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Headline crude prices for the week beginning 2 March 2020 – Brent: US$51/b; WTI: US$45/b

  • Global crude oil prices are now at three-year lows, as the weakening and deepening of the Covid-19 outbreak wrecks havoc with global demand, both on a sentiment- and on an actual consumption-basis
  • The freefall, which saw the worst weekly oil drop since 2011, has prompted calls for the OPEC+ to act; however, that requires the duelling factions within the oil producer club to cooperate on the necessity and scale of cuts
  • Despite saying that the Covid-19 outbreak will be ‘temporary’, Saudi Arabia is still urging OPEC+ to agree on a 1 million b/d cut through June 2020 at least at a planned extraordinary OPEC+ meeting this week in Vienna; the OEPC technical committee originally recommended a 600,000 b/d cut
  • Russia is reportedly ready to cooperate to support the world oil market – based on the comments of President Vladimir Putin – though there will still be squabbles over the size and length of the new supply agreement
  • This acted to support crude oil prices at the start of this week, but a 1 mmb/d cut may not even be enough to contain the rout in crude oil prices, as there is major uncertainty over how long the pandemic will last
  • Although cases and deaths in China are plateauing, cases and deaths in three new hotspots – South Korea, Italy and Iran – are accelerating, with possibilities of new hotspots in Europe and the USA; records of deaths suggest that the actual number of cases may be far higher based on the observed fatality rate
  • The outbreak in Europe is causing employers to order self-quarantines, with Chevron and Unipec among those directing workers to stay home; if this extends to manufacturing facilities, the demand hit will be even greater than it is now
  • Chinese demand for oil and gas continues to be weak, with reports of contracted crude and LNG cargoes cancelled, delayed or held back; some of these cargoes are being offered to the next largest market – India – at cheaper prices
  • The US active rig count recorded a net loss of 1 oil rig according to the Baker Hughes Rig Count, keeping the total number of rigs at 790 sites, or down 248 rigs y-o-y
  • The direction of prices will depend very much on the outcome of the OPEC+ meeting in Vienna Friday – and whether the rest of the countries can persuade Russia to join in a new supply deal; if the outcome is favourable, crude prices could be supported into the range of US$49-54/b for Brent and US$45-49/b for WTI

Headlines of the week


  • Shell has announced plans for a major deepwater well campaign in Mexico – 4 wells each in 2020 and 2021, part of an overall 10-13 planned – though it admits that any potential fields will likely start up after the current new government (under Andres Manuel Lopez Obrador) and its pro-Pemex policies serve its term
  • Rosneft is attempting to skirt US sanctions on the Venezuelan crude export complex, shifting trades to its affiliate TNK Trading International after Rosneft itself – Venezuela’s top crude buyers – was sanctioned by the US Treasury
  • The Trump administration in the US is finalising a plan for Arctic oil drilling, aiming to lease out land in the Arctic National Wildlife Refuge
  • Eni has raised estimates of oil in place at its Agogo field in Angola to some 1 billion barrels, a 40% increase contributed by the new Agogo-3 well
  • Kazakhstan will resume pipeline exports of crude to China this month, after shipments were suspended following organic chloride contamination of crude
  • Teck Resources will be abandoning plans for its Frontier oil sands project in Alberta, taking a US$850 million write down on the cancellation
  • BP will be leaving three US trade associations, including the main lobby group American Fuel and Petrochemical Manufacturers, following an alignment review on climate policies and activities that ‘could not be resolved’


  • Algeria has restarted the Sidi Rezine refinery in Algiers after completing a modernisation overhaul that has increase capacity by 35% to some 85 kb/d
  • ExxonMobil will be restarting the largest CDU at its 502,500 b/d Baton Rouge refinery in Louisiana after a fire knocked out operations in early February
  • The oil trade row between Russia and Belarus has forced state refiner Belneftekhim to slash refinery utilisation rates by half since January
  • Saudi Aramco has gained EU antitrust appeal to proceed with the acquisition of 70% in Saudi petrochemicals group SABIC
  • Saudi Aramco’s trading arm Aramco Trading Company has established a trading desk in London to support its operations in Europe and the Americas

Natural Gas/LNG

  • Saudi Arabia has announced plans to invest US$110 billion to develop its unconventional natural gas reserves in the eastern Jafurah field, which is estimated to hold some 200 trillion cubic feet of wet gas; Jafurah output is expected to start in 2024, rising to a peak of 2.2 bcf/d by 2036
  • Venture Global has signed a 20-year LNG agreement with Electricité de France for 1 mtpa of LNG from the start date of the Plaquemines LNG export terminal
  • ExxonMobil and Indian Oil have signed an agreement to collaborate on virtual gas pipeline in India, potentially delivering LNG by road, rail or waterways in a fast-growing LNG market that is hampered by a lack of pipeline infrastructure
  • New Fortress Energy has started work on its LNG receiving and regasification terminal in the port of Pichilingue in Baja California Sur, Mexico

