This rebound in oil prices is only temporary

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The worst week in the history of the oil market is finally coming to an end, but some analysts suggest that there may be more store pain as crude oil storage around the world reaches its maximum capacity.

Friday April 24, 2020

Oil prices stabilized on Friday after arguably the wildest week in the history of the oil market. But the slide is still far from over.

Continental Resources stops production and declares force majeure. Continental Resources (NYSE: CLR) has stopped most of its production in North Dakota. Harold Hamm’s firm is mostly uncovered, exposed to extremely low market prices. Continental told at least one refiner that it could not deliver a shipment of oil because the negative prices were “waste.” Refiners are not happy. “It is the height of hypocrisy for a company to choose not to honor its contracts for the supply of domestic crude to refineries while demanding that the administration impose restrictions on foreign crude,” he told Bloomberg. American Fuel and Petrochemical Manufacturers, a trading group representing refiners. .

U.S. plans oil company loan program. Treasury Secretary Steven Mnuchin said he is considering creating a government loan program for US oil companies. “Higher-quality firms will be able to access normal capital markets or access the higher-quality Fed facility,” he said. “This is the priority. Non-investment grade companies can look for “alternative structures with banks,” he said.

Mexico will close wells. After making a big deal of not accepting OPEC + cuts, Mexico said it would close new wells because of low prices. “Now that oil is out of value, we can close the floodgates,” said the President of Mexico. State-owned Pemex was downgraded to a junk by Moody’s and Fitch on Friday.

Cushing all reserved. The storage at the main oil center in Cushing, Oklahoma, technically has storage available, but it’s pretty much all on lease, according to Reuters. This means that there is essentially nothing left for anyone else.

Big Oil dividends in danger. Equinor (NYSE: EQNR) cut its dividend by two-thirds this week. The other oil majors will be scrutinized by investors when they start publishing their results next week. “Returning to what was a weak first quarter seems almost irrelevant. The game plan for managing the next three months and the next 18 months will be at the center of concern, “said Jefferies analyst Jason Gammel, according to Reuters. Related: Oil prices hit $ 15 for the first time in 21 years

Argentina forecasts higher oil prices. Argentina plans to declare a price of $ 45 per barrel for its domestic producers to keep the industry alive.

Pirates have the oil industry in the cross. Hackers have launched phishing campaigns against oil and gas companies to infiltrate with spyware to collect sensitive company information and credentials, Bitdefender researchers found.

Oil ETFs criticized. Approximately $ 6.2 billion was invested American Oil Fund (NYSEARCA: USO) so far this year. Individual investors, clearly confused as to the nature of petroleum ETFs, poured into the funds, betting on the rise in oil prices. But when the market is on a steep slope, ETFs end up selling low and buying high. A 3x leveraged oil fund has also closed.

Eni cut production and expenses. Eni (NYSE: E) reduce spending by 30% and lower planned spending for 2021 from 30 to 35%. The company has lowered its production forecast to 1.75-1.8 mb / d for 2020, down from 1.9 mb / d previously. Asked about the company’s dividend, the CEO of Eni was without commitment.

Negative oil, a risk for banks. Negative oil prices have broken the patterns that banks use for their trading books. “It is a huge problem for banks if they cannot produce risk measures correctly,” Richard Fullarton, founder of Matilda Capital Management, told Bloomberg. Meanwhile, Marex Spectron, a large commodity broker, has said it will prevent its clients from taking positions on expiring futures, allowing only “liquidation of existing positions”.

Regional oil economies at risk. According to the Wall Street Journal, Wyoming, Alaska, Oklahoma, North Dakota and West Virginia are all more dependent on mining and energy than Texas. For example, energy and mining account for 16.4% of Wyoming’s GDP.

Related: Shale’s Decline Will Make Room For Next Big Oil History

Baker Hughes cuts jobs and expenses. Baker Hughes (NYSE: BKR) cut jobs and expenses by 20%. The company expects to halve activities in the oil fields this year. The company reported a net loss of $ 10.2 billion in the first quarter, compounded by an impairment of $ 14.7 billion.

LNG cancellations will soar in June. A large number of LNG cargoes are expected to be canceled between June and October.

China to cut EV subsidies by 10%. China has said it will cut subsidies for EVs by 10% this year.

Half of the 60 independent oil companies need cash. Half of the 60 largest independent American oil producers will need cash to avoid bankruptcy, according to energy attorneys from Haynes and Boone. “The repercussions of this collapse in prices will be felt throughout the industry and by all who provide services to the industry,” Buddy Clark of Haynes and Boone told Reuters.

Pipeline delays after court ruling. The U.S. Army Corps of Engineers has suspended a national program used to approve oil and gas pipelines after a court last week rejected a general license, the AP said. The decision suspended approximately 360 pending projects.

By Josh Owens for Oilprice.com

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