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Chart of the Week
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- U.S. natural gas production is expected to decline by 2 percent in 2020, averaging 97.1 billion cubic feet (Bcf/d), down from 99.2 Bcf/d in 2019.
- Gas output was already expected to flatten heading into 2020, prior to the onset of the global pandemic.
- The EIA expects Henry Hub prices to average $2.14/MMBtu in 2020, or $0.43 cents lower than the 2019 average.
Market Movers
- EQT (NYSE: EQT) began curtailing natural gas production in Pennsylvania and Ohio, according to a regulatory filing by Equitrans Midstream Corp. (NYSE: ETRN).
- Oasis Petroleum (NYSE: OAS) reported a larger-than-expected first-quarter loss, and cut spending by 50 to 60 percent.
- Petronas farmed out its 50 percent stake in an offshore block in Suriname to ExxonMobil (NYSE: XOM).
Tuesday, May 19, 2020
Oil prices have climbed to their highest level in months, with WTI at $32 and Brent breaking $35 per barrel. Sentiment has vastly improved over the past few weeks, and recent promising news about a potential coronavirus vaccine has boosted energy and equity markets.
Oil prices rise, but too far? WTI has rocketed into the $30s on hopes of supply cuts and demand rebound. Fears of storage tank topping have subsided, which has helped boost prices. But there is still plenty of downside risks to the rally.
China’s oil demand rises back to pre-pandemic levels. China’s oil demand is thought to have rebounded to about 13 mb/d, just shy of the 13.4 mb/d level seen before the initial lockdown. Meanwhile, China’s air quality is now worse than it was before the pandemic.
Deferred maintenance creates new problems. With so much of the global oil industry idled, maintenance is being deferred en masse. That could cause problems later, driving up maintenance costs and also potentially leading to more unplanned outages.
Shale cuts deeper than expected. The U.S. and Canada have lost somewhere between 3.5 and 4.5 mb/d from shut-ins. In North Dakota, more than 7,000 wells have been closed, shutting down 950,000 bpd of production. Related: Oil Jumps 11% On Signs Of Demand Recovery
India’s fuel demand rises. India’s fuel demand is rising as the government moves to lift restrictions. Petrol sales from state-owned refiners plunged by 61 percent in April, year-on-year, but has been down 47.5 percent in May, a sign of a pickup in demand.
Natural gas storage running out. Natural gas could suffer a similar fate as crude oil, with oversupply leading to rapidly filling up storage.
COVID-19 does not stop EV revolution. The coronavirus will hit EV sales hard this year, but sales of gasoline and diesel vehicles will suffer worse in percentage terms. In the long run, the pandemic won’t change the trajectory for EVs. In 2020, EV sales will drop by 18 percent, according to BNEF, while the internal-combustion engine will see sales fall by 23 percent. “The long-term electrification of transport is projected to accelerate in the years ahead,” the report said.
Petrobras downgraded as pandemic rages. Petrobras (NYSE: PBR) saw its outlook downgraded by Raymond James because of the rapid spread of COVID-19 in Brazil, which now holds the fourth-largest number of cases. “The pandemic is totally out of control,” analysts at Raymond James wrote. They view a lockdown as likely.
Companies worth $2 trillion calling for “green” recovery. A group of more than 150 companies worth $2 trillion are calling on governments to ensure that their economic stimulus packages are “grounded in bold climate action.”
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New York kills Williams gas pipeline. New York and New Jersey blocked key water permits for the controversial $1 billion Northeast Supply Enhancement natural gas pipeline owned by Williams Cos. (NYSE: WMB). Williams said it would not reapply at this time.
EIA: Shale to decline by 200,00 bpd in June. The EIA said that U.S. shale production will decline by 197,000 bpd June, compared to May. The Permian will lose 87,000 bpd. Gas production will also decline by 779 mcf/d, with losses from the Permian and Anadarko leading the way.
Exports fall 35 percent from Corpus Christi. Crude oil shipments from the U.S. from the port of Corpus Christi have declined by 35 percent since the first quarter.
More oil bankruptcies this week. Gavilan Resources LLC, an oil company formed by Blackstone Group, filed for bankruptcy on Monday. Offshore drillers Fieldwood Energy LLC, which operates in the Gulf of Mexico, filed for bankruptcy this week, its second Chapter 11 filling in two years. Ultra Petroleum (OTCMKTS: UPLC) also filed for bankruptcy for the second time.
Net Zero claims from Big Oil questioned. A new report casts doubt on the seriousness of the net-zero promises from the oil majors. None of the companies are aligned with 1.5C warming targets. Related: Battery Metal Demand Set To Soar By 500%
WTI June expiring with stability. The June WTI contract expires on Tuesday and there has been on rerun of the chaos seen a month ago, when WTI crashed into negative territory.
Investors betting on gasoline. After chaos in WTI pricing, some fund managers are instead looking to invest in gasoline or Brent.
Shell-Cnooc invest $5.6 billion in China ethylene. Royal Dutch Shell (NYSE: RDS.A) and China’s Cnooc (NYSE: CEO) signed an agreement to invest $5.6 billion in an ethylene project in the Chinese city of Huizhou.
Shale drillers keep drilling. A new study looks at some of the incentives that shale companies have to keep drilling, including a desire to avoid having leases expire on land.
By Josh Owens for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Spikes Despite Pandemic Uncertainty
- How Accurate Are EIA And API Inventory Reports?
- Tesla Could Launch A Million-Mile Battery This Year
And while the US Energy Information Administration (EIA) is projecting a decline of 500,000 barrels a day (b/d) in US oil production in 2020, other reports are talking about far bigger decline ranging from Rystad Energy projection of a 2 million barrels a day (mbd) this year to 4 mbd by May 10 according to the latest research by the respected US energy expert Philip Verleger.
Now the EIA is talking about an adjustment in US oil production of nearly 1mbd. This means either the EIA had overstated US production for the week to May by almost 1 mbd or production was not 11.6 mbd in the first place but rather 10.6 mbd.
Anyway, oil prices and demand are projected to recoup most of their previous losses with prices hitting $40-$50 a barrel in the second half of this year and touching $60 in early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
*Back from worthless* is hardly a new bull market anyways.
Plus a great start to the US ag economy this year unlike last year which was a literal wash out.
Glad to see the price surge tho!
Obviously the US economy is very happy about this news anyways. Make no mistake tho: this is still a recession. What should have been a far worse recession but a recession nonetheless.
Should be great news for downstream refining operations tho as premiums on diesel fuel in North America and the World remain out of this World high.
What needs to be done as an oil concern is complicated at all at the moment no doubt especially as Summer driving Season kicks off this coming weekend.