Source: U.S. Energy Information Administration, U.S. Energy Information Administration, Petroleum Supply Monthly

Annual U.S. crude oil production reached another record level at 12.23 million barrels per day (b/d) in 2019, 1.24 million b/d, or 11%, more than 2018 levels. The 2019 growth rate was down from a 17% growth rate in 2018. In November 2019, monthly U.S. crude oil production averaged 12.86 million b/d, the most monthly crude oil production in U.S. history, according to the U.S. Energy Information Administration’s (EIA) Petroleum Supply Monthly. U.S. crude oil production has increased significantly during the past 10 years, driven mainly by production from tight rock formations developed using horizontal drilling and hydraulic fracturing to extract hydrocarbons.

Texas continues to produce more crude oil than any other state or region of the United States, accounting for 41% of the national total in 2019. Texas crude oil production averaged 5.07 million b/d in 2019 and reached a monthly record of 5.35 million b/d in December 2019. Texas’s production increase of almost 660,000 b/d in 2019—driven by significant growth within the Permian region in western Texas—was 53% of the total U.S. increase for the year. Texas crude oil production has grown by 3.9 million b/d, or 333%, since 2010.

Several other U.S. states or regions set production records in 2019. In addition to contributing to Texas’s record production year, the Permian region drove a 248,000 b/d, or 36%, crude oil production increase in New Mexico. This increase was the second-largest state-level growth in 2019 and accounted for 20% of the total U.S. increase. In 2019, New Mexico set a new oil production record for the third consecutive year, growing by 749,000 b/d since 2010.

In the Offshore Federal Gulf of Mexico (the U.S. controlled waters in the Gulf of Mexico), new projects contributed to the region’s growth in production in 2019. Oil and natural gas producers brought online seven new projects in 2019, and EIA expects nine more will come online in 2020. The Offshore Federal Gulf of Mexico’s crude oil production grew by 126,000 b/d in 2019, leading to the area’s highest annual average production of 1.88 million b/d. The Offshore Federal Gulf of Mexico was the second-largest crude oil producing region in the United States in 2019.

Colorado and North Dakota also set record production levels in 2019 of about 514,000 b/d and 1.4 million b/d, respectively. The Niobrara shale formation drove production increases in Colorado, and continued production in the Bakken region drove increases in North Dakota. Production in Oklahoma increased by 32,000 b/d in 2019 but did not surpass Oklahoma’s record production of 613,000 b/d set in 1967.

Increases in these states and regions more than offset production declines elsewhere. Alaska’s crude oil production decreased for the second year in a row, and California’s production declined for the fifth year in a row.

Source: U.S. Energy Information Administration, U.S. Energy Information Administration, Petroleum Supply Monthly

In its latest Short-Term Energy Outlook, EIA forecasts U.S. crude oil production will continue to increase in 2020 to an average of 13.2 million b/d and to 13.6 million b/d in 2021. Most of the expected production growth will occur in the Permian region of Texas and New Mexico.

Principal contributor: Emily Geary

https://go.usa.gov/xdvuW

Saudis plan oil-price war, slashing prices while raising output

By Javier Blas and Anthony DiPaola on 3/8/2020

DUBAI (Bloomberg) --Saudi Arabia plans to boost oil output next month to well above 10 MMbpd, as the kingdom responds aggressively to the collapse of its OPEC+ alliance with Russia.

The world’s largest oil exporter engaged in an all-out price war on Saturday by slashing pricing for its crude by the most in more than 30 years. State energy giant Saudi Aramco is offering unprecedented discounts in Asia, Europe and the U.S. to entice refiners to use Saudi crude.

At the same time, Saudi Arabia has privately told some market participants it could raise production much higher if needed, even going to a record 12 million barrels a day, according to people familiar with the conversations, who asked not to be named to protect commercial relations. With demand ravaged by the coronavirus outbreak, opening the taps would throw the oil market into chaos.

Too Low. “Saudi Arabia is now really going into a full price war,” said Iman Nasseri, managing director for the Middle East at oil consultant FGE. The Saudi Energy ministry didn’t respond to a request for comment.

Aramco’s unprecedented pricing move came just hours after the talks between the Organization of Petroleum Exporting Countries and its allies ended in dramatic failure. The breakup of the alliance effectively ends the cooperation between Saudi Arabia and Russia that has underpinned oil prices since 2016. Production limits agreed to by OPEC and its erstwhile partners expire at the end of the month, opening the way for producers to ramp up output.

The company’s shares plunged 9% in Riyadh on Sunday, the first time the stock slumped below its initial offering price. Aramco traded at 29.95 riyals as of 1:57 p.m., giving it a market value of 6 trillion riyals ($1.6 trillion). The Saudi government sold 1.5% of the energy giant’s shares at 32 riyals each in December.

Brent crude, the global oil benchmark, closed down 9.4% on Friday, its biggest daily drop since the global financial crisis in 2008, settling at $45.27 a barrel.

Saudi production is initially likely to rise to between 10 million and 11 million barrels a day in April, from about 9.7 million a day this month, according to people familiar with Saudi thinking. The final figure would depend on the response of refiners to the price cuts, the same people said.

Maximum Pain. The shock-and-awe Saudi strategy could be an attempt to impose maximum pain in the quickest possible way to Russia and other producers, in an effort to bring them back to the negotiating table, and then quickly reverse the production surge and start cutting output if a deal is achieved. In a sign that both sides remain in talks, the OPEC+ Joint Technical Committee, a body of senior oil officials who advise ministers, plans to meet on March 18 to review the global oil market, according to delegates. Saudi and Russian officials are part of the JTC.

“It’s certainly a high-risk, high-stakes approach,” Tim Fox, chief economist at Dubai-based lender Emirates NBD PJSC, said Sunday in a Bloomberg Television interview. “It didn’t come together on Friday and I think market confidence that it will at some point in the next couple of weeks is actually quite low.”

The production increase and deep discounts mark a dramatic escalation by Prince Abdulaziz bin Salman, the Saudi oil minister, after his Russian counterpart Alexander Novak rejected an ultimatum on Friday in Vienna at the OPEC+ meeting to join in a collective production cut. After the talks collapsed, Novak said countries were free to pump-at-will from the end of March.

Record Discounts. With jet-fuel, gasoline and diesel consumption rapidly falling due to the economic impact of the coronavirus outbreak, the energy market now faces a simultaneous supply-and-demand shock.

After the failure in Vienna, Riyadh responded within hours by slashing its so-called official selling prices, offering record discounts for the crude it sells worldwide. Aramco tells refiners each month the prices for its crude, often adjusting the OSPs by a few cents or as much a couple of dollars.

But in a notice to buyers sent Saturday, Aramco announced it was slashing most official prices by $6-$8 a barrel across all regions. The dramatic move will resonate beyond Saudi Arabia. The kingdom’s pricing decision affects about 14 million barrels a day of oil exports, as other producers in the Persian Gulf region follow its lead in setting prices for their own shipments.

Getting Nasty. In one of the most significant pricing moves, Aramco widened the discount for its flagship Arab Light crude to refiners in northwest Europe by a hefty $8 a barrel, offering it at $10.25 a barrel less than the Brent benchmark. In contrast, Urals, the Russian flagship crude blend, trades at a discount of about $2 a barrel less than Brent. Traders said the Saudi move was a direct attack at the ability of Russian companies to sell crude in Europe.

“This is going to get nasty,” said Doug King, a hedge fund investor who co-founded the Merchant Commodity Fund. “OPEC+ is going to pump more, and the world is facing a demand shock. $30 oil is possible.”

Some believe the market could go even lower.

“We’re likely to see the lowest oil prices of the last 20 years in the next quarter,” said Roger Diwan, an oil analyst at consultant IHS Markit Ltd., implying that the price could fall below $20 a barrel.

Brent crude, the global benchmark, fell to a low of $9.55 a barrel in December 1998, during one of the rare price wars that Saudi Arabia has launched over the last 40 years.

Related News ///

FROM THE ARCHIVE ///

http://ow.ly/KPnC50yFXgy

By Ron Bousso and Shadia Nasralla

LONDON (Reuters) - An oil price plunge means the world's top energy companies will have to review promises to return billions to investors, either by slowing down share buybacks or reintroducing non-cash dividends, analysts said on Monday.

Brent crude was trading at around $36 a barrel, down around 20% by 1645 GMT on Monday, when analysts lowered share price forecasts for top oil and gas producers. [O/R]

The Brent benchmark has fallen by as much as a third since Thursday, just before Russia walked away from an agreement by the Organization of the Petroleum Exporting Countries to cut output.

The slide is expected to force a rethink of spending plans by boards that had cut costs in response to a 2014 oil downturn when OPEC opened wide the oil taps to try to protect market share following the U.S. shale oil revolution.

On that occasion, Eni reduced its dividend, while peers kept up payouts.

Now the sector is also struggling to retain investor appetite because of concerns about long-term sustainability as the world seeks to curb its use of climate-warming fossil fuel.

To try to keep investors on side, the boards of major oil companies boosted dividends and share buyback programmes. But even with an average Brent price of $64 a barrel last year, most companies were hardly able to balance their income with their spending.

The oil majors were entering "survival mode" in these market conditions and will have to assess where they can cut spending, Jefferies analyst Jason Gammel said in a note.

"Buybacks and dividend growth are now almost certainly off the table, and questions on who will need to cut the dividend first will be topical," Gammel said.

Last week, Chevron pledged to return up to $80 billion to shareholders over the next five years.

Goldman Sachs said that "depending on the duration of the crude downcycle," Chevron could taper its buyback programme while ExxonMobil could slow down its $33 billion spending plans in 2020 and dividend growth.

That followed earlier warnings, including from Royal Dutch Shell that it would slow its $25 billion share buyback programme as the coronavirus weighs on the global economy and depresses fuel demand.

BP last month said it would raise its dividend, even though its profits last year fell by about a quarter.

"We are in unchartered waters at least for the short term," analysts at Bernstein said after downgrading their recommendations for Shell, Eni, Repsol , Total and Equinor .

Bernstein added in a note it expected divestments to happen and investments to be reduced, but saw no dividend cuts. Bernstein analyst Oswald Clint said that breakevens among European majors had improved since the last downturn.

(Graphic: European majors' average breakeven point - https://fingfx.thomsonreuters.com/gfx/ce/7/8950/8931/European%20majors'%20breakeven.jpg)

(Graphic: Oil majors' breakeven points - https://fingfx.thomsonreuters.com/gfx/ce/7/8949/8930/Oil%20majors'%20breakeven%20points.jpg)

Since the 2014 crash, companies have cut costs by billions of dollars, with many configuring their business to withstand oil prices of around $50 a barrel.

Majors including Total and Royal Dutch Shell, introduced scrip dividends after the last slump, which allowed them to issue dividends in the form of shares, rather than cash.

"A return to scrip dividends is not unlikely if this develops into a 6 month 'price war'," Stuart Joyner, an analyst at Redburn, said.

Redburn said it expected Total and Chevron to maintain pay-outs, Shell to pare back its buybacks further and Equinor and Eni to come under pressure to discontinue current buybacks.

Equinor , Norway's largest oil and gas producer, said on Monday the company's strong balance sheet put it in a "robust position" to handle volatility.

U.S. shale producers, which face some of the highest production costs, on Monday rushed to deepen spending cuts and reduce future output.

BP and Shell declined to comment. Other majors had no immediate comment.

(Graphic: BP 2019 cashflow - https://fingfx.thomsonreuters.com/gfx/ce/7/8953/8934/Pasted%20Image.jpg)

(Graphic: Exxon 2019 cashflow - https://fingfx.thomsonreuters.com/gfx/ce/7/8955/8936/Pasted%20Image.jpg)

(Graphic: Shell 2019 cashflow - https://fingfx.thomsonreuters.com/gfx/ce/7/8952/8933/Pasted%20Image.jpg)

(Additional reporting by Nerijus Adomaitis in Oslo; editing by Barbara Lewis)

https://finance.yahoo.com/news/big-oil-faces-survival-mode-170513299.html

Dubai — Saudi Arabia has not ruled out an international listing of its state oil giant Aramco but has not begun preparations to do so, according to a high level source, though analysts say the fracturing of the OPEC+ alliance and the oil market's plunge would have put plans on ice anyway.

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None of the government committees responsible for Aramco have begun discussions on an international public listing, the source told S&P Global Platts on condition of anonymity. The comments follow a media report at the end of February that early work on an overseas listing, focusing on an Asian exchange, was underway, citing people with knowledge of the matter.

"We're not ruling anything out, but nothing is imminent," the source told Platts. "There are so many other things going on for us to be considering an international listing."

The kingdom has long mooted an offering of up to 5% of Aramco on an exchange, either New York, London or Tokyo, to bring an infusion of cash to fund ambitious economic reforms, with officials aiming for a total company valuation of $2 trillion.

Valuation seen as unrealistic

But investment banks and consultancies have uniformly said that valuation was unrealistic, prompting Saudi Arabia to stage only a domestic listing of 1.5% of Aramco shares in December, which still became the world's most valuable IPO, raising $29.4 billion, including sweeteners offered to boost investor interest.

On Monday, Aramco shares opened trading at Riyals 27 ($7.19) before rising modestly to close at Riyals 28.35. That is 11.4% below its IPO price, prompting the company's valuation to slide to about $1.5 trillion from $1.7 trillion in December, in the wake of Friday's failure by OPEC and Russia to reach a deal on oil production cuts.

Pursuing an additional listing in current market conditions would be detrimental, according to Robin Mills, CEO of the consultancy Qamar Energy.

"The price would be so low, and there would be a read-across to the valuation of the domestic listing, which is probably still higher than it should be," he said.

The 23-member alliance of OPEC+, led by Saudi Arabia and Russia, will be free to pump at will, starting April 1, when its production quotas expire, with Aramco launching the first move in what many market watchers are calling a price war by slashing the official selling prices of its crude exports for April. These include the biggest cut ever for Arab Light crude for Asia, in a bid to take a larger share of the market.

Global oil prices have crashed accordingly. Front-month Brent crude was trading at $36.71/b at 1501 GMT on Monday, down 18.9% from the previous close, after an initial tumble of some 31%, the largest drop since the first Gulf war in 1991.

Share price fall could spark unrest

Ellen Wald, a non-resident senior fellow in the Atlantic Council's Global Energy Center, said the danger for Saudi Arabia is if Aramco's share price continues to slide. With so many Saudi citizens encouraged to invest in the IPO, underperformance of the shares as a result of the collapsing oil price could generate civil unrest, making it even more challenging for Saudi Arabia to implement its economic reforms, she said.

The kingdom in 2016 unveiled its vaunted Vision 2030 program, of which the Aramco IPO was a central plank, aimed at reducing the kingdom's reliance on oil revenues and diversifying its economy by encouraging private investment in non-oil industries. Saudi Arabia in recent years has also sought to reform its tax structure and lower subsidies on energy and electricity to shore up its finances.

"The Saudi government's coffers will suffer from the low oil prices and that will likely impact the government's economic spending program," said Wald, who has also written a book tracing the history of Aramco. "But more importantly, 20% of the Saudi population is now invested in Aramco and Aramco's share price is falling...There could be a large number of disgruntled citizens as a result."

http://plts.co/OKKF50yGWOi

Arab Extra Light seen at discount of around $5.5/b to ESPO for April

Singapore — The battle for Asian market share between major crude oil suppliers Saudi Arabia and Russia is set to heat up with the OPEC kingpin's move to slash its April official selling prices, luring Chinese and South Korean refiners to raise Saudi crude intake at the expense of Siberian oil imports.

