Oil Rallies On Promises Of Economic Stimulus

Oil prices hit a four-month high on Tuesday as the promise of major stimulus packages in the EU and the U.S. counter-balanced an increase in COVID cases.

Chart of the Week

–    U.S. liquid fuels consumption is expected to continue to rise in the second half of 2020, but will remain below pre-pandemic levels until August 2021, according to a new forecast from the EIA.

–    For the full year, the EIA sees gasoline demand averaging 8.3 mb/d, down 1 mb/d year-on-year, or a 10 percent decrease.

–    Still, the EIA’s forecast is at the optimistic end of most predictions. For instance, the agency sees jet fuel demand being down only 12 percent next year. Other analysts see long-lasting scars to aviation.

Market Movers

–    Marathon Petroleum’s (NYSE: MPC) Tesoro High Plains pipeline was ordered to shut down for the first time in 67 years after the U.S Department of Interior’s Bureau of Indian Affairs determined the pipeline trespassed on Native American land. The pipeline moves Bakken oil through North Dakota.

–    Halliburton (NYSE: HAL) jumped more than 8 percent after reporting second-quarter results that beat expectations. Halliburton “inked simply outstanding results vs. expectations… [as] structural cost cuts are clearly bearing fruit,” Tudor Pickering Holt analysts say. Halliburton took a $2.1 billion impairment.

–    Total (NYSE: TOT) secured financing for its $15 billion Mozambique LNG project.

Tuesday, July 21, 2020

Oil prices rose sharply on Tuesday. Despite bad coronavirus news in the U.S., which could weaken demand, there are high hopes for economic stimulus. The European Union agreed to a historic stimulus, and the U.S. Congress appears intent on passing yet another trillion-dollar economic package. Crude prices hit four-month highs on Tuesday.

Chevron buys Noble for $5 billion. Chevron (NYSE: CVX) announced the purchase of Noble Energy (NASDAQ: NBL) for $5 billion, an all-stock deal worth $13 billion when including debt. The move adds U.S. shale assets in the DJ Basin and, crucially, a large presence in the Eastern Mediterranean. The deal was the first major M&A move since the onset of the pandemic. Related: Newcomer Brazil Steals Market Share In Key Asian Oil Market

Australian LNG hit by impairments. Australia’s LNG sector has been hit hard by multiple impairments from domestic and international gas companies. Woodside Petroleum (ASX: WPL) recorded a $4.37 billion impairment, and Royal Dutch Shell’s (NYSE: RDS.A) massive $15-$22 billion write-down was led by Australian LNG. “Realized prices have dropped dramatically due to global oil oversupply and demand destruction from the pandemic,” a Woodside executive said on an investor call.

Natural gas prices fall. Natural gas prices fell sharply on Monday after data showed another dip in U.S. LNG exports.

Fewer canceled U.S. LNG cargoes for September. The volume of U.S. LNG cargoes canceled by buyers for September slowed compared to preceding months. The exact number is unclear, but Reuters reports that somewhere between 15 and 26 cargoes have been canceled for September delivery, a smaller number than the 40 to 45 reported for July and August. Cheniere Energy (NYSE: LNG) (NYSEAMERICAN: CQP) has the most canceled cargoes.

Brazil boosts oil exports to Asia. Brazil’s oil exports to Asia averaged 1.07 mb/d in the first six months of 2020, a 30 percent year-on-year increase.

Saudi Arabia wants more than $40. The OPEC+ deal has succeeded in tightening up the market and boosting oil past $40, but Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, has highlighted that although OPEC itself does not have a price target, current prices are not sustainable for the industry, leading to potential insecurity of supply in the long term.

EV investor craze continues. Tesla (NASDAQ: TSLA) saw its market cap surge past $300 billion and investors are piling into other EV makers. Tesla’s shares have more than tripled this year. The market value of Nikola Corp. (NASDAQ: NKLA), an electric truck startup, past Ford (NYSE: F) last month, although the company’s stock has since retreated. The trend shows that investors increasingly believe that EV era will arrive faster than previously thought. Carmakers are rushing to capture a slice of the future, with GM (NYSE: GM) recently announcing that it will develop 20 new EV models by 2023. Including hybrids, the global auto industry will add 350 new models in the next few years.

North Dakota oil plunges 30 percent. North Dakota’s oil production plunged 30 percent from April to May, collapsing to just 850,000 bpd. It was the worst-ever monthly decline. “The second quarter of 2020 was a five-alarm fire for North Dakota’s oil and gas industry,” state Mineral Resources Director Lynn Helms said on a conference call. However, shut-in production is coming back online. Meanwhile, the potential closure of the Dakota Access pipeline raises tough questions about the region’s future.Related: Can Saudi Arabia Extend The OPEC Deal Until 2022?

EU to US: Stop threatening sanctions. The EU warned the Trump administration to stop threatening European companies with sanctions over the Nord Stream 2 pipeline.

EU near green stimulus. After days of negotiating, the European Union has agreed to a major stimulus package, including more than half a trillion euros dedicated to green stimulus.

Total and Exxon idle workers in Papua New Guinea. Total (NYSE: TOT) and ExxonMobil (NYSE: XOM) have idled workers at the Papua New Guinea LNG expansion project due to the pandemic. The project had previously faced delays due to negotiations with the government.

New Mexico releases methane rule. New Mexico unveiled a draft methane regulation, with a target of capturing 98 percent of natural gas by 2026. The effort to cut flaring comes just as a federal judge shot down the Trump administration’s efforts to rescind federal methane regulations. Meanwhile, the World Bank published a report that found that gas flaring worldwide increased by 3 percent last year to the highest level in more than a decade – 23 percent of the increase came from the U.S.

Halliburton a “Strong Buy.” Raymond James issues a Strong Buy rating for Halliburton (NYSE: HAL) after the oilfield services giant vastly exceeded expectations in its second-quarter earnings. “Halliburton’s 2Q20 was extremely strong as the company’s quick cost actions limited decremental margins in the face of the extreme decline inactivity,” the bank said.

By Josh Owens for Oilprice.com (view full article here)