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By David Gaffen, Editor, Energy Markets

Hello Power Up readers! Last week was a tempestuous one for the oil markets and is likely only to continue in coming days and weeks following Israel’s declaration of war against Hamas that is likely to sideline peace talks the Jewish state is having with Saudi Arabia. Let’s take a look at what’s going on…  

Today’s top headlines:

• Oil prices rise as Middle East turmoil roils markets
• Head of Exxon’s shale oil business faces sexual assault charge in Texas
• Russia lifts diesel export ban – what happens next?

Oil pump jack in front of a displayed Israeli flag. REUTERS/Dado Ruvic/Illustration

After a series of attacks by Hamas into Israel in recent days, Israel has declared war on Hamas and combat action is intensifying. One victim of this could be the peace process in effect with Saudi Arabia, which had dangled the possibility of additional production by the kingdom to help entice the United States to provide both countries with more comprehensive defense. That may have the effect of putting a floor under oil prices – even before taking demand into account. “It is hard to envision how Saudi normalization talks can run on a parallel track to a ferocious military counter offensive,” writes Helima Croft, head of global commodity strategy at RBC Capital Markets.  

Oil-market tightness may arise from another locale – Iran. Hamas has long received support from the Iranians, as RBC notes, and the Biden administration has backed off its enforcement of sanctions that limited oil production against that regime, allowing output to rise in recent months. That as well may reverse, hampering supply. Oil is rallying on Monday, reversing some of last week’s losses, and Israel for now has shut its major natural gas field, so energy will be affected by the conflict. 

Oil’s well that ends well for Darren Woods, CEO of Exxon Mobil. 

So the largest U.S. oil company, Exxon Mobil, is in advanced talks to acquire one of the original shale darlings, Pioneer Natural Resources, as Reuters reports here. It’s a signal that the giant would rather buy the best, already-producing acreage in Texas rather than hunt for itself. The deal has not been announced yet but the talks put it at about $60 billion – and would consolidate about 15% of the Permian, the biggest U.S. oil patch, in Exxon’s hands. 

The takeaway? There are too many to list, but first, it’s a milestone in that one of shale’s true pioneers, Scott Sheffield, is going to head off into the sunset (he’s retiring soon) by selling his company to Exxon. It’s a signal that Exxon is sticking to its strategy of more oil and gas investment even as the world transitions to cleaner energy, however slowly. And it in a way shows how the industry has matured that those dominating the shale patch in coming years are going to be the preserve-cash-and-cut-costs crowd instead of the “drill for every barrel when we can” crowd.  

The acquisition would be Exxon’s biggest since its $81 billion deal for Mobil in 1998, if it happens at all, and keep in mind, previous buys by Exxon – like XTO have not been deemed successful. “If Exxon Mobil is crowned the undisputed king of the Permian in the coming days, the shale sector will fundamentally become a more mature consolidated business,” said Matthew Bernstein, analyst at Rystad Energy. 

Brent has come back down from its big rally – but for how long?

The oil market just closed out its steepest weekly losses since March in what’s been a period of seriously mixed signals, as Reuters reports here. OPEC is hanging onto its current supply cuts even though it has raised its outlook for demand, Russia lifted its fuel export ban, and some economic indicators look great (U.S. job markets) while others less so.  

Within that, a lot of selling took place, taking the steam out of a rally that has pushed crude to its highest level in months, with sellers coming out of the woodwork all at once to drop Brent to the $85-per-barrel range as U.S. interest rates rose again. That last part – rates – is what worries investors most. It helps strengthen the dollar, too, because of the attractiveness of a higher-yielding currency, and that as well usually results in selling in the oil market.  

That’s Sergij Ovchynnikov, of electricity company Khersonoblenergo, making repairs in Ukraine in February. REUTERS/Lisi Niesner

Ukraine faces a second winter of lengthy power outages after a series of ongoing Russian missile and drone attacks that have left parts of the energy system more vulnerable than a year ago, as Olena Harmash reports here.  

The country’s engineers have tried over the summer months to repair broken equipment but prepping for the winter is a difficult proposition – and that could mean many nights without heat, light and water for millions of Ukrainians and more suffering too for businesses and the wider economy. “A lot (of effort) has gone to just repairing what has been destroyed. And have we been able to build an additional resilience? Are we in a better position than last winter? I don’t think so,” said Marcus Lippold, an energy team leader at the European Union’s enlargement arm. 

“It’s disappointing but hardly surprising Chevron have welched on the deal given the bad faith they have shown bargaining with their workforce over the last year or so.”  

Brad Gandy of the Offshore Alliance, which is representing two LNG worker unions in Australia that are negotiating with Chevron for better wages. 

South Africa has big plans for its first virtual electricity transfer model, set to go live by end of next year, as Nquobile Dludla reports here. The utility signed an agreement with a Vodafone unit to introduce what’s known as “virtual wheeling,” allowing consumers to buy renewable power from any producers in the country – making power from the big renewable companies available to smaller users and reduce the burden on the country’s big utility Eskom. 

That company’s aging plants and weak transmission grid forced it to implement record daily power cuts since last year to avoid its grid collapsing. This move would allow more people to access the renewable grid and take the pressure on Eskom and individuals who have had to rely on diesel generators and battery backups. “What we’re trying to resolve really is to ensure that we protect the South African economy from total collapse,” Minister of Electricity Kgosientsho Ramokgopa said during a conference.

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