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The breakdown in OPEC+ negotiations for deeper production cuts in Vienna Friday with Russia refusing to go along with the deal, has set the stage for a potential price war among the major producer nations to secure their share of the Asian demand pie, which has already been rapidly shrinking amid the spread of the coronavirus disease.

"What's left in the [Asian] pie is still precious for the suppliers ... the breakdown in the negotiation would mean that each of the suppliers would fight for what they got and what they still can get," a Seoul-based Korea Petroleum Association official said.

Saudi Aramco made the first move Saturday to set a strong foothold in the Asian market for the upcoming trading cycles. The company slashed its official selling price differential for April-loading Arab Light crude bound for Asia by $6/b to minus $3.10/b against the average of Platts Dubai assessments and DME Oman futures.

It was the biggest month-on-month cut ever for the Arab Light OSP differential for Asia, according to S&P Global Platts data.

The latest OSP cuts signal a move of Saudi Arabia away for market price to market share at a time when the market is already reeling from severe demand destruction, according S&P Global Platts Analytics.

PRICE COMPETITION

Aramco's aggressive OSP cuts have turned many heads in the North Asian refining sector, with several Chinese and South Korean refiners highlighting the sharp discount for the Arab Extra Light and Arab Light grades versus one of Asia's favorites -- Far East Russian ESPO Blend crude.

April-loading ESPO Blend crude cargoes changed hands at an average premium of around $2.49/b to Dubai last month, according to Asian trade sources and Platts data.

This puts the spread between Arab Light or Arab Extra Light and the Far East Russian grade for cargoes loading in April at around minus $5.5/b, after taking into consideration the average difference between the two pricing benchmarks -- Platts Dubai versus Platts Dubai/DME Oman -- so far this year.

Over the past year, Arab Light and Arab Extra Light typically commanded a discount of $2-$4/b to the medium-light Russian grade on an FOB basis, though higher delivery costs due to the longer voyage for Middle Eastern cargoes bound for Asia would often erode such discounts, industry officials and refinery sources told Platts.

The sharper discount for the April Arab Light OSP against the ESPO spot price assessment for the same loading month could, however, provide an impetus for North Asian refiners to favor Saudi grades over Far East Russian oil.

"If the spread remains so wide, it's definitely worth considering seeking incremental Saudi light and medium barrels, while cutting down on Russian cargo purchases," said a feedstock procurement manager at Chinaoil in Beijing. Chinaoil is a trading arm of state-run refining giant PetroChina.

A Japanese refiner also said its linear programming model supports the idea of taking incremental Saudi barrels if Aramco OSPs remain competitive for May and beyond, a company source told Platts.

In South Korea, GS Caltex and SK Innovation said the price war between the two major suppliers bode well for Asian end-users, and the companies would take a flexible stance when it comes to crude feedstock trading economics.

"Refining margins are faltering, so it's in our best interest to take the most economical feedstock options available," a trading manager at GS Caltex in Seoul said.

Russian suppliers including Rosneft and Surgutneftegaz should slash offers for ESPO cargoes in the spot market to stay competitive in Asia, market participants said. The suppliers are expected to issue multiple spot tenders to sell ESPO cargoes for loading in May in the coming weeks.

"For ESPO, right now we have no [immediate] indication [for May-loading cargoes], but it is quite likely to see a $2-$4/b correction [in price differential] depending on how much the spot market goes down in line with the Saudi OSP cuts," said a trading manager at a Taiwanese refiner.

CHINA PIE

With the spread of the coronavirus in China showing some signs of easing, both Saudi Arabia and Russia will likely focus once again on the giant Asian consumer's demand recovery and their marketing strategies, industry sources and analysts said.

If outright oil prices stay below $40/b persistently, it may trigger China's product floor-price mechanism, incentivizing Chinese refineries to run harder to capture better margins domestically, according to Platts Analytics.

China has traditionally been the most heated battleground for both Saudi Arabia and Russia.

Russia was the winner in 2018 as China imported a total of 71.59 million mt from the non-OPEC producer last year, more than the 56.73 million mt it received from Saudi Arabia.

However, the Middle East producer overtook the pole position in 2019, with China receiving 83.32 million mt of Saudi crude last year, compared with 77.66 million mt from Russia, according to the data from General Administration of Customs.

http://plts.co/Nicp50yGdVt

Shale drillers facing uncharted territory in worst oil bust yet

By Joe Carroll, Rachel Adams-Heard, David Wethe and Kevin Crowley on 3/9/2020

HOUSTON (Bloomberg) - America’s shale drillers have never faced an oil bust quite like this.

The split between Russia and its one-time OPEC allies last week has ignited an all-out price war, leaving oil markets defenseless against the unprecedented demand shock brought on by the coronavirus. Crude plunged by the most since the 1990s on Monday, with West Texas Intermediate touching $30 a barrel, a level at which vast swathes of the U.S. shale patch become unprofitable.

It’s a disaster for U.S. fracers including Chesapeake Energy Corp. and Whiting Petroleum Corp., who were already trading at distressed levels -- and makes more defaults and bankruptcies all but certain. After burning through hundreds of billions of dollars in cash over the past decade, the industry has consistently disappointed investors while accumulating huge debts. It now finds itself backed into a corner, increasingly shut out of capital markets. Banks were already poised to cut credit lines after writing off as much as $1 billion in shale loans last year, more than they have in 30 years of making them.

This could mark the end of a historic boom that vaulted the U.S. to predominance in world crude production.

Pain Point. The boom-and-bust cycle is as old as the oil industry itself. The current price crash has echoes of 1986, when Saudi Arabia abandoned attempts to prop up a glutted market and pumped at will, sending oil futures plunging by more than half in a matter of months.

But never before has so much U.S. output been in such peril -- and never has demand for that supply been so uncertain. When financial markets collapsed in 2008-2009, dragging crude demand and prices down with them, America’s shale patch as it is now didn’t exist. Oil drillers in the Permian were just warming up to the idea of hydraulic fracturing and pumping less than 1 million barrels a day.

When oil tumbled to a 13-year low in early 2016, driven by a glut of supplies worldwide, the fracking revolution was indeed in full swing. But demand was strong and the region had still not yet topped 2 million barrels a day.

Today, the Permian churns out more than 5 million barrels, exceeding Iraq and accounting for more than one-third of America’s total production. Shale companies weathered the last major downturn in 2018 by getting lean and plowing forward with drilling plans. This time around, they’re in a more precarious financial position and can’t afford to keep adding to a glut.

“This industry shot itself in the foot with dramatic shale production growth,” said Dan Pickering, founder and chief investment officer of Houston-based asset manager Pickering Energy Partners. Drillers need “a dose of self help,” he said. “It’s kind of them against the world right now.”

American shale companies are largely responsible for years of swelling world supply. Indirectly, they’ve been supported by OPEC nations and their allies cutting production to prop up prices. But the key Saudi-Russia “bromance,” as it was once described by Citigroup Inc. oil analyst Ed Morse, is over. No longer is Russia willing to bail out U.S. shale.

Ominously, Russian Energy Minister Alexander Novak said in Vienna on Friday that his nation’s producers will be free to pump at will when current production caps expire at the end of the month. Saudi Arabia in turn started an all-out oil price war on Saturday, slashing its official selling prices by the most in 20 years in an effort to push as many barrels into the market as possible.

That leaves American shale drillers scant time to prepare for an onslaught from the rest of the world’s oil behemoths.

“The vultures already are circling,” said Amy Myers Jaffe, a senior fellow at the Council on Foreign Relations, who is frequently sought out by OPEC ministers and industry leaders for her views on oil. “What is the appetite for investors to refinance a new round of shale?”

Shale drillers large and small have been pummeled by equity investors, with almost half of the companies in the S&P Oil & Gas Exploration & Production Select Industry Index posting double-digit percentage declines on Friday. The most-endangered names include Oasis Petroleum Corp., which tumbled 32%, Callon Petroleum Co. and California Resources Corp.

Junk-bond sales in the U.S. have slowed to a trickle, with just three deals pricing in the past two weeks, none of them oil or gas companies, according to data compiled by Bloomberg. The average spread over Treasuries for companies in the Bloomberg Barclays High Yield Energy index has surged above 10% for the first time since 2016, a threshold typically associated with distress.

With oil at $30 a barrel, some shale explorers will find it impossible to pay lenders and support newly minted dividend programs adopted to entice retail investors. In addition, promises to finally generate free cash flow -- which has become something of an obsession in parts of the industry -- may be for naught.

“There’s the old joke about the sign in the bar that says ‘free beer tomorrow,’” said Michael Roomberg, who helps manage $4 billion at Miller Howard Investments Inc. For shale drillers, “becoming free cash flow positive is something similar. And clearly this price reaction may delay that inflection point even further.”

Following Friday’s decimation of shale stocks, KPMG International’s Global Head of Energy Regina Mayor said she sees a buying opportunity. “I do not think this is the death of shale, she said. “I think it’s a good time to buy.”

But for many observers, the path ahead for the U.S. shale sector appears to be painful and uncertain. Even before Friday’s dramatic events, some forecasters, including Goldman Sachs Group Inc., expected global oil demand to shrink in 2020 for only the fourth time in nearly 40 years due to the effects of the coronavirus. A rationalization of the hundreds of independent U.S. producers currently active appears inevitable, according to Ian Nieboer, managing director of RS Energy, now part of Enverus.

“What we’re going to end up with is a major hollowing out of the industry,” he said.

Related News ///

FROM THE ARCHIVE ///

http://ow.ly/kiCs50yGtG8

Russia left OPEC+ Saturday. The goal: to kill U.S. shale oil production.

Already rattled U.S. markets are falling faster than a lead balloon in pre-market trading. Added to an inept Trump administration response to COVID-19 coronavirus and a new oil war, millions of American’s 401k’s and pension plans will suffer.

Trump’s turned a blind eye to Russian election meddling and sucked up to Putin. What did he get for all that sucking up?

Alexander Novak told his Saudi Arabian counterpart Prince Abdulaziz bin Salman that Russia was unwilling to cut oil production further. The Kremlin had decided that propping up prices as the coronavirus ravaged energy demand would be a gift to the U.S. shale industry. The frackers had added millions of barrels of oil to the global market while Russian companies kept wells idle. Now it was time to squeeze the Americans. www.worldoil.com/...

In retaliation for Russia’s move, Saudi Crown Prince Mohammad bin Salman slashed oil prices by a record amount and ordered an increase in production to further reduce oil prices to punish Russia, with oil being Russia’s primary source of revenue.

That sent oil prices plummeting in a dive never seen before.

Added to coronavirus/COVID-19 fears, Dow Futures plummeted overnight last night, so low it automatically triggered a halt to trading and indicates a 1300 point drop when trading opens this morning.

Stock futures tumbled early Monday morning as investors braced for the economic fallout from the spreading coronavirus, while a shocking all-out oil price war added to the anxiety. As of 5:10 a.m. ET Monday, futures on the Dow Jones Industrial Average indicated an opening drop of more than 1,300 points. The S&P 500 futures and Nasdaq-100 futures also indicated significant losses at Monday’s open. www.cnbc.com/...

While we consumers will enjoy lower gas prices for a time, an oil war will affect millions in the U.S. who work in the energy sector and exacerbate the hit the economy is already taking due to coronavirus pandemic fears.

So the Trump-Putin bromance may be ending like an affair between a starry eyed lover (Trump) being dumped by their partner (Putin), who leaves afterwards without even smoking a cigarette and give the finger as he walks out the door.

https://www.dailykos.com/story/2020/3/9/1925752/-Putin-dumped-OPEC-and-started-oil-war-to-kill-U-S-oil-production-Stock-market-taking-huge-hit&ct=ga&cd=CAIyHGUzNTNmYzI0N2YyZGM3ODQ6Y28udWs6ZW46R0I&usg=AFQjCNEuyra1gF9RM8eGehfFl9ZVvv3pV

Share price of BPCL, IOC and HPCL jumps as crude oil prices falls 31% and Saudi increases output

Share price of oil marketing companies jumped on Monday morning as crude oil prices plummeted as much as 31 per cent. Bharat Petroleum Corporation Limited share price jumped 10.5 per cent to trade at Rs 445 per share; Hindustan Petroleum Corporation Limited was up 9.5 per cent to touch Rs 220 and Indian Oil Corporation gained 2.6 per cent trading at Rs 103.5 apiece. Oil prices plummeted as much as 31 per cent on Monday morning, to reach its lowest since 1991, as Saudi Arabia announced plans to increase production in the aftermath of the fallout with Russia over output cuts.

While Oil Marketing Companies gained after the cut in prices, it was not all merry for oil explorers like Oil and Natural Gas Corporation (ONGC) and Reliance Industries. ONGC saw its share price fall 11 per cent to Rs 79 per share; Reliance Industries was down 7.4 per cent to trade at Rs 1,177 apiece.

In a note, before Saudi Arabia announced it would ramp up production, ICICI Securities termed an increase in output by OPEC+ as the “Worst case scenario”. The note added, “Worst-case scenario is: not only does global oil demand fall in CY20E and Libyan output rebounds to 1m b/d, but OPEC+ also boosts output from April 2020. Note that OPEC+ did not extend its existing production cut of 2.1m b/d beyond March 2020. OPEC+ raising output from April 2020 would lead to a bigger supply surplus and further oil price fall, which may test February 2016 lows.”

Saudi Aramco Share price fell below its initial public offer (IPO) price on Sunday. Aramco shares were trading at 31.10 riyals ($8.29) at 0724 GMT, down 5.8%, and below the IPO price of 32 riyals. Brent crude futures were down 25 per cent trading at $33.96 per barrel, their lowest since February 2016. US West Texas Intermediate (WTI) crude fell 26 per cent to %30.5 per barrel.

Saudi Arabia has slashed its prices, the most in 20 years after the fallout with Russia and has said that it will ramp up production resulting in more Crude oil available in the market that is facing demand shortage. On the other hand, Russia has stated that its companies were free to pump as much as they could.

https://www.financialexpress.com/market/share-price-of-bpcl-ioc-and-hpcl-jumps-as-crude-oil-prices-falls-31-and-saudi-increases-output/1892951/lite/&ct=ga&cd=CAIyGjUyYTIwNTdmY2ZlY2YzMWY6Y29tOmVuOkdC&usg=AFQjCNHqSoYe6skkaoYbzZxOs1wnX6bJk

At 11am Australian investors are staring at plummeting stock, with Origin Energy down 13%, Oil Search down nearly 26%, Woodside falling more than 18%, Santos down 25.7% and Beach Energy down 20.78%.

Even Otto Energy, which sought to reassure shareholders of its hedging program, saw a haircut of nearly 30%.

Otto said 61% of its oil production is hedged through to 2022. Its 2020 production is hedged at US$56.71/bbl.

This did not stop investors selling their shares though.

The entire S&P/ASX200 energy sector was trading down 20.75% at this morning. That is a fall of 1561.4 points.

It comes as Saudi Arabia slashed oil prices and amid concerns over the economic impact of the novel coronavirus COVID-19.

This morning ANZ Research went so far as to call the OPEC+ alliance "dead."

"There is no doubt that prices will come under pressure in coming days as the market contemplates the impact of a major supply and demand shock," ANZ said in a commodity insight this morning.

"We expect crude oil prices could test levels not seen since 2016 in the short term."

Feverish bear market swipes oil price over weekend

Brent nosedived more than 10% over the weekend, after the OPEC+ alliance meeting fell apart due to Russia's stubborn position to reject a plan for additional output cuts.

