Oil prices have fallen nearly 50 percent since the start of the year and the short-term outlook isn’t looking very promising as OPEC and Russia continue to boost supply.
It has been a horrific week for oil prices, and crude is down about 50 percent since the start of the year. Oil rebounded a bit on Friday following movement in the U.S. Congress to pass a coronavirus economic relief bill. Nevertheless, the near-term looks dire for oil markets, with supply rising quickly as demand continues to collapse.
Oil prices could stay in $30s for months. According to the 21 experts surveyed by Reuters, WTI Crude prices are set to average $30.37 a barrel in the second quarter this year and $37 for the full year.
Russia aims at U.S. shale. According to the Wall Street Journal, Russian President Vladimir Putin asked Rosneft’s chief executive prior to the collapse of the OPEC+ negotiations if Russian oil companies can withstand low oil prices. Igor Sechin replied that low oil prices “are great because they will damage U.S. shale.” Outwardly, Moscow does not link its motivations to an intention to harm U.S. oil companies, but Russia had grown wary of the OPEC+ cuts, which contributed to a 4-mb/d increase in U.S. shale over the past three years. Also, multiple reports suggest that U.S. sanctions on Nord Stream 2 and Rosneft stoked ire in Moscow.
BofA: Russia can withstand low prices. “Russian companies can ensure sustainable production until oil hits $15 to $20 per barrel,” Karen Kostanian, a Moscow-based oil and gas analyst with Bank of America, told Bloomberg.
China’s oil trader tries to back out of deals. Unipec, the trading arm of China’s Sinopec, is trying to avoid taking delivery of at least four supertankers of oil for April, according to Bloomberg.
Premier Oil’s balance sheet under strain. Premier Oil (LON: PMO) could lose $1.2 million per day with oil prices below $40 per barrel, according to Bloomberg.
Oilfield service job cuts expected. Between 1,500 and 3,000 oilfield service jobs could be on the chopping block in the next two months, according to Primary Vision.
Shale drillers want 25% discounts from oilfield services. U.S. shale drillers are demanding price cuts from service companies, according to Reuters. Parsley Energy asked service providers “to reconsider your pricing,” and help them achieve an “at least 25%” reduction in costs. But oilfield servicers are arguably in a worse position. “Anyone dumb enough to ask for a discount today is a (expletive),” a drilling executive who did not want to be identified told Reuters.
Occidental slashes dividend by 86 percent. Occidental Petroleum (NYSE: OXY) slashed its dividend for the first time in 30 years this week. The reduction of 86 percent comes just two weeks after CEO Vicki Hollub said that the dividend was one of the “defining characteristics” of the company. “This is genuinely frustrating and disappointing to see, especially after the repeatedly, consistently stated commitment to the dividend from management,” Raymond James analyst Pavel Molchanov wrote in a note.
Hedges offer shale drillers a lifeline. A study of 30 shale drillers accounting for 38 percent of total U.S. oil production finds that roughly 50 percent of their output is hedged an average price of $56 per barrel. If WTI averages $40 this year, the hedges would save the companies a combined $10.5 billion; or $17 billion if WTI averages $25.
Oil-producing countries at risk of downgrade. The collapse of oil prices could set off a wave of sovereign credit downgrades. Countries like Saudi Arabia, Iraq, Oman, Nigeria and Angola are at most risk.
Equinor reports case of coronavirus offshore. Equinor (NYSE: EQNR) said that one of its workers at an offshore installation in Norway tested positive for the coronavirus. The Martin Linge field is scheduled to start production at the end of the year.
More mandatory cuts possible in Alberta. Crude-by-rail shipments from Alberta could fall by as much as 400,000 bpd next month, which will contribute to a buildup of storage in the province. Alberta’s Premier Jason Kenney said that mandatory cuts could be coming. “We will use the curtailment tool responsibly to ensure at least a survival price for our producers,” Kenney said. Layoffs in Canada’s oil industry are also in the offing. “We, unfortunately, do expect to see a number of layoff announcements coming from the energy sector in the next two or three weeks,” Jason Kenney told reporters.
Oil industry spending cuts. Shale drillers announced a series of immediate cuts to capex this week, hoping to weather the downturn. More cuts, layoffs and bankruptcies are likely. Globally, Wood Mackenzie estimates that the oil industry could see $380 billion in cash flow vanish if Brent averages $35 per barrel this year, relative to $60.
U.S. postpones SPR sale. The U.S. Department of Energy was scheduled to sell 12 million barrels of oil from the strategic petroleum reserve (SPR), but canceled the sale in the wake of the downturn. Now, some industry lobbyists are pressing the government to instead buy oil for the SPR to help soak up some surplus.
Shale credit under stress. Roughly $110 billion in shale debt has fallen into distressed territory, according to the FT. That is 12 percent of the $936 billion in bonds issued by U.S. oil and gas companies. “There is definitely a significant amount of default risk,” Michael Anderson, a strategist at Citi, told the FT. A lot of bonds are in the “danger zone,” he added.
50 oil tankers in Nigerian waters. Nigeria has about 50 cargoes of oil sitting offshore in international waters.