Oil Falls Again As OPECplus Hits Rut


Saturday, February 08,  2020   /08:50 AM  / By Tom Kool of Oilprice.com / Header Image Credit: Oilprice


Oil prices fell again on Friday as OPEC's plans to deepen its production cuts hit a rut due to Russian hesitancy on the issue.

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Friday, February 7th, 2020

Oil prices fell back again on Friday, with WTI declining to $50 and Brent dipping below $55. Plans by OPEC+ to swiftly agree to deeper production cuts ran into some trouble. The coronavirus also continues to disrupt oil and gas markets. 

OPEC committee recommends 600,000 bpd in cuts; Russia hesitates. The OPEC Joint Technical Committee (JTC) met this week and recommended the group cut production by another 600,000 bpd in response to the coronavirus. But Russia played spoiler, asking for more time to consider deeper cuts. Moscow could make a decision by this weekend. But the discord was a setback for Saudi Arabia, and the disagreement could delay the scheduling of the ministerial meeting, which had been projected to take place next week.

Virginia moves to ban offshore drilling. The Virginia legislature passed a bill that blocks oil and gas exploration, and the Governor signaled he'd sign the bill. 

China jet fuel sales down 25 percent. China's sales of aviation fuels fell by 25 percent in January as the coronavirus epidemic forced millions of people into lockdown. 

Renewable stocks vastly outperform oil and gas. A group of renewable energy stocks gained 49 percent last year, outperforming the S&P 500 by 20 percentage points, according to S&P Global Platts. Meanwhile, the S&P Oil & Gas Exploration and Production Index, a basket of 59 oil and gas drillers, declined by 11 percent in 2019.

ConocoPhillips earnings miss. ConocoPhillips (NYSE: COP) missed earnings expectations but, unlike its competitors, it was able to cover capex and its dividend with cash flow. The company lowered its 2020 production guidance.

Chesapeake Energy sued by victims' families. Chesapeake Energy (NYSE: CHK) and three oilfield service firms were sued by the daughter of a worker who was killed in a fatal explosion at the company's drill site last week. 

Suncor Energy takes big write down. Suncor Energy (NYSE: SU) posted a $2.3 billion loss for the fourth quarter, after taking a $2.8 billion impairment on its Fort Hills oil sands project. The write down was the result of a downward revision in long-term oil prices. 

Shell to build first solar project. Royal Dutch Shell (NYSE: RDS.A) said it would build a 120-MW solar project in Australia, its first large-scale solar project.

Canadian court clears way for Trans Mountain Expansion. Canada's federal court cleared the way for the Trans Mountain Expansion pipeline, dismissing legal challenges brought by First Nations. The project has faced years of legal setbacks, but is now moving forward. 

Total SA beats estimates. Total SA (NYSE: TOT) reported earnings that surpassed Wall Street's expectations, due to rising oil and gas production. Net income was flat at $3.17 billion, while production rose 8 percent. 

Equinor sets climate target. Equinor (NYSE: EQNR) laid out a climate target this week, including Scope 3 emissions, which refers to emission burned by consumers, rather than just emissions from upstream production. "The ambition to reduce net carbon intensity by at least 50% by 2050 takes into account scope 1, 2 and 3 emissions, from initial production to final consumption," Equinor said on Thursday when announcing fourth-quarter results. The European oil majors continue to put forth carbon targets, while their American counterparts lag behind.

Tesla shares selloff. After the coronavirus delayed deliveries of Tesla's (NASDAQ: TSLA) Model 3 in China, the EV maker's share price plunged by 17 percent. The stock has skyrocketed in recent weeks, so perhaps it was due for a correction. Still, Wednesday's decline was the second-worst day in Tesla's history.

Hess warns of shale peak. Hess (NYSE: HES) CEO John Hess said that production in the Bakken could peak in the next two years, and production in the Permian would peak in the mid-2020s. A report from the Finnish government said that the world's reliance on costly oil could send oil prices up in the years ahead. 

China declares LNG force majeure. China's Cnooc declared force majeure on some LNG shipments, deepening the crisis for oil and gas markets. Total SA (NYSE: TOT) rejected the force majeure. "There is a strong temptation from some long-term customers to try to play with the force majeure concept," an executive with Total told Reuters. "To say I cannot take my cargo under the long-term contract, but I would like to buy spot is contradictory." The global gas glut could spread, impacting U.S. LNG exports and ripple upstream to U.S. shale gas fields. 

LNG stocks in freefall. LNG prices in Asia (the JKM marker) fell below $3/MMBtu, less than half the price levels from a year ago. "Prices are free-falling just within this week," a Singapore-based LNG trader told Reuters. "This kind of force majeure situation is unprecedented and has never happened before so it's big news." Cheniere Energy (NYSEAMERICAN: LNG) has lost 15 percent since mid-January. Meanwhile, Tellurian (NASDAQ: TELL) is down 12 percent just this week. "It would not be surprising to see (U.S.) LNG terminals curtail production for strategic maintenance this spring regardless, as they wait for the global supply glut to ease," Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report.

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