Oil’s surge continues as 10% global production cut gains traction

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Category : News , Production

By Sharon Cho and Alex Longley on 4/3/2020

SINGAPORE (Bloomberg) –Oil advanced above $32 a barrel in London as OPEC+ scheduled an urgent meeting next week to try and stem the crude market’s rout, with an output cut of 10% of global production being discussed.

The coalition will hold a meeting of its members by video conference on Monday. It will be open to all producers — not just members of the Organization of Petroleum Exporting Countries or its allies — though it’s still not clear who will attend, according to delegates. A delegate said a global cut of 10 million barrels a day is a realistic goal. Every corner of the market has rallied from timespreads used to gauge market health, to key North Sea swaps.

Possible output cuts were first touted on Thursday by U.S President Donald Trump on Twitter, which prompted a surge in the markets. Some of those gains — as much as $10 at one point — have subsequently ebbed away, with even a cut of 10 million barrels a day still just a fraction of the 35 million barrels of daily demand destruction some traders now see. Citigroup Inc. and Goldman Sachs Group Inc. have argued any supply deal would anyway be too little, too late as demand craters due to efforts to stem the coronavirus.

 “There does appear to finally be collective acceptance that the market is in such an extraordinary state of oversupply that coordinated action is needed,” said Callum Macpherson, head of commodities at Investec. “Given how difficult it is for OPEC+ to agree on a position, how they will manage to successfully coordinate with the U.S and other countries remains to be seen.”

Prices:

  • Brent rose $2.50 or 8.3%, to $32.44 a barrel as of 10:48 a.m. in London
  • West Texas Intermediate rose 4.2% to $26.37 a barrel
  • Brent’s premium to WTI surged by $1.96 to $3.83

The guest list of Monday’s meeting will be crucial as Saudi Arabia has made clear it will only cut production if others, including the U.S., shoulder some of the burden. While Trump tweeted Thursday that he had spoken to Saudi Crown Prince Mohammed bin Salman, who had in turn spoken with the Russian president, a person familiar with the situation said the U.S. president’s goal is purely aspirational and will ultimately hinge on whether Riyadh and Moscow can reach a deal.

The meeting will come as the physical market pressures producers into action. Belarus said Russian companies are offering Urals oil for $4 a barrel. Crude in the Bakken region of the U.S. is still only worth $12 a barrel.

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OPEC+ members seek to broaden coalition in output cut plan

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Category : News , Production

By Grant Smith and Javier Blas on 4/3/2020

LONDON (Bloomberg) –The OPEC+ coalition is pushing for other major oil producers to join it in a deep reduction of global crude output to stem the historic rout in prices.

A global cut of 10 million barrels a day is a realistic goal, according to a delegate, who spoke on condition of anonymity. OPEC+, an alliance led by Saudi Arabia and Russia, has already scheduled a virtual meeting on Monday and wants other nations to join talks as soon as possible.

The 10 million figure was first touted by President Donald Trump on Thursday, who called for a coordinated production cut. He made no indication whether the U.S. would take part. For Saudi Arabia, it’s essential that producers including the Americans join in.

Trump is meeting oil executives later on Friday.

There are enormous obstacles to any deal. Russia was quick to deny on Thursday that any agreement had been reached. Even if an accord can be struck, a cut of 10 million barrels would barely dent the glut of oil that has been created by the economic fallout of the coronavirus pandemic. Traders estimate the lost demand could be as high as 35 million barrels.

Oil Jumps. Brent crude, which jumped more than 40% on Thursday after Trump’s announcement before paring gains, rose 11% on Friday. It’s still down 50% this year as the virus fight grounds planes and shutters huge swaths of the global economy.

In some corners of the market, physical prices have gone negative and some producers are expected to start suspending output as there’s not enough space to store the excess crude. Tankers have filled up fast as ships are being used as storage rather than transport.

Oil-producing nations around the world are feeling the pain of the price war, which started a month ago after Russia refused to take part in a round of cuts. Saudi Arabia aggressively discounted its crude days later, in a move to seize customers from Russia’s traditional markets.

Shale producers in the U.S. are struggling and national finances are under pressure. Russia, for example, is now expecting oil prices at $20 a barrel this year and will ramp up borrowing to make up for a budget shortfall.

