Tuesday, March 17, 2020 /08:45
PM / By Tom Kool of Oilprice.com / Header Image Credit: Oilprice
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.
- The EIA projects that Brent will
average $43 per barrel in 2020, down from $64 per barrel in 2019. That figure,
from today's standpoint, looks wildly optimistic.
- That translates to inventory builds of 1 mb/d on average this
year. Again, that number belies the massive build and gargantuan supply surplus
that other forecasters see.
- The agency expects Brent to average $55 per barrel in 2021.
- ExxonMobil (NYSE: XOM) saw its
credit rating downgraded by S&P from
AA+ to AA. The outlook remains Negative. RBC cut Exxon to Sell.
- Pioneer Natural Resources (NYSE: PXD) said it would cut 2020
capex by 45 percent and cut its rig count in half from 22 to 11 within the next
- BP (NYSE: BP) said it may cut
capex by 20 percent.
Tuesday, March 17, 2020
Oil prices dropped sharply on Monday, and the Dow Jones suffered its worst day
in decades. Reports of a major economic stimulus in the making helped stabilize
markets when trading started on Tuesday, but prices fell again as Saudi Arabia
announced it would increase exports again.
Arabia boosts oil exports to record high. Saudi Arabia
escalated the oil price war once again today by announcing plans to boost its oil exports to 10
million bpd from May. This is 3 million bpd more than it exported in February.
With oil markets already oversupplied and coronavirus continuing to cause
disruptions to supply chains around the world, both markets and oil prices are
likely to suffer.
Aramco "very comfortable" with $30 oil. Saudi Aramco said that it
would keep production elevated through May at least, and that the company was "very comfortable" with oil at $30 per barrel. "In a nutshell, Saudi Aramco can
sustain the very low price and can sustain it for a long time," Aramco CEO Amin
Nasser said on Monday on an
earnings call with investors. "For the production in May ... I doubt it would
be any different from next month."
considers capex cuts. In a dramatic about-face just two
weeks after its annual Investor Day, in which it laid out aggressive spending
plans, ExxonMobil (NYSE: XOM) said that it was looking at "steps to significantly reduce capital and operating expenses in the near
term." ExxonMobil was downgraded by S&P with a Negative outlook.
Oil producing countries at risk. The oil price downturn
could mean that up to 85 percent of government revenues vanish in certain "vulnerable" countries, according to the IEA. The agency singled out Ecuador,
Iraq and Nigeria as particularly at risk. "International financial institutions
may need to step in and take special measures," IEA's Fatih Birol said. The IEA and OPEC
issue joint statement expressing
concern about oil-producing countries.
cuts rates to near zero, ratchets up bond purchasing. The
Federal Reserve decided to use up a lot of its ammo, slashing rates to between
0 and 25 basis points. It also announced $700 billion in securities purchasing.
Even still, in a sign that the economic contagion is growing alongside the
pandemic, the Dow Jones Industrial average dropped by nearly 13 percent, its
worst single-day loss since 1987.
prices to drop to shut-in levels. Several oil market
analysts said that oil prices might need to drop to short-run cash cost levels
for shale drillers. Goldman Sachs puts that at about $23 per barrel. At that
price, companies cannot even cover the cost of drilling wells. "I don't think
we've reached the lows yet," Andy Lebow, senior partner at Commodity Research
Group, told the WSJ. "Right now, there's no
good news for the market."
to buy 78 million barrels for SPR. President Trump proposed
filling up the U.S. Strategic Petroleum Reserve (SPR) in an effort to mitigate
the damage. The approximately 78 million barrels of available storage would
equate to 0.5 mb/d of demand for half a year.
demand to fall by 10 mb/d. Goldman Sachs says the market
surplus could be around 6 mb/d. Other analysts, including Trafigura, says oil
demand could plunge by 10 mb/d.
Senators send letter to Saudis. A group of 13 Republican
Senators sent a letter to Saudi crown
prince Mohammad bin Salman, urging him to reverse course on flooding the oil
to try to block Carl Icahn. Hedge fund investor Carl Icahn
nearly quadrupled his stake in Occidental Petroleum (NYSE: OXY)
in what is perceived as an attempt to topple leadership. Icahn opposed the $55
billion acquisition of Anadarko Petroleum last year by Occidental. But
Occidental quickly moved to dilute its shares in an effort to beat back
Aramco to cut spending. Saudi Aramco (TADAWUL: 2222) said that it would cut
spending to between $25 and $30 billion this year, down from $32.8 billion last
shale companies profitable. Only 16 shale companies have
average new well costs below $35 per barrel, including Devon Energy
(NYSE: DVN) and EOG Resources (NYSE: EOG). But
that figure excludes other costs, including dividends, debt and other corporate
banks exposed to energy at risk. U.S. and Canadian banks
have more than $100 billion in loans outstanding to energy companies, according
to the Wall Street Journal.
The problem is more acute for medium-sized regional banks, rather than big Wall
Stimulus should focus on clean energy. The head of the IEA,
Fatih Birol, said that any economic stimulus under consideration in response to
the coronavirus pandemic should focus on clean energy. "These stimulus packages
offer an excellent opportunity to ensure that the essential task of building a
secure and sustainable energy future doesn't get lost amid the flurry of
immediate priorities," Birol wrote. At the time of this writing, the Trump
administration was looking at around $850 billion in economic
stimulus, although the details are still in the works.
Street still underestimating pandemic. To date, investment
advisors have underestimated how disruptive the pandemic would be. But even as
the market collapses, experts could still be underappreciating the
far-reaching impacts to come.
turns to debt restructuring advisers. Chesapeake
Energy (NYSE: CHK) has tapped debt restructuring advisers,
according to Reuters. The Oklahoma-based
driller faced a difficult challenge paying back $9 billion in debt even before
the pandemic and collapse of prices.
"Breakup" clauses to become more common for LNG. The market bust for
LNG will likely increase the use of "breakup" clauses in LNG contracts, which are typically rigid and
costs soar. The cost to store oil has skyrocketed, both
onshore and offshore. At Cushing, rates doubled over the past month.
- Prepare For
Bankruptcies, Layoffs And A Drilling Slowdown - OIR 130320
Green Competitor Is Riding A $30 Trillion Mega-Trend
- Oil Shock
Compounds Sovereign Credit Risks from Coronavirus
- Fall Out of
OPECplus Coalition Pushed Oil Prices Lower to $34.36pb
Subsea Pipeline to Boost Nigeria's Gas Supply, Reduce Flaring
- Oil Price
Drop May Cushion Demand Loss for Europe's Refiners
- Oil and
Coronavirus Shocks Add Pressure for MEA Sovereigns
- The Oil
Price War Has Only Just Begun - OIR 100320
Supply Overhang to Keep Crude Prices Subdued
- Oil Drops
31% in Worst Loss Since Gulf War as Price Fight Erupts
- Oil Set To
Plunge Another $10 On The Open
- The World's
Most Powerful Oil Alliance Is Falling Apart - OIR 060320