Market Movers
- Saudi Arabia is trying to pull out all the stops, so media reports say, citing anonymous sources, upping the ante for OPEC members by asking them to consider cutting not just 600,000 bpd more as earlier reported, but 1 million bpd more. The additional cuts, if members agree, would last through Q2. The rumor that OPEC is considering going even bigger with the cuts comes as oil prices are set today to finish out their worst week in over four years as the coronavirus continues to plague the oil markets.
- Short-selling of the US crude grade WTI has exploded since the beginning of the year - tripling to a level not seen in four months. Normally, a buying frenzy might ensue over these lower oil prices, but significant fears have taken hold as health officials issue new warnings that the world should no longer be worrying about if a coronavirus pandemic will hit, but rather when it will hit. Net long positions for WTI dropped 22%, while long-only bets fell 6.7%.
- The EIA is forecasting record nat gas inventories this year, estimating a 12% increase in nat gas in storage ending March 31 - the end of the heating season - above the five-year average. The increase is attributable not only to the black swan COVID-19 event that has decimated demand in the world’s largest oil importer, China, but a mild winter temperature-wise combined with production increases. The EIA says we should expect inventories to stay above the five-year average for the rest…
Market Movers
- Saudi Arabia is trying to pull out all the stops, so media reports say, citing anonymous sources, upping the ante for OPEC members by asking them to consider cutting not just 600,000 bpd more as earlier reported, but 1 million bpd more. The additional cuts, if members agree, would last through Q2. The rumor that OPEC is considering going even bigger with the cuts comes as oil prices are set today to finish out their worst week in over four years as the coronavirus continues to plague the oil markets.
- Short-selling of the US crude grade WTI has exploded since the beginning of the year - tripling to a level not seen in four months. Normally, a buying frenzy might ensue over these lower oil prices, but significant fears have taken hold as health officials issue new warnings that the world should no longer be worrying about if a coronavirus pandemic will hit, but rather when it will hit. Net long positions for WTI dropped 22%, while long-only bets fell 6.7%.
- The EIA is forecasting record nat gas inventories this year, estimating a 12% increase in nat gas in storage ending March 31 - the end of the heating season - above the five-year average. The increase is attributable not only to the black swan COVID-19 event that has decimated demand in the world’s largest oil importer, China, but a mild winter temperature-wise combined with production increases. The EIA says we should expect inventories to stay above the five-year average for the rest of the year, even as production is expected to fall somewhat and demand is expected to increase both from domestic usage and exports.
- Rosneft may have ended earlier its five-year contract to supply China’s CEFC with oil, instead delivering these contracted crude volumes to Trafigura - who incidentally said it would wind down its relationship with Rosneft subsidiary Rosneft Trading by May in light of new sanctions from the United States on the Swiss-based subsidiary that has been dealing the bulk of Venezuela crude oil over the past year.
- The world’s largest gas field, South Pars, shared by Iran and Qatar, is installing the last of its platforms, to be completed towards the end of March. After installation, Iran will have the ability to produce 1 billion bcm of gas per day.
Profit & Loss
- First Solar has reported a surprise loss for the fourth quarter of 2019 and sales lagging analyst expectations. Together with the full-year 2019 and Q4 2019 financials, the U.S. solar modules manufacturer announced that it is reviewing options for its U.S. project development business, including a potential sale. The review is in the early stages and may not result in any transaction.
- Colombia’s Ecopetrol reported its highest profit in six years for 2019 as net income jumped by 14.6% year on year to $3.85 billion (13.3 trillion Colombian pesos). The increase in profits allowed the company to pay the highest dividend payment in the company’s history. Reserves replacement ratio was 169%, the highest of the past nine years, despite the fact that Brent prices were 15% lower in 2019 than in 2018, the company said.
- Mexico’s Pemex doubled its loss from last year and posted an $18.3 billion net loss for 2019, despite Andres Manuel Lopez Obrador's best effort to revive the indebted state oil company. Pemex said the results were due to the burden of $105 billion in debt, a drop in crude sales and an increase in tax payments. Total sales dropped 16% in 2019 compared to the previous year, with the fourth quarter registering a 22% fall.