Saudi Arabia will also have to make deep budget cuts as oil accounts for the vast majority of its revenue. The kingdom’s next move in the price war could come as soon as Sunday, when it sets official prices for its crude exports. The operation could be postponed, however — as it was last month — to avoid prejudicing the Monday meeting.

Washington’s Options. Trump will meet on Friday oil executives, who are battling among themselves as to what the administration should do.

The White House has considered tariffs on foreign oil imports to protect U.S. producers, though the idea is opposed by some top Trump advisers led by Larry Kudlow, the director of the National Economic Council, according to people familiar with the matter.

The idea of a U.S. production cut, probably executed by capping exports, is also on the table at the White House, though many oil industry representatives have warned that the approach would cause the U.S. to cede the very “energy dominance” Trump has repeatedly celebrated.

Trump said on Thursday he expected a deal — but made no mention of any role for the U.S.

“It would be great for Russia, it would be great for Saudi Arabia — I hope they make that deal but that’s what they told me,” he said. “Can something happen where it doesn’t happen? I guess? In which case there’s another alternative, but I’d rather not see the other alternative.”

In his tweet, Trump said he had spoken to Crown Prince Mohammad bin Salman, who had in turn spoken with Russian President Vladimir Putin. But a Kremlin spokesman, Dmitry Peskov, said the conversation hadn’t happened and that no production cut had been agreed to with the Saudis.

Russia hasn’t yet confirmed its attendance at the OPEC+ meeting, according to one delegate. But Russia has long said it’s open to talks, and the industry may find itself forced into production cuts anyway because of the slump in demand, potentially bolstering the case for a coordinated response.

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Cryopeak LNG Solutions breaks ground on new LNG production facility

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Category : News , Production

4/3/2020

RICHMOND, BRITISH COLUMBIA – Cryopeak LNG Solutions Corporation, based in Richmond BC, has begun construction of a new LNG production facility located in Fort Nelson, BC, capable of producing up to 90,000 gallons of LNG per day. Cryopeak’s new LNG facility is the first fully funded and permitted LNG production facility in the Fort Nelson area.

The production facility will be the closest LNG production point to northern Canada and portions of Alaska. A key feature of the plant design incorporates a new truck loading system that optimizes loading of Cryopeak’s fleet of LNG Super-B tankers. The plant will be modular in its design with minimal installation requirements at site.

“We are excited to now have permits in hand and shovels in the ground,” says Calum McClure, CEO of Cryopeak.

This project marks an important breakthrough for energy supply to Northern Canada. It allows communities and remote industries to secure a lower cost and a more environmentally sustainable fuel source.

Business opportunities for local construction workers, service companies, and operations personnel will become available for the construction of the facility, and for the distribution of LNG to Northern Canada from a new transportation hub, located within the municipality of Fort Nelson. Cryopeak is partnering with Fort Nelson First Nations to develop business opportunities associated with the project.

As the leading LNG provider in Yukon, BC and the Northwest Territories, and the turnkey developer of the project, Cryopeak has selected CryoSys, LLC for the liquefaction equipment to produce the LNG. 

“We are delighted to have been awarded this contract to deliver the liquefaction package to Cryopeak’s LNG facility in Northern BC,” said Neil Karr, president of CryoSys. “Our highly efficient optimized mixed refrigerant process and our ability to package the modular liquefaction plant in our workshop allows us to provide the lowest installation and operating costs for a small-scale LNG plant in the LNG marketplace.”

Karr said the equipment will be delivered to Cryopeak in early summer.

This project is in line with Cryopeak’s strategy of being a vertically integrated and full-service provider of LNG to Northern Canada and Alaska. The company is focused on providing customers a lower cost, more environmentally sustainable fuel source.

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Putin to meet Russian producers ready to agree on oil cuts

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Category : News , Oil Prices

By Irina Reznik, Olga Tanas and Henry Meyer on 4/3/2020

MOSCOW (Bloomberg) –Russia’s oil industry is ready to agree cuts to production together with Saudi Arabia and other major producers in a desperate bid to halt the slide in prices, according to five people familiar with the efforts.

