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OPEC Prepares For Long-Term Oil Demand Risks

Oil prices have remained range-bound for the past several weeks, with the market in limbo as another COVID wave looms.

Chart of the Week

-    40 U.S. producers surveyed by the EIA posted a combined $48 billion in write downs in the first quarter of 2020, the largest negative adjustment in years.

-    The companies account for over 6 mb/d of U.S. oil production. 

-    “Although companies will not have to value their 2020 proved reserves until the end of the year, these first-quarter adjustments, combined with crude oil prices that have remained much lower than 2019 levels during the second quarter of 2020, indicate that the net present value of proved reserves could continue to decline,” the EIA said

Market Movers

-    Kinder Morgan (NYSE: KMI) is seeking to raise $1.25 billion in new senior notes to pay off $949 million in high-interest debt due in September. The new notes would have a lower interest rate.

-    Schlumberger (NYSE: SLB) was upgraded to Buy from Neutral by Citigroup with a $26 price target (up from $20). The bank noted a “greater than anticipated benefit from restructuring.”

-    EQT (NYSE: EQT) said that all curtailed shale gas production has been brought back online. The Pittsburgh-based gas giant reported a net loss of $263 million in the second quarter.

Tuesday, July 28, 2020

Oil prices have been on autopilot for weeks, and the start of this week is no different. Prices remain trapped in the low-$40s, hemmed in by supply curtailments on the one hand, and concerns about depressed demand on the other.

Reliance overtakes Exxon to become #2. Reliance Industries has surpassed ExxonMobil (NYSE: XOM) in market share, rising to the second-largest energy company in the world after Saudi Aramco. Reliance has the world’s largest oil refinery and is now worth $189 billion, edging past the American supermajor. 

More LNG cargoes canceled, but fewer. Around 30 LNG cargoes have been canceledfrom U.S. ports for the month of September, another month of large cancellations. However, that is fewer than the 50 canceled cargoes in July and 45 in August, offering some glimmer of hope that the market is improving. Related: The Quiet Destruction Of Colombia’s Shale Oil Potential

Oil majors report earnings. The majors will report second-quarter earnings in the next few days, and analysts expect the numbers to be brutal. The consensus is that the top 5 majors will all report a loss. Royal Dutch Shell (NYSE: RDS.A), Eni (NYSE: E), andTotal (NYSE: TOT) all report on July 30; ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) report on July 31; and BP (NYSE: BP) reports on August 4.

OPEC prepares for long-term decline. Some OPEC officials are admitting that oil demand could be permanently damaged from the pandemic, and some are even admitting that demand may have peaked. “The demand does not return to pre-crisis levels or it takes time for this to happen,” an OPEC source told Reuters. “The main concern is that oil demand will peak in the next few years due to rapid technological advances, especially in car batteries.”

Satellite tech can track methane plumes. Kayrros is using satellite technology that for the first time can track major leaks of methane with pinpoint accuracy. More than 790 methane plumes were emitted from energy infrastructure last year, a figure that is likely an undercount because of clouds and other interference. 

Egypt’s Sumed pipeline slows to a trickle. The Sumed pipeline in Egypt has a capacity of 2.5 mb/d, bypassing the Suez Canal. But actual oil flows have been running at about a quarter of that

Russian contractors take control of Libyan oil. Military contractors with links to Russia have seized control of two oil fields in Libya, including the country’s largest field and its most important export terminal, Es Sider. That has allowed the LNA to maintain an oil blockade, scuttling attempts by the GNA to restart oil exports. Meanwhile, the UN warnedthat the proxy war in Libya between global powers risks starting a broader regional war.

UK planning for 30 million EVs by 2040. The UK expects EVs to jump to 30 million by 2040, and the electricity grid could be carbon negative by 2033, according to National Grid. That would require carbon capture and storage. 

Canadian output on the rise. Canadian oil producers cut 1.3 mb/d of production at the onset of the pandemic, and the curtailments allowed inventories to come down and regional prices to rebound. The rig count is also on the rise. “They’re coming out of the other side of this in decent shape,” Matt Murphy, an analyst with Tudor Pickering Holt & Co. in Calgary, told the WSJ. “I think in hindsight it will have been a fairly smart decision to cut production.”

Permian driller Rosehill files for bankruptcy. Rosehill Resources (NASDAQ: ROSE)filed for chapter 11 bankruptcy protection. The company is active in the Delaware Basin.  Related: Canada’s TransMountain Pipeline Faces Another Major Setback

Oil majors find significant gas discovery in Egypt. Eni (NYSE: E), BP (NYSE: BP)and Total (NYSE: TOT) have announced a new natural gas discovery in offshore Egypt.

Permian natural gas production expected to rebound. Gas output from the Permian Basin is expected to rebound relatively quickly in the second half of 2020 and will remain robust for years to come, Rystad Energy projects. However, the pandemic may curtail investment in midstream capacity, which could result in higher levels of gas flaring after 2023.

China signs deals to develop Iranian oil field. Iran’s Petroleum Ministry has awarded a US$1.3 billion development deal to more than double oil production at the supergiant South Azadegan oilfield, the second such oil project signed this month, and a US$300 million development contract for Yaran. China is playing a key role in these projects. 

Goldman Sachs recommends gold, warns about dollar. The U.S. dollar’s reign as the world’s reserve currency is coming under threat, according to Goldman Sachs. The investment bank recommended gold. “Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” the bank said. 

By Josh Owens for Oilprice.com 

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