Oil Rallies Towards $40 as OPECplus Nears Deal - OIR 020620

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Tuesday, June 02, 2020 / 8:47 PM / by Tom Kool of Oilprice.com / Header Image Credit: Oilprice

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Today, 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.

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Chart of the Week

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  • The U.S. only sold 729,000 vehicles in the month of April, the lowest since early 2010.
  • Car sales were down 59 percent year-on-year, while light truck sales were down 42 percent, a sign that consumers are making a slight shift to trucks and SUVs.
  • "The U.S. Energy Information Administration's (EIA) estimates of the sales-weighted average fuel economies of 33.9 miles per gallon (mpg) in March and 33.6 mpg in April are slightly lower than they would be if market shares had remained the same as in 2019," the EIA wrote in a report. 

Market Movers

  • Hess (NYSE: HES) rose to its highest level in three months after Citi upgraded its shares to Buy with a $60 price target.
  • Parsley (NYSE: PE) said that it restored the "vast majority" of its shut in wells.
  • Seadrill (NYSE: SDRL) has written down the value of its drilling rigs by $1.2 billion and has hired a team to for debt restructuring. The company intends to delist from the New York Stock Exchange later this month.

Tuesday June 2, 2020

Oil prices rose once again on rising odds of an OPEC+ extension. Brent is now nearing $40 per barrel, a remarkable comeback after crashing below $20 per barrel a little more than a month ago.

Saudi Arabia and Russia near deal on extension. Saudi Arabia and Russia are close to inking a two-month extension of the current oil production cuts, extending the agreement through September 1. Saudi Arabia wants an extension through the end of the year while Russia has favored easing the cuts in July. A two-month extension would be a middle-ground compromise. 

Offshore oil collapsing. In the North Sea, almost a third of the oil left on the UK continental shelf is no longer economical to extract. The rig count in the Gulf of Mexico has also fallen by almost half.

China threatens trade retaliation. After the U.S. downgraded its status with Hong Kong, following Beijing's new national security law in the territory, China is now threatening to curtail American farm purchases. 

China approves $20 billion mega petrochem project. In an effort at infrastructure stimulus, China is reviving a $20 billion petrochemical project in Shandong province. "The 400,000 barrel-per-day (bpd) refinery and 3 million tonne-per-year ethylene plant in Yantai, Shandong, the country's hub for independent oil refineries, was proposed years ago but approval has been slowing in coming because of China's struggle with excess refining capacity," Reuters reported.

Cost of shipping falls on production cuts. The sharp oil production cuts have led to a decrease in the cost of shipping. Prices for chartering an oil vessel fell 77 percent from the peak in March.

Occidental cuts dividend to a penny. Occidental Petroleum (NYSE: OXY) cut its quarterly dividend by 91 percent, and shareholders will only receive one penny per share on July 15. In March, Oxy cut its dividend to 11 cents, from 79 cents previously.

Drilling activity at lowest level since 1949. The rig count fell to 301 rigs last week, the lowest level on record since 1949.

Permian gas flaring to fall by half. The rate of gas flaring in the Permian basin may decline from 600 million cubic feet per day (mcf/d) at the beginning of the year to just 300 mcf/d in the second half of 2020. "In the second quarter we will definitely see a massive decline," said Artem Abramov, head of shale research at Rystad. "More or less all fracking activities are on hold. Where there is still activity going on it is marginal."

Eurozone PMIs rebounding. IHS Markit's Manufacturing Purchasing Managers' Index for the Eurozone rose to 39.4 in May from the low point in April of 33.4. Below 50 is still a contraction. Likewise, PMIs in the U.S. are also beginning to rebound.

EV sales in China shrink. April was a bad month for EVs in China - overall sales fell even as the broader car market grew. EV sales were down 27 percent in China in April, but gasoline cars rose by 6 percent. Still, Beijing boosted its target for EVs to 25 percent of total sales by 2025, up from a previous goal of 20 percent.

IMF warns investors about climate change. The International Monetary Fund said that investors are not ready for the effects of climate change. Companies affected by drought, wildfires, floods and storms will see severe hits to their valuations, the Fund said. The costs could top $1 trillion annually by 2050.

Solar costs fall as demand shrinks. Chinese solar parts manufacturers have cut costs for solar components like wafers and cells by as much as 20 percent as demand growth has slowed. Price cuts are bad for manufacturers, but it could also stoke demand. 

HollyFrontier to turn oil refinery into renewable diesel facility. HollyFrontier (NYSE: HFC) said it would repurpose its Cheyenne refinery into a facility to production renewable diesel, which is often made from soybean oil, recycled cooking oil and animal fats.

Texas solar companies hiring oil and gas workers. The oil and gas industry in Texas lost 90,000 jobs in the last few months. Clean energy industries are also slashing payroll, but could rebound faster than fossil fuels. "We are hiring oil and gas refugees for sure," Christian Fong, CEO at Spruce Finance Inc., told E&E News. The company plans on boosting staff by 30 percent. 


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Related News - Previous Oilprice Intelligence Report

  1. Oil Prices Slide As U.S.-China Tensions Spike
  2. Will U.S. Shale Survive If Oil Hits $40?
  3. Is The Oil Rally Coming To An End?
  4. The Oil Bulls Are Back - OIR 190520
  5. A Relentless Oil Price Rally - OIR 150520
  6. Oil Holds Gains Despite Massive Unemployment - OIR 080520
  7. The Worst May Be Over For Oil - OIR 050520
  8. A Rare Week of Optimism For Oil Markets - OIR 010520
  9. Earnings Season Will Be A Bloodbath For Oil Producers - OIR 280420
  10. A Very Brief Oil Price Rebound - OIR 240420
  11. Oil Price Mayhem - Is The Market Broken? - OIR 210420
  12. Oil Prices Fall Towards $15 for WTI and $25 for Brent As Storage Nears Capacity - OIR 170420


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