The Shale Daily Update – 5.29.2020

One of the many outcomes of the COVID-19 pandemic is that the cost of shipping crude oil overseas has collapsed. According to a report in the Wall Street Journal today, the average price for chartering oil tankers has fallen by 77% since March as a result of the massive cuts in supply in response to the crash in oil prices.
Black oil barrels against sky clouds and dried depleted land

What You Should Know About Oil and Gas Today

The Big Story

One of the many outcomes of the COVID-19 pandemic is that the cost of shipping crude oil overseas has collapsed. According to a report in the Wall Street Journal today, the average price for chartering oil tankers has fallen by 77% since March as a result of the massive cuts in supply in response to the crash in oil prices.

Shippers have also seen a collapse in demand for using their tankers as at-sea storage for crude. After the initial surge for this kind of storage during March and April, the market for this kind of storage has collapsed as countries around the world restart their economies and the supply glut has rapidly diminished.

Crude prices are recovering somewhat in early Friday trading, after a 4% drop in Thursday. West Texas Intermediate was selling at $33.11 as of this writing.

If the price holds steady today, CNBC points out that May could end up becoming the month during which crude prices saw their most rapid single-month increase in history. Even though WTI is about 45% below its opening price for the year, prices are on track to rise by 70% during the month of May. Hey, in this environment, you have to take the good news where you can get it.

“It certainly doesn’t feel like it was oil’s best month ever,” said Regina Mayor, KPMG’s global head of energy. “Low $30s for WTI is clearly better than where we were at the end of April, but it’s not sufficient enough to bring the bulk of production back online.”

That’s certainly true, but hey, in this environment, you have to take the good news where you can get it.

On the other hand, another bit of fallout from the collapse in global demand is that, as E&E Daily points out today, some producers have had to sell their oil at firesale prices. One producer even had to unload some of his production recently at $0. Ugh.

Writing for Barron’s, Ellen Wald correctly points out that the recover in demand will not take place along a straight-line progression, a fact I also pointed out in a piece earlier this week. Ms. Wald foresees a three-stage recovery process:

  1. Government’s begin restarting their economies, a process that is already taking place;
  2. A second, slower stage that will start “when businesses and consumers no longer fear travel and economic activity.”; and
  3. A more rapid demand surge that will come when economies are fully reopened.

It’s a really strong piece by a very knowledgeable analyst who, unlike many energy writers, actually knows what she’s talking about. Everyone should go read it in full.

Radical climate alarm activist Bill McKibben has a wishful thinking piece in the Atlantic titled “Are We Past the Peak of Big Oil’s Power?” McKibben, who notably is opposed to economic growth of any kind and wants the world to go back to a 19th-century level of subsistence, says that he thinks “it’s now clear that the power of the fossil-fuel industry has decisively passed its zenith.”

Not exactly sure what McKibben means by “Big Oil’s Power”, but if by that he means that he thinks the temporary impacts of the coronavirus mean that we have officially seen “Peak Oil” demand, then he is in for yet another rude awakening.

Sometimes the industry does itself more harm than good by its own actions. Bloomberg reports this morning about an industry-supported proposed rulemaking at the U.S. Forest Service that would speed up permitting and drilling in U.S. National Forests and grasslands. Industry efforts to lobby in favor of changes like this, which lead to drilling in environmentally sensitive areas of the country do little to enhance U.S. energy security, but a lot to give the business a public relations black eye. This is an industry that has plenty of self-inflicted wounds already.

We will close today’s Update out with a bit of positive energy. Tyler Gray, president and general counsel of the Louisiana Mid-Continent Oil and Gas Association, has a good op/ed in the Houston Chronicle discussing the many benefits of what he calls the “Gulf’s working coast.”

That’s all for today.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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