Energy Prospectus

Opening Prices:
> WTI is up 60c to $25.89/Bbl, and Brent is up 65c to $29.84/Bbl.
> Natural gas is up 1.4c to $1.630/MMBtu.

Closing Prices:
> WTI prompt month (JUN 20) was up $2.27 on the day, to settle at $27.56/Bbl.
> NG prompt month (JUN 20) was up $0.065 on the day, to settle at $1.681/MMBtu.

Raymond James comment on yesterday's Petroleum Status Report:
"This week's petroleum inventories update was bullish relative to consensus. "Big Three" petroleum inventories (crude, gasoline, distillates — including SPR) rose by 1.2 MMBbls, versus consensus estimates calling for a build of 4.8 MMBbls and a seasonal draw of 4.1 MMBbls. Turning to crude, total inventories built 1.2 MMBbls (excluding the SPR, a draw of 0.7 MMBbls), versus consensus calling for a build of 4.1 MMBbls and a normal seasonal draw of 0.6 MMBbls. Refinery utilization fell to 67.9% from 70.5% last week. Total petroleum imports were 7.2 MMBbls per day, down from last week’s 7.5 MMBbls per day. Total petroleum product demand inceased 9.5% after last week’s 2.6% decrease. On a four-week moving average basis, there is a 22.9% y/y decrease in total demand.

The unprecedentedly large OPEC+Russia deal, which (officially) took effect on May 1, still falls short of balancing the oil market in the near term. We predict that only about half of the official cuts will actually materialize. More importantly, the sheer scale of the COVID-related disruptions in transportation and economic activity is such that even (hypothetically) full compliance would still not be enough. We estimate that, during the current quarter, 20 million bpd (or 20%) of global demand is being effectively erased. However, there is good news on the demand front. Having been tracking economic reopening policies in 80 countries, here is the key datapoint: of the 3.8 billion people who have been under a lockdown at some point since January, 3.3 billion already have some reopening, even if the vast majority is only partial. Three weeks ago, the number was 2.1 billion. This point is confirmed by traffic congestion data, as well as commentary by refiners. While it would not be realistic for demand to get back to pre-COVID levels until 2022, we think that the (demand destruction) impact peaked in April, and it should continue to subside through the rest of 2Q and into the second half of the year. Reflecting the growing evidence that the worst of the demand shock is in the rearview mirror, the 12-month futures strip ($29.77/Bbl for WTI and $33.69/Bbl for Brent) is showing steep contango."
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Read this: https://oilprice.com/Energy/Crude-Oil/I ... Shale.html

MY TAKE: Just from the dozens of upstream companies that I follow and watching the unbelievable decline in the active rig count, I now expect U.S. + Canada oil production to fall much faster and much further than the EIA's forecast. U.S. oil production peaked in November, 2019 at 12.8 million barrels per day. Yesterday the EIA reported that U.S. oil production averaged 11.6 million BOPD during the week ending May 8 and the rate of decline is accelerating. MY GUESS is that the decline continues to and maybe past 10.0 million BOPD. When WTI moves firmly over $30/bbl in Q2, we should see the rate of decline slow as some wells that were shut-in due to storage problems will come back on-line, but there will not be enough new shale wells coming on-line to offset declines until late in the year. The active rig count will not bounce back quickly; probably not until early 2021 and it will not get back to 800 active rigs drilling for oil until WTI is firmly over $60/bbl. Even then it will take several years and much higher oil prices before U.S. production comes close to 12.8 million BOPD again.

"The US Energy Information Administration’s energy data reporting is timely in every respect except regarding crude oil production. While various news organizations publish data on the oil volumes produced in most oil-exporting countries within days of each month’s end, information on US output is delayed by 90 to 120 days. As a result, we do not know the magnitude of the ongoing US production shutdown. However, other information allows one to approximate the rate of output decline by week. These estimates show that US output has declined by almost 3 million barrels per day since the price war began, which is much more than the official US estimates. This much larger drop shows that US oil producers are responding more rapidly than was thought to the sharp fall in prices, taking a large share of the big cuts needed to bring global supply and demand back into balance." by Philip Verlege for World Energy Opinion.

I urge all of you to read this: http://www.energyintel.com/pages/worldo ... ID=1072115

The article will help you understand why EIA's oil production estimates are so far off from the real world when we have unusual events. This pandemic might be the most "unusual event" the industry has ever had, so we need to cut EIA some slack since their forecast models are not built to handle anything like this. That said, if Philip is correct that U.S. oil production is already below 10.0 million barrels per day, we should see some very bullish oil storage reports in June.