Saturday, April 25, 2020 /08:00
AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice
While oil prices have rebounded from the record lows they hit last week,
the rebound is likely to only be temporary as more bearish news piles up.
April 24th, 2020
Oil prices stabilized by Friday after arguably the wildest week in the history
of the oil market. But the slide is still far from over.
Resources halts production, declares force majeure. Continental
Resources (NYSE: CLR) has stopped most of its
production in North Dakota. Harold Hamm's firm is mostly unhedged, exposed to
extremely low market prices. Continental told at least one refiner that it
couldn't deliver a shipment of oil because negative prices constituted "waste." Refiners are not pleased. "It is the height of hypocrisy for a company to
choose not to honor its contracts to supply domestic crude to refineries while
also demanding the administration impose restrictions on foreign crude," the
American Fuel and Petrochemical Manufacturers, a trade group representing
refiners, told Bloomberg.
considering lending program for oil companies. Treasury
Secretary Steven Mnuchin said he's
considering creating a government lending program for U.S. oil companies. "Investment-grade companies will be able to either access the normal capital
markets or will be able to access the Fed's investment-grade facility," he
said. "That's the priority." Non-investment grade companies may seek "alternative structures with banks," he said.
to shut down wells. After making a big deal out of not
agreeing to the OPEC+ cuts, Mexico said it would shut down new wells because of
low prices. "Now that oil has no value, we can shut down the valves," Mexico's
president said. State-owned
Pemex was downgraded to junk by both Moody's and Fitch on Friday.
all booked. Storage at the key oil hub of Cushing, Oklahoma
technically has available storage, but it is just about all under contract for
leasing, according to Reuters. That means
that there is essentially nothing left for anybody else.
Oil dividends at risk. Equinor (NYSE: EQNR) cut
its dividend by two-thirds this week. Other oil majors will be scrutinized by
investors when they begin reporting earnings next week. "The look back into
what was a weak first quarter seems almost irrelevant. The game plan for
dealing with the next three months and the next 18 months is going to be the
focus," said Jefferies analyst Jason Gammel, according to Reuters.
plans higher oil price. Argentina plans on decreeing a
$45-per-barrel price for its
domestic producers in order to keep the industry alive.
have oil industry in cross hairs. Hackers have launched
spear-phishing campaigns against oil and gas firms to infiltrate with a spyware
for the purpose of collecting sensitive company information and credentials,
Bitdefender researchers have found.
ETFs slammed. Roughly $6.2 billion has flowed into the U.S. Oil Fund
(NYSEARCA: USO) so far this year. Retail investors, clearly
confused about the nature of oil ETFs, have flooded into the funds, betting on
rising oil prices. But when the market is in a steep contango, ETFs end up
selling low and buying high. A leveraged 3x oil fund also shut its doors.
production and spending. Eni (NYSE: E) cut spending by 30 percent and lowered planned 2021
spending by 30-35 percent. The company lowered production guidance to 1.75-1.8
mb/d for 2020, down from 1.9 mb/d previously. When asked about the
company's dividend, Eni's CEO was non-committal.
oil a risk for banks. Negative oil prices have broken the
models that banks use for their trading books. "It's a huge issue for banks if
they cannot produce risk metrics correctly," Richard Fullarton, founder of
Matilda Capital Management, told Bloomberg. Meanwhile,
Marex Spectron, a large commodities broker, said it would
restrict its customers from taking positions in expiring futures contracts,
allowing only for "liquidation of existing positions."
oil economies at risk. Wyoming, Alaska, Oklahoma, North
Dakota and West Virginia all depend more on mining and energy extraction than
Texas, according to the Wall Street Journal. For example, energy and mining accounts for 16.4 percent of Wyoming's
Hughes cuts jobs and spending. Baker Hughes
(NYSE: BKR) cut jobs and
spending by 20 percent. The firm expects oil field activity to fall by half
this year. The company reported a first-quarter net loss of $10.2 billion, made
worse by a $14.7 billion impairment.
cancellations to soar in June. A large number of LNG
cargoes are expected to be canceled between June
to cut EV subsidies 10 percent. China said it would cut subsidies for
EVs by 10 percent this year.
of 60 independent oil companies need liquidity. Half of the
largest 60 independent U.S. oil producers will need cash in order to stave off
bankruptcy, according to energy lawyers at Haynes and Boone. "The
reverberations from this price collapse will be felt throughout the industry
and by everyone who provides services to the industry," Buddy Clark of Haynes
and Boone told Reuters.
delays after court ruling. The U.S. Army Corps of Engineers
has suspended a nationwide program used to approve oil and gas pipelines after
a court last week threw out a blanket permit, according to the AP. The decision
put roughly 360 pending projects on hold.
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