Opening Prices:
> WTI is up 26c to $23.02/Bbl, and Brent is down 20c to $31.28/Bbl.
> Natural gas is up 6.0c to $1.793/MMBtu.
It will take time for oil traders to digest the OPEC+ agreement.
Watch the April 11th podcast for why the outlook for natural gas has improved.
Closing Prices:
> WTI prompt month (MAY 20) was down $0.35 on the day, to settle at $22.41/Bbl.
> NG prompt month (MAY 20) was down $0.009 on the day, to settle at $1.724/MMBtu.
Oil & Gas Prices - April 13
Oil & Gas Prices - April 13
Last edited by dan_s on Mon Apr 13, 2020 3:19 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - April 13
OPEC, oil nations agree to an unprecedented production cut . Associated Press
OPEC, Russia and other oil-producing nations on Sunday finalized an unprecedented production cut of nearly 10 million barrels, or a tenth of global supply, in hopes of boosting crashing prices amid the coronavirus pandemic and a price war, officials said. The cartel and other nations agreed to allow Mexico to cut only 100,000 barrels a month, a sticking point for an accord initially reached Friday after a marathon video conference between 23 nations. They reached the deal just hours before Asian markets reopen Monday as international benchmark Brent crude traded at just over $31 a barrel and American shale producers struggle.
Trump’s big oil deal won’t save the weakest of shale producers . Bloomberg
President Donald Trump said the “big Oil Deal” sealed on Sunday will save hundreds of thousands of American jobs. But the agreement he brokered depends on a sharp downturn in shale that will likely bring about a wave of bankruptcies and job cuts. Days of frantic diplomatic maneuvering culminated in an agreement on Sunday by OPEC+ to pare production by 9.7 million barrels a day, ending a devastating price war between Saudi Arabia and Russia and belatedly tackling a plunge in demand caused by the coronavirus outbreak. Rather than agree to any formal cuts, Trump is counting on market forces to shave some 2 million barrels a day of overall U.S. output by the end of the year.
OPEC, Russia and other oil-producing nations on Sunday finalized an unprecedented production cut of nearly 10 million barrels, or a tenth of global supply, in hopes of boosting crashing prices amid the coronavirus pandemic and a price war, officials said. The cartel and other nations agreed to allow Mexico to cut only 100,000 barrels a month, a sticking point for an accord initially reached Friday after a marathon video conference between 23 nations. They reached the deal just hours before Asian markets reopen Monday as international benchmark Brent crude traded at just over $31 a barrel and American shale producers struggle.
Trump’s big oil deal won’t save the weakest of shale producers . Bloomberg
President Donald Trump said the “big Oil Deal” sealed on Sunday will save hundreds of thousands of American jobs. But the agreement he brokered depends on a sharp downturn in shale that will likely bring about a wave of bankruptcies and job cuts. Days of frantic diplomatic maneuvering culminated in an agreement on Sunday by OPEC+ to pare production by 9.7 million barrels a day, ending a devastating price war between Saudi Arabia and Russia and belatedly tackling a plunge in demand caused by the coronavirus outbreak. Rather than agree to any formal cuts, Trump is counting on market forces to shave some 2 million barrels a day of overall U.S. output by the end of the year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Oil & Gas Prices - April 13
Martijn Rats, CFA – Morgan Stanley
April 12, 2020 8:03 PM GMT
The OPEC+ agreement will not prevent sharp inventory builds in coming months, and near-term oil prices in the physical market will likely remain under pressure. However, even with partial compliance, inventories should now draw from 2H20 onwards, putting Brent price on an upward trajectory from 3Q.
Historic production cuts agreed by OPEC+ group: After four days of negotiation, the OPEC+ group has agreed on a historic production cut of 9.7 mb/d, significantly exceeding the previous record cut of 2.2 mb/d announced during the depths of the GFC in 2008. This reduction will apply during May and June, after which it tapers off to ~8 mb/d in 2H20 and ~6 mb/d during 2021 and early 2022. These cuts are both unusually deep and unusually long, underscoring the challenges that the oil market currently faces. In practice however, the reduction will likely be less than the headline figure of 9.7 mb/d suggests.
> First, OPEC+ has set the quota relative to agreed reference levels which were generally higher than recent production.
> Second, we expect only partial compliance. We assume that Saudi Arabia will implement 100% of the agreed cuts, and expect that Russia will follow this. However, partly informed by history and partly because of the precedent now set by Mexico, which was able to negotiate a lower reduction, we assume compliance of 75% for Kuwait and the UAE, and 50-60% for most other countries in the OPEC+ group.
On this basis, we estimate OPEC+ production will fall 6.3 mb/d during May/June relative to their average output in 1Q20.
