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Oil Returns To $40 After COVID Correction

Oil prices fell on Thursday as COVID-19 cases continued to spike in the U.S., which the IEA  highlighted as a major threat to oil markets in today’s report, but prices were quick to return to the $40 mark on Friday.

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Friday, July 10th, 2020

Oil posted a price correction on Thursday on fears of the rising coronavirus numbers in the U.S., something that the IEA warned about in its latest Oil Market Report out today. In early trading, prices firmed up, with WTI holding onto $40 per barrel.

IEA raises demand forecast; warns about risk. The IEA hiked its demand forecast for 2020 but also warned that the spreading coronavirus in the U.S. poses downside risks. The agency said demand could be 400,000 bpd higher than previously thought this year due to a rapid bounce back in many economies around the world, particularly in China and India. Also, oil supply fell by 2 mb/d in June, further tightening the market. 

COVID hits Texas refineries. Marathon Petroleum’s (NYSE: MPC) Galveston Bay refinery in Texas City, the second-largest refinery in the country, has over 100 confirmed cases of Covid-19, according to Bloomberg. At least four other refineries have also reported positive cases.  Related: Iraq Considers A String Of Massive Oil Deals With China

U.S. offshore wind to take off. Investment in U.S. offshore wind could soon match total investment levels in offshore oil and gas. A new study from Wood Mackenzie projects offshore wind investment could reach $78 billion this decade, compared to $82 billion for offshore oil and gas. In the decade ending in 2010, wind saw virtually nothing while offshore oil and gas received $154 billion.   

Libya lifts force majeure. Libya’s National Oil Corp. lifted force majeure on its oil exports, raising the prospect of additional supply coming back to the market. 

Oklahoma Supreme Court ruling raises questions for oil. The U.S. Supreme Court ruled that a large swathe of Oklahoma remains in control of Native American tribes. The decision raises questions about whether oil and gas sites will no longer fall under the control of Oklahoma regulators, instead potentially reverting to federal control with tribes as beneficiaries. 

Permian gas pipeline inches forward. Global Infrastructure Partners announced a $345 million initial investment in the Whistler pipeline, which would carry natural gas from Waha in West Texas to the Gulf Coast. The pipeline is slated to come online in late 2021.

Iran’s oil storage is almost full. Iran has cut oil production to its lowest level in four decades as storage tanks fill up, according to Reuters

Shell to become a “power company.” Royal Dutch Shell (NYSE: RDS.A) chairman Chad Holliday said that the company would transition to become “more of a power company than an oil company.”

EIA lowers gas production forecast. The EIA slightly downgraded its forecast for U.S. natural gas production for the third quarter by nearly 1 percent, noting lower natural gas prices. Gas output is expected to fall by 3 percent for all of 2020. The declines come after the U.S. posted record gas production numbers in 2019.

U.S. LNG utilization rates fall to just 32 percent. The glut of LNG has led to a steep drop in utilization rates of U.S. LNG export terminals. Gas flows to LNG facilities has declined by more than half to 3.1 bcf/d so far this month, down from 8.7 bcf/d in February. Export terminals are now only using 32 percent of capacity. Utilization is expected to rebound, but still only average between 60 and 70 percent for the next several years.  Related: Underinvestment Could Send Oil Prices Soaring

Texas drilling permits fall by 69 percent. The Texas Railroad Commission approved312 new drilling permits in June, down from 1,001 in May.


More U.S. oil coming back. Houston-based Noble Energy plans to bring back by the end of July most of the oil production it had curtailed in the second quarter. Overall, U.S. oil production held steady in the most recent EIA data at 11 mb/d.

Canadian oil sands restore 20 percent of shut-in production. Canadian oil sands producers brought back 20 percent of their shut-in production.

Is $150 oil possible? The steep decline in upstream investment could create a historic bull market in the years ahead. “That funding pressure is going to be massive. It’s going to be really difficult for some of the producers to produce,” Trevor Woods, chief investment officer of Ohio-based hedge fund Northern Trace Capital, told the WSJ. “We could hit $150 pretty easily by 2025.” The thesis rests on slow but steady increases in demand over the next decade.

U.S. imports of Mexican oil hit 8-year high. A fire at a Mexican refinery and swelling inventories pushed more Mexican oil to the United States, which imported 1.3 mb/d in the first week of July, the highest level since 2012.

North American oil and gas bankruptcies rise. The number of oil and gas bankruptcies rose by 18 in the second quarter, according to a new analysis from Haynes and Boone. That was the highest quarterly total since 2016. Chesapeake Energy’s (NYSE: CHK) bankruptcy stood out as the largest on the list. 

Tesla: close to an autonomous car. Elon Musk said that Tesla (NASDAQ: TSLA) is very close to having the Level 5 autonomous driving technology. “I remain confident that we will have the basic functionality for level 5 autonomy complete this year,” Musk said in a pre-recorded message.

By Josh Owens for Oilprice.com 

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