> Dutch-British oil and gas major Shell announced this week the reduction of underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels. The also announced a reduction of cash capital expenditure to $20 billion or below for 2020 from a planned level of around $25 billion.
> French oil major Total also has cut organic CAPEX by more than $3 billion, while planning savings of $800 million on operating costs in 2020, from $300 million announced earlier along with a suspension of its buyback program.
> American super major ExxonMobil already indicated further cuts are being planned.
> American giant ConocoPhillips has started to cut its 2020 capital program by approximately 10 percent or $700 million
> Chevron targets $2 billion in cost savings.
> And the IOCs aren’t the only ones suffering, with a financial crash in US shale, Canadian shutdowns, and of course the OPEC deal.
These are the seeds of an oil supply shortage in 2021.
Read: https://oilprice.com/Energy/Energy-Gene ... rkets.html
Seeds have been planted for next oil price bull run
Seeds have been planted for next oil price bull run
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Seeds have been planted for next oil price bull run
Martijn Rats, CFA – Morgan Stanley
May 4, 2020 5:23 PM GMT
Oil market are considerably oversupplied and will likely remain so for several weeks. However, the peak in oversupply has probably been reached and a protracted rebalancing has started. In this short note, we highlight six observations that point in this direction.
1. Inventories have built but not quite a strongly as feared: With social distancing measures ramped up in March, damage to oil demand was probably at its worst in April. Estimates of demand destruction varied widely however. Our forecast for a 14 mb/d year-on-year decline in oil demand is large by any historic standard. Still, it has turned out to be relatively low compared to others. For example, the IEA estimates a decline of 29 mb/d in April, and there are still higher estimates from others. Naturally, such demand destruction results in very large inventory builds, which have taken place. However, the observed inventory increases have not been quite as strong as feared. To illustrate this, we combine onshore oil storage data based on satellite observations from Orbital Insight with data on floating oil storage and oil-in-transit based on tanker-tracking from ClipperData. Combined, this data shows an inventory build of 13.4 mb/d during April, split between a 4.9 mb/d build in onshore storage, 1.8 mb/d increase in floating storage and a 6.7 mb/d increase in oil-in-transit.
Matching supply/demand data with observed inventory builds is not always straightforward. Inventory data can be revised and there are various lags in the system that make this an in-precise exercise. Still, the 13.4 mb/d inventory increase in April arguably does not support some of the very high estimates for demand destruction. This has implications for the pace at which the oil market can rebalance again,as well as the risk of 'tank tops'.
2. Crude oil inventories in China appear to have rolled over already: The same satellite data also shines a light on oil inventories in China. The build in inventories started about 3-4 weeks before the global increase took off. However, China's oil inventories appear to have peaked and even show some sign of rolling over.
3. Social distancing measures have probably peaked: Oxford University's Blavatnik School of Government produces Stringency Indices for ~150 countries globally which reflects the measures that governments have taken to slow the spread of Covid-19. These indices incorporate measures such as school closures, workplace closures, public transport closures, travel restrictions,etc. We have combined each country's index and
weighed those by 2019 oil demand to produce a global oil demand-weighted Stringency Index, which is shown in Exhibit 3.
As shown, social distancing measures increased sharply during March, reaching a plateau during April. However, towards the end of the month, some reversal has already taken place and we would expect this index to trend down slowly in coming months. This should correlate with a gradual pickup in oil demand. < Most people now realize that FEAR of the Coronavirus is much worse than the reality that it is not much worse than the seasonal flu. Welcome to the world of cable news "Click Bait".
4. Early signs of a pickup in driving are there: Driving has declined sharply this year, which is reflected in the number of routing requests made to Apple Maps. Exhibit 4 shows this data for the top 6 countries by oil demand for which Apple has made this available.
As shown, driving remains subdued in India, Japan or Saudi Arabia, and also the rebound in driving in much of Europe remains subdued. Nevertheless, even in those regions, the data is not deteriorating anymore. At the same time, there is an actual rebound in, for example, the US, Russia and Brazil where this data shows improvement in recent weeks.
5. Sharp supply-side adjustment ongoing: The supply side adjustment is also gathering pace. OPEC+ is unlikely to fully implement its agreed 9.7 mb/d production cut, but a substantial reduction is likely nonetheless.
On the non-OPEC side, we count ~3.4 mb/d of production reductions already, and this is likely to increase as time goes by - see Exhibit 5. Specifically with the announcements of Exxon, Chevron, Conoco and Continental, risks to our US production forecasts are skewed to the downside.
6. Price signals in the physical oil market have improved: Finally, it is worth noting the improvement in price signals that reflect the state of the state of the physical oil markets. Most notably, the structure of the CFD curve in the Brent market has improved substantially in just the last 1-2 weeks. Participants in the physical Brent market use CFD contracts to hedge near-term price exposure, so these prices are rooted in the market
for physically delivered barrels and reflect the state of the market for the next several weeks rather than months (the front month Brent future is already the July contract).
The CFDs remain in a deep contango of ~$1.8/bbl between week 1 and week 3, according to Platts data, reflecting an oversupplied market. However, this is an improvement from two weeks prior when this contango was $2.6/bbl.
So what does thi sall mean? In important ways, these observations are not unexpected. April was widely expected to be the month where oil demand destruction was at its greatest. From here on, demand will likely improve slowly, and the supply side adjustment is likely to gather pace. The oil market will still be substantially oversupplied and inventories will likely continue to build. However, the peak in the pace of inventory build will likely be behind us.
What this means for the oil price is not so easy to gauge. Commodities are not like equities, which can often 'look through' a period a near-term weakness, especially the medium-term outlook starts to look better. Instead, the supply and demand of commodities needs to balance every day - oversupplied is oversupplied.
