But not for the reason you might think
Archives of “Petroleum industry” tag
rssSome oil news ICYMI – US shale producers to boost oil output by 500,000 bpd by month-end
Reuters report on what analysts & some in the industry are expecting
- Larger producers are re-opening the taps in low-cost plays in Texas, but also in expensive shale basins in North Dakota and Oklahoma.
- “With prices where they are now, if they stay above $30, I wouldn’t expect any significant curtailments from us in Q3 or beyond,” Devon Energy Corp Chief Executive David Hager said at a J.P. Morgan energy conference on Tuesday.
This would be a rapid (albeit partial) bounce back from prior supply cuts in shale. It’ll add pressure back onto OPEC+ who recently agreed to extend their their output cuts. Supply coming back on line as prices rise … pretty textbook economics this.
Here’s the link to Reuters for more
More on oil – grim outlook
Scanning across some notes on OPEC and crude, some snippets … not optimistic:
Via RBC:
- OPEC+ is apparently in crisis management mode
- We think OPEC+ may make more headway by sharpening its compliance messaging, particularly around perennial underperformers, most notably Russia.
- we think Saudi Arabia may be amenable to dropping production even further
- none of these measures will arrest the immediate demand destruction and storage saturation problems that are weighing so heavily, particularly on US prices, they could potentially help ensure a better back half of the year if the COVID-19 crisis is contained
(Bolding above is mine)
Via TD:
- Although we don’t expect negative prices to remain … the imbalance in the offer vs. demand and storage capacity issues could see a repeat of this issue.
Goldman Sachs are unimpressed by the oil output cut deal – “insufficient”
GS say the OPEC+ G20 production cut is too little too late, and the bank sees downside risk to its $20/barrel price forecast
- “Today’s agreement leaves the voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing”
- no voluntary cuts could be large enough to offset the 19m b/d average April-May demand loss due to the coronavirus
- OPEC+ voluntary cut is an only actual 4.3m b/d reduction in production from 1Q 2020 levels
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Oil traded higher initially upon market reopen for the week, gave it all back and turned negative and is now not much changed from late last week levels.
Here are the main points so far of the OPEC+ agreement to cut oil output (and the 3 things they missed)
OPEC+ and the G20 have agreed to cut oil production by just under 10 million barrels / day.
Oil trading begins for the week at 2200GMT with Sunday evening trade on CME,
ICYMI … :
- a cut of circa 9.7 million barrels a day of oil across OPEC+ and the G20
- 13-nation OPEC and others (Russia, US are two) agreed to share cuts
Its unclear how the cuts are to be apportioned, and how the US intends to enforce its promised cuts, but indications are (its is very unclear, but these from sources, awaiting confirmation):
- Mexico cut 100,000 barrels a day
- US by 300,000 barrels / day
- Saudi Arabia’s production to be reduced to 8.5m bpd (from the current whopping 12 million bpd)
When oil trade reopens for the week we’ll see how successful the agreement is, so far, at limiting further price falls for oil.
The important factors that the supply cut does not, is not able, to address is of course is the demand side of the equation. Demand is lower due to:
- social distancing lock downs of economies
- the further, recessionary economic impact of these measures (the impacts will linger)
Back to the supply side to finish up, there is a huge overhang of oil in storage.
Oil tanks at vital Africa storage hub said to be almost full as excess crude floods the market
The Saldanha Bay storage hub is said to be nearing capacity
For some context, Saldanha Bay is a vital hub for crude oil storage because of its strategic location in which it allows for transport to demand centers in both Europe and Asia.
According to Bloomberg, the hub boasts about 45 million barrels in capacity but S&P Global’s latest report highlights that it has the capacity of up to 60 million barrels.
Nonetheless, sources familiar with the hub’s operations has told Bloomberg that the site is nearly at capacity – adding that there might be just room for a couple of tanks holding specific crude grades, but it is full otherwise.
This situation has already been forewarned by many oil traders and pipelines over the past few weeks and with Saudi Arabia continuing to flood the market, what we may be left with are a boatload of oil barrels going to be stuck at sea at this point.
OPEC cuts 2020 global oil demand growth forecast by 920K bpd
The latest from OPEC
In other times that would be a shocking drop but now it sounds behind the curve. Obviously demand is going to fall much more in a global pandemic.
- Saudi Arabia pumped 9.68 mbpd in Feb
- Cuts non-OEPC supply estimate by 490K bpd to 1.76 mbpd
WTI crude oil is down $1.18 to $33.17 today and is just off session lows. There’s been no reaction to this news.
Saudi Arabia has slashed its oil price for all crude
State oil giant Saudi Aramco statement on Saturday – cuts its official selling price for April for all its crude grades to all destinations
UPDATE – news about also Saudi plans to ramp up output, to well in excess of 10m bpd – I’ll post more on this separately
- its Arab light crude oil to the United States cut to a discount of $3.75 per barrel, down $7 a barrel from March
- to Northwestern Europe to a discount of $10.25 per barrel to Ice Brent, down $8 a barrel
Comes in the wake of the crumbling of OPEC+ plans late in the week, the OPEC/Russia pact expired without further agreement after 3 years in place.
OPEC reportedly discussing additional output cut of up to 1 mil bpd now
Reuters reports, citing OPEC sources on the matter
This is similar to the story reported by the FT earlier today here. It is said that several OPEC members, including Saudi Arabia, are leaning towards a deeper oil output cut because of the coronavirus outbreak.
Yeah, I’m not sure if Russia is going to get on board with that. In any case, Saudi Arabia is likely going to have to do the bulk of the heavy lifting here to push this through.
Even then, I’m not sure if it would be enough to turn sentiment around in the oil market as the virus outbreak continues to be more widespread across the globe.
FT: Saudi Arabia is pushing to make a substantial cut in oil production when Opec meet
OPEC meet 5 and 6 March in Vienna, the Financial Times says Saudi Arabia is asking producers including Russia for a production cut of an additional 1m barrels a day
FT citing five people familiar with the talks,
Under the proposal, Saudi Arabia would account for the bulk of the new 1m b/d cut
- Kuwait, the United Arab Emirates and Russia would split the rest
- Deal not yet been agreed
- Moscow still hesitant
This proposal is up from the 600k bpd proposal previously floated.
