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Canadian Oil Sands Per Barrel At $4.47, Now Cheaper Than 12-Pack Coke, $5.08
Canadian Oil Sands Per Barrel At $4.47, Now Cheaper Than 12-Pack Coke, $5.08
The collapse of global oil demand has impacted the price of Canadian Oil Sands to such a degree, the price of a barrel is now cheaper than a 12-pack of Coke purchased at Walmart. According to oilprice.com, the current price of a barrel of Western Canadian Select (oil sands) is $4.47 versus a 12-pack of Coke at Walmart for $5.08.
What a deal… ah? Now, let’s do a simple comparison of the ENERGY CONTENT in a barrel of Canadian Oil Sands vs. a 12-pack of Coke. A barrel of oil equivalent contains 1.4 billion calories of energy. A typical 12 oz Coke can contains 140 calories. If we multiply it by 12, we have 1,680 calories in a 12-pack of Coke.
Doing some simple math:
Barrel Of Oil Equivalent (1,400,000,000 calories) / 12-Pack Coke (1,680 calories) = 833,333.
Thus, a barrel of Canadian Oil Sands, which contains 833,333 times the energy calories than a 12-pack of Coke, is now worth $4.47 compared to $5.08 for the 12-pack of Coke. Again… what a deal, ah??
I just wanted to post this simple comparison to show how much the Global Oil Industry is being gutted. If OPEC, Russia, and the United States do not come up with “MEANINGFUL CUTS,” then we could see Western Canadian Select trading for $1 a barrel or less.
As for RESTARTING the U.S. and Global Economy after an extended shutdown, I have my doubts, as so does Gail Tverberg at her blog, OurFiniteWorld.com. Check out her most recent article; Economies won’t be able to recover after shutdowns.
COMING NEW VIDEO: I am finishing putting together the charts for my next video on why the GOLD & SILVER PRICES will explode due to the collapse of the Global Financial Ponzi Scheme.
US January Production Drops Again
US January Production Drops Again
Preparing this March post has been a surrealistic exercise. Here I am providing a January US production update when at a time, January, the world had no clue that it was going to be hit with a double Black Swan event in early March . There was a hint in January on the coming pandemic for those who were listening. However, there was no clue of the Shock and Awe attack that would be launched by SA after Putin and his Oily Oligarch friend Sechin made the wrong move in the world’s Oil Chess Game. Russia thought that they had SA in Check, instead Russia and the rest of world were End Played. Now, a way must be found out of this mess. Reports are circulating that Trump and Putin have been talking and that an OPEC + meeting will be convened shortly. Let’s hope adult’s come to the table.
The silver lining, if there is one, is that the world will need lower oil prices to come out of the current economic slowdown. The question is, if an agreement can be brokered between US, Russia and OPEC, “What will be the right price for oil for both the producers and the economy?
The irony here is that Trump will be holding meetings with oil company executives shortly to see how the US can help. In the meantime the NOPEC (No Oil Producing and Exporting Cartels Act) bill keeps circulating within Congress. Interesting how the world, US positions and thinking, can be flipped upside down over night.
All of the oil production data for the US states comes from the EIAʼs Petroleum Supply Monthly. At the end, an analysis of a three different EIA reports is provided.
The charts below are updated to January 2020 for the 10 largest US oil producing states (Production > 100 kb/d).
…click on the above link to read the rest of the article…
Oil Tumbles After IMF Slashes Global Growth Forecast
Oil Tumbles After IMF Slashes Global Growth Forecast
As if oil prices needed any more help on their downward spiral towards the teens, The IMF just slashed global growth to the worst since the ’30s.
“This crisis is like no other,” Gita Gopinath, the IMF’s chief economist, wrote in a foreword to its semi-annual report.
“Like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.”
As Bloomberg notes, The International Monetary Fund predicted the “Great Lockdown” recession would be the steepest in almost a century and warned the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns.
In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated on Tuesday that global gross domestic product will shrink 3% this year.
That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis.
