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Some oil news ICYMI – US shale producers to boost oil output by 500,000 bpd by month-end

  
Analysis, Crude
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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
Reuters report on what analysts & some in the industry are expecting

IEA says oil demand won’t fully recover until at least 2022

  
Analysis, Crude
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IEA comments on the oil market in its latest report

Oil
  • Floating storage of crude oil in May fell by 6.4 mil barrels m/m to 165.8 mil barrels
  • Global oil supply fell by 11.8 mil bpd in May
  • Helped by OPEC+ countries reducing output by 9.4 mil bpd
  • Sees oil demand next year to rise by 5.7 mil bpd, but still lower than in 2019
  • Oil demand next year to remain 2.4 mil bpd below 2019 levels
On OPEC+, IEA says that they made a “strong start” and delivered 89% of its pledge to cut output but warns that rising prices could pose a problem:

“The market may present producers with an opportunity to ramp up more quickly than dictated by current OPEC+ policy, or US and other non-OPEC production could recover more strongly than forecast.”

With oil prices having moved up back close to $40, nobody – even US shale drillers – will want to miss out on the party.

More on oil – grim outlook

  
  Analysis
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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”

  
  Analysis
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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)

  
Analysis, Crude
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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.
OPEC+ G20 cut oil production

OPEC presidency urged an emergency meeting on collapsing prices, members said no.

  
  Analysis
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Algeria currently holds OPEC’s rotating presidency, urged convening a panel to consider assesses market conditions and falling prices.

Bloomberg cite an unnamed official as saying the request did not get enough backing to go ahead.
  • Key player Saudi Arabia said to be opposed.
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Algeria asked OPEC’s secretariat to convene a teleconference meeting of the Economic Commission Board.
Algeria currently holds OPEC's rotating presidency, urged convening a panel to consider assesses market conditions and falling prices.

OPEC cuts 2020 global oil demand growth forecast by 920K bpd

  
Analysis, Crude
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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.

OPEC reportedly discussing additional output cut of up to 1 mil bpd now

  
  Analysis
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Reuters reports, citing OPEC sources on the matter

OPEC

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.

OPEC+ close to dropping the idea of an emergency meeting – report

  
Analysis, Crude
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So much for that hope

OPEC+ is close to dropping the idea of an emergency meeting this month and will stick with March meeting dates, according to delegates cited by Bloomberg. They say the Saudis may still push for hte Feb meeting.
Oil has climbed this week for the first time since Jan 3…at least for now. The March contract just expired.
So much for that hope

IEA sees fall in Q1 oil demand, the first quarterly drop in more than a decade

  
Analysis, Crude
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IEA estimates Q1 oil demand to fall by 435k bpd year-on-year

Oil
  • Q2 pglobal oil demand set to grow by 1.2 mil bpd
  • Assuming that economic activity returns progressively to normal
  • Cuts 2020 oil demand growth forecast by 365k bpd to 825k bpd
The changes to the forecasts and estimates are due to the coronavirus outbreak impact as IEA sees the widespread shutdown of the Chinese economy weighing heavily on demand – more so than OPEC – but they estimate a quicker recovery in the coming quarters.
That said, the agency says that the impact of the coronavirus outbreak will be felt by the oil market throughout the year and it is “hard to be precise about the impact” now.
Back to the headline reading, IEA had previously forecast a growth of 800k bpd in Q1 compared to a year earlier but now expect a contraction of 435k bpd instead – the first contraction since the global financial crisis back in 2009.
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