OPEC+'s early and full reversal of cuts

By Liz Hampton, U.S. Energy Editor 

Hello Power Up readers! Oil prices are down to kick off the week after OPEC+ said it will move ahead with another larger output increase in September. Global Brent crude futures were trading at $68.34 a barrel, down $1.33, on Monday, while U.S. West Texas Intermediate (WTI) crude futures fell $1.50 to $65.84 a barrel. Oil prices ended last week up more than 6%. U.S. Henry Hub natural gas futures were trading 3.4% lower at $2.977 per million British thermal units. 

I love to get your thoughts and comments, so don't hesitate to contact me at liz.hampton@thomsonreuters.com.

The Organization of the Petroleum Exporting Countries and allies on Sunday agreed to raise oil production by 547,000 barrels per day in September in a bid to regain market share and as concerns over Russia-linked supply disruptions mount.

The increase will be a full – and early – reversal of its latest tranche of output cuts, and includes a separate increase for the United Arab Emirates. It amounts to 2.5 million bpd, or 2.4%, of  world demand.

The eight countries will meet again in early September and will consider reinstating another layer of output cuts that would total around 1.65 million bpd, which are currently in place until the end of next year, two sources told Reuters.

In other news, British oil major BP on Monday said it had made its largest oil and gas discovery in 25 years off the shores of Brazil. The announcement comes as the company has made a strategic shift away from renewable energy to refocus on fossil fuel production in a move to regain investor confidence.

The company plans to create a new output hub at the Bumerangue discovery. It did not give a reserve estimate for the block, but said it was its largest discovery since Shah Deniz in 1999, which had around 1 trillion cubic meters of gas and 2 billion barrels of condensate initially in place.

The find is expected to support the company's upstream longevity well into the 2030s and 2040s, analysts said.

Shares of BP were up 1.3%. The company will report its second-quarter results on Tuesday.

BP has been under pressure from activist investor Elliot Management to reduce its operating expenses, after it took more than a 5% stake in the British oil major. The company has announced up to $5 billion in cost-cutting initiatives. REUTERS/Toby Melville

We've got a nice analysis looking at U.S. President Donald Trump's America First biodiesel policy, which is discouraging the use of foreign feedstocks in domestic biodiesel production, and the impact this could have on U.S. companies and consumers. 

In June, the EPA issued a proposal that would for the first time ever allocate only half as many tradable renewable fuel credits to biodiesel that is imported or made with foreign feedstocks. Under the Renewable Fuel Standard, refiners are required to blend large volumes of biofuels into their fuel supplies or purchase these credits, known as RINs, from others that do. 

The push to use more domestic feedstocks would help domestic farmers and producers, but it would also boost demand on domestic feedstocks like soybean oil, used cooking oil and animal fat, driving up prices, Stephanie Kelly and Jarrett Renshaw report. The market currently relies on imports to meet needs. 

The head of the American Fuel and Petrochemical Manufacturers group, which represents refiners, warned in a July 25 letter to lawmakers that the proposal would jeopardize the economic viability of renewable fuel production and raise compliance costs, which would ultimately hurt consumers. 

The Advanced Biofuels Association also said it would ramp up consumer costs.

Warnings from these trade groups underscore the friction between Trump's EPA and his Republican supporters in the energy and agriculture sectors. 

The number of oil and gas rigs operating in the U.S. fell by two last week, oilfield services firm Baker Hughes said on Friday. The U.S. rig count is down by 46 versus last year's levels. Drillers dropped five oil rigs last week, bringing the total to 410. 

Exxon Mobil and Chevron both beat Wall Street estimates for profit on Friday, as higher production offset lower oil prices. Exxon's oil and gas production was the highest for any second quarter in 25 years and its adjusted earnings for the quarter totaled $7.1 billion. Chevron, meanwhile, reported adjusted earnings of $3.1 billion, while its global production totaled 3.4 million barrels of oil equivalent per day, up from 3.3 million boed the same period last year. 

U.S. refiner Phillips 66 has been hit with a $800 million penalty in a biofuels trade secrets case, Nicole Jao reported last week. In October, a California court ruled that Phillips 66 stole trade secrets under the guise of gathering information for an acquisition, then used that information to create a competing business. Damages from that verdict were $604.9 million, while last week a separate court ordered the refiner to pay $195 million in punitive damages as well. 

At least two vessels carrying Russian crude bound for Indian refiners have diverted to other destinations following new U.S. sanctions, Nidhi Verma and Gleb Stolyarov reported on Friday. This comes after the U.S. Treasury Department imposed sanctions on more than 115 Iran-linked individuals, entities, and ships. 

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