Banks Boycott!

With President Joe Biden coming in, it appears fossil fuels are on their way out. In one of the most substantial threats to the global economic recovery, Biden's war on fossil fuels is already having an impact on oil prices and the threat is increasing as more banks are boycotting investment in fossil fuel projects which will cause higher oil and gas prices and be a drag on US economic growth. Yet is it a good policy or even legal that banks can conspire as a group to try to force an industry to go bankrupt? That may be a question for legal scholars but the Trump Administration sees it as the threat that it is.

In the last hour rule, the Office of the Comptroller of the Currency issued a rule Thursday that would force banks to lend to gun manufacturers, oil drillers, and other controversial industries that some have refused to do business with. Many banks have shown their anger and displeasure with the rule but it is critical that the US energy industry, that is such a vital part of our economy, should not be demonized because of political correctness and without due process.

As more banks look to boycott US oil and gas companies, it will be the small shale oil producers that will bear the brunt of the pain. In other words, the much-derided “Big Oil” companies will become bigger and stronger while smaller independents will crack under the weight of more regulations and the inability to secure capital. That is one of the reasons that Exxon Mobil has surged in stock prices in recent days.

It is also one of the reasons that the Saudis were open to cutting oil production because they have lost their fear of the US shale industry. Shale oil was a nemesis of the OPEC cartel and now it seems that the Biden Administration shares their disdain for shale. Maybe for different reasons, but the result will be the same. Big oil will get bigger and OPEC and Saudi Arabia will get stronger.

U.S. consumers of course will see what is left of their disposable income go into their gas tanks with more of the profit going to foreign oil producers, The market is also going to have to watch President Biden's actions with Iran. The President elect has signaled his desire to rejoin the Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), a love that could lift sanctions on Iranian oil which would be another blow to smaller US energy producers. 

This would be also questionable from a geopolitical risk standpoint as tensions are rising because of Iran’s action in the region and recent threats to the U.S. and Israel. This comes after the Trump Administration worked to unite many countries in the region to finally recognize Israel as a legitimate country. “The United Arab Emirates and Bahrain recognized Israel on September 15, while Sudan and Morocco announced their intention to normalize relations with Israel on October 23 and December 10 respectively. The most recent country to establish diplomatic relations with Israel was Bhutan on December 12.”

Yet Iran is still making threats. The AP reported that ran fired cruise missiles Thursday as part of a naval drill in the Gulf of Oman, state media reported, under surveillance of what appeared to be a U.S. nuclear submarine dispatched to the region amid heightened tensions between the countries. Helicopter footage of the exercise released by Iran’s navy showed what resembled an Ohio-class guided-missile submarine, the USS Georgia, which the U.S. Navy last month said had been sent to the Persian Gulf — a rare announcement aimed at underscoring American military might in the region.

The oil price overnight is pulling back from 11-month highs as the dollar is rising and there is some profit-taking ahead of what is a three-day weekend in the US with the celebration of the life of Martin Luther King. Oil prices may get some support later in the day as Reuters reports that, “A dozen workers at Norway’s Mongstad oil refinery could go on strike if an upcoming round of wage talks fails to result in agreement, Norway’s safe labor union said on Friday. No date has yet been set for the negotiations, which will be led by a government-appointed mediator”. 

Reports also show that Russia raised their oil production by 150,000 barrels a day. Of course, that might not matter because the Saudis will soon be making a million-barrel cutback.

Reuters reports that US shale producers that can do so are locking in hedges at above $50 a barrel. No word if or what banks are financing the hedge.

Oil could get support from reports from S&P Global Platts that, “Loadings of Nigeria's key export grade Forcados are on force majeure due to the shutdown of the Trans Forcados pipeline, terminal operator Shell said late Jan. 14. The force majeure took effect from 1000 local time (0900 GMT) on Jan. 14, a Shell spokesperson said. A representative at Heritage said the Trans Forcados pipeline had initially shut down for "maintenance services" but "community disturbances" had disrupted the exercise. The pipeline, therefore, remained shut for longer than scheduled, leading to Shell declaring force majeure, the source said.

Natural gas is trying to bottom as LNG prices are shattering records overseas. A brutal winter is causing record demand and countries that have looked to alternative sources of power can’t keep up with the surge in demand. Reuters reports that, “Pakistan and Bangladesh are rationing gas and buyers across South Asia are seeking alternative fuels after spot liquefied natural gas (LNG) prices surged to record highs, government and industry officials told Reuters. Spot LNG prices LNG-AS have nearly tripled since early November as freezing temperatures across North Asia boosted demand and depleted inventories. Since July, prices are up a dizzying 1,000%. Gas-fired power plants and industries across the region are scrimping on gas, with the scramble for other fuels driving up demand for liquefied petroleum gas (LPG) and residue oil. “Oil uptrend intact. I hope you hedged. If not, call me.