Oil price discussion and analysis

[ducati916]

Saudi Arabia's sovereign-wealth fund has amassed stakes worth roughly $1 billion in four major European oil companies, according to people familiar with the matter, buying assets it perceives as undervalued in a market depressed by the coronavirus pandemic and low oil prices.

The stakes in Equinor ASA, Royal Dutch Shell PLC, Total SA and Eni SpA were all bought by the Public Investment Fund on the open market in recent weeks, said the people, who added that the fund may continue to make stock purchases.

"The PIF is getting active again in the market..I would not be surprised if we see similar deals again," said a Saudi official.

The investments mark a significant tactical shift for the roughly $300 billionPublic Investment Fund, tasked by Crown PrinceMohammed bin Salman with diversifying the country's economy away from oil by largely investing in companies and industries untethered to hydrocarbons.

The purchases also come at a precarious financial moment. Saudi Arabia's budget deficit is expected to widen this year as oil revenue falls and the kingdom increases spending to fund a stimulus package to combat economic damage caused by a countrywide coronavirus lockdown.

PIF bought a stake worth around $200 million in majority-state-owned Norwegian oil giant Equinor in the days around a sharp rally in oil prices last week. A Saudi-based nominee account with JPMorgan Chase & Co. accrued around 14.5 million shares -- or 0.43% of the total shares -- between March 30 and April 6, according to data from Oslo Market Solutions. The move made that account Equinor's 12th largest shareholder.

It couldn't be determined what size stakes PIF had bought in Royal Dutch Shell, Total and Eni, but people familiar with the investments said the combined stakes were worth about $1 billion.

Spokespeople from Equinor, Royal Dutch Shell, Eni and J.P. Morgan declined to comment while the Saudi Public Investment Fund and Total didn't respond to a request for comment.

The purchases came during a tumultuous few weeks in the oil markets. Petroleum prices have fallen nearly 30% since early March, when Saudi Arabia mounted a price war with Russia, but staged historic rallies last week.

U.S. crude oil notched its largest ever daily percentage gain last Thursday after President Trump and the Saudi regime expressed optimism about the possibility of a deal between the Organization of the Petroleum Exporting Countries and other oil-exporting nations to address a global oil glut.

The $300 billion Saudi sovereign-wealth fund is controlled by Prince Mohammed and run by Yasir al-Rumayyan -- who is also chairman of majority-state-owned Saudi Aramco. On Monday the fund disclosed an 8.2% stake in Carnival Corp., the world's largest cruise operator, whose shares have dropped more than 75% this year.

That investment came after high-profile deals in recent years, including a $3.5 billion stake in Uber Technologies Inc. and a $45 billion commitment to SoftBank Group Corp.'sVision Fund.

Stocks in the travel and energy sectors have been among those hammered by government-imposed lockdowns and travel bans motivated by the coronavirus pandemic. Equinor shares pared some of their heavy losses so far this year last week, but remain down 23% for 2020. Shares closed 0.3% lower at 135.80 Norwegian kroner Wednesday.

Shell, Total and Eni have respectively shed 35%, 31% and 33% of their value in 2020, while Brent crude, the global benchmark, is down 52%.

OPEC and other oil-producing countries including Russia are due to convene a teleconference Thursday, before the Group of 20 nations host an energy ministers meeting Friday to debate the conclusions of the OPEC+ meeting.

Write to David Hodari at David.Hodari@dowjones.com, Summer Said at summer.said@wsj.com and Rory Jones at rory.jones@wsj.com

(END) Dow Jones Newswires

April 08, 202018:00 ET (22:00 GMT)

jog on
duc

 

[ducati916]

jog on
duc

 

[Smurf1976]

So how far is demand down? I'll let the quotes do the talking since the numbers say it all really.

U.S. oil demand has now fallen to 14.4 million barrels a day, the lowest in data going back to 1990 and a drop of more than 30% from pre-crisis levels, government figures showed Wednesday.

Crude demand in the world’s third-biggest consumer has collapsed by as much as 70% as India......

