Oil Price - Oil Markets Are On The Brink Of Armageddon

“Two boys are in a closed garage with several inches of gasoline on the floor. One has six large matches, the other has seven smaller ones. They debate as to who is strategically superior”.  J.K. Galbraith

The world’s oil markets are at a crisis point arguably not seen in its history. 

Since the last meeting of OPEC/OPEC+ concluded, global oil prices have collapsed to close Friday at 53.14% down for WTI and 51.14% down for Brent. These prices are the lowest seen in almost twenty years. Oil prices have tumbled as the fallout of that meeting compounded the unprecedented hit to consumption from the coronavirus pandemic.

https://oilprice.com/Energy/Energy-General/Oil-Markets-Are-On-The-Brink-Of-Armageddon.html

Seeking Alpha - Why This Is Unlike The Great Depression

Summary

• Due to some dramatic elements, this period has been compared by many analysts to the Great Depression of the 1930s.
• There are some similarities, including a scenario where a debt supercycle reaches its later stages.
• However, there are also several key differences between now and then. Some better, some worse, but mainly just different.

https://seekingalpha.com/article/4334887-why-this-is-unlike-great-depression?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-the-next-leg-down-another-massive-decline-is-coming&utm_campaign=nl-must-read&utm_content=link-3

World Oil - Pipelines ask U.S. drillers to slow output as storage capacity dwindles

LONDON (Bloomberg) - American pipeline operators have begun asking oil producers to voluntarily ratchet back their output in the clearest sign yet that a growing glut of crude is overwhelming storage capacity.

Plains All American Pipeline LP, one of the biggest shippers of crude in the U.S., sent a letter this week asking its suppliers to scale back production. The notice came from the company’s marketing unit that buys and sells oil to customers. A Texas oil regulator said Saturday that drillers were getting similar notices from pipeline operators.

The messages signal the oil market is fast approaching the moment traders have been warning about -- when crude supplies overflow storage tanks and pipelines as the coronavirus pandemic drags down oil demand by the most in history.


“We are sending this proactive request to our suppliers to ask that you take steps to reduce oil production in response to the pandemic,” Houston-based Plains said in the letter obtained by Bloomberg.

https://www.worldoil.com//news/2020/3/30/pipelines-ask-us-drillers-to-slow-output-as-storage-capacity-dwindles?id=31307113

DESMOG - Exxon May Crush Bailout Hopes for Suffering Fracking Companies

The Washington Post reported March 10 that the Trump administration was considering some type of financial help for the failing U.S. shale oil and gas industry, “as industry officials close to the administration clamor for help.” Those officials — billionaire shale CEO Harold Hamm was likely among them — seemed desperate for government assistance because, as DeSmog has documented, their deeply indebted businesses have lost billions of dollars during the fracking boom. Even before the recent oil price war and COVID-19 pandemic, these companies could hardly stay afloat, making cries for some type of corporate welfare likely unavoidable. 

But that's not the same message across the entire oil and gas industry.

At the same time, the head of the American Petroleum Institute — the oil and gas industry's most powerful lobbying group — said the industry was not interested in seeking a bailout, which didn't exactly sound like the desperation reported by The Post. It seemed like an odd mix of messaging from the industry. 


The idea of bailing out the shale companies was not well received by many politicians, environmental groups, and conservatives. Efforts to directly bail out the shale industry in the federal stimulus package were apparently abandoned. 

https://www.desmogblog.com/2020/03/27/shale-bailout-trump-oil-exxon-strategic-petroleum-reserve

World Oil - Experts see a future for shale: ‘Rocks don’t go bankrupt’

HOUSTON (Bloomberg) --The American shale industry shocked the world with its rebound after the 2014-2016 bust, setting records for output that pushed the U.S. to the top spot among oil-producing countries. A handful of experts is saying that will happen again.

The comeback trail would be steep and long. The spread of coronavirus is crushing demand while Saudi Arabia and Russia are creating a glut. Everybody agrees U.S. production will take a bigger hit than last time, when it dipped before soaring. As many as 70% of the 6,000 shale drillers may go bankrupt, and one-third of shale-patch workers are expected to lose their jobs. Wall Street, which financed the last boom, has cut off the cash spigot.

https://www.worldoil.com//news/2020/3/27/experts-see-a-future-for-shale-rocks-don-t-go-bankrupt?id=31307113

Seeking Alpha - Higher Oil Supplies Will Never Make It To The Market, Global Production Shut-In Is Coming

