|Day's Range||26.29 - 27.07|
Guyana’s political impasse is a major potential threat to the nation’s oil boom and its development and continues to hold the nation in a deadlock
Russia’s oil production dropped slightly in the first days of April, just as it is set to join talks with other majors oil producers about a ‘massive’ production cut
The Zacks Analyst Blog Highlights: TC Energy, Imperial Oil, Suncor Energy, Canadian Natural Resources and Kinder Morgan
(Bloomberg) -- The oil-price war isn’t doing any favors for Saudi Aramco’s bondholders one year on from the state-owned company’s debut on international capital markets.Trumpeted at the time as one of the most anticipated offerings of the year, the $12 billion of bonds have just clocked an 8.2% loss in March, their worst ever monthly performance, as crude prices more than halved. The outlook isn’t good either. Baltimore-based T. Rowe Price, which manages $1.2 trillion, says the securities will remain under pressure as long as the world’s top oil producers fail to agree on supply curbs.“It’s been, for the market, a reality check,” said Willem Visser, a T. Rowe fixed-income analyst. “Aramco tries to project itself as being a triple-A rated credit that’s bigger and better than the other oil majors, but people forget about the political risk.”Aramco’s $3 billion of bonds due 2029 now trade with a higher yield than the government’s debt of similar maturity.That contrasts with a year ago, when the energy giant issued its Eurobonds. The notes priced with a lower yield than those of the government itself, a rarity in corporate bond markets.Equity investors have also been hit. Aramco listed around 1.5% of its stock in the Saudi capital of Riyadh in December. Its market value has fallen from a peak of $2 trillion to $1.7 trillion. The stock remains below the 32-riyal listing price it surrendered a month ago.Aramco’s assets have still suffered less than those of peers such as Mexico’s state oil company Pemex, said Sergey Dergachev, a senior money manager at Union Investment Privatfonds GmbH in Frankfurt. That’s because it remains “one of the strongest oil and gas names in the emerging-market universe,” he said.While the oil crash has already caused Aramco to slash planned capital expenditure, it will be “very comfortable” with oil at $30 a barrel, chief financial officer Khalid Al-Dabbagh told investors in March. Brent crude prices are around $33 per barrel after rebounding 37% last week on hopes of a deal between producers. However, a meeting of the OPEC+ alliance scheduled for Monday was postponed to Thursday as Saudi Arabia and Russia traded barbs over who was to blame for the collapse in oil prices.“We like Aramco’s fundamentals, but think the valuations are now just fair rather than attractive,” said John Bates, a corporate-bond analyst in London with PineBridge Investments Europe.(Updates prices in sixth, eighth paragraphs)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
It’s risk-on early in the day, with COVID-19 numbers supporting riskier assets. Updated figures and news from OPEC will influence later, however.
(Bloomberg) -- President Donald Trump said he doesn’t think he’ll have to impose tariffs on imported oil to blunt the impact of a price war between Russia and Saudi Arabia, but held out the option to protect U.S. oil producers.“I would use tariffs if I have to,” he said at a White House news conference on Sunday, restating his position from Saturday’s briefing. “I don’t think I’m going to have to.”The U.S. has been in talks with Russia and Saudi Arabia about cutting excess production that’s cratered global oil prices, including calls between Trump and the leaders of both nations. But despite Trump’s assertion last week the two countries would cut production by 10 million to 15 million barrels, no agreement has been reached.“We want to save a great industry,” Trump said of the U.S. oil industry. “If they don’t get along, I would do that, yeah, I would do tariffs, very substantial tariffs.”Read more: Negotiators Race for Global Pact With U.S. Role in BalanceOPEC+, the former alliance between the Organization of Petroleum Exporting Countries and Russia, delayed a meeting aimed at ending the price war on Saturday after fresh tension between Riyadh and Moscow over who was to blame. The alliance will tentatively plan to meet virtually on April 9 instead of Monday. Brent futures dropped as much as 12% on Sunday.The International Energy Agency said that the deepest production cuts in the oil industry’s history wouldn’t be able to steady oil markets, where demand has collapsed because of the coronavirus outbreak.“It was the virus that killed it,” Trump said of the industry. He also noted again that low prices have benefits to the U.S. economy, a top oil consumer.“I’m seeing 91 cents a gallon out on the road,” he said. “A lot of people are happy. I see very inexpensive jet fuel, we’re trying to save the airline industry.”(Updates with additional Trump remarks beginning in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
World stock markets jumped on Monday, encouraged by slowdowns in coronavirus-related deaths and new cases in some global hot spots, while oil prices tumbled again due to a delay in talks between Saudi Arabia and Russia to cut supply. The U.S. dollar was little changed against a basket of peers and sterling turned negative versus the greenback and euro after news that UK Prime Minister Boris Johnson was moved to intensive care as he grew sicker with COVID-19. In New York State, Governor Andrew Cuomo said that despite an increase in the number of cases and deaths, a daily decline in new hospitalizations and other data suggested a possible plateau in the crisis.
