The Shale Daily Update – 5.14.2020

Strategic Petroleum Reserve to get only 1 million barrels

10 Things You Should Know About Oil and Gas Today

The Big Story

The U.S. Department of Energy announced on Wednesday that it will buy only 1 million barrels of oil to add to the nation’s Strategic Petroleum Reserve during this time of incredibly low crude prices. This move comes after Senate Democrats killed a proposal that would have funded the purchase of as much as 30 million barrels from U.S. producers for this purpose. Excerpt:

The purchase of up to 1 million barrels “will serve as a test of the current conditions of physical crude oil available to the SPR as opposed to the financial market trading WTI NYMEX futures contracts,” the department said in a release. The department will purchase the oil from small to midsize domestic producers, it said.

The Energy Department did not immediately respond to a question about whether there would be further purchases if the test yielded favorable results.

After it canceled the 30 million barrel purchase, the Energy Department devised a plan for companies to rent space to store some oil in the SPR. In late April, the Energy Department said nine companies including Chevron Corp and Exxon Mobil Corp had agreed to rent space to store 23 million barrels of crude.

At the same time, Energy Secretary Dan Brouilette did signal that the Administration is taking other steps to try to support the struggling oil and gas sector, including:

  • The Federal Reserve changed the rules to its new lending program on April 30 in a way that allows oil companies to qualify for the aid, a move Brouillette told Bloomberg TV on Tuesday came at least partly at the behest of the administration.
  • The Energy Department is allowing oil companies to store excess oil in the nation’s strategic reserves.
  • Trump and other officials across his administration were pushing Saudi Arabia, other members of the oil group OPEC, and Russia to broker across-the-board cuts in mid-April to help stabilize an imploding oil market.

The reality at this point is this: Unless President Trump is seriously considering implementing an import fee on foreign oil, all his Administration is doing is nipping around the edges of this crisis where the oil and gas business is concerned. Given that the industry itself is completely split on the question of an import fee, that remains highly unlikely.

As I wrote in early March, elected officials at any level of government are pretty much never willing to act to assist this industry unless it is unified and speaking with one voice. That’s just the way it is.

On to other subjects:

Oil and gas is far from the only part of the energy sector struggling with this pandemic. The American Council on Renewable Energy reports that the renewable sector has now lost 600,000 jobs in the U.S. alone since February.

Texas Railroad Commissioner Christi Craddick explains her opposition to prorationing in today’s Midland Reporter Times. Excerpt:

“I think we made the right decision, in my mind,” she said. “Look at where we are, what’s happened in the last couple of weeks, what was beginning to happen with the industry.”

The commission was seeing a decline in the number of drilling permits being issued and in April saw oil production down 200,000 to 400,000 barrels, she said, noting that the April production report was for February output.

“My question was, and continues to be, this is something we haven’t done in 50 years,” Craddick said of prorationing. “Does anyone know what we’re supposed to do? What does it mean? What will it look like? Is it something we should do? If we do something this drastic, how do we do it right?”

I have my own opinions on what the RRC should do related to prorationing, and that will appear in the next issue of Shale Magazine. Stay tuned.

ExxonMobil was able to restart its Beaumont Refinery Wednesday after a Monday power outage had triggered a shutdown.

Halliburton announced that is has reopened its Victoria operation, and would shift operations formerly staged out of its now-closed San Antonio plant to the Victoria site. No doubt, the ongoing abusive actions taken towards business by the San Antonio mayor and city council played a role in this decision.

The International Energy Agency is seeing signs of recovering demand for crude oil. Excerpt:

“We see early signs of a gradual rebalancing of oil markets. It is still gradual and it is still fragile,” said Fatih Birol, the IEA’s executive director. This year will still be the worst on record, he added.

Brent crude oil was up 2.4% at $29.88 a barrel and West Texas Intermediate futures for June were up 2.4% at $25.88 a barrel. The WTI July contract was up 2.3% at $26.28 a barrel. Both Brent and WTI remain more than 50% below their levels in late 2019.

The agency estimated that government-implemented lockdowns have affected some four billion people around the world this year, hammering demand for refined oil products such as gasoline and jet fuel.

Meanwhile, in another bullish signal, the Houston Chronicle reports that U.S. crude inventory levels actually fell last week for the first time since January. Excerpt:

Commercial crude inventories last week fell for the first time since January as U.S. production declined, the Energy Department reported Wednesday.

Crude stockpiles declined by 700,000 barrels after 15 consecutive weeks of increases, including huge inventory builds in March and April as social distancing measures and business shutdowns related to the coronavirus pandemic led to a collapse in energy demand. Crude inventories are still 11 percent above average for this time of the year.

Jeff Currie, head of commodities research at Goldman Sachs, says that the only other commodity in as precarious a position as oil is livestock, which is a double-whammy for Texas.

Meanwhile, Bloomberg reports that OPEC’s view of the state of oil markets is growing increasingly pessimistic. Excerpt:

OPEC presented a bleaker assessment of global oil markets for the second quarter as the coronavirus crisis continues to drain demand, days after some of the cartel’s biggest producers pledged to make even deeper production cutbacks.

The Organization of Petroleum Exporting Countries cut estimates for the amount of crude it will need to supply over the three-month period by just under 3 million barrels a day, or about 15%, in a report published on Wednesday.

That’s all for today.

 

 

 

 

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