A Rare Week of Optimism For Oil Markets - OIR 010520

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Saturday, May 02, 2020   /08:00 AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice

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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 shale patch.

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.

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Friday, May 1st, 2020

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. 

Shell 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. 

ConocoPhillips 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."

Shale 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.

ExxonMobil 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 to 5. 

Oasis Petroleum to halt Bakken drilling. Oasis Petroleum (NASDAQ: OAS) is in the process of winding down all Bakken drilling, according to Reuters

Texas RRC 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.

Oil 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 Total (NYSE: TOT) also operate in Kazakhstan. Shell also has a significant presence in Nigeria. 

Permian 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.

Latin 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. 

Global 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 history.

Norway to cut production 13 percent. Norway agreed to cut production by 250,000 bpd in June, a cut of 13 percent. 

China's 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.

Chesapeake Energy prepares for bankruptcy. Chesapeake Energy (NYSE: CHK) is preparing for a Chapter 11 bankruptcy filing, according to Reuters

Russian 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."

Oil 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.

Concho 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. 

Wells 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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