Prices then fell to their lowest levels in over a decade on Saturday Australian time, and analysts are warning Brent could fall even further to around US$40 a barrel.

It suffered its biggest single-day loss since 2018 and fell 9% to just US$45.27/bbl. The US West Texas Intermediate price also tumbled more than 10% to $41.28/bbl.

Analyst firm Wood Mackenzie said late Friday that the market was facing a "spectre of unrestrained production" once the current OPEC+ agreement expires at the end of this month.

WoodMac head of macro oils Ann-Louise Hittle said the failure of OPEC+ to come to consensus was a "psychological blow to the market."

"A sustained bout of low oil prices will further reduce cash flow and investment into the US oil patch," Hittle said.

"It takes at least six to nine months for reductions in spend to lead to lower oil production in the US Lower 48. In that time, their access to capital may be limited and their free cash flow badly hit."

OPEC had hoped Russia would come to the table and agree to an additional cut to an overall output of 1.5 million barrels to the end of the year.

Non-OPEC members, including Russia, were expected to contribute to output cuts of 500,000 barrels.

In February the cartel flagged production adjustments in response to market instability over the coronavirus COVID-19 epidemic.

The OPEC+ group could be forced to call an emergency meeting during the second quarter if oil prices continue to fall.

The outlook is gloomy, according to other analysts from Rystad Energy, which predicted a no-deal scenario.

Rystad forecasts that failure to come to an agreement will result in a huge surplus of 1.8 million bopd for liquids in the second quarter of 2020, and 1.9MMbopd for crude.

The firm believes Brent prices to sit at around the US$40 mark in the short term.

Australia's Santos has previously said it could survive at US$40/bbl but would need a higher price of US$60 to fund growth projects.

Oil-linked LNG hit will impact exploration

EnergyQuest's latest report of Friday unsurprisingly echoed other analysts, finding that COVID-19 would have an impact on Australian energy exports given most of the nationals LNG is sold via long-term oil-linked contracts.

So far, LNG watchers have been more concerned with the historic low prices in Asian spot market and general dampened demand in after warmer Northern hemisphere winters.

However, with oil predicted to stay lower-for-longer, and the price of Brent now below US$50 per barrel means gas exporters are facing severe revenue drops.

"Most Australian producers and projects are still viable at oil prices in the US$50s but the price fall cuts into the cash flow available for investment and/or dividends," EnergyQuest said.

https://www.energynewsbulletin.net/finance-legal/news/1382483/oil-stocks-smashed-at-midday-trade&ct=ga&cd=CAIyGjE5OTUwNmIwZjRlMjQ3NWY6Y29tOmVuOkdC&usg=AFQjCNEgS6DTfrtNblsnjI5h1asz-yLSi

Advertisment Stocks in Asia saw steep declines on Monday as oil prices plunged amid fears of a price war after the Organization of the Petroleum Exporting Countries (OPEC) failed to strike a deal with its allies on production cuts, adding to volatility already brought about by fears surrounding the coronavirus spread.

The Nikkei 225 tumbled 1,050.99 points, or 5.1%, to 19,698.76,

The Japanese yen, often seen as a safe-haven currency, traded at 102.37 per U.S. dollar after seeing levels above 108 last week. Gold prices rose in the afternoon of Asian trading hours.

In economic news, Japan’s economy shrank an annualized 7.1% in October-December, according to data from Japan’s Cabinet Office released Monday. That was a larger decline than the first preliminary estimate of a 6.3% annualized shrinkage. It was also worse than economists’ median forecast of a 6.6% contraction and the biggest fall since April-June 2014.

In Hong Kong, the Hang Seng Index dropped 1,106.21 points, or 4.2%, to 25,040.46.

Shares of oil companies also saw sharp losses. Australia’s Santos plunged 27% while Beach Energy dropped 19.4%. In Japan, Japan Petroleum Exploration fell 12.7%. Hong Kong-listed stocks of PetroChina plummeted 9.6% and CNOOC lost 17.2%.

The moves came after Saudi Arabia announced massive discounts on Saturday to its official selling prices for April, with the kingdom reportedly preparing to increase its production above the 10-million-barrel-per-day mark.

Saudi Arabia’s price cut followed a breakdown of talks in Vienna last week between OPEC and its allies, known as OPEC+, during a Friday meeting. The cartel had recommended additional production cuts on Thursday, but that was rejected by OPEC ally Russia on Friday.

CHINA

The CSI 300 slumped 141.38 points, or 3.4%, to 3,997.13

Chinese trade data released over the weekend showed the country’s January-February overseas shipments contracting 17.2% from the same period a year before, marking the steepest fall since February 2019.

Analysts had projected a 14% drop as the coronavirus outbreak disrupted supply chains and dampened demand.

Media also reported that China reported a trade deficit of $7.09 billion for the period, versus an expected surplus of $24.6 billion.

The Australian dollar changed hands at $0.6547 after an earlier low of $0.6318.

In other markets

In Korea, the Kospi index dumped 85.45 points, or4.2%, to 1,954.77

In Taiwan, the Taiex jettisoned 344.17 points, or 3%, to 10,977.64

In Singapore, the Straits Times Index docked 178.61points, or 6%, to 2,782.37

In New Zealand, the NZX 50 floundered 344.09 points, or 2.9%, to 11,091.81

In Australia, the ASX 200 lost 455.65 points, or 7.3%, to 5,760.56

https://www.baystreet.ca/articles/foreignmarketwrap/55193/030920&ct=ga&cd=CAIyGjhhN2FiYzg4ZWE0MjI3MzE6Y29tOmVuOkdC&usg=AFQjCNHk-h6V-Ni4Y1rNtvMO25kwdgh64

An oil price war launched by the Organization of the Petroleum Exporting Countries (OPEC) and Russia battered crude oil and stocks Monday, but the long-term ramifications may not be all doom and gloom for natural gas, especially in the Permian Basin, according to analysts.

West Texas Intermediate (WTI) crude plunged as low as $27.34/bbl early Monday but bounced back several dollars before midday. “With WTI prices now in the low $30s, there aren't too many plays in the Lower 48 that are now economic,” said NGI’s Patrick Rau, director of Strategy & Research.

Enverus analysts also said Monday’s price action would put most crude-focused areas in the Lower 48 out of the economic window for operators to drill, without hedges in place. “Should the market see these prices for an extended period of time, it could ultimately prop up gas prices as associated gas production would likely decline.”

That potential appeared to play out Monday in natural gas futures trading. The April Nymex gas contract, which plunged as much as 9.8 cents from Friday’s close to an intraday low of $1.610/MMBtu, went on to settle in positive territory.

More than any other market, the Permian could see a meaningful rebound in gas prices in the wake of lower crude. Permian gas prices have remained under pressure for the last couple of years as rampant liquids drilling has resulted in increased associated gas production in the region. A lack of gas takeaway, however, has resulted in steep discounts throughout the basin, with gas trading well into negative territory and sinking to record lows last spring.

While there may be some areas of the Permian that may be “slightly in the money, those areas would be the best acreage, and who is going to want to deplete their best inventory in this environment?” Rau asked.

Last week during the annual analyst meeting and before the Russia-OPEC price war, ExxonMobil CEO Darren Woods said the company is pulling back on dry natural gas production in North America and evaluating the pace of near-term development activities in the Permian “in response to market conditions…”

“This could very well lead to a material negative impact on U.S. oil production in the months ahead,” Rau said. However, any significant pullback in crude drilling, especially in the Permian, should help slow U.S. natural gas production. “That may not cause a sudden rush into positive territory for West Texas gas prices, but it should surely help slow the oversupply in that region.”

Goldman Sachs analysts estimated if its covered producers invest on the basis of $30-45 WTI over the next five quarters, “we will see more than 1 Bcf/d (net) less U.S. gas production.”

Meanwhile, for smaller exploration and production (E&P) companies that already were under pressure to consolidate, the deterioration of oil prices accelerates the timeline for integration, according to Rau. The majors and independents with strong balance sheets and a long-term view on oil could be presented with a number of opportunities to pick up assets on the cheap, particularly those drowning in debt.

“This is especially true since unlike the last downturn five years ago, financing by and large is no longer available to the small-to-mid cap names.”

RBN Energy LLC CEO Rusty Braziel acknowledged that these will be hard times for U.S. E&Ps, with the weaker among them facing bankruptcy and the stronger hunkering down to weather the storm. However, “even though we are witnessing unprecedented market conditions, it’s not Armageddon,” Braziel said.

Backing up his rationale, the RBN chief noted that it may take some time for lower prices to have a significant detrimental impact on crude oil production. Also, U.S. producers can get very creative when in survival mode, as they did during the last oil price crash in late 2014. “Though, it’s got to be acknowledged that market conditions this time around do look formidable and many of the E&Ps’ rabbits may already have been pulled out of their hats,” Braziel said.

Furthermore, low prices do not make oil and gas in the ground disappear, Braziel noted. They simply make it less profitable to extract therefore less of it gets extracted. “In effect, low prices motivate owners of that oil and gas (producers holding reserves) to put that production on hold -- to ‘store it in the rock,’ you might say -- and wait to withdraw it until the price is right.”

Braziel said the market likely is facing a similar situation to the collapse nearly six years ago, when low prices cut production for a time, but a subsequent rebound in prices spurred producers to renew drilling programs and improve productivity. “Sadly, it may not be the same E&Ps, since the weaker among them are unlikely to survive the 2020 downturn. But others will. They’ll pick up the assets left behind by the shuttered companies for a song, and be well-positioned for an eventual recovery.”

In the long term, the Lower 48 E&Ps will win the war, Braziel prognosticated. “Because there is just too much oil and gas sitting in U.S. shale plays that is ready and able to be produced in short order when the time, and the price, is right.”

Enverus’ Sarp Oksan, director of Energy Analytics, said even before the coronavirus and oil price crash, operators indicated they were open to further activity reductions if prices deteriorated further. “Now it is a race to the bottom with very different implications for shale this time around than the initial price war of 2014-2016,” Oksan told NGI.

Operators that are not hedged would certainly reconsider their capex plans and revise downward, especially since most plans were set in place with $50-55 crude and $2-plus gas prices in mind, according to Oksan. Should U.S. production declines follow close to natural decline levels, meaning all activity is decimated, 40-60% declines could be expected in the first year, which would turn the market into a supply deficit and help prices rebound, he said.

“Russia and Saudi Arabia both have rainy day funds that mean that at $30 crude, they can meet budgetary obligations” for at least one year. “This means they are unlikely to back down,” Oksan said.

Insult To Injury

Last week, the coronavirus, officially named Covid-19, was the biggest issue looming over the oil market, but now the market share war has dominated concerns, according to Oksan, with virus demand worries just adding “insult to injury.”

However, some of the spending and activity cuts implemented by producers would be partially offset by efficiency gains and operators choosing to drill in core areas with more of a development plan that could impact productivity to the upside, he said. Some of these areas have transitioned into development mode, however, and there have been parent-child issues in which some areas post deterioration in type curves.

“Should our operators be able to address spacing as more of a science, rather than a science experiment, we should be able to mitigate a lot of the interference issues, space correctly and actually see a bump in production again this year although we have a lower capex spend across the board,” Oksan said.

Meanwhile, real-time measures of global traffic congestion and power consumption, as well as other data, in the wake of the coronavirus were pointing to a less dire scenario for global oil demand this year before the all-out oil price war was launched.

Ahead of the weekend’s developments, Enverus Vice President Al Salazar projected that total world oil demand would grow at a modest 600,000 b/d in 2020, which was considerably higher than some no-growth, or decline, scenarios offered by other analysts.

However, the OPEC price cuts “add a significant wrinkle to the discussion,” Salazar told NGI. “This is truly a unique point in the market’s history, as normally such low oil prices would incent demand. However, Covid-19 has effectively handcuffed such a response from occurring, at least until the virus subsides to a point where the greater populace feels safe.”

The Enverus analyst said based on the number of people on lockdown as of late last week, whether voluntary or involuntary, China is “easily” shedding more than 1 million b/d of oil demand in the first quarter. That estimate is based on a projected loss of 1% in global gross domestic product (GDP) growth this year compared to the firm’s pre-coronavirus case, which also is the midway point between the best- and worst-case scenarios for GDP growth issued by the Organization for Economic Cooperation and Development earlier this month, ahead of the failed deal to trim output.

“It’s important to note that data on the Chinese economy and oil demand are opaque to begin with,” said Salazar. “At this point, there is no authoritative count for how much Chinese oil consumption is offline.”

The International Energy Agency (IEA) unsurprisingly said Monday demand is expected to decline this year. In its central base case, demand this year is seen declining for the first time since 2009 because of the “deep contraction” in China’s oil demand, as well as major disruptions to global travel and trade.

“The coronavirus crisis is affecting a wide range of energy markets -- including coal, gas and renewables -- but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels,” said IEA Executive Director Fatih Birol.

However, during a webinar last week exploring the impact of the coronavirus on global oil demand, Salazar noted that IEA data often is revised several months later and other data sets don’t reflect the full picture. “Some analysts point to drastically reduced Chinese refinery runs, reduced Chinese imports and other one-off measures, but the problem is none of these equate to actual consumption,” he said.

Improvement In China?

Although Salazar said that the outbreak situation remains “very fluid,” there are some real-time indicators that paint a more holistic view for projecting oil demand. One of these is the Chinese Purchasing Managers Index (PMI), which provides an early indication each month of economic activities in the Chinese manufacturing sector.

The PMI plunged to 35.7 in February 2020, down from 50 in January and the lowest level since the survey began in April 2004, “which is a clear, loud warning about Chinese manufacturing sentiment deteriorating,” according to Salazar.

The TomTom Traffic Index, a real-time measure of global traffic congestion, showed that for Wuhan, the epicenter of the virus in China, traffic was 40% less congested than the same time last year. However, for other areas under some form of lockdown, there has been increased congestion since mid-February and in some cities, traffic congestion is back to normal.

“In the past two weeks, we’ve seen a 10-20% improvement/increase in traffic congestion,” Salazar said. “Overall, this data suggests that Chinese gasoline consumption in March should be higher than last month and could be back to normal in the second quarter.”

Other factors also point to an improvement in Chinese economies. Power consumption data remains roughly 30% lower year/year, but is slowly improving, according to Enverus. Salazar noted that less mobility in China due to the coronavirus has had the unintended consequence of improved air quality, which has been confirmed in satellite images from the National Aeronautics and Space Administration.

Salazar said he doesn’t believe the market is pricing in some of the more positive trends being reflected in the TomTom and power consumption data. “That, to me, is almost a counter-consensus viewpoint...that things could be back to normal in the second quarter.”

He also noted that the Chinese government has pledged to meet this year’s economic targets as well as China’s obligations under phase one of the U.S.-China trade deal. “Despite the shocks on the economy, a significant catch-up is needed to achieve this,” Salazar said. “China has a history of persevering under difficult economic conditions.”

https://www.naturalgasintel.com/articles/121273-coronavirus-wreaks-havoc-on-markets-enverus-more-optimistic-on-oil-demand&ct=ga&cd=CAIyGmIyMzkzNGFiNzQ2ZGQyMWQ6Y29tOmVuOkdC&usg=AFQjCNEtko9sWSS8QUKQ4TL2hMbw0qapz

Dubai — S&P Global Ratings lowered its 2020 price assumptions for Brent to $40/b and WTI to $35/b and warned of possible rating actions for some producers, particularly in North America, in the aftermath of Monday's oil price crash.

