Oil, Gas, And Fracking News Reads: 17May 2020 – Part 2

Written by rjs, MarketWatch 666

Here are some more selected news articles about the oil and gas industry from the week ended 16 May 2020. Go here for Part 1.

This is a feature at Global Economic Intersection every Monday evening.

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Business has reopened in Texas, but the economy won’t be back anytime soon, experts say –The Texas economy has been protected unlike elsewhere in the country during some of the nation’s most devastating downturns.When the financial market crashed in 2008 and sent the United States into a recession, high energy prices provided the Texas economy with a sort of cushion. After the entire country eventually suffered from the financial squeeze, the number of oil rigs operating in the nation’s top oil-producing state increased as the fracking revolution spurred an energy production boom in Texas.“When energy prices are high, that’s good for the state coffers in Texas,” said Steven Beach, dean of the College of Business at the University of Texas Permian Basin. “But it’s a bit of a drag on the economy elsewhere outside of Texas.”Now, as more people are out of work in the United States than ever before and the national economic calamity from the coronavirus outbreak has reached all corners of the country, business is back open in Texas. State officials have said they want the economy to roar back to the strength it had before the coronavirus. But unlike previous downturns, experts said this time the oil and gas industry, which recently saw oil prices dip into the negatives, might hold the state’s economy back.Demand for oil has plummeted during the public health crisis because people have not been flying, commuting or traveling due to the coronavirus pandemic. It’s still not known when people’s behaviors and habits might return to what they were before the ongoing pandemic. The country’s biggest oil companies have slashed budgets by billions, other companies have gone bankrupt, and what was once the world’s hottest oil field – the Permian Basin – is “so surreal, so quiet,” said Virginia Belew, regional services director at the Permian Basin Regional Planning Commission. “Word is that no one has ever seen it this drastic,” Jim O’Bryan, the top local official in Reagan County near Midland, said in an interview. “Hopefully it will be short lived. It’ll come back, it always has.”

Trump administration to buy 1 million barrels of oil for national stockpile – The Department of Energy (DOE) is planning to buy 1 million barrels of oil from U.S. companies after funding to make a larger purchase failed to pass Congress.A notice posted by the agency Wednesday calls the purchase “a test” for the Strategic Petroleum Reserve, a national stockpile President Trump in mid-March said he would fill “right up to the top.” The 1 million barrel purchase would be a far cry from the 77 million barrels of space within the reserve. Doing so would have required $3 billion in funds, which Congress did not appropriate as part of the CARES Act stimulus package.The effort comes as oil prices have fallen to historic lows due to a lack of demand and a lack of storage space for an oversupply of oil.Democrats have repeatedly spoken out against any effort to assist the oil and gas industry during the coronavirus pandemic.“Using federal assistance – including low-interest loans, royalty relief, tax breaks, or strategic petroleum reserve purchases – in order to prop up oil companies would be a wasteful misuse of government resources that would exacerbate the climate crisis,” Sens. Bernie Sanders (I-Vt.), Ed Markey (D-Mass.) and Jeff Merkley (D-Ore.) wrote in a letter to the president when the idea was first floated. In April, DOE announced it would instead rent 23 million barrels of storage space in the reserve, allowing companies to pay for the space in oil. The 1 million barrel purchase would be open to small and mid-sized oil and gas companies. The Federal Reserve Board also tweaked its Main Street Lending Program to be accessible to the same size oil companies. Energy Secretary Dan Brouillette told Bloomberg TV on Wednesday that he and Treasury Secretary Steven Mnuchin were asked by President Trump “to evaluate the programs that were passed by the Congress and ensure that there is access for these energy industries to those programs.”

Is EIA Data Disguising A Disastrous Decline In U.S. Shale? – U.S. oil production continues to decline as drillers shut in wells and cut back spending. Output has already declined by 1.1 million barrels per day (mb/d), and more losses are likely. New data from Rystad Energy predicts U.S. oil production declines of roughly 2 mb/d by the end of June.“Actual production cuts are probably larger and occur not only as a result of shut-ins, but also due to a natural decline from existing wells when new wells and drilling decline,” Rystad said in a statement.Energy expert Philip Verleger, in an article for Energy Intelligence reports that the magnitude of output declines is much larger. His latest research shows that production as of May 10 is down by almost 4 million bpd from its peak as the below chart shows. To be sure, the U.S. government is doing quite a bit to try to bailout the oil industry. A new report finds that some 90 oil and gas companies will benefit from the Federal Reserve’s corporate bond buying program. The Trump administration is also quietly reversing environmental protections on the oil and gas industry.But in the face of a historic meltdown in the oil market, even handouts from Uncle Sam won’t stop declines. The U.S. oil industry continues to idle drilling rigs at a tremendous clip, and the rig count is down by more than half in two months. “[W]e think that the last time there was so little drilling activity in the US was the 1860s during the first decade of the Pennsylvania oil boom,” Standard Chartered analysts said. The investment bank said that the contraction was notably acute in Oklahoma, where rigs fell to just 11 across the state, down 89 percent from the same period a year earlier. The sharp decline in rigs, drilling and completion activity means that the steep decline rates endemic to shale drilling will overwhelm what little new production comes online. Standard Chartered said that if activity were to remain stuck at current levels, U.S. production in the five main shale basins would fall by 2.89 mb/d by the end of 2020. Those declines would come on top of the output that has only been shut in temporarily. Standard Chartered envisions a “squashed-W pattern” for supply, in which temporarily idled output comes back online in a few months, but more structural declines continue thereafter.The EIA, characteristically, is much more optimistic about the state of U.S. supply. The agencysaid on Tuesday that it only sees a 0.5 mb/d decline in oil production this year, compared to 2019 levels. Notably, Secretary of Energy Dan Brouillette says production will increase in the third and fourth quarters as the economy roars back.Others aren’t so sunny. A report from Wood Mackenzie released on Wednesday says that oil demand will take years to recover. “Production is falling sharply in the US, and some producers are reluctant to sell forward,” Commerzbank wrote in a note.

US Oil, Gas Permitting at Record Low in April, but Strengthening Seen in Early May – The collapse in drilling activity deepened in April, with permitting for oil and natural gas wells at a record low, but there are glimmers of gains so far this month, according to an analysis by Evercore ISI. Using week/week (w/w) data, Evercore said oil permits climbed 19% from the final week of April to 166 in the first week of May. The Permian Basin accounted for the most permits early this month, rebounding to 100, up by 35 from the week before. The gain was partly offset by the Eagle Ford Shale, with six fewer permits, and the Mississippian Lime, down by seven.Still, natural gas permits “strengthened to 39,” a 64% gain w/w, “as a result of resilience in the Haynesville Shale,” which added 15 permits. Permitting in other onshore plays dropped to 65, down by 37 from late March. For natural gas, permitting has been hit and miss since the start of the year, according to Evercore. Marcellus Shale permitting plunged by 44% through April year/year and was down by 20% from March to 169. The Utica Shale, a mix of gas and liquids, saw a month/month (m/m) decline of 14 permits. However, the Haynesville, second to the Marcellus in dry gas production, posted a slight recovery from March, with permits up by 13.Year-to-date through April, gas permitting across the country decreased by 39% to 884, “resulting from lower applications in the Marcellus to 409,” off 44% year/year, “and the Haynesville to 383,” down 31%. In Texas, where the bulk of the country’s oil and gas is produced, permitting moved to its lowest count in more than 10 years during April and fell 28% year to date, Evercore said.Permits by the oil and gas majors, which dominate in the Permian, were off in the first four months by 25% from the same period in 2019.U.S. onshore permits in April overall fell by 2% from March to 2,013, “primarily as a result of declines in the Gulf Coast (minus 26%) and Midwest (minus 59%),” West said. “Excluding ‘other’ shale plays, drilling permits marked the lowest total in our dataset going back to 2006 at 1,001.”For individual plays, the m/m declines were led by the Permian, off 159 from March, and in the Eagle Ford Shale, down by 74. Lower permit counts also were reported in the Granite Wash formation, down by 16, and in the Barnett Shale, off 13.Wells permitted during April in the West Texas portion of the Permian “declined to 504 (minus 24% m/m) due to curtailments in Howard, Reeves, Loving and Midland counties, where aggregate permit applications declined to 144 (minus 128 m/m).” Contributing to the decline in permits during April was the pullback by some of the biggest operators in Texas, including EOG Resources Inc., which requested 26 fewer permits than in May. ExxonMobil’s requests were down 26 m/m, while Permian pure-play Diamondback Energy Inc. had 18 fewer requests. BP plc requested seven fewer permits than in March.In the Eagle Ford, the second largest play in Texas, permitting contracted in April to 94, off 44% m/m. State regulators granted authorization to drill 480 oil and gas wells in the Permian, with the New Mexico portion accounting for 46% of the activity, West said. New Mexico activity was driven lower by public operators, whose permit applications fell to 142 in April, down by 19 m/m.Through April, overall drilling permits across the country fell by 61% year/year to 8,751.

