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The Shale Daily Update – 4.3.2020

Here are 10 things you need to know about oil and gas for April 3, 2020:

Trump calls on Russia and Saudi Arabia to cut oil production – Excerpt:

The Trump administration is pressing OPEC to hold an emergency meeting as early as next week to try to end the standoff in the oil market that has threatened to cripple the U.S. oil industry, three industry and government officials familiar with the talks said.

The U.S. pressure is aimed at persuading Saudi Arabia — which has also called for a meeting — and Russia to declare a ceasefire and reverse the export increases that have drowned the global market in crude even as the coronavirus pandemic has decimated international demand.

The White House has not yet decided who, if anyone, it would send to a possible OPEC meeting next week, the industry and government officials said. Candidates included Secretary of State Mike Pompeo, Department of Energy Secretary Dan Brouillette and Trump’s son-in-law and adviser Jared Kushner, the people said.

Oil Extends Gains As OPEC Leaders Call Emergency Meeting To Discuss Trump Production Cuts – Well, guess the pressure from the President worked, as OPEC called a special meeting overnight. The cartel will hold its meeting next week via “emergency teleconference,” which one supposes must be more urgent than just your ordinary, everyday OPEC teleconference.

OPEC+ Debates Biggest Ever Cut as Virus Destroys Oil Demand – It’s worth noting that Russia’s oil minister denied the narrative told in this New York Times report, but Russia says all sorts of things that end up not being accurate. Let’s hope this is one of them.

 

Read the Rest at Shale Magazine

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For the U.S. Oil and Gas Industry, the Time for Alarm Has Arrived

Today’s Energy Update 

I’m no fan of alarmism, whether it be about energy, the environment or any other subject, but the situation for the domestic oil and gas industry has grown somewhat alarming over the past two months. Since early January the S&P Oil & Gas Index has plunged 32%. Investors appear convinced not just that there is oodles of oil in the world but that the spread of Coronavirus brings the risk of economic flatlining in the biggest growth market for oil — China.

With the virus set to spread and the OPEC+ group running out of options to contain the oil glut, the price of West Texas Intermediate (WTI) crashed through the important $50 level this week, and promises to slide further. Chevron yesterday sent home 300 workers in London over virus fears. Thus, a year that began with a fairly promising outlook is rapidly devolving into one that will present a fight for survival for some domestic producers.

The statement on Tuesday by Dr. Nancy Messonnier, an official at the U.S. Centers for Disease Control and Prevention (CDC), that spread of the Coronavirus in the U.S. was “inevitable,” and that citizens here should begin preparing for an outbreak will certainly work to further inflame the markets. President Donald Trump has reserved television time for a statement designed to calm the situation on Wednesday night, but it could come too late to prevent further disruption in the commodity and financial markets.

Meanwhile, the U.S. market for natural gas remains chronically over-supplied with no real relief in sight. Although the NYMEX price per MMBtu has remained fairly stable during the first two months of the year, it is stable at a price that is far too low for many natural gas producers to remain profitable.

All of these factors now combine to create a precarious situation for heavily-leveraged companies as they head into debt re-determination season. Chesapeake Energy is a good example. When I wrote about that company’s long, difficult struggle to survive last November, Morgan Stanley had just lowered its price target for CHK stock from $2.25 per share to $1.25.

But it isn’t only independent producers who are finding the current market conditions to be challenging: Even ExxonMobil, despite its prime position in the Permian Basin and major international discoveries over the past two years, is experiencing a disturbing rate of value destruction. As noted by Bloomberg, XOM stock dropped to a 15-year low on Monday and fell further on Tuesday, “just over a week before Chief Executive Officer Darren Woods is scheduled to present the oil explorer’s long-term strategic plan to investors and analysts.” For the year, XOM is now down by almost 25%.

Read the Full Piece Here

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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6 Big Reasons Why The Next 10 Days Are Crucial For Oil Markets

Today’s Energy Update
(Because Energy Fuels Our Lives)

Here is a rundown of six big factors and events impacting crude prices as the first half of 2019 nears its end.

The “fear premium” redux. – Crude prices rose dramatically on Thursday after it was revealed that Iran’s Revolutionary Guard shot an unmanned U.S. drone out of the sky as it flew near the strategic Strait of Hormuz. Oil markets are always sensitive to any conflict taking place near this key choke point, through which about 20% of global crude supply makes its way to market each day.