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The agency, whose previous estimates were $60/b for Brent and $55/b for WTI, said producers may not weather the current downturn as well as they did in 2015-2016. It will be conducting reviews on all investment-grade and high-yield exploration and production companies and oilfield services companies in the coming weeks.

"Producers, particularly those in North America, are under tremendous pressure by investors to limit spending, maintain positive free cash flow, and enhance shareholder returns," the ratings agency said Monday in a report. "During the previous downcycle (2015-2016), many producers were successful in significantly reducing their costs and improving their balance sheets through asset sales and equity issuance, which helped reduce the number and order of magnitude of rating actions. However, we don't expect producers to be able to achieve anywhere near the efficiencies gained last time."

Oil prices fell to a three-decade low on Monday after the 23-member OPEC+ failed to agree on extending and deepening oil output curbs beyond March, raising the potential for producers to pump at will starting in April. The oil price crash battered energy stocks from Europe to the US, raising fears of further declines as more oil comes to the market.

Oil prices on Tuesday recouped some of their losses, with WTI up 7% to $33.32/b at 2:47 am CST time and Brent trading up 6.05% to $36.44/b.

Capital crunch

Most oil companies will not be able to raise capital as efficiently as they did during 2015-2016, S&P Global Ratings said. During 2015-2016, oil prices crashed, reaching a low of less than $30/b in the beginning of 2016, a level that prompted OPEC kingpin Saudi Arabia to talk to non-OPEC oil producers led by Russia to collectively cooperate in trimming output to return the market to balance.

"It's likely rating actions in the investment-grade category could be more severe than during the last cycle," it said. "For the high-yield segment, in particular, issuers without hedges, those who face upcoming maturities, and are somewhat squeezed on borrowing-base revolving credit facilities will most likely face multiple notch downgrades."

US oil production is unlikely to dip immediately, but could decline next year, the agency said. US oil production is forecast to rise by 960,000 b/d in 2020 to a record of 13.2 million b/d, according to the Energy Information Administration, below its previous estimate for a 1.06 million b/d hike.

"We don't expect US production to decline immediately due to hedges and previously drilled wells, but rather we should begin to see the impact on production early next year as spending levels decline and we see steep decline curves," S&P Global Ratings said. "The market should experience a sharp decline in production from the US next year similar to what happened during the last downturn."

Oil demand

Coronavirus and restrictions on travel and transport will impact global oil demand, the agency said. The International Energy Agency said on Monday global oil demand would contract in 2020 for the first time since the 2009 financial crisis, declining by 2.5 million b/d in the first quarter from a year-earlier period.

"Oil demand growth could contract, or be broadly flat in 2020. This largely reflects the impact from the coronavirus on travel and transport fuel demand," S&P Global Ratings said. "This is certainly the case with China, which had been a key source of anticipated demand growth, but also globally."

Saudi Arabia, which slashed its oil prices for April exports in what analysts are calling a price-war against Russia, can sustain a low oil price for some time, S&P Global Ratings said.

The Russian government said on Monday the domestic economy could withstand oil prices falling to $25-$30/b and that Russia would maintain its share of the global oil market.

"In the event of a market share grab, we believe Russia has a breakeven oil price of approximately $51 per barrel, although Saudi Arabia has a much higher price of $83 per barrel and is in the midst of an economic transformation (Vision 2030) to reduce its reliance on oil," S&P Global Ratings said. "Also, Russia, Saudi Arabia, and several Gulf Cooperation Council (GCC) nations, have vast financial resources and can sustain a low oil prices for some time."

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Singapore — Price cuts from Abu Dhabi National Oil Co. for crude loading in February failed to make much of an impression within the Asia crude industry after Saudi Aramco's jaw-dropping cuts over the weekend, industry sources and traders told S&P Global Platts Tuesday.

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"ADNOC may have used the retroactive card and cut double of where their grades traded in the spot market last month, and normally this would work, but we are not in a normal situation right now, with Saudi whacking their prices down six dollars," a buy-side source in Singapore said.

The UAE company slashed outright official selling prices for all of its four grades by $11.70/b month on month in a notice issued late Monday.

But on closer inspection, the grade's OSP differentials to underlying Dubai crude assessments were cut by only $1.63/b, compared with $5/b and $6/b cuts for Saudi grades to Asia.

"On a North Asia delivered basis, Murban landed price is now around Dubai plus $2.90/b basis the current OSP differential. Arab Extra Light is Dubai minus $1.90/b for the same," a crude trader said, highlighting a $4.80/b difference for buyers between the two light sour grades.

However, the price comparison was made between February loading Murban and April loading Arab Extra Light, based on the latest OSP differentials available for each.

Market participants pondered the likelihood of ADNOC staggering an equivalent price cut to Aramco's $6/b deliverance in the two-month time lag between its February OSP and the April Saudi OSP.

Time lag

The time lag carries the risk of market dynamics changing between now and May -- when ADNOC's April OSPs will be due, market participants said, with no assurance that the end result would match the Saudi price cut. This would disincentivize buyers from committing to buy ADNOC barrels in place of Saudi crude, they said.

"There is no guarantee how they will cut [prices] next month, and it spells two more months of uncertainty for their grades," the trader said.

ADNOC issues its OSPs retroactively -- for the month of loading preceding the current calendar month -- while Saudi Aramco issues them on a forward-looking basis, for the month of loading following the current calendar month.

The company's $1.63/b cut is roughly two times the discounted range in which its grades traded last month. April loading cargoes of its light sour crudes Murban, Das and Umm Lulu traded at discounts ranging from 60 cents/b to more than $1/b against the OSP.

ADNOC's medium sour Upper Zakum crude traded at around minus 70 cents/b to minus 85 cents/b under its OSP in February. Several Upper Zakum deals were also reportedly done using Platts front-month Dubai crude assessments as the underlying reference, instead of the grade's own OSP.

Upper Zakum is one of the five deliverable grades in the Platts Dubai partials basket, as is Murban.

ADNOC said Monday in its OSP notice it "has always set a fair and reasonable retroactive price for its crude oil that is consistent with market conditions. This practice will continue."

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Dubai — Oman, the Middle East's biggest oil producer outside of OPEC, is deliberating several options to restructure its state-backed oil and gas companies to provide a much-needed cash injection to the country's balance sheet, while continuing plans to increase production, a ministry source told S&P Global Platts.

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Options include creating a new national oil company, changing the structure of semi state-owned Petroleum Development Oman (PDO) to enable it to raise its own debt, or listing or divesting a portion of state-owned OQ, the source said. The country may also consider selling a stake of a large asset, in the same manner as when Petronas bought a 10% stake of Oman's BP-operated Khazzan gas project in late 2018.

"Brainstorming sessions are underway to look at different options," the source said. "Everything is in the early stages."

Current market conditions make it unlikely that Oman will pursue a deal soon. Crude prices have tumbled after Saudi Arabia and Russia, two of the world's largest oil producers, couldn't agree on extending production cuts, setting the stage for a potential price war among major producing nations. Oil majors will also be under pressure to slash their investment plans and cut shareholder payouts this year. That could make it challenging for Oman to raise the cash that it seeks.

"It's not a good time to be selling," Robin Mills, CEO of Qamar Energy, said. "The market is so uncertain, how would anybody agree on a price?"

He added that if Oman was intent on conducting a sale, downstream assets would make for better candidates for a transaction because upstream assets are seeing their valuations shrink significantly.

Oman needs to raise between $5 billion and $6 billion this year to balance the budget, banking sources said.

Revenue from the hydrocarbon sector accounts for about 80% of the sultanate's national budget, which has been hit by years of low oil prices and is in deficit. The breakeven oil price needed to balance the budget this year is $85.90/b, according to the International Monetary Fund. Brent crude was trading at $36.95/b at 1:20 pm Singapore time (0520 GMT).

Production target

PDO pumps 630,000 b/d of oil, and has a production target of 700,000 b/d within five years. Changing the structure of PDO to make it more of an independent entity, rather than a developer and operator on the government's behalf, would mean the company would be able to tap its own financing from debt markets, the government source said.

At present, the majority of PDO's funds are provided by the government, and changing the structure of the company would relieve the government of this burden, the source said.

The company's 2020 budget is around $7.5 billion, which covers capital expenditures and operational expenditures. About 40% of this is funded by PDO's external shareholders; the rest is government money. Oman owns 60%, while Shell holds 34%, Total 4% and Partex 2%.

PDO has also said it plans to divest some of its more capital intensive upstream assets. Under the instruction of the Omani government, PDO has already been selling off parts of the large Block 6. For example, the six licenses tendered by Oman this year from Blocks 58, 70, 73, 74, 75 and 76 were carved out of Block 6. These licenses are yet to be awarded, the government source said.

OQ may sell 20% to 25% of its stock in an IPO, either through a public stock listing or privately. There have been no talks with potential investors, the source said.

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New York — 1045 GMT: Crude oil futures recovered slightly in mid-morning trade in Asia Tuesday, after prices plunged Monday, though the outlook for oil remains bleak amid concerns of weakening demand and growing supply.

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At 10:45 am Singapore time (0245 GMT), May ICE Brent crude futures were up $1.99/b (5.79%) from Monday's settle to $36.35/b, while the NYMEX April light sweet crude contract was $1.48/b (4.75%) higher at $32.61/b.

Bearish concerns loomed as oil producers may potentially ramp up production to gain market share, while economic prospects and downstream demand continue to take a hit amid the global spread of the coronavirus.

"The uncertainty around the state of the oil and more broadly, energy market, as well as the continued spread of the coronavirus has left investors grasping at straws," Mizuho Bank analysts said.

Crude futures plunged more than $10/b Monday after Saudi Arabia slashed official selling prices for its crude grades. This comes after OPEC and its allies last week failed to come to an agreement on cutting production to offset the impact of the coronavirus.

The sharp decline Monday was triggered by expectations that other Middle East producers would follow Saudi Arabia's lead, driving prices lower amid a battle for market share.

"Although we have seen prices coming off from a lower starting point compared to the 2014 episode, this [latest decline] is also set against a poorer demand backdrop with the coronavirus disruptions that had led the market to hazard a thought for even lower prices," IG market strategist Pan Jingyi said Tuesday.

"Despite the fact that lower oil prices benefit consumers, the plunge towards sub-$30 levels would be difficult for even the major producers to bear as seen in early 2016," Pan added.

The Russian government Monday said the domestic economy could withstand oil prices falling to $25-$30/b and that Russia would maintain its share of the global oil market after the ruble hit a four-year low against the dollar.

Russia had refused to sign a deal with OPEC and its non-OPEC allies on additional production cuts for the rest of 2020.

According to energy minister Alexander Novak, Russia and other producers are free to pump oil at will after the current OPEC+ deal expires on April 1.

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Occidental Petroleum Increase Earnings and Production But Impacted By Lower Gas Prices

Occidental Petroleum reported better than expected Q2 earnings Wednesday $OXY will become the biggest Permian Basin producer after Anadarko shareholders vote Aug. 8 on the $38 billion sale. ExxonMobil and Chevron report Friday

Guidance on exploration and production spending is key as oil prices have stablized recently but natural gas prices continued to fall, with U.S. drilling and production have near record highs Oil service giants Schlumberger $SLB and Baker Hughes, a GE Co $BHGE having reported slowng activity metrics while Haliburton warned about the Permian bottleneck.

Occidental Petroleum Corporation NYSE: OXY Reported After Cloe Wednesday

$0.97 EPS Beat $0.91 AND $4.42B Beat $4.32 Billion Forecast in Revenue

Earnings

Occidental reported for the second quarter EPS of 97 cents on revenue of $4.42 billion, with total average daily production volumes of 741,000 barrels of oil equivalent, up 16% from a year ago. Analysts saw EPS falling 17% to 91 cents, on revenue is seen rising 5.6% to $4.32 billion.

Higher production was offset by weaker prices, with the realized price for its oil and U.S. natural gas off 6.7% and 85%, respectively, from a year earlier.

Occidental Petroleum Corporation NYSE: OXY

Market Reaction >After hours $51.40 +0.040 (+0.078%)

Highlights

Total average daily production volumes reached 741,000 barrels of oil equivalent, up 16% from a year ago. Permian Resources average daily production of 289,000 BOE was up 44% from a year ago and 11% from Q1, due to improved well performance and development activity.

Operating profit in oil and gas fell 7% to $726 million,

Profit in chemicals fell 34% to $208 million

Pipeline profit rose 32% to $331 million, compared with year-ago figures.

Profits were hurt by $107 million in one-time costs, including Anadarko-related transaction and debt financing fees.

Occidental and EcopetrolEC also agreed to form a joint venture to develop 97,000 net acres of Occidental's Midland Basin assets in the Permian Basin. Oxy will own 51% of the JV.

Outlook

In May, Occidental topped Chevron's (CVX) offer to acquire Andarko Petroleum (APC) to gain access to Anadarko's Permian Basin acreage. The deal is expected to close in the second half of this year. Once that buyout is finalized, Occidental will become the biggest Permian Basin producer. Anadarko shareholders will vote Aug. 8 on the $38 billion sale

The deal led to some more merger activity in the area. Callon Petroleum (CPE) announced earlier this month that it would buy Carrizo Oil & Gas (CRZO) in an all-stock deal to expand its Permian Basin acreage. Occidental is battling activist investor Carl Icahn blasted the Anadarko deal for what he says are overly favorable terms for Warren Buffett. Berkshire Hathaway (BRKB) agreed to provide $10 billion in equity financing to aid Occidental's bid.

Source: OXY

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The clash of oil titans Saudi Arabia and Russia sparked a 25% slump in crude prices on Monday, triggering panic selling on Wall Street and other equity markets that have already been badly hit by the impact of the coronavirus outbreak.

Oil prices recovered some ground on Tuesday, but were still 40% down on the start of the year.

U.S. President Donald Trump spoke with Saudi Crown Prince Mohammed bin Salman in a call on Monday to discuss global energy markets, the White House said on Tuesday.

Trump is seeking re-election this year and will benefit from lower gasoline prices at the pump. But the U.S. government will also be concerned by the potential for bankruptcies in the U.S. shale industry, which plays an increasingly important economic role.

Several U.S. oil firms said on Tuesday they would cut spending and dividends.

Amin Nasser, chief executive of Saudi Aramco said the state-run oil giant would increase supply in April to 12.3 million barrels per day (bpd), or 300,000 bpd above its maximum production capacity, indicating it may draw from storage.

Saudi Arabia has been pumping around 9.7 million bpd in the past few months, but has extra production capacity it can turn on and it has hundreds of millions of barrels of crude in store.

Moscow said Russian oil companies might boost output by up to 300,000 bpd and could increase it by as much as 500,000 bpd, sending the Russian rouble and stocks plunging.

U.S. Treasury Secretary Steven Mnuchin told Russia that energy markets needed to stay "orderly".

Brent oil prices jumped 8% on Tuesday to above $37 per barrel after Russian Energy Minister Alexander Novak said Moscow was ready to discuss new measures with OPEC. [O/R]

Russia's Energy Ministry also called for a meeting with Russian oil firms on Wednesday to discuss future cooperation with OPEC, two sources told Reuters.

But Saudi Energy Minister Prince Abdulaziz bin Salman appeared to rebuff the suggestion.

"I fail to see the wisdom for holding meetings in May-June that would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures," he told Reuters.

STRAINED BUDGETS

Riyadh's unprecedented hike in supply follows the collapse of talks last week between members of the OPEC+ grouping, an informal alliance of OPEC states, Russia and other producers that has propped up prices since 2016.