Natural Gas/LNG

  • The success of Saudi Aramco’s IPO is inspiring other Middle Eastern producers to go public, with Bahrain is looking to transfer its oil and gas assets in a potential state fund to be sold to investors to balance its budget
  • Total’s acquisition of Anadarko’s assets in Ghana – part of a deal signed between Occidental Petroleum and Total – has been held up over a capital gains tax claim of some US$500 million

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The Impact of COVID 19 In The Downstream Oil & Gas Sector

Recent headlines on the oil industry have focused squarely on the upstream side: the amount of crude oil that is being produced and the resulting effect on oil prices, against a backdrop of the Covid-19 pandemic. But that is just one part of the supply chain. To be sold as final products, crude oil needs to be refined into its constituent fuels, each of which is facing its own crisis because of the overall demand destruction caused by the virus. And once the dust settles, the global refining industry will look very different.

Because even before the pandemic broke out, there was a surplus of refining capacity worldwide. According to the BP Statistical Review of World Energy 2019, global oil demand was some 99.85 mmb/d. However, this consumption figure includes substitute fuels – ethanol blended into US gasoline and biodiesel in Europe and parts of Asia – as well as chemical additives added on to fuels. While by no means an exact science, extrapolating oil demand to exclude this results in a global oil demand figure of some 95.44 mmb/d. In comparison, global refining capacity was just over 100 mmb/d. This overcapacity is intentional; since most refineries do not run at 100% utilisation all the time and many will shut down for scheduled maintenance periodically, global refining utilisation rates stand at about 85%.

Based on this, even accounting for differences in definitions and calculations, global oil demand and global oil refining supply is relatively evenly matched. However, demand is a fluid beast, while refineries are static. With the Covid-19 pandemic entering into its sixth month, the impact on fuels demand has been dramatic. Estimates suggest that global oil demand fell by as much as 20 mmb/d at its peak. In the early days of the crisis, refiners responded by slashing the production of jet fuel towards gasoline and diesel, as international air travel was one of the first victims of the virus. As national and sub-national lockdowns were introduced, demand destruction extended to transport fuels (gasoline, diesel, fuel oil), petrochemicals (naphtha, LPG) and  power generation (gasoil, fuel oil). Just as shutting down an oil rig can take weeks to complete, shutting down an entire oil refinery can take a similar timeframe – while still producing fuels that there is no demand for.

Refineries responded by slashing utilisation rates, and prioritising certain fuel types. In China, state oil refiners moved from running their sites at 90% to 40-50% at the peak of the Chinese outbreak; similar moves were made by key refiners in South Korea and Japan. With the lockdowns easing across most of Asia, refining runs have now increased, stimulating demand for crude oil. In Europe, where the virus hit hard and fast, refinery utilisation rates dropped as low as 10% in some cases, with some countries (Portugal, Italy) halting refining activities altogether. In the USA, now the hardest-hit country in the world, several refineries have been shuttered, with no timeline on if and when production will resume. But with lockdowns easing, and the summer driving season up ahead, refinery production is gradually increasing.

But even if the end of the Covid-19 crisis is near, it still doesn’t change the fundamental issue facing the refining industry – there is still too much capacity. The supply/demand balance shows that most regions are quite even in terms of consumption and refining capacity, with the exception of overcapacity in Europe and the former Soviet Union bloc. The regional balances do hide some interesting stories; Chinese refining capacity exceeds its consumption by over 2 mmb/d, and with the addition of 3 new mega-refineries in 2019, that gap increases even further. The only reason why the balance in Asia looks relatively even is because of oil demand ‘sinks’ such as Indonesia, Vietnam and Pakistan. Even in the US, the wealth of refining capacity on the Gulf Coast makes smaller refineries on the East and West coasts increasingly redundant.

Given this, the aftermath of the Covid-19 crisis will be the inevitable hastening of the current trend in the refining industry, the closure of small, simpler refineries in favour of large, complex and more modern refineries. On the chopping block will be many of the sub-50 kb/d refineries in Europe; because why run a loss-making refinery when the product can be imported for cheaper, even accounting for shipping costs from the Middle East or Asia? Smaller US refineries are at risk as well, along with legacy sites in the Middle East and Russia. Based on current trends, Europe alone could lose some 2 mmb/d of refining capacity by 2025. Rising oil prices and improvements in refining margins could ensure the continued survival of some vulnerable refineries, but that will only be a temporary measure. The trend is clear; out with the small, in with the big. Covid-19 will only amplify that. It may be a painful process, but in the grand scheme of things, it is also a necessary one.

