Oil Producers Grapple With Low Prices
June 26th, 2020
Occidental Petroleum is preparing to write down up to $9 billion of its oil and gas properties this quarter. The move will allow Occidental Petroleum to restructure its debt and avoid default. The purchase of Anadarko Petroleum required Occidental Petroleum to take on additional debt.
Sable Petroleum Resources has filed for chapter 11 bankruptcy protection. More bankruptcies and mergers will be announced as the industry will consolidates in the face of lower oil prices.
White House Economic Adviser Larry Kudlow says the recent spike in coronavirus cases will likely trigger closures in certain areas. He does not foresee a nationwide shutdown. Kudlow expects to see a strong V-shaped economic recovery and anticipated a 20% growth in the third and fourth quarter. The news is full of stories about coronavirus and the increase in cases. The progress of the virus and lock downs is critical to the economy and energy demand. The more we see stories of growing infection rates, the more energy traders will become concerned.
Supply and Demand
Platts estimates that there is currently close to 190 million barrels of crude oil on floating storage compared with 200 million barrels earlier in the month. Alphatanker, a market analysis division of shipping brokerage BRS, says the floating storage drawdown will not be immediate and could take over six to nine months.
Reuters reports that road traffic in some of the world’s major cities returned to 2019 levels in June. This is constructive news for demand. The question is whether new cases of the virus will again trigger some lockdowns.
Three of the largest gasoline consuming states are seeing some of the largest concentration of virus cases: California, Texas, and Florida. If new cases of the virus cause more travel restrictions, it will reduce gasoline consumption.
The Washington Post reports the Fed ordered the country’s 33 biggest banks, including JPMorgan Chase, Wells Fargo, and Bank of America, to suspend stock buyback programs and limit dividend payments to shareholders in the third quarter. The banks must also submit new plans for maintaining enough of the capital needed to survive a downturn.