Russia rejected OPEC's call to deepen existing supply cuts, prompting OPEC to scrap all production limits and Russia to say it would also boost output, sending crude prices briefly down to almost $31 and reviving fears of a 2014-style price crash.

Saudi Arabia needs an oil price of around $80 to balance its budget, but has cash reserves and the ability to borrow to deal with a price plunge for now. Russia needs about $42 to balance its books and also has hefty cash reserves it can draw on.

Iraq and some other OPEC nations, with more meagre financial resources to cope with a dramatic drop in oil revenues, called for action to shore up prices.

Ratings agency Fitch said a sustained sharp drop in oil prices would hit the sovereign ratings of those exporting countries with weaker finances, particularly those with exchange rates pegged to the dollar.

But even Saudi Arabia, with its hefty financial reserves and sovereign wealth fund, did not have "infinite leeway" to support its A (stable) rating, Fitch analyst Jan Friederich said.

Aramco shares, which slid at the start of the week, were up 9.9% at 31.15 riyals at 1353 GMT on Tuesday but were still below their December listing price of 32 riyals.

Shares in U.S. firms which had also dropped recovered slightly on Tuesday. Occidental Petroleum said it would cut dividend and spending, while Chevron said it might cut spending and production.

The U.S. Department of Energy said on Tuesday it had suspended a sale of up to 12 million barrels of oil from the government's emergency crude reserve due to the price drop.

OPEC+ had effectively been cutting output by 2.1 million bpd, including the extra voluntary cuts by Saudi Arabia.

OPEC had sought further cuts that would have brought the total to about 3.6 million bpd or roughly 3.6% of global supplies, but Moscow's rejection of that plan led to the collapse of the whole deal.

By Rania El Gamal and Olesya Astakhova

https://www.marketscreener.com/SAUDI-ARABIAN-OIL-COMPANY-103505448/news/Saudi-Arabian-Oil-Arabia-Russia-raise-stakes-in-oil-standoff-30135497/&ct=ga&cd=CAIyHGMzMDI4NGM4N2E3MjhhZTM6Y28udWs6ZW46R0I&usg=AFQjCNG7LF7VygeBI5PMIXdcIOg7354nP

(Bloomberg) -- Shale insiders are swooping in to buy stock in their ailing firms this week after an oil price war erupted between Saudi Arabia and Russia late Sunday.

The purchases come as many shares are trading at record lows, and companies have responded by slashing capital spending and operating costs to protect their balance sheets in the midst of weak crude oil prices.

Ray Davis, Energy Transfer LP board member and co-owner of Major League Baseball’s Texas Rangers, scooped up 1.28 million shares in the pipeline company at an average price of $7.77 on March 9, according to a filing. The Texas-based billionaire is the fifth largest holder in Energy Transfer with about a 3.3% stake, according to data compiled by Bloomberg.

Another purchase came from NuStar Energy LP Chairman William Greehey, who bought 200,000 NuStar shares at an average price of $12.24, according to a filing. Greehey is the third largest holder in the midstream firm, with a 9.02% stake, Bloomberg data show.

Elsewhere, Travis Stice, CEO of shale driller Diamondback Energy Inc., bought 17,146 indirectly owned shares at an average price of $28.40 on March 10, a filing showed. Range Resources Corp. board member Steffen Palko also bought 903,128 shares for an average price of $2.20, increasing his holdings in the underperforming natural gas driller to 1 million shares.

Since February 20, oil and gas insiders have spent about $93 million purchasing their companies’ stocks, according to data compiled by the Washington Service.

See more purchases here.

(Updates with data from Washington Service in 6th paragraph.)

--With assistance from Miles Weiss.

To contact the reporter on this story: Michael Bellusci in Toronto at mbellusci2@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Scott Schnipper, Jennifer Bissell-Linsk

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.

https://finance.yahoo.com/news/texas-billionaire-ray-davis-among-163632531.html

By Olesya Astakhova and Katya Golubkova

MOSCOW (Reuters) - This week's oil price rout had become inevitable and cutting output has ceased to make sense because it is unclear how deep the impact of the coronavirus on demand will be, Russia's deputy energy minister said in an interview with Reuters on Wednesday.

Last week, Saudi Arabia failed to secure Moscow's support for deeper output cuts at a meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.

Following the disagreement, Saudi Arabia has threatened to flood the market with oil. Oil prices dropped by as much as a third on Monday and fell again on Wednesday to around $36 a barrel.

OPEC had proposed to deepen cuts by 1.5 million barrels per day (bpd) and Russia was asked to cut an extra 300,000 bpd.

Pavel Sorokin, Russia's deputy energy minister, described that task, which would have doubled Moscow's commitment to 600,000 bpd, as technically challenging.

He said there was no point in cutting until after everyone understood how sharply demand could fall.

"We cannot fight a falling demand situation when there is no clarity about where the bottom (of demand) is," Sorokin said. He attends all joint meetings with OPEC with his boss Alexander Novak and gave Reuters his first interview since last week's meeting.

"It is very easy to get caught in a circle when, by cutting once, you get into an even... worse situation in say two weeks: oil prices would shortly bounce back before falling again as demand continued to fall."

Russia had proposed extending existing OPEC+ combined cuts of 1.7 million bpd for at least one more quarter to try to assess the real impact on demand from the coronavirus, but OPEC refused. From April 1, all OPEC+ producers can now pump oil freely.

"We see the (current) market situation as predictable yet unpleasant... Market and market forces will regulate it fairly quickly," Sorokin said, adding he expected to see the first signs of lower oil production activity at costly projects worldwide in 4-6 months.

"NOT AT WAR"

Sorokin said Russia was open to talking to OPEC again if the situation arises and was not engaging in a price war.

"All communication channels are open, but I cannot predict when we will meet again - this largely depends on our partners," he said.

Russia's oil producers, who price their crude in dollars on world markets, would be sheltered by the dollar-rouble exchange rate.

"We are not in a price war with anyone... We are competitive. We watch the market and understand that such a situation will help the market to recover. High-cost projects will disappear," Sorokin said.

Russia can quickly add 200,000-300,000 bpd to its production, raising it further to 500,000 bpd in the next couple of months, which would take Moscow's oil and gas condensate output to around 11.80 million barrels of oil equivalent per day (boepd).

That would be a post-Soviet high but still below the more than 12 million bpd the Saudi energy ministry has said it will produce in April.

Last week's split between Russia and OPEC ended nearly three years of coordination, during which time the market accepted the idea producers would prevent a market collapse.

Sorokin said that meant companies began to invest in high-cost oil again, reducing the impact of more output cuts by producer countries.

A fresh cut last week would have boosted prices and in turn brought on new projects that would flood the market in three-to-four years' time, he said.

"Sooner or later, we would have faced an oil price fall to $40 and lower, with the exit (from the deal) in six months or a year," Sorokin said.

The deputy minister sees oil market equilibrium at $45-55 per barrel, which is comfortable for producers and low enough for the global economy to recover from the coronavirus impact.

Provided there are no further shocks, Sorokin said he saw prices rising to $40-45 per barrel in the second half of this year and to $45-50 - in 2021.

(Reporting by Olesya Astakhova and Katya Golubkova; editing by Barbara Lewis)

https://finance.yahoo.com/news/exclusive-russia-opec-deeper-oil-172530940.html

Dubai — The UAE sees a need for a new OPEC+ agreement to keep the oil market balanced, the country's energy minister said Wednesday in a tweet, as OPEC's third-largest oil producer announced plans to boost supplies in April and speed up expansion in production capacity.

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"The UAE Ministry of Energy and Industry firmly believes that a new agreement is essential to support a balanced and less volatile market,” Suhail al-Mazrouei said in the tweet. "We are disappointed that no agreement was reached by OPEC + and the current declaration of cooperation will therefore expire at the end of March 2020."

OPEC+ talks to extend and deepen oil production curbs broke down last week after Russia refused to sign on to a conditional output cut proposed by Saudi-led OPEC, which had recommended reducing its output by 1 million b/d as non-OPEC allies lower production by 500,000 b/d. The breakdown of talks pushed prices on Monday to levels not seen since 2016, when the landmark alliance was formed. The declaration of cooperation was signed in December 2016, when the alliance came together after a joint OPEC and non OPEC meeting in Vienna. OPEC+ is in the last month of an agreement to trim 1.7 million b/d from global market that expires end of March.

Price war

Since the failure of last week's talks, OPEC kingpin Saudi Arabia slashed its oil selling prices for April by the most ever for some grades, said it will supply the market with 12.3 million b/d next month and announced plans to raise is maximum production capacity by 1 million b/d to 13 million b/d in what analysts are calling a price war.

The UAE has followed in the footsteps of Saudi Arabia slashing its retroactive pricing levels, boosting supplies in April and accelerating a plan to boost output capacity.

State-owned Abu Dhabi National Oil Co, the UAE's biggest producer pumping some 3 million b/d of crude, announced on Wednesday it could supply over 4 million b/d to global markets in April and said it plans to speed up its production capacity target of 5 million b/d, which was previously slated for 2030.

"Operators in the UAE have ample production capacity that will be quickly brought online given the current circumstances,” Mazrouei said in the tweet.

ADNOC has previously said it was on track to raise oil production capacity to 4 million b/d in 2020.

Russia reply

Russia, which leads the 10 non-OPEC members in the coalition, could potentially increase oil output by up to 500,000 b/d although it hasn't closed the door to further cooperation with OPEC in the future, energy minister Alexander Novak said Tuesday.

Under the existing output cuts between OPEC and non-OPEC producers, Russia's quota is 10.328 million b/d. In February, the country produced 11.38 million b/d, according to S&P Global Platts estimates.

The next meeting of OPEC and non-OPEC ministers is scheduled for May-June, he said.

As for the steep drop in prices, Novak blamed Saudi Arabia offering discounts on oil for the price crash, which "will take a few months to recover."

Meanwhile, the Kremlin did not rule out Moscow and Riyadh returning to the negotiating table and reaching a consensus on oil production cuts.

http://plts.co/6iTR50yIQJj

Dubai — Abu Dhabi National Oil Co, the UAE's biggest producer – pumping some 3 million b/d – can supply the market with over 4 million b/d of crude in April and is speeding up plans to boost capacity to 5 million b/d, which was originally targeted for 2030 as the deluge of oil supply continues.

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"We are in a position to supply the market with over 4 million b/d in April," ADNOC Group CEO Sultan al-Jaber said in a statement on Wednesday. "In addition, we will accelerate our planned 5 million b/d capacity target.”

The UAE is following in the footsteps of Saudi Arabia, which Wednesday announced plans to boost its production capacity by 1 million b/d to 13 million b/d as the price war and flood of oil supply picks up. Saudi Arabia also said on Tuesday it would supply the market in April with some 12.3 million b/d, an increase of 300,000 b/d on its maximum sustained capacity of 12 million b/d.

ADNOC, which earlier had said it was on track to boost production capacity to 4 million b/d by 2020 and to 5 million b/d by 2030, is ramping up production with the help of international oil companies, who were awarded various concession agreements over the past two years.

"Operators in the UAE have ample production capacity that will be quickly brought online given the current circumstances," UAE energy minister Suhail al-Mazrouei tweeted on Wednesday.

The UAE pumped a record 3.45 million b/d in November, "just shy of capacity,” and exported 3.3 million b/d, the International Energy Agency said in revised figures published in its oil market report last month. IEA revised its estimate of the UAE's November 2019 oil production after taking into account more cargoes to South Korea, India and Japan in the fourth quarter.

Forward pricing

Al-Jaber also said ADNOC would announce forward pricing for March and April "shortly." Currently, ADNOC uses retroactive pricing for its crude.

"In response to market conditions, and to provide better forward visibility to our customers, ADNOC will shortly announce forward prices for the months of March and April 2020," al-Jaber said. "This decision has been made to ensure that our customers have visibility of the price so they can plan accordingly."

ADNOC slashed outright official selling prices for all of its four grades by $11.70/b month-on-month in a notice issued late Monday, mimicking Saudi Arabia's unprecedented move in which it slashed prices for some its crude by the biggest cut ever in what analysts are calling a price war.

The sharp cuts in crude prices follow the failure of OPEC kingpin Saudi Arabia to convince Russia, its main ally in the 23-member OPEC+ coalition, to extend and deepen production cuts beyond March, leaving countries in the alliance to pump at will as of April.

The so-called price war pushed benchmark oil futures on Monday to lows not hit since Saudi Arabia and Russia came together in 2016 to forge the alliance to halt price declines to less than $30/b that occurred in the beginning of that year.

Prices have clawed back some of Monday's plunge but are still trading around $35/b.

Murban futures

The CEO also said ADNOC is still on track to launch futures for its flagship crude, Murban, which it had earlier said would start in the first half of this year. ADNOC and the Intercontinental Exchange have teamed up to launch the ICE Futures Abu Dhabi, the exchange hosting the Murban futures.

"As announced in November 2019, ADNOC remains firmly committed to moving from its current retroactive pricing mechanism to a new forward pricing mechanism for its flagship Murban crude oil," al-Jaber said. "This will be traded on a new independent exchange, ICE Futures Abu Dhabi (IFAD), which is expected to launch after the necessary regulatory approvals are obtained."

The launch of the exchange has been delayed beyond its expected first half 2020 kick-off due to regulatory hurdles, sources close to the matter told S&nbp;P Global Platts earlier this month.

To guarantee liquidity for the Murban futures contract, nine international energy companies will be partners in the exchange, although the breakdown of the shareholding has not been disclosed.

Murban will be the second physically delivered futures contracts traded on a regional exchange after Dubai Mercantile Exchange's Oman crude futures.

Murban is also a deliverable grade in the Platts Dubai and Oman crude assessment process.

http://plts.co/5ytb50yIQJa

Singapore — Benchmark Dubai crude futures' discount to ICE Brent shrank to its slimmest on record in mid-morning trade in Asia Wednesday, with crude from the Middle East poised to see preferential demand from refiners in Asia due to competitive pricing.

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The May Brent/Dubai Exchange Futures for Swaps spread was pegged at 8 cents/b at 11 am in Singapore Wednesday (0300 GMT), a new low for the spread, according to S&P Global Platts records.

The EFS had been assessed at 48 cents/b at the Asian close at 4:30 pm in Singapore (0830 GMT) Tuesday.

Price cuts issued by Middle East producers in step with Saudi Aramco appeared to have given crude from the region a competitive edge in the newly launched price war, traders said, effectively shutting off any arbitrage from the US or Europe to Asia.

"Buyers [in Asia] should load up on as much Saudi [crude] as they can -- and they will," a Singapore-based crude trader said. "Saudi said they will give whatever [volumes] buyers want - so should be easy," he added.

The spread had last touched a record low at 15 cents/b in intraday trading last Friday, when global markets were betting on OPEC+ producers to slash crude output by an additional 1.5 million b/d to bolster falling oil prices.

But a refusal by Russia to back additional production cuts saw a further collapse of oil prices, as well as a price war triggered by Saudi Aramco, which slashed its official selling prices to customers globally by record amounts earlier this week.

Other Middle East crude producers appeared to fall in line with Aramco, with Iraq's SOMO, UAE's ADNOC and Kuwait Petroleum subsequently slashing prices to Asian customers.

"For refiners, Saudi is now the reference," against which they will compare every other grade available via term contracts or in the spot market, a second crude trader said.

Producers that have yet to issue OSPs, such as Iran and Qatar Petroleum, are largely expected to follow suit with heavy price cuts.

Meanwhile, intermonth spreads for Dubai futures hovered in a well-worn range Wednesday morning, with the contango implying an oversupplied crude market, traders said.

