Oil Market Data Is About To Get Very Ugly

Global COVID Update

Globally, situations are emerging that all investors should be prepared for. We recommend getting out in front of the following pending realities:

- Amid the COVID pandemic, API and EIA inventory reports are being criticized for failing to reflect the reality at a time of clearly massive oversupply. Until this week's report, the API was posting small inventory draws, while the EIA was posting small builds. Timing is key with this data that has until now been one of the biggest forces driving hedges on oil prices. It takes a bit of time to catch up here. Keep in mind that the first US lockdown wasn't announced until March 19th. This week's API and EIA reports capture data through 03/27, the first full week of lockdowns, so it only makes sense that this is the first week to show bloated inventories. Other states would follow with their own lockdowns, but their decreased demand will not influence the inventory numbers until next week's reports. This week, both the API and EIA reported major builds in inventory - more than 10 million barrels. Until production falls to more closely match consumption (and it will), the builds will continue in the weeks that follow. The national guidelines for the coronavirus have been extended until the end of April. The virus' progression in some states are behind others, and some states will be under lockdown for longer. As such, the full effect on oil demand of the lockdowns has not yet been quantified, and it will get worse before it gets better.

- Rig counts, on the other hand, typically have a more considerable lag when it comes to prices. And this time around, we suspect that the limited storage space will be a significant contributing factor and may quicken the pace of production declines in the U.S., shortening that lag. This will push down the number of active rigs in the weeks that follow. Last week, we saw the number of rigs start to fall. This will continue into the future as all indications are that the coronavirus will be with us at least through April.

- Refugee camps, most urgently those in Syria, in Idlib and in Northern Syria near the Turkish border are cause for significant concern and potential to jumpstart yet another wave of the infection. At these camps, where we have sources on the ground investigating, officials and healthcare experts have no handle on the numbers of infected, and no supplies to deal with a contagion. This, combined with the lack of security, could spawn re-infection as it crosses borders undetected.

- The Syrian refugee-camp situation will also affect Turkey, whose leader, the eternally unhinged Erdogan, still refuses to implement a nationwide lockdown to contain the virus. As of Thursday, more than 356 people had died from COVID-19 in Turkey, with more than 18,000 cases, and counting.

- In Europe, the virus is rendering the European Union irrelevant, as member countries close their borders to the point that even food supplies are being threatened. Also in Europe, one of the bigger questions right now for hedge funds will be how bailouts will move forward and what industries are likely to be thrown lifelines at this time.

- The COVID-19 pandemic has pushed Brazil to postpone oil and gas tenders, indefinitely.

Discovery, Development, Deals & Downturns

- The first batch of crude oil is set to come out of the Saudi-Kuwait neutral zone this week, from the Al-Khalfji offshore field--one of two major neutral zone fields. This will be the first shipment in a half a decade from the zone after the fields were shuttered over a dispute between Saudi Arabia and Kuwait.

- Whiting Petroleum is the first domino to fall in the US shale sector, filing for bankruptcy protection this week citing the "severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi / Russia oil price war and the COVID-19 pandemic". Whiting will continue to operate.

- Apache and Total booked another win in Suriname this week, following an earlier discovery in January, right after Total jumped into the partnership in a 50/50 deal. The newest find in offshore Block 58 is in the Sapakara West-1 well. The well was drilled to ~6,300 meters, with tests indicating at least 79 meters of net oil and gas condensate pay in two intervals. Apache has backed off Permian production, for the time being, focusing on its offshore Suriname play, which sits right across from Exxon's giant Guyana discoveries.

- While most everything else is on hold, Norway is plowing ahead, offering up 36 new offshore exploration blocks in mature areas (but not in the Barents Sea).

Politics, Geopolitics & Conflict

- Russia has set up a new wholly state-owned oil company named Roszarubezhneft after Rosneft announced it would exit Venezuela and transfer its Venezuelan assets to a new - as of yesterday - and unnamed company. The point of this move is damage control as Washington steps up moves against Maduro and anyone dealing with Maduro. This move is designed to protect Rosneft and its key minority shareholders, BP and Qatar Investment Authority (QIA).

- Belarus announced it will buy $2 million tons of oil from Russia this month at $4 per barrel. Russian producers cut off supplies to Belarus earlier this year amid a pricing spat, forcing Belarus to import crude from Norway and Azerbaijan.