Federal Judge: Pipelines Must Not Cross Streams Without Considering Endangered Species – A federal judge upheld his April 15 ruling Monday, tossing a key permit required by the Keystone XL and other pipeline projects to cross streams and wetlands.Montana U.S. District Judge Brian Morris affirmed that the U.S. Army Corps of Engineers cannot use a blanket water-crossing permit to approve new oil and gas pipelines without considering their impacts onendangered species.”The court rightly ruled that the Trump administration can’t continue to ignore the catastrophic effects of fossil fuel pipelines like Keystone XL,” Center for Biological Diversity (CBD) senior attorney Jared Margolis said in apress release. “Constructing pipelines through rivers, streams and wetlands without analyzing the impacts on imperiled species is unconscionable. We’ll continue to fight to protect vulnerable species, our waters and the climate from this kind of reckless development.”At stake is a permit called Nationwide Permit 12, which the Army Corps uses to fast-track approvals for construction across waterways, The Associated Press explained.Morris ruled in April that the Army Corps did not consult with the Fish and Wildlife Service as to how these crossings would impact endangered species when it renewed the permit in 2017, Reuters reported.Morris’ April ruling was in response to a lawsuit brought by environmental groups focusing on the approval process for the Keystone XL pipeline specifically. However, the ruling blocked the use of Nationwide Permit 12 for all projects, CBD explained.Utility groups and the government asked Morris to alter his ruling, arguing that it interfered with thousands of construction projects, according to The Associated Press. In response, Morris said that the permit could be used for electrical lines or pipeline repairs, but not the construction of new oil and gas pipelines.”To allow the Corps to continue to authorize new oil and gas pipeline construction could seriously injure protected species and critical habitat,” Morris wrote, according to The Associated Press. The ruling does not actually block construction work on Keystone XL or other pipelines, but it is another setback for the long-delayed project, since it now cannot build across streams without further environmental review.

Company underestimates North Dakota brine spill – An estimated 35,700 gallons of produced water spilled over a week ago at an oil well pad in McKenzie County, N.D., according to a press release from the state Department of Environmental Quality. Produced water, or brine, is a mixture of saltwater, oil and sometimes, drilling fluids, that is created as a byproduct of oil and gas production. The spill, which occurred about 10 miles northeast of Keene, impacted nearby farmland. The incident was caused by a leak in a small pipeline to the produced water storage tank. Newfield Production Co., which was responsible for the spill, estimated that only 1,260 barrels of brine had spilled when it reported the incident to the state. Later investigation found the company had significantly underestimated the magnitude of the spill. It’s unclear if the company accidentally reported incorrect information or purposefully misled the department. A representative of the department did not respond in time for publication of this article. The department said officials will continue inspecting the site and monitoring remediation efforts.

North Dakota aims to use COVID-19 aid to plug oil wells (AP) – North Dakota wants to use $33.1 million in federal coronavirus aid to plug “orphaned” oil wells, many of which have been abandoned by companies financially disrupted amid low energy prices and sparse demand brought on by the pandemic. State and industry officials said the idea is both a jobs program for energy workers and an attempt to curb a growing problem in western North Dakota’s oil patch. The North Dakota Emergency Commission, headed by Republican Gov. Doug Burgum, approved the funding Tuesday. The commission in total approved $524 million, or 42% of the $1.25 billion given to the state as part of the federal stimulus package approved in March. Burgum said the money approved by the commission is to support economic recovery. The state’s Budget Section, which handles the Legislature’s business between sessions, is scheduled Friday to consider the program, along with a package of proposals from several state agencies. State Mineral Resources Director Lynn Helms said 549 wells have been identified as abandoned in North Dakota’s oil-producing region, including about 10% that companies have walked away from in recent weeks. Before the pandemic devastated the U.S. oil industry, daily oil production in North Dakota was at a near-record 1.45 million barrels daily in February, the latest figures available. Helms said thousands of wells have been idled in recent weeks, amounting to about 550,000 barrels of lost oil production daily, or more than third of the state’s production from a few months ago. Companies are required to post a $100,000 bond for a producing oil well but the cost of plugging and reclaiming a site averages about $150,000, Helms said. The problem, Helms said, is that the oil companies don’t have the money needed to plug and reclaim the sites, and bonding companies are not willing sell more bonds to cover the costs. Plugging an orphaned well consists largely of filling it with cement and sealing it. Helms said it takes a crew of about 15 about five days to plug a well.

There Are Green Jobs Hiding in the Oilfields – Jobs and towns built on fossil fuel extraction appear to be headed for disaster. The Trump administration seems inclined to respond by throwing aid at the oil and gas CEOs who helped to engineer the indebted industry’s current predicament. The Resources for Workforce Investments, not Drilling, or ReWIND, Act introduced last week would prevent an outright bailout for corporate polluters. Less attention has been paid to how to protect the communities who stand to lose the most from plummeting oil prices, even as both drillers and oilfield services companies furlough and lay off tens of thousands of people – moves that will wreak havoc on state and local tax bases. Texas alone could shed a million jobs this year as a result of the downturn. Capitol Hill still seems uninterested in imagining a future without fossil fuels. But in April, drillers shut down more oil drilling rigs in the United States than have been cut since the last price crash in 2015. Many will not come back online anytime soon. More than half of oil and gas workers could lose their jobs. To blunt the impact, oil-producing states have asked the Trump administration to pay laid-off workers to start plugging the country’s roughly two million abandoned wells. There would be some precedent for this, both abroad and domestically. Canada announced the creation earlier this month of a $1.7 billion fund to clean up wells in Alberta, Saskatchewan, and British Columbia. The fund is expected to create 5,200 jobs in those three provinces. And in the United States, the federal government already pays to clean up lots of bankrupt oil companies’ abandoned wells. Since it’s already something of a sunk cost, the oil-producing states’ request could present an opportunity for the federal government for a jobs program that will pass muster in red states. Lawmakers could decide to put a few thousand people to work in some of the places where layoffs in the extractive sector are hitting hardest. Whether through a federal job guarantee or some sort of paycheck-protection program that mandates fossil fuel companies pay workers to do something other than extract oil, the government might be able to address unemployment and help the planet at the same time. . Beyond extraction sites, about half of the country’s 450,000 contaminated lands, known as brownfield sites, are believed to owe that designation to petroleumissues, including from the leakage of storage tanks buried under gas stations. There’s a vast amount of work to be done not just plugging wells but restoring landscapes scarred by fossil fuel development.

Federal agency sides with North Dakota in oil-by-rail dispute with Washington state — A federal agency has sided with North Dakota and Montana in a dispute over a new Washington state law that places restrictions on shipments of oil by rail in an attempt to boost safety. The U.S. Pipeline and Hazardous Materials Safety Administration issued the decision Monday, nearly 10 months after North Dakota and Montana petitioned the agency to overturn the law, arguing that it amounted to a “de facto ban on Bakken crude.” The Washington Legislature passed a bill last spring requiring that oil unloaded from trains have a vapor pressure under 9 pounds per square inch. The limit falls below North Dakota’s cap, 13.7 psi, which is based on an industry standard. PHMSA Chief Counsel Paul Roberti wrote in the decision that federal law and regulation surrounding the transportation of hazardous materials “preempts” the vapor pressure limit that Washington set. He said Washington’s limit, if it were to stand, “would set an alarming precedent.” “Other State and local jurisdictions would be encouraged to enact their own vapor pressure limits for crude oil,” he said. “The resultant multiple and conflicting requirements will undermine the uniform Federal regulatory scheme.” Roberti said the Washington law creates a new class of crude oil that differs from federal regulation and establishes different rules for handling oil. He added that Washington’s new requirement “is an obstacle to accomplishing and carrying out” federal law.

Refugio oil spill settlement up for discussion on Wednesday – The settlement of the Refugio Oil Spill includes $22.3 million for the remediation of natural resource losses, such as injuries to birds and marine mammals, subtidal and shoreline habitat restoration, and compensation for recreational losses. Two online town hall meetings are scheduled for Wednesday, May 13, to present the 173-page Draft Damage Assessment and Restoration Plan for these projects and to discuss public comments.One session runs 1-3 p.m., and the second 6-8 p.m. Register for the webinar here, and a system checkhere prior to the seminars is advised.Written comments are due by June 8, 2020, and can be emailed to [email protected] or mailed to: Refugio Beach Oil Spill Natural Resource Trustees, C/O Ventura Fish and Wildlife Office, 2493 Portola Road, Suite B, Ventura, CA 93004, Attn: Michael Anderson, California Department of Fish and Wildlife; Jenny Marek, United States Fish and Wildlife Service.

