Connect with us

Investment

Shale oil's slower investment sparks new tension with White House – Reuters

Published

 on


Chevron fracking site near Midland, Texas, U.S. August 22, 2019. REUTERS/Jessica Lutz

Register now for FREE unlimited access to reuters.com

Nov 23 (Reuters) – As the Biden administration and allies scramble to deliver more oil to market through stockpile releases, shale producers are tapping the brakes on reinvestment, according to new data, a sign of the widening split between U.S. oil companies and Washington.

That restraint has become the latest friction point between oil producers and the White House. On Tuesday, President Joe Biden launched coordinated oil stockpile releases with China, India, Japan and South Korea after efforts to cajole OPEC and U.S. producers to speed up production failed. read more

The rate at which U.S. shale producers put cash from operations into drilling for oil and gas fell to a record low last quarter, data from consultancy Rystad Energy showed, as those firms returned cash to shareholders through dividends and stock buybacks.

Register now for FREE unlimited access to reuters.com

The third-quarter reinvestment rate was 46%, below the historical average of 130%, Rystad said in a report this week. Reinvestment could fall further, its analysts said.

LIMITED NEW OIL

U.S. shale companies are targeting flat to 5% production growth next year, while private companies and oil majors combined could add up to 500,000 bpd by December 2022, said Rystad.

The rate of growth has kept U.S. oil production below the peak. The United States in October pumped around 1.5 million barrels per day (bpd) fewer than the 12.97 million bpd peak two years ago, the U.S. Energy Information Administration said. Next year, output is forecast to average 11.9 million bpd.

Shale companies contacted by Reuters, including EOG Resources Inc (EOG.N) and Diamondback Energy Inc (FANG.O), declined to comment on the coordinated release of petroleum reserves, which could drive down oil prices. But their modest spending from rising profit shows they are not falling back on old habits.

“Prolific shale production was a buffer to market perturbations and it isn’t there any more,” said Kevin Book, managing director at research firm Clearview Energy. He attributes the limited gains to “a more cautious shale patch.”

It has not helped that Biden has criticized oil companies for putting shareholders ahead of the economy and has called on regulators to probe whether oil firms drove gasoline prices to a 7-year high. read more

“Biden is getting rid of pipelines and messing with permits and making it difficult to operate the company,” said Harris Kupperman, chief investment officer at Praetorian Capital. Administration talk about excess profits only aggravates producers, he said.

‘BANDAGE’ FOR CONSUMERS

“The release of the SPR is strictly a bandage and the only way to create a sustainable lower price and stability is encourage drilling in North America and create a regulatory environment that makes it economical and sustainable,” said Paul Mosvold, president and COO of oil drilling firm Scandrill.

The American Petroleum Institute, the industry’s top lobby group, also blamed the reluctance to invest more on Biden’s rejection of new oil pipelines and pause on leasing federal land.

“When the administration signals they want to move wholly off of fossil fuels within a foreseeable time period, that makes financing more difficult,” said Dean Foreman, the API’s chief economist.

Oil companies are having to spend more to keep output flat. This year’s outlays rose 15% over 2020 to get to modest increases, estimates investment firm Cowen. Next year’s outlays will rise between 20% and 25%, with some of the gains chewed up by inflation.

Higher costs for oilfield services will consume 10% to 15% of next year’s outlays, estimates Jonathan Godwin of energy tech firm Enverus.

Contributing to the weaker growth are declines in the number of wells drilled and waiting to be turned on. They fell to a 4-year low this fall. read more

Register now for FREE unlimited access to reuters.com

Reporting by Liz Hampton in Denver
Additional reporting by Stephanie Kelly in New York
Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Adblock test (Why?)



Source link

Continue Reading

Investment

Opinion: Ottawa must aim its fiscal powers at lagging business investment in the next phase of recovery – The Globe and Mail

Published

 on


People navigate through Yorkdale Mall in search of Black Friday sales in Toronto on Nov. 26, 2021.Tijana Martin/The Canadian Press

In a prebudget consultation last winter, Bank of Nova Scotia chief economist Jean-François Perrault warned Finance Minister Chrystia Freeland that she was in danger of oversubsidizing labour at the expense of capital. Nine months further along an economic recovery that has become complicated by labour shortages, he’s stressing that point to her again.