Summary

• Paper barrels are one thing while physical barrels are another.
• Global supply shut-ins will happen long before storage levels at consumer nations hit tank top (think US here).
• With demand estimated to fall 10 to 20 mb/d in April, refineries already are cutting throughput by 10 mb/d. This, in turn, reduces crude buying by at least 10 mb/d.
• As a result, April global crude exports are going to tank, and the Saudis won't even be able to sell any additional oil into this market environment to begin with.
• Canada is a great real-time example of this. In April, Canadian oil production will fall ~10% or between 400k to 500k b/d. This is why it's far more likely that shut-ins happen globally at the producer level rather than at tank-top in consumer nations.

https://seekingalpha.com/article/4334483-higher-oil-supplies-will-never-make-to-market-global-production-shut-in-is-coming?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-you-have-one-week-to-decide&utm_campaign=nl-must-read&utm_content=link-9

BTU Analytics - Will Storage Constraints Lead to Oil Shut-ins?

With India as the latest country to announce shelter-in-place restrictions to combat the spread of COVID-19, BTU Analytics has estimated the 2Q 2020 impact of COVID-19 will be lower global liquids demand by an average of 8.6 MMb/d. This virtually overnight destruction of demand, coupled with the unraveling of coordinated production cuts from Saudi, Russia, and other OPEC nations has sent crude prices spiraling into the $20/bbl range from above $60/bbl at the start of 2020. Even as the industry slashes budgets and furloughs completion crews, the question remains, will it be enough? What does it take to offset not only global demand destruction from COVID-19, but also increasing production from Saudi, the UAE, and Russia? Will US producers be forced to shut-in oil production?

https://btuanalytics.com/will-storage-constraints-lead-to-oil-shut-ins/

Oil Price - Is It Still Possible To Rebalance The Oil Market?

There is still a chance to rebalance oil markets if the OPEC+ group expands to include more producing countries, the head of the Russian sovereign wealth fund, Kiril Dmitriev, told Reuters in an interview.

The bold statement comes after several global demand revisions, the most recent from IEA's Director Fatih Birol, who yesterday said demand could fall by 20 million bpd.

"Joint actions by countries are needed to restore the (global) economy... They (joint actions) are also possible in OPEC+ deal's framework," Dmitriev said, adding that, "We are in contact with Saudi Arabia and a number of other countries. Based on these contacts we see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets."

https://oilprice.com/Energy/Energy-General/Is-It-Still-Possible-To-Rebalance-The-Oil-Market.html 

Baker Hughes Rig Count - US Land, March 27, 2020

Source: Baker Hughes Rig Count

Oil Price - What Happens If Oil Prices Go Negative?

Various reports hit the news feeds today quoting a deliberately headline-grabbing statement by Paul Sankey, managing director at Mizuho Securities, in which he is reported as saying, “Oil prices can go negative.” That is, they could as a combination of Saudi Arabia (and Russia) flooding the market with increased oil and the market running headlong into COVID-19-induced curtailment of activity that is suppressing consumption, which combined will create the perfect storm of excess supply.

https://oilprice.com/Energy/Energy-General/What-Happens-If-Oil-Prices-Go-Negative.html

Seeking Alpha - Russia Explains Why It Killed The OPEC Deal

Summary

I follow up on my previous article regarding the collapse of the OPEC deal.

Russia's deputy energy minister provides his rational for Russia's decision and sends signals to the market.

Russia looks serious about tolerating pain from low oil to gain market share and deal a blow to U.S. shale for both political and economic reasons.

https://seekingalpha.com/article/4331452-russia-explains-why-killed-opec-deal 

World Oil - World Oil analysis: Research shows current oil price collapse near record proportions

The oil price collapse of the last two weeks has reached near-record territory, according to World Oil’s analysis of historical prices in constant dollars. Back on March 9, the current slide began, when the NYMEX WTI crude futures price plunged from the $41.28/bbl level of March 6 to just $31.13/bbl. After bouncing around in the low $30s/bbl between March 9 and March 13, the WTI futures price dipped further, to $28.70 on March 16 before plunging to only $20.37 on March 18. The price finished the week on March 20 at 22.43.

Over the last week or so, World Oil has converted monthly averages for original (nominal) crude futures prices from 1983 to early 2020 into “constant dollars,” often referred to as “today’s money.” This enables an apple-to-apple comparison of average monthly oil prices at various times over the last 37 years.

https://www.worldoil.com//news/2020/3/20/world-oil-analysis-research-shows-current-oil-price-collapse-near-record-proportions?id=31307113

World Oil - Texas RRC Chairman Wayne Christian: We must stabilize worldwide oil markets

Never in my life have I seen such uncertainty in the world. What am I supposed to do? How long will it last? What will happen next? As COVID-19 wreaks havoc on our healthcare system and economy, there are no easy answers. American businesses and workers are justifiably worried about its impact on public health and the economy, and their own health and personal finances. As a result, people are suffering.

