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The Worst May Be Over For Oil

Oil prices jumped on Tuesday morning as demand appears to be slowly returning while non-OPEC supply continues to go offline.

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Chart of the Week

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-    U.S. refinery runs have collapsed as demand has declined sharply. Refinery runs fell to 12.8 mb/d in the week ending on April 17, rebounding to 13.2 mb/d on April 24, but still 21 percent lower than the five-year average for this time of year.

-    Motor gasoline has been hit hardest. Gas demand fell to 5.1 mb/d in early April, a thirty-year low. 

-    Jet fuel production from refineries declined to 800,000 bpd for the week ending on April 24, down 51 percent from the five-year average. 

Market Movers

-    Parsley Energy (NYSE: PE) suspended all new drilling and fracking. First quarter production was up 57 percent year-on-year. Parsley cut spending for the full year to below $700 million, with more than half of that already spent.

-    Marathon Petroleum (NYSE: MPC) posted a net loss of $9.2 billion in the first quarter. 

-    Diamondback Energy (NASDAQ: FANG) said it would curtail production by 10 to 15 percent in May.

Tuesday, May 5, 2020

Oil prices shot up on Tuesday on signs of rebounding demand and supply shut ins. President Donald Trump was notably excited by the news, tweeting the demand was returning. But it may not only be demand that is driving oil prices higher. DNB analyst Helge Andre Martinsen highlighted that “We are currently seeing accelerating oil-production curtailments outside the OPEC+ countries,”. He went on to suggest that the supply side of global oil markets “is about to change quite quickly.”

Bakken output down 400,000 bpd.
Roughly a third of North Dakota’s oil production has been shut in so far, down 400,000 bpd since March. The Bakken has some of the highest costs out of all U.S. shale, with an average breakeven price of about $46, according to Reuters and Deutsche Bank. 

Lockdown easing boosts demand. Data is still scarce, but the loosening of stay-at-home orders across the world are thought to be boosting demand. Marco Dunand, the co-founder of oil trader Mercuria said that the oil market has “turned a corner,” according to the FT. “But if we have a second wave of pandemic then all bets are off,” he added.

Total maintains dividend. Total (NYSE: TOT) kept its dividend stable despite a 35 percent decline in profit. Earnings fell to $1.78 billion, which still beat analysts’ estimates. The company’s production is expected to decline by 5 percent in 2020. Total also said that it plans on shifting to net zero emissions by 2050. 

Cheniere cuts LNG outlook. Cheniere Energy (NYSEAMERICAN: LNG) said that it expects global LNG investment to slump this year and next year. The company reiterated its earnings, a positive sign. “We’re seeing one of the worst LNG markets test Cheniere’s cash flow durability and so far its proving to be as resilient as designed,” analysts at Credit Suisse said.

Related: Iraqi Kurdistan On The Brink Of Collapse As Oil Prices Crash

Canadian oil prices rally on supply shut ins. Canadian oil producers were quick to curtail production several weeks ago and the price of Western Canada Select rallied to $19 per barrel as of Tuesday, sharply narrowing its discount to WTI. Imperial Oil (TSE: IMO) cut production at its Kearl mine from 220,000 bpd to 150,000 bpd, for instance. 

Texas kills off oil production cuts. After weeks of speculation, the Texas Railroad Commission will not vote to order mandatory production cuts. Two of the three commissioners opposed the idea. 

California signs large battery deal. Southern California Edison completed a deal to provide 770 megawatts of battery storage capacity, the largest battery contract on record. 

Oil shut ins raise questions.“We are on the precipice of forced well shut-ins totaling 15 to 20 million barrels of oil per day,” Clay Williams, chief executive officer for National Oilwell Varco Inc., told Bloomberg. However, there are lots of variables regarding the strategy and the economics of widespread shut ins, including how much production will be lost, which wells to shut, which to bring online, and wells may be damaged in the process. 

Related: The Death Of U.S. Oil

U.S. renewables beat coal for 40 days. For a record 40 straight days, renewable energy has generated more electricity than coal in the United States. Renewables may surpass coal on an annual basis this year for the first time ever.

ExxonMobil posts loss, maintains dividend. In a sign of the diverging strategies between some oil majors, ExxonMobil (NYSE: XOM) kept its dividend intact despite rising financial pressure. The supermajor posted its first loss in three decades. The decision comes even as Royal Dutch Shell (NYSE: RDS.A) and Equinor (NYSE: EQNR) cut their dividends. “I don’t look to what Shell is doing to decide our dividend policy,” Exxon’s Darren Woods defensively on an earnings call. 

Warren Buffet regrets $10 billion Occidental deal. Warren Buffet said he regretted the $10 billion that Berkshire Hathaway put into Occidental Petroleum (NYSE: OXY). “If you're an [Occidental] shareholder or any shareholder in any oil-producing company, you join me in having made a mistake,” he said.

Saudi foreign reserves fall. Saudi Arabia’s foreign reserves fell by $24 billion in March, the largest single-month decline in at least 20 years. Investors are betting that the financial pressure on several Persian Gulf countries will weaken their currency pegs. 

Keystone XL could be delayed by a year.A recent court ruling could delay the Keystone XL pipeline by another year. The court decision could also affect pipelines across the country.

By Tom Kool of Oilprice.com

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