Tuesday, March 24, 2020 /07:18
PM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice
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
- China's annual oil imports increased to 10.1 mb/d in
2019, while the U.S.' import total averaged around 7 mb/d.
- Roughly 55 percent of China's oil imports comes from OPEC
countries, which is the smallest share since 2005.
- Russia is the largest source of supply for China, averaging
1.6 mb/d, or 15 percent of China's imports.
- Phillips 66 (NYSE: PXD) and ExxonMobil
(NYSE: XOM) cut refinery runs at a few
large U.S. refineries because of weak demand.
- Total (NYSE: TOT) and Royal Dutch
Shell (NYSE: RDS.A) each cut spending by around 20
percent and suspended share buybacks.
- EOG (NYSE: EOG) scrapped its plan for a
debt offering due to volatile market conditions.
Tuesday, March 24, 2020
Stocks jumped at the start of Tuesday trading due to progress in Washington on
a stimulus package, and also on some glimmers of hope in Italy on the rate of
deaths and new coronavirus cases. Oil showed some signs of life, but analysts
still think that the next major move for prices is down.
has more room to fall as storage fills up. Multiple reports
from analysts and investment banks see further room to fall for oil because of
fears over a lack of adequate storage. "Any traders with the capacity to store
oil are probably putting their hands up, looking at the contango," Stephen
Innes, chief Asia market strategist at Axicorp Ltd., told Bloomberg. "Oil could head
to $10 to $15 a barrel very quickly" if OPEC and Texas can't reach an agreement
on cutting production.
speaks with Texas RRC. OPEC Secretary-General Mohammed
Barkindo spoke with Texas Railroad
Commissioner Ryan Sitton, raising speculation about mandatory cuts in Texas. "Just got off the phone with OPEC SG Moh[ammed] Barkindo. Great conversation on
global supply and demand," Sitton said on Twitter. "We all agree an
international deal must get done to ensure economic stability as we recover
from COVID-19." The Texan official said the OPEC chief had invited him to the
next meeting of the organization in June. Most analysts see such a Texas-OPEC
deal as highly unlikely.
sends envoy to OPEC. The Trump administration will appoint Victoria Coates as
a special envoy to Saudi Arabia on energy issues, in an effort to negotiate an
end to the price war.
weaker rouble helps sustain price war. Russia's currency
has lost 20 percent of its value in the past three weeks, a trend that cushions the blow for
Russian oil producers as it deflates costs. Saudi Arabia has to defend a fixed
airlines prepare for total shutdown. According to the Wall Street Journal,
major U.S. airlines are "drafting plans for a potential voluntary shutdown of
virtually all passenger flights across the U.S." No decisions have been
majors cut spending. Royal Dutch Shell (NYSE: RDS.A), Total (NYSE:
TOT) and Chevron (NYSE: CVX) all said they
would cut capex by roughly 20 percent each, while also suspending share
buybacks. Chevron said it would cut spending
in the Permian in half, which would translate into 125,000 bpd less by the end
of this year than previously expected. With analysts predicting $10 oil, more
cuts are expected.
percent of global oil supply uneconomic. Roughly 10 percent
of global oil supply would become uneconomic if oil prices remain below $25 per
barrel, according to Wood Mackenzie. "If prices don't rebound, the taps will
inevitably be turned off or strategically choked back in some areas," WoodMac
analysts said. "The industry's
ability to keep higher-cost barrels flowing will be severely tested."
cuts could reach 70 percent. E&Ps could cut capex by 68
percent this year, relative to 2019, according to Rystad Energy.
could delay Mozambique LNG. ExxonMobil (NYSE: XOM) may
delay the FID for its
massive $30 billion LNG project in Mozambique. The project, which includes an
LNG export terminal and offshore gas drilling, was thought to receive a
greenlight in the first half of 2020. Mozambique is one of a few key projects
in Exxon's portfolio.
cuts WTI forecast to $25. S&P cut its oil price forecast
for 2020 by $10 per barrel since its last estimate. The firm now sees WTI
averaging $25 this year, with $30 for Brent.
cut processing. Refineries around the world are reducing processing rates
because of narrowing margins as demand collapses. Jet fuel margins turned negative recently.
countries ask IMF for help. Around a dozen oil-producing
countries in the Middle East and Central Asia have turned to the IMF for
financial assistance amid the collapse in crude prices. The Fund said that it
was ready to mobilize its $1 trillion lending capacity to help countries in
gas to balance before oil. The cut in natural gas
production could be faster than for oil, helping to balance the market sooner.
Shale gas drillers in Appalachia are reducing drilling, but the contraction in
the Permian for oil drilling will also cut associated gas output. "As we move
into 2021, this path of declining oil and gas production, if sustained, will
likely result in an exceptionally tight summer 2021, which suggests current
forward prices are not sustainable," Goldman Sachs wrote in a report. The bank
said that natural gas prices could "rally sharply" next winter.
SPR can't save oil market. China has repeatedly taken
advantage of past market downturns to buy cheap oil for its strategic reserve,
but this time around the rate of SPR stockpiling is expected to be half as
large as previously.
braces for cuts. Western Canada may need to lower production by around
440,000 bpd beginning in April as storage fills up, according to Rystad
banks could face credit issues from oil bankruptcies. Regional
banks in Texas, Louisiana and Oklahoma have seen their share prices fall and
may face credit issues later this
year as a result of the downturn.
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