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Souring Fundamentals Force Brent Crude Oil Below $40

Both the President and First Lady of the United States have tested positive for COVID-19 on a day when Brent oil prices crash below $40 and the U.S. rig count climbed.

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Friday, October 2nd, 2020

Crude prices fell on Friday following news that President Donald Trump tested positive for the coronavirus. Broader equities also tumbled. As of midday trading, Brent was down more than 4 percent, dipping below $40 per barrel. 

Shale companies did poorly, but executives got paid. A Wall Street Journal analysis found that the median pay for executives of U.S. oil and gas companies rose for four consecutive years to $13 million in 2019, up from $9.9 million in 2015. Over that time period, median shareholder returns fell 35 percent. Energy was the worst-performing sector in the S&P 500, but shale CEOs received larger raises last year than in all but two of the 11 major industries analyzed. 

Moody’s: Natural gas faces long-term investment risk. A combination of legal challenges to natural gas pipelines, policies aimed at reducing emissions, and public scrutiny over natural gas could lead to a “measured reduction” in natural gas demand over the next two to three decades, according to a new report from Moody’s Investor Relations. “We're raising the flag,” Ryan Wobbrock, vice president and senior credit officer at Moody's Investors Service Inc. and the lead analyst on the report, told E&E News. “We're talking about a multidecade horizon of risk.”

Natural gas prices could soar. The highly volatile U.S. natural gas benchmark prices are set to trend higher in the coming months amid lower domestic production, higher demand in the winter, and recovering global gas prices in Europe and Asia. Henry Hub prices have been volatile over the past few weeks, but have firmed up at around $2.50/MMBtu, sharply higher than levels from just a few months ago. 

ExxonMobil stock falls on likely dim Q3 numbers. In an SEC filing on Thursday, ExxonMobil (NYSE: XOM) provided a Q3 earnings considerations update of its expectations for the third-quarter results relative to the second quarter. On Friday, Exxon’s share price fell roughly 2 percent, dipping to $32.47 per share, nearing a multi-decade low hit earlier this year. 

NextEra considers $60 billion takeover of Duke Energy. NextEra Energy (NYSE: NEE) recently approached Duke Energy (NYSE: DUK), exploring what would be a $60 billion combination of two major utilities. 

Oasis Petroleum files for bankruptcy. Oasis Petroleum (NASDAQ: OAS) filed for bankruptcy on Wednesday, the latest driller to fall victim to the downturn. 

Demand concerns continue. U.S. gasoline demand remained flat for most of the third quarter, undercutting hopes of a rebound. “It’s hard to paint the bullish demand story for energy in the short term…I just don’t see it,” said Jennifer Rowland, senior energy analyst for Edward Jones. “Instead, I see all the warning signs.”

Oil traders doubt OPEC+ increases production. OPEC+ is scheduled to further unwind production cuts beginning in January, adding 2 mb/d back onto the market. But some traders doubt that the group will follow through due to weak demand. “I don’t think OPEC will increase production in January...If they do, the market will test them to the downside,” Pierre Andurand, founder and chief investment office at Andurand Capital, told the FT Global Commodities Summit. Related: Iraq Ships More Crude Oil Despite OPEC Output Cut Pledge

Trump signs executive order on rare earths. U.S. President Donald Trump has signed an executive order declaring a national emergency in the mining industry, a move that seeks to curb the country’s reliance on rare earths in his latest bid to end China’s control of the market.

Another round of industry layoffs. Marathon Petroleum (NYSE: MPC) began cutting jobs on Tuesday, with about 12 percent of its workforce set to be let go. Royal Dutch Shell (NYSE: RDS.A) said it would eliminate 9,000 jobs. Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) are in the process of restructuring. 

Total doesn’t see peak demand until 2030. While BP (NYSE: BP) said that the world likely already passed peak oil demand, French oil giant Total (NYSE: TOT) said in a new report that peak demand remains a decade away. Total said that it would boost spending on renewables to $3 billion annually by then and that it would cut sales of gasoline and diesel by 30 percent. 

Ohio cancels permit for gas storage. Ohio environmental regulators have canceled key permits needed for an underground natural gas liquids storage facility, dimming hopes that the region will become a major natural gas liquids storage hub that would bolster the buildout of a broader petrochemical hub.

Abandoned wells could leave billions of dollars to taxpayers. U.S. taxpayers could be on the hook for tens or even hundreds of billions of dollars in clean up costs for abandoned wells as a growing number of producers collapse into bankruptcy, according to a new report from Carbon Tracker. Related: Natural Gas Prices Explode On Stronger Demand

Denmark gives greenlight to Nord Stream 2. Denmark gave the go-ahead to the Nord Stream 2 pipeline, boosting a project that is more than 90 percent complete, but that has been held up recently because of U.S. sanctions and a backlash over the suspected poisoning of a Russian opposition leader by the Kremlin. 

Vietnam approves $5 billion LNG project. Vietnamese city Haiphong approved of a $5 billion LNG project to be developed by ExxonMobil (NYSE: XOM).

Attempts to open up Atlantic Coast for drilling on brink of collapse. The Trump administration’s efforts to open up the Atlantic to offshore oil and gas exploration could collapse as permits for seismic testing by four companies are set to expire without being renewed. 

$110 billion in asset sales could be difficult to pull off. Large oil and gas companies have proposed as much as $110 billion in asset sales in an effort to cut back on debt, but finding buyers could prove tricky. “This is not a very good time to sell assets,” Total (NYSE: TOT) CEO Patrick Pouyanne said on Wednesday.

By Tom Kool for Oilprice.com 

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Leave a comment
  • Maxander on October 02 2020 said:
    Oil prices don't slide because somebody contracted Covid-19.
    Crude oil price slide is more of a technical trend rather than fundamental one.
    Infact OPEC exports rose to the rest of the world except America because demand for crude oil from Asia or rest of the rose considerably.
    Oil will resume its uptrend soon.

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