While the Kremlin hasn’t confirmed a willingness to take part in reducing crude output by 10 million barrels a day, as announced by U.S. President Donald Trump Thursday in a Tweet that drove oil prices up as much as 47%, the Russian producers are ready for coordinated action, said the people, who spoke on condition of anonymity because the matter isn’t yet public. President Vladimir Putin will meet oil executives and officials to discuss the situation on the world energy markets later on Friday, the Kremlin said.

The Russian reversal reflects alarm at the sudden collapse in demand sparked by the coronavirus pandemic, which threatens a worldwide recession this year. As recently as two weeks ago, Putin was resisting any concessions in the stand-off with Saudi Arabia since Moscow pulled out of a supply-limit agreement with OPEC over demands for deeper cuts in output. That prompted Saudi Arabia to flood the market with oil, driving prices to an almost two-decade low amid a glut in supply because of a sharp fall-off in consumption.

Russia and Saudi Arabia could reach a deal to restrict production at the OPEC+ meeting scheduled for April 6 aimed at increasing prices to $30 dollars, according to Andrey Kortunov, director of the Kremlin-founded Russian International Affairs Council. “Thirty dollars would be a lot better than twenty,” he said. “No one here expected oil prices to plunge so deeply.”

Rock Bottom. At the same time, it’s important that the U.S., the world’s largest oil producer, should participate, he said. Even if formally the Trump administration can’t commit to private companies scaling back output, it should facilitate that, said Kortunov. The rock-bottom prices have devastated U.S. oil producers, making swathes of the industry uneconomic. Trump is meeting industry officials Friday.

Russia may agree to a three-way arrangement with Saudi Arabia and the U.S., said four people at Russian oil producers. The Energy Ministry didn’t immediately respond to a request for comment. The Kremlin referred questions to the Energy Ministry.

The OPEC+ coalition wants oil producers outside the existing group to attend next week’s meeting, a delegate said, asking not to be named talking about confidential discussions. If global producers are willing to participate, a cut of 10 million barrels a day is realistic, the delegate said.

Saudi Arabia, which was producing around 9.7 million barrels a day before the collapse of the OPEC+ agreement on March 6, had vowed to pump 12 million barrels a day in April, giving it the ability to instantly cut almost three million barrels.

Difficult Times. Russia produced an average of 11.294 million barrels of crude oil and condensate in March, according to the Energy Ministry’s CDU-TEK data published earlier this week. While officials insist that Russian crude remains competitive even at such low oil prices, the plunging demand risks anyway sapping the ability to keep pumping at the same levels.

Economically, the impact of coronavirus is already wreaking such havoc that any oil deal will at best mitigate the damage. Russia is rewriting its budget to prepare for oil prices at $20 a barrel, according to people familiar with the discussions. Russia will ramp up borrowing by 1 trillion-1.5 trillion rubles ($13-19 billion) this year as a result, they said.

“If the forecasts of a 15-20 million barrel reduction in demand turn out to be right, then no production cut will help raise oil prices,” said Kirill Tremasov, head of research at Loko-Invest in Moscow and a former Economy Ministry official. “The Russian government is doing the right thing, preparing for difficult times and a low oil prices. There are no other options.”

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Oil continues climb on hopes for global agreement on output cut

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Category : News , Oil Prices

By Catherine Ngai and Alex Longley on 4/3/2020

NEW YORK (Bloomberg) –Oil extended its biggest-ever surge in New York, though the advance was tempered by skepticism over whether a producer meeting Monday would deliver output cuts large enough to avert a glut.

The OPEC+ coalition including Saudi Arabia will hold a meeting of its members by video conference on Monday, with the gathering open to even producers outside the group. While it’s unclear who will attend, market watchers are predicting that stockpiles are likely to swell even with a cut of 10 million barrels a day in global supplies.

Investors will be closing watching the guest list of the meeting — especially names outside the Organization of Petroleum Exporting Countries and its allies — after Saudi Arabia made clear it will only cut production if others, including the U.S., shoulder some of the burden.

U.S. West Texas Intermediate futures rose as much as 13% Friday, before paring gains to about 5%. They had soared a record 24% in the previous session. Still, prices are less than half the levels at the start of the year, with the coronavirus crisis crushing demand.

 “I think Russia, Saudi Arabia and OPEC are coming to the conclusion that if they don’t agree to something, it will be forced on them by the market,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. “Any cuts will extend the run way to June instead of May, which is helpful as countries try to work through the coronavirus lockdown. But it only softens the blow.”