About all those oil tankers off the coast of California – The U.S. oil market was in a tailspin when dozens of oil tankers began approaching California’s coast in late April. The vessels, some as long as three football fields, were filled with millions of barrels of oil that suddenly had no place to go. Amid the combined effects of a price war between oil-rich states Saudi Arabia and Russia and the COVID-19 pandemic’s curbing of demand, American refineries slashed production while onshore facilities filled to the brim. As a result, U.S. oil prices plunged to negative levels for the first time in history. Tankers are still anchored near southern California today, and as they wait, they’ve switched from running their primary diesel engines to smaller auxiliary engines. While idling doesn’t create the carbon emissions of actually transporting cargo, the fleet is still generating the equivalent daily footprint of driving roughly 16,000 passenger cars. The giant ships burn fuel to keep lights on, power equipment, and heat the large volumes of crude oil resting in their tanks. Given the turbulent economy, oil analysts say the tankers might sit in suspended animation for weeks or months. In recent days, as many as 32 tankers were anchored near Los Angeles and Long Beach, with some vessels leaving and new ones arriving as oil very slowly trickles in and out of ports. On May 11, 18 tankers filled designated spots as if in a “truck stop parking lot” three miles offshore, said Captain Kit Louttit, who monitors port traffic for the Marine Exchange of Southern California. That is about triple the typical number of tankers in those spaces. Tankers along the U.S. West Coast, mainly off of California, held some 20 million barrels of oil on Monday, or nearly enough to satisfy a fifth of the world’s daily oil consumption, according to market data firm Kpler. The floating supply glut should gradually clear once new deliveries from the Middle East and Asia stop arriving. But while the idling ships remain near California, they “could pose an ongoing risk to air quality,” said Bryan Comer, a senior researcher at the environmental think tank International Council on Clean Transportation, or ICCT. “Especially because you have these ships lumped together.” The cluster, he noted, concentrates the pollution that drifts ashore.

Shoreline oily water cleanup begins at Valdez -Spill response efforts at Port Valdez are continuing nearly a month after discovery of an oil sheen at the Valdez Marine Terminal. Some boom has been removed, and shoreline cleanup has begun in oiled areas within the primary containment boom. The cause of the spill remains under investigation, with early indicators suggesting the Alaska North Slope crude oil/water mixture leaked from a sump that overflowed. Alaska Department of Environmental Conservation officials said that having determined that the threat of the spill of a mixture of crude oil with water is now limited, the spill management process is looking to scale back while continuing its response to finish the cleanup. Primary containment boom remained in place around the spill outflow area, shoreline impact surveys were completed, and limited impacts were observed with no areas outside of the Valdez Marine Terminal’s shoreline. Boom had previously been deployed to protect the Solomon Gulch Hatchery, the Valdez Duck Flats, Saw Island and Seal Island. Responders concluded that these sensitive areas were no longer at risk for exposure to oil and protection boom was removed from the Solomon Gulch Hatchery and Valdez Duck Flats. Protection boom for Saw Island and Seal Island was approved for removal next. The latest DEC update on the cleanup said that oil skimming operations had removed 53,340 gallons of oily water and that 665 gallons of oil had been recovered. The primary containment boom was adjusted to contain the spill closer to the spill outflow area. The bigger boom was still in place to maintain the outer perimeter of the boomed areas and was being monitored to ensure adequate containment. Response crew were continuing oil skimming operations and use of sorbents for passive recovery.

Future(S) Games, Part 2 – The Baffling Impact Of Oil Futures On Physical Contract Prices – CMA Roll Adjust And P-Plus –On April 20, that fateful day in crude oil markets when the CME May contract for WTI at Cushing collapsed to negative $37.63/bbl, the number of contracts involved in the chaos was relatively small. So you might think that most producers sat on the sidelines, watching Wall Street paper traders writhe in stunning financial pain. But not so. Almost all producers saw their crude prices that day crashing in exactly the same magnitude. That’s because the daily price of the CME WTI contract is part of the formula pricing used in a very large portion of crude oil contracts in U.S. markets, both directly and indirectly. There are two formula mechanisms that are commonly used in crude oil sale/purchase contracts that are responsible for that linkage: the CMA and WTI P-Plus. These arcane pricing mechanisms are complicated, but in order to understand U.S. crude markets, it is critically important to appreciate how they work. Today, we continue our deep dive into crude oil contract pricing mechanisms. The CME NYMEX WTI crude oil futures contract is the underlying benchmark in nearly all U.S. domestic crude price contracts. Differences between futures and physical trading arrangements make pricing physical WTI barrels complex. Two formula mechanisms are commonly used in physical transactions that link directly to the NYMEX settlement prices – the CMA and WTI P-Plus – and so both contract types felt the impact of last month’s price collapse. As we said in Part 1, the CME NYMEX WTI futures contract is the most liquid – or most widely and actively traded – commodity futures contract in the world, and is so ubiquitous that it also underpins domestic U.S. crude contract markets. It’s a strange symbiotic relationship, in that not only do cash crude prices heavily influence futures prices, but the cash contract price for most U.S. crude is indexed to the futures price. Differences between futures and physical trading, as well as the delivery mechanism that links the two markets, make pricing physical WTI complicated.

CFTC Warns Traders Oil Prices Can Turn Negative Again – With just one week left until the expiration of the June WTI contract, whose open interest is still a whopping 270K contracts equivalent to 270 million barrels that may soon require a physical delivery spot…… and some traders getting flashbacks to the catastrophic oil price crash on April 20, today the CFTC poured gasoline on the smouldering fire when it warned that oil futures contracts could again trade with negative prices during the coronavirus pandemic.As Bloomberg and Dnyuz reports, the Commodity Futures Trading Commission will advise exchanges to monitor their markets and remind them to “maintain rules to provide for the exercise of emergency authority”, including the power to “suspend or curtail trading in any contract” if markets become disorderly, according to an advisory notice to be released on Wednesday.“We are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI), Light Sweet Crude Oil Futures contract on April 20,” says the eight-page advisory signed by the CFTC’s heads of market oversight, clearing and risk, and swap dealer and intermediary oversight.Clearing houses “should prepare for the potential that certain contracts may experience significant price volatility, and that negative pricing is a possibility”, the advisory said adding that “we are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 physically-delivered WTI contract, and related reference contracts.”The alert comes after the US benchmark West Texas Intermediate oil contract plunged below $0 a barrel last month for the first time, as buyers searched for places to store a glut of oil. The WTI contract for June delivery is scheduled to expire next Tuesday, raising the prospect of a repeat of the chaotic final two trading days in the May oil contract, which settled at minus $37.63 a barrel on April 20.The move caused losses for countless retail traders and at least one futures broker, and sparked widespread criticism of an oil benchmark referenced by drillers, refiners, consumers and investors.A senior CFTC official said its notice applied to all contracts, not just oil, and did not represent a forecast that negative oil prices would return. “We are not predicting the market. We’re just suggesting planning,” the official said. Brokers “should prepare for the potential that certain contracts may experience significant price volatility and, possibly, negative pricing,” the CFTC said.

WHITE HOUSE: Trump says oil moving ‘to greatness.’ 4 reports disagree — Wednesday, May 13, 2020 — President Trump said yesterday that the oil industry is turning the corner, and his Energy secretary echoed the enthusiasm, insisting in two interviews that the industry is on the verge of what the administration calls a “transition to greatness.”

Coronavirus leaves experts pondering if the planet already hit peak oil demand — Here’s a wild but no-longer-unthinkable idea: Is it possible that global oil demand will never again exceed pre-pandemic levels? The timing of peak demand has big implications for carbon emissions, oil-producing nations and the industry. Many prior analyses concluded that it’s a rather remote horizon, ranging from the late 2020s to the 2040s or later, though needless to say there are lots of variables. “Will demand ever go back to where it was? That is hard to say,” Shell CEO Ben van Beurden told Bloomberg late last week. He also said the odds of demand peaking this decade have risen. Until recently the world used roughly 100 million barrels of oil per day.But COVID-19 has crushed demand, with multiple analysts seeing a roughly 25% – 30% decline or more at the height of the lockdowns, though recovery has begun. The International Energy Agency estimated in mid-April that demand was down by 29 million bpd that month, the trough before a recovery that still brings a year-over-year drop of 9 million bpd. BNP Paribas Asset Management analyst Mark Lewis believes 2019 may have been the peak.He said in a mid-April Financial Times piece (subscription) that some current demand loss could be permanent, such that consumption hangs around in the 95 million to 100 million bpd range for several years before long-term decline begins. “[C]onsider the structural pressures on the oil market already in evidence before coronavirus hit and then add to these the behavioral changes prompted by the pandemic, some of which seem likely to stick,” he wrote.Meanwhile, CNN reports that while the consultancy IHS Markit sees demand coming back to 2019 levels by 2022, they’ve also modeled a scenario in which a second virus wave leads to demand never coming all the way back. The idea that peak demand just happened is not the mainstream view, though Bloomberg notes a “growing minority” are speculating about it. But what’s clear is that COVID-19 could at least hasten the arrival of the moment when it stops rising entirely.

