Oil Production Cuts Will Have Long Term Impact
May 6th, 2020
The API report out yesterday afternoon called crude oil stocks up 8.4 million barrels compared with estimate for today’s DOE report for a build of 7.8 million barrels from the Reuters survey. API said that crude oil stocks at Cushing, Ok were up 2.7 million barrels.
Gasoline stocks were down 2.2 million barrels and the estimate for today is that gasoline stocks will be up 43,000 barrels.
Distillate stocks were up 6.1 million barrels and the estimate for today’s DOE report is for stocks to be up 2.9 million barrels.
The estimates for this week’s propane inventory update are for there to be a build of 1.05 million barrels. This compares with the 5 year average for this reporting week of a build of 1.45 million barrels.
After a week of the energy market on a trend higher today it is seeing some profit taking after its impressive un up. Optimism has been strong as reopening occur and demand is seen ticking upward. Production has been declining and will continue to decline. The US shale oil patch has seen and will continue to see changes as companies shut down production, wells go out of service with many never to return, and many companies will go bankrupt. The substantial cut to oil company expenditures for exploration and production will have a longer term impact as demand is very likely to come back before supply and over the longer term that will support prices. The still unknown for all of us is what does that timeline look like.
The chief executive of the global oil trader Vitol, Russel Hardy, in an article in which he was interviewed by Reuters commented that global demand sank by 26-27 million barrels per day in April and predicts a year-on-year drop of over 8 million barrel per day. He said that oil markets are at the beginning of a fragile recovery as coronavirus lockdowns ease, thought long-term peak demand may be permanently eroded. He said, “the market is going to flirt with optimism and pessimism for the next two to three weeks. I think that is a good statement on what we are in for in the medium term. The last few days of the market rally have been over the excitement and optimism of the reopening of more states and businesses, and today we get a little profit taking or dose of reality that we still have a long road out of this pandemic.
US Census Bureau reported that US crude oil exports fell to about 3.56 million barrels per day in March from a monthly record of 3.71 million bpd in February. However, exports are expected to slow over
April and May as the coronavirus pandemic has cut global oil demand by 30% due to travel restriction and as a brie price war between Saudi Arabia and Russia weighed on prices.
UBS expects an increase in oil demand as virus-hit economies relax lockdowns and travel restrictions ease this month, with production remaining subdued on the backdrop of current low prices and aggressive capital spending cuts by oil and gas producers. UBS said its end-of-quarter forecasts for Brent crude oil are $32 per barrel for 3Q 2020 and $43, $50 and $55 a barrel for the following three quarters. It still expects oil demand to contract strongly this quarter, though not as much as it previously forecast. It expects demand to fall 15 million barrel per day year on years for the second quarter, compared with a previous forecasts of a fall of 20 million barrels per day.