Factbox: Crude prices fall as market skeptical on OPEC+ meeting outcome

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Crude prices fell Tuesday as traders were skeptical that Thursday’s scheduled OPEC+ meeting would result in output cuts large enough to compensate for the drop in global oil demand caused by the coronavirus pandemic.

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WTI at Cushing, Oklahoma, fell $2.45 to be assessed by S&P Global Platts at $23.63/b, while WTI at Midland, Texas, in the Permian Basin, fell $4.50 to be assessed at $16.88/b.

Global crude demand destruction is expected to peak at around 20 million b/d and any OPEC+ deal would not remove much more than 10 million b/d, according to market observers.

An emergency meeting of the G20 energy ministers is slated for Friday for other countries to discuss how much they might be willing to scale back crude production.

Data shows a significant increase in output to work through. OPEC’s core Persian Gulf countries of Saudi Arabia, the UAE and Kuwait contributed to pump a three-month high of 28.97 million b/d in March, with several members busting their production quotas, even though they were not set to expire until the end of the month, an S&P Global Platts survey found.

Also, US President Donald Trump has refused to commit the US to any deal, saying those crude production declines are coming naturally from the crash in oil prices.

Producers continue to cut spending and production in response to low prices. The company founded by arguably Trump’s staunchest energy ally, Continental Resources, said Tuesday it is cutting its production volumes 30% for now.

Also Tuesday, the largest US energy giant, ExxonMobil, said it would cut its 2020 capital spending by $10 billion, or 30%, following cuts announced by dozens of other companies.

But current output cuts are not deep enough.

“Depending on how fast storage fills, particularly at Cushing, Oklahoma, and at the US Gulf Coast, and what other countries (including OPEC+) do, the US may have to curtail volumes as high as 5 million b/d for the next three months since conventional measures may not be enough,” said S&P Global Platts Analytics analysts Rene Santos and Parker Fawcett.

A 55% decline in US shale rigs results in a gradual decline in production, of just 700,000 b/d by December 2020 and around 2 million b/d by December 2021, the analysts said.

“Ceasing all US shale drilling and completion activity (very unfeasible and unlikely) also does not get us there,” they said.

“Only significant curtailment from existing production would fill the gap,” they said.

Analytics expects global oil demand to contract by 4.5 million b/d in 2020, down from a projected growth of 1.3 million b/d at the start of the year.



** West Texas Intermediate at Midland, Texas, was assessed by S&P Global Platts at $16.88/b Tuesday, up from $10.09/b March 30, but down $40.84/b from January 20, when commodities markets first began reacting to the virus.

** Western Canadian Select at Hardisty, Alberta was assessed at $10.04/b Thursday, up from $8.03/b April 1, but down from $35.24/b January 20.

Atlantic Basin physical crude price differentials are weakening because of the refinery run cuts, with West African Djeno crude, for instance, assessed at a $7.50/b discount to Brent Tuesday, down from a $1.50/b discount March 2.

** Market participants expect Saudi Aramco could cut price differentials even further for its crude grades flowing east by $2-$3/b this month based on plunging demand and the sharp drop in underlying reference markers for Middle East crudes in Asia.


** Jet fuel prices have been hammered by the reduction in air travel. Scheduled airline global flying capacity for the week beginning April 6 has fallen by 23% on the week to under 40 million seats compared with around 105 million in mid-January, data from digital flight information provider OAG showed.

** The Singapore jet crack spread against Brent ended Tuesday at minus $4.51/b, down from $11.34/b January 20.

** The Rotterdam jet fuel crack against Brent ended Tuesday at minus $4.03/b, down from $14.17/b January 20.

** The New York Harbor jet crack against Brent ended Tuesday at minus $1.99/b, down from $14.19/b January 20.


** The June NYMEX RBOB crack spread vs. ICE Brent ended Tuesday at around minus $2.07/b, rising from minus $6.29/b March 23 as refiners have cut runs, but down from $12.25/b one month ago.