BP boss Bernard Looney: Peak oil demand may have just happened – Add BP CEO Bernard Looney to the list of people who think oil demand may never fully recover after the coronavirus pandemic, even though it’s already coming back from the depths of the collapse. “I don’t think we know how this is going to play out. I certainly don’t know,” he told the Financial Times (subscription).“Could it be peak oil? Possibly. Possibly. I would not write that off,” he said in the interview, where he notes the proliferation of remote-working technology. The remarks show how COVID-19 has upended oil markets in a way that’s likely to last for a long time. Looney’s comments are similar to recent remarks by Royal Dutch Shell CEO Ben van Beurden. An Oxford Institute for Energy Studies analysis sees demand reaching “pre-shock” levels in the fourth quarter of 2021. But they also cite modeling challenges and known unknowns, such as whether there’s another wave of lockdowns – a prospect other analysts are weighing too. “It may be hard to comprehend now. But barring a second wave of the pandemic, nearly all pre-COVID demand could return by the second half of 2021,” IHS Markit’s Roger Diwan said in an email.

The Fed Just Changed Its Own Rules to Bail Out the Fossil Fuel Industry – Alexis Goldstein – The fossil fuel industry and the Senate GOP had been lobbying the Fed hard for changes to help big oil. One of the changes they sought was the ability to use emergency loans to pay down or refinance other debts. Heavily indebted fossil fuel companies are teetering on the edge of bankruptcy and under increasing pressure from their lenders, like the big banks to whom the sector owes $200 billion. In the case of one big bank, Wells Fargo’s portfolio of loans to energy companies is so distressed, it’s been described as a “bloodbath.” Two fossil fuel companies have already declared bankruptcy since April – Whiting Petroleum and Diamond Offshore. Desperate to prop up these failing firms, Sen. Ted Cruz complained to the Fed in an April 24 letter that oil and gas firms needed help, because the original Main Street Lending Program terms explicitly prevented companies from using the funds to “repay or refinance pre-existing loans,” and that made them vulnerable to bankruptcy. A trade group for big oil, the Independent Petroleum Association of America (IPAA), made the very same complaint. On April 30, the Fed gave the oil industry precisely what it asked for,expanding the lending programs to allow more debt, looser standards and bigger loan amounts to accommodate the oil industry. The changes allow companies to use taxpayer-backed emergency relief funds to refinance and pay down pre-existing debt. The very same day the Fed acted, Chesapeake Energy was about to go bankrupt. But these and other changes the Fed made benefited both Chesapeake and a host of other oil companies. Previously, businesses with large amounts of debt were not able to get large loans, another thing Senator Cruz complained about. The senator got what he asked for when the Fed raised the threshold to allow more heavily indebted companies to participate. The Fed also gave the industry more flexibility to play accounting games to make their earnings look rosier for the purposes of that threshold, changes that benefited both the teetering Chesapeake Energy, but also Occidental Petroleum. Former Trump adviser and mega-donor Carl Icahn has a nearly 10 percent stake in Occidental. And this isn’t even the only change that benefitted Occidental. Previously, firms using the Main Street Lending Program could have no more than 10,000 employees. The Fed raised it to 15,000. Occidental Petroleum just so happens to have 14,400 employees. Yet another oil sector request the Fed granted was Energy Secretary Dan Brouillette’s ask to raise the cap on one of the loan programs from $150 million to $200 million. Big oil isn’t just getting the supposedly independent Fed to change the rules to stay afloat despite a decade of bad bets. Taxpayer funds are now effectively being used to reduce debt costs for oil companies and bail out their Wall Street creditors. While some argue that the Fed’s Main Street Lending Program isn’t taxpayer money, this is inaccurate: the program uses $75 billion from the CARES Act to partially cover any losses these loans incur for the Fed. At the end of the day, taxpayer money is being used as a down payment for loans to big oil. Those who benefit the most are those who’ve loaned money to big oil – banks and bondholders. Those that justify these loans do so on the basis that they support jobs, but the connection to actual worker protections are minimal, as the Feddoesn’t explicitly bar firms who take these loans from laying off their employees.

Oil and gas companies asked, then received changes to Fed coronavirus stimulus program – Oil and gas companies in Pennsylvania could benefit from a change to a Federal Reserve stimulus program aimed at helping businesses during the coronavirus pandemic.Critics have attacked the changes, calling them a “stealth bailout” for heavily indebted oil and gas companies. The changes were made in late April to the Fed’s Main Street Lending program, part of the $2 trillion coronavirus relief bill passed by Congress in March. The$600 billion loan program is intended to help small- and medium-sized businesses that were in good financial shape before the pandemic struck. When the Fed rolled out the program, it prohibited companies from using the loans to pay off debts. Oil and gas companies and their advocates asked the central bank to loosen up those guidelines. One of their biggest asks: They wanted to be allowed to use the loans to pay off other debts, too. The Fed’s final guidelines gave those companies their wish – companies could use the loans to pay off some types of debt. And the maximum loan size increased from $150 million to $200 million. Oil-state Sens. Ted Cruz of Texas and Kevin Cramer of North Dakota praised the changes. “It’s another arrow in the quiver” to help the oil industry in his state, Cramer said in a video statement. Environmentalists questioned whether the government should be throwing a lifeline to the fossil fuel industry – one of the country’s biggest sources of greenhouse gases. Emissions must be cut dramatically, scientists say, if the world is to avoid the worst effects of climate change. Others saw the Federal Reserve – an independent institution that is supposed to stay outside politics – giving preferential treatment to a powerful industry with substantial ties to the Trump administration. “This is an oil bailout for a specific set of companies,” said Graham Steele, the director of the Corporations and Society Initiative at Stanford Graduate School of Business.Steele, a former aide to Democratic Senator Sherrod Brown of Ohio, said the program is risky because climate change risks making these companies’ assets – oil and gas reserves – “stranded assets” in the future, if governments tax carbon to avert runaway climate change. He said the loans are also risky because many of the companies were doing poorly before the pandemic. “(The Fed) had structured the program in a way so as not to lose taxpayers’ money. And now members of Congress and industry have lobbied them. And under that pressure, they have buckled. They have changed the program to help out a specific industry,” Steele said. The Federal Reserve says changes to the program weren’t made with the oil industry in mind, and that other industries could benefit. Business groups like the U.S. Chamber of Commerce also lobbied for the changes. But observers see the Fed’s revisions to its lending guidelines as a clear win for oil and gas companies. David Livingston with Eurasia group, a risk management firm, said the changes are especially good for oil and gas companies because of the high amount of debt some have accumulated. “They were sort of running on a treadmill and the entire shale enterprise was increasing its production month over month, year over year over year, in large part, thanks to the continued provision of relatively low cost capital,” Livingston said.The idea behind the strategy was that prices for oil and gas would eventually rise and they’d be able to pay off their debts. But the opposite has happened, at least for oil. It plummeted into the negative range in April, though prices are recovering. The loans could also help natural gas companies that operate in Pennsylvania. A group of GOP senators from Pennsylvania and other Appalachian states wrote in favor of the changes in April.

Oil Stockpiles Have Stopped Growing in World’s Biggest Buyer – The great oil glut of 2020 may have already peaked in the world’s biggest crude importer. Crude inventories in China have shrunk in recent weeks after rising to record levels, according to analysts and satellite observations. Supplies have been drawn out of storage as refineries ramp up operations to meet rising demand from an economy emerging from lockdown. Inventories drawing in the world’s biggest importer is an early sign that rebalancing may have begun in the global oil market after an epic collapse in demand, according to Morgan Stanley. Stockpiles dwindled even as oil imports in April increased from the previous month, according to Customs data. “The combination of inventories falling and strong imports implies really solid refining activity,” said Geoffrey Craig, an analyst with Ursa Space Systems Inc., which uses synthetic aperture radar to track storage tank fills. “You saw them build aggressively in late February and into the end of March, and since then they’ve absolutely plateaued and have come off a bit.” Refiners are drawing oil out of inventory to process into gasoline and diesel as traffic once again snarls China’s cities following the lockdown earlier this year to halt the spread of the coronavirus. Even as driving demand dries up in the rest of the world, rush hours from Beijing to Shenzhen at the end of last month are busier than they were in the same period last year. Meanwhile subway ridership remained about 50% below pre-virus levels in Beijing and about 30% below in Shanghai, according to data compiled by BloombergNEF, as fears of large crowds push commuters toward the relative isolation of cars. Independent refiners in Shandong in northeast China are operating at record rates, while state-owned giant PetroChina Co. said it was ramping up fuel production after it fell in the first quarter.

