, and overall energy security.
The Manchin effect: It’s pretty self-evident why Manchin is the letter’s lone addressee, as he remains the key vote on the spending bill and has virtually single-handedly shaped the package down from its original $3.5 trillion proposed value to its current, the House version of which is valued around $2.4 trillion. He is also responsible for removal of some of the earlier provisions more aggressively targeting fossil fuels, such as the Clean Electricity Performance Program.
UNITED AIRLINES FLIES JET USING ALTERNATIVE FUEL: The airline operated the first commercial passenger flight using 100% sustainable aviation fuel yesterday as part of its bid to decrease reliance on jet fuel and reduce its carbon footprint.
United filled one of its 737 MAX 8 aircraft with 500 gallons of SAF to be burned by one of its engines, while the other operated on conventional jet fuel, en route from Chicago to Washington, D.C.
SAF, which is made up of various organic materials like paper, food waste, and cooking oil and produces only a fraction of the carbon emitted by jet fuel, is thought to be the quickest way to begin decarbonizing the aviation sector because it can be produced to be “drop-in ready” for existing fleets.
NUSCALE UNVEILS NAMES FOR SMR PLANTS: Oregon-based nuclear firm NuScale Power announced this morning that it has dubbed its three small modular reactor demonstration plants VOYGR-4, VOYGR-6, and VOYGR-12, named for the total number of modules at each plant.
The VOYGR name “represents our groundbreaking plant technology that is setting a new standard for clean, reliable, and safe power,” NuScale chairman and CEO John Hopkins said in a statement.
NuScale said it will be ready to deliver the first VOYGR plant to the Carbon Free Power Project, an initiative led by the public power consortium Utah Associated Municipal Power Systems, by the end of the decade.
DROUGHT FORCES CALIFORNIA TO PLAN MORE WATER CUTBACKS: The state’s Department of Water Resources said yesterday that it is preparing to withhold most of its water allocations to local resource agencies amid steadfast drought conditions.
The DWR “will not be planning water deliveries through its typical allocation process until the state has a clearer picture of the hydrologic and reservoir conditions going into the spring,” the agency said. Instead, it has told the local water agencies to expect “an initial allocation that prioritizes health and safety water needs.”
California suffered its lowest level of statewide precipitation since 1924 during the period spanning Oct. 1, 2020 to Sept. 30 of this year, and the state said it expects this to also be a below-average water year.
GAS PRICES STRAP APP-BASED DRIVERS: The high cost of gasoline is especially hitting drivers who operate for Uber, Lyft, and various food delivery companies, with analysts describing that some drivers are spending fewer hours on the road while others are searching for different jobs due to the higher cost of working behind the wheel, the Financial Times reports.
CLIMATE AND SPACE: The White House released a “Space Priorities Framework” that includes a call to leverage the United States’ space footprint to respond to climate change.
The framework emphasizes the importance of satellite data for informing preparedness for extreme weather and commits the U.S. to advancing “the development and use of space-based Earth observation capabilities that support action on climate change” by sharing Earth observation data.
The Rundown
Financial Times France: the battle over wind power stirs up the election
Bloomberg Japan is backing oil and gas even after COP26 climate talks
Washington Post California moves toward launching nation’s first heat wave ranking system
Calendar
FRIDAY | DEC. 3
9 a.m. Resources for the Future will host Day 2 of its “Offshore Wind: Today’s Challenges and Tomorrow’s Opportunities” virtual workshop, which will include a session on transmission and grid modernization and another on financial risks and rewards of offshore projects.