Market Movers
- Saudi Arabia has booked multiple VLCCs to ship its crude oil, including to the US Gulf Coast, despite having its own fleet of VLCCs. While China is still struggling under the weight of COVID-19 and its oil refineries are scaling back their runs, Saudi Arabia is planning to increase shipments to that region of the world, and its lowered OSP is will be attractive for China - even if they don’t need it right now. The bookings for the VLCCs are just preliminary and can still be canceled, but even just a show of force at this point may be enough to move oil prices even lower on one hand, and shipping rates up on the other.
- Russian oil companies were supposed to meet with the Russian energy ministry this week to discuss the possibility of once again resuming its cooperation with OPEC. Instead, discussions sidelined OPEC, with giant Gazprom Neft saying that it was getting ready to increase production in April. A return to OPEC was not even an option. Russian oil companies have been vocal opponents of the deal for years, and are unlikely to break out their pom-poms in support of further production cuts, in what would, in their opinion, simply take cheaper Saudi and Russia barrels off the market and open the door for more expensive US shale. Saudi Arabia, however, is breathing down Russia’s neck and is now flooding Russia’s European customers with super cheap Arab Light in a bid to woo them away from Urals blend.
- The United States…
Market Movers
- Saudi Arabia has booked multiple VLCCs to ship its crude oil, including to the US Gulf Coast, despite having its own fleet of VLCCs. While China is still struggling under the weight of COVID-19 and its oil refineries are scaling back their runs, Saudi Arabia is planning to increase shipments to that region of the world, and its lowered OSP is will be attractive for China - even if they don’t need it right now. The bookings for the VLCCs are just preliminary and can still be canceled, but even just a show of force at this point may be enough to move oil prices even lower on one hand, and shipping rates up on the other.
- Russian oil companies were supposed to meet with the Russian energy ministry this week to discuss the possibility of once again resuming its cooperation with OPEC. Instead, discussions sidelined OPEC, with giant Gazprom Neft saying that it was getting ready to increase production in April. A return to OPEC was not even an option. Russian oil companies have been vocal opponents of the deal for years, and are unlikely to break out their pom-poms in support of further production cuts, in what would, in their opinion, simply take cheaper Saudi and Russia barrels off the market and open the door for more expensive US shale. Saudi Arabia, however, is breathing down Russia’s neck and is now flooding Russia’s European customers with super cheap Arab Light in a bid to woo them away from Urals blend.
- The United States has suspended its scheduled sale of crude oil from the Strategic Petroleum Reserves to keep oil prices from falling further.
- Iraq - OPEC’s #2 producer - has plans to cut oil prices for April crude sales and will slash by $5/barrel the selling price for Basra Light crude for May (for Asian buyers). Exports are expected to be boosted for April, as well. OPEC’s #2, UAE, is planning a production increase to 4 million bpd--up from 3 million bpd, following Saudi Arabia’s lead.
- Venezuela has reached out to OPEC and Russia to open a dialogue on the production cut deal that last week fell apart. Venezuela has seen its production fall by half over the last two years and is sensitive to oil price shocks. Venezuela has a history of rallying the OPEC troops to manipulate the market to bring about higher oil prices, and now the stakes for Venezuela are particularly high. Maduro is calling this oil price crash a “brutal blow”, and could shave $6 billion off oil revenues for the country.
- The oil price crash has had other devastating effects, including a panicked sell-off of Nigeria’s Eurobonds that are due in 2047. The fear was that Nigeria would be forced to let the naira weaken, but the bank is assuring traders that it will do whatever it must to protect Nigeria’s economy.
Stock Watch
- Occidental Petroleum cut its quarterly dividend by 86% this week as oil prices plunged. Capital spending for 2020 will also be cut from $5.2-$5.4 billion down to $3.5-$3.7 billion. OXY shares lost over 50% Monday and then rebounded a bit Tuesday.
- Apache lost nearly 55% Monday, and then further later in the week, managing to reach a 28-year low when it said it would slash its quarterly dividend by 90%, cut 2020 capital expenditure significantly and reduce its Permian rig count to zero.
- Marathon Oil lost over 47% Monday. The giant has scaled back drilling activity and cut spending by at least 30% from a year earlier. Marathon said it was reducing its 2020 capital to $1.9 billion, $500 million less than its 2019 spending. Marathon is also exploring the sale of the assets of its MPLX LP pipeline subsidiary for up to $15 billion to reduce debt burden. MPLX operates natural gas processing facilities around Marcellus, Utica, Appalachia and in the Southwest.
- ExxonMobil lost 12% Monday, but while half of analysts say steer clear of the giant, the other half remind us that when it comes to balance sheets, this is pretty much as good as it gets.
- Devon Energy stock, which has lost nearly 69% in the last thirty days, said it would cut its 2020 capital spending by 30% compared to its previous plan for this year.
Politics, Geopolitics & Conflict
- Overnight, the U.S. launched airstrikes against what it said were Iranian-militia-backed positions in Iraq, sparking a major row with Baghdad, which says the strikes targeted Iraqi military bases. Washington said the strikes were retaliation for an attack the day before on a base in Iraq housing coalition forces in which two US service members and one British service member were killed. That attack is believed to have been launched by Iranian-sponsored militia Kata’ib Hezbollah. Baghdad isn’t buying it, and is already spooked from the very public assassination on its soil of Iranian general Soleimani. Baghdad has now summoned the American and British ambassadors over the deadly airstrikes.
- In Libya, efforts by Egypt, the UAE, and the Saudis aim to keep the Turks from getting more weapons to the GNA in Tripoli, while the UN is sidelined and ineffective. Given the clear uptick in momentum in support of Haftar, it would seem that the general is gaining the upper hand, though for now he is not visibly closer to taking Tripoli, and oil production remains shuttered. As of March 8th, Libya was producing 114,331 b/d and financial losses related to this had exceeded $2,932,005,883 since January 17th.
- Turkey and Russia are reportedly in talks about the joint management of oil fields in eastern Syria, in place of the Kurdish-led forces which control them now. During talks in Moscow last week Turkish President Erdogan proposed that idea to Putin. What will be interesting to see is whether Putin goes for this deal, which would have to have a quid pro quo, and at this point, that would likely concern Turkey’s actions in Libya against Haftar, which is supported by Russian mercenaries, unofficially.
- The US administration sanctioned the second subsidiary of Russia's state-controlled Rosneft for brokering the sale and transport of large amounts of sanctioned Venezuelan oil. Officials blacklisted TNK Trading International, the Swiss subsidiary of Rosneft. Last month, sanctions were slapped on Rosneft Trading SA, which resulted in Venezuelan cargoes shifting to TNK.
Climate Crunch
- Swiss-based UBS bank has ended support for offshore drilling in the Arctic amid efforts to tackle climate change. In the last three years, the bank invested about $300 million in Arctic oil and natural gas projects. The move is part of banks’ target of reducing its own greenhouse gas emissions in 2020 by 75% from 2004 levels with a 71% reduction already achieved in 2019. U.S. banks Wells Fargo, Goldman Sachs and JPMorgan Chase have previously announced similar policy shifts.
- Hawaii’s capital, Honolulu, has filed a lawsuit against 10 fossil-fuel companies seeking monetary damages to compensate for flooding and rising sea-levels as a result of climate change. City officials are accusing oil producers of profiteering while concealing the dangers of greenhouse gas emissions. The companies named in Honolulu’s lawsuit include Aloha Petroleum, BHP Group, BP, Chevron, ConocoPhillips, ExxonMobil, Marathon Petroleum, Phillips 66, Royal Dutch Shell, and Sunoco.
