The Shale Daily Update – 6.25.2020

The U.S. Energy Information Administration’s (EIA) Weekly Petroleum Report shows stocks for crude and refined products still rising in the U.S.

What You Should Know About Oil and Gas Today

The State of Play

The U.S. Energy Information Administration’s (EIA) Weekly Petroleum Report shows stocks for crude and refined products still rising in the U.S. Crude storage was up by 1.4 million barrels for the week ended June 19, with refined product storage adding another 2.6 million barrels to domestic inventories. The EIA further reported that U.S. refinery supply of gasoline over the past four weeks was down by 17% from a year ago.

That report, along with continuing fright reporting related to the coronavirus, caused the price for WTI to drop by 6%. That price, which had risen above $41 last Friday, is now slightly below $38 in early trading today.

James Osborne reports in today’s Houston Chronicle that the lifting of stay-at-home orders has restored about half of the demand for gasoline lost during March and April. Obviously, should governors like Texas’s Greg Abbot panic now in the face of rising COVID-19 “cases” and restore those lockdown orders, that gain could be lost again in the months to come.

On to other news…

Continental Resources Executive Chairman and founder Harold Hamm signaled that now is a good time to buy stock in his company. He personally invested another $57.1 million in Continental shares, bringing his total of direct and indirect shares to 288 million, or about 79% of the company.

In a new report released on Wednesday, analyst firm Wood Mackenzie notes that the current price crash has wiped $1.6 trillion in valuation globally off the books for upstream oil and gas firms. Wood-Mac also dropped its forecast for upstream development spending through the end of this year by 30% as a result of the crash.

“The oil price crash and market uncertainty are all-encompassing,” WoodMac said in a company statement. “They have affected all regions, all operators and all resource themes. In early March, we anticipated the industry’s response would be rapid and decisive. It has been. Tough calls have been made, despite a lack of clarity on the depth and duration of coronavirus-related impacts on oil and gas demand.”

Meanwhile, the Dallas branch of the Federal Reserve says that its business activity index fell to -66.1, from -50.9 in the first quarter, the lowest reading in at least four years and indicating a “significant contraction in activity.” You don’t say.

The Dallas Fed also reports that its periodic survey of industry participants yielded an expectation that the price for WTI would sit about $42 per barrel at year’s end. We’ll see.

Reuters has an interesting story out today about how Russia is taking a page out of U.S. Shale’s playbook as it prepares for the return of demand for crude oil in the coming months. Two state-owned Russian banks are in the process of lending 400 million rubles to oil drillers at near-zero percent interest so they can build an inventory of about 3,000 “DUC” – drilled but not completed – wells that can then be quickly completed to allow Russia to grab additional market share once demand returns to previous levels. It’s an interesting plan that shows one advantage a nationalized oil industry has over the free-market system consisting of thousands of individual companies here in the U.S.

Still, I like our system better.

That’s all for today.

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