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IEA: OPEC Can’t Save The Oil Market

Tom Kool

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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Uncertainty Brings An End To The Oil Price Rebound

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Market Movers

- Devon Energy’s (NYSE:DVN) transition from a gas-weighted asset portfolio towards a rather one-sided focus on US onshore oil seems to be paying off as the US firm’s Q4 earnings, to be published this evening, are expected to surpass expectations.

- Extraction Oil & Gas (NASDAQ:XOG) has dropped almost 9% on the news that it would lay off 20% of its Colorado workforce as weaker prices and regulatory requirements continue to plague its DJ Basin operations.

- Glencore (LSE:GLEN.L) shares took a plunge Tuesday when the world’s largest commodity trader announced its first annual net loss in 5 years (at $404 million), on the back of underperforming coal and metal assets.

Tuesday, February 18, 2020

A robust five-day rally in oil prices was cut short by another wave of uncertainty as it became clear that any OPEC+ deal will take substantially more deliberation than originally thought and the much-hoped-for V-shaped recovery in Chinese oil demand is unlikely to come about as quickly as previously projected “Activity is slowly picking up, and while oil demand for storage has remained robust, the demand for products remains low”, Ole Sloth Hansen of Saxo Bank A/S told Bloomberg, adding that “the market will have to live with a W-shaped recovery rather than a V-shaped one”.

Neutral Zone To Reach Full Capacity Before 2020 End. Kuwait’s oil minister stated that production from the heretofore shut-down Divided Zone, hastily restarted on February 16, will be ramped up to 550kbpd peak production “before the end of the year”. Early indications suggest Kuwait and Saudi Arabia will aim to maximize medium sour Khafji output to 325kbpd, in a move that has already sparked rumors that the impact of the September 14 attack might be more severe than officially acknowledged by Riyadh.

Chinese State Refiners Cut Runs. Argus reported that the February average refinery runs in China will be 3.9mbpd lower than in January (at 9mbpd), hitting the lowest level since January 2014. Sinopec will bear the brunt of refinery cuts, lowering utilization rates to some 60-70 percent across the country to the effect of decreasing February runs by 1.4mbpd month-on-month, whilst Petrochina will cut 0.77mbpd from January levels.

ENI Finds Oil Offshore Mexico. The Italian major ENI (NYSE:E) announced that its Saasken-1 well, drilled in 340 meters of water to a total depth of 3830 meters, has discovered 80 meters of net oil pay, pointing to a reserve base of 200-300 MMbbls. With six further operated blocks in Mexico’s Sureste Basin, ENI is emerging as the leading offshore non-Mexican oil firm with output potential of some 200kbpd by mid-2020s.

Tullow Oil’s Cold Streak Doesn’t Seem to End. In contrast to ENI, UK-based Tullow Oil (LSE:TLW.L) has experienced another painful setback when the Marina-1 exploration well, drilled to a total depth of 3 022 metres in 362 metres of water in deepwater offshore Peru turned out to be dry. With its stock having declined 64% last year, the Peru drilling fiasco has sent its shares a further 8% down.

Libya Production Drops Even Lower. Libya’s national oil company reported that as of Monday its oil production stood at 135.7 thousand barrels per day, roughly one-tenth of what it was before Field Marshal Haftar’s army launched a blockade of Libya’s ports. Total losses from the blockade already reached $1.6 billion, according to NOC. Related: Can LNG Kill Oil?

BP Signs MSGBC Basin Drill Deal. British Petroleum (NYSE:BP) has awarded a 4-well contract for the Valaris DS-7 drillship to drill offshore Senegal and Mauretania, with another 2020 exploration well stipulated for Gambia. Buoyed by 2019’s largest gas discovery, the 1.3bboe Orca gas find from late 2019, BP now wants to create three separate LNG hubs offshore Mauritania with a total production capacity of 10mtpa.

Belarus Threatens Russia With Crude Withdrawal. Still unable to find common ground with Russia on some 24mtpa of pipeline crude supplies, Belarussian President Alexander Lukashenko has threatened to “begin withdrawing transit crude from the Druzhba pipeline if Russia fails to supply oil in sufficient quantities”. Thus far, no Russian major has delivered any crude this year to Belarus as Russia wants to wean itself off subsidizing prices to FSU outlets.

Pyrenees Bounces Back From All-Time High. Arguably the world’s most expensive crude, the Australian Pyrenees has bounced back from an all-time high premium of $30.5 per barrel to Dated Brent, with BHP (ASX: BHP.AX) selling an April 10-15 loading cargo for a premium of $21 per barrel. The drop in value reflects the decrease of VSLFO prices on the Asian market – Pyrenees (19° API, 0.2% Sulphur) is highly suitable to blend into IMO 2020-compliant marine fuels.

Powder River Coal Facing a Dire Future. A mere ten years ago Powder River Basin-produced coal accounted for half of the United States’ electricity generation, now it dropped to half of that. Faced with ever-shrinking demand, 2019 production volumes have dropped 9% year-on-year to 266.8 million tons and this year will most probably see another decline of some 30 million tons, predicts University of Wyoming economist Rod Godby.

Rosneft Pledges 5 Billion in “Green” Commitments. The Russian national oil company Rosneft (MCX:ROSN.ME) has vowed to invest 5 billion in “green” causes over the next five years. Shying away from investing in renewables or setting a carbon-neutral path forward, the Russian firm will primarily focus on cutting greenhouse gas emissions (by 8 million tons by 2022) and reutilizing associated petroleum gas.

Related: Oil Prices Slump On Renewed Coronavirus Concerns

Shell Reports First Coronavirus Case. The Anglo-Dutch major has confirmed that one of its contractors at the 500kbpd Pulau Bukom Refinery, the largest wholly-owned by Shell (NYSE:RDS.A), contracted coronavirus. The company’s trading department has been on alert, too, as one of the operations staff was reported to be at risk of contraction, luckily this seems to have been a false alarm.

Qatar Delays Mooted LNG Projects. Reuters has reported that Qatar has postponed its North Field Expansion Project by 3-9 months, just several months after it announced its willingness to launch it together with Western majors like ExxonMobil (NYSE:XOM) or Shell (NYSE:RDS). The root cause of the delay lies in coronavirus depressing Asian demand, further aggravating the ongoing LNG supply glut which has already sent US LNG prices into record lows.

Israel Mothballs Nascent Shale Industry. Israel’s Energy and Environment Protection Ministry has stated it will not issue any new licenses for shale oil exploration and production, for fear of unjustifiedly high “environmental and ecological footprint risks”. The Ministry said it will not renew the Mishor Rotem license (which belongs to Israel Chemicals, NYSE:ICL) beyond May 2021 and has initiated proceedings to reexamine the other two licenses that have been issued.

By Tom Kool for Oilprice.com 

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