Infographic: Global oil consumption and refining capacity (BP Statistical Review of World Energy 2019)

Consumption (mmb/d)*
Refining Capacity (mmb/d)
North America



Latin America









Middle East












*Extrapolated to exclude additives and substitute fuels (ethanol, biodiesel)

Market Outlook:

  • Crude price trading range: Brent – US$33-37/b, WTI – US$30-33/b
  • Crude oil prices hold their recent gains, staying rangebound with demand gradually improving as lockdown slowly ease
  • Worries that global oil supply would increase after June - when the OPEC+ supply deal eases and higher prices bring back some free-market production - kept prices in check
  • Russia has signalled that it intends to ease back immediately in line with the supply deal, but Saudi Arabia and its allies are pushing for the 9.7 mmb/d cut to be extended to end-2020, putting the two oil producers on another collision course that previously resulted in a price war
  • Morgan Stanley expects Brent prices to rise to US$40/b by 4Q 2020, but cautioned that a full recovery was only likely to materialise in 2021

End of Article

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May, 31 2020
North American crude oil prices are closely, but not perfectly, connected

selected North American crude oil prices

Source: U.S. Energy Information Administration, based on Bloomberg L.P. data
Note: All prices except West Texas Intermediate (Cushing) are spot prices.

The New York Mercantile Exchange (NYMEX) front-month futures contract for West Texas Intermediate (WTI), the most heavily used crude oil price benchmark in North America, saw its largest and swiftest decline ever on April 20, 2020, dropping as low as -$40.32 per barrel (b) during intraday trading before closing at -$37.63/b. Prices have since recovered, and even though the market event proved short-lived, the incident is useful for highlighting the interconnectedness of the wider North American crude oil market.

Changes in the NYMEX WTI price can affect other price markers across North America because of physical market linkages such as pipelines—as with the WTI Midland price—or because a specific price is based on a formula—as with the Maya crude oil price. This interconnectedness led other North American crude oil spot price markers to also fall below zero on April 20, including WTI Midland, Mars, West Texas Sour (WTS), and Bakken Clearbrook. However, the usefulness of the NYMEX WTI to crude oil market participants as a reference price is limited by several factors.

pricing locations of selected North American crudes

Source: U.S. Energy Information Administration

First, NYMEX WTI is geographically specific because it is physically redeemed (or settled) at storage facilities located in Cushing, Oklahoma, and so it is influenced by events that may not reflect the wider market. The April 20 WTI price decline was driven in part by a local deficit of uncommitted crude oil storage capacity in Cushing. Similarly, while the price of the Bakken Guernsey marker declined to -$38.63/b, the price of Louisiana Light Sweet—a chemically comparable crude oil—decreased to $13.37/b.

Second, NYMEX WTI is chemically specific, meaning to be graded as WTI by NYMEX, a crude oil must fall within the acceptable ranges of 12 different physical characteristics such as density, sulfur content, acidity, and purity. NYMEX WTI can therefore be unsuitable as a price for crude oils with characteristics outside these specific ranges.

Finally, NYMEX WTI is time specific. As a futures contract, the price of a NYMEX WTI contract is the price to deliver 1,000 barrels of crude oil within a specific month in the future (typically at least 10 days). The last day of trading for the May 2020 contract, for instance, was April 21, with physical delivery occurring between May 1 and May 31. Some market participants, however, may prefer more immediate delivery than a NYMEX WTI futures contract provides. Consequently, these market participants will instead turn to shorter-term spot price alternatives.

Taken together, these attributes help to explain the variety of prices used in the North American crude oil market. These markers price most of the crude oils commonly used by U.S. buyers and cover a wide geographic area.

Principal contributor: Jesse Barnett

May, 28 2020
Financial Review: 2019

Key findings

  • Brent crude oil daily average prices were $64.16 per barrel in 2019—11% lower than 2018 levels
  • The 102 companies analyzed in this study increased their combined liquids and natural gas production 2% from 2018 to 2019
  • Proved reserves additions in 2019 were about the same as the 2010–18 annual average
  • Finding plus lifting costs increased 13% from 2018 to 2019
  • Occidental Petroleum’s acquisition of Anadarko Petroleum contributed to the largest reserve acquisition costs incurred for the group of companies since 2016
  • Refiners’ earnings per barrel declined slightly from 2018 to 2019

See entire annual review

May, 26 2020