Market Movers
There has been no letting up in the oil price war despite the intense demand destruction caused by the global Covid-19 pandemic that has now reached Europe and the United States. There have been rumblings about the United States getting involved in the war, pleading with Saudi Arabia to reassure the market that it will not flood it with oil. So far, all indications are that those requests are falling on deaf ears, with Riyadh set, as of April 1, to flood the market. Russia has positioned itself to ramp up production, too, but to a lesser extent.
Many were hoping that the G20 talks would include discussions about oil supplies and prices, but before the meeting, Russia said that the issue was not on the agenda. G20 was going to be MBS’ big grandstanding for his new post-Khashoggi reputation as a good guy, and most thought that this wouldn’t go hand-in-hand with inadvertently destroying the US shale patch. However, with the coronavirus pandemic, the G20 lost its luster, so he will wait for a better opportunity.
As a result of the oil price war combined with the pandemic’s stripping of global demand, oil prices continue to trade in a low range, with WTI currently trading around $22 per barrel, bolstered in part by the stimulus bill that the Senate managed to pass earlier this week.
For now, Saudi Arabia has little incentive to stop the oil price war. Yes, prices are dangerously low, but it’s also producing more to boost…
Market Movers
There has been no letting up in the oil price war despite the intense demand destruction caused by the global Covid-19 pandemic that has now reached Europe and the United States. There have been rumblings about the United States getting involved in the war, pleading with Saudi Arabia to reassure the market that it will not flood it with oil. So far, all indications are that those requests are falling on deaf ears, with Riyadh set, as of April 1, to flood the market. Russia has positioned itself to ramp up production, too, but to a lesser extent.
Many were hoping that the G20 talks would include discussions about oil supplies and prices, but before the meeting, Russia said that the issue was not on the agenda. G20 was going to be MBS’ big grandstanding for his new post-Khashoggi reputation as a good guy, and most thought that this wouldn’t go hand-in-hand with inadvertently destroying the US shale patch. However, with the coronavirus pandemic, the G20 lost its luster, so he will wait for a better opportunity.
As a result of the oil price war combined with the pandemic’s stripping of global demand, oil prices continue to trade in a low range, with WTI currently trading around $22 per barrel, bolstered in part by the stimulus bill that the Senate managed to pass earlier this week.
For now, Saudi Arabia has little incentive to stop the oil price war. Yes, prices are dangerously low, but it’s also producing more to boost earnings. Riyadh would need some kind of concession, agreement, or compensation for ending the war. That being said, even Saudi Arabia - one of the lowest-cost producers in the world - cannot tread water in this current price environment forever. That the US is even entertaining the notion of getting involved on any level in this war indicates just how nervous Washington is that the oil price war may hurt US shale to the point of no return, jeopardizing America’s energy independence agenda and national security.
With the stimulus bill rejecting a call to give the oil and gas industry any money to keep its head above water, the concern is real. Smaller, nonintegrated, debt-laden shale companies may find it hard to maintain the status quo at $22 per barrel.
- Russia’s Deputy Energy Minister Pavel Sorokin has predicted that due to the low prices, US oil output will fall by 1.5 million bpd this year. As a result, the global oil market should rebalance within a year. The prediction is not in line with most other analysts such as the IEA and Rystad, who are both predicting a drop in oil demand by 18 to 20 million bpd, with Goldman Sachs warning that it is too late for OPEC to rally the troops and cut production.
- Covid-19 may be affecting more than just oil demand. A wind industry association, the AWEA, is claiming that $43 billion of wind industry investments and payments may now be at risk.
- Nigeria is planning to pump as much oil as it can to recoup the sharp drop in oil prices that have dented its oil revenues. However, it may be forced to shut in some of its more unprofitable fields if the lower prices persist. Nigeria is heavily dependent on oil revenues, which account for 2/3rds of its total revenues.
- China’s exports of PV modules have fallen off a cliff due to the shutdowns earlier in China due to the covid-19 outbreak there. In February, China’s exports of the components were down 57% compared to January, which were already down 35% year on year.
US Refinery Cuts:
- Delta Airlines is cutting its 190,000 bpd Trainer, Pennsylvania, refinery by 40,000 bpd and is operating with just essential staff, citing the governor’s orders to halt all work that is not life sustaining.
- Exxon is expected to shutter its Baytown, Texas, gasoline unit by early next week due to decreased demand and an effort to stop the spread of covid-19.