“It’s certainly my view that [government policies] have favoured supporting the labour side versus the capital side in the pandemic. There’s no question,” he said in an interview this week.

“There needs to be something to turbo-charge Canadian investment.”

Mr. Perrault delivered that message to Ms. Freeland personally last week, as the Finance Minister met virtually with a panel of senior private-sector economists – the traditional consultation in advance of the government’s fall economic and fiscal update, promised for sometime in the next three weeks. This week’s third-quarter gross domestic product report from Statistics Canada underlines the point that the recovery is top-heavy on the consumer side, while business investment brings up the rear.

While real GDP (that is, excluding inflation) expanded at a brisk 5.4-per-cent annualized pace in the quarter, the main driver of that growth was household consumption, which surged nearly 18 per cent annualized. Business gross fixed capital formation, on the other hand, contracted nearly 18 per cent, its second consecutive quarterly decline. Since the start of the pandemic, household spending is up 2 per cent, in real terms; business investment in non-residential structures, machinery and equipment is down 11 per cent.

It’s not as if the private sector lacks the money. Canadian Imperial Bank of Commerce economist Benjamin Tal estimates that during the pandemic, the collective stockpile of corporate cash is about $175-billion higher than its prepandemic trend.

There are some encouraging indications – most notably, from the Bank of Canada’s fall Business Outlook Survey – that the private sector may be prepared to loosen its purse strings considerably. That quarterly report showed that capital spending intentions over the next 12 months are the highest in the 23-year history of the survey.

But the reality is that the government’s economic policies in the pandemic have done remarkably little to stimulate business investment, while delivering a great deal indeed to protect the labour market and support household incomes.

As the economy has recovered, that significantly tilted the scales in favour of hiring rather than capital spending. That may have contributed to the labour crunch many businesses and sectors are now experiencing.

“If we had somehow found a way to steer more dollars to encourage capital spending, as opposed to maintaining the labour force as it was, perhaps we wouldn’t have a million job vacancies now,” Mr. Perrault argued. “Perhaps firms would have taken the last 18 months to try and rethink, retool, invest, in a way that would make the expansion less labour-intensive.”

This certainly isn’t an issue unique to Canada. In a global economic outlook published Wednesday, the Organization for Economic Co-operation and Development worried that governments’ fiscal focus is still too much on emergency measures to lean against the impact of the pandemic, and not nearly enough on the building blocks for a strong recovery.

“We are more concerned by the use made of debt than its level,” OECD chief economist Laurence Boone wrote in the report. “It is time to refocus fiscal support on productive investment that will boost growth, including investment in education and physical infrastructure.”

For Canada, though, the solution must go beyond a refocusing of public spending over the next few years. It needs to include incentives to light a fire under business investment that was, frankly, a problem long before the pandemic came along. Crisis policies may have merely encouraged a long-standing tendency in our private sector to favour investments in labour over capital.

In the five years prior to the pandemic, total employment in this country rose 8 per cent. Over the same period, non-residential business investment, excluding inflation, fell 15 per cent.

Mr. Perrault suggested that the optimistic investment outlook in the Bank of Canada’s business survey masks the bigger picture: that Canada remains an underperformer relative to our global peers, even in this recovery.

“Canadian investment is probably going to rise less than a lot of our competitors this year; investment is rising everywhere,” he said. “The temptation is going to be to say things are improving … [but] if our relative investment continues to decline, then our competitiveness hurts, our productivity hurts.”

In a report this week, National Bank of Canada chief economist Stéfane Marion noted the country’s private non-residential capital stock – basically, all the physical structures, machinery and equipment owned by the private sector – actually declined last year, for the first time on record. While the pandemic was undoubtedly a contributing factor, growth has been generally trending downward for more than a decade.

“Whatever the cause of this lack of private investment, we must turn it around,” Mr. Marion said.

“Canada, as a small, open economy … must do a better job of growing its capital stock to take advantage of a highly successful immigration policy, and harness the productive power of a growing work force of highly skilled people.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Adblock test (Why?)



