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Energy Journal
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Oil is on the mend. Prices rose above $30 a barrel this morning for the first time since early March, as further signs that OPEC’s production cuts of nearly 10 million barrels a day are helping to soak up a global crude glut.
U.S. producers are also restricting output to rebalance the market. The U.S. active rig count dropped by 34 to 258 in the most recent reporting week--its lowest since 2009.
Oil’s future looks bright. Indeed, the most wagered-upon oil prices these days are for crude bobbing at sea on big tankers—or even still in the ground, write Ryan Dezember and Mike DeStefano today.
In futures markets for Brent crude, the global benchmark, and for U.S. benchmark West Texas Intermediate, barrels of oil for December delivery have the highest open interest, or total number of options and outstanding contracts.
The popularity indicates optimism that prices will slowly rebound as governments around the world ease shelter-in-place orders. In data going back to 2006, there hasn’t been another instance in which the U.S. oil contract seven months out had the greatest number of bets, according to Dow Jones Market Data.
Still, this is no run-of-the-mill recovery. Covid-19 may be changing the energy market in unexpected ways, as parts of China, Europe and the U.S. emerge from lockdowns. People are likely to choose their own cars as a relative ‘safe space’ over public transportation, report Benoit Faucon, Summer Said and David Hodari. Chinese consumers also appear to be avoiding mass transit, based on traffic congestion data, and Europeans are showing a new preference for car commuting as well.
Next week, Energy Journal will publish on Tuesday morning, due to the Memorial Day holiday on Monday.
— John Simons, London Energy Editor
Reach me at john.simons@wsj.com, or on Twitter @thinksimons.
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Concerns over storage space at Cushing Okla last month helped push one WTI contract below zero last month. (JOHANNES EISELE/AFP via Getty Images)
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• Investors will be nervously watching oil markets, with the West Texas Intermediate June contract expiring this week. In the days before WTI’s May contract expired last month, prices turned negative with sellers paying buyers to take barrels off their hands due to fears of a storage crunch.
• The American Petroleum Institute’s weekly inventory data will be released Tuesday. The Department of Energy’s weekly figures are due Wednesday.
• A number of energy companies are due to hold their annual general meetings, with Royal Dutch Shell's on Tuesday and Pioneer Natural Resources’s set for Thursday.
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Oil prices extended their rally Monday, writes David Hodari. U.S. inventories and output have fallen (the Baker Hughes rig count is at its lowest since 2009), Arab Gulf producers are implementing additional production cuts and the IEA last week softened its demand loss forecasts for 2020. All of these factors have contributed to a sustained increase in prices over the past week.
Brent crude oil was up 6.1% at $34.49 a barrel on London’s Intercontinental Exchange. WTI futures for June were up 9.1% at $32.12 a barrel and July futures were up 8.4% at $32.01 a barrel on the New York Mercantile Exchange.
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“We see early signs of a gradual rebalancing of oil markets. It is still gradual and it is still fragile.”
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—Fatih Birol, the International Energy Agency’s executive director, on the incipient recovery of the global oil market.
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Mexican President Andrés Manuel López Obrador meets oil workers at the Xikin offshore field in December. (Photo: MEXICO'S PRESIDENCY/REUTERS)
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While Big Oil Pulls Back, Mexico’s President Bets on Pemex
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Oil companies across the globe are cutting back on drilling, idling refineries and combing their budgets for savings, trying to cope with the double-punch of a prolonged rout in oil prices and the collapse in demand for energy during the coronavirus pandemic, writes Robbie Whelan.
Mexico is doing the opposite. Across the country’s oil belt, Petróleos Mexicanos is spending more money to drill new wells, eke oil out of aging fields, revamp its six unprofitable refineries and construct a new one for $8 billion—the first refinery the country has built since the 1970s.
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Oil Demand Mounts Comeback as Coronavirus Restrictions Ease
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Oil consumption is rising again in those parts of the world emerging from coronavirus lockdowns, helping to alleviate a global glut and rebalance a market stymied by months of low demand and a devastating rout that saw prices drop by as much as two-thirds this year, report Benoit Faucon, Summer Said and David Hodari.
