Oil bulls rampant with prices up +57% this year

Oil has made a remarkable recovery this year, going from a state of devastation – including negative prices for a brief period – last year to becoming one of the hottest commodities this year.

Stronger than expected demand coupled with the inability of OPEC+ to decide on how best to ease production curbs has sparked a drastic rise in crude prices.

The US benchmark West Texas Intermediate crude shot up from US$47.62 ($63.84) per barrel at the beginning of this year to the current price of about US$75.04/bbl thanks in no small part to rampant speculation.

Indeed the Wall Street Journal reported in mid-June that the ratio of bullish to bearish bets on oil in New York had risen from 6 to 1 at the beginning of 2021 to 23 to 1.

However, the OPEC+ stalemate also represents a very real curb on crude supplies with the International Energy Agency warning that “oil markets will tighten significantly as demand rebounds from last year’s COVID-induced plunge”.

It added the markets are likely to remain volatile until there is clarity on OPEC+ production policy.

US shale oil producers have also been remarkably restrained about their production increases while the likelihood of Iranian crude entering the market has plummeted as talks between the US and Iran stall.

Not all oil bulls

That’s not to say it’s nothing but bulls running around in the oil arena.

Concerns have been raised that the rapidly spreading delta variant of COVID-19 could reverse the global economic recovery.

More fundamentally, Rystad Energy has estimated that world’s total recoverable oil resources have dropped by 9% from last year’s figures to 1,725 billion barrels.

Of this amount, about 1,300 billion barrels are sufficiently profitable to be produced before the year 2100 at a Brent real oil price of US$50/bbl.

“In this scenario, global production of oil and natural gas liquids will fall below 50 million barrels per day by 2050,” the consultancy’s head of analysis Per Magnus Nysveen said.

“Exploring, developing, processing and consuming this amount of commercially extractable oil will lead to gross greenhouse gas emissions of less than 450 gigatonnes of CO2 from now until 2100.

“This is compliant with IPCC’s carbon budget for global warming limited to 1.8 degress Celsius by 2100.”

Under the revision, Saudi Arabia and Iran have both lost 11 billion barrels of oil to 288 billion barrels and 101 billion barrels respectively, while US resources have fallen by 30 billion barrels to 214 billion barrels.

Australia bucked the trend with its estimated recoverable oil reserves up by 2 billion barrels to 23 billion barrels.

ASX small cap plays

With that out of the way, here are some ASX oil plays with news out on Wednesday.

Bass Oil (ASX:BAS) has reported gross oil production of 13,140 barrels – 7,227 barrels net to the company – in June from its producing Tangai-Sukananti licence in Indonesia, a 1% increase over production in May.

To top it off, the company sold oil at an average price of US$69.14/bbl during June, up 8% from the previous month.

Earlier this week, Bass acquired Cooper Energy’s (ASX:COE) non-operated assets in the Cooper Basin, South Australia.

This will increase the company’s proved and probable reserves by 10% to 54,000 barrels of oil.

Notably, it includes a 30% interest in the Worrior oil field that is currently producing about 40bpd, though there are plans to increase output to about 100bpd.

Xstate Resources (ASX:XST) is also on the acquisition bandwagon, picking up a further 25% working interest in the Alberta Plains oil and gas fields in Canada for C$1.25m ($1.34m) in cash and shares.

This takes its total working interest to 35%, increasing its total production at Alberta Plains to 249 barrels of oil equivalent per day (boe/d) and its overall Canadian production to 474boe/d.

Production might increase further with the company noting that the operator has been working on improving production from the seven fields, which were shut-in during 2020 due to low oil prices.

Meanwhile, ADX Energy (ASX:ADX) has moved to lock in high oil prices with the securing of a Brent swap contract at an average Brent crude price of US$71/bbl for the period from 1 July 2021 to 31 October 2021 for about 40% of its forecast Vienna Basin oil production.

The company now has a hedged position covering about 200bbl of production per day with an average hedged oil price of US$68.87/bbl, a margin of about US$29/bbl above its Vienna Basin field operating costs.

This translates to a 60% increase in averaged hedged oil price and is expected to generate a substantial increase in gross revenue.

ADX expects the increased net revenue will enable it to pursue further well work to enhance production and continue its program of ongoing portfolio growth initiatives for oil and gas along with compatible green energy production opportunities.