As America reopens, it seems oil prices have finally found some stability despite growing fears of a looming second coronavirus wave.
Chart of the Week
- The Southwest Power Pool – the electric grid operator for much of the Great Plains – set a record high of 62 percent of its electricity provided by renewable energy for a full day on March 7, 2020.
- For 2019 on average, wind accounted for 29 percent of the region’s electricity, with a high of 37 percent for the month of October.
- SPP has 21 GW of wind installed or about 24 percent of the area’s nameplate capacity.
Market Movers
- Cabot Oil & Gas (NYSE: COG) faces felony charges for environmental crimes in Pennsylvania from a decade ago.
- BP (NYSE: BP) was asked by the Iraqi government to cut production at the Rumaila field in Iraq by 10 percent in order for the country to comply with the OPEC+ production cuts.
- Vista Proppants & Logistics LLC, a private equity-backed frac sand supplier, has filed for bankruptcy.
Tuesday, June 16, 2020
Oil initially sank on Monday on fears of a second wave of coronavirus but rebounded after the Federal Reserve promised to begin buying corporate bonds. Rystad Energy says that oil might be moving into a more stable trading range between $35 and $40.
BP to write off $17.5 billion in assets. BP (NYSE: BP) said it would write down $17.5 billion in assets due to a lower-for-longer outlook on oil prices, the largest write-down by an oil major in years. The announcement caused the company’s share price to slide 1.5 percent. BP also suggested that it will continue to pursue a cleaner energy transition, and the write-down punctuates the grim long-term outlook for oil and gas. The announcement also comes just a few days after deciding to cut 10,000 jobs from the company.
IEA: Oil market on the mend. The IEA said in its latest Oil Market Report that the second half of the year will be brighter than the first, with demand rising and sharp supply cuts balancing out the market. Still, demand will be down 8.1 mb/d. Demand rebounds in 2021 by 5.7 mb/d, leaving demand short of pre-pandemic levels until 2022 at least. Related: Morgan Stanley: This Oil Rally Won’t Last
The second wave of coronavirus infections poses a threat to oil. A feared second wave of coronavirus infections may have arrived, with cases rising in many parts of the U.S., while exploding much more rapidly in Latin America. In China, a small number of new cases raised fears of a return of the virus. With much of the market pricing in a steady rebound in demand, any renewed lockdown or economic hit would drag oil back down.
U.S. Supreme Court rules in favor of major gas pipeline. The Supreme Court ruled in favor of the Atlantic Coast Pipeline, a long-distance pipeline that would carry Marcellus shale gas to the U.S. Southeast. The pipeline has been delayed for years, and controversially, crosses the Appalachian Trail. Originally expected to cost $5 billion, the cost has risen steeply. The Supreme Court decision does not remove all outstanding obstacles, however.
Millions of abandoned oil & gas wells leaking methane. Millions of old oil and gas wells are leaking methane and other hazardous pollutants, and experts see the industry abandoning many more wells as a growing number of companies face financial distress. Reuters reports on the worsening public health and environmental problem, finding that more than 3.2 million abandoned wells have leaked methane equivalent to burning 16.2 million barrels of oil.
Texas RRC considers flaring cuts. Three new reports have come out in recent days, proposing ways for Texas to cut natural gas flaring. The reports come as the Texas Railroad Commission is scheduled to meet on Tuesday to discuss ways to cut down on the practice. The proposals range from cutting oil and gas production to banning flaring in some cases, for example.
ExxonMobil forced to curtail production in Guyana. ExxonMobil (NYSE: XOM) has curtailed production at its Liza field in Guyana due to the risk of excessive flaring.
100,000 jobs lost in oil and gas. More than 100,000 jobs have been eliminated in oil and gas since February, according to a Rystad Energy analysis. About 45,000 of those jobs are located in Texas.
Saudi Arabia cuts oil shipments to Asia. Saudi Arabia reduced oil exports to Asian refiners by between 10 and 40 percent, according to Bloomberg.
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Banks cut lending to shale. Lenders are cutting borrowing bases to U.S. shale drillers, with a total reduction of 30 percent for asset-backed loans, according to Moody’s and JPMorgan Chase. “It’s an unavoidable reckoning,” Todd Dittmann, head of energy at alternative investment manager Angelo Gordon & Co., told the WSJ. “A decade of bubbling public and private debt and equity capital delayed this day, but no more.” For example, Centennial Resource Development (NASDAQ: CDEV) saw its revolving loan cut from $1.2 billion to $700 million.
IEA: EVs to take record market share. The IEA estimates that EVs will capture 3 percent of global car sales this year, up from 2.6 percent in 2019. EVs erased around 600,000 bpd of oil demand in 2019. Related: Will Canadian Oil See Any Federal Help?
Extraction Oil & Gas files for Chapter 11 bankruptcy. Extraction Oil & Gas (NASDAQ: XOG) is the second large U.S. shale company to file for bankruptcy in recent months, following the April bankruptcy filing from Whiting Petroleum (NYSE: WLL). Extraction produces nearly 100,000 bpd in Colorado’s DJ Basin. Extraction’s 2016 IPO was the energy sector’s largest public offering since the 2014 downturn and it was valued at $4 billion after it went public. As of Monday, its market cap was a little over $70 million.
Chesapeake Energy could file for bankruptcy this week. Chesapeake Energy (NYSE: CHK) may file for bankruptcy as soon as this week, according to Reuters.
U.S. LNG exports plunge. U.S. LNG exports are expected to be down 60 percent in July, year-on-year, as the global glut continues to hit American exporters. “Essentially, the world doesn’t need more LNG from the US at this moment,” Dumitru Dediu, a partner at McKinsey, told the FT. Roughly 45 LNG cargoes scheduled for export in July from the U.S. have been canceled.
Idled Australian LNG points to glut. While U.S. LNG takes a hit, Australia also reports LNG tankers sitting idle with no place to go. Roughly 41 cargoes are either sailing around Australian waters or anchored offshore, according to The Sydney Morning Herald.
Federal Reserve to buy corporate bonds. Financial markets turned positive after opening in the red on Monday after the Federal Reserve said that it would begin buying individual corporate bonds on top of ETFs that it had already been buying.
By Josh Owens for Oilprice.com
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