March 14, 2020 /08:00 AM / By Tom Kool of
Oilprice.com / Header Image Credit: Oilprice
Oil prices have fallen nearly 50
percent since the start of the year and the short-term outlook isn't looking
very promising as OPEC and Russia continue to boost supply.
Friday, March 13th, 2020
It has been a horrific week for oil prices, and crude is down about 50 percent
since the start of the year. Oil rebounded a bit on Friday following movement
in the U.S. Congress to pass a coronavirus economic relief bill. Nevertheless,
the near-term looks dire for oil markets, with supply rising quickly as demand
continues to collapse.
prices could stay in $30s for months. According to the 21
experts surveyed by Reuters, WTI Crude prices are set to average $30.37 a barrel in the
second quarter this year and $37 for the full year.
aims at U.S. shale. According to the Wall Street Journal, Russian
President Vladimir Putin asked Rosneft's chief executive prior to the collapse
of the OPEC+ negotiations if Russian oil companies can withstand low oil
prices. Igor Sechin replied that low oil prices "are great because they will damage
U.S. shale." Outwardly, Moscow does not link its motivations to an intention to
harm U.S. oil companies, but Russia had grown wary of the OPEC+ cuts, which
contributed to a 4-mb/d increase in U.S. shale over the past three years. Also,
multiple reports suggest that U.S. sanctions on Nord Stream 2 and Rosneft
stoked ire in Moscow.
Russia can withstand low prices. "Russian companies can
ensure sustainable production until oil hits $15 to $20 per barrel," Karen
Kostanian, a Moscow-based oil and gas analyst with Bank of America, told Bloomberg.
oil trader tries to back out of deals. Unipec, the trading
arm of China's Sinopec, is trying to avoid taking delivery of at least
four supertankers of oil for April, according to Bloomberg.
Oil's balance sheet under strain. Premier Oil
(LON: PMO) could lose $1.2 million per day with oil prices
below $40 per barrel, according to Bloomberg.
service job cuts expected. Between 1,500 and 3,000 oilfield
service jobs could be on the chopping block in the
next two months, according to Primary Vision.
drillers want 25% discounts from oilfield services. U.S.
shale drillers are demanding price cuts from service companies, according to
Reuters. Parsley Energy asked service providers "to reconsider your pricing," and help them achieve an "at least 25%" reduction in costs. But oilfield
servicers are arguably in a worse position. "Anyone dumb enough to ask for a
discount today is a (expletive)," a drilling executive who did not want to be
identified told Reuters.
slashes dividend by 86 percent. Occidental
Petroleum (NYSE: OXY) slashed its dividend for the
first time in 30 years this week. The reduction of 86 percent comes just two
weeks after CEO Vicki Hollub said that the dividend was one of the "defining
characteristics" of the company. "This is genuinely frustrating and disappointing
to see, especially after the repeatedly, consistently stated commitment to the
dividend from management," Raymond James analyst Pavel Molchanov wrote in a
offer shale drillers a lifeline. A study of 30 shale drillers accounting for 38
percent of total U.S. oil production finds that roughly 50 percent of their
output is hedged an average price of $56 per barrel. If WTI averages $40 this
year, the hedges would save the companies a combined $10.5 billion; or $17
billion if WTI averages $25.
countries at risk of downgrade. The collapse of oil prices could set off a wave of
sovereign credit downgrades. Countries like Saudi Arabia, Iraq, Oman, Nigeria
and Angola are at most risk.
reports case of coronavirus offshore. Equinor (NYSE:
EQNR) said that one of its workers at an offshore
installation in Norway tested positive for the coronavirus. The Martin Linge
field is scheduled to start production at the end of the year.
mandatory cuts possible in Alberta. Crude-by-rail shipments
from Alberta could fall by as much as 400,000 bpd next month, which will
contribute to a buildup of storage in the province. Alberta's Premier Jason
Kenney said that mandatory cuts could be coming. "We will use the curtailment
tool responsibly to ensure at least a survival price for our producers," Kenney
said. Layoffs in Canada's oil industry are
also in the offing. "We, unfortunately, do expect to see a number of layoff
announcements coming from the energy sector in the next two or three weeks," Jason Kenney told reporters.
industry spending cuts. Shale drillers announced a series of immediate
cuts to capex this week, hoping to weather the downturn. More cuts, layoffs and
bankruptcies are likely. Globally, Wood Mackenzie estimates that the oil industry
could see $380 billion in cash flow vanish if Brent averages $35 per barrel
this year, relative to $60.
postpones SPR sale. The U.S. Department of Energy was
scheduled to sell 12 million barrels of oil from the strategic petroleum
reserve (SPR), but canceled the sale in the wake
of the downturn. Now, some industry lobbyists are pressing the government to
instead buy oil for the SPR to help soak up some surplus.
credit under stress. Roughly $110 billion in shale debt has
fallen into distressed territory, according to the FT. That is 12 percent of
the $936 billion in bonds issued by U.S. oil and gas companies. "There is
definitely a significant amount of default risk," Michael Anderson, a
strategist at Citi, told the FT. A lot of bonds are in the "danger zone," he
oil tankers in Nigerian waters. Nigeria has about 50 cargoes of oil sitting
offshore in international waters.
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