By Tom Kool
Investor Alert: OPEC and its partners are about to orchestrate the largest oil production cut in history, and a small number of oil & gas companies stand to benefit from it more than any of the others. Our experts are releasing their top pick on Friday…. make sure you get it.
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– Prices for RBOB gasoline futures have collapsed, and some refineries have even faced negative margins for selling gasoline.
– That is a reflection of the deep decline in demand. Price signals are telling refineries to cut back on production. U.S. gasoline demand fell from 8.837 mb/d on March 20 to 6.659 mb/d on March 27.
– Refinery runs fell from 15.838 mb/d to 14.898 mb/d over the same timeframe.
– Total (NYSE: TOT) announced the sale of $400 million of assets in Liberia, Sierra Leone and Brunei.
– Continental Resources (NYSE: CLR) says it will cut production in April and May by 30 percent and suspend its dividend until further notice.
– Natural gas prices jumped by 8 percent on a cooler weather outlook for much of the U.S.
Tuesday, April 7, 2020
OPEC+ is mulling a three-month production cut agreement, according to TASS. Oil prices have climbed substantially since last week on hopes of an agreement. There is still a great deal of uncertainty, but OPEC+ has signaled a willingness to cut if the U.S. does too.
OPEC+ likely to cut if U.S. goes along. OPEC+ “are likely” to cut production as long as the U.S. participates, according to Reuters. Oil ministers from the G20 will also meet virtually on Friday, adding more momentum to global negotiations. However, given the massive gap in oil demand, even a substantial cut on the order of 10 mb/d may not rescue oil prices.
ExxonMobil cuts spending by 30 percent. ExxonMobil (NYSE: XOM) announced a cut in spending by 30 percent, lowering capex to $23 billion for 2020, down from $33 billion. The largest reduction will come from the Permian, where the oil major says the short-cycle nature of shale drilling will allow it to ramp back up when conditions improve.
Analysts warn about lower prices ahead. The recent rebound in prices, with Brent moving into the mid-$30s, could be premature. “In our view, however, judged by the bout of optimism reflected in prices of oil futures in recent days, the market is still not realizing the severity of the oversupply problem coming in April-May,” Rystad Energy said in a statement. “With 28 million bpd oversupply in the oil market in April and 21 million bpd in May, the global coordinated production cuts that are really needed may be too large for the producers to accept, perhaps twice as large as the numbers that are currently being discussed.”
Citi: Short-term supply cuts of 10 mb/d. Citi estimates that supply curtailments because of logistical bottlenecks and low prices could force 10 mb/d offline temporarily in April. Goldman Sachs put the figure at 5 mb/d. Goldman warned that eventually the market will snap back because of the shut ins. “This will likely be a game-changer for the industry,” the Goldman analysts said. “Once you damage the capital stock in oil it is an expensive and time-consuming process to rebuild, assuming it can be rebuilt at all.”
Halliburton cuts more jobs. Halliburton (NYSE: HAL) will cut 350 employees in Oklahoma, a month after furloughing 3,500 workers in Houston for 60 days.
8 in 10 U.S. counties on lockdown. According to Moody’s, roughly 8 in 10 U.S. counties are on some form of a lockdown. They account for 96 percent of U.S. GDP.
Methane emissions spike. The increase in methane emissions in 2019 was “one of the biggest we’ve seen over the past twenty years,” said Rob Jackson, a professor at Stanford. The increase in natural gas production and consumption is a suspected culprit.
Flaring down in the Permian? Flaring in the Permian declined in the first quarter, according to Rystad Energy. However, Earthworks, which tracks venting and flaring in the Permian using optical imaging cameras, says that Rystad’s data does not include unlit flares, which the group says has been increasing in the Permian since 2017. “Rystad’s ‘silver lining’ of decreased Permian flaring might be illusory,” Sharon Wilson, an organizer at Earthworks, told Bloomberg.
Work starts on Keystone XL. TC Energy (NYSE: TRP) said it started work on the Keystone XL pipeline at the border crossing in northern Montana.
215 bankruptcies since 2015. An estimated 215 oil and gas companies filed for bankruptcy in North America since 2015, according to a new study from Haynes and Boone.
West Texas falls in love with solar. The FT reports on the solar boom in West Texas. Even oil and gas companies are turning to solar. “We put the solar in to lower our carbon footprint but also to provide lower-cost electrical power,” says Vicki Hollub, Occidental’s (NYSE: OXY) CEO.
Venezuela under intense pressure. The crises of the coronavirus, the collapse of oil prices and heightened pressure from Washington are presenting new threats to the Venezuelan government.
Oil majors raise $32 billion in debt. The oil majors – Royal Dutch Shell (NYSE: RDS.A), ExxonMobil (NYSE: XOM), BP (NYSE: BP) and Equinor (NYSE: EQNR) – have raised $32 billion in new debt in recent weeks. The majors have opted to take on more debt instead of cutting their dividends.
Trump considers tariffs on imported oil. U.S. shale drillers are aggressively lobbying President Trump to impose tariffs on imported oil, a policy that the majors including ExxonMobil (NYSE: XOM) oppose. Trump has signaled that he would resort to tariffs if OPEC+ doesn’t cut production.
By Tom Kool for Oilprice.com