The Shale Daily Update – 6.8.2020

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What You Should Know About Oil and Gas Today

The Big Story

Obviously, the Big Story today is the fact that the OPEC+ member countries agreed on Saturday to extend the deep May/June supply reductions through the end of July. The oil ministers also agreed to a monthly monitoring/adjustment process to determine appropriate supply levels going forward. Those numbers will next be revisited when the group holds its next meeting via videoconference on June 18.

This move sets up a bullish oil price scenario for the months to come, one that will likely lead to higher prices during the 3rd and 4th quarters than have thus far been anticipated. Markets responded predictably over the weekend, with the price for a barrel of West Texas Intermediate briefly moving over $40 on Sunday before sliding back slightly in early Monday trading.

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In the wake of the agreement, Saudi Aramco announced major price increases to its buyers, raising the price for delivery to Asian markets by $6.10 per barrel, as reported by Bloomberg.

The State of Play

Tropical Storm Cristobal never did reach hurricane force winds as it plowed northwards through the Gulf of Mexico over the weekend. After making landfall just West of New Orleans, the storm brought some flooding eastwards into the Florida Panhandle before being downgraded to a tropical depression early today. Oil and gas production in the Gulf that was interrupted by the storm will resume normal levels over the next 48 hours or so.

Sergio Chapa has a good analysis in today’s Houston Chronicle of the strategies companies used to prevent any spread of COVID-19 as they dealt with the storm in recent days. It’s a very good read.

Not everyone is bullish on oil prices, at least in the near term. Morgan Stanley warned investors early Monday that demand remains “fragile” and that prices could pull back in the days to come. As reported by Reuters:

The bank said its base case expectation remained that oil markets will be progressively under-supplied in the second half of this year and inventories will shrink in the fourth quarter and first quarter next year.

But it said in a note the rally “appears mostly supply- rather than demand-driven, and it is questionable how strong refinery runs can increase against this backdrop”.

Emily Pickrell reports in the Houston Chronicle that Mexican President Manuel Andres Lopez Obrador (AMLO) is using the COVID-19 pandemic as his latest excuse for further curbing reforms that were enacted by his predecessor. AMLO had opposed those reforms, which allow for more foreign investment into Mexico’s oil and gas industry, as they were being enacted and made that opposition one of major elements of his campaign for the presidency. Thus, his opposition to them now comes as no surprise.

Also in the Chronicle, Paul Takahashi reports on the real risks operators take when they shut-in shale wells, as many have done in recent months. One of the under-reported realities is that some of those wills will water up and lose pressure while they are shut-in and may never be returned to full production levels.

“We’re in uncharted territory,” said Matthew Fitzsimmons, vice president of energy research at Rystad Energy. “Operators can use downhole sensors to make an educated guess, but it’s going to be hard to tell. The truth is going to come out when they turn it back on.”

Takahashi also reports on the plan by big oilfield service company Schlumberger to auction off more than 20 idle or under-utilized properties. The auction ” will take place June 11-25 online and on-site at the properties, located throughout Texas, Oklahoma, Colorado, Mississippi, Illinois, North Dakota, Wyoming and Utah.”

It’s just a sign of the tough times the industry is in right now.

That’s all for today.