What You Should Know About Oil and Gas Today
The State of Play
Crude prices continued their march upwards on reports that the OPEC+ group will likely agree to extend its deep May/June supply cuts for another couple of months when they next meet. The price for a barrel of Brent crude topped $40 temporarily overnight, while WTI is approaching the $37 level as of this writing.
Prices pulled back slightly when Reuters reported that efforts to move that next OPEC+ meeting up from June 11 to tomorrow will likely fail to come about. But the same story confirms that Russia and Saudi Arabia have agreed to extend the May/June 10 million bopd cuts through August, after which the supply reduction levels would scale back to about 6.8 million bopd through the end of 2020.
Another factor continuing to drive rising oil prices came Tuesday when API reported a drawdown in U.S. crude inventories of 483,000 barrels for the past week. The “experts” had predicted an inventory build of more than 3 million barrels. As always, the industry continues to fool the experts.
Meanwhile, offshore operators in the Gulf of Mexico, already impacted by the COVID-19 pandemic, now have another big problem to deal with in the name of Tropical Storm Cristobal. Cristobal became a named storm on Tuesday as it continues to churn and develop in the Bay of Campeche. The storm is projected to start moving northward up through the Gulf by this weekend, which would likely necessitate the shutting down of many industry platforms and drill ships.
NOAA’s current potential impact map for Cristobal extends all the way from Freeport, Texas to the Florida Panhandle:
Just what we didn’t need.
And speaking of things we did not need to see, Guy Smith, head of gas trading at Swedish utility Vattenfall AB, told Bloomberg on Tuesday that natural gas could be the next commodity to see temporary negative pricing. “We are in uncharted territory with low demand levels and high storage stocks,” Smith said, “In the shorter term there is real risk that conditions may be set to allow negative prices in Europe, but only in the very short term.”
Bloomberg also reports this morning that Shale producers in the Permian Basin are starting to put some of their shut-in wells back online thanks to the healthier oil prices. Both EOG Resources and Parsley Energy are cited in the piece as companies putting some production back into play.
But this does not mean that we should expect U.S. production levels to suddenly start climbing upwards again. With the Enverus Daily Rig Count sitting at a record low level, the baseload of US oil supply will not start to move back in a positive direction until companies activate hundreds of additional rigs.
In a related story, Sergio Chapa at the Houston Chronicle reports today that “Midland oilfield service company ProPetro plans to exercise a contract clause that obliges Irving oil company Pioneer Natural Resources to pay millions of dollars in fees for idling hydraulic fracturing fleets in the Permian Basin.” ProPetro was the purchaser in 2018 of Pioneer’s own drilling and frac fleets when the company decided to divest that part of its business.
That’s all for today.