The Shale Daily Update – 5.4.2020

Crude Oil Markets are Looking Up for a Change

10 Things You Should Know About Oil and Gas Today

The Big Story

Oil demand appears to be rising again, as the U.S., China and other nations around the world begin the process of re-starting their economies. Here’s an excerpt from a report by World Oil Magazine:

From the streets of San Antonio to Barcelona and Beijing, traffic data, sales at fuel stations, and pipeline flows all suggest that the slump in oil demand probably bottomed out around the middle of April, and has now started a modest — and very tentative — recovery. The signs matter beyond the petroleum industry as they provide a glimmer of hope after a torrent of negative economic data.

“I believe we have seen the bottom,” said Marco Dunand, co-founder of Mercuria Energy Group Ltd., one of the world’s top-5 oil trading houses.

But the recovery is extremely slow. Oil traders believe it’s likely to take more than a year, and perhaps much longer, before global demand reaches the pre-pandemic levels of roughly 100 million barrels a day. A growing minority even speculate it may never get there again.

“We’re seeing improvements really across all three markets, we’ve seen in May volumes trending up in Europe, we see that happening in the U.S., and we see that also in Asia,” Darren Woods, CEO of Exxon Mobil Corp., told investors on Friday. “There are some, I’d say, encouraging early signs.”

The very gradual improvement comes just as producers, from the OPEC+ alliance to drillers in Texas, accelerate their output cuts. Together they could progressively push supply and demand into balance over time. In the past week, more companies, including big American firms such as ConocoPhillips, have announced fresh production closures.

“Globally, we are at the inflection point where we are past the worst for oil demand destruction but not for supply destruction,” Olivier Jakob, managing director at consultant Petromatrix GmbH. “This should help price stabilization.”

Now, on to other news:

The recent optimism about the potential for higher natural gas prices this winter continues to rise, according to this report in the Wall Street Journal.

That positive price outlook has convinced Southwester Energy to refocus its drilling efforts to dry natural gas wells in its portfolio. Here’s an excerpt:

Denver — While most oil-focused producers quickly cut back on spending and production outlooks for 2020 following the crude price collapse and coronavirus epidemic, gas-driven Southwestern Energy has pivoted from liquids-rich wells to dry wells to take advantage of rising natural gas prices.

“We are navigating uncertain times,” said Southwestern CEO Bill Way. “Clearly, current market conditions resulting from the COVID-19 pandemic can affect some of our operating and financial metrics.”

“The last few years of low natural gas prices have taught us the importance of resilience,” he added during the company’s first quarter 2020 earnings call May 1. “Natural gas comprises 80% of our current production portfolio. It shields us from the decline in oil prices … We made a swift action to pivot from condensates to more natural gas than our original guidance.”

Southwestern operates in the US Northeast, where it focuses on assets in Pennsylvania in the Marcellus Dry and in wet fields in West Virginia.

Oil prices are firming up somewhat as the OPEC+ countries begin to comply with the provisions of their recent deal.

The recent absurd decision by an Obama-appointed federal judge in Nebraska could hold up the Keystone XL pipeline project for a full year, despite the fact that it will almost certainly be overturned on appeal. Disgraceful.

Meanwhile, another Obama-appointed federal judge in Montana just vacated leases on 150,000 acres of federal lands based on similarly specious reasoning. In case you hadn’t noticed, these judges are at war with our country.

The oil and gas outlook for Latin America is surprisingly positive amid this global pandemic, in contrast to the situation in the United States.

North Dakota Governor Doug Burgum ordered the state’s government agencies to identify significant budget cuts. That will include the Industrial Commission, which regulates the oil industry in that state. Expect similar budget-cutting efforts to begin taking place in states all over the country.

The Texas Railroad Commission meets tomorrow to consider exercising its authority to reduce oil production in the state. All indications are that the resolution to be considered will fail.

That’s all for today.