Released March 30, 2020 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--March was a cruel month for Oil & Gas producers, their investors, their suppliers and their employees, and the worst may be yet to come. Hammered by collapsing demand triggered by the COVID-19 pandemic and an oil market flooded by Saudi Arabia and Russia, crude oil prices fell 50% during March. Although the oil industry was designated as an "essential" business for the COVID-19 outbreak, a designation that is expected to keep their employees on the job, weakened demand and rapidly filling storage means rig laydowns and job cuts are expected in the near future.
In a projection that will almost certainly be lowered, the U.S. Energy Information Administration (EIA) (Washington, D.C.) earlier this month forecast West Texas Intermediate (WTI) prices averaging $38.19 for 2020, down nearly $20 per barrel from last year's price. WTI futures were trading under $22 per barrel on Friday afternoon. An updated Short-Term Energy Outlook is due from the EIA April 7.
Last week Barclays plc (NYSE:BCS) (London, England) lowered to $28 per barrel its full-year projection for WTI. "Prices are likely to remain under pressure until the virus situation turns the corner, and if we continue on the projected market balances path, even Saudi Arabia and Russia will not be immune from the price fallout," the firm said in a research note.
Goldman Sachs Group Incorporated (NYSE:GS) (New York, New York) late last week predicted global demand would fall by 10.5 million barrels per day (BBL/d) for March and an even-steeper 18.7 million BBL/d in April compared to year-earlier months. IHS Markit Limited (NYSE:INFO) (London) projected a 10 million BBL/d drop in demand for March.
Economic activity has ground to a standstill in several countries around the world as they implement "stay at home" rules that have idled millions of workers. Last week the U.S. Labor Department reported 3.3 million first-time claims for unemployment were filed, roughly three times more than the worst months on record.
The U.S. is scheduled to report first-quarter gross domestic product (GDP) at the end of April. In late March, Goldman Sachs predicted GDP would shrink by 6% in the first quarter and a stunning 24% in the second quarter. Economists from other firms agreed the second quarter will have the sharpest contraction on record. Ian Shepherdson, an economist at Pantheon Macroeconomics (Newcastle upon Tyne, England) offered a "guesstimate:" that U.S. first-quarter GDP would fall by 2% followed by a 10% drop in the second quarter.
"There is no blueprint for the current shock, and uncertainty about the extent of contagion and the economic consequences is overwhelming," Credit Suisse economist James Sweeney told Yahoo! Finance.
A sampling of capital spending cuts announced by U.S. independent exploration and production (E&P) firms and midstream companies shows those companies plan to cut their 2020 capital spending by about $30 billion compared to 2019, according to Industrial Info. The sampling is not comprehensive and does not include capital spending cuts announced by integrated oil majors like Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) or Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands).
Click on the image at right to see a sampling of cascading capital spending cuts announced by E&P firms and midstream companies.
One E&P firm, Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) slashed its capital spending plans and its common-stock dividend while also cutting workers' salaries by up to 30% in an effort to conserve cash. For more on the lowered capital spending plans, see March 11, 2020, article - Crude Oil Price War Roils Markets, Leads Some Firms to Cut Capex.
Refiners around the world have cut their throughput, as demand for transportation fuels has fallen off sharply. Last week, India, the world's third-largest economy, went into a three-week lockdown period, which will further lower global demand for crude oil and refined products. Airlines have grounded thousands of flights, reducing the demand for jet fuel. Industrial Info is providing a daily roundup of how the COVID-19 epidemic is affecting industrial spending.
Margins for producing transportation fuels turned negative in Europe and Asia, and briefly did the same in the United States, according to a report in Reuters. "What we are seeing is nothing short of unprecedented," said Tom Kloza, founder of the Oil Price Information Service, adding that demand destruction during this pandemic has exceeded what was seen in the wake of September 11 and other disasters.
While U.S. crude oil production hovers around a record 13.1 million BBL/d, roughly 75% of which comes from unconventional formations, most observers expect that number to decline sharply. In a March 12 webcast, Bernadette Johnson, vice president of market intelligence at Enverus (Austin, Texas), said operators in a few unconventional formations could break even when WTI averaged $30 to $35 per barrel. No operator was breaking even at prices under $30 per barrel. For more on that, see March 16, 2020, article - Oil & Gas Producers Slash Capital Outlays, Citing Uncertainties over COVID-19, Crude Oil Price War.
Producers reportedly have approached the Texas Railroad Commission (Austin, Texas), which regulates oil & gas development in the state, asking the body to lower in-state production, something it hasn't done in five decades. A commissioner from that regulatory agency was invited to attend the next OPEC ministers' meeting in June, giving rise to a brief uproar about Texas and OPEC collaborating on production cuts to prop up prices.
