It seems that oil markets have decided that the coronavirus worst-case scenario that sent prices below the $50 mark is increasingly unlikely, with WTI now moving back up towards $52.
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Friday, February 14th, 2020
Oil prices rebounded in the second half of this week, as markets eyed progress in China on the coronavirus. “The market is getting more comfortable that we’ve hit the bottom,” Rebecca Babin, a senior equity trader at CIBC Private Wealth Management, told Bloomberg. “Oil markets have discounted the worst case and could show more resilience as long as cases outside of China are not spiking.”
Gas writedowns reach Europe. The U.S. shale gas industry revealed more writedowns this week when they reported fourth-quarter earnings, as the financial pressure continues to mount with Nymex prices under $2/MMBtu. Range Resources (NYSE: RRC) and Gulfport Energy (NASDAQ: GFOP) were downgraded by Sander Piper. Noble Energy (NSYE: NBL) took a $1.1 billion writedown, and Occidental (NYSE: OXY) took a $1.7 billion write down. The impairments stretched to Europe, where Centrica (LON: CNA) took a $1.4 billion writedown.
IEA: Demand will contract in 1Q. The IEA not only revised down its full-year 2020 oil demand forecast, but it also said that first quarter consumption would contract by over 400,000 bpd, the first year-on-year contraction in more than a decade. The agency said that the market remains in flux, and predicted a steadying of the supply/demand balance in the second half of the year. Related: Peak Shale Will Send Oil Prices Sky High
Nigeria’s oil could fall by 35 percent. Nigeria’s oil production could decline by 35 percent in the next ten years due to regulatory uncertainty, high costs and low prices.
Capital drying up for E&Ps. E&Ps are under intense financial pressure and rising investor scrutiny. They face long-term peak oil demand and short-term struggles with profitability. “[T]here may well be too few ‘quality,’ competitive investment opportunities for the E&P industry as a whole; parts of the industry will not be able to attract investment capital,” said Jerry Kepes, Keith King, and Siddhartha Sen of IHS Markit.
BP outlines energy transition. BP (NYSE: BP) said that it would cut emissions from its operations to zero by 2050, while also cutting scope 3 emissions – those that result from the end-consumer burning fuels – in half. It’s an ambitious plan, one that tries to position the oil major as a leader, not a laggard, in the fight against climate change. It may also put additional pressure on the American oil majors – Chevron (NYSE: CVX)and ExxonMobil (NYSE: XOM) – to step up climate commitments.
Exxon cuts employee travel. ExxonMobil (NYSE: XOM) cut back on employee travel, an unusual austerity drive that comes shortly after the company posted its worst quarterly result in years.
Virginia votes to phase out coal. The state house and senate in Virginia passed legislation this week that would target 100 percent renewable energy by 2045 or 2050 (each chamber passed different versions). The legislation calls for a partial coal phase-out by 2024, and for the remainder by 2030. It also incentivizes offshore wind.
Shell, EDP set record-low offshore wind cost. Royal Dutch Shell (NYSE: RDS.A)and EDP Renovaveis SA agreed to sell power from an offshore wind farm they are building in the Atlantic Ocean for a record-low price. The project, in the waters of Massachusetts, would supply electricity for $58/MWh.
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EIA: U.S. coal output to fall 13.7 percent. The EIA says that U.S. coal production will fall 13.7 percent this year. Related: Oil Traders Could Lose Big On Coronavirus Panic
Permian gas flaring worse than thought. According to new research from Rystad Energy, the rate of flaring in the Permian basin is much worse than previously thought. Gas flaring reached 810 million cubic feet per day, up 190 mcf/d after including data from gas processing facilities.
Investors back away from oil sands. BlackRock (NYSE: BLK) said this week that one of its green-oriented funds would no longer invest in companies that operate in Alberta’s oil sands. “If you look at how destructive oil sands can be, there’s a very strong rationale,” Armando Senra, head of BlackRock’s iShares Americas funds, told the NYT. They, along with coal, are “the worst offenders, if you want, from a climate perspective.”
Marathon cuts drilling budget as profits fall. Marathon Oil (NYSE: MRO) said that it would cut its drilling budget by 10 percent after it reported a $20 million loss in the fourth quarter.
WoodMac: Fracking ban hits 1.2 mb/d. A study by Wood Mackenzie finds that a fracking ban on federal lands could cut into supply by as much as 1.2 mb/d, although less of an impact in the short run.
TC Energy not ready to commit to Keystone XL. More than a decade in limbo, the Keystone XL pipeline has still not received the go-ahead from TC Energy (NYSE: TRP). The Canadian company’s CFO said that there’s still uncertainty. “If we can get comfort that the risk-reward proposition is attractive to us, we will proceed. If we can’t line all that up, the project will stay where it is,” TC Chief Financial Officer Don Marchand said.
Leviathan gas hit by malfunction. Israel’s Leviathan gas field curtailed production to 60 percent because of a problem with a subsea pipeline.
By Tom Kool for Oilprice.com
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