Energy Prospectus

Opening Prices:
> WTI is down $1.40 to $23.16/Bbl, and Brent is down $1.07 to $29.90/Bbl.
> Natural gas is down 10.6c to $2.028/MMBtu.

EIA's weekly petroleum report will set the tone for the day.

Closing Prices:
> WTI prompt month (JUN 20) was down $0.57 on the day, to settle at $23.99/Bbl.
> NG prompt month (JUN 20) was down $0.190 on the day, to settle at $1.944/MMBtu.

Incredible Oil Rebound And What It Says About Energy Markets
By Phil Flynn May 06, 2020 09:13AM ET

I guess we all feel like shut-ins these days but it is shut-ins in the oil patch that has catapulted oil prices from the abyss back up over 50%. The reason for the incredible rebound is more signs of retrenchment in oil production, almost ensuring a time of oversupply will turn into expected future shortages.

Around the globe, the pullback in energy production spending could hit historic proportions and because of the sharp pullback in demand due to the coronavirus, there is no choice but to cut back instead of trying to look at the big picture. We know the U.S. and Canadian rig count has been falling but also internationally it has taken a hit. Baker Hughes reported that the international rig count fell by 144 month-on-month in April 2020, bringing the total count to 915. The Middle East rig count fell by 8 MoM to 420 in April. The rig count crashed 450 rigs worldwide in April to 1,514, from 1,964 in March 2020. That is down over 30% in the month of April, a shocking drop.

The U.S. rig count has been dismal. On Friday Baker Hughes reported that the U.S. oil rig count dropped by 53 to 325. The total active U.S. rig count also fell by 57 to 408. The shale patch has been hit hard. S&P Global reported that the number of rigs active in the Permian Basin was down 33 at 229 last week, fully 47% lower than during the same period last year. The Permian has seen rig totals drop by 47% since the first week of March, plummeting 200 rigs from a total 429 rigs.

The hit to shale from the virus as well as the Russia/Saudi price war could cause a total setback for U.S. shale and many are hoping that the Trump Administration will do more to help them. Obviously ending the Russia Saudi price war was a great first step but more may need to be done as the U.S. already is becoming more dependent on imports for natural gas for example. One proposal that is gaining steam is for the government to buy oil in the ground from producers on the condition that they would not produce it for 60 days. The government and the producers could then take advantage of the contango and it could be a win-win for both parties. Another idea is to expand the SPR to a billion barrels. The Trump Administration may act soon as the President was cheering yesterday’s rally in oil. He tweeted, ”Oil prices moving up nicely as demand begins again!”.

That means go fill up your gas tanks. The era of cheap gasoline may be over. Again. As I have noted two weeks ago, gasoline demand has bottomed out and refiners have not been keeping pace. The American Petroleum Institute(API) in their report showed that the gasoline supply actually fell by 2.23 million barrels. We are already seeing gasoline prices go up at the pump and as the U.S. starts to reopen, those cheap gas prices that hardly anyone could take advantage of may become a thing of the past.

The API also reported, as expected, crude supply increased by 8.440 million barrels. The shock in the API report was the fact that distillates increased by a whopping 6.143 million barrels.

More signs that Russia is serious about production cuts. Reports that Pavel Sorokin, the Russian Deputy Energy Minister says that Russia will reach its peak of oil output cuts. He says that there is no reason for oil to fall below zero. Further Sorokin said that a return to pre-virus oil demand will take a long time and that nobody is interested in breaking OPEC+ deal now. While full compliance may be difficult for some countries he is warning that a violation of OPEC+ deal would bring new collapse in oil.

Natural gas continued its bull run. Talk of some record cold for this time of year is putting more upward pressure on this suddenly challenged market from the production side. There is even some talk of snow in May. There ought to be a law against that.
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I long for the "Good Old Days" when Global Warming was going to kill all of us. Where is AOC???

LONDON (Reuters) - Oil markets are at the beginning of a fragile recovery as coronavirus lockdowns ease, though long-term peak demand may be permanently eroded, Vitol’s chief executive told Reuters.

Russell Hardy, CEO of the world’s biggest oil trader, said global oil demand sank by 26-27 million barrels per day (bpd) in April and predicts a year-on-year drop of over 8 million bpd.

“The market is going to flirt with optimism and pessimism for the next two or three weeks,” Hardy said.

“The mist is becoming a little clearer. It’s a bit easier to see the future, so the market is more able to make an educated guess about what that supply/demand balance looks like. We haven’t had a monster rally. It’s just a statement that the worst is over.”

On Tuesday, Brent oil futures were around $29 a barrel, up from around $20 at the beginning of last week.

More than 4 billion people are under some form of lockdown to prevent the spread of the coronavirus. However, over the last week, some U.S. states, India and several major European countries have begun easing restrictions.

He also seems permanent demand erosion to be likely as humanity gets used to a different behaviour patterns.

“Some commentators are saying; isn’t it nice that we can cycle up and down our roads, isn’t it nice that there’s no NOx (nitrogen oxides) ... there are some elements that have been good for health – perhaps not mental health – but physical health,” Hardy said.

“Taking that all into account, do we go back to living as we did before? Therefore, has the trajectory for oil demand changed? If we’re all expecting a peak in 2030, 10 million bpd up from here, is that 10 now 5 million bpd?”

Various oil majors such as BP and Shell have predicted peak demand from around 2030 to 2040.

Jet fuel demand alone will account for a large chunk of demand loss due to the pandemic, slated to be down 2-3 million bpd by year end from its pre-crisis level of 7.5 million bpd, he said, adding that airlines will use this time to retire old fuel-guzzling planes. Currently, Vitol pegs jet demand at 1 million bpd.

“The OPEC meeting delivered what they could under the circumstances. Initially, the market was suspicious about compliance but now their programmes look a lot more like the deal ... That negative sentiment on the supply side has been slightly abated,” he said.

To counter the crash in demand, the Organization of Petroleum Exporting Countries and other producing countries hammered out a major production cut deal in which OPEC cuts would be 9.7 million bpd for May and June.

North America alone will have cut over 3 million bpd of crude oil and natural gas liquids between March through to the end of May, he said.

Vitol expects stocks to continue building into early June, reaching a total build of 1.3 to 1.5 billion barrels since Jan. 1, before ships start de-stocking in July.

Looking further ahead, Hardy said cuts to capital and operational expenditure by oil majors will help boost the recovery for several years as supply will tighten.

“Those cuts in turn help some kind of recovery in years to come because mega projects don’t get sanctioned and won’t come onstream in 2022/23 but in 2024/25,” he said.