China crude oil runs rebound in April as fuel demand picks up – (Reuters) – China’s daily crude oil throughput rebounded in April from a 15-month low in March as refiners cranked up operations to meet renewed fuel demand after lockdowns imposed to prevent the spread of the coronavirus outbreak were eased. The country processed a total of 53.85 million tonnes of crude oil last month, data from the National Bureau of Statistics (NBS) showed on Friday, equivalent to about 13.1 million barrels per day (bpd). That was some 11% higher than 11.78 million bpd in March. The agency said on Friday it had adjusted the database of industrial enterprises it uses to help compile a range of production numbers. On that basis, Friday April’s crude oil throughput was 0.8% above the year-ago level, it said; a Reuters calculation using NBS data from last year put the rise at 3.4%. “In terms of year-on-year percentage change, we only included the companies that existed in both years,” a spokesperson from agency’s media relations department told Reuters. “For instance, if a company existed in 2019 but does not exist in 2020, then their figure in 2019 will not be included in 2020 year-on-year percentage calculation.” Analysts said it would not be not surprising for the agency to revise its year-ago numbers.

China’s top energy firms to grow gas output despite spending cuts – (Reuters) – China’s top energy producers will grow their natural gas output this year by twice as much as in the previous oil rout even as they slash spending due to collapsing oil prices, company officials and analysts said. The world’s top energy consumer is forecast to expand its natural gas production by 5% or more in 2020 despite plans for deep spending cuts which will likely curb local oil production, they said. That would be half the growth in 2019 but double the 2.2% growth seen in 2016 following a lengthy oil slump. China’s state-owned energy companies are joining others worldwide in slashing expenditure after this year’s 56% drop in oil prices as a global pandemic ravaged economic activity. As the country’s oil and gas trio plan double digit spending cuts, they are prioritising gas development at home particularly as the market is relatively insulated from sharp oil moves due to government subsidies. “Under the capital expenditure cuts, companies are revising their gas strategy from an earlier aggressive push to a more practical approach, as gas production remains profitable,” said Zhu Kunfeng, Beijing-based associate director at IHS Markit. PetroChina, Sinopec Corp and CNOOC Ltd said in April they would reduce spending by roughly 20% to 30%, similar to the cuts they made in the last oil rout in 2015/2016.

Goldman Sachs’ Jeff Currie warns jet fuel demand may never fully recover from the coronavirus crisis – The coronavirus outbreak will have a lasting impact on the behavior of businesses across the globe, with jet fuel demand unlikely to ever fully recover, according to the head of commodities research at Goldman Sachs. The Covid-19 pandemic has meant countries have effectively had to shut down, with many governments imposing strict restrictions on the daily lives of billions of people. Confinement measures – which vary in their application worldwide but broadly include school closures, bans on public gatherings and social-distancing guidelines – have been implemented in 187 countries or territories in an effort to try to slow the spread of the virus. To date, more than 4.1 million people have contracted Covid-19 worldwide, with 282,727 deaths, according to data compiled by Johns Hopkins University. The public health crisis has led to an extreme demand shock in energy markets, with world travel brought close to a standstill. Jeff Currie of Goldman Sachs argued that the severe loss of oil demand came primarily from three sectors: Commuting demand; industrial demand and jet demand. Industrial demand and commuting demand should both be able to recover fairly quickly from the pandemic, Currie said, but jet demand “is the weakest one.” “So far, we would tend to think when we see a normalization globally, you’ll get the leisure demand back. The part I don’t think you get back is what we are doing right now,” Currie said during a video call with reporters on Thursday. “I think you are going to lose a good chunk of the jet demand that would have been associated with business travel. Our base case is you lose somewhere around 2 to 3 million barrels per day of that,” he added.Goldman Sachs expects global oil demand to fall to 94 million barrels per day in 2020, down from 100 million barrels per day in 2019. Oil demand is then expected to rise to 99 million barrels per day in 2021. Currie said the U.S. investment bank does not expect oil demand to normalize back to pre-crisis levels until the third quarter of 2022.

Oil prices drop amid supply glut, fears of 2nd coronavirus wave – Oil prices fell on Monday as concern over a persistent glut and economic gloom caused by the coronavirus pandemic combined to cancel out support from supply cuts at some of the world’s top producers. Brent crude futures were down 29 cents, or 0.9%, at $30.68 a barrel by 0431 GMT, while U.S. West Texas Intermediate crude futures fell 17 cents, or 0.7%, to $24.57 a barrel. Both benchmarks have notched up gains over the past two weeks as countries have eased business and social lockdowns imposed to cope with the coronavirus and fuel demand has rebounded modestly. Oil production worldwide is also declining. But possible signs of a second wave of coronavirus infections in northeast China and South Korea worried investors even as more countries started to pivot towards easing pandemic restrictions in moves that could support oil demand. Goldman Sachs analysts said there was still concern that demand will stay weak in 2021, with worries about a second wave of Covid-19 cases and only a modest increase in personal or corporate travel. Global oil demand has plummeted by about 30% as the coronavirus pandemic curtailed movement across the world, building up inventories globally. Fears that the United States is running out of storage space triggered WTI prices crashing into negative territory last month, prompting some U.S. producers to slash output. In a sign of that impact, the number of operating oil and gas rigs in the world’s largest oil producer fell to 74 in the week to May 8, a record low according to data released on Friday from energy services firm Baker Hughes going back to 1940. “People are surprised by how quickly the U.S. is shutting in production and that’s exactly what we need in order to support prices,” said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo. “There’s another 10 days before the June contract expires … if the WTI contract can avoid a crash going into expiry, hopefully we’ve seen the bottom.”

Oil turns positive as Saudi Arabia to cut production by an additional 1 million barrels per day – Oil prices jumped to their highs of the day after Saudi Arabia said it will cut production further in an effort to support global oil markets. Beginning on June 1 the Kingdom will cut output by an additional 1 million bpd, which combined with the cuts agreed to by OPEC and its oil-producing allies, brings Saudi Arabia’s total cut to roughly 4.8 million bpd below its April record production level. Production for June will now be 7.492 million bpd. West Texas Intermediate, the U.S. benchmark, traded 53 cents, or 2.1%, higher at $25.27 per barrel. Earlier in the session it traded as high as $25.58, and as low as $23.67. International benchmark Brent crude fell 15 cents to trade at $30.80 per barrel. Saudi Arabia also said that it would scale back May production “in consent with its customers.” “The Kingdom aims through this additional cut to encourage OPEC+ participants, as well as other producing countries, to comply with the production cuts they have committed to, and to provide additional voluntary cuts, in an effort to support the stability of global oil markets,” a statement from the Saudi press agency said. Oil is coming off its second straight positive week as investors have cheered signs that demand recovery is underway amid ongoing production cuts. WTI jumped 25% last week in one of its best weeks in history, while Brent rose 17%. Still, prices are well below their highs and the path to recovery is far from certain. “Despite the production curtailments that commenced this month, traders start to realize that the size of the supply-demand imbalance leaves little room for optimism,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “Storages in the US continue to fill up with crude and we are coming closer to tank tops by the day.”

Saudi Arabia’s oil production cuts show it is back in ‘whatever it takes’ mode, strategist says – Voluntary production cuts by OPEC members show that oil producing countries are doing what they can to stabilize the market during the ongoing coronavirus outbreak, one strategist told CNBC this week. Saudi Arabia on Monday said it will reduce output by an additional 1 million barrels per day from June 1, in a bid to support oil prices. Following the kingdom’s announcement, the UAE and Kuwait also announced supply cuts. That’s on top of an agreement between OPEC and non-OPEC allies, sometimes referred to as OPEC+, to lower production by 9.7 million bpd from May 1. “The OPEC heavyweights are sort of lining up to try to do what they can to stabilize this market,” said Helima Croft, global head of commodity strategy at RBC Capital Markets. “We’re already starting to see a pick up in demand as global lockdown conditions ease, people start driving again,” she told CNBC’s “Capital Connection” on Tuesday. “So, essentially what they’re doing is acting as an accelerator in terms of getting the market rebalanced.” However, while there are “green shoots,” the outlook is unclear as the pandemic continues. “If we were to get a second wave in the crisis, if we were to get lockdown restrictions re-implemented, that could really change the trajectory of an oil price recovery,” said Croft. “We really have to wait and see what is going to happen with this virus before we can basically say we’re in the clear in terms of being on a sustainable path to recovery.” More than 4.18 million people have contracted Covid-19 worldwide, and at least 286,336 people have died from the virus, according to data compiled by Johns Hopkins University.