Therefore, we do not expect oil prices to rally strongly in the near term. Our forecast for Brent has been $25/bbl in 2Q for some time, rising steadily to $35/bbl by 4Q. We do not change our supply/demand forecasts at this stage and also stick to this price forecast. Still, it does suggest that the greatest mismatch in supply/demand is probably behind us. The rebalancing will likely be drawn out and have its fits-and-starts but it will be rebalancing nonetheless.
May 4, 2020 5:23 PM GMT
Oil market are considerably oversupplied and will likely remain so for several weeks. However, the peak in oversupply has probably been reached and a protracted rebalancing has started. In this short note, we highlight six observations that point in this direction.
1. Inventories have built but not quite a strongly as feared: With social distancing measures ramped up in March, damage to oil demand was probably at its worst in April. Estimates of demand destruction varied widely however. Our forecast for a 14 mb/d year-on-year decline in oil demand is large by any historic standard. Still, it has turned out to be relatively low compared to others. For example, the IEA estimates a decline of 29 mb/d in April, and there are still higher estimates from others. Naturally, such demand destruction results in very large inventory builds, which have taken place. However, the observed inventory increases have not been quite as strong as feared. To illustrate this, we combine onshore oil storage data based on satellite observations from Orbital Insight with data on floating oil storage and oil-in-transit based on tanker-tracking from ClipperData. Combined, this data shows an inventory build of 13.4 mb/d during April, split between a 4.9 mb/d build in onshore storage, 1.8 mb/d increase in floating storage and a 6.7 mb/d increase in oil-in-transit.
Matching supply/demand data with observed inventory builds is not always straightforward. Inventory data can be revised and there are various lags in the system that make this an in-precise exercise. Still, the 13.4 mb/d inventory increase in April arguably does not support some of the very high estimates for demand destruction. This has implications for the pace at which the oil market can rebalance again,as well as the risk of 'tank tops'.
2. Crude oil inventories in China appear to have rolled over already: The same satellite data also shines a light on oil inventories in China. The build in inventories started about 3-4 weeks before the global increase took off. However, China's oil inventories appear to have peaked and even show some sign of rolling over.
3. Social distancing measures have probably peaked: Oxford University's Blavatnik School of Government produces Stringency Indices for ~150 countries globally which reflects the measures that governments have taken to slow the spread of Covid-19. These indices incorporate measures such as school closures, workplace closures, public transport closures, travel restrictions,etc. We have combined each country's index and
weighed those by 2019 oil demand to produce a global oil demand-weighted Stringency Index, which is shown in Exhibit 3.
As shown, social distancing measures increased sharply during March, reaching a plateau during April. However, towards the end of the month, some reversal has already taken place and we would expect this index to trend down slowly in coming months. This should correlate with a gradual pickup in oil demand. < Most people now realize that FEAR of the Coronavirus is much worse than the reality that it is not much worse than the seasonal flu. Welcome to the world of cable news "Click Bait".
4. Early signs of a pickup in driving are there: Driving has declined sharply this year, which is reflected in the number of routing requests made to Apple Maps. Exhibit 4 shows this data for the top 6 countries by oil demand for which Apple has made this available.
As shown, driving remains subdued in India, Japan or Saudi Arabia, and also the rebound in driving in much of Europe remains subdued. Nevertheless, even in those regions, the data is not deteriorating anymore. At the same time, there is an actual rebound in, for example, the US, Russia and Brazil where this data shows improvement in recent weeks.
5. Sharp supply-side adjustment ongoing: The supply side adjustment is also gathering pace. OPEC+ is unlikely to fully implement its agreed 9.7 mb/d production cut, but a substantial reduction is likely nonetheless.
On the non-OPEC side, we count ~3.4 mb/d of production reductions already, and this is likely to increase as time goes by - see Exhibit 5. Specifically with the announcements of Exxon, Chevron, Conoco and Continental, risks to our US production forecasts are skewed to the downside.
6. Price signals in the physical oil market have improved: Finally, it is worth noting the improvement in price signals that reflect the state of the state of the physical oil markets. Most notably, the structure of the CFD curve in the Brent market has improved substantially in just the last 1-2 weeks. Participants in the physical Brent market use CFD contracts to hedge near-term price exposure, so these prices are rooted in the market
for physically delivered barrels and reflect the state of the market for the next several weeks rather than months (the front month Brent future is already the July contract).
The CFDs remain in a deep contango of ~$1.8/bbl between week 1 and week 3, according to Platts data, reflecting an oversupplied market. However, this is an improvement from two weeks prior when this contango was $2.6/bbl.
So what does thi sall mean? In important ways, these observations are not unexpected. April was widely expected to be the month where oil demand destruction was at its greatest. From here on, demand will likely improve slowly, and the supply side adjustment is likely to gather pace. The oil market will still be substantially oversupplied and inventories will likely continue to build. However, the peak in the pace of inventory build will likely be behind us.
What this means for the oil price is not so easy to gauge. Commodities are not like equities, which can often 'look through' a period a near-term weakness, especially the medium-term outlook starts to look better. Instead, the supply and demand of commodities needs to balance every day - oversupplied is oversupplied.
Therefore, we do not expect oil prices to rally strongly in the near term. Our forecast for Brent has been $25/bbl in 2Q for some time, rising steadily to $35/bbl by 4Q. We do not change our supply/demand forecasts at this stage and also stick to this price forecast. Still, it does suggest that the greatest mismatch in supply/demand is probably behind us. The rebalancing will likely be drawn out and have its fits-and-starts but it will be rebalancing nonetheless.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group