Oil prices are unlikely to jump too much this year despite the OPEC+ production cuts as the economic and oil demand recovery are set to pick up steam only in the fourth quarter, a monthly Reuters poll of analysts showed on Tuesday.
Still, the 45 economists and analysts in the survey raised their oil price forecasts from last month’s projections, expecting a relatively modest recovery in demand in Q3 and a stronger rebound toward the end of the year and in 2021. The experts see WTI Crude averaging $36.10 per barrel in 2020, up from the previous projection of $32.78 a barrel.
Brent Crude is expected to average $40.41 per barrel this year compared to last month’s forecast of $37.58 a barrel.
Early on Tuesday at 8:10 a.m. EDT, Brent Crude was down 1.7 percent at $41.03, and WTI Crude traded down 1.69 percent at $39.07, dragged down by demand concerns with spiking COVID-19 infections and supply concerns over a possible imminent return of Libya’s oil production, which has been stifled since January due to port blockades.
According to the analysts in the Reuters poll, a second wave of coronavirus cases could dampen the global economic and oil demand recovery if countries and U.S. states backtrack some of the eased measures.
Texas and Florida have reversed some of the re-opening of their economies, while the city of Leicester in the UK is now back under full lockdown in the first local lockdown since England lifted the nationwide lockdown a few weeks ago.
“We still believe it is difficult to justify significant upside in prices in the near term due to the high levels of inventory, continued weakness in refinery margins, and the fear over a severe second wave of Covid-19. Therefore it looks likely that the market will continue to consolidate around current levels,” ING strategists Warren Patterson and Wenyu Yao said on Tuesday.
“The medium and long term outlook for prices remains more constructive, with deficits expected to persist through 2021, assuming that OPEC+ stick to their production cut deal,” according to ING.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
Cineplex sues former merger partner Cineworld for $2.1B – CBC.ca
Cineplex Inc. has filed a lawsuit against its former suitor Cineworld Group PLC, seeking damages over the U.K. company’s failed acquisition that could exceed the $2.18 billion outstanding on the deal.
The Canadian movie theatre operator filed the suit in Ontario Superior Court on Friday, detailing what it claims was “a case of buyer’s remorse” on the part of the U.K. company in the middle of a pandemic that’s seen cinemas across the world unable to operate.
Cineworld walked away from the $2.8-billion deal on June 12, saying it had become aware of a material adverse effect and breaches by the Toronto-based company.
Cineplex says it complied with its obligations under the agreement and vowed to “vigorously defend any allegation to the contrary.”
The Canadian chain is seeking damages that include the $2.18 billion that Cineworld would have paid had the deal closed, minus the value of Cineplex’s securities retained by its holders.
It’s also seeking compensation for the $664 million in debt and transaction expenses that Cineworld would have shouldered had the deal successfully closed, as well as repayment of certain “benefits” it received as part of the transaction.
A representative for Cineworld did not respond for comment.
Sarah Van Lange, a spokeswoman for Cineplex, says it’s “not possible for Cineplex to determine the amount of damages” it’s seeking in total, due to uncertainties inherent in litigation, including the determined value of Cineplex shares.
The company’s share price has fallen substantially since the Cineworld deal was struck in late 2019, due to a confluence of factors that included weakened optimism for the 2020 movie slate, and the sudden closure of theatres due to COVID-19 in March.
Cineworld offered to buy Cineplex at $34 per share, a 42 per cent premium on the chain’s stock price at the time, but by March the company’s shares had dropped below $10 on the Toronto Stock Exchange. Cineplex closed at $8.50 per share on Friday.
The Canadian exhibitor has slowly resumed business at locations in certain parts of the country, including British Columbia and Alberta, though the company delayed a more extensive reopening plan as Hollywood studios delayed the release of most of their titles due to an escalation of virus cases in some U.S. states.
On Tuesday, Cineplex said it reached a deal with its lenders to provide some financial relief due to the pandemic, but warned about its ability to “continue as a going concern.”
Developers cancel long-delayed, $8B Atlantic Coast Pipeline – Business News – Castanet.net
The developers of the long-delayed, $8 billion Atlantic Coast Pipeline announced the cancellation of the multi-state natural gas project Sunday, citing uncertainties about costs, permitting and litigation.
Despite a victory last month at the United States Supreme Court over a critical permit, Dominion Energy and Duke Energy said in a news release that “recent developments have created an unacceptable layer of uncertainty and anticipated delays” for the 600-mile project designed to cross West Virginia and Virginia into North Carolina.
The companies said a recent pair of court rulings that have thrown into question a permitting program used around the nation to approve oil and gas pipelines and other utility work through wetlands and streams presented “new and serious challenges.”
“This new information and litigation risk, among other continuing execution risks, make the project too uncertain to justify investing more shareholder capital,” the news release said.
The massive infrastructure project, announced with much fanfare in 2014, had drawn fierce opposition from many landowners, activists and environmental advocates, who said it would damage pristine landscapes and harm wildlife. Getting the project built would have involved tree removal and blasting and levelling some ridgetops as the pipe, 42 inches) in diameter for much of its path, crossed mountains, hundreds of water bodies and other sensitive terrain and burrowed underneath the Appalachian Trail.