(Bloomberg) -- Saudi Arabia, Russia and other OPEC+ nations are racing to negotiate a deal to stem the historic oil price crash, with the G-20 taking center stage to bring into the fold the U.S. and other energy producers.U.S. Energy Secretary Dan Brouillette held a “productive discussion” over the phone with his Saudi counterpart Prince Abdulaziz bin Salman, the U.S. government said, a further sign that the diplomatic talks continue apace.The talks still face significant obstacles: a meeting of producers from OPEC+ and beyond -- which has been delayed once already -- is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but U.S. President Donald Trump has so far shown little willingness to do so as part of a deal between the Organization of Petroleum Exporting Countries and its allies.As an alternative, oil diplomats are planning an emergency meeting of G-20 energy ministers for Friday, part of an effort to bring the U.S. and other big oil producers outside the OPEC+ alliance -- such as Canada and Brazil -- on board, according to two people familiar with the situation.Brouillette said on Monday that Washington was “going to encourage the Saudis as chair of the G-20 to perhaps convene an energy ministerial toward the end of the week” as a forum to discuss the oil market. “I expect that that’s going to happen later this week,” he said.Crude prices have fallen 50% this year, as the economic effects of the coronavirus pandemic have knocked out about a third of global demand. The price crash is so dramatic that it’s threatening the stability of oil-dependent nations, the existence of U.S. shale producers, and poses an extra challenge to central banks. Industry officials say that if a deal to cut supply in an orderly way isn’t reached, the market will simply force producers to slash output as storage space runs out.The aim of talks, first revealed by Trump last week, is to cut oil production by about 10% -- the biggest ever coordinated reduction. Crude rallied on Trump’s comments but pared those gains as the diplomatic intricacies became clearer. Brent futures fell 2% on Monday, trading near $33 a barrel.Russia and Saudi Arabia are “very, very close” to reaching a deal on oil-production cuts, Kirill Dmitriev, chief executive officer of the Russian Direct Investment Fund, said in an interview with CNBC.However, even if a deal is struck for as much as 10 million barrels per day, that will barely dent the supply glut, which is estimated at as much as 35 million barrels a day. In some corners of the physical market prices have already turned negative, and traders have been putting oil into tankers at a record pace to store it at sea.Jump TogetherSaudi Arabia and Russia both say they want the U.S., which has become the world’s largest producer thanks to its shale revolution, to join the cuts. But Trump had only hostile words for OPEC on Saturday, threatening tariffs on foreign oil, though at a briefing late Sunday he said he didn’t expect he’d have to use them. The G-20 may be an easier forum for the U.S. to embrace than OPEC.“If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain -- that they cut output while the U.S ramps it up, and that makes the whole thing impossible,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin.Read more: Why OPEC-Russia Blowup Sparked All-Out Oil Price War: QuickTakeIt’s not clear if Russia and Saudi Arabia will require the U.S. to publicly commit to cut production -- a challenge in the private, fragmented American industry -- or if a compromise gesture would be enough. Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, said Moscow would like the U.S. to lift some sanctions as a compromise.Even a passive role for the American shale industry, whose output is already expected to go into decline at current prices, may be enough for a deal, said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former oil official at the White House.“Russia and Saudi Arabia’s condition that they will only cut production if the U.S. does too is going to be satisfied, because market forces will drive U.S. output down around 1 million barrels a day this year,” said Bordoff.Back ChannelsRussia and Saudi Arabia -- which sparred publicly between themselves over the weekend -- have disagreed about how they would calculate the cuts, according to a person familiar with the talks.Russia favors using an average of the first quarter output as the baseline, while Saudi Arabia wants to use its current April production. The difference is huge: the kingdom pumped 9.8 million barrels a day on average between January and March. In April -- as it wages its battle for market share -- it’s producing more than 12 million.Any agreement will require diplomatic agility at a time when nations are devoting massive resources to fighting the pandemic itself. All three players -- Crown Prince Mohammed bin Salman, Russian President Vladimir Putin and Trump -- appeared to be maneuvering to avoid blame if talks fail. Yet the U.S. president has also said he’s confident there’ll be an agreement between Moscow and Riyadh to cut production.“The chances of a meaningful deal that delivers real production cuts are low but back-channel talks are ongoing,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “Mohammed bin Salman is under heavy political pressure from Trump to demonstrate the Kingdom isn’t trying to bankrupt the U.S. shale industry.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
