The GERM Report

-Platts: Shale could recover from COVID-19 by 2023

-Iran is racing against the election clock

Crude oil prices shot up once again on the prospects of another round of stimulus for the U.S. economy. Lawmakers seemed to be coming together on a package of bills that would represent a watered-down version of the $2.2 trillion fiscal stimulus package passed in March. We noted Wednesday, however, that it’s unclear how quick the measure would move from bill to the table of ever day Americans. Stimulus optimism, meanwhile, overshadowed an uptick in first-time claims for unemployment insurance in the U.S. economy. Elsewhere, we look at shale projections and wondered about balance in the coming year.

Shrugging off a lackluster jobs report and stand-still inflation in the European economy, crude oil prices continued to rally during the Thursday session. Since Nov. 1, crude oil prices are up a staggering 37% from their high-$30 doldrums. The price for Brent crude oil, the global benchmark, was up 0.76% as of 2:40 p.m. to trade at $51.47 per barrel.

Speaking from the Senate floor Thursday, Sen. Majority Leader Mitch McConnell suggested lawmakers were very close to reaching an agreement on another round of stimulus. The largest of the two packages estimated at $900 billion or so would steer funds toward vaccine distribution, supplement state unemployment insurance and support low-interest loans to keep businesses afloat. A second smaller package includes some of the more contentious issues, such as money for state and local governments and protection for pandemic-related lawsuits. Vermont’s Bernie Sanders is among those arguing for bigger direct checks than what’s on the table and McConnell said lawmakers would work through the weekend to hammer out their differences. Without a continuing resolution to keep the government funded through Christmas, millions of Americans could potentially lose out on unemployment insurance at year’s end.

That risk comes as the U.S. Labor Department reported first-time claims for unemployment insurance increased 23,000 during the week ending Dec. 12 to 885,000. The less-volatile four-week moving average increased 34,250 to 812,500. With an estimated 70% of the U.S. GDP coming from consumer spending, the lack of hiring – particularly during a holiday season that would otherwise see an increase in temp work – is troubling with or without a stimulus that hasn’t passed yet. We would expect to see some of that malaise show up in petroleum product levels next week, levels that will almost certainly be impacted by the major snowstorm on the U.S. East Coast.

With crude oil prices on the rise, we asked S&P Global Platts about the latest break-evens for shale. Rene Santos, the manager of North America supply, told us he estimates the break-even for U.S. shale is around $41 per barrel, ironically the same level that Platts analysts told us was about what fundamentals supported in the current climate. We’ve already seen estimates that President-elect Joe Biden’s proposal to ban fracking on federal lands could wipe out about 1 million barrels per day in shale output by 2025. In total, Platts estimates that U.S. oil production will decline by about 800,000 bpd from 2020, with most of that coming from shale.

“However, there is a legacy decline given the low oil prices, which has significantly reduced drilling activity in U.S. shale,” Santos said. “We forecast that it will take time for U.S. shale to get back to pre-COVID-19 levels. Probably until 2023.”

That serves as something of a sigh of relief given that OPEC+ will allow for another 500,000 bpd or so on the market in the coming weeks. Biden, meanwhile, is widely expected to ease back on sanctions on OPEC members Venezuela and Iran. For Venezuela, its crumbling infrastructure makes a come back daunting, but Iran has shown it’s able to keep pumping despite the so-called maximum pressure campaign from President Trump. On a possible return to the multilateral nuclear deal, Iran has urged Biden to lift sanctions as a gesture of good will. But with presidential elections in June, Tehran will have to race against the clock of politics to get its oil on the water trouble-free.