Saturday, April 11, 2020 /08:00
AM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice
Oil prices fell back towards the $20 mark (WTI)
and $30 mark (Brent Crude) as the largest oil production cut in history failed
to assuage oil market fears.
Friday, April 10th, 2020
OPEC+ agreed to the largest oil production cuts in history on Thursday, but oil
prices crashed towards $20 as markets decided that a 10 million bpd cut was
insufficient to balance the demand deficit. Today, the G20 will meet to discuss
more cuts and more details will likely come out about the OPEC+ deal. Markets
are closed today and so all eyes will be on developments over the weekend.
strike 10 mb/d deal, oil prices fall. OPEC+ agreed to
joint cuts on the order of 10 mb/d, a historic agreement. The deal calls for
both Saudi Arabia and Russia capping production at 8.5 mb/d for May and June,
after which cuts would ease in phases - down to 8 mb/d and then to 6 mb/d of
cuts. The deal was not received well by the markets, which sold off WTI and
Brent over fears that the reductions are inadequate. "The supply and demand
fundamentals are horrifying," said OPEC Secretary-General Mohammed
meets to chip in. OPEC+ is also looking for help from
other non-OPEC countries in the G20. Mexico temporarily held up the
OPEC+ deal because it does not want to cut. At the time of this writing,
Mexico's president said that he spoke with President Trump, who promised to
contribute to the cuts on Mexico's behalf. "First they asked us for 400,000,
then 350,000" Mexico's President Lopez Obrador said.
Mexico was only able to cut by 100,000 barrels a day, and Trump "very
generously expressed to me that they were going to help us with an additional
250,000 to what they are going to contribute. I thank him."
loss at 20-30 mb/d. The OPEC+ deal is historically
large, but still insufficient to plug a 20 to 30 mb/d decline in demand.
Inventories are set to rise in the coming months. "The proposed 10 million bpd
cut by OPEC+ for May and June will keep the world from physically testing the
limits of storage capacity and save prices from falling into a deep abyss, but
it will still not restore the desired market balance," Rystad Energy said.
say cuts are too little, too late. Other analysts also
said the risk is to the downside. "These cuts are not enough to prevent massive
stockbuilds in May, let alone April," JBC Energy wrote in a note. Oil
prices could fall back despite the cuts.
EIA data. The weekly EIA data was negative - crude inventories
jumped by 15.2 million barrels, gasoline stocks rose by 10.5 million barrels,
and gasoline demand fell by another 1.6 mb/d.
20-25% of Canadian oil to be shut in. Enbridge's
(NYSE: ENB) CEO Al Monaco said that
20-25 percent of Western Canada's oil production could be shut in because of
low prices. Roughly 135,000 bpd has already been shut in. RBC predicts declines
of 1.1 to 1.7 mb/d.
of Saudi oil heading to U.S. Saudi Arabia is sending "a flood" of oil to the U.S. Gulf Coast, according to Bloomberg,
with an estimated 14 million barrels enroute, compared to just 2 million
barrels a month ago.
Global economy hit worst since 1930s. The IMF said that
just about all countries could see falling living standards this year, the
first time that has occurred since the 1930s. "Today we are confronted with a
crisis like no other," the head of the IMF, Kristalina Georgieva, said.
17 million newly unemployed. Nearly 17 million people
filed for unemployment insurance in the U.S. in the last three weeks. "In its
first month alone, the coronavirus crisis is poised to exceed any comparison to
the Great Recession," Glassdoor Senior Economist Daniel Zhao told Politico.
to seize shale assets. Big U.S. lenders to shale
drillers could seize energy assets in order to avoid losses from forthcoming
bankruptcies, according to Reuters.
JPMorgan, Wells Fargo, Bank of America and Citigroup are setting up companies
to own oil and gas assets. The shale industry owes more than $200 billion in
debt. "Banks can now believably wield the threat that they will foreclose on
the company and its properties if they don't pay their loan back," Buddy Clark,
a restructuring partner at law firm Haynes and Boone, told Reuters.
to lower methane emissions. ExxonMobil
(NYSE: XOM) said it
would lower methane emissions at 1,000 of its Permian sites using drones, satellites
Resources preparing for Chesapeake default. Mutual-fund
company Franklin Resources is taking steps to prepare for a potential
bankruptcy by Chesapeake Energy (NYSE: CHK), according to the Wall Street Journal. Franklin Resources owns a significant portion of Chesapeake's
$9 billion in debt.
tells workers to write Congress for money. Occidental
Petroleum's (NYSE: OXY) CEO Vicki Hollub told her
employees to send pre-written letters to Congress asking the government "to
provide liquidity to the energy industry," according to Bloomberg.
could kill fracking "fever dream." The U.S. shale
industry has never demonstrated profitability and has been built on a decade of
cheap capital. "The dream was always an illusion," Bethany McLean writes
in the New York Times. "All that's left to tally is the damage."
Resources shutting down Permian output. Concho
Resources (NYSE: CXO) said that
it is already curtailing production in the Permian. "Concho, as well as other
operators in the Permian Basin, have begun shutting in uneconomic production in
rapid response to the recent market shift," the company said in a letter to the
Texas Railroad Commission.
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