North Sea oil has a relatively high break-even price, and the coronavirus crisis has wreaked havoc on operators which have already sent home thousands of employees
(Bloomberg) -- Saudi Arabia, Russia and other large oil producers are racing to negotiate a deal to stem the historic price crash as diplomats said some progress was made on Sunday.The talks still face significant obstacles: a meeting of producers from OPEC+ and beyond -- delayed once -- is only tentatively scheduled for Thursday. Russia and Saudi Arabia want the U.S. to join in, but U.S. President Donald Trump has so far shown little willingness to do so.Oil diplomats are trying to stitch together a meeting of G20 energy ministers for Friday, as part of the effort to bring the U.S. on board, according to two people familiar with the situation.Crude prices have fallen 50% this year, as the economic effects of the pandemic have knocked out about a third of global demand. The price crash is so dramatic that it’s threatening the stability of oil-dependent nations, the existence of U.S. shale producers, and poses an extra challenge to central banks.Even the International Energy Agency, which represents nations that consume oil, is calling for action. And oil officials know that if a deal to cut supply in an orderly way isn’t reached, the market will force some producers to suspend output as storage on land and at sea fills up.The aim of talks, first revealed by Trump last week, is to cut oil production by about 10% -- the biggest ever coordinated reduction. Oil rallied on Trump’s comments last week, but then pared those gains as the diplomatic intricacies became clearer.Cut TogetherSaudi Arabia and Russia both say they want the U.S., which has become the world’s largest producer thanks to the shale revolution, to join the cuts. But Trump had only hostile words for OPEC on Saturday, and threatened tariffs on foreign oil.“If the Americans don’t take part, the problem which existed before for the Russians and Saudis will remain -- that they cut output while the U.S ramps it up, and that makes the whole thing impossible,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin.It’s not clear if Russia and Saudi Arabia will require the U.S. to publicly commit to cut production -- a challenge in the private, fragmented American industry -- or if a compromise gesture would be enough. Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank, said Moscow would like the U.S. to lift some sanctions as a compromise.Russia and Saudi Arabia -- which sparred publicly between themselves over the weekend -- have also disagreed about how they would calculate the cuts, according to a person familiar with the talks.But in another sign of progress, Norway -- which hasn’t joined any production cuts since 2002 -- signaled over the weekend it was ready to reduce unilaterally its output if others did. And a senior official from the oil-rich Canadian province of Alberta said it will dial into the oil meeting this week. Iraq’s oil minister said he was optimistic about a deal.Any agreement will require diplomatic agility at a time when nations are devoting massive resources to fighting the pandemic itself. It’s also a battle of wills between Putin, Saudi Crown Prince Mohammed bin Salman, and Trump. On all sides, there are maneuvers to avoid blame if negotiations fail.Trump said Saturday at a White House press briefing he’s opposed OPEC his whole life, and characterized it as a cartel, or monopoly. “I don’t care about OPEC,” he said. He threatened to use tariffs if needed to protect the domestic oil industry, even as he predicted that Saudi Arabia and Russia would come to an agreement.Meanwhile Saudi Arabia postponed its monthly price-setting event for exported oil. Saudi Aramco’s official selling prices for May will be pushed to Thursday, according to people familiar with the situation. The OPEC meeting has also been tentatively rescheduled for Thursday.The move allows the company to have a better idea of how negotiations are going before setting the prices that are its key weapon in its battle for market share. Last month, it also delayed the event in the midst of wrangling at OPEC+ and responded to the breakdown in those talks with a historic price cut -- launching the price war negotiators are now trying to unravel.(adds G20)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
While it is a shortened week, with economic data on the lighter side, there is still plenty for the markets to focus on and OPEC and COVID-19 in particular.
