Good morning; here's what the Oilman has for you today:

• Exxon in Merger Talks with Pioneer

• Oil Traders Diverge from Analysts on Prices

• Tweet of the Day

Will Exxon buy Pioneer?

Exxon is reportedly holding early-stage negotiations with Pioneer Natural Resources concerning a potential acquisition.

A deal has not been confirmed. But if it went through, it would become Exxon’s largest acquisition since the merger with Mobil back in 1999.

Consolidation firmly underway

We talked about how merger and acquisition appetite is growing in the shale patch just the other day.

In less than a week:

• Ovintiv said it would spend $4.3 billion in the Permian

• NGP Capital Management said it was divesting some $7 billion worth of assets there

It’s like everyone’s itching to buy and sell in the shale space. It must be all those record profits.

But those two look like peanuts compared to a potential merger of Exxon and Pioneer.

Pioneer is worth almost $50 billion. If Exxon buys it, it would be the biggest deal in the U.S. oil industry since Oxy bought Anadarko.

Oh, and it would also make Exxon the dominant player in the Permian.

Hotspot or not?

The Permian is the best performer in the shale patch. It’s the play that drives overall production gains, even while other shale plays’ output declines.

Yet even the Permian has its limitations. Low-cost acreage is not forever, and some industry executives say the days of U.S. shale growth are numbered.

One of these executives happens to be none other than Pioneer’s Scott Sheffield.

“We just don’t have that potential to grow U.S. production ever again,” Sheffield said at CERAWeek.

Sheffield has noted repeatedly things like cost inflation and shrinking drilling inventories as reasons for his pessimism about the future.

That’s boring stuff nobody likes to talk about, but sometimes we have to.

So, if Pioneer’s CEO is one of the doomers of the industry, could he be mulling over an exit through a sale?

Could be. There’s never been a better time for it.

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Oil Traders Diverge from Analysts on Prices

Oil prices gained 7% last week before stabilizing around $80 for WTI and $85 for Brent crude.

But traders are pulling out of oil contracts, with concern about demand still running hot.

Traders in the wonderland of uncertainty

It’s not everywhere, but at least two oil-focused ETFs saw major outflows last week, per Bloomberg.

WisdomTree’s Brent Crude Oil ETP booked the largest single-day outflow since 2019. How much? $55.7 million.

The reason: uncertainty about demand. Really?

Just when you thought everyone was worried about supply after OPEC+ dropped a boulder in the market pond, right?

Ironically, some traders seem to think that the OPEC+ move would only dampen demand further.

Or maybe it’s not ironic at all because it actually makes sense.

A weaker economy means weaker oil demand, after all.

Not all oil demand is equal

Most of the worry about oil demand is focused on the U.S.

The latest economic data—service sector growth—suggested a slowdown, which of course, affected demand expectations.

But here’s the thing. The U.S. may be the biggest oil consumer, but it’s not the only big oil consumer.

That’s one bubble burst right there.

While U.S. services are slowing down, China’s transport and heavy industry are on the rebound, meaning demand for oil will likely continue up.

Also, there may be some good U.S. news on the way.

U.S. CPI data is due later this week, and if this Reuters poll is right, those traders that sold may come to regret it.

Around the Global Patch

🇸🇦 Despite OPEC+ cuts, Saudi Arabia will maintain oil supply to Asia.
🇮🇩 Indonesia offers 3 oil and gas blocks for the first bidding of 2023.
🇷🇺 What’s going on with Russia’s oil production?

Tweet of the Day

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