Of course, there is the hockey-stick recovery with IMF anticipating growth of 5.8% next year, which would be the strongest in records dating back to 1980, it cautioned risks lay to the downside.
The grim projections are a stark reversal from the IMF’s outlook less than two months ago (on Feb. 19, the fund told Group of 20 finance chiefs that “global growth appears to be bottoming out.”)… and now…
“Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital-flow reversals and a collapse in commodity prices,” the IMF said.
…click on the above link to read the rest of the article…
Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines
Singapore Oil Trading Giant On Verge Of Collapse After Banks Freeze Credit Lines
Back in the second half of 2015, shortly after Saudi Arabia unleashed the (first) OPEC disintegration by flooding the market with oil in hopes of killing US shale (so deja vu… only back then it took it about two years for it to realize its low production costs are no match for the US junk bond market) and when China’s economy briefly collapsed forcing Beijing to devalue its currency and trigger a violent plunge in commodity prices around the globe (so deja vu… only back then the Shanghai Accord of Jan 2016 restored order to the world), traders were looking for ways to short the chaos and one of the favorite trades was to bet on the collapse of commodity merchants such as Glencore, Vitol, Trafigura and Mercuria, whose fates were closely interwoven with the prices of the commodities they traded. As a result, Glencore’s stock price plunged and its CDS soared amid fears the commodity crash cascade would lead to a default wave among anyone with commodity exposure.
Fast forward 5 years when the biggest commodity crash in generations, one which has sent the price of oil tumbling to levels not seen since George H.W. Bush was invading Middle Eastern nations, and… nothing: while the Glencores of the world have indeed dropped, their valuations are nowhere near the late 2015 lows even as the prices of several key commodities have rarely been lower.
That might be changing, however, because the longer global economic activity fails to rebound and the longer commodity prices remain at their current depressed levels, the more the global liquidity crisis will transform into a solvency crisis, hitting some of the most prominent commodity traders in the world… such as Singapore’s iconic oil trader Hin Leong Trading, which according to Bloomberg has appointed advisers to help in talks with banks as some of them freeze credit lines to the firm.
…click on the above link to read the rest of the article…
Slash Oil Output Or Else! Senate Bill Would Remove US Troops From Saudi Arabia In 30 Days
Slash Oil Output Or Else! Senate Bill Would Remove US Troops From Saudi Arabia In 30 Days
A new bill has been introduced in the Senate which if passed would punish Saudi Arabia over failure to cut oil production by removing all US troops from the kingdom within 30 days.
Sen. Bill Cassidy (R-LA) introduced it after Louisiana and other states have been impacted by the ongoing OPEC+ crisis and price war between Russia and Saudi Arabia. As of Friday OPEC+ appears to be closing in on a deal which would see a production cut of 10 million barrels a day, which S&P Global Platts still warned “isn’t enough to plug the 15- to 20-million b/d near-term imbalance in the marketplace and avoid tank tops in May.”
Sen. Cassidy’s bill would also impose tariffs on all Saudi oil imports within ten days of enactment, also aiming to ensure prices would not dip to below $40 a barrel.
“The extra oil from Saudi Arabia, the world’s largest oil exporter, has made it impossible for energy companies in the United States, the world’s top oil and gas producer, to compete, Cassidy said,” as cited in Reuters.
The Republican senator noted of the long-term close US-Saudi partnership: “Withdrawing troops placed to protect others recognizes that friendship and support is a two-way street.”
“Our nation’s economy, national security and the economic welfare of families across Louisiana is threatened by oil being dumped on the world market at below-production costs. The US spends billions protecting other oil producing countries and their ability to safely transport oil around the world. Now is the time to protect ourselves. Tariffs will restore fair pricing,” said Cassidy.
The bill would also ensure defense funds cannot go to maintaining American troops on Saudi soil.