The April/May Dubai futures spread was pegged at minus 78 cents/b at 0300 GMT, little changed from minus 77 cents/b assessed at Tuesday's close.

Similarly, the May/June intermonth spread was pegged at minus 73 cents/b at 0300 GMT, after being assessed at minus 74 cents/b at 0830 GMT Tuesday.

With no deal in place for the further output cuts sought by Saudi Arabia, current production quotas are set to expire at the end of March. In addition to slashing official selling prices, the kingdom announced it would boost its supplies to the market in April to a record 12.3 million b/d.

In the meantime, Russia could potentially increase its oil production by 200,000-300,000 b/d in the short term and up to 500,000 b/d in the long term, its energy minister Alexander Novak said. In February, the country produced 11.38 million b/d of crude and condensate, according to Platts estimates.

http://plts.co/KM4g30qoSFT

Houston — Occidental Petroleum said Tuesday it will reduce 2020 capital spending roughly 32% at the midpoint of $3.5 billion-$3.7 billion, following a plunge in oil prices this week.

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Oxy will also reduce its quarterly dividend by 86% to 11 cents/share from 79 cents/share, the company said in a statement.

"Due to the sharp decline in global commodity prices, we are taking actions that will strengthen our balance sheet and continue to reduce debt," Oxy CEO Vicki Hollub said.

"These actions lower our cash flow breakeven level to the low $30s/b WTI, excluding the benefit of our hedges, positioning us to succeed in a low commodity price," Hollub said.

On Monday, NYMEX crude futures plunged 25% to $31.13/b versus the end-of-last week's close as Russia refused to participate in further oil production cuts proposed by OPEC. That sent markets roiling as nervous upstream producers, mindful of two years of painfully low oil prices in 2015 and especially 2016, to defend their balance sheets by virtually shutting down chunks of their drilling programs.

On Monday, Diamondback Energy and Parsley said they will cut activity this year, and on Tuesday, Marathon Oil and Ovintiv said they would cut 2020 capital budgets.

Also Tuesday, both EOG Resources and Pioneer Natural Resources told RBC Capital Markets they are committed to maintaining strong balance sheets, and EOG "will curtail activity as necessary," according to Monday notes by the investment bank.

DEALING WITH DEBT

Last August, Oxy spent $57 billion to buy Anadarko Petroleum, which beefed up the acquirer's Permian Basin operation in West Texas and New Mexico, and also provided a Gulf of Mexico operation and other assets internationally.

But the mammoth price tag also means Oxy has a lot of debt to pay down. The company pre-sold some assets even before closing the deal last August but closed 2019 with $38.5 billion of long-term net debt.

Slashing the dividend 86% should save Oxy over $2.4 billion in annual dividend payments going forward, KeyBanc analyst Leo Mariani said in a Tuesday investor note.

"[That] will help tremendously with balance sheet management," Mariani said. "However, Oxy still has a lot of debt and won't have free cash flow at $33/b WTI, so additional asset sales will still be critical to reduce its debt burden over time."

Oxy did not provide updated 2020 production guidance Tuesday, but Mariani said he expects to see Oxy's average output of nearly 1.5 million boe/d in Q4 2019 begin to decline in the second half of this year.

E&Ps WILL 'TURN EVERY STONE'

With new price concerns, "Now the E&Ps will turn every stone and cancel every single non-revenue-generating activity," said Audun Martinsen, head of oilfield service research for consultants Rystad Energy. "In the US shale industry as many as 5,800 horizontal wells could be cut in 2020, which would more than halve the number of wells from the 10,900 planned for 2020."

EOG "will evaluate activity at current oil prices," the RBC said. "The dividend remains its priority and [it] will cut activity to maintain its payout."

RBC said EOG told the investment bank "this is not an environment to take a wait-and-see approach."

RBC said it expects "little immediate change to activity" from Pioneer Natural Resources, although the company will closely monitor the macro environment, the bank said.

Even assuming $40/b in 2020, "Pioneer could hold its current 22 rig count and six frac crews and remain below the 0.75X leverage level," RBC said, which is very low. "Management has maintained one of industry's strongest balance sheets to protect against commodity price volatility."

For comparison, banks have required oil companies to maintain leverages of 3.5 times net debt/EBITDA since the industry oil price downturn of 2015-2016, so Pioneer's sub-1X is unusual.

http://plts.co/dagn50yIdjF

The stock markets have a new and even more vengeful bogeyman, and this time, it’s not coronavirus.

The U.S. bear market crashed to new lows on Wednesday, and the China coronavirus outbreak was the least of its worries this time around. An unexpected price war by the leading oil producers precipitated an oil price rout that in turn led to a ‘Black Monday’ equity selloff.

Oil logged its biggest daily decline since 2014, with the benchmark Brent crude oil futures driving 10 percent on Friday after a deal between OPEC and its allies, led by Russia, collapsed. Crude oil futures CLJ20, BRNK20 followed that pullback with another sharp 30 percent decline on Monday marking the steepest drop since the Gulf War in 1991.

The mayhem quickly spilled over into the broader market with the S&P 500 Index tumbling 7.6 percent while the Dow Jones cratered 2,013 points for its worst one-day performance since 2008.

The market crash was so fast and so furious that it triggered a key circuit breaker that halted trading temporarily for the first time since 1997.

(Click to enlarge)

(Click to enlarge)

Source: CNN Money

Energy Stocks Crash

As expected, energy stocks bore the full brunt of the selloff with the industry benchmark, Energy Select Sector Fund (XLE), finishing 20.1 percent lower. XLE is now down 43.5 percent down in the year-to-date in what is shaping up as an annus horribilis for the sector.

Leading energy names were badly hammered, with ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) recording declines of 12.2 percent and 15.4 percent, respectively.

However, the oil majors had nothing on smaller producers.

Apache Corp. (NYSE:APA) and Occidental Petroleum (NYSE:OXY) each lost more than half their values on the day to finish 53.9 percent and 52.0 percent lower, respectively.

Marathon Oil (NYSE:MRO), Hess Corp. (NYSE:HES) and ConocoPhillips (NYSE:COP) did not fare much better, losing 46.6 percent, 33.7 percent and 25.3 percent, respectively.

Trump to the Rescue?

In a welcome turnaround, however, energy stocks enjoyed a sharp bounce in premarket trading on Tuesday as investors eyed the possibility of an economic stimulus despite the ongoing price war between Saudi Arabia and Russia. Related: Big Oil Prepares To Suffer In 2020

President Donald Trump on Monday said he will be taking “major” steps to gird the U.S. economy against the impact of the coronavirus outbreak. Trump is set to discuss a payroll tax cut with congressional Republicans on Tuesday where officials will present the president with several options, including financial assistance to industries affected by the coronavirus and the oil price crash. These measures may include cash injections, tax credits, payroll tax cuts, and tariff reductions on specific Chinese imports.

Oil prices and energy stocks are enjoying a broad bounce on the news. WTI Crude oil April 2020 futures CLJ20 are up 8.35 percent to $33.74/barrel while Brent Crude May futures BRNK20 have gained 8.25 percent to $37.20/barrel.

Meanwhile, XLE has shot up 8.9 percent ahead of the open after tumbling 20 percent on Monday. Among the biggest early gainers, Occidental Petroleum Corp. shares have rocketed 30.7 percent, Apache Corp. has hiked up 21.3 percent while Marathon Oil Corp. has soared 19.8 percent.

Elsewhere, shares of Exxon Mobil Corp. have jumped 9.3 percent while those by Chevron Corp. have climbed 6.6 percent.

But it might be too early to start doing a victory lap just yet.

As Edward Moya, senior market analyst at OANDA, has told Reuters, the oil rally right now could be short-lived as the drivers for both the supply and demand side remain bearish.

After all, crude prices were already so low that there’s not much choice left but for U.S. shale companies to cut production, with bankruptcy already looming large over many in the shale patch.

And it’s that weakness that Russia is pouncing on, while the Saudis are unwilling to give up any market share--hence the oil price war.

"Russia sees US shale as particularly vulnerable at the moment," Ryan Fitzmaurice, an energy strategist at Rabobank, was quoted by CNN as saying. "It is our view that Russia was targeting debt-laden US shale producers."

And there’s much more drama to come, with unconfirmed news reports leaking out of Saudi Arabia and hinting at major Royal disruptions as rumors circulate for everything from the potential death of the Saudi king to the arrest of key royals as the Crown Prince allegedly attempts to solidify his assumption of the ultimate crown.

How oil prices--and a major, unexpected oil price war--will respond to these additional rumors is anyone’s guess at this point, but it will certainly seek to overshadow the steady progression of the coronavirus.

If Saudi Crown Prince Mohammed Bin Salman succeeds in taking over every aspect of the crown, one can assume that the oil price war will take on an even greater intensity.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com:

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The world’s top oil exporter Saudi Arabia is going after Russia’s oil market share in Europe with deeply discounted Arab Light crude at up to three times the usual volumes, people with knowledge of European refiners’ operations told Bloomberg on Thursday.

The Saudis, OPEC’s de facto leader and top producer, are aiming to grab market share from Russia in the oil price war it launched on Moscow to punish it for refusing to back deeper OPEC+ production cuts last week. And Europe is a key battleground in the new oil wars as Russia’s Urals crude has traditionally been a popular choice among European refiners.

Saudi Arabia hasn’t seen Europe as a core market in recent years because it has prioritized continuously growing demand in Asian markets. But in the war of market share, the Kingdom is now looking to squeeze Russian oil out of Europe by offering deep discounts which make its Arab Light crude priced at as low as $25 a barrel at Rotterdam, much lower than the price of Urals.

If prices of Urals and other crude grades going into Europe don’t drop to match the Saudi discounts, Saudi Arabia is set to “push out” the Urals grade from the refiners’ diet, Energy Aspects’ chief oil analyst Amrita Sen said in a note, as carried by Bloomberg.

Related: The Reason Why Russia Refused To Cut Oil Production

The price of Urals has also slumped in recent days, but it needs to drop further to become appealing to European refiners, given the hefty Saudi discounts, traders told Reuters on Wednesday.

Saudi Arabia has promised to flood the oil market with an extra 2.6 million bpd of oil from April, while its fellow OPEC producer and ally, the United Arab Emirates (UAE), pledged an additional 1 million bpd in supply. This will result in a total increase of 3.6 million bpd in global oil supply from OPEC’s heavyweights at a time of depressed oil demand due to the coronavirus outbreak and at a time of crashing oil prices, following the abrupt end to the OPEC+ deal last week.

Russia, for its part, claims it can live with $25 oil for years and says it can raise its oil production by 200,000 bpd to 300,000 bpd in the short term, with a potential for up to a total increase of 500,000 bpd.

By Tsvetana Paraskova for Oilprice.com

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Washington — Plunging oil demand caused by the coronavirus outbreak is giving the fossil fuel sector a preview of the shrinking market share it would face in an energy transition, and collapsing oil prices may scuttle the industry's efforts to prepare.

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The outbreak is expected to destroy more than 2 million b/d of oil demand in the first quarter of 2020 and possibly put the full year on track for the first oil demand contraction since 2009.

The double-barreled crisis of a Saudi Arabian-Russian price war on top of this demand slash comes just as the oil sector had started engaging the idea of an energy transition toward cleaner fuels and lower emissions.

Fossil fuels are expected to represent half of total energy supplied in 2050, down from 80% currently, under a model of the energy transition by S&P Global Platts Analytics' Scenario Planning Service. The model assumes the world meets the minimum Paris Agreement target of no more than a 2 C warming this century.

The scenario is designed to "take into account existing infrastructure constraints and capital costs, but there are multiple pathways to achieving global decarbonization targets depending on policy drivers, consumer behavior, and assumptions regarding adoption of new technologies," said Mark Mozur, lead analyst for world energy demand at Platts Analytics.

Click here for an interactive graphic on the 2020-2050 energy mix

SHUFFLING THE DECK

This week's market turmoil could reshuffle an entire deck of oil-related climate issues in the years ahead: Will major oil companies like BP and Repsol abandon their recent pledges to become carbon neutral by 2050? Will research and development be set back substantially? Could energy demand take a permanent hit as consumers learn to live with less? Will adoption of alternative vehicles stall out amid cheap gasoline?

Also complicating matters will be an anomalous year for global carbon emissions in 2020 because of the coronavirus outbreak's impact on energy demand — factories shutting, airplanes flying fewer routes and employees working from home rather than driving, among other factors.

"It puts the companies in a tough bind — if environmentalists expect the oil industry to emit at pandemic-year levels and invest at boom-year levels, that's going to an unrealistic expectation," said Kevin Book, managing director of ClearView Energy Partners.

International Energy Agency Executive Director Fatih Birol said the current market conditions will be a "test" for IOCs that set ambitious climate goals in recent months.

LOW GASOLINE PRICES

Roman Kramarchuk, Platts head of energy scenarios, policy and technology analytics, said low oil prices can hit electric vehicle adoption, among other alternative technologies that compete on price. Policy makers would have to be willing to raise subsidies to spur adoption instead.

"With gasoline prices at $5/gal, many people may consider an electric car from a total-cost-of-ownership perspective — since they can save money on operating the vehicle," Kramarchuk said. "With gasoline prices at $2/gal, for example, it's harder for an electric vehicle to compete."

Alex Gilbert, non-resident fellow with the Payne Institute at the Colorado School of Mines, pushed back on some early predictions that the oil price plunge could signal peak demand, sustained lower emissions or the collapse of oil companies.

"Low oil prices will make clean energy less economically attractive," he said.

Gilbert said the current market rout could lead mid-sized oil and gas producers to forgo promised "environmental, social, governance" initiatives set in recent months.

"The major producers will have pressure on their ESG initiatives," he said. "That said, Shell, BP and the like face political pressure from the EU, which may only strengthen with lower prices. Some companies may actually step up ESG initiatives and efforts to diversify, but I imagine it will not be a priority for many."

LONG-TERM DEMAND IMPLICATIONS

On the demand side, Kramarchuk said there is a possibility that consumers will get used to consuming less energy. He pointed to Japan after the 2011 Fukushima nuclear disaster, when the country was forced to use drastically less electricity, and its economy adjusted to it.

"In this case, we are looking at the possibility for potential long-term implications," Kramarchuk said. "Part of that is behavioral driven, in terms of how people work, commute and travel and have fun — and what energy do they need to do that."

Book said the US saw a "low-energy recovery" from the Great Recession because of a change in the industrial mix and the loss of jobs that required commuting.

"For a period of time, Americans really did more with less," he said, adding that that changed when energy supply eventually rose and prices fell. "Then they did more with more."

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Dubai — Iraq will suffer more than most Middle East oil producers amid a Saudi-led price war that is flooding the market with cheap crude as OPEC's second largest producer is already struggling with political unrest and a leadership vacuum that will leave it with few petrodollars to manage its energy-dependent economy.

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Saudi Arabia, OPEC's largest producer, started an unprecedented battle to squeeze Russia by slashing its crude selling prices over the weekend, with the biggest cut ever for some grades. This week it also announced plans to supply the market with 12.3 million b/d in April and increase its production capacity by 1 million b/d to 13 million b/d.

Iraq had no choice but to slash its selling prices for April to compete with Saudi Arabia as they battle it out in Asia, particularly China, which is Iraq's main oil customer. The two countries will also jostling for market share in India, where Iraq overtook Saudi Arabia as its top oil supplier in recent years.

"Saudi discounting appears designed to more directly challenge Russian in European markets, but Iraq will be collateral damage as like Saudi Arabia, it depends on Asian customers for the majority of its exports and is selling into a greatly softened market in China," Patrick Osgood, senior Iraq analyst at Control Risks, said.