Discovery & Development
- French Total SA has anchored a drilling vessel off the coast of Lebanon, set to drill the first exploration well in the country’s waters within a week. In 2017, Lebanon approved the licenses for an international consortium led by Total, Italy's ENI and Russia's Novatek to move forward with offshore oil and gas development for two of 10 blocks in the Mediterranean Sea.
- Italian Eni announced a light oil discovery offshore Mexico in the Salina del Istmo basin of the Cuencas del Sureste oil and gas province. Eni drilled the Saasken-1 NFW well to a water depth of 1,115 feet and a total depth of 12,566 ft, discovering 262 feet of net pay of good quality oil indicating a production capacity for more than 10,000 bbl of oil per day.
- Teck Resources has withdrawn its proposal from the Canadian regulatory authorities for the Frontier Project - a 72,000-acre oil sands play in Alberta. This is another blow to the oil sands segment - one of the dirtiest and most expensive of the fossil fuel segments. There was strong opposition to the project from First Nations people, but the overall sentiment is that Teck is dropping it because the broader investment thesis is changing the world over: clean and green, and investors are not exactly flocking to dirty anymore in the new mega-trend.
- Also under environmental pressure, Equinor has abandoned its controversial plans to drill in the Great Australian Bight, for which it was granted exploration approval in December last year. Equinor now says the drill is not commercially competitive. The company is the third major oil company to abandon plans to drill in the area, following BP and Chevron.
- Guyana is now selling its very first barrels of oil produced by ExxonMobil and partner Hess. The first shipment has set sail. Guyana is expected to earn around $300 million from oil sales this year, though a bit of a media war persists over accusations that Exxon got too sweet a deal.
- Saudi Aramco has launched the largest shale gas development anywhere outside of the United States, but so far the market is not responding to this at all, with the gas market already supersaturated and nothing moving the needle much, good news or bad. Aramco will pump $110 billion over the next couple of years into the development of the Jafurah gas field, which is estimated to hold 200 trillion cubic feet of gas. Gas production is expected to start in 2024 and reach 2.2 Bcf/d of sales gas by 2036 with an associated 425 million cubic feet per day of ethane. The field will produce some 550,000 barrels per day of gas liquids and condensates, around 50% more than the current output of just over 1 million bpd.
- Somali President Abdullahi Farmajo has ratified the country’s new Petroleum Law, which will open up this frontier market in the Horn of Africa. The law was approved by parliament’s upper house in January. The law provides the first regulatory framework that will help attract investment in exploration by major oil companies, establishing revenue-sharing parameters--after decades of conflict. Let the games begin, and they’ll start with Turkey, which has signed an MOU on oil exploration in Somalia, where seismic studies have suggested rich oil and gas resources offshore.
Politics, Geopolitics & Conflict
- In Libya, the oil blockade continues, with no end in sight. Participating in peace talks in Geneva has been suspended on the part of both sides, and the media war is picking up momentum, with Turkish and allied Arab media (Qatar, Al-Jazeera) headlining a link between Haftar and ISIL (not based on reality) and any potshots Haftar takes on sites in Tripoli. Media on the other side of the divide is making it clear, for a reason, that the Saudis are stepping up support of Haftar. The lines here have been drawn in this game of external alliances. The latest from the Libyan NOC is that the country is producing 135,723 bpd (as of Feb 25th), representing the lowest level since 2011. Financial losses exceed $2 billion so far. Tripoli storage depots and some of the surrounding areas and Southern regions are still suffering from a lack of supplies due to the deteriorating security conditions. The city of Tripoli is supplied with hydrocarbons directly from the Tripoli port.
- Trump has threatened to impose harsher sanctions on Venezuela, targeting its oil sector with new sanctions. This move follows last week’s sanctions on Russian Rosneft’s trading arm, Rosneft Trading SA. There are no details on possible new sanctions, yet, but speculation is that it could relate to Chevron’s waiver for Venezuela operations, which is set to be renewed soon.
- A month before the US sanctioned Rosneft Trading SA, Venezuela’s PDVSA began to shift oil cargoes to another Rosneft trading arm that isn’t sanctioned: TNK Trading International SA. The new subsidiary started to ratchet up it's Venezuelan crude loadings in January.
