Can OPEC Stop Oil Prices From Crashing Further?


Tuesday, February 04,  2020   /06:55 PM  / By Tom Kool of / Header Image Credit:   Oilprice


In today's newsletter, 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

  • U.S. oil and gas production rose dramatically in 2018, and the industry did that while also drilling 10 percent fewer wells, according to the EIA.

  • The total number of wells in production declined to 982,000 in 2018, down from a peak of 1,035,000 wells drilled in 2014. 

  • U.S. production grew from 8.8 mb/d to 10.8 mb/d over that timeframe.  

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Market Movers

  • Tellurian (NASDAQ: TELL) is set to sign a deal with Petronet LNG of India during a state visit from President Trump. The $2.5 billion deal would cover LNG imports from Tellurian's Driftwood LNG project in Louisiana.

  • Petrobras (NYSE: PBR) and Chevron (NYSE: CVX) are looking to sell the Papa Terra deepwater oil field in Brazil's Campos Basin.

  • ExxonMobil's (NYSE: XOM) oil production contract in Guyana is so heavily weighted in the company's favor that it will deprive the country of $55 billion over the life of the agreement, according to Global Witness. 

Tuesday February 4, 2020

WTI fell below $50 per barrel during intraday trading on Monday, as fears of a major shock to global demand continue to grow. Bloomberg reported that China's oil consumption is down by 3 mb/d, or 20 percent, at least as of now. Millions of people are quarantined and thousands of flights have been cancelled. Oil prices rebounded on Tuesday as OPEC+ began considering more aggressive action to head off a disastrous surplus. 

OPEC+ considers 500,000 bpd cut. OPEC's Joint Technical Committee (JTC) is meeting on Tuesday and Wednesday to assess the status of the oil market. The JTC could recommend deeper production cuts, and the full OPEC+ could hold a ministerial meeting as soon as the end of next week. The main option under consideration is additional cuts of 500,000 bpd, although by Tuesday, news reports suggested they might consider even larger reductions. 

China's refiners slash output. In a sign that the coronavirus is having a serious impact on the fundamentals of oil supply and demand, China's independent refiners cut processing by 30 to 50 percent in just over a week due to the sharp fall in consumption. "The situation is grim - we have gasoline and diesel demand shrinking on one hand, and fuel logistics stalling on the other as local governments put in traffic curbs to contain the spread of the virus," a plant executive based in Dongying, a refining and chemicals hub in Shandong, told Reuters.

Citi: Brent to $47 in 3 months. Citigroup struck a bearish tone, raising the possibility that Brent falls as low as $47 per barrel in the next three months.

ExxonMobil faces a crisis. ExxonMobil reported disappointing earnings for the fourth quarter and continues to cover its dividend by selling off assets and taking on debt. Goldman Sachs cut its outlook for Exxon to Sell from Neutral, and the bank raised doubts about Exxon's long-term returns. Other analysts piled on. "Shareholder returns are poor, and debt is rising in a way that suggests that attractive dividends yields are unsustainable," Paul Sankey of Mizuho Securities USA LLC said in a note to clients. The oil major's share price is at a 10-year low. 

BP's earnings fall by 25 percent. BP (NYSE: BP) reported earnings of $2.6 billion in the fourth quarter, down from $3.5 billion a year earlier. The company's share price was up nearly 5 percent in early trading on Tuesday, following a dividend hike. Meanwhile, the company's CEO Brian Gilvary said that global oil demand growth could fall by 300,000-500,000 bpd this year because of the coronavirus.  

EQT looks to raise $1 billion from royalty deal. EQT (NYSE: EQT) is hoping to raise $1 billion by selling off some of its royalty income, according to Reuters. The natural gas giant has quickly fallen into a crisis with gas prices now well below $2/MMBtu. 

U.S. flaring rose sharply in 2019. Flaring and venting in the Permian basin rose to 293.2 billion cubic feet in 2019, up 7 percent from 2018. Flaring and venting in the Bakken jumped by 36 percent to 200 Bcf. Together, the volumes burned or released into the air from the two basins represented more than 5 percent of total gas produced in the country.

Moody's: Energy credit downgrades accelerated in 4Q. Moody's issued more credit downgrades than upgrades in the oil and gas sector for the fifth consecutive quarter in the 4Q2019. The rate of downgrades to upgrades magnified at the end of last year. "Volatile oil prices throughout 2019 and natural gas prices that steadily declined in the second half of the year led speculative-grade investors to shun all but the strongest oil weighted companies, increasing default risk for companies that already had low ratings," Moody's said in a report.

Shipping index hit all-time low. The Baltic Exchange's capesize index, which constitutes part of the Baltic Dry Index, fell to an all-time low this week. The index is a proxy for the world's shipping market, and the collapse in the value of the index reflects a deep contraction in global shipping activity. 

U.S. manufacturing rebounds. The Institute for Supply Management's U.S. factory index rebounded to 50.9 in January, the first time in five months that the reading was in positive territory. "This data, alongside China's injection of economic stimulus, cushioned the continuation of virus-related headlines," Raymond James wrote in a note.

ConocoPhillips misses on earnings. ConocoPhillips (NYSE: COP) reported earnings of $720 million in the fourth quarter, down 61 percent from the $1.87 billion profit a year earlier. COP announced a $10 billion increase to its share buyback program. 

Tesla shorts lose $8 billion. Tesla's (NASDAQ: TSLA) share price surge has burned short sellers, who have lost a combined $8 billion since the start of January. Tesla's gain on Monday alone translated into losses for short sellers by an estimated $2.5 billion. As of Tuesday, Tesla's share price was trading at about $850, almost double what it was at the start of the year. 


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  4. The "Twin Threats" Facing Big Oil
  5. OPEC Mulls Extending Oil Production Cuts Through End-2020
  6. Oil Bears Are Back As Demand Fears Go Viral
  7. Four Promising Oil Trends To Watch In 2020; Nigeria Giving Majors Some Pushback
  8. Oil Falls Despite Major Outage In Libya - 210120
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  10. Average Prices Of PMS, AGO, HHK and Cooking Gas - December 2019
  11. Nigeria's Oil Production Slips for the Third Consecutive Month
  12. Oil Prices Trade Close to $70pb, Thanks to Rising Geopolitical Tensions
  13. Oil Traders Obsess Over Weak Demand and Oversupply - OIR140120
  14. Oil Bears Return With A Bang - OIR 100120
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