"What makes this price collapse so different is how suddenly it happened," commented Jesus Davis, Industrial Info's research specialist for Oil & Gas research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "When prices last collapsed in 2014, it took nearly a year for WTI prices to fall by 50%, from about $100 per barrel to about $50 per barrel. This time, oil prices have fallen by 50% in one month, and frankly, we don't see an end in sight. It looks like a long ride downward."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
In a projection that will almost certainly be lowered, the U.S. Energy Information Administration (EIA) (Washington, D.C.) earlier this month forecast West Texas Intermediate (WTI) prices averaging $38.19 for 2020, down nearly $20 per barrel from last year's price. WTI futures were trading under $22 per barrel on Friday afternoon. An updated Short-Term Energy Outlook is due from the EIA April 7.
Last week Barclays plc (NYSE:BCS) (London, England) lowered to $28 per barrel its full-year projection for WTI. "Prices are likely to remain under pressure until the virus situation turns the corner, and if we continue on the projected market balances path, even Saudi Arabia and Russia will not be immune from the price fallout," the firm said in a research note.
Goldman Sachs Group Incorporated (NYSE:GS) (New York, New York) late last week predicted global demand would fall by 10.5 million barrels per day (BBL/d) for March and an even-steeper 18.7 million BBL/d in April compared to year-earlier months. IHS Markit Limited (NYSE:INFO) (London) projected a 10 million BBL/d drop in demand for March.
Economic activity has ground to a standstill in several countries around the world as they implement "stay at home" rules that have idled millions of workers. Last week the U.S. Labor Department reported 3.3 million first-time claims for unemployment were filed, roughly three times more than the worst months on record.
The U.S. is scheduled to report first-quarter gross domestic product (GDP) at the end of April. In late March, Goldman Sachs predicted GDP would shrink by 6% in the first quarter and a stunning 24% in the second quarter. Economists from other firms agreed the second quarter will have the sharpest contraction on record. Ian Shepherdson, an economist at Pantheon Macroeconomics (Newcastle upon Tyne, England) offered a "guesstimate:" that U.S. first-quarter GDP would fall by 2% followed by a 10% drop in the second quarter.
"There is no blueprint for the current shock, and uncertainty about the extent of contagion and the economic consequences is overwhelming," Credit Suisse economist James Sweeney told Yahoo! Finance.
A sampling of capital spending cuts announced by U.S. independent exploration and production (E&P) firms and midstream companies shows those companies plan to cut their 2020 capital spending by about $30 billion compared to 2019, according to Industrial Info. The sampling is not comprehensive and does not include capital spending cuts announced by integrated oil majors like Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) or Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands).
Click on the image at right to see a sampling of cascading capital spending cuts announced by E&P firms and midstream companies. One E&P firm, Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) slashed its capital spending plans and its common-stock dividend while also cutting workers' salaries by up to 30% in an effort to conserve cash. For more on the lowered capital spending plans, see March 11, 2020, article - Crude Oil Price War Roils Markets, Leads Some Firms to Cut Capex.
Refiners around the world have cut their throughput, as demand for transportation fuels has fallen off sharply. Last week, India, the world's third-largest economy, went into a three-week lockdown period, which will further lower global demand for crude oil and refined products. Airlines have grounded thousands of flights, reducing the demand for jet fuel. Industrial Info is providing a daily roundup of how the COVID-19 epidemic is affecting industrial spending.
Margins for producing transportation fuels turned negative in Europe and Asia, and briefly did the same in the United States, according to a report in Reuters. "What we are seeing is nothing short of unprecedented," said Tom Kloza, founder of the Oil Price Information Service, adding that demand destruction during this pandemic has exceeded what was seen in the wake of September 11 and other disasters.
While U.S. crude oil production hovers around a record 13.1 million BBL/d, roughly 75% of which comes from unconventional formations, most observers expect that number to decline sharply. In a March 12 webcast, Bernadette Johnson, vice president of market intelligence at Enverus (Austin, Texas), said operators in a few unconventional formations could break even when WTI averaged $30 to $35 per barrel. No operator was breaking even at prices under $30 per barrel. For more on that, see March 16, 2020, article - Oil & Gas Producers Slash Capital Outlays, Citing Uncertainties over COVID-19, Crude Oil Price War.
Producers reportedly have approached the Texas Railroad Commission (Austin, Texas), which regulates oil & gas development in the state, asking the body to lower in-state production, something it hasn't done in five decades. A commissioner from that regulatory agency was invited to attend the next OPEC ministers' meeting in June, giving rise to a brief uproar about Texas and OPEC collaborating on production cuts to prop up prices.
"What makes this price collapse so different is how suddenly it happened," commented Jesus Davis, Industrial Info's research specialist for Oil & Gas research specialist for the Oil & Gas Production, Pipelines and Terminals industries. "When prices last collapsed in 2014, it took nearly a year for WTI prices to fall by 50%, from about $100 per barrel to about $50 per barrel. This time, oil prices have fallen by 50% in one month, and frankly, we don't see an end in sight. It looks like a long ride downward."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