Source link

Continue Reading

Investment

Oil rises as investors focus on OPEC+ decision amid growing Omicron fears

Published

 on

Oil prices rose on Thursday, recouping the previous day’s losses, as investors adjusted positions ahead of an OPEC+ decision over supply policy, but gains were capped amid fears the Omicron coronavirus variant will hurt fuel demand.

Brent crude futures rose 85 cents, or 1.2%, to $69.72 by 0402 GMT, having eased 0.5% in the previous session.

U.S. West Texas Intermediate (WTI) crude futures gained 85 cents, or 1.3%, to $66.42 a barrel, after a 0.9% drop on Wednesday.

“Investors unwound their positions ahead of the OPEC+ decision as oil prices have declined so fast and so much over the past week,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

Global oil prices have lost more than $10 a barrel since last Thursday, when news of Omicron shook investors.

“Market will be watching closely the producer group’s decision as well as comments from some of key members after the meeting to suggest their future policy,” Ueno said.

The Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, will likely decide on Thursday whether to release more oil into the market as previously planned or restrain supply.

Since August, the group has been adding an additional 400,000 barrels per day (bpd) of output to global supply each month, as it gradually winds down record cuts agreed in 2020.

The new variant, though, has complicated the decision-making process, with some observers speculating OPEC+ could pause those additions in January in an attempt to slow supply growth.

“Oil prices climbed as some investors anticipate that OPEC+ will decide to maintain the current supply levels in January to cushion any damage on demand from the Omicron spread,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

Fears over the impact of the Omicron variant of the coronavirus rose after the first case was reported in the United States, and Japan’s central bank has warned of economic pain as countries respond with tighter containment measures.

U.S. Deputy Energy Secretary David Turk said President Joe Biden’s administration could adjust the timing of its planned release of strategic crude oil stockpiles if global energy prices drop substantially.

Gains in oil markets on Thursday were capped as the U.S. weekly inventory data showed U.S. crude stocks fell less than expected last week, while gasoline and distillate inventories rose much more than expected as demand weakened. [EIA/S]

Crude inventories fell by 910,000 barrels in the week to Nov. 26, the Energy Information Administration (EIA) said, compared with analyst expectations in a Reuters poll for a drop of 1.2 million barrels.

(Reporting by Yuka Obayashi; Editing by Tom Hogue)

Continue Reading

Investment

Toronto market hits 7-week low on Omicron uncertainty

Published

 on

Canada‘s main stock index fell on Wednesday to its lowest level in over seven weeks as the United States reported its first case of the Omicron variant that investors fear could impede economic recovery, with the index giving back its earlier gains.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 195.39 points, or 0.95%, at 20,464.60, its lowest closing level since Oct. 12.

Wall Street also closed lower as the U.S. Centers for Disease Control and Prevention said the country had detected its first case of the new COVID-19 variant, which is rapidly becoming dominant in South Africa less than four weeks after being detected there and has spread to other countries.

It might take longer than expected for supply chain disruptions to abate, “especially if we have renewed shutdowns in Asia,” said Kevin Headland, senior investment strategist, Manulife Investment Management.

Still, Headland does not expect the new variant to lead to an economic recession or a bear market for stocks in 2022, saying: “Reaction to headline news provides opportunities for those that have a longer-term timeframe to add in the equity markets.”

The TSX will add to its recent record high over the coming year as the domestic economic recovery helps underpin corporate earnings, but gains are expected to slow from 2020’s breakneck pace, a Reuters poll found.

The technology sector fell 2.7%, while energy ended 1.9% lower as oil was unable to sustain an earlier rally. U.S. crude oil futures settled 0.9% lower at $65.57 a barrel

The materials group, which includes precious and base metals miners and fertilizer companies, lost 2.2%.

Financials were a bright spot, advancing 0.4%, helped by gains for Bank of Nova Scotia as some analysts raised their target price on the stock.

Bombardier Inc was among the biggest decliners. Its shares sank 10.4%.

 

(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; Editing by Peter Cooney)

Continue Reading

Trending