Weekly Recap: Oil Prices Remain Range-Bound, M&A Activity Gathers Pace
Global crude oil prices remained relatively stable for a second week in a row, as positive sentiments led by reports of promising results in Covid-19 vaccine trials and an improvement in key economic indicators was countered by the continued rise in Covid-19 cases in major countries such as the U.S. and Brazil, and reports of an increase in crude oil inventories.
The Brent crude contract for September delivery rose 0.46% this week to US$43.34 per barrel (/bbl), while the near-month contract for U.S. WTI crude rose 1.85% to US$41.34/bbl. Both benchmarks rose by more than 2% on Tuesday after a medical journal reported that a Covid-19 vaccine being developed by Anglo-Swedish pharmaceutical company AstraZeneca Plc and the University of Oxford showed robust immune responses in the first two phases of testing. Late-stage Phase II / III is underway in the U.K., Brazil, and South Africa, and is due to start in the U.S., AstraZeneca said in a press release.
Oil prices were also supported by a weakening U.S. dollar. The U.S. Dollar Index (DXY) saw a steep drop this week, falling from 95.83 to 94.44, a 1.45% decline. Further support came from positive economic indicators indicating that oil demand was recovering as certain European countries ease their lockdowns. The IHS Markit Flash Composite Purchasing Managers’ Index (PMI) for the Eurozone increased for the first time since February and showed the sharpest rate of increase for July in two years.
On Wednesday, the U.S. Energy Information Administration’s Weekly Petroleum Status Report showed that U.S. crude inventories had risen unexpectedly by 4.9 million barrels in the week ending July 17th, signalling a decline in demand. The total number of coronavirus cases in the U.S. crossed the 4 million mark this week, and renewed concerns around the re-imposition of lockdowns is likely to dampen the outlook for oil consumption over coming weeks.
Diplomatic relations between the U.S. and China deteriorated this week as America demanded that China shut its consulate in Houston, and China retaliated by ordering the U.S. to close its own consulate in Chengdu. An escalation in tensions between the two countries could exert further negative pressure on prices in coming weeks.
The week also saw the announcement of two significant M&A deals. On Monday, Chevron announced that it would acquire Houston-based Noble Energy Inc. in an all-stock deal valued at approximately US$13.0 billion on an enterprise value basis. The transaction will boost Chevron’s U.S. upstream operations across the DJ Basin, Permian, Eagle Ford Shale and Gulf of Mexico, as well as its international presence with the acquisition of Noble’s interests in offshore projects in West Africa (Cameroon, Gabon) and the Eastern Mediterranean (Cyprus, Israel). Following this, on Wednesday, ConocoPhillips announced that it had entered into a definitive agreement with Kelt Exploration Ltd. to acquire ~140,000 net acres of Montney assets located in north-east British Columbia for US$375 million plus the assumption of approximately US$30 million in financing obligations.