Oil Bears Are Back As Demand Fears Go Viral

January 24, 2020//-WTI fell below $55 per barrel in early trading on Friday, and Brent was testing the $60-per-barrel threshold. Pessimism is back, and there is a danger of prices sliding further.
Saudi Arabia says “all options are open” at March meeting. Saudi energy minister said that all options are on the table for the March meeting, hinting at further production cuts to head off another market meltdown.

EIA: Drilling slowing. The latest EIA Drilling Productivity Report estimates oil production growth of just 22,000 bpd in February, a much slower pace than usual.

Production gains of 45,000 bpd in the Permian are to be offset by declines of 16,000 bpd in the Anadarko, along with smaller declines in the Eagle Ford and Niobrara. Gas output is set to grow slightly, with Permian gains offset by larger declines in Appalachia, Anadarko and Niobrara.

Impact of coronavirus grows. Earlier this week, Goldman Sachs estimated that the coronavirus in China could shave off $3 from the price of oil. But the impact appears to be growing.

China has quarantined Wuhan, a city of 11 million people. The travel restrictions were expanded on Friday, now affecting at least 35 million people. The virus helped drag down crude oil prices this week.

U.S. natural gas production may sink for first time. Aside from a hiatus during the 2016 market downturn, U.S. natural gas output has been growing for a decade. That may be coming to an end as prices plunge below $2/MMBtu. BloombergNEF data shows that gas well completions have fallen to their lowest level since the second quarter.

Global LNG prices collapse. LNG prices are on track to hit an all-time low in Asia later this summer. Gas is also at its weakest seasonally in the U.S. and Europe since the late 1990s.

“There’s a surplus already in the U.S. and Europe. And the mild winter in Asia means another surplus is building up there,” Marco Dunand, chief executive officer of trading house Mercuria Energy Group Ltd., told Bloomberg. Torbjorn Tornqvist, chief executive officer of Gunvor Group Ltd., said U.S. LNG exporters are 50 cents away from shutdowns.

Energy bankruptcies pile up. The North American oil and gas sector has seen more than 200 bankruptcies since 2015, a figure that could continue to climb this year. Roughly $40 billion in debt matures this year, posing a problem for companies struggling under high debt and having trouble finding access to fresh capital.

Radioactive brine a growing problem. Several new investigations this week highlight the problem of radioactivity in the brine that comes out of oil and gas wells. An expansive piece in Rolling Stone illustrates how pervasive the issue is and how little the public knows about it.

Another in Grist looks at how the industry faces a different set of rules on handling wastewater between the eastern and western United States. The Trump administration is trying to loosen rules in the east. Another in DeSmog looks at the history – that the industry has known about the problem for about 40 years.

LNG export terminals have CO2 impact rivaling coal. LNG is often depicted as innocuous, with gas helping to wean the world off coal. But new data suggests that LNG export terminals themselves have carbon footprints rivaling coal.

Kinder Morgan takes $1 billion write-down. Kinder Morgan (NYSE: KMI) took a $1 billion impairment in the fourth quarter, related to a gas pipeline in Wyoming.

Interior authorizes construction of Keystone XL. The U.S. Department of Interior authorized the construction of TC Energy’s (NYSE: TRP) Keystone XL pipeline across federal land in Montana, an important step for the project. Still, the pipeline faces other legal challenges in the state.

Arizona utility going carbon-free by 2050. Arizona Public Service said it would become carbon-free by 2050, just two years after spending heavily to defeat a ballot measure that would have required the company to generate half of its electricity from renewables by 2030. Despite that ballot measure, the company now says it will aim for two-thirds renewables by 2030.

Climate change could set off financial crisis. A major report from the Bank of International Settlements, which is essentially a coalition of the world’s central banks, said that climate change could lead to a financial crisis. The report also said that central banks lack the tools to resolve a hypothetical financial crisis stemming from climate change.

Meanwhile, Senator Elizabeth Warren (D-MA) is requesting information from the country’s largest banks on their climate risks. Also, climate change was widely seen as one of the most important topics at the World Economic Forum in Davos, evidence that pressure is growing not just on the oil industry, but also on major financial institutions.

Tom Kool
Editor, Oilprice.com

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