(Bloomberg) -- Saudi Arabia is delaying the release of its closely-watched monthly oil-pricing list until later this week as the kingdom spars with Russia over a potential meeting of global producers that would aim to halt the collapse in crude.State oil producer Saudi Aramco is now set to announce its official selling prices for May on Thursday, according to people with knowledge of the situation who asked not to be identified because the information is private. The OSPs, as the prices are known, were due on Sunday.Aramco is holding off on the announcement to await signs of what may happen when suppliers meet Thursday to discuss crude production. The company’s media office declined to comment on the delay.With the coronavirus pandemic gagging oil demand, benchmark Brent crude has plunged 48% this year. Saudi-Russian diplomatic barbs, which are opening a fresh rift between the world’s two largest oil exporters, jeopardize a deal to cut output and keep crude from tumbling further.The coalition known as OPEC+ had curbed production since 2017, but limits on its members’ output expired at the end of March after Saudi Arabia failed to persuade Russia to accept deeper cuts. While the Saudis have changed course and are now ramping up production to record levels, U.S. President Donald Trump said suppliers are open to pumping less to take 10 million to 15 million barrels of unwanted crude off the market.The debate over new production cuts poses a challenge for the world’s most valuable listed company as it tries to decide how to price its crude. By delaying its announcement, Aramco can better gauge the amount of oil it may have available to sell next month. The postponement would also give it time to deepen its price discounts should an OPEC+ deal fall apart, as Aramco is competing for sales in a glutted market.The kingdom’s energy ministry dictates Saudi oil output, so any decision by the Organization of Petroleum Exporting Countries, Russia and other producers would determine the amount of crude that Aramco can offer customers.Refiners and traders expect Aramco to cut pricing for May due to the collapse in demand. The delay could be interpreted as an effort to put the global price war on hold and give countries more room to negotiate reductions in output.This is the second consecutive time that Aramco has delayed its key pricing announcement beyond its traditional deadline of releasing the numbers by the 5th day of each month. When it comes, the decision may affect about 14 million barrels a day of exports from the Persian Gulf because other producers in the region often follow Aramco’s lead in setting prices for their own shipments.(Updates with date for pricing announcement in second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- The global oil industry is on its knees. Without action from producers to reduce supply, the situation will get much worse as the world runs out of places to store crude pumped out of the ground that nobody wants. A big production cut could delay reaching that breaking point, perhaps for long enough for demand to start to pick up again. But it won’t happen unless everybody plays their part.The oil market got quite in a flap over President Donald Trump’s Thursday tweet that Saudi Arabia and Russia had agreed to cut production. But it’s quite clear from subsequent comments out of Riyadh and Moscow that nobody had pledged any such cuts; not of 15 million barrels, nor 10 million, nor even anything at all. In fact, the leaders of Russia and Saudi Arabia hadn’t even spoken with each other. Perhaps Trump was just getting his ducks in a row — setting up a fictional promise of cuts that wouldn’t materialize, which would give him an excuse to resurrect his Tariff Man persona and slap duties on imports of their oil into the U.S.But it’s clear that something has shifted, even if it’s only in tone. Saudi Arabia is now audaciously seeking a global deal to cut oil production, not just by the Organization for Petroleum Exporting Countries, nor only with the extended OPEC+ coalition that includes Russia. It did so by calling for “an urgent meeting” aimed “at reaching a fair agreement to restore the desired balance of oil markets,” among the OPEC+ group “and other countries.”That last bit is crucial. The kingdom led by Crown Prince Mohammed bin Salman is making painfully clear that the sacrifice must be shared or Saudi Arabia will take no part in it at all. There can be no free-riders.It’s a tactic the country has used before, and the current nosedive in oil prices shows it stood by its word. The kingdom was the driving force behind cuts proposed at the March meeting of OPEC+ oil ministers. But it said then, as it’s saying now, that it would only make them if others joined in too. The only thing that has changed in the last month is that the “others” has now become an even bigger group that needs to include all of the world’s big oil producers.Here’s what Saudi Arabia needs to do.At the virtual meeting of oil producers, now tentatively