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Green shoots of an oil recovery are sprouting with regions of China attempting a semblance of normal life as lockdowns are eased and parts of Europe and the U.S. allow businesses to reopen.
Global oil demand is still forecast to receive a body blow in the second quarter, but the IEA and EIA last week highlighted an nascent recovery from the worst of the lockdown effects.
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Aramco Profit Is Hit Hard by Collapse in Oil Prices
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Saudi Aramco said its first-quarter profit fell and it would cut spending this year, underscoring the twin impact of an oil-price rout and the coronavirus pandemic on the kingdom’s worsening finances, write Summer Said and Rory Jones.
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The state-controlled company is the latest global energy giant to slash spending as lower oil prices weigh heavily on the industry. Some have also cut dividends, while others are planning to sell billions of dollars in assets.
Elsewhere in the oil industry, Chesapeake Energy Corp. warned that it may not be able to stay in business as weak oil and natural-gas prices imperil a yearslong effort to pay down hefty debt, Rebecca Elliot reported.
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Wanted: Somewhere, Anywhere, to Store Lots of Cheap Oil
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Rhett Kenagy and a high-school pal recently came up with a plan to rent hundreds of school-bus-size metal tanks and fill them with some 270,000 barrels of oil, writes Rebecca Elliott.
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The two are among the entrepreneurially minded individuals who hope to turn a buck from the crash in oil prices. With demand way down and companies running out of places to put crude, these people are floating schemes to sock it away until prices rebound wherever they can: in caves, abandoned rock mines and even giant pools.
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Private-Equity Owners of Oil Tanks See Little Gain From Surging Demand for Storage
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Crude-oil storage is in high demand today amid a supply glut as the coronavirus pandemic depresses fuel consumption and the world runs out of space to hold the raw material, reports Luis Garcia.
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Still, private-equity firms that previously invested hundreds of millions of dollars in oil tanks and other storage infrastructure aren’t capitalizing on the boom while traders look for places to keep cheap oil that they hope to sell for a profit in the future.
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Iran Leverages Oil to Court Other U.S. Rivals During Pandemic
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Iran is delivering some of its unsold oil to Syria in exchange for greater diplomatic influence in the region and bartering its crude-refining technology for gold with Venezuela, according to people close to the three governments.
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• Europe’s oil majors are starting to embrace climate targets (Forbes)
• The twin forces of the oil price crash and Covid-19 are hammering Houston’s real estate market (Houston Chronicle)
• The unique payout Alaskans get from the state’s oil wealth could be at risk (Associated Press)
• Beleaguered U.S. oil-and-gas companies have found a lifeline in loans backed by taxpayers (The Guardian)
• A look at the running legal battle between a Miami ex-congressman and Venezuela’s state oil company (The New York Times)
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25%
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The net drop in profits Saudi Aramco recorded in the first quarter of 2020 from the same quarter last year.
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Reporter’s Notebook: Death of an Oil Diplomat
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Iran’s long-serving OPEC governor, Hossein Kazempour Ardebili, died from a brain hemorrhage in Tehran, the Iranian Oil Ministry reported on Saturday. He was Iran’s OPEC envoy from 1995 to 2008 and again from 2013 until time of his death. He was 68.
As an MBA graduate of Central State University of Oklahoma, Mr. Kazempour Ardebili was serving as commerce minister in the early days of the Islamic Republic when in 1981 a bomb in Tehran killed 70 leading officials and injured him. Initially unable to walk and to hear, he recovered to make a lasting mark as a shrewd strategist within OPEC, Benoit Faucon writes.
Hossein Kazempour Ardebili was known as an articulate, fierce defender of Iran’s aims—which were often in opposition to OPEC’s de facto leader, Saudi Arabia.
As OPEC adviser to Iran’s oil minister Bijan Zanganeh, he was often the mastermind behind Iran’s opposition to Saudi proposals to increase production and moderate oil prices. Iran saw such policy as promoting U.S. interests rather than OPEC’s. After the U.S. put sanctions on Iran in October 2018, the country hardened its opposition, nearly sinking several Saudi attempts to intervene in oil markets.
