OIL INTELLIGENCE REPORT

Chart of the Week



-    The U.S. South accounts for more utility-scale solar installations over the past three years than any other region of the country.

-    The “South Atlantic” region installed 2.2 GW of new solar in 2019, according to the EIA, more than double the 1 GW installed in California.

-    The EIA attributes strong solar growth in the South Atlantic to state government incentives.

Market Movers

-    Oklahoma-based oil and gas driller Unit Corp. (NYSE: UNT) filed for Chapter 11 bankruptcy.

-    Private equity giants Riverstone Non-ECI and Riverstone QB Holdings bought millions of shares in Centennial Resource Development (NYSE: CDEV). The Riverstone entities own 31.7 percent of Centennial.

-    BP (NYSE: BP) said it would cut its leadership in half, cutting senior management from 250 down to 120. “We expect the reinvented bp to be smaller and nimbler. We have already started by removing a layer of management at Tier 1 and 2,” BP CEO Bernard Looney said in an email to staff.

Tuesday May 26, 2020

Oil prices continue to show positive momentum as the oil market appears set to rebalance faster than expected. Rystad estimates that the market was 16 mb/d oversupplied in April. But by June, 4 mb/d in demand will come back and supply cuts of 12 mb/d will move the market back to an equilibrium, although at much lower levels compared to the pre-pandemic era.

U.S. shale permanently damaged? “February was peak shale,” Daniel Yergin, vice chairman of IHS Markit, told the WSJ. Already struggling with a poor track record of profits, U.S. shale may not rebound to previous levels for years, if ever. More than 70 companies could file for bankruptcy this year at $30 WTI.

Demand on the upswing. Roughly 4.1 billion people went into lockdown at its peak, but more than 90 percent of them live in areas that have seen some sort of a reopening. Driving activity and gasoline demand are rising, boosting bullish sentiment.

Peak demand looms as threat to Russia. Russia’s economy could be in for years of stagnation as demand for its oil and gas may begin to wane, according to a new study. The study says that Russia’s economy could be destined to grow at below 1 percent for two decades, absent economic diversification. “The rents that we enjoyed for the last 20 years will never come back,” Alexei Kudrin, former finance minister and now a top government auditor, warned in an article, Bloomberg reports.

Russia opens door to post-June cuts. Russia is considering extending the OPEC+ production cuts beyond June.

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IEA: No peak demand yet. The IEA said that oil demand has not yet peaked. “In the absence of strong government policies, a sustained economic recovery and low oil prices are likely to take global oil demand back to where it was, and beyond,” the IEA’s Fatih Birol told Bloomberg.

Qatar pursues LNG expansion. Qatar is moving forward with the development of the largest gas field on the planet. “The North Field expansion project is moving full steam ahead, no delay there. The only issue is because of COVID and suppliers and so on,” said Saad al-Kaabi, Qatar’s energy minister. “In my view, you continue your plan and invest in the bad times because these projects are long term.” The project will increase Qatar’s production capacity from 77m tonnes of LNG per annum to 110m by 2025, the FT said.

Global LNG downturn. The glut of LNG worldwide could put the next phase of liquefaction plants on ice. “We don’t see any additional North American export capacity getting sanctioned in the next decade,” Ross Wyeno, an LNG analyst at S&P Global Platts, told the Financial Times. The glut could last until the mid- to late-2020s, according to analysts. Qatar’s decision to continue to expand export capacity edges out any other competitor in the near-term.

Covid-19 spreads in Brazil’s oil fields. At least five oil companies have reported coronavirus cases among their workforces in Brazil, including Equinor (NYSE: EQNR) and Royal Dutch Shell (NYSE: RDS.A). Brazil now ranks second in the world for the number of positive cases, and there are at least 544 known cases in Brazil’s offshore oil fields.

U.S. air traffic picking up. While still a fraction of pre-pandemic levels, TSA data shows that passenger throughput at U.S. airports is increasing. On May 25, more than 340,000 people passed through American airports, nearly triple the low levels seen in April. But that number still stands at about 15 percent of year-ago levels.

Iranian tankers arrive in Venezuela. Despite threats from Washington, five Iranian tankers carrying gasoline arrive in Venezuela.

Gap between physical oil and contracts shrinks. In a sign of a tightening market, the price between physical oil and the Brent contract has narrowed in recent weeks, after a huge gap in April. “A few weeks ago, we had armageddon pricing when nobody wanted physical barrels apart from for storage,” Richard Fullarton, chief investment officer at hedge fund Matilda Capital Management Ltd., told the WSJ.

U.S.-China tensions on the rise. Chinese President Xi Jingping said that China was preparing for a worst-case scenario of war. Tensions with the U.S. are on the rise and many geopolitical analysts have predicted a new Cold War appears all but inevitable. But is a hot war possible?

Rural economies hit by dwindling oil revenues. Royalty checks to landowners are falling because of low oil prices and the collapse of drilling.