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ERCE Energy Review Q4 2020

Providing numerical insights and commentary on the oil & gas sector and the wider energy industry.

Q4 Energy Review

The Q4 2020 edition of the ERCE Energy Review, a quarterly that provides numerical insights and commentary on the oil and gas sector and the wider energy industry, is now available.

This issue covers:

  • Outlook on the energy industry as the world deals with the impact of Covid-19
  • Oil & Natural Gas Trading Prices
  • Brent Future Oil Price Decks
  • Oil Market Activity & Fundamentals
  • Gas Market Review

Who is ERCE?

ERCE is the United Kingdom’s leading employee-owned Oil and Gas Reservoir Evaluation firm. Headquartered in London with a growing office supporting the Asia-Pacific region out of Singapore.

At ERCE we specialise in all areas of upstream energy analysis. Our privately owned status enables us to give truly independent insights whilst working on reserves evaluation, commercial analysis, unitisation/expert services and technical studies.

Source: Nominal Brent Crude Forecast by Consultants, Lenders Vs. Brent Historical and Futures Curve, ERCE Energy Review Q4 2020

Status Quo. Over Jul/20 and Aug/20, Brent price continued its gradual recovery averaging $43/b and $45/b respectively; however, this reversed in Sept/20 with Brent averaging $42/b (occasionally dipping below $40/b). Both US and Europe are seeing a resurgence in Covid-19 cases and last week U.S. President Trump tested positive for the virus. OPEC+ continued to ease its previously announced production cuts and US production has risen slightly in Aug/20. According to latest Baker Hughes report, oil and natural gas rig count in the US has increased.

Short-term. Short-term consensus on oil prices focuses on the rising Covid-19 cases as the northern hemisphere’s winter nears. While it could be that the increased numbers are also due to the increased capacity to carry out tests, this nevertheless casts further doubts over the pace of demand recovery. On the supply side, OPEC+ is due to increase production slowly in the coming months under an agreed timeline. While rising rig count points to further increase in US production, the numbers are small and unlikely to indicate any significant recovery in production yet (+5 from last count, -589 change from last year).

Medium-term. Medium-term consensus remains conservative on upside. Supply is still likely to be a balancing act of matching demand recovery with market share on producers’ mind. Medium-term demand recovery (and in particular the return of international travel) is largely dependent on the severity of second/third waves of the virus and a successful development of Covid-19 vaccine. Scientists are racing to produce a safe and effective vaccine by next year, but currently only 5 vaccines are approved for early or limited use and none are approved for full use.

Long-term. In Europe, long-term consensus is centred around energy transition. Majors such as BP, Total, Shell, and others have recently redoubled their commitment to long-term net zero targets and made some form of commitment to expand activity related to low-carbon energy such as renewable power, biofuels, and hydrogen. Big capital re-allocation is imminent, however, the change is complex and will require time. Profitability of investments in low-carbon alternatives is still uncertain and the challenges of the shift have not disappeared.

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