Energy Prospectus

Opening Prices:
> WTI is up $1.22 to $25.36/Bbl, and Brent is up 63c to $30.26/Bbl.
> Natural gas is down 3.1c to $1.795/MMBtu.

Closing Prices:
> WTI prompt month (JUN 20) was up $1.64 on the day, to settle at $25.78/Bbl.
> In contrast, NG prompt month (JUN 20) was down $0.106 on the day, to settle at $1.720/MMBtu.

Investing.com - Oil markets pushed higher Tuesday, bolstered by output cuts by some of the world’s largest producers which should help erode the massive oversupply that caused prices to slump. Saudi Arabia’s decision Monday to voluntarily increase the extent of its production cuts by an additional million barrels a day in June, slashing its total production to 7.5 million bpd, down nearly 40% from April, has boosted confidence that the massive glut that caused prices to turn negative briefly last month could soon be a thing of the past.

"This reduction in production provided excellent optics encouraging other OPEC+ members to comply and even offer additional voluntary cuts, which should quicken the global oil markets' rebalancing act," Stephen Innes, chief global market strategist at AxiCorp, said in a note.

The United Arab Emirates and Kuwait followed suit, while Kazakhstan has also ordered producers to cut oil output by around 22% in the May to June period.

The damage caused by the plunge in oil prices was shown earlier Tuesday by Saudi Arabian state oil giant Aramco reported a 25% fall in first-quarter net profit.

Later Tuesday, the American Petroleum Institute will release its measure of U.S. oil inventories. A report from private consultancy Seevol on Monday suggested that stocks at the U.S. national hub of Cushing, Oklahoma, had fallen by 2.17 million barrels last week, reducing the risk of another bout of negative prices when the June WTI contract expires.

Energy Report: Further Production Cuts On The Way
By Phil Flynn May 12, 2020 09:06AM ET

Oil is back in rebound mode as the market is getting assurances that massive production cuts are coming. Not only has Saudi Arabia led the way with a promise to over comply with 1.0 million barrel a day production cuts, the UAE and Kuwait have also committed to cut more than the agreed-upon cut. Now comes word that Russia is making progress on reductions.

Reuters reports that, “Russian oil and gas condensate production declined to 9.45 million barrels per day (bpd)," on May 1-11, sources familiar with the data told Reuters on Tuesday, following a global deal on output cuts. The decline is from 11.35 million bpd Russia produced on average in April and from the 9.5 million bpd produced on May 1-5. The Saudis pledged to cut production from close to 13 million barrels of oil to 8.5 million barrels a day. Now that pledge would have oil production in Saudi Arabia fall to 7.492 million barrels a day. Inspired by this commitment, Kuwait joined the Saudis in promising over compliance by an additional 80,000 barrel of oil per day. The UAE was also inspired to cut by an additional 100,000 barrel of oil a day. While the market seemed less than impressed because of fears of a second wave of the corona virus, a day later it seems to be sinking in.

Demand is only going to get better from this point forward as more of the world starts to reopen.

This comes as fears that the U.S. storage hub in Cushing, Oklahoma overflow is diminishing. Entrepreneurs are getting inventive finding alternative storage as U.S. oil production is falling sharply. As far as talk of that oil on ships waiting to unload, with the contango, they are in no hurry to offload that oil. In fact it is possible that this week we could actually see a draw at the Cushing, Oklahoma delivery point. Upstream, Macquarie Bank Ltd reportedly is calling for a 1.0 million barrel drop at the storage hub. That also means that a return to subzero pricing in the futures market is increasingly unlikely.

The Wall Street Journal writes as far as storage, ”Demand for oil storage is so fierce that water companies are expanding into crude storage, using large cylinders that resemble big above ground swimming pools." Cooley Group Holdings Inc., a textile-manufacturing company in Rhode Island, is churning out tens of thousands of pounds of polymer-coated fabric to line cylinders that another company, Well Water Solutions and Rentals Inc., has begun installing in West Texas. Each cylinder is about 190 feet in diameter and can hold roughly 50,000 barrels.

The Journal writes that, “Billionaire pipeline magnate Kelcy Warren’s company, Energy Transfer (NYSE:ET), has looked to fill some of its Texas pipelines with crude this month and leave it there until prices go back up. “Every little bit helps,” Mr. Warren says. We also spoke about water waste tanks from frack water that are being lined so they can store oil. Where there is a will there is a way, especially when you are going to get paid handsomely for it.

Gasoline prices are risng but diesel may fall. According to the EIA the average U.S. retail pump price for diesel dipped 5/10ths of a penny to $2.394 per gallon this week vs. last week, while gasoline jumped 6.2 cents to $1.851 per gallon. That leap in gasoline prices may continue as demand is coming back faster than the refiners. RBOB futures and spreads are looking very interesting.