** Gasoline demand is likely to remain weak in coming weeks as government stay-at-home orders, aimed at slowing the nationwide pandemic, keep the vast majority of non-essential workers at home

** The June NYMEX ULSD crack vs. ICE Brent ended Tuesday at $12.27/b, holding up as trucking has been considered an “essential service,” leaving it largely unscathed by the ever-expanding lockdown orders. Truck travel represents around 70% of all diesel demand this time of year, according to Platts Analytics.



** With Saudi Arabia and Russia in a pricing war to flood the market with cheap crude, and refiners cutting runs on low demand, the crude contango has widened, encouraging global inventory builds.

** S&P Global Platts Analytics estimated there was potential storage capacity for crude, oil products and NGLs of 1.4 billion barrels, made up of about 1 billion barrels on land and 400 million barrels at sea. Tanks have filled up rapidly since January, growing by almost 1 billion barrels, and is set to hit 1.3 billion barrels by the end of the month.

** With land options running out, the race to secure floating storage has picked up significantly in recent weeks, with up to 40 VLCCs and 20 Suezmaxes already placed on long-term chartering, according to S&P Global Platts estimates.

** Gray Oak pipeline, the newest of the crude pipelines to carry Permian and Eagle Ford crude to the US Gulf Coast, filed with regulators for permission to accommodate on-system storage as both domestic and export demand for the crude collapses.

** US commercial crude stocks are expected to rise 8.4 million barrels to around 477.6 million barrels during the week ended April 3, analysts surveyed by Platts said. The build would put inventories around 0.9% above the five-year average of US Energy Information Administration data.

** After Democrats in Congress blocked efforts to buy US crude for the Strategic Petroleum Reserve, the Department of Energy announced Thursday that it was making 30 million barrels of space available for US producers to store crude. The DOE said it would make an additional 47 million barrels of storage space, accounting for the remainder of its total capacity, available at a later date.

** Over the next few months, Platts Analytics sees global “massive” crude stock builds of 500 million barrels in its best-case scenario, compared with the 1 billion-barrel build in its worst-case scenario, relative to end-February levels.

** A record 11.1 million barrels of LOOP Sour Crude oil storage was auctioned Tuesday, auction platform operator Matrix Markets said. During the monthly online auction, 11,100 capacity allocation contracts, spanning from front-month May though the third quarter of 2021, were sold. Prices for prompt months, including May and June, were at 55 cents/b, while prices for July through August ranged between 25 cents/b and 27 cents/b.

** Saudi oil giant Saudi Aramco is moving a substantial amount of its crude to storage caverns in Rotterdam in the Netherlands and Sidi Kerir in Egypt. Around 800,000 b/d to 1 million b/d — or 10-15% — of Saudi crude exports has recently traveled to Europe, with France, the Netherlands, Poland, Greece and Spain making up the key demand hubs, according to S&P Global Platts estimates.

Crude output and sales

** OPEC, Russia and nine other allies plan to hold a virtual summit Thursday to finalize a deal, and additional invitations have been sent to the US, Canada, Brazil, Colombia, Ecuador, Argentina, Trinidad & Tobago, Egypt, Chad, Indonesia, Norway and the UK.

** OPEC’s core Gulf countries of Saudi Arabia, the UAE and Kuwait appear to have wasted no time in ramping up their crude production, contributing to OPEC pumping a three-month high of 28.97 million b/d in March, with several members busting their production quotas even though they were not set to expire until the end of the month, an S&P Global Platts survey found.

** Hopes that the world’s largest producer, the US, will participate grow fainter by the day. US officials declined to comment Tuesday, but a White House source said no one from the Trump administration was expected to attend the OPEC+ meeting.

** A formal US cut could potentially come from Texas, with the Texas Railroad Commission, which regulates the oil sector and has a meeting scheduled for April 14 to discuss mandatory production cuts in the state. But commissioners have said they would only consider such measures if they are part of a coordinated global effort, and even then there is a lot of dissension on the topic in the state and energy sector.

