Oil Prices Surge As OPEC+ Eyes Extension

June 5, 2020/OilPrice.com

In one of the most bullish days for oil markets in 2020, OPEC+ looks to be on the brink of an agreement while the U.S. job report saw an unexpectedly large drop in unemployment.

Friday, June 5th, 2020

Oil prices jumped yet again on positive news from OPEC+ as well as a far better than expected jobs report. Brent surged by more than $2 per barrel while WTI approached the $40 mark. 

OPEC+ nears deal. OPEC+ made a breakthrough in negotiations and the group is slated to meet on Saturday to sign off on the deal, which calls for a one-month extension of the 9.7 mb/d cuts. A sticking point had been the poor compliance rate from Iraq, but the Iraqi government agreed to strict compliance, although there could be a domestic backlash from doing so.

U.S. unemployment rate unexpectedly drops. The U.S. unemployment rate unexpectedly fell to 13.3 percent in May, with the return of 2.5 million jobs. Economists had expected the unemployment rate to jump to around 20 percent. The numbers led to a wave of optimism around economic recovery.

Libyan government beats back LNA. The Libyan National Army (LNA) retreated from Tripoli, ending a 14-month assault on the capital. The civil war has also become a proxy battle between other world powers. The prime minister of the Government of National Accord (GNA) traveled to Ankara to meet with Turkish President Recep Tayyip Erdogan. 

Tudor Pickering launches clean tech research unit. In a sign of the times, investment bank Tudor, Pickering, Holt & Co., which was an important player in financing the U.S. shale industry, will begin research on clean technologies. The firm will cut back on the number of oil and gas companies it covers, and use an existing equity research team to cover clean tech.

GM to develop electric van. GM (NYSE: GM) is developing an electric van for commercial use, a multibillion-dollar segment of the transportation sector, according to Reuters. “It’s going to be similar to what the Model 3 has done for the consumer market,” a UPS executive told Reuters. “Now all of a sudden, we’re off to the races.” The GM van is due to start production in late 2021.

Large unsubsidized offshore wind goes forward. Vattenfall AB is going forward with a 1,500-megawatt offshore wind project in the North Sea, and the project carries no government subsidies. When it comes online in 2023, it will be the world’s largest, but won’t carry that title for long as a larger project in the UK is scheduled to come online shortly after.

Equinor alone among majors in clean energy. While many of the integrated oil majors have promised larger investments in renewable energy, Norway’s Equinor (NYSE: EQNR) stands out. The majors are estimated to spend $18 billion combined per year by 2025 on renewables, but Equinor will account for $10 billion of that total, according to Rystad Energy. The Norwegian company will be the only one to invest a majority of its greenfield capex in clean energy.

19 oil and gas bankruptcies. So far in 2020, there have been 19 oil and gas producers in North America that have filed for bankruptcy, according to Haynes and Boone. Ultra Petroleum, Whiting Petroleum and Diamond Offshore were the three highest-profile bankruptcies.  

Shut-in production coming back. Parsley Energy (NYSE: PE) and EOG Resources (NYSE: EOG) each said this week that they would bring back shuttered production. Restored production from shut in wells could add 2 mb/d by August, but at the same time, the lack of drilling means that steep decline rates take over, and in the medium-term, production drifts lower

IEA: World should cut fossil fuel subsidies. The IEA said that governments should use the oil price downturn to phase out fossil fuel subsidies.  

China’s oil demand back to 90 percent. China’s oil demand has recovered to 90 percent of pre-pandemic levels.

Oil companies withdraw personnel because of tropical storm. BP (NYSE: BP), Equinor (NYSE: EQNR) and Occidental Petroleum (NYSE: OXY) said that they began evacuating non-essential personnel from platforms in the Gulf of Mexico because of a tropical storm.

Chesapeake “weeks away” from default. Famed shale gas driller Chesapeake Energy (NYSE: CHK) is nearing bankruptcy, a filling that could occur in “a matter of weeks, not months,” according to a debt restructuring adviser and the FT. Analysts say Chesapeake could emerge from bankruptcy as a smaller, but potentially more profitable, gas driller. 

LNG worst-performing energy commodity. Oil prices have recovered, but spot LNG in Asia fell to $1.85/MMBtu in the last week of May, an all-time low. Prices are down by three quarters since hitting a recent peak at $6.80/MMBtu in mid-October. U.S. LNG shipments are suffering cancellations, and LNG itself is now the worst-performing major energy commodity.

Oil industry overinvests in petrochemicals. The market for petrochemicals is souring amid overcapacity and weaker-than-expected demand. Some companies are deferring or canceling projects entirely. Those going forward are facing heightened financial risk, such as Royal Dutch Shell’s (NYSE: RDS.A) project in Appalachia.

Canadian banks increase exposure to energy. The exposure of Canadian banks to energy jumped 23 percent over the past year. At the same time, the amount of loans impaired has doubled to C$2 billion.

Trump signs executive order on pipelines. Under an emergency decree, the Trump administration signed an executive order to waive environmental laws to speed up federal approval for mines, highways and pipelines. But analysts said that the industry would be reluctant to make investments based off of what could be a legally dubious and easily reversed decision. 

Refiners cut back due to diesel glut. Refinery rates are coming back as demand rebounds, but gasoline is rebounding faster than diesel. Inventories are rising at a rapid clip. Refineries can retool their product mixes to churn out relatively more gasoline. With thin margins, though, some refineries could cut output altogether.

Enbridge Line 3 faces delay. Enbridge’s (NYSE: ENB) Line 3 faces renewed delays after Minnesota regulators said it would hold hearings on the impact to water quality.

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