In Spain, one of the countries hit worst by the disease, oil product demand fell by 23% in March

Italy - With the nation under strict restrictions of movement, retail fuel sales have plunged 85%, according to service station union estimates.

Sales of gasoline and diesel in the U.K. were down by 66% and 57%, respectively, as of March 31, according to the U.K. Petrol Retailers Association

https://www.bloomberg.com/news/arti...andemic-wiped-out-oil-demand-around-the-world

The article is also reproduced on this site: https://peakoil.com/consumption/how-the-pandemic-wiped-out-oil-demand-around-the-world

My conclusion is that any likely OPEC + Russia + US agreement is in practice unlikely to be sufficient to bring supply down to match demand. Depending on whose estimates you prefer, demand has dropped by 16 - 35 million barrels per day globally which is massive (pre-crisis demand was almost spot on 100 million barrels per day).

 

[ducati916]

This thread started considering 'Peak Oil' (in 2005). I was definitely in that camp. Wrong. The evidence (at the time) certainly seemed to support the thesis though. This argument pretty much carried through to 2009.





We had Barrons marking the top with a cover:



Then came the 'shale' oil, driven by high prices:



With currently shale going bust.

The truism of the commodity markets: the cure for high prices are high prices. The cure for low prices are low prices. Oil will bounce about, possibly (probably) going lower and if so, those low prices will destroy the ability to hold and maintain (control) low prices. This will set the scene for higher prices.

Currently the thesis seems to be that China's demand is already at peak. I doubt that. China wants to be the #1 economy in the world. To achieve that, cheap energy is the key. China never baulked at burning coal because it was cheap, China I doubt will worry about using oil if it is cheap, which will of course increase over time as its population increasingly uses oil based goods and services.


Economies are built on the cheap (est) source of energy.



Once the virus issue is resolved and economies start to function again, the current glut will resolve itself and pricing power will return to oil, particularly given the fact that a certain percentage of supply is likely incapacitated permanently.

jog on
duc

 

[ducati916]

News out over the long w/e:

OPEC+ agreed to the largest oil production cuts in history on Thursday, but oil prices crashed towards $20 as markets decided that a 10 million bpd cut was insufficient to balance the demand deficit. Today, the G20 will meet to discuss more cuts and more details will likely come out about the OPEC+ deal. Markets are closed today and so all eyes will be on developments over the weekend.

OPEC+ strike 10 mb/d deal, oil prices fall. OPEC+ agreed to joint cuts on the order of 10 mb/d, a historic agreement. The deal calls for both Saudi Arabia and Russia capping production at 8.5 mb/d for May and June, after which cuts would ease in phases – down to 8 mb/d and then to 6 mb/d of cuts. The deal was not received well by the markets, which sold off WTI and Brent over fears that the reductions are inadequate. “The supply and demand fundamentals are horrifying,” said OPEC Secretary-General Mohammed Barkindo.

G20 meets to chip in. OPEC+ is also looking for help from other non-OPEC countries in the G20. Mexico temporarily held up the OPEC+ deal because it does not want to cut. At the time of this writing, Mexico’s president said that he spoke with President Trump, who promised to contribute to the cuts on Mexico’s behalf. “First they asked us for 400,000, then 350,000” Mexico’s President Lopez Obrador said. Mexico was only able to cut by 100,000 barrels a day, and Trump “very generously expressed to me that they were going to help us with an additional 250,000 to what they are going to contribute. I thank him.”

Demand loss at 20-30 mb/d. The OPEC+ deal is historically large, but still insufficient to plug a 20 to 30 mb/d decline in demand. Inventories are set to rise in the coming months. “The proposed 10 million bpd cut by OPEC+ for May and June will keep the world from physically testing the limits of storage capacity and save prices from falling into a deep abyss, but it will still not restore the desired market balance,” Rystad Energy said.

jog on
duc

 

[ducati916]

So the 'majors' and oil look to breaking their correlation. This makes sense as the majors will survive (largely intact) the shakeout in the oil patch.