President Donald Trump’s cautious approach to responding to Iran’s latest provocation appeared to calm the markets on Friday . After jumping by more than 5% in Thursday’s trading, WTI rose by slightly less than 1% Friday.

Rather than escalating armed conflict with a conventional military response, the Associated Press reported Saturday that President Trump had ordered a cyber attack on computer systems that control Iran’s rocket and missile launchers. That report was based purely on anonymous sources, but if it turns out be accurate, such a non-violent approach could further calm touchy  markets on Monday.

The jump in crude price isn’t only about Iran. – While most reports attributed last week’s 10% rise in crude prices to the situation with Iran, the reality is that the price had already run up by 5% by close of trading on Wednesday. In fact, WTI actually dropped to $51.79/bbl on Monday due to ongoing bearish factors, before jumping up to $54.05 in Tuesday’s trading after President Trump tweeted early that morning that he and Chinese President Xi Jinping would be holding side meetings at the upcoming G-20 Summit in Japan. Wednesday’s report from the U.S. Energy Information Administration that crude inventories had dropped the previous week also kept the upwards price momentum going before news of the Iran strike broke.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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How The U.S. Oil Boom Could Quickly Become A Bust

Today’s Energy Update
(Because Energy Fuels Our Lives)

I have written about this topic before, but it deserves a review at this crucial point in time where the oil markets are concerned. Just half a year after they agreed to implement significant new cutbacks in their crude oil exports, ministers from the so-called OPEC+ countries (OPEC plus non-OPEC nations like Russia, Mexico and Kazakhstan) will likely be asked to cut back even more when – or if – they meet next in July.

I say “if” because, as of this writing, the OPEC+ nations can’t even agree to a specific date on which to hold their proposed July meeting in Vienna . Saudi Energy Minister Khalid al-Falih said over the weekend that he is “hoping” that the OPEC nations will meet at some point during “the first week in July,” but could not say whether or not the non-OPEC nations would agree to join the meeting.

Minister al-Falih’s remarks only serve to add more uncertainty to a market that has already been plagued by that dynamic in recent weeks, as crude prices have dropped by about 17% over the past month. A series of unanticipated crude inventory builds have led to speculation that the market is currently over-supplied. That speculation was exacerbated late last week, as the International Energy Agency (IEA) cut is crude demand growth forecast for the second half of 2019 by 100,000 barrels of oil per day (bopd).

The IEA forecast cut comes amid speculation that the ongoing tariff battle between the U.S. and China has resulted in a slowing of Chinese economic growth. Combine that with the ongoing collapse of production from Venezuela, disruptions of supply from OPEC members like Nigeria and Libya, and the series of attacks on crude tankers in the Persian Gulf and Gulf of Oman, and you have the most unstable market situation we’ve experienced in recent years.

Read the Rest Here

 

 

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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The Oil And Gas Situation: A Transition In Fundamentals For 2019

Today’s Energy Update
(Because Energy Fuels Our Lives)

A couple of interesting studies have come across my desk in recent days that merit noting. Taken together, they paint a picture of a domestic shale oil and gas industry that is relatively healthy and will only grow healthier throughout 2019 as it benefits from stronger commodity prices.

Will oil inventories hit a record deficit later this year? – That’s what the partners at the Goehring and Rozencwajg investment firm think. In their March 15 analysis, they estimate that stronger-than-projected global demand for crude, combined with the full implementation of promised export cuts by the OPEC-plus countries will result in a significant drop in global crude inventories over the course of this year.

The report correctly notes the habit of the International Energy Agency (IEA) of underestimating global crude demand growth in its initial annual projections. The IEA has had to revise its initial estimates upwards in seven of the last eight years by an average of about half a million barrels of oil per day (bopd) . The firm assumes this trend will continue for 2019, and that IEA’s estimate of demand growth for 2019 is understated by 500,000 bopd.

