Oil Markets in Crisis
With the world locked down for the coronavirus, global oil demand is seeing its sharpest plunge on record. Current estimates have 2020 oil demand contracting by as little as 6.8 million b/d, as predicted by OPEC, to as much as 9.3 million b/d, according to the International Energy Agency. Still further downgrades are possible based on when economic activity starts to return. But so much is unknown about that timeline all across the globe. Our analysts, researchers, and reporters are assessing the situation on a daily basis.
Published: March 2, 2020
Update
BP warned April 28 of "exceptional" uncertainty over oil and gas demand and a risk of long-term consequences from the current market turmoil as it wrote down the value of its own inventories by $3.7 billion and cut its output expectations for this year.
In a Q2 results statement, the UK oil and gas major said it expected its previously announced 25% cut in capital expenditure to reduce its upstream oil and gas output by 70,000 b/d of oil equivalent this year as it curtails developments in lower-margin areas and rephrases projects in the early stages of development.
Watch: Market Movers Europe, Apr 27 May 1: OPEC+ cuts to kick in as results season begins for European oil, gas majors
In this week's highlights: OPEC+ cuts are to start on Friday; oil and gas company results begin to stream in; the butadiene contract price's fall spells trouble for olefins; a Dutch wind auction closes; and a German hydrogen strategy emerges.
Watch the full Video
Crude Futures
Crude oil futures were lower in mid-morning trade in Asia Tuesday, April 28, extending the recent selloff, amid concerns of the lack of storage capacity.
At 10:18 am Singapore time (0218 GMT), ICE Brent June crude futures were down 87 cents/b (4.35%) from Monday's settle at $19.12/b, while the NYMEX June light sweet crude contract was $1.82/b (14.24%) lower at $10.96/b.
"WTI June futures can be seen slipping once again past $12/b into Tuesday Asia hours amid the more immediate concern with storage," IG market strategist Pan Jingyi said in a note.
"[But] watch for any further pullback of prices towards support seen just above $10/bbl, particularly with US inventory reports due into the week serving as event risks for further downward pressure," Pan added.
US crude futures settled sharply lower on Monday after the world's largest energy exchange-traded fund said it would exit its NYMEX June WTI contracts this week.
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Impacts
Whiting Petroleum, a major oil and gas producer in the Bakken Shale and Denver-Julesburg Basin, announced Monday it had filed a Chapter 11 plan, as the decimated global demand for crude draws more blood.
"Through the proposed terms of the plan of reorganization, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment," Whiting CEO Bradley Holly said in a statement.
Key Takeaways
- This is the largest bankruptcy filing in the US oil and gas sector of 2020 as Whiting has a total of $5.89 billion in combined secured and unsecured debt.
- Whiting is most active in the Bakken and Three Forks plays in North Dakota and the Denver-Julesburg Basin in Colorado. Both of these regions, along with all oil-rich plays in the US, have come under extreme financial duress during the current price crunch.
- The poor returns have led to idled rigs and shut-in wells. Continental Resources, the largest producer in the Bakken, has stopped all drilling and shut in most wells in the play last week. Continental had reduced its production through May by 30% before the latest price crash and suspended its dividend.
EMEA
Industry group Oil & Gas UK warned April 28 of an "increasingly grim" outlook for the North Sea sector and called for a system of government backing for those willing to invest in the country's "increasingly fragile" supply chain.
Following a survey of its members, Oil & Gas UK said two-thirds of UK upstream oil and gas companies expected lower oil and gas production in 2020 than previously anticipated due to collapsing oil and gas prices and the coronavirus pandemic, and a quarter of upstream companies acknowledged being financially "challenged."
Oil demand clouds darken despite Europe turning corner on lockdowns
Market pessimism continues to grow over the impact of COVID-19 on global oil demand despite signs that economic measures to contain the pandemic are starting to ease in Europe, the continent hardest-hit by the crisis.
As forecasters sift through fresh data for signs of how economic activity is responding to the rolling lockdowns, most are now doubling down on their worst-case scenarios for the toll on oil demand.
Read the full article
Credit Risk
This article provides a deep-dive analysis on the credit risk impact of the European Oil and Gas industry which takes into account the consequences of the COVID-19 pandemic, causing oil prices to plummet on oversupply and weakened demand. The analysis covers European public companies in the Oil and Gas sector between January 2, 2020 and April 16, 2020 and utilises S&P Global Market Intelligence’s Probability of Default Model Market Signals (PDMS) which captures equity market sentiment, providing signs of potential default for 71,000+ public companies. We have also highlighted where negative ratings actions were taken by S&P Global Ratings.
Oil industry faces historic change after prices turned negative
Headline oil prices in the US may have crashed briefly into negative territory last week, but even in the wreckage of the current economic crisis there is some hope.
Eventually, demand for fossil fuels will return once coronavirus pandemic lockdowns begin to ease. When consumption does resurface, the global oil industry will look very different, however.
Read the full article
Storage
The global coronavirus pandemic has hit global demand for oil products with transport fuels such as diesel, gasoline and jet fuel seeing extreme contango structures, leading to companies looking at any way to store product.
Typically in a contango structure, participants would opt to purchase product on the prompt, store in land storage, or in extreme cases floating storage, and hold the fuel until demand and, in turn, value increases.
Fuel oil floating storage options loom in Europe
Global fuel oil demand may be holding up better than its jet fuel and gasoline peers, but with inland storage facilities at high levels it appears only a matter of time before the economics of floating storage in Europe start to make sense for the marine fuel, according to market sources.
Read the full article
Further Reading