Street discontent

For Iraq, the price war is taking place at the worst time in decades.

Political unrest since October, including demonstrations demanding political and economic change, has disrupted operations at some oil fields and refineries and led the government of Abdel Abdul Mahdi to resign in November.

"For the time being, risks are still there and the price shock will have a knock-on effect on government finance and government payrolls," Mohammad Darwazah, director of geopolitics and energy at Medley Global Advisors, said. "All will deepen the political crisis and discontent on the street."

Although President Barham Saleh in February appointed Mohammad Allawi to form a new government, Allawi withdrew his candidacy after he failed to win parliament's vote of confidence as political parties bickered over seats. On March 1, Saleh started 15 days of consultations to pick a new prime minister. There has been no progress reported so far.

"Iraqi political actors will be unwilling to give up their various footholds in the political system and in patronage and corruption streams even more so if this new oil price environment persists," Niamh McBurney, head of Verisk Maplecroft's Middle East and North Africa unit, said. "This is likely to lead to even longer political instability."

The political unrest is coupled with a tense security situation where US-led coalition troops in Iraq are often targeted, with the latest attack on Wednesday killing two American and one British soldier.

Leadership void

The lack of leadership was reflected in last week's OPEC+ meetings, which oil minister Thamer Ghadhban did not attend, sending his deputy instead. Now Ghadhban is holding talks with oil producers to halt the oil price crash. At the meetings in Vienna, Saudi Arabia was unable to convince Russia, which leads the 10 non-OPEC countries in the coalition, to sign on to additional output cuts because of the coronavirus.

"When it comes to OPEC internal dynamics, Baghdad does not have teeth, it does not bite," Ruba Husari, an Iraq oil expert, said.

Iraq also does not have the spare capacity that Saudi Arabia has to flood the market.

Iraq produced 4.5 million b/d of crude in February, according to official figures, and is thought to have a maximum production capacity of around 5 million b/d. However, it lacks sufficient pumping stations, export facilities especially in southern terminals and other infrastructure to boost its output even if it wanted to. It also has to take into account how much money it can give to international oil companies which get paid special fees for production from the fields they operate.

Vicious circle

The Iraqi oil ministry did not respond to S&P Global Platts questions about its plans for April. Ministry spokesperson Assem Jihad told the Iraqi News Agency this week that it wouldn't be "wise" to pump more crude given the supply glut.

"You need to increase production and exports to bring in more revenues but then you have to allocate part to those revenues to fields' operations: it's a vicious circle," Husari said. "It all depends how long the price war between Saudi Arabia and Russia will continue."

Lower oil revenue will exacerbate a tricky political situation, where the government has responded to street protests by hiring more public sector workers, inflating an already bloated public payroll that accounts for a big chunk of public spending.

"Assuming the price war drags out, Iraq is wholly unprepared," Ahmed Mehdi, research associate at Oxford Institute for Energy Studies, said. "The country lacks resilient fiscal buffers to withstand sustained low oil prices. Iraq was already set to enter a deficit this year. This will add to the chaos."

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Singapore — 0310 GMT: Crude oil futures tumbled in mid-morning trade in Asia Thursday as signs of a further increase in supply emerged from OPEC producing countries.

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At 11:10 am Singapore time (0110 GMT), ICE Brent May crude futures were down $2/b (5.6%) from Wednesday's settle at $33.79/b, while the NYMEX April light sweet crude contract was $1.84/b (5.6%) lower at $31.14/b.

Analysts said that further selling emerged amid signs of more OPEC supply, following the collapse of the OPEC+ agreement last Friday.

On Wednesday, Abu Dhabi National Oil Co, the UAE's biggest producer, said that it is able to supply the market with over 4 million b/d of crude in April and is speeding up plans to boost capacity to 5 million b/d.

Saudi Aramco also said that it plans to bring 12.3 million b/d into the market, after producing 9.68 million b/d in February.

"The battle for market share continues... The situation remains fluid and appear to have deviated away from economic reasoning at the moment," OCBC analysts said Thursday.

"It is premature to speculate that this price war will be short-lived," the analysts added.

Saudi Arabia's decision to slash its crude oil prices over the weekend had added pressure on other Middle East producers to follow suit or risk losing market share, setting the stage for a price war in the region.

Crude futures nosedived 24% on Monday, in the market's worst one-day loss in some 30 years, after Saudi Arabia's weekend decision.

Meanwhile, US crude production showed no signs of faltering. EIA reported Wednesday that US crude production averaged 13 million b/d last week, just 100,000 b/d off the prior week's record.

Net crude inputs were flat at 15.7 million b/d, likely pushing US crude inventories up 7.66 million barrels last week to 451.8 million barrels.

Broader markets are also likely to take a hit following Trump's announcement to suspend travel from Europe to the US for the next 30 days.

"Over and above the pandemic classification, President Donald Trump's latest announcement to suspend all travel from Europe once again adds to economic impact expected to be felt by the US," IG's market strategist Pan Jingyi said.

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Tariff on Saudi crude may be Trump’s answer to oil-price war

By Pratish Narayanan, Stephen Cunningham and Jennifer A. Dlouhy on 3/12/2020

WASHINGTON (Bloomberg) --If Donald Trump wanted to shield U.S. shale from oil’s crash, he could unleash a familiar weapon against rival producers such as Saudi Arabia: tariffs.

The U.S. president’s trade war with China that spawned tit-for-tat levies has shown his administration is willing to break with precedent to combat economic adversaries. Now, with Harold Hamm -- a shale industry titan and Trump confidant -- seeking to file a complaint against the Saudi plan to flood the market, the White House could take action.

While it’s highly unlikely that any action on the tariff front against Saudi Arabia would succeed or even work, that doesn’t mean that Trump won’t give it a go, said energy consultant Phil Verleger. “This administration has shown that it can defy economics and the law and get away with it,” he said in an interview.

The Energy Department on Monday decried “attempts by state actors to manipulate and shock oil markets” as crude crashed by the most since 1991 after Saudi Arabia and Russia pledged to boost output. The price plunge and producer war for market share has battered the U.S. shale industry -- which Trump has touted as key to American energy independence.

To be sure, it’s far from certain if Trump will impose tariffs or if protecting the shale industry is at the top of his current priorities. U.S. equities have sunk into a bear market, and the administration has yet to detail any stimulus measures to combat the economic fallout from the spreading coronavirus.

Not all of the energy sector wants the government to intervene. The American Petroleum Institute doesn’t support any policy measures that address the current market disruption, according to Frank Macchiarola, the industry group’s senior vice president of policy, economics and regulatory affairs.

Representatives of API and other oil companies met with Trump officials at the White House Wednesday, according to two people familiar with the matter who asked not to be named discussing a private session. They did not ask for any aid, one of them said.

“After crowing for 10 years about the shale miracle, it’s going to be pretty hard to go begging hat in hand for a bailout,” said Dan Eberhart, a Republican financier and chief executive of drilling services company Canary LLC. “Shale’s on its own, I fear. We’ll have to weather through best we can with mergers and acquisitions.”

Political Pushback. Any potential move would also face political hurdles. As the White House considers targeted relief for the battered oil sector, congressional Democrats, including Senator Chuck Schumer of New York, pushed back Wednesday. There’s worry that “the president will pay attention to the special interests instead of the people,” Schumer said.

Hamm, the founder of Continental Resources Inc., has different ideas. The company’s stock has slumped 74% this year, pummeling his fortune. Hamm’s net worth has tumbled to $2.9 billion from more than $10 billion at the start of the year, according to the Bloomberg Billionaires Index.

He’s leading an oil producer group to file a complaint with the U.S. Department of Commerce against Saudi Arabia for “illegal” dumping of crude.

“If they’re found guilty of dumping as we believe now they obviously are, if they’re found guilty of that, there could be countervailing duty to place upon all their imports to this country,” Hamm said. “That would be a drastic good measure that should be done.”

The U.S. Commerce Department couldn’t immediately comment.

Experts see little chance of success for Hamm against Saudi Arabia. Since oil is a globally traded commodity, it would be difficult to make the case for price discrimination, and show that the kingdom is selling at a lower cost in the U.S. than elsewhere. Equally contentious would be the argument that the Saudis are selling below cost, since the nation has some of the cheapest production costs in the world.

Few Options. While most oil industry-targeted aid would require action from Congress, the administration is considering one move that it can take independently: lowering royalties for oil and gas extracted from federal land. Another possibility would be the same option that enabled Trump to impose steel tariffs, said Robert Litan, who held senior posts in the Clinton administration.

Under Section 232 of the Trade Expansion Act, the administration can apply duties without a vote by Congress if imports are deemed a national-security threat. Commerce Secretary Wilbur Ross -- who unsuccessfully tried to revive an oil and gas driller before joining Trump’s cabinet -- has justified Section’s 232’s use previously for placing tariffs on metal shipments.

But such a move would take time to impose and requires lawyers to compile a lengthy report.

“That might be a hard case to make when imports have dwindled in recent years, but logic and the law may not prevail here,” said Litan, a non-resident senior fellow at the Brookings Institution.

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Russian producers equipped to compete with flood of Saudi oil

By Dina Khrennikova and Olga Tanas on 3/12/2020

MOSCOW (Bloomberg) --A flood of discounted Saudi crude is heading for Europe, but Russia might just have the only producers in the world equipped to compete with it.

With some of the world’s lowest production costs, a flexible tax system and a free-floating ruble, Russian companies can keep pumping, even in an extremely bearish price scenario, analysts from Bank of America Corp. to Raiffeisenbank say.

“Russian companies can ensure sustainable production until oil hits $15 to $20 per barrel,” Karen Kostanian, BofA’s Moscow-based oil and gas analyst, said.

Saudi Arabia has escalated a battle for industry dominance after the collapse of the OPEC+ alliance last week. The kingdom has slashed prices and announced a massive production increase. Russia’s Energy Minister Alexander Novak said his country’s industry will remain competitive “at any forecast price level.”

Novak is set to meet with key oil producers later on Thursday at the energy ministry to discuss the situation on the global market and their output plans.

Three-Way Defense. It is the well-developed field infrastructure, as well as efficient railway and pipelines that enables Russian oil majors to operate at low costs. Last year, state-run Rosneft PJSC, Gazprom Neft PJSC and the top private producer Lukoil PJSC spent less than $4 to extract a barrel of oil, according to Bloomberg calculations based on the companies’ financial reports. Add to this around $5 to ship the barrel and $6-8 per barrel of capital spending, and you still get a barrel of oil for under $20.

The country’s fiscal system offers more protection. Last year, government levies formed the bulk of the remaining expenses for the Russian producers: the companies paid $34-$42 per barrel to the state in extraction tax and export duty, Bloomberg calculations show. However, Russia has a flexible fiscal system, which means as oil prices fall, taxes drop with them, said Dmitry Marinchenko, senior director at Fitch Ratings.

“Under the current tax regime, it is the Russian state that shoulders most of the risks associated with low oil prices,” Marinchenko said. With crude at $50 Russian producers pay more than 40% of their revenues in taxes, his calculations show. If the price falls to $25 the share of taxes declines to just around 20%, and in the $15-$20 scenario, the fiscal burden nearly disappears, Marinchenko said.

Finally, Russian producers, which earn part of their revenues in U.S. dollars and spend almost exclusively in rubles, are shielded by a flexible exchange rate. The ruble’s weakening to the dollar helped support the companies’ capital expenditures during the market’s previous plunge. As the ruble depreciated to 67.03 per $1 in 2016 from 31.85 in 2013, Russia’s top producer Rosneft grew its capex in rubles about 66%, investing in future production while its global competitors had to cut spending.

Familiar Threat. These factors help Russian companies through a short-lived price war, but they would start to feel some strain in a long battle.

The oil and gas industry is the single largest source of revenue for the Russian budget, generating around 40% of the total inflows and feeding Vladimir Putin’s multi-billion social-spending programs. The state budget envisions that all the costs over the next several years will be covered at oil slightly above $40. As a result, “oil falling below $45-50 almost inevitably leads to conversations about a higher tax load on crude producers,” Fitch’s Marinchenko said.

Back in 2016, when the government needed extra funds amid a bear market, it tweaked the oil-extraction tax formula to raise revenues, Evgenia Dyshlyuk, oil and gas analyst at Gazprombank PJSC, said. “If the state budget sees potential for a deficit, there is a risk of a similar move now,” she said.

The windfall-tax risks may emerge only if the bear market lasts for three to five years, Andrey Polischuk, Moscow-based analyst for Raiffeisenbank, argued. Price shocks lasting for several months will likely have no impact on the tax burden for producers, he said.

The industry’s resilience to pricing pressure won’t come without costs. With oil at $15-$20 a barrel, producers will need to cut their investment programs, undermining future output potential, and modify dividend policies, Kostanian said.

For now, the nation’s producers are staying positive. “It’s not the first time that crude falls,” Lukoil President Vagit Alekperov, who in the span of his 52-year oil career saw price levels of some $2 to $146, told investors this week. “We are used to operating in a volatile environment.”

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FROM THE ARCHIVE ///

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Betting on a bailout, investors rush into U.S. energy funds

By Claire Ballentine on 3/11/2020

NEW YORK (Bloomberg) - Exchange-traded fund investors are piling into the U.S. oil and gas industry, despite the recent collapse in prices, partly on bets that the government may bail out producers as part of a stimulus package.

State Street’s Energy Select Sector SPDR, or XLE, which invests in large-cap U.S. energy stocks, pushed its streak of inflows to nine out of 10 days, totaling about $1.7 billion, and is on track for its best month in four years, according to the most recent data available compiled by Bloomberg.

Vanguard Energy ETF, ticker VDE, a fund that invests in a wide range of small and large U.S. companies tied to the oil and gas sector, had its best inflow in more than year on Monday, even as crude prices plunged the most in nearly three decades as Saudi Arabia and Russia engaged in a battle over market share.

“If there is any type of targeted energy sector bailout, that will by design reduce the bankruptcies in the sector,” said James Pillow, a managing director at Moors & Cabot Inc., about the potential for government stimulus for energy companies. “That surely adds to the strength in the sector and supports the three days of inflows.”

In another sign of the turmoil whipsawing financial markets, investors are making wagers that a potential bailout would boost U.S. energy companies battered by tumbling oil prices. Republican senators pitched a bailout for the shale industry as part of measures being floated to stimulate the world’s largest economy that’s been rattled by the coronavirus outbreak.

But it’s anything but certain as the timing, details and even likelihood of a stimulus package to combat the virus impact and collapse of crude are still up in the air and far from being passed by Congress. Those concerns were visible Wednesday as U.S. energy producers tumbled along with the rest of stocks.

A breakdown in OPEC+ talks this weekend threatened to flood the world with cheap oil and ignited a sell-off in global markets. But the commodity staged a rebound. That filtered into funds tracking the oil market.

Citigroup’s VelocityShares 3x Long Crude Oil ETN, UWT, saw its biggest one-day inflow on record in the latest session, taking in $150 million, according to data compiled by Bloomberg. That boosted the fund’s assets by more than 50%, a sharp reversal after a 71% drop in price Monday threatened to wipe out the fund entirely.

To be sure, volatility still reigns in the oil market as Saudi Aramco announced maximum efforts to boost its oil production, with oil down again today to trade around $33 a barrel.

“We’ve been hearing a good amount of optimism that Russia and OPEC get back to the table by the end of March,” said Michael Reynolds, Investment Strategy Officer at Glenmede Trust Co. “If they can come to some sort of agreement that allows them to save face, it’s entirely possible this is a headwind that could be gone by the end of the month.”