They are far from out of trouble, but, probably the worst is now behind them.

jog on
duc

 

[Smurf1976]

This thread started considering 'Peak Oil' (in 2005). I was definitely in that camp. Wrong. The evidence (at the time) certainly seemed to support the thesis though. This argument pretty much carried through to 2009.

A point often missed in that discussion was that reserves are not just a function of geology but also of politics and finance.

In defence of those who expected production to peak, nobody at the time would have accepted the idea of the Fed engaging in QE or having interest rates below 1% as credible. It would have been rejected outright as an incorrect input since it was not even remotely plausible in the mindset of someone from the 1950's - early 00's. Anyone spotting 1% in the calculations would have corrected that to 10% since obviously it was an error, nobody would buy a bond paying 1% that can't be right.....

Apply a pre-2008 financial environment to the oil industry and the chance that we'd have seen a peak in production becomes far more likely since an awful lot of what has been developed since then, US shale most notably, wouldn't have occurred in a world where finance costs 10% and companies don't survive long without making a profit.

I'm not saying there's a proven case there for an actual peak, but applying what would historically have been considered as a normal financial environment would almost certainly have seen lower production than has been the case.

 

[rederob]

This chart is a continuation from my post on 5 April:

WTI seems likely to break below support and fall through the sideways trend channel which has held for the past month.
It looks like demand destruction presently trumps production cuts.
The worst remains ahead of us.

 

[ducati916]

Just a snippet from the 'Spectator': https://spectator.us/saudi-arabia-oil-truce-greater-conflict-looms/

Then there is the prospect of Saudi-hating Joe Biden taking the White House in November. He has stated that he will stop selling arms to the kingdom and consider it a ‘pariah state’. The Saudis have started spending massively on Democratic lobbyists in Washington, but no amount of money is going to hide the fact that the Saudis effectively went to war against the US shale industry during the country’s biggest economic downturn since the 1930s. Whoever wins the presidential election in November, as the coronavirus peters out, a radical reassessment of US-Saudi relations seems inevitable.

jog on
duc

 

[qldfrog]

Just a snippet from the 'Spectator': https://spectator.us/saudi-arabia-oil-truce-greater-conflict-looms/

Then there is the prospect of Saudi-hating Joe Biden taking the White House in November. He has stated that he will stop selling arms to the kingdom and consider it a ‘pariah state’. The Saudis have started spending massively on Democratic lobbyists in Washington, but no amount of money is going to hide the fact that the Saudis effectively went to war against the US shale industry during the country’s biggest economic downturn since the 1930s. Whoever wins the presidential election in November, as the coronavirus peters out, a radical reassessment of US-Saudi relations seems inevitable.

jog on
duc

Interestingly, while the market was falling reasonably strongly in the us this morning, oil was one of the few green, even gold was down

 

[rederob]

Looks like support is proving to be something of a Maginot Line:

Smaller US LTO producers will be running out of cash at a rate of knots as it's now almost 6 weeks since WTI prices fell off a cliff.
The maths of reopening shut-in production does not look good until WTI is significantly over $60/bbl, and it's a long stretch seeing that happening this year.

 

[Smurf1976]

Looking at Australian consumption of petroleum products during February 2020 versus February 2019 for comparison shows only the beginnings of COVID-19 related change with aviation.

Government has only just released the February figures, that's the latest, so I'm posting it despite the limitations of timing. Next month's release, data for March, should be more useful.

All figures are year on year % change.

LPG (sold for automotive use) = +2.2%
LPG (all other uses) = +0.8%

Petrol (all normal consumer grades) = +1.2%

Diesel = +4.8%

Aviation turbine fuel (domestic) = -1.4%
Aviation turbine fuel (international) = -8.9%
Aviation gasoline (the fuel that small planes use) = -7.8%

Fuel oil (ships, industry) = -13.9%

Lubricants = -5.4%

All other products (chemicals, minor fuels such as heating oil and racing gasoline, agricultural spray oils, bitumen, direct burning of crude oil, etc) = -14.6%

Total all products = +1.1%

Note that this data is for Australia only.

