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Headline crude prices for the week beginning 30 March 2020 – Brent: US$22/b; WTI: US$20/b

  • Crude oil prices fell to their lowest level since March 2002, as the global oil (and gas) market deals with twin catastrophes – cratering demand from a global economic lockdown that now involves half of the world’s population and a ballooning surplus as Russia and Saudi Arabia go to war on crude prices
  • US President Donald Trump has attempted to bring Saudi Arabia and Russia back to the negotiation table to trash out a deal that would prop up oil prices; while a Trump call with Russian Premier Vladimir Putin yielded a message that ‘low prices… helps no one’, there is no concrete progress on a new wide-ranging agreement
  • Saudi Arabia, however, does not appear to be in the mood to talk, stating that it ‘has not had any contact with Moscow about oil production cuts’ or ‘enlarging the OPEC+ alliance’; the issue was not discussed at the recent (virtual) G20 meeting, and is unlikely to proceed without an equivalent pledge from the US
  • Goldman Sachs estimates that if the ramp up by Saudi Arabia and its allies continues, global crude inventories will grow by 20 million barrels per day in April and May 2020, maxing out storage capacity and even prompting the use of onshore pipeline systems as temporary storage mechanisms
  • The price crash is so bad now that Canadian heavy crude oil is now so cheap that the cost of shipping exceeds the value of the oil itself, with Western Canadian Select crude trading at a record low of US$6.45/b
  • Oil majors worldwide have slashed their capex budgets due to this; Chevron has cut US$4 billion from its spending plan, Shell will reduce its capex by US$5 billion or more and Total by 20% (or US$3 billion)
  • The crisis is really biting down on the US active rig count, which fell by 44 sites over a week to 728 (-40 for oil, -4 for gas); the situation remains even more grim in Canada, where the rig count fell by another 44 rigs to a near-historic low of 54
  • A proclamation of US President Donald Trump that Russia and Saudi Arabia are close to agreeing on a new output cut deal prompted a recovery in oil prices, but many in the market doubt the veracity of the claim; with so much turmoil, crude oil prices will trade in an expanded range of US$22-30/b for Brent, and US$18-24/b for WTI

Headlines of the week


  • Rosneft has sold its assets in Venezuela – mainly upstream, but also some trading operations – to a Russian state-oil company, as it aims to avoid further sanctions by the US; Rosneft has already received US sanctions on two of its units after it had continued to operate in Maduro-controlled Venezuela
  • Ineos has delayed the summer shutdown planned for essential maintenance at the Forties Pipeline System in the UK North Sea that was scheduled for June 16 to ‘August, at the earliest’
  • China’s CNOOC hit some major milestones in 2019, reporting net oil and gas production of 506.5 million boe, exceeding the 500 million mark for the first time, with 23 commercial and 30 new discoveries made


  • Refiners globally have announced a swathe of delays to planned turnaround, maintenance or new commissioning in existing refineries, including a delay in scheduled major turnaround at Neste’s Porvoo site in Finland and a delay in restarting Total’s 102 kb/d Grandpuits refinery in France
  • In contrast, some refiners are still pushing ahead with restarting their sites after maintenance, with Gunvor restarting its 110 lb/d Ingolstadt refinery in Germany and PDVSA looking to resume gasoline production at its mothballed 146 kb/d El Palito refinery in Venezuela
  • The government of Curacao is pursuing an arbitration claim amounting to US$162 million from PDVSA, seeking overdue payment, maintenance costs and environmental damage over the 335 kb/d Isla refinery

Natural Gas/LNG

  • ExxonMobil and its partners on the Rovuma LNG project in Mozambique are planning to delay FID on the US$23 billion project that was due in June 2020
  • Australia’s offshore energy regulator has given approval to Woodside for the Scarborough gas field development in Western Australia, which will eventually underpin an expansion train at the Pluto LNG facility
  • The US FERC has approved the proposed Jordan Cove LNG terminal and Pacific Connector Gas Pipeline projects in Oregon, which would be the first US gas export facility on the West Coast connecting to the Pacific
  • India’s LNG import trio – Petronet LNG, GAIL and Gujarat State Petroleum Corporation – have issued force majeure notices, delaying LNG cargo deliveries from key suppliers such as Qatar and Australia
  • Shell has postponed FID on the Crux gas and condensate development project in Western Australia, citing the Covid-19 related global downturn
  • Sempra is proceeding with the first phase of its Energia Costa Azul LNG project in Baja California, Mexico on schedule, which should bring a 2.4 mtpa liquefaction train onstream by 2022
  • Dominion Energy bought into two mid-sized LNG operations in the USA, taking 100% ownership of Pivotal LNG’s liquefaction facility in Trussville, Alabama and 50% ownership of the Jax LNG bunkering operation in Florida
  • Construction of the Nigeria LNG Train 7, budgeted at US$10 billion, is likely to be pushed back from an initial May 2020 into Q3 2020
  • Shell is exiting the planned Lake Charles LNG export project in Louisiana, selling off its 50% stake but continuing to support its partner Energy Transfer

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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