pushed back to Thursday from Monday, it should give its counterparts — including those who don’t show up — a clear binary choice and an unequivocal ultimatum. Either they agree to strict, enforced, observable output curbs for everybody and Saudi Arabia will join in by reducing its own output to, say, 8.5 million barrels a day (I picked that number out of the air). Or Saudi Arabia should make clear it will continue to pump 12.3 million barrels a day, which would result in prices collapsing to single digits to force oil off the market.The kingdom could even go so far as to include a list of all the countries it would require to take part. The chart above suggests who some of those required participants might be. Alongside the U.S. and the OPEC+ countries, it includes Canada, China, Brazil, Qatar, Norway and the U.K., each of whom pumps more than 1 million barrels a day.Sure, there are obstacles to be overcome. Some on that list may be more willing to participate than others. But the alternative will hurt the oil industries of the countries on that list much more than they will Saudi Arabia. And such a collapse in prices may happen anyway if the cut isn’t big enough, or is delayed.I know lots of people argue that Saudi Arabia needs higher oil prices than shale producers to fund its budget. But I’ve never been a big fan of using budgetary break-even prices for determining the relative pain that would be experienced by oil-producers. Budgets, to some extent, reflect price expectations. If you expect oil to be $60 a barrel, say, you prepare a budget based on the level of income that implies. If that price is not achieved, you can cut expenditure, draw on reserves, or borrow — all options that remain open to Saudi Arabia.The kingdom will, though, face the same storage problem as everybody else. It shouldn’t go unnoticed that Saudi Arabia said it would boost exports in May to 10.6 million barrels a day because its own refineries didn’t want as much crude because of the drop in demand. Refiners elsewhere may not want it either. Saudi Arabia will probably have to rebuild its own stockpiles, which it has drawn down during the past four years, but it has more than twice as much room to do so than is available in the U.S. Strategic Petroleum Reserve.Finally, Saudi Arabia should make clear that this is a short-term solution crafted for an extraordinary situation. It must avoid the temptation of tying any deal into a long-term supply management initiative. Anything that whiffs of an OPEC+ extension won’t fly with the U.S. or others. This is not OPEC++. It has to be a time-limited, one-off solution to the extreme situation the global oil industry is facing as a result of the world locking down to fight the Covid-19 virus. Once things pick up again — as they will — it will be back to business as usual, and a return to the dash for market share.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- President Donald Trump ramped up threats to use tariffs to protect the U.S. energy industry from a historic glut of oil, as efforts to forge a global deal to cut output appeared to lose momentum.Trump said Saturday at a White House press briefing he’d use tariffs if needed to protect the domestic oil industry, even as he predicted that Saudi Arabia and Russia would come to an agreement to cut output and stem the rout in prices.But such a deal looked a bit further from reach at the weekend after a diplomatic row between Saudi Arabia and Russia. A gathering of OPEC+ members and other producers scheduled for Monday was pushed back, to give more time for negotiations.Saudi Arabia, which launched a price war last month with Russia after OPEC+ talks broke down, has made clear that it won’t cut production unless other producers -- including the U.S. -- also hold back supply. But Trump said on Saturday: “I don’t care about OPEC,” a “cartel” he’s opposed all his life.The prospect of a deal to reduce the massive glut of oil caused by the coronavirus lockdown sent benchmark oil futures to a record gain last week. Oil prices have fallen about 50% this year as the pandemic has knocked out as much as a third of global oil demand. That means producers are going to have to reduce output eventually -- with or without a deal -- as storage both on land and at sea fills up.In the latest maneuver in the price war, Saudi Arabia postponed on Sunday its monthly price-setting event for exported oil. Saudi Aramco’s official selling prices for May could be pushed to Tuesday or Thursday, according to a person familiar with the situation. The OPEC meeting has been tentatively rescheduled for Thursday.The move allows the company to have a better idea of how negotiations are going before setting the prices that are its key weapon in its war with Russia for market share. Last month, it also postponed the event in the midst of wrangling at OPEC+ and responded to the breakdown in those talks with a historic price cut.On the idea of slapping tariffs on foreign oil, the U.S. oil industry is split. Some independent shale producers -- who’ve been hardest hit by the recent market slump -- are in support, while refiners and large integrated companies are typically opposed.The American Petroleum Institute, which helped arrange a meeting with the president on Friday, argues tariffs would inject uncertainty into an already rattled global marketplace.