In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger
In Late Thriller, OPEC Production Cut Deal Collapses After Mexico Gives Crown Prince The Finger
Earlier today we reported that following a dramatic objection to the OPEC+ production cut which was agreed upon by Russia and Saudi Arabia (but few other OPEC members), Mexico had initially threatened to quit OPEC as it refused to comply with the imposed 23% cut forced on all members, but less than an hour later the southern US neighbor reportedly had changed its mind as Reuters reported that Mexico had in fact agreed to the OPEC+ production cut deal after all.
Well, scratch all that because it appears the Reuters “news” was fake, sourced from some conflicted Saudi minister who wanted to put Mexico in a position where it had no choice but to accept the reality that had been imposed upon it. Unfortunately for the Saudis, this “plan” was laughable and late on Thursday, Mexico logged off the OPEC+ alliance’s videoconference emergency meeting after nine hours of talks Thursday, without agreeing to the landmark 10 million b/d production cut accord that members were hoping could stem a bruising rout in oil prices caused by the coronavirus pandemic and send the price of oil surging, S&P Global Platts reported, whose sources we can now confirm are far more credible than those of Reuters.
The rest of the coalition, led by Saudi Arabia and Russia, were in discussions over how to proceed, with many ministers angry over the potential blow-up of the deal. The coalition will likely try to convince Mexico again Friday at a G20 energy ministerial that was originally scheduled to seek the participation of the US, Canada, Brazil and other key producers outside of OPEC+ to join its efforts.
…click on the above link to read the rest of the article…
Oil Turns Negative After Russia, Saudis Agree To Cap Output At 8.5MM B/D For 2 Months
Oil Turns Negative After Russia, Saudis Agree To Cap Output At 8.5MM B/D For 2 Months
Update (1350ET): What started off euphorically, has quickly become R-OPEC’s latest dud, with oil now sliding red on the day after earlier surging more than 10%, following the latest news out of the oil producerteleconference, according to which Russia and Saudi Arabia agree to cap production to 8.5MM b/d, indicating a production cut of about 23% each, and which will last for just two months, May and June.
Furthermore, as Iran’s oil minister explains, the total cut of 10MMb/d (which will include several non Russia/Saudi producers) will ease to 8MMb/d in July and then after Jan 2021, the cut will decline to just 6 million b/d production cut.
In a nutshell, R-OPEC is hoping for two things: i) oil demand will rebound after the summer and the oil market will stabilize organically as the global economy recovers from the coronavirus and ii) the US and other G20/non-OPEC producers join the cuts voluntarily, which however is far from assured.
Meanwhile, even with the 10mm b/d cut (which is really about 7 millions if one uses Saudi Arabia’s Feb production numbers) will be nowhere near enough to offset the global demand plunge which according to industry watchers such as Trafigura is as large as 35mmb/d!
And now that the initial euphoria has worn off and traders are able to do math again – and realize that the cuts are not nearly enough – oil has slumped and was trading in the red last as once again, OPEC has failed to live up to the hype.
Finally, as a reminder, here is why Goldman believes that after today’s pomp and circumstance, oil is still going to $20:
…click on the above link to read the rest of the article…
Oil Spikes After Russia Says Ready For “Substantial Output Cut”, But Warns 10MMb/d Cut Not Enough
Oil Spikes After Russia Says Ready For “Substantial Output Cut”, But Warns 10MMb/d Cut Not Enough
Over the weekend, following the biggest ever oil short-squeeze in history following rampant hopes that Saudi Arabia and Russia were considering putting their differences aside and cutting up to 10mmb/d in oil output, we said that in a world where oil demand has plunged by as much as a quarter due to the coronavirus pandemic, or as much as 26mmb/d, such a cut would “not be nearly enough to balance the oil market but at least it was a start.”
Then, moments ago, oil which had been drifting in Monday’s session after the report that a new burst of animosity between Saudi Arabia and Russia has pushed back today’s virtual R-OPEC meeting to later in the week, oil spiked after a Reuters rehash of headlines over the past 3 days, namely that Russia is ready to discuss very substantial oil output cuts “due to global demand collapse“, but – just as we warned over the weekend – Russia dded that “global oil output cuts of 10mmbpd might not be enough to balance the market.”
