By Josh Owens
Oil is in the midst of a tug-of-war, with accelerating COVID-19 transmissions and a recovery in demand pulling prices in all directions.
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Chart of the Week
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– U.S. commercial oil inventories reached an all-time high of 541 million barrels for the week ending on June 19, breaking a record last set in March 2017. These numbers exclude the SPR.
– As of June 19, inventories were at 62 percent of their total available storage capacity, according to the EIA.
– Inventories have increased by 64 million barrels since March 13.
– Chesapeake Energy (NYSE: CHK) filed for bankruptcy protection (more below) and sought a bankruptcy court to toss out $311 million in pipeline contracts, setting up a court battle with Energy Transfer (NYSE: ET).
– More fallout from Chesapeake’s bankruptcy: Hi-Crush (NYSE: HCR), a frack-sand miner, was already “teetering on the edge of bankruptcy,” according to BloombergLaw, but “is in an even more precarious position after customer Chesapeake Energy Corp. went under.”
– Lilis Energy (NYSEMKT: LLEX), a Fort Worth-based driller, filed for Chapter 11 bankruptcy protection.
Tuesday, June 30, 2020
Oil continues to trade around $40 per barrel. There are offsetting forces at play – continued economic rebound creates upward pressure but fears of accelerating Covid-19 transmission magnifies downside risk. In the oil market, the possibility of new Libyan oil is offset by tighter compliance from OPEC+.
Shell takes $22 billion write down. Royal Dutch Shell (NYSE: RDS.A) said it would write down $22 billion, as it revised down its assumed oil price in the years to come. The writedown included an $8-$9 billion impairment in its integrated gas unit, $4-$6 billion in upstream, and $3-$7 billion in its refining portfolio. The move will increase deb gearing by 3 percent.
Chesapeake Energy files for bankruptcy. Chesapeake Energy (NYSE: CHK) is arguably the highest-profile shale driller to succumb to bankruptcy to date. The company will continue to operate six to eight rigs for the next two years, about half of the number of rigs from the first quarter. The bankruptcy will wipe out $7 billion in debt. Chesapeake reported a first-quarter loss of $8.3 billion earlier this year.
IEA to host July 9 international clean energy summit for governments. China, India, the European Union and the United States will join other countries in a “green recovery” summit hosted by the IEA. The agency is pushing the world to undertake green stimulus. “Even if governments do not take climate change as a key priority, they should still implement our sustainable recovery plan just to create jobs and to give economic growth. Renovating buildings, for instance, is a job machine,” the IEA’s Fatih Birol said.
Reuters poll: Brent to average $40 this year. A Reuters survey of 45 analysts finds an average Brent price of $40 per barrel for 2020, with price gains towards the end of 2020 and into 2021.
ExxonMobil makes job cuts. ExxonMobil (NYSE: XOM) is preparing to let go between 5% and 10% of its US-based employees subject to performance reviewed, anonymous sources told BNN Bloomberg.
Frack crews rise. The number of active U.S. frack crews, which bottomed out at 45 last month, has since jumped to 78 last week, according to industry consultant Primary Vision Inc. and Bloomberg.
Libyan oil could resume. Negotiations between the U.S. and regional governments in the Middle East could pave the way for oil exports.
BP to sell petrochemical business to Ineos for $5 billion. BP (NYSE: BP) agreed to sell off its entire petrochemical unit to Ineos for $5 billion. The oil market downturn has accelerated BP’s plans to transition into a low-carbon energy company. The oil company’s shares jumped on the news.
Exxon reports spill at Beaumont refinery. ExxonMobil (NYSE: XOM) reported that a storage tank’s floating roof at its Beaumont, Texas refinery broke and spilled thousands of pounds of chemicals.
Iraq cuts June oil exports. Iraq’s oil exports declined by 9 percent – or 310,000 bpd – in June, according to Reuters. “This is the lowest level of Basra exports in five years,” Daniel Gerber, CEO of Petro-Logistics, told Reuters. “But Iraq still needs to cut by a further 300,000 bpd to achieve full compliance” with the OPEC+ agreement.
Satellites reveal new methane leaks. New satellite data from Kayrros found that methane leaking from the Yamal pipeline that carries natural gas from Siberia to Europe was leaking 93 tonnes of methane every hour, or the equivalent annual CO2 of 15,000 cars. That was one data point in a series of new findings that suggest that methane leak data over the past decade understates the true scale of the problem.
Trump admin cuts royalty rates. The Trump administration cut royalty rates for drilling on public lands from 12.5 percent of sales to 0.5 percent, according to the FT. The cuts negatively impact state budgets.
Second wave of Covid in China could derail oil recovery. China’s oil demand has rebounded rapidly to about 90 percent of pre-Covid levels. If measures to contain a recent outbreak in Beijing fail, by mid-July the city could move into a stricter lockdown phase. Related: China’s Oil Imports From Saudi Arabia Jump To Record High
Natural gas shut-ins possible. Natural gas prices plunged below $1.50/MMBtu last week, even as prices rebounded sharply on Monday. LNG cancellations could back up supply within the U.S., exacerbating a glut. Goldman Sachs says that shut-ins are now incorporated into the bank’s “base case,” rather than a remote risk.
New oil benchmarks to challenge WTI. S&P Global Platts launched the Platts American GulfCoast Select (AGS) crude benchmark, which would better reflect waterborne light sweet crude from the Permian than WTI, which is landlocked. Also, Argus launched the Argus AGS, with a similar profile.
House Democrats launch cleantech bill. House Democrats will unveil legislation on Tuesday that calls for 100 percent clean cars by 2035.
Saudi Aramco promises to protect $75 billion in dividends. Saudi Aramco will have totake on debt to finance its dividend, which, at nearly $75 billion, is more than all of the dividend payouts from the oil majors combined.
Renewables cheaper almost everywhere. A new report finds that renewables are cheaper than coal “virtually everywhere.” Renewables plus batteries are even cheaper than one-third of existing coal plants.
By Josh Owens for Oilprice.com