COVID-19 Market Update
- While JPMorgan has been trying to ditch the discount loans it holds from Gulf sovereign wealth funds (notably, Saudi Arabia’s and the UAE’s) as prices crash and demand crumbles, the UAE is gearing up for its own bond sale, hot on the heels of Qatar’s. And given the situation, investors will get a premium, if they’re willing to take the risk. Qatar was the first to recently test investor appetite for the region’s debt with a $10-billion bond sale on Tuesday. A day later, Abu Dhabi launched its own cash raise, with initial prices giving investors a premium of around 70-80 basis points over existing bonds. On Wednesday, Abu Dhabi sold $7 billion in bonds.
- Back in Saudi Arabia, all those Aramco bondholders are wondering what comes next. The $12 billion in bonds they hold recorded an 8.2% loss in March, and they are likely to remain under intense pressure in April and May.
- After soaring to great heights last week, supertanker rates fell this week as the market held its breath over the virtual OPEC meeting, avoiding new bookings until the outcome of that meeting was made clear, based largely on the assumption that there would be a scale-down of Saudi seaborne exports following an agreement. The VLCC market for the Middle East-China route saw rates slashed in half this week, from their high last week over anticipated production cuts that are not yet forthcoming.
- The US Congress rejected a plan to…
COVID-19 Market Update
- While JPMorgan has been trying to ditch the discount loans it holds from Gulf sovereign wealth funds (notably, Saudi Arabia’s and the UAE’s) as prices crash and demand crumbles, the UAE is gearing up for its own bond sale, hot on the heels of Qatar’s. And given the situation, investors will get a premium, if they’re willing to take the risk. Qatar was the first to recently test investor appetite for the region’s debt with a $10-billion bond sale on Tuesday. A day later, Abu Dhabi launched its own cash raise, with initial prices giving investors a premium of around 70-80 basis points over existing bonds. On Wednesday, Abu Dhabi sold $7 billion in bonds.
- Back in Saudi Arabia, all those Aramco bondholders are wondering what comes next. The $12 billion in bonds they hold recorded an 8.2% loss in March, and they are likely to remain under intense pressure in April and May.
- After soaring to great heights last week, supertanker rates fell this week as the market held its breath over the virtual OPEC meeting, avoiding new bookings until the outcome of that meeting was made clear, based largely on the assumption that there would be a scale-down of Saudi seaborne exports following an agreement. The VLCC market for the Middle East-China route saw rates slashed in half this week, from their high last week over anticipated production cuts that are not yet forthcoming.
- The US Congress rejected a plan to spend $3 billion of the economic stimulus package to buy up oil to fill the U.S. strategic reserve in an effort to relieve the storage capacity problem. That funding would have purchased some 77 million barrels of oil for the SPR. Instead, the Department of Energy will acquire the oil through solicitation rather than purchasing, which means it will ‘buy’ oil on contracts for temporary storage in the SPR. Stashing away crude oil into SPR’s across the globe is expected to be a focus of the G-20 meeting today as a way to bolster the demand for oil.
Politics, Geopolitics & Conflict
- While most of the world was distracted by the oil price war and the global pandemic, several rockets landed near the site of the US oil company in southern Iraq. The Iraqi military said the rockets were targeting the site of oil service company Halliburton, in the Burjesia area of Iraq’s oil-rich Basra province. There were no casualties and the facility sustained no material damage; nor has any group claimed responsibility. But this proxy conflict between the U.S. and Iran is far from over. In fact, 2020 will see this battleground heat up further because the balance of power is shifting in Iraq, and it’s shifting in Iran’s favor.
Discovery, Development & Deals
- Pressing on with its search for oil, Brazil’s state-run Petrobras has struck oil in its pioneer well in the Uirapuru block in the pre-salt Santos Basin. The well reached a depth of 1,995 meters of water. The data will now be reviewed to determine future exploratory activities to determine the potential for the discovery. Petrobras holds a 30% stake in the block, with partners Exxon, Equinor, and Petrogal.
- Lebanon has extended the deadline for its second offshore licensing round to June 1 in light of the coronavirus pandemic. The original deadline had been set for April 30. A sizable offshore discovery would be quite meaningful to Lebanon, which is suffering a severe economic crisis.
- Equinor (50%), Progress Resources USA (30%), and Repsol E&P USA (20%) have found oil at its Monument exploration well in GoM. Equinor found 200 ft of net oil pay in Paleogene sandstone. The well depth was 33,348 feet, with a water depth of 6,234 ft. Equinor already has a presence in the GoM in a non-operator status for the most part. This is Equinor’s second find this week.
- Wintershall Dea (40%) has discovered oil offshore Norway in its Bergknapp prospect on the Norwegian Continental Shelf. Wintershall’s estimates are for between 26 million and 97 million barrels of recoverable reserves, after encountering an oil column of at least 60m in the Garn Formation and a 120m column in the Tilje Formation. Wintershall’s partners are Spirit Energy Norway (30%) and DNO Norge (30%). The discovery lies near existing infrastructure.
- Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has accumulated stakes worth about $1 billion in four major European oil companies. Reuters reported that the stakes in Equinor, Shell, Total, and Eni were purchased in recent weeks.
- U.S. exports of LNG are once again flowing to China for the first time since March 2019, after the Chinese authorities granted tax waivers to several Chinese LNG importers.
Budget & Production Cuts
- Marathon Oil cut its 2020 capital spending budget again this month, announcing frac holidays for its operations in the Bakken and Eagle Ford. After this second reduction, its capex is expected to be 50% of what it was in 2019 as a sharp drop off in demand and lower oil prices continue to force drastic action.
- Shell is moving up the timeframe for a major maintenance project of its 400,000 bpd Pernis refinery in the Netherlands to mid-April. It is Europe’s largest refinery. The maintenance was supposed to start on May 4 and run to June. The new maintenance timetable will allow Shell to take advantage of the time when the refinery is seeing reduced demand for its products, as run cuts in the industry are inevitable at this point. The refinery also suffered a days-long shut down last week after a weekend power outage.
- BP has said that it is operating its American refineries at between 80% and 85% as restrictive stay-at-home orders across the States reduce the demand for refined products.
- Australian Oil Search wants to raise $670 million through a share sale to shore up its balance sheet against weak oil prices through 2021. The company, whose stock price has plunged 40 percent since the crisis began, has been the worst-hit Australian producer.
