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Oil Prices Rebound As Central Banks Intervene

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Chart of the Week

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-    U.S. oil production averaged 12.23 mb/d in 2019, up 1.24 mb/d (11 percent) from a year earlier.

-    But the growth rate in 2019 was down from 17 percent in 2018. 

-    The EIA estimates the U.S. will average 13.2 mb/d in 2020 and 13.6 mb/d, with most of the growth in the Permian.   

Market Movers

-    Chevron (NYSE: CVX) is offering buyouts in an effort to cut its payroll, particularly in its shale gas unit. The company notified Pennsylvania officials that it would eliminate 320 jobs in the state.

-    EQT (NYSE: EQT) saw its shares raised to Buy by MKM Partners, but the analysts trimmed their price target to $10 from $12. The gas giant’s shares have bounced around between $5 and $6 in recent weeks.  

-    Tellurian (NASDAQ: TELL) announced a plan to cut spending and reorganize financing in the face of a rapid shift in market uncertainty. The LNG exporter is hoping to extend maturity on some of its debt. The company’s shares fell more than 70 percent last week. 

Tuesday, March 3, 2020

Oil prices staged a rebound at the start of the week, in part from investors buying the dip, but mostly because of emergency action from central banks and promising noises from OPEC members. Interest rate cuts could cushion the economic blow. But the spread of the coronavirus is far from contained, and uncertainty and downside risk remains.

Fed cuts rates by 50 basis points. The U.S. Federal Reserve moved quickly to cut interest rates, slashing them by half a point on Tuesday. “The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point.” 

OECD: Global GDP to slow. The OECD said that global GDP growth will slow to 2.4 percent, down from 2.9 percent previously. That is its best-case scenario, with downside risk related to the coronavirus.

OPEC could cut without Russia. OPEC may agree to deeper supply cuts this week, although it is not clear whether or not Russia will go along. Russian President Vladimir Putin said over the weekend that Moscow is content with current prices. “Saudi Arabia wants to hold prices from falling, but Russia is still not agreeing. So the only way might be for OPEC to cut alone, which will not send a good signal to the market,” an OPEC source told Reuters. On Tuesday, a Russian oil executive said that a 1-mb/d cut would balance the market.

OPEC production hits 10-year low. OPEC’s oil production fell to 27.84 mb/d in February, down 510,000 bpd from a month earlier. That was also the lowest level of output in 10 years. 

Related: Oil Price Forecasts Take A Turn For The Worst

Trump admin to unveil Arctic drilling plan. The Interior Department is set to finalize a plan for selling acreage in the Arctic National Wildlife Refuge (ANWR). 

Oil majors facing decline. The oil majors face poor returns, increasing hostility from investors, long-term demand concerns and low prices. The oil and gas industry “has reached a mature and declining phase, with a weak financial outlook,” according to a new report.

Wyoming could buy Occidental acreage for $1 billion. The state of Wyoming is in talks to purchase millions of acres of land from Occidental Petroleum (NYSE: OXY), a sum that could range between $1 and $3 billion. Occidental is in need of asset disposals in order to pay down debt. Wyoming sees an opportunity in mining, ranching and oil and gas drilling. Critics say the move would expose the state even more to extraction industries – already the state’s revenues are declining with the demise of coal. 

Chevron to return $80 billion to shareholders. Chevron (NYSE: CVX) outlined its medium-term plans in an investor presentation on Tuesday, saying that it would dish out $80 billion to shareholders over the next five years. It also said that it would maintain spending at between $19 and $22 billion over that period. 

$900 billion in stranded assets. The oil and gas industry could be sitting on $900 billion in stranded assets, a massive value that could be wiped out if the world accelerates efforts to slash emissions. 

CERAWeek canceled. One of the most highly-anticipated oil conferences, the IHS CERAWeek conference, was canceled because of the coronavirus. 

FGE: Oil demand to fall by 220,000 bpd. Oil consultancy FGE cut its forecast for 2020 demand, estimating an outright contraction in global consumption by 220,000 bpd.  Related: Russia’s Oil Production Rises Ahead Of OPEC+ Meeting

Shale stress deepens. U.S. shale companies were not making a lot of money prior to the coronavirus outbreak. With WTI in the mid-$40s, the financial vice is tightening. “[West Texas Intermediate] at $50 a barrel does not work for US shale,” Matt Portillo, a managing director at Tudor, Pickering, Holt & Co, a Houston-based investment bank, told the FT.

Exxon releases methane plan. ExxonMobil (NYSE: XOM) released a plan to cut methane emissions from its operations. The plan calls for plugging leaks, better record-keeping and new equipment. 

China’s refineries suffering from too much capacity. Profits for China’s oil refiners fell42 percent in 2019 from a year earlier, a notable figure that predates the coronavirus. The sector is dealing with overcapacity.

U.S. vehicle fleet improves fuel economy. The U.S. vehicle fleet hit a record for fuel efficiency, with the fleet average rising to 25.1 miles per gallon in 2018, up 0.2 mpg from a year earlier. 

By Tom Kool for Oilprice.com 

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