Senator Elizabeth Warren and her fellow Big Oil critics may have finally got some literal proof that the oil industry benefits directly from the imbalance of supply and demand: Big Oil executives are selling shares in their companies worth millions.
According to calculations made by Bloomberg, the chief executive of Hess Corp. alone sold stock worth $85 million in the first quarter in several deals, while the head of Marathon Oil sold $34.3 million. For the industry overall, more executives sold than bought shares in their companies, according to figures from Verify Data, cited by Bloomberg.
Perhaps this will add fuel to Senator Warren's crusade against Big Oil. The senator is accusing Big Oil of holding back production growth to keep prices at the pump high and line their own pockets. Earlier this year, Sen. Warren was among the sponsors of a bill proposing a windfall tax for Big Oil companies because of the profits they made from the increase in international prices.
Lawmakers didn't stop there, either. Earlier this month, the House Energy and Commerce Committee summoned the chief executives of a dozen Big Oil companies in a hearing titled "Gouged at the Gas Station: Big Oil and America's Pain at the Pump."
Big Oil explained that it is not producers that set retail fuel prices across filling stations and returned the ball to the legislators' court by attributing the higher oil prices to restrictive energy policies on the part of the Biden administration and the war in Ukraine. Shortages of various sorts were also cited as reasons for the oil price rally that is giving Democrats a headache.
Yet the news of Big Oil executives selling millions of dollars worth of shares might be considered good news by congressional Democrats and the White House. According to Bloomberg, the selling could signify that a price decline is on the horizon.
According to the report on the stock sales, executives often step up sales of their own stock when they expect the price of this stock to decline. The most immediate cause for a decline in oil stocks is typically a decline in oil prices. The question is where this decline would come from.
The war in Ukraine does not look like it will be over soon, and the European Union is discussing an oil embargo against Russia under pressure from the Ukrainian government. Currently, the bloc is conducting an impact assessment of such an embargo in a bid to win over the hesitant members, the biggest among which is Germany—a large oil and an even larger gas importer from Russia.
It would be safe to say that any oil embargo is unlikely to be introduced in the next couple of weeks, so that's one tailwind for oil prices that will make an appearance later in the year, if at all.
However, in the meantime, Russian oil output is falling because of the sanctions. What this means for global markets is that less oil is going to those who need it, except the two biggest and most populous Asian economies, which are gobbling up cheap Russian crude.
"Historically, oil executives are really good at getting maximum value from selling stock at the right time," Ben Silverman, head of research at VerityData, told Bloomberg in an interview. "The message is that the cycle here isn't going to be a long one."
A message there may well be, but the question remains: how will oil prices fall? U.S. producers remain cautious about their production growth plans; Brazil has big ambitions, but these take time to materialize; the UK is warming up to the idea of more local oil production, but it will not be in any quantities big enough to move international prices.
The Iran deal remains stuck—the latest update was about the Iranian side rejecting a sanction relief proposal made by the U.S. side. The cherry on top of the price cake was how the Saudi Crown Prince literally yelled at Biden's national security adviser this week and told him that Washington could forget about the Saudis boosting oil output to lower prices.
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So, no Iranian oil is coming. No OPEC oil is coming either. U.S. output is rising but slowly and will add less than 1 million bpd this year. Smaller producers could ramp up, but it remains to be seen whether they can ramp up as fast as the Saudis and the Emiratis potentially could. The answer is most likely no.
In other words, typically, Big Oil executives selling their own stock might mean that the end of the price rally is near. In this case, however, there may well be other reasons for the sales, such as the Fed's rate hike plans, which are getting increasingly aggressive amid continuing inflation pressure. Aggressive monetary policy leads to higher borrowing costs, and higher borrowing costs are bad news for any business and for its stock.
By Irina Slav for Oilprice.com
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Meanwhile over there in the Andrew Mellon corner..
If the prospects for producing a greater volume of crude are low, thereby keeping crude prices high, I have to wonder about extraction cost and resource availability.
How are production costs and petroleum reserves looking? One thing that could have oil CEOs nervous is the possibility of oil pricing go so high that we have demand destruction.
Anybody else, ideas?? Hints from the CEOs themselves?
The factors that could sway oil prices:
1. war in Ukraine
2. reluctance of U.S. shale drillers to start up new wells.
3. Possible embargo on Russian gas and oil.
4. Opening up Federal oil reserves for 6 months- this is a head fake by democrats. So they do this, they will have to replenish at a later date.
5. Chinese lockdowns due to Covid
6. The global economy. Are we headed for a global recession?
7. Middle Eastern producers and Saudi's are happy to reap in high oil prices while keeping their output in check as they slowly but surely face depletion levels
8. The cost of oil versus coal
9. Many other variables.
So, who has the crystal ball? NO ONE
Time will tell.
As for me, I benefit from higher oil and gas prices, but I keep my expectations in check.
With the Ukraine port of Mariupol which connects the Crimea with the Russian land mass and Dobas region and with the remaining south eastern regions of Ukraine under Russian control, President Putin could declare victory and stop Russian military operations in Ukraine. The thousands of Ukraine soldiers holed up in a giant steel plant in Mariupol have no ammunition and therefore they are virtually prisoners of war.
Furthermore, Russian troops won’t withdraw from other occupied parts of Ukraine until Western sanctions are lifted and a binding treaty enshrining Ukraine’s neutrality is signed.
Even without the conflict price premium, the global oil market is still in its most bullish state since 2014 and global oil demand is robust enough for Brent crude to end the year at $100.
The arguments for the EU imposing an oil embargo against Russia’s oil exports are untenable and therefore may never happen or could be vetoed by Germany and other EU members that depend on Russian oil supplies.
About 30%-40% or 4.2-5.6 million barrels a day (mbd) of the EU’s oil consumption is met by imports from Russia. In the event of an embargo, the EU will have to find a replacement but won’t be able to do so.
There is not one single oil producer in the world or a group of producers including OPEC+ and US shale oil that can replace 8.0 mbd of Russian oil and products exports or even half of that now or in the next 20 years. OPEC+ has a very small spare production capacity and shale oil is a spent force.
Russia could be able to sell the bulk of its banned EU exports in the Asia-Pacific region particularly in China and India and even to Western oil traders clandestinely.
If the intention of the proposed embargo is to punish Russia financially, it will be the EU which will be punished by oil prices hitting the stratosphere whilst Russia will be raking in cash from higher oil prices even if its sells less volumes.
A lifting of US sanctions against Iran may never see the light of day soon or in the foreseeable future. And OPEC+ isn’t going to raise its production beyond what it has agreed.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London