One delegate from the producer group said a global cut of 10 million barrels a day is a realistic goal. Russian President Vladimir Putin told the country’s top oil executives that producing countries should join together to slash output to reverse the collapse in prices, adding that worldwide curbs of a little above or below 10 million barrels a day are possible.

Prices:

  • West Texas Intermediate for May delivery rose $1.27 to $26.59 a barrel as of 11:52 a.m. in New York, on track for its best week since January 2009
  • Global benchmark Brent crude for June delivery rose $2.74, or 9.15%, to $32.68 a barrel
  • Brent’s premium to WTI rose by $1.25 to $3.14 for the same month

Getting countries from all over the world to agree would be a tough ask. Even if that’s successful, an output reduction of the size that’s being discussed will be just a fraction of the 35 million barrels of daily demand destruction some traders now see.

Citigroup Inc. and Goldman Sachs Group Inc. have argued any supply-reduction deal would anyway be too little, too late as consumption craters due to efforts to stem the spread of the coronavirus.

“A near-term return to production cuts still seems unlikely, and we are skeptical that such a large coalition could be put together,” Morgan Stanley analysts wrote in a note. Some of the necessary production shut-ins are likely to occur in the U.S. due purely to market forces.

The announcement of a potential supply cut first came from U.S. President Donald Trump, who tweeted on Thursday that he had spoken to Saudi Crown Prince Mohammed bin Salman, who had in turn spoken with Russia’s Putin.

However, the U.S. leader’s goal is purely aspirational and will ultimately hinge on whether Riyadh and Moscow can reach a deal, a person familiar with the situation said.

Apart from benchmark futures, hopes for the curbs have boosted every corner of the market over the last 24 hours, from timespreads used to gauge market health, to key North Sea swaps. Those gains are now easing as traders worry that the undertaking may be too fraught with hurdles.

The physical oil market of actual barrels of crude continued to remain under pressure, giving producers more urgency to act. Belarus said Russian companies are offering Urals oil for $4 a barrel.

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Daily Brief podcast, Friday, April 3rd

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Trump faces bitterly divided companies in his bid to save shale

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Category : Drilling , News

By Kevin Crowley, Rachel Adams-Heard and Jennifer A. Dlouhy on 4/3/2020

HOUSTON (Bloomberg) –In Saudi Arabia, there is one oil company, the state-run behemoth Saudi Aramco. This makes for a fairly simple process to set policy goals when the country negotiates output quotas with rivals.

In the U.S., there are more than 6,000 oil drillers — everything from tiny wildcatters in the shale patches of Texas and North Dakota to global giants like Exxon Mobil Corp.

That would seem to make formulating a coherent U.S. negotiating stance next to impossible. And yet, President Donald Trump appears to be intent on seeking to broker a dramatic cut in output along with Saudi Arabia and Russia to prop up plunging prices.

The president’s triumphant tweet Thursday that Saudi Arabia and Russia are open to substantial production cuts quickly gave way to fears in some quarters that the U.S. and other non-OPEC producers would have to join them in slashing output to achieve the goal of giving severely depressed prices a boost.

And Trump will likely face a bitterly divided oil industry when he meets with energy executives Friday to discuss the perilous state of world crude markets and the threat to U.S. shale fields.

Oil soared as much as 35% after the presidential tweet, then pared gains after Saudi Arabia and Russia didn’t confirm they had agreed to any cuts. The Saudis called for an urgent meeting of the OPEC+ alliance — which includes Russia — to reach a “fair deal” that would restore balance in the markets, state-run Saudi Press Agency reported.

To satisfy Saudi Arabia’s insistence that all share the burden, Trump would have to unify a fractious and discordant group of U.S. companies and states that haven’t faced output restrictions in nearly half a century. That includes some 6,000 shale drillers that, until very recently, were responsible for soaring U.S. production.

Multinationals such as Exxon Mobil Corp. have typically opposed any kind of government intervention, from tariffs to mandated production cuts. With better access to capital and diversification of businesses, they’re more resilient than smaller operators to ride out the rout. Some independent explorers, whose tenacity and technological innovation began the shale-oil revolution, see today’s low crude prices killing the domestic industry and leaving the country dependent on foreign producers in the future.