Calculated by Smurf from data available at www.energy.gov.au

 

[Sdajii]

Smaller US LTO producers will be running out of cash at a rate of knots as it's now almost 6 weeks since WTI prices fell off a cliff.
The maths of reopening shut-in production does not look good until WTI is significantly over $60/bbl, and it's a long stretch seeing that happening this year.

This is definitely a crazy, unpredictable year, just about anything could happen, and I think $60+ WTI is definitely possible. With such a massive crash in prices, production is going to crash. We can be pretty sure about that much. If demand does return (a very big if, absolutely), it's easy to imagine the POO utterly skyrocketing beyond $60. Of course, it's also easy to imagine getting to 2021 with planeless skies and a world full of people going crazy with cabin fever, wishing they could take advantage of the dirt cheap fuel but only being able to use it to drive to the nearest shop for some toilet paper.

If we were sitting in lockdown for the next 4 months (enough for production to be wiped out) and then suddenly there was a medical miracle curing the virus, allowing us all to be free again quite suddenly, $100+ before the end of the year wouldn't be surprising. Unfortunately I don't see that medical miracle coming, but sooner or later we'll hopefully be let out!

 

[ducati916]

1. This is definitely a crazy, unpredictable year, just about anything could happen, and I think $60+ WTI is definitely possible.

2. With such a massive crash in prices, production is going to crash. We can be pretty sure about that much. If demand does return (a very big if, absolutely), it's easy to imagine the POO utterly skyrocketing beyond $60.

3. Of course, it's also easy to imagine getting to 2021 with planeless skies and a world full of people going crazy with cabin fever, wishing they could take advantage of the dirt cheap fuel but only being able to use it to drive to the nearest shop for some toilet paper.

4. If we were sitting in lockdown for the next 4 months (enough for production to be wiped out) and then suddenly there was a medical miracle curing the virus, allowing us all to be free again quite suddenly, $100+ before the end of the year wouldn't be surprising. Unfortunately I don't see that medical miracle coming, but sooner or later we'll hopefully be let out!

1. Certainly the (a) COVID-19 issue and (b) the oil war were two unforeseen events (at least by me).

2. The cure for low prices, are low prices. Demand will return. Some supply will never return. Hence, depending on just how much supply is lost permanently, will determine just how high prices will spike. Predictions are always prone to error but $60+ seems pretty reasonable as an estimate given the damage that is being currently incurred.

3. Very unlikely and almost 'impossible'. Economic (permanent or extended) shutdown is essentially suicide. The few (if necessary) will be sacrificed for the many.

4. Possibly (probably) higher.

jog on
duc

 

[rederob]

Rystad see a demand uptick occurring from May.
That is consistent with many nations flagging a relaxation of lockdown arrangements.
Nevertheless, on the basis of their data that's still about 300Mbbls of excess production in May alone, based on agreed oil production cuts going ahead.


To date, excess production that's gone directly into storage would sustain normal global demand for around 15 days. We need to find the pivot point; ie where present low cost production cannot satisfy demand.
After that point there will be a balancing act between storage and production to meet demand, so this means oil in the $20 ballpark is possible for a few more months.
Should that be the case, my reckoning is that US LTO will have shut in a lot of their supply potential, so at some point there will be a sharp breakout as the shortfall will be met from storage that might not cope due to physical constraints.
Oil storage costs have many variables - onshore, at terminal, tanker, cavern - but a safe ballpark figure is 50cents/bbl/month, so we have a fundamental price driver as the oversupply situation drags out.

 

[ducati916]

Well currently WTI up 33%



jog on
duc

 

[peter2]

I see that also, but it must be wrong. I'm not seeing that in other charts nor has OOO moved up.

 

[ducati916]

I see that also, but it must be wrong. I'm not seeing that in other charts nor has OOO moved up.

True. Just been looking also, could well be an error. It was after all, the sign of the beast!

jog on
duc

 

[rederob]

Well currently WTI up 33%

Not according to Oil Price and other sites:

 

[peter2]

Looks like finviz has jumped to the next month futures contract without any adjustment yet.



Thanks to @InsvestoBoy for the alert.