The Shale Daily Update – 5.13.2020

West Texas Intermediate prices rally
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10 Things You Should Know About Oil and Gas Today

The Big Story

The markets have yet to figure out the reality that Dr. Anthony Fauci has been essentially sidelined by President Trump as the Administration moves to re-start the U.S. economy. As a result of that lack of understanding, Fauci’s confusing and conflicting messages delivered during Tuesday’s Senate Health Committee hearing led to both the stock market and oil prices temporarily falling in mid-day trading.

However, crude prices ended up rallying late in the day on news that multiple OPEC nations had committed to deeper production cuts, with WTI finishing at its highest level in 5 weeks. Excerpt:

Oil futures finished higher Tuesday, with U.S. prices at a five-week high on expectations that falling production levels and a gradual revival in demand from a COVID-19 pandemic-related drop, will ease a global glut of crude that has slammed prices in 2020.

“Oil is back in rebound mode as the market is getting assurances that massive production cuts are coming,” said Phil Flynn, senior market analyst at The Price Futures Group.

Saudi Arabia has promised to cut an additional 1 million barrels per day in June, in addition to its share of reductions under the output-cut agreement between the Organization of the Petroleum Exporting Countries and its allies, including Russia.

Reuters reported Tuesday that OPEC+ wants to continue their existing oil production cuts beyond June, citing four OPEC+ sources. The agreement between the group of producers, known as OPEC+, called for output reductions of 9.7 million barrels per day from May 1 through June, with the group gradually reducing the size of the cuts after that, through April 2022.

The other big, bullish news is that April’s panic over the potential filling of global crude storage capacity is beginning to fade. Here’s an excerpt from an excellent report at World Oil Magazine:

In recent days, however, the alarm is starting to subside.

After the brutal price crash, producers have cut output on a historic scale, including unprecedented reductions by the OPEC+ alliance. Now demand is starting to creep higher as governments ease lockdowns, letting drivers back on the roads.

Though a substantial surplus remains — prompting Saudi Arabia to announce additional output cuts on Monday — the threat of a storage blow-out has receded.

“It looks like price signals” have ”worked their magic and the market has managed to re-balance and avert the worst,” said Antoine Halff, chief analyst at energy data provider Kayrros SAS.

Also helping to create a more bullish trend is yesterday’s announcement by the EIA that it is cutting its production forecast for 2020 and 2021. The fact that the agency’s new estimate of 11.7 million bopd of U.S. production for the rest of 2020 still seems wildly too high probably helps as well.

Now, on to other news:

The always-wrong promoters of “Peak Oil” theory never give up. Here a link to yet another ill-informed piece predicting that the world has already seen “peak demand” and oil will never recover. So tiresome.

Some leftist writer at Gizmodo is mad because the various “climate plans” devised by “big oil” don’t meet her desires. Even more tiresome than Peak Oil.

Here’s a good piece by Bloomberg detailing why many college graduates won’t even consider a career in the oil and gas business.

A good piece here by James Osbourne at the Houston Chronicle on the ineffectiveness of Trump Administration efforts to help struggling oil companies survive.

Oh, great: In the midst of an existential industry crisis in which it refuses to take any helpful action, the Texas Railroad Commission launches its own drone fleet. Talk about having a tin ear…

Big midstream company Enbridge announced pay cuts and voluntary retirements Tuesday as a part of its efforts to weather the coronavirus storm.

We’ll close with this good piece by Dan Eberhart at Forbes.com. Excerpt:

The makings of a real recovery in oil are in place, and some even see a massively under-supplied market — to the tune of 5 million barrels a day — by 2025.

But a big question is whether U.S. shale producers could spoil the party by restarting shut-in production or completing wells the moment that prices rise high to earn any positive cash flow.

Some Permian producers have suggested they could start unleashing these wells at WTI prices of near $30. Many U.S. producers also have a stockpile of drilled but uncompleted wells that could be brought online quickly and at far less cost than drilling new ones at lower prices. Consider this added storage in the global oil system.

The motivation to produce is simple. Companies have operating expenses, payroll, debt servicing, and other obligations to meet, and any action that can deliver revenue in these tough times are easy targets.

Scott Sheffield, CEO of Pioneer Natural Resources, believes U.S. oil prices could climb back to at least $45 per barrel this year, but that persistent elevated debt levels will prevent most companies from taking advantage of the higher prices to boost production.

Producers should understand that quickly bringing back uneconomic production is a short-term fix. It is also a price killer that signals to the market that shale will cap upward momentum in prices — while delivering little value to investors.

That’s all for today.

 

 

 

 

 

 

 

 

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