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Oil Holds Gains Despite Massive Unemployment - OIR 080520

Oil & Gas	1672 VIEWS
Oil & Gas
1672 VIEWS

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Saturday, May 09, 2020 /08:00 AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice

Oil markets are on course to see their second consecutive weekly gain as the OPEC+ production cut comes into effect and a wave of shut-ins hit the shale patch.

For further research, analysis and trade recommendations, make sure you read this morning's Global Energy Alert newsletter. From Saudi Arabia's latest attack on the U.S. shale patch to what OPEC is going to do next, it truly is a must-read.

Friday, May 8th, 2020

The U.S. Labor Department reported a loss of more than 20 million jobs in the month of April. The unemployment rate surged to 14.7 percent, the highest since the Great Depression. Still, stocks rose. Investors saw positive news after the U.S. and China backed away from trade tensions.

Oil rally may be going too far. Oil prices have doubled in a little more than a week on mounting supply shut-ins and hopes of a demand rebound. But analysts are warning that the newfound optimism is premature. "Even following a gradual resumption of economic activity, demand may remain below the 2019 level for years to come," Commerzbank analysts said.

IHS Markit: Oil production to fall 17 mb/d in Q2. IHS Markit estimates that global oil production will fall by 17 mb/d in the second quarter, the largest decline in history.

North America cuts 1.7 mb/d. U.S. and Canadian oil production is on track to decline by 1.7 mb/d by the end of June, according to Reuters. "When prices went negative it really accelerated some of the cuts," Allyson Cutright, director at Rapidan Energy Group, told Reuters.

Vitol says peak demand may arrive sooner. Russell Hardy, the head of oil trading firm Vitol, suggested in an interview with Reuters that the pandemic could accelerate the date of peak demand, due to permanent scars in jet fuel demand and pushes for cleaner air. But he also suggested that today's downturn will tighten the market in the years ahead due to supply erosion.

Occidental wants to cut debt. Occidental Petroleum (NYSE: OXY) has hired investment bank Moelis & Co. to help it trim its $40 billion debt pile. Oxy reported a $2.2 billion loss on Tuesday.

Plastic boom ends. The oil industry has funneled billions of dollars into plastics in recent years, but a lot of projects are now running into trouble.

Shale drillers hint at fracking restart at $30. Diamondback Energy (NYSE: FANG) and Parsley Energy (NYSE: PE) suggested that if WTI moves up to $30 per barrel, they may resume drilling and completion activities

Suncor cuts dividend by 55 percent. Suncor Energy (NYSE: SU) slashed capex and also cut its dividend by 55 percent.

Offshore still has some interest. The oil majors are cutting spending and shutting in production around the world, but are still committed to investing in large offshore projects in South America.

Can idled wells easily be restarted? On earnings calls, multiple oil executives expressed uncertainty about how quickly and pain-free shuttered oil wells can be restarted. "When you shut in wells, especially for a long period of time, you have a lot of surprises," Clay Bretches, an executive vice president at Apache Corp., told analysts on an earnings call. "Some of them are good and some of them are bad."

Middle East oil producers look to renewables. "Solar power is the cheapest kilowatt-hour in the Middle East," Benjamin Attia, an analyst at Wood Mackenzie, told Bloomberg. Solar can meet most of the electricity demand growth going forward in much of the Middle East. Globally, renewable deals are still moving forward despite the crisis in energy markets. The IEA said that renewables will be the only source of energy to grow this year. "I'm feeling strangely positive because I'm in renewables. If I was in chemicals or aviation or shipping, then I wouldn't be," Mortimer Menzel, a partner at Augusta and Co, a clean energy advisory firm, told the FT.

Devon Energy loses $2.8 billion. Devon Energy (NYSE: DVN) lost $2.8 billion in the first quarter and the driller said its second quarter production would fall by 10,000 bpd.

Nigerian oil revenues vanish. Nigeria's oil revenues have mostly disappeared, with prices fetched for Nigerian crude falling to $10 per barrel or less. Oil accounts for half of the country's revenue, and the government is now collecting very little from oil sales. Nigeria has taken out $3.4 billion in loans from the IMF.

Frac sand miners hit hard. Frac sand mines are closing down, laying off workers and cutting output. "The obvious answer," Blake Gendron, an oilfield analyst with Wolfe Research, told Reuters, "is rapid consolidation."

Halliburton lays off 1,000 workers. Halliburton (NYSE: HAL) laid off another 1,000 workers this week, which comes weeks after the company furloughed 3,500 workers.

Saudi Arabia raises price, but keeps discount. Saudi Arabia raised the price of its Arab Light cargoes to Asia to $5.90 below the benchmark price, a sign that Riyadh is still fighting for market share. But for cargoes to the U.S., the price traded at a premium, as Saudi Arabia wants to avoid confrontation with Washington.