Oil settles higher on hopes supply cuts, reopening economies will drain crude glut – Oil futures finished higher Tuesday, with U.S. prices at a five-week high on expectations that falling production levels and a gradual revival in demand from a COVID-19 pandemic-related drop, will ease a global glut of crude that has slammed prices in 2020. “Oil is back in rebound mode as the market is getting assurances that massive production cuts are coming,” said Phil Flynn, senior market analyst at The Price Futures Group. Saudi Arabia has promised to cut an additional 1 million barrels per day in June, in addition to its share of reductions under the output-cut agreement between the Organization of the Petroleum Exporting Countries and its allies, including Russia. Reuters reported Tuesday that OPEC+ wants to continue their existing oil production cuts beyond June, citing four OPEC+ sources. The agreement between the group of producers, known as OPEC+, called for output reductions of 9.7 million barrels per day from May 1 through June, with the group gradually reducing the size of the cuts after that, through April 2022. West Texas Intermediate crude for June delivery rose $1.64, or 6.8%, to settle at $25.78 a barrel on the New York Mercantile Exchange. That was the highest finish for a front-month contract since April 6, according to Dow Jones Market Data. July Brent crude added 35 cents, or 1.2%, t0 $29.98 a barrel on ICE Futures Europe. Saudi oil production for June, with the OPEC+ output-cut agreement and the voluntary cuts, will total 7.492 million barrels per day, the Saudi Press Agency reported Monday. Kuwait and the United Arab Emirates said Monday that they would offer support for the Saudi move by reducing production by 80,000 barrels and 100,000 barrels per day, respectively, in June. “Now comes word that Russia is making progress on reductions,” said Flynn, in a daily note. As part of the OPEC+ agreement, Russia reduced its oil and gas condensate production to 9.45 million barrels a day on May 1-11, from an average 11.25 million barrels per day in April, Reuters reported Tuesday, citing sources familiar with the data.

WTI Holds Big Gains Despite Bigger-Than-Expected Crude Build – Oil prices rallied (despite equity weakness) to their highest since early April today with WTI tagging a $26 handle after the Energy Information Administration revised down its 2020 and 2021 crude output forecasts in its monthly Short-Term Energy Outlook.“Production is indeed dropping and it might stay down for longer than people thought,” Bart Melek, head of commodity strategy at Toronto Dominion Bank said. “U.S. crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008,” the agency said in its report.“Typically, price changes affect production after about a six-month lag. However, current market conditions will likely reduce this lag as many producers have already announced plans to reduce capital spending and drilling levels.”But the huge global glut remains and algos ‘eyes’ will be glue to API’s data tonight… API:

• Crude +7.6mm (+4.3mm exp)
• Cushing -2.216mm (-1.00mm exp)
• Gasoline -1.911mm
• Distillates +4.712mm

This is the 16th weekly crude build in a row…but Cushing saw its first draw in 10 weeks…

Oil moves between gains and losses, caught between demand loss and supply cuts – Oil prices moved lower on Wednesday in choppy trading as demand concerns exacerbated by a possible second wave of coronavirus infections as countries ease lockdowns outweighed a possible extension of supply cuts by OPEC+. West Texas Intermediate crude fell 32 cents, or 1.2%, to trade at $25.46 per barrel, while Brent crude, the international benchmark, was unchanged at $29.98. “Fears are running rife that easing lockdown measures will trigger a second wave of coronavirus infections,” said Stephen Brennoc at oil brokerage PVM. U.S. infectious disease expert Anthony Fauci on Tuesday told Congress that easing coronavirus lockdowns could set off new outbreaks of the COVID-19 disease that has killed 80,000 Americans and badly damaged the world’s biggest economy and oil consumer. New outbreaks have been reported in South Korea and China, where the health crisis started before spreading across the globe, prompting governments to lock down billions of people, devastating economies and demand for oil. The U.S. Energy Information Administration (EIA) now expects world oil demand to fall by 8.1 million barrels per day (bpd) this year to 92.6 million bpd, compared with a previous forecast for a drop of 5.2 million bpd. The agency also expects U.S. output to fall by 540,000 bpd, against a previous forecast of 470,000 bpd. It expects global output of 11.7 million bpd this year and 10.9 million bpd in 2021. The Organization of the Petroleum Exporting Countries also slashed its world oil demand forecast and now expects it to contract by 9.07 million bpd this year, it said in a monthly report. Last month, OPEC expected a contraction of 6.85 million bpd. On the supply side, OPEC+ is looking to maintain existing cuts beyond June, when it meets next in Vienna, sources told Reuters. OPEC and other producers including Russia – a group known as OPEC+ – agreed to cut output by 9.7 million bpd in May and June and to scale back cuts to 7.7 million bpd for the rest of the year. Saudi Arabia’s cabinet has urged OPEC+ countries to reduce output further to restore balance in global crude markets, the country’s state news agency reported early on Wednesday. Riyadh said it would add to planned cuts by reducing production by a further 1 million bpd next month, bringing output down to 7.5 million bpd.. In the United States, crude oil inventories rose by 7.6 million barrels last week to 526.2 million barrels, against analyst expectations for an increase of 4.1 million barrels, the American Petroleum Institute (API) said on Tuesday. Still, stocks of crude at the Cushing delivery hub in Oklahoma fell by 2.3 million barrels, API said. If confirmed by official data, that would be the first drawdown since February, ING Economics said.

WTI Spikes After Surprise Crude Draw, Production Plunge – Oil prices have roundtripped from last night’s API print, as overnight gains were erased after OPEC presented a bleaker assessment of global oil markets for the second quarter as the COVID-19 crisis continues to drain demand.Notably, just as OPEC members begin to cut production, the cartel cut estimates for the amount of crude it will need to supply over the three-month period by just under 3 million barrels a day, or about 15%, in a report published this morning.“On the demand side there’s probably a view that the worst may be behind us, in terms of the peak damage point. If we do see a second wave, that would hurt demand and hurt pricing,” said Commonwealth Bank’s Dhar.And so once again we look to inventory data for clues with all eyes on Cushing today given some expectation that we’re about to see the beginning of the end of the storage capacity issue. DOE:

• Crude -745k (+4.3mm exp)
• Cushing -3.002mm (-1.00mm exp)
• Gasoline -3.513mm
• Distillates +3.511mm

The 15-week streak of crude inventory builds is over with a 745k barrel draw this week and fears over Cushing storage maxing out seem assuaged… Nationwide crude stocks fell for the first time since January, while Cushing stocks declined for the first time since February and its largest decline since that month. Bloomberg Intelligence Energy Analyst Fernando Valle notes that “falling tanker rates show that pressure on storage has eased in May as OPEC+ cuts output. An initial recovery in gasoline demand as several U.S. states emerge from lockdown could drive another draw on inventories, but exports are likely to remain subdued. Diesel is in an increasingly delicate situation, as industrial and trade activity slows at the same time as refiners shift volume from jet fuel. Margin recovery is shallow, but positive. Questions remain on how long-lived it will be, as coronavirus cases grow in the U.S. South.”US crude production has plummeted quickly – though not as quickly as rig counts have collapsed – down 300k b/d…

Oil prices post a loss even as weekly U.S. crude supplies and stocks at the Cushing storage hub decline – Oil prices settled with a loss on Wednesday, failing to find support even after U.S. government data showed an unexpected weekly decline in domestic crude supplies, along with a fall in stocks at a key storage hub in Cushing, Okla. “As we have seen a good amount of states opening back up, demand for gasoline should easily continue to get better – especially since we are coming from such a demand destruction here in the U.S.” . “However, air travel worldwide…is a long way from coming back.”Zahir said he wouldn’t be surprised to see COVID-19 cases increase in the weeks to come because it takes a couple of weeks for the virus to present itself. “We feel that DNA in the consumer has been badly damaged” and the economy is likely to recover “very slowly” with the amount of jobs lost.Oil can “definitely go higher a few dollars in the next few days, but we feel it will be short lived,” he said. “With space becoming available in Cushing, and with prices going higher” recent pledges by certain countries to cut production may not see full compliance.West Texas Intermediate crude for June delivery on the New York Mercantile Exchange fell by 49 cents, or 1.9%, to settle at $25.29 a barrel. It had briefly turned higher immediately after the EIA supply data. The global benchmark, July Brent fell 79 cents, or 2.6%, at $29.19 a barrel on ICE Futures Europe.The Energy Information Administration reported Wednesday that U.S. crude inventories fell by 700,000 barrels for the week ended May 8. That marked the first weekly decline in 16 weeks and defied a forecast by analysts polled by S&P Global Platts for an average increase of 4.8 million barrels. The American Petroleum Institute on Tuesday reported a climb of 7.6 million barrels. The EIA report was “bullish, but the mood is bearish,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. “The risk-off environment in the stock market is having traders overlook the green shoots” in the report.

