Eye on Opec: what’s the cartel’s next move?

Welcome back to another Energy Source.

ExxonMobil and Chevron shareholders overwhelmingly backed their boards yesterday against climate shareholder proposals. Remember the Engine No. 1 vs Exxon proxy war? That feels like a different era. I’d love to hear from shareholders, so please write in.

Oil prices are falling again, just days ahead of this weekend’s Opec+ meetings in Vienna. International benchmark Brent settled at $72.60 per barrel, close to its lowest price since 2021. Oil prices have lost almost 15 per cent since Saudi Arabia surprised the market in April by announcing more cuts to supply. The kingdom took some flak for that decision, but consider where oil prices would be today had Riyadh not made the move. What will the cartel do at its meeting this weekend? That’s our first note.

Reporting on Opec has, however, taken a deeply sour turn, with the banning of several journalists from covering this weekend’s meeting. This is an embarrassment for the group.

Our second note is on the big debt ceiling deal in the US — and how Democratic Senator Joe Manchin managed to sneak approval for the Mountain Valley Pipeline into the agreement. Aime Williams, whose recent trip through Manchin’s coal-rich home state of West Virginia is a must-read, explains the politics.

Data Drill picks up on the surge in global orders for offshore wind turbines.

Thanks for reading. — Derek

What will Opec+ do?

Down by 8 per cent in the past week alone, oil prices are not behaving as the world’s big producers would like — and Opec production cuts are not fixing the problem. Saudi Arabia and its partners have announced two reductions in quotas since October. But Brent has fallen more than 20 per cent since then. Oil’s highs near $130 a barrel, struck last year after Russia’s full-scale invasion of Ukraine, seem like a long time ago.

So what will Opec+ do this weekend? Given the recent sell-off, deeper cuts will be considered. Opec’s leadership — read Saudi Arabia — has a bias towards “active management and striving to ensure that the group is not overtaken by macro headwinds or souring market sentiment”, noted Helima Croft, head of global commodity strategy at RBC Capital Markets, this week. That Opec is meeting in person in Vienna makes another policy shift plausible.

Meanwhile, Saudi energy minister Prince Abdulaziz bin Salman has done little to quell impressions that he could spring another surprise. Speaking in Qatar last week, he reiterated his warning that “speculators” in the market — hedge funds and other paper investors that have been amassing short positions — “will be ouching”. “I would just tell them to watch out,” he said.

Still, Croft is not ruling out that Opec will sit pat. That’s also the consensus of other analysts who follow the group closely. The cuts announced in April have barely had time to take effect and anyway, most forecasters expect a significant increase in global oil consumption later this year, tightening demand and supply balances. Patience may be Opec’s best move.

There is also some confusion about how much oil Russia is producing — not helped by the Kremlin’s secrecy about the data. Russian exports hit a high again in April, according to the International Energy Agency. But OilX, a data division of consultancy Energy Aspects, believes production has fallen by more than 500,000 barrels a day in recent weeks. Refinery maintenance may be a reason.

But the cuts that Moscow promised months ago in response to the G7’s price cap, and which did not materialise during the Russian winter, may now be under way in earnest, said Viktor Katona, lead crude analyst at Kpler, another commodities data provider. He believes Russian output is down 350,000 b/d since February.

And deeper cuts now would also risk spooking a market that has been put on edge in recent weeks by US banking problems, the debt-ceiling crisis and mixed signals from the Chinese and European economies.

“They are caught in a rock and a hard place,” said Amrita Sen, head of research at Energy Aspects. “If they don’t cut, the shorts can take prices down. Or if they do cut, the market could think demand must be weak and sell off regardless. It’s a very difficult decision given cuts have only just begun and a lot of the [recent] oil price drop is related to macro [policy], which is out of Opec’s hands. As of now, we expect no change in policy.”

(Derek Brower)

‘Prime minister’ Joe Manchin set to emerge victorious from debt ceiling fight

Catastrophic turmoil in global financial markets seems likely to be avoided as President Joe Biden and Republicans on Capitol Hill look to close their last-minute debt ceiling deal to avoid an unprecedented US default.

But in Washington, there is one big winner — the man widely known as “Prime Minister” Joe Manchin, a reference to the extraordinary influence he wields in a narrowly divided Senate.

The bill agreed on by Biden and Republicans authorises permits for the controversial and much-delayed Mountain Valley Pipeline project, which is scheduled to carry natural gas for about 300 miles from the Marcellus shale fields in West Virginia to other parts of the state.

Also tucked in are some minor changes to the federal permitting process, including policies that limit the environmental review process under the National Environmental Policy Act to two years. This provision was included in a bill that Manchin tried and failed to pass. The senator sought to use the political capital he gained from voting for the Inflation Reduction Act — but it was not enough to get the permitting bill over the line.

The pipeline, which has long been a top political priority for Manchin, has been railed against by climate and environmental groups and bogged down in legal challenges.

The White House’s decision to ram the project through regardless led to an outcry from climate groups, one of which has previously estimated that the path of the pipeline would cross rivers and streams in 1,146 places and disrupt 28 acres of wetlands during construction.

“This agreement cuts local voices out of the process and short-circuits laws put in place to protect the public,” said Manish Bapna, the chief executive officer of Natural Resources Defense Council in Washington. “It locks future generations into dependence on fossil fuels.”

Manchin has not publicly threatened to withhold his vote from a debt ceiling agreement over permitting issues — but back in West Virginia, his support for Biden’s big green spending IRA has left him with an exposed political flank for Republicans to attack.

Voters in the coal-dependent state have a complicated view of the IRA — whereas they broadly like the idea of green jobs, they dislike Democrats and Biden.

When Manchin backed Biden’s IRA, his popularity in the state plummeted, according to one poll. He now faces a tough 2024 run, possibly against the wildly popular and charismatic Republican governor Jim Justice — and his pet bulldog Babydog.

Conservative Republicans in the state are selling voters on the idea that Democrats want to close down coal mines and take jobs away, and “are in bed with the west coast liberal elites who love woke environmentalism”, said John Kilwein, a professor of political science at West Virginia University.

Manchin has been slowly distancing himself from the IRA and hiding his climate credentials ever since its passage. In recent months he’s been talking up the importance of American oil, gas and coal and accused Biden of breaking his promises on protecting “energy security”.

The pipeline giveaway from the White House is an acknowledgment that in his home state, the last thing Manchin needs is to look like a fossil fuel adversary — and if the Democrats want to continue tackling climate change, they need Manchin to win them West Virginia. (Aime Williams)

Data Drill

Global orders for new wind turbines hit a record in the first quarter of the year, with 23.5 gigawatts worth of activity, up almost 30 per cent on a year earlier, according to Wood Mackenzie. China accounted for more than half of the activity.

“What is encouraging is seeing certain areas outside of China start to build momentum,” said Luke Lewandowski, research director at WoodMac. “Latin America had a record Q1, thanks to activity in Argentina and Brazil, and the US is seeing renewed confidence and order growth, partially in thanks to the Inflation Reduction Act.”

Offshore wind orders were down year-on-year and accounted for just 13 per cent of total orders. China’s Envision captured the biggest share of orders (3.6GW), followed by Denmark’s Vestas, and China’s Sany, according to WoodMac.

Power Points

Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.