Despite easing COVID-19 lockdown restrictions in some regions, new data suggests that oil demand may be approaching its peak for 2020.
Chart of the Week
– In the first six months of 2020, henry hub natural gas prices averaged just $1.81/MMBtu, the lowest first half on record.
– For the month of June, prices averaged $1.63/MMBtu, the lowest monthly average since 1989.
– Factors include warm weather, high production, high inventories, Covid-19 related demand destruction, and the curtailment of U.S. LNG exports.
– The EIA expects spot prices to average $2.05/MMBtu in the second half of the year.
– Tellurian (NASDAQ: TELL) has failed to qualify for a tender for competitively priced LNG in India, as the $2.5 billion stake proposed by Petronet expired. The original announcement that the deal was in trouble caused Tellurian’s share price to crash several months ago. Breaking ground on the Driftwood LNG project was previously pushed off until 2021.
– Hi-Crush (NYSE: HCR), a frac sand supplier, filed for chapter 11 bankruptcy protection. The severe slowdown in drilling activity has sapped demand for sand.
– Kinder Morgan (NYSE: KMI) sent a request to FERC to begin service on its seventh LNG train at its Elba Island export terminal. The company said Train 8 would be ready by July 13. Meanwhile, Kinder Morgan was recently downgraded to Sell by Goldman Sachs.
Tuesday, July 14, 2020
Oil prices retreated on Monday over concerns about more OPEC+ production and worrying Covid-19 numbers in the U.S., although crude regained some ground in early trading on Tuesday. Oil prices remain stuck at about the $40 and $43 price levels for WTI and Brent, respectively, awaiting more direction.
OPEC+ leans towards easing cuts. OPEC+ is right now leaning towards allowing the production cuts to drop from 9.7 mb/d to 7.7 mb/d beginning in August. The group’s technical committee meets this week. The challenge for the group is that while they don’t want to cede market share to other producers bringing production back, if they ease the cuts they risk pushing oil prices down. Other analysts believe that because the market is technically seeing a supply deficit, there is room for the group to ease.
Is this the end of the pipeline boom? The cancellation of the Atlantic Coast pipeline and the potential death blow by a court to the Dakota Access pipeline – a pipeline that was already online – raises the investor risk to long-distance pipelines everywhere. Is the pipeline building boom over?
Oil write-downs on the rise. The oil majors have announced a slew of impairment charges as they revise down their long-term oil price assumptions, with an eye on energy transition. The companies are dealing with this challenge in different ways, but impairments may continue to rise for a while. On Tuesday, Woodside Petroleum (ASX: WPL) announced a US$4.37 billion write-down.
IMF: Middle East loses $270 billion on downturn. Oil-producing countries in the Middle East are set to earn $270 billion less in oil revenues this year compared to 2019, with losses led by Saudi Arabia, according to the International Monetary Fund. The region’s overall GDP could contract by 7.3 percent this year. Oil-importing countries in the Middle East, such as Egypt, will suffer less, with GDP expected to contract by just 1.1 percent.
Biden proposes $2 trillion in clean energy. On Tuesday, Democratic presidential candidate Joe Biden unveiled a $2 trillion spending proposal for clean energy, which called for 100 percent emissions-free electricity by 2035.
U.S. targets shipping to disrupt Venezuela. Shipping insurers are withdrawing services to vessels that carry oil to and from Venezuela under pressure from the U.S. government. Related: Chinese Oil Imports Surged In H1 2020 Despite COVID-19
China’s oil imports surged. China’s crude imports surged to 11.93 mb/d in June, a record high, and up 25 percent from a year earlier. A separate estimate put imports at 12.9 mb/d for the month.
Explosions in Iran. Multiple explosions have hit Iranian nuclear facilities in the past few weeks, and at least one study suggests it could set the Iranian nuclear program back by two years. Analysts widely suspect either Israel or the U.S., or both working together. The clandestine confrontation with Iran raises new geopolitical risks to the region.
Parsley Energy: U.S. shale peaked. “I don’t think I’ll see 13m [barrels a day] again in my lifetime,” Parsley Energy (NYSE: PE) CEO Matt Gallagher told the FT.
Energy companies turn to renewables. Oil and gas companies are increasingly deploying renewables to power their operations. IHS Markit says it has tracked 45 renewable energy projects by oil and gas companies. The moves help the industry lower the emissions of their operations.
ExxonMobil restarts Guyana drilling. ExxonMobil (NYSE: XOM) restarted drilling in Guyana in June, following a temporary suspension due to travel restrictions related to the coronavirus. Exxon “will also adjust the pace of our development projects and exploration activities” given the plunge in oil prices, but still plans to pursue “key exploration opportunities,” according to a statement to E&E News.
Kansas City Fed survey finds ongoing stress. Roughly 32 percent of oil executives responding to the Kansas City Fed survey said that they would be insolvent within one year if current crude prices remain steady.
Rivian receives $2.5 billion in new funding. Electric vehicle startup Rivian secured $2.5 billion in its latest funding round. The Michigan-based EV company plans to launch the production of its R1T pickup and R1S SUV next year. Related: OPEC+ To Discuss Oil Production Cuts This Week
Libya declares force majeure again. Just two days after it lifted the force majeure on all oil exports, Libya’s National Oil Corporation has declared force majeure again, citing a renewed blockade on its oil export terminals and blaming it on interference from the United Arab Emirates.
Drilling hits 20-year low. The number of oil and gas wells drilled globally is expected to hit 55,350 this year, the lowest level in two decades, according to Rystad Energy. That represents a 23 percent drop from 2019 levels. The number of wells drilled does not return to 2019 levels through at least 2025, as far out as the Rystad forecast goes.
Goldman finds upside in some energy stocks. Goldman Sachs issued Buy ratings for Hess (NYSE: HES), Concho Resources (NYSE: CXO), EQT (NYSE: EQT), and Noble Energy (NASDAQ: NBL), while issuing a Neutral rating for Cabot Oil & Gas (NYSE: COG) and Ovintiv (NYSE: OVV). The banknotes that free cash flow upside potential is being underappreciated by the market.
By Josh Owens for Oilprice.com
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