Oil jumps 9% on dip in U.S. crude stockpiles, IEA data – Oil prices surged on Thursday after the International Energy Agency forecast lower global stockpiles in the second half of 2020, even as worries remain over a second surge in coronavirus infections in coming months. Crude prices have ticked up in the last two weeks as some countries relaxed coronavirus restrictions and lockdowns to allow factories and shops to reopen. West Texas Intermediate crude futures surged 8.98%, or $2.27, to settle at $27.56 per barrel, while Brent crude futures rose $1.94, or 6.65%, to settle at $31.13 per barrel. The market rebounded from Wednesday’s losses built on a glum forecast for the economy from U.S. Federal Reserve Chairman Jerome Powell, who warned of an “extended period” of weak economic growth. That offset an unexpected drop in U.S. stockpiles. Initial claims for state unemployment benefits totaled a seasonally adjusted 2.98 million for the week ended May 9, the U.S. Labor Department said on Thursday. While that was down from 3.18 million in the prior week and marked the sixth straight weekly drop, claims remain astoundingly high. “Gasoline demand correlates pretty well with the employment level, and it’s hard to see gasoline demand come back much more than it already has,” said John Kilduff, partner at Again Capital LLC in New York. U.S. crude inventories fell for the first time in 15 weeks, the Energy Information Administration said on Wednesday, with a fall in U.S. crude stockpiles of 745,000 barrels to 531.5 million barrels in the week to May 8. On Thursday, the IEA again forecast a record drop in demand in 2020, although it trimmed its estimate for the fall, citing measures to ease lockdowns. As demand increases, the IEA expects crude stockpiles to shrink by about 5.5 million barrels per day in the second half. “While these supply and demand dynamics are certainly capable of boosting prices near term, a potential record level of global crude supply will remain as a force to be reckoned with,”

Oil extends gains amid signs of China demand pickup, global supply overhang fading –Oil prices rose on Friday, extending day-earlier gains, as data showed demand for crude picking up in China after the easing of curbs to stem the coronavirus outbreak, boosting hopes that the global supply overhang may start to fade. Brent crude was up 63 cents, or 2% at $31.76 per barrel, after rising nearly 7% on Thursday. The global benchmark is heading for a 1.8% gain on the week after rising for the previous two weeks. West Texas Intermediate was up $1.23, or 4.4%, to trade at $28.78 per barrel, having jumped 9% in the previous session. WTI is heading for a third weekly increase, up more than 12%. Amid supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other major producers, bright spots are also emerging on the demand side. Data released on Friday showed China’s daily crude oil use rebounded in April as refineries ramped up operations. Still the market mood remains far from euphoric, with the coronavirus pandemic far from over and new clusters emerging in some countries where lockdowns have been eased. “The fundamentals in the market are clearly improving,” ING Research analysts said in a note. “But we still believe that in the near term, the upside is limited given that we are still in a surplus environment … There is plenty of inventory for the market to digest.” There is optimism that stockpiles may be on the wane. The International Energy Agency said it expects crude inventories to fall by about 5.5 million barrels per day (bpd) in the second half of this year. Meanwhile U.S. crude inventories fell for the first time in 15 weeks, the Energy Information Administration said on Wednesday. Output cuts will boost the trend towards lower inventories, but U.S. crude is unlikely to see strong gains. “WTI crude will struggle to break above the $30 level until both the economic outlook improves for the U.S. and some of the downside risks ease,” said Edward Moya, senior market analyst at OANDA. On the production side, OPEC and associated producers – collectively known as OPEC+ – had already agreed to cut output by a record of nearly 10 million bpd before Saudi Arabia this week extended its planned reductions for June, pledging to lower supply by nearly 5 million bpd.

The Relentless Oil Price Rally | OilPrice.com Oil prices are continuously rising despite the uncertainty surrounding COVID-19, with WTI nearing a two-month high on Friday morning.Oil prices appear to be rising relentlessly, with WTI bouncing above $28 per barrel, nearly at a two-month high. Market sentiment has been gaining steam as supply shut-ins mount and demand begins to come back. Still, the risk of another wave of coronavirus infections presents a major risk to the rally.“The ministers want to keep the same oil production cuts now which are about 10 million bpd, after June. They don’t want to reduce the size of the cuts. This is the basic scenario that’s being discussed now,” one OPEC+ source told Reuters. Oil time spreads have seen a narrowing contango, a sign of tightening in the oil market. “We believe stocks will be reduced gradually over the next 12 months or so,” said Rystad Energy head of oil markets Bjornar Tonhaugen. “Brent stabilizing above $30 gives the market confidence that frightening days of negative prices and record daily declines are behind us.” The flotilla of Saudi supertankers heading to U.S. ports have been delayed because there has been a shortage of the smaller ships used to lighten the load near shore. Due to sharp cuts in oil production, the pace of inventory builds has slowed dramatically, easing fears of an acute shortage in storage capacity. Iraq cut 650,000 bpd from its massive southern oil fields in order to comply with the OPEC+ cuts. The reductions have been split between state-owned companies and the private international companies. Exxon CEO Darren Woods is underscrutiny after Legal & General Investment Management, which oversees $1.5 trillion in assets, said it would vote against Woods as CEO and Chairman at the company’s upcoming shareholder meeting. The investment group cited Exxon’s “lack of strategic ambition around climate change,” while its European competitors “step up and reaffirm their sustainability ambitions.” Wood Mackenzie outlined several scenarios in a new report, all of which paint a pessimistic outlook for oil demand. The firm said it could take years for demand to recover, but ultimately, demand will probably peak within the next decade. Federal Reserve Chairman Jerome Powell warned of an “extended period” of economic damage. St. Louis Fed Chair James Bullard warned job losses could be permanent and businesses could fail “on a grand scale.” The World Health Organization warned that the world may live with COVID-19 indefinitely. “It is important to put this on the table: this virus may become just another endemic virus in our communities, and this virus may never go away,” WHO emergencies expert Mike Ryan told an online briefing. Diamond Offshore took advantage of stimulus money passed by Congress, getting a $9.7 million tax refund. Then it asked a bankruptcy judge to reward top executives the same amount. Oil companies are receiving hundreds of millions of dollars in stimulus money. “This is a stealth bailout for the oil and gas industry,” Jesse Coleman, a researcher with Documented, told Bloomberg.

Oil prices jump as demand shows signs of picking up – (Reuters) – U.S. crude prices jumped 7% on Friday to their highest since March, on strengthening fuel demand as countries around the world eased travel restrictions they had imposed to curb the spread of the coronavirus. U.S. crude gained 19.7% in the week and Brent crude rose 5.2% after a week of bullish news. Both contracts gained for the third consecutive week. West Texas Intermediate (WTI) oil settled up $1.87, or 6.8% at $29.43 a barrel, just off the session peak of $29.92, its highest since mid-March. WTI soared 9% in the previous session. Brent crude settled up $1.37, or 4.4% a barrel at $32.50. Brent rose nearly 7% on Thursday. The second-month contract for U.S. crude traded at a discount to the first month for the first time since late February, implying market tightness, said Bob Yawger, director of energy futures at Mizuho in New York. “It is no accident the spread switched after EIA crude oil storage, and storage at the NYMEX delivery site at Cushing, both posted up their first storage draws in weeks in Wednesday’s storage report,” he said. The Organization of the Petroleum Exporting Countries and other major producers have cut supplies to reduce a glut, and now there also are signs of improving demand. Data showed China’s daily crude oil use rebounded in April as refineries ramped up operations. Still, the market remained cautious with the coronavirus pandemic far from over and new clusters of infection emerging in some countries where lockdowns have eased. “Oil prices have been up significantly since yesterday thanks to a better assessment of the situation by the International Energy Agency (IEA),” Commerzbank said in a note. The IEA expects global crude inventories to fall by about 5.5 million barrels per day (bpd) in the second half. It also expects oil demand this year to fall by 8.6 million bpd, smaller by 690,000 bpd than the decline it forecast last month. It expects non-OPEC supply to fall by 3.2 million bpd. Barclays raised its forecasts for Brent and WTI by $5-$6 a barrel for 2020 and by $16 a barrel for 2021. It now sees Brent prices averaging $37 a barrel and WTI at $33 this year. For 2021, the bank expects Brent to average $53 a barrel while WTI averages $50.

U.S. Oil Just Shy of $30, Chugging Along on China Data – President Donald Trump might very be disappointed with China these days, but it was Chinese data on Friday that helped accelerate U.S. crude oil’s run toward $30 per barrel. West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled up $1.87, or 6.8%, at $29.43 per barrel after data showed China’s industrial production rose 3.9% in April from a year ago, improving from a 1.1% fall in March. Brent, the London-traded global benchmark for oil, rose $1.37, or 4.4%, to settle at $32.50. WTI has been on a tear since hitting a bottom of $12.34 on Aug 28, rallying almost 140% in just over two weeks. The U.S. crude benchmark remains down 50% on the year. But Friday’s two-month high of $29.91 in WTI brought its discount versus Brent, typically at $5 per barrel, to under $3 at one point, powerfully altering the dynamics between the two benchmarks. For the week, WTI gained 19%, extending last week’s 25% jump and the previous week’s 17% rise. Brent saw a relatively modest climb of 5% on the week. Its gains over the past two weeks were virtually a reverse of WTI’s – 17% last week and 23% the previous week. Much of the boom in U.S. crude of late has been due to cratering domestic production, as the coronavirus pandemic shut down wells and oil rigs across the United States at a faster rate than elsewhere in the world. Rising gasoline production has also helped as most of the 50 U.S. states have reopened from lockdowns imposed over the Covid-19. Rising gasoline consumption has also helped as most of the 50 U.S. states have reopened from lockdowns imposed over the Covid-19. But Friday’s run toward $30 WTI – an important psychological mark for oil bulls – – came on the back of China’s resurgent industrial production data underscoring a recovery in factory activity in the world’s largest oil importing country. It also comes a day after President Donald Trump said he was very disappointed with China’s failure to contain the outbreak of the virus, and that he might even cut ties with the world’s second largest economy. “WTI crude neared a two-month high as China’s industrial output rose for the first time since the coronavirus pandemic, fueling hope that crude demand will soon improve in Europe and then the U.S.” said Ed Moya, analyst at New York’s OANDA. “China remains the template for the economic recovery for the rest of the world and (it) gave energy traders some hope that demand will begin to recover over the coming weeks.”