Opponents also questioned whether there was sufficient need for the gas it would carry and said it would further encourage the use of a fossil fuel at a time when climate change makes a shift to renewable energy imperative.
Legal challenges brought by environmental groups prompted the dismissal or suspension of numerous permits and led to an extended delay in construction. The project was years behind schedule and the anticipated cost had ballooned from the original estimate of $4.5 billion to $5 billion.
Reaction poured in Sunday from the project’s opponents, who lauded the demise of the project.
“If anyone still had questions about whether or not the era of fracked gas was over, this should answer them. Today is a historic victory for clean water, the climate, public health, and our communities,” Sierra Club Executive Director Michael Brune said in a statement.
The project’s supporters said the pipeline would create jobs, help aid the transition away from coal and lower energy costs for consumers. Economic development officials in distressed parts of the three states it would run through had hoped that the greater availability of natural gas would help draw heavy manufacturing companies.
“Unfortunately, today’s announcement detrimentally impacts the Commonwealth’s access to affordable, reliable energy,” the Virginia Chamber of Commerce said in a statement. “It also demonstrates the significant regulatory burdens businesses must deal with in order to operate.”
U.S. Energy Secretary Dan Brouillette said in a statement the project was killed by the “well-funded, obstructionist environmental lobby.”
“The Trump Administration wants to bring the benefits of reliable and affordable energy of all kinds to all Americans,” Brouillette said. “Unfortunately, the same can’t be said for the activists who killed this project.”
Warren Buffett ends his deal drought with $10 billion bet on energy – Financial Post
Warren Buffett finally found his next crisis-era deal.
His Berkshire Hathaway Inc., which has stayed relatively quiet during the tumult of the coronavirus pandemic, broke its silence at the end of a holiday weekend with its biggest acquisition in more than four years. The US$9.7 billion deal for Dominion Energy Inc.’s natural gas pipeline and storage assets signalled to the market that Buffett is willing to pounce despite his cautious tone in May about the pandemic, according to David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
“He’s willing to make investments now, of a fairly sizable amount,” Kass said. “It’s very positive that he’s sending a signal for the right deal at the right price, US$10 billion or more, ‘We’re ready to go, we’re ready to invest.’”
Buffett, who has crafted Berkshire into a conglomerate valued at US$434 billion, built his reputation as an investor able to swoop in during volatile markets to strike unique and complicated deals in past crises. After being stymied on the acquisition front during the recent bull market for stocks, Buffett still wasn’t striking any deals during the initial stages of the pandemic and even dumped his stakes in the major U.S. airlines.
His inability to make a major acquisition recently has drawn scrutiny from his critics who have argued that Buffett has lost his ability to pull off the game-changing transactions that helped vault Berkshire into the ranks of the most valuable U.S. public companies. Now, the deal to buy substantially all of Dominion Energy’s natural gas transmission and storage assets for US$4 billion, along with the assumption of US$5.7 billion in debt, shows that Buffett is willing to put his money to work, Kass said.
“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Buffett, who is chief executive officer and chairman of Omaha, Nebraska-based Berkshire Hathaway, said in a statement Sunday.
“I’m inspired to see that, given that he’s bearish, he’s still willing to make acquisitions where he thinks it makes sense and where it meets Berkshire’s hurdle points,” said Darren Pollock, a portfolio manager at Cheviot Value Management, which invests in Berkshire shares.
Buffett has considered its energy business one of the “lead dogs” of Berkshire’s non-insurance operations alongside its railroad. Berkshire’s purchase expands its hold in the sector, adding more infrastructure to handle natural gas to its already sprawling energy operations across states such as Nevada and Iowa. Berkshire also struck the deal at a low point in the market. Natural gas futures in the U.S. dropped last month to their lowest point in 25 years and have recovered just slightly since then.
“This looks like confirmation that commodities like energy are undervalued,” Bill Smead, chief investment officer at Smead Capital Management, which owns Berkshire shares, said in an emailed comment. “At the bottom, assets move from weak hands to strong hands.”
Berkshire is digging deeper into a business that’s been facing increasing scrutiny amid the push for energy companies to shift away from fossil fuels. In its own statement on Sunday, Dominion Energy cited its target to reach net-zero emissions by 2050.
The deal also highlights the work of one of Buffett’s key deputies, Greg Abel, who led the energy business for years and is now chairman of Berkshire Hathaway Energy alongside his role as Berkshire’s vice chairman for all non-insurance businesses. Abel has gained a reputation as a key dealmaker for Berkshire with the 2013 purchase of NV Energy and even the battle to buy Oncor Electric Delivery Co., which didn’t ultimately come together. Abel is viewed as a potential successor to Buffett, 89.
The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise value since its purchase of Precision Castparts Corp. in 2016. Still, Buffett ended the first quarter with a record US$137 billion on hand and has been hankering for an “elephant-sized acquisition” to put a chunk of his cash pile to work. The Dominion agreement’s total enterprise value would account for about 7 per cent of that total.
“It’s not something that’s going to move the needle from a balance sheet standpoint, but it’ll produce several hundred million dollars a year in net income to Berkshire,” said Cheviot’s Pollock. “That’s no paltry sum. That adds up over time.”
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