Well, yeah: with demand down 26mmb/d, supply would have to drop by a similar amount to balance the market.
As a result, Dow Jones reported separately that Saudi Arabia has also invited non-OPEC member Norway, UK and Brazil to the summit in hopes of getting everyone nation to agree to cut output, not just R-OPEC and potentially US shale producers. And as DJ also added citing sources, according to OPEC Plus – which now hopes to hold its summit on Friday – the output cuts would be contingent on G-20 cooperation. In short, while Saudi Arabia destroyed OPEC when it flooded the world with oil last month, it now hopes to not only recreate the oil producing cartel to include every single oil producing nation in the world but to convince said cartel to ease production.
The Fate Of Oil’s Torrid Rally Hinges On Trump’s Meeting With US Shale Producers Today: Here’s Why
The Fate Of Oil’s Torrid Rally Hinges On Trump’s Meeting With US Shale Producers Today: Here’s Why
Oil has staged a tremendous surge in the past 48 hours, largely on the back of speculation that Trump will “encourage” Saudi Arabia and Russia to pursue output cuts, even though as it subsequently emerged when Trump tweeted that the “hopes” to see an N-OPEC output cut, it was an “exaggeration” and wishful thinking more than statement of fact. However, whereas the initial rally – which send the price of oil soaring by 25% on Thursday, or the most ever – faded, the rally got a second wind on Friday following reports that the R-OPEC (Russia + OPEC) alliance of oil producers led by Saudi Arabia and Russia is set to debate production cuts of at least 6 million barrels a day Monday and consider inviting U.S. producers to participate, the WSJ reported citing OPEC country officials.
However, even that hypothetical best case outcome for oil bulls – and certainly the US shale industry – comes with strings attached, and the outcome of Monday’s virtual summit between OPEC, which Saudi Arabia effectively crushed one month ago when it decided to flood the market with oil, and non-OPEC nations “will largely depend on a discussion Friday between the White House and U.S. oil companies” according to the WSJ.
The reason: both Saudi Arabia and Russia are demanding that US shale producers, some of whom such as Whiting Petroleum have already filed for Chapter 11 protection yet continue to pump as normal, join the production cuts. As the WSJ reports, “Saudi Arabia and Russia won’t cut unless they get signals from U.S. producers they will reduce output, the officials said. But they added that official joint curbs would be more difficult to enact in the U.S. because of antitrust laws.”
…click on the above link to read the rest of the article…
Unprecedented Demand Destruction Marks The Return Of The Super Contango
Unprecedented Demand Destruction Marks The Return Of The Super Contango
These days, every corner of the oil market is “unprecedented”—from the demand destruction to the supply surge and the resulting glut. The oil futures curve is no exception and is also in a state never seen before. This is the super contango, the market situation in which front-month prices are much lower than prices in future months, pointing to a crude oil oversupply and making storing oil for future sales profitable.
The last time a super contango appeared on the market was during the previous glut of 2015. During the peak of the 2008-2009 financial crisis, the super contango hit a record—the discount at which front-month futures traded compared to longer-dated futures was at its highest ever.
The double supply-demand shock of the past month threw the oil futures market into another super contango. And this super contango is already beating previous records.
The super contango is representative of the state of the oil market right now: the growing glut with shrinking storage capacity as oil demand craters, OPEC’s leader and the world’s top exporter, Saudi Arabia, intent on further cratering the market with a supply surge beginning this month. Storage costs are surging, and so are costs for chartering tankers to store oil at sea for future sales when traders expect demand to recover from the pandemic-hit plunge.
The market structure flipped into contango in early February, when the Chinese oil demand slump in the coronavirus outbreak led to lower estimates for oil consumption. A month and a half later, oil consumption is set to plunge by 20 million bpd, or 20 percent, this month. Add to this the Saudi supply surge, and here we have what analysts expect to be the largest glut the oil market has ever seen.
