Poker in the Oil Patch

Good morning, this is the Oil Patch. We're the fast-casual, drive-thru lane, all-you-can-eat buffet of oil and gas news.

Here's what the Oilman has for you today:

• The Ups and Downs of Prices

• Upstream Texas Hold'Em

• A Crock of COP28

• Tweet(s) of the Day

The Ups and Downs of Prices

It seems that the oil market is experiencing a bit of a rollercoaster ride as of late.

The U.S. Energy Information Administration recently reported an estimated 8.4-million-barrel build in crude oil stocks for the second week of January.

While this may seem like a significant increase, it's worth noting that it's a decrease from the previous week's estimated build of 19 million barrels.

Despite the build, prices didn't take too much of a hit thanks to the hope for a quick rebound in Chinese oil demand.

On the other hand, it seems that gasoline stocks rose while middle distillate stocks declined over the reporting period.

This could spell trouble for those in the middle distillate world, as some are bracing for higher diesel prices after the EU embargo on Russian fuels comes into effect in early February.

This embargo could shift global fuel routes, tighten supply and push consumer prices higher since diesel is the fuel used by freight vehicles.

It's worth noting that this shift in global fuel flows comes amid an already tight global supply of middle distillates, resulting from a faster-than-expected rebound in demand for such fuels post pandemic.

With all these moving parts, the Oilman's keeping an eye on every corner of the oil market in the coming weeks.

Upstream Texas Hold'Em

2023 may be a year of high stakes and uncertainty for the upstream oil and gas sector, but with the right moves, it could also be a year of solid returns. 

According to a recent report from Moody's Investors Service, the sector will have another strong year, thanks to favorable supply-demand fundamentals, average energy prices won't be reaching the high levels of 2022.

The report states that most producers will generate solid free cash flow and will have the financial capacity to reduce leverage, boost or maintain shareholder returns, reinvest or make acquisitions.

Larger, lower-cost exploration and production companies and large integrated oil companies will deliver the strongest free cash flow and have the most flexibility overall.

However, the analyst also warned that while we can expect average prices to stay above mid-cycle levels in 2023, we also anticipate a high degree of price volatility in a delicately balanced global energy market.

Various factors will constrain oil and natural gas supplies, while demand growth will waver because of increased recession risks and shifting policies in the largest energy-consuming nations.

The report also stated that aggregate upstream spending will rise sequentially in 2023, by about 10 percent to 15 percent, but overall spending will still fall below 2016-19 levels.

Rising costs for oilfield services globally, a tight labor market in the U.S., and lingering supply-chain delays will all limit any E&P company efforts to expand production capacity quickly in 2023.

It's a game of risk and reward, and it's up to the players to decide how to play their cards.

Deal me in, says the Oilman.

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A Crock of COP28

It looks like the COP28 climate summit is turning into a real hot topic, and not just because of the weather.

The decision to appoint the head of the Abu Dhabi National Oil Company (ADNOC) as the president of this year's summit has sparked a heated debate among climate activists and civil society organizations. Greta Thunberg, the teenage climate warrior, weighed in on the matter at the World Economic Forum in Davos, calling the appointment "completely ridiculous" and pointing out that lobbyists have been influencing these conferences for a while.

That's like the pot calling the kettle black – ain't it, Greta?

Critics are calling for the ADNOC CEO Sultan al-Jaber to step down from his leadership position, claiming that it represents a clear conflict of interest with his COP28 role.

However, the COP28 spokesperson defended the decision, stating that the ADNOC CEO is "uniquely qualified" to deliver a successful summit and that "all stakeholders must be at the table" to make "transformational progress."

It's worth noting that the UAE, one of the world's top oil producers, will host the COP28 summit from November 30 to December 12, 2023.

And with the U.N. Intergovernmental Panel on Climate Change warning that fossil fuel emissions must halve within the next decade, it will be interesting to see how the summit's president navigates this delicate balancing act.

One thing's for sure, this COP28 is shaping up to be one for the history books.

Tweet(s) of the Day

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PS – Don't forget to check out the latest Energy Builders Podcast with Max Gagliardi