The Very Real Possibility Of $30 Oil

Market Movers (JULI)

- Nothing should depress oil markets more this week than Goldman Sachs' cutting its 2020 global oil demand growth forecast - again - to -150,000 bpd, when it had previously forecast growth of 0.55 million bpd, and before that, 1.1 million bpd. So, for the first time, we're in negative territory, and it's not just Goldman. IHS Markit also said this week that oil demand will likely be lower than in 2019 - even if H2 2020 sees a recovery. IHS is forecasting global oil demand at 3.8 million bpd lower than a year ago, thanks to coronavirus. Rystad, too, revised its forecast on Thursday, estimating that oil demand growth will come in at 500,000 bpd for the year, down from 1.1 million bpd that it estimated in February. Can anyone say '$30 oil'?

- There was hope that an OPEC+ production cut of 1.5 million more barrels per day would save oil. But Russia refused to cooperate and prices have since plunged by 9 percent. Of the 1.5 million in extra cuts, 500,000 bpd would have had to come from non-OPEC members, and non-OPEC's largest member is Russia. OPEC delegates have since hinted that the OPEC+ alliance might be over.

- Aramco's shares had fallen 2% - the lowest since the IPO - on Sunday as coronavirus fears set in. Shares have come up slightly since then, to 33 riyals, compared to 32.50 on Sunday.

- PetroChina, China's top gas producer and piped gas supplier, has suspended some natural gas imports, including LNG shipments and piped gas due to the coronavirus outbreak.

- The coronavirus is not, however, affecting China's New Energy Vehicle output, battery metals, and lithium demand this year, although Q1 demand is expected to be rather soft. Most respondents surveyed by S&P Platts are anticipating NEV output and sales to rise this year.

Stock Watch

- If you're looking to see who is going to be worst hit by the coronavirus among the mid- and large-cap oil companies, it's probably worth paying attention to OXY (Occidental Petroleum), which has lost nearly $1 billion after its Anadarko buy, without COVID-19, and now says it would reduce production and further reduce costs if oil prices continue to tank. OXY earnings show the company took a hit of $965 million last year (compared to $4.1 billion in profit in 2018). Q4 also reported a loss, but revenue climbed.

- Another company to look at will be Chesapeake (NYSE:CHK), which was down another 46% in February (if you thought Q1 was a good time to get in on this stock for cheap, it might be worth a rethink because it just keeps getting cheaper). CHK has lost two-thirds of its value in the first two months of this year. This massive debt load can't handle another hit from weaker oil prices due to coronavirus.

Deals, Mergers & Acquisitions

- Aramco has made it through the EU approval process for its $69-billion SABIC (petrochemical) deal in the last of its major regulatory milestones. Aramco's purchase of 70% of SABIC from Saudi Arabia's Sovereign Wealth Fund (PIF) is a step toward weaning off exports of crude in favor of more downstream-type ventures.

- Venezuela has moved to seize the assets of six shipping companies over alleged unpaid debt to state-run oil company PDVSA. A court has decreed that the six shipping companies misappropriated funds at the expense of PDVSA without mentioning the exact size of the misappropriation.

- Warren Buffett's Berkshire Hathaway has decided not to invest $3 billion in an LNG plant by the Saguenay port in Quebec. The decision was made due to weeks of rail blockades and an oversupplied market eroding the facility's appeal. The project includes the construction of a 782-kilometer pipeline to transport natural gas from Western Canada, which has triggered opposition from indigenous groups. Still, the company behind the project GNL Québec said the loss of the potential investor would not keep the project from moving forward.

- Somalia and a Shell-Exxon JV have struck an agreement for future exploration of offshore oil and gas blocks, converting historic concessions to a new PSA that was signed into law earlier this month. In October, the JV paid $1.7 million to "rent" the five blocks it won some 30 years ago, before Somalia descended into anarchy.

- Anadarko Petroleum Corporation has sold its Ghana Jubilee Field and TEN assets to French Total SA in a massive deal that would net $2.5l billion in gains after 13 years of building up those plays. There is one kink in this chain, however (keeping in mind that Occidental Petroleum acquired Anadarko in August in a stunning $37-billion takeover. There is a $500-million capital gains tax claim by the government of Ghana on Occidental's assets for which the government and OXY have not yet reached an agreement.

Discovery & Development

- Equinor has made a North Sea oil discovery from wildcat wells, with preliminary estimates ranging from 1 and 2.7 million cubic meters of recoverable oil. Equinor is considering tying it back to the Gudrun field.

- After a rather ugly year for net profits, Portuguese Gal Energie is looking to expand its renewable footprint to 3.3 GW of renewable capacity by 2023, and 10 GW within the next decade through a new division that is dedicated to renewable energy.

- Norway's oil wealth fund is planning $11 billion in investments for unlisted wind parks and solar farms over the next three years in North America and Europe.

Politics, Geopolitics & Conflict

- The Venezuelan government has arrested two managers from state-owned PDVSA oil company for leaking confidential information to Washington just days after announcing that the authorities would step up efforts to tackle corruption within the PDVSA.

- Russian Rosneft is believed to have paid $250 million to an external consultant to help secure deals in Iraqi Kurdistan. The fee was linked to 2017 deals that helped Rosneft become the dominant foreign player in the Kurdish oil industry.

- The UN envoy for Libya, Ghassan Salame, has resigned citing health reasons after nearly three years in the post. He cited the "level of stress" as the reason behind his intention to step down from the post to which he was appointed in 2017. Salame had recently been mediating talks between Libya's warring sides.