…click on the above link to read the rest of the article…
Oil Surges On Report China Buying For Strategic Reserve, Hopes For Saudi-Russia Truce
Oil Surges On Report China Buying For Strategic Reserve, Hopes For Saudi-Russia Truce
Oil surged as much as 13% this morning following a report that China is planning to start buying cheap crude for its strategic reserves, as well as speculation that President Trump said he thought Saudi Arabia and Russia would resolve their differences in the oil price war that has sent supply soaring even as global oil demand tumbles.
Following massive builds in crude in the US as reported by the DOE and API, and amid sporadic reports that various storage facilities are starting to fill up:
- SALDANHA BAY OIL-STORAGE FACILITY SAID TO BE NEAR CAPACITY
- OIL TANKS AT VITAL AFRICA HUB ALMOST FULL AS CRUDE FLOODS MKT
… overnight, Bloomberg reported that Beijing instructed government agencies to start filling state stockpiles after oil plunged 66% over the first three months of the year, while the global benchmark’s nearest timespread also rallied strongly.
Beijing has asked government agencies to quickly coordinate filling tanks, Bloomberg source said. In addition to state-owned reserves, it may use commercial space for storage as well, while also encouraging companies to fill their own tanks. The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves.
According to Bloomberg calculations, 90 days of net crude imports translated to about 900 million barrels. By comparison, the U.S. currently holds about 635 million barrels in its Strategic Petroleum Reserve, according to government data.
And while the current size of China’s state reserves is unknown, and Beijing could use a different method for calculating net imports, oil traders and analysts at SIA Energy and Wood Mackenzie estimated it could amount to China buying an additional 80 million to 100 million barrels over the course of the year before it ran into logistical and operational constraints.
…click on the above link to read the rest of the article…
WTI Extends Losses After Biggest Crude Build Since 2016
WTI Extends Losses After Biggest Crude Build Since 2016
After its worst quarter ever, as COVID-19 lockdowns crushed demand, raising fears about overflowing storage tanks amid a price war that has flooded the market with extra supply, all eyes are glued to today’s official inventory data (after API reported a major surprise build in crude and gasoline stocks) as Standard Chartered analysts, including Emily Ashford warned in a report, oil tanks around the world could fill in six weeks, a move that will likely force significant production shut-downs,
“Huge inventory builds, potentially exhausting spare storage capacity, will mean that market balance requires an unprecedented output shutdown by producers,” they wrote.
So, eyes down…
“There is the very real possibility that this week’s storage reports could be the energy patch version of last Thursday’s Weekly Jobless Claims,” Robert Yawger, Mizuho Securities USA’s director of energy said in a note.
“I would expect the numbers to be supersized and challenge multi-year highs/lows on multiple data points. Of course, I have been expecting big numbers for the past couple week, but the fireworks have not happened. That leads me to believe that the data explosion will likely happen this week … Exports will likely be down big, and refinery utilization will likely pull back dramatically. That will leave a lot of crude oil on the sidelines … EIA crude oil storage has been higher for nine weeks in a row. Storage will likely double up and increase at the rate of around 10 million for another nine weeks…at least.”
API
- Crude +10.485mm (+4.6mm exp) – biggest build since Feb 2017
- Cushing +2.926mm – biggest build since Feb 2019
- Gasoline +6.058mm (+3.6mm exp) – biggest build since Jan 2020
- Distillates -4.458mm (-600k exp)
DOE
- Crude +13.833mm (+4.6mm exp) – biggest since Oct 2016
- Cushing +3.521mm – biggest build since Mar 2018
- Gasoline +7.524mm (+3.6mm exp) – biggest build since Jan 2020
- Distillates -2.194mm (-600k exp)
Whiting Petroleum Files For Prepackaged Bankruptcy
Whiting Petroleum Files For Prepackaged Bankruptcy
Talk about a coincidence: just as we were discussing why April would be “apocalyptic” for the oil industry, as Saudi Arabia just unleashed an unprecedented record amount of oil to buyers in a scramble to put its high-priced competitors out of business, warning that “countless oil producers would file for bankruptcy”, former shale darling Whiting Petroleum did just that, filing a pre-packaged Chapter 11 deal in the Southern District of Texas Bankruptcy Court after reaching an agreement with certain note holders to pursue a “comprehensive” and “consensual” financial restructuring.
