COVID Oil Market Update
Saudi Arabia shocked the markets this week when it said it would not keep up the voluntary portion of the cuts--the extra cuts beyond the official OPEC+ agreement--past June. The news came the day after the group agreed to extend the current OPEC production quota agreement through July in an effort to continue to draw down global inventories. Next week, a panel led by OPEC will meet to review the market but are not scheduled to make any decisions about extending cuts.
Slow demand for fuels has reportedly forced Exxon to postpone expansion work at its Beaumont refinery in Texas, originally set to be completed by 2022. Expansion work, for now, will be pushed to a 2023 completion date. The refinery would handle Exxon’s increasing Permian production, but presently is operating a reduced capacity due to faltering gasoline demand for jet fuel.
Politics, Geopolitics & Conflict
Keep an eye on Suriname this week, and over the rest of the summer, as the political situation intensifies on the public arena for the first time since successful offshore oil exploration put this country on the map (alongside Guyana). Parliamentary elections that took place on May 25th have seen the opposition coalition pull ahead of the ruling National Democracy Party (NDP) of the controversial president, Desi Bouterse. The opposition coalition has 33 seats, against the NDP’s 16, but the coalition is still a seat short of the two-thirds majority…
COVID Oil Market Update
Saudi Arabia shocked the markets this week when it said it would not keep up the voluntary portion of the cuts--the extra cuts beyond the official OPEC+ agreement--past June. The news came the day after the group agreed to extend the current OPEC production quota agreement through July in an effort to continue to draw down global inventories. Next week, a panel led by OPEC will meet to review the market but are not scheduled to make any decisions about extending cuts.
Slow demand for fuels has reportedly forced Exxon to postpone expansion work at its Beaumont refinery in Texas, originally set to be completed by 2022. Expansion work, for now, will be pushed to a 2023 completion date. The refinery would handle Exxon’s increasing Permian production, but presently is operating a reduced capacity due to faltering gasoline demand for jet fuel.
Politics, Geopolitics & Conflict
Keep an eye on Suriname this week, and over the rest of the summer, as the political situation intensifies on the public arena for the first time since successful offshore oil exploration put this country on the map (alongside Guyana). Parliamentary elections that took place on May 25th have seen the opposition coalition pull ahead of the ruling National Democracy Party (NDP) of the controversial president, Desi Bouterse. The opposition coalition has 33 seats, against the NDP’s 16, but the coalition is still a seat short of the two-thirds majority they will need to ensure that Bouterse--convicted of murder and sentenced to 20 years in prison, but holding immunity as long as he is president--is not elected for a third term as president. The key oil players here in this emerging exploration scene are Apache and Total SA, with Exxon also recently getting in on the game.
A similar--if slightly less chaotic--situation is emerging in newly oil-rich Guyana (of offshore Exxon exploration fame) with the opposition People’s Progressive Party (PPP) leading following a recount of votes from 2 March parliamentary elections. The PPP now has 33 seats in parliament, while the ruling coalition led by the PNC has 31 seats, and one seat is still the subject of the recount. Investors will be getting increasingly nervous as the opposition has campaigned on unfair terms for oil exploitation contracts, but as we have noted previously, any moves in this area will target new rather than existing contracts. Some instability could result from President David Granger refusing to accept defeat and claiming “massive election fraud”. June 13th will be the determining date when the electoral council releases the final results and Granger will be expected to respond.
US sanctions targeting Venezuela are causing chaos at sea, with new measures imposed on June 2nd against four tankers, including one chartered by Chevron. This is largely Washington’s response to Iran’s fuel deliveries to Venezuela, though it is not a direct response to Tehran. Now, reports are emerging that the Trump administration could be preparing to add more sanctions and another 50-some tankers to the blacklist.
Iraq is on the edge of another descent into dangerous mass protests and the new prime minister finds himself with the impossible task of cutting costs in a country whose political elite feed off loyalty from bloated “public servant” positions paid from a budget that can’t handle it. Meanwhile, Iraq’s oil sales have halved from March to April, and it’s been under further fire to comply with OPEC production cuts (which it never does out of political necessity). There are already indications that protests could again gain momentum amid the economic crisis.
Deals, Discovery & Development
Indonesia’s authorities have announced that Chinese investors will develop a $6-billion oil refinery in Batam after Saudi Arabia’s Aramco and Italian giant Eni pulled out of two refinery projects.
Occidental Petroleum will review its Middle East assets to ease its $40 billion debt load. It is looking at $1 billion in assets in Oman, and in lesser stages of review, at assets in the UAE and Qatar. Assets include both oil and natural gas.
Equinor and Aker BP have agreed to jointly develop several fields on the Norwegian Continental Shelf. The licenses will include Krafla, Fulla, and North of Alvheim offshore licenses in an area that holds more than 500 million barrels of oil equivalents.
Papua New Guinea has passed laws aimed at boosting its benefits from oil and gas that may interfere with talks with Exxon that have seemingly stalled over the P’nyang gas development project that hoped to see the country’s LNG exports double. Papua New Guinea is facing a financial crisis, having received $364 million in the form of an emergency loan from the IMF this week.
Companies in Crisis
Oil driller California Resources will file for bankruptcy this weekend without an additional debt extension after it failed to make a $30-million payment to lenders in May. In March, California Resources said it was trying to restructure $4.9 billion of debt when the oil price crisis led to a failed bond exchange.
Kuwait has decided to no longer hire foreign workers for jobs in the oil sector as it attempts to reduce the number of foreigners in the country by half. Kuwait Petroleum Corp and its subsidiaries will not hire foreign workers for the rest of this year and all of next. What’s more, third-party contracts with non-Kuwaiti nationals will also be reduced.
Chesapeake Energy (NYSE: CHK) stock fell sharply this week, from $68 per share to $15 as Bloomberg published an article citing anonymous sources that the company was on the verge of Chapter 11. Chesapeake has been exploring bankruptcy for quite some time--and admitted last month it was exploring the option--to ease its high debt load in the ailing oil market.
After Malaysia’s state-run Petronas saw its Q1 profit plummet by 68%, the company has now delayed its 2020 licensing round as the coronavirus crisis dampens enthusiasm for the round. The round will be pushed back by at least two months.