** Plunging oil demand and dwindling storage options — not any supply-cut coordination with Saudi Arabia and Russia — will force US producers to voluntarily cut output by about 30%-35%, Harold Hamm, Continental Resources executive chairman, said in an interview Monday.

** The US Energy Information Administration on Tuesday cut its US oil output forecast by 1.23 million b/d to 11.76 million b/d for 2020 and by 1.63 million to 11.03 million b/d for 2021.

** More than 25% of the world’s crude supplies have cash costs greater than $15/b, and that is not counting the up-front capital costs, so barrels are going to come off the market deal or no deal, according to a Raymond James report.

** Petroecuador has declared force majeure on crude exports and oil product imports because maritime operations at the company’s terminals have been affected by Ecuador’s state of emergency due to the coronavirus pandemic. Petroecuador ships an average of 6 million barrels of Oriente and 5 million barrels of Napo on a monthly basis.

** The return of Chinese crude purchases may be a bright spot for US crude exporters, at least temporarily. Platts trade-flow software cFlow data shows a 2 million-barrel cargo loading at the Louisiana Offshore Oil Port on March 31 for transit to China, the largest monthly volume of US crude heading to China since September 2019.

** Argentina’s YPF offered a rare 1 million-barrel cargo of Canadon Seco crude for April loading, and a 1 million-barrel cargo of Medanito for April loading. YPF has cut refinery runs on low demand, and is thus offering Canadon Seco crude for export for the first time in 20 years.



** Global producers have announced spending cuts and reduced operations because of low prices, with the bulk of the cuts coming from North America.

More than 1 million b/d shut-ins at the wellhead, nearly all in the price-sensitive US shale sector, have already been announced with spending and rig counts dropping daily.

** ExxonMobil said Tuesday it will slash its 2020 capital spending by $10 billion as North America’s largest energy company cuts its bottom line deeper than the other integrated oil majors around the world.

** Oklahoma oil producer Continental Resources aims to reduce its production volumes by 30% in April and May.

** The cuts have begun to materialize in weekly rig activity. The US oil and gas rig count fell 45 last week to 721, rig data provider Enverus said Thursday. That followed an even steeper plunge of 47 last week.

** Mexican President Andres Manuel Lopez Obrador said his government will grant a tax cut worth 65 billion pesos ($2.6 billion) to state-controlled Pemex in order to cope with the impacts of the coronavirus pandemic and the collapse of the international oil price.

** Brazil’s National Petroleum Agency, or ANP, has suspended the 17th bid round sale of oil and natural gas exploration and production concessions scheduled for the second half of 2020. The round was expected to include 128 offshore blocks located in deep or ultra-deep waters of the Campos, Para-Maranhao, Pelotas, Potiguar and Santos basins.

** A plunge in prices has slashed the profit potential for oil production in Argentina, raising concerns that a cutback in investment could stymie the development of Vaca Muerta, its biggest shale play — and one of the largest in the world.


** Global refiners have slashed runs in response to lower demand for transportation fuels. Platts Analytics expects second quarter runs to be 10 million b/d lower in 2020 than in 2019.

** Platts Analytics expects 2.25 million b/d of US run cuts will occur in early April, but sees European refining outages lessening slightly in the week ended April 10 to 1.8 million b/d compared with the record high level of 2.2 million b/d in the week ended March 27.

** POET will shut down three ethanol plants and delay the startup of a fourth due to the worsening economic conditions caused by the coronavirus pandemic, the company said Tuesday. The company will idle production at plants in Chancellor, South Dakota, and Ashton and Coon Rapids, Iowa. The startup of its new facility in Shelbyville, Indiana, will be delayed.

** Fujairah port, the Middle East’s crude products storage and trading hub, put plans on hold to expand its storage capacity because of slumping global economy. Fujairah, which currently has crude and oil products storage capacity exceeding 10 million cu m, had plans to reach up to 16 million cu m in 2023.

** Japanese refiners are considering cutting operating rates further in April – despite the rate in March falling to the typical turnaround level before the maintenance season has started.