- St. Croix’s Limetree Bay Refinery that was expected to start up this summer after a years’ long shutdown will likely not start as planned, after a construction worker on the project tested positive for covid-19.
- Valero Energy has cut by 15% its run rates at 6 of 12 of its US refineries citing lower demand. Valero may make more cuts next week. Valero has had at least one employee test positive for covid-19.
- Marathon Petroleum and Phillips 66 are cutting run rates and canceling maintenance at their Los Angeles refineries.
- Marathon is also cutting run rates at its Kentucky Catlettsburg refinery.
- Shell is delaying planned maintenance at its Deer Park refinery.
Global Refinery Cuts:
- India’s three-week lockdown is resulting in massive refinery shutdowns. India Oil Corp--India’s largest refiner--is cutting back at most of its plants by 25%-30%. Other sources say that all of India’s refiners will reduce run rates by 50%.
- New Zealand’s Marsden Point refinery is cutting production by half for at least three months, citing lower demand.
- INEOS has shut in 35,000 bpd of its 200,000 bpd Grangemouth refinery in Britain on waning profit margins.
- BP shut in its 70,000 bpd crude unit at its Gelsenkirchen refinery.
Discovery, Development, Deals & Withdrawals
- A French Total SA and ExxonMobil consortium is withdrawing from a large, ~3,000-square-kilometer deepwater oilfield off the coast of Tamaulipas in Mexico due to poor drilling results in ultra-deep waters. The oilfield will be returned to the Mexican regulator, CNH, and the consortium will pay a fine of $21.2 million for relinquishing the play.
- At the same time, Total is making what it calls a “significant” investment in wind power through the 100% acquisition of France’s Global Wind Power (GWP). That will give Total an additional 1,000 megawatts of wind energy capacity.
- Norway’s Equnior and SOCAR (Azerbaijan’s state-run oil company) have made a discovery in the Caspian Sea’s Karabagh oilfield, offshore Azerbaijan. SOCAR puts the size of the discovery as worthy of commercial development.
- Equinor has also halted all US shale activity as it slashes $1.5-$2.5 billion from its capital budget.
- France’s total sold its Liberian and Sierra Leonean fuel businesses to Liberia’s Conex Oil and Gas Holdings. Companies did not provide financial details of the agreement.
- Iraq is asking international oil companies to reduce oilfield development budgets by 30% to staunch the blood-letting from government revenues.
Politics, Geopolitics & Conflict
- Despite global chaos and an oil price war that is plunging some countries into desperation, Washington is cutting Iraq’s waiver to import energy from Iran to 30 days, and also slapping sanctions on 20 more individuals/entities suspected of supporting an Iraqi unit of Iran’s Revolutionary Guard. Iraq is already in economic crisis and it needs these waivers. Washington’s strategy of forcing Baghdad’s hand in this respect is likely only to push it closer to the Iranians - far beyond domestic energy needs.
- Keep a close eye on Mozambique following Islamic militant attacks on two towns in three days this week - one of them the home of the country’s major LNG projects being developed by Exxon and Total, and one about 40 miles away.
- Equatorial Guinea has waived fees for oil and gas services companies operating in the country for three months.
Stocks & Dividends
- Norwegian Equinor is suspending its $5-billion share buyback program over slumping global demand caused by the coronavirus and the oil price war.
- Chevron Corp will suspend share buybacks and slash capital spending by $4 billion this year. Of the $4-billion CAPEX cut, $2 billion will be slashed across upstream unconventionals, primarily in the Permian Basin. Another $700 million will be cut from upstream projects and exploration, $500 million from upstream base business across U.S. and international assets, and $800 million from the downstream & chemicals sector.
Coronavirus Shut-ins
- Tesla’s solar module plant in Buffalo, New York, temporarily closed down on the 20th due to the coronavirus, but will now reopen to produce ventilators for hospitals “as soon as possible”. Tesla’s EV facility in Fremont, California, remains closed since the 20th. Two Tesla employees have tested positive for COVID-19 as of Thursday, though their locations were not disclosed. Analysts nonetheless remain largely bullish on Tesla.
- INEOS has postponed its Forties pipeline maintenance, and the delay couldn’t come at a worse time. The postponement will add hundreds of thousands of barrels to the existing glut every day, according to Rystad, which has called the Q2 oil inventory situation “incomprehensibly massive”.
