Valero Idles Gas Production Facilities
April 14th, 2020
Despite the news of a historic OPEC+ production cut that with the help of other G20 nations is being promoted to have a production impact of near 20 million bpd the energy market had a pretty uneventful day as the headlines about COVID-19 still leave many unanswered questions and the huge demand destruction. France extended its lockdown for another month; India is still shut down and one of the next hotspots appears to be Moscow. We are starting to hear about countries and the part of the US that are discussing how to exit the current situation so there is some hope, but caution will be most important.
The Texas Railroad Commission (RRC), which regulates the oil-and-gas industry, will hold hearings Tuesday that may result in limits to the state’s oil production. The Texas RRC overseas about 40% of all U.S. crude oil production but it remains to be seen what cuts in oil production would be needed or even considered.
Many U.S. shale oil producers are already on the verge of shutdowns and bankruptcy with prices well below the breakeven $36/barrel price. 50% are expected to fail who have not hedged prices.
Front month May WTI crude oil futures are feeling selling pressure despite OPEC+ cuts as estimates indicted that this week’s inventory report could show an 18 million barrel build to crude oil stocks and storage tanks begin to fill up.
Energy Intelligence reports that “Saudi Arabia had no intention “to create any type of damage” to the U.S. shale oil industry, the Kingdom’s Energy Minister Prince Abdulaziz bin Salman said in a phone call with reporters. While Saudi Arabia has pushed for a cut, Prince Abdulaziz emphasized that the policy was not aimed at hurting the U.S. shale oil industry, which he predicted would recover in the long run. “My belief is that once this market stabilizes, and given the nature of shale oil and the shale industry, that they will be able to recover as the market recovers … I have no single doubt in the mind that in the future, they will rise again from the ashes and thrive and prosper.”
India has plans to fill up its Strategic Petroleum Reserve by buying about 19 million barrels by the third week of May.
Valero has said that Q1 losses could be $2.1 billion and that they have idled most gasoline production units. They also said they have shut 8 of their 14 ethanol plants.