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What's Wrong With Brent Oil Futures?

Friday, May 8, 2020

1. ExxonMobil posts first quarter loss

- ExxonMobil (NYSE: XOM) reported a $610 million loss in the first quarter, the first loss in more than three decades.
- The supermajor said it would idle 75 percent of its rigs in the Permian basin, where it will concentrate its cuts because of the short-cycle nature of drilling. Spending will fall by 30 percent.
- ExxonMobil and Chevron (NYSE: CVX) will shut in a combined 800,000 bpd in response to the market collapse.
- Exxon maintained its dividend and has taken on billions of dollars in debt to finance the spending gap, contributing to a credit downgrade in recent weeks. Exxon needs oil prices at about $75 per barrel to breakeven and to finance shareholder payouts. Its peers only need around $50 per barrel.

2. Brent curve too flat?

- Standard Chartered says that the futures curve is out of whack. “Prices during the first phase of the transition need to be low enough to encourage demand and keep shut-in supply from returning too quickly; in later phases they need to keep demand growth within bounds while providing incentives for supply to increase,” the bank wrote in a report.
- The price signals need to encourage shut-ins, but “also regulate activity levels in US shale oil so that production does not plunge too dramatically due to a lack of new well completions,” Standard Chartered analysts said.
- But at current prices and activity…

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