The report also criticizes the IEA for its rosy projection that production growth for the non-OPEC countries outside of the U.S and Russia will grow by 120,000 bopd during 2019, a projection Goehring and Rozencwajg believe is “simply not possible. Instead, given the severe recent weakness in this group, we believe this number may actually decline by 300,000 b/d” during 2019. Taken together, the firm believes the IEA is overly-pessimistic in its estimates by a total of 920,000 bopd.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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The Oil And Gas Situation: 7 Key Things To Know About Oil and Gasoline

During the course of a radio appearance I made on January 29 (BYU Radio’s “Top of Mind” program hosted by Julie Rose) I was reminded of just how little most Americans really understand about oil and gas in general, and how the gasoline or diesel they use in their cars is manufactured and delivered to their local gas stations.

That’s not a criticism of ordinary Americans, because 98% of them have no real need to understand such things in the course of their lives, and our system of education does almost nothing to educate them about this particular topic. Nor is it a criticism of Ms. Rose, who herself is extremely knowledgeable, but poses questions she knows most of her listeners are wondering about.

Given all of that, I have endeavored here to put together seven key things to know about oil and gasoline that might help the average person better understand this key element in their daily lives:

  1. Where does Gasoline come from? – Gasoline is one of many products derived from crude oil at oil refineries. One good way to think of crude oil is as a complex soup with all kinds of ingredients floating around in it. The refining process basically takes the crude oil soup that comes up out of the ground through oil wells and separates all those ingredients out of it. Gasoline is like the noodles in your chicken vegetable soup.

Read the Rest Here

Talking Gas Prices, Venezuela and OPEC

Yesterday I appeared on BYU Radio’s “Top of Mind” program with host Julie Rose. We had a wide-ranging 20 minute discussion about gasoline prices, America’s shale revolution, the Trump sanctions on Venezuela and the ongoing influence of OPEC over crude oil prices.

Here’s the Link

Enjoy!

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Reports Of OPEC’s Demise Have Been Greatly Exaggerated

And just like that, everybody stopped talking about the possibility of $30 oil.

Remember those gaudy days, all of two weeks ago, when the price for WTI had dropped to $42 per barrel and fears were rising that the OPEC+ countries had somehow lost all control over the market and prices would continue to fall? Yeah, those were some good times, huh?

Today, January 15, the WTI price has recovered to over $51/bbl, a rise of 25% in two weeks. That did not happen because of suddenly higher global demand, because no such thing has taken place; nor did it happen due to a dramatically lower U.S. rig count, since the DrillingInfo domestic rig counthas dropped by just 15 rigs since January 1; and it didn’t happen due to the much-publicized recent curtailments in Canadian crude production, which have thus far taken about 140,000 barrels of oil per day off of the market.

So, why did the price go right back up the last two weeks after tanking so dramatically towards the end of December? The answer has largely to do with recent actions taken by OPEC+ nations.

Read the Rest Here

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The Oil And Gas Situation: Eight Predictions For 2019

Well, that all escalated – or rather, de-escalated – quickly, huh? During the course of a six-day vacation around Christmas, the WTI price for crude dropped from $50/bbl down to $42/bbl. That takes a situation on oil prices that was already troubling for most domestic producers into the potentially-calamitous range for companies saddled with heavy debt loads and high lifting costs.

This latest collapse in crude prices comes on the heels of a longer-term drop that lasted throughout October and November. From October 2 through November 30, WTI fell from $76.41/bbl to $50.93, a decline of about 33%, as it became obvious to traders and investors that the market had become significantly over-supplied despite the re-implementation of U.S. sanctions on Iran by the Trump Administration.

This overall 45% drop in the domestic benchmark price for crude took place during the same period when producers were setting their capital drilling budgets for 2019. While one might think that reality would cause a significant curtailment of drilling activity during the first half of 2019, consider that only about a third of that price drop had come about by November 1, by which time most of these companies were finalizing those budgets. With WTI sitting at $63/bbl at that time, few were anticipating a further drop of this magnitude by the end of December.

Here’s the thing: Thousands of domestic drilling projects that are economic to drill at $63/bbl are uneconomic to drill at $42/bbl. So right now we are already beginning to see reports that some companies are going back and reconsidering some budgeting decisions that were made just a month ago. Others are likely still in wait-and-see mode as they try to assess whether the December price drop is a temporary result of panic-selling or a more long-term phenomenon related to a weakening global economy.

Given all of this, my first prediction is that we will see a gradual fall in the domestic U.S. rig count throughout the first half of 2019.

 

Read the Rest Here

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