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Earnings Season Will Be A Bloodbath For Oil Producers

Josh Owens



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Chart of the Week

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-    Weekly U.S. consumption of petroleum products averaged 14.1 mb/d for the week ending on April 17, down about a third from the pre-pandemic average.

-    Gasoline consumption averaged 5.3 mb/d, down from 8.9 mb/d year-to-date through early March.

-    Distillate demand has held up better, down just 20 percent.  

Market Movers

-    Dominion (NYSE: D) says a massive 2.6 GW offshore wind project is on track to begin construction in 2024.

-    Diamond Offshore (NYSE: DO) declared bankruptcy on Monday. Transocean (NYSE: RIG) and Valaris (NYSE: VAL) saw their share prices fall by 14 and 15 percent, respectively.

-    CNX Resources (NYSE: CNX) reported a $329 million loss, or a loss of $1.76 per share.

Tuesday, April 28, 2020

Oil prices collapsed again on Monday on fears of dwindling storage and also extreme volatility in the front-month contract for WTI. “The key trigger this time was probably the unexpected decision by one of the largest investment vehicles for retail investors to withdraw from the WTI futures for June and to move instead into contracts with a longer term,” Commerzbank said in a note. 

OPEC’s exports rise in April. Crude oil supply from OPEC members has soared by more than 2 million bpd in April to the highest levels since December 2018.

WTI contract for June to lose value. A rerun of the WTI meltdown is possible. Trading volumes are already down for June WTI and ETFs are trading out of the contract. “No one wants to be among the last to close out their position ahead of expiry, fearing a repeat of the May expiry,” Warren Patterson, head of commodities strategy at ING told the FT. “The move we are seeing suggests that the June contract is going to become increasingly illiquid, and as a result, will likely suffer from increased volatility in the lead up to expiry.”

Imperial’s Kearl Oil Sands has more than 50 workers with coronavirus. Imperial Oil (TSE: IMO) said that more than 50 workers at its Kearl Oil Sands project have tested positive for COVID-19.

Shut ins increase. Storage is filling up and forcing larger shut-ins. “We are moving into the end-game,” Torbjorn Tornqvist, head of commodity trading giant Gunvor Group Ltd., told Bloomberg. “Early-to-mid May could be the peak. We are weeks, not months, away from it.” According to Goldman Sachs, global oil storage could be completely full within the next three weeks. The investment bank said that upwards of 18 mb/d of supply would need to be shut in by then. Up until now, the shut-ins have been relatively minor compared to what is expected. 

BP amends $5.6 billion Alaska sale. BP (NYSE: BP) said that it adjusted the terms of its $5.6 billion sale of its Alaska assets to privately-held Hilcorp Energy. The deal is expected to maintain “the majority of the value of the transaction,” BP said in its statement.

Banks rule out Arctic oil. In the face of withering pressure from environmental groups, a growing number of big banks are cutting out Arctic oil from their lending programs. Morgan Stanley became the latest major bank to declare that it would end financing for Arctic oil. 

Tanker rates soar. The cost of storing refined products at sea has soared amid the glut. “The VLCC market continues to be strong . . . but we are starting to see demand flow over into the product market,” Lois Zabrocky, CEO International Seaways, told the FT. “Refiners are facing challenges recalibrating supply and demand.”

BP’s profit falls, debt rises. BP (NYSE: BP) saw its profit fall by two-thirds in the first quarter, and its debt soared to the highest level on record. Still, the oil major didn’t touch its dividend. Stuart Joyner, equities analyst at Redburn, told Reuters that BP’s “large rise in net debt overshadows (its) underlying earnings beat.”

Solar and wind cheapest for two-thirds of planet. Solar PV and onshore wind are now the cheapest source of electricity for at least two-thirds of the global population, according to Bloomberg New Energy Finance. Batteries are now the cheapest for peak times in gas-importing regions such as Japan, China and Europe.

Continental Resources sued. Casillas Petroleum Resource Partners sued Continental Resources (NYSE: CLR), because of Continental’s decision to back out of a $200 million deal to buy oil and gas assets from Casillas.

German companies call for green stimulus. A coalition of major German companies said any coronavirus-related stimulus should be focused on climate action. 

Saudi economy hit hard. Saudi Arabia needs oil prices to trade above $80 per barrel for it to balance its budget. GDP could shrink more than 3 percent this year and the government budget deficit could be 15 percent of GDP. 

DOE to rent out SPR. The U.S. Department of Energy has finalized deals to rent out space in the strategic petroleum reserve (SPR). So far, 1.1 million barrels have been delivered out of an expected 23 million barrels. 

3 Scenarios to push oil to $30. Brent has sunk to $20. There are three big factors that will determine how quickly oil prices rebound in the short run.

LNG market imploding. The global market for LNG was entering a downturn even before the pandemic and global lockdowns. Now a few dozen LNG cargoes face cancellation amid a slowdown and a global glut. Cheniere Energy (NYSE: LNG) may bear the brunt of the cargo cancellations. A new study finds that the market is “imploding.”

By Josh Owens for Oilprice.com 

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