Over the last month, our stock market has gone from record highs to multi-year lows at an unprecedented pace. Stocks have dropped faster in recent weeks than they did during the Great Depression. In the energy sector, reduced demand and a poorly-timed feud between Saudi Arabia and Russia has driven oil prices to 20-year lows.

https://www.worldoil.com//news/2020/3/25/texas-rrc-chairman-wayne-christian-we-must-stabilize-worldwide-oil-markets 

World Oil - Oil prices are even lower than they appear, thanks to heavy discounting

DUBAI (Bloomberg) - As oil crashes due to demand destruction and a price war, it’s easy to overlook an even more dismal reality for producers: the real prices they’re getting for their barrels are worse still.

Having collapsed by about 60% this year, Brent and West Texas Intermediate crude have stabilized at around $25 a barrel, but the price rout is far deeper for actual cargoes, which are changing hands at large and widening discounts to the global benchmarks. The discounts mean that in the physical market, some crude streams are trading at $15, $10 and even as little as $8 a barrel.

“The physical market is in pain, and there is more pain to come,” said Torbjorn Tornqvist, the co-founder of Gunvor Group Ltd., a large trading house. “We will see the full weight of the oversupply in a couple of weeks.”

Crude oil in the physical market trades at a premium or discount to Brent, West Texas Intermediate and other benchmarks. At times of surplus, premiums narrow and discounts widen. But the current situation is almost unprecedented, with discounts in some cases at multi-decade highs.

https://www.worldoil.com//news/2020/3/25/oil-prices-are-even-lower-than-they-appear-thanks-to-heavy-discounting 

World Oil - Funding to refill U.S. Strategic Petroleum Reserve cut from stimulus plan

WASHINGTON (Bloomberg) - Funding for President Donald Trump’s plan to fill up the nation’s emergency oil reserve to help struggling drillers cope with the price crash failed to make it into the latest stimulus legislation, but could return in other forms.

Lawmakers eager to get the stimulus package to the president essentially opted to defer a fight over whether to pair the oil purchase with funding for clean energy. But the issue could arise as Congress takes up additional coronavirus-related legislation in coming weeks.

In a letter to caucus members, Senate Democratic Leader Chuck Schumer claimed victory after blocking a “bailout for big oil.” A previous Republican draft of the bill contained $3 billion to top up the Strategic Petroleum Reserve.

https://www.worldoil.com//news/2020/3/25/funding-to-refill-us-strategic-petroleum-reserve-cut-from-stimulus-plan 

World Oil - U.S. urges Saudis to reassure global energy and financial markets

WASHINGTON (Bloomberg) - The U.S. made its most direct intervention yet in the oil price war between Saudi Arabia and Russia, urging Riyadh to “rise to the occasion and reassure” energy markets at a time of economic uncertainty.

Secretary of State Michael Pompeo spoke to Crown Prince Mohammed bin Salman on the eve of a conference call between the leaders of the Group of 20 on the global pandemic and its economic fallout.

“The secretary stressed that as a leader of the G20 and an important energy leader, Saudi Arabia has a real opportunity to rise to the occasion and reassure global energy and financial markets when the world faces serious economic uncertainty,” the State Department said on Wednesday.

Oil prices have plunged as the Russian-Saudi price war compounded the unprecedented hit to consumption from the coronavirus pandemic. Futures pared losses after news of Pompeo’s call, with Brent crude little changed near $27 a barrel.

https://www.worldoil.com//news/2020/3/25/us-urges-saudis-to-reassure-global-energy-and-financial-markets

JPT -The US Fracturing Market Is Sinking, But How Low Will It Go?

With oil prices hovering in the mid-$20s for more than a week, and facing the threat that they may be driven lower by an expanding surplus, US shale producers have begun moving heavy capital out of the field. When they are done, the shale business might be about half its current size in terms of activity.

More than two dozen of the largest US shale producers have already announced 20%–30% cuts to their capital budgets. Apache Corporation and QEP Resources are among the first to take the drastic step of halting all drilling and completions activity.

Some large Permian producers, including Pioneer Resources and Parsley Energy, plan to lay down at least half their rig fleets in the coming weeks. Executives at both firms said they will take pay cuts to cope with the sudden downturn.

 https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6802&