Daily Energy Report
Crude output in New Mexico and Texas, opposition to net zero emissions path, G7 summit, Russia’s oil revenues, Libya’s oil production, sour crude prices, OPEC+ and oil market, and more
CHART OF THE DAY: Crude Oil Production in New Mexico and Texas
Summary:
Figure (1) above shows the steady increase in crude oil production in New Mexico, even during the 2020 COVID pandemic, as the hydrocarbon-rich western flank of the Permian attracted oil majors. The US Energy Information Administration (EIA) published a short report on the production in both states yesterday, highlighting that production growth in New Mexico was higher than that of Texas. We decided to focus on this topic today because the EIA report ignored several facts that oil investors and traders must be aware of.
Please note that we added the production of the first two months of 2023 for additional clarification.
EOA’s Main Takeaway:
The current crude oil production in New Mexico and Texas is higher than pre-COVID-19 levels. This gives additional support to the EIA’s view that US shale production will reach record highs.
While the growth in New Mexico’s production in 2022 (320,000 b/d) was higher than the growth in Texas (280,000 b/d), it is important to keep in mind that this is the NET increase. The compensation for declines in Texas was huge. Looking at gross additions, Texas added more than New Mexico’s total crude oil production.
As we discussed in previous reports, crude quality is an important issue. As a percentage of net additions, New Mexico produced more NGLs than the EIA counts as crude.
In general, most of the additions in the shale plays have been super light crude and condensates. Any changes in production will have a LIMITED IMPACT on the CRUDE MARKET. Just because the EIA keeps reporting them as crude, does not mean that a peak in shale production is bullish. By the same token, an increase in production does not mean a state of bearishness.
Historically, when companies found themselves drilling in gassier plays, they quickly retreated to areas and zones with lower API. If this retreat does not happen now, then companies will be in trouble.
STORY OF THE DAY
REUTERS: Exxon rebuts proxy advisor, says net zero emissions scenario 'unlikely'
Summary:
In a recent response to Glass Lewis, a proxy advisor, Exxon Mobil Corp firmly said that achieving net-zero carbon dioxide emissions (NZE) by 2050 is "remote”, adding that this should not be considered in the company's financial statements, Reuters reported.
"Glass Lewis apparently believes the likelihood of the IEA [International Energy Agency] NZE scenario is well beyond what the IEA itself contends: that the world is not on the NZE path and that this is a very aggressive scenario. It is clear that the IEA NZE does not, by the scenario authors’ own assessment, meet the level of likelihood required to be considered in our financial statements," Exxon said in a statement.
It is worth remembering that in 2021, Exxon lost board seats to an activist hedge fund group, which was seen as a move to pressure the company to adjust its business strategy to match climate change policies.
EOA’s Main Takeaway:
Consider this, along with BP’s backpedaling on previous plans to shift away from fossil fuels, as part of the ramifications of Europe’s energy crisis, and the return to coal. As climate change policies undergo transformations in the face of energy shortages in the continent and massive increases in energy costs, we will see more oil producers, energy companies, including oil majors, and countries besides India and China, supporting the fact that achieving climate goals will take a long time. As we noted in a previous report, COP28 is expected to be a watershed in the history of the climate movement as major energy producers and consumers change the narrative towards a more balanced approach whereby energy security takes precedence over climate change.
NEWS OF THE DAY
1- S&P GLOBAL: G7 leaders agree to step up measures to counter evasion of Russian oil price caps
2- BLOOMBERG: Oil Price Cap Is Hitting Russian Revenue Hard, US Treasury Says
Summary:
A G7 summit kicked off today in Japan during which world leaders agreed to intensify measures to control the ongoing evasion of Western price caps on Russian oil and the efforts of Russian banks to circumvent financial sanctions using foreign subsidiaries, S&P Global reported.
"We remain committed to upholding the price caps on Russian oil and petroleum products and we will enhance our efforts to counter evasion of these caps while avoiding spillover effects and maintaining global energy supply," the G7 leaders said in a statement.
Meanwhile, the US Treasury said in a recent report that the price cap policy is a “novel tool of economic statecraft” that seeks to achieve two “contradictory” objectives: curbing Russia’s oil revenues while keeping Russian oil in the market.
“Nearly six months after implementation, the price cap is achieving both goals,” the Treasury said.
EOA’s Main Takeaway: