Saturday, May 02, 2020 /08:00
AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice
Oil markets are on course to see their first weekly gain in over a month
as the OPEC+ production cut comes into effect and a wave of shut-ins hit the
For further research, analysis and trade recommendations, make sure you read
this morning's Global Energy Alert newsletter. From how to trade June WTI
contracts to where U.S. oil storage is headed and which oil nations may soon
face a crisis, it truly is a must-read.
Oil is set to post its first weekly gain in more than a month as production
cuts and some relatively positive news regarding the coronavirus boosted
sentiment. The OPEC+ deal begins today, while shut in wells have begun to pile
up in meaningful volumes.
Fed opens spigot for shale. The U.S. Federal Reserve revised its Main
Street Lending Program to allow larger and more indebted companies to qualify
for lending. The announcement received criticism from multiple corners. "The
major changes announced today mirror the top requests of the oil and gas
industry," a congressional watchdog said. "That raises questions about how the
changes promote the broader public interest -- especially when these companies
will still have no real obligation to retain or rehire their workers." Even the
powerful American Petroleum Institute spoke out. "You can't have capitalism on
the way up and socialism on the way down," an API executive said.
cuts dividend, eyes peak demand. Royal Dutch Shell (NYSE: RDS.A)
cut its dividend for
the first time since 1945. Meanwhile, Shell's CEO said that peak oil demand may
come sooner, and Shell may transition to low-carbon energy faster. "We still
believe that there is an energy transition underway which may even pick up
speed in the recovery phase of this crisis and we want to be well positioned
for it," CEO Ben van Beurden said.
to cut 420,000 bpd in June. ConocoPhillips (NYSE: COP) said it would
curtail output by another 420,000 bpd in June, taking cuts to a total of
460,000 bpd. But the company also said that it was on the lookout for
acquisitions. The cuts include
100,000 bpd in Alaska because of "unacceptably low oil prices."
production cuts rising. With U.S. storage about to hit tank
tops in a matter of weeks and the world deep in the throes of the biggest
pandemic in modern history, the inevitable has begun to unfold: The arduous and
costly process of well shut-ins.
swings to loss. ExxonMobil (NYSE: XOM) reported a first
quarter loss of $610 million, compared to a profit of $2.4 billion a year
earlier. It was the first quarterly loss in 32 years. The loss was made worse
by $3 billion in write downs. Chevron (NYSE: CVX) said it would shut
down 400,000 bpd and scrap 60 percent of its drilling rigs. In the Permian,
Chevron cut rigs from 17
Petroleum to halt Bakken drilling. Oasis Petroleum (NASDAQ: OAS)
is in the process of winding down all Bakken drilling, according to Reuters.
proposes 20 percent cut. The
Texas Railroad Commission released details on a proposed
20 percent cut in oil production from October 2019 levels. They will vote on
the plan on May 5. One of the three commissioners already said that he would
vote against the proposal.
majors to cut output in OPEC+ countries. A number of large oil
companies operate in countries party to the OPEC+ agreement. That means that
the majors will be forced to cut. For instance, BP (NYSE: BP) may be forced to
cut output in both Azerbaijan, Kazakhstan, Angola and Russia. ExxonMobil
(NYSE: XOM), Chevron (NYSE: CVX), Eni (NYSE: E) and
(NYSE: TOT) also operate in Kazakhstan. Shell also has a
significant presence in Nigeria.
methane venting spikes. A new study of 300 drilling sites in
the Permian basin found that 1 in 10
flares were unlit or malfunctioning, resulting in unburned methane released
into the atmosphere. Unlit or faulty flares are responsible for roughly 10
percent of the Permian's methane emissions, according to the study.
American refineries suffer cuts. Latin America has a nameplate
refining capacity of 7.5 mb/d, but they are operating significantly below that
level. Many facilities are aging and were operating below capacity before the
downturn, but plunging demand has substantially curtailed output.
CO2 emissions to fall by 5.5 percent. In absolute terms, the
fall in CO2 emissions in 2020 by 5.5 percent represents the largest decline in human
to cut production 13 percent. Norway agreed to cut
production by 250,000 bpd in June, a cut of 13 percent.
state-owned majors will cut $19 billion. Cnooc, PetroChina and
Sinopec will lop off $19 billion from spending
plans. China's aging fields have higher breakeven prices.
Energy prepares for bankruptcy. Chesapeake Energy (NYSE: CHK) is
preparing for a Chapter 11 bankruptcy filing, according to Reuters.
oil cuts face technical hurdles. Aging Russian oil fields
require labor-intensive techniques to maintain, and some of the 200,000 wells
are not easily turned off, according to the Wall Street Journal. "Production
cuts of such magnitude have never been done in Russia so we are venturing into
the unknown," Vladimir Milov, a former deputy energy minister, told the WSJ. "There are
just too many technical challenges to achieve these cuts."
and gas industry to lose $1 trillion. Oil and gas companies are
set to lose $1 trillion in
revenues this year, according to Rystad Energy.
Resources loses over $9 billion in first quarter. Concho Resources (NYSE: CXO)
reported a $9.28 billion first-quarter loss, or a loss of
$47.49 per share.
Fargo revives 'bad loans' unit. Wells Fargo has brought back a
special department to handle bad energy loans. Some of the bankers involved
previously worked on the same oil and gas loans issued by the bank, Reuters reports.
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