March 17, 2020

March 17, 2020
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  • WTI is down 13c to $28.57/Bbl, and Brent is down 54c to $29.51/Bbl
  • The WTI Midland to WTI trade-month spread for the May contract has shifted dramatically over the past few weeks
    • The spread hit a low of -$2.53/Bbl on Monday, nearly a $4 move from the recent high of +$1.40 in early March
    • The price move is consistent with a decline in demand for Permian barrels
    • Further evidence that U.S. barrels are not being sought by international markets is the WTI-Brent spread at near parity, or zero. This implies future crude oil exports from the U.S. Gulf Coast could be uneconomical
  • Over 12 U.S. Republican senators wrote to Saudi Crown Prince Mohammed bin Salman to urge him to cool tensions in the oil market while the world economy is being hit by the viral outbreak (Bloomberg)
    • The senators wrote “It was greatly concerning to see guidance from the Kingdom’s energy minister to lower crude oil prices and boost output capacity”
  • Many analysts continue to lower their 2020 outlook for crude oil prices as global quarantine’s hit demand
    • Goldman slashed its 2Q Brent oil forecast to $20/Bbl from $30/Bbl previously (Bloomberg)
    • The Investment bank says oil demand is now down 8 MMBbl/d
    • Increased supply from producers and demand losses means the market will see a surplus of 7 MMBbl/d in April/May, according to the bank
  • Natural gas is down 2.6c to $1.789/MMBtu
  • Concho Resources announced they will be reducing capital expenditures by 25% to $2.6 to $2.8 Billion
    • Pioneer Natural Resources will be reducing their total rig count from 22 to 11, as they reduce capital expenditures by 45% to a range of $1.6 and $1.8 Billion
    • Hess will be reducing capital expenditures from $3 Billion to $2.2 Billion
    • Exxon has also announced plans to “significantly reduce capital and operating expenses in the near term,” according to their CEO
  • According to the Oxford Institute for Energy Studies, LNG sellers may choose to work with buyers to either defer or divert LNG cargoes in order to avoid force majeure cases
    • Rejecting a force majeure opens both sides up to additional costs and the possibility for arbitration, while accepting it incentivizes other buyers to enact their own force majeure
    • Working with buyers to divert or defer cargoes could be crucial in ensuring an efficient LNG market as high stocks around the globe, especially entering a coronavirus-impacted shoulder season, make finding new buyers more difficult
    • U.S. LNG feed gas demand for the day currently stands at 8.8 Bcf

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