Bullish Sentiment Is Creeping Back Into Oil Markets - OIR 120520

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Tuesday, May 12, 2020   /06:52 PM / by Tom Kool of Oilprice.com / Header Image Credit:  Oilprice

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Today, we will take a quick look at some of the critical figures and data in the energy markets this week. 

We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days.

We hope you enjoy.

Chart of the Week

  • Production from U.S. coal-fired power plants fell to 966,000 GWh in 2019, the lowest level since 1976. The 16 percent decline was also the largest in percentage terms in history.

  • The EIA attributes the decline largely to increased output from natural gas and wind turbines.

  • Coal-fired capacity fell to 229 GW in 2019, down from a peak of 318 GW in 2011.

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Market Movers

  • Energy Transfer (NYSE: ET) posted an $855 million loss for the first quarter, including a $1.3 billion impairment. The pipeline company said it would cut capex by another $400 million.

  • California Resources (NYSE: CRC) said in an SEC filing that absent a debt restructuring, there is "substantial doubt about the Company's ability to continue as a going concern."

  • Weatherford International (OTCMKTS: WFTLF) reported a net loss of $966 million in the first quarter. The company emerged from bankruptcy in late 2019.

Tuesday May 12, 2020

Oil prices rose strongly on Tuesday, following promised cuts from Saudi Arabia, the UAE, and Kuwait. Ongoing supply curtailments around the world are boosting sentiment, raising hopes that the storage crisis could potentially be averted. 

Saudi Arabia to cut an additional 1 mb/d. Saudi Arabia said it would cut by another 1 mb/d on Monday, lowering production to about 7.5 mb/d in June. The cuts are made "in an effort to support the stability of global oil markets," the Kingdoms said. But the additional Saudi cuts could simply create more room for U.S. shale to rebound. "A depressing thought for OPEC+ must be that side-lined production in the magnitude of 3.5-4.5m bl/day in the US and Canada will be the first to reap the rewards of the production cuts by OPEC+," SEB said in a statement. 

Oklahoma punts on oil production cuts. Just a week after Texas killed the idea of mandatory production cuts, regulators in Oklahoma decided against taking similar action on Monday.

Chesapeake Energy posts $8.3 billion loss. Chesapeake Energy (NYSE: CHK) posted an $8.3 billion loss in the first quarter, including an $8.5 billion write-down on its assets in Texas, Wyoming, and Louisiana. The company is on the brink of bankruptcy.

Canadian oil faces an existential crisis. Canada has already shut in 644,000 bpd of production and debt is mounting, even for some of the country's larger producers. "The balance sheets of some very good companies are not as strong as they should be," Tim McMillan, president of the Canadian Association of Petroleum Producers, told Reuters.

Petroleum engineer graduates losing industry offers. With hiring down, some job and internship offers are being rescinded, putting newly graduated petroleum engineers in a bind. The human capital losses to the oil and gas industry could be significant, and fewer and fewer young people will move into the business. 

Continental cuts output by 70 percent. Continental Resources (NYSE: CLR) says it shut down 70 percent of its production. Another producer, Callon Petroleum (NYSE: CPE), also announced on Monday it had further reduced activity, including the suspension of all completion activity in April and moving to one active drilling rig by mid-May.

BP sees possible peak demand. BP (NYSE: BP) boss Bernard Looney said that the global pandemic was only "adding to the challenges of oil in the years ahead," potentially leading to peak demand. "It's not going to make oil more in demand. It's gotten more likely [oil will] be less in demand," Looney said in an FT interview. "Could it be peak oil? Possibly. Possibly. I would not write that off," he added. 

Refiners produce diesel glut. Facing a tidal wave of gasoline, refiners switched over to producing relatively more diesel, where margins were better. Now, there is a glut of diesel too

Montana judge upholds decision canceling Keystone XL permit. A federal judge in Montana upheld a recent ruling that canceled an environmental permit for the Keystone XL pipeline. More importantly, the decision also canceled the Nationwide Permit 12 program, a fast-track permitting process for thousands of energy projects across the United States. 

Aramco profits plunge; still most profitable company. Saudi Aramco's (TADAWUL: 2222) said its first-quarter profits declined 25 percent to $16.7 billion, and the company said it would also cut spending to between $25 and $30 billion, down from $32.8 billion previously. Aramco retained the claim of the world's most profitable company. However, the second quarter will be much worse, as Aramco's average sale price for its oil was $50 per barrel in the first quarter. Meanwhile, the Saudi government imposed a series of austerity measures, including a tripling of the VAT and cuts to benefits for government workers. 

IHS Markit: Oil demand will bounce back. IHS Markit says the road to recovery for oil demand will be rocky, but could bounce back by the end of 2021, potentially leading to a supply shortage. 

Second wave risks depression. Mark Zandi of Moody's Analytics warned against reopening economies too fast. "If we get a second wave, it will be a depression," Zandi told CNBC's "Trading Nation" on Friday. "We may not shut down again, but certainly it will scare people and spook people and weigh on the economy."

Gasoline demand rebounding. With fears over the coronavirus hitting public transit, car use could see a comeback, and with it, gasoline demand. People are using more their cars because they are afraid to use public transportation," Patrick Pouyanne, the chief executive of French oil giant Total (NYSE: TOT), said. UK road traffic is back up, the FT reports

V-shaped recovery not likely. "A couple months ago I was optimistic, I was hopeful, that maybe we would have a 'V'-shaped recovery - shut things down, clamp down on the virus, and then have a quick recovery," Minneapolis Federal Reserve Bank President Neel Kashkari said in an interview on the PBS Newshour. But with a vaccine potentially a year or two away, "we are in for unfortunately a slow, long recovery" from "devastating" job losses, Kashkari said.

JPMorgan income down 70 percent on bad energy loans. "Net income was down 69 percent, predominantly driven by an increase in the provision for credit losses across the Firm reflecting deterioration in the macroeconomic environment as a result of the impact of the COVID-19 pandemic and continued pressure on oil prices," JPMorgan Chase said last week.

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Related News - Previous Oilprice Intelligence Report

  1. Oil Holds Gains Despite Massive Unemployment - OIR 080520
  2. The Worst May Be Over For Oil - OIR 050520
  3. A Rare Week of Optimism For Oil Markets - OIR 010520
  4. Earnings Season Will Be A Bloodbath For Oil Producers - OIR 280420
  5. A Very Brief Oil Price Rebound - OIR 240420
  6. Oil Price Mayhem - Is The Market Broken? - OIR 210420
  7. Oil Prices Fall Towards $15 for WTI and $25 for Brent As Storage Nears Capacity - OIR 170420
  8. Oil Prices Crash Towards $30 Despite Historic Cuts - OIR 100420
  9. Have Oil Bulls Got It Wrong? - OIR 070420
  10. Global Oil Production Is Set To Collapse - OIR 310320
  11. Oil Tumbles Towards $20 As Glut Grows - OIR 270320
  12. The Oil Price Rebound Won't Last - OIR 240320

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