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Oil Prices Rally On COVID Optimism

Oil Prices

Oil prices got a boost on Tuesday on fresh hopes of progress in coronavirus vaccine trials, though the oil industry still has a long road ahead before seeing a full recovery

Chart of the Week

-    U.S. LNG exports averaged 8 bcf/d in January 2020. By July, exports fell to 3.1 bcf/d. 

-    The last time U.S. gas exports were as low as July levels was in May 2018, back when export capacity was about one-third of current capacity.

-    The week of July 12-18 was particularly low – averaging just 2 bcf/d.  

Market Movers

-    Saudi Aramco (TADAWUL: 2222) saw its profits fall 73 percent to $6.57 billion in the second quarter. Aramco maintained its dividend.

-    Cheniere Energy (NYSE: LNG) said it sees LNG cancellations ending by the winter. 

-    A federal judge ordered the Army Corps of Engineers to detail options by the end of August for resolving the permitting issue with the Dakota Access pipeline.

Tuesday, August 11, 2020

Oil prices strengthened again on hopes of a slowdown in coronavirus transmission in the United States. “The fact that the COVID cases seem to be tapering off in the U.S. is making people a little more optimistic about getting it under control and demand recovering toward the end of the year,” said Michael Lynch, president of Strategic Energy & Economic Research. Also, Russia said it was moving forward with a coronavirus vaccine despite the lack of rigorous trials. The health impact is unclear, but any positive vaccine news has tended to spark a bullish reaction from the market. 

Rig count slides again. Even as the oil market has stabilized, the U.S. oil industry has not returned to drilling. Even the Permian basin continues to lose rigs. “North American E&Ps are in a battle for investment relevance, not a battle for global market share,” Matt Gallagher, CEO of Parsley Energy Inc. (NYSE: PE), told analysts during a conference call. “Allocating growth capital into a global market with artificially constrained supply is a trap our industry has fallen into time and time again.” Related: Where Will Bakken Oil Go When Pipelines Run Dry?

U.S. oilfield services lose more than 9,000 jobs in July. The U.S. oilfield-services sector cut 9,344 jobs in July, a sharp increase in job losses from a month earlier. In total, nearly 100,000 jobs have been lost since the start of the pandemic. The expiration of federal support could lead to more job cuts. 

Permits for horizontal drilling hit a 10-year low. Not only is the rig count at historic lows, but so are new drilling permits. “Drilling permits, which are increasingly reliable indicators of future activity levels, dipped to a 10-year monthly low this July, with only 454 awards,” Rystad Energy wrote in a report. The firm said that unless WTI prices quickly move to $50 per barrel within the next few weeks, it is unlikely that the rig count will increase significantly before 2021.

Canadian oil sands producers lose $C$2.4 billion in the second quarter. Combined, top oil producers in Canada’s oil sands lost C$2.4 billion ($1.8 billion) in the second quarter, following a first-quarter loss of C$8.8 billion. Capital is also becoming a concern. Recently, HSBC, Norges Bank, and Deutsche Bank said they would no longer finance Canada’s oil sands.

Trump admin to gut methane regulations. The EPA is expected to announce a rollback of standards on methane emissions from oil and gas operations. The move was long expected. However, this regulation could be quickly repealed if the Democrats take control of the Senate and Joe Biden wins the White House. 

Occidental loses $8 billion. Occidental Petroleum (NYSE: OXY) lost $8 billion in the second quarter, including a $6.6 billion write-down. Oxy also said that its oil and gas production would fall by 13 percent this quarter and by another 5 percent in the fourth quarter. Notably, Oxy said that its Permian production would fall by 37 percent this year. “We remain concerned about the company's high debt load and ability to generate cash flow in a prolonged low oil price environment,” Jennifer Rowland, an analyst with Edward Jones, wrote in a note.

9 companies file for bankruptcy in July. A new report from Haynes and Boone finds that 9 North American oil and gas companies filed for bankruptcy in July, a 66 percent increase from the same period a year earlier. In the first seven months of the year, 32 companies sought bankruptcy protection.  


Nord Stream 2 at risk of non-completion. U.S. sanctions are increasing the odds that the Nord Stream 2 pipeline does not reach completion, according to Uniper (OTC: UNPPY), one of the project’s partners. If the pipeline cannot be completed, Uniper says it “may have to impair the loan provided to Nord Stream 2 and forfeit the planned interest income.”

SEB: $60-$80 oil possible, depends on shale. The lack of drilling activity could push oil prices up to $60 per barrel at some point next year, but that depends on shale restraint, according to SEB. Any surge in drilling will keep prices depressed. “The US shale oil sector and its investors need to start behaving more like OPEC+ and constrain investments and supply to some extent if they want to walk away with profits,” said Bjarne Schieldrop, chief commodities analyst at SEB. Related: Iranian Oil Exports Much Higher Than Official Data Suggests

Iran oil exports higher than data suggests. Iran is exporting as much as 600,000 barrels daily, using ship-to-ship transfers with transponders turned off to avoid detection, skirting U.S. sanctions. The daily average number compares with an estimate of 227,000 bpd made in a U.S. Congressional report.

U.S. producers take oil back from SPR. U.S. oil companies have started pulling their crude oil back from government storage tanks, suggesting that the glut that forced them to stash it there in the first place is now easing.

Oil majors’ cuts reach 1 mb/d. The five largest oil majors have written down a combined $50 billion in assets and slashed production by 1 mb/d. Only ExxonMobil (NYSE: XOM) did not write down any assets, although the company said in a filing that it may revise down its reserves at the end of the year. 

By Josh Owens for Oilprice.com

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