Oil Futures Settle Sharply Higher For The Day, Gains 19% In Week – Crude oil futures ended sharply higher on Friday, extending recent gains, amid hopes on some improvement in energy demand following reopening of businesses in several parts across the globe, and on hopes the output cuts from major producers will support prices. West Texas Intermediate Crude oil futures for June ended up $1.87, or about 6.8%, at $29.43 a barrel. Brent Crude futures were gaining about $1.1 or about 3.6% at $32.23 a barrel. On Thursday, WTI Crude oil futures for June ended up $2.27, or 9%, at $27.56 a barrel. WTI Crude oil futures gained about 19% in the week. According to Baker Hughes, the number of active U.S. rigs drilling for oil dropped by 34 to 258 this week, falling for a ninth straight week. The total active U.S. rig count also fell, dropping by 35 to 339, according to the report from Baker Hughes. Data showing a notable rebound in China’s daily crude oil use in April amid increased activity supported oil’s uptick. According to International Energy Agency, (IEA), crude inventories are expected to fall by about 5.5 million barrels per day (bpd) in the second half this year. The IEA estimates that global oil supply is set to fall by a spectacular 12 mb/d to a nine-year low of 88 mb/d in May, as the OPEC+ agreement takes effect and global production declines.

Saudi Arabia Running Out Of Money: Riyadh To Slash Spending By $27 Billion, Suspend Cost Of Living Allowance – Last weekend we quoted Finance Minister Mohammed Al-Jadaan, who warned that the world’s biggest oil exporter hasn’t witnessed “a crisis of this severity” in decades, adding that government spending will have to be cut “very deeply”, something we touched on previously. We didn’t have long to wait, because early on Monday, the Saudi government – which appears to be running out of money fast – ordered government spending cuts including suspending the cost of living allowance amid broad austerity measures for about $26.6 billion and a tripling of the value-added tax as part of measures aimed to shore up state finances, which have been battered by low oil prices and the coronavirus.”Cost of living allowance will be suspended as of June first, and the value added tax will be increased to 15% from 5% as of July first,” said the Saudi finance minister according to the state news agency, suggesting Saudi Arabia is on the verge of a full-blown fiscal crisis.Other measures includes canceling or delaying some operational and capital expenditures for a number of government agencies and reducing the credits planned for a number of state initiatives, including the Vision 2030 project, just as we predicted.”The covid-19 challenges have led to a decline in government revenues, and pressure on public finances to levels that are difficult to deal with later without harming the kingdom’s macroeconomics and public finances in the medium and long term,” Al-Jadaan said. “Therefore more spending cuts must be achieved, and measures to support the stability of non-oil revenues.”Already under a strict curfew to contain the spread of the coronavirus pandemic, the world’s largest oil exporter has been affected by the oil price rout and global crude production cuts to help balance the market. The price of Brent crude crashed by more than 50% in March, contributing to a record $27 billion monthly drop in the Saudi central bank’s net foreign assets. Adding insult to injury, last week we warned that the Kingdom may soon be dealing with a funding crisis as well: the collapse in crude prices and the government’s drop in foreign reserves, which plunged by a record $27BN in March… … is putting more pressure on the Saudi riyal. For now, however, prices for 12-month dollar-riyal forward contracts are well short of their all-time high reached in 2016.

Oil Price War Puts Entire Kingdom Of Saudi Arabia At Risk – At no time since Ibn Saud first consolidated his Arabian conquests into the Kingdom of Saudi Arabia in 1932 has the ruling Saud dynasty faced such an existential threat to its continued rule over the country. It is true that Saudi Arabia has been able to gain some temporary advantage in key Asian export markets, as its shipments to China more than doubled in April to 2.2 million barrels a day (bpd) and those to India, at 1.1 million bpd, were also the highest in at least three years. This, though, as much as any other factor that might endure, was a product of Saudi slashing its official selling prices (OSPs) for April crude sales to some of the lowest levels in decades, undercutting its rivals, and exactly the same happened again for May crude sales. Even this very slight victory, though, has already been jeopardised by an indication that the scale of the trouble into which the House of Saud has placed Saudi Arabia is truly monumental. Just last week saw massive economic pressure force the Saudis into increasing the June delivery price for its Arab light crude oil to Asia by US$1.40 per barrel from May, albeit at a discount of US$5.90 to the Oman/Dubai benchmark average. Market expectations were that Saudi would continue to keep OSPs low to hold onto market gains. Saudi Arabia did this because its finances are in an even worse state now than they were at the end of the Kingdom’s previous attempt to destroy the U.S. shale industry that ran disastrously from 2014 to 2016. Back then, Saudi had a much greater chance of success in destroying the U.S. shale industry than it did this year, for a wide variety of reasons, but even then the effort nearly destroyed the Saudi economy forever. Back then Saudi had record-high foreign assets reserves of US$737 billion in August 2014, allowing it real room for manoeuvre in sustaining its SAR/US$-currency peg and covering the huge budget deficits that would be caused from the oil price fall caused by overproduction. Despite this relatively positive backdrop to Saudi’s 2014-2016 oil price war against U.S. shale, OPEC member states lost a collective US$450 billion in oil revenues from the lower price environment, according to the IEA. Saudi Arabia itself moved from a budget surplus to a then-record high deficit in 2015 of US$98 billion and spent at least US$250 billion of its foreign exchange reserves over that period that even senior Saudis have said are lost forever. So bad was Saudi Arabia’s economic and political situation back in 2016 that the country’s deputy economic minister, Mohamed Al Tuwaijri, stated unequivocally (and unprecedentedly for a senior Saudi) in October 2016 that: “If we [Saudi Arabia] don’t take any reform measures, and if the global economy stays the same, then we’re doomed to bankruptcy in three to four years.” That is to say, that if Saudi kept overproducing to push oil prices down – just as it did this year, yet again – then it would be bankrupt within three to four years.

Jordan’s King Warns ‘”Massive Conflict” Coming If Israel Moves To Annex West Bank – With Washington’s backing, Israel is planning to move forward on controversial plans to annex a broad swath of the West Bank, particularly the Jordan Valley, as early as this summer. PM Netanyahu last month issued a likely time table of “within two months”.Arab nations, especially in the gulf, have remained uncharacteristically mum about the whole thing as they focus on countering Iran (which has, it should be noted, actually brought Saudi Arabia into a quiet ‘covert’ intelligence sharing relationship with Israel over the past couple years).But Jordan on Friday finally went on the offensive, with King Abdullah telling the German magazine Der Spiegel that Israeli annexation of parts of the West Bank “will lead to a massive conflict with Jordan”. The ‘warning’ was posted to the official website of the king’s Royal Hashemite Court on Friday:Asked about the impact of Israel potentially moving forward with the annexation of parts of the West Bank, the King said it could lead to a massive conflict with Jordan.“I don’t want to make threats and create an atmosphere of loggerheads, but we are considering all options. We agree with many countries in Europe and the international community that the law of strength should not apply in the Middle East,” His Majesty added.He further reaffirmed Jordan’s position that “the two-state solution is the only way for us to be able to move forward.” He at the same time urged the region to focus on collective efforts at fighting coronavirus instead of clashing with each other, as he said will happen if Israel initiates its provocative and ‘illegal’ expansionist plans.Abdullah, who maintains a close relationship with the United States and has long opened his country to CIA and US military presence especially during the early years of regime change efforts in Syria, also warned that “chaos and extremism in the region” would be unleashed if the Palestinian Authority collapsed.”Leaders who advocate a one-state solution do not understand what that would mean. What would happen if the Palestinian National Authority collapsed? There would be more chaos and extremism in the region,” he said.

Mysterious 2,819% Stock Rally Has Traders Scratching Their Heads – An Abu Dhabi-based investment holding company is leaving traders and investors scratching their heads after a 2,819% surge in its stock in the past 12 months with very low trading volumes. International Holdings Co. PJSC, which derived most of its revenue in 2019 from fish farming in the United Arab Emirates, has reached a market value of $14 billion, up from about $133 million a year ago. The steep rally in its shares hasn’t been dented by this year’s global equity market meltdown sparked by the coronavirus pandemic, or the collapse in oil prices which roiled Middle-Eastern markets. The company’s shares are up 351% in 2020. The uninterrupted surge has made it the best performing stock worldwide in the past 12 months among companies worth $1 billion or more, and IHC is now the fifth-biggest listed group in the U.A.E. by market value, after Emirates Telecom Group Co., First Abu Dhabi Bank PJSC, Emirates NBD PJSC and DP World Plc.

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