“If I have to do tariffs on oil coming from outside, or if I have to do something to protect thousands and tens of thousands of energy workers, and our great companies that produce all these jobs, I’ll do whatever I have to do,” Trump said Saturday. Low oil prices are “going to hurt a lot of jobs,” he said.That was a change in tone from Friday, when he suggested he wasn’t inclined to target Russia or Saudi Arabia with oil tariffs.Hundreds of thousands of U.S. oil industry jobs are hanging in the balance, with about $15 billion of investments wiped out from the budgets of shale explorers and many of them on the brink of bankruptcy.(Adds Saudi decision to delay pricing event from the sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Last year’s oil and gas merger mania seems to have stopped in its tracks as crashing oil prices and the coronavirus crisis weighs on the industry
The long-term ramifications of the coronavirus crisis on the oil industry are still unknown, but one thing is clear, no one will emerge unscathed
(Bloomberg) -- Russia would target a 1 million barrel-a-day cut in any new deal with other key oil producers, on condition the U.S. joins cuts, according to four people familiar with the sentiment in the industry.The country’s President Vladimir Putin, who said that a reduction in global oil production of about 10 million barrels a days is possible and the nation is ready to participate in this “on a partnership” basis, won’t agree for Russia to take more than one-tenth of the global cuts, according to one of the people, who spoke on condition of anonymity because the matter isn’t yet public.The idea to decrease global production by 10 million barrels a day, in response to the shrinking demand amid the coronavirus outbreak, was initially announced by the U.S. President Donald Trump earlier this week and then echoed by Putin at the meeting with Russian biggest oil producers and government officials.The ministry’s press service did not respond to a request for a comment.Russia’s cuts of roughly 1 million barrels per day would represent some 10% of the nation’s daily average output that reached 11.294 million barrels in March. The wider coalition of oil producers may demand more, in which case Russia may consider a cut of 1.5 million barrels per day, though the Kremlin may not like such a scenario, the other person said.The OPEC+ meeting to try to end the oil price war is unlikely to go ahead on Monday as previously expected, as Riyadh and Moscow engaged on a war of words about who’s to blame for the collapse in oil prices.The OPEC+ alliance needs more time for negotiations, a delegate familiar with the matter said, noting the meeting may still happen a few days later.Yet any potential deal is already at risk following Trump’s meeting with U.S. oil industry executives Friday, in which he didn’t make any public declaration of a plan to curtail domestic output, saying that it’s a free market and up to Saudi Arabia and Russia to solve their price war.The two de-facto OPEC+ leaders and architects of the previous pacts to reduce production signaled they are still far from reaching a new agreement. On Saturday, Saudi Arabia denied Putin’s comments claiming that the kingdom withdrew from the OPEC+ agreement.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- To outsiders, the oil trade of the day is so astonishing that even President Donald Trump sounded flabbergasted when he described it.“There’s oil all over the oceans right now. That’s where they are storing oil; we have never seen anything like that,” Trump said this week from the podium of the White House. “Every ship is now loaded to the gills.”With oil demand in freefall, traders are resorting like never before to using the world’s fleet of supertankers as temporary floating storage facilities, filling them with millions of unsold barrels until better times. It’s an unusual trade, but one that’s among the most lucrative around right now, just when everyone on Wall Street struggles to make money.From the coast of Singapore to the North Sea, the tankers are starting to slow down, ready to drop their anchors, holding crude the world economy doesn’t need as fuel demand plummets due to the coronavirus outbreak. And more tankers probably will be needed, as oil supply still runs well above demand.