Still, inventories are likely to rise sharply in the next few months, possibly challenging 'tank tops': The OPEC+ agreement will only apply from 1 May onwards, and oil demand is likely to be down ~14 mb/d year-on-year in 2Q. Hence, these cuts are insufficient to prevent large inventory build in 2Q. On our current estimates, the oil market is still ~12 mb/d oversupplied in 2Q, leading to a 1.1 bn barrel increase in storage before the end of June. Estimates of remaining storage capacity vary but are mostly in the 0.7 - 1.4 bn bbl range. Assuming the middle of this range, 'tank tops' are still likely toward the end of 2Q.
However,even with partial compliance, inventories should draw in 2H and beyond:
April and May are likely to mark the 'crunch point' where the supply/demand mismatch is at its greatest. We expect oil demand to improve gradually in 2H,up ~12 mb/d between 2Q and 4Q. During that time frame, supply is now likely to decline too. We had been sceptical that an output agreement could be reached, but the pressure of the current circumstances has made for unlikely bedfellows. Even with just partial compliance from the OPEC+ countries, but taking into account the production declines that will likely take place in the US, Canada and Brazil for economic reasons,global oil inventories are likely to start contracting at a modest pace in 2H20 and revert back to recent levels by mid-2021.
Note that Morgan Stanley's official WTI oil price forecast is
$22.50 for Q2
$27.50 for Q3
$32.50 for Q4
$40.00 for 2021
MY TAKE: If those prices turn out to be reality, U.S. oil production will keep falling through 2021. It is my opinion that the active rig count will not increase enough to regrow oil production until WTI is firmly over $50/bbl.
April 12, 2020 8:03 PM GMT
The OPEC+ agreement will not prevent sharp inventory builds in coming months, and near-term oil prices in the physical market will likely remain under pressure. However, even with partial compliance, inventories should now draw from 2H20 onwards, putting Brent price on an upward trajectory from 3Q.
Historic production cuts agreed by OPEC+ group: After four days of negotiation, the OPEC+ group has agreed on a historic production cut of 9.7 mb/d, significantly exceeding the previous record cut of 2.2 mb/d announced during the depths of the GFC in 2008. This reduction will apply during May and June, after which it tapers off to ~8 mb/d in 2H20 and ~6 mb/d during 2021 and early 2022. These cuts are both unusually deep and unusually long, underscoring the challenges that the oil market currently faces. In practice however, the reduction will likely be less than the headline figure of 9.7 mb/d suggests.
> First, OPEC+ has set the quota relative to agreed reference levels which were generally higher than recent production.
> Second, we expect only partial compliance. We assume that Saudi Arabia will implement 100% of the agreed cuts, and expect that Russia will follow this. However, partly informed by history and partly because of the precedent now set by Mexico, which was able to negotiate a lower reduction, we assume compliance of 75% for Kuwait and the UAE, and 50-60% for most other countries in the OPEC+ group.
On this basis, we estimate OPEC+ production will fall 6.3 mb/d during May/June relative to their average output in 1Q20.
Still, inventories are likely to rise sharply in the next few months, possibly challenging 'tank tops': The OPEC+ agreement will only apply from 1 May onwards, and oil demand is likely to be down ~14 mb/d year-on-year in 2Q. Hence, these cuts are insufficient to prevent large inventory build in 2Q. On our current estimates, the oil market is still ~12 mb/d oversupplied in 2Q, leading to a 1.1 bn barrel increase in storage before the end of June. Estimates of remaining storage capacity vary but are mostly in the 0.7 - 1.4 bn bbl range. Assuming the middle of this range, 'tank tops' are still likely toward the end of 2Q.
However,even with partial compliance, inventories should draw in 2H and beyond:
April and May are likely to mark the 'crunch point' where the supply/demand mismatch is at its greatest. We expect oil demand to improve gradually in 2H,up ~12 mb/d between 2Q and 4Q. During that time frame, supply is now likely to decline too. We had been sceptical that an output agreement could be reached, but the pressure of the current circumstances has made for unlikely bedfellows. Even with just partial compliance from the OPEC+ countries, but taking into account the production declines that will likely take place in the US, Canada and Brazil for economic reasons,global oil inventories are likely to start contracting at a modest pace in 2H20 and revert back to recent levels by mid-2021.
Note that Morgan Stanley's official WTI oil price forecast is
$22.50 for Q2
$27.50 for Q3
$32.50 for Q4
$40.00 for 2021
MY TAKE: If those prices turn out to be reality, U.S. oil production will keep falling through 2021. It is my opinion that the active rig count will not increase enough to regrow oil production until WTI is firmly over $50/bbl.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group