Whiting, which in Q4 pumped 123,000 bpd of which 80,000 bpd was nat gas, said it concluded that given a “severe downturn” in oil and gas prices resulting from the Saudi Arabia-Russia oil price war and COVID-19-related impact on demand a financial restructuring was the “best path forward.” Creditors may disagree: the company’s bonds due March 2021 were trading at par as recently as mid-January, even though we warned as far back as 2015 that it would be the first company to go under: truly a testament to how idiotic the junk bond market has been for the past 4 years.
The company said that the plan provides for de-leveraging of capital structure by more than $2.2 billion, and listed $1-$10 billion in debt and more than $585 million of cash on its balance sheet, noting that it expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
More importantly, it will continue to operate its business and pump oil for the duration of the Chapter 11 proceedings, meaning that oil production won’t decline by even one drop.
The bankruptcy press release is below:
…click on the above link to read the rest of the article…
Texas Or Canada: Where Will Oil Hit $0 First
Texas Or Canada: Where Will Oil Hit $0 First
Looking at the future of oil prices, Goldman was downright apocalyptic in its short-term forecast, when in a note published this morning, the bank’s chief commodity strategist Jeffrey Currie speculated that as the current production glut “shock” cripples the crude transportation networks, “a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.” To wit:
The global economy is a complex physical system with physical frictions, and energy sits near the top of that complexity. It is impossible to shut down that much demand without large and persistent ramifications to supply. The one thing that separates energy from other commodities is that it must be contained within its production infrastructure, which for oil includes pipelines, ships, terminals, storage facilities, refineries, and distribution networks. All of which have relatively small and limited spare capacity. We estimate that the world has around a billion barrels of spare storage capacity, but much of that will never be accessed as the velocity of the current shock will breach crude transportation networks first, which we are already seeing evidence of around the world. Indeed, given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas.
A quick look at two of the most popular landlocked oil producing areas demonstrate that Goldman is spot on, and as the following chart shows as of this moment Texas Midland WTI was trading at just baove $10/barrel, while the price of oil produced in the notoriously landlocked Western Canada, as represented by Canada Western Selected index, was just above $4 per barrel, or a little more than what a gallon of gas costs in California.
Energy Collapse, Earnings Ennui, & Consumer Credit Cracks
Energy Collapse, Earnings Ennui, & Consumer Credit Cracks
Summary:
The energy sector has lost extraordinarily $1.15trn in market value this year as oil prices have plunged to almost unimaginable levels.
In this equity update we provide investors with different ways to play the havoc in the energy sector. We also take a look at earnings this week with especially Carnival earnings being the most interesting to watch as the cruise industry is in a severe crisis due to COVID-19.
Lastly, we focus on consumer credit and the apparent weakness observed in China and how that could be a forewarning of what to come in the US and Europe. As a result we recommend investors to add Mastercard and American Express to their watchlists.
The global energy sector has been punched in the gut by first a slowing economy last year and then this year by an oil price war between Russia and Saudi Arabia. Making things worst the sector is now experiencing an abrupt 20% oil demand reduction equivalent to 20mn barrels a day or the entire consumption of the US. The oil futures curve is in steep contango as the active contract in Brent today went below $23/brl and stories have recently surfaced that physical oil is being transacted at $8/brl and oil storage is running out of capacity. As we talked about on our Market Call this morning the constraint on physical storage and ongoing demand destruction could push the front-end of oil futures down even further.
The current oil price creates extreme shareholder destruction with the MSCI World Energy Index losing $1.15trn in market value this year.
…click on the above link to read the rest of the article…