Those fears are not unfounded. Whiting Petroleum Corp., an independent producer in the Bakken in North Dakota, filed for bankruptcy this week. Underscoring the divide, Scott Sheffield, the outspoken chief executive officer of Pioneer Natural Resources Co., has argued that the majors want to dominate the issue so they can out-muscle smaller rivals in the country’s biggest shale basins, including the Bakken and the Permian, in Texas and New Mexico.

Ryan Sitton, a Texas oil regulator who first proposed the idea of America joining with the Saudis and Russians to reduce output, said it’s “short-sighted” to knock back the idea right off the bat. “Let’s have a conversation and figure out how we bring these different groups together,” he said in an interview on Bloomberg TV.

Sitton later tweeted that he had a “great conversation” with Russian Energy Minister Alexander Novak about cutting 10 million barrels a day of global oil supply and was looking forward to speaking with Saudi Energy Minister Prince Abdulaziz bin Salman.

The prospect of capping U.S. production is a non-starter with many industry heavyweights. The American Petroleum Institute called pro-rationing an “anticompetitive” effort that would only harm U.S. consumers and producers. Exxon, America’s biggest oil company, is “not seeking any federal or state intervention measures in energy markets,” the company said, adding that free markets would resolve any imbalances.

Oil industry lobbyists are warning the administration that a domestic quota-system or coordinated output decrease would send a signal to Saudi Arabia and Russia that they are winning the price war. The approach could hurt efficient, low-cost U.S. oil producers, they argue.

Still, with oil trading near the lowest point in two decades, unusual times mean that usual rules may not apply.

A U.S. production cut “would be difficult but it’s certainly not impossible in these exceptional circumstances,” said James Lucier, managing director of research firm Capital Alpha Partners LLC. “Given the fact that you have the major oil industry CEOs meeting at the White House tomorrow and other independent E&P companies visiting the White House over the weekend, something like this is definitely going to be on the table.”

The issue is not simply big producers versus small ones. Some independent operators in Texas are in favor of output curbs because, in part, they’re running out of storage. Others, such as Trump confidante Harold Hamm, want the U.S. to sanction the Saudis with anti-dumping tariffs.

Technical and legal challenges would abound. Industry representatives have warned the White House that any curbs on field production could amount to trespass on the property rights of landowners, oil companies and royalty owners. While Texas and Oklahoma can install output limits — called pro-rationing — other states don’t have these powers. The federal government has strong influence over the Gulf of Mexico, Alaska and parts of New Mexico, where it owns lots of land.

Another option is to limit exports, which were banned for 40 years until 2015. Restricting those would likely be the most effective method of scaling back production, said Katie Bays, co-founder of Washington-based Sandhill Strategy LLC. That, coupled with letting producers use the Strategic Petroleum Reserve as storage, “would functionally seem to work for the next few months to take oil off the water.”

Although Congress lifted the oil export ban in December 2015, the president still has broad authority to reimpose limits. Under federal law, the president can declare a national emergency and impose export licensing requirements for up to a year, with the potential for additional extensions.

For shale oil producers in Texas, the largest oil-producing state, output cuts are coming irrespective of geopolitical concerns. They’ve already slashed spending budgets, employees and rigs. There’s such an overflow of oil that storage capacity is filling up fast. That could lead to producers being forced to shut in wells.

“The question is not will markets come into balance, the question is will it be done in a strategic and thoughtful way, or done in a reactive way once all the storage fills up,” Sitton said.

One of the biggest hurdles may be the reputational damage done to an industry that prides itself on individualism and hostility toward regulation. Many fossil fuel companies have for decades criticized renewable energy for benefiting from government handouts. And, as the financial crisis shows, once government extends a bailout, the public uproar is long-lasting.

“Americans have no sympathy for ‘oil billionaires’ and most of the country benefits from low energy prices,” said Mickey Raney, chief executive officer of Impact Energy Partners LLC, a small oil and gas producer in Oklahoma. “Our industry chose to accept the influx of Wall Street money that funded incompetent teams to drill wells that would never pay out. The management teams made millions in high salaries, stock options and cash bonuses for leading their companies into bankruptcy.”

“Properly managed companies must now find ways to survive in the mess created by ourselves, not by Saudi Arabia or Russia,” Raney said.

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