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FROM THE ARCHIVE ///

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U.S. oil and gas company Murphy Oil has revised its capital spending plans for 2020 given current market conditions and recent commodity price volatility.

Murphy joined its compatriot Apache Corporation in a decision to reduce its spending amid challenging conditions in the oil market, including an oil price war between Saudi Arabia and Russia following the OPEC+ breakdown, the effect of the coronavirus outbreak on global oil demand, and the ‘historic’ plunge of oil prices this week.

Murphy said on Thursday that its revised 2020 budget is approximately $950 million.

According to the company, the reduction of approximately $500 million equates to a nearly 35 percent revision from the midpoint of the previously announced corporate budget of $1.4 billion to $1.5 billion. Murphy said it would release further details of its revised plan on a later date.

“Under current conditions, we believe this capital reduction program allows for financial flexibility and preservation of our longstanding dividend. As always, we will not sacrifice safety in our efforts to reduce costs across all our assets, as it remains a core value within Murphy,” stated Roger W. Jenkins, President and Chief Executive Officer.

GoM projects and exploration wells delayed

As detailed by Murphy, the revised spending plan will be achieved through delaying certain U.S. Gulf of Mexico projects and development wells, postponing spud timing of two operated exploration wells, releasing operated rigs and frac crews in the Eagle Ford Shale, with no operated activity planned for the second half of 2020, and deferring well completions in the Tupper Montney.

Jenkins said: “We have persevered through multiple commodity price cycles in our 70 years of corporate history, and want to provide reassurance that we are focused on a strategy that protects the business, the balance sheet, and our liquidity, while maintaining optionality for additional adjustments given the unstable environment.

“Murphy has an ample liquidity position as of year-end 2019 between its undrawn $1.6 billion senior unsecured credit facility due November 2023 plus cash on hand, along with other sources of liquidity arising in the normal course of business. Further, we have no debt maturities until June 2022.”

It is worth mentioning that, as reported earlier on Thursday, Murphy has hired the Pacific Drilling-owned drillship Pacific Sharav for operations offshore Mexico. The contract is scheduled to start in November 2020.

The effects of volume war

When it comes to the effects of spending cuts by oil and gas operators, the oilfield services firms will be hit hard with prognosis showing that, if the volume war continues throughout 2020 and 2021, it will lead to a massive wave of bankruptcies and consolidation in the service market.

Namely, Norwegian energy intelligence group Rystad Energy has said that the total capital and operational expenditure of exploration and production companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level – a development that will heavily impact service company revenues, driving some out of the market.

Overall oilfield service purchases, which Rystad Energy previously expected to remain flat year-on-year, are now forecasted to drop by 8% this year if oil averages $40 per barrel and by 15% in a $30 per barrel scenario.

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The total capital and operational expenditure of exploration and production companies (E&Ps) is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level, a Rystad Energy impact analysis revealed – a development that will heavily impact service company revenues, driving some out of the market.

Russia’s decision to walk away from the suggested OPEC+ deal is sending shivers down the spine of the service industry, which had already been troubled by the new coronavirus, Rystad said on Tuesday. After Saudi Arabia started to flood the market, oil prices were sent down to $31 per barrel of Brent and are currently trading below $35 per barrel.

It will likely be a volume war until the next scheduled OPEC+ meeting in June. If no agreement is reached then, E&P companies are likely to slash capital and operational budgets to make up for significantly lower cash flows that are expected this year and the next, Rystad stated.

Overall oilfield service (OFS) purchases, which Rystad Energy previously expected to remain flat year-on-year, are now forecasted to drop by 8% this year if oil averages $40 per barrel and by 15% in a $30 per barrel scenario.

According to Rystad, if OPEC+ continues the volume war and the countries do not agree on cuts in 2020, and this lasts into 2021, we could see additional 2021 spending reductions of 7% at $40 oil and 11% at $30 oil.

“Now the E&Ps will turn every stone and cancel every single non-revenue-generating activity. In the US shale industry as many as 5,800 horizontal wells could be cut in 2020, which would more than halve the number of wells from the 10,900 planned for 2020,” said Audun Martinsen, Rystad Energy’s Head of Oilfield Service Research.

This means that the shale industry would carry the biggest burden of this supply shock by taking as much as $65 billion of the $100 billion spending reduction expected globally, Rystad explained.

The service sector that will feel the pain the most in absolute terms in 2020 is likely to be the well stimulation market, which is estimated to come down by $25 billion. Fracking and proppant companies will have a hard time securing any new work besides already contracted deals and some work related to completing drilled but uncompleted (DUC) wells.

The second-most impacted segment will be other well-related work such as drilling tools, oil country tubular goods (OCTG), rigs, completion and intervention work.

If prices stay low at $30 in both 2020 and 2021 due to a volume war, which Rystad Energy finds less likely, the biggest losers that will see two years of annual market declines will be stimulation services (-40%) and seismic companies (-30%). Engineering work would be limited too, as few new field developments will be planned and inventories would be emptied for OCTG in an attempt to limit costs.

“Unfortunately, this volume war, if it continues throughout 2020 and 2021, will lead to a massive wave of bankruptcies and consolidation in the service market, whose debt obligations are set to grow 27% into 2021. Companies with low leverage and with healthy order books from past wins in 2018 and 2019 will be able to steer through the storm,” said Martinsen.

There is, however, a hope that a deep downturn could finally complete the much-needed consolidation in the market and create a healthier supply chain when prices recover.

Finally, from the $191 billion worth of greenfield projects that were forecast to be sanctioned in 2020, the ones that will actually see the green light if oil prices average at $40 or less are below $100 billion, with the impact distributed across regions and resource types.

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NEW YORK: Plunging oil prices and the economic fallout from the global coronavirus outbreak are setting the stage for a potential wave of debt restructurings and bankruptcies, especially in the energy and services sectors, according to company advisers and analysts.

Oil prices dropped by a third over the weekend after Saudi Arabia discounted its crude and signaled it would raise output, fueling concerns about the survival of heavily indebted oil and gas exploration and production companies.

Credit investors pulled money out of the riskiest energy bonds, widening the spread of US junk-rated energy debt over safer Treasuries to the highest since March 2016, the ICE/BofAML US high yield energy index showed.

Oasis Petroleum, Chesapeake Energy and Whiting Petroleum were among those hardest hit, with their stocks and bonds losing as much as half their value. The companies did not immediately respond to requests for comment.

“This weekend’s developments in the oil market represent a strong additional headwind that will lead to further repricing in risk as well as increasing defaults and downgrades,” Credit Suisse credit analysts wrote in a research note this week.

At the same time, the spread of coronavirus around the world continues to roil global markets and unnerve investors. On Monday, Wall Street suffered its biggest one-day stock market loss since the 2008 financial crisis, only to recoup half of the losses on Tuesday.

Debt-laden companies in service sectors hit by reduced tourism and discretionary spending, such as airlines, cruise lines, movie theaters, gaming companies and hotel chains, are particularly vulnerable, according to Fitch Ratings and restructuring experts.

“We have been busy. The level of activity, it’s almost like a switch went on in the last couple of days,” said Mohsin Meghji, a managing partner at turnaround firm M-III Partners, who advises companies on restructuring their debt.

Significant debt restructuring activity, which was previously more confined to industries in secular decline, such as brick-and-mortar retailers, is now becoming more widespread, Meghji said.

The US corporate default rate tracked by Moody’s Investors Service rose to 4.2 percent in the fourth quarter of 2019, its highest level since early 2017, when an oil market rout forced a slew of energy companies to seek bankruptcy protection.

About 30 percent of companies with a risky credit profile have a rating of B-, or highly speculative, compared to 20 percent at the end of 2015, according to Nick Kraemer, head of ratings performance analytics at S&P Global Ratings.

“There are a lot of companies out there already maxed out and highly levered, and with credit markets seizing up, people are saying this is finally it,” said Chris Donoho, global head of law firm Hogan Lovells LLP’s restructuring practice.

In the leisure sector, Spanish gaming company Codere , which has major operations in Italy — epicenter of the coronavirus outbreak in Europe — has nearly $900 million-equivalent of debt in dollars and euros due in November 2021, with the euro tranche trading around 70 cents on the euro, according to Tradeweb. It has fallen nearly 30 points since the start of February — eight of them during Monday’s session.

A Codere spokesman said that Italy represents only 8 percent of the company’s cash flow, and that the sell-off in the company’s debt is attributable to investor concerns the coronavirus outbreak may delay the company’s plan to refinance it’s high-yield debt.

In-flight wireless Internet provider Gogo and restaurant chain Dave & Buster’s Entertainment are among companies in the services sector that saw the biggest stock drops this week. They did not immediately respond to requests for comment.

Standard & Poor’s warned on Tuesday that Royal Caribbean Cruises could struggle with its debt levels and falling revenue, a few days after Anthony Fauci, the US director of the National Institute of Allergy and Infectious Diseases, advised Americans who are elderly or have underlying medical conditions to avoid cruise ships. A Royal Caribbean Cruises spokesman pointed to measures the company announced on Tuesday to boost its liquidity. They included raising its revolving credit facility by $550 million and cutting operational costs.

Investors have also punished AMC Entertainment, one of the largest operators of movie theaters globally, as public health authorities ban or advise against public gatherings. Three of the company’s four dollar-denominated bonds are now trading just above 60 cents on the dollar, down from around 90 cents in February. AMC did not immediately respond to a request for comment.

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JP Morgan has moved its rating to 'neutral' in the wake of oil price collapse.

JP Morgan analysts have downgraded Plc ( ) to ‘neutral’ as they believe it is the most vulnerable to the market’s demand risks among the ‘big oil’ firms.

Looking at the sector turmoil, analyst Christyan Malek said: “We expect the OPEC+ breakdown to cause extreme oil volatility but depressed prices to prove short lived.

“Demand weakness will affect the entire complex if COVID-19 persists, but we believe oil offers the ‘cleanest’ risk/reward on tightening MT fundamentals.”

UBS earlier this week claimed Shell will be able to defend the dividend through the current period of “cyclical weakness” having spoken the oil giant's investor team in the wake of Monday’s plunge in the oil price.

In a pre-arranged meeting, Shell’s team said there was around US$4bn flexibility in the company’s sustaining capital expenditure (capex), which means it is cash neutral into the “US$40s” a barrel oil price range. That’s still well above the current Brent spot price of just over U$$37 a barrel.

However, the Swiss bank reckons “modest disposal activity and some balance sheet capacity” will help defend the Shell dividend.

“Respecting and sustaining the dividend in cash and not reverting to scrip is an important input into the quality of the payout, in our view,” UBS added.

Shell and its UK rival BP ( ) saw their share prices shattered on Monday after the Saudi Arabia-led OPEC cartel started flooding the market with cheap oil.

It followed a stand-off with Russia, which refused to cut production in order to get the price up.

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* Russian oil companies met energy minister

* Gazprom Neft CEO said no discussion on OPEC+ output cuts

* Gazprom Neft plans to raise output from April 1 (Adds comments)

By Olesya Astakhova

MOSCOW, March 12 (Reuters) - Russian oil producers did not discuss returning to a deal with OPEC to cut output at a meeting with the energy ministry on Thursday, one of the country's top oil firms said, adding it was preparing to raise production from April.

Oil prices plummeted after talks in Vienna last week on production cuts between OPEC, Russia and other oil producers collapsed with no deal. Saudi Arabia and the United Arab Emirates, both OPEC members, have announced plans to ramp up production.

Alexander Dyukov, chief executive of Russia's third largest oil producer Gazprom Neft, told reporters that he and representatives of other major oil producers met Energy Minister Alexander Novak on Thursday but "have not even discussed" returning to a deal with the so-called OPEC+ grouping.

Dyukov said that, even if a new deal with OPEC had been secured, "we would have reached the situation with $35 per barrel anyway given the market factors," citing the impact of the coronavirus outbreak and the risk of a global recession.

"Indeed there was some disappointment from the (OPEC) talks in Vienna," Dyukov told reporters after the meeting with Novak.

Gazprom Neft, an arm of Russia's gas giant Gazprom , would have preferred to see the previous OPEC+ deal remain in place but the company had been prepared for the failure of talks and lower oil prices, Dyukov said.

"We were ready for such developments," he said, although he added: "We don't think that this move is rational and pragmatic."

The slump in oil prices has already battered the rouble, posing new challenges for the Russian economy on top of the uncertainty caused by the coronavirus outbreak.

Gazprom Neft now plans to increase output from April 1, and is considering raising it by 40,000 to 50,000 barrels per day (bpd) within a month, Dyukov said.

The company will complete its investment programme despite the drop in oil prices as its operational costs for producing a barrel of oil was between $3 and $5, Dyukov said.

Russian companies now faced no restrictions on output and would no longer face a threat for selling extra oil volumes, he said.

Still, Russian oil will face more competition, after sources said Saudi Arabia had stepped up efforts to squeeze Russia's Urals oil grade out of its main markets by offering its own cheap barrels instead. (Writing by Andrey Ostroukh; Editing by Edmund Blair and Susan Fenton)

Our Standards: The Thomson Reuters Trust Principles.

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Exclusive: U.S. shale urges service firms offer 'at least' 25% price cuts - executives, letter

Arathy S Nair, Liz Hampton

3 MIN READ

BENGALURU/DENVER (Reuters) - U.S. shale producers are seeking sharp service costs cuts to deal with plummeting prices and shrinking demand, according to executives and a letter sent to top providers, driving home the oil industry’s desperate efforts to cope with a market dive.

Oil companies that recently delivered 2020 spending plans based on $55 to $65 a barrel oil were confronted on Monday with sub-$35 prices after OPEC launched a price war amid slack demand from the ravages of coronavirus on the global economy.

Prices have plummeted so rapidly and to such an extent that shale producers that have not pre-sold their output at higher prices will soon be profitable, said analysts.

In a letter sent on Wednesday to oilfield equipment and service providers, Parlsey Energy (PE.N) operating chief David Dell-Osso asked them “to reconsider your pricing” and help the company achieve an “at least 25%” reduction in its costs.

This week’s oil market crash, brought on by weakening demand from coronavirus and a price war triggered by Saudi Arabia and other big producers pumping full bore, are behind the urgent plea, Dell-Osso said.

Parsley did not respond to a request for comment.

Parlsey on Monday was among the first oil companies to disclose a big reduction in spending plans, saying it will halt a fifth of its 15 drilling rigs by April.

Oilfield services executives expressed displeasure with the requests, saying many companies are barely profitable at current service rates.

“Anyone dumb enough to ask for discount today is a (expletive),” said a drilling executive who did not want to be identified.

But several oil producers have been asking for 25% price cuts and have won concessions, said James West, a senior managing director at investment bank Evercore ISI.

West, who has urged consolidation to wring out costs, said oilfield firms would be better off rejecting contracts that are not profitable. Pricing is low, and a 25% cut may not deliver much relief, he added.

“We had already given price concessions to protect market share, so we’re running close to break even in North America before the oil price crash,” Ian Bryant, chief executive of services provider Packers Plus Energy Services Inc, said earlier this week.

Some oilfield firms have moved to lower their own costs. At Liberty Oilfield Services (LBRT.N), which provides well completion services, executives agreed to take a 20% pay cut.

Oilfield service firms “have been subsidizing E&Ps for the past few years, and were just getting by,” said Robert Callaway, CEO of Range Valuation Services. “There are going to be a lot of companies that have a hard time surviving.”