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Why Oil Prices Didn’t Rally After The OPEC+ Extension

The extension of the OPEC+ production cut agreement did little to move oil prices as it had already been baked into oil prices

Chart of the Week

- Canada is the largest source of U.S. energy imports, and second-largest destination for U.S. energy exports.

- Energy imported into the U.S. from Canada accounted for $85 billion of value, or about 27 percent of all Canada-to-U.S. trade.

- Roughly 56 percent of oil imported into the U.S. came from Canada.

Market Movers

- Occidental Petroleum (NYSE: OXY) surged 33 percent on Friday, reaching a three-month high. It was the largest percentage increase in OXY’s history.

- Whiting Petroleum (NYSE: WLL) fell by more than 30 percent on Tuesday, ending a brief surge in the company’s share price. The company declared bankruptcy on April 1.

- Chesapeake Energy’s (NYSE: CHK) shares were halted on reports that the company was preparing to file for bankruptcy. The company was once worth $37.5 billion at its peak.
Tuesday, June 9, 2020

OPEC+ agreed to extend the production cuts for another month, but with the extension mostly baked into market expectations, it has done little for oil prices at the start of the week. Meanwhile, the U.S. officially entered an economic recession in February.

Saudi ends extra cuts. Even as OPEC+ agreed to extend the production cuts for another month, Saudi Arabia said that it would end the extra supply cuts that it had imposed in the second quarter. “The voluntary cuts served their purpose and we are moving on,” Prince Abdulaziz said in a press briefing on Monday. Revenues from Saudi oil exports plunged by nearly 22 percent in the second quarter, a decline of $11 billion.

Saudi Arabia hikes oil prices. Saudi Arabia increased the official selling price for its oil by the most in two decades, with Saudi Aramco raising prices of Arab Light to Asia by $6.10 per barrel. The move is a sign that Saudi Arabia wants to continue to boost the oil market by erasing all the discounts it offered at the start of the price war several months ago.

Related: Global Oil Demand To Fall To Levels Not Seen Since 2014

Refining margins could kill oil recovery. Weak refining margins could kill the oil price recovery, according to a new report from Goldman Sachs. If refiners pull back on processing, crude will pile up, pushing down prices. Other analysts see the same trend. “One word of caution is if we look at the rally we’ve seen in crude oil prices, it’s been amazing, but the big uncertainty is if you look at refinery margins, they are very weak across the board across all regions,” Warren Patterson, head of commodities strategy at ING, told CNBC.

Libya to return 300,000 bpd, maybe. The retreat of the Libyan National Army from the siege on Tripoli could pave the way for more Libyan oil to hit the global market. On Saturday, Libya restarted production at its largest oil field, the Sharara, which could bring 300,000 bpd back online. But a day later, the field shutdown after an armed group stormed the facility.

A third of offshore oil production shut in. Tropical Depression Cristobal forced 34 percent of U.S. offshore oil production to be temporarily taken offline.

Enbridge plans shift to renewable energy. Enbridge (NYSE: ENB), North America’s largest pipeline company, plans to shift its asset mix towards natural gas and renewable energy over time.

Germany to require EV recharging stations. Germany said that it will require all petrol refueling stations to install electric car recharging infrastructure. “We know that 97% of the reason why they’re not buying electric cars is range anxiety. The German move is a way to try and fix this range anxiety since it means you know a petrol station is always open,” Diego Biasi, chairman and co-founder in Quercus Real Assets, told Reuters. As part of the 130-billion-euro economic recovery plan, the initiative will also subsidize the purchase of EVs by about 6,000 euros.  

Massachusetts AG probes natural gas phase out. The attorney general of Massachusetts asked the state’s public utilities regulator to investigate the potential phase out of natural gas from the state. That would make it the third state to explore the transition, after California and New York.

BP to cut 10,000 jobs. BP (NYSE: BP) plans on slashing 10,000 jobs, or 14 percent of its workforce. The move follows similar-sized cuts at Chevron (NYSE: CVX). Royal Dutch Shell (NYSE: RDS.A) is doing voluntary layoffs. “We are spending much, much more than we make -- I am talking millions of dollars, every day,” BP’s CEO Bernard Looney wrote.

Shale output rebounding. U.S. shale drillers continue to bring shuttered production back online. “We’re seeing production coming back in pretty much all of the basins,” Kelcy Warren, chief executive of pipeline giant Energy Transfer (NYSE: ET), told the WSJ. “It’s been a steady recovery since the first week of May.” But U.S. production is still expected to continue to decline, perhaps closing out the year around 10 mb/d, according to IHS Markit.

U.S. shale revival unlikely. The oil market has tightened and prices have rebounded, but the frenzied pace of drilling in U.S. shale won’t come back for the foreseeable future. “Producers broadly characterized teens production growth as more an upside case than a base case,” Goldman analysts wrote in a note.

Related: Saudi Arabia And Russia Agree To Extend Production Cuts

Massive diesel spill in Russia due to climate change. The leak of 150,000 barrels of diesel in Russia’s Far North was due to melting permafrost.

Gulf Coast petrochemicals at immediate risk from climate change. Three large petrochemical facilities in Houston are “highly vulnerable” to extreme flooding caused by climate change, according to a new report from Jupiter Intelligence. The entire Gulf Coast petrochemical sector faces an “imminent challenge” from climate risks.

California Resources to file for bankruptcy. California Resources (NYSE: CRC) skipped an interest payment and could file for bankruptcy next week, according to the WSJ. CRC is primarily a conventional oil driller based in Los Angeles.

Trump’s “emergency” pipeline order to face legal challenges. President Trump signed an executive order that waives bedrock environmental protections from the permitting process for new pipelines. But the order likely faces a series of legal obstacles.

By Josh Owens for Oilprice.com

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