Whenever OPEC negotiations turned sour, Mr. Kazempour Ardebili would frequently emerge from the cartel minister's hotel suite to brief reporters about the latest drama—which he had often discreetly helped engineer.
His style did not soften with age. At a July meeting last year, Mr. Kazempour Ardebili argued for hours with then-Saudi energy minister Khalid al-Falih over a cooperation deal that Iran felt surrendered decision-making to Russia and Saudi Arabia—and, indirectly, its U.S. ally. Iran won, helping maintain the pact firmly under broader OPEC control.
Mr. Kazempour Ardebili almost nixed a deal at December’s OPEC meeting when he said Saudi Arabia and Russia should cut output because they had oversupplied markets, rather than ask other OPEC-plus countries to share the burden.
“The pilot and co-pilot crashed the plane and all 25 passengers are now in critical condition,” he said.
Yet, the career diplomat—he had once been ambassador to Japan—knew that talking tough was also a way to avoid open warfare. Saudi Arabia knows “we are going to live together as neighbors,” he said in a 2018 interview as tensions escalated between the two foes. “Peace and security is through inclusion, and not exclusion.”
Mr. Kazempour Ardebili failed to turn up in early March at an OPEC meeting in Vienna. Amid the global coronavirus pandemic, he had decided to self-isolate, Iranian officials said.
In the cantankerous OPEC choir, his thunderous tone was missed. Because they bristled at Saudi tight control of the cartel, many delegates outside the Persian Gulf have confided that they appreciated the plain-spoken Iranian official. His was often the quarreling voice of the voiceless.
-Benoit Faucon
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Big Oil Looks for Nooks and Crannies
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As traditional crude storage facilities filled up quickly in recent weeks, oil companies and amateurs alike got creative as they tried to eke out all the space they could. Pipeline firm Energy Transfer LP, for instance, had even explored the idea of transforming pipelines into underground storage.
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Kelcy Warren, chief executive of Energy Transfer spoke with Rebecca Elliott in late April about how he expects the oil-price crash to affect U.S. shale companies and pipelines.
Here are edited excerpts:
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Q:
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Do you plan to offer pipeline storage as a service to other companies? Or is Energy Transfer seeking to purchase crude and benefit from the contango in the market?
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Mr. Warren: All of the above. The pipeline conversions are so extreme, I view that more as an emergency action. If somebody picked up the phone and said, ‘Hey, Kelcy, you got any of that left?’ we would certainly store it. And we would negotiate a fair fee for doing that. In the meantime, though, we’ll use it.
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Q:
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What do you see as the outlook for U.S. shale companies, which obviously feed into your network?
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Mr. Warren: It’s dreadful. I feel horrible. I’ve never in my career been a doom and gloom guy and I’m not this time because I don’t think this will last that long, but if you think about shutting in four million barrels a day. I don’t think that’s ever happened percentage wise in the history of the oil business. And that’s about what we’re—it’s just reality. You can’t run from the numbers. The math is the math. So, I am very, very concerned. I’m concerned that those that don’t have their house in order, maybe they’ve got some debt maturing, maybe they’ve got whatever their issues might be. I think it’s going to be pretty severe.
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Q:
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How are you thinking about this in terms of the effects on your space?
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A:
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Mr. Warren: Everybody in the energy sector will feel it. Pipeliners will feel it slightly less. Well, not slightly. Greatly less than the E&P companies. And the reason is the majority of our product gets moved in this method: The shipper will pay a demand fee for the capacity. So it’s their capacity, they own it. And then a small fee, a commodity fee for the actual amount of commodity that moves through the pipeline. So we’re very blessed. The majority of our contractual structures are structured that way. So we’ll still feel it, because I mentioned the commodity component. We still do make more money the more volume we move, and if you remove four million barrels a day from the market, we will feel that, Energy Transfer will, but not nearly as bad as the direct impacts, say, to the E&P sector.
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We want to be your first energy read of the week. This newsletter is a production of the global WSJ energy team, which is made up of a dozen editors and reporters in Houston, New York, London and Dubai. Send feedback to John Simons and David Hodari at EnergyJournal@wsj.com.
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