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Oil Prices Climb Despite Growing Demand Fears

Oil prices were up on Tuesday morning, despite the fact that new projections of oil demand destruction in 2020 are very bearish

Chart of the Week

-    U.S. oil production fell by 1.99 mb/d in May, the largest monthly decrease since at least January 1980, according to EIA data. The decrease was twice as large as the previous record of 1.03 mb/d set back in September 2008 during Hurricanes Gustav and Ike.

-    May was the sixth consecutive month of a production decrease. 

-    Texas saw the largest decline at 764,000 bpd, followed by North Dakota with a decline of 353,000 bpd. 

Market Movers

-    Range Resources (NYSE: RRC) reported a smaller-than-expected quarterly loss, although a more than 50 percent decline in revenues year-on-year. 

-    Continental Resources (NYSE: CLR) reported a second-quarter loss of $239 million, and production fell by 39 percent. 

-    Diamondback Energy (NYSE: FANG) reported a net loss of $2.39 billion, made worse by a $2.5 billion impairment.

Tuesday, August 4, 2020

Oil prices opened trading on Tuesday down slightly, holding in a familiar range around $40 per barrel. Concerns about demand are beginning to take on a stronger narrative in the market, but for now, prices remain mostly steady. 

BP cuts dividends, says it will cut production over time. BP (NYSE: BP) reported a replacement cost loss (similar to net loss) of $6.7 billion in the second quarter, down from a $2.8 billion profit a year earlier. BP also cut its dividend for the first time since the Deepwater Horizon disaster a decade ago. The company cut its dividend to 5.25 cents per share, down by half. BP’s CEO Bernard Looney said he looks to accelerate the company’s low-carbon transition, including a 10-fold increase in investment on renewables while shrinking oil and gas production by 40 percent over the coming decade. BP will also not expand exploration to any more countries. 

Related: The World Is Facing A Solar Panel Waste Problem

U.S. oil production plunged to 10 mb/d in May. Newly released data from the EIA shows that U.S. oil production plunged to just 10 mb/d in May, down from 11.9 mb/d in April. Also, weekly estimates by the agency at the time pegged production at over 11 mb/d, so the downward revision is significant. In other words, the depth of the collapse in May was much more substantial than analysts thought at the time.

Marathon to close two refineries, and sell retail chain. Marathon Petroleum (NYSE: MPC) said it would permanently close two small refineries in California and New Mexico. The move would eliminate 800 jobs. Marathon also agreed to sell its gas station chain to the owners of 7-Eleven convenience stores for $21 billion in the largest U.S. energy deal so far this year. 

India’s fuel consumption stalls. Demand for refined fuels from state-owned refiners in India fell by 13 percent in July compared to June. Higher prices and coronavirus-related shutdowns impacted consumption. 

Saudi Arabia may have to cut prices again. After three consecutive months of raising its crude oil prices, the world’s largest oil exporter, Saudi Arabia, is widely expected to make the first cut to its official selling prices (OSPs) since the OPEC+ group started their record production cuts to prop up the market and prices amid crashing demand.

Oil industry embraces remote work. The pandemic could induce significant changes to the operations of the oil and gas industry. Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL) and Baker Hughes (NYSE: BKR) are shifting more tasks to remote work. The changes could mean the elimination of operational and manufacturing jobs while increasing employment for data analysts and engineers.

Carbon prices rise in Europe, hitting coal. Carbon prices have rebounded from recent lows, raising the cost of coal-fired generation. “The carbon market is working: it’s doing its job,” Lueder Schumacher, head of European utilities Société Générale, told the WSJ. “Many coal plants are no longer profitable at these kinds of levels.” Globally, more coal capacity was taken offline than was added in the first six months of 2020, for the first time ever. 

UAE brings the first nuclear plant on the Arabian Penisula online. The UAE has started up its $20 billion Barakah nuclear power plant. The project, built with the help of South Korea, will be the first nuclear plant on the Arabian Penisula.

GM to build 2,700 EV recharging stations. GM (NYSE: GM) said it would build 2,700 fast-charging EV stations, equipped to recharge 60 miles of driving in 20 minutes. The move is intended to bolster sales of GM’s EVs. Unlike Tesla (NASDAQ: TSLA), which built stations only for Tesla models, the stations will be open to any type of EV.

Report: rapid U.S. decarbonization would create 25 million jobs. “Rapid and total decarbonization” could create 25 million jobs in an all-out effort to eliminate emissions by 2035, according to a new report.

Range Resources selling shale fields for pennies on the dollar. Range Resources (NYSE: RRC) agreed to sell its Louisiana shale fields for $245 million, after buying them for $3.3 billion just four years ago.   Related: Ocasio-Cortez Could Deal A Fatal Blow To U.S. Oil Pipelines

Fieldwood Energy nears bankruptcy. Offshore oil driller Fieldwood Energy is nearing bankruptcy, which would be its second chapter 11 filing in two years. 

Energy shrinks as share of S&P. Tech giants reported huge earnings last week just as ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) reported massive losses. Tech now makes up 27 percent of the S&P. “Energy was once the largest sector in the S&P 500,” Matt Stucky, portfolio manager Northwestern Mutual, told the FT. “When we sit here today, it is less than 3 percent…What’s going to drive market trends is some of the largest tech companies.”

More shale bankruptcies coming. So far this year, 23 North American oil and gas companies have filed for bankruptcy, representing more than $30 billion. But more are coming. “It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months,” Haynes and Boone said in a report.

By Josh Owens for Oilprice.com 

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