“The world is overproducing oil at a historic rate,” said Robert Hvide MacLeod, the head of Frontline Management, one of the world’s largest operators of supertankers. “Land-based storage is limited and selling out fast. Storage on ships will be the only solution.”What Trump didn’t say is that the most intriguing facet of the floating storage trade is just how profitable it is. In the industry, it’s often described as a money printing press: traders buy oil on the cheap, and immediately sell their cargo forward in the futures market, locking in a chunky profit -- with very little risk. Before oil prices rallied on Thursday on talk of an OPEC+ output cut, traders were easily able to lock-in a 20% annualized return on their money.Out of hundreds of supertankers in the world, large numbers of them are being hired not for their primary purpose -- shipping crude from A to B -- but to store oil amid a lack of space in shore tanks.Marco Dunand, the co-founder of top oil trading house Mercuria Energy Group, estimates that 250 million barrels of crude and refined products are already on the water, either as floating storage or waiting to be discharged because refineries can’t accept more crude right now.“The excess is pushing itself into the water,” he said.Far from being a problem, the floating storage is a money maker for some in the industry: the commodity trading houses and the shipowners.The oil market has flipped upside down, with the cost of a barrel of oil today far below what the market is willing to pay in, say, six months or a year. It’s what traders call a contango market. As oil is cheaper today than in 2021, a trader can buy crude now, put it on storage, while simultaneously selling in the forward market, in effect locking in the price difference between the different dates. As long as the contango is wide enough to cover the cost of storage, finance and insurance, the transaction is profitable.Ben Luckock, co-head of oil trading at merchant Trafigura Group, said the oil industry was pumping “a commodity that the world doesn’t need,” forcing crude into non-traditional storage: the tankers.“The problem for crude oil is fast coming. We need more contango to pay for non-traditional types of storage,” he said.Earlier this week, the six-month contango in Brent market, a gauge of the economic viability of floating storage, widened to a record of $14.46 a barrel, surpassing the peak set in the 2008-09 crisis, when oil demand briefly plunged.The floating storage game is the territory of the most sophisticated oil merchants, including little known names outside the petroleum industry like Vitol Group. Commodity trading giant Glencore Plc has hired the Europe, the world’s largest oil tanker, to store crude. In the past, others have also played the contango, including Koch Supply & Trading, the in-house trading arm of the billionaire Koch brothers, and Royal Dutch Shell Plc.Shipowner profitThe traders aren’t the only ones making money. Shipowners are racking up exorbitant fees. Two years ago, the daily price of a standard supertanker, known as very large crude carrier, or VLCC, was about $18,000 a day. This year, one owner managed to get a record of more than $400,000 a day.“There’s been a huge interest in storage and that’s helped to lift freight rates,” said Halvor Ellefsen, a tanker broker at Fearnley’s A/S. “The bottom line is that everybody in the shipping market is acutely aware of the contango, and the profits it can give traders.”The glut, almost entirely caused by the demand collapse emanating from Covid-19, is a disaster for the wider global oil industry though. While the traders and the shipowners profit from the contango, Trump is eager for Saudi Arabia and Russia to work together to roll back production in order to lift prices and protect the jobs of workers in the U.S. oil industry.With Trump pushing Riyadh and Moscow to act, the contango has narrowed, endangering the profitability of the floating storage trade. But it’s far from over. Even if the OPEC+ alliance cuts production by 10 million barrels a day, as Trump suggested, it won’t be enough to offset the drop in demand, which most executives say is far bigger than that.“According to our numbers, even this 10 million barrels cut, in the second quarter we may well see a stock building over 15 million barrels per day,” said Fatih Birol, the head of the International Energy Agency.With onshore tanks filling up every hour, every day, every week, the oil will have to flow onto the water -- into the very same tankers Trump talked about. It’s doing so already at record pace.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
As global oil superpowers prepare to meet to discuss a way to rebalance the market, Fatih Birol of the IEA suggests that their efforts might be too little, too late
There is plenty of optimism in oil markets this week as rumors of a global production cut send prices higher, but next week’s OPEC meeting may send prices crashing
It is illegal for oil producers to meet to discuss pushing up oil prices under U.S. antitrust law, but perfectly legal if state regulators or the federal government set lower production levels for them, U.S. antitrust experts said on Friday. A two-thirds drop in oil prices in the last